MBA 6601, International Business 1

MBA 6601, International Business 1

Course Learning Outcomes for Unit I Upon completion of this unit, students should be able to:

1. Differentiate international business from domestic business operations.

2. Analyze the effects of political, legal, economic, and cultural dimensions of international business on an organization.

Reading Assignment In order to access the following resource(s), click the link(s) below: de Mooij, M., & Hofstede, G. (2010). The Hofstede model. International Journal of Advertising, 29(1), 85–110.

Retrieved from t=true&db=bth&AN=48653916&site=ehost-live&scope=site

Unit Lesson Globalization Has Advantages and Disadvantages In this course, we recognize international business as a means of doing business in other parts of the world. Advantages exist to buying, selling, and interacting with companies positioned in other countries. Of course, disadvantages also exist. We hear the term globalization quite often, and it means the ability to interact with other countries in a marketplace that has rules, laws, standards, and expectations of conducting business. If we examine why doing business in another country is advantageous for companies, we will find several reasons.

 New sources of raw materials: If one’s current source of raw materials dries up, the price has risen, competitors lock up the market, or the government makes it hard to acquire materials because of environmental regulations, you might find an alternative source in another country.

 New technology: If you find current technology outmoded or wish to develop new uses of a raw material, new technology from another source might work.

 New products to sell: People in other countries have different needs and could possibly use a product not in use domestically. Such a product might increase local sales.

 New customers: Customers in other countries have the same needs as local customers. A company could make the product here and send it overseas.

 New partners: Capitalists in other countries look to invest in sound businesses operating locally or internationally. A company could have an interest in acquiring capital and resources to expand its business.

 Reduction in risk: Exposure to additional markets reduces business risk if a country experiences economic contraction for any reason.

Advantages also exist for countries to encourage international business.

 Bigger markets: The more companies participate, the larger the marketplace. Participation promotes the concept of a free market without excessive levies and tariffs.

 Better and varied goods: The larger the marketplace, the more products are available. Because of competition, prices go down and quality goes up.


International Business Global Framework, Part 1

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 Better investment opportunities: The larger the marketplace, the better the opportunity for private participation and even public partnerships.

 Fills social needs: Workers have jobs, markets enhance education, and the government has tax revenue.

 Reduction of war: One of the original purposes behind the formation of the European Union trading bloc aimed to reduce war. Given that World War I and World War II occurred on the European land mass, many believed if government emphasized trade and commerce, it would make war less likely to occur again.

 Eradication of cultural barriers: In the next section, you should give some thought to what cultural differences lie behind the economic, political, and legal barriers that hinder and restrict trade. International business has the motivation to overcome these barriers and make cultural problems solvable.

Given the many advantages, we will now examine the disadvantages of doing business in another country.

 Legal issues: When a company conducts trade in another country, it must consider its laws. The importing country and the exporting country can charge levies, tariffs, taxes, and duties depending on their needs. In some cases, limits and quotas also exist. Some commodities are legal in some countries, but other countries may classify that same commodity as illegal.

 Supervisory oversight: Whether a company opens a factory in another country or simply buys and sells property, distance reduces its oversight. Although employing people who can tell you about the status of your business in other countries is wise, it is also expensive.

 Political problems: Many people are strongly opposed to outsourcing, globalization, and other international business practices. A company may lose some of its customer base if it begins trading in other countries. Moreover, if a company involves itself in human rights abuses, environmental accidents, or corruption in other countries—even if it had no idea these events had occurred—it may subject itself to an onslaught of bad publicity and lost business. In extreme cases, government may hold owners personally liable.

Disadvantages also exist for some countries to participate in international business.

 Exploitation of undeveloped countries: Some people claim that larger developed countries can stifle the economic development of countries uncooperative with Western values. Poor countries get poorer because rich countries do not pay fair value for resources.

 Monopolies and oligopolies in technology: Rich countries conspire to keep technology know-how and capital investment from reaching undeveloped countries.

 Unemployment: If a company moves a factory overseas, it will create jobs for a foreign country. In the meantime, the move can increase unemployment in the local community. Nike moved much of its shoe production to China and Vietnam because of lower costs.

 Environmental degradation: Using another country’s resources solely because its environmental standards are lower can cause environmental problems. When NAFTA went into effect in the 1990s, many companies built their plants on the Mexican side of the border because of the cheaper utilities that resulted from lower coal burning standards.

After reviewing the pros and cons of globalization, it is important to remember that the big difference between a domestic business and an international business is the amount of opportunities and choices available to grow the business and move it forward. Along with those opportunities, come bigger and more diverse risks, which require a higher degree of specialization and yield a higher return on investment. Cultural Differences Drive Everything One of the main barriers to conducting business in faraway places is the inability to understand cultural differences that might affect decision-making. Additionally, cultural differences extend to legal and political systems. All countries, at one time or another, have solved problems in trading with other countries. The solutions that work for a country have, over time, been ingrained into its way of thinking, and a country’s way of thinking is its culture. As students of international business, we need to know a country’s values and what is important to its people so that we can work with these ideals. Hofstede (1980), a former Dutch IBM employee,

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conducted one of the best studies to identify the cultural values of various nations as they compare to ours and other countries. Hofstede (1980) published Culture’s Consequences: International Differences in Work-Related Values, which laid the groundwork for studying the differences in international cultures. What Hofstede found is what we all know: We are all different. On the outside, we all have differences: facial features, skin color, body stature, and even our language or dialect based on where we grew up. Differences can also be found on the inside: how we value people and relationships and how we react to power and responsibility. These differences are our national culture. Hofstede’s (1980) research enabled him to identify parameters in which one can label all cultures with distinct traits and characteristics. More specifically, Hofstede’s initial research and additional research have identified five factors in which we can categorize our differences and similarities. Here are Hofstede’s five categories with explanations and examples:

1. Power distance

 This characteristic is the extent to which the lower ranking individuals of a society expect and accept the distribution of power unequally. A person born and raised in a country with a high power distance ratio would think that inequality is acceptable. An example of a high power distance ratio is evident in work situations in which superiors tell subordinates what to do versus those in which superiors consult with subordinates on what to do.

 Two countries that represent the opposite sides on the power distance scale are Russia and Denmark. In Russia people believe it acceptable to treat the lower echelon workers with disdain; however, in Denmark the workers have union councils to enforce worker participation in work environment decisions (Hofstede, 1980).

2. Uncertainty avoidance

 Uncertainty avoidance is the extent to which employees feel threatened by ambiguous or unknown situations and the relative importance they attach to rules, long-term employment, and the need for a well-defined career ladder.

 One can describe a country with a high uncertainty avoidance as having little change, slow adoption of innovations, xenophobia, staying in the same job for years, and greater bureaucratic regulation. Countries with high and low uncertainty avoidance are Japan and China respectively (Hofstede, 1980).

3. Individualism versus collectivism

 A person can consider individualism as a trait in which the ties between individuals are loose. An individual looks after himself or herself and immediate family only. One can consider collectivism as a society in which individuals from birth onwards are part of a strong societal group.

 Individualism would show up as more individual competition in the workplace and in sports. People respect human rights, smaller core families are more common, higher divorce rates exist, and a faster pace of life exists. One can describe collectivism as more focused on teams in the workplace and in sports, larger core families, lower divorce rates, and a slower pace of life. The two countries that represent those two dimensions are the USA (individualism) and China (collectivism) (Hofstede, 1980).

4. Masculinity versus femininity

 In the context of cultural differences, masculinity refers to a society that places the greatest value on the attributes of assertiveness, toughness, task achievement, and material success. Femininity, on the other hand, refers to societies that value attributes such as compassion, concern for others’ welfare, and relationships (Gladwin, 1981).

 In a masculine society, role differentiation is high, meaning that there are vast differences in the roles assumed by men versus the roles assumed by women. Countries representing the two distinct sets of values are Japan, which is masculine, and the Netherlands, which is more feminine (Hofstede, 1980).

5. Long-term versus short-term orientation

 Long-term orientation stands for the fostering in a society of pragmatic virtues oriented to future rewards, in particular perseverance, thrift, and adapting to changing circumstances. In other words, people imbued with these values will put off immediate consumption in favor of future consumption. The opposite trait, short-term orientation, stands for the fostering in a society of virtues related to the past and the present, such as national pride, respect for tradition, preservation of face, and fulfilling social obligations.

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 Characteristics and descriptions of long-term orientation would include companies seeking market share and long-term profits, families that save money over long time periods, and secondary school students that perform well at mathematics. Countries with a short-term orientation would report slower economic growth, lower funds for investment, and companies that stress the bottom line on quarterly reports. Japan and Egypt would represent the two diametrically opposed countries in this scale (Hofstede & Hofstede, n.d.).

These five characteristics not only help explain why cultures are different, they also provide a means to study potential trading partners and identify the traits that will interfere with operations and those that might help the trading relationship to grow. By knowing the characteristics of a country and how they might affect a business relationship or trade, a country will find it possible to anticipate problems and opportunities before they become evident. One practical application is to promote cultural sensitivity to help people work more effectively when interacting with people from other countries.

References Gladwin, T. N. (1981). [Review of the book Culture’s consequences: International differences in work-related

values, by G. Hofstede]. Academy of Management Review 6(4), 681–683. Hofstede, G. (1980). Culture’s consequences: International differences in work-related values. Newbury Park,

CA: Sage. Hofstede, G., & Hofstede, G. J. (n.d.). National culture. Retrieved from https://www.hofstede-

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