138 Part 2 The Cultural Environment of Global Markets performance and, consequently, better corporate performance. In fact, recent research has shown how Adam Smith’s ideas actually complement and improve modern international business theory and practice, centuries later.13 However, managers and policymakers in other cultures often do not share this “greed is good” view. Cooperation is more salient, and efficiencies are attained through reduced transaction costs. These latter views are more prevalent in collectivistic cultures such as China and Japan. Management Styles around the World14 Because of the diverse structures, management values, and behaviors encountered in international business, there is considerable variation in the ways business is conducted.15 No matter how thoroughly prepared a marketer may be when approaching a foreign market, a certain amount of cultural shock occurs when differences in the contact level, communications emphasis, tempo, and formality of foreign businesses are encountered. Ethical standards differ substantially across cultures, as do rituals such as sales interactions and negotiations. In most countries, the foreign trader is also likely to encounter a fairly high degree of government involvement. Among the four dimensions of Hofstede’s cultural values discussed in Chapter 4, the Individualism/Collectivism Index (IDV) and Power Distance Index (PDI) are especially relevant in examining methods of doing business cross-culturally. LO2 How and why management styles vary around the world Business size, ownership, public accountability, and cultural values that determine the prominence of status and position (PDI) combine to influence the authority structure of business. In high-PDI countries such as Mexico and Malaysia, understanding the rank and status of clients and business partners is much more important than in more egalitarian (low-PDI) societies such as Denmark and Israel. In high-PDI countries, subordinates are not likely to contradict bosses, but in low-PDI countries, they often do. Although the interna-tional businessperson is confronted with a variety of authority patterns that can complicate decision making in the global environment, most are a variation of three typical patterns: top-level management decisions, decentralized decisions, and committee or group decisions. Top-level management decision making is generally found in situations in which fam-ily or close ownership16 gives absolute control to owners and businesses are small enough to allow such centralized decision making. In many European businesses, such as those in France, decision-making authority is guarded jealously by a few at the top who exercise tight control. In other countries, such as Mexico and Venezuela, where a semifeudal, land-equals-power heritage exists, management styles are characterized as autocratic and paternalistic. Decision-making participation by middle management tends to be deemphasized; dominant family members make decisions that tend to please the family members more than to increase productivity. This description is also true for government-owned companies in which profes-sional managers have to follow decisions made by politicians, who generally lack any work-ing knowledge about management. In Middle Eastern countries, the top executive makes all decisions and prefers to deal only with other executives with decision-making powers. There, one always does business with an individual per se rather than an office or title. Authority and Decision Making 13Peter J. Buckley, “Adam Smith’s Theory of Knowledge and International Business Theory and Practice.” Journal of International Business Studies 45 (2014), pp. 102–9. 14A website that provides information about management styles around the world is http:// www.globalnegotiationresources.com. 15Sam Han, Tony Kang, Stephen Salter, and Yong Keun Yoo, “A Cross-Country Study on the Effects of National Culture on Earnings Management,” Journal of International Business Studies 41 (2010), pp. 123 – 41. 16Several researchers have empirically demonstrated the influence and downside of such authority structures. See Kathy Fogel, “Oligarchic Family Control, Social Economic Outcomes, and the Quality of Government,” Journal of International Business Studies 37 (2006), pp. 603–22; Naresh Kharti, Eric W. K. Tsang, and Thomas M. Begley, “Cronyism: A Cross-Cultural Analysis,” Journal of International Business Studies 37 (2006), pp. 61–75; Ekin K. Pellegrini and Terri A. Scandura, “Leader-Member Exchange (LMX), Paternalism, and Delegation in the Turkish Business Culture: An Empirical Investigation,” Journal of International Business Studies 37 (2006), pp. 264 –79; Narjess Boubakri, Omrane Guedhami, and Dev Mishra, “Family Control and the Implied Cost of Equity: Evidence before and after the Asian Financial Crisis,” Journal of International Business Studies 41, no. 3 (2010), pp. 451–74.
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