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Chapter 2

Question: What is the significance of social stratification for business?

In cultures where there is a great deal of class consciousness (a condition where people tend to
perceive themselves in terms of their class background, and this shapes their relationships with
others), the way individuals from different classes work together (i.e. management and labor)
may be prescribed

Antagonism between labor and management can raise the costs of doing business

Religious and Ethical Systems

Ethical systems are a set of moral principles, or values, that are used to guide and shape

The ethical practices of individuals within a culture are often closely intertwined with their


Christianity is the most widely practiced religion and is common throughout Europe, the
Americas, and other countries settled by Europeans

Question: What are the economic implications of Christianity?

In 1904, Max Weber suggested that it was the Protestant work ethic (focus on hard work,
wealth creation, and frugality) that was the driving force of capitalism


Adherents of Islam, called Muslims, believe that there is one true omnipotent God

Islam is an all-embracing way of life that governs one's being

Question: What is Islamic fundamentalism?

In the West, Islamic fundamentalism is associated in the media with militants, terrorists, and
violent upheavals, however, the vast majority of Muslims point out that Islam teaches peace,
justice, and tolerance

Perhaps in response to the influence of Western ideas, some Muslims feel threatened, and are
promoting a commitment to traditional beliefs and practices

Fundamentalists have gained political power in many Muslim countries, and have tried to make
Islamic law the law of the land

Question: What are the economic implications of Islam?

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Under Islam, people do not own property, but only act as stewards for God and thus must take
care of that which they have been entrusted with

While Islam is supportive of business, the way business is practiced is prescribed

Businesses that are perceived to be making a profit through the exploitation of others, by
deception, or by breaking contractual obligations are unwelcome


Hinduism, practiced primarily on the Indian sub-continent, focuses on the importance of

achieving spiritual growth and development, which may require material and physical self-denial

Question: What are the economic implications of Hinduism?

Hindus are valued by their spiritual rather than material achievements

Promotion and adding new responsibilities may not be the goal of an employee, or may be
infeasible due to the employee's caste


Buddhists, found mainly in Central and Southeast Asia, China, Korea, and Japan, stress spiritual
growth and the afterlife, rather than achievement while in this world

Question: What are the economic implications of Buddhism?

Buddhism does not support the caste system, so individuals do have some mobility and can
work with individuals from different classes

Entrepreneurial activity is acceptable in Buddhist societies


Confucianism, practiced mainly in China, teaches the importance of attaining personal salvation
through right action

The need for high moral and ethical conduct and loyalty to others is central in Confucianism

Question: What are the economic implications of Confucianism?

Three key teachings of Confucianism - loyalty, reciprocal obligations, and honesty - may all lead
to a lowering of the cost of doing business in Confucian societies

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Question: How does a society's culture impact on the values found in the workplace?

The most famous study undertaken to answer this question was done by Geert Hofstede who
isolated four dimensions that he believed summarized different cultures

1. Power distance

2. Individualism versus collectivism

3. Uncertainty avoidance

4. Masculinity versus femininity

1. Outline why the culture of a country might influence the costs of doing business in that country.
Illustrate your answer with examples.

Answer: Since in a sense the entire chapter is about this question, there can be numerous reasons and
examples of how culture influences the costs of doing business. Several are highlighted in the following
sentences, but there could be numerous others. When there are simply different norms between how
individuals from different countries interact, the costs of doing business rise as people grapple with
unfamiliar ways of doing business. For example, while in the US we may get down to business first, and
then get to know each other socially later, in many South American countries it is important develop a
good social relationship before trying to discuss business issues. Different class structures and social
mobility also raise the costs of doing business, If there are inhibitions against working with people from
different classes, then the efficiency with which information can flow may be limited and the cost of
running a business increased. A country's religion can also affect the costs of business, as religious
values can affect attitudes towards work, entrepreneurship, honesty, fairness, and social responsibility.
In Hindu societies where the pursuit of material well-being can be viewed as making spiritual well being
less likely, worker productivity may be lower than in nations with other religious beliefs. Finally, a
country's education system can have important implications for the costs of business. In countries
where workers receive excellent training and are highly literate, the need for specific worker training
programs are decreased and the hiring of additional employees is facilitated.

2. Do you think business practices in an Islamic country are likely to differ from business practices in
the United States? If so, how?

Answer: There are various cultural differences between an Islamic country and the United States that
could impact business practices. The role of women, for example, or appropriate etiquette (including
simple things like not passing papers with the left hand), holidays, and wining and dining can all differ.
But beyond these types of example is the fact that the underlying philosophy and role of business can be
very different. Since Muslims are stewards of property for God, rather than owners, they are more likely
to use their resources carefully and may be less likely to give up or sell something to a person who may
not practice the same stewardship. The importance of fairness to all parties in relations means that
over-aggressiveness in self-interest may not be well received, and breaking an agreement, even if
technically/legally permissible may be viewed as very inappropriate. Finally, the prohibitions on interest

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payments in some Islamic countries means that the wording of the terms of an agreement must be done
carefully so that "fair profits" are not construed as being "interest payments."

3. What are the implications for international business of differences in the dominant religion or
ethical system of a country?

Answer: Differences in the dominant religion of a country and/or its ethics can affect relationships,
attitudes toward business, and overall economic development. Differences in religion require inter-
cultural sensitivity. This sensitivity requires things like simply knowing the religious holidays, accepting
that some unexpected things may happen "because of Allah's will," or understanding how interpersonal
relationships may be different between "believers" and "non-believers." (Hence non-believers may be
treated differently.) Religious beliefs can significantly affect a countrys attitude toward business, work,
and entrepreneurship. In one country successfully beating a competitor may be considered a great
achievement while in another it may be thought of as showing a lack of compassion and could be
disruptive to the society and persons involved. Likewise, hard work may be either rewarded positively
or viewed as something of secondary importance to spiritual peace and harmony. Different dominant
religions and ethical values can also affect the overall competitiveness and potential for economic
growth of a nation, and hence attractiveness of a country for international business. Students might
suggest for example, that Venezuelas high level of corruption make it a less attractive destination for
foreign companies.

4. Choose two countries that appear to be culturally diverse. Compare the culture of those countries
and then indicate how cultural differences influence (a) the costs of doing business in each country,
(b) the likely future economic development of that country, (c) business practices, and (d) business

Answer: Responses to this question will obviously vary based on the countries chosen by the
students and their knowledge of the countries. Hopefully students can present some
information on the dimensions of culture including values, norms, social structure, religion,
language, and education of the countries and also describe the key differences and similarities
of the countries along these dimensions. Relating the differences between the countries along
these dimensions to differences in the costs of doing business, the potential for economic
development, and business practices would fully answer the question. (While it may be more
difficult for students to come up with really good examples relative to business practices, the
costs and prospects for economic development should be quite feasible.)

5. Reread the Country Focus on Islamic Capitalism in Turkey. Then answer the following

a) Can you see anything in the value of Islam that is hostile to business?

b) What does the experience of the region around Kayseri teach us about the relationship
between Islam and business?

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c) What are the implications of Islamic values towards business for the participation of a country
like Turkey in the global economy?

Answer: When responding to this question, many students will probably focus on three key areas. First,
they may note that Islam is firmly against making a profit by exploiting others. Depending on just how
one defines exploitation, this could be a problem. For example, do commercials for sugary cereal that
are traditionally shown during childrens television programs count as exploitation? A second area that
students may explore is the role of women in business. In Islamic countries, women make up only a very
small part of the workforce. This traditional Islamic value could also present a problem. Third, students
may note that the Koran condemns interest as exploitative and unjust. This could present a problem for
the financial industry, and also for companies needing loans. Despite these concerns, however, many
students will probably suggest that Turkeys central region clearly demonstrates that the country can
indeed function successfully in the global economy.

6. Reread the Management Focus on DMG-Shanghai and answer the following questions:

a) Why do you think it is so important to cultivate guanxi and guanxiwang in China?

b) What does the experience of DMG tell us about the way thinks work in China? What would likely
happen to a business that obeyed all of the rules and regulations rather than trying to find a way
round them as Dan Mintz apparently does?

c) What are the ethical issues that might arise when drawing upon guanxiwang to get things done in
China? What does this suggest about the limits of using guanxiwang for a Western business
committed to high ethical standards?

Answer: Guanxi and guanxiwang are essential to business in China. Guanxi refers to the business
connections that are so important to companies doing business in China. Guanxiwang refers to the
relationship network that companies cultivate. Both of these are important to the Confucian ethics
loyalty, reciprocal obligations, and honesty in dealing with others - that drives business in China. Dan
Mintz believes that guanxi and guanxiwang are important because they help companies get around
restrictions that limit the ability of companies to function. Many students will probably agree with
Mintz that these relationships and connection are essential to success. Students taking this perspective
are likely to argue that guanxi is part of the Chinese culture, and Western companies simply need to
adapt. Companies that fail to adapt will probably find it more difficult to be successful, and companies
that do follow all of the rules are likely to be at a competitive disadvantage. At the same time, students
will probably note the need to carefully consider the ethical implications of certain relationships. Some
students may suggest that managers use their gut instinct if something seems like it could be
unethical, it probably is.

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