International business course at ESEC BCN. Bachelor 3. Lesson 3: Cultural differences

1. International Business
Cultural differences & negotiations
Professor: Marc Arza
marza@rjce.net

2. 1. Cultural differences and international business
Cultural differences clearly play a role in international business as different
management areas are impacted by them. From human resources to marketing
and negotiations with foreign partners cultural differences should be kept in mind.
However, it is difficult to measure and consider those differences rationally. A
system of cultural difference evaluation developped by Geert Hofstede (Hostede's
Cultural Dimensions) is one of the most widely used and can be very useful for
business managers.
In any case, although cultural differences are important they should not be
overstated. When two people sit down for a business meeting they usually
have a common interest and know they may have different views on some
issues but most of those can be worked out with common sense and a
smile.

3. 2. Hofstede's Cultural Dimensions
Between 1967 and 1973, Geert Hofstede executed a large survey study regarding
national values differences across the worldwide subsidiaries of this multinational
corporation: he compared the answers of 117,000 IBM matched employees samples on
the same attitude survey in different countries.
This initial analysis identified systematic differences in national cultures on four primary
dimensions: power distance (PDI), individualims (IDV), uncertainty avoidance (UAI) and
masculinity (MAS). These dimensions regard “four anthropological problem areas that
different national societies handle differently: ways of coping with inequality, ways of
coping with uncertainty, the relationships of the individual with her or his primary group,
and the emotional implications of having been born as a girl or as a boy ”.
In order to confirm the early results from the IBM study and to extend them to a variety of
populations, six subsequen cross-national studiest have successfully been conducted
between 1990 and 2002. Covering between 14 to 28 countries, the samples included
commercial airline pilots, students, civil service managers, 'up-market' consumers and
'elites'. The combined research established value scores on the four dimensions for a
total of 76 countries and regions.

4. 3. Power distance index (PDI)
Power distance index (PDI): “Power distance is the extent to which the less powerful
members of organizations and institutions (like the familiy) accept and expect that power
is distributed unequally.” Cultures that endorse low power distance expect and accept
power relations that are more consultative or democratic. People relate to one another
more as equals regardless of formal positions. Subordinates are more comfortable with
and demand the right to contribute to and critique the decision making of those in power.
In high powerdistance countries, the less powerful accept power relations that are more
autocratic and paternalistic. Subordinates acknowledge the power of others simply based
on where they are situated in certain formal, hierarchical positions.
As such, the power distance index Hofstede defines does not reflect an objective
difference in power distribution, but rather the way people perceive power differences.

5. 3. Power distance index (PDI)
Power distance index shows very high scores for Latin and Asian countries, African areas
and the Arab world. On the other hand Anglo and Germanic countries have a lower power
distance (only 11 for Austria and 18 for Denmark).
For example, the United States has a 40 on the cultural scale of Hofstede’s analysis.
Compared to Guatemala where the power distance is very high (95) and Israel where it is
very low (13), the United States is in the middle. For example, the United States does not
have a large gap between the wealthy and the poor and has a strong belief in equality for
each citizen. American people have the opportunity to rise in society.
In Europe, power distance tends to be lower in northern countries and higher in southern
and eastern parts: for example, 90 for Romania, 57 for Spain vs. 31 for Sweden and 35
for the United Kingdom.

6. 4. Individualism index (IDV)
Individualism (IDV) vs. collectivism: “The degree to which individuals are integrated into
groups”. In individualistic societies, the stress is put on personal achievements and
individual rights. People are expected to stand up for themselves and their immediate
family and to choose their own affiliations. In contrast, in collectivist societies, individuals
act predominantly as members of a life-long and cohesive group or organization (note:
“The word collectivism in this sense has no political meaning: it refers to the group, not to
the state”). People have large extended families, which are used as a protection in
exchange for unquestioning loyalty.
Regarding the individualism index, there is a clear gap between developed and Western
countries on one hand, and less developed and eastern countries on the other. North
America and Europe can be considered as individualistic with relatively high scores: for
example, 80 for Canada and Hungary. In contrast, Asia, Africa and Latin America have
strong collectivistic values: Colombia scores only 13 points on the IDV scale, and
Indonesia 14. The greatest contrast can be drawn comparing two extreme countries on
this dimension: 6 points for Guatemala vs. 91 points score for the United States. Japan
and the Arab world have middle values on this dimension.

7. 5. Uncertainty avoidance index (UAI)
Uncertainty avoidance index (UAI): “a society's tolerance for uncertainty and
ambiguity”. It reflects the extent to which members of a society attempt to cope with
anxiety by minimizing uncertainty. People in cultures with high uncertainty avoidance tend
to be more emotional. They try to minimize the occurrence of unknown and unusual
circumstances and to proceed with careful changes step by step by planning and by
implementing rules, laws and regulations. In contrast, low uncertainty avoidance cultures
accept and feel comfortable in unstructured situations or changeable environments and
try to have as few rules as possible. People in these cultures tend to be more pragmatic,
they are more tolerant of change.
Uncertainty avoidance scores are extremely high in Greece (100) but lower in Germany
(70).. They are lower for Anglo, Nordic, and Chinese culture countries. However few
countries have very low UAI., China is a good example of very low index (40).

8. 6. Masculinity index (MAS)
Masculinity (MAS), vs. femininity: “The distribution of emotional roles between the
genders”. Masculine cultures’ values are competitivenes, assertivenes and materialism.
ambition and power, whereas feminine cultures place more value on relationships and
quality of life. In masculine cultures, the differences between gender roles are more
dramaticvand less fluid than in feminine cultures where men and women have the same
valuesvemphasizing modesty and caring. As a result of the taboo on sexuality in many
cultures, particularly masculine ones, and because of the obvious gender generalizations
implied by Hofstede's terminology, this dimension is often renamed by users of Hofstede's
work, e.g. To Quantity of Life vs. Quality of Life.
Masculinity is extremely low in Nordic countries: Norway scores 8 and Sweden only 5. In
contrast, Masculinity is very high in Japan (95), and in European countries like Hungary,
Austria and Switzerland influenced by German culture. In the Anglo world, masculinity
scores are relatively high with 66 for the United Kingdom for example. Latin countries
present contrasting scores: for example Venezuela has a 73 point score whereas Chile’s
is only 28.

9. 7. Long term orientation (LTO) & Indulgence vs. restraint
Other cathegories where added to the four basic indexes to complement Hofstede's work.
Long term orientation (LTO), vs. short term orientation: First called “Confucian
dynamism”, it describes societies’ time horizon. Long term oriented societies attach more
importance to the future. They foster pragmatic values oriented towards rewards,
including persistence, saving and capacity for adaptation. In short term oriented societies,
values promoted are related to the past and the present, including steadiness, respect for
tradition, preservation of one’s face, reciprocation and fulfilling social obligations
High long term orientation scores are typically found in East Asia, with China having 118,
Hong Kong 96 and Japan 88. They are moderate in Eastern and Western Europe, and
low in the Anglo countries, the Muslim world, Africa and in Latin America. However there
is less data about this dimension.
Indulgence, vs. restraint: Societies with a high rate of indulgence allow hedonistic
behaviors: people can freely satisfy their basic needs and desires. On the opposite,
Restraint define societies with strict social norms, where gratification of drives are
suppressed and regulated. There is even less data about the sixth dimension. Indulgence
scores are highest in Latin America, parts of Africa, the Anglo world and Nordic Europe;
restraint is mostly found in East Asia, Eastern Europe and the Muslim world.

10. Hofstede's dimensions: national samples
http://www.geert-hofstede.com/hofstede_spain.shtml

11. 8. International negotiations and Hofstede's dimensions
One of the areas where cultural differences may impact more directly on international
businesses is on negotiations. Knowing about the other people culture may be key to
manage a negotiation successfully and Hofstede's dimensions can help a great deal.
Negotiation approaches and culture:
> Distributive vs. Integrative (basic negotiation concept)
> Task vs. Relationship based (most significant issues)
> Independent vs. consensus (internal decision making process)
> Monochronic vs. polychronic (orientation towards time)
> Risk averse vs. risk tolerant (risk taking propensity)
> Explicit contract vs. implicit agreement (form of agreement)
> Formal vs. informal (protocol)

12. 9. Basic negotiation concept: Distributive vs. integrative
Distributive perspective. Negotiators from countries that fit this profile believe there will be
a winner and a loser. Negotiators take a hard-line approach seeking to meet only their
own goals or interests. Negotiators assume their interests directly conflict with those of
the other party". Negotiators demonstrate a strong concern for themselves and little
concern for others. Which makes them resistant to making concessions.
Integrative perspective. Negotiators from countries that fit this profile believe that mutually
beneficial solutions can be generated. Consequently, integrative negotiators take a
problemsolving approach, where the focus is on exchanging information in order to
identify the underlying issues and interests of both sides and to generate outcomes that
benefit both parties.
Negotiating behaviors and national culture. The negotiating behaviors described above
correspond to behaviors observed along Hofstede's Masculinity/Femininity dimension. A
masculine orientation is usually characterized by ego enhancement strategies and
masculine cultures emphasize assertiveness, competition, and toughness. A feminine
orientation is characterized by relationship enhancement strategies

13. 10. Most significant issue: Task vs. relationship-based
Task. Negotiators from countries where task issues are more important spend most of
their time discussing specific operational details of the project, as opposed to broad
objectives. They tend to negotiate a contract in an item-by-item way. Negotiators feel that
it is important to come away with a clear understanding regarding the control, use, and
division of resources (e.g., profits, management, ownership).
Relationship. Negotiators from countries where relationship issues are more important
spend most of their time engaging in activities that build trust and friendship between the
members of each team and in discussing broad objectives. They believe a good
relationship must be established before task issues can be discussed and that as the
social relationship develops, task issues will be resolved.
Negotiating behaviors and national culture. In collectivist cultures, where relationships
prevail over tasks, it is impossible to separate the people from the issues at hand.
Hofstede (2001) also states that, in collectivist cultures, "the personal relationship prevails
over the task...and should be established first," whereas in individualist cultures, "the
task...[is] supposed to prevail over any personal relationships." Furthermore, collectivism
implies a need for stable relationships, so that negotiations can be carried out among
persons who have become quite familiar with each other. Replacing even one member on
a team may seriously disturb the relationship and often means that a new relationship will
have to be built.

14. 11. Decision-making process: Independent vs consensus
Independent: Leaders or other influential individuals on the negotiating team may make
decisions independently without concern for the viewpoints of others on the team.
Negotiators are expected to use their own best judgment in speaking and acting on behalf
of the organization.
Consensus: Decision-making power is delegated to the entire team. The team leader
must obtain support from team menmbers and listen to their advice.
Negotiating behaviors and national culture. Hofstede (2001) found that cultures with high
Uncertainty Avoidance scores demonstrate a preference for consultative decision
processes and group decision-making. Cultures with low Uncertainty Avoidance scores
tend to demonstrate a preference for independent decision processes and individual
decision-making. Obviously the Power Distance (PDI) issue must influece this area as
well.

15. 12. Orientation toward time: Monochronic vs. polychronic
Monochronic. Negotiators with a monochronic orientation believe that time is money. They
set agendas for meetings and adhere to preset schedules. They schedule negotiations in
ways that create psychological pressure in having to arrive at a decision by a certain date.
They believe that outstanding or contentious issues in a negotiation should be resolved
effectively within an allotted time frame. Negotiators from monochronic cultures also tend
not to mix business with pleasure.
Polychronic. Negotiators from polychronic cultures believe that time is never wasted. They
feel that getting to know their counterparts and building a relationship is more important
than adhering to a preset schedule. Time spent actually discussing and resolving issues
is of minor importance.
Negotiating behaviors and national culture. According to Hall (1983), whereas people in
monochronic cultures adhere religiously to plans, "matters in polychromic culture seem in
a constant state of flux. Nothing is solid or firm...even important plans may be changed
right up to the minute of execution. These monochronic and polychronic behaviors seem
to correspond to behaviors observed along Hofstede's Uncertainty Avoidance value
dimension. Cultures high in Uncertainty Avoidance seek clarity and structure, whereas low
Uncertainty Avoidance cultures are comfortable with ambiguity and chaos.

16. 13. Risk-taking propensity: Risk averse vs. risk tolerant
Risk averse: Risk-averse negotiators take steps to avoid the failing to come to an
agreement. They may be more likely to make concessions in order to avoid failing to
reach an agreement, or they may accept lower rewards for a higher probability of
success.
Risk Tolerant: Risk-tolerant negotiators believe there is a level of acceptable risk any
negotiation. They are interested in reducing risk, not avoiding it altogether. Risk-tolerant
negotiators show greater willingness to fail to come to an agreement by making fewer
concessions or demanding more (Bazern1an & Neale, 1992). They may be less likely to
make concessions in order to avoid failing to come to an agreement (Ghosh, 1996) or
they may choose a strategy offering higher rewards but with a lower probability of
success.
Negotiating behaviors and national culture. Kahn and Sarin (1988) propose that
psychological factors leading to risk aversion also lead to uncertainty avoidance. They
suggest that ambiguity accentuates the effects of risk aversion. Hofstede (2001) also
suggests a relationship between risk aversion and uncertainty avoidance. Cultures with
lower Uncertainty Avoidance accept both familiar and unfamiliar risks, whereas cultures
with high Uncertainty Avoidance scores tend to limit themselves to known risks.

17. 14. Form of agreement: Explicit contract vs. implicit agr.
Explicit contract. Negotiators favor and expect written, legally binding contracts (Weiss &
Stripp, 1985). A written contract records the agreement and definitively specifies what
each party has agreed to do (Trompenaars, 1994). Consequently, negotiators believe that
written agreements provide stability and allow organizations to make investments and
minimize business risk (Frankel, Whipple & Frayer, 1996).
Implicit agreement. Negotiators favor broad language in a contract because they feel that
definitive contract terms are too rigid to allow a good working relationship to evolve.
Particularly with new relationships, negotiators may feel that it is impossible to anticipate
and document every conceivable contingency. They also believe that contracts inhibit
parties from exploring unexpected opportunities for improvement and success.
Negotiators view the contract as a rough guideline because the relationship, not the
contract, is primary (Trompenaars, 1994). In some cases, an oral contract may suffice.
Negotiating behaviors and national culture. Uncertainty-avoiding cultures tend to shun
ambiguous situations and prefer structures that enable them to clearly predict and
interpret events (Hofstede, 2001). Written agreements provide a clearly specified
framework for the relationship; hence, they serve as an uncertainty reduction mechanism.

18. 15. Concern with protocol: Formal vs. informal
Formal. Negotiators with a high concern for protocol will adhere to strict and detailed rules
that govern personal and professional conduct, negotiating procedures, as well as the
hospitality extended to negotiators from the other side. Rules governing acceptable
behavior might include dress codes, use of titles, and seating arrangements (Weiss &
Stripp, 1985). Negotiators on the team believe that there are few appropriate ways to
respond to a particular situation and there is strong agreement on the team about what
constitutes correct action. Team members must behave exactly according to the norms of
the culture and suffer severe criticism for even slight deviations from norms.
Informal. Negotiators with low concern for protocol adhere to a much smaller, more
loosely defined set of rules. Compulsive attention to observing the rules is not necessary
and those who deviate from norms are not necessarily criticized. Team members not only
believe that there are multiple ways to respond appropriately to a particular situation but
may even disagree about what is appropriate.
Negotiating behaviors and national culture. Hofstede and Usunier (1996) propose that
negotiators from uncertainty-avoiding cultures prefer highly structured, ritualistic
procedures during negotiations. People in high uncertainty avoiding cultures seek
structure and formalization, in an attempt to make interactions and events transpire in a
clearly interpretable and predictable manner. People in low uncertainty avoiding cultures
are tolerant of ambiguity in structures and procedures.

19. 16. Negotiation step-by-step
Negotiations should not be viewed as a zero sum game. Good negotiations are those that
are planned and executed from a win-win perspective. This require to basic steps:
a) Plan the negotiation. What can you offer?
- Delivery & transport - Quality
- Broad catalogue - Payment terms
- Innovative products - Currency
- Business location - Everything but price...
b) Try to adapt to the other side/s requirements:
- Who are they? (person/s & company)
- Where are they? (time, currency, culture, ...)
- What are they looking for?
- What are others offering?
BE INNOVATIVE!

20. Negotiation case: Norwegian business in China
- How will the two negotiating teams manage the
different cultural approaches to the negotiation?