Incoterms 2010 and International Business - 101
International Business: Environments and Operations, 15e (Daniels et al.)
CHAPTER TWO: THE CULTURAL ENVIRONMENTS FACING BUSINESS
CHAPTER TWO: THE CULTURAL ENVIRONMENTS FACING BUSINESS
OPENING CASE: SAUDI ARABIA’S DYNAMIC CULTURE: THE JAVA LOUNGE—ADJUSTING TO SAUDI ARABIAN CULTURE [See Map 2.1.]
This case provides a striking example of the challenges presented to foreign firms by a pervasive, theocratic, national culture. It shows why companies have had mixed success in Saudi Arabia, a modern yet ancient society grounded in Islamic law, religious convictions, and behavioral traditions. In particular, the case highlights the example of the Java Lounge, a new, up-scale Jeddah restaurant that serves an affluent niche of Saudi consumers. Further, it describes ways in which a variety of foreign firms have adjusted their products, facilities, and operating strategies in order to meet government requirements and yet satisfy the Saudi consumer. It points out numerous paradoxes one may encounter regarding Saudi legal sanctions, purchasing patterns, and attitudes toward work. A key point to make when discussing the case is that even in this very rigid culture, things are changing. For example, a 2008 royal decree allows men and women to mix in the workplace. Although this has not had a dramatic impact in practices, it is the beginning of a potentially more open environment. The case concludes by noting some of the opportunities that exist in Saudi Arabia—either because of or in spite of the contrasts and contradictions found there.
Questions
2.1 Assume you are a manager in a multinational company that needs to send a team of three to five people to Saudi Arabia for about two weeks to investigate the feasibility of selling your products there. What advice would you give them to help assure that cultural problems do not impede their success in this task?
Saudi Arabia is a high context culture; information resides in context, with emphasis on background and basic values. In Saudi Arabia there is less emphasis on legal paperwork and greater focus on personal negotiation. Saudis will not take well to pressure tactics that place them in an uncomfortable position. Confrontation and conflict are to be avoided.
Finally, understanding Islam, which governs every aspect of a Muslim’s life, enhances how and why Saudi business people act or behave in a certain manner. (LO: 1, Learning Outcome: Understanding the methods for learning about cultural environments, AACSB: Multicultural Diversity and Understanding)
2.2 Assume your company is from North America or Europe and considering the establishment of an office in Saudi Arabia. What additional operating costs might it have to assume because of the Saudi culture?
Because Muslim men are called to prayer five times a day, business will normally cease operation during those periods. (LO: 2, Learning Outcome: Grasp the major causes of cultural differences and change, AACSB: Multicultural and Diversity Understanding)
CLOSING CASE: TESCO PLC: Leveraging Global Knowledge
Tesco PLC is a British multinational grocery and general merchandise retailer headquartered in the United Kingdom. It is the second largest retailer in the world measured by profits and the third largest retailer measured by revenues. It has stores in 14 countries across Asia, Europe, and North America and is the grocery market leader in the UK, Malaysia, the Republic of Iceland, and Thailand.
Tesco’s international expansion strategy has responded to the need to be sensitive to local expectations in other countries by entering into joint ventures with local partners, such as Samsung group in South Korea, also making sure to appoint significant portion of local personnel to management positions as part of their internationalization strategy, referred to as the TESCO Project.
Questions
2.3 The United States and France are more culturally similar to the UK than are Thailand and Korea, yet TESCO failed in the former two and has been highly successful in the latter two. How might you explain this difference?
Tesco realized that business strategies that were successful in the UK would only be successful if they were given a local flavor. The company learned that it was important to hire local staff. Also, in France, sophisticated and fashionable customers did not like the garments styled in a typically British manner. While in the United States, Tesco focused on ready meals that required higher spending as compared to ordering takeout or cooking from scratch. This was a habit in Europe, but not in the U.S. and unfortunately they attempted to introduce this concept during the recession, when many people had time and little money. (LO: 1, Learning Outcome: Understand methods for learning about cultural environments, AACSB: Multicultural and Diversity Understanding)
2.4 In the context of global retailing, describe what you think is meant by “utilizing the skill and scale of the group.”
Tesco realized that business strategies that were successful in the UK would only be successful if they were adapted to the local market. They realized that it was important to hire local staff in many of the management positions taking advantage of their expertise, and to also adapt product offering to local market tastes. (LO: 3, Learning Outcome: Discuss behavioral factors influencing countries’ business practices, AACSB: Multicultural and Diversity Understanding)
2.5 What is the role of global teams in sharing best practices across a firm’s global operations? What advice would you give to make the teams more effective?
As these teams came together, their diverse background, perspectives, and experiences enabled the business to gain a deeper knowledge of products and services and how to create and deliver them. Because many of these teams come from diverse cultures, it may be difficult for individuals to interact with each other. So, I might suggest a form of cultural awareness and sensitivity training to make these teams more effective. (LO: 2, Learning Outcome: Grasp the major causes of cultural difference and change, AACSB: Reflective Thinking)
2.6 What cultural skill sets are needed for individuals from multiple cultures to share best practices across the global group?
Companies are more global and employee groups more diverse than ever before. Being a good communicator is important. Learning a language may be a good start in improving cultural communication skills, but it is not enough. You also need to pick up on nonverbal skills because it is an important part of getting to know how other cultures convey messages. Also, gestures may mean completely different things in different countries. Cross-cultural competence also comes in to play in management styles. For example, participative management may not be the best solution to use in some settings. (LO: 4, Learning Outcome: Recognize the complexities of cross-cultural information differences, especially communications, AACSB: Multicultural and Diversity Understanding)
2.7 What are some things an MNE can do to facilitate knowledge sharing and global integration across its global business?
Actively managing organizational knowledge can stimulate cultural change and innovation by encouraging the free flow of ideas. In this complex global business environment, these programs should be designed to help managers embrace change and encourage ideas and insight, which will often lead to innovation. (LO: 2, Learning Outcome: Grasp the major causes of cultural difference and change, AACSB: Reflective Thinking)
2.8 Look at the TESCO web site. What actually are its businesses and what do you think this tells us about its internationalization trajectory?
Initially a UK-based grocery retailer, TESCO has increasingly diversified into areas such as book retailing, clothing, electronics, furniture, software, financial services, and Internet services. They view retail as local because cultures, tastes, climates, and regulations are all different, but they do feel that the core skills that they have learned in one place can be applied in others. (LO: 6, Learning Outcome: Grasp the diverse ways that national cultures may evolve, AACSB: Reflective Thinking)
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