This document discusses cultural risk models that can be used to measure cultural differences and their impact on international business. It summarizes Dimension Models created by Geert Hofstede and Fons Trompenaars that identify cultural dimensions like individualism vs collectivism, power distance, and uncertainty avoidance. Case studies are provided to illustrate how these dimensions play out in business situations. For example, one case looks at differences between universalist and particularist cultures in contract negotiations. The document provides guidance on managing cultural risks by understanding these cultural dimensions and perspectives.

1. Analyzing Risks for International Companies and Managers Measuring cultural risk with Dimension Models Julianne Salisbury – Independent Study – 4/7/2010

2. Business today International Companies are faced with increasing risks as they expand to new markets Globalization, faster technology markets are moving over borders and many companies have new opportunities for expansion Many wish to expand but are unsure of the risks and how to calculate them

3. Categories of Risk Political Economic Cultural

4. Economic Risk The likelihood that events, including economic mismanagement, will cause drastic changes in a country’s business environment that adversely affect the profit and other goals of a particular business enterprise. Hill, C. (2004). International Business: Competing in the Global Marketplace . Chicago: Irwin Professional Publishing.

5. Economic Risk: General examples A countries central bank may raise interest rates A government or a state’s legislature may raise taxes for foreign investors or companies Beginning to build and sell luxury condo’s immediately before or during a recession

6. Political Risk Associated with major changes in political regimes and it reflects the threats and opportunities associated with potential or actual changes in the political system Found at macro or micro levels Higher concern in emerging markets and developing countries Most risky for direct foreign investments Shubik, M. (1983). Political risk: Analysis, process, and purpose. In R. J. Herring, Managing International Risk (pp. 109-38). New York: Cambridge University Press.

7. Political Risk General Examples The government structure that was present upon initial investment in the country is dramatically changed after a new leader is elected that wants to discourage FDI through higher taxes A country has a complicated tax system, which increases the costs of accounting practices and fees required for basic business practices in the country

8. Cultural Risk Least-structured and least-defined element of risk Lowering cultural risk requires an understanding of the specific foreign beliefs and systems that could affect business and daily interaction If none, a companies risk mitigation approach won't develop strategies to avoid potential pitfalls and harness opportunities for synergy Schomer, K. (n.d.). Change Management Consulting & Training. Retrieved Feb 1, 2010, from Cross-Cultural Risk Factors in Offshore Outsourcing: http://www.cmct.net/article_risk_factors.html

9. Measuring Cultural Risk Use broad cultural dimensions to see compatibility and foster understanding The process gives direction and finds outward compatibility Implements two important studies that help measure the impacts of cultural differences on management and success

11. Ethnocentrism Belief that one's cultural values, beliefs and norms are better than those of another culture

12. GeertHofstedeCultural Dimensions Study started in 1960 and continued for three decades Great guidelines to understand and implement when analyzing cultural risk and planning for management adjustments when doing business with diverse cultures. Based on an employee opinion survey involving 116,000 IBM employees in 40 different countries. From the results of the survey, which asked people for their preferences in management style and work environment Identified four “value” dimensions Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

13. Hofstede’s Cultural Dimensions power distance – indicates the extent to which a society accepts the unequal distribution of power in institutions and organizations. uncertainty avoidance – refers to a society’s discomfort with uncertainty, preferring predictability and stability. individualism versus collectivism– reflects the extent to which people prefer to take care of themselves and their immediate family, remaining emotionally dependent from groups, organizations, and other collectivities. quantity of life versus quality of life – the focus in culture of accumulation of wealth or the focus on relationships and quality of life Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

14. FonsTrompenaar’s cultural model A Dutch author in the field of cross-cultural communication. Ph.D at Wharton with a dissertation on differences in conceptions of organizational structure in various cultures. Professionally worked with Shell in nine countries Model of culture with seven dimensions and orientations covering the ways in which human beings deal with each other

15. Trompenaar’s cultural model Universalism vs. particularism- What is more important, rules or relationships? Individualism vs. communitarianism Neutral vs. emotional - Do we display our emotions? Specific vs. diffuse - Is responsibility specifically assigned or diffusely accepted? Achievement vs. ascription - Do we earn our status or is it given to us? Sequential vs. synchronic - Do we do things one at a time or several things at once? Internal vs. external control - Do we control our environment or are we controlled? Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

16. Road Map for using the studies here Selected dimensions will be explained and illustrated with real-world examples. A situation will be presented Both viewpoints will be explained Management techniques for each situation

17. Universalism vs. Particularism Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

18. Percent who prefer Universalist system Graph made from data offered at : http://www.kwintessential.co.uk/map/hofstede-uncertainty-avoidance.html.

19. The Dilemma in Practice A real-estate investment company in the U.S. is entering into a joint venture to build a sports center in Shanghai. They meet halfway, in Hawaii, to sign the contracts. The U.S. businessmen bring along two lawyers with them, and because of this the Chinese seem a bit taken aback. During the negotiations the Chinese try to keep the contracts vague and not too tied. They tell the Americans that the contracts can be figured out as things go along, and they want to continue after dinner. The Chinese are obviously positive and excited about the venture, but the Americans feel that the negotiations are not complete until everything is set in stone. Photo accessed from: http://www.fotosearch.com/bthumb/CSP/CSP036/k0360680.jpg

20. Universalist views of the situation The Universalist culture (The U.S.) relies on the courts to help settle disputes and for lawyers to help with negotiations and writing contracts. It is nothing against the other party, but just part of the process to make sure both parties are in agreement and protected. Americans often try to close deals as fast as possible.

21. Particularistic views of the situation A Particularistic culture (Chinese) trust very much on relationships between the partners. The U.S. focus on strict regulations/formulations in this situation or similar, could have offended the Chinese businesses because they felt they weren’t being trusted. It might happen that Chinese business people will still try to negotiate afterwards even the contract was already signed/closed and agreed from all sites. In negotiations Chinese will spend a lot of time in building up a relationship with their business partners so the actual negotiation will be at the end of the meeting time. A particularistic culture considers the human relationships more important than rules.

22. Guidelines for doing business: Universalism and Particularism The importance of relationships in a Particularistic culture should be carefully considered and taken into account during business dealings. For an American doing business with a Particularist culture, they need to be aware of the way business is normally done. As a result of the Particularist way to make deals, the Americans might commit more advantages than first thought just to rush forward and close a deal. This can be a disadvantage for universalistic cultures

23. Power Distance Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

24. The Dilemma in Practice An American manager was placed in a new plant in Malaysia. Malaysia has a large power distance. The manager appreciated a level playing field and wanted to motivate the employees to speak up if they had new ideas or recommendations for improvement. He held biweekly meetings with teams and could see that they were uncomfortable being asked for input, and they would always agree with him. Photo accessed from: http://www.fotosearch.com/bthumb/CSP/CSP036/k0360680.jpg

25. High and Low Power Distance viewpoints Adjusting for Power Distance would be different for countries that were higher or lower than the home country. Measurements are readily available online. For example, the US Power Index is 40, and Malaysia is 104. Bartlett, C., & Ghoshal, S. (2008). Transnational Management: Text, Cases, and Readings in Cross-Border Management. New York: McGraw-Hill Education.

26. Power Distance ComparisonsAverage = 51 Graph made from data offered at : http://www.kwintessential.co.uk/map/hofstede-uncertainty-avoidance.html.

27. As an American working with or going to a country with a higher PDI than yours then: give clear and explicit directions to those working with you. Deadlines should be highlighted and stressed. do not expect subordinates to take initiative. be more authoritarian in your management style. Relationships with staff may be more distant than you are used to. show respect and deference to those higher up the ladder. This is usually reflected through language, behavior and protocol. expect to encounter more bureaucracy in organizations and government agencies. Bartlett, C., & Ghoshal, S. (2008). Transnational Management: Text, Cases, and Readings in Cross-Border Management. New York: McGraw-Hill Education.

28. As an American working with or going to a country with a lower PDI than yours then: don't expect to be treated with the usual respect or deference you may be used to. people will want to get to know you in an informal manner with little protocol or etiquette. be more inclusive in your management or leadership style as being directive will be poorly interpreted. involve others in decision making. do not base judgments of people on appearance, demeanor, privileges or status symbols. Bartlett, C., & Ghoshal, S. (2008). Transnational Management: Text, Cases, and Readings in Cross-Border Management. New York: McGraw-Hill Education.

29. Uncertainty Avoidance the degree to which employees are threatened by ambiguity, and the relative importance to employees of rules, long-term employment and steady progression through well defined career ladders. measures the level to which individuals in a society feel uncomfortable with situations that are abnormal or difficult to understand.

30. Uncertainty Avoidance Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

31. Uncertainty AvoidanceAverage = 64 High Avoidance of Risk Willing to take risks Graph made from data offered at : http://www.kwintessential.co.uk/map/hofstede-uncertainty-avoidance.html.

32. The Dilemma in Practice A Taiwanese company operates with a uncertainty avoidance level of 69. This shows with the heavy formalization that is evident in great amount of written rules and procedures. Also there is a greater (compared to a U.S. company) specialization evident in the importance attached to technical competence in the role of staff and in defining jobs and functions. Managers here avoid taking risks and are motivated by stability and security. Leaders are chosen for their skills in planning, organizing, coordinating and controlling. A U.S. company is discussing a joint venture with these managers for a real estate investment in Taiwan. The landscape is a little risky for the project they have in mind, how can they best succeed? Photo accessed from: http://www.fotosearch.com/bthumb/CSP/CSP036/k0360680.jpg

33. As an American working or doing business in a country with a higher uncertainty avoidance score than at home then: Don't expect new ideas, ways or methods to be readily embraced. You need to allow time to help develop an understanding of an initiative to help foster confidence in it. Involve local counterparts in projects to allow them a sense of understanding. This then decreases the element of the unknown. Be prepared for a more fatalistic world view. People may not feel fully in control and are therefore possibly less willing to make decisions with some element of the unknown. Remember that due to a need to negate uncertainty proposals and presentations will be examined in fine detail. Back up everything with facts and statistics. Bartlett, C., & Ghoshal, S. (2008). Transnational Management: Text, Cases, and Readings in Cross-Border Management. New York: McGraw-Hill Education.

34. As an American working or doing business in a country with a lower uncertainty avoidance score than at home then: Try to be more flexible or open in your approach to new ideas than you may be used to. Be prepared to push through agreed plans quickly as they would be expected to be realized as soon as possible. Allow employees the autonomy and space to execute their tasks on their own; only guidelines and resources will be expected of you. Recognize that nationals in the country may take a different approach to life and see their destiny in their own hands. Bartlett, C., & Ghoshal, S. (2008). Transnational Management: Text, Cases, and Readings in Cross-Border Management. New York: McGraw-Hill Education.

35. Individualism vs. Communitarianism Points to how the individual, and therefore the community, is defined. Nations that display highly individualistic attitudes are comprised of a greater number of citizens who believe that their responsibility for support extends only as far as their immediate family while the social framework is tighter in collective societies. People in the collective cultures discriminate in-groups (relatives, institutions and organizations) and out-groups. Responsibility for care and loyalty extend beyond the immediate family to include all members of the in-group. Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

36. Individualism vs. Communitarianism Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

37. Individualism vs. Communitarianism Ratings Average=51 Graph made from data offered at : http://www.kwintessential.co.uk/map/hofstede-uncertainty-avoidance.html.

38. The Dilemma in Practice A manufacturing plant in Singapore is owned by an American multi-national company. There has been some issues with a lack of productivity and management has been having a closer look at employees and processes to see where the problem lies. The problems are found with a team that oversees transitions between the day and night shifts, specifically with one employee that has worked in that position for less than six months. The American managers starting asking some questions to the teammates and team managers but it was difficult to pinpoint a problem, as the team seemed unable to offer blame to a specific person. What would be the best way for the American managers to find the results they need? Who is responsible for an error made at work by a new member of a work team? Photo accessed from: http://www.fotosearch.com/bthumb/CSP/CSP036/k0360680.jpg

39. Individualistic Views The American managers would reasonably take the view that this person alone must carry the responsibility alone, and that if he or she were dismissed, the other members of the team would work with greater diligence. Their cultural views would lean toward the thought that achievement involved individual goal-setting and action, and that each team member would have the understanding that they are ultimately accountable for themselves. Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

40. Communitarian Views The Singaporean managers and employees would reasonably argue that the team and immediate colleagues should have looked out for a new member and checked that everything was going smoothly, and that the instructions had been properly understood. Instead of placing them they would look at the system and the team to find possible weaknesses: Had the new member been adequately trained? Were the instructions clear? Unless such questions are answered satisfactorily the problem may persist. Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

41. Advice to managers facing the individualistic/communitarian dilemma With these differences in mind, it is important for individualists to recognize the web of relations encompassing the communitarian party to a conflict, and to act in recognition of those. Similarly, it is helpful for those from communitarian settings to remember that individualists value autonomy and initiative, and to act in ways that respect these preferences. Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

42. Specific vs. Diffuse Measures the differences in how people engage colleagues in specific or multiple areas of their lives. Two groups: people from more specific-oriented cultures tend to keep private and business agendas separate, having a completely different relation of authority in each social group. In diffuse-oriented countries, the authority level at work can reflect into social areas, and employees can adopt a subordinated attitude when meeting their managers outside office hours Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

43. Specific vs. Diffuse Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

44. The Dilemma in Practice A manufacturing company in the U.S. has a plant on one site, and the research and development branch is located hundreds of miles away. The products move from stage to specific stage, first developed, then manufactured, then marketed. The company is interested in opening another operation in East Asia, and hired a consultant from the area to review their processes and give recommendations to how they could adjust these for the type of workers and management that they’d be hiring. The consultant’s recommendation was to find developments for easier manufacturing and locate all functions at a single site, where the researchers make the product easier to distribute and to service. Photo accessed from: http://www.fotosearch.com/bthumb/CSP/CSP036/k0360680.jpg

45. Diffuse Viewpoint Diffuse styles of thinking create ways of assuring quality that are strange to most Western cultures. For example, TaichiOhno’s Toyota production system asks “five times why” something has gone wrong. If a drillbit broke in production there may be five or more places to intervene in a diffuse system. These might include: a stronger drill bit, slower drill speed, softer metal being drilled, better lubrication, improved training for the drill operator. Diffuse thinking is much more alert to remote consequences and the need for balance. The reason for all operations of manufacturing to be together is that Diffuse thinking considers the entire process from conception to completion, and often all offices need to get involved to solve a problem or think of a new idea. Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

46. Specific Viewpoint Specific cultures usually try and pinpoint a single case, for example “the drill bit was defective and broke.” A specific viewpoint would see occurrences to be separate from each other and a manager would focus on each individual problem as a separate case. These cultures are more definite and unambiguous and may force employees and managers to face the facts. Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

47. Advice for U.S. managers working within a diffuse culture “Don’t do business with strangers, you can just trust friends” It is sometimes as important if not more important to built up a close relationship than the deal itself. People from diffusive cultures circle around the strange business partner to get to know him more deeply and they will discuss the specific facts only after a relationship of trust has been created Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.

48. Conclusion A part of business strategy and risk assessment should take into account cultural differences, and be able to adapt when large gaps are seen. The world is chaotic. We need structure in order to make sense of it. Culture is what helps us to organize our world and to know how to respond to it