CULTURE AND BUSINESS

Culture is the beliefs, values, mind-sets, and practices of a group of people. It includes the behavior pattern and norms of that group— the rules, the assumptions, the perceptions, and the logic and reasoning that are specific to a group.

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Cross-cultural Analysis incorporates the fields of anthropology, sociology, psychology, and communication.

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Geert Hofstede

- Sometimes called the father of modern cross-cultural science and thinking, is a social psychologist who focused on a comparison of nations using a statistical analysis of two unique databases.

- Proponent of the framework that focused on value dimensions.

5 Key Value Dimensions

1. Power distance

2. Individualism

3. Masculinity

4. Uncertainty avoidance (UA)

5. Long-term orientation

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Power distance (High or Low Power

Distance) refers to how openly a society or culture accepts or does not accept differences between people, as in hierarchies in the workplace, in politics, and so on.

● High Power Distance - People accept and expect hierarchy and unequal power distribution.

● Low Power Distance - People value equality and expect a more democratic approach to power structures.

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Individualism refers to people's tendency to take care of themselves and their immediate circle of family and friends, perhaps at the expense of the overall society. In individualistic cultures, what counts most is self-realization.

● Collectivistic culture - People prioritize the needs and goals of the group or family over individual pursuits.

Masculinity refers to how a culture ranks on traditionally perceived "masculine" values: assertiveness, materialism, and less concern for

others. In masculine-oriented cultures, gender roles are usually crisply defined.

● Femininity - Value cooperation, relationships, and quality of life.

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Uncertainty Avoidance (UA) refers to how much uncertainty a society or culture is willing to accept. It can also be considered an indication of the risk propensity of people from a specific culture.

● High uncertainty avoidance - People prefer structure, rules, and clear expectations.

● Low uncertainty avoidance - People are more comfortable with ambiguity and are open to change.

Long-term Orientation refers to whether a culture has a long-term or short-term orientation.

● Long-term Orientation values persistence, perseverance, thriftiness, and having a sense of shame.

- People focus on the future, planning for long-term goals and rewards.

● Short-term Orientation values tradition only to the extent of fulfilling social obligations or providing gifts or favors.

- People are more concerned with the present, prioritizing immediate gratification and traditions.

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Edward T. Hall

- a respected anthropologist who applied his field to the understanding of cultures and intercultural communications. Hall is best noted for three principal categories that analyze and interpret how communications and interactions between cultures differ: context, space, and time.

Context refers to whether a culture has a long-term or short-term orientation.

● High Context person sending the message takes painstaking care in crafting the message; the person receiving the message is expected to read it within context. Body language

is as important and sometimes more important than the actual words spoken.

● Low Context people tend to be explicit and direct in their communications. The guiding principle is to minimize the margins of misunderstanding or doubt. Low-context communication aspires to get straight to the point.

Space refers to the study of physical space and people.

● Proxemics focuses on space and distance between people as they interact.

Time

● Polychronic Cultures

—polychronic literally means "many times"—people can do several things at the same time.

"Time is nice, but relationships matter more."

● Monochronic Cultures or "one-time" cultures, people tend to do one task at a time.

"One at a time."

Ethnocentrism is the view that a person's own culture is central and

other cultures are measured in relation to it. It's akin to a person thinking that their culture is the "sun" around which all other cultures revolve.

● In its worst form, it can create a false sense of superiority of one culture over others.

● Pace of business

● Business protocol—how to

physically and verbally meet

and interact

● Decision making and

negotiating

● Managing employees and

projects

● Propensity for risk taking

● marketing, sales, and

distribution

WORLD ECONOMIES

Globalization

- a process by which national and regional economies, societies, and cultures have become integrated through the global network of trade, communication, immigration, and transportation.

International Trade

- refers to the exchange of goods and services between different countries.

International Finance

- transfer of money between countries compared to goods, services, and people; making international finance one of the primary features of a global economy.

Global Trade

- refers to an investment strategy that is not constrained by geographical boundaries. Global investment mainly takes place via foreign direct investment (FDI).

An economy is a complex system of interrelated production, consumption, and exchange activities that determines how resources are allocated among all the participants.

● The production, consumption, and distribution of goods and services combine to fulfill the needs of those living and operating within the economy.

General Types

● Market-based Economies

or "free market" economies allow people and businesses to freely exchange goods and services according to supply and demand.

● Command-based Economies

depend on a central government that controls the production levels, pricing, and distribution of goods.

● Mixed Economies

a combination of both.

Major Areas of Focus

● Microeconomics

studies the behavior of individual people and

businesses in order to understand why they make the economic decisions they do and how these decisions affect the larger economic system.

● Macroeconomics

includes the study of economy-wide factors such as the effect of rising prices or inflation on the economy.

Developed Economies also known as advanced economies, are characterized as post-industrial countries—typically with a high per capita income, competitive industries, transparent legal and regulatory environments, and well-developed commercial infrastructure. Developed countries also tend to have high human development index (HDI) rankings—long life expectancies, high-quality healthcare, equal access to education, and high incomes. In addition, these countries often have democratically elected governments.

Statistics Used in Classifications

1. Gross Domestic Product

2. Purchasing Power Parity

3. Human Development Index

(HDI)

Gross domestic product (GDP)

● the value of all the goods and services produced by a country in a single year.

● usually quoted in US dollars.

● an official accounting of the country's output of goods and

services.

Per capita GDP is simply the GDP divided by the population of the country.

Purchasing Power Parity (PPP)

● an economic theory that adjusts the exchange rate between countries to ensure that a good is purchased for the same price in the same currency.

● Adjusting to reflect the different costs of living in specific countries.

Cost of Living is the amount of money needed to cover basic expenses such

as housing, food, taxes, and healthcare in a certain place and time period.

Human Development Index (HDI)

● measures people's satisfaction in three key areas—

(1) long and healthy life in terms of life expectancy,

(2) access to quality education equally; and

(3) a decent, livable standard of living in the form of income.

● focused on indicators that measure whether people's needs are satisfied and whether the needs are equally met across the local population.

Since 1990, the United Nations Development Program (UNDP) has produced an annual report listing the HDI for countries.

A bull market is one in which prices rise for a prolonged period of time, while a bear market is one in which prices steadily drop in a downward cycle.

First-mover Advantage refers the benefits that a company gains by

entering into a market first or introducing a new product or service before its competitors.

- Early entrance into these markets helps create advantage in terms of brand recognition, forging essential relationships with the government and the private sector, and harnessing any early-stage cost advantages.

INTERNATIONAL MONETARY

SYSTEMS

Money is a unit of account that is used as a medium of exchange in transactions.

Quick look at some of some of the most powerful currencies in history:

● Persian daric. The daric was a

gold coin used in Persia

between 522 BC and 330 BC.

● Roman currency. Currencies such as the aureus (gold), the denarius (silver), the sestertius (bronze), and the dupondius (copper) were used during the Roman Empire

from around 250 BC to AD 250.

● Thaler. From about 1486 to 1908, the thaler and its variations were used in Europe as the standard against which the various states' currencies

could be valued.

● Spanish American pesos.

Around 1500 to the early nineteenth century, this

contemporary of the thaler was widely used in Europe, the Americas, and the Far East; it became the first world currency by the late eighteenth century.

● British pound. The pound's origins date as early as around AD 800, but its influence grew in the 1600s as the unofficial gold standard; from 1816 to around 1939 the pound was the global reserve currency until the collapse of the gold standard.

● US dollar. The Coinage Act of 1792 established the dollar as the basis for a monetary account, and it went into circulation two years later as a silver coin. Its strength as a global reserve currency expanded in the 1800s and continues today.

● Euro. Officially in circulation on January 1, 1999, the euro continues to serve as currency in many European countries today.

International Monetary System refers to the system and rules that govern the

use and exchange of money around the world and between countries.

International Monetary Fund (IMF) and the World Bank

● Established in 1944 through the Bretton Woods Agreement (Bretton Woods, New Hampshire, United States).

● The World Bank and the IMF, often called the Bretton Woods Institutions, are twin intergovernmental pillars supporting the structure of the world's economic and financial order.

● Both have taken on expanding roles, and there have been renewed calls for additional expansion of their responsibilities, particularly in the continuing absence of a single global monetary agreement.

Similarities between the IMF and World Bank:

✔ Owned and directed by the governments of member nations

✔ Almost every country on earth is a member of both institutions

✔ Both concern themselves with economic issues

✔ Both focus on broadening and strengthening the economies of their member nations

✔ Hold joint annual meetings

✔ Headquartered in Washington DC, USA (Fun fact: their building is across from each other)

✔ Share joint task forces, sessions and research efforts

Purpose of the IMF

(i) To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.

(ii) To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.

(iii) To promote exchange stability, to maintain orderly exchange

arrangements among members, and to avoid competitive exchange depreciation.

(iv) To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.

(v) To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.

(vi) In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

Special Drawing Right (SDR) is basically an international monetary reserve asset.

Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.

Criticisms of the IMF:

Conditions for loans. The IMF makes the loan given to countries conditional on the implementation of certain economic policies, which typically include the following:

a. Reducing government borrowing (higher taxes and lower spending)

b. Higher interest rates to stabilize the currency

c. Allowing failing firms to go bankrupt

d. Structural (privatization,

reducing bureaucracy)

adjustment deregulation, corruption and

Exchange rate reforms. "When the IMF intervened in Kenya in the 1990s, they made the Central bank remove controls over flows of capital. The consensus was that this decision made it easier for corrupt politicians to transfer money out of the economy (known as the Goldman scandal). Critics argue this is another example of how the IMF failed to understand the dynamics of the country that they were dealing with—insisting on blanket reforms.

Devaluations. In the initial stages, the IMF has been criticized for allowing inflationary devaluations.

Free-market criticisms of the IMF.

Believers in free markets argue that it is better to let capital markets operate without attempts at intervention. They argue attempts to influence exchange rates only make things worse—it is better to allow currencies to reach their market level.

Lack of transparency and involvement. The IMF has been criticized for "imposing policy with little

or no consultation with affected countries.

World Bank

- formal name: International Bank for Reconstruction and Development (IBRD)

- The World Bank has one central purpose: to promote economic and social progress in developing countries by helping raise productivity so that their people may live a better and fuller life.

The World Bank is part of the broader World Bank Group, which consists of five interrelated institutions:

● International Bank for Reconstruction and Development (IBRD) aims to promote economic and social progress in developing countries by helping raise productivity so that their people may live a better and fuller life.

● International Development Association (IDA) typically provides interest-free loans to

countries with sovereign guarantees.

● International Finance Corporation (IFC) provides loans, equity, risk-management tools, and structured finance. Its goal is to facilitate sustainable development by improving investments in the private sector.

● Multilateral Investment Guarantee Agency (MIGA) focuses on improving the foreign direct investment of developing countries.

● International Centre for Settlement of Investment Disputes (ICSID) provides a means for dispute resolution between governments and private investors with the end goal of enhancing the flow of capital.