© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007 1 BA 804: Lecture 2 Country Factors.
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Transcript of © Ram Mudambi, Temple Univ. and Univ. of Reading, 2007 1 BA 804: Lecture 2 Country Factors.
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
1
BA 804: Lecture 2Country Factors
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Learning Outcomes Develop a formal structure within
which to understand country differences
Relate country differences to practical issues in managing in multiple national environments
Relate country differences to ethical management
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Lecture Outline Institutional transition Political Systems Economic and legal systems Geography and education Culture: The Hofstede scores The spread of democracy and market
systems Two views of the future Conclusions?
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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The Impact of Privatization*% of Firms
withPerformanceImprovement
PROFITABILITYReturn on SalesEFFICIENCYReal Sales per EmployeeINVESTMENTCapital Expend. ÷ SalesOUTPUTReal Sales (adj. by CPI )TOTALEMPLOYMENTLEVERAGEDebt ÷ by Total AssetsDIVIDENDSDividends ÷ by Sales
75.60%
57.80%
63.10%
76.10%
Measure
62.80%
80.40%
62.50%
* Boubakri and Cosset, Journal of Finance, 1998 Earle, Employment Research, 2006
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Another Impact of Privatization
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Political Systems“The System of Government in a Nation”
Democratic
Totalitarian
Individualism
Collectivism
• Representation of thePeople
• Control of the People
• Values the individual over the group
• Values the groupover the individual
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Political SystemsMore freedom
Less freedom
Less order
Moreorder
• Individualism• Libertarianism
• Collectivism• Consensus
• Democracy• Delegation of power
• Totalitarianism• Concentration of power
Philosophyof John Locke
Philosophyof Thomas Hobbes
• Anarchy• ‘State of nature’
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Collectivism and Individualism
Collectivism – importance of equity Big government – welfare state, social capital Socialism
• Communists; Social Democrats
Individualism – importance of incentives Small government – the ‘night watchman’ state Private property Guarantee individual freedom and expression People free pursue economic self-interest
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Democracy and Totalitarianism Democracy
Representation (PR systems) vs. stability (PL systems)
Government by people exercised directly or through elected representatives.
Totalitarianism Control exercised over all spheres of human life Opposing views are prohibited Ideology-based – e.g., communism, theocracy Personality-based – e.g., dictatorship Organization-based – e.g., military junta
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Democracy
Representative Democracy Freedoms
• expression, opinion, organization
• media
• regular elections with universal suffrage
• limited terms for elected representatives
• fair and independent judiciary
• bureaucracy, police force and armed services controlled by elected representatives
• relatively free access to state information
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Economic Systems
Market Mixed Command
State-Directed
HK US UK Germany PR China
Greater importance for individualism
Greater importance for collectivism
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Political vs. Economic SystemsMarkets
Polity
FREE
RESTRICTIVE
FREERESTRICTIVE
The US The UK
GhanaN.Korea
India
Hong Kong
PR China
GermanyCzech Rep
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Legal Systems
Rules that regulate behavior (LawsLaws) Processes through which laws are enforced & grievances are redressed (EnforcementEnforcement)
An MNC needs to observe Home country laws Host country laws International laws and treaties
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Three main legal systems Common law – tradition, precedent, custom
English Common Law Anglo-Saxon systems
Civil law – detailed codes Descends from Roman Law Most systems in mainland Europe
Theocratic law – religious teachings Islamic legal systems Mainly in the Middle East
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Issues important to international business
Property rights including intellectual property Patent policies:
• Length, breadth, height
Enforcement issues
Product Safety and Product Liability
A bundle of legal rights over A bundle of legal rights over
the use to which a resource is the use to which a resource is
put and over the use made of put and over the use made of
any income from that any income from that resourceresource
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Violation of Property Rights
Property rights can be violated through public action, e.g., government
legislation private action, e.g., theft, piracy corruption
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Regional piracy rates for softwarePrivate action
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Finland
CountryCPI 2003
scoreStandard deviation
Finland 9.7 0.3
New Zealand 9.5 0.2
Singapore 9.4 0.1
Canada 8.7 0.9
United Kingdom 8.7 0.5
Hong Kong 8 1.1
USA 7.5 1.2
I srael 7 1.2
Japan 7 1.1
France 6.9 1.1
Slovenia 5.9 1.2
Botswana 5.7 0.9
Taiwan 5.7 1
Malaysia 5.2 1.1
United Arab Emirates 5.2 0.5
Cuba 4.6 1
Saudi Arabia 4.5 2
South Africa 4.4 0.6
Greece 4.3 0.8
South Korea 4.3 1
Colombia 3.7 0.5
Mexico 3.6 0.6
China 3.4 1
Ghana 3.3 0.9
Palestine 3 1.2
India 2.8 0.4Russia 2.7 0.8Pakistan 2.5 0.9Vietnam 2.4 0.8Indonesia 1.9 0.5Haiti 1.5 0.6Nigeria 1.4 0.4Bangladesh 1.3 0.7
*
* Source: Transparency International
CO
RR
UP
TIO
N
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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CORRUPTION
0
0.5
1
1.5
2
2.5
1 3 5 7 9
T.I. SCORE
Std
.De
v.o
f S
co
re
Saudi Arabia
Palestine
South AfricaIndia
Singapore
FinlandU.A.E.
Source: Transparency International
CORRUPTION – EXTENT vs. ARBITRARINESS
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Secondary analysis of corruption data
• Countries with a high Globalization Index (levels of cross-national economic, social and technological integration, are also the least corrupt. (A.T.Kearney/Foreign Policy, 2000)• Corruption reduces the benefits of globalization while raising its risk elements (Wei, 2000).• The benefits of globalization accrue to those countries that are least tolerant of corruption.• Neither study supported the position that increases in corruption may be due to increased globalization.
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Other Determinants of Development: Geography and Education
“Throughout history, coastal states, with their long engagements in international trade, have been more supportive of market institutions than landlocked states, which have tended to organize themselves as hierarchical (and often military) societies. Mountainous states, as a result of physical isolation, have often neglected market-based trade. Temperate climes have generally supported higher densities of population and thus a more extensive division of labor than tropical regions.”
- Jeffrey Sachs-
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Geography and Education
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Success Story – Singapore
Population: 2.8 million Literacy rate: 91.1% GDP ($B): 83 Per Capita GDP: $26,294 Strategic location: Malacca Straits World’s second busiest port: cargo tonnage Average GDP growth over 25 years: 8%
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Culture
“A system of values and norms that are shared among a group of people and that when taken together constitute a design for living.”
• Hofstede, Namenwirth and Weber
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Determinants of culture
Social structure Religion Language Education Economic philosophy Political philosophy
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Caste and ClassSocial mobility
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Power Distance Index
0
20
40
60
80
100
Malaysia ArabNations
France USA UKMexico India Japan AustraliaGermany
More HierarchicalMore Hierarchical Less HierarchicalLess HierarchicalPrefer more participative mgmtPrefer less participative mgmt
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Uncertainty Avoidance Index
0
20
40
60
80
100Ja
pan
Fra
nce
Me
xico
Ara
b N
atio
ns
Ge
rma
ny
US
A
Indi
a
G.
Bri
tain
Sw
ede
n
Risk TakersRisk TakersRisk AvoidersRisk AvoidersPrefer work rules spelled out Prefer implicit work rules
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Individualism Index
0
20
40
60
80
100U
SA
G.
Bri
tain
Fra
nce
Ge
rma
ny
Indi
a
Japa
n
Ara
bN
atio
ns
Me
xico
IndividualistIndividualist CollectivistCollectivist
Prefer individual responsibility Prefer collective responsibility
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Masculinity Index
0
20
40
60
80
100
Japa
n
Me
xico
G.B
rita
in
Ge
rma
ny
US
A
Indi
a
Ara
b N
atio
ns
Fra
nce
Sw
ede
n
MasculineMasculine FeminineFeminine
Value achievement,Abhor failure
Value affiliation,Interpersonal relationships
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Hofstede - Caution!
Assumes one-to-one relationship between culture and the nation-state.
The research may have been culturally bound.
Survey respondents were from a single industry (computer) and a single company (IBM).
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Cultural Change Culture is not a constant;
it evolves over time.
Japan, today, as it moves toward greater individualism in the workplace.
USA since the 1960s -values regarding the role of women changed.
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Institutional transition – political and economic
Worldwide, there has been a spread of democracy and market systems
Totalitarian regimes and state controlled economies failed to deliver economic progress
New information technologies (internet) restricted a state’s ability to control information.
Emergence of prosperous middle class demanding democratic / economic reforms.
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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The end of country factors?
“we may be witnessing…the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.”
- Francis Fukuyama -
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Country factors develop over hundreds of years and do not
easily change
There is no “universal” civilization based on widespread acceptance of Western liberal democratic ideals.
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Takeaways – 1 Political, economic and legal institutions
vary dramatically across countries These differences are rooted in history
Over the last two decades, political and economic institutions have been changing rapidly dramatic effects on the levels of prosperity in
different countries affected their attractiveness as places for doing
business
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Takeaways – 2
Country cultural differences make their integration into the modern global economy more or less smooth Fukuyama vs. Huntington Asian Tigers vs. the Middle East
Political risk; Economic risk; Legal risk
© Ram Mudambi, Temple Univ. and Univ. of Reading, 2007
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Takeaways – 3
Country cultural differences influence effective management practices
• HR organization
• Incentive design