Characteristics of Culture Society

MIB NOTES MBA06 AIMT
Q) 1. IN WHAT WAYS DO CULTURE DIFFERENCES LANGUAGE AND RELIGION INFLUENCE

INTERNATIONAL INVESTMENT AND TRADE.ILLUSTARTE YOUR ANSWER WITH EXAMPLE???
ANS)
Culture is an integrated system of learned behavior patterns that are distinguishing characteristics of the members of
any given society. It includes everything that a group thinks, says, does and makes - its customs, material artifacts,
shared systems of attitudes and feelings.
Characteristics of culture
• Society
- Society is made up of people and their culture, so the term sociocultural is often used.
- The functions of society - what a society ‘does’ is similar across countries. How these tasks are
accomplished varies across cultures
- Different sociocultural environments can significantly influence the activities of foreign firms entering those
particular markets.
For example, in various cultural settings, the marketing activities which involve product design packaging, promotion
and pricing need to be altered to reflect differences in cultural values and attitudes.
- For the international business manager, culture affects the implementation and execution of strategies more
than their formulation.
• Values
- Values are the principles and standards accepted by members of a society
- abstract ideas about what a group believes to be good, right, and desirable
• Attitudes
- Attitudes are the actions, thoughts and feelings that stem from those values.
- Cultural attitudes about such factors as time, authority, rewards and punishments in turn influence behavior.
Religion
--religion is a most important component of culture
- may be defined as a system of shared beliefs and rituals that are concerned with the realm of the sacred.
- the relationship between religion and society is subtle, complex, and profound
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- the five religions that dominate the world are:
Christianity, Islam, Hinduism, Buddhism, and Confucianism
• Christianity
- the most widely practiced religion in the world
- about 1 billion people, approximately 20 percent of the world’s population
- the two major groups are Catholicism and Protestantism
Economic implication of Christianity: The Protestant Work Ethic - In 1904 a German sociologist, Max Weber,
made a connection between Protestant ethics and “the spirit of capitalism”
Max Weber noted that in Western Europe :
“Business leaders and owners of capital, as well as the higher grades of skilled labour, and even more the higher
technically and commercially trained personnel of modern enterprises, are overwhelmingly Protestant”
- there was a relationship between Protestantism and the emergence of modern capitalism
• Islam
- is the second largest of the world’s religions
- has about 750 million adherents
- adherents of Islam are referred to as Muslims
- Islam has roots in both Judaism and Christianity
Economic implications of Islam:
- the five calls to prayer affect productivity of businesses since workers stop whatever they are doing to pray
For example, Friday is their holy day - in Malaysia the government has declared a longer lunch hour on
Fridays so that the Muslims can go to Mosque for prayers (12.15pm to 2.30pm)
- Islam accepts that profits from fair business dealing are justified but profit may not be made by exploitation
or deceit.
- Business people must behave justly and honestly in their dealings.
- Islam does not allow payment or receipt of interest so Islamic banks have been experimenting with a profit sharing
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- In general, Islamic countries are likely to be receptive to international businesses as long as those businesses behave
in a manner that is consistent with Islamic ethics
- On the whole, Islam is supportive of capitalism
• Hinduism
- Has approximately 500 million adherents
- Most of the Hindus are found in the Indian subcontinent
- Unlike Christianity and Islam, Hinduism is not linked to a particular person nor does it have an officially
sanctioned sacred book like the Bible or the Koran
Economic implications of Hinduism:
- The overall emphasis of Hinduism is on spiritual achievement rather than economic success.
- Hinduism does not encourage the accumulation of wealth for investment or other capitalistic activities.
- Weber argued that the ascetic principles embedded in Hinduism does not encourage the kind of
entrepreneurial activity that we find in Protestantism
- However, today there are millions of hardworking entrepreneurs in India where they form the economic
background of a rapidly growing economy
• Buddhism
- it was founded in India in the sixth century BC
- it has about 250 million followers
- found mainly in Central and Southeast Asia, China, Korea, and Japan.
- Buddhists, like Hindus, stress spiritual achievement rather than involvement in this world, the emphasis on
wealth creation that is embedded in Protestantism is not found in Buddhism.
• Confucianism
- it was founded in the fifth century BC
- about 150 million people still follow the teachings of Confucius, principally in China, Korea, and Japan
Economic implications of Confucianism:
- There are those who maintain that Confucianism may have economic implications that are profound as those
found in Protestantism.
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- Three values are central to the Confucian system (of ethics): loyalty, reciprocal obligations, and honesty in
dealing with others
For example:
1. In a society where companies can trust each other not to break contractual obligations, the costs of doing
business are lowered.
2. It has been argued that the close ties between the automobile companies and their component part suppliers
in Japan are facilitated by a combination of trust and reciprocal obligations.
Language
-is one of the most basic elements which distinguish one culture from another.
- Languages delineate culture and it is primarily through language that values, attitudes and beliefs are
articulated and communicated.
Different aspects of language which are important in international business:
• The problem of translation
- it is quite difficult to learn another language well enough to fully understand the nuances, slang, double
meanings and cultural allusions
- Examples of mistranslation conveying a totally different meaning are frequent and often unintentionally funny.
For example: The Chinese brand name “Pansy” for male underwear while it amused customers did not help
sales in England and Australia. The basic meaning of the word suggested men were effeminate which created
the problem.
• Non-verbal communication
- ‘Body language’ can be most important.
- A failure to understand the nonverbal cues of another culture can lead to a failure of communication.
- Should people sit with their legs crossed or apart?
- What is acceptable personal space?
- How much eye contact should be there”
- What do gestures mean?
For example:
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1. The “thumbs up” gesture to Americans and Australians means “all right” but to Southern Italians and
Greeks it is an obscene insult.
2. In the United States and Australia, the customary distance from each other adopted by parties in a business
discussion is 5 to 8 feet but in Latin America it is 3 to 5 feet.
• Negotiations
- Both verbal and non-verbal communication becomes important during business negotiations.
- For example, Chinese and Japanese negotiating procedures are more formal than Western styles and will
include a “correct” order for members of a delegation to enter a room and for seating around a table.
- This order indicates the seniority and importance of the delegation’s members.
• Gift Giving
- The language of gift giving also varies between cultures.
- For the Chinese and Japanese verbal thanks are not enough.
- Gratitude for help or hospitality must be conveyed by a gift.
- Delegations will bring gifts and and will be presented at the end of a visit.
Q2).HO THEOREM
Heckscher-Ohlin Theory
- Developed by Swedish economists Eli Heckscher (in 1919) and Bertil Ohlin (in 1933)
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- Heckscher-Ohlin Theory extends the Theory of Comparative Advantage by arguing that comparative
advantage arises from differences in national factor endowments.
- The theory predicts that a country will have comparative advantage in producing goods that use intensively
the resources (factors) that are most abundant in that country.
- Import goods that make intensive use of factors that are locally scarce.
Implications of Heckscher-Ohlin Theory:
Examples:
1. Australia has comparative advantage in producing and exporting wheat because it has plentiful supply of
land.
2. China has a comparative advantage in the production and export of clothing, in part because it has plentiful
supply of relatively cheap labour.
Conclusion: Unlike Ricardo’s theory, however, the Heckscher-Ohlin theory argues that the pattern of international
trade is determined by differences in factor endowments, rather than differences in productivity.
The Leontief Paradox - named after Wassily Leontief (1953)
- Using the Heckscher-Ohlin theory, Leontief postulated that since U.S. was relatively abundant in capital
intensive goods compared to other nations, the U.S. would be an exporter of capital intensive goods and importer
of labour intensive goods.
- To his surprise, however, he found that U.S. exports were less capital intensive than imports.
Conclusion: Since this result was at variance with the predictions of the theory, it has become known as the
Leontief Paradox.
Q.3) PLC model. How exporter of a new product does becomes an importe of the same not so new product???
International Product Life Cycle Theory
- Developed by Raymond Vernon in 1966.
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- Vernon and Wells (1968) elaborated its managerial implications and became one of the leading explanations
of international trade patterns.
- In the 1960’s and 1970’s, this new approach to international trade appeared most promising in aiding
business executives because it was closely related to the product life concept in marketing.
- The theory claims that products go through a trade cycle, during which the U.S. is initially an exporter, then
loses its export markets and may finally become an i- ‘United States’ is used in the explanation because this theory
was built on the trade patterns of US manufactured products.
- Thus the international product life cycle theory relates trade and direct investment as sequential stages that
follow the life cycle of an innovative product.
The international product life cycle theory is based on the following:
a) - Early in the life cycle of a typical product, while demand is starting to grow in the U.S., demand in other advanced
countries is limited to high income groups.
- The limited initial demand in other advanced countries does not make it worthwhile for firms in those
countries to start producing the new product, but it does necessitate some exports from U.S. to those countries.
Over time, however, demand for the new product starts to grow in other advanced countries.
- As it does, it becomes worthwhile for foreign producers to begin producing for their home markets.
- In addition, U.S. firms might set up production facilities in those advanced countries where demand is
growing.
- Consequently, production within other advanced countries begins to limit the potential for exports from the
U.S.
b) - As the market in the U.S. and other advanced countries matures, the product becomes more standardized,
and price becomes the main competitive weapon.
- One result is that producers based in advanced countries where labour costs are lower than the U.S. might
now be able to export to the U.S.
c) - If cost pressures become intense, the process might not stop there.
- The cycle by which the U.S lost its advantage to other advanced countries might be repeated once more as
developing countries begin to acquire a production advantage over advanced countries.
d) - The consequences of these trends for the pattern of world trade is that the United States switches from being
an exporter of the product to an importer of the product as production becomes more concentrated in lower-cost
foreign locations.
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These dynamics are illustrated in figures T 1, T 2, and T 3, which shows the growth and consumption over time
in the United States, other advanced countries, and developing countries.
Limitations of the IPLC theory:
• It is most appropriate for technology-based products -these are the products that are most likely to experience
the changes in production process as they grow and mature.
• Other products either resource-based (eg, minerals and commodities) or services are not so easily
characterised by stages of maturity.
• IPLC theory is most relevant to products that eventually fall victim to mass production and cheap labour
force.
• The assumption that most new products are developed and introduced in the U.S. is not valid anymore -
production may be located wherever costs and other factors are advantageous.
• Lastly, the IPLC theory fails to recognise that many new products are launched simultaneously in numerous
markets.
• In short, although the IPLC theory may be useful for explaining the pattern of international trade during the
brief period of American global dominance, its relevance in the modern world is limited.
Q4) major theories of international trade? In your opininon which theory is more applicable in today envt. Why????
An Overview of Trade Theory
- Free trade refers to a situation where a government does not attempt to influence through quotas or duties
what its citizens can buy from another country or what they can produce and sell to another country.
- Adam Smith’s theory of absolute advantage, proposed in 1776, was the first to explain why unrestricted free
trade is beneficial to a country.
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Adam Smith argued that the invisible hand of the market mechanism, rather than government policy, should determine
what a country imports and what it exports.
- The great strength of the theories of Smith, Ricardo, and Heckscher-Ohlin is that they identify the specific
benefits of international trade.
- It is important to note that there is a very extensive international trade literature regarding these theories and
that there is no absolute agreement as to which is the most valid.
1.)Mercantilism
- The first theory of international trade emerged in England in the mid 16th century.
- An economic philosophy based on the belief that a nation’s wealth depends on accumulated treasure, usually
gold.
- At that time, gold and silver were the currency of trade between countries; a country could earn gold and
silver by exporting goods.
- Its principle assertion was that it is in a country’s best interest to maintain a trade surplus, to export more
than it imports.
Consistent with this belief, the mercantilist doctrine advocated government intervention to achieve a surplus in the
balance of trade.
Limitations in Mercantilism:
1. The flaw was that it viewed trade as a zero-sum game (in which a gain by one country results in a lost by
another).
2. It was left to Adam Smith and David Ricardo to show the short-sightedness of this approach and to
demonstrate that trade is a positive-sum game (that being a situation in which all countries can benefit, even if
some benefit more than others).
2.)Theory of Absolute Advantage
- this theory was developed by Adam Smith in 1776
- Smith argued that if countries specialise in the production of goods that they can produce more efficiently
than any other country, and import those goods and services which are produced more efficiently by other
countries, then all countries will gain increased economic benefits.
- Thus a country has an absolute advantage in the production of a product when it is more efficient than any
other country in producing it.
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Simple, hypothetical, numerical example to demonstrate the theory of absolute advantage:
Table 1 shows the output of two goods per hour of labour input for two countries, Australia and Japan.
Assume for the purposes of simplicity that these are the only two countries in the world and that they produce only
two goods, computer chips and wine, using only one factor of production, labour.
Table 1 A Case of Absolute Advanatge When Each
Nation is More Efficient in the Production of
one Good
Nation Output per Labour Hour
Computer Chips Wine (bottles)
Australia 10 8
Japan 15 4
Note: 1. Australia has an absolute advantage in the production of bottles of wine (8 bottles/hour as compared with
Japan - 4 bottles/hour)
2. Japan has an absolute advantage in the production of computer chips (15 chips/hour as compared with Australia -
10 chips/hour).
Analysis:
• Australia, for example, trades 8 bottles of wine for 15 computer chips (Australia took only 1 hour to
produce the 8 bottles).
It would have taken Australia 1.5 hours of labour to produce 15 computer chips (but this was gained for only 1
hour of labour time - so a savings of 0.5 hours of labour time for Australia.
• This extra 0.5 hours of labour time can be used for producing more wine either for local consumption
or for export.
• Similarly, Japan has gained 8 bottles of Australia’s wine for only 1 hour of labour output (the time
needed to produce 15 computer chips).
• If Japan had produced the 8 bottles of wine domestically, it would have taken 2 hours of labour time
(savings of 1 hour of labour output)
• Implications:
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• 1. Both countries have gained by allocating their scarce labour to produce goods in which they are more
productive than the other.
• 2. Both can consume more goods than they could have done if there was no international trade between them.
• Limitations in Absolute Advantage Theory:
• This theory suggests that where one country has an absolute advantage in both products, then no trade would
occur.
• Note: This is where David Ricardo’s theory of comparative advantage provides the answer
3.)Theory of Comparative Advantage
• - Ricardo took Smith’s theory one step further by exploring what might happen when one country has
an absolute advantage in the production of all goods.
Hypothetical example to illustrate The Theory of Comparative Advantage
• Table 2 A Case of Comparative Advantage when
• Australia has an Absolute Advantage in the
• production of both goods
• Nation Output per Labour Hour
• Computer Chips Wine (bottles)
• Australia 20 10
• Japan 15 4
Assumptions:
• 1. Australia develops methods that increase the number of computer chips produced per hour to
• 20 per hour.
• 2. Wine production has also increased from 8 to 10 bottles per hour.
• 3. Australia has an absolute advantage over Japan in both wine and computer chip production.
• 4. Australia is 2.5 times better than Japan in wine production, though only 1.3 times better in computer chips
production.
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• 5. The theory of absolute advantage indicates that no trade should take place because Australia is more
productive for both goods.
Note: The theory of comparative advantage says no, there is still an advantage to both countries from
continuing to trade.
• In Australia 1 bottle of wine will sell for two computer chips.
• In Japan 1 bottle of wine will sell for 3.75 computer chips.
Implications for trade:
For example, if both the countries trade and if Japan offers to trade 3 computer chips for 1 bottle of
Australia’s wine.
• Then Australia will be better off, for it has gained three computer chips for 1 bottle of wine, rather than
2 it gained if there was no trade.
• Similarly, Japan is better off, for it has gained 1 bottle of wine for only 3 computer chips, rather than
the 3.75 it would pay if there was no trade.
Conclusion:
• 1. Australia and Japan are both better off even though Australia has an absolute advantage in both computer
chips and wine production.
• 2. The theory of comparative advantage predicts that this will occur and that international trade will benefit
both countries.
4) Heckscher-Ohlin Theory
• - Developed by Swedish economists Eli Heckscher (in 1919) and Bertil Ohlin (in 1933)
• - Heckscher-Ohlin Theory extends the Theory of Comparative Advantage by arguing that

comparative advantage arises from differences in national factor endowments.
• - The theory predicts that a country will have comparative advantage in producing goods that use
intensively the resources (factors) that are most abundant in that country.
• - Import goods that make intensive use of factors that are locally scarce.
• Implications of Heckscher-Ohlin Theory:
• Examples:
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• 1. Australia has comparative advantage in producing and exporting wheat because it has plentiful
supply of land.
• 2. China has a comparative advantage in the production and export of clothing, in part because it has
plentiful supply of relatively cheap labour.
• Conclusion: Unlike Ricardo’s theory, however, the Heckscher-Ohlin theory argues that the pattern of
international trade is determined by differences in factor endowments, rather than differences in productivity.
q.5) what difference do you observe between ib and domestic business and why?????????
Ans) DIFFERENCE BETWEEN DOMESTIC AND INTERNATIONAL BUSINESS
• In simple terms, international business transactions cross national boundaries while domestic business
activities take place within the boundaries of a single country.
• Managing an international business is different from managing a domestic business for at least four (4)
reasons:
• 1. Countries are different (countries differ in their cultures, political systems, economic systems, legal
systems, and levels of economic development)
• 2. Greater complexity of managing an international business (the range of problems confronted by a

manager in an international business is wider and the problems themselves more complex)
• 3. International business must operate within the framework of the international trading and
investment system (must understand the rules governing this framework)
• 4. International transactions involve converting money into different currencies (must develop policies
for dealing with exchange rate movements.
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Q.6) why do firms engage in international business? What r the stages in internationalization of firms going
for a international business????
Ans) MOTIVES FOR GOING INTERNATIONAL
1. Push and Pull Factors
Companies engage in international business for several factors. These factors may push or pull a business into
the international arena.
• Market expansion
- to expand their markets by entering new markets
- many companies faced by a saturated, mature domestic market find this option attractive
- especially when the new markets have a rising GNP per capita
- where the economy of that country is growing faster than that of their own domestic market
- access to larger international markets allows firms to exploit economies of scale
- improved communication and transportation systems may also be considered a viable reason for going into
new markets
• Acquire resources
- global sourcing of raw materials and scarce commodities may result in timely delivery and reduced costs (so
manufacturers and distributors seek out products, services and components produced in foreign countries)
companies also look for foreign capital and technology that they can use at home
• Location advantage
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- relocation of production facilities to a foreign location may keep a firm internationally competitive and make
it more profitable to serve markets, including the domestic market from the foreign location
• Competitive advantage and limited domestic opportunity
There are many sources of competitive advantage:
- product or process technology held by the firm;
- established brand names and reputations;
- economies of scale in production and marketing;
- exclusive access to inputs;
- management skills and experience;
- preferential treatment by governments
• To protect their markets
- to protect their domestic market companies may follow their large customers as they expand to prevent
competitors from gaining access to those accounts
- domestic market share can also be protected by using cheaper foreign production locations as a basis for
exporting back to the domestic market
• Risk reduction
- multiple sources of essential raw materials and access to several markets reduce political risks associated
generally with political instability
- economic risks associated with downturn in economic activity are reduced (economies are at differing stages
in their economic cycle of boom and recession)
• Government incentives
- host government and home government policies and regulations can act as either pull and push factors for
international business
host governments, for example, might offer incentives to attract foreign investments
2. Motives of Australian firms going abroad (An Example)
A study by the Australian Bureau of Industry Economics (1995) identified 5 categories of reasons for
Australian firms going abroad.
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5 categories are:
• Cost-based - where firms sought the most productive and lowest cost inputs
• Market-based - where firms sought access to as many markets and customers as possible
• Natural resource based - where firms sought natural resources
• Australian government policies - where firms felt that they were being pushed abroad by domestic policies
that encouraged internationalization
• Host government policies - where firms were attracted abroad by foreign policies that improved their
competitiveness or profitability
Note: Some conclusions of the study
• Among the 5 reasons, market-based were considered the most important.
• Market growth potential was the most important specific market-based reason.
• Lower input costs and more reliable supply lines was the most important cost-based reasons.
• Political stability was the most important policy-related concern of host government policies.
Stages of Internationalization
• Stage 1: Domestic Operations
– Firms offer products or services that are designed to primarily serve consumers in the domestic
market (e.g., law firms)
• Stage 2: Export Operations
– Products and services are opened up to markets in other countries, but production facilities remain in
Canada (e.g., McCain Foods).
– HRM: Provides sales force with skills and motivation to succeed in these foreign markets.
Stage 3: Subsidiaries or Joint Ventures
• Some operational facilities (e.g., parts assembly) are physically moved to other countries.
• Corporate headquarters in home country has high control over foreign operations.
• HRM: Provides expatriates and local employees with knowledge and skills to succeed in the foreign country.
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Stage 4: Multinational Operations
• Much more prevalent international dispersion of production and service provision facilities.
• Decentralization of decision-making more prevalent, but “major” personnel decisions still made within home
country.
• Expatriates still primarily manage foreign facilities.
Stage 5: Transnational Operations
• Little allegiance to the firm’s country of origin.
• Large-scale decentralization of decision-making.
• Dominant role of expatriates is removed.
• Each business unit across the globe has the freedom to make and implement its own HRM policies and
practices.
Q.7) wHat is globilization. In wat ways globilization perceive as a doom or bane?????
Ans) What is Globalisation?
v Globalisation refers to the shift toward a more integrated and interdependent world economy
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v Globalisation has two main components:
• Globalisation of Markets
- refers to the merging of historically distinct and separate national markets into one huge global marketplace
firms such as Coca Cola, McDonald’s, Levi Strauss - by offering a standardised product worldwide, they are
helping create a global market.
- an important feature of many global markets is that the same firms frequently confront each other as
competitors in nation after nation.
- for example, Coca-Cola’s rivalry with Pepsi is a global one; Boeing and Airbus; Caterpillar and Komatsu
these multinational enterprises emerge as an important driver of the convergence of different national markets
into a single, and increasingly homogenous, global marketplace.
• Globalisation of Production
- refers to sourcing of goods and services from different locations around the globe to take advantage of
national differences in the cost and quality of factors of production.
companies hope to lower their overall cost structure and/or improve the quality or functionality of their
product, thereby allowing them to compete more effectively against their rivals.
- for example, Boeing’s 777 commercial jet airliner contains 132, 500 major component parts, and they are
produced around the world by 545 different suppliers.
the outsourcing of different productive activities to different suppliers results in the creation of “global
products”
Note: In sum, we are travelling down the road toward a future characterised by the globalisation of
markets, production, ownership, and management.
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Q.8) HOW DO GOVERNMENTS LIMIT TRADE WITH OTHER COUNTRIES? WHAT ARE THEIR
REASONS FOR DOING SO?????????
Restrictions on imports generally take two forms: tariffs and quantitative restrictions.
Tariffs are taxes that are imposed upon imported goods upon their entry into a country.
Tariffs, or import taxes, are usually calculated as a percentage of the value of a given imported product. If the United
States imposes a 10 percent tariff on imports of Danish ham, for example, then a merchant bringing a $100 shipment
of Danish ham into the United States would be required to pay 10 percent of $100, or $10, to the U.S. government.
Tariff fees are collected for most governments by what is known as a "customs" agency—in the American case, the
U.S. Customs Service, a division of the U.S. Department of the Treasury.
Tariffs restrict or discourage imports by making imported goods relatively more expensive than domestic goods. If a
company importing $100 in Danish hams into the United States must pay a $10 tariff at the U.S. border, that company
will be likely to increase the price of those hams in the United States, to make up for the cost of the tariff. Consumers
can be expected to consume fewer Danish hams if they cost more than domestic hams, even if the Danish hams are
thought to be superior in quality to the domestic hams.
Tariffs vary widely from country to country and from product to product within countries. Most countries impose no
tariffs at all on some imports, but most imports are subject to at least minimal tariffs. Most U.S. tariffs are very low—
less than 3.5 percent, on average.
Quantitative restrictions seek to limit access to imports by making them scarce, which, according to the laws of
supply and demand, makes them more expensive. Most countries in the world apply quotas to the import of certain
goods and services (although applying tariffs is much more common).
Why would governments want to alter the natural flow of international trade by imposing tariffs and quotas?
Governments restrict imports for four basic reasons:
1. For some governments, particularly in the developing world, tariffs provide a significant source of
government revenues.
2. Every country in the world, including the United States, maintains high tariffs on at least a handful of products
for which domestic producers are thought to be vulnerable to foreign competition. This so-called tariff
protection is typically imposed early in an industry's life or at moments of weakness or decline, when the
threat from more efficient foreign producers is thought to be particularly severe. Once imposed, tariff
protection is very difficult to remove, because the enterprises and workers who benefit from it work very hard
to keep it in place.
3. Governments use import restrictions to protect domestic health or safety. A government sometimes bans all
imports of a particular good when it has reason to believe it could harm public safety or health. For example,
the United States recently prohibited all European imports of livestock to protect U.S. livestock herds from
foot and mouth disease, which has afflicted large numbers of animals in Europe.
4. Governments also restrict imports and exports for political reasons. Countries wishing to punish or influence
the behavior of another country for human rights violations or for an act of aggression, for example, will
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sometimes restrict imports from goods producing in the “misbehaving” country. In times of war, adversaries
will often prohibit all imports from each other, a measure known as an embargo.
Q.9) hoffstead dimension of culture and its criticism??????
Ans) Hofstede (1983) identified four cultural dimensions which aid in explaining why and how the members of
various cultures behave in the way they do.
- His pioneer work was based on data obtained from 40 countries.
- His four dimensions are:
1. Power Distance
2. Individualism versus Collectivism
3. Uncertainty avoidance
4. Masculinity/Femininity
1. Power Distance
- refers to the degree to which less powerful individuals within a system accept the fact that power is not
distributed equally.
- High power distance cultures are those in which authority is obeyed without question - this model is found in
many Latin and Asian countries such as Mexico, Guatemala, Malaysia, Singapore and the Philippines
(Refer to T 3)
Moderate to Low power distance cultures are less authoritarian and examples can be found in Europe, North America
and Australasia (Refer to T 3)
Business implications:
- The type of power distance within a culture is reflected in the business structures.
- In high power distance cultures management tends to be autocratic and paternalistic.
- Moderate to low power distance systems tend to value individualism and consultation between management
and subordinates.
2. Individualism versus Collectivism
- Individualism refers to to the way in which people in more economically advanced countries tend to look
after only themselves and their immediate family.
- Collectivism refers to the tendency for people to belong to groups which are mutually supportive in return
for loyalty - is more prevalent in less economically advanced countries.
Cultures with high individualism emphasise individual initiative and achievement and people are expected to be self-
sufficient.
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Examples of countries with high individualism include Netherlands, United States and Great Britain (Refer to
T 3)
- Cultures with low individualism such as Indonesia, Pakistan and Ecuador emphasise group affiliation in
decision making.
3. Uncertainty avoidance
- Refers to the extent to which people feel threatened by ambiguity and have developed institutions or belief
systems which help minimise or avoid such uncertainties.
- People in cultures with high uncertainty avoidance display risk reducing behaviours.
For example: In these cultures, organisations tend to formalise their activities and rely on rules and regulations
to ensure that people know what to do.
- Hofstede found examples in Greece, Japan, Korea and Portugal.
- In low uncertainty avoidance cultures - managers are encouraged to take more risks and are less emotional
resistance to change.
- In these cultures there is greater acceptance of disagreement and dissent and more reliance on individual
initiative.
- Examples include Singapore, Great Britain, Sweden and Canada.
4. Masculinity/Femininity
- Hofstede used these terms to refer to the dominant values of a society.
- Masculine values are money and material possessions.
- High masculinity cultures tend to define success in terms of wealth and recognition and tend to favour large-
scale enterprises which are high stress work places.
- The number of women in high level positions is limited.
- Japan, Mexico and Austria are given as examples
- Moderate masculinity scores were found for the United States, Great Britain and Canada.
- Femininity refers to cultures which value human contact, caring and quality life.
- More emphasis in management and organisation is placed on cooperation and a friendly, low stress working
environment.
- Countries with a high femininity (low masculinity) score include Norway, Sweden and Denmark
SEM-3RD Page 21
ARGUMENTS AGAINST HOFSTEDE
Relevancy
Many researchers allude a survey is not an appropriate instrument for accurately determining and measuring cultural
disparity. This is especially apparent when the variable being measured is a value which culturally sensitive and
subjective (Schwartz 1999). Hofstede addresses this criticism saying that surveys are one method, but not the only
method that was used (Hofstede 1998, 481).
Cultural Homogeneity
This criticism is perhaps the most popular. Hofstede’s study assumes the domestic population is an homogenous
whole. However most nations are groups of ethnic units (Nasif et al. 1991, 82; Redpath 1997, 336). Analysis is
therefore constrained by the character of the individual being assessed; the outcomes have a possibility of
arbitrariness. On the other hand Hofstede tends to ignore the importance of community, and the variations of the
community influences (Dorfman and Howell 1988, 129; Lindell and Arvonen 1996; Smith 1998, 62).
National Divisions
Nations are not the proper units of analysis as cultures are not necessarily bounded by borders (McSweeney 2000).
Recent research has found that culture is in fact fragmented across group and national lines (DiMaggio 1997).
Hofstede points out however that national identities are the only means we have of identifying and measuring cultural
differences (Hofstede 1998, 481).
Political Influences
The outcomes, particularly those pertaining to Masculinity (Søndergaard 1994, 451-452) and Uncertainty Avoidance
(Newman 1996, 775), may have been sensitive to the timing of the survey. Europe was in the midst of the cold war
and was still haunted by vivid memories of World War Two, similarly their was the communist insurgence in Asia,
Africa and Europe. As a result of the political instabilities of the time, the sample lacks data from socialist countries,
as well as from the less affluent Third World Countries.
One Company Approach
A study fixated on only one company cannot possibly provide information on the entire cultural system of a country
(Graves 1986, 14-15; Olie 1995, 135; Søndergaard 1994, 449). Hofstede said he was not making an absolute measure,
he was merely gauging differences between cultures and this style of cross-sectional analysis was appropriate
(Hofstede 1998, 481). In addition, Hofstede points out that the use of a single multinational employer eliminates the
effect of the corporate policy and management praxctices from different companies influencing behaviour diffeently,
leaving only national culture to explain cultural difference (Hofstede 1980).
Out-dated
Some researchers have claimed that the study is too old to be of any modern value, particularly with today’s rapidly
changing global environments, internationalisation and convergence. Hofstede countered saying that the cross-cultural
outcomes were based on centuries of indoctrination, recent replications have supported the fact that culture will not
change overnight (Hofstede 1998, 481).
Too Few Dimensions
Four or five dimensions do not give sufficient information about cultural differences. Hofstede agrees, he believes
additional dimensions should continue to be added to his original work (Hofstede 1998, 481).
SEM-3RD Page 22
Statistical integrity
Dorfman and Howell (1988) have found that in his analysis, Hofstede has, on occasion, used the same questionnaire
item on more than one scale, and several have significant cross-loadings. In fact, when closely observed, the analysis
comprises 32 questions with only 40 cases or subjects (40 data points corresponding to 40 countries).
q) briefly discuss the impact of cultural political and economic envt on international business. Give examples???????
Ans) POLITICAL
POLITICAL SYSTEMS
• Political system refers to the system of government in a country.
• There are 2 dimensions:
- Collectivism or Individualism
- Democracy or Totalitarianism
• Collectivism
- refers to a system that emphasises the importance of collective goals over individual goals.
- the need of society as a whole are generally viewed as being more important than individual freedoms
• Individualism
- refers to a philosophy that an individual should have freedom in his or her economic and political pursuits
- individualism emphasises that the interest of the individual should take precedence over the interests of the
state
- individualism translates into an advocacy for democratic political systems and free market economics
• Democracy
- refers to a political system in which government is by the people, exercised either directly or through elected
representatives.
- most modern democratic states practice representative democracy where citizens periodically elect
individuals to represent them.
- these elected representatives then form a government, whose function is to make decisions on behalf of the
electorate.
•
Totalitarianism
- is a form of government in which one person or political party exercises absolute control over all spheres of
human life, and opposing political parties are prohibited.
- a totalitarian country denies citizens all constitutional guarantees on which representative democracies are
built.
- for example, individual’s right to freedom of expression and organisation, a free media, and regular
elections.
There are four major forms of totalitarianism in the world today:
• Communist Totalitarianism - Form of totalitarianism that advocates achieving socialism through totalitarian
dictatorship.
• Theocratic Totalitarianism - Form of totalitarianism in which political power is monopolised by a party,
group, or individual that governs according to religious principles.
• Tribal Totalitarianism - Form of totalitarianism found mainly in Africa in which a political party that
represents the interests of a particular tribe monopolises power.
• Right Wing Totalitarianism - Form of totalitarianism in which individual economic freedom is allowed but
individual political freedom is restricted in the belief that it could lead to communism.
2. Political Environment of International Business

• A crucial aspect of doing business in a foreign country is that permission to conduct business is controlled by
the government of the host country.
• The host government controls and restricts a foreign company’s activities by encouraging and offering support
or by discouraging and banning its activities, depending upon the interests of the host.
SEM-3RD Page 23
• The philosophy of the government towards business in general and foreign business in particular should also
be taken into account.
Some issues for consideration in the political environment of a country are:

• Importance of political stability
• Common political risks, harassment, and nationalism
• Managing political risks
Positive political - business interaction
1. Importance of political stability
- Stable governments are more likely to ensure continuity in government policy as it affects
business.
- Stable systems allows international firms to plan their affairs with some degree of certainty.
- Political instability arises from:
• political risks of doing business in a foreign country

• political harassment
• excessive nationalism
2. Common political risks
• - A range of political risks exist, for example, one extreme an international firm may lose all
control, ownership of assets and market access;
• - at the other extreme, it may simply face customs delays or problems in obtaining working
visas.
• - A international firm can lose ownership of foreign assets in one of 4 (four) ways:
• Confiscation
• - requires nothing more than a government decision to take control of a foreign firm’s assets in
its country
• - no payment is made to compensate the firm for its loss
• Expropriation
• - differs only in that compensation is given for the firm’s assets
• - in most case the payment is not negotiable
• Nationalisation
• - is the process whereby a government decides to take over ownership of an industry for its
own control
• - government ownership and management of an industry may give it more control over the
country’s economic life - usually related economic sovereignty, national defence or control of strategic
industries.
• Domestication
• - represents a variety of pressures that can be placed on a foreign-owned firm to transfer
ownership and /or control to local citizens
• - for example, a foreign investor may be forced to sell shares of stock to local investors at a
predertimned price
SEM-3RD Page 24
• - other examples of domestication policies include pressure to employ nationals at top
decision-making levels; permits required for importing personnel or technology
• Political harassment
• - may affect exporters as well as firms that enter foreign markets through foreign production,
joint ventures or licensing
• - a government’s power to license may be used to harass - for example, a licence may be
required to acquire foreign exchange, hire or fire personnel
• - changes in tax policy can also be used to capture more revenue and penalise business
• - another form of harassment for the foreign firm is social unrest, for example, damage to
property from riots
•
• Nationalism
• There are 2 forms:
• - Patriotism - citizens of every nation typically have some sense of national identity, which
manifests itself in national feelings, pride and attitudes toward foreign firms and their products
• - Chauvinism - is the excessive form of patriotism
• Note: A strategy to avoid this might be to develop as local an image as possible
• 3. Managing Political Risk
• There are 2 ways of doing it:
• 1. Avoidance - that is avoidance of investment or by the withdrawal of current investment by selling or
abandoning plants and assets
• 2. Adaptation - accommodating the risk through adaptation to the political regulatory environment
• - The adaptation can take many forms:
• Equity sharing - includes the initiation of joint ventures with nationals (individuals or those in firms,
labour unions, or government) to reduce political risk
• .Participative management - requires that the firm actively involve nationals including those in labour
organisations or government in the management of the subsidiary
• Localisation of the operation - includes the modification of the subsidiary’s name, management style,
and so forth, to suit local tastes.
- Localisation seeks to transform the subsidiary from a foreign firm to a national firm
• Development assistance - includes the firm’s active involvement in infrastructure development (local
sourcing of materials and parts, management training, technology transfer, etc)
4. Positive political-business interaction
- the safest long-term strategy for minimising political risk is to acknowledge the importance of
positive interaction with host government
- remind personnel that they are “guests” in foreign country and that continued permission to
operate is contingent on showing the benefits brought to host countries
benefits in the form of resource or product transfer, employment or income contributions, social or
cultural benefits
- another approach towards establishing a positive political-business interaction may be

political payoff or bribe
ECONOMIC SYSTEMS
• There is relationship between political ideology and economic systems
SEM-3RD Page 25
• In countries where individual goals are are more important than collective goals - likely to find
free market economic system
• In countries where collective goals are given primacy over individual goals, markets are likely to
be restricted rather than free
• There are 3 broad types of economic systems
• Market economy
• is an economic system based on the private ownership of of the productive assets of capital and land
• economic decisions are decentralised with decision making authority arising from the individual
ownership of the means of production
• goods and services produced is determined by the interaction of supply and demand - decisions are
coordinated by the market
• the role of government in a market economy is to encourage vigorous competition among producers
• private ownership ensures that entrepreneurs have a right to the profits that are generated by their own
efforts
• money and material incentives are the main motivating forces reflecting private ownership of the
means of production and an individualistic value orientation
• Centrally Planned Economy
• is an economic system based on state ownership of the productive assets of capital and land
• production takes place in state owned enterprises that comprise the “business” sector
• the government directs them to make investments that are in the best interests of the nation as a whole,
rather than in the interests of private individuals
• decision-making authority is based on monopoly of political power and state ownership
• the organisational structure of the state owned “business” sector is authoritarian, hierarchical and
centralist
• control is exercised by layers of ministerial and regional officials and by general surveillance from the
political party
• Mixed Economy
• in a mixed economy, certain sectors of the economy are left to private ownership and free market
mechanisms, while in other sectors there is significant state ownership and government planning
• in the mixed economy the government intervenes in those sectors where it believes private ownership
is not in the best interests of society
• for example, Britain, Australia and Sweden have extensive state-owned health system that provide free
health care to all citizens
• in these countries it is felt that government has a moral obligation to provide for the health of its
citizens
Q) WRITE SHORT NOTES ON
Anti Dumping Duty
Dumping is a process of selling goods abroad at a price below that charged in the domestic market. Foreign
sellers abroad do this to capture Indian markets to the detriment of Indian industry. This is an unfair trade
practice which can have a distortive effect on international trade.
Anti dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive
effect. Thus, the purpose of anti dumping duty is to rectify the trade distortive effect of dumping and re-
establish fair trade. The Central Government may levy additional duty equal to margin of dumping on such
articles if the goods have been sold at less than normal value. Dumping Margin is the difference between the
Normal value and the export price of the goods under complaint. It is generally expressed as a percentage of the
export price.
SEM-3RD Page 26
After the exact rate of dumping duty is finally determined. Dumping duty can be imposed even when goods are
imported indirectly or after changing the condition of goods. The imposition of anti dumping duty is based on
commodity to commodity, country to country and suppliers in exporting countries.
The Govt. has appointed Additional Secretary to the Govt. of India Ministry of Commerce as designated
Authority for purpose of identification, assessment and collection of Anti Dumping Duty on dumped articles
and for determination of injury.
Essential requisites for initiating an Anti Dumping Investigation
• Sufficient evidence to the effect that there is dumping and injury to the domestic industry.
• The domestic producers expressly supporting the anti dumping application must account for not less
than 25% of the total production of the like article by the domestic industry.
Prevention from Anti Dumping Investigation
• Any exporter whose dumping margin is less than 2% of the export price shall be excluded from the
purview of anti-dumping duties.
• If the volume of the dumped imports, actual or potential, from a particular country accounts for less
than 3% of the total imports of the like product then investigation against any country is terminated
The interested parties to an Anti Dumping Investigation include:
• The domestic industry on whose complaint the proceedings are initiated;

• The exporters or the foreign producers of the like articles subject to investigation;
• The importers of the same article allegedly dumped into India;
• The Government of the exporting country/ countries.
• The trade or business associations of the domestic producers/importers/user industries of the dumped
product.
Countervailing duties
Countervailing duties (CVDs) are duties imposed under WTO Rules to neutralize the negative effects of other
duties. They are imposed when a foreign country subsidizes its exports, hurting domestic producers in the
importing country. According to World Trade Organization rules, a country can launch its own investigation
and decide to charge extra duties, provided such additional duties are in accordance with the GATT Article VI
and the GATT "Agreement on Subsidies and Countervailing Duties". Since countries can rule domestically
whether domestic industries are in danger and whether foreign countries subsidize the products, the institutional
process surrounding the investigation and determinations has significant impacts beyond the countervailing
duties.
Countervailing duties in the U.S. are assessed by the International Trade Administration of the U.S. Department
of Commerce which determines whether imports in question are being subsidized and, if so, by how much. If
there is a determination that there is material injury to the competing domestic industry, the Department of
Commerce will instruct the U.S. Customs Service to levy duties in the amount equivalent to subsidy margins.
Petitions for remedies may be filed by domestic manufacturers or unions within the domestic industry, however
the law requires that the petitioners represent at least 25% of the domestic production of the goods for which
competition is causing material injury.
SEM-3RD Page 27
Ad valorem tax
An ad valorem tax (Latin for according to value) is a tax based on the value of real estate or personal
property. It is more common than the opposite, a specific duty, or a tax based on the quantity of an item
regardless of price.
An ad valorem tax is typically imposed at the time of a transaction (a sales tax or value-added tax (VAT)), but
it may be imposed on an annual basis (real or personal property tax) or in connection with another significant
event (inheritance tax, surrendering citizenship[1], or tariffs).
Sales tax
A sales tax is a consumption tax charged at the point of purchase for certain goods and services. The tax is
usually set as a percentage by the government charging the tax. There is usually a list of exemptions. The tax
can be included in the price (tax-inclusive) or added at the point of sale (tax-exclusive).
Ideally, a sales tax is fair, has a high compliance rate, is difficult to avoid, is charged exactly once on any one
item, and is simple to calculate and simple to collect. A conventional or retail sales tax attempts to achieve this
by charging the tax only on the final end user, unlike a gross receipts tax levied on the intermediate business
who purchases materials for production or ordinary operating expenses prior to delivering a service or product
to the marketplace. This prevents so-called tax "cascading" or "pyramiding," in which an item is taxed more
than once as it makes its way from production to final retail sale. There are several types of sales taxes: Seller
or Vendor Taxes, Consumer Excise Taxes, Retail Transaction Taxes, or Value-Added Taxes.[2]
Value-added tax
A value-added tax (VAT), or goods and services tax (GST), is tax on exchanges. It is levied on the added value
that results from each exchange. It differs from a sales tax because a sales tax is levied on the total value of the
exchange. For this reason, a VAT is neutral with respect to the number of passages that there are between the
producer and the final consumer. A VAT is an indirect tax, in that the tax is collected from someone other than
the person who actually bears the cost of the tax (namely the seller rather than the consumer). To avoid double
taxation on final consumption, exports (which by definition are consumed abroad) are usually not subject to
VAT and VAT charged under such circumstances is usually refundable.
Property tax
A property tax, millage tax is an ad valorem tax that an owner of real estate or other property pays on the
value of the property being taxed. There are three species or types of property: Land, Improvements to Land
(immovable man made things), and Personality (movable man made things). Real estate, real property or realty
is all terms for the combination of land and improvements. The taxing authority requires and/or performs an
appraisal of the monetary value of the property, and tax is assessed in proportion to that value. Forms of
property tax used vary between countries and jurisdictions.
SEM-3RD Page 28

Characteristics of Culture Society

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MIB NOTES MBA06 AIMT

Q) 1. IN WHAT WAYS DO CULTURE DIFFERENCES LANGUAGE AND RELIGION INFLUENCE

- Values are the principles and standards accepted by members of a society

--religion is a most important component of culture

Christianity, Islam, Hinduism, Buddhism, and Confucianism

- the most widely practiced religion in the world

- about 1 billion people, approximately 20 percent of the world’s population

- the two major groups are Catholicism and Protestantism

Max Weber noted that in Western Europe :

- is the second largest of the world’s religions

- has about 750 million adherents

- adherents of Islam are referred to as Muslims

- Islam has roots in both Judaism and Christianity

Economic implications of Islam:

- Business people must behave justly and honestly in their dealings.

- On the whole, Islam is supportive of capitalism

- Has approximately 500 million adherents

- Most of the Hindus are found in the Indian subcontinent

Economic implications of Hinduism:

- it was founded in India in the sixth century BC

- it has about 250 million followers

- it was founded in the fifth century BC

Economic implications of Confucianism:

Different aspects of language which are important in international business:

• The problem of translation

- ‘Body language’ can be most important.

- Should people sit with their legs crossed or apart?

- What is acceptable personal space?

- How much eye contact should be there”

- What do gestures mean?

- The language of gift giving also varies between cultures.

- Gratitude for help or hospitality must be conveyed by a gift.

Implications of Heckscher-Ohlin Theory:

The Leontief Paradox - named after Wassily Leontief (1953)

International Product Life Cycle Theory

- Developed by Raymond Vernon in 1966.

The international product life cycle theory is based on the following:

Limitations of the IPLC theory:

An Overview of Trade Theory

2.)Theory of Absolute Advantage

- this theory was developed by Adam Smith in 1776

Table 1 A Case of Absolute Advanatge When Each

Nation is More Efficient in the Production of

Nation Output per Labour Hour

Computer Chips Wine (bottles)

• Limitations in Absolute Advantage Theory:

3.)Theory of Comparative Advantage

Hypothetical example to illustrate The Theory of Comparative Advantage

• Table 2 A Case of Comparative Advantage when

• Australia has an Absolute Advantage in the

• production of both goods

• Nation Output per Labour Hour

• Computer Chips Wine (bottles)

• 2. Wine production has also increased from 8 to 10 bottles per hour.

• In Australia 1 bottle of wine will sell for two computer chips.

• In Japan 1 bottle of wine will sell for 3.75 computer chips.

Implications for trade:

• - Heckscher-Ohlin Theory extends the Theory of Comparative Advantage by arguing that

• Implications of Heckscher-Ohlin Theory:

Ans) DIFFERENCE BETWEEN DOMESTIC AND INTERNATIONAL BUSINESS

• 2. Greater complexity of managing an international business (the range of problems confronted by a

Ans) MOTIVES FOR GOING INTERNATIONAL