Cross-Cultural Practices in Business and Finance: Frameworks and Skills 3031064399, 9783031064395

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Frameworks and Skills

Binod Sundararajan Oksana Shkurska & Shannon Lin

Cross-Cultural Practices in Business and Finance

Binod Sundararajan · Oksana Shkurska · Shannon Lin

Cross-Cultural Practices in Business and Finance Frameworks and Skills

Binod Sundararajan Dalhousie University Halifax, NS, Canada

Oksana Shkurska Dalhousie University Halifax, NS, Canada

Shannon Lin Dalhousie University Halifax, NS, Canada

ISBN 978-3-031-06439-5 ISBN 978-3-031-06440-1 (eBook) https://doi.org/10.1007/978-3-031-06440-1 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustration: © Arthimedes/shutterstock This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Acknowledgments

Binod Sundararajan’s Acknowledgments I would like to first acknowledge both my co-authors Dr. Oksana Shkurska and Dr. Shannon Lin, for agreeing to take this journey with me and help co-create a one-of-a-kind, from the scratch textbook aimed at the International & Intercultural Management and International Business practices space. Their talent and knowledge have helped enhance this work and has resulted in the creation of a unique book, by immigrant academics to Canada, diverse perspectives of people who have lived, traveled, and worked in multiple countries and bring their rich, lived experiences into this textbook. I would like to thank our Faculty of Management that has helped nurture a fertile and nurturing environment to enable such efforts. A huge thank you to Marcus Ballenger and Geetha Chockalingam of Palgrave Macmillan for their help and support during the writing process. I would like to thank my wife Dr. Alamelu Bharadwaj, a renowned Cancer researcher in her own right, and my two children Lara and Mithra, for giving me the love and the space to forego spending time with them and allowing me to take these leaps of creative endeavor. I would like to thank my father, late, Mr. Sundararajan Parthasarathy, my mother Komala Sundararajan, sister Dr. Malavika Sundararajan, brother Sharad Sundararajan, and sister-in-law Shreya Amin, for their constant support and cheerleading.

Oksana Shkurska’s Acknowledgments I would like to acknowledge Kim Brooks, the Dean of the Faculty of Management (now an Acting Provost and Vice-President Academic at Dalhousie University), and Mike Smit, the Acting Dean of the Faculty of Management, for their continuing support and encouragement. Special thanks go to Linda Macdonald, a very good colleague and friend who is always full of innovative teaching ideas and inspiration. I also wish to thank Marcus Ballenger, a senior editor, and Geetha Chockalingam from Palgrave Macmillan for their patience and guidance during the whole writing process. v

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Acknowledgments

Finally, I would like to thank my husband Serge and my daughter Dasha who never fail to support and push me to move forward.

Shannon Lin’s Acknowledgments I would like to thank my co-authors Dr. Binod Sundararajan and Dr. Oksana Shkurska for their intellectual contributions, as well as support and patience throughout the writing of this book. I also wish to thank my husband Dr. Lorn Sheehan and my daughters Caroline and Linnette for their love and encouragement.

Contents

1

2

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PESTLE (STEEPLE, PESTEL, PESTLIED, SLEPT, LONGPESTLE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Political Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Economic Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sociocultural Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hofstede’s Cultural Dimensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Technological Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Environmental Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Waterbody Innovations and Technologies Inc. (WITI) . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Political, Economic, and Cultural Climate of International Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Perceptions of Business Across Cultures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Types of Economies that Have Flourished Across Cultures . . . . . . . . . . . Market Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State Capitalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributed Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Culture vs. Organizational Culture . . . . . . . . . . . . . . . . . . . . . . . . . . National Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Organizational Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Does Culture Override Business Strategy? . . . . . . . . . . . . . . . . . . . . . . . . . . . Cultural Sensitivity, Diversity Training, and Truly Benefiting from a Culturally Diverse Workforce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unconscious Biases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Affinity Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Confirmation Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attribution Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conformity Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Halo Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 3 5 5 6 6 8 9 9 12 14 15 16 17 21 22 22 22 23 23 25 26 28 29 29 29 30 30 30 vii

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The Horns Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contrast Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gender Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ageism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Name Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beauty Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Height Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gaslighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Micro-aggression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30 31 31 31 32 32 32 32 33 35

3

Culture Shock, Work, and Study Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . Read and Reflect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Is Culture Shock? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oberg’s Culture Shock Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kim’s Adaptation Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bennet’s Developmental Model of Intercultural Sensitivity (DMIS) . . . Berry’s Acculturative Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cultural Intelligence and Intercultural Adaptation . . . . . . . . . . . . . . . . . . . . Coping with Culture Shock and Stress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Practical Recommendations/Survival Tips . . . . . . . . . . . . . . . . . . . . . . Culture Shock and Business Jargon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Online Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37 37 39 40 42 43 44 44 46 48 48 50 51

4

Ethics and Ethical Dilemmas Across the Globe . . . . . . . . . . . . . . . . . . . . . Globalization and Ethics of International Business . . . . . . . . . . . . . . . . . . . Cultural Differences in Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Guidelines for Ethical Decision-Making Across Cultures . . . . . . . . . . . . . Corporate Social Responsibility (CSR) and Sustainable Development Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Online Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53 55 56 57

The Role of Technology in Doing Business Across Cultures . . . . . . . . . What Is Technology? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Connected Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Social and Professional Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributed Networks and Virtual Teams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Challenges to VTs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The ConnecT Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dealing with Complexities and Contexts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Types of Leaders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Types of Tasks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Integrate Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Creating a Sense of Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

67 68 69 70 73 74 75 76 77 78 78 79

5

61 65 65

Contents

ix

Types of Conflict Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Co-activate Leaders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disruptive Technologies and Adoption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

79 84 88 89 91

Accounting Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounting: The Language of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Brief History of the Double-Entry Accounting System . . . . . . . . . . . . . The Usefulness of Accounting Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Role of Financial Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Types of Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Is Accounting Fraud? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Types of Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Infamous Past Scandals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enhanced Regulation: The Sarbanes-Oxley Act . . . . . . . . . . . . . . . . . . . . . . Why Accounting Frauds Matter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current Accounting Practice and GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . One Common Standard: IFRS Adoption Around the World . . . . . . . . . . . Accounting, Legal Structure, and Tax Considerations for Operations Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recent Trend Away from Globalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93 94 95 96 97 97 98 99 99 100 101 102 103

7

Banking and Financial Markets Around the Globe . . . . . . . . . . . . . . . . . Brief History of Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity and Bond Markets Around the Globe . . . . . . . . . . . . . . . . . . . . . . . . . What Is a Bond? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Is Equity? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Why Banking Regulation Is Necessary . . . . . . . . . . . . . . . . . . . . . . . . . Regulation Full Disclosure (Reg FD) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Technological Disruptions to Banking and Financial Markets . . . . . . . . . Cryptocurrencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Central Bank-Issued Digital Currency (CBDC) . . . . . . . . . . . . . . . . . Global Financial Contagion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Listing a Business Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

109 110 110 111 111 112 113 113 114 116 117 118 120

8

Negotiating Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Who Is Involved in Negotiations? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Steps in Intercultural Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Communication Style . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Survival Tips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-Term Versus Short-Term Orientation . . . . . . . . . . . . . . . . . . . . . . . . . . . Negotiation Tactics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forms of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

121 123 124 124 130 130 132 132

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104 105 108

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Team Building and Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Approaches to Conflict and Conflict Management Strategies . . . . . . . . . . Approaches to Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Developing Intercultural Negotiation Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . Online Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

135 136 137 139 142 143 144

International Organizational Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Organizational Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multinational Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How a Multinational Corporation (MNC) Works . . . . . . . . . . . . . . . . . . . . . Foreign Investment (FDI—Foreign Direct Investment) . . . . . . . . . . . . . . . . Mergers and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Joint Ventures (JV) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Market Entry Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential Export Challenges and Factors . . . . . . . . . . . . . . . . . . . . . . . . Planning to Enter International Markets . . . . . . . . . . . . . . . . . . . . . . . . Other Modes of International Market Entry . . . . . . . . . . . . . . . . . . . . . Emerging Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cultural Considerations in Advertising . . . . . . . . . . . . . . . . . . . . . . . . . People—Expatriates, Host-Country Nationals, Third-Country Nationals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Business Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Incoterms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

145 146 147 147 148 149 149 150 151 151 152 152 154

10 Bringing It All Together . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Together, From Aways© . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Core Principles from Around the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Themes of Christian Social Teachings (Estimated at About 2.4 Billion Followers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Five Pillars of Islam and Social Teachings (Estimated at About 1.9 Billion Followers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic Tenets of Hinduism (Estimated at About 1.2 Billion Followers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principles of Buddhism (Estimated at About 0.5 Billion Followers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Seven Principles of Kwanzaa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principles of Ubuntu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cultural Practices Around the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Flowers to a Russian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gifts to Chinese Classmates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Avoid Salt While Dining in Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Concept of Punctuality in Many States . . . . . . . . . . . . . . . . . . . . . . . . .

161 162 163

9

154 156 156 157 160

163 163 164 164 165 165 166 166 166 166 167

Contents

Table Manners in Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Using Sharp Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Losing a Tooth in Greece . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Avoid Clinking Glasses but Say Cheers in Hungary . . . . . . . . . . . . Avoid Discussing Business in the Events in Bolivia . . . . . . . . . . . . Don’t Try to “Go Dutch” in Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . Avoid Using Red Ink . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Trip to the Sauna in Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sitting Seat in the Taxi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Greeting a Magpie in the UK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Birthday Greetings in the Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . Greeting People in Japan and Germany . . . . . . . . . . . . . . . . . . . . . . . . The Finger-Pulling Tradition in Austria . . . . . . . . . . . . . . . . . . . . . . . . The Tradition for Unmarried People in Germany . . . . . . . . . . . . . . . Face on a Birthday Cake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wife-Carrying as a Competitive Sport . . . . . . . . . . . . . . . . . . . . . . . . . . Durga Puja in Bengal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lucia Festival of Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yi Peng in Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fasching Parade in Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shinbyu in Myanmar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How Does One Acquire Cultural Sensitivity? . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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167 167 167 167 168 168 168 168 168 169 169 169 169 169 169 170 170 170 170 170 171 171 172 173

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

About the Authors

Dr. Binod Sundararajan, Ph.D. is a Professor of Management at the Rowe School of Business, Dalhousie University. He received his doctorate from Rensselaer Polytechnic Institute, NY in Communication & Rhetoric. He has an M.S. in Electrical Engineering and B.E. in Electronics & Communication Engineering. His research interests lie in organizational, professional, and business communication; computer-mediated communication; CSCW, CSCL, social network analysis, sensitivity training around EDI, and intercultural and international management practices. He conducts research in adoption and diffusion of mediated technologies, use of CMC in such diverse areas as entrepreneurship, justice, teaching, collaborative work and learning and management education, and historical data analysis. He has 30 publications (peer-reviewed journals, peer-reviewed book chapters & conference proceedings), over 60 national and international conference presentations, several research grants, and has authored a textbook, Lean, Ethical Business Communication. He teaches Business Communication, Corporate Communication, International & Intercultural Management, Management Skills Development at the undergraduate level, and Managing People and Sustainable Leadership at the Graduate M.B.A. level. He has over 10 years of industry experience and over 13 years of academic experience, as a researcher, teacher, and about seven years in administrative roles. Oksana Shkurska, Ph.D. is an Assistant Professor at Rowe School of Business, Dalhousie University, with a Ph.D. in Linguistics and Master’s in Education. She has 18-year experience teaching a variety of courses at a university level, including Business Communication, Intercultural and International Management, Intercultural Communication, and Business Ethics & CSR. Her research interests focus on overcoming barriers to effective intercultural communication, in particular, the role of politeness strategies in establishing trust with culturally diverse stakeholders, successful intercultural transition and adaptation, ethical communication, and negotiation across cultures. In addition to teaching and conducting research, Dr. Shkurska has industry experience in managing human resources in a multinational company.

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About the Authors

Shannon Lin , Ph.D. is an Associate Professor of Accounting at the Rowe School of Business, Dalhousie University. Dr. Lin obtained her Ph.D. from the Queen’s School of Business at Kingston, Ontario. She has an undergraduate degree in Commerce and a Master of Science degree in Finance. She is an award-winning researcher, with current research interests primarily in financial accounting and corporate finance. Her work has been published in outlets such as the Journal of Banking and Finance, the Canadian Journal of Administrative Sciences, the Financial Review, the Global Finance Journal, and the Journal of Economics and Business. She has taught corporate finance and financial accounting courses at undergraduate and graduate levels. Dr. Lin’s industry experience includes working at Toronto Hydro Corporation and State Street Corporation in Boston.

List of Figures

Fig. 1.1 Fig. 1.2

Fig. 1.3

Fig. 1.4 Fig. 2.1 Fig. 2.2 Fig. 2.3 Fig. 2.4 Fig. 2.5 Fig. 2.6 Fig. 2.7

Fig. 2.8 Fig. 3.1 Fig. 3.2 Fig. 3.3 Fig. 3.4 Fig. 3.5 Fig. 3.6 Fig. 3.7

PESTLE variants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Competing values framework—Quinn and Rohrbaugh (1983). https://www.artstrategies.org/2012/12/the-compet ing-values-framework/ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EDC’s trade confidence Index on key markets to export to—https://www.edc.ca/en/article/trade-confidence-index. html . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WITI top management organization chart . . . . . . . . . . . . . . . . . . . . . MSCI classification of markets—https://www.msci.com/ our-solutions/indexes/market-classification . . . . . . . . . . . . . . . . . . . . United Nations Sustainable Development Goals—UN SDGs (https://sdgs.un.org/goals) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deal and Kennedy—corporate culture—macho & work hard/play hard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deal and Kennedy—corporate culture—bettering and process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Handy—organizational culture—power and role . . . . . . . . . . . . . . Handy—organizational culture—task and person . . . . . . . . . . . . . . Durier-Copp, Sundararajan, Makani, and Mechoulan (2019)—integrating culture with the Ts—team, task, timeline, and technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Types of diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oberg’s U-Curve model (Source Based on Oberg [1960]) . . . . . . W-curve adaptation model (Source Based on Oberg [1960] and Gullahorn and Gullahorn [1963]) . . . . . . . . . . . . . . . . . Kim’s Stress-Adaptation-Growth Theory (Source Based on Kim [2001]) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bennett’s developmental model of cultural sensitivity (DMIS) (Source Based on Bennet [2013]) . . . . . . . . . . . . . . . . . . . . Berry’s acculturation model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cultural intelligence components (Source Based on Thomas [2006]) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The development of CQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

7

11 13 18 20 25 26 26 27

28 34 40 41 42 43 45 45 47 xv

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Fig. 4.1 Fig. 4.2 Fig. 4.3 Fig. 5.1 Fig. 5.2 Fig. 5.3 Fig. 5.4 Fig. 5.5 Fig. 8.1 Fig. 8.2 Fig. 8.3 Fig. 8.4 Fig. 8.5 Fig. 8.6 Fig. 8.7 Fig. 8.8 Fig. 8.9 Fig. 8.10 Fig. 8.11 Fig. 8.12 Fig. 8.13 Fig. 8.14 Fig. 8.15

List of Figures

Consequences of corruption (Comte et al., 2005) . . . . . . . . . . . . . . Donaldson’s (1992) moral languages (Source Cullen and Parboteeah [2014]) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Carroll’s pyramid of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The ConnecT framework (Durier-Copp et al., 2019) . . . . . . . . . . . ConnecT framework—dealing with complexities and contexts and the Ts (Durier-Copp et al., 2019) . . . . . . . . . . . . ConnecT framework—integrating culture with the Ts (Durier-Copp et al., 2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ConnecT Framework—managing conflict and the Ts (Durier-Copp et al., 2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ConnecT Framework—effective communication with the Ts (Durier-Copp et al., 2019) . . . . . . . . . . . . . . . . . . . . . . . . Engagement in negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Steps in intercultural negotiations (Based on Cullen & Parboteeah [2014]) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Factors that influence intercultural negotiations . . . . . . . . . . . . . . . Differences between high-context and low-context cultures based on Hall (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eye contact across cultures (Samovar et al., 2013) . . . . . . . . . . . . Touching across cultures (Axtell, 1998 as cited in Suderman, 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nonverbal communication and the use of “no” in Japanese, American, and Brazilian cultures . . . . . . . . . . . . . . . . . Long-term versus short-term orientation cultures (Hofstede, 1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commonly used ploys during negotiation (Cullen & Parboteeah, 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Differences in forms of agreement across cultures (Hall, 1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . High-power distance versus low-power distance societies (Hofstede, 1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Approaches to conflict (Samovar et al., 2013) . . . . . . . . . . . . . . . . . Differences in Conflict Management Strategies (Ting-Toomey & Kurogi, 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferences in conflict management strategies . . . . . . . . . . . . . . . . . Monochronic versus polychronic cultures (Hall, 1976) . . . . . . . . .

58 60 61 76 77 78 80 81 124 125 126 126 128 128 129 130 133 134 135 137 138 138 139

List of Tables

Table 5.1 Table 5.2

Table 9.1 Table 9.2 Table 9.3

Managing individual and corporate identities on social networking sites (Sundararajan & Macdonald, 2016) . . . . . . . . . . 72 Managing individual and corporate identities on professional networking sites (Sundararajan & Macdonald, 2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Expatriates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 Host-country nationals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Third-country nationals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

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Introduction

The Introduction section will lay out broadly, not only the scope of the textbook, but also provide instances of the complexities and uncertainties that can develop when people do business across borders and across cultures. For example, what can businesses do when there is a potential for a global pandemic to which governments do not yet have an organized response? Would technology be able to come to the rescue? Possibly, at the least for meetings across time zones. However, what about supply chain-related issues? Movement of goods across borders can be affected, resulting in shortages in goods or other equipment and resources to make goods. If the movement of people is affected, even for a few months, the tourism industry, a lifeline for many smaller countries with little else to produce or offer to the world, can be seriously affected. Financial markets are very sensitive to global events, political events, and force majeure (acts of God) are part of all international contracts for trade. The trickle-down effect of even a few months of downturn in businesses can be devastating for many small and medium-sized (SME) businesses. People generally want a peaceful and predictable life. But local and global events often tend to make people nervous and very quickly they revert to type, i.e. protective of the local and shunning of the global. Backlash occurs when dominant cultures, usually ignorant, misinformed, or misled, start openly antagonizing minority populations, often ascribing blame for their country’s misfortunes (slowing down of global trade affects imports and exports alike) on the presence of the minorities amidst them. In one fell swoop, all the good work done to integrate newcomers to countries will be wasted and people must start all over again. Moving beyond just posing these questions, the introduction will aim to prepare the students, specifically, to understand cross-cultural nuances beyond just the usual discussions of high vs. low contexts, power distance, uncertainty avoidance, and such dimensions of cross-cultural interactions. These cultural dimensions, introduced in this Chapter, but treated more thoroughly in Chapter 3, will be

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 B. Sundararajan et al., Cross-Cultural Practices in Business and Finance, https://doi.org/10.1007/978-3-031-06440-1_1

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Introduction

woven across the textbook and will form the background for presenting and discussing chapter concepts. Broadly, the textbook will also aim to equip students and readers with very useful and practical information that will allow them to use this knowledge and build towards proactive behaviors when doing business across cultures. Each chapter will discuss broadly major cultural aspects of business practices in the different regions around the world but provide specific examples and scenarios involving different types of businesses in specific countries and specifically treat the aspect of accounting and international finance and banking practices in Chapters 6 (Accounting Practices) and 7 (Banking and Financial Markets around the globe). It would be a steep challenge to discuss every country in the world, but there would be sufficient information provided to allow students to begin asking the right questions when faced with the opportunity to work with people from other cultures, be it in their home countries or in a host country halfway around the world. Using both theories to provide context and allowing for current research in the topics to inform the students, and with real examples from several crosscultural business operations, the content in each chapter will lead and scaffold students towards a better understanding of the need for such an approach and help create a mindset that takes into account, adaptability, awareness of complexities, uncertainties, and an openness and eagerness to learn about the different cultures and making working globally and locally, a richer experience. In this book we will explore and lay out business, financial, cultural, and media use practices across different countries and cultures. Similar ideas have been made available to the academic and practitioner communities via textbooks on International and Intercultural Communication & Management, Global Business Practices, and online articles on how to do something or how not to do something when interacting with people across cultures, particularly in the context of a business meeting or collaboration. These books make an excellent case for the ideas professed, using established and not so well-established theories about highcontext and low-context cultures, collectivist and individualist cultures, cultural norms, practices, and expectations. However, while we will discuss these aspects and frameworks in the earlier chapters, our purpose in writing this book is to provide very practical and situational examples involving countries and regions around the world that will serve as a starting point for business professionals, academics, and students (on exchange, new job opportunities etc.) to learn about the cultural and business practices of people from different backgrounds, ethnicities, diversities, educational levels, and social strata and hierarchies. Towards this effort, we will integrate the discussion of chapter concepts within the context of these cultural frameworks. We will include discussions on how academics can be supportive and encouraging of the international students in their classrooms and how practitioners can help their international recruits/employees (in house or as part of their global teams) feel that they belong to the team and the organization. As we write these chapters, the world entered the second year of being gripped by the pandemic, COVID-19 variants are causing several waves of infection surges, the world’s supply chains have been disrupted, and global and national businesses

PESTLE (STEEPLE, PESTEL, PESTLIED, SLEPT, LONGPESTLE)

3

and governments are dealing with new realities and new ways of doing things, particularly, transacting business across countries and continents. While saving the lives of citizens of every country is the topmost priority of every government on the planet, these governments also need to ensure that their country’s economic engines, businesses, continue to operate and survive disruptions and continue to contribute to national GDP’s (Gross Domestic Product). Additionally, as the book has neared publication, we have emerged from the pandemic, but the threat of variants still looms over people and nations, and travel across and between countries has been plagued by airline fare hikes, increases in the prices of gasoline, commodities, and goods, coupled with surging inflation and recession in many countries. In our treatment of the various aspects of cross-cultural business and financial practices, we will adopt the following approach: 1. At the broad level, we adopt PESTLE (variously PESTEEL, LESTEEP etc. which we will shortly elaborate upon). 2. Consider mini cases and follow the progress of a fictitious North American multinational company (MNC) that has plans to enter several global, developed, and emerging markets. Where suitable, some of the chapters have mini scenarios or cases, involving other fictitious events, companies, and people. These are based on real life events, characters, and multinational organizations. 3. Use fictitious characters, employees of the N. American MNCs, as they navigate cross-cultural business and financial practices and the lessons they learn. 4. And, have the COVID19 Pandemic as a backdrop to the changing global dynamics, but also touch upon key global issues like Climate Change, Equity, Diversity, and Inclusion (EDI), Corporate Social Responsibility (CSR), the United Nations Sustainable Development Goals (UN SDGs), Carbon Trading/Offset, Cryptocurrencies, use of Blockchain (distributed ledger systems) in shipping, logistics, and many organizations, the increasing use of Artificial Intelligence (AI or Machine Learning) in business processes, and many such future trends and cycles that are interconnected with doing business anywhere on the planet.

PESTLE (STEEPLE, PESTEL, PESTLIED, SLEPT, LONGPESTLE) Among the many assessments or analyses of markets, whether they are domestic or international, the PEST or PESTLE approach has allowed organizations to consider the broadest possible set of factors to consider when they plan to expand the organizational footprint into these markets. Figure 1.1 describes some of the variants of this approach—that consider Political, Economic, Sociological (or Sociocultural), Technological, Legal, Ethical/Environmental (PESTEL or PESTEEL) factors in a bid to aid the organization in long-range planning and adapting the business to the potential new market or environment. These factors play an even more important

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Introduction

Fig. 1.1 PESTLE variants

role when the organization wishes to conduct business in international markets where business practices intertwine with the cultural norms of that country. Strategists have also regularly conducted a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis of their organizations to assess how the organization is positioned with respect to the market, the industry in which it operates, the competitors, and other factors. Typically, the Strengths and Weaknesses are internal to the organizations, while Opportunities and Threats are external to the organization. Both these approaches (SWOT and PESTLE) have different areas of focus. While the PESTLE approach looks at factors that might influence or impact a business decision, a market entry option, or even whether to start a new business, the SWOT typically is used to look at factors that influence or impact a specific business, product line, or product level. Since they complement each other, they are often used together to allow a business to consider a broad range of factors as they plan to expand their footprint. The Corporate Finance Institute (corporatefinanceinstitute.com) defines PESTEL as a strategic framework used to evaluate the external environment of a business by breaking down the opportunities and risks into Political, Economic, Social, Technological, Environmental, and Legal factors. PESTEL Analysis can be an effective framework to use in Corporate Strategy Planning and for identifying the pros and cons of a Business Strategy. The PESTEL framework is an extension of the PEST strategic framework, one that includes additional assessment of the Environmental and Legal factors that can impact a business. We will now explore each of the components of the PESTEL.

5

Political Factors When considering doing business in an international setting, some of the early inputs required by organizations will be around the geopolitical environments between the home country (where the business is currently situated) and the destination country (our countries). The answers to the following sets of questions will then provide the necessary inputs for the business decision to expand to the desired international market. . When is the country’s next local, state, or national election? How could this change government or regional policy? . Who are the most likely contenders for power? What are their views on business policy, and on other policies that affect your organization? . Depending on the country, how well developed are property rights and the rule of law, and how widespread are corruption and organized crime? How are these situations likely to change, and how is this likely to affect you? . Could any pending legislation or taxation changes affect your business, either positively or negatively? . How will business regulation, along with any planned changes to it, affect your business? And is there a trend towards regulation or deregulation? . How does government approach corporate policy, corporate social responsibility, environmental issues, and customer protection legislation? What impact does this have, and is it likely to change? . What is the likely timescale of proposed legislative changes? . Are there any other political factors that are likely to change?

Economic Factors Economic Factors consider the various aspects of the economy, and how the outlook on each area could impact your business. These economic indicators are usually measured and reported by Central Banks and other Government Agencies. . How stable is the current economy? Is it growing, stagnating, or declining? . What is the unemployment rate? Will it be easy to build a skilled workforce? Or will it be expensive to hire skilled labor? . Are there any other economic factors that you should consider? . Are key exchange rates stable, or do they tend to vary significantly? . Do consumers and businesses have easy access to credit? If not, how will this affect your organization? . Are customers’ levels of disposable income rising or falling? How is this likely to change in the next few years? . How is globalization affecting the economic environment?

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Sociocultural Factors Are concerned with the cultural and demographic trends of society. Social and cultural norms and pressures are key to determining consumer behavior, i.e. what do people in that country prefer, how do they prefer things, what sociocultural practices determine buying and adopting behaviors for products produced in other countries, etc. . What is the population’s growth rate and age profile? How is this likely to change? . Are generational shifts in attitude likely to affect what you’re doing? . What are your society’s levels of health, education, and social mobility? How are these changing, and what impact does this have? . What employment patterns, job market trends, and attitudes toward work can you observe? Are these different for different age groups? . What social attitudes and social taboos could affect your business? Have there been recent sociocultural changes that might affect this? . How do religious beliefs and lifestyle choices affect the population? . Are any other sociocultural factors likely to drive change for your business? The Competing Values Framework—1983 was created by R.E. Quinn and J. Rohrbaugh, from their research into organizational culture and leadership (Fig. 1.2). . The CVF was created to help an organization understand its culture, and to determine what makes it truly effective. . The model is based on the finding that most organizations can be described using two dimensions, represented by a horizontal and vertical axis each running between opposite or “competing” values. . In practice, this means that even the most transformational and innovative companies have somewhat predictable patterns. . What’s great about the CVF is that it helps organizations to locate their starting point, and to predict what tensions and trade-offs they can expect when implementing change.

Hofstede’s Cultural Dimensions In 2001, Geert Hofstede proposed one of the most comprehensive studies on how values in the workplace are influenced by culture. While revisions of this approach are ongoing, it is important to understand that any measure of values is a snapshot

Sociocultural Factors

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Fig. 1.2 Competing values framework—Quinn and Rohrbaugh (1983). https://www.artstrategies. org/2012/12/the-competing-values-framework/

in time and constantly evolves. Hofstede defines culture as “the collective programming of the mind distinguishing the members of one group or category of people from others” and proposed a six-dimension model, with a caveat that all individual members of a society are unique and so the country scales are only meaningful for comparison purposes and as a first step towards a broad understanding of the major cultural aspects of a country. The second caveat is that even if a certain country’s characteristics can be assessed on a broad scale, there are likely to be many within-country differences in regions, dialects, ways of doing things, and behavior. We provide this here as a brief introduction and the cultural aspects are treated more thoroughly in Chapter 3. Hofstede’s six cultural dimensions are: . Power distance—the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally . Individualism—the degree of interdependence a society maintains among its members . Masculinity—The fundamental issue here is what motivates people, wanting to be the best (Masculine) or liking what you do (Feminine) . Uncertainty Avoidance—The extent to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions that try to avoid these

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. Long Term Orientation—Describes how every society has to maintain some links with its own past while dealing with the challenges of the present and future . Indulgence—The extent to which people try to control their desires and impulses. The website Hofstede-Insights (https://www.hofstede-insights.com/product/com pare-countries/) allows as to perform broad, country level comparisons, again as an initial step towards gaining a much deeper understanding of the various aspects of that country. One can also view these dimensions in comparison to their most likely opposites. . . . . . .

Power Distance Index (high versus low). Individualism Versus Collectivism. Masculinity Versus Femininity. Uncertainty Avoidance Index (high versus low). Long- Versus Short-Term Orientation. Indulgence Versus Restraint. – Countries with a high IVR score allow or encourage relatively free gratification of people’s own drives and emotions, such as enjoying life and having fun. – In a society with a low IVR score, there is more emphasis on suppressing gratification and more regulation of people’s conduct and behavior, and there are stricter social norms

We will discuss these aspects of cultural and cultural intelligence in the next chapter.

Technological Factors Technological factors are linked to innovation in the industry, as well as innovation in the overall economy. Not being up to date to the latest trends of a particular industry can be extremely harmful to operations. Technological factors include the following: . . . .

Research and Development Activity Automation Technological Incentives The Rate of change in technology

Environmental Factors

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Legal Factors There is often uncertainty regarding the difference between political and legal factors in the context of a PESTEL analysis. Legal factors pertain to any legal forces that define what a business can or cannot do. Political factors involve the relationship between business and the government. Political and legal factors can intersect when governmental bodies introduce legislature and policies that affect how businesses operate. . . . . . . . .

Consumer law. Employment law. Discrimination law. Fraud law. Copyright law. Pyramid scheme legality. Health and Safety law. Import/Export law.

Environmental Factors Environmental factors concern the ecological impacts on business. As weather extremes become more common, businesses need to plan how to adapt to these changes. Additionally, there is increasing importance for businesses to be environmentally friendly with their operations, as evidenced by the rise of Corporate Sustainability Responsibility (CSR) initiatives. Examples of CSR initiatives include carbon footprint reduction efforts and transitions into renewable material and energy sources. . Environmental Policies. Environmental policies are considered the major external factor that can impact the strategy of a business. … . Climate Change. … . Green Agenda. … . Pollution. … . Availability of natural resources. … . Recycling. … . Waste Disposal. Sustainable Action for Org Initiative—Change, Sustainability, etc.—Depending on the stakeholder. . Internal stakeholders—evidence-based case for change, persuasive communication, empathetic communication, consistent communication, small wins . External stakeholders

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– Supply Chain—more power—so a different strategy—context cues, again depending on power of the supplier – Partners—equal footing/power—so a different strategy—collaboration – Competitors—important depending on where the primary org is situated in the competitive landscape—industry leader, no ranking, but aspirational – Government—building partnerships, urging change, limiting bureaucracy, ensuring regulations are doing what they are supposed to do vs. strangling innovation, advocacy – NGOs—strategic alliances, lead-follow-lead, partnerships and exchanges, advocacy. This broad overview of the PESTEL allows a business to consider as many factors as possible when they contemplate growing their businesses into international markets. International markets are typically classified as mature markets, emerging markets, and transitioning markets (no longer emerging, but must become a fully mature market). They are also classified as Frontier, Emerging, and Developed (MSCI Market Classification Framework—www.msci.com). Peter G. Hall, Vice President and Chief Economist at Export Development Canada (EDC), in his last commentary of the previous decade (December 19, 2019—https://www.edc.ca/ en/weekly-commentary/surprise-of-the-decade.html), indicates that doing business in international markets (foreign operations) is a great way strengthen domestic employment and operations, provides opportunities for domestic companies to be more competitive, increase both profits and market share, and allows for product and business diversification leading the way for strategic growth. Of course, in retrospect, no one expected the pandemic and the effects it has had on global economies and EDC’s Trade Confidence Index (TCI—https://www.edc.ca/en/art icle/trade-confidence-index.html#) a biannual index arrived at by surveying over 900 Canadian companies, “showcases the concerns and expectations of Canadian exporters for the future and their evolving international strategies”. From a Canadian perspective, the TCI provides information on the key markets for businesses planning to start export operations and Fig. 1.3 provides this information. When considering international markets from a North American perspective, Canada, Mexico, and the United States are key trading partners of one another, with the NAFTA—North American Free Trade Agreement (that came into effect on January 1, 1994) becoming the USMCA (that came into effect on July 1, 2020). From Fig. 1.3, we can see that the US, Canada, Mexico, the UK, Australia, Germany, Spain, France, the Netherlands, and Japan can all be classified as developed markets based on economic development, size and liquidity criteria, and market accessibility criteria, which looks at openness to foreign ownership, ease of capital inflows and outflows, efficiency of the operational framework, availability of investment instrument, and stability of the institutional framework. Brazil and India have long been considered emerging markets but have steadily also been transitioning to mature or developed markets. While the different classifications of international markets exist, companies can always make decisions around which markets to enter or expand into, based on their product or service offerings and

Environmental Factors

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Fig. 1.3 EDC’s trade confidence Index on key markets to export to—https://www.edc.ca/en/art icle/trade-confidence-index.html

other growth strategies that best suit the company. We now look at a fictitious N. American company with existing business operations in the US, Canada, and Mexico (so they can be considered a multi-national company or MNC) and now looking to expand into other international markets. In the next section, we introduce one of the fictitious multinational companies that we will follow in some of the subsequent chapters. This company has been created for the purpose of this book and allows us to see and play out various scenarios that MNCs and its organizational members are likely to face as they

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consider entry into various global markets. Coupled with the discussion earlier of the Trade Confidence Index (TCI) that serves to guide students in their understanding of global markets and international business practices and decisions that need to be taken when faced with PESTEEL-related challenges.

Waterbody Innovations and Technologies Inc. (WITI) Waterbody Innovations and Technologies Inc. (WITI), is an ocean technology company that designs, builds, manufactures, and distributes its cutting-edge software and hardware marine products to three main markets in the United States, Canada, and Mexico. Based in Ocean City in Middle Coastal State, WITI was founded in 2012. Stanley Bhargav, Stella Liang, Olga Shevchenko, and Farhad Nillson, four friends and collegemates, decided to combine their various backgrounds, interest in creating sustainable technology solutions, love of the ocean and marine life, and many collective decades of experiences in international markets and launched the start up. After nearly two years of hard work, perseverance, and patience, they were able to find funding for their venture and ten years later, they were the proud Founding Partners of a company that had over 75 employees and a revenue of around $35 million. While each of the four founding partners had different backgrounds and international experiences, they were clear that having the headquarters in the United States would serve them well and with NAFTA (which later became the USMCA), the company, if it became successful, will be well positioned to do business in all three countries, US, Canada, and Mexico. All four were focused on creating sustainable products and business operations and believed in the quadruple bottom line of society, economy, environment, and culture and increasingly towards another extension to the quintuple bottom line that focuses on sociocultural aspects, environment, economy, ethics, and equity. With this core organizational culture in mind, Bhargav, Liang, Shevchenko, and Nillson built a strong team of senior management (Vice Presidents and Directors), who in turn were entrusted with leading by example and walking the talk. WITI was culturally diverse and there was gender parity across the entire organization, which also ensured that people of all dispositions, orientations, ethnicities, cultures were welcomed and celebrated. The work culture and environment were dynamic and, while not devoid of conflict, still afforded everyone to be heard in the decision-making processes be they strategic or operational. Figure 1.4 provides the organization chart of the top management team at WITI. Bhargav, Liang, Shevchenko, and Nillson had been discussing WITI’s strategic directions and had meetings with the country VPs Jennifer Howe (USA), Latisha Johnson (Canada), and Pedro Pascales (Mexico) about how the business was doing in the three countries. Birgitte Sultan (VP International) was also present at these meetings and had indicated to the Top Management Team (TMT) that it was time that WITI started looking at other international markets. The idea appealed to everyone, considering that competition in the three markets that WITI operated

Waterbody Innovations and Technologies Inc. (WITI)

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Fig. 1.4 WITI top management organization chart

in—USA, Canada, and Mexico, had been steadily increasing and revenue projections were moderate, and the pandemic had an impact on global shipping and supply chains, this may be the right time for WITI to look to enter other international markets. Birgitte Sultan was to make a presentation at an upcoming meeting about possible markets that WITI could explore, prior to entering, the geographical, economic, cultural, and market barriers to entry, and the best options for WITI in the short, medium, and long term for such strategic global expansion. End-of-Chapter Assignments and Exercises-Case Scenarios

Your assignment is to be in the shoes of Brigitte Sultan and select three potential global markets for WITI to enter. Once you have selected the three countries, you need to go to the Hofstede’s Insights’ website and enter the names of the countries and compare them with the US/Canada. Based on the cultural insights you find on the six dimensions, make a short report recommending the best country to start exploring possible business operations with. Once you have done the cultural analysis, respond to the following questions: 1. Why did you choose the country to start business operations with? Remember, you are Birgitte Sultan. 2. Support your recommendation with a short PESTEL analysis.

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3. While actual market entry will probably require more time, make a recommendation to the founding partners on what the initial steps should be? For this you will need to use your knowledge from the Introduction to Marketing or other Marketing courses.

References EDC. Export Development Canada. https://www.edc.ca/en/article/trade-confidence-index.html Hofstede’s Insights. https://www.hofstede-insights.com/product/compare-countries/ MSCI. Retrieved from www.msci.com Quinn, R., & Rohrbaugh, J. (1983). A spatial model of effectiveness criteria: Toward a competing values approach to organizational analysis. Management Science, 29, 363–377. https://doi.org/ 10.1287/mnsc.29.3.363

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The purpose of this chapter is to highlight the key issues that businesses face when planning to do business with organizations in other countries and conversely, the issues faced by people in other countries when having to work in multinational corporations, with coworkers from different countries or be part of virtual teams that consist of people with diverse backgrounds (whether in-country or abroad). These issues both converge and diverge, depending on who is having a vantage position, who is in a position of authority in the organization, what levels of autonomy are given to coworkers, managers, or senior management, and would cultural faux pas be the end of the business deal or be a key determinant of the survival of the organization in the foreign country. Many things in the business world are dependent on the trade-offs that businesses make when negotiating deals, contracts, or business collaborations or even non-governmental operations (charity and volunteer work). These trade-offs or Gets-Gives are a part of doing business, and students can learn whether these trade-offs have a cultural context or a purely business context. What that means is, would people in a foreign country be offended by a seeming lack of appreciation of the local cultures and practices by the employees and managers of the visiting multinational corporation, but look the other way, because doing so would make the country lose potential tax revenues, employment opportunities for its citizens, and possible outlets and customers for its local trades and businesses? Alternatively, would a North American company not do business with, say, a Caribbean or other country, that has undocumented financial practices, where the word is the bond? Understanding the contexts where each organization, currently doing business in different countries or with aspirations to do business in different countries, determines whether its business objectives of entering new markets is of priority over the cultural nuances of the foreign market or that the cultural sensitivity to both its own employees (in-country) and those of the people in the foreign country are a priority and is part of a mature globalization strategy? This begets the discussion around national culture (of the host country and the origin country of the MNC) vs. the organizational culture of the MNC, which will have

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 B. Sundararajan et al., Cross-Cultural Practices in Business and Finance, https://doi.org/10.1007/978-3-031-06440-1_2

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employees belonging to both the host country and the origin country. Additionally, we will begin the discussion around cultural sensitivity and diversity training in organizations, often a reasonable reflection of the communities they exist in. In this discussion, we will discuss racism, bigoty, gaslighting, micro aggressive behavior in organizations as they rally to create culturally inclusive environments in the organization and truly benefit from cross-cultural collaboration. Learning Objectives—This chapter will

1. Provide descriptions of different types of economies prevalent around the world. 2. Introduce the United Nations Sustainable Development Goals—UNSDGS. 3. Provide an overview of important aspects of organizational culture. 4. Introduce the concept of unconscious biases and describe aspects of diversity training. 5. Suggest ways for managers to create an organizational culture that is welcoming, supportive, embracing, and celebratory of all forms of diversity, particularly in cross-cultural workplaces.

Perceptions of Business Across Cultures Business or doing business is the mainstay of most, if not all, economies around the world. People need essential goods and services and want the non-essential ones, regardless of where they live and how much they can afford to pay for these goods and services. While the main functions of governments (local, municipal, state/provincial, regional, or national) are to provide the infrastructure, roads, utilities, security, and regulations for communities to live in, these functions allow small, medium, and large companies to operate, trade, manufacture, and supply these goods and services and by doing so, provide employment for the people in the communities these businesses are located in. These businesses though need to operate under the umbrella of the laws, statutes, and regulations of the countries/regions they operate in, including the payment of business or corporate taxes. When it comes to businesses or other types of organizations, every country needs these organizations to be able to perform their functions to the best of their abilities and the governments provide the frameworks and guidelines for the effective operations of these organizations. In this chapter, we will first look at the different types of economies that have existed and exist currently and what cultural norms they operate under in their respective nations. Organizational strategies are built around the need for effective functioning, the culture within the organization, the cultural in the broader society and they intertwine in practices that can at times seem puzzling to those viewing from the outside but make perfect sense in the context of a nation and its cultural norms and organizational practices.

Types of Economies that Have Flourished Across Cultures

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Types of Economies that Have Flourished Across Cultures The OECD—Organization for Economic Cooperation and Development, states that it is “an international organization that works to build better policies for better lives” (https://www.oecd.org/about/#). It consists of 38 member countries, but many OECD candidates, key partners, and several regional initiatives around the world. There are many definitions of economies, but one common understanding of an economy, as defined by Investopedia, is “An economy is the large set of inter-related production and consumption activities that aid in determining how scarce resources are allocated. In an economy, the production and consumption of goods and services are used to fulfill the needs of those living and operating within it”. How decisions are arrived at by the entities that are engaged in this production and consumption of scarce resources, determines the type of economy and while there are several, a few are most prevalent around the world, and we will look at a few of them. Broadly speaking there are generally three types of economies—command (also known as State Run or Government Run, Centrally Planned), traditional (typically found among indigenous communities around the world—simple exchange or barter-system based), and market (variously known as capitalism, consumer economy, free or private enterprise, or free market). A mixed economy can have each of these types operating at various levels with the government and individuals (or communities) involved in making economic decisions, while a transition economy occurs when a country is moving from one type of economy to another, typically from a command to a market economy. Often the political system extant in a country determines the types of business organizations that can be found in that country and the levels of autonomy for these organizations are regulated by the political system and how much is owned by the government (public sector) and how much is left in the private sector. In addition to classifying economies around the world, to facilitate global trade, many organizations look at these countries as markets of opportunities. To aid that effort, financial institutions such as Morgan Stanley Capital Investments (MSCI), an American company headquartered in New York City, provide knowledge of equity, fixed income, real estate indexes, multi-asset portfolio analysis tools, ESG (Environment, Social, & Governance) and climate change products (www.msci.com). They operate as MSCI World, MSCI All Country World Index, and MSCI Emerging Market Indexes. Every year, MSCI releases a report on the Global Market Accessibility Review and the Annual Market Classification Review (found at this link—https://www.msci.com/our-solutions/indexes/ market-classification). Figure 2.1 illustrates the currently effective classification of markets (as of January 2022) and consists of information received and analyzed on 84 countries around the world. Some of the key drivers of organizations and companies wishing to do business in different countries are employment, wages, competitiveness, strategic growth, and diversification (EDC—Export Development Canada).

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Fig. 2.1 MSCI classification of markets—https://www.msci.com/our-solutions/indexes/marketclassification

. Employment—foreign affiliates strengthen Canadian employment and domestic operations: most firms are hiring more at home because of their foreign operations. . Wages—foreign affiliates enhance the ability of Canadian companies to augment compensation for Canada-based employees: most firms are hiring more at home because of the increased demand that comes from foreign operations, and that hiring is increasingly specialized with higher wages. . Competitiveness—foreign affiliate activity makes Canadian companies stronger: they have better sales, more customers, more profits, and increased market share. . Strategic Growth—the main driver of foreign affiliate activity is strategic revenue growth and improved access to global markets: reducing production costs is not a prime motivator for Canadian companies when setting up operations abroad. . Diversification—foreign affiliates allow Canadian companies to diversify their client base and business model: Canadian companies are increasingly shifting their investments towards emerging markets like China, India, and Brazil at a much greater pace than direct exports.

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While this information is from Export Development Canada, it holds true for most countries around the world where some or all these drivers are at play, motivating organizations to expand to markets outside their home countries. To elaborate more on the various opportunities, it will be good to understand these markets first and then discussing them in the context of the different types of economies. According to MSCI, countries are classified as Frontier, Emerging, or Developed based on the following three criteria: . Economic Development—sustainability of economic development. . Size and Liquidity Requirements—number of companies meeting a standard index criterion. . Market Accessibility Criteria—includes factors such as openness to foreign ownership, ease of capital inflows and outflows, efficiency of operational framework, availability of investment instrument, and stability of the institutional framework. Another source of data on the various international markets and countries is the United Nations Conference on Trade and Development—UNCTAD and the statistics they gather and disseminate for free for individuals and organizations to use as they plan their global market entry strategies (https://unctadstat.unctad.org/EN/ About.html). UNCTAD also releases an SDG Pulse that provides an update on the evolution of a selection of official SDG indicators and complementary data and statistics; provide progress reports on the development of new concepts and methodologies for UNCTAD custodian indicators; and to also showcase, beyond the perspective of the formal SDG indicators. While we will discuss the SDGs a little later, to provide context in this section, we will explore it briefly. In the context of doing business across cultures and understanding cultural and financial practices around the world, the United Nations Sustainable Development Goals (UN SDGs—https://sdgs.un.org/goals) are a critical aspect that needs to be understood. Figure 2.2 illustrates the 17 SDGs and the link above provides more detailed information on each of the goals and what has been achieved so far with these goals. The United Nations Sustainable Development Goals is a collection of 17 global goals to transform our world by 2030 published and adopted by the United Nations in 2015. 1. No Poverty: End poverty in all its forms everywhere. 2. Zero Hunger: End hunger, achieve food security and improved nutrition, and promote sustainable agriculture. 3. Good Health and Well-being: Ensure healthy lives and promote well-being for all at all ages. 4. Quality Education: Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all. 5. Gender Equality: Achieve gender equality and empower all women and girls.

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Fig. 2.2 United Nations Sustainable Development Goals—UN SDGs (https://sdgs.un.org/goals)

6. Clean Water and Sanitation: Ensure availability and sustainable management of water and sanitation for all. 7. Affordable and Clean Energy: Ensure access to affordable, reliable, sustainable, and modern energy for all. 8. Decent Work and Economic Growth: Promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. 9. Industry, Innovation, and Infrastructure—Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation. 10. Reduced Inequalities: Reduce income inequality within and among countries. 11. Sustainable Cities and Communities: Make cities and human settlements inclusive, safe, resilient, and sustainable. 12. Responsible Consumption and Production: Ensure sustainable consumption and production patterns. 13. Climate Action: Take urgent action to combat climate change and its impacts by regulating emissions and promoting developments in renewable energy. 14. Life Below Water: Conserve and sustainably use the oceans, seas, and marine resources for sustainable development. 15. Life on Land: Protect, restore, and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss. 16. Peace, Justice, and Strong Institutions: Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable, and inclusive institutions at all levels. 17. Partnerships for the Goals: Strengthen the means of implementation and revitalize the global partnership for sustainable development.

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When we see how the UN SDGs have been created and how they are crucial for all markets and all economies for they impact every aspect of humans engaged in productive work and organization for the betterment of their lives, their societies, the environments in which they live in, and their nations. With this context, we now explore the different economies prevalent around the world.

Market Economies As we presented earlier, a market economy is one in which individuals answer the economic questions and market forces are allowed to operate; also called capitalism, capitalist economy, consumer economy, free enterprise, free market economy, and private enterprise. While no country is a truly free market economy, in a general free market economy individuals and companies buy and sell with a relatively little, but enough governmental regulations. We will discuss regulations subsequently, but at this point it is good to be aware that a certain amount of regulations are required in order to provide for some level of standardization and boundaries within which organizations can operate and individuals and companies can have protection and recourse for legal action. The World Population Review (www.worldpopulationreview.com) defines a market economy as, “a system driven by self-interest in which economic decisions (investment, production, and distribution) are guided by the pricing of goods and services, which are determined by individuals and businesses and which rely on the forces of supply and demand to determine the prices and the quantities of goods and services that need to be produced”. They list six characteristics of market economies: 1. 2. 3. 4. 5. 6.

Private property Freedom of choice Motive of self-interest Competition System of markets and prices Limited government.

However, most countries have mixed economies, where some element of the economy is owned and operated by the government, while many other enterprises are privately owned by individuals or publicly traded corporations and with the central government having little interference or interventions with these enterprises, other than taxation and possibly providing some benefits in the form of reduced taxes and broad regulations. Some of the top free market economies in the world are Hong Kong, Singapore, New Zealand, Switzerland, the United States, Ireland, United Kingdom, Canada, Australia, and Mauritius (holding the top ten spots according to the Fraser Institute’s Economic Freedom of the World Rankings—https://www.fraserinstitute.org/economic-freedom/).

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State Capitalism The World Population Review defines capitalism as “an economic ideology in which the means of production is controlled by private business”. This means that individual citizens run the economy without the government interfering in production or pricing. Instead, pricing is set by the free market. This means that value is based on supply and demand and the relationship between producers and consumers. Capitalism is very different from socialism and communism, in which the government maintains tight control of the economy. On the contrary, State Capitalism is when the government or the State, decides to own and operate businesses (for profit) or capital accumulation and the means of production and distribution of resources, goods, and services are nationalized as state-owned businesses. So, it can be considered as a socialist system that combines a capitalist approach with state ownership of the economy and acts as a giant corporation. There is a general agreement that the former Soviet Union and even China and Singapore today have some form of State-Capitalistic approach, but are closer to being mixed economies, where private individuals and some corporations also have access to resources and engage in the production and distribution of goods and services, with some say in pricing as well.

State Run If free market or purely capitalistic economies occupy one aspect of the world economic spectrum, where there is economic freedom with little interventions from the State, then State Run economies occupy the other end of that spectrum, where the State owns and operates all the businesses, uses the labor force towards maximizing the production and distribution of goods and services, and any profits are accrued towards the production and the national economy. Such a system is also called a command economy or a centrally planned economy. Many totalitarian states, where the authority for governing rests on one individual (the leader) have State Run economies, with Cuba, North Korea, and other such countries being examples. There is little to no economic freedom, the state determines the prices and wages, there is no competition, and international trade is restricted to those countries who would trade with them. The culture of such countries, while precious, is determined by what the State determines will be the cultural norms that are to be celebrated.

Distributed Economies Allan Johansson and co-authors Kisch and Mirata (2005), coined the term “Distributed Economies” as a way of organizing economic activity to spur innovation, particularly among small and medium-sized companies and with a focus

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on sustainable development and business practices. This concept allows for a networked economy to emerge, enabling companies and organizations in the network to work more closely near the sources of finance, labor, data, knowledge, technology, and local, regional, and national resources. Such an economy also provides the flexibility to organizations to respond to market needs, change in market forces, and can drive innovative changes to the business is conducted. Additionally, organizations can also respond to the changing needs of the society they operate in, pay heed to cultural and consumer needs and behaviors, as well as the attention needed to the environment, ever moving towards sustainable production, distribution, and consumption. Pre-industrial economies operated in this fashion but were probably more localized. With the rapid onset of the information era, this approach is being adopted in many countries and certain industries.

National Culture vs. Organizational Culture National Culture LibreTexts (2021) states that according to anthropologists, there are generally three types or levels of culture: international, national, and subculture. They however caution that such a broad classification can result in, and has resulted in, generalizations and stereotyping of entire groups of people and nations. However, for the purpose of gaining an understanding, it is always to start at some level and delve deep into the nuances and variations that any cultural norm can afford. For example, take the three North American countries Canada, the United States of America, and Mexico. At the surface level, one would rush to assume that Canada and the US were mainly English speaking and Mexico was mainly Spanish speaking. At the surface level, for those who would be somewhat aware, these three are Christian countries and because they are Western countries all three are developed countries. Again, from the broad view, based on the popular media, movies, and TV, we would only assume that these countries are mostly inhabited by Caucasian origin, with some mix of other subcultures like African American, African Canadian, and possibly some African Mexican. Based on the same diet of popular culture, people from other parts of the world could assume that everyone carries guns in the US, Canadians are mostly polite, and those from Mexico only want to go to the US. All of these are generalizations and while they have a semblance of truth, the actual reality is that each of these three countries is extremely diverse. All three North American countries have a long history of diverse migrations of people from different parts of the world. Canada has significant populations of Frenchspeaking (Francophone) people, settled not only in the Province of Quebec, but in New Brunswick, Nova Scotia, parts of Ontario, and several provinces. In fact, New Brunswick is the only bi-lingual (French and English) province in Canada, while Quebec is French or French Quebecois. Also, all three countries have large numbers of Indigenous Peoples, variously called Native, First Nations, and by their

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actual First Nation names, like Mi’k Maq, Cree, Anishinaabe, Navajo, Ojibwe, and several hundred others. These were the original settlers in the North American continent and with treaties signed over centuries have shared their land with the immigrant white and other settlers who came looking for land and opportunity to the New World in the 1400s. Mexico has for long been the home of Aztec, Toltec, Olmec, Maya, and Zapotec civilizations, during the pre-colonial era. Today, they are home to several indigenous groups, chief among them being, Náhuatl (22.7% of indigenous language speakers), Maya (13.5%), Zapoteco (7.6%), Mixteco (7.3%) Otomí (5.3%), Tzeltal (5.3%), Tztotzil (4.3%), Totonaca (3.9%), Mazateco (3.2%) and Chol (2.4%). (3). The larger languages include several very distinct variants (https://www.culturalsurvival.org/publications/). When you overlay the Spanish culture, post colonization, Mexico has evolved into a very rich and diverse country where many long-held cultural and sub-cultural traditions are kept alive, along with the dominant Catholic religion and a rich and vibrant country emerged and continues to evolve. The United States too, has benefited by centuries of migration from Europe, and while the early years were not kind to the indigenous peoples of the continental US, particularly because of wars and battles between competing colonial powers like England, France, Spain, the Dutch, Germany, and others, after independence from England, the US began in earnest setting up a democratic republic. That the early US economy was built on the backs of enslaved Africans and land taken away from indigenous peoples must not be forgotten. That the early European settlers, mainly from the above-mentioned countries, did not treat new migrants from Ireland, Scotland, Italy, and other parts of Europe well, must also not be forgotten. That the later Americans, building the infrastructure of a vast geographical land, exploited Chinese and Japanese workers, must not be forgotten. Waves of immigrants have come to North America for centuries and slowly, but surely, the immigrants become part of the National Culture and embellish their beliefs, norms, and values on the national psyche. These are always enriching, but can be polarizing and every so often, a nation has to look within itself to realize what it is, what culture and beliefs it espouses and lives, and what it needs to do to continue to evolve. The key piece of such a reflection is not to forget what happened and erase the memory of such events, but to create narratives that retain all aspects so future generations can know and learn. Then any polarization can be slowly resolved. The polarization is also part of the renewal and evolution of the national culture as it seeks to become something more meaningful to the people that inhabit that nation and therein is the pride or national pride that a culture gives to a citizen. These aspects of national culture that involve rituals, practices, and ways of doing things, the clothing that is worn on special occasions, seeks to exemplify not only the dominant cultural aspects of that nation, but all subcultures get to partake at various levels. While the Hofstede’s Insights site can give a great deal of information about a national culture, it takes a long time for anyone interested in learning about different cultures to properly understand them and then use this knowledge when interacting across cultures whether to do business or just learning about them.

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Organizational Culture Organizational culture has generally been described in the following ways, one less formal than the other. . “the way we do things around here” . “It is manifested in the rituals of an organization, in its people, dress, habits, working times and styles, attitudes, office layout, almost every intangible aspect of its being. It is also perpetuated by stories, office gossip, heroes and heroines, décor, social life, and the language that various parts of the organization regularly use at work”. These specifically play out in different ways within the organization and while not every member of an organization will exhibit these traits, many are quite common. Deal and Kennedy (1982) describe four types of organizational or corporate culture and these are summarized in Figs. 2.3 and 2.4. Charles Handy (1981) on the other hand, adapting the work of others, typifies organizational cultures into four categories, Power, Role, Task, and Process, resembling Deal and Kennedy’s in some way, and focusing on traits behaviors, habits, etc. involving these aspects of an organization (Figs. 2.5 and 2.6).

Fig. 2.3 Deal and Kennedy—corporate culture—macho & work hard/play hard

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Fig. 2.4 Deal and Kennedy—corporate culture—bettering and process

Fig. 2.5 Handy—organizational culture—power and role

Does Culture Override Business Strategy? It has been generally accepted that the key aspects of creating and maintaining a positive org culture involve the following in some way or degree, with a focus on what managers and leaders need to do.

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Fig. 2.6 Handy—organizational culture—task and person

. . . . . . . .

Communication is key—internal communication by leaders. Stay on message, be consistent. Carry employees with you. All managers are empowered to deliver powerful/persuasive messages—may not always be welcome. Take culture into account to be more effective. Lead by example. Respect established processes/policy, change with consensus where and when possible. Defining and using corporate culture, while predominantly an internal discipline designed to assist strong and relevant communication, can also be used externally to create, and sustain a corporate image without which an organization might have a negligible chance of success (Fig. 2.7).

Durier-Copp et al. (2019) in their ConnecT framework, describe steps to help leaders, particularly those that lead virtual teams, how to integrate culture when leveraging Technology to empower Teams, to focus on the Tasks, and accomplish these in the stated Timelines. One key element in this process is to always look for a “culture add” from diverse team members, as opposed to a “culture fit”. We will discuss these a bit more when we discuss biases in the next section.

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Fig. 2.7 Durier-Copp, Sundararajan, Makani, and Mechoulan (2019)—integrating culture with the Ts—team, task, timeline, and technology

Cultural Sensitivity, Diversity Training, and Truly Benefiting from a Culturally Diverse Workforce Understanding the national culture and subculture of any country forms the basis of understanding how people from these cultures work together, navigating their differences, and working on the commonalities as they achieve organizational goals. This is particularly important for the following reasons. . . . . .

Changing demographics in society and the workplace Need to increase population in response to an aging citizenry. Increased multiculturalism within existing citizenry. Societal attitude changes not keeping pace with the rate of diversity change. This creates a gap for the societal unit under analysis, in terms of gaining the desired level of productivity and of reaping the economic benefits attributed to having diverse workforces. . Racial diversity is associated with increased sales revenue, more customers, greater market share, and greater relative profits. . Gender diversity is associated with increased sales revenue, more customers, and greater relative profits. Herring (2009). However, what we also as being prevalent in organizations is the marginalization and social exclusion of people who exhibit differences and they end up being harassed, directly or indirectly through reduced opportunities for growth and promotion, conflicting with coworkers, being the target of micro aggressions and

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incivility in the workplace, undergo distress and as a result affecting their performance, and being the receivers of unkind language. Many organizations have recognized this and have begun putting in place several orientation and cultural sensitivity training opportunities to allow employees and leaders to better understand one another, one another’s cultural differences, and improve organizational effectiveness. This holds true particularly for organizations that conduct business in different countries and have employees of different backgrounds working together. Many of these training sessions often start with an awareness of biases, conscious, unconscious, and even subconscious biases. We discuss a few here and point to a few ways in how employees, managers, and leaders can have better hiring, retention, and cultural practices.

Unconscious Biases Unconscious biases, also known as implicit biases, are the underlying attitudes and stereotypes that people unconsciously attribute to another person or group of people that affect how they understand and engage with a person or group. We will go over some of the more common biases we see at the workplace.

Affinity Bias . Affinity bias, also known as similarity bias, is the tendency of people must connect with others who share similar interests, experiences, and backgrounds. It is also called homophily or “birds of a feather, flock together”. . Culture fit is a common euphemism for affinity bias. Similarities are good but can result in homogeneity in the group and in the long term resist any changes. . To avoid affinity bias, one must actively note the similarities, but also look for differentiators that can be a “culture add” instead of a “culture fit”.

Confirmation Bias . Confirmation bias is the inclination to draw conclusions about a situation or person based on your personal desires, beliefs, and prejudices rather than on unbiased merit. . Happens early on and results in opinions being formed about a person, based on inconsequential attributes like names, ethnicity, where they went to school, etc. and can determine the questions, the answers to which, confirm the initial bias. . To avoid this, it is good to ask standard questions, neutral even, and allow the person a fair chance to state their case.

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Attribution Bias . Attribution bias is a phenomenon where you try to make sense of or judge a person’s behavior based on prior observations and interactions you’ve had with that individual that make up your perception of them. . The biggest problem here is that we assume something based on something we heard or saw. If the assumption is going to determine the outcome, the best way is to ask clarifying questions and give the person a chance to say why something is presented in a certain way.

Conformity Bias . Conformity bias is the tendency people have, to act like the people around them regardless of their own personal beliefs or idiosyncrasies—also known as peer pressure. . The majority may not always be right. Groups can fall prey to groupthink, silence the naysayers, and proceed to decide on something or someone, because their minds are already made up. . Actively seek impartial opinions and create an environment where people feel free to express their opinions.

The Halo Effect . The halo effect is the tendency people have, to place another person on a pedestal after learning something impressive about them. . This reflects our innate tendency to view the shiny object as possessing great value but learning later that it is glass and not a diamond. . Need to ensure that all seemingly gleaming attributes (say, Harvard education), need not necessarily mean that the person will be a real, meaningful “culture add” to your organization. Someone else, with a similar, but not such a glamourous brand, can also be equally effective.

The Horns Effect . The horns effect is the tendency people have, to view another person negatively after learning something unpleasant or negative about them. (Opposite to The Halo Effect).

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. For example, you found out that someone new to the organization worked in Microsoft, but you have always been an Apple fan. This can cause you to behave differently towards them. . Actively seek to find out more about their former organizations or associations and ask others for their opinions as well before arriving at a decision.

Contrast Effect . The contrast effect is when you compare two or more things that you have met—either simultaneously or one-after-another—causing you to exaggerate the performance of one in contrast to the other. . This is very common, particularly during selection processes, performance reviews, and assessments. When you see a very good performer and then you begin to compare everyone else based on the “good performer”, it can cause errors in judgment. . Actively try to assess each candidate or employee based on a standard set of criteria and see how each measures up to the stated criteria.

Gender Bias . Gender bias is the tendency to prefer one gender over another gender. . One study found that men and women both prefer male candidates (Steinpreis et al., 1999). This study is dated, but in the 20 years since this article has been published, the change has been slow. . The suggestion would be to focus on merit and skills. However, when you compare historically marginalized communities, there will always be a merit and skills gap. . One must therefore go the extra mile and give someone, with potential, even if they lack skills or merit, the chance to prove themselves.

Ageism . Ageism in the workplace is the tendency to have negative feelings about another person based on their age. . Alternatively, it can also mean that someone older is wiser, because of their experience, but it may not hold true in every situation. . That said, actively training everyone in the organization to not hold biases against coworkers or peers who are older, will lead to a better and more productive work environment.

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Name Bias . Name bias is the tendency people have, to judge and prefer people with certain types of names—typically names that are of Anglo origin. . The flip side is when people of different names join the organization, you can commonly hear comments like—“oh, that’s too hard to say or pronounce”, or “goodness, that is quite the tongue twister”, or worse. . While you can blind candidate info in selection processes, in other cases, it is harder to do when conducting performance evaluations of peers or direct reports. Create a culture where people can learn to pronounce names, ask how it is done correctly, and practice.

Beauty Bias . Beauty bias is a social behavior where people believe that attractive people are more successful, competent, and qualified. . This is because of the perception that attractive people are viewed as more social, happy, and successful. . While this could be true, so can the opposite. There are enough situations where someone is quite attractive, but very mediocre at their job, skills, and abilities. They tend to get by using their looks. Again, a standardized set of assessment criteria can help mitigate this bias.

Height Bias . Height bias or heightism is the tendency to judge a person who is significantly shorter or taller than the socially accepted human height. . Taller people perceived to be more competent, employable, healthy, and attractive. Conversely, shorter people are not given much credit for their abilities or successes. Their successes are attributed to their being short and hence they work harder. . Being aware of this bias will make people behave differently when evaluating/assessing people.

Gaslighting Gaslighting takes place when an individual openly minimizes the success of another based on their religion, ethnicity, accessibility issue, or other visible or invisible differences. For example, if a person who identifies as First Nations,

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Black, visible minority, LGBTQ++, or other, then any promotion they get will be attributed to their belonging to that group, as opposed to the hard work, talent, perseverance, or other measures of successful people. This ends up diminishing or marginalizing the person who received that success and makes them question their self-esteem. Some common gaslighting phrases are, “you are overreacting”, “you are so dramatic”, “it didn’t happen that way”, “it was a joke, have a sense of humor”, “you are so insecure”, “I never said that”, and “your emotions are your responsibility”, to name a few.

Micro-aggression Microaggressions are “brief and commonplace daily verbal, behavioural, and environmental indignities, whether intentional or unintentional, that communicate hostile, derogatory, or negative slights and insults”—Microinsults, Microinvalidations, and Microassaults (www.acepnow.com). Some common micro aggressive statements are, “you speak excellent English, where are you from?”, “you are so articulate, you must have grown up here”, “are there any doctors from the US here?”, “all lives matter”, and “you don’t seem to act like a visible minority, huh”. So, what can organizational leaders when faced with such issues at the workplace, particularly if they are an organization that looks to do business across different cultures and countries? . Managers and leaders need to arrive at a common understanding with employees that diversity is varied (as shown in Fig. 2.8), that equity is giving everyone the right opportunity, tools, skills, and training that best fits their needs, and inclusion is more than getting a seat at the table, but having one’s voice heard, listened to, and acted upon. Research suggests that by moving away from the traditional role of managing the organization (the action of authority through a hierarchical structure), leaders affect cognitive processes in the workplace (Krause, 2004; Pink, 2009). . Others have stressed the importance of a more conscious leader (probably conscientious too) and suggest that strategic leaders play a pivotal role in shifting the organization to the “edge of chaos” and aid organizational learning and attuning by influencing the structural processes of interaction among organizational agents. . Recent studies suggest that a shift in formal leadership roles requires new levels of conscious self-awareness and leadership competencies (Lynch & McFetridge, 2011; McDonald, 2009) . When we seek to co-inspire transformational change within organizations that shift individuals and collectives towards embracing and celebrating diversity and cross-cultural differences, and effect the behavior and mindsets change of leaders and employees for organizational effectiveness.

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Fig. 2.8 Types of diversity

End-of-Chapter Assignments and Exercises-Case Scenarios, MCQS, Short Answer Questions

Consider the scenario from Chapter 1 and WITI. For the country you recommended as Birgitte Sultan and did the PESTEL analysis, you now need to assume that WITI has set up operations in that country. You have been chosen to head that division till it is firmly established. You are still Birgitte Sultan, but along with you, Carmella Kishen, Director of Manufacturing, Daniel Dubois, Director of Marketing & Sales, Giselle Tran, Director of Research & Development, and Karim Meyer, Director, Supply Chain, have also traveled with you to the chosen global market (country). You are now in the process of meeting several local companies in the country to look at potential partnerships and collaboration. Using the knowledge in this chapter, answer the following questions. 1. What assessments will you make when you visit offices of these local companies in the country chosen for global expansion for WITI?

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2. What aspects of national and organizational culture will you and your team seek to understand? 3. What will be the make-or-break aspect of a potential partnership with a local company, the business/profit aspect, or the organizational culture aspect? Why? 4. What aspects of the political and economic climate in a country can impact national and organizational culture and add to stereotypes and unconscious biases? How will knowing this help Sultan and her team make the right decisions on international expansion?

References Deal, T. E., & Kennedy, A. A. (1982). Corporate cultures: The rites and rituals of corporate life (p. 126). Addison Wesley Publishing Company. Durier-Copp, M., Sundararajan, B., Makani, J., Mechoulan, S., & Falvey, C. (2019, October 8– 10). Leading virtual teams. Presented at online learning 2019, organized and hosted by Contact North | Contact Nord in Toronto, Canada. Handy, C. (1981). Understanding organizations (2nd ed.). Penguin Books. Herring, C. (2009). Race, gender, and the business case for diversity. American Sociological Review, 74(2), 208–224. Investopedia. (2021). https://www.investopedia.com/ Johansson, A., Kisch, P., & Mirata, M. (2005). Distributed economies—A new engine for innovation. Journal of Cleaner Production, 13(10–11), 971–979. ISSN 0959-6526. https://doi.org/10. 1016/j.jclepro.2004.12.015 Krause, D. E. (2004). Influence-based leadership as a determinant of the inclination to innovate and of innovation-related behaviors: An empirical investigation. The Leadership Quarterly, 15(1), 79–102. LibreTexts. (2021). Levels of culture. https://socialsci.libretexts.org/Courses/HACC_Central_Pen nsylvania%27s_Community_College/ANTH_205%3A_Cultures_of_the_World_-_Perspecti ves_on_Culture_(Scheib)/02%3A_What_is_Culture/2.06%3A_Levels_of_Culture Lynch, M., & McFetridge, N. (2011). Practice leaders programme: Entrusting and enabling general practitioners to lead change to improve patient experience. The Permanente Journal, 15(1), 28. McDonald, P. (2009). Neurological correlates to authentic leadership. Victoria Management School. Mirata, M., Nilsson, H., & Kuisma, J. (2005). Production systems aligned with distributed economies: Examples from energy and biomass sectors. Journal of Cleaner Production, 13(10– 11), 981–991. MSCI. (2022). MSCI emerging markets classification. https://www.msci.com/our-solutions/ind exes/market-classification Pink, D. H. (2009). Drive: The surprising truth on what motivates us. Penguin Group. Steinpreis, R. E., Anders, K. A., & Ritzke, D. (1999). The impact of gender on the review of the curricula vitae of job applicants and tenure candidates: A national empirical study. Sex Roles, 41, 509–528. https://doi.org/10.1023/A:1018839203698 World Population Review. https://worldpopulationreview.com/

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Culture Shock, Work, and Study Abroad

Culture shock is an emotional reaction that people have when they encounter a change, or new experiences, because of which their long-held beliefs get challenged. Culture shock can be experienced by people who stay in their own country and can be even more challenging to deal with when they move to another country or meet people from other countries/cultures. Culture shock has stages of adaptation and understanding of how individuals go through all these stages is crucial to their success in dealing with the representatives of other cultures. Developing cultural sensitivity and cross-cultural awareness is also an important factor that contributes to success in a new country. Learning Objectives—This chapter will

1. Define and explain culture shock. 2. Look at the characteristics of culture shock and the periods of adaptation to a new cultural environment. 3. Introduce the cultural frameworks that are used to understand how a culture shock influences business relationships, a sense of belonging, employee productivity, and job satisfaction. 4. Give practical recommendations about overcoming culture shock.

Read and Reflect Mini-case study

Janet Craig and her family moved from Canada to Malaysia for three years, as she received an international assignment from the insurance company she was working for. It looked like a great opportunity, as Janet could receive an

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 B. Sundararajan et al., Cross-Cultural Practices in Business and Finance, https://doi.org/10.1007/978-3-031-06440-1_3

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international experience that, as she thought, would benefit her career when she comes back. Janet’s family welcomed a relocation idea, and her husband Craig and her two daughters, Emily (11 years old) and Abbie (16 years old), were excited to experience another culture, make new friends, and learn a new language. The girls were so thrilled that they started planning their trip to Malaysia right away. After Janet and her family arrived in a new country, they liked it right away. Janet was impressed with her new team and felt very welcomed in her new office. Everyone was so friendly and open with her! She even thought that Malaysians were the most welcoming people she had ever met. James worked at a building industry in Canada, so with his experience, he quickly found a similar job in Malaysia as well. Emily and Abbie went to an International School and took Mali lessons after their regular lessons. Everyone seemed happy and satisfied with their new experience. One day, however, everything changed. Janet felt that she became annoyed at how her team handled conflicts and communicated with her. She would prefer them to be more direct in the meetings and show more initiative. She knew that there was a power distance between managers and subordinates in Malaysia, but she did not expect this distance to be so huge, especially with more senior employees. Each time when Janet expected her team to contribute their ideas during meetings, they were hesitant to do so, expecting her to give them a clear direction and tell them what to do. As their expectations were different, this in turn, created misunderstandings. At some point, they started to consider her a weak leader who could not make decisions and even told another manager about this. The workplace environment was becoming more and more tense. “I really want to go back home”, Janet told her husband when she came home disappointed again. “I do not want to stay here even for one more week. The company should find someone else who will agree to this torture. Enough is enough”, she said abruptly. James was ready for this conversation but was not ready to go back just after three months after their arrival. What should they do now? Discussion Questions 1. Why did Janet want to go back to Canada? 2. What made her disappointed in her work in Malaysia? 3. .What should Janet and her family do now?◄

What Is Culture Shock?

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What Is Culture Shock? If you have an experience living in another country for more than three months, think about your experience. What did you see in that country? Did you see there what you expected to see? Or did you see something that made you frustrated, lost, disorganized, and in the end, very unhappy? In other words, was your experience like Janet’s? If your answer is yes, you went through a culture shock. Culture shock is defined as “Psychological (and physical) consequences of changes in circumstances” (Spencer Oatey & Franklin, 2009) and as “The traumatic experience that an individual may encounter when entering a different culture” (Rogers & Steinfatt, 1999). So, we can say that culture shock is a psychological condition characterized by a high level of anxiety, annoyance, and feeling lost in new cultural surroundings leading to stress and (sometimes) negative physical consequences. So, what is exactly culture shock? It is a common experience. It is not a disorder. It has stages and characteristics, and it is experienced in a different way by different individuals. The intensity of culture shock depends on our cultural background, age, and previous experience (Berry et al., 2010). However, though culture shock is usually a traumatizing experience, it can be relieved with other people’s help and support (Berry, 2006). That is why it is important for organizations that send expatriates abroad to provide enough support for their adaptation in a new cultural environment. Also, the countries that have well-developed immigration programs, should include the cultural adaptation component into their pre-arrival and postarrival training, as well as schools/universities should deliver cultural adaptation courses to international students. So, what are the characteristics of culture shock? How can we recognize that we have it? What signs of culture shock did Janet have in Malaysia? SpencerOatey and Franklin (2009) state that those who go through a culture shock usually experience:

1. 2. 3. 4. 5. 6.

Sense of loss and feeling of deprivation Feeling of helplessness Irritation/anger about “foreign” practices Feeling of isolation and rejection Confusion in role, values, and self-identity Frustration, depression, and self-pity.

People ask themselves, “Who am I? What do I value now?” Also, people have numerous why-questions: why are the people’s values in this culture different from mine? Why do they have other priorities? These questions led Janet to frustration, depression, and self-pity. She was totally confused and did not know what to do next.

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Research shows that the rates of expatriate failure can reach 30–40% with the estimated cost of one failure is $1,000,000 (Copeland & Griggs, 1985; Tung, 1981 as cited in Tung, 1993). Cullen and Parboteeah (2014) state that 21% of US expatriates return home in the middle of the assignment, which results in high financial losses (sometimes up to $100,000,000). One of the reasons of these failures is an inability to recognize and overcome culture shock. So special training as well as predeparture and post-arrival support would help to prevent the issues associated with an intercultural transition and adaptation.

Oberg’s Culture Shock Theory Culture shock has been studied for decades, and the first fundamental model of culture shock was proposed by Oberg (1960). Oberg identified four stages of the culture shock, trying to explain what people usually experience when they move to a different country. This model was called a U-Curve Adaptation Model (Fig. 3.1). Oberg called the first stage a “honeymoon”. This stage occurs when people arrive at a new place. They are curious about differences but usually notice only positive things. This stage is characterized by happiness and satisfaction. You can compare it to a marriage honeymoon when newlyweds see only positive things in each other. There are no disappointments at all! The first stage of culture shock is very similar to this experience. People are full of euphoria, enchantment, fascination, and enthusiasm. This is exactly what Janet and her family experienced when they arrived in Malaysia. They had only positive impressions and liked everything they saw in the new country. However, with time, those who move to another place start to feel disappointed, and a crisis occurs. This is the second stage, according to Oberg (1960). The crisis is characterized by feelings of inadequacy, frustration, anxiety, and even anger. Expatriates, immigrants, and international students start asking themselves questions. Why do people handle issues in this way? Why do professors teach in such a way? Why do doctors treat with such “weird” methods? Why do they give

Fig. 3.1 Oberg’s U-Curve model (Source Based on Oberg [1960])

Oberg’s Culture Shock Theory

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such prescriptions or advice that “do not make sense”? This is what people may think, as this is what contradicts their prior experience in their country. Others may also think that people in a new country do not know how to do business and how to communicate. They do not know how to deal with people, and their clothes are not right for occasions. When people have these thoughts, it means that they are going through a crisis, which can even result in anxiety and anger. This stage is very challenging, as it will require flexibility, open-mindedness, and cultural learning. The good news is that, according to Oberg (1960), this period will soon be over, and people will recover as a result of cultural learning and adaptation. In such a way, people will move to the last, adjustment, stage. At this stage, the mood will improve, productivity will increase, and the overall level of happiness and satisfaction will rise. It is important to know, though, that not all people start with a honeymoon and move through the stages sequentially. Some people get disappointed as soon as they land in another country, and everyone’s reaction may be different. Gullahorn and Gullahorn (1963) argue that people also have a culture shock when they come back home, so they extended Oberg’s model with the “back home” stages. The scholars suggest that when people return home after living abroad, they experience the same culture shock as they would experience in a new country. This stage is called the crisis-at-home, or re-entry shock, or reverse culture shock. The reverse culture shock happens because of all the changes people go through while living in a new country. Though they went through multiple changes, other people living in their home country have not changed, so it causes internal and external conflicts. Usually when people come back home after living in another country, they feel elated, as they are happy to be in the surroundings they were raised in and enjoy seeing their relatives and friends. However, with time, everything changes, and

Fig. 3.2 W-curve adaptation model (Source Based on Oberg [1960] and Gullahorn and Gullahorn [1963])

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they go through a disappointment stage and then through the readjustment period again. So, people experience a similar culture shock that they had in a new country when they come back, but this culture shock is more intense and therefore, more difficult. This model is called a W-Curve Adaptation Theory, as it combines two ‘U’s in one (Fig. 3.2).

Kim’s Adaptation Theory Though Oberg’s adaptation theory is still well accepted and extensively cited, new adaptation models have recently emerged. Kim (2001), for example, suggested another model that shed light on the role of stress and adaptation in a growth process. This model aimed to answer two questions: . How does the cross-cultural adaptation process unfold over time? . Why does the rate of speed of the cross-cultural adaptation process vary across individual cases? Kim (2001) argues that culture shock is not harmful; on the contrary, it is useful, as it helps a newcomer to grow due to the stress they experience. As you can see in Fig. 3.3, all the elements in Kim’s model are interdependent, and each stressful experience leads to drawing back and then to releasing adaptive energy to leap forward. So according to Kim, acculturation stress helps people to adapt to a new environment, and as a result, to grow. This model, however, raised other questions. Is it possible to completely adjust to a new culture? As Kim (2001) argues, even if people think that they have already adapted to a new culture, at some point, they encounter something new that makes them disappointed again, and the whole process starts over again. So the adaptation process is a cycle, a constant process that never stops. Fig. 3.3 Kim’s Stress-Adaptation-Growth Theory (Source Based on Kim [2001])

growth

adaptation

stress

Bennet’s Developmental Model of Intercultural Sensitivity (DMIS)

43

Bennet’s Developmental Model of Intercultural Sensitivity (DMIS) Another important model that explains intercultural adaptation is Bennet’s Developmental Model of Intercultural Sensitivity. According to Bennet (2013) who conducted extensive research on intercultural transition, adaptation is not possible without developing intercultural sensitivity and modification of behavior. This means that when a person comes from a native cultural context to a new one, to become more appropriate for this new environment, they need to modify their behavior. In this regard, adaptation means a simulation that can be done in two ways: re-enculturation and simple emulation. Re-enculturation is a process of adopting a new culture because of which a person’s original worldview is changed into a new one. Emulation involves observing other people’s cultural behavior and copying it. For example, if I see someone holding a door for me, even if I do not observe it in my culture, I will follow this behavior pattern, as I will also want to appear polite. So first, I will be surprised that people do this but then I will understand that this is what I am expected to do in a new society as well. So, I will start holding doors for others as well. My worldview will still be the same, but my behavior will change. Bennet (2013) argues that cultural adaptation involves six stages (Fig. 3.4). The first stage in this model is “denial of difference”. At this stage, people usually say, “There are no differences between us, so people in a new country are the same as in my home country”. However, at the next stage, people start to notice these differences and defend against them. They can even become angry and annoyed at foreign practices. You can hear from them such questions as, “Why is everything so slow in this country? Why do doctors prescribe a different treatment here? Why is coffee always served cold in all coffee shops around the city? Why are people so rude? (Or the opposite), why are people so insincere?” Nevertheless, with time, people eventually start to understand that they should adapt to their new environment, so they move to the adaptation stage, and at this point, a minimization of differences comes into play. Newcomers recognize that the differences exist, but they are not very dramatic, so they move to the next

1. Denial of difference

2. Defence against difference

3. Minimization of difference

4. Acceptance of difference

5. Adaptation to difference

6. Integration of difference

Fig. 3.4 Bennett’s developmental model of cultural sensitivity (DMIS) (Source Based on Bennet [2013])

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stage and accept this difference. Then they adapt to this difference and successfully integrate into a new society. At this stage, people’ s level of satisfaction with their life in a new environment grows; they become productive in the workplace and more successful in their academic study. Though Bennet’s theory explained very well how people moved from one stage to another during culture shock, there were questions that this theory did not answer. For example, it is not clear if people usually move sequentially through each stage, or they can skip stages in this model. Also, can people go back to the stages they have already gone through? Another important question that Bennet’s theory did not answer was about the connection between culture? This process may be different depending on the culture people come from and their willingness to adopt new values and/or maintain their cultural values.

Berry’s Acculturative Model So new theories that aimed to fill in the gaps in previous theories were put forward by other scholars. Berry (2006) argues that the success of intercultural adaptation depends on a person’s willingness to retain or drop his native culture and adopt a new one. So he suggests a model that involves four acculturation strategies: integration, assimilation, separation, and marginalization (Fig. 3.5). Scholars believe, however, that these are not the only factors that influence the adaptation process. Other important determinants are the context of reception; class and “colour”; the ethnic background; the immigrant cultures, and networks of support and control (Zhou, 1997). Studies of an expatriate adaptation also show that social interaction and social support (Caligiuri & Lazarova, 2002; Tung, 2004), work-life balance (Fischlmayr & Collinger, 2010), and the spouse’s orientation towards income versus career (Cole, 2011) are strong contributors to expatriates’ and newcomers’ success.

Cultural Intelligence and Intercultural Adaptation A number of studies also proved that cultural intelligence (CQ) plays a vital role in a successful intercultural adaptation (Chen et al., 2011; Presbitero, 2016; Presbitero & Toledano, 2016). According to Thomas (2006), cultural Intelligence involves mindfulness, knowledge, and behavior and can be defined as an ability to interact effectively with people who are culturally different (Fig. 3.6). Mindfulness is the main component of CQ, and it means: . Being aware of our own assumptions, ideas, and emotions . Viewing the situation from several perspectives (having open mind) . Referring to the context to objectively interpret the situation

Cultural Intelligence and Intercultural Adaptation

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Process

Description

Integration

If it is important for a person to keep their heritage culture, but at the same time they want to build relationships with a new society, this individual easily integrates into a new society. If it is not important for newcomers to keep Moderate their heritage culture, but they are willing to accept a new culture, they assimilate. If newcomers want to keep their heritage High culture and are not willing to build relationships with another culture, it leads to separation. People try to avoid interactions with the representatives of a new culture and do not usually engage with a new culture. If newcomers are not interested in either Extremely high keeping their native culture or accepting their new culture, they experience marginalization. People do not feel that they belong to a new society, and they are totally withdrawn. If these are students, they fail in their studies. If these are immigrants or expatriates, they are not engaged in their workplace and are completely disappointed.

Assimilation

Separation

Marginalization

Acculturation stress level Low

Fig. 3.5 Berry’s acculturation model Fig. 3.6 Cultural intelligence components (Source Based on Thomas [2006])

Knowledge

Mindfulness

Behaviour

CQ

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. Creating new mental maps of peoples’ personality and cultural background to be able to respond appropriately to them . Looking for fresh information to confirm or disconfirm our new maps . Using empathy and putting ourselves in other people’s shoes to look at the situation from their cultural perspective (Gardner, 1995; Langer, 1989 as cited in Thomas, 2006). Thomas (2006) states that cultural intelligence can be developed through five stages (Fig. 3.7). People of higher levels of CQ have a cognitively complex understanding of their environment. They can make connections easily and evaluate the environment, others’, and their own behavior. People with a high level of CQ can drop stereotypes and see a big picture (Thomas, 2006). Such individuals can connect cultural practices with history, social structures, natural environment, and a religious/philosophical context. What About You?

. Have you ever experienced culture shock? Or are you still experiencing culture shock after moving to a new country? . What stage of the culture shock are you at now if you are experiencing it? . What helps (helped) you to adapt to a new culture?

Coping with Culture Shock and Stress As we can see, culture shock can be a painful experience. How can we help ourselves and others to go smoothly through all its stages? Matsumoto et al. (2007) concluded that there are four important factors that predetermine people’s success when they experience culture shock:

. . . .

emotional regulation openness flexibility critical thinking.

This means that to successfully adapt to a new culture, one should learn how to regulate their emotions, to be open and flexible, and to think critically about not only the culture that an individual has moved to, but also about their own culture. This is important because without reflecting on their own culture, people will not be able to learn, understand, and accept a new culture.

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Stages 1

Description Reactivity to external stimuli.

2

Recognition of other people’s cultural norms and motivation to learn more about them.

3

Accommodation of other cultural norms and rules in one’s own mind.

4

Assimilation of diverse cultural norms into alternative behaviours.

At this stage, people find it easier to adjust to new norms, so they bravely experiment with a new behaviour. Representatives of other cultures perceive them as culturally sensitive and knowledgeable and feel comfortable interacting with them. They feel at home almost anywhere.

5

Proactivity in cultural behaviour based on recognition of changing cues that others do not perceive.

The level of cultural intelligence at this stage is very high. People can easily understand and predict cultural changes and other people’s behaviour. There is an impression that they intuitively know what behaviour is expected and easily demonstrate it.

Fig. 3.7 The development of CQ

Characteristics People at this stage may say, “I don’t see cultural differences, and I treat all people the same”. People at this stage struggle to understand the complexity of cultural environment. They search for simple rules to understand other people’ s behaviour and guide their own one. People demonstrate a better understanding of a cultural variation. Other cultural norms start to make sense. People at this stage know how to behave in different cultural situations, but they have to think about the rules, so their behaviour does not look natural.

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Research shows that resilience, coping, spirit of adventure, and inner purpose also help to survive in a new culture and adapt quickly. So, when individuals have an ability to cope with stress and bounce back after making mistakes, they adapt more easily. Building local support networks and using humor to relieve tensions are also very important. This is the reason why people who come to a new country and immediately find friends can adapt more easily, and as a result, start to understand a local culture faster. Other important contributors to a person’s success are an inner purpose (includes an inner strength, personal values, and determination) and a spirit of adventure (WorldWork, n.d. as cited in SpencerOatey & Franklin, 2009).

Practical Recommendations/Survival Tips 1. After arriving in a new country, find friends as soon as you can to understand local values, a preferred way of communication, and norms of behavior in different contexts (including a business environment). 2. When you go through a culture shock and feel frustrated because of the foreign practices, try to perceive this experience as an adventure. It will help you to avoid disappointments and worries about all the differences that you see and the misunderstandings you encounter. 3. When you are going through hard times, sit and think why you are here. In other words, think about a goal that you are trying to achieve. Inner purpose is extremely important, as it will help you to stay focused and to avoid disappointment.

Culture Shock and Business Jargon Culture shock can be worsened by such factors as differences in communication style or encountering new realia that people do not understand. These realia are reflected in the language individuals use in the workplace or/and in a business environment. In Canada, such words as sustainability, corporate social responsibility (CSR), CPP (Canada Pension Plan), and RRSP (Registered Retirement Savings Plan) are used on a regular basis but can become a cause of frustration due to misunderstanding and/or not knowing their specific to this country meaning. Exercise

So, it is important to know how culturally specific concepts and values are represented in the business jargon to avoid misunderstandings during communication. To learn more about a culturally specific business jargon, we suggest the following exercise.

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Go to https://www.talktocanada.com/blog/business-lingo-whats-new-inthe-world-of-business-language-jargon and look through the words and idioms on the list. 1. 2. 3. 4.

Are there any new to your concepts/idioms on the list? How are their meanings different from the meanings you assumed? Highlight the words/idioms that are new to you. Study the examples to know how these words/idioms are used in a sentence.

This exercise will help you to remember the words from Canadian Business Jargon and will reduce your culture shock.◄ Chapter Questions

1. What is culture shock and what are its characteristics? 2. What factors do you think can make a culture shock worse? 3. Why was Oberg’s U-Curve Model criticized? What improvements to the model did other scholars suggest?? 4. How does Kim’s (2001) research prove that culture shock is not harmful? 5. What stages of intercultural transition did Bennet suggest? How are they different from Oberg’s stages? 6. What questions did Berry’s acculturation model aim to answer? How does this model explain acculturation? 7. What effect does culture shock have on study and work abroad? 8. Based on the theories covered in this chapter, what can help newcomers/expatriates/international students overcome a culture shock and more easily adapt to a new culture? Activities

1. Watch the My Name is Yu Ming short film and answer the questions: . Why do you think Yu Ming felt so lonely? . What characteristic of culture shock did he have? . What caused his culture shock? . Did he overcome his culture shock? If yes, how did he do this? . What could help Yu Ming to avoid culture shock in a new country? 2. Watch Why we need to embrace culture shock TED Talk and answer the questions: . How does the speaker explain culture shock? . What characteristics of culture shock does he describe? . Why does he think we should “embrace culture shock”? 3. If you have had a culture shock before, reflect on your experience. Take a piece of paper and draw a picture of what you expected to see before you

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came to a new culture. Then take another piece of paper and draw what you actually saw. . Is this picture different? . If yes, why do you think it is so? . How did your perception of the new country change with time? 4. One of the reasons of culture shock is differences in values between a home and a new country. This activity will teach you how to analyze these differences based on Geert Hofstede’s research results. . Go to Hofstede Insights to compare your country with another country you choose. . Type these two countries (e.g., China and Canada) in the ‘Type a country’ line. . Read the information about the two cultures you have chosen. . How do you think these differences can contribute to your culture shock if you relocate to this country (even if you move there for a short period of time to work or study)?

Online Resources 1. Culture Shock and The Cultural Adaptation Cycle [What It Is and What to Do About It] [YouTube Video]: https://www.youtube.com/watch?v=g-ef-xhC_ bU&ab_channel=TheGlobalSociety. 2. The Developmental Model of Intercultural Sensitivity (DMIS) by Dr. Milton Bennett, 1993. [YouTube Video]: https://www.youtube.com/watch?v=uyY kYRrINrI&ab_channel=WiekeGur. 3. Hofstede Insights (a tool for comparing countries): https://www.hofstede-ins ights.com/product/compare-countries/. 4. Berry’s Model of Acculturation [YouTube Video]: https://www.youtube.com/ watch?v=3x_6VOlQ1J4&ab_channel=GabrielChisholm. 5. Canadian Identity and Society: https://www.canada.ca/en/services/culture/can adian-identity-society.html. 6. Statistics Canada. Ethnic and cultural origins of Canadians: Portrait of a rich heritage: https://www12.statcan.gc.ca/census-recensement/2016/as-sa/98-200x/2016016/98-200-x2016016-eng.cfm. 7. Glossary of Business Jargon (Business Dictionary): https://www.sfu.ca/~mvo lker/biz/glossary.htm. 8. What is Culture Shock? [YouTube Video]: https://www.youtube.com/watch? v=N7IaSmP2ohk&ab_channel=SocialScienceSchool. 9. Studying Abroad: Culture Shock [YouTube Video]: https://www.youtube.com/ watch?v=z5EEz_R_RiE&ab_channel=INTOStudy. 10. How Culture Drives Behaviours by Julien S. Bourrelle (TED Talk): https:// www.youtube.com/watch?v=l-Yy6poJ2zs&ab_channel=TEDxTalks.

References

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References Bennett, M. J. (2013). Basic concepts of intercultural communication: Paradigms, principles, & practice: Selected readings (2nd ed.). Intercultural Press, A Nicholas Brealey Publishing Company. Berry, J. W. (2006). Stress perspectives on acculturation. In D. L. Sam & J. W. Berry (Eds.), The Cambridge handbook of acculturation psychology. Cambridge University Press. Berry, J. W., Phinney, J. S., Sam, D. L., & Vedder, P. (2010). Immigrant youth: Acculturation, identity and adaptation. In C. Allemann-Ghionda, P. Stanat Petra, K. Göbel, & C. Röhner (Eds.), Migration, Identität, Sprache und Bildungserfolg (pp. 17–43). Beltz. https://doi.org/10.25656/ 01:6943 Caligiuri, P., & Lazarova, M. (2002). A model for the influence of social interaction and social support on female expatriates’ cross-cultural adjustment. International Journal of Human Resource Management, 13(5), 761–772. https://doi.org/10.1080/09585190210125903 Caligiuri, P. M., & Tung, R. L. (1999). Comparing the success of male and female expatriates from a U.S.-based multinational company. International Journal of Human Resource Management, 10, 763–782. Chen, A. S. Y., Lin, Y. C., & Sawangpattanakul, A. (2011). The relationship between cultural intelligence and performance with the mediating effect of culture shock: A case from Philippine laborers in Taiwan. International Journal of Intercultural Relations, 35(2), 246–258. Cole, N. (2011). Managing global talent: Solving the spousal adjustment problem. International Journal of Human Resource Management, 22(7), 1504–1530. Copeland, L., & Griggs, L. (1985). Going international. Random House. Cullen, J. B., & Parboteeah, K. P. (2014). Multinational management: A strategic approach (6th ed.). Cengage Learning. Fischlmayr, I. C., & Kollinger, I. (2010). Work-life balance—A neglected issue among Austrian female expatriates. The International Journal of Human Resource Management, 21(4), 455–487. https://doi.org/10.1080/09585191003611978 Gardner, H. (1995). Leading minds: Anatomy of leadership. Basic Books. Gullahorn, J. E., & Gullahorn, J. T. (1963). An extension of the U-Curve hypothesis. Journal of Social Issues, 19, 33–47. Kim, Y. Y. (2001). Becoming intercultural: An integrative theory of communication and crosscultural adaptation. Sage. Langer, E. J. (1989). Mindfulness. Perseus Books. Matsumoto, D., Yoo, S. H., & LeRoux, J. A. (2007). Emotion and intercultural adjustment. In H. Kotthoff & H. Spencer-Oatey (Eds.), Handbook of intercultural communication. Mouton de Gruyter. Oberg, K. (1960). Culture shock: Adjustment to new cultural environments. Practical Anthropology, 7, 177–182. Presbitero, A. (2016). Culture shock and reverse culture shock: The moderating role of cultural intelligence in international students’ adaptation. International Journal of Intercultural Relations, 53, 28–38. Presbitero, A., & Toledano, L. S. (2016). Cross-cultural training, contact intensity and cultural intelligence in global teams. In J. Humpreys (Ed.), Proceedings of the seventy-sixth annual meeting of the academy of management (pp. 2151–6561). Rogers, E. M., & Steinfatt, T. M. (1999). Intercultural communication. Waveland Press. Spencer-Oatey, H., & Franklin, P. (2009). Intercultural interaction: A multidisciplinary approach to intercultural communication. Palgrave Macmillan. Thomas, D. C. (2006). Domain and development of cultural intelligence: The importance of mindfulness. Group and Organization Management, 31(1), 78–99. Tung, R. L. (1981). Selecting and training of personnel for overseas assignments. Columbia Journal of World Business, 16, 68–78.

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Tung, R. L. (1993). Managing cross-national and intra-national diversity. Human Resource Management, 32(4), 461–477. Tung, R. L. (2004). Female expatriates: The model global manager? Organizational Dynamics, 33(3), 243–253. Zhou, M. (1997). Segmented assimilation: Issues, controversies, and recent research on the new second generation. The International Migration Review. Special Issue: Immigrant Adaptation and Native-Born Responses in the Making of Americans, 31(4), 975–1008.

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Ethics and Ethical Dilemmas Across the Globe

Multinational companies (MNCs) are often under fire for following unethical principles in business. It affects their relationships with stakeholders, including investors and consumers, and significantly damages their reputation. As a result, these companies lose stakeholders’ trust and profound goodwill. Managers at all levels in all companies face ethical dilemmas every day; however, the managers of multinational companies must deal with more ethical issues due to cultural, political, economic, and judicial system differences in other countries. Current research suggests that ethical norms are different across the globe, and even when they are similar, not all the governments have enough power or willingness to control multinational companies’ activity in their countries. Such lack of control often leads to unethical decisions to gain more profit. Another challenge is the corruption of social and political institutions in other countries, which makes international companies’ expansion more difficult. It often leads to MNC’s breaking the ethical code of conduct by getting involved in corruption scandals and losing stakeholders’ trust. Learning Objectives—This chapter will

1. Examine the role of globalization in changing the perception of moral responsibility across the globe. 2. Explain the historical and philosophical factors that influence the perception of ethics around the world. 3. Explore cultural differences in the perception of ethics. 4. Give the guidelines to dealing with global ethical dilemmas. 5. Look into corporate social responsibility and sustainability.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 B. Sundararajan et al., Cross-Cultural Practices in Business and Finance, https://doi.org/10.1007/978-3-031-06440-1_4

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Mini-Case Study

In 2016, Apple came under fire for breaking ethical laws. The European Commission accused the company of an illegal deal with the government of Ireland that allowed Apple to have a special corporate tax rate. The European Commission claimed that Ireland gave Apple up to $14.5 billion in unpaid taxes from 2003 to 2014 as “preferential tax treatment”. According to European Union’s (EU) State Aid rules, it is considered illegal. As most of Apple’s subsidiaries are in Ireland, Apple allegedly took advantage of US and Irish tax regulations, as Ireland has a lot of loopholes in its tax law to attract more investments. While the European Commission has clear rules that taxes should be paid where the revenue is generated, Ireland allows them to be paid in the country where the subsidiaries are located. At the same time, though the US tax law requires that US corporations pay taxes on their global income, it “allows domestic corporations to defer taxes on their income until it is returned to the US”. In other words, if a company keeps its income abroad, this loophole in the tax law allows it to avoid paying taxes in the US. In Apple’s case, it was a tax on $44 billion offshore income between 2009 and 2012. Though it is still unclear if the European Commission has a right to make such claims, they undoubtedly affected Apple’s stakeholders in terms of sales and revenue, as it damaged the company’s reputation (Barrera & Bustamante, 2017). What do you think? 1. If tax law is different across the globe and there are different regulations in different parts of the world, which regulations should a multinational company follow? 2. There are numerous ethical implications in Apple’s case. Some of them are given below. What do you think are other implications? Can you add more implications to this list? . Reputation damage. Apple stocks lost 2% after European Commission’s announcement. . Impact on education, infrastructure, and health care in developing economies throughout the world. The e13 billion that Apple owes is “the equivalent of the annual budget for Ireland’s health service”. . Negative impact on job opportunities in Ireland, as country’s reputation as “tax heaven” has suffered. As a result, Ireland (as well as Europe overall) may become less attractive for investors (Barrera & Bustamante, 2017).

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Ethical understanding of what is right and wrong is different across the globe. Before we move on in this chapter, think about other international companies that acted unethically. What companies come to your mind? Why is their behavior considered unethical? What are the consequences of such behavior (if there are any)?◄ One of the examples of the companies that found themselves in ethics violation scandals can be Alibaba. It was discovered that in 2009, about 100 out of 5000 of its employees were engaged in fraud. As you may know, Alibaba does not charge commissions on sales like other companies, but it gets commissions when awarding a gold status to merchants. It was determined, however, that around 2300 Alibaba sellers out of 140,000 had fraudulent credentials, and sometimes they received them with the help of Alibaba. As a result, these merchants received a gold status, and a high number of buyers paid for goods that they never received, without knowing that they dealt with fraudulent companies. The company took these allegations seriously, as it was important for it to develop trust in relationships with customers. As a result, David Wei, the CEO of the company, had to resign (Branigan, 2011). Another example is Alcatel, a well-known communications company. The former CEO of Alcatel, Christian Sapsizian, was accused of bribing senior Costa Rican government officials to receive a mobile telephone contract with the Costa Rican state-owned communications company. “US authorities alleged Alcatel subsidiaries paid $14m in phony consulting contracts as part of the bribery scheme. Of the $14m, roughly half went to Costa Rican officials to win and maintain three telephone contracts valued at $303m” (Scannel, 2010, para. 2). Alcatel is not an American company, but as it is listed on the New York Stock Exchange, its behavior violated the Foreign Corrupt Practices Act. As a result, Sapsizian was sentenced to 30 months in prison, and the company had to pay $10 million to the Costa Rican government in response to corruption allegations. These are only some examples, but they show that international business ethics is much more challenging due to the unique ethical problems multinational companies face. It looks like everything should be clear. If you work for a multinational company, and your headquarters are in Canada or in the United States, for example, can you follow the laws of the original country to avoid ethical mishaps? Unfortunately, managing subsidiaries in other countries is not as easy as it seems. Even if these are legal actions in these countries, we should ask ourselves a question: are these actions ethical?

Globalization and Ethics of International Business Many of the issues international business face these days are related to globalization. Globalization can be defined as a process of building new relations between people, businesses, and governments of various countries because of increasing international investments, trade, and information exchange.

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Pros of globalization

Cons of globalization

1. Falling borders 2. Growing cross-border trade and investment 3. Rise of global products and customers 4. Lower prices in many countries 5. Encouraging local productivity through competition 6. Greater availability of jobs and better access to technology for the countries with emerging 7. Transferring technology to less developed countries 8. Most efficient production as a result of enabling countries to specialize in producing particular goods

1. Depletion of natural resources 2. Environmental pollution 3. Increased gap between rich and poor countries 4. Increased interdependence of the world’s economies

Source Cullen and Parboteeah (2014) and Mele (2020)

As we can see, globalization has both advantages and disadvantages, and most of them are the result of the work of Multinational Companies (MNCs). Due to globalization, however, the companies should also solve numerous problems connected with operating in the countries where government, institutional, and law systems may be different from those in the home countries. With fewer resources and less developed technology in some countries, managers’ decisions can more negatively affect people. For instance, in case of lay-offs or sickness, people can find themselves and their families on the street, dying of hunger or illness if they lose a job, as there are no employment insurance and sick days in many developing countries. What should the managers at MNCs do to prevent these consequences?

Cultural Differences in Ethics One of the main differences in ethics around the globe is the perception of corruption. As an example, take an accepted amount of gift-giving and entertainment that vary around the world to a great extent. Think about Canada’s prime minister Justin Trudeau who paid 100 dollars fine for failing to declare a gift worth more than 200 dollars within 30 days of accepting it. According to Canadian laws, if a prime-minister or another government member accepts a gift that is worth more than 200 dollars, they should declare it (CBC News, 2018). In contrast, in Japan, university professors, for academic research grants budget as a legitimate expense 20% of the grant for entertainment costs. It is almost impossible to have business relationships with Japanese without gifts, and you are expected to give, receive, and accept gifts (known as omiyage). Sometimes these gifts can be very expensive, and they are not considered as a form of bribery in Japan. Several studies attempted to establish a connection between cultural values (Hofstede’s dimensions, in particular) and ethical policies, or codes. Vitolla et al.’s (2021) study of 191 international companies in 29 countries concluded that there is a greater orientation towards control in high uncertainty avoidance and restraint

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cultures, so there are higher quality ethical codes in these countries. After conducting research in 2,700 companies in 24 countries, Scholtens and Lammertjan (2007) also found that individualism and uncertainty avoidance are “positively associated with firms” ethics’ while “masculinity and power distance tend to be negatively associated” (p. 281). Seleim and Bontis (2009) established that countries that have a high score on future orientation (they focus more on strategic planning and creating vision statements) have a low level of corruption, and societies high on in-group versus institutional collectivism have high levels of corruption, as people are involved in actions that will benefit their friends or relatives. In this situation, employees are more concerned with relationships than with the work efficiency and fair decisions, which may lead to unethical practices. So, differences in the perception of corruption are often related to the differences in the perception of nepotism. These differences are based on cultural values, as people from collectivistic cultures that place value on long-term relationships versus short-term revenues, prefer to hire those who they know and trust. In these countries, doing business with those people who are barely known to business owners and managers carries a high risk, so hiring relatives and friends as well as looking for business partners among those who they know at a personal level helps to mitigate this risk. In Asian countries, this approach comes from Confucianism and partially Buddhism (Withey, 1994) while in Middle Eastern cultures, it traces back to the historical past when people lived in tribes and did not trust outsiders. So, it is important to know that what is considered to be a conflict of interests or nepotism and is frowned upon in Western and North American cultures due to their individualism may be an accepted business practice in other parts of the world. For international business owners and MNC’s managers, it is always important to remember, however, that corruption negatively affects both the company and the society as a whole (Fig. 4.1). So, they should avoid any harmful practices associated with bribery and corruption. Research on corruption is very challenging, as the required information is not always open. However, transparency.org found the methods to research the perception of corruption around the world. Based on the research results, transparency.org put forward a corruption perception index (CPI) for rating corruption perception. In this rating, a highest CPI indicates the least corrupted country.

Guidelines for Ethical Decision-Making Across Cultures As we learned in this chapter, international business ethics is complicated due to the differences in cultural values. So, managers should be aware of these differences to be able to predict possible challenges and find ethical solutions. There are two main approaches to ethical decision-making: teleological and deontological ethical approaches. The first approach comes from a traditional philosophy, and the second one is a contemporary view. Teleological approach is based on a

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•High prices in developing countries

.Inefficient allocation of resources

.Undermined competition

.Poorer products and materials

Discouraged entrepreneurship (bribery becomes a form of taxation)

Fig. 4.1 Consequences of corruption (Comte et al., 2005)

belief that the morality of act or practice proceeds from its consequences. In other words, if the consequences are harmful, it is an unethical act. If the consequences are good, the act is ethical. As an example, stealing medicine in a drug store for a dying parent is ethical because it is crucial to the parent’s survival. Utilitarianism is a good example of a teleological ethical approach. Multinational companies usually do the cost and benefit analysis, which is one of the applications of utilitarianism. Utilitarianism argues that what is good and moral comes from acts that produce the greatest good for the greatest number of people. So, when the benefits outweigh the cost of something, this act is considered ethical according to the teleological ethical approach. In contrast, deontological ethical theory is based on the belief that the morality of an act of practice is based on the act of practice itself. So, the outcomes are not important in this situation. A person, for example, chooses not to steal medicine in a drug store because stealing itself is immoral regardless of the health condition of their parent. So, this individual behaves ethically according to a deontological argument when they refuse to steal. Another example: closing the plant is unethical because workers are not treated with dignity. Some deontologists argue that morality is intuitive. Others say that we can’t rely on intuition and instead, we should follow the essential moral principles like the Golden Rule, Bible, or Qur’an that can be the guidelines for us in this life (Buchholz, 1989 as cited in Cullen and Parboteeah (2014). If the laws in the original country of the company are different, would you act ethically by breaking those laws and following the laws of the host country? This is a very important question to answer, as it may become a trap that most managers find themselves in.

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If you are in favor of ethical relativism, a theory that argues that each society’s view on ethics must be considered legitimate, you may decide to follow the laws of the country you are in though they may be considered unethical in the company’s original country. Those who make decisions according to ethical relativism believe that as cultures across the globe are different, ethics is different as well. This means that there cannot be agreements on moral principles across cultures. Even if these agreements exist, understanding of moral principles is different, as ethical relativists argue. Others believe that expatriates working in other countries should follow the principles of ethical universalism that argue that moral rules are universal, so they cannot differ across the cultures. Many argue that companies cannot follow either of these philosophies, as they have higher moral responsibilities than cultural relativism. Another argument is that ethical universalism leads to ethnocentrism, which means that companies cannot follow ethical universalism due to the reason that some cultures will always be dominating and imposing their ethical views on others. This approach is known as convenience relativism. It is hard to reconcile ethical universalism and relativism. One of relatively successful attempts to do so was made by Donaldson (1992) who argues that international business ethics is better understood by focusing on the moral languages of international business ethics. He believes that these languages clearly describe how people think about ethical decisions. Figure 4.2 shows the list and descriptions of these languages. Ethical languages provide a framework for thinking about ethical decisions and dilemmas more structurally. They help managers understand the philosophy behind the company’s ethical or social responsibility policies to guide them through the decision-making process. In addition to ethical languages, Donaldson offered an “algorithm” that would help to make ethical decisions. According to Donaldson (1989), “The practice is permissible for the multinational companies if and only if the members of the home country would, under conditions of economic development similar to those of the host country, regard the practice as permissible” (Donaldson, 1989, p. 103). Donaldson and Dunfee (1999) also suggested that the managers of multinational companies should rely on hypernorms that are universal across the globe, as they deal with universal norms and are based on common ethical values (e.g., human dignity), human rights (e.g., right for just treatment), and welfare norms (e.g., prohibition of child labor or human exploitation). Despite all the attempts to reconcile universalism and relativism, it is still unclear what guidelines multinational companies should use to make ethical decisions. As a result, there is a growing pressure for multinational companies to follow the same rules in managing ethical behavior and social responsibility due to the differences in ethics we examined in this chapter. Ethical convergence theory argues that there should be a code of conduct for all the multinational companies. There is a long list of documents that could be included in the code of conduct. These documents are excellent guidelines to ethical decision-making across the globe:

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Moral Language

Description

Virtue versus vice

Virtues are contrasted to vices. People who exhibit positive characteristics (virtues) are considered ethical. The results of the action are not important.

Self-control

Focuses on achieving control over evil thoughts and actions such as passion (Buddhism, Hindu, Plato in Western philosophy). Focus on utilitarianism (focus on the greatest good for the greatest number of people). E.g., exposing a few people to dangerous substance is acceptable if other people in the society can benefit from it.

Maximizing human welfare

Avoiding harm

Focus on consequences, but from another perspective than maximizing human welfare. Here, it’s “if it doesn’t hurt anybody, it is ok”.

Rights and duties

Emphasis is on duties and rights. (E.g., duties of parents to take care of their children and the right to free speech.) This language fits well in a legal context.

Social contract

The social contract language defines ethics as a form of agreement among people. These agreements may not be written but may be taken for granted by all parties. In this case, what people in our culture and organization agreed to consider ethical is ethical.

Fig. 4.2 Donaldson’s (1992) moral languages (Source Cullen and Parboteeah [2014])

1. 2. 3. 4. 5. 6. 7.

European Convention of Human Rights Universal Declaration of Human Rights International Labour Organization’s (ILO’s) Standards World Trade organization’s (WTO’s) Standards ICC Guidelines for International Investment Conference on Security and Co-Operation in Europe Final Act Global Principles of Ethical Practice in Public Relations and Communication Management 8. UN’s Guiding Principles on Business 9. Fair Labour Code 10. The United Nations Code of Conduct on Transnational Corporations.

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What do you think?

. Do you agree with the following statement: when in Rome, do as Romans do? . Should multinational companies follow the principles of ethical relativism or universalism when making ethical decisions? . Can a manager behave ethically just by following the host countries laws?

Corporate Social Responsibility (CSR) and Sustainable Development Goals In addition to ethical responsibilities, many believe that companies have obligations toward society. These obligations are called corporate social responsibility (CSR). The concept of CSR was popularized by Carroll (1991) who created a pyramid of CSR (Fig. 4.3). This pyramid represents the stages a company should move through to meet all responsibilities towards a society. Though there are still debates about what particular responsibilities companies should have (e.g., it is still debatable if all business organizations have a responsibility to donate to charities), it is clear that ethical actions are a core obligation each business organization should fulfill. With a recent shift from shareholder to stakeholder approach in corporate governance (Rahim et al., 2011), there is more pressure on the companies to take responsibility for their actions. This responsibility means accountability to all groups of stakeholders, including customers, employees, suppliers, and community at large. It also means responsibility for deteriorating natural environment Fig. 4.3 Carroll’s pyramid of CSR

Philanthropic responsibilities Ethical responsibilities

Legal responsibilities

Economic responsibilities

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and depletion of resources. As a result, many business organizations shifted to the ethics of care, ecological responsibility, and sustainable development that focus on saving resources and taking care of the planet for future generations. Following this change, the UN took sustainable development as a broad idea and suggested Sustainable Development Goals (SDGs) that responsible governments and business organizations should meet. We presented this in Chapter 2 and revisit them again as a refresher and to provide context. 1. No poverty: end poverty in all its forms everywhere. 2. No hunger: end hunger, achieve food security and improved nutrition, and promote sustainable agriculture. 3. Good health and well-being: ensure healthy lives and promote well-being for all at all ages. 4. Quality education: ensure inclusive and equitable quality education and promote lifelong learning opportunities for all. 5. Gender equality: achieve gender equality and empower all women and girls. 6. Clean water and sanitation: ensure availability and sustainable management of water and sanitation for all. 7. Affordable and clean energy: ensure access to affordable, reliable, sustainable, and modern energy for all. 8. Decent work and economic growth: promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. 9. Industry, innovation, and infrastructure: build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation. 10. Reduced inequalities: reduce inequality within and among countries. 11. Sustainable cities and economies: Make cities and human settlements inclusive, safe, resilient, and sustainable. 12. Responsible consumption and production: ensure sustainable consumption and production patterns. 13. Climate action: take urgent action to combat climate change and its impacts 14. Life below water: conserve and sustainably use the oceans, seas, and marine resources for sustainable development. 15. Life on land: protect, restore, and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss. 16. Peace, justice, and strong institutions: protect, restore, and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss. 17. Partnerships for the goals: strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development (United Nations, n.d.). In a globalized world where MNCs operate, SDGs have become the main operating principles for ethical decision-making. No matter where the company’s

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subsidiaries are located, employers have obligations to provide fair wages and safe working conditions for employees. Both supply chain and outsourcing require that companies that order raw materials or build factories in developing countries do not ignore the issues of sweatshops and unsafe working conditions despite their desire to increase profits. Low wages often make people in the countries with poorly developed economies constantly work overtime to feed their families. Difficult economic conditions also push children to leave school and do hard labor work to help their families to feed themselves. MNCs are aware of these issues, but they often put the responsibility to handle them onto the government and factory management in those countries. Should they also take responsibility for exploitation, child labor, and workplace safety? The answer is certainly yes. Providing fair wages and following high labor standards should be a responsibility of MNCs that generate profits while outsourcing or using supply chains. This can be done through a reliable auditing of working conditions in all links of the supply chain and providing certification that would guarantee that there is no abuse of working conditions and violating ethical norms in supply firms (Mele, 2020). In addition, companies are obligated to effectively manage ecosystems to prevent or reduce: . . . . .

Resource depletion (forests, water, and sources of energy) Global warming Radioactive contamination Biodiversity loss Waste disposal (recycling and using biodegradable materials)

In the past, MNCs often failed to avoid harming the environment when operating overseas, which resulted in ecological issues, particularly in developing countries and in traditionally black and indigenous communities. It is important to stop MNCs’ detrimental practices even if such actions (e.g., dumping waste in rivers or burying toxic waste in landfills) are legal in those countries. Multinational businesses are also responsible for bringing new technologies to improve a production process, make it safer, and reduce undesirable environmental impact. End-of-Chapter Assignments and Exercises-Case Scenarios, Short Answer Questions

Discussion Questions 1. What challenges and ethical dilemmas does globalization bring to multinational companies? 2. What MNC’s unethical practices are linked to globalization? How can they be avoided? 3. What are the harmful effects of corruption? How is the perception of corruption different across the globe?

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4. What are the differences between teleological and deontological approaches in ethics? 5. How does the algorithm proposed by Donaldson (1989) help MNCs to make ethical decisions? Do you agree that this algorithm is effective? (Explain and provide examples.) 6. How is corporate social responsibility (CSR) related to international management? What ethical challenges do MNCs have after a recent shift to the stakeholder versus shareholder approach in business? 7. Why is sustainability in international business important? How can multinational companies meet UN’s sustainable development goals (SDGs)? Activities

1. Cultural differences in ethics Go to https://www.youtube.com/watch?v=hmyfjKjcbm0&ab_channel= TEDxTalks and watch “Riding the waves of culture: Fons Trompenaars at TEDxAmsterdam” TED Talk. What cultural differences in ethics does the speaker discuss in his talk? How does he explain these differences? 2. Corruption Perception Index Activity . In small groups, go to Transparency International Website . Find information on Corruption Perception Index (CPI). How is it measured? What is the logic for including the various indicators in measuring CPI? . What are some essential characteristics of countries that score highly on the CPI? How are they different from countries that have low CPI scores? . Share your findings with the whole class. 3. According to ethicalconsumer.org, below is the list of the most unethical companies based on consumers’ voting. In small groups, research these companies and summarize their unethical practices. Share your findings with the whole class. . Nestlé . Monsanto . Amazon . Shell . Tesco . Barclays . Exxon . Wal Mart . Coca Cola . Primark 4. Watch Auret van Heerden’s TED talk “Making Global Labour fair”. How can the speaker’s ideas help the companies mentioned in Activity 2 improve their ethics?

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Online Resources 1. 2. 3. 4.

The ethics of offshoring: How to choose vendors that align with your values Foreign Corrupt practices Act 4 companies who succeed by focusing on ethical sourcing and manufacturing What makes a company ethical?.

References Barrera, R., & Bustamante, J. (2017). The Rotten Apple: Tax avoidance in Ireland. The International Trade Journal. https://doi.org/10.1080/08853908.2017.1356250 Branigan, T. (2011, February 27). Alibaba.com chief executive resigns. The Guardian. https:// www.theguardian.com/business/2011/feb/21/alibaba-chief-resigns-over-frauds Buchholz, R. A. (1989). Fundamental concepts and problems in Business Ethics. Prentice Hall. Carroll, A. (1991). The pyramid of corporate social responsibility toward the moral management of organizational stakeholders. Business Horizons, 34, 39–48. CBC News. (2018, June 22). Throwing shade: Trudeau fined $100 over gift of sunglasses. https:// www.cbc.ca/news/politics/trudeau-fine-sunglasses-pei-1.4718338 Comte, O., Lambert-Mogiliansky, A., & Verdier, T. (2005). Corruption and competition in procurement actions. The Rand Journal of Economics, 36(1), 1–15. Cullen, J. B., & Parboteeah, K. P. (2014). Multinational management: A strategic approach (6th ed.). Cengage Learning. Donaldson, T. (1989). The ethics of international business. Oxford University Press. Donaldson, T. (1992). The language of international corporate ethics. Business Ethics Quarterly, 2, 271–281. Donaldson, T., & Dunfee, T. W. (1999). Ties that bind. Harvard Business School Press. Donaldson, T., & Dunfee, T. W. (2000). Precis for ties that bind. Business and Society Review, 105(4), 436–443. https://doi.org/10.1111/0045-3609.00092 Mele, D. (2020). Business ethics in action: Managing human excellence in organizations (2nd ed.). Macmillan International Higher Education. Rahim, R. A., Jalaludin, F. W., & Tajuddin, K. (2011). The importance of corporate social responsibility on consumer behaviour in Malaysia. Asian Academy of Management Journal, 16(1), 119–139. Scannel, K. (2010, December 27). Alcatel-Lucent fined over bribe allegations. Financial Times. https://www.ft.com/content/1b7b2e22-1211-11e0-92d0-00144feabdc0 Scholtens, B., & Lammertjan, D. (2007). Cultural values and international differences in business ethics. Journal of Business Ethics, 75, 273–284. https://doi.org/10.1007/s10551-006-9252-9 Seleim, A., & Bontis, N. (2009). The relationships between culture and corruption: A crossnational study. Journal of Intellectual Capital, 10(1), 165–184. United Nations. (n.d.). Make SDGs a reality. https://sdgs.un.org/ Vitolla, F., Raimo, N., Rubino, M., & Garegnani, G. M. (2021). Do cultural differences impact ethical issues? Exploring the relationship between national culture and quality of code of ethics. Journal of International Management, 27. https://doi.org/10.1016/j.intman.2021.100823 Withey, J. (1994). Doing business in Japan: An insider’s guide. Key Porter Books Limited. Zsolt, B. (2011). International ethics and globalization (Monograph). http://unipub.lib.uni-cor vinus.hu/459/1/Boda_Int_ethics_2011.pdf

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The Role of Technology in Doing Business Across Cultures

Adapting to technological change is a continually evolving organizational priority and connecting across borders to ensure that intra and inter organizational virtual teams (geographically not co-located) are prepared, engaged, and trained sufficiently to perform to expectations is still an elusive organizational objective. In this chapter, we will focus on how cultural sensitivity (or lack of) adds an additional layer of complexity to team dynamics in a virtual environment, laden on top of logistical challenges and language barriers. Additionally, when organizations move to adopt new technologies like blockchain (distributed ledger systems) and artificial intelligence (AI) based processes for competitive advantage, how can organizational employees be prepared to address the challenges of navigating both cultural and technological challenges? This chapter is even more relevant now, in the time of the COVID-19 Pandemic and how people have resorted to technology to continue to work and meet others (far and near) in the era of social distancing and extraordinary restrictions on travel. The approach will also help students understand the various stakeholder (internal and external) engagement platforms and how best to use the available technologies to engage and interact with these stakeholders and not let the technologies be barriers to effective and empathetic communication. Learning Objectives—This Chapter Will

1. Introduce the concepts of technology use and adoption across cultures. 2. Provide information about networking and distributed technologies. 3. Introduce the concept of the ConnecT Framework for working in and leading virtual teams and how they can help work in remote, cross-cultural teams. 4. Introduce the concept of disruptive technologies and how they permeate across cultures.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 B. Sundararajan et al., Cross-Cultural Practices in Business and Finance, https://doi.org/10.1007/978-3-031-06440-1_5

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What Is Technology? As per the Merriam-Webster dictionary, technology is the “capability given by the practical application of knowledge”. This can be across any field or area of activity. Alongside technology the concept of innovation is also brought up and the dictionary defines innovation as, “a new idea, method, or device, and/or the introduction of something new”. Innovation and technological improvements have been occurring across cultures and civilizations. Ancient Greece had central heating, the Indus Valley civilizations of Harappa and Mohenjo-Daro (3000 and 2600 BCE) had excellent innovations and technologies in irrigation, agriculture, food production, mathematics, metallurgy, metrology, etc., as did the ancient Chinese, Egyptian, and Mesopotamian civilizations. Other such innovations include the battery by the Parthian or Sasanian empires in the third century AD, the steam turbine in first century Greece, the alarm clock in third century Greece, and the Viking precompass maritime navigational aids. Wars and defense agencies have also allowed the creation of many technologies and innovations in weaponry, engineering, scientific advances, and the most impactful technological innovation of the twentieth century, the Internet, which evolved from ARPANET. Vint Cerf (also credited with the first use of the word “internet”) and Bob Kahn, two American Scientists, created the first TCP/IP (Transmission Control Protocols/Internet Protocols), which determined how data moved through a network. When one looks at technology and innovation, the originators, creators, or inventors, may have been inspired by a clear need for a certain type of action or service that the technology could help achieve or solve a problem. While the technologies do end up providing such solutions, the adoption of the technology by lay persons and others, often takes on different forms, befuddling the creators, but creating new opportunities for the adopters and users. For example, when YouTube was created by Google (now Alphabet), it was mainly for people to share videos of pets and possibly other such events in their lives. Today, YouTube has become the preferred platform for people launching singing and acting careers, social media influencers, K-Pop bands, sports reviews, organizational brand management initiatives, and of course the continued proliferation of cat videos. YouTube is not the only technology that has taken on unimagined proportions. Across cultures, prepandemic, people figured out ways to connect and collaborate with one another using Facebook, Twitter, Instagram, WhatsApp (the popular four), along with Discord, Tik Tok, Sina Weibo, Snapchat, Reddit, and LinkedIn (for professionals to network). According to Kemp (2022), over 5 billion people around the world use the internet, which is about 63% of the world’s populations (7.93 billion at the time of data collection). Additionally, the report indicates that there are around 5.32 unique mobile phone users and about 4.65 billion active social media users. So, what are people using the internet and social media platforms for. Kemp (2022) reports that the digital empowerment has allowed people to find information, keep in touch with family and friends, keep up-to-date with news and events, stream videos, movies, or shows, for research, find new ideas, listen to music, learn online and take certificate courses, travel and tourist information, generally browse

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and pass time, research health issues, products, and services, find information on things to buy, manage finances and savings, gaming, business-related searches, and find new ways to collaborate for work or other activities. With the recent boom in cryptocurrency like Bitcoin, Ethereum, has resulted in many users seeking to invest and trade in cryptocurrencies. Online education has seen a boom during the pandemic when K-12 and Higher Education institutions needed to provide education to their students. Education portals, supplemented by connection and collaboration technologies like Zoom, Microsoft Teams, Adobe Connect, CISCO Webex, Citrix, Google Classroom, and many others, jostled for internet space to provide synchronous learning opportunities for students stuck at home and employees working remotely from home. While these numbers in themselves are quite large and impressive, in the thirty-two years since the internet as we know it was discovered (1991), there are still vast populations yet to connect to the internet, particularly in emerging economies and low-income economies in Asia and Africa. These countries also show a gender imbalance with more males having access to the internet than females (Kemp, 2022). While more people are getting access to the technologies and innovations of our time, there is still a growing digital divide. As we look at the various types of technologies used across cultures, we will do so with an eye to the United Nations Sustainable Development Goals (UNSDGs—https://sdgs.un. org/goals), particularly Goal #3—Good Health and Well-Being, Goal #4—Quality Education, Goal #5—Gender Equality, Goal #8—Decent Work and Economic Growth, Goal #9—Industry, Innovation, and Infrastructure, Goal #10—Reduced Inequalities, Goal #11—Sustainable Cities and Communities, and Goal #12— Responsible Consumption and Productions. While all the goals are important, we will be well served if we look at technology and innovation as potential solutions to many of the world problems that these UNSDGs seek to address, and how cultural adoption of technologies can determine how these problems are addressed and eventually solved.

Connected Technologies Gartner’s Hype Cycle (www.gartner.com) is a graphic representation of innovations and emerging technologies in different domains, allowing individuals and organizations to track how a new or emerging technology or innovation matures and provides an indication of future potential. In October of 2021, indicated that Generative Artificial Intelligence (AI), Data Fabric, Distributed Enterprise, CloudNative Platforms (CNPs), and Decision Intelligence (DI), Autonomic Systems, Composable Applications, Hyperautomation, Privacy-Enhancing Computation (PEC), Cybersecurity Mesh, AI Engineering, and Total Experience were the tech trends to watch and track (https://www.gartner.com/en/newsroom/press-releases/ 2021-10-18-gartner-identifies-the-top-strategic-technology-trends-for-2022). While many of these emerging innovations and technologies find ready applications in industry and enterprises, many still are applicable to individuals and

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communities. Connected technologies like smart homes (where devices are connected and can monitor and manage ambient temperature, appliances, mobile devices, computers etc.), allow for immersive experiences using augmented reality (AR) wearables, monitor the health of people in homes or other organizations, and even manage motor vehicles, are already quite common in many modern households that can afford them. As with all products or services, till economies-of-scale is reached, many of these will remain out of reach for individuals and households that have lower socio-economic statuses and are historically marginalized. Epstein (2018) writes that there is an “interconnected relationship between humans and technology” and “technology influences everyday life and has a strong influence on culture”. For example, emerging economies that did not have the means to deploy huge communication infrastructures like telephone cables and such in the later twentieth century, leapfrogged into the twenty-first century with the swift adoption of mobile phones and mobile technologies, allowing the people in these countries to begin joining their counterparts in the developed countries in the race for internet and social media usages. This is evidenced by the low cost of mobile data plans and internet usage in countries like India and China. The large populations in these and other emerging economies allow for the advent of economies-of-scale and allow internet and mobile service providers the revenue and profit margins to provide low-cost services. The other aspect where connected technologies and technologies that connect people can converge is when people across cultures come to have a better understanding of one another and begin to declutter their biased opinions of other cultures and forge new ties that can allow people to collaborate and contribute to individual, organizational, communal, and societal growth. Combi (2016) writes that the youth of the past decade, while being technologically savvy, know little about youth in other parts of the world and still rely on stereotypes and myths that pervade the internet. She advocates the cross-pollination of local cultures, indigenous cultures, and societal cultures to participate in global creativity and allow people to move beyond just the colonial, Euro-centric cultural norms that have permeated across all societies. The confluence of cultural anthropology and technological advances can allow for such a melding of cultural elements across vast working populations, as people work to connect, do business, grow economically, and thrive, while overcoming societal shortcomings of poverty, lack of hygiene, limited access to education, and resources.

Social and Professional Networks While all the channels discussed in this chapter are in one way or another social networking sites, some of these are specifically meant only for socializing and connecting socially with friends, families and extending one’s circle of friends. Most people go on these sites to catch up with old school mates, current friends, and acquaintances and even coworkers and share their likes, dislikes and preferences

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for events, things, humor, and a range of topics. Nothing is considered taboo for a share or dislike, though friends and family often chide their network connections for inappropriate behavior or posts. Considering that so many people, especially, young adults and even teenagers, are on these sites, many teachers in secondary schools, colleges, and universities have resorted engaging their students directly on these sites, particularly, Facebook, Twitter, Tumblr, and Instagram (now owned by Facebook). While students need to keep and maintain their personal identities on these sites, so too will teachers and educators and corporations. Most people are associated with either a school or college or an organization (private or government). It would be equally inappropriate for a teacher to teach professionalism in their face-to-face or online classes and then post silly comments or pictures of themselves or others in their social media accounts. They will soon be exposed and will likely face a dent to their reputation and credibility, and they could also be fired from their jobs (Huffington Post, November 17, 2014). Organizations like schools or companies also need to be wary of how they represent themselves and how their employees represent themselves as individuals and as representatives of the organization. A misstep by one invariably affects the image and reputation of the other, like the “Blackface” controversy at Mayfield Secondary School in Caledon, Ontario (Karstens-Smith and Rushowy, November 12, 2013). In Table 5.1, we present some strategies and concepts that will help individuals and corporations (private or government organizations) better manage their online presence and identities. In the Channel column, we list a few of these social networking sites. The next two columns list the strategies and approaches with specific attention to audiences, image, identity, brand, reputation, reach, frequency and whether it is push or pull. The last column lists a few ways to track the impact of the activities of these entities (individuals or corporations). The approaches and strategies listed here are not meant to be exhaustive, but they do cover a broad set of actions and for the most part hold true, regardless of the channel (Sundararajan & Macdonald, 2016). Linkedin is probably the most popular professional networking site that allows organizations and individuals to connect to one another in a very professional environment. A high level of professionalism is expected from everyone inhabiting the site. This means that information about previous work experiences, education, skills, and achievements need to be accurate and verifiable. Other professional networking sites require similar levels of professionalism and accuracy in profile descriptions. Though other such sites, like Plaxo, Zerply, Branchout, or Meetup work a little differently, all of them aim to allow professionals and organizations to connect to one another to facilitate recruitment of talent & vendors, provide referrals for projects, promote products and services, and look to enhance individual and organizational profiles and image. The focus here will be the managing of individual and organizational identity in a professional networking environment. In Table 5.2, we present a way to manage individual and corporate identities (Sundararajan & Macdonald, 2016).

Corporate – Current and potential stakeholders – Creative freedom needs to be exercised with caution – Never make claims based on the assumed superiority of product or service – Do not take brand loyalty for granted – Use emotional messages appropriately – Make only claims that can be supported by real and verifiable evidence – Participate with the intention to engage with followers and interested patrons – To extend reach, users would need to repost or retweet about the brand or company – Be consistent in the messaging – Do not try to push too much marketing information – Create policies that employees can follow with respect to online behavior both as individuals and as representatives of the organization

Individual

– Friends and family – Maintain self-Identity and enhance self-image – Individual is the brand – Full creative freedom – Actions impact reputation – Temptation to write or say or upload anything – Typically reaches almost everyone in the individual’s network – Frequent posts or comments can be considered a nuisance unless content is funny or useful or relevant and of course appropriate – May work as a pull strategy for a while, till people get tired – Most in-network friends/family are forgiving – Try and avoid getting tagged too often – Use emotional messages, but try never to insult, flame, or shame anyone – Never bully or tease anyone and also watch out for other cyberbullies in your network and if necessary, take action to stop such activities

Channel

Social Networking Facebook Baidu/Weibo Twitter MySpace Foursquare Snapchat

Audience-identity-image-brand-reputation-reach-frequency-consistency-push & pull – Look to create social and cultural change – Track number who repeat behavior – Track number who behave as desired – Track number who change attitudes – Track number who change opinions – Track number who learn message content – Track number who attend to messages and activities—repost/retweet – Track number who receive messages and activities

Tracking impact

Table 5.1 Managing individual and corporate identities on social networking sites (Sundararajan & Macdonald, 2016)

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Table 5.2 Managing individual and corporate identities on professional networking sites (Sundararajan & Macdonald, 2016) Audience-identity-image-brand-reputation-reach-frequency-consistency-push & pull Channel

Individual

Corporate

Tracking impact

Professional Networking LinkedIn Meetup Branchout Zerply Plaxo

– Audience is typically professionals, other network contacts, potential employers – Maintain a professional appearance – Only contact others through network introductions – Research well before contacting network members – Do not make your connections do extra work – Ensure that network members trust you enough so that they can introduce you to their contacts – Do not misuse or abuse network relationships – Check with network members if they are willing to help before introducing new contacts – The new contacts you introduce will either enhance or damage your reputation – Do not overuse network contacts – Return the favor – Write clearly and promptly thank network contacts for their introductions

– Audience is typically other organizations, competition, vendors, potential employees, and new business connections – Ensure professionalism and consistency in messaging – Use clear, evidence-based information to support claims about organizational achievements – Cultivate and nurture network contacts by responding quickly to queries – Employ people skilled in writing to manage the profile page and producing content – Ensure all links to company website work – Feel free to engage with in and out network participants – Ensure that hiring firms do not convey false or misleading information – Tap into community networks to establish community relations – Tap into product and service user groups to provide support

– Track number of new introductions – Track number of résumé submissions for posted jobs – Track number hired through applications from these sites – Track number of people discussing the company – Track number of interview calls received – Track number of new business opportunities – Track number of new contacts into community networks – Track impact of community relations on community and in turn on the employee morale – After product launch, track visits to profile

Distributed Networks and Virtual Teams Distributed networking is a distributed computing network system where components of the program and data depend on multiple sources. In a supply chain, a distribution network is an interconnected group of storage facilities and transportation systems that receive inventories of goods and then deliver them to customers.

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It is an intermediate point to get products from the manufacturer to the end customer, either directly or through a retail network. According to Technopedia, a distributed network is a type of computer network that is spread over different networks. This provides a single data communication network, which can be managed jointly or separately by each network. Besides shared communication within the network, a distributed network often also distributes processing. Being aware of such networks, which are ubiquitous today around the world, present in all forms of organizations, will allow students of international and intercultural business, to better understand how such networks help organizations function and go about their modern workday, transact business, communicate across time zones and international borders, learn about different cultures and participate in collaborative efforts. Such networks form the basis of social and organizational networks that allow people to work together in virtual teams that are geographically, temporally, and even spatially distributed.

Challenges to VTs The concept of virtual teams has now existed for at least two to three decades and while many organizations in the world were partially having people work in virtual teams, the pandemic brought to the fore the need to have better trained people to effectively work in, manage, and lead virtual teams. Govindarajan and Gupta (2001) mention the several challenges faced by people working in virtual teams. Chief among them being the following: . . . . . . . .

Cultivating trust Overcoming isolation/lack of face-to-face contact Overcoming communication (language and cultural) barriers Aligning goals of individual team members Obtaining clarity regarding team objectives Ensuring that the team possesses necessary knowledge and skills Ensuring the availability of sufficient/appropriate technology resources Dealing with role uncertainty because members are on too many virtual teams, multiple reporting lines . Virtual team interactions are different from face-to-face . There is a need to utilize virtual team building techniques, and technology to increase media richness. Twenty years later, Puranam and Minervini (2020), identify very similar challenges to virtual teams today, exacerbated by the pandemic and work-from-home ethos, leading to more social isolation, less cultural and workplace sensitivity, and untrained leaders and managers. They urge that virtual teams today, need to focus on the following:

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. Employees may not have access to effective workspaces at home—so balance asynchronous with synchronous—more asynchronous and targeted synchronous events . Create synch sessions only for socializing—to combat social isolation—video calls with no agenda . Managers can see the current crisis as an opportunity to improve their written communication skills—concise, unambiguous writing is critical for remote collaboration—and virtual team management skills. . Use data to understand how your org really works. Karen Lojeski’s Virtual Distance Model-VDM (2010) highlights the need for people to understand the various distances that people will have to traverse while working in virtual teams. She describes the three distances in the VDM, Affinity Distance that determines cultural relationships and social interdependence, the Physical Distance that determines the geographical, temporal, and organizational separation for people in virtual or remote teams, and finally the Operational Distance, that determines, the effectiveness of organizational communication, organizational readiness, and fatigue caused by multi-load work expectations.

The ConnecT Framework The ConnecT Framework for leading and managing virtual teams, developed by Durier-Copp et al. (2019), seeks the Integration of Culture, understanding of Complexities and Contexts, management of Conflict, and effective and consistent Communication. These Cs need to be carried through consistently across the various Ts, Empowering Teams, Completing Task, Utilizing Timeline, and Leveraging Technology, that form the basis of the success of teams, and in this case, virtual teams. The ConnecT framework seeks to enable e-Leaders to manage the Cs to achieve the teams’ competencies and gain the trust of their team members. This will allow team members to maximize their potential and help attain team goals. By design, it needs to be iterative, and constantly closing the loop. Figure 5.1 we briefly describe the various quadrants of the ConnecT framework.

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Fig. 5.1 The ConnecT framework (Durier-Copp et al., 2019)

Dealing with Complexities and Contexts Complexities and contexts are constants in the business environment, and these can get exacerbated in cross-cultural work practices, either when doing business internationally or with people from different backgrounds working in the same organization. Virtua Team (VT) members need to learn to quickly identify the current contexts (i.e., contextual awareness), and then locate the nature of the task or process and determine the level of complexity involved. Once this is understood, they can marshal the resources available to the team and the expertise present in the team to tackle the complex problem at hand. The team manager or leader can adopt a leadership style that is adaptive, enables the free expression of ideas and thoughts, and seeks to have a shared leadership approach to solve the complex problem. Such an approach will allow for trust to develop and help the team complete the task at hand (Fig. 5.2). Creating context is a main characteristic of the leaders interviewed by Lojeski (2010). Context helps employees understand where they are and what their role is. Understanding complexity requires the e-Leader to understand and recognize the contexts, before rushing to prescribe quick fixes. Virtual teams are not one size fits all. There are many variables to consider, and the issues are complicated. Complexity can be related to team composition, resources available, task specific, or timeline related. The contexts for each can again be different, and the effective e-Leader recognizes these differences, adapts their leadership style accordingly, works, listens to team feedback, and explains how, why, and when decisions are being made.

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Fig. 5.2 ConnecT framework—dealing with complexities and contexts and the Ts (Durier-Copp et al., 2019)

. Structural supports, for vertical leadership, such as built-in reward systems, regular communication or feedback, and methods for information sharing are effective to foster hierarchical leadership. . Shared leadership is most successful when teams evenly distribute the work and when tasks are independent.

Types of Leaders A recent review of leadership literature purposes four sources of leadership, broken down into two structural dimensions; focus of leadership (internal vs. external) and formality of leadership—informal vs. formal (Morgeson & DeRue, 2006). Informal Leader—is more of an advisor who is not directly assigned to lead. Feedback—informal internal leadership is best. Formal Leader—an advisor who has been assigned to lead. External leaders—are not involved in the day-to-day operations of the project. Morgeson et al. (2006) suggest that training team members is more effective when it originates from an external-informal source rather than a internal-informal. Internal Leader—is and is seen as an equal in the group. Shared teams who evenly distribute the tasks will be more successful than those who do not. . training team members are more effective when it originates from an externalinformal source rather than a internal- informal. . Feedback—informal internal leadership is best

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Types of Tasks Collaborative vs. Interdependent Leading teams which work interdependently vs. collaboratively requires a deep understanding of the need for each task type. It is particularly important since the interaction and exchange of information has been positively linked with virtual team trust (Dirk & Ferrin, 2002). High task interdependency results in increased needs for adjustments, communication, and coordination (Guzzo & Shea, 1992) and creates an environment that facilitates trust development (Wilson et al., 2006).

Integrate Culture Having an extensive and diverse community network allows leaders to better span cultural, geographical, and age boundaries and identify the right people for jobs and or issues. Diversity and conflict are a component of teamwork and can facilitate innovation. Diverse teams need to negotiate how they are going to work together. Teams will benefit from learning, sharing, and questioning personal and cultural norms for work ethic and decision-making is important for teams (Fig. 5.3). . Leverage team differences to facilitate innovation . Diverse teams need to establish how they will work collaboratively together.

Fig. 5.3 ConnecT framework—integrating culture with the Ts (Durier-Copp et al., 2019)

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Creating a Sense of Community Lojeski (2010) discusses creating community in her book Leading the Virtual Workplace. She explains that while some teams stay together for longer periods of time, many will come teams will together to accomplish a project or task and then move on to work in another team project. Being a well-connected leader to a diverse group of professionals outside of one’s team will enhance one’s ability to recruit the right people and keep good relationships. Teams that share common values and can find common interests will likely build trust and stronger relationships. These relationships can play a vital role in engagement and commitment to their work, both in and outside of their designated job functions the team may require mentorship or advice from people with a specific skill set outside of their own team. This network building and often voluntary assistance creates a sense of organizational citizenship and community. . Build a diverse network of professionals . Leverage diversity and similarities. Find common interests and values that alight with the group and organizations to create a sense of community.

Managing Conflict Conflict is a part of teams. It is important of course to not think of conflict as solely negative. Conflict can be addressed as challenges that present opportunities for improving innovation, cohesiveness, creativity, and problem-solving skills. Some have argued that it can contribute to organizational effectiveness (De Drue & Vliert, 2003). However, it is still best to mitigate conflict as much as possible (Fig. 5.4).

Types of Conflict Resolution When finding methods for working with diverse teams consider the fact that theories pertaining to conflict, which cannot be applied to multiple cultures may be irrelevant. For example, researchers have studied how parts of Asia tend to use avoidance and other accommodative approaches to deal with conflict (Chung, 1998; Graham et al., 1988). A cooperative style has been found to be useful in culturally diverse teams.

Culture Turning Conflict Resolution Leung et al. (2003) proposed cultural turning as a broad approach for dealing with barriers that can lead to misunderstanding and miscommunication. Its three principles include: The holistic rule that diverse people should consider the norms, motives, and cognitive processes of all participants’ cultures, as they work together.

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Fig. 5.4 ConnecT Framework—managing conflict and the Ts (Durier-Copp et al., 2019)

The synergistic rule suggests that cultural groups must work together to overcome difficulties and strengthen their relationship. The learning rule suggests that they reflect upon and learn from each intercultural encounter. Individuals and situations differ on many dimensions, and it is only realistic to expect miscalculation and misunderstanding. Through experience, diverse people need to experiment and develop effective mechanisms for collaboration. . Understand that conflict can be positive . Consider using a Cooperative Communication . Consider using Cultural Turning to Resolve Challenges.

Building Trust to Mitigate Conflict The literature commonly emphasizes the early stages in the team process as being critical for building trust and mitigating conflict. Teams must rely on some sort of team building process to create trust, shared vision, effective decision-making. The structure and goal setting associated with directive leadership in the early stages of group interactions is to establish shared values, norms, and practices to enable trust (Weisband, 2002). Hunsaker and Hunsaker (2008) suggest that establishing clear ground rules is the most important part of a team’s life cycle. They acknowledge that this stage takes time and is rarely deployed despite its success in developing trust. They also suggest that restricting team size to fewer than ten will help mitigate challenges (Hunsaker & Hunsaker, 2008). Hassan (2005) suggests that trust can be built on likability and reliability. Again, this deals with the people and task focus within the team. Trust can be built when

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the leader or team member completes tasks on time and as expected (or beyond expectation) and if they are friendly to work with. . Create teams that are fewer than ten . Take the time in the early developmental stages to establish clear ground rules and group norms (Consider using a Team Charter in the welcoming stage) . Be likable and reliable.

Effective and Consistent Communication Communication is everything! The following chapter on communication is from Hassan (2005) online book Influencing virtual teams: 17 tactics to get things done with your remote employees. He suggests that misunderstanding is common in virtual teams and leads to increased confusion, frustration, and wasting time. Creating context for the team is important (Fig. 5.5). A mobile or virtually disperse workforce does not see the same people at the office everyday. They may not how they fit into an organization or how they can create a career path within the organization. They may not have an opportunity to share with or check-in with coworkers about personal life and personal interests. A virtually disperse teammate may never meet their boss or see them face to face. These personal interactions are very important to most people and need to be available somewhere in their work life. . It is important to dismiss the idea that these personal human interactions are no longer necessary and understand that they still are. . Lack of information regarding the context leads to ineffectiveness.

Fig. 5.5 ConnecT Framework—effective communication with the Ts (Durier-Copp et al., 2019)

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. Being the anchor or constant for the team to help everyone stay connected and informed

Meetings Before the meeting—define the objective—i.e., “make a decision on…, make plans for…, generate ideas for…”, determine the attendees—limit numbers, draft an agenda, send invitations and agenda reminders, keep consistent meeting times to balance every ones’ schedule, if you want to hear from everyone—keep it brief, give everyone a set amount of time, anything beyond that can be discussed outside of the meeting. During the meeting—Delegate a facilitator, go through the agenda, capture minutes, close and review. After the meeting—do not rely on verbal requests, put everything in writing, send out meeting minutes, and include a short summary of action items to make visible in the email. Having Clear Deadlines and Expectations Will Help the Team . . . . . . .

avoid procrastination hold team members accountable determine priorities create a sense of accomplishment, get things done Use deadlines. Be reasonable and clear with deadlines Do the appropriate work before, during, and after meetings to manage team activity

Feedback Feedback is best shared as face-to-face as possible. It is suggested that leaders give feedback in collocated areas within the distributed teams. If this is not an optionlow virtuality is most socially appropriate. . Give feedback using media rich technology, such as the telephone or video, when face-to-face communication is not available.

Empower and Manage Team Team Charter—Mission, Vision, Values, and Goals

The Team Charter is not consistently referenced to throughout virtual team leadership literature; however, all the critical components that it addresses are. The Team Charter can be designed to address many potential challenge areas in the early stages of a project including; team expectations, goals, roles and responsibilities, values, mission statement, how decisions are made, time availability, communication norms, preferences, dislikes, team building, and learning team members skills sets, any other concerns or points of interest members may want others to know

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about. Because the whole team is involved in creating the rules of conduct, it helps to ensure needs are met and builds trust early on. Byrd and Luthy (2010) provide the following outline for what to include in a team charter. Personnel

The objective of this section of the Charter is to enable team members to become acquainted quickly as well as exchange contact and other significant information. . Members’ names, phone numbers (work and home), and addresses . Communication preferences (to make certain that the method(s) documented are ones that all team members have access to, i.e., teleconferencing, smartphones, email, etc.) . Personal Biography (on the individual, their family, hobbies) . Present and past work experiences . Personal resources and skills (e.g., typing, writing, computer/technology, software) . Strengths and weaknesses (professional and personal) . Why did you choose the job? . Expected job projects, travels, and vacations scheduled throughout the length of the term . Family and other personal commitments that could impact meeting or team activities

Processes

The objective of this section of the Charter is to foster direct discussions regarding how to best work through issues which will typically arise. When fully realized, the Team Charter becomes the cognitive map for teams to understand the processes that occur in all groups when interacting to achieve organizational goals. . . . . . . . .

Purpose of the team (Mission) Policies on meetings and frequency Division of labor/tasks Team Roles and tasks (e.g. team leader, secretary, meeting, minutes, and schedule for revising the charter) Decision-making (method for making decisions, i.e., consensus, majority, secret ballot, etc.) Discipline (how this will work if discipline problems arise) Communication and coordination issues Emergencies (how will communication or responsibilities be handled if a team member has a family emergency or other event that affects their participation in team activities) – Consider creating a Team Charter in the early stages of your team’s development.

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Co-activate Leaders Providing opportunity for growth and leadership motivates the team. Lojeski (2010) discusses co-activating leaders in her book Leading the Virtual Workplace. Co-activating leaders is in line with the idea of “shared leadership”. Shared leadership is common among virtual teams where each member plays a leadership role at different times in the project life cycle. Each utilizes the specific skills they have. . Encourage team members who are naturally drawn to specific aspects of the project. . Notice and reward leadership behavior

Types of Tools There are several tools available. It is the team leader’s responsibility to research or delegate someone to research what tools are available and best suited to the task. They are responsible to familiarize themselves and train the team to use new tools. Utilize Timeline The life cycle phases are based on Hunsaker and Hunsaker’s (2008). 4 Project Lifecycle Phases

Preparation Phase Purpose—The preparation phase is to ensure the availability of appropriate technology resources, training, and appropriate team selection. Leaders Tasks to Facilitate—Create a mission statement, select personnel, task design, determine the level of virtuality and what tools to use, receive appropriate training. Initiation or Welcome Phase In this stage the team would also raise and legitimize any interpersonal concerns, encourage open communication, and capitalize on the diverse perspectives and skills in the group. They suggested ways to mediate main challenges that arise in virtual teams by restricting the team size to ten or less, that an initial face-toface meeting, if possible, is essential to building trust, they suggest holding regular meetings, encourage openness to cultural difference, define clear goals and roles, and provide regular feedback. Purpose—Focus on goal alignment, relationship building, relationship and task definition, cultivate trust, ensure team has appropriate knowledge and skills. Leader’s Task to Facilitate—Align team with the bigger purpose, clarify roles and goals, discuss specific project objectives in relation to organizational goals (consider cultures differences within the organization), review time zones and when the team is available to work, discuss delays and expectations, identify individuals unique skills and needs or concerns, encourage open dialogue, discuss how

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the and how often the team will communicate, establish means for evaluation and conflict management, provide time to socialize, ensure training where necessary. Members’ Tasks—Build relationships, map out tasks and interpretation and objectives, ask questions. Tools—Team Charter, work plan, medium for face-to-face communication. Midstream Working Phase Purpose—Overcome lack of face-to-face communication, keep on schedule, maintain motivation, effective creation of infrastructure systems and coordination. Leaders Task to Facilitate—Provide positive transformational feedback, enable knowledge transfer, determine rules for decision-making, monitor interactions, communicate a common sense of effort and vision, be available via tools of choice, give direction, support, know the team member’s capabilities and align them with tasks, continue to provide clarity, facilitate processes and interactions, specify communication and decision-making means. Members Tasks—Communicate/ Share own knowledge and capabilities, establish communication and decision-making tools. Tools—Chat, email, phone, video, written performance reviews. Disbanding Phase Purpose—Review the process and outcomes. Leaders Tasks to Facilitate—Analyze the work, promote learning, promote competence development, critical analysis, understand what motivated or discouraged the team, how were goals met, how was conflict mediated, recognize achievement, and end smoothly by reinforcing positive achievements. Members Tasks—Reflect on personal development, team’s development, and on effectiveness of leadership. Tools—Video-conferencing or written evaluation. . Consider the importance and responsibilities within each phase of the project lifecycle (the preparation, welcome, midstream, and wrap-up)

Completion of Tasks Seamless Work

One of the best ways to effect seamless work is to manage expectations. Managing resources, capital, people, all come second to the management of expectations. The skilled E-Leader will have a clear idea of what needs to be done to achieve the targeted team goal, what would constitute par performance, what would constitute above par, and what the benchmarks need to be achieved by the team. To this extent, the skilled E-Leader will gauge expectations, set expectations, work towards meeting expectations, and then exceeding them. Gauging Expectations—There can never be a standard template for success, only frameworks, and schemas, that can be adapted to changing contexts and needs. The skilled E-Leader will go about understanding the concepts, the contexts, the needs of the project, the needs of the project team, the needs of management,

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and the needs of the client for the team’s output. This will allow the E-Leader to get a clear idea of the expectations from each of the vested stakeholders, and make the distinction between needs and wants, between must haves, and nice to haves. Setting Expectations—Having successfully gauged expectations, the skilled E-Leader now needs to go about setting the expectations, i.e., what can truly be achieved given the resource, capital, and technological constraints. The needs will be attended to first, while the wants (nice to haves, or bells and whistles) will be earmarked and weighted so that if resources get freed up, these can be added one at a time. The E-Leader then gets in writing, from each team member, what can be expected from them, and when. This is then interwoven with the timeline utilization plan. The successful E-Leader will also plan to have a factor of safety built into each plan, either as a percentage of error, or lag or delay, or over cost, to allow room for unforeseeable circumstances. Meeting Expectations—Inherent in the ConnecT framework design, is the iterative feedback loop. The successful E-Leader will seek to follow up with each team member, using the most appropriate technologies available, to ensure that each VT member is meeting expectations. This is critical, because what was promised by the team as a sure deliverable, must be delivered, and that can only happen if everyone is performing to their optimal levels. When such a state is ensured, the E-Leader can then work towards exceeding expectations. Exceeding Expectations—Here the successful E-Leader, uses encouragement, praise, recognition, reward even, to coax superior performances from each VT member. At this stage, the VT should be performing at optimal levels, the VT members trust one another and their leader, and there is now a pride associated with the collective effort. They all will share in the success and are more likely to now exceed individual and team expectations, resulting in a higher quality product, possible on-time completion, and more importantly, repeat business. Each member will emerge as a strong team player, as a domain expert, and a potential leader themselves. Information Sharing

Information sharing—information is the lubricant of any team or organization. The following information sharing categories are from Charlene Li’s book Open Leadership (2012) as an Openness Audit for Information Sharing. These categories address an organization at large, however, have been adapted to reflect project teams as well as organizational sharing. Explaining: Explaining, much like creating context, the team leader or executive’s way of keeping people informed about what, how, and why things are operating. Explaining involves: . leaders taking the time to explain how and why decisions are made.

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. providing enough information that partners and interested parties outside of the organization or team project and understand why and how decisions are being made. . explaining what information is confidential so people in and outside of the organization or project feel secure sharing sensitive information. Updating: Providing current updates is common practice in the virtual world. It helps reduce feelings of isolation and keeps members connected to the project and organization. Virtual leaders, both within their teams and organizations, can experiment with ways to engage their team by sharing regular updates. Updating is an important way to keep the team engaged, connected, and motivated. Updating involves: . having technology and processes like community and collaboration tools are in place to facilitate information sharing and collaboration. . executives and employees frequently using social technologies such as blogs, videos, and collaborative platforms to provide updates . Shared updates are perceived as useful and not seen as human relations sole responsibility. Conversing: Conversing is the idea that information and ideas must be shared through multiple channels and directions to create richer and deeper meaning. If a virtual team project is of interested to the greater public, they will likely be conversing using social media, blogs, and websites. Conversing also happens between team members and leaders privately. As mentioned previously, considerations need to ensure the appropriate technology tools and processes are in place for team members to converse and share ideas in a comfortable, efficient, and timely manner. Conversing involves: . Employees and executives feeling free to blog and participate in social media. . An organization or team project that is committed to hearing from and talking to interested parties, and employees even when it is negative. . Having community tools that engage users, customers, and partners to talk with each other and to engage with the project team or organization. Open Mic: Like conversing, the open mic concept encourages participation from employees and outside interest. It is another way to open a team up to sharing information for the interest of the team, project, and or organization. This may be encouraged through email or a shared chat room as well as in the public domain. Open mic involves:

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. Having channels in place through for employees and outside interest to contribute ideas and content. . Having an organization or team leaders that are actively encouraging employees, users, and or costumers to contribute their ideas and best practices. . Having employees, outside interested parties, and or partners frequently contribute ideas and suggestions that are adopted by the team project or organization.

Disruptive Technologies and Adoption Most times innovation and technologies occur when processes get old or even if not old, become ineffective in what they had sought to accomplish. These innovations are often incremental and help move things along, but they don’t really change the core process much. Disruptive innovations and technologies completely change the thinking on these processes, the paradigms they have been operating under, and totally replace existing processes in a bid to provide not just efficiencies, but improved effectiveness for the tasks or goals at hand. SYDLE (2022) lists some examples of disruptive technologies in recent times, particularly in the digital space. These include, but are not limited, video streaming (revolutionized by Netflix and Amazon Prime, followed by a host of other similar services), digital transport services like Ola, Uber, and existing cab services moving to the digital domain, virtual reality (VR), augmented reality (AR), mixed reality (MR), music streaming from early days of peer-to-peer networks to professional streaming services like Spotify, opportunities to do small gigs (Fiverr and such), online housing and lodging services like AirBnB, messaging apps that work across platforms (WhatsApp) and provide text, voice, and video capabilities, online knowledge repositories available for free (Wikipedia, Investopedia, etc.), crypto or digital currencies, with non-fungible tokens (NFTs) for added security, 3D printing, collaborative e-commerce, online education and education portals from K-12 to higher education, and finally, voice activated digital assistants to guide users and learners while providing AI enabled safe learning environments, Merlyn Mind. Two other recent phenomena have already become regular features in organizations across countries and continents: Crowd sourcing and Cloud-based platforms, with Software As A Service (SAAS) approaches to providing value to individual and enterprise customers. These are providing opportunities for people across the organization in different geographical locations to communicate and collaborate effectively and can be used as discussed below. Crowd Sources: Crowd sourcing is becoming more common and trusted to compile large amounts of data in less time. Not all teams or organizations will have a need for crowd sourcing, however, when applicable it can be very useful way of gathering needed information. On a smaller scale teams may consider things like needs assessment

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surveys or consultation meetings as crowd sourcing information. Crowd sourcing includes: . Having a platform for large groups of people to be able to contribute ideas, innovations, and solutions. . Having a proactive process in place to seek out and try new sources of ideas and innovation. . Having ideas from outside the project or organization incorporated into products, services, and processes. Platforms: Whether the team or organization shares information solely through social media or through several information sharing and storing platforms, it is important to consider the need and the accessibility for users. Widespread access may include the team, leaders, and partners or it may include the public at large. It takes time upfront to ensure the right platform use for a team and or organization. Platform open sharing includes: . Architecture and data platforms that are available for widespread access . Open platforms that are seen as a strategic and competitive advantage Consider the processes and sharing platforms in place for your team to receive updates, converse, contribute to projects, share ideas and feedback, share with, and hear from outside interest and partners.

Conclusion When it comes to technologies and the adoption of these technologies by individuals and organizations, the rate at which adoption occurs can vary from individual to individual, organization to organization, culture to culture. While individuals and some organizations across cultures can be innovators or early adopters, most individuals and organizations fall under the category of early majority or late majority, with a few coming in at the tail end of that innovation and are called laggards. This classification was conceived by E. M. Rogers (1962), primarily in the Public Health domain and has been used to study behaviors of people over the last six decades. This model has also been used to explain the adoption of technologies and innovations in the general space and while there are limitations to this approach, because individuals, organizations, and cultures vary significantly, most people and organizations adopt technologies because it suits their current needs of connecting to one another, becoming more effective in the things they do, provide entertainment and socialization, and generally tend to improve the quality of life for those who can access these innovations and technologies. It is therefore important to remember that access to technologies and innovations is key to the

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betterment of individuals, organizations, and societies and our work is to continue to provide people with the access and capabilities. End-of-Chapter Assignments and Exercises-Case Scenarios

Why has Netflix not been able to crack the Indian market?—Krishna Veera Vanamali | New Delhi. Last Updated at January 25, 2022 08:15 IS Netflix Chairman Reed Hastings recently expressed ‘frustration’ over the company’s lack of success in the Indian market. What prompted Hastings to make such a statement? Let’s find out in this report. Shares of the world’s largest streaming service Netflix plunged 22% last Friday, after fourth-quarter subscriber addition fell slightly short of its own target. It added 8.28 million customers in the October–December period, ending the year with nearly 222 million subscribers. In its home turf of the US, Netflix’s growth has been stagnant for a long now. And it has been eyeing other big markets. Netflix was launched in India in January 2016. And after over six years of streaming, it is a distant third in the country. Although the streaming company doesn’t reveal the number of subscribers, a research firm recently claimed that it has around 5.5 million subscribers in India. Its competitors, Amazon Prime and Hotstar, are way ahead with 22 million and 46 million subscribers respectively, the firm claimed. Netflix co-CEO Reed Hastings highlighted the company’s struggle in the Indian market, whose 1.3 billion population offers a huge growth potential. This is what he said. Analysts say Netflix did not get its content strategy right. Going by the Ormax Media data of the top 15 series on subscription-driven streaming video brands, only one is from Netflix. Of the top 100 theatrical films based on domestic box office in Hindi since 2018, Amazon Prime Video bought 48 while Netflix picked up only 20. In Telugu, Netflix bought just nine titles, against 40 by Amazon Prime Video. Zee5 bought twice that number. For some years now, analysts have been questioning Netflix’s strategy about non-Hindi programming. While content is only one aspect, Netflix had failed to hit the mark on pricing and distribution. A week ago, Netflix raised prices in the US. But in December, it slashed prices in India by up to 60% across plans as it tries to catch up with its rivals in a price-sensitive geography. It has already invested $400 million in Indian content. Hastings compared India to the Brazil market where, according to him, it was brutal in the first couple of years. A country where he thought Netflix would never break even, it is now its second biggest market with around 18 million subscribers. The competitive intensity in the Indian OTT market is also heating up. Regional streaming platforms have been giving tough competition to the big players. Yet, Netflix says the Indian market isn’t that difficult to figure out and

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hopes it can do another Brazil here. Pandemic helped Netflix gain a foothold in India and several other countries too. The streaming giant now stares at a tough road ahead, where quality content and reasonable prices will decide its fate. 1. What appears to have been the problem with Netflix’s approach to marketing their products in India? 2. What cultural and national elements should Netflix have considered if they truly wished for potential consumers in India to accept and welcome the streaming products and offerings and grow the market share? 3. Do you think this reflects the lack of understanding of the Indian market by Netflix and what consumers prefer watching? Explain. 4. Do you think this reflects the lack of ability by Netflix to understand the competition—domestic and foreign in the streaming space? 5. Do “first world” organizations approach emerging markets from a colonial standpoint, where economic analysis and profits, appear to override cultural aspects of doing business in these markets? Synthesize your answers based on cultural dimensions and comment on how broadly or narrowly these dimensions can help companies when they enter emerging markets.

References Byrd, J. T. & Luthy, M. R. (2010). Improving group dynamics: Creating a team charter. Academy of Educational Leadership Journal, 14(1), 13. Chung, J. (1998). Cultural impact of non-assertiveness of East Asian subordinates. Management Development Forum, 1(2), 53–72. Combi, M. (2016). Cultures and technology: An analysis of some of the changes in progress—Digital, global and local culture. In K. Borowiecki, N. Forbes, & A. Fresa (Eds.), Cultural heritage in a changing world (pp. 3–15). Springer. https://doi.org/10.1007/978-3-319-29544-2_1 De Dreu, C. K. W., & Van de Vliert, E. (2003). Using conflict in organizations. Sage. Dirk, K. T., & Ferrin, D. L. (2002). Trust in leadership: Meta-analytic findings and implications for research and practice. Applied Psychology, 8(4), 611–628. Durier-Copp, M., Sundararajan, B., Makani, J., Mechoulan, S., & Falvey, C. (2019, October 8–10). Leading virtual teams. Presented at Online Learning 2019, organized and hosted by Contact North | Contact Nord in Toronto, Canada. Epstein, C. (2018). Technology shapes cultures. https://web.colby.edu/st112wa2018/2018/02/16/ technology-shapes-cultures/. Retrieved from the web on June 14, 2022. Gartner. (2022). Gartner Hype Cycle. www.gartner.com Govindarajan, V., & Gupta, A. (2001). Building an effective global business team. MIT Slogan Review, 42(4), 63–71. Graham, J. L., Kim, D. K., Lin, C., & Robinson, M. (1988). Buyer-seller negotiations around the Pacific Rim: Differences in fundamental exchange processes. Journal of Consumer Research, 15(1), 48–54. Guzzo, R. A., & Shea, G. P. (1992). Group performance and intergroup relations in organizations. In M. D. Dunnete & L. M. Hough (Eds.), Handbook of industrial and organizational psychology (pp. 269–313). Consulting Psychologist Press. Hassan, O. (2005). Influencing virtual teams: 17 tactics to get things done with your remote employees.

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Hunsaker, P. L., & Hunsaker, J. S. (2008). Virtual teams: A leader’s guide. Team Performance and Management, 14(1–2), 86–101. Kemp, S. (2022, April 21). Digital 2022 April Global Statshot report. https://datareportal.com/rep orts/digital-2022-april-global-statshot. Retrieved from the web on June 12, 2022. Leung, K., Lu, L., & Liang, X. F. (2003). When East and West meet: Effective team-work across cultures. In M. West, D. Tjosvold, & K. S. Smith (Eds.), International handbook of cooperative working (pp. 551–571). Wiley. Lojeski, K. (2010). Leading the virtual workforce: How great leaders transform organizations in the 21st century. Wiley. Morgeson, F. P., & DeRue, D. S. (2006). Event criticality, urgency, and duration: Understanding how events disrupt teams and influence team leader intervention. Leadership Quarterly, 17(3), 271–287. Puranam, P., & Minervini, M. (2020, April 2). What newly remote teams need, right now. Leadership and Organizations Blog. INSEAD. https://knowledge.insead.edu/blog/insead-blog/whatnewly-remote-teams-need-right-now-13706 Rogers, E. M. (1962). Diffusion of innovations. New York Free Press of Glencoe. Sundararajan, B., & Macdonald, L. (2016, Released December). Lean, ethical business communication. Oxford University Publishers (Academic Textbook). SYDLE. (2022, March 10). 12 examples of disruptive technologies you need to know. Innovation and Technology Blog. https://www.sydle.com/blog/disruptive-technologies-61aa52868621853 d1165bf07/. Retrieved from the web on May 25, 2022. UNSDG. https://sdgs.un.org/goals Weisband, S. (2002). Maintaining awareness in distributed team collaboration: Implications for leadership and performance. In P. Hinds & S. Kiesler (Eds.), Distributed work (pp. 311–333). MIT Press. Wilson, J. M., Straus, S. S., & McEvily, B. (2006). All in due time: The development of trust in computer-mediated and face-to-face teams. Organizational Behavior and Human Decision Processes, 16(1), 16–33.

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This chapter begins with a brief history of the double-entry accounting system used widely today. The system for keeping financial records was popularized by the socalled father of accounting Luca Pacioli,1 an Italian mathematician and educator. His 1494 book entitled “Particularis de computis et scripturis” (About accounts and other writings) is the first published book on present-day double-entry bookkeeping. The chapter then describes the GAAPs used in major economies of the world discussing their similarities and differences as some countries favor rulesbased accounting and others prefer principle-based accounting. With globalization happening around the glove over the past few decades, there has been a desire and need to create a common set of rules for financial reporting. The IFRS (international financial reporting standards) is the attempt made at unifying accounting practices around the globe. However, because not everyone could agree that the IFRS is better than their country’s accounting practices (given different economic drivers and sectors in each country), not every country has adopted the IFRS in its entirety or partially. It is very much an evolving situation as countries could elect to adopt it or choose to move away from it. Recent trends to de-globalize the world will also have no doubt an impact on the popularity of IFRS. Learning Objectives—This chapter will

1. Introduce international accounting concepts. 2. Define terms like GAAP, IFRS, SOX, SEC, OSC, etc., relevant to international accounting practices. 3. Provide a refresher and overview of accounting practices like balance sheets, double-entry systems, financial statements, financial reporting practices, income statements, and financial audits.

1

For more about Pacioli (coined father of accounting) see Rabinowitz (2009).

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 B. Sundararajan et al., Cross-Cultural Practices in Business and Finance, https://doi.org/10.1007/978-3-031-06440-1_6

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4. Introduce concepts of accounting fraud and the importance of control systems

internal

Accounting: The Language of Business Accounting is an information system designed to capture activities affecting an organization’s financial condition and performance, and subsequently communicates results to stakeholders. In other words, financial reporting, whose main objective is to produce useful information that supports investment and management decisions, is not possible without accounting. It is, then, not surprising that financial accounting has been coined the language of business, as the financial picture of organizations cannot be communicated without financial statements. The primary user groups include, but are not limited to, investors, lenders, and company managers—who, for one reason or another, need to know where a business stands. The accounting system commonly used today is a double-entry system—which, as the name suggests, makes two entries for each transaction, a debit and a credit. By recording two aspects of each transaction, the double-entry system creates an equilibrium within the records. This is important because it better allows for the detection of errors as well as omissions. The system is the most advanced and practical way to maintain accurate accounting records. It is a highly systematic and methodical way of recording and managing information, something that every business needs. The accounting cycle starts with the analysis of business transactions and ends with the preparation of financial statements, which are necessary to evaluate past performance and as well make business decisions going forward. Most companies exist to earn profit for their owners or for a publicly traded company, their shareholders. This is typically achieved through the sale of products or services at prices that are higher than what they cost the company. Periodically, companies have the need to evaluate how they are doing financially through proper income measurement so that stakeholders are aware of whether company management is doing a good job at running the business. The most recent company performance would also help management make important business decisions going forward. For example, for a manufacturer, its financial statements would be able to inform them of what products are profit-generating, and what items are not wanted so they can focus on delivering what customers want. Companies produce financial statements adhering to principles described by the Generally Accepted Accounting Principles or GAAP2 for short. GAAP are, in a nutshell, the rules of accounting approved by the Canadian Institute of Chartered Accountants for use in Canada.

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GAAP is a name for a set of rules that is common in various countries. For example, Canadian GAAP is not the same as US GAAP.

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The main purpose of this chapter is to shed light on the importance of accounting in an international business and communications context. It informs the reader, who is interested in doing business abroad, of the accounting considerations that should be included in the decision to do international business. To give better context to our reader, we extend the discussion to include descriptions of what accounting attempts to accomplish, some of the challenges that are encountered, and provide insight on why the reporting standards across the globe are where it stands. It is important to keep in mind that this is not a chapter about how to account, as there is no shortage of good accounting books in the marketplace. We presume that the audience of this book has little to no prior knowledge of accounting.

A Brief History of the Double-Entry Accounting System The double-entry accounting system widely used throughout the world today dates to 1494 and is well over 500 years old. The system is connected to Fra Luca Pacioli, an Italian monk and mathematician, and his more famous, close friend, Leonardo da Vinci. The book entitled “Summa de arithmetica, geometria, proportioni et proportionalita” which was first published in Venice, was written by Pacioli and illustrated by da Vinci. The book outlined and described the concept of the double-entry system, journals, trial balance, balance sheet, income statement, and other tools and techniques that were subsequently adopted by accountants and traders. Despite being considered the father of accounting, Pacioli did not claim to be the inventor of this system. In fact, there is an indication that some aspects of the double-entry system were already used in practice in businesses prior to the publication of the book. While the true origin of the system remains a little bit of a mystery, there was little doubt that it was Pacioli’s book that popularized the system (also coined “the method of Venice”) in Europe and the rest of the trading world. The double-entry system spread throughout Europe following Pacioli’s work and was translated into English in 1543 and further developed in England. By the early eighteenth century, the concept of a joint stock company had developed to include permanent existence, limited liability of shareholders, and transferability of shares. While all these are important features of a joint stock company, it is the transferability of shares that led to the development of a stock market, where shares could be bought and sold. Naturally, investors required financial information about the firms whose shares they were trading, and this need forced financial accounting to change from a system enabling a merchant to control his operations into a system that informs investors who were not involved in the operations of the firm. Both the firm and the investors had a common interest in having trustworthy company financial information. This laid the foundation for both audits as well as government regulations. Later in the twentieth century when the United States gained substantial economic power, the corporate income tax in the United States

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was introduced in 1909 and provided a major impetus to income measurement. In the years that followed, accounting continued to be relatively unregulated with largely voluntary financial reporting and auditing. It wasn’t until the stock market crash of 1929 and the subsequent great depression that led to major changes by the US government. Of those changes, the most important was the creation of the Securities and Exchange Commission or SEC by the Securities Act of 1934. The focus of the organization was primarily to protect investors by mandating disclosure from companies. As part of this mandate, the SEC was assigned the responsibility to ensure that investors and potential investors are provided adequate information about companies.

The Usefulness of Accounting Numbers The accuracy and information content of accounting numbers are paramount because in an ideal setting the numbers should be an accurate reflection of the underlying economic realities. Imagine looking at a map and then visiting the corresponding actual geographic location. How close the map matches economic reality is essentially the quality of the information provided by the map. Some readers may be young enough such that they didn’t grow up with paper maps, but simply imagine your car GPS instructing you to “keep straight ahead and cross the bridge” when you arrive near the water but are not seeing a bridge you can cross.3 Similarly, imagine that your records indicate that there are 50 portable air conditioning units inside your warehouse. What would happen if customers have placed orders for all 50 units on a scorching summer day but when you do a physical inventory count, you find that the number of units available for sale is actually 40? For accounting information to be useful, it needs to have two desirable fundamental characteristics: relevance and faithful representation. Unfortunately, relevance and faithful representation cannot be achieved simultaneously. In other words, to gain more relevance you must sacrifice verifiability and vice versa. The easiest way to see this is to consider an asset like land. Land is a special asset that does not depreciate like most assets, and under GAAP, land is recorded at cost, or what you paid at the time of purchase. Now envisage a company like Hudson’s Bay’s balance sheet. The company owns land that has been sitting on its balance sheet from over a century ago, at the historical price of what was paid for it back then. What was paid for it in the purchase transaction is easy to verify, so the item’s value would rank very high in terms of its verifiability. It, however, ranks low on relevance because the price paid at the time is no longer applicable (or indicative of what current prices are) today and therefore the number recorded next to the account on the balance sheet is no longer relevant. As one can see, there are

3

Cars are usually kept longer than phones and thus may have software technology that are more dated than cellular phones. Older GPS technology also required periodic updating of location maps that reflect changes such as new construction. In this case, the rental car I was driving clearly did not have an up-to-date map.

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issues with leaning too much towards either relevance or verifiability, and overall, a balance between these two qualities can maximize our goal of providing useful accounting numbers.

The Role of Financial Audits The purpose of a financial audit is to conduct an independent and objective examination and evaluation of the financial statements of an organization to ensure that financial records fairly and accurately represent the underlying economic activities of the firm. More specifically, it is to ensure that the financial statements are prepared in accordance with financial reporting frameworks such as the Generally Accepted Accounting Principles or the International Financial Reporting Standards. All properly prepared financial statements will clearly state the time frame captured by the documents (for example, “For the year ended December 31, 2021”). December 31st is commonly used because (conveniently) it is the last day of the calendar year, but a company’s year-end could be any date of the company’s choosing. The accounting cycle is completed within every period (for public companies usually every fiscal quarter, as well as once a fiscal year). When company accountants have completed the preparation of financial statements, external auditors must be employed to audit or check the work in a systematic matter. To decrease the chances of low-quality accounting numbers or numbers that are incorrect or misleading, third-party neutrals are brought in. This is essentially the role played by the big four accounting firms across the globe that you may have heard about. Once your financial statements pass audit and you have made any changes that are necessary for the auditor to sign off on your financial statements, they are ready for distribution to external stakeholders and other regulatory filings. Users could then have greater confidence about the use of these numbers in their decision-making. It is important to note that while the act of auditing a set of financial statements has the goal of catching mistakes and incorrect accounting treatment that does not conform to GAAP, it is in no way a thorough check for errors or nonconformities or is meant to be comprehensive. It is impractical for an external third party to check every single transaction and journal entry. Typically, they will strategically select sample items and look for weaknesses in internal control, etc., and other red flags. The auditor’s opinion simply states they have not found significant misstatements and is not a guarantee that all statements are correct and accurate.

Types of Audits There are generally three types of audits: internal audits, external audits, and IRS (Internal Revenue Services in the United States or the Canada Revenue Agency

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in Canada) audits from the government. Internal audits serve as mostly a managerial tool to make improvements to existing processes and are part of the company’s internal control system. External audits are performed by Certified Public Accounting firms for a fee and will produce an audit opinion included in the audit report. An unqualified audit opinion indicates that the auditor has not identified any material misstatements because of his review of the financial statements. Audits typically consist of the gathering of financial documents, examining record keeping, reviewing the accounting system, reviewing the internal control policies, comparing internal and external records, and reviewing the company’s tax records. At the risk of stating the obvious, external audits serve to enhance the credibility of financial statements to external parties such as lenders and investors.

What Is Accounting Fraud? The accounting system is used to record and communicate important information about a company or organization to all its stakeholders. This is true for for-profit businesses, as well as for not-for-profit organizations such as charities, universities, hospitals, or governments. Since this is an international business textbook, we will focus our discussions on for-profit businesses, though readers should be aware that the usefulness of accounting is not limited to for-profit businesses. All organizations are required to, at a minimum, keep financial records and stay financially afloat if they want to be a going concern.4 While most businesses intend to communicate and disclose correct and accurate information, there will, unfortunately, always be a few firms engaging in fraudulent accounting activities. Fraud is the intentional misrepresentation of information to mislead stakeholders. This is separate and distinct from unintentional errors that occur in the record keeping and financial statement preparation process, which also inevitably happen. Mistakes that are caught during an audit are typically corrected before the auditor will sign off on the statements, while errors that are caught past auditing and publication of financial statements are typically done through accounting re-statements. Just about any kind of organization can commit financial fraud, whether it be publicly traded, privately held, for-profit companies, or not-for-profit organizations.5 For example, companies interested in securing investments from potential investors, or in obtaining bank financing require a favorable financial standing and a promising future. It is certainly not difficult to see how there would be incentives and pressures to make the financial picture of one’s business look rosier than it truly is. This desire to look better is also especially strong when a company

4

Going concern is defined as financially stable enough to meet its obligations and continue its business for the foreseeable future. 5 In fact, not-for-profit organizations are especially susceptible to fraud due to a host of reasons such as small size, lack of expertise, lack of internal control, and lack of suspicion because they exist to do good deeds for society.

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is experiencing a decline in terms of financial performance. Once an incentive is present, identifying opportunities for fraud would be the logical next step. Typically, companies that have weak internal control systems6 are more susceptible to fraud, as they present more opportunities for wrongdoing. Last, but not least, once the motivation exists and opportunities have been identified, one’s attitude or rationalization would be the final criterion to commit fraud. This is typically easy to fulfill as people who are desperate enough usually have no difficulties justifying the means to an end. Some common methods of financial fraud involve improper revenue recognition, period-end stuffing, fraudulent post-closing entries, improper asset valuations, and misleading non-GAAP financial measures.

Types of Fraud Broadly speaking there are two types of fraudulent activities in corporations. The first is the misappropriation of company assets by company insiders such as the theft of assets by an employee. The second is fraudulent financial reporting, which is defined as the intentional manipulation of accounting policies or accounting estimates to improve financial statements. It is important to note that accounting fraud is not actually an accounting problem, but a social phenomenon. Criminology is typically studied under the umbrella of sociology and is not particularly closely tied to the discipline of accounting, but the lack of transparency in financial transactions and records potentially makes accounting an ideal method to hide fraud. If there is poor management of information where financial results are not produced in an accurate and timely manner, then warning signs would be difficult to detect.

Infamous Past Scandals In 2001, Enron, one of the largest integrated natural gas and electricity companies in the world, unexpectedly declared bankruptcy. At the time it was the largest bankruptcy in history, leading to major job losses and destroying life savings for some. The company concealed billions of dollars in debt from failed deals and projects. Investors in turn lost billions of dollars, and one of the reasons why audits never detected the accounting irregularities is because of off-balance sheet instruments. The fall of Enron was one of the worst corporate crimes in history. Company founder and former CEO Bernard Ebbers was sentenced to 25 years in

6

Internal control is defined by the Merriam-Webster dictionary as a system or plan of accounting and financial organization within a business comprising all the methods and measures necessary for safeguarding its assets, checking the accuracy of its accounting data or otherwise substantiating its financial statements, and policing previously adopted rules, procedures, and policies as to compliance and effectiveness.

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prison for his involvement. Enron exploited accounting loopholes and used specialpurpose vehicles to make their financial picture look good to the outside world.7 Its eventual collapse raised concerns about this type of activity hidden from common financial statements. The accounting scandal that destroyed the company was so damaging in terms of reputation also that it took down its auditor, Arthur Andersen which, at the time, was one of the top five large auditors in the world. This is not unexpected because in the banking and financial world, credibility is paramount because the information that people do not believe to be reliable is worthless8 and even counterproductive to its users. Arthur Andersen failed in its responsibility to properly audit and could not recover from the reputational damage.9 In fact, even the non-auditing arms of its business such as consulting had to be rebranded to survive.

Enhanced Regulation: The Sarbanes-Oxley Act The Sarbanes-Oxley (SOX) act of 2002 mandated strict reforms to existing securities regulations and imposed tougher new penalties on those who violated the act. In the United States, the Securities and Exchange Commission (SEC) is the federal agency in charge of regulating securities exchanges and institutional players in the market. In short, their purpose is to protect the public from financial fraud while ensuring the smooth running of capital markets. The latter goal requires sufficient confidence in the market system because participation in the market is entirely optional. That is, if the public views the financial markets as a rigged or unfair game where the odds are stacked against them, then few people would want to participate in it. For this reason, if a country wants to grow the size of its capital markets, it is important to establish and enforce strict rules that will ensure fairness. Fairness in this context means company news (which inevitably impacts the company’s current or future profitability) must be disclosed to the public at the same time as institutional investors, large and small. In other words, there cannot be parties who can access privileged information ahead of other market participants. In Canada, the equivalent regulatory bodies fall under provincial jurisdictions, and the Ontario Securities Commission has the biggest job in the country in overseeing the markets and institutional investors in the province of Ontario.

7

Special purpose vehicles (SPV’s) are separate legal entities (usually limited partnerships) created specially to achieve specific or temporary goals. The idea is to protect the company that is using it by isolating the financial risk within the SPV. This way, the entire company is not at risk. 8 When other goods are less than desirable, usually discounting will increase their appeal to customers (e.g., overripe bananas). 9 Arthur Andersen was found guilty of crimes in the auditing of Enron, a verdict that was later overturned because of flaws in the judicial process (serious errors in the judge’s instructions to the jury). Nevertheless, the reputational damage had been done and the firm voluntarily exited the auditing business.

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In short, SOX was introduced in direct response to the high-profile financial scandals in the early 2000s involving large public companies such as Enron Corporation, Tyco International, and WorldCom. In each case, the accounting scandal was so large in scale and damaging that the company did not survive the event. The Enron bankruptcy in 2002 was the largest bankruptcy of its kind at the time. The company was an enormous energy trading company that got involved in heavily trading energy derivatives. Large losses were hidden. The company also had mountains of debt and toxic assets hidden from investors and creditors using Specialized Purpose Vehicles. The price of Enron’s shares slid from $90.75 at its peak to just $0.26 at bankruptcy, and the scandal even inspired a comedy entitled “Fun with Dick and Jane”. In real life, of course, nothing is humorous about a scandal that ruined the lives of people and lessens public confidence in the financial markets. It is reported that collectively, Enron shareholders lost 74 billion USD in four years leading up to its bankruptcy. The act mandates that senior officers guarantee in writing that the company’s financial statements “comply with SEC disclosure requirements and fairly present in all material aspects the operations and financial condition of the issuer”. Those who sign off on financial statements that they know to be inaccurate are personally subject to criminal penalties, including prison time. The act also requires management and auditors to establish internal control and the appropriate reporting necessary to ensure the adequacy of those controls. The SOX act even includes details regarding the destruction and falsification of records, defining the retention period for which specific records are kept, including electronic communications. In summary, the SOX significantly raised disclosure requirements for companies. It is worth noting that when it comes to disclosures, a balance is sought between the benefits and costs of revealing the information.

Why Accounting Frauds Matter Large corporate scandals such as Enron and WorldCom are so egregious that they often brought down the entire organization and destroyed jobs, wealth, and the lives of stakeholders. It was clear that the old regulatory standards were in dire need of an update. Throughout the world, financial regulation falls into three main domains: banking, financial markets, and consumer market. A country’s banking system is fundamental to its credit market. If the public does not trust banks, then money will not be deposited into banks or subsequently lent out to an entrepreneur with a great business idea. Indeed, if the act of depositing money in a bank account is not viewed as safe, then you might as well “stuff your money under a mattress” for safekeeping. For the public to have trust in the banking system, banks need to be tested for safety and soundness. Banks also need to meet adequate capitalization requirements and insure deposits. Financial market regulations extend to include rules regarding any party who participates in financial markets. Finally, consumer market regulations prevent consumer products such as credit cards, mortgages, and insurance from charging too high interest, exposing consumers to too high risk, etc.

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Overall, financial regulation is present around the globe because it is necessary to safeguard the integrity of the financial system.

Current Accounting Practice and GAAP GAAP stands for the Generally Accepted Accounting Principles and can be thought of as a set of accounting rules, standards, and practices used to prepare and standardize financial statements, paying special attention to consistency, transparency, and ethics. Different countries have different GAAPs. Each country typically has a regulatory accounting body that comes up with the GAAP used in that nation. Canadian GAAP has been a principle-based approach. US GAAP, in contrast, is largely rules-based, likely due to the country’s extremely litigious business environment. Singapore, as another example, has the Singapore Financial Reporting Standards (SFRS) which is also principle-based. At the present time, the Chartered Professional Accountants of Canada (CPA Canada) is primarily responsible for setting the rules of accounting in Canada. The Accounting Standards Board (AcSB) is an independent body supported by CPA Canada to develop and establish the standards and guidelines that govern financial accounting and reporting in Canada. These standards and guidelines essentially come from the International Accounting Standards Board (IASB). In Canada, publicly listed companies (and those entities that act as fiduciaries such as banks) must report under IFRS, whereas private enterprises can choose to follow either IFRS or Canadian Accounting Standards for Private Enterprises (ASPE10 ). Both these standards are GAAP. In short, companies that are held to a higher standard in terms of accountability to the investing and public are required to use IFRS, while those that do not, can simply avoid the trouble and cost of disclosures and complex accounting treatment. Either way, the overall objective of GAAP (regardless of which country’s GAAP) is to ensure that companies produce financial information that is useful to their potential and existing investors, lenders, and other creditors in decision-making. In the United States, the Securities and Exchange Commission (SEC) is the federal regulator responsible for publicly traded firms adhering to GAAP, though the SEC does not set the standards associated with GAAP. Instead, it is the Financial Accounting Standards Board (FASB) that actively influences any changes in financial reporting standards used by corporations. Canada adopted the International Financial Reporting Standards (IFRS)—for publicly traded companies back in 2011, replacing Canadian GAAP, which were Canada’s long-time national accounting standards up until that time. Canadian regulators, at the time of the switch, believed that the United States would also move to adopt IFRS rules so that companies in both countries would have the same

10

ASPE is basically “old” Canadian GAAP prior to the adoption of IFRS for publicly traded companies. It could be viewed a pared-down version of reporting standards.

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accounting systems. Fast forward a decade and the US regulators are still resisting its full adoption in 2021. The SEC has signaled intentions to move towards IFRS, but the reality remains that there are considerable differences between US GAAP and IFRS. Specifically, the former is largely rules-based whereas the latter is principle-based. At the present time, in the United States, firms must report using US GAAP.

One Common Standard: IFRS Adoption Around the World Globalization has been a major force in the past few decades, the outcome of which is a more connected and economically intertwined world. To function better as one world, it is clearly important that we are able to communicate effectively or speak the same language. The English language has become the dominant language that business is conducted in, but English itself is not enough for business communication needs. For business and financial information about firms to be useful to decision-makers, including those decision-makers who are in another country, it is helpful if the same reporting standard is used. In short, a more connected world means that there is often the need to understand a foreign company and its financial statements. A common standard also allows for easy comparisons to be made across countries. The International Financial Reporting Standards (IFRS) is the answer to that call. The International Accounting Standards Board (IASB), headquartered in London, is the accounting standards body for the IFRS Foundation. The predecessor to the IFRS Foundation, the International Accounting Standards Committee, was formed in 1973. Initial members were accounting bodies from Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom, and the United States. Today, the IFRS has become the global standard for the preparation of financial statements for public companies with 144 out of 166 jurisdictions requiring IFRS standards. Generally speaking, and at a broad level, IFRS and US GAAP are generally more alike than different for most transactions. This is because both use accrual accounting and utilize similar conceptual frameworks. It is worth noting regardless of the accounting standard used in your country, at your own cost and discretion, it is always possible to prepare a second set of statements conforming to the accounting requirements of a foreign country your firm conducts business in. The cost and effort of going through this can be prohibitive, especially for a small company, and is a matter of balancing cost and benefit. Clearly, the most efficient way is for all countries to conform to IFRS, but given the varying interests of countries, and an increasingly divided world, this is harder to achieve than previously thought. Finally, it is important to keep in mind that the adoption of a new reporting standard would require significant work throughout the organization including updates to its technology infrastructure as well as changes to internal processes and statutory reporting.

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Accounting, Legal Structure, and Tax Considerations for Operations Abroad Maintaining company books in different countries of operations is often a necessary part of doing business in that country. The decision to go “international”, therefore, is not only an important business strategy question, but comes with a whole set of operational demands—including legal, taxation, and accounting challenges. Some companies pursue international growth because the owners are ambitious, but others can end up in a position where they are forced to grow in order to survive (i.e. staying the same size is not sustainable). One of the characteristics of internationalization and globalization is that scale is often necessary for competitive advantage. It is worth noting that sometimes going outside of one’s home country is necessary, especially when your domestic country is on the smaller side, and you have unfulfilled growth goals. Finally, a company could find itself in a position where it needs to merge with a foreign entity, which is a more complex situation. In summary, though the complexities of operating abroad, including the accounting aspects, are sometimes unforeseeable and the going international decision, not necessarily by choice, companies must be ready to deal with everything that comes with the territory. Ideally, legal business structure, tax outcomes, and accounting challenges should be considered as part of the initial decision to expand outside of the home country. At a minimum, companies need to adhere to new country regulations and taxation regimes, in addition to different and fluctuating currencies. Further accounting complexities can include the accounting for impairments in investments in foreign subsidiaries, especially for those money-losing ventures, as well as transfer pricing optimization.11 Ultimately, there are two main aspects of a foreign business that the government is most interested in. The first is the government wants to ensure that the foreign business is following all the regulations that apply to similar domestic businesses, and second, it wants to ensure the proper collection of taxes on profits. One common method of going abroad as a business is to establish a subsidiary—which is a separate legal entity from the parent. The parent owns anywhere from 51 to 100% of this subsidiary. The accounting books of the subsidiary are kept separately and usually are done following their parent’s accounting standards at home, so that the eventual combining, or accounting consolidations process is made easier. For example, Apple Inc. is an American company that trades on the Nasdaq, but it has stores in Canada operated through its subsidiary Apple Canada Incorporated, headquartered in Ontario. Apple Canada Inc. follows US GAAP—used by its parent, Apple Inc. Periodically, Apple would combine

11

Transfer pricing involves the setting of prices among divisions within an enterprise and can be used as a profit allocation method to attribute a multinational corporation’s net profit or loss before calculating tax to countries where it does business.

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Apple Canada’s financial statements with its own along with all its other subsidiaries around the globe. This is not a simple task and the parent is obligated to present consolidated statements to the regulating authorities overseeing the parent company. For a business, there are a couple of corporate decisions that would trigger volumes of accounting work. The first is deciding to become a publicly traded corporation (being listed on a public stock exchange), which requires major financial disclosures and significant compliance. That is, public listing requires substantial effort and is expensive. This is true for domestic companies, and it is especially true for foreign companies (listing abroad—more on this in the next chapter). The other decision is when a company decides to merge with another firm, especially if the two companies being merged are from different countries. Such a merger would require an understanding of accounting and government rules of at least two countries. In summary, conforming to one’s domestic country’s GAAP is the minimum amount of accounting work necessary and the decision to do business beyond country borders will no doubt create additional work, complexities, and expense. It is not a decision to be taken lightly as these accounting and regulatory compliance complexities are on top of the challenges of foreign operations.

Recent Trend Away from Globalization From the time that this book was conceived to the time of its first draft, the antiglobalization trend has strengthened considerably worldwide and shows no signs of slowing down. The world’s dominant power, the United States, started this trend to block China from potentially dethroning it from its current position. The struggle for power between these two giants means that after four decades of globalization, a reversal of this trend will likely unfold for the foreseeable future. It is not unexpected that the United States would target whichever country has the potential to challenge its dominant position in the world. While this is not a book about politics, it is a topic that is hard to avoid when we talk about globalization. The 2016 election in which Donald Trump won clearly marked the beginning of a shift in policy towards China. Near the end of the Trump presidency, the world strangely morphed into a situation where the US refused to lead the world any longer, and no other country was in a position to lead. The recent political term begun by Joe Biden seems to have restored some normalcy in the country and diplomacy in the world, but one thing is clear. All signs indicate that we will continue down the path of nationalism and protectionism. If anything, the current Novel Coronavirus-19 pandemic has fully demonstrated that even in the face of an issue that is clearly global in nature, countries around the world are showing strong nationalism when it comes to approaches to handle it (ranging from vaccines, to lockdowns, to testing, to masking, etc.). The closing of country borders during this Covid period has been an effort to help slow the spread of the virus (which is a legitimate public health reason), but it gave the world a taste of closed country doors. In locking away vaccines that America does not need, President Biden has

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once again demonstrated his predecessor’s famous “America First” slogan. No one knows how much farther down this path we will go, or which parts of the world will be able to detangle while other parts stay intertwined. Businesses, especially those that operate in more than one country, will have to carefully navigate the national climate of the countries in which they operate to be successful. It is a very delicate game, as one wrong move could mean you don’t do business in that country anymore. Companies must embrace these realities and be ready to navigate macrolevel changes that are expected to happen in our soon-to-be semi-integrated world. They need to be nimble and seek flexible strategies that can swiftly adapt to changing political environments. For instance, supply chain disruptions have fundamentally altered companies’ ability to both access markets in a timely fashion and their ability to control costs. In 2021, apparel firms such as H&M and Nike (with supply chains in China to lower cost on the production side while simultaneously gaining access to the domestic customer market) have made statements about human rights and working conditions in the textile industry. Unsurprisingly, these firms suffered a severe backlash from the government as well as the boycotting of their brands from Chinese customers. H&M, for example, self-reported that they had quarterly sales decline of 23% from the same quarter sales a year ago following the boycott in China. Going forward, firms committed to pursuing global markets are having to seek national production and transportation strategies that can function independently to align with those countries’ changing policies and trade restrictions. This is mostly observed in large countries such as the United States, China, and Russia—where the country has the size and scale to merit its own supply chains. While these issues are not new, as countries have always sought to protect domestic jobs and economic output, they have been exacerbated in the current environment. Each country’s strong desire to put its own interests first creates an unpredictable islandlike economic mentality. Finally, information sharing through social media has made it possible for public opinions to be increasingly unpredictable and possibly explosive, and if a certain voice is loud enough, then politicians will likely have to factor that into their next move. In summary, the political risks of operating in a foreign country have always existed. For instance, companies around the globe entered China four decades ago, being aware of the geopolitical risks such as appropriation or extortion. Overtime, operations were successful, and these risks have largely been forgotten. Recent developments are a good reminder that the underlying risks have never truly gone away, and things can change at a moment’s notice. End-of-Chapter Assignments and Exercises-Case Scenarios, Short Answer Questions

Question 1: You are an accounting major who has been placed with a large accounting firm after graduation. Your non-accounting friends ask you about your job in auditing and the purpose of an audit.

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Question 2: Explain to your roommate, who has a science background, why accounting information is useful not only for for-profit businesses but also for not-for-profit organizations. Give examples of these organizations and the types of decisions that depend on accounting information. Question 3: Looking at infamous past accounting scandals, it is not difficult to see that many stakeholders are negatively affected by financial fraud. Explain how is accounting fraud harmful to society at large, and what the costs would be if regulations do not keep fraud at bay. Question 4: Financial markets and banks are regulated throughout the world. That is, its functions and soundness of the system are too important to leave to the free markets. Explain why this is so. Question 5: Explain why relevance and faithful representation are both important characteristics in accounting information. Question 6: Given current anti-globalization sentiments, is doing business abroad still worth pursuing? Why or why not? Mini Case 1

The Covid-19 pandemic highlighted the need for national self-sufficiency and preparedness for the next pandemic. Due to the interconnected nature of the world through commerce and transportation, any future pandemic can be expected to simultaneously hit all countries. This means that as a country, selfsufficiency is key to a timely response. The need for a reliable within-country response is seen as strategically sound, especially in light of rising nationalism seen around the globe. Innocuease, a global pharmaceutical giant from Germany plans to set up a manufacturing plant in Canada, with the support of the Canadian Federal government. The plant is to be constructed in Winnipeg, Manitoba, a city selected for its central location and reasonable manufacturing costs. The facility will be creating local research, analysis, and manufacturing jobs and will also be working closely with its headquarters in Munich. The choice of location is largely in response to the many logistical challenges encountered during the current pandemic, and the Canadian government hopes that the new strategy will increase the country’s preparedness for the next virus. The company also conducts manufacturing in the personal protective equipment category, producing items such as medical-grade masks, gloves, and gowns. Target customers include hospitals and other care institutions, as well as retail distribution. The aim of the facility is to meet the demands of the domestic market. Discuss the accounting rules applicable to the preparation of financial statements for Innocuease.◄ Mini Case 2

A Canadian company Great North trades on the Toronto Stock Exchange under the ticker GN.TO. It is currently in merger talks with a US firm traded on the

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NYSE. Both companies currently produce financial statements complying with their own country’s disclosure requirements prior to the merger. What are the financial disclosure considerations for the impending merger (assuming that the surviving firm will be the US parent and GN.TO will cease to trade on the TSX)?◄

References Ontario Securities Commission website: www.osc.ca Rabinowitz, A. M. (2009). Who was Luca Pacioli? The CPA Journal, 79(2), 12. Sarbanes-Oxley act of 2002: https://sarbanes-oxley-act.com/ Securities and Exchange website: SEC.gov Securities exchange act of 1934 accessed at: https://www.nyse.com/publicdocs/nyse/regulation/ nyse/sea34.pdf

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We begin by looking briefly at the history of banking systems around the globe. It is well known that the banking industry is regulated by each country’s government and for good reason. A failure in banking and financial markets has detrimental effects on a country’s economy and thus standard of living. We then describe how the systems are similar and different in each major economy and the implications of these differences. We then explore the equity and debt markets, how they developed in various centers, and how they have become closely linked across the globe. The freeing of capital flow between countries coupled with the availability of the internet and instantaneous information, in addition to cheap trading has made financial markets accessible to more investors than it ever has. Unfortunately, high volatility and financial bubbles are consequences of active trading and (relatively) free money flows around the globe and will be here to stay. Finally, we will also discuss how technology has profoundly impacted the way banking is done. Learning Objectives—This Chapter will

1. Introduce concepts of international banking, basic aspects of international finance, bonds, capital financing, equity, and diversification. 2. Provide information about Fintech, cryptocurrencies, and digital currencies. 3. Introduce and discuss aspects of financial contagion, financial market bubbles, and international financial regulatory practices.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 B. Sundararajan et al., Cross-Cultural Practices in Business and Finance, https://doi.org/10.1007/978-3-031-06440-1_7

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Brief History of Banking Banking dates to around 2000 BC in many parts of the world where trading activities occurred. It is not difficult to see that banking was necessary for lending and other daily business transactions. The topic of banking is vast and could easily fill up not one, but many books, so we will not attempt that task in this chapter. In brief, banking is so essential to a business that it has independently and separately developed in many parts of the world. For example, in the Roman Empire, coin minting, as well as deposits initially took place in temples. Eventually, the practice moved into private depositories. In fact, banking is so essential that there is not an ancient civilization around the world that did not have some sort of currency and banking in place. Modernized banking remains an important part of society today and has been evolving to meet the needs of society. Currently, banking is still undergoing digitalization as most banking needs can now be met by going on the internet and digital currencies are born.

Equity and Bond Markets Around the Globe The largest and most developed capital markets of the world exist in cities that are just as famous and influential. Cities that come to mind immediately include New York, London, Tokyo, Shanghai, and Hong Kong. Studies have shown that robust financial markets have the power to grow and enrich the city in which they reside. It may be hard to believe that physical geography matters to financial markets in an age where information could travel so easily over the internet, but it is important to remember that people are social creatures, and that distance is far from “dead”.1 Also bear in mind that not that long ago, financial trades used to be executed on the physical trading floor, as opposed to electronically. For those of you who have further interest in this topic, there is a large literature in the field of geographic economics on the continuing relevance of geographic location to financial markets despite technology that overcomes physical distance. When it comes to capital markets, the two main categories of capital financing are bonds and stocks. While the former is larger and far more predictable than the latter, the latter is more attention commanding due to its ownership characteristics and uncertain nature. In other words, news about a company’s prospects will be reflected in the share price of the stock, which makes it a more interesting thing to follow.

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There is a large literature on the economics of geography supporting this. For example, see Leamer and Storper (2014).

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What Is a Bond? A bond is a fixed-income instrument that represents a loan from the lender to the borrower. The bond issue specifies the amount borrowed (usually in 1000s of dollars) and the coupon interest rate of the bond to be paid throughout the life of the loan. In other words, bonds are quite explicit about what the future cash flows look like at the time of the bond issuance, and both the borrower and the lender know exactly what to expect (unless the bond defaults, in which case the lenders do not get their interest payments/loan amount back and there is usually some other legal resolution to the bond contract where the lender settles for a lesser amount—whatever the borrower could afford). According to the Securities Industry and Financial Markets Association, the total size of the bond market, as measured by total debt outstanding, is estimated to be at $119 trillion worldwide and $46 trillion for the US market in 2021.

What Is Equity? The other major form of financing is equity financing—also known as shares or company stock ownership. Equity financing represents partial ownership in a company in exchange for their cash investment. Being part owner of a company means that your fortunes are essentially tied to the future of the company and how much profits it can generate in the future—as shareholders own a portion of the company’s future profits or losses. Shareholders’ claim on the company is a residual claim (meaning bond holders and other debtors will be paid what they are legally owed first) and could be of an amount smaller, the same as, or greater than their initial investment. In other words, the financial payoff of being a shareholder is highly uncertain compared to that of a bondholder. If you wish, you can simply think of stock ownership in a business as owning a portion of the company’s future profits (or losses). At the core, it is the company’s future profits and cash flows that determine how much it is worth today. In contrast to shareholders, bondholders are legally entitled to interest payments and the repayment of the borrowed amount, whereas shareholders can stand to lose all their investments, or potentially double or triple their investments. Because the theoretical maximum of any given stock is unlimited, the potential gains of being a shareholder are not bounded by a maximum number. Moreover, the most a shareholder could lose is their total initial investment. That is, creditors to the company cannot go after the personal assets of the shareholders if the company itself defaults on its debt obligations. This limited liability characteristic is a very desirable trait of share ownership, as it is not always true with all forms of investing. The oldest and first stock exchange was established more than 400 years ago in the Netherlands. The world’s largest stock exchange is currently the New York Stock Exchange (NYSE) located in, of course, New York City—the capital of the world. Founded in 1792, it has been nicknamed the “big board” and lists 2400 firms valued at a total of 26.2 trillion dollars in 2021. Between the NYSE and

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the Nasdaq, the top two equity exchanges in the world is 46% of the world’s global stock value—or over 40 trillion US dollars. An active capital market that participants view as a “fair” game allows supplies of capital to meet the demands of funds. It is important to stress the perceived fairness and reasonableness of the investing game as researchers have found that countries that have strongest investor protection have largest capital markets and countries with the weakest investor protection have the smallest capital markets. That is, the size of the market is a direct reflection of how many willing participants it can attract. The market value of both the bond market, as well as equity markets, are constantly changing, as trading in the market will move prices to reflect the latest information about the prospects of the company and the state of the world. Though economists build models and theories about the high efficiency of financial markets as well as the objective aspects of business valuation, it is nevertheless driven by investors who are human beings with emotions. As such, the markets, over the long run, reflect economic realities in an objective manner, but its day-to-day movements include an efficient “pricing” action as well as the overall sentiments of the day. Indeed, market bubbles have increased in frequency as well as size in recent decades. This is due to both the fact that financial markets are interlinked due to globalization (think financial contagion from one market to another), as well as the easy access to trading that the public has thanks to technology (think low-cost or no-cost trading platforms).

Why Banking Regulation Is Necessary A brief look at any banking activity in history shows the prevalence of bank runs and the damage that will ensue. This is essentially the reason why banking is a regulated industry anywhere in the world. A bank run or a run on the bank occurs when depositors simultaneously withdraw their money from a bank because they believe the bank will fail and that if they don’t get their money now then they will lose their money. Most depositors realize that the money deposited into a bank account doesn’t “stay” at the bank, as the bank will turn around and lend this money to parties who wish to borrow funds. The need to borrow money can arise out of a multitude of life reasons and situations, both business and personal. For example, there are business loans intended for an entrepreneur who has a business idea but no funds to execute his idea. There are business loans that are necessary for existing small businesses to grow. There are mortgages for those who wish to purchase a house or student loans for those who wish to pursue post-secondary education. Because the bank pays very low interest on your deposits and charges much higher interest on its loans, the difference in interest rate and payment is essentially the business model that allows the bank to generate profit. When many banks in the system have a bank run simultaneously, you will have a bank panic—or a crisis in the financial system. And a systemic banking crisis is one where all or almost all the banking capital in a country is wiped out. We have grown accustomed to

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easy and effortless banking that we take the system for granted. But the reality remains that banking is essential for modern commerce, trade, as well as everyday life. The easiest and most obvious way is to require banks to hold higher reserve (keep more deposits on hand and lend out less money). Bank runs are basically self-fulfilling prophesies because even for a bank in excellent financial health, if many depositors simultaneously attempted to withdraw their deposits, they would be in financial trouble. Banks pay careful attention to how they are perceived and manage their image of credibility and success strategically. Therefore, bank headquarters often occupy expensive real estate with lavish and stately buildings to demonstrate to the public that their money is safe with them.

Regulation Full Disclosure (Reg FD) Regulation Full Disclosure was introduced by the SEC in the year 2000 to level the playing field in the securities market in the United States. In particular, the regulation was put in place to remove any advantages that institutional (often large) investors had over retail/small investors. The purpose and goal of such a rule are primarily to prevent a loss of confidence in the markets, which would deter market participants if they viewed the game as being rigged. Reg FD prohibits publicly traded companies from disclosing previously nonpublic, material information to certain parties unless the information is distributed to the public first or simultaneously. This means public firms that conduct earnings and forecast calls to update stock analysts must simultaneously issue a press release to make that information available to the public at the same time.

Technological Disruptions to Banking and Financial Markets Advances in computer capabilities and the widespread use of the internet mean an increasing part of modern life has become technologically driven. Technology has invaded just about all aspects of life and the financial industry is no exception. The term Fintech stands for financial technology and refers to any computer programs and other technology used to support or enable banking and financial services. Today, Fintech is one of the fastest growing areas for venture capitalists, so it is no wonder that it is all over the business news. When we hear the term Fintech, what immediately comes to mind is the use of smartphones for mobile banking, investing, borrowing services, as well as cryptocurrencies. These are obvious examples of technologies aiming to make financial services more accessible and convenient to users. It is at least a bit ironic that a parent is more likely to see physical play money in a kids’ shopping game than to encounter physical cash in an actual store. Fintech has gotten so hot in the world of business that it is even getting a lot of press in mainstream media. So much so that we feel that the omission of

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such a topic in this book would leave readers wondering. Chances are, you have heard the term Fintech before, and like everyone else, you probably are aware that you don’t know everything about it because it is rather new. A quick investigation reveals that it is not a well-defined term. One definition for it is “the new applications, processes, products, or business models in the financial services industry, composed of one or more complementary financial services and provided as an end-to-end process via the internet”.2 In a separate definition, Leong and Sung (2018) call Fintech “any innovative ideas that improve financial service processes by proposing technology solutions according to different business situations, while the ideas could also lead to new business models or even new businesses”. As one can see, the list is quite broad, and there is really nothing limiting innovation and growth in finance. While there is an element of competition between Fintech and traditional finance, technology increasingly changes the way we bank by making the traditional way obsolete. Going to the bank used to mean long lines and hours at the bank whereas today, an individual can do a lot of “banking” on the phone or computer. In fact, it is accurate to say that many everyday banking needs can now be handled completely remotely at low or no cost at all.

Cryptocurrencies One example of financial innovation that both expands and competes with traditional finance is cryptocurrencies. The oxford dictionary defines cryptocurrencies as a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. The best-known of these is Bitcoin, which is the first and most famous cryptocurrency. Bitcoin is famous for its safety features achieved through blockchain technology and design and lacks personally identifiable information. While the technological aspect of it is beyond most investors, even those in the business of valuation can’t quite put their fingers on it. In February of 2021, Tesla, the electric vehicle maker, purchased about $1.5 billion worth of Bitcoin, and according to its CEO Elon Musk, you can soon purchase a Tesla using Bitcoin.3 The company supposedly made the purchase to have “more flexibility to further diversify and maximize returns on our cash”. Musk, a vocal supporter of Bitcoin, later warned that he does not think the average investor should invest their lifesavings in cryptocurrencies as it is too volatile. In May of 2021, Musk surprised the world with the announcement that Tesla would not accept bitcoin as a currency in a car purchase, citing the environmental impact of bitcoin. Because the mining of cryptocurrencies has a large carbon footprint, it

2

Sanicola, Lenny (February 13, 2017). “What is FinTech?”. Huffington Post. Retrieved August 20, 2017. 3 This represents a sizable about of the company’s cash holdings which stood at around 19 billion.

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would be ironic to allow such currency to be used to purchase an environmentally friendly vehicle. Influential critics of Bitcoin also exist. Legendary investor Warren Buffet is one of them, and his right-hand man, Charlie Munger, went as far as stating that bitcoin is “disgusting and contrary to the interests of civilization”. Bitcoin has some desirable features that attract organized crime, though cryptocurrency fans will point out that the US $100 bill is the favorite medium of exchange for criminals. It was reported in 2021 that $90 million worth of bitcoins were collected by cybercriminals for first hacking of, and then the return of access to the colonial pipeline in the United States. As of January 2021, there are over 4000 cryptocurrencies. Some of these cryptocurrencies have little following or trading volume, while others have enthusiastic backers who believe in digital currencies one day dominating the world. There is a wide held belief that cryptocurrencies could become a common form of currency or payment of the future, but at the present time, it is largely speculative and highly controversial. Believers view them as a breakaway digital currency that is not constrained and controlled by any government, and another currency that competes with traditional currencies as a store of value. While there is no agreement on what the future of crypto may look like, most people believe there needs to be some form of regulation to protect the public. Part of the difficulties lies in the fact that governments around the globe are witnessing a shifting in power as rulers of their countries. The multinational corporations of the world, especially in the technology arena, have gained tremendous wealth and power, so much so that the governments need to come up with new rules of engagement with them. For example, Apple, Amazon, Google, and Facebook together dominate the market and suppress competition in unhealthy ways in their industries that anti-trust laws are struggling to keep up with them. In a survey by politico, most employees in the high-tech industry believe that these large firms are too powerful for the world’s good. Their superb financial position allows them to acquire smaller firms to stifle competition. Examples include Facebook’s acquisition of startups such as Instagram and WhatsApp. The company paid one billion dollars for Instagram, but for a company in Facebook’s financial position, this is literally peanuts (the company is worth roughly $900 billion in market valuation and earned more than 18 billion in profits last year). Amazon used data from third-party sellers against them. The concerns discussed thus far do not even consider the sheer amount of personal data that is collected by these firms or the potential to extract profits from them. In closing, attitudes towards cryptocurrency vary greatly throughout the world. It is observed that Bitcoin, for example, is most widely used in Turkey—not surprising given the country’s high inflationary environment, as well as a lack of trust in the local currency. Meanwhile, Bitcoin as well as bitcoin mining is increasingly banned in certain countries, such as China. However, mining activity is so profitable that such activity has picked up in other parts of the world. In the years to come, we will continue to witness the changes triggered by technology in the real world, as well as the virtual world, metaverse, and beyond. It needs to be noted

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that by the time this book is released, much time would have passed and even one year is enough to see a dramatic change in volatility in bitcoins. People are still unsure and the values of cryptocurrencies could change dramatically and no system is immune from scandals and theft.

Central Bank-Issued Digital Currency (CBDC) While the future of cryptocurrencies remains to be seen, traditional fiat currencies issued by governments are being impacted by digitalization. One option for a government to manage the future of its currency is to create a digital version of its current currency. We refer to these as central bank-issued digital currency or CBDC. For instance, even though cryptocurrency mining and trading are outlawed in China, the Bank of China is taking charge of the future of digital currency by developing the digital Renmingbi (RMB) with the goal of replacing the physical version. The initiative was started in 2014 and it was recently announced that the digital RMB will mainly be used for domestic retail payments. The design includes a double offline payment system, high security, multi-terminal selection, multi-information intensity, point-to-point delivery as well as high traceability. Meanwhile in Europe, the development of the digital Euro is also underway. The digital euro is issued by the European central bank which has specified that the digital euro will only complement and not replace, the physical Euro. This is because the use of the physical Euro is still substantial in many parts of Europe. The US Federal reserve is reportedly working with researchers at the Massachusetts Institute of Technology to build and test a digital dollar, but the important question of whether there will be a digital US dollar remains unanswered. Some of the concerns cited include privacy and disrupting the banking system, especially given that the US dollar is the world’s reserve currency. Each country will need to evaluate its own digital currency strategy and decide whether a digital version of the country’s home currency is a suitable addition/substitution of its paper currency. While the United States is still on the fence about a digital dollar, both China and Europe have already made their moves and are taking a cautious approach to embrace the digital future of currency under government supervision. Compared to letting the free market run its course with cryptocurrencies, and not having a digital currency, this early move appears to be an acceptance of the digital age while maintaining control over the currency used within a country. Ironically, it is precisely this lack of government control, the lack of international borders, and the government’s inability to control the money supply that is viewed as desirable qualities of cryptocurrencies.

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Global Financial Contagion The result of a more connected world is also a more intertwined financial world. What used to be separate banking systems in different countries are more intertwined than in the past. The interconnectedness of the world’s banking systems undoubtedly facilitates international business as well as international travel, but there are also some major downsides that resulted from this development. For instance, due to the relatively free flow of capital, you can see money leaving countries and going to certain safe havens where privacy is better protected for the money you don’t necessarily want others to know about (i.e., Suisse bank accounts). The same kind of connectedness also exists in capital markets (such as the stock market) in general. The financial markets can be viewed as a place where demand and supply for financial products meet to form a price based on the riskiness of the products. One of the most important concepts in modern finance is the benefits of diversification. The core idea behind diversification is quite simple: do not put all your eggs in one basket because you do not want to risk losing everything. By putting all your investment in one asset, you are taking an excessive risk because there’s no such thing as a completely safe stock. By design, stocks do not and cannot guarantee a certain amount of financial return. Similarly, just as hindsight is often 20/20, the future is always uncertain, which is why there’s that saying that you should never invest money that you can’t afford to lose. By looking at the trading volume on major stock markets today, one would never guess that the original idea of stock ownership was never intended for trading, and certainly not trading the high frequencies seen today. The cross-listing of stocks on multiple exchanges, and the speed at which information travels over the internet means that diversification benefits are much harder to achieve than in the past. In other words, the correlation or co-movement of stocks around the globe has gone up overtime. This is primarily due to how quickly and cheaply information travels, as well as increasingly free-flowing capital. Thanks to technology and deregulation regarding capital flows, money around the world can be seen chasing financial returns with far fewer locational constraints. When too much money is chasing too few goods or investment products in this instance, prices can rise quickly to a level that is not rational or sustainable overtime. The result is the quick formation of financial bubbles, whether it is in the financial markets or any other market (real estate, for example). Without doubt, we now live in an era where the formation of bubbles happens quickly with a higher frequency of such bubbles. To make matters worse, the magnitude of these bubbles is also larger than they were in the past. We have currently entered a period of global capital superabundance, which means there is more money chasing fewer investments. This at a macrolevel dictates that the returns generated by capital must drop compared to historical standards.

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Finally, it is worth noting that all these realities discussed above regarding financial capital and the financial markets were already present before the Covid19 pandemic4 —which unfortunately is still ongoing two years after its initial outbreak in 2019. The public health significance of this event is that probabilitywise, it is a once-in-a-century event in which humanity suffers through disease and mortality. The economic consequence of this latest pandemic is not entirely clear now and can only be properly summarized in the future when we look back at these years retrospectively. What we already know for certain is that due to the fiscal stimulus provided by governments around the globe, there is even more money floating around in the world, looking for a place to go. Perhaps when we look back in the future it will seem obvious, but one would never have guessed that COVID had a negative effect on the world by looking at financial market movements during the pandemic. Societies around the globe went through at least a couple of rounds of shutdowns where the public was ordered to stay home. Entire sectors such as the travel industry and the restaurant industry simply were not allowed to do business and had to be kept on life-support with government handouts. This is all in addition to the expenditures and resources needed on the public health front (think “free” vaccines, drugs, tests, consultation, medical services, etc.).

Listing a Business Abroad While far from a common business move, some businesses may wish to raise equity or source capitalization abroad—by selling company shares abroad. This could happen for several reasons and could be in addition to the company’s home country listing. It is a complex and expensive process and is only feasible for large companies with resources. This topic is one reserved for an advanced finance course and an accounting consolidation course, but here we briefly discuss some accounting implications to give the reader an idea of the accounting complexities to be expected. As discussed in the previous chapter, when companies go abroad, accounting books of foreign operations are kept separately and usually are done following their parent’s accounting standards at home, so that the anticipated combining, or accounting consolidations process is made easier. When a company operates in two countries and its shares are publicly traded in both these countries, things get even more complex as two securities commissions are involved. Fortunately, between Canada and the United States, the countries’ securities commissions have

4

Interestingly, of the recorded pandemics in history, this is the first and only pandemic that we have been able to do something about while it is still unfolding. Our medical and technological advancements have enabled us to genetically sequence the virus, track its mutations, develop and deliver effective vaccines to prevent death and severe disease. These are incredible achievements, and many lives were saved, but at the same time the financial burden will be with us for years to come.

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a bilateral agreement for allowing a foreign subsidiary to follow the accounting rules of their home country. This greatly simplifies the situation, though readers should be mindful that most countries do not have such an agreement. End-of-chapter assignments and exercises–case scenarios, short answer questions

1. Your roommate who is a science major knows that you study in the school of business. She asks you to describe the general idea behind investment diversification. Why is it important? 2. Summarize why financial markets are typically regulated. What happens when the markets are widely perceived as being unfair? 3. Describe how a financial bubble can form when there are few controls over the international flow of money versus strict capital controls surrounding national borders. 4. Which is a safer investment? To own a company’s corporate bonds or the company’s common shares? Why? 5. What is the mandate of the SEC? What goal does the SEC ultimately aims to accomplish? 6. Describe how no cost trading platforms can contribute to bubble formation in the stock market. Mini Case 1

As a result of world equity markets being at multi-year highs, many private companies are choosing to go public, or sell equity shares via a public stock exchange in a process called an Initial Public Offering (or an IPO). EZride is a privately owned car-sharing service with 20 locations across Canada. Their fleet of cars is entirely electric and hybrid vehicles. Business is booming due to the rising cost of car ownership and the company has plans to further expand the number of locations in the country. They have been approached by investment bankers who advise the company to consider going public. Discuss the financial reporting implications related to this decision.◄ Mini Case 2

Sam Co headquartered in Toronto trades on the Toronto Stock Exchange. The company acquires small businesses around the globe and maintains them as subsidiaries. In other words, the company is a holding company of other businesses and tends to buy businesses when they perceive good value in the price. Some companies that are struggling financially have the potential for re-organization and efficiency gains. The company, in order to comply with the Ontario securities commission prepares its financial statements in accordance with IFRS. Discuss the financial reporting implications related to domestic and foreign purchases of Sam Co. (assuming that purchases are always of the entire company or controlling stake).◄

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References Leamer, E. E., & Storper, M. (2014). The economic geography of the internet age. In Location of international business activities (pp. 63–93). Palgrave Macmillan. Regulation full disclosure: https://www.investor.gov/introduction-investing/investing-basics/glo ssary/fair-disclosure-regulation-fd Sanicola, L. (2017, February 13). What is FinTech?. Huffington Post. Retrieved August 20, 2017. Leong, K., & Sung, A. (2018). FinTech (Financial Technology): What is it and how to use technologies to create business value in fintech way? International Journal of Innovation, Management and Technology, 9(2), 74–78. Survey of tech workers accessed at: https://www.protocol.com/policy/tech-employee-survey/techemployee-survey-2021

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Negotiating Practices

Negotiation is an initial step of multinational projects, so effective negotiation ensures successful international relationships and business transactions across the geographical and cultural boundaries. It is a process of reaching an agreement and making business deals with the representatives of other countries and cultures. The negotiation process is always challenging, as each side has its own interests, goals, and outcomes. This process becomes harder, however, when it involves intercultural communication. Knowing how differences in communication styles, cultural values, and negotiating behavior affect negotiation results contributes to less stressful negotiations, trustful business relationships, and reduced costs. Learning Objectives—This Chapter will

1. Explain approaches to negotiation. 2. Look into the challenges of intercultural communication during the negotiation process. 3. Examine factors that influence negotiation outcomes. 4. Explain cultural differences in communication styles. 5. Uncover differences in basic negotiation tactics and decision-making. Mini Case

Canadians in South Korea A team of managers from a Canadian retail company went to South Korea to negotiate with a well-known Korean clothing brand. The team was led by Sheri West, an experienced manager, who was sure that the negotiation would be a success. She did not foresee any difficulties at all. The Canadian team expected that the negotiations would take a maximum of three weeks and would end up bringing back to Canada a win–win contract. So, they were very surprised to see that the South Korean side did not have © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 B. Sundararajan et al., Cross-Cultural Practices in Business and Finance, https://doi.org/10.1007/978-3-031-06440-1_8

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the intention to finish the negotiations so fast. They preferred to spend time together, show Canadians their factory, and talk about the history of their brand instead of starting to discuss the conditions of the agreement right away. When the time came to discuss the contract, the Canadian team was surprised to see that the discount that the Korean side offered was intentionally made “unfairly low”. Instead of receiving 10% off (this is what they hoped for), the Korean negotiators offered only a 3% discount. What a disappointment it was! Sheri discussed the offer with his team, but they did not reach a consensus. She called her manager and heard back that this offer was totally unacceptable. The Korean team discussed it with their management as well only to hear that what the Canadian side offered was unreasonable, as they aimed to receive such a “good deal” even without proving first that they were committed to a long-time partnership with them. As a result, the negotiation process took twelve weeks. The South Korean side insisted on the initial 3% with increasing the offer to 4% in six months and then to 6% in a year. They agreed to reopen the contract for negotiation in a year if all the conditions were met. Both teams were exhausted and not satisfied with the result; however, they felt relieved after they were able to reach an agreement. The Korean negotiators, however, were not sure if they wanted to continue their relationships with their Canadian partners, as they were disappointed with how “short-sighted” and “rude” they were. The Canadian team did not know if they would continue their partnership with the Korean brand either, as they did not feel that they won in this negotiation. What should both sides do now? Case Questions 1. What was the expectation of both teams when they started the negotiations? 2. What went wrong in the negotiations? 3. What could have been done differently to achieve a better result? 4. What should both sides do to achieve desirable outcomes when they re-enter the negotiations in a year?◄

What is intercultural negotiation and what are the steps in intercultural negotiations? You may have heard that negotiation is often compared to a pie and that the purpose of negotiation is getting your slice of the pie. However, does negotiation mean obtaining the biggest slice of the pie?

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There are three approaches to negotiation: 1. One of the approaches is a win–lose distribution of the pie, which basically means that if one person takes a bigger slice or one side takes a bigger slice of the pie, the other side will lose. 2. Another approach is a lose–lose approach. If negotiators have this approach, the pie becomes smaller. 3. However, you can make the pie bigger, and it will be a win–win situation. This is what successful negotiators aim for. Both cultural and personal preferences affect the choice of negotiation approach. At the same time, depending on their approach, teams either cooperate with each other looking for mutually beneficial solutions, or use such negotiation tactics that help them to dominate during negotiations. Reflect and Connect

Which approach to negotiation did each side in the chapter mini case use? Did both teams use the same approach, or were their approaches different?

Who Is Involved in Negotiations? Negotiations can involve separate individuals or teams depending on their purpose. There are several possible configurations (Fig. 8.1). Intercultural negotiation is a process initiated by individuals, groups, or organizations from different cultures that enables them to: . . . . . . . .

Jointly define the form of the relationships. Clarify individually and together the goals and outcomes to be achieved. Communicate about issues of individual or common concern. Educate each other about shared and differing issues, interests, or needs. Develop options that address their interests, needs, issues, problems, or conflicts. Influence and persuade each other. Reach mutually acceptable decisions and agreements. Implement agreements reached (Moore & Woodrow, 2010).

Intercultural negotiations bring numerous opportunities. However, studies show that they are more complex than domestic negotiations (Cullen & Parboteeah, 2014; Moore & Woodrow, 2010). Do you agree with this? Why do you think it is so?

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1.Individual negotiators, each representing groups, communities, countries, or organizations

1.Multiple individuals, each representing groups, communities, countries, or organizations 1.Two teams of two or more people, each representing their group, community, country, or organization

1.Individual negotiators, each representing themselves

1.Multiple individuals, each representing themselves

Negotiating Practices

Negotiations

1.Multiple teams, each representing their group, community, country, or organization

Fig. 8.1 Engagement in negotiations

Steps in Intercultural Negotiations Intercultural negotiations involve the same steps as domestic negotiations, but they are different because they are more complex. The main reason is that we encounter numerous cultural differences during intercultural negotiations. In addition, political, social, and economic systems across the globe differ as well, and these three factors come into play when we deal with intercultural or international negotiations. Intercultural negotiations usually involve seven steps (Fig. 8.2). It is important to understand, however, that all these steps are perceived differently by the representatives of other cultures. The success of the negotiator will depend on how well they are aware of these differences in perceptions and how much they are willing to take them into consideration at all the steps of the negotiation process. Let us now dig dipper into these differences. Figure 8.3 shows what cultural dimensions and components of culture should be taken into consideration when preparing for negotiations.

Communication Style Differences in communication style play a very important role in negotiations. Edward Hall (1976) argued that all cultures can be divided into two groups: highcontext and low-context style. You can see the differences between these two cultures below (Fig. 8.4).

Communication Style Fig. 8.2 Steps in intercultural negotiations (Based on Cullen & Parboteeah [2014])

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1.Preparation

1.Building relationships

1.Exchanging information & first offer

1.Persuasion

1.Concession

1.Agreement

1.Postagreement

Hall’s research of communication styles is closely connected with research on “face” and “facework”. Face is defined as a public self-image, an impression that people want to make on others in a particular social context, or “your public identity” (Samovar et al., 2013). This means that all people care about this public self-image, and as a result, everyone is afraid to “lose face”. This “fear to lose face” encourages people to get involved in “facework”.

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Negotiation Style

Fig. 8.3 Factors that influence intercultural negotiations

High-context Style • . . . . .

Most of the information is in the context and nonverbal signs (expressed implicitly) Avoiding “threatening” the face of another person is extremely important Indirectness and subtleness in communication Extreme politeness Silence is encouraged What is not said may be more important than what was said

Low-context Style . . . . . .

Most of the information is delivered in words rather than nonverbal signs (expressed explicitly) No or little concern about another person’s face Directness in communication Open expression of reactions Silence is avoided Clear and to the point conversation “leaves little for imagination”

Fig. 8.4 Differences between high-context and low-context cultures based on Hall (1976)

Facework is defined as “a set of coordinated practices in which communicators build, maintain, protect, or threaten personal dignity, honor, and respect” (Dominici & Littlejohn, 2006). According to this theory, all people do facework. However, what is important to understand is that in low-context (and collectivistic) cultures, individuals are more concerned with losing their own face while in high-context (collectivistic) cultures, people show concern about others. So, their facework will be directed towards saving other people’s “face”. As a result, we

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can see that in these cultures, people are extremely polite and care about other people’s feelings. In such cultures, “no” is hard to say directly, as people try not to offend others. Consider an example of Japanese negotiators. When the Japanese participate in negotiations, they rarely say no. They can say, for example, “very difficult”, meaning almost impossible. If the negotiators from the other side come from a low-context culture, they may think that the other side is indirect because they are hiding something. However, this indirectness is explained by the negotiators’ care about other people’s feelings. Japanese negotiators are often indirect when they do not want to offend others, or they need more time to think about the offer. Another important characteristic of the high-context cultures is that negotiators often return to the points that they have already discussed, which makes the negotiators from low-context cultures confused. The representatives from low-context cultures, on the opposite, usually expect that if the negotiation moved to another point, no return to the previously negotiated points should be done (Cullen & Parboteeah, 2014). These differences in communication styles can bring misunderstandings and handling them ineffectively can even jeopardize negotiations. If the negotiators come from a low-context culture, it is important for them to change their communication style to make it less direct. Otherwise, they may be perceived as rude and too demanding. What do you think?

1. Based on Hall’s theory, which cultures do you think are high context? Which cultures are low-context? 2. What about your culture? Is it high-context or low-context? Why do you think so? 3. Do you think all cultures can be put under these two categories? Why do you think so? 4. How do these differences influence negotiations? At what stages of the negotiation process do they come into play? 5. What can be done to avoid misunderstandings because of differences in communication styles and face-saving strategies? One important nonverbal clue during negotiations is eye contact. The intensity of an eye glaze differs significantly and has different meanings across cultures (Fig. 8.5). For example, while in the North American cultures, lack or not enough eye contact may be interpreted as dishonesty or an attempt to hide something, in Asian cultures, it is perceived as a sign of respect. In the same way as the intensity of eye contact may communicate different messages depending on the culture negotiators come from, touching is another indicator of emotions during communication. While there are countries where people try to avoid touching others at all costs, in other cultures, touching others is an essential part of any conversation, including negotiation. So, while participating

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DIRECT EYE CONTACT CULTURES

NOMINAL EYE CONTACT CULTURES

Middle Eastern

Korean

French

Japanese

German

African

Dominant US

East Indian

Fig. 8.5 Eye contact across cultures (Samovar et al., 2013)

DON’T TOUCH

MIDDLE GROUND

TOUCH

Japan

Australia

Latin American countries

United States

Estonia

Italy

Canada

France

Spain

England

China

Portugal

Scandinavia

Ireland

Greece

Other Northern European countries

India

Russia

Middle Eastern countries

Fig. 8.6 Touching across cultures (Axtell, 1998 as cited in Suderman, 2008)

in negotiations with the representatives of such countries like Brazil, Mexico, and Italy, you should be prepared that people will touch you to show their friendliness, sincerity, and trust (Fig. 8.6). Graham’s (1985) study of negations that involved Japanese, Brazilians, and Americans found significant differences in the amount of eye contact, touching, silence, and the use of the word “no” (Fig. 8.7). The role of emotions in communication is also an important element of the negotiators’ communication style. In some cultures, emotions are more vividly expressed while in others, they are very subtly shown or not expressed at all. For example, people from Asian cultures, such as China, Thailand, the Philippines, Japan, and Indonesia, value maintaining harmonious relationships, so they prefer to avoid direct emotional confrontation. On the opposite, for negotiators from Russia, it is common to show their disappointment, satisfaction, or confusion openly, and if the other side is too reserved in their emotions, it may seem suspicious to Russians. They may think that the other side is hiding something, which may decrease trust between partners, increase tensions, and lead to undesirable outcomes.

Communication Style

Silent periods (number of silent periods longer than 10 seconds per 30 minutes) Conversational overlaps (number of interruptions per 10 minutes) Facial gazing (number of minutes of eye contact per 10 minutes) Touching (number of touches per 30 minutes; handshakes not included) Number of ‘NOs’ (number of times the word ‘no’ used per 30 minutes

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Japanese Americans Brazilians 5.5 3.5 0 12.6

10.3

28.6

1.3

3.3

5.2

5.7

9

83.4

0

0

4.7

Fig. 8.7 Nonverbal communication and the use of “no” in Japanese, American, and Brazilian cultures

Such differences in emotional reaction often led to misinterpreting business partners’ behavior. For example, the Japanese are often silent when they are satisfied with the offer, which may be interpreted by North Americans or Europeans as dissatisfaction due to a lack of emotional reaction. As a result, they may make another concession to “please the other side” though it may be unnecessary (Cullen & Parboteeah, 2014). Ekman (1999) argues that there are seven universal (recognized all over the world) facial expressions that express emotions: anger, disgust, fear, happiness, sadness, surprise, and contempt. However, Richmond et al. (2012) state that contempt is not expressed universally, but instead, interest is. They expanded on Ekman’s theory and proposed a new list of universal facial expressions that they called SADFISH: sadness, anger, disgust, fear, interest, surprise, and happiness. Matsumoto’s (1993) research, however, found that there is a difference in the meaning of a smile between Asian and mainstream American cultures. He argues that people from Asian cultures usually smile when they feel embarrassed while Americans smile when they are happy. This misinterpretation of a smile causes misunderstandings during negotiations, as the representatives of the mainstream American culture may consider that the other side is satisfied with the offer and move to another stage of the negotiation. They may be surprised and feel “offended” that the other side brings to the negotiation the conditions that they think have already been accepted. Nevertheless, emotional reactions often depend on an individual’s preference, so do not assume that all representatives of a particular culture will express emotions similarly. Be careful with interpreting other people’s emotions because you cannot always rely on them.

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Survival Tips Negotiators from low-context cultures

Negotiators from high-context cultures

1. Try to adapt your communication style, focusing less on talking, and more on listening to others. In such a way, you will make a positive impression on your high-context counterparts 2. Assume that the message from the high-context partners may potentially have more than one meaning and ask questions to make sure that you understand it correctly 3. In addition to a verbal message, look for nonverbal signs to make sure you understand the message correctly. Do not assume that people are hiding something when they are indirect with you 4. Try to match your nonverbal behavior to those of the culture you are interacting with

1. Make sure your answers are clear and leave nothing for imagination. In such a way, you will make communication easier and will impress your counterparts with quick and efficient decision-making 2. When the other side asks you for more information, assume that they require more clarity 3. If you find your partners to be too direct with you, assume that they appreciate clear and straightforward responses 4. Do not rely on the nonverbal clues if the negotiators come from a low-context culture. Look for the clues in their verbal expressions

Long-Term Versus Short-Term Orientation The mini case at the beginning of this chapter involved a typical misunderstanding of each other’s cultural values and orientations. To be more specific, the teams did not take into consideration a difference in expectations regarding longterm versus short-term orientations (Fig. 8.8). If they had shown their interest in developing long-term business relationships through negotiating the dates of the contract re-evaluation based on the level of the partnership success, they would have successfully closed the negotiations.

Long-term oriented societies

Short-term oriented societies

Orientation towards future rewards

Orientation towards short-term goals

Organizational loyalty and selfdiscipline Leisure time is not important

Short-time organizational loyalty

The focus is on obtaining market share Decisions are based on a logical analysis of problems E.g., China, South Korea, Japan.

Personal freedom and leisure time are important The focus is on short-term profits Decisions are based on synthesis with the goal to reach consensus E.g., Mexico, the USA, Egypt.

Fig. 8.8 Long-term versus short-term orientation cultures (Hofstede, 1980)

Long-Term Versus Short-Term Orientation

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Studies show that in long-term oriented societies, business partners are committed to building relationships and are interested in maintaining them for a long time (Hofstede, 1980). This is the reason why they always spend time on getting to know their partners and testing their relationship. As short-term oriented societies are more oriented to “making a deal”, the focus of negotiation for them is often on getting a better “piece of a pie”. This may be perceived as an offensive behavior by long-term oriented partners who may feel that they are pressed to make a concession without having an opportunity to make sure that they can trust their partners. High-context and collectivistic cultures are usually long-term oriented, so they spend more time in getting to know each other to build relationships. On the contrary, negotiators from low-context cultures often overlook this stage in negotiations, moving to the exchanging of information and the first offer right away (Cullen & Parboteeah, 2014). However, such negotiators put their potential partnerships with the representatives of high-context cultures at risk. Asian cultures, for example, are very often slow to sign a contract, as they want to develop relationships. So, when you are in a rush to sign a contract with them, they may think that you are hiding something. If they expect you to slow down, as they want both sides to learn more about each other, you should give them this opportunity. You should plan enough time for developing these relationships. Negotiators can build relationships in different places and under various circumstances. For example, the Japanese prefer to drink tea with their potential partners before they even start a conversation about a potential agreement. Drinking tea in Japan is not just about spending time together. The Japanese can learn everything they need to know about the other side during this ceremony. They will look for things and how you behave, how you address them, and what you are talking about during this ceremony. They will pay attention to several small details to get to know you better and decide whether they want to have business with you and your company even before you officially start the negotiation process. The word “nemawashi” which means “laying the groundwork” is used to show how important it is for Japanese businesspeople to know each other first and exchange information long before decisions are made. Japanese meetings are full of ceremonies; they are slow, so patience is a key to success. It is inappropriate to start a meeting talking about business unless your Japanese partners start this conversation first. You will appear polite if you start with a small talk about the weather, your appreciation of a chance to deal with this company, and the good words that you heard about it. As Japan is a collectivistic culture, it is not appropriate to focus on separate individuals during a meeting (Withey, 1994). Russians prefer to have dinner at an expensive restaurant (preferably with alcoholic drinks) not only to develop closer relationships with their negotiation partners but to impress their guests as well. When you are invited to Russia as a potential business partner, be ready to be treated like royalty but do not expect that you will close negotiations soon. Italians also spend much time in building relationships with their potential business partners and often invite them to restaurants for lunches and dinners.

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However, unlike Russians, they prefer to keep business conversations outside of restaurants, so they talk about food, travel, and art while eating. In Greece, you should expect to meet with your partners at least three times before you start negotiations. The first meeting is usually for laying the foundation, the second meeting will help you to build trust and respect, and only in the third meeting, the negotiation process will start (Sabath, 1999).

Negotiation Tactics Each side attempts to get the other side to agree to their position during negotiations. However, though negotiators use similar tactics (e.g., promises, recommendations, rewards, etc.), the mix and use of these tactics can be different depending on the negotiators’ cultural norms. In addition, ethical systems across the globe are different, so there may be differences in perception of which tactics are appropriate. Figure 8.9 shows examples of commonly used ploys during negotiations and the recommendations on how to deal with the partners who use them (they may not even realize that their tactics may be perceived as “dirty tricks” by others, as norms are different across the globe).

Forms of Agreement As you may know, in individualistic cultures, people prefer to sign contracts while in collectivistic cultures, individuals prefer other types of agreement. So, if you deal with a collectivistic culture, do not expect people to be very enthusiastic about signing a contract. In such countries, negotiators may come to the negotiation process even without an idea of how they would like their contract to look like. Another important thing here to consider is the differences in terms of the formal versus informal communication styles. If you address people not in a proper manner, they may feel that you are disrespectful, and if the negotiators are from a high-power distance and collectivistic culture, they may stop all types of negotiations with you only because they will feel that you are not polite enough. Another important thing is general versus specific forms of agreement. Overall, high-context cultures prefer general contracts while low-context cultures appreciate specific contracts with detailed terms and conditions (Fig. 8.10). There are countries where people do not like specific forms of agreement because they think that others include so many details in the agreement because of a lack of trust. It can ruin negotiations and will not bring a desirable outcome. If you deal with Middle Eastern countries, a contract may be an issue, as they mostly prefer either very general written contracts or oral agreements. In many cases, your potential partners from Arab countries may be offended if you require a detailed contract with all terms and conditions, as it will mean to them that you do not trust their word. Japanese also prefer a general agreement. As Japan is a high uncertainty avoidance culture (Hofstede, 2011), the Japanese believe it is impossible to foresee

Forms of Agreement

Tactic 1. Deliberate deception or buffing

2. Stalling

3. Escalating authority

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Description Negotiator present untruths either in facts or intentions (e.g. one foreign company spent a week in a hotel just to know that the local company was already negotiating with another company and brought the third company only to scare the negotiators) Negotiators wait until the last minute before the international team plans to go home and then starts to push the concession.

Negotiators make an agreement, but then reveal that it should be approved by the senior management or the government. Objective: put you under stress to get more concessions from you.

4. Good-guy, bad-guy One negotiator acts technique agreeable and friendly while a partner makes outrageous and unreasonable demands. The good guy suggests that only a small concession can satisfy a bad guy.

Recommendation Point out directly what you believe is happening.

Do not reveal when you are going to leave and say that you are going to stay as long as needed. Moreover, if you will have to leave, you will leave without an agreement. Clarify decision-making authority early in the negotiation process.

Do not make any concessions. Ignore this game and focus on the mutual benefits.

Fig. 8.9 Commonly used ploys during negotiation (Cullen & Parboteeah, 2014)

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5. You are wealthy, and we are poor

6. Old friends

Used by negotiators from developing countries to get more concessions from rich countries. Small companies use this tactic when dealing with big companies. Negotiators act as if the companies and their negotiators have longenduring relationships. They show hurt feelings if their counterparts disagree or do not agree to their requests.

Negotiating Practices

Ignore this game and focus on the mutual benefits.

Keep a psychological distance that reflects the true nature of the relationships.

Fig. 8.9 (continued)

High-context countries A contract focuses on building relationships (including family, tribe, and clan connections) Not very detailed, as there is no necessity to write down everything (people trust each other, so mutual understanding, oral agreement, and handshake are enough) The terms are vague; there is room for changes The parties rely on relationships more than on a legal system in terms of compliance

Low-context countries Contract focuses on making a deal

Very thorough with a great number of details

No or very little flexibility in terms and conditions The legal system is expected to enforce compliance

Fig. 8.10 Differences in forms of agreement across cultures (Hall, 1976)

everything. So, when the circumstances change, general contracts allow changes as well. Japanese also believe general contracts demonstrate more trust to partners, so American detailed contracts that cover all the legal aspects are perceived as a lack of trust and are frowned upon. Russians will be surprised to see a detailed contract that explains all the responsibilities and sets expectation that both sides comply. It is very common that not all the terms of the contract are met, as Russians do not usually hesitate to modify the contract details after it was signed by all parties (Sabath, 1999).

Team Building and Decision-Making

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On the other side, the Swedes, Germans, English, and Austrians favor very detailed agreements and expect the other side to meet all the terms. You can count on them to take their responsibilities seriously as well.

Team Building and Decision-Making Moore and Woodrow (2010) argue that the team composition is one of the most important factors that contribute to negotiation success. They believe that team structure should involve both cultural and strategic considerations and take into consideration the following characteristics: 1. 2. 3. 4.

The formal position and status of team members. The personal or professional reputation and credibility of members. The areas of expertise needed for the negotiations. The personal style and perceived ability of individual members to promote agreements.

Cultural differences in team building are often connected with power distance or hierarchy. According to Hofstede’s research on cultural dimensions, all cultures can be divided into high-power distance and low-power distance societies, in other words into hierarchical and egalitarian cultures (Fig. 8.11). Negotiations between teams that are at opposite poles on this dimension are probably the most difficult ones; however, it does not mean that they are impossible. With proper preparation and the right expectations, such negotiations can be and should be successful.

High power distance (hierarchical) societies

. .

Individuals accept power as part of society Belief that “power and authority are facts of life”

.

Greater “centralization of power”

.

More recognition of rank and status

E.g., Malaysia, the Philippines, Mexico, Arab Countries, Indonesia.

Low power distance (egalitarian) societies .

Inequality in society should be minimized . Special laws, norms, and behaviors should “make power distinctions as minimal as possible” . Superiors and subordinates are considered equal . People in power do everything possible to look less powerful than they are E.g., Australia, Israel, New Zealand, Scandinavian Countries.

Fig. 8.11 High-power distance versus low-power distance societies (Hofstede, 1980)

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In high-power distance cultures, the preference is team negotiation with the leader making the most important decisions. Decision-making will be more centralized, so the leader will expect a leader from the other side to communicate directly with them. Teams from low-power distance societies are organized differently. Their organizational structure is usually flat with a facilitator/spokesperson innated of a traditional leader. Decision-making is collective and represented by a spokesperson. In extreme situations, the leaders from high-power distance societies may refuse to deal with people who have a lower rank or status, which can create difficulties for egalitarian teams. In this regard, preparation and strategic team formation are key to successful negotiations. Such teams practice a shared leadership approach, which often makes highpower distance teams confused. It can create difficulties for hierarchical teams, as they will not know who makes decisions and who will have the authority to approve or reject their proposal. They may find it strange that instead of deciding right after the offer, the other side’s spokesperson has several discussions with the team until they reach a consensus or can even initiate voting. It may cause extra stress for hierarchical teams during negotiations and make the process look longer and more tiresome. In some cases, negotiators are confused when the decisions are made by the top leaders who are not even part of the negotiating team. For example, Danish, French, and Finnish teams can express their opinions, but the decisions are made by managing directors, anyway. In Germany, the negotiation teams are rarely updated about the decision that is made by the top management.

Approaches to Conflict and Conflict Management Strategies Another important consideration during the negotiation process should be given to differences in approaches to conflict (Fig. 8.12) and conflict management strategies (Fig. 8.9). Conflicts often occur during negotiations due to differences in values, perceptions, and expectations, but if left poorly managed, they can lead to disappointment. As a result, parties may leave the negotiation table without closing the deal. Samovar et al. (2013) argue that an individual’s approach to conflict depends on their culture to a great extent. In some cultures, conflicts are perceived as an opportunity while in others, they should be avoided at all costs. In those countries, where people prefer not to engage in conflicts, pacifism and harmonious relationships are valued and confrontations are frowned upon. As a result, individuals do not openly express their dissatisfaction but either keep silent or try to find an intermediary to help to solve their disagreement. In those societies where conflict is regarded as an opportunity, individuals do not usually keep silent when they do not agree. On the opposite, they use this situation as an opportunity to renegotiate and change the situation. Most of the

Approaches to Time

Conflict as Opportunity 1. Conflict is a normal, useful process. 2. All issues are subject to change through negotiation. 3. Direct confrontation and conciliation are valued. 4. Conflict is a necessary renegotiation of an implied contract—a redistribution of opportunity, release of tensions, and renewal of relationships.

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Conflict as Destructive 1. Conflict is a destructive disturbance of the peace. 2. Everyone should adapt to established values. 3. Confrontations are destructive and ineffective. 4. Disputants should be disciplined.

Fig. 8.12 Approaches to conflict (Samovar et al., 2013)

conflicts are solved by the parties themselves, and there is no need to look for a third party’s help. Overall, as high-context cultures aim to maintain harmonious relationships, their representatives view a conflict as destructive. On the opposite, low-context cultures are known for their conflict as an opportunity approach. These preferences combined with differences in power distance can explain a choice of various conflict management strategies across the world (Fig. 8.13). Though these differences are well explained in the table below, it is always important to remember, however, that these strategies may vary due to individual preferences as well. During negotiation, the preferences in conflict management strategies are often obvious (Fig. 8.14) and require both sides to work towards mutual agreement and find solutions that would suit both sides.

Approaches to Time Low versus high sensitivity to time is another important thing to consider. According to Hall’s research, cultures can be divided into polychronic and monochronic (Fig. 8.15). These two approaches are completely different, so when looking for potential partnerships between the companies from the opposite cultural groups, negotiators should take these differences into consideration. So, individuals from monochronic cultures when preparing a contract for their partners from a polychronic culture, instead of requiring strict deadlines, should seek for other solutions. For example, they can negotiate the deadlines to make their polychronic partners feel more comfortable with their conditions. It will help to manage expectations and develop trust between business partners. Also, make sure you have the right expectation about the beginning of scheduled meetings in different countries. In Greece, the Czech Republic, Turkey, India,

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Low-power distance & Low-context (individualistic) cultures

High-power distance & High-context (collectivistic) cultures

Verbally direct face-work strategies (criticism, reprimands, threats, orders)

Verbally indirect face-work strategies, e.g., hints, indirect questions, etc.

The use of self-defensive strategies (e.g., justification) by subordinates

The use of apology and self-criticism (e.g., via self-reflection) by subordinates

Dominating strategies are often used by both parties in conflict

Shaming strategy is often used by a highstatus party. Avoiding and obliging are used by a low-status member

Individual rights and duties are defined by contracts and laws

Individual rights and duties are defined by ascription (status)

Conflict is often solved by the disputants themselves

High-status mediator who would help to save both disputants’ face is needed

Fig. 8.13 Differences in Conflict Management Strategies (Ting-Toomey & Kurogi, 1998) Fig. 8.14 Preferences in conflict management strategies

High-context cultures

Low-context cultures

Avoiding

Dominating

Compromising

Integrating

Accommodating

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Monochronic Time Cultures

Polychronic Time Cultures

View time as linear

View time as a cycle

Do one thing at a time

Do many things at a time

Believe that they control time

Do not believe that they control time

Strict adherence to deadlines and agendas

No adherence to deadlines and agendas

Coming on time is important

Being late is acceptable

Examples: Dominant North American, Scandinavian, German, Dutch

Examples: Arabic, Latin-American, Spanish

Fig. 8.15 Monochronic versus polychronic cultures (Hall, 1976)

Romania, and Spain, for example, be prepared to wait if you come to the meeting on time. On the contrary, in Finland, Sweden, Denmark, England, and Austria, your business partners will appreciate it if you come earlier. If you come from a monochronic time culture, though, and your partners are late for a meeting, never tell them about it. It is considered rude and inappropriate.

Developing Intercultural Negotiation Skills Acquiring negotiating skills requires time and patience. Samovar et al. (2013) give helpful advice on how to become a successful negotiator: 1. Be prepared. Learn as much as you can about the other culture regarding the level of formality, status, approaches to negotiation and conflict management, communication style, etc. 2. Develop sensitivity to the use of time. This means dealing patiently with those whose time orientation is different and adapting to their pace. 3. Listen carefully. Even if you are uncomfortable with silence, it is important to know how important that in many cultures, silence is used to communicate a message. 4. Learn to tolerate ambiguity. It is important to be open-minded and curious instead of furious when you encounter something in other people’s behavior that you do not understand. It will help you to find a common ground and avoid misunderstandings. 5. Try to locate areas of agreement. As both sides in a negotiation aim to get a better “piece of a pie”, a win–win situation is possible only when both sides

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locate areas of agreement. When you learn to easily identify these areas and show them to your partners, both sides will win.

Discussion Questions

1. Why is negotiation across cultures more difficult than domestic negotiations? 2. How important is eye contact to you during a conversation? How would you interpret lack of eye contact? How would you interpret “too much” eye contact? 3. According to Moore and Woodrow (2010), one of the opportunities negotiations give is educating others about influencing and persuading each other. What is a preferable way to influence others in your culture? What is your individual preference? 4. What steps in intercultural negotiations do you think are the hardest? Why do you think so? 5. How important are differences in communication style across cultures? Have you ever experienced difficulties communicating with someone coming from a culture with a different communication style (low-context versus high-context)? 6. How is research on “face and facework” connected with Hall’s research on communication style? 7. Are you good at decoding people’s nonverbal behavior? Why is the understanding of cultural differences in nonverbal communication important for negotiators? 8. What difficulties can teams from long-term and short-term orientation cultures have during negotiations? What can they do to avoid these difficulties? 9. How are difficulties in power distance connected with decision-making and conflict management? 10. What should negotiators know about the other team’s cultural values and preferences to avoid mistakes in negotiation? Activities

Activity 1 Behaviors of a Successful Negotiator In the left column below, list the behaviors that, in your opinion, an effective negotiator would utilize in your country. In the right column, list the behaviors an effective communicator should avoid. Share your views in your small group.

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Behaviors to utilize

Behaviors to avoid

1 2 3 4 5

1 2 3 4 5

Activity 2. Reflection Think about a situation when you had to negotiate with a person (people) from a different cultural group. . . . . .

What goals did both parties have? Did the parties have a different approach to negotiation? What challenges did you have? What negotiation strategies did each party use? Was your negotiation strategy right for the situation? If not, what could you have done differently to achieve better results?

Activity 3. “Bridging Differences” We often have misunderstandings when we communicate interculturally due to the lack of cultural knowledge and/or cultural sensitivity. Even when negotiators prepare well and think that they know what to expect during negotiations, they can go wrong, resulting in one team leaving the negotiations without a positive result. To avoid such situations, it is important to assume that the other side has a positive intent and to look for positive explanations for their behavior. Also, if you do not understand something, asking questions to understand other people’s intentions is usually very helpful. This activity will help you to develop techniques that you can use during negotiations in the future to avoid anger, disappointment, and misunderstandings during negotiations. Your Task In a small group, discuss the following situations. How can you (positively) explain other people’s behavior? What assumptions about each situation would be wrong? What can you say (politely) in response to the other side’s behavior to find out what their real intentions are? 1. You are the only woman in your team. You noticed that no one from the other team of negotiators speaks with you, and when you ask a question, they either ignore it or answer it while looking at other team members (not you). You are frustrated. 2. Your team came to the negotiations on time and was asked to wait for half an hour before you were let in. You all think that such behavior is unacceptable!

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3. You are a top manager at a clothing retail company. The company changed its strategy and started to look for new suppliers in other countries. You were sent to the negotiations alone and were treated like a king/queen. You have a personal driver who drives you around the city and shows you all the places he is proud of. However, each time when you ask when the negotiations start, there is no direct answer from the driver. You feel you start losing patience. 4. Your team is in the middle of negotiations, and you all think that everything is going well. However, at that point when you feel the other side is ready to sign a contract, they say that they are in negotiations with another team (from another country) who make better concessions, so they are more inclined to work with them. Your team is disappointed and annoyed. 5. Your manager sent a team of three employees who have experience in intercultural negotiations to negotiate a new contract in another country but was not able to join you. When you came to this country, you were met at the airport and treated very well. However, when you were introducing yourself to the team of the company’s negotiators, you noticed that their positions/ranks within their company were higher than yours. The next day, you received a message from the other team that they would like to wait for your manager to join you. Your team is frustrated.

Online Resources 1. 2. 3. 4. 5. 6. 7. 8.

Science Brief: Reading facial expressions of emotion Negotiating: The Top Ten Ways that Culture Can Affect Your Negotiation Communication in Cross Cultural Negotiations [YouTube Video] The Hidden Challenge of Cross-Border Negotiations Cross cultural communication |Pellegrino Riccardi [TED Talk] Compare countries 3 steps to getting what you want in a negotiation [TED talk] Cultural difference in business | Valerie Hoeks [TED Talk]

Appendix

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Appendix Cultures Arranged Along the High-Context and Low-Context Dimension

Source Samovar L. A, Porter, R. E. & McDaniel, E. R. (2013). Communication between cultures (8th ed.). Wadsworth: Cengage Learning.

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References Axtell, R. (1998). Gestures: The do’s and taboos of body language around the world. Wiley & Sons. Cullen, J. B., & Parboteeah, K. P. (2014). Multinational management: A strategic approach (6th ed.). Cengage Learning. Dominici, K., & Littlejohn, S. W. (2006). Facework: Bridging theory and practice. Sage Publications, Inc. Ekman, P. (1999). Basic emotions. In T. Dalgleish & M. Power (Eds.), Handbook of cognition and emotion (pp. 45–60). John Wiley & Sons. Graham, J. L. (1985). The influence of culture on the process of business negotiations: An exploratory study. Journal of International Business Studies, 16(1), 81–96. Hall, E. (1976). Beyond culture. Doubleday. Hofstede, G. (1980). Culture and organizations. International Studies of Management & Organization, 10(4), 15–41. Hofstede, G. (2011). Dimensionalizing cultures: The Hofstede model in context. Online Readings in Psychology and Culture, 2(1). Matsumoto, D., & Kudoh, T. (1993). American–Japanese cultural differences in attributions of personality based on smiles. Journal of Nonverbal Behavior, 17(4), 231–243. Moore, C. W., & Woodrow, P. J. (2010). Handbook of global and multicultural negotiation. JosseyBass. Richmond, V., McCroskey, J., Hickson, M. L. (2012). Nonverbal behavior in interpersonal relations (7th ed.). Pearson. Sabath, A. M. (1999). International Business Etiquette. Europe: What you need to know to conduct business abroad with charm and savvy. Franklin Lakes, NJ. Samovar L.A, Porter, R. E. & McDaniel, E. R. (2013). Communication between cultures (8th ed.). Cengage Learning. Suderman, J. (2008). Understanding intercultural communication. Nelson Education Ltd. Ting-Toomey, S. (1997). Intercultural conflict competence. In W. R. Cupach & D. J. Canary (Eds.), Competence in interpersonal conflict (pp. 120–147). McGraw-Hill. Ting-Toomey, S., & Kurogi, A. (1998). Facework competence in intercultural conflict: An updated face-negotiation theory. International Journal of Intercultural Relations, 22, 202. Withey, J. (1994). Doing business in Japan: An Insider’s guide. Key Porter Books.

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International Organizational Forms

This chapter will introduce students to various international organizational forms and the market entry strategies large enterprises (and sometimes small & medium enterprises—SMEs) use when they begin to grow the market for their products and services. The choice to conduct business in different parts of the world is a very conscious and deliberate one and part of the growth strategies that many firms do. As we introduce different organizational forms for international business, the clash of business and financial practices between the host country and the multinational corporation becomes even more evident and requires careful navigation of political, finance, accounting, and cultural norms. Students will be able to apply concepts learned in previous chapters as they look to understand the role of organizational culture meshing with national cultures whether the organizational form is simply doing business with a dealership or franchisee in another country or in a much more complex organizational market entry forms like collaborations, joint ventures, and mergers/acquisitions. Learning Objectives—This Chapter Will

1. Introduce the various international organizational forms. 2. Discuss concepts of mergers and acquisitions, joint ventures, and different ways for international market entry. 3. Introduce the concept of global and emerging markets and discuss international trade treaties. 4. Provide an overview of commonly used international trading and shipping terms.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 B. Sundararajan et al., Cross-Cultural Practices in Business and Finance, https://doi.org/10.1007/978-3-031-06440-1_9

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International Organizational Forms According to the Union of International Associations (UIA—https://uia.org/arc hive/types-organization/cc), there are three main types of international organizations: (international or) inter-governmental organizations (IGOs), international non-governmental organizations (NGOs), and multinational enterprises (MNCs or Global Enterprises). While there is an ongoing debate about the exact definitions for each of these three categories of international organizations, there is broad recognition of what each of these organizations can generally do, within their home country borders and across borders. International Governmental Organizations (IGOs), broadly purport to establish working relationships among governmental entities in bilateral, trilateral, even multilateral agreements to achieve some stated purpose: trade, defense, cooperation for specific goals around conservation, climate change, reducing poverty, technology exchange, educational, or other resources. Some examples include the USMCA (CUSMA, the former NAFTA) between the United States, Mexico, and Canada to create a free trade zone. Many such entities exist as described in previous chapters. There are other IGOs, often under the United Nations, to focus on refugees, children, the planet’s wildlife, justice, etc. The creation of the UNSDGs also spurred the formation of many formal and informal IGOs, each created by agreement and treaty, to create cross-national, collaborative partnerships to achieve the goals (UNSDG #17). International Non-Governmental Organizations (NGOs), based on the aims, structure of the organization, its members and officers, the level of autonomy (particularly across international borders), and the range and scope of activities, can assume roles where governments or private enterprises could be restricted. Many charitable organizations like the Red Cross (International Committee of the Red Cross—ICRC), Oxfam International, World Vision International, and BRAC (Bangladesh Rehabilitation Assistance Committee), reputably the largest NGO in the world, are some examples of true NGOs. Multinational Enterprises, multinational corporations (MNCs), or transnational enterprises, are typically, for-profit organizations transacting business and trade across countries, in many countries and the truly global giants like IBM, Microsoft, Google, Apple, Amazon, Deloitte, Unilever, Proctor & Gamble (P&G), many automotive brands, many pharmaceutical companies, are all some examples of MNCs. In the next sections, we will discuss in a little more detail about MNCs, how they expand into many countries, by investing (Foreign Direct Investment—FDI), merging with local corporations or acquiring them (M&A), creating joint ventures (JVs), or using agents and distributors (channels for distributing products and services), and discuss emerging global markets. Finally, we will round up the chapter by introducing some common terms used in international trade and business.

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Multinational Corporations According to Investopedia, a multinational corporation, typically has assets in its home country and at least one other country, participates in business across at least two or more countries, can even include some foreign government enterprises as partners, does tend to bring economic benefit to home and host countries, and offers a range of products and services to the countries it operates in.

How a Multinational Corporation (MNC) Works A multinational corporation, or multinational enterprise, is an international corporation whose business activities are spread among at least two countries. Some authorities consider any company with a foreign branch to be a multinational corporation; others limit the definition to only those companies that derive at least a quarter of their revenues outside of their home country. Many multinational enterprises are based in developed nations, and this has tended to have a colonialism aspect, where many in developing and emerging economies feel exploited and there are instances where such corporations tend to wield enormous power and even political influence in the countries, they operate in. One example is the British East India Company which started as a trading outpost for tea and textiles, leading to the eventual British rule of India. Other such examples tea wars in China, the Hudson Bay Company of Canada, and the Swedish Africa Company, leading to European colonial expansion in the fifteenth, sixteenth, and seventeenth centuries. In the modern era, MNCs do assume similar influence, politically and economically, though the capture of the emerging markets is by having the people consume products and services provided by the MNCs, to the detriment of local companies and enterprises. Investopedia lists four types of multinational corporations (Investopedia, n.d.): . A decentralized corporation with a strong presence in its home country. . A global, centralized corporation acquires cost advantage where cheap resources are available. . A global company that builds on the parent corporation’s R&D. . A transnational enterprise that uses all three categories. MNCs do provide benefits to home and host countries by providing products and services at cost-effective prices, while maintaining the quality and meeting local demand for these goods and services. They also provide for the international trade balances between nations and help the economies and job growth of the trading nations. There are side effects in the larger corporations can withstand market forces, which can drive out smaller companies and give rise to monopolies. However, governments do watch and regulate the scale and scope of operations of MNCs, so that local businesses can co-exist, in a somewhat tenuous manner.

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We should note that it is not always easy to be an MNCs. There are considerable risks for an organization seeking to do business abroad and they can be exposed to several risks due to currency manipulation, foreign financial practices, political uncertainty (having governments favorable to foreign presence), legal risks, and misunderstood cultural and business norms, leading to poor reception of the MNCs products. One recent example is the failure of Netflix to gain sufficient market share in India (Vanamali, 2022).

Foreign Investment (FDI—Foreign Direct Investment) Among the many ways MNCs enter into trade agreements and partnerships with companies in other countries is to either have a joint venture (which we will describe shortly) and/or through foreign direct investment in the partner country. This involves capital flows and expenditures in domestic companies by a foreign investor seeking to expand their investments or grow markets for their products and/or services. The investment is a commitment to the partnership and can take on several forms, ranging from just providing the capital, to opening local offices, manufacturing plants, distribution channels, and issuing Initial Public Offerings (IPOs) to the public in the host country to generate additional capital. These largescale investments require the participation of local companies, regulators, the stock exchange, local and international banking/financial institutions, and local, regional, and provincial/state governments. These investments can be of two broad types, Direct and Indirect. Foreign Direct Investments (FDIs) involve physical investments and purchases made by a company in a foreign country, typically by opening plants and buying buildings, machines, factories, and other equipment in the foreign country. These types of investments find a far greater deal of favor, as they are generally considered longterm investments and help bolster the foreign country’s economy (Hayes, 2022). Countries like Brazil typically prefer FDIs, as this way they can also protect the local companies and their interests. Foreign indirect investments involve corporations, financial institutions, and private investors buying stakes or positions in foreign companies that trade on a foreign stock exchange. In general, this form of foreign investment is less favorable, as the domestic company can easily sell off its investment very quickly, sometimes within days of the purchase. This type of investment is also sometimes referred to as a foreign portfolio investment (FPI). Indirect investments include not only equity instruments such as stocks but also debt instruments such as bonds (Investopedia, May 31, 2022). Funding for many of these investments comes from international banks or dedicated financial institutions in either the home country of the MNC, the World Bank (for countries who apply for infrastructure development projects), or multilateral development banks (MDBs), all of whom provide commercial loans and on occasion official flows.

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Mergers and Acquisitions Another way MNCs can enter foreign markets (domestic as well) is through a process of mergers (when they merge operations with a large corporation in the host country) or by acquisition (when the MNC buys outright the entire operations of a small to medium or large company operating in the host country). Depending on the need, the market share intended by the Merger or Acquisition (M&A), the reach of the host-country company, and the distribution channels required for market penetration, the MNC can choose one or the other of the two options of merging or acquiring. As with any type of arrangement or business deal, M&As in foreign countries require the involvement of multiple governmental and non-governmental actors, regulators, and financial institutions. Depending again on the scale of operations and the possibility that the M&A between two large corporations could lead to monopolies, there are political and financial risks that need to be assumed by all parties. Many M&As succeed, while many also fail, partly due to a lack of understanding of local cultures and customs, partly because of the overestimation of the market potential, partly because of bad management decision-making, other possible legal and political risks, and competition from local and other international players. Puma’s success in India (Puri & Krishna, 2016). In addition to mergers and acquisitions, MNCs can also enter into consolidation agreements with potential host-country (foreign country) companies, use tender offers, or acquire some assets, instead of outright purchase of all assets. There can also be horizontal mergers (when competitors merge), vertical mergers (acquiring a supplier or distributor in the foreign country), or mergers can that extend a product line (two companies with slightly different, yet related, offerings in the same market), mergers that extend markets (two companies with similar offerings in different markets), or form a conglomeration, where two companies with unrelated offerings decide to merge to utilize resources, distribution channels, customer base, etc. Once two companies in the same country or different countries begin the process of M&A, financial institutions are lined up to exploring financing options. For this to proceed, both companies need to be evaluated for performance, possession of liquid and other assets, debts accrued, market capital, and financial performance, and performance forecasts are assessed using the Price-to-Earnings Ratio (P/E Ratio), Enterprise-Value-to-Sales Ratio (EV/Sales), Discounted Cash Flow (DCF), and Replacement Cost.

Joint Ventures (JV) According to Investopedia, a joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a JV, each of the participants is responsible for profits, losses, and costs associated

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with it. However, the venture is its own entity, separate from the participants’ other business interests. Joint ventures can be formed by any two types of organizations regardless of size or scope and can be for ongoing continuing partnerships and collaborations or just a few projects. The effort is to combine or pool resources, combine expertise, provide cost savings, and give a potential MNC a chance to enter a new market, in the home country or in a foreign developed or emerging market. One key aspect of JVs is how taxes are assessed on profits and assets in both countries and who pays what. Examples of some famous joint ventures are Sony Ericsson, Alphabet (Google’s parent company), Glaxo-Smith (Glaxo-Smith-Kline—GSK are a giant pharma corporation), UBER and Volvo, NBC Universal, and Disney ABC Television to jointly create a streaming platform called “HULU”, and Kellogg International and Wilmar International to enter China to distribute breakfast cereals and other products. With the cryptocurrency boom and burgeoning AI companies with many industrial and commercial applications, many such M&As, and JVs are likely to happen as companies look for new markets for existing products or expand in current markets for new products. Now that we are familiar with some of the types of international organizations, we can now focus on what strategies many firms use to enter international markets, both developed and emerging.

International Market Entry Strategies Global market entry strategies usually fall under three broad categories of exporting, partnerships, or direct investment. A firm’s decision on which entry strategy to pursue is based on a combination of several factors. Think about it as a continuum, based on the level of involvement and cost associated with each strategy. Export selling involves selling the same product, at the same price, with the same promotional tools in a different place. Export marketing tailors the marketing mix to international customers. For any market, a company needs to understand the target market environment and needs to use market research to identify the market potential. Decisions concerning product design, pricing, distribution and channels, advertising, and communications will also need to be taken and the company will need to assess where it stands with respect to entering or even exporting to international markets. Some factors that a company will need to consider are: . If the firm is unwilling to export; it will not even fill an unsolicited export order. . If the firm fills unsolicited export orders but does not pursue unsolicited orders. Such a firm is an export seller. . The firm explores the feasibility of exporting (this stage may bypass Stage 2). . The firm exports to one or more markets on a trial basis.

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. The firm is an experienced exporter to one or more markets. . The firm pursues country- or region-focused marketing based on certain criteria. . The firm evaluates the global market potential for the “best” target markets.

Potential Export Challenges and Factors In considering these factors, the firm/company needs to think about potential issues in logistics—transportation, distribution, financial terms of sales/purchases, insurance, freight, and shipping, government regulations, customs, or tariffs (duties), and other agreements related to the export. Additionally, the firm needs to ensure that the supply chain for any products is firmed up with availability of parts and service (where applicable), trained technicians (where applicable), national and international policies that govern exports and imports, tax incentives, monetary policies, currency fluctuations, banking rules and regulation for expatriation of funds, and market intelligence about local demand for the products or services and competition. The firm also needs to get a good understanding or at least guidance from experts about the Harmonized Tariff System, developed by the World Customs Organization in 1989 and adopted by most trading nations. This system allows Importers & Exporters to determine the classification number for any product moved across borders. These follow a two-tier system—Single-column tariff, where the Schedule of duties has a rate that applies to imports from all countries on the same basis, and the Two-column tariff, where General duties plus special duties apply. The purpose was to simplify the tariff system, but as with any system, problems persist, and efforts are continuously underway to resolve disputes and confusion. Many countries award certain other countries the “Most Favored Nation” status and form agreements, like the USMCA, where the trade treaties are bilateral, trilateral, or multilateral. The purpose is to protect certain markets, certain products, and services, and provide for reduced tariff. The General Agreement on Tariffs and Trade (GATT) organization allows reduced tariff rates where, Historical preference arrangements already existed, Preference is part of formal economic integration treaty, and Industrial countries are permitted to grant preferential market access to lower developed or developing economies.

Planning to Enter International Markets Once a firm has decided to enter an export arrangement with a trading/export partner in another country, it needs to identify the key players, such as purchasing

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agents, export/import brokers and merchants and management companies, shipping companies, financial and insurance institutions, and freight forwarders. After such companies have been identified in the target export market, the exporting firm needs to get a good understanding of trade financing and methods of payments for goods and services sold to the export market. There are several financial instruments used in international trade, such as letters of credit (closed or open L/C for revolving orders), bills of exchange, international bank transfers, sight drafts, and time drafts, all to ensure effective payment from the buyer (in a foreign country) to the seller (the MNC wishing to enter the international market). As part of the export process, the MNC needs to ensure delivery terms where goods are concerned. These are also conducted in an agreement between the buyer and seller and rates for shipping are provided by shippers or freight forwarders. Typically, the exporting company can quote the products priced Ex Factory, so shipping and insurance charges for the goods from the manufacturer’s factory or yard to the buyer’s yard are borne by the buyer. Another option is Cost and Freight (C&F) or Cost, Insurance, and Freight (CIF), where the shipper/exporter provides a price for the goods exported to be delivered to the buyer’s yard. These tend to happen when there are no risks of huge currency fluctuations.

Other Modes of International Market Entry In some cases, exporting may not be the best option for a company wishing to enter an international market. In such cases, they can consider licensing, contract manufacturing, or franchising. Each of these has both advantages and disadvantages. The advantages rest with a relatively lower cost market entry to test the market and the distribution channels and the disadvantages usually revolve around lack of or limited market control, the licensee could move to a competitor or become a competitor, the agreements may not last, or the returns may not last. Each firm needs to decide the best option for its products and services, the vision it has for going to international markets, a clear understanding of the cultural nuances of doing business in specific foreign markets, and the level of commitment it will have to be a true multinational company. Companies can use a combination of these modes of international market entry to acquire both market and cultural intelligence before committing to long-term presence in any international market. Once the firm has decided on its vision and long-term goal, it can consider other market entry strategies like M&As, JVs, Equity-stake partnerships, FDIs, etc. With this brief discussion of modes of international market entries, we will discuss emerging markets and why they are so attractive to many MNCs.

Emerging Markets Emerging markets, often in developing nations usually have lower than average per capita income, are characterized by high volatility, which can result from a

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variety of factors including internal policy instability, natural disasters, or price fluctuations, and have been susceptible to currency fluctuations. However, they have also seen rapid economic growth with GDP (Gross Domestic Product) growth rates often outpacing more developed nations. As a result, millions of people have been lifted out of poverty and created a new middle class and a new market for consumer products and services. These markets also have large, low-cost, and increasingly educated labor pools, giving a competitive advantage in production. According to the World Economic Outlook that came out in April 2022, the war in Ukraine has set back global recovery from the losses incurred during the 2020–2022 pandemic, and global growth is projected to slow from an estimated 6.1% in 2021 to about 3.6% in 2022 and 2023 (World Economic Outlook, April 2022). The World Bank is more conservative in their projections and see the drop from an estimated 5.7% in 2021 to about 2.9% in 2022 and 2023 (World Bank, 2022). The Conference Board World Economic Outlook provides Real GDP Growth Rates for developed and developing (emerging) economies for the 2011– 2031 period (https://www.conference-board.org/topics/global-economic-outlook). We see that the emerging economies of India, China, Turkey, and the Middle East region countries’ projected growth rates have dropped to between 1.5 and 4.6% for 2023 and appear to hold those levels for the next seven years till 2031. The projected growth rates for developed economies are bleaker and only time will tell if there is a reversal. These will likely change and be revised, but with current global inflation and prospects of a global recession, developed and emerging markets expect to have sluggish growth rates for the near future. What this requires is for organizations that wish to start international business operations, is to continue keeping a global mindset, increase their cultural sensitivities and intelligence about emerging market economies, and gain knowledge of the Cultural Intelligence of others provides insights about how best to interact with others in multi-cultural situations, engage in cross-cultural interactions appropriately, and perform effectively in culturally diverse work groups. Businesses can train their employees to adopt a strategy, to gain this cultural knowledge and motivate employees to adopt behaviors that will be culturally acceptable when doing business in international and emerging markets. As discussed previously, MNCs and firms wishing to enter emerging markets should also be attuned to rising trade barriers, fluctuations in capital flows, financial volatility, and spillovers from industrialized countries’ monetary policies. They should look for heterogeneity in openness, production structure, trade linkages, and factor supplies that often lead to large differences between the impacts of trade barriers on advanced and emerging markets, decline in the relative price of tangible tradable capital goods, currency exchange rules (or lack thereof), and bilateral trade surpluses, possibly due to currency manipulations (Alfaro & Mendoza, 2020).

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Cultural Considerations in Advertising As companies begin their process of entering new international and emerging markets, it would serve them well if they were sensitive to the local cultures and customs, when creating messaging around brands and products. Some common cultural knowledge and practices are listed below, as a sample, but there are always several cultural nuances that only those native to the cultures would be most aware of and can be used as consultants to guide the messaging process. . Images of male/female intimacy are in bad taste in Japan, illegal in Saudi Arabia . Wedding rings are worn on the right hand in Spain, Denmark, Holland, and Germany . European men kiss the hands of married women only, not single women . In Germany, France, and Japan, a man enters a door before a woman, no ladies first! . American celebrities like Brad Pitt and Arnold Schwarzenegger are seen as pitch men in Japan but not in the United States. . Copywriters who can think in the target language and understand consumers will create the most effective ads and avoid problems like these: . In China, Citicorp’s “Citi Never Sleeps” was taken to mean that Citi had a sleeping disorder, like insomnia . McDonald’s does not use multiple 4’s in advertising prices in China; “four” sounds like the word “death” . Humorous or irritating ads may be perceived differently in other countries . North American ads with direct comparisons and spokespeople use logic to appeal to the viewer’s sense of reason; Japanese ads rely on implied sentiment . Partial nudity and same-sex couples are featured in Latin America and Europe . Food is the most culturally sensitive category

People—Expatriates, Host-Country Nationals, Third-Country Nationals When hiring people for their foreign offices, MNCs can consider hiring expatriates, host-country nationals, or third-country nationals. Each has its own set of advantages and disadvantages as presented below (Table 9.1). Table 9.1 Expatriates

Advantages

Disadvantages

Superior product knowledge Demonstrated commitment to service standards Train for promotion Greater H Q control

Higher cost Higher turnover Cost for language and cross-cultural training

Emerging Markets Table 9.2 Host-country nationals

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Advantages

Disadvantages

Economical Superior market knowledge Language skills Superior cultural knowledge Fast implementation

Needs product training May be held in low esteem Language skills may not be important Difficult to ensure loyalty

Maintaining expatriate sales personnel is extremely expensive; the average annual cost to US companies of posting employees and their families overseas exceeds $250,000. In addition to paying expat salaries, companies must pay moving expenses, cost of living adjustments, and host-country taxes. Despite the high investment, many expats fail to complete their assignments because of inadequate training and orientation prior to the cross-border transfer. Locals offer several advantages, including intimate knowledge of the market and business environment, language skills, and superior knowledge of local culture. The last consideration can be especially important in Asia and Latin America. In addition, because in-country personnel are already in place in the target country, there is no need for expensive relocations. However, host-country nationals may possess work habits or selling styles that do not mesh with those of the parent company. Furthermore, the firm’s corporate sales executives tend to have less control over an operation that is dominated by host-country nationals (Table 9.2). Headquarters executives may also have trouble cultivating loyalty, and hostcountry nationals are likely to need hefty doses of training and education regarding both the company and its products. A third option is to hire persons who are not natives of either the headquarters country or the host country; such persons are known as third-country nationals (Table 9.3). For example, a US-based company might hire someone from Thailand to represent it in China. This option has many advantages in common with the host-country national approach. In addition, if conflict, diplomatic tension, or some other form of disagreement has driven a wedge between the home country and the target sales country, a sales representative from a third country may be perceived as sufficiently neutral or at “arm’s length” to enable the company to continue its sales effort. However, there are several disadvantages to the third-country option. For one thing, sales prospects may wonder why they have been approached by someone who is neither a local national nor a native of the headquarters country. Third-country nationals may lack motivation if they are compensated less generously than expats or host-country sales personnel; also, they may find themselves passed over for promotions as coveted assignments go to others.

156 Table 9.3 Third-country nationals

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Advantages

Disadvantages

Cultural sensitivity Language skills Economical Allows regional sales coverage

May face identification problems May be blocked for promotions Income gaps Needs product and/or company training Loyalty not assured

International Business Terms We will now look at a few common terms used in international business and trade. Amélie Manseau, Senior Export Help Advisor Export Development Canada, writes about the most common trade terms (Manseau, 2018).

Incoterms Incoterms, short for International Commercial Terms, are important to know and be aware of for companies wishing to participate in international trade. They were created as easy-to-remember codes of conduct and contract and are regulated by the International Chamber of Commerce for international trade. The incoterms decide the liabilities and responsibilities of the buyers and sellers, particularly around shipments, payments, damage to goods in transit, and even items lost during shipment. The 11 Incoterms can be roughly divided into three groups: . EXW (ex-works or ex-factory), FCA, FAS (free alongside ship), and FOB (free on board): With these, the buyer pays for the shipping costs. . CFR (cost and freight—C&F), CIF (cost, insurance, and freight), CPT (carriage paid to), and CIP (carriage and insurance paid to): These are the terms under which the sellers pay the main shipping costs and include them in their price. Note that while the seller pays for shipping, the goods travel at the buyer’s risk, so the buyer will want to investigate insurance. . DAT (delivered at terminal), DAP (delivered at place), and DDP (delivery and duty paid): Here, the shipping costs are paid by the seller and the seller also pays for duties and other costs, while the buyer needs to unload goods at the destination. Other shipping-related terms relate to trailer and container loads, like TL/FTL (trailer load or full-trailer load) or an LTL (less than a trailer load). Ocean carriers will ask about a full container load (FCL) or less than a container load (LCL). Other international business terms revolve around cargo insurance and vary for freight shipped via road, rail, air, and sea and are governed by Institute Cargo

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Clauses (A, B, or C). Some cover loss, theft, and damage during shipment, but there are also Force Majeure (Acts of God) clauses. Sellers are expected to provide commercial and/or proforma invoices for goods shipped/sold, provide bills of lading (loading on to the transport), a packing list, certificates of origin, and payment terms (which we discussed earlier).

Conclusion In this chapter, we covered a range of technical terms that included how companies can become multinational corporations, how they can enter into different international markets (developed and developing/emerging), the business language of international trade that covered financial transactions, shipping, and logistics, and how knowing the local market, its people, and the cultural intelligence of the country can allow MNCs to transact successfully with international trading or business partners. End-of-Chapter Assignments and Exercises–Case Scenarios

Read the following news article and respond to the questions. https://www.cnbc.com/2022/04/06/global-government-debt-set-to-soar-torecord-71-trillion-this-year-research.html?&qsearchterm=Emerging%20mark ets%20updates Global government debt set to soar to record $71 trillion this year, new research says Published Wed, Apr 6, 2022:49 AM EDT Updated Wed, Apr 6, 2023, 07 AM EDT. Elliot Smith@ElliotSmithCNBC . In its second annual Sovereign Debt Index, published Wednesday, British asset manager Janus Henderson projected a 9.5% rise in global government debt. . New sovereign borrowing is expected to reach $10.4 trillion in 2022, almost a third above the average prior to the Covid-19 pandemic, according to a report from S&P Global Ratings. LONDON—Global sovereign debt is expected to climb by 9.5% to a record $71.6 trillion in 2022, according to a new report, while fresh borrowing is also broadly set to remain elevated. In its second annual Sovereign Debt Index, published Wednesday, British asset manager Janus Henderson projected a 9.5% rise in global government debt, driven primarily by the United States, Japan, and China but with the vast majority of countries expected to increase borrowing. Global government debt jumped 7.8% in 2021 to $65.4 trillion as every country assessed saw borrowing increase, while debt servicing costs dropped to

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a record low of $1.01 trillion, an effective interest rate of just 1.6%, the report said. However, debt servicing costs are set to rise significantly in 2022, climbing around 14.5% on a constant-currency basis to $1.16 trillion. The United Kingdom will feel the sharpest effect on the back of rising interest rates and the impact of surging inflation on the substantial quantities of U.K. index-linked debt, along with the costs associated with unwinding the Bank of England’s quantitative easing program. “The pandemic has had a huge impact on government borrowing—and the after-effects are set to continue for some time yet. The tragedy unfolding in Ukraine is also likely to pressure Western governments to borrow more to fund increased defense spending”, said Bethany Payne, portfolio manager for global bonds at Janus Henderson. Germany has already vowed to ramp up its defense spending to more than 2% of GDP in a sharp policy shift since Russia’s invasion of Ukraine, along with committing 100 billion euros ($110 billion) to a fund for its armed services. New sovereign borrowing is expected to reach $10.4 trillion in 2022, almost a third above the average prior to the Covid-19 pandemic, according to the latest global borrowing report from S&P Global Ratings published on Tuesday. “We expect borrowing to stay elevated, owing to high debt-rollover needs, as well as fiscal policy normalization challenges posed by the pandemic, high inflation, and polarized social and political landscapes”, said S&P Global Ratings credit analyst Karen Vartapetov. The ongoing conflict’s global macroeconomic repercussions are expected to exert further upward pressure on government funding needs, while tighter monetary conditions will increase government funding costs, the report highlighted. This poses a further headache for sovereigns that have thus far struggled to reignite growth and cut reliance on foreign currency financing, and whose interest bills are already substantial. In advanced economies, borrowing costs are expected to rise but likely remain at a level that will allow governments time for budget consolidation, S&P said, offering governments time for budget consolidation and focus on growth-stimulating reforms. Opportunities for Investors Convergence of monetary policy emerged as a theme during the first couple of years of the pandemic, as central banks cut interest rates to historic lows to help support ailing economies. However, Janus Henderson noted that divergence is now emerging as a key theme, as central banks in the United States, United Kingdom, Europe, Canada, and Australia look to tighten the policy strings to contain inflation, while China continues to try to stimulate the economy with a more accommodative policy stance.

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This divergence offers opportunities for investors in short-dated bonds that are less susceptible to market conditions, Payne suggested, highlighting two locations in particular. “One is China, which is actively engaging in loosening monetary policy, and Switzerland, which has more protection from inflationary pressure as energy takes up a much smaller percentage of its inflationary basket and their policy is tied, but lagging, to the ECB”, she said. Janus Henderson also believes shorter-dated bonds look attractive at present relative to riskier long-term ones. “When inflation and interest rates are rising, it is easy to dismiss fixed income as an asset class, particularly since bond valuations are relatively high by historical standards”, Payne said. “But the valuation of many other asset classes is even higher and investor weightings to government bonds are relatively low, so there is a benefit in diversifying”. What’s more, she argued, the markets have mostly priced in higher inflation expectations, so bonds bought today benefit from higher yields than they would have a few months ago.

Now that you have read the short article, answer the following questions, keeping in mind that WITI and Brigitte Sultan have been looking at other international and emerging markets like India, Brazil, Chile, and even if WITI is operating in Mexico, they could look at expanding their market share. Use these emerging markets or other international markets of your choosing to compose answers to the following questions. 1. An overall Executive Summary statement outlining the response and suggestions for organizational decision-makers on pursuable courses of action 2. For the international/emerging market you have been considering, what do you think will be the direct and indirect effects of this soaring global debt, particularly with respect to the economy of the emerging market? Can the emerging market withstand this debt increase with domestic consumption alone? What would you recommend to Brigitte Sultan? 3. For your international/emerging market, what will be the implication for trade—exports and imports? Will the governments of the emerging markets need to resort to measures—fiscal or protectionist, to ease the burdens on their economies? Explain. 4. For your international/emerging market, what could the cultural implications be, if they are to choose restraint vs. spending? Explain. What would you recommend to Brigitte Sultan? 5. Would your international/emerging market be directly or indirectly impacted by the geopolitics currently at play in the world, war, increase

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in fuel prices, increase in commodity prices, an unstable/unreliable supply chain, and changing shipping and logistics landscape? Explain. What would you recommend to Brigitte Sultan? 6. Based on what you have learned so far, the cases/situations you have analyzed, if you were an advisor to the Trade Commissioner of your international/emerging market, what would your advice be around trade and fiscal policies, market entry policies, and the need to be aligned or non-aligned on the world stage and the impact on your emerging market’s foreseeable future—5–10-year timeline? And, again, what would you recommend to Brigitte Sultan?

References Alfaro, L., & Mendoza, E. (2020). Current policy challenges facing emerging markets. IMF Economic Review, 68(2020), 453–455. Hayes, A. (2022). Direct Foreign Investment (FDI): What it is, types, and examples. September 02, 2022.https://www.investopedia.com/terms/f/fdi.asp Manseau, A. (2018, February 13). 11 common terms used in international trade. Build an export plan. https://www.edc.ca/en/blog/common-terms-used-in-international-trade.html. Retrieved from the web on June 19, 2022. Puri, S., & Krishna, S. (2016). Puma’s challenge to maintain leadership in India. Case study, 2016. Ivey Publishing, Richard Ivey School of Business Foundation. The Conference Board. (2022). The Conference Board World Economic Outlook—2011–2031. https://www.conference-board.org/topics/global-economic-outlook. Retrieved from the web on June 12, 2022. Union of International Associations. (n.d.). UIA—Types of organizations—https://uia.org/archive/ types-organization/cc Vanamali, K. V. (2022). Why has Netflix not been able to crack the Indian market? https://www. business-standard.com/podcast/companies/why-has-netflix-not-been-able-to-crack-the-indianmarket-122012500081_1.html. Retrieved from the web on Feb, 8, 2022. World Bank. (2022). Stagflation risk rises Amid sharp slowdown in growth. Global economic prospects. https://www.worldbank.org/en/publication/global-economic-prospects. Retrieved from the web on May 31, 2022. World Economic Outlook. (2022). World Economic Outlook, April 2022: War Sets Back The Global Recovery. https://www.imf.org/en/Publications/WEO. Retrieved from the web on May 31, 2022.

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In this chapter, we summarize all the concepts from previous chapters. However, more than just being a summary, this chapter will aim to provide key takeaways to students and faculty members about the best ways to really see the benefits of having an engaged, diverse workforce. We will provide a series of simple-tofollow tips and tricks, specific active listening techniques, and methods to develop an open mindset that will allow students to apply them immediately. These will again be provided in the context of scenarios and easy-to-remember examples and hopefully stay with them as they prepare to navigate their workplaces, either as interns or full-time employees. Learning Objectives—This Chapter Will

1. Provide a summary of many of the concepts discussed in all the preceding chapters. 2. Introduce some of the various religious and theological views from around the world. 3. Weave in examples of various cross-cultural examples from around the world. 4. Provides tips to be more culturally aware and sensitive to various international and cross-cultural practices.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 B. Sundararajan et al., Cross-Cultural Practices in Business and Finance, https://doi.org/10.1007/978-3-031-06440-1_10

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Together, From Aways© The Halifax Wanderers Football Club (FC) have on their website, the short, but powerful and impactful statement, “Together, From Aways” (https://hfxwander ersfc.canpl.ca/). This football club has its home in Halifax, Nova Scotia, Canada, a city like many North American cities, with people from multiple backgrounds, ethnicities, cultures, ways of being, and being a port city in Eastern Canada, has been the center point for trade for several centuries. Halifax, Nova Scotia, is known to the Mi’kmaq as Chebucto “Kjipuktuk” or “Great Harbor”. The Nova Scotia mainland is known to the Mi’kmaq as Pictou and the province is Mi’kma’ki, the ancestral and unceded territory of the Mi’kmaq. The Halifax Wanderers FC, in consultation with the Mi’kmaq, have created a motto that also addresses the diversity of this growing city and their motto, in Gaelic, reads Ar Cala, Ar Dachaigh, Ar N-Anam (Our Harbor, Our Home, Our Soul). Such an approach is celebratory of the First Nations communities, the settler communities from the time Halifax was founded (circa 1745), consisting of British, Scottish, and Irish peoples, the African Canadian people who have lived in the Canadian Maritimes for over 400 years, and the modern-day settlers from different parts of the world, is the essence of a community truly embracing and welcoming multiple perspectives and cultural backgrounds. Elder Albert Marshall of Eskasoni First Nation in Unama’ki—Cape Breton, NS, introduced the world to the concept of Two-Eyed Seeing, Etuaptmumk, a guiding principle, which indicates the benefits of seeing the world with one eye with the strengths of Indigenous Knowledge and ways of knowing, and from the other eye with the Western knowledge and ways of knowing. But at its heart, Etuaptmumk is the gift of multiple perspectives treasured by many Aboriginal Peoples and forms the basis of integrative and collaborative work we must all do now and in the future, safeguarding all cultural values and perspectives, yet be guided by the foresight and hindsight provided by indigenous cultures across millennia. Cull et al. (2019) present an “Indigenous Wholistic Framework” that has the individual at the center, with three concentric circles surrounding the individual. The innermost circle connects the individual to their family, while the next upper circle connects the individual and the family to the community, the nation, the provincial, and the federal entities. The outermost circle envelops all of them with the concepts of Respect, Reciprocity, Relevance, and Responsibility. The individual receives spiritual, intellectual, emotional, and physical inputs from the external world, as these inputs pass through the lenses of Respect, Reciprocity, Relevance, and Responsibility. Such an approach to knowing and being will serve all of us well as we navigate our post-pandemic years, learning to redo things we took for granted, look at situations, contexts, and people with fresh perspectives, free of biases, and be open to embracing and celebrating the differences and seeking to enhance our commonalities. To this effort, the next section will briefly highlight the core principles of some of the world’s leading religions and cultures, so we can see the

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differences and the commonalities, become aware of the cognitive and emotional lenses these principles afford us, and put into practice our cross-cultural awareness in our individual, organizational, business, communal, and societal ways of doing and being.

Core Principles from Around the World This section is intended more as a primer to allow the learner to locate their own starting place, but with a view to gathering perspectives that can help them progress towards collaboration cosmopolitanism (Wang et al., 2019). In each of these subsections, we list the concepts and principles as presented by the teachings or the religion/culture, with minimal exposition where required. Being aware of the differences and the commonalities is often the first step towards a better understanding of different perspectives, be these in the boardroom with senior executives, conferences or events, serendipitous meetings in random locations, or specific seminars intended to provide cultural and sensitivity training.

Themes of Christian Social Teachings (Estimated at About 2.4 Billion Followers) . . . . . . .

Sacredness of life and dignity of the human person Human rights and responsibility to protect them Dignity of work and the rights of workers Call to family, community, and participation Preferential option for the poor and vulnerable Solidarity with all people as one global family Stewardship and care for God’s creation

The Five Pillars of Islam and Social Teachings (Estimated at About 1.9 Billion Followers) . . . . . . .

Declaration of faith Obligatory prayer Compulsory giving Fasting in the month of Ramadan Pilgrimage to Mecca Clear, ethical thoughts followed by words, actions, and behaviors Collective morality is also addressed in terms of equality, justice, fairness, brotherhood, mercy, compassion, solidarity, and freedom of choice.

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Basic Tenets of Hinduism (Estimated at About 1.2 Billion Followers) The lotus flower is the symbol of purity, truth, and divine power. The petals of the lotus flower represent the eight principles of Hindu philosophy (with simplified translations). . . . . . . . .

Karma—Action Dharma—Duty/Obligation (to self, family, community, society, and nation) Bhakti—Prayer/Faith/Devotion Gyana—Knowledge (to seek, learn, understand, and disseminate) Dhyana—Meditation/Contemplation Advaita/Dvaita—Non-duality/Duality Atma—Soul/life Moksha—Liberation/Nirvana/Salvation

Principles of Buddhism (Estimated at About 0.5 Billion Followers) Follow the four noble truths. . . . .

All life is suffering Suffering is caused by desire One can be freed from desire One is freed from desire by following the Eight-Fold Path

The Eight-Fold Path. . . . . . . . .

Right Right Right Right Right Right Right Right

Views Conduct Mindfulness Aspirations Livelihood Speech Endeavor Meditation

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The Seven Principles of Kwanzaa Dr. Maulana Karenga, Professor and Chair of the Department of African Studies at California State University, Long Beach, is internationally known as the creator of Kwanzaa, an African American and Pan-African holiday celebrated throughout the world. African community on every continent in the world. He lays out Nguza Saba, the Seven Principles of Kwanzaa. . Umoja—Umoja means unity in Swahili. Karenga defines this on his Kwanzaa website as: “To strive for and maintain unity in the family, community, nation and race”. . Kujichagulia—Or self-determination. This principle refers to defining, naming, creating, and speaking for oneself. . Ujima—Translated as “collective work and responsibility”, ujima refers to uplifting your community. “To build and maintain our community together and make our brother’s and sister’s problems our problems and to solve them together”, Karenga writes. . Ujamaa—Cooperative economics. Similar to ujima, this principle refers to uplifting your community economically. “To build and maintain our own stores, shops and other businesses and to profit from them together”, he writes. . Nia—Nia means purpose. Karenga expands on this principle with, “To make our collective vocation the building and developing of our community in order to restore our people to their traditional greatness”. . Kuumba—Meaning “creativity”, Karenga defines this principle as “To do always as much as we can, in the way we can, in order to leave our community more beautiful and beneficial than we inherited it”. . Imani—The final principle translates to “faith”. Karenga defines this as faith in community, writing, “To believe with all our heart in our people, our parents, our teachers, our leaders and the righteousness and victory of our struggle”.

Principles of Ubuntu The three moral values crucial to the establishment of ubuntu in social order are the respect for human dignity, compassion, and justice. Of particular importance is the value of respect for human dignity as a major element of ubuntu ethics (Ujomudike, 2016). Ujomudike proposes Ubuntu as a “value system built upon the application of some key moral and democratic values for liberation and transformation”. Specifically, ubuntu ethics is defined as a set of values central among which are reciprocity, common good, peaceful relations, emphasis on human dignity, and the value of human life as well as consensus, tolerance, and mutual respect. These features are to operate at the national level. We also argue for a possibility utilizing ubuntu ethical correlates as materials for establishing stable and viable human relations within the international system or global order.

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Cultural Practices Around the World These are only a few of the various guiding principles that govern the lives of and give meaning to people on this planet. The number of established formal religious belief systems and folk/nature-based belief systems several, with followers in the few million to 10s or 100s of millions. Through these belief systems, people make sense of their lives, livelihoods, reasons for existing and living in communities that support these belief systems, cultural practices emerge, often revolving around these isms, but also connecting the individuals and the communities to nature, the planet, the environment, their fellow human beings, and a connection to the define. We now look at a few such cross-cultural practices because these practices and belief systems do play an integral part of business practices as well. Ma (2021) has provided an inkling of some of these cultural traditions and practices from around the world, but notes that these are only some and not meant in anyway to be exhaustive. The article appearing in LinkedIn, suggests that many organizations doing business around the world have also compiled similar lists and adviced their employees to pay attention to these cultural aspects, to have better-working relations with people from these cultures who they wish to do business with.

Flowers to a Russian It is the tradition in Russia that one must be careful in giving flowers to a Russian. For instance, you should avoid giving red and yellow flowers as they represent the deceased and experts who survived the war. They also represent a termination of a relationship and friendship.

Gifts to Chinese Classmates Chinese civilization is one of the oldest around the globe. Additionally, Chinese is a symbolic language. For instance, you should avoid giving white flowers to a friend as it depicts death or funerals and is also a color of ghosts. Similarly, clocks, handkerchiefs, umbrellas, green hats, and straw sandals, or shoes are all bad gifts to give in China.

Avoid Salt While Dining in Egypt In several traditions and cultures, it is not bad to ask or add salt to a meal. But there is an exception to this case in Egypt. Meaning thereby, asking for salt represents insulting a host in Egypt. Additionally, to some locals, it also means that you did not like the taste of their food.

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Concept of Punctuality in Many States Being punctual is known as a wonderful gesture and quality in many countries but not in all countries. For instance, in Venezuela, it is a trend to be late for parties, dinners, and functions. It is a very common practice to be 10–15 minutes late and is abnormal to be on time. But in countries such as Germany, United States, Japan, and South Korea being late is a bad habit. Similarly, in Malaysia, it is normal to be 5–60 minutes late. However, in China people encourage punctuality. Furthermore, in Greece and Mexico, it is ok to be late.

Table Manners in Norway There is a tradition in Norway to avoid using utensils or cutleries while eating. For instance, in other cultures where it is a good thing to use chopsticks, spoons, knives, and forks while eating, people of Norway find it unethical. So, it is a unique tradition one must know for the sake of knowledge.

Using Sharp Items Another unique trend is using sharp items in different countries gives different meanings. For instance, in China using or gifting sharp items is a good gesture. It is because sharp items represent the cutting of ties between them and bring each other close. And in Dutch, on the other hand, sharp objects bring bad luck. Furthermore, to the people of the Netherlands and China, an unwanted gift brings them close. Above all, gifting sharp items, knives and scissors is a good gesture in China.

Losing a Tooth in Greece Unlike other cultures or countries where losing milk teeth will bring money to children by the tooth fairy, in Greece it’s a different story. The children in Greek go to their roofs and toss their teeth traditionally. To them, the child who has tossed his teeth on the roof will live a healthy life and bring happiness to their family.

Avoid Clinking Glasses but Say Cheers in Hungary In Hungary, it is unethical to clink glasses while having a drink together. But you can say cheers as it is a good gesture and a symbol of happiness. When a Hungarian sees someone clinking their glasses, it reminds them of the war with Austria in 1849. In this war, Hungarians were badly defeated. Furthermore, the people of Hungary know that Austrian generals celebrate their events by drinking

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beer and clinking their glasses. Therefore, they hate to clink their glasses while having a drink.

Avoid Discussing Business in the Events in Bolivia There is a famous tradition in Bolivia not to make any business talk at family events or occasions. It is because the people of Bolivia believe that family dinners are for developing personal relationships. But if the host gives you any business topic for discussion you can go for it. In short, it is wise to avoid business talks on occasions in Bolivia.

Don’t Try to “Go Dutch” in Turkey In Turkish culture, proposing to make half payment of the meal will end up offending your host. In other words, it will be smart and wise to invite the host to some other dinner party. And at that party, you should make the whole payment.

Avoid Using Red Ink While it is entertaining to use different-colored pens for many people, using them is different in South Korea. It might be insignificant to use red, blue, or green ink elsewhere. But in South Korea, if you are writing the name of a Korean, make sure not to use red ink as it symbolizes death in the Korean tradition.

A Trip to the Sauna in Finland A sauna is considered a place for relaxation and unwinding. In Finland, it is more than just for relaxation. Inviting a client to the sauna means successfully terminating a business or starting a new one.

Sitting Seat in the Taxi Most people opt for sitting in the backseat of a taxi as it is considered a sign of refinement. However, in Australia, this behavior is considered snobbish and arrogant. Therefore Australians often sit beside the taxi driver.

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Greeting a Magpie in the UK To avoid bad luck, it is a custom in the United Kingdom to greet a lone magpie. Therefore, you should not forget to stick to this traditional act.

Birthday Greetings in the Netherlands An interesting tradition in the Netherlands is birthday greetings. In the Netherlands, there is a tradition of greeting the person celebrating the birthday in addition to greeting the family and relatives as well.

Greeting People in Japan and Germany The tradition of greeting differs from country to country. For example, in Germany, as well as in many other countries, people shake hands with everybody in the room. On the other hand, the greeting tradition is more formal in Japanese culture. People in Japan greet and thank someone by bowing. In Argentina, France, and Brazil, it is a tradition to kiss a person on the cheek when greeting him. While only one kiss is enough in Argentina, in Brazil and France, two or three kisses are often exchanged.

The Finger-Pulling Tradition in Austria In Austria and Bavaria, there is a finger-pulling tradition in which the objective of the game is to drag the rival’s finger across the table.

The Tradition for Unmarried People in Germany The cultural traditions surrounding marital status often differ across cultures, but there are rarely any customs for single people. In Germany, a single person is showered with cinnamon powder or pepper, depending on their age. On the other hand, people buy funny hats for their 25-year-old friends on Saint Catherine’s Day as a tradition.

Face on a Birthday Cake This tradition is quite common across the world. In Mexico, as the celebrating person takes a bite of the cake, his friends shove his face on the birthday cake.

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Wife-Carrying as a Competitive Sport An interesting competition in Finland is about carrying one’s wife. This tradition has been around in Finland since 1992 and is called the Wife Carrying World Championship. The prize is beer, and the amount varies with the weight of the wife.

Durga Puja in Bengal Every year, the festival of Durga Puja (also called Durgotsav) is organized in West Bengal. The festival marks the victory of the goddess Durga in a battle. This means that the festival represents the victory of good over evil and is celebrated zealously across the state.

Lucia Festival of Sweden In Sweden, there is a popular Christmas tradition which is celebrated on the 13th of December. Although a few people have an idea of why it is celebrated, it is termed Saint Lucia’s feast day. In addition, it is also the darkest night in Sweden according to the old almanac.

Yi Peng in Thailand Yi Peng is a popular Buddhist festival celebrated in Northern Thailand featuring a ritual of lighting paper lanterns termed as khom lai. The Buddhists believe that this act of releasing lanterns frees them of bad luck. As this festival is based on the Thai lunar calendar, the exact dates shift every year, and therefore it commonly falls on the full moon in November.

Fasching Parade in Germany In case you plan to travel to Germany in January/February, be sure to check out the famous Fasching parade. This parade, also known as Karneval, is an entire week of festivals and parties that end with a huge parade with masked creatures, bands, and magic tricks. In addition, this festival is associated with the festivals of the Christian church where entertainment is welcomed before the arrival of Lent.

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Shinbyu in Myanmar The Shinbyu Ceremony is an interesting one, where young boys are presented to the local monastery so they could become novice monks. This is a part of the Theravada Buddhist tradition, which brings good luck and is significant to the Burmese culture. The tradition involves a procession by the boys where they endure the ceremonious shaving of the head and trade in their silk robes.

How Does One Acquire Cultural Sensitivity? These are only a few of the several cultural traditions from around the world. No list can be exhaustive, and no one can be expected to know everything about every culture or sub-culture and the various traditions that abound in each. Organizational culture is no different and often takes on the practices predominant in the societies and communities that the organizations exist in. Throughout the textbook, we have addressed various concepts and practices used by people interacting with one another in business settings. We encountered specific business terms in the international trade space, in the market entry strategies, in the types of businesses that exist in this space, the financial practices, and the technologies that individuals and organizations use across nations and cultures. The underlying theme though, has always been the cultural underpinnings in all these interactions and transactions, be they in the boardroom for negotiations or in the shipping yards for discussions around freight and insurance, or in discussions on mergers and acquisitions, or simply coworkers from different backgrounds sitting together to share their lunches in the office, via Zoom, or at the park near their workplace. So, how should the early interactions between new coworkers or new business partners commence? One simple approach is to start with some preliminary research prior to the meeting (if there is a scheduled meeting), respectfully observe, listen politely, and wait to take a turn while speaking, though in some cultures interrupting another speaker is not considered rude. As the conversation progresses, reciprocate as appropriate, acknowledge hierarchy, convey firmness and strength, keep open lines of communication, and indicate willingness to negotiate, BUT Clearly Outline Ethical Concerns. Other ways to ensure a successful engagement/interaction in cross-cultural situations. . Be prepared to give and take time to respond to queries around the business and the cultural practices (in the organization and in your country/culture). . Since most people cannot be expected to know everything, learn to detect whether the question asked about the culture is based on ignorance or a stereotype and a genuine desire to learn about your culture.

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. Try not to take offense even if there are stereotypes brought into the conversation. Treat these as teaching and learning moments and respond with kindness, but do not hesitate to correct the wrong assumption or stereotype. . Be prepared that culture shock is true, and all manners and kinds of people experience it. Again, be patient and respond with kindness. . Understand that technology can be an aid, instead of a barrier. Asynchronous messages can allow people to compose their thoughts and provide a voice for their opinions. This applies even to people of the same cultural/ethnic background, as many people are anxious about social interactions, and may not be able to disclose their fears, mental health issues, gender orientation issues, fear of backlash, etc. . All the aspects of the ConnecT framework will allow you to establish trust and convey genuine mindfulness and interest in learning about the background of your coworkers and business partners. The approaches discussed in the framework will help navigate workplace complexities, contexts, understand and integrate culture into the business decisions, and resolve conflicts using effective communication approaches. . Invite people to your home, even if they are from away. . Try different cuisines to be open to new tastes and experiences. Some people are uncomfortable with some foods eaten around the world. Be honest about your discomfort and people will respect that. . Moving out of your own comfort zone will allow others to do so as well. Remember, your coworkers may also be equally nervous about being welcomed, accepted, embraced, and wish to belong. . Your coworkers have been hired because of their skills, abilities, competence, and record of contribution to the organizations they have worked in. . Don’t let someone’s accent when they are speaking in a language not native to them, be an impediment in your interactions, nor should the accent while speaking be an indication of the level of competence or ability of the speaker. Remember, someone from another country has already left their shores, native country, and the comfort zones of their culture. That is courageous and should be commended.

Conclusion Be open to ideas and thoughts and soon you will realize that people are the same everywhere. They want to be loved, accepted, belong, raise, and protect their families, wish to have good friends, celebrate their successes with friends and families, share their joys and sorrows with friends, coworkers, and families, and make meaningful contributions to the organizations they work in, the communities they live in, the nation they are citizens of or have acquired citizenship of, and the society that reflects their hopes, ideals, and aspirations. Review the various belief systems and some of the cultural traditions discussed in this chapter and use them as a

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starting point of your journey to learn, discover, grow, and enjoy the true collaborative benefits of working with people from different cultures and mores. Practice two-eyed seeing, look to the principles of Kwanzaa and Ubuntu, recognize the dignity that every human being deserves, interact with respect, make relevant and responsible contributions, and practice reciprocity and altruism and work to make the world a better place for all humanity. End-of-Chapter Assignments and Exercises–Case Scenarios

The following set of questions again follows Brigitte Sultan as she sets up business operations in an international, emerging market. Following the PESTLE-related advice you gave her from the previous chapter, the following would involve cultural advice in the early days of the new business operations in Brazil, Chile, India, Mexico, or other markets of your choosing. Once you have decided on the market that Brigitte and WITI will set up new business operations, you can respond to the following questions. 1. What would you recommend as the first steps to Brigitte on who she should hire for the local business operations in the emerging market? Explain. 2. While WITI has its established organizational culture as a North American entity, how would you recommend Brigitte and her WITI team to approach new hires (across the organization)? 3. What would your recommendations be to the team regarding market intelligence and potential clientele/customers for WITI products? 4. What things about the local cultural practices around sustainability, ESG, preservation, and relationships with indigenous communities and other community groups would your advice to Brigitte be about? 5. Coming from a North American perspective and WITI being a welcoming organization to members of the 2SLGBTQIA + community, how will you ensure that this continues to be part of the organizational culture in the new market, but also be careful about local sensitivities to this?

References Cull, I., Hancock, R. L. A., McKeown, S., Pidgeon, M., & Vedan, A. (2019). Indigenous ways of knowing and being from pulling together: A guide for front-line staff, student services, and advisors. This book is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License, except where otherwise noted. https://opentextbc.ca/indigenizationfron tlineworkers/ Halifax Wanderers FC. (2022). https://hfxwanderersfc.canpl.ca/ Institute for Integrative Science and Health. (n.d.). Two-eyed seeing. http://www.integrativescience. ca/Principles/TwoEyedSeeing/ Ma, M.S. (2021). Top 26 cultural traditions around the world. https://www.linkedin.com/pulse/top26-cultural-traditions-around-world-maxim-ma. Retrieved from the web on July 3rd, 2022.

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Ujomudike, P.O. (2016). Ubuntu ethics. In Ten Have H. (eds.). Encyclopedia of global bioethics. Springer. https://doi.org/10.1007/978-3-319-09483-0_428 Wang, Q., Jung, J., Bozeman, B., et al. (2019). Collaboration cosmopolitanism: What are the effects on the “overlooked majority” of scientists and engineers? Higher Education 78(2019), 1011–1034 (2019). https://doi.org/10.1007/s10734-019-00385-5

Glossary

Chapter 1 EDC MNC PESTEEL SWOT TCI WITI

Export Development Canada Multinational Company Political, Economics, Socio-Cultural, Technological, Ethical, Ecological, and Legal Strengths, Weaknesses, Opportunities, and Threats Trade Confidence Index (from Export Development Canada) Waterbody Innovations and Technologies Inc.—Fictitious MNC, created for the purpose of this textbook.

Chapter 2 Distributed Economies

ESG Market Economy

MSCI OECD State Capitalism

a way of organizing economic activity to spur innovation, particularly among small and medium-sized companies and with a focus on sustainable development and business practices. Environmental, Social, and Governance one in which individuals answer the economic questions and market forces are allowed to operate; also called capitalism, capitalist economy, consumer economy, free enterprise, free market economy, and private enterprise Morgan Stanley Capital Investments Organization for Economic Cooperation and Development when the government or the State, decides to own and operate businesses (for-profit) or capital accumulation and the means of production and distribution

© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2023 B. Sundararajan et al., Cross-Cultural Practices in Business and Finance, https://doi.org/10.1007/978-3-031-06440-1

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UNCTAD UNSDG

Glossary

of resources, goods, and services are nationalized as state-owned businesses United Nations Conference on Trade and Development United Nations Sustainable Development Goals

Chapter 3 Assimilation

Bennet’s DMIS

Berry’s Acculturation Model Cultural Intelligence Culture Shock

Emulation Honeymoon

Integration

Kim’s Stress-Adaptation-Growth Theory

Marginalization

If it is not important for newcomers to keep their heritage culture, but they are willing to accept a new culture, they assimilate. Developmental Model of Intercultural Sensitivity—Six Stages—Denial of Difference, Defence against Difference, Minimization of Difference, Acceptance of Difference, Adaptation to Difference, and Integration of Difference Integration, Assimilation, Separation, and Marginalization CQ—involves Mindfulness, Knowledge, and Behavior an emotional reaction that people have when they encounter a change or new experiences, because of which their long-held beliefs get challenged. involves observing other people’s cultural behavior and copying it. This stage occurs when people arrive at a new place. They are curious about differences but usually notice only positive things. If it is important for a person to keep their heritage culture, but at the same time they want to build relationships with a new society, this individual easily integrates into a new society. Eight stages—Honeymoon, Culture Shock, Recovery, Adjustment, Honeymoon at Home, Crisis at Home, Recovery at Home, and Adjustment at Home If newcomers are not interested in either keeping their native culture or accepting their new culture, they experience marginalization. People do not feel that they belong to a new

Glossary

Mindfulness Oberg’s Culture Shock Theory Re-enculturation

Reverse Culture Shock

Separation

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society, and they are totally withdrawn. If these are students, they fail in their studies. If these are immigrants or expatriates, they are not engaged in their workplace and are completely disappointed. Being aware of our own assumptions, ideas, and emotions. Four Stages—Honeymoon, Crisis, Recovery, and Adjustment is a process of adopting a new culture because of which a person’s original worldview is changed into a new one. happens because of all the changes people go through while living in a new country. Though they went through multiple changes, other people living in their home country have not changed, so it causes internal and external conflicts. If newcomers want to keep their heritage culture and are not willing to build relationships with another culture, it leads to separation. People try to avoid interactions with the representatives of a new culture and do not usually engage with a new culture. Combines two U’s—adding the four stages to “at home” as well.

Chapter 4 Convenience Relativism

Corruption Perception Index (CPI) CSR

Deontological

argument is that ethical universalism leads to ethnocentrism, which means that companies cannot follow ethical universalism due to the reason that some cultures will always be dominating and imposing their ethical views on others. high CPI indicates the least corrupt country. Corporate Social Responsibility—Company focuses on Economic, Legal, Ethical, and Philanthropic Responsibilities based on the belief that the morality of an act of practice is based on the act of practice itself.

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Glossary

Ethical Convergence Theory Ethical Relativism

Ethical Universalism Globalization

Hypernorms

Teleological

Utilitarianism

argues that there should be a code of conduct for all the multinational companies. a theory that argues that each society’s view on ethics must be considered legitimate, you may decide to follow the laws of the country you are in though they may be considered unethical in the company’s original country. argues that moral rules are universal, so they cannot differ across the cultures. a process of building new relations between people, businesses, and governments of various countries because of increasing international investments, trade, and information exchange. universal norms and are based on common ethical values (e.g., human dignity), human rights (e.g., right for just treatment), and welfare norms (e.g., prohibition of child labor or human exploitation) based on a belief that the morality of act or practice proceeds from its consequencesif the consequences are harmful, it is an unethical act. argues that what is good, and moral comes from acts that produce the greatest good for the greatest number of people.

Chapter 5 AI AR CNP DI Gartner’s Hype Cycle

PEC VT VDM

Artificial Intelligence or machine learning Augmented Reality Cloud-Native Platforms Decision Intelligence a graphic representation of innovations and emerging technologies in different domains, allowing individuals and organizations to track how a new or emerging technology or innovation matures and provides an indication of future potential Privacy-Enhancing Computing Virtual Teams Virtual Distance Model—Karenl Lojeski (2010)

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Chapter 6 Accounting Fraud

Balance Sheet Double-Entry System Financial Audit

Financial Reporting

Financial Statements GAAP

Income Statement

IFRS OSC SEC SOX Weak Internal Control Systems

Fraud is the intentional misrepresentation of information to mislead stakeholders, particularly around the company’s operations, reported and actual revenues, costs and expenses incurred, and reported profits or losses. a statement of a company’s holdings, assets, liabilities, and equity at a given date. makes two entries for each transaction, a debit, and a credit conduct an independent and objective examination and evaluation of the financial statements of an organization to ensure that financial records fairly and accurately represent the underlying economic activities of the firm the main objective is to produce useful information that supports investment and management decisions, which is not possible without accounting are necessary to evaluate past performance and as well make business decisions going forward Generally Accepted Accounting Principles or GAAP—name for a set of rules that is common in various countries. For example, Canadian GAAP is not the same as US GAAP. a statement that shows an organization’s (company, government department, etc.) income or revenues, costs of operations and expenses, and profitability (where relevant) over a period. International Financial Reporting Standards Ontario Securities Commission Securities and Exchange Commission Sarbannes-Oxley defined by the Merriam-Webster dictionary as a system or plan of accounting and financial organization within a business comprising all the methods and measures necessary for safeguarding its assets, checking the accuracy of its accounting data or otherwise substantiating its financial statements, and policing previously adopted rules, procedures, and policies as to compliance and effectiveness.

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Chapter 7 Banking

Bond

Capital Financing

CBDC Cryptocurrency

Digital Currency Diversification

Equity Financial Contagion Financial Market Bubbles

Fintech

NYSE Regulation Full Disclosure

a process where a financial institution can receive deposits of money or other valuables (jewelry, gold, art, etc.) and provide loans to individuals, organizations, and even governments. a loan from an investor to a borrower—governments issue bonds when they borrow from banks or the public. It is a fixed-income instrument that represents a loan from the lender to the borrower the way an organization issues bonds or shares (equity) to borrow money to manage its expenses and operations. The return is a percentage of profit and the capital is returned to the lender. Central Bank Issued Digital Currency a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority. a currency that is available exclusively in an electronic form with respect to financial portfolios, the concept of spreading the money into different types of investmentsstocks, bonds, mutual funds, depending on the ability of the investor to absorb risk. shares or company stock ownership the spread of market disturbances from one country to another. real or perceived increase in value and valuation of goods, commodities, real estate, and organizations, based on the potential to return high profits. technology companies that provide technologies for automating many financial transactions and activities New York Stock Exchange Reg FD—regulation was put in place to remove any advantages that institutional (often large) investors had over retail/small investors. The purpose and goal of such a rule are primarily to prevent a loss of confidence in the markets, which would deter market participants if they viewed the game as being rigged.

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Chapter 8 Collectivistic Culture Face

Facework

High-Context Individualistic Culture Intercultural Negotiation Long-Term Orientation Low-Context Nemawashi Monochronic Culture Polychronic Culture Short-Term Orientation

where it is the cultural norm to think about everyone in the community public self-image, an impression that people want to make on others in a particular social context, or “your public identity”. a set of coordinated practices in which communicators build, maintain, protect, or threaten personal dignity, honor, and respect. cultures have a communication style based on body language, tone, and overall context. where it is the cultural norm to think about the individual self and benefits for the self. a process initiated by individuals, groups, or organizations from different cultures. orientation towards future rewards cultures are more straightforward, direct, and explicit in communication. laying the groundwork. view time as linear view time as a cycle orientation towards short-term goals and gratifications

Chapter 9 FDI ICRC IGO Incoterms JV M&A NAFTA NGO USMCA—CUSMA

Foreign Direct Investment International Committee of the Red Cross Intergovernmental Organizations International Commercial Terms Joint Ventures Mergers and Acquisitions North American Free Trade Agreement Non-Governmental Organization United States, Mexico, and Canada Free Trade Agreement

Index

A Accounting fraud, 98 Adjustment, 41 Artificial intelligence (AI), 67 Assimilation, 44 Augmented reality (AR), 70

B Balance sheet, 95 Banking, 110 Bennet’s Developmental Model of Intercultural Sensitivity, 43 Bonds, 110

C Capital financing, 110 Central bank-issued digital currency (CBDC), 116 Cloud-Native Platforms (CNPs), 69 Convenience relativism, 59 Corporate social responsibility (CSR), 61 Corruption perception index (CPI), 57 Crisis, 40, 41 Crisis-at-home, 41 Cryptocurrencies, 114 Cultural intelligence (CQ), 44, 46 Culture shock, 37, 39

D Decision Intelligence (DI), 69 Deontological ethical decision-making, 57 Deontological ethical theory, 58 Digital currency, 114 Distributed Economies, 22 Diversification, 117 Double-entry system, 94, 95

E Ecological responsibility, 62 Emulation, 43 Environment, Social, & Governance (ESG), 17 Equity financing, 111 Ethical convergence theory, 59 Ethical relativism, 59 Ethical universalism, 59 Ethics of care, 62

F Face, 125 Facework, 125 Faithful representation, 96 Financial audit, 97 Financial capital, 118 Financial Contagion, 117 Financial market bubbles, 109 Financial reporting, 94 Financial statements, 94 preparation of, 94 Fintech, 113, 114 Foreign Direct Investment (FDI), 146, 148

G Gartner’s Hype Cycle, 69 Generally Accepted Accounting Principles (GAAP), 94, 97, 102 Globalization, 55

H High-context style, 124 Honeymoon, 40 Hypernorms, 59

© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2023 B. Sundararajan et al., Cross-Cultural Practices in Business and Finance, https://doi.org/10.1007/978-3-031-06440-1

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184 I Income statement, 95 Incoterms, 156 Integration, 44 Intercultural negotiation, 123 International Committee of the Red Cross (ICRC), 146 International Financial Reporting Standards (IFRS), 97, 102 International Governmental Organizations (IGOs), 146

J Joint ventures (JVs), 146

K Kim’s Stress-Adaptation-Growth Theory, 42

L Long-term orientation cultures, 130 Low-context style, 124

M Marginalization, 44 Market economy, 21 Merging with local corporations or acquiring (M&A), 146 Mindfulness, 44 Monochronic culture, 139 Moral languages of international business ethics, 59 Morgan Stanley Capital Investments (MSCI), 17, 19

N Nemawashi, 131 Non-Governmental Organizations (NGOs), 146

O Ontario Securities Commission, 100 Organization for Economic Cooperation and Development (OECD), 17 Outsourcing, 63

Index P Polychronic culture, 139 Privacy-Enhancing Computation (PEC), 69

R Re-enculturation, 43 Re-entry shock, 41 Regulation Full Disclosure, 113 Relevance representation, 96 Reporting standards, 95 Reverse culture shock, 41

S Sarbanes-Oxley (SOX) act, 100 Securities and Exchange Commission, 96 Separation, 44 Short-term orientation cultures, 130 Simple emulation, 43 Stakeholder approach, 61 State Capitalism, 22 Supply chain, 63 Sustainable development, 62 Sustainable Development Goals (SDGs), 62

T Teleological ethical decision-making, 57

U U-Curve Adaptation Model, 40 United Nations Conference on Trade and Development (UNCTAD), 19 United Nations Sustainable Development Goals (UNSDGS), 16 USMCA (CUSMA, the former NAFTA), 146 Utilitarianism, 58

V Virtual Distance Model (VDM), 75 Virtual teams, 67

W W-Curve Adaptation Theory, 42 Weak internal control systems, 99