cba on south africa
TRANSCRIPT
Internationalizing to South Africa
The cost, Benefit, Risk AnalysisZack Ramos, Gavin Gunawardena, & Tyler Ash
ContentsExternal Environment: Land, Government, Economy.................................................................................2
History.....................................................................................................................................................2
Government.............................................................................................................................................4
Political Risk.......................................................................................................................................5
Government and Business Corruption.................................................................................................5
Economic Structure.................................................................................................................................6
Economic Freedom..............................................................................................................................6
Privatization Efforts.............................................................................................................................6
Taxes...................................................................................................................................................6
GDP Analysis......................................................................................................................................7
Social Welfare Programs and Employment/ Unemployment...............................................................7
Union Problems...................................................................................................................................9
Trade Partners/ Agreements...............................................................................................................10
Foreign/Domestic Incentives to Invest...............................................................................................10
External Environment................................................................................................................................12
Social structure......................................................................................................................................12
Standard of living..................................................................................................................................13
Diet and Family Duties..........................................................................................................................14
Ethnic divisions.....................................................................................................................................15
Religion and Language..........................................................................................................................16
Literacy Rate and Education..................................................................................................................17
Unique facts and features of this country’s culture................................................................................18
Hofstede’s Research and Dimensions....................................................................................................18
Internal Environment.................................................................................................................................19
Organizational Characteristics...............................................................................................................20
Motivation and Incentive Programs.......................................................................................................22
Leadership.............................................................................................................................................25
Decision-Making...................................................................................................................................27
Communication.....................................................................................................................................27
Managerial Profile.................................................................................................................................28
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Women in Management.........................................................................................................................29
Unique Features of South Africa’s Management System......................................................................30
Conclusions and Recommendations..........................................................................................................31
Culture Comparison...............................................................................................................................31
Management Comparison......................................................................................................................31
Cost-Benefit-Risk Analysis...................................................................................................................33
Conclusion.............................................................................................................................................33
Bibliography..............................................................................................................................................35
Appendix...................................................................................................................................................39
Appendix A: Government Structure in South Africa.........................................................................39
Appendix B: Political Risk Assessments...........................................................................................39
Appendix C: Annual Trend of Economic Freedom in South Africa..................................................40
Appendix D: GDP per Capita vs. African Nations and U.S...............................................................41
Appendix E: GDP by Sector..............................................................................................................41
Appendix F: Murder and Rape per 100,000 vs. U.S..........................................................................41
Appendix G: Hofestede’s Dimensions vs. U.S..................................................................................42
Appendix H: Analysis of Organization Variables..............................................................................43
Appendix I: Organizational Culture Chart Comparison.....................................................................43
Appendix J: Leadership Styles Based on Race..................................................................................44
Appendix K: CBRA...........................................................................................................................45
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External Environment: Land, Government, Economy
History
South Africa has been inhabited by humans since man’s inception, which was over 100,000
years ago. This is verified by the incredible findings at the Cradle of Humankind. This area of 12
archeological sites within 180 sq. miles has been the home to over 900 hominid discoveries.
Many hominids (humans and the early ancestors of humans) fell into hidden holes and/or
predators such as eagles and large cats have dragged hominid fossils into limestone caves to
create amazing specimens of the hominids that lived in the region up to 3.5 million years ago.
(Smithsonian Media, 2012)
Dutch traders landed in 1652 and founded Cape Town. This was used as a stopping point
between Europe and the Indies. After the discovery of diamonds (1867) and the discovery of
gold (1886), that native population, which has been there since man, began to be subjugated by
whites. This began to increase substantially. Apartheid is the term to describe the separation of
individuals by race. It prohibited Africans from holding office and was a part of everyday life.
This created segregated public facilities such as bathrooms, park-benches, and schools. Blacks
received a terrible quality of education compared to whites during this period. This period ending
in 1994 with the first multiracial election whereas Nelson Mandela, their first black president,
was elected, and the African National Conference came into power which has controlled the
government ever since by popular vote. (Central Inteligience Agency, 2013).
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The country’s 48 million inhabitants have since been ravaged by HIV/AIDS with a 17.8%
infection rate ranking 4th in the world and 1st in deaths. South Africa has been attributed to much
social unrest due to the broad gap between the rich and poor, below poverty living conditions in
most areas, and cultural clashes that have predated Apartheid.
Government
It is difficult to talk about South African government without referring to the African National
Party. (ANP) Currently the ANP holds 264/400 seats in the National Assembly, and presidential
elections have been in ANP power ever since they were unbanned in 1990. Their agenda
includes equal rights for all nationalities, the people sharing in the country’s wealth, and all
enjoying equal human rights. This creates a socialist view of government for the majority of the
population.
This is a positive to foreign investors because it means that governments will not be “stingy”
when offering foreign incentives, discussed later.
The government is a three branch institution similar to the United States with Executive,
Legislative, and Judicial Authority, noted in Appendix A. Particular problems with this structure
is the overwhelming power of the ANP in the legislative branch. This has potential to radically
influence policies, but their strategy seems to be conservative and economically growth-based.
Judicial Authority has been under fire lately for corruption. Recent studies in Cape Town, South
Africa show that almost half (47%) of South Africans who came into contact with government
officials paid a bribe to them in the past year. The global average is 31%. (Sapa, 2013)
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In a country that has some of the most staggering crime statistics in the world, this is a downside
for internationalizing for the sake of the safety of employees. Murder rates (2012/2013) were up
0.6%, but the number of attempted murders rose by 6.5%, violent house robberies by 3.6% and
carjackings by 5.4%. Additionally, drug-related crime rose by 13.5% and truck hijackings by
nearly 15%. (Dixon, 2013)
Political Risk
Low/Medium
The government seems reasonably stable with short term, medium/ long term and special
transactions all falling by 42%, as shown in Appendix B. (Delcredere Ducroire, 2013)
These results suggest there is identifiable risk, but it is still a strong candidate for
internationalism.
Government and Business Corruption
In corruption, South Africa places 69 out of 176 countries, with a score of 43 / 100 (0 being
highly corrupt). (Transparency International, 2013) Government corruption is definitely a risk
factor there. Bribery is common and must be addressed corporately if business is to be
conducted. Businesses must have a followed and enforced Code of Ethics, to battle corruption
and especially bribery.
Bribery scores for South Africa are 7.6 / 10 (Transparency International, 2013) indicating that
businesses probably will encounter bribery opportunities while internationalizing in South
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Africa. If a company is caught in bribery it will have negative and serious implications onto the
trust factors of stakeholders and investors.
Economic Structure
This section will discuss the economic structure of South Africa in order to determine, which
variables favor internationalism or not, and which variables have give-and-take properties. The
economy is ranked as the 26rd largest economy in the world, as opposed to 35th in 2002. (BBC,
2013)
Economic Freedom
With a score of 61.8 on the Economic Freedom index. We can analyze different aspects that help
this number and hurt it. This number has been shrinking over the last four years as seen in
Appendix C
Privatization Efforts
Privatization efforts have created the free enterprise growth we see in South Africa, today.
Democracy and fiscal stability have led to huge expansions in the scope of privatization.
State-run industries are common in South Africa, which denies multiple industries from
penetrating there. Industries such as petroleum, communication, logistics, some forestry, air
travel, and electricity generation are generally state-run, which eliminates any prospects for
internationalism in these sectors.
Taxes
The top income tax rate is 40 percent, and the top corporate tax rate is 28 percent. Other taxes
include a value-added tax (VAT) and a capital gains tax. The overall tax burden equals 23.8
percent of total domestic income. Government spending has increased to a level equivalent to 32
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percent of GDP, and the budget balance has fallen into deficit, prompting a rate downgrade by
some agencies. Public debt is about 40 percent of GDP (Heriage Foundation, 2013).
The corporate tax rates are comparable to the United States (25%), making it an easier transition.
This rate also has dropped from 34.55%, in 2012.
GDP Analysis
GDP in South Africa is 592 billion; ranked 26th in the world. Their GDP real growth rate is
around 2.5%. This is partly because of economic slowdown in 2009, but has since bounced back.
This is far less than the levels of 5% and 5.5% experienced from 2005 to 2007. (The Banker,
2012) South Africa is the most sophisticated market in Africa; meaning is it less explosive in
growth compared to other nations. Per capita GDP is $11,600, meaning that many luxury items
will be a niche market there. Compared to the surrounding economies it is decent, as shown in
Appendix D. Because of government assistance programs there is room for market growth in
South Africa.
There has been a sharp decline in the amount of GDP going to agriculture in the past year. The
service industry attributes to most of the GDP by sector, located in Appendix E. This exhibits a
general shift to a more globalized economy similar to the United States. It also means that an
increase in skilled labor as opposed to unskilled is a necessity for larger values of growth in
GDP.
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Social Welfare Programs and Employment/ Unemployment
Unemployment rates are at staggering numbers (22.7%). (Central Inteligience Agency, 2013)
This has resulted partly from people benefiting from social welfare programs and abuse of
government grants.
The South African welfare programs have been dramatically increasing its beneficiaries from 3
million in April 1997 to 13 million in April 2009. Using 3.5 percent of GDP on welfare is
making South Africa the highest welfare spender in the world. (Potts, 2011)
Thirty-seven percent of social assistance expenditure is a program available to men older than 65
and women older than 60. Using an algorithm, they are evaluated and allowed a monthly check.
Research suggests that pension recipients are often the “only contributors to income in
households and thus, support the entire family on their SOAP (State Old Age Pension Grant)”.
This grant allows the older population to stay out of poverty; overall helping economic strategy.
It is noted that many people will benefit and refuse to work just because they are indirectly
supported. (Potts, 2011)
There is only one grant handed by the government that affects the working age population, which
is the Disability Grant. Most of the beneficiaries receive the grant at around 40 years of age. It is
a grant that will fund people that cannot work due to a disability. This eliminates incentives to
work because it creates dependency on the grant, and most people will make more with the grant
than joining the labor force. Only 6.6% of people with this grant noted they would accept a job if
offered one (Potts, 2011).
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The second highest expenditure for the welfare system is the Child Support Grant. This grant
results in 31% of social assistance expenditures. It gives roughly 31.93 USD to parents per child.
This assistance creates a correlation between school attendance and households receiving the
grant. (Potts, 2011)
In Rebecca Potts’ report, cited above, she brings up certain issues like the dependency of the
poor on the welfare programs and the misuse of welfare program money. Parts of her
recommendations were that certain cash-welfare aspects should be replaced with non-cash
transactions such as food stamps in order to battle corruption and misuses of the government’s
money. Some of the money given by governments weakens the ability to create incentives to
work. Ultimately, this will create a hindering environment for economies to grow, but placing
free money into citizens pockets, especially the elderly, can lead to the purchase of more than
average goods.
Union Problems
South Africa has been having multiple issues regarding union strikes. Industries such as
automobiles, mining, agriculture, teachers, bus drivers, postal workers, construction, textiles, and
more, have seen strikes in the past five years. Many of these strikes have been backed by
COSATU (Congress of South African Trade Unions) giving unions too much leverage over
businesses. Also, it is creating internal friction between COSATU members. Some of the pay
raises unions are demanding are as much as a 60% for 2014, while employers are offering only
6%, such as the National Union of Mineworkers (Wynne, 2013).
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Labor unions are gaining increasing powers over employers, which reflect poorly onto the
penetration of these markets. Internationalizing companies should be aware of these upcoming
issues, in order to fully understand the risk of internationalism.
Trade Partners/ Agreements
Within the European Union, South Africa is the largest player in Africa, despite geographic
distance. This is mainly because of the Trade, Development and Co-operation Agreement. This
agreement has established a free-trade area between the European Union (EU) and South Africa,
creating high incentives for businesses attempting to penetrate EU markets. Major exports
include a diverse array of products such as fuels, mining products, machinery, transport
equipment, and other semi-manufactured goods. The EU is by far South Africa’s most important
development partner, “…providing for 70% of all external assistance funds”. (European
Commision, 2013)
These immense ties to the EU have great benefits and threats to South Africa. It is important to
note that because of these beneficial trade agreements, South Africa is allowed to receive large
incentives when trading to the EU market. It also means that they are dependent on the strengths
of the EU, which has become suspect in the past years.
Foreign/Domestic Incentives to Invest
The government in SA has created agencies to assist foreign and domestic investors in the
divesture and internationalism process. Investment South Africa (ISA) and the Department of
Trade and Industry (DTI) are agencies that facilitate communication between potential foreign
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investors and public-sector officials; as well as offer incentives to invest. They also provide
fiscal funding in order to promote growth for foreign projects. These incentives apply to
domestic and foreign investors. Lower tariffs to EU markets have also helped South Africa gain
investment potential. (South African Development Community, 2012)
The Department of Trade and Industry and the Industrial Development Corporation of South
Africa mostly offer non-tax incentives because of increased government expenditures that pay
for these programs. For small businesses investing over 3 million in assets incentive programs
offer:
An establishment grant payable for three years, worth 10.5% of qualifying assets
Profit/output incentive, calculated at 25% of profit before tax, payable for an
additional year
An additional two-year profit/output incentive provided the industrialist can meet
or exceed the human resource remuneration to value-added ratio of 55% measured
in the fourth financial year
A foreign investment grant to overseas companies investing in new machinery and
equipment
(South African Development Community, 2012)
Industrial Development Zones (IDZ) are zones that loosen labor and environmental restrictions
and offer fiscal incentives or non-fiscal services to foreign companies. A dedicated IDZ authority
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will be there for services such as administrative support, advanced labor relations and incentive
structure (tax holidays, market access agreements).
Export incentives by South Africa include partially compensating exporters for certain costs
incurred in respect of activities aimed at developing export markets. Compensation for activities
like export market research, outward investment recruitment missions, and exhibition assistance
can be given to the exporter if they qualify.
These multiple programs offered in South Africa provide extra incentives for a nation to, at least,
engage in talks of internationalism, and can provide multiple resources for the planning phase of
internationalizing.
External Environment
Social structure
There are actually two dominant classes in South Africa today, one being the black upper middle
class that almost completely controls the politics in this country (Mbeki). Although they control
politics this class hardly has any impact on the economy in South Africa (Mbeki). The other
dominant class controls much of the economy and they are the owners and higher up members of
the Minerals Energy Complex (MEC) which is the center of the South African economy
(Mbeki). Even though racial differences were “set aside” in 1994, there is still quite a large gap
between blacks and whites when it comes to wealth. The biggest difference is seen in the Indian
and Colored groups as many have jumped up to the middle class. Symbols of status have
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changed dramatically since the industrial world came storming into South Africa and now
include luxury items as well as one’s level of education acquired and where it came from.
(Mbeki)
Standard of living
The average GDP per capita is 11,600 dollars which is ranked 109th. (CIA) The highest 10% of
salaries make up 51.7% of the money while the bottom 10% makes up 1.2%. (CIA) Those
numbers give South Africa a .63 Gini index which means that the distribution of wealth is not
equal. 31.3% of citizens are living below the poverty line. (CIA) Even though there has been an
explosion in agriculture and the mining industry, most of the jobs that the locals are able to
acquire are still so low paying that they are living at or below the poverty line.
The poorest people in South Africa have come across an epidemic when it comes to drug
addiction. Nyaope is the drug of choice and it is a mixture of marijuana, low-grade heroin,
antiretrovirals (AIDS medicine), and other chemicals like rat poison. (NBC) The cost for
Nyaope is only 30 rand, or three dollars, per hit. (NBC) Most of the poor that get addicted to the
drug resort to crime such as stealing and prostitution. (NBC) SANCA is a string of rehab centers
that reports that the number of people seeking help is exponentially increasing every couple of
months. (NBC) Unfortunately there is not enough money or medicine to treat everyone so the
waiting list is very long. (NBC) “Krokodil”, which consists of codeine and gasoline, is another
drug that is popping up all over the world, including South Africa and it causes flesh destruction.
(NBC)
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South Africa has a major problem with rape and an even larger problem with the lack of people
reporting rape to the authorities. Many report that the reason for having one of the highest
prevalence’s of sexual assault is because the high unemployment rates lead to traumatization and
social stress, which in turn cause people to be mentally unstable (Guardian). A study conducted
in 2010 discovered that one in four women had been raped during their lifetime (Guardian).
That being said, only one out of 13 women raped by non-partners and one out of 25 raped by
their partner even bother to report the crime (Guardian). So even though South Africa says that
sexual assault has gone down, it has risen 1.5 percent in all actuality (Guardian). It is believed
that the continuous rise of this heinous crime is because of those accused of sexual assault being
rarely convicted, which has led to the closing of the family violence, child protection and sexual
offence units in 2006 (Guardian). However, it was realized in 2011 that there were too many
sexual offense cases to keep up with so only that unit was brought back in to affect. In addition
to rape and drugs, murder is rampant throughout the country.
In an interview our team conducted with a native, Jackie Ramos, she implied that safety was an
intense and sensitive issue in South Africa. Being a native, she has seen the nation pre- and post-
Apartheid. Business is not recommended to be conducted in Johannesburg. Slums are to be
avoided at all cost where “rule of the land is force” (Ramos, 2013). Murder and rape statistics per
100,000 people are located in Appendix F.
Diet and Family Duties
Most people usually eat starches and meats that that can be easily obtained from farming, but
there is a much different diet that resides in the Cape. (Copland) The Cape combines many
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cultures of food including Dutch, English, and Asian. (Copland) Food is a major focus in the life
of the community as well as the family excluding those of British origin who tend to be more
relaxed about it. (Copland)
In many rural places, the traditional division of labor still exists which consists of the women
tending to the fields while the men take care of the livestock. (Copland) Now since many have
moved into the towns and cities, the main source of work has gone to mining and industrial
centers. Originally this was all black people, but the opportunity for education for them has
grown rapidly, allowing them to take over better jobs to help them grow their middle class.
(Copland) Usually infants and children are cared for by female relatives, but the availability for
this to be done is often limited because of a high prevalence of teenage mothers. (Copland)
Many of the middle to upper class families can afford a caregiver which greatly helps the family
as well as another family because it creates extra jobs. (Copland) Women were traditionally left
out of any decisions or even making money, but since the reform, things have been slowly
moving in the favor of equality. (Copland)
Ethnic divisions
There are far more black Africans than any other ethnicity in this country and the
gap in social status and wealth is overwhelming. The World Economic Forum states
that South Africa’s women’s rights ranking is fourth out of 53 countries in Africa.
It also states that the “gender gap index” is very favorable towards women
worldwide, ranking in at sixth and also ranked 26 th in “gender empowerment
measure”. (Economist) The South African constitution, written in 1996, states that
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there will be no sexism or racism allowed. There have been many amendments
made to the constitution in regards to equality over the years since it was passed.
These amendments include legalizing abortion, equal marriage power for women,
banning any discrimination in education, and equal employment opportunity.
(Economist) Women are in an impressive 44 percent of parliamentary seats
including many that were previously considered “a man’s job”. (Economist) Even
though women are employed at about the same rate, white males still hold almost all
of the senior management positions. Additionally, even though it seems that women
are being treated better, it is not at all true when it comes to the abuse they take in
their black, male run homes. (Economist) In certain parts of the country young
women are still being forced to marry older men who treat them like slaves.
(Economist)
Religion and Language
Most black people in South Africa still follow rituals when slaughtering animals for food as well
as ancient techniques for brewing cereal beer and how to consume it. (Copland) The most
deeply held ceremonies and occasions always have to do with births, initiation, marriages, and
funerals. (Copland) The old ways of religion include having herbalists and diviners, and even
when the Christians came in with much different beliefs the indigenous people decided to go
with a combination of the two creating a popular Afro-Christian cross religion. (Copland) There
usually aren’t many big issues revolving around religion in South Africa because the
Christian/Protestant ideals are so widely spread and accepted.
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There are many languages spoken by the people in South Africa, which could be in part due to it
being a hub for trade. However, the main language spoken in the business world is English
because the people predominantly running any businesses are white and from Europe or North
America.
Literacy Rate and Education
Literacy is defined as being over 15 years old and being able to read and write. 93% are literate
with males being very slightly more literate. (CIA) Education makes up for 6% of the total GDP
which is ranked 38th in the world comparatively. (CIA) In the low income areas, public
schooling has little to no resources to be successful while upper class communities enjoy well-
funded private schools that are usually Jewish-run. (Edu) There are over twenty universities and
technical institutes, but recently a lack of economic resources has limited who can get in and
there is a possibility of some having to shut down. (Edu) As of right now, there are eleven
traditional universities, six technological universities, and six comprehensive universities. (Edu)
Because of the reach of higher education in South Africa about one in five young South Africans
enroll in higher education, far surpassing the other countries across the continent. (Edu) The
growth of colleges has been explosive as proven by the fact that the number of students has
almost doubled since the constitution passed in 1996. Also, since then, the percentage of white
people enrolled dropped from 50 percent to 25 percent with Africans blowing by them with the
new equality laws. (Edu) Although this sounds promising, the dropout rate is astronomic at 45
percent, mostly because the government is funding education less, making it impossible for some
to pay the steadily increasing tuition fees. (Edu) Of those who do graduate, there is a very even
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distribution of majors between science and engineering, business, education, and social sciences.
(Edu)
Unique facts and features of this country’s culture
The divorce rate is extremely high at over fifty percent; so many black couples are just living
together without ever actually making anything official. The first black president of South
Africa, Nelson Mandela, was imprisoned on Robben Island for trying to free his race from white
oppression.
South Africa is home to the most Great White Shark sightings of any other country in the world,
making it a majority of the show “Air Jaws”.
The country Lesotho is one of the two countries completely surrounded by another country. It is
one of the poorest countries in respect to GDP and has the third highest prevalence of HIV/
AIDS.
Hofstede’s Research and Dimensions
The power distance rating in South Africa is 49 so there is a basic understanding that people
have their position in society and they more or less listen to their superiors. (Hof) The power
distance rating for America is 40 so they might not get away with bossing around South African
employees. It is considered individualistic rather than collectivist with its score of 65 in this
category. (Hof) This individualistic ideal means that people are worried more about themselves
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and family instead of the community as a whole, and they have the sense that they are on their
own. The U.S. is also considered individualistic, but it is far higher with a rating of 91. This
could make South Africans think that Americans are selfish and only care about themselves.
South Africa received a 63 in favor of being masculine which shows that the people would rather
be the best and compete to get better instead of just having a job or doing things they enjoy
which is almost identical to the U.S. (Hof) Being masculine boils down to meaning that
performance is everything and it doesn’t matter how you get there. (Hof) Under the uncertainty
avoidance category, South Africa got a 49 showing that they lean towards avoiding situations
that cause them any doubt. (Hof) This is very close to what the U.S. has, so South Africa would
be a great country for entrepreneurs to find opportunity or joint ventures to occur. Comparison to
the United States is located in Appendix G.
Ubuntu is a big deal in South African communities and it means “people are people thru other
people; I am human because I belong to the human community and I view and treat others
accordingly”. (Ubuntu) Essentially it means valuing the community over oneself, striving to
help others, and respecting others. (Ubuntu) This is very strange when comparing these ideals to
Hofstede’s dimensions because they are individualistic and masculine, but Ubuntu refers to a
group of collectivists with feminine ideals. In my opinion these figures are so different because
the dimensions were taken from the business world and not the community of black South
Africans who take this ideal seriously.
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Internal Environment
South Africa’s internal environment in regards to business processes, business structure,
organizational behavior, and organizational culture is highly reflective of the country’s social
atmosphere and history. (Farley, Hoenig, & Ismail, 2008) South Africa has being undergoing a
transformation from its apartheid past, as well as issues with high unemployment, causing the
South African government to underline the need for firms to include social elements in their
business ethos. (Farley, Hoenig, & Ismail, 2008) Due to this, there is a high amount of
motivation to employ social appeals in corporate marketing strategy. (Farley, Hoenig, & Ismail,
2008) Furthermore, with the collapse of apartheid whereas the country’s black majority was
marginalized via a lack of rights, and there being a complete barring of the black population
from participation in the political system; South Africa has been for the past 20 years in a
transitional period whereas the country has had its first multi-racial election in 1994. (Farley,
Hoenig, & Ismail, 2008) (Lob, 2013)
South African industries tend to have a low concentration ratio with moderate to strong levels of
competition, either from domestic companies or multinationals. (Farley, Hoenig, & Ismail, 2008)
Also, it is often seen as having a dual economy with two distinct sectors, one sector that is very
similar to the developed world in regards to trends, and another that is undeveloped but is
developing and following similar patterns as some emerging markets. (Farley, Hoenig, & Ismail,
2008) Furthermore, South Africa has many market segments that have not been understood or
tapped. (Farley, Hoenig, & Ismail, 2008) These segments are generally low-income and high-risk
yet have high growth potential. South African corporations are currently having to deal with
these segments due to their potential growth, global developments, and due to government
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initiatives. (Farley, Hoenig, & Ismail, 2008) This makes South Africa’s economy very unique
compared to that of most other nations.
Organizational Characteristics
The 6 Hofstede dimensions of organizational culture quite sufficiently explain the general
internal environment of South African businesses. South Africans tend to be results-oriented and
very open to Western ideas, as long as they “fit” in regards to South African business
expectations and goals, though they can also be very process-oriented at times due to there being
a high amount of respect for the rationalist approach in problem solving. (Foster, 2002) South
African businesses tend to have a loose amount of control, as there is oftentimes a lot of
forgiveness present for delays and unexpected events, as well as when things do not go as
planned. (Foster, 2002) Furthermore, there tends to be many interruptions in meetings, as
obligations with people and keeping up of relationships tend to be more highly prioritized than
tasks and schedules. (Foster, 2002) Additionally, due to how high of a priority relationships have
in South African businesses compared to tasks and schedules, South African businesses can be
seen as very employee-oriented, as opposed to work-oriented. (Foster, 2002) These particular
organizational traits common to South African businesses show how they tend to be very relaxed
and value their relationships with employees very highly.
The other Hofstede dimensions of organizational culture further explain the internal environment
of South African businesses. Employees of South African businesses tend to be very parochial-
oriented as opposed to professional-oriented due to a deep obligation embedded into the culture
to treat one’s company and co-workers with utmost respect; causing them to acknowledge the
company they work for when talking about their professional careers. (Foster, 2002) According
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to an article on South Africa in the Journal of African Business whereas a study was conducted
on various South African organizations, South African organizational culture was found to be
very open in regards to newcomers and public accessibility. (Farley, Hoenig, & Ismail, 2008)
This was shown via how statistical data on South Africa concluded that the country’s
organizations are very entrepreneurial and competitive as opposed to bureaucratic and
consensual. Located in Appendix H. (Farley, Hoenig, & Ismail, 2008) Furthermore, employees of
South Africa are very pragmatic as opposed to normative. (Foster, 2002) Rather than following
norms, South African organizations have a tendency to just do what fits in with their company,
as well as prioritize interpersonal relationships and results as opposed to tasks, schedules, and
how tasks are done, for they are known for being very opportunistic and have a tendency to just
do what fits their organization in a given situation. (Foster, 2002) South African organizations
have a very unique and complex organizational culture.
In the year 2000, researchers and professors from the Tuck School of Business of Darthmouth
College, Fox School of Business and Management of Temple University, and the School of
Economics and Business Sciences of the University of Witwatersrand, South Africa conducted a
study on South African businesses that utilized the “Modified competing Values Model of Firm
Performance” in order to compare South Africa organizations to those of various first world
countries.(see Appendix I) (Farley, Hoenig, & Ismail, 2008) This study utilized questionnaires
and interviews and was conducted in Johannesburg, South Africa. (Farley, Hoenig, & Ismail,
2008) It found that South Africa ranked the highest compared to Japan, the United States,
France, England, and Germany in competitiveness in its markets. (Farley, Hoenig, & Ismail,
2008) Also, compared to these countries, South Africa ranks high in entrepreneurship, low in
22
bureaucracy, and the lowest in regards to requiring official consent before making decisions.
(Farley, Hoenig, & Ismail, 2008) This shows how low South Africa is in regards to uncertainty
avoidance and power distance, making it a great country for new business ventures.
Motivation and Incentive Programs
South Africa is in a very unique position in regards to motivation and the meaning of work
within its workforce. With apartheid ending relatively recently, 1994, many of the people in
South Africa’s workforce grew up with apartheid being a major part of their lives. (Sully, 1993)
That said, a major part of apartheid was how the education system of South Africa as well as the
laws bred the Black majority for unskilled labor and the White minority for skilled labor. (Sully,
1993) The country is still recovering from apartheid, even enacting laws in order to speed up the
recovery, such as the Black Economic Empowerment law which gives all companies within the
country a quota as to how many Blacks they must hire so they cannot be partial to hiring
Caucasians. (Lob, 2013)
According to an analysis conducted by Doctor Preis Max Sully of Rhodes University, employees
and employers of South African businesses tend to see themselves as the vanguard of change and
development, and due to that, have a strong desire for a sense of identity and place. (Sully, 1993)
South Africans tend to follow cultural/religious responsibilities very closely, with many in the
middle and upper classes owning farmland in rural areas and being active farmers. (Sully, 1993)
Furthermore, people of the South African workforce tend to value work for its materialistic,
religious, moral, individualistic(personal fulfillment), and societal functions. (Sully, 1993) In
regards to the value of work, South Africans tend to see high valued work as that of being
associated with large returns, personal control and responsibility, high job security, and high
23
personal benefit, while low valued work as being controlled and dependent, having low security,
and benefiting another. (Sully, 1993) South Africans have a very Western view of the meaning
of work.
South African companies use many means in order to give incentive and to motivate their
employees. Many of these businesses use services such as that of Selftours, a corporate
incentives and events management company, in order to design their motivation programs.
(Selftours Corporate Incentives and Events Management, 2013) Additionally, these businesses
mainly utilize the Maslow theory of motivation in order to shape the incentive systems of
companies. (Selftours Corporate Incentives and Events Management, 2013) This theory states
that one cannot motivate someone but said motivation must come from within; though one can
supplement this via persuasion. (Selftours Corporate Incentives and Events Management, 2013)
That said, businesses in South Africa often use rewards, prizes, promotions, and company trips in
order to motivate their employees. (Selftours Corporate Incentives and Events Management,
2013)
Furthermore, according to a book on organizational behavior in South Africa, South African
businesses oftentimes focus on incentivizing improving performance and obtaining more skills.
(Robbins, 2009) The incentives are usually either monetary or intrinsic (via recognition through
awards such as “Employee of the Month” or just compliments). (Robbins, 2009) Monetary
incentives are usually distributed based on pay-per-performance. (Robbins, 2009) This is
checked either via merit-based performance appraisals, the amount of units of production one has
completed in a given time frame, the amount of skills one has, and/or via profit-sharing, in which
24
a percentage of a company’s profits are used for bonuses. (Robbins, 2009) Intrinsic employee
recognition plans in South Africa are all either spontaneous and private or organized and widely
publicized in which the procedures for gaining recognition are clearly documented. (Robbins,
2009) Employee recognition in South Africa varies a lot from company to company and is highly
dependent on the variations of organizational culture that each company exhibits.
Leadership
According to the GLOBE study, the South African leadership style can be seen as being in the
middle-ground compared to all other countries that were studied in regards to performance-
orientation, team-orientation, participative, autonomous, and self- or group- protectiveness.
(Hoppe, Culture and Leader Effectiveness: The GLOBE Study, 2007) The only category that
South African leaders score relatively high in would be in being humane. (Hoppe, Culture and
Leader Effectiveness: The GLOBE Study, 2007) The results of the study show that their leaders
are moderate in regards to inspiring people around a vision, having high standards, decisiveness,
innovation, instilling pride, loyalty, collaboration among organizational members, encouraging
input from others in decision-making and implementation, being independent, being
individualistic, being self-centric, and utilizing procedural, status-conscious and face-saving
behaviors. (Hoppe, Culture and Leader Effectiveness: The GLOBE Study, 2007) It also shows
that they tend to highly stress compassion and generosity, and have a tendency to be very
supportive, patient, and concerned with the well-being of others. (Hoppe, Culture and Leader
Effectiveness: The GLOBE Study, 2007)
Furthermore, the GLOBE study also split their statistics on South African preferred leadership
style by race. (See Appendix J) According to the study, both black and white South Africans tend
25
to prefer charismatic leaders, though whites tend to prefer them more so than blacks. (Hoppe &
Eckert, Leader Effectiveness and Culture: The GLOBE Study, 2012) This is also true in regards
to team-oriented leaders, participative leaders, and humane-oriented leaders. (Hoppe & Eckert,
Leader Effectiveness and Culture: The GLOBE Study, 2012) Additionally, according to the
study, it would seem that both blacks and whites of South Africa dislike having leaders who are
self-protective and autonomous, or individualistic. (Hoppe & Eckert, Leader Effectiveness and
Culture: The GLOBE Study, 2012) This ties in with how South African society, according to
Hofstede’s cultural dimensions, tends to be moderate in regards to power distance. (Farley,
Hoenig, & Ismail, 2008)
According to a study on South African managers and staff conducted by the business school of
the University of Witwatersrand, their common traits and expected traits are highly dependent on
demographics. (Lee, 2011) Black staff, as well as female staff, tend to prioritize competence in
regards to expectations of leaders. (Lee, 2011) This can be attributed to high barriers on these
groups in the past when attempting to enter leadership positions. (Lee, 2011) White, male
employees, as well as managers, tend to mainly prioritize honesty in leaders. (Lee, 2011)
Furthermore, Black managers tend to prioritize planning much less than white managers in South
Africa, and white managers tend to prioritize self-control and determination higher than black
managers. (Lee, 2011) Finally, between all demographics, being inspirational is a highly
expected character trait of leaders, though is second to honesty and competence. (Lee, 2011)
Demographics must be highly considered when analyzing South African views on leaders due to
each demographic having major differences in viewpoints.
26
In regards to the role of the manager in South Africa, according to the study mentioned in the
previous paragraph which was conducted by the business school of the University of
Witwatersrand; managers see their role as organizing their employees and resources in order to
complete short-term objectives. (Lee, 2011) They also see it as having the requirements of
inspiring employees and adapting their department to cope with the external environment. (Lee,
2011) Furthermore, they see their role as requiring forward-looking leadership and a high
strategic focus. (Lee, 2011) Additionally, managers are expected to conduct and guide meetings
in order to have ideas shared among managers and subordinates; as everyone is seen as important
in South African businesses and as having something to contribute. (Kwintessential, 2012)
Managers have a large role in South African businesses.
Decision-Making
Decision-making in South African companies, according to information mentioned in an article
in the Journal of African Business and information from The Global Etiquette Guide to Africa
and the Middle East, is highly decentralized. (Farley, Hoenig, & Ismail, 2008) This is due to how
employees of South Africa tend to be very risk-averse yet decision-makers tend to be very prone
to making risky decisions. (Foster, 2002) Given this, and how South Africa is low in regards to
power distance; decision-makers in South African organizations tend to request the opinions of
employees relevant to the situation before making decisions. (Farley, Hoenig, & Ismail, 2008)
(Foster, 2002) This is further explained via South African general culture and how embedded
into it is a culture featuring a high concern for individuals within one’s group; and due to this,
decisions makers are obligated to consult with subordinates before making decisions. (Foster,
2002)
27
Communication
Although South Africa features a plethora of languages, it is mainly English that is used in
business communications there. (CDA Media, 2012) During business communication, people are
mainly addressed on a first name basis, humor is very common and there is often a high amount
of tactility present. (CDA Media, 2012) Furthermore, white South Africans prefer plain-speaking
to overly diplomatic approaches, while black South Africans tend to follow somewhat opposite
practices. (CDA Media, 2012) Black South Africans tend to stress diplomacy in their
communications and oftentimes attempt to not disappoint listeners by disagreeing openly or
admitting that they do not know an answer to a question. (CDA Media, 2012) South African
business communications are for the most part very Western.
Employees in South African companies tend to have a lot of say in South African businesses.
Decision-makers in South African organizations have a tendency to consult subordinates before
making decisions. (Foster, 2002) This is mainly due to how decision makers in South Africa are
usually very bold and reckless, subordinates have a tendency to be very risk-averse, and a
concern for others in the group is always present. (Foster, 2002) Additionally, South African
communication, especially that of black South Africans, tends to be very high-context, with
metaphors often being used in communications as well as stories, codified phrases, analogies,
precedent, and nonverbal behavior. (Foster, 2002) This is caused by how highly they(black South
Africans) oftentimes prioritize relationships over tasks, which causes them to avoid
confrontation. (Foster, 2002) Business communications by white South Africans tend to be a bit
more low-context. (Foster, 2002) This can make communications in South Africa somewhat
complex and require quite a bit of adaptation.
28
Managerial Profile
Managers of South Africa tend to have a high amount of accumulated work experience and tend
to be very educated. They usually have at least 14 years of experience and at least a bachelor’s
degree. (Salary Survey in South Africa in General Manager, 2012) Also, as a remnant of
apartheid, most senior managers are white, though due to an influx of black professionals into
companies and the use of affirmative action programs which have been in part the cause of the
influx of black professionals, many middle managers are black. (CDA Media, 2012)
Furthermore, most managers, according to surveys conducted by Salary Explorer, are between
38 and 57 years old, with the younger managers usually in the technology industry and older
managers usually being in the engineering or architectural industries. (Salary Survey in South
Africa in General Manager, 2012) Additionally, depending on the amount of experience a
manager has, they can be in charge of between 5 to 56 people. (Salary Survey in South Africa in
General Manager, 2012) South African management is still under the aftereffects of apartheid,
though via affirmative action initiatives and the transition of the business environment there to
adapt to the global economy, it is likely to change in the future, as the ethnicity percentages in
management start to reflect the general population more.
Women in Management
South African women have historically been underrepresented in the decision making processes
of organizations. (Wells, 2006) That said, the number of women in government bodies and
private sector organizations has been steadily increasing due to affirmative action legislation
which utilizes quotas to bring in more people into organizations that are of underrepresented
demographics. (Wells, 2006) Furthermore, increasing numbers of women are entering into the
management ranks, though there is still a high discrepancy between men and women in private
29
sector organizations; and between the gender awareness rhetoric and legislation due to the
country’s history of deep-rooted racial inequality, this problem should eventually be resolved.
(Wells, 2006)
The amount of women in management positions in South Africa has been improving during post-
apartheid. In the past decade, an increasing number of young, black, inexperienced women have
found themselves in management positions at non-government development organizations.
(Wells, 2006) South African women are constantly faced with tension from anti-social change
rhetoric stemming from before the emancipation of apartheid in South Africa, and deep-rooted
cultural codes on appropriate behavior for men and women. (Wells, 2006) Still, the efforts of
South African women in regards to rising in company ranks and getting into leadership positions
has been high, and if it continues, gender inequality issues will continue to improve. (Wells,
2006)
Unique Features of South Africa’s Management System
Unique features of South Africa’s organizational management mainly have to do with the
demographics of management there, because of the effects of apartheid and the country’s diverse
population. First of all, due to apartheid, most managers, especially upper level managers, are
white (73.1%), though the government of the country is attempting to remedy this and balance
this out more via affirmative action initiatives that put quotas on the amount of blacks a company
must hire. (CDA Media, 2012) (Mail & Guardian, 2011) Over time, the races of managers in
South Africa may start to reflect more, the population of the country, which has a majority black
population and minority white population. (Foster, 2002) (Central Intelligence Agenct, 2013)
Furthermore, white and black managers tend to have some variations in their management styles
30
due to white managers utilizing a more European style and black managers utilizing a more
African style. (Foster, 2002) Also, due to apartheid, there are almost no, if any, female senior-
level managers in South Africa, and female employees tend to experience a lot of condescending
behavior from male employees. (Kwintessential, 2012) The unique features of South Africa’s
managerial diversity issues and variances may bring up many issues for companies planning on
doing business there in the future.
Conclusions and Recommendations
Culture Comparison
South Africa is very much like the U.S. in that it is comprised of many different cultures,
traditions, and ideals. Also like the U.S., it has hybrid cultures that take both traditional views
and at the same time mix more modern views. This mixture of many cultures brings a massive
diversity in tastes of food, music, and art. For Example, in addition to the country’s most
popular genre, jazz, South Africans enjoy listening to pop and rock music. Even though there is
still a vast amount of inequality, they are pushing towards become a more accepting culture just
like the U.S. has been doing since the mid-1900s. The cultural norm for women in South Africa
is mainly to take care of kids and the home, which is still also the norm for America even though
we are moving further away from it. Religion is another category where both countries are
comparable, seeing as both vastly accepts Christianity as the main faith. Hofstede’s dimensions
are also relatively similar showing yet even more proof that these cultures, yet very different in
wealth, are much more similar than many think.
31
A big difference that American’s might have to look out for is the much more accepted illicit
drug and crime rings throughout. Hardcore drugs like Nyaope can cause people to commit
insane crimes in order to get their hands on more and it usually doesn’t get stopped because of
the lack of any enforcement.
Management Comparison
Be aware of different races and be sure not to discriminate, intentionally or not. Even though
everything seems fine, there is still tension between different races in the business world since
the apartheid system of business was abolished. Also since companies have begun going more
private instead of public, structures of businesses throughout the country vary greatly unlike the
United States’ typical business structure. The post-apartheid management style made it much
more similar to the U.S. than in the past. It is the idea that managers should be in charge, but
also seek and advise from those working beneath them. When meeting with a company in South
Africa, managers should always keep in mind the recent history of the country and know what
type of company you are dealing with; Black or white managed. When a manager makes a team
in South Africa, he/she should be very sensitive of the tensions between different groups. This is
more than black or white because of the many different black cultures within the country. Black
managers are similar to Americans in communicating in that they do not want to hurt the other
person’s feelings, while white South Africans can often seem vague and uncommitted. Another
commonality is that both cultures use humor to diffuse a potentially heated moment. One
important thing to remember when talking is not to use formal titles, but instead just first names.
Good firm handshakes show that people can be trusted and you should not cower away. Even
though South Africa is attempting to make a move towards gender equality at the management
level, it is very rare to find a female senior manager. Because of this, American companies
32
might want to just send males into the meetings with companies that have local male managers to
avoid any possible issues. The dress code expected of management in South Africa is identical
to U.S. business attire so there doesn’t need to be any adjustments. After a business meeting it is
not unusual for local managers to offer to take you out to a restaurant or their home for many of
the delicious foods South Africa has to answer. They also have good beer and wine and drinking
with other fellow managers is almost expected when dining out, which makes conversation a lot
easier with someone you may have just met.
Cost-Benefit-Risk Analysis
Found in Appendix K.
ConclusionIn conclusion, we recommend doing business in South Africa. They have a lot of government
support for entrepreneurial ventures. The country has very similar cultural traits to Western
countries when compared using the Hofstede cultural dimensions as well as the Hofstede
organizational culture dimensions. The main issues that American countries would face there
would include the high corruption rate present there, the high crime rate, the high amount of
social unrest there, and the problems that may arise from the remnants of Apartheid.
Furthermore, it may be difficult to employ skilled labor there due to the high cost of higher
education in South Africa and affirmative action government initiatives that set quotas for how
much of each demographic each company must employ. Also, since Apartheid ended 20 years
ago there is much of the non-white population that is not educated. Overall though, we believe
the benefits outweigh the costs and risks due to the low cost of doing business in South Africa,
the low political risk present there, the high amount of government support to businesses there,
33
and the similarities it has to most Western countries. South Africa has increasing ties with the
European Union, so it can also be a market entry strategy.
Industry potential could include the mining, manufacturing, or technology sectors. If you could
introduce new mining technology into the country, companies may be able to own premium
market share because of massive platinum and gold deposits. Manufacturing will flourish
because of low-skilled labor cost and government incentives to internationalize such as tariff and
benefits. The tax-rate is lower than the U.S, so companies can participate in tax-advantage in
manufacturing. Technology sectors are also good sectors to internationalize in South Africa.
This sector is far behind the United States and you can gain first-mover advantage. The
government also includes large incentives in this sector as well.
The main way to ensure success with interactions with South African locals is to remember the
variance in cultures and styles between one’s host country and South Africa, as well as between
the different demographics of South Africa. English is the dominant language in business, so
Americans can enjoy not learning a foreign language. Americans may require some support in
getting used to the differences in culture compared to the United States, but for the most part,
they should be fine in the adaptation, as long as they know what to expect and familiarize
themselves with the business laws and customs there.
34
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Appendix
Appendix A: Government Structure in South Africa
Appendix B: Political Risk Assessments
39
Appendix D: GDP per Capita vs. African Nations and U.S.
US South Africa Botswana Nigeria0
10,000
20,000
30,000
40,000
50,000
60,000
GDP Per Capita
GDP Per Capita
Appendix E: GDP by SectorSector Agriculture Industry Services
Percentage of GDP 2.6 29.3 68.1
Appendix F: Murder and Rape per 100,000 vs. U.S.
Rape/100,000 Murder/100,0000
10
20
30
40
50
60
70
80
90
100
South AfricaUnited States
41
Appendix G: Hofestede’s Dimensions vs. U.S.
Power Distance Individualism Masculinity Uncertainty Avoidance
0
10
20
30
40
50
60
70
80
90
100
South AfricaUnited States
42
Appendix H: Analysis of Organization Variables
Figure 1 Source: Journal of African Business Vol. 9
Appendix I: Organizational Culture Chart ComparisonOrganizational Culture
TypesJapa
n
United
States
Franc
e
Englan
d
German
y
Mean of the 5
Countries
South
Africa
Buereaucratic 99.9 80.3 99.1 76.8 83.2 89.6 79.99
Competetive 103.3 112.5 93.7 116.3 89.4 104.4 100
Entrepreneurial 77.6 105.8 128.3 99.1 131.1 100.3 126.9
Consensual 119.3 101.4 78.9 107.6 96.2 105.8 92.4
43
Organizational
Climate27.2 26.9 26.3 26.7 26.5 26.8 28.6
Organizational
Innovation17.5 18.4 16.3 17.5 18.2 17 16.1
Market Orientation 32.5 34.8 32.1 33.1 36.9 33.4 36.3
Appendix J: Leadership Styles Based on Race Ideal South African Leadership Styles Based on Race (Globe Study)
Race
Charismati
c Team-Oriented Self-Protective Participative Humane-Oriented Autonomous
Blacks 5.16 5.23 3.63 5.05 4.79 3.94
Whites 5.99 5.8 3.2 5.62 5.33 3.74
Figure 2 Source: Globe Study
Appendix K: CBRA
44
45
Costs
High cost for higher education
Moderate Tax Rates
Affirmative action initiatives detrimenting the hiring process by limiting employment based
on skills and needs due to quota restrictions on hiring of
various demographics
High corruption rate requiring bribes
36% of work permits are obtained via bribes
14% Value Added Tax
Managers, especially black managers, tend to prioritize relationships over tasks and
schedules
BenefitsThe government helps out
foreign and domestic companies by offering fiscal and non-fiscal
assistance
High Diversity
Hostede's dimensions are similar to the United States
except for individualism
Both the US and South Africa are predominantly Christian
Main language in businesses is English
Government gives a lot of grants to businesses
Low to medium political risk
Moderate corporate and personal income taxes that are similar to those of the
United States
Very open and casual organizational culture
Expanding welfare program giving free money
Richest Country in Africa (one of the BRICS countries)
Very entrepreneurial culture with a very open
organizational climate
There is already a high amount of multinational competition
in South Africa
Organizational culture is very open to Western ideas
RisksLarge amounts of low skilled
labor
High unemployment
Moderate Amount of Labor unions
High social unrest
High crime rates
High corruption
The African National Party has a high amount of influence on the legislative and executive branches of the government
South Africa's apartheid past still has an influence on many people's beliefs regards the roles of different races and
genders in society
Managers tend to be individualistic while
employees tend to be collectivistic
Low primary school education standards