© 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


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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


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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?


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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


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Another Impact of Privatization


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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


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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’


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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


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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


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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


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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


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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


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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


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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


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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


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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


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Regional piracy rates for softwarePrivate action


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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


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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


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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.


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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-


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Geography and Education


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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%


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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


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Determinants of culture

Social structure Religion Language Education Economic philosophy Political philosophy


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Caste and ClassSocial mobility


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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


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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


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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


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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


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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).


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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.


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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.


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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 -


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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.


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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


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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


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Takeaways – 3

Country cultural differences influence effective management practices

• HR organization

• Incentive design

© 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.