THE IMPACT OF CULTURE

International Business

PRESENTATIONS FROM

G09 AND G10

Culture

International Business

1st of February 2010

INTERPRETING AND RESPONDING TO

STRATEGIC ISSUES:

THE IMPACT OF NATIONAL CULTURE

Summary by Rakel Ármannsdóttir

INTRODUCTION

Article written by Susan C. Schneider and

Arnoud Meyer.

Published in the Strategic management Journal

in May

Attempt to explore the impact of national culture

on interpreting and responding to strategic issue.

4

PERCEPTION, INTERPRETATION AND RESPONSE

Strategic issues are environmental events that

may have an important impact on organizational

performance.

Assessments are often influenced by subjective

perceptions and interpretation.

Perception of environmental

threats/opportunities influences how managers

choose to respond to issues.

5

MODEL OF PERCEPTION, INTERPRETATION AND

RESPONSE

6

METHOD

303 subjects representing 16 countries

Executives and MBA students

Questionnaires and case discussion.

5 country clusters

Demographic data did not differ significantly

across cultures, except for the Anglo cluster.

7

HYPOTHESIS

Hypothesis 1: National culture will influence the

interpretation and respond to strategic issues.

Supported.

Hypothesis 2: Relative to other managers, Latin

European managers will interpret strategic issues

as threats. Partially supported.

Hypothesis 3: Relative to other managers, Latin

European mangers will choose strategic responses

that are of greater magnitude and more internally

focused. Partially supported.

CONCLUSION

The study demonstrates that national culture

will influence interpretations and respond to

strategic issues.

Although cultural differences were found in

interpreting and responding to strategic issues,

the underlying reasons for this remain unknown

9

ICELANDIC COMPANY AND FINAL PROJECT

Useful for all Icelandic companies, as the

knowledge can provide competitive advantages in

facing international competitors and in

cooperating with international partners in the

global arena.

10

ARE STRATEGIST FROM MARS AND

ETHICS FROM VENUS?

MICHAEL BEHNAM AND ANDREAS

RASCHE

Summary by Wolfgang Hering

INTRODUCTION

What is strategy?

Strategy content-ethics: principal-agent theory

Strategy context-ethics: enviromental economics

Strategy process-ethics:

What do we want to archieve?

Similarities: strategy process – ethical reflection

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STRATEGY PROCESS VS. ETHICAL

REFLECTION

EXPLORING FORMAL SIMILARITIES

Orientation towards action principle

Normative character

Clear advise for action

Individual and environmental factors

Changing environmental factors

Exploring functional similarities

Certainty-enhancing structure

Integrating character

EXPLORING PROCEDUAL SIMILARITIES

MANAGERIAL IMPLICATIONS

Intensify connection between strategy and ethics

management in company structure

Broaden perspective of strategist and ethic

managers

Strong strategic identity offers strong possibilies

in ethic orientation

Chances to act in moral upright way

LONG – VS. SHORT-TERM PERFORMANCE

OF WESTERN EUROPEAN, JAPANESE AND

US COUNTRIES: WHERE DO THEY LIE?

Summary by Andrea Abbate

INTRODUCTION

Article written byRobert M. Peterson, C. Clay

Dibrell and Timothy L.

Published in Journal of World Business in winter

2002.

Subject of the article: examining the differences

between Eastern and Western companies

Focus: long- vs short-term orientation

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MAIN FEATURES

CULTURE AND BUSINESS

The principal motivation to be short- or long-

sighted comes from the national culture

U.S. companies are extremely short-sighted, the

Japanese are long-sighted and in Western

Europe there's not a main trend

UPPER ECHELON THEORY

It's based upon a top management team forming

cognitive maps or mental guides based upon past

personal and work experience

Their experiences are influenced by the

managers' country of origin, that's why is

common to find management team extremely

homogeneous

THE STUDY

Were chosen two global industry: chemical and

transportation, in the period 1986-1995

The industries were categorized basing upon

their country of origin

Measures adopted: for long-term results is

RDINT that is R&D divided by company sales

and for short-term results are return of assets

(ROA) and return of investment (ROI)

RESULTS CHEMICAL INDUSTRY

RESULTS TRANSPORTATION INDUSTRY

CONCLUSION

The Western Europe tends to finish with the

highest means in nearly all of the long- and

short-term measurements in the study.

One explanation is that the institutional forces of

a particular nation can interfere with market

forces and thus, skew data results.

25

THE PSYCHIC DISTANCE PARADOX

Summary by Signý Hermannsdóttir

INTRODUCTION

Article written by Shawna O'Grady and Henry W. Lane

Published in Journal of International Business Studies in

1996

Purpose of article is to analyze the concept of psychic

distance and add to the existing literature

The authors introduce a term they call The psychic

distance paradox

PSYCHIC DISTANCE

“A firm's degree of uncertainty about a foreign market

resulting from cultural differences and other business

difficulties that present barriers to learning about the

market and operating there”

Firms often choose psychically close markets to gain

organizational learning and experience before entering

distant markets

THE PSYCHIC DISTANCE PARADOX

Perceived similarity can cause decision makers to fail

because they do not prepare for the differences

Even in close countries, there may be significant cultural

differences that can affect the ability of managers to

conduct business

Relying only on low psychic distance can result in poor

performance and even failure

The failure lies in the managerial decision-making of the

internationalization process

THE STUDY

Canadian retail companies that had entered the United

States

Phase 1:

Clinical study, 10 Canadian managers asked about their

decision making when entering the US

Literature research comparing the two cultures

Phase 2:

Questionnaire, Canadian/US companies: To discover if the

findings from Phase 1 could be generalized

ICELANDIC COMPANY AND FINAL PROJECT

Icelandic company?

Useful for Icelandic companies that want to start the

internationalization process

Knitting Iceland: Instead of assuming that markets are

similar because they are close, they could focus on the

differences to avoid pitfalls when entering

PSYCHIC DISTANCE, PSYCHIC DISTANCE

PARADOX AND BEHAVIORAL ECONOMICS:

MODELING ENTRY BEHAVIOR IN FOREIGN

MARKETS

Summary by Sigurður Jón Björnsson

ARTICLE

Written by Hamid Hosseini

Published in December 2008 by The Journal of Socio-Economics

Can be found online at: http://econpapers.repec.org/article/eeesoceco/v_3a37_3ay_3a2008_3ai_3a3_3ap_3a939-948.htm

Subject of the article; Modeling MNC (multinationals) entry behavior in foreign markets.

THE CONCEPT OF PSYCHIC DISTANCE - HISTORY

In the article Mr Hosseini gives us a historical discussion on the concept of psychic distance and psychic distance paradox

The concept Psychic distance was initially utilized in 1956

Suggesting that psychically close countries should improve company‟s chances of successes in these markets

THE FACTORS

The factors affecting the decisions of the MNC choosing the next export market or entry mode according to most of those who have been discussing the matter since 1956 are in terms of cultural, business and political differences. i.e.

differences in language

political and legal systems

trade practice

industry structure

level of education

level of industrial development, etc.

BEHAVIORAL ECONOMICS

The behavioral economics tries to make economic

theory consistent with the accumulated body of

knowledge in all social and behavioral science,

taking into account:

sociology

organization theory,

decision science,

and in particular psychology.

In behavioral economics the non-economic

variables are of importance.

Mr. Hosseini´s CONCLUSION

MNC´s decisions about their international projects cannot be made on the basis of psychic distance alone

the existence of the psychic distance paradox suggest that MNC´s decision makers must go beyond psychic distance in deciding about their international projects

He argues that the newly developed field of behavioral economics is capable of explaining the MNC decision while taking into account both the psychic distance, and the psychic distance paradox

Utilizing the behavioral economics based model which was initially suggested by Heiner, we are able to explain all of the above at the same time. This suggests that behavioral economics can be an integral component of the tools used by international business

EXAMPLE OF AN ICELANDIC

COMPANY – Psychic distance paradox

Dominos Pizza Iceland

Venture capital backed Icelandic franchise from DPI with license to open Dominos Pizza bakeries in Scandinavia.

Success in Iceland gaining about 80% market share and strong cash flow. Number one stores in the world

In 1999 decision taken to grow into the market the investors thought they knew the Danish market. Same owners as Dominos Pizza Iceland.

Decision based on market research. Managing director based in Denmark to prepare for 6 - 9 months selecting locations and recruiting key personnel.

Lessons learned

Consumers in Denmark say they take quality over price and do not act accordingly

Community and individual rights are much higher than company's, specially foreign companies rights

Danish people are not looking for American brands they rather buy cheap pizza on the corner “Mamas Papas”.

Employee´s are not willing to take the companies needs over their own. No flexibility in work forece

Labor unions act like gorillas and threaten to put glass in your production if you do no join the union

Icelandic investors pulled out after opening 8 stores and huge losses, taken the debt over by the Icelandic operation and giving the operation to the management

Relationship between the articles

In his article Mr. Hosseini adds to the theory of

psychic distance, and psychic distance paradox

that by adding “behavioral economics” function

into the decision model MNC´s can strengthen

the decision when MNC plan to enter an foreign

market.

Close neighbours and distant friends –

perceptions of cultural distance

Authors:

Malcom Chapman, Hanna Gajewska-De Mattos,

Jeremy Glegg and Peter Jennings Buckley

Published: January 2008

Svanhildur Ásta Kristjánsdóttir

CULTURAL DISTANCE

Should be considered as relative not absolute

Be on bilateral basis

Primarily inspired by Geert Hofstede

Different meaning to:

Culture and induvidual

Cultural value and individual perceptions

Main focus is on individual perception

RESEARCH METHOD

German/Poland vs. UK/Poland

History matters

12 companies in Germany, the UK and Poland

63 face-to-face in depth interviews, initially with

general manager from each of the companies

CONCLUSION

Some issues similiar to Hofstede´s dimensions

German/Poland realationship: Distant past

Deep roots

Less facility to change

The UK/Poland: Some similarity to the Germans and the Poles

Less strongly marked

Less strongly insisted upon

Less complex

Incomplete understanding of the cultural

distance concept

CLOSE NEIGHBOURS – DISTANT FRIENDS

Relationship between Danish and Icelanders

History does matter

Cultual distance

SUPPORT TO THE FINAL PROJECT

IMR was founded in 2001

It provides knowledge on meteorology and

climatological issues

Focus research and development in atmospheric

sciences

IMR is embarking on marketing its services and

core competences in commercial applications on a

wider market

Thanks

The Uppsala model internationalization process model revisited: From liability of foreignness to liability of outsidership

Summary by Brynhildur Lilja Björnsdóttir

INTRODUCTION

Article written by Jan Johanson and Jan–Erik

Vahlne

Published in Journal of International Business

Studies in May 2009

The Uppsala internationalization model is

revisited in the light of changes in business

practices and theoretical advances that have

been made since 1977

Not a meta analysis but rather...

...a collection of research that support the

Uppsala model

THE ORIGINAL UPPSALA MODEL

Empirical observation

How companies go to new markets

Foreign market close to domestic market in

terms of psychic distance

Intermediaries – agents

Sales organizations

Own manufacturing in foreign markets

Model of rational internationalization

REVISITED UPPSALA MODEL

Importance of networks

Experience of executives

Existing business relationships

Developing opportunities

The model should be equally applicable to large

and small firms

THE DIFFERENCE

CONCLUSIONS

Clear evidence of the importance of networks in

the internationalization of firms

The concept of relationship

Emotional dimensions should be explicit

The neglect of opportunities in experiential

learning

ICELANDIC COMPANIES

Capacent

Operations in Iceland, Denmark, Sweden, Finland &

Norway

Just opened in Vietnam

Experienced workers

Future: a Ghostbuster in W-Europe

Varma (Blik by Varma design)

Varma exports other products to Canada, Germany,

Denmark, Norway, Sweden & Faroe Island

Wants to export the new collection to Canada

Little experience – little knowledge of the Canadian market

Future: needs to sell the collection abroad – a lot of money

has been invested in the collection

DOES PSYCHIC DISTANCE

MODERATE THE MARKET SIZE-

ENTRY SEQUENCE

RELATIONSHIP?

BY PAUL D. ELLIS (2008) JOURNAL OF INTERNATIONAL BUSINESS

STUDIES, 39(3), 351-369.

Summary by Jessica Bowe

March 8, 2010

DEFINITIONS

Internationalization process of the firm

The set of decisions that alter both the location

and the mode of control of an organization‟s

international production and marketing

activities. (Ellis, 2008)

Psychic distance

Factors preventing or disturbing flows of

information between firm and market.

(Johanson and Wiedersheim 1975)

FME

Foreign Market Entry

INTERNATIONALIZATION &

PSYCHIC DISTANCE

Two most popular “camps” of

internationalization research: Neoclassical economics

FME emphasis is on market opportunities (i.e.

size of market) and return-on-investment (e.g.

OLI Paradigm)

Uncertainty-avoidance*

FME will be constrained by costs resulting from

uncertainties due to culture or psychic distance

(e.g. Uppsala Model)

*most scholars in the 2nd camp believe psychic distance is the

key driver in a firm’s internationalization process.

HYPOTHESIS

H1: Psychic distance moderates the relationship

between market size and FME sequence.

H2: The ability to detect the moderating effect of

psychic distance will be context dependent, as

follows:

H2(a): seller-initiated exports – larger effect

H2(b): non-seller-initiated exports – weaker

effect

H3: The moderating effect of psychic distance

will be stronger for early FMEs than for later

FMEs

METHODOLOGY

Sample of Chinese exporters; 316 questionnaires

Managers asked to rate psychic distance from

home market out of list of 55 markets

rating of 1 – 100, with China being „1‟

Final database contained information on 924

FMEs from 302 firms

Included export histories, dates of entries,

markets, type of initiations (i.e. seller or buyer-

initiated), control modes, etc.

Results calculated using moderated regression

analysis on the database and other statistical

methods to measure effects of psychic distance

RESULTS

Psychic Distance is…

not the key driver in export-specific FMEs

but rather acts as moderator; market size is

still crucial determinant for exporters (H1)

less influential in importers; exporters and

importers view psychic distance differently –

importers focused on service/price (H2 a/b)

a stronger factor early in the FME process

but gradually diminishes after managers

gain experience and confidence (H3)

CONCLUSION

According to this study…

Exporters are entrepreneurial in nature and

are driven primarily by market opportunities

Psychic Distance is used as a moderator to weigh

the benefits against the costs of entry

This study is not “one-size-fits-all”

it should not be used as an explanation of all types

of FMEs (i.e. acquisitions, greenfields, etc.)

Research on Psychic Distance tends to be

“Eurocentric”

the author stresses the need for more research in

regions beside Europe & N. America

APPLYING THEORY TO

FINAL PROJECT

Internetid.is

Product = SmartDVD touchscreen system for DVD rentals in Iceland

Foreign expansion plans:

Entering the book market in the UK Size of UK book market in 2008 was $ 5.2 billion

(Data Monitor, 2009)

Big differences in retail markets & consumer demographics between UK & Iceland (e.g. internet usage, socioeconomic classes,

commuter culture, population, etc.)

Ways to mitigate Psychic Distance issues market research, UK-based consultant, & pilot

locations

QUESTIONS?

A new framework in the quest for cultural

understanding using Australia, Thailand and

Japan as an example

Summary by Rakel Óskarsdóttir

8. Mars 2010.

INTRODUCTION

Article is written by Robert J. Keating and Neil

R. Abramson.

Published in International Journal of Business in

June 2009.

The purpose of this article, to answer the calls in

the International Business literature for research

to further understand the role of culture in cross-

cultural business.

How? By building a framework using

Temperament Theory and Derrida´s

Deconstruction Method.

PART I: THE TEMPERAMENT THEORY-KTSII

The theory is a variant of the Myers-Briggs Type

Indicator (MBTI) that measures personality type.

Introvert(I)-extravert(E), intuiting(N)-sensing(S),

feeling(F)-thinking(T) and perceiving(P)-judging(J).

David Keirsey named the temperaments, or

leadership styles, Artisans, Guardians,

Idealists and Rationalists.

Understanding our temperament pattern is

important.

LEADERSHIP STYLES

Artisans: (SP‟s – ISTP, ESTP, ISFP & ESFP)

Guardians: (SJ‟s – ISTJ, ISFJ, ESTJ & ESFJ)

Idealists: (NF‟s – INFJ, INFP, ENFJ & ENFP)

Rationalists: (NT‟s – INTJ, INTP, ENTJ & ENTP)

Part II: Derrida Deconstructionist Method

The method recommends an analysis of the

“difference-to-oneself” within each culture.

AN EMPIRICAL EXAMPLE USING

THE NEW FRAMWORK

Australian, Thai and Japanese undergraduate

business students were used as proxies for actual

managers.

The sample size was 48 Australian, 64 Japanese

and 44 Thai students.

Results:

Keirey Results:

Artisan Rational Guardian Idealist

Australia 5% 43% 48% 4%

Japan 29% 28% 30% 13%

Thailand 8% 9% 78% 5%

RESULTS:

Derrida Analysis:

Thai have only one dominant style

Australians have two dominant syles which could be

a problem.

Japan have three co-dominant styles.

Australia versus Thailand:

Guardian predictable and easy negotiating

Rational very strategically oriented

Australia versus Japan:

Artisan deal with concrete problems, is practical and

good in negotiations.

For Guardians deadlines are important and can

easily get impatient.

THE ARTICLE AND ICELAND

The failure of the Icelandic business vikings?

What could be learn?

Study the new markets and business partners

Find out how to apprach

Be patent....

QUESTIONS?

Thanks!

THE IMPACT OF NATIONAL CULTURE

AND COMMUNICATION ON EXPORTER-

DISTRIBUTOR RELATIONS AND ON

EXPORT PERFORMANCEBY ERIK B.NES, CARL ARTHUR SOLBERG AND RAGNHILD SILKOSET

Summary by Sólrún Björk Guðmundsdóttir

March 8, 2010

INTRODUCTION

Article by Erik B. Nes, Carl Arthur Solberg and

Ragnhild Silkoset

Published in International Business Review in

2007

A study that explores the impact of cultural

differences

Developed a model that incorporates the effects of

cultural distance and commitment

THE FACTORS THAT INFLUENCE

ORGANIZATIONAL PERFORMANCE

Cultural distance

Trust

Communication

Commitment

Outcomes of relationship

commitment: performance

THE MODEL

HYPOTHESIS

H1. The degree of cultural distance between the exporting and the

importing nations negatively affects the exporter‟s trust in its local

foreign middleman.

H2. The cultural distance between the exporting and importing

nations negatively affects the communication between the exporter

and its local foreign middleman.

H3. Communication between the exporter and its local foreign

middleman affects positively the trust in this middleman by the

exporter.

H4. Communication between the exporter and its local foreign

middleman affects positively the commitment of the exporter to this

middleman.

H5. The trust that the exporter feels towards its foreign middleman

is positively related to the degree of commitment that the exporter

feels towards its foreign middleman.

H6. Exporter commitment to the local foreign middleman affects

positively the perceived financial performance in that market.

METHODOLOGY

Data collected by 161 groups of 3 third

year business students

Sample of Norwegian export firms

situated in 13 different regions across

Norway

Out of 161 interviews 41 were

disregarded

In all 169 cases of indipendent entry

modes

RESULTS

All of the six hypotheses were supported

statistically

CONCLUSION

The study confirms that national cultural

distance, may impact relations in a

negative way through decreased trust and

communication, and that national cultural

distance influence communication and

trust.

Two-way communication has a key role in

international marketing.

The findings should lead managers within

international marketing to consciously

work to improve and strengthen the

commitment with their relationship

partners.

AN ICELANDIC COMPANY

A large Icelandic pharmaceutical

wholesale company

The company has many foreign suppliers

Was having difficulties getting shipments

from its suppliers to Iceland

The suppliers which they had a strong

relationship with , were the ones that

granted them extended payment terms

and shipped the orders to Iceland.

CULTURE AND INTERNATIONAL

BUSINESS: RECENT ADVANCES AND

THEIR IMPLICATIONS FOR FUTURE

RESEARCH

Summary by Þyrí Dröfn Konráðsdóttir, G12.

INTRODUCTION

Article written by Kwok Leung, Rabi S

Bhagat, Nancy R Buchan, Miriam Erez

and Cristina B Gibson.

Published in Journal of International

Business Studies in February 2005.

Subject of article: State – of –art review of

several innovative advances in culture

and international business to stimulate

new avenues for future research.

OBJECTIVES

1. Cultural convergence and divergence

2. Cultural changes

3. Novel constructs of culture

4. Experimental approaches to the study

of culture

1. CULTURAL CONVERGENCE

AND DIVERGENCE

Joint ventures, international mergers

and acquisitions.

Technology

2. CULTURAL CHANGES

Culture changes slowly

Multi-level approach

3. NOVEL CONSTRUCTS OF

CULTURE

Hofstedes dimensions

Research by Leung on employees in joint

ventures in China

Culture differences are something that is

not possible to overcome

4. EXPERIMENTAL APPROACHES

It becomes easier to define individuals,

groups and etc.

When broadening the understanding of

culture both approaches and researches

highlight the comprehension of the

manifestations of culture such as

education, political systems and methods of

economic exchange.

EXAMPLES OF ICELANDIC

FIRMS

Marel and Össur

Consider culture

In country of entrance

Company they are combining with

THANK YOU