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Lesson 5 Social Environment (Chap: 6)

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1 Lesson 5 Social Environment (Chap: 6)
University of Sunderland / MDIS Lesson 5 Social Environment (Chap: 6)

2 Learning Outcomes Explain the importance of the social and cultural environment for business; Apply concepts of cultural theory to international business; Explain and analyze major social and cultural elements such as demography, urbanization, religion, and language, and their implication for business; Compare and contrast the liberal, conservative, and social democratic social models.

3 Culture Culture seen as a system of shared beliefs, values, customs, and behaviours prevalent in a society and that are transmitted from generation to generation (Bates and Plog 1990). Hofstede (1994), described these elements of culture as the software of the mind, 'the collective programming of the mind which distinguishes the members of one category of people from another'. The values in the culture are enforced by a set of norms which lay down rules of behaviour. These rules are usually supplemented by a set of sanctions to ensure that the norms are respected. Culture comprises a whole variety of different aspects, including religion, language, non-verbal communication, diet, dress, and institutions to ensure that the values and beliefs are transmitted from one generation to another. Culture is dynamic, in other words, it changes over time not least due to the process of globalization with the increasing cross-border movement of goods, services, capital, and the migration of people.

4 Different cultures can have significantly different attitudes and beliefs on a whole range of issues. In the USA poverty tends to be seen as the fault of the poor whereas in Europe the poor tend more to be seen as victims of the system. Cultural attitudes can also vary towards issues such as, corruption, women at work, sexuality, violence, suicide, and time.

5 Hofstede’s Five dimensions of culture
Individualism: reflects the degree to which people in a country act as individuals rather than as members of a group. Uncertainty avoidance: refers to the extent to which people prefer structured to unstructured situations. Masculinity: reflects the degree to which masculine values such as competition, assertiveness, a clear role distinction between men and women, money, income, job promotions, and status over feminine values like cooperation, quality of life and human relationships.

6 Power distance: shows the degree of inequality accepted as normal in a society. High power distance cultures accept, and are marked by significant levels of inequality, and hierarchy such as the differences in social class. Low power distance societies value equality and egalitarianism. Long term/short term: long-term cultures make decisions based on long-term thinking and value perseverance and thrifty behaviour such as saving for the future.

7 Implications for Business
According to Hofstede, centralized corporate control is more feasible in societies with large power distances while decentralization fits better in small power distance cultures. Collectivism is more likely to favour group rewards and family enterprises while job-hopping and individual remuneration systems are more acceptable in individualistic cultures. Masculine cultures prize competition and survival of the fittest while feminine cultures favour solidarity and sympathy for the weak. Uncertainty avoiding cultures are comfortable with strict adherence to rules and principles, while their counterparts are happy to shape policies according to particular circumstances and are more tolerant of deviant behaviour (Hofstede 1994).

8 Westerners expect to focus on contentious issues and try to achieve the most beneficial outcomes for themselves. In contrast, the Japanese prefer to discuss areas of agreement, with the expectation that harmony will lead to the resolution of details. Such differences can lead to bad feeling in negotiations. Lee (2004) quotes a senior South Korean official involved in trade negotiations with Australia. Even though Australia was running a large trade surplus in agricultural products with South Korea, which was of serious concern to the Koreans, 'Australia, nevertheless, continuously puts pressure on Korea to buy more off them ... they are self-centred, one-sided, only concerned with self-interest, not in considering another's situation or position' (p 76).

9 The upshot is that business has to take cultural differences into account when considering entry to foreign markets through exports, joint ventures, or through takeover or greenfield investment. Similarities between the domestic and foreign cultural norms and values may make entry for a firm easier whereas large differences may cause major difficulties due to misunderstandings and conflict where social groups do not want to give up valued elements of their culture (Oudenhoven and van der See 2002).

10 Religion A core element of the culture in many societies is religion. In such societies religion is a major influence on the attitudes and beliefs that regulate behaviour. Some religions lay down rules about which foods can and cannot be eaten, and how they should be prepared. The various rules and rituals around eating help religions reinforce their identity and distinguish them from other religions. These rules have implications for food manufacturers and retailers wishing to operate in countries with large numbers of practising Muslims, Jews, Hindus, and Buddhists (Better Health Channel).

11 Divisions within Societies
All countries are characterized by social divisions. In some societies the major dividing lines are based on social class whilst in others it might be caste, ethnic group, age, or gender. Such divisions are often associated with inequalities between the various social groups in income, wealth such as land, property, shares, levels of health and education, and lifestyles. Such social inequalities are important to business insofar as they can affect levels and patterns of demand for goods and services.

12 Social Models Today in most developed economies the state spends more on welfare than all other programmes. This spending takes the forms of benefits to the elderly, the disabled, the sick, the unemployed, and the young. It also usually involves spending on health care and education. Welfare policies may vary from country to country in terms of their aims, the amount of money spent on them, the priority given to different programmes, and the identity of the beneficiaries. In some countries the state intervenes only to provide a limited level of support to those who are regarded as deserving of help.

13 The Liberal Social Model
The liberal social model found in the USA, Canada, and Australia and also, to an extent, the UK, is based on a clear distinction between the deserving and undeserving poor, with limits on the level of benefit payments. In liberal welfare states like the USA and the UK there is a sharp cut-off in unemployment benefits to discourage dependency and to force people back to work. There is a commitment to keep taxes low and to encourage people to stay in work. While everyone is treated equally, there is a low level of welfare provision as expressed in the level of social expenditure.

14 The Corporatist Model The corporatist model is typical of continental European countries such as Germany, France, Austria, and Italy. Japan and Southern Europe also display elements of the corporatist model but spending is not as generous as in France or Germany. In the past, the Church played an influential role on the model with its commitment to the preservation of the traditional family.

15 In corporatist systems, there is a belief in the value of partnership and dialogue between the government and the various interest groups in society (sometimes called the social partners) such as trade unions and employers' associations. This is seen as a way of avoiding and reconciling conflicts over economic and social policy. It emphasizes solidarity between the various social groups and gives an important role to voluntary organizations such as churches and charities. In Germany, for example, church bodies are important providers of welfare services to groups such as migrants and young people.

16 The Social Democratic Model
Support is provided through generous welfare benefits for all those who are poor, old, young, disabled, and unemployed, and there is universal access to education and health care. There is a heavy commitment to helping families and to mothers wishing to work. This is financed by high levels of taxation. Secondly, unlike the liberal model, governments usually commit themselves to generating and maintaining high levels of employment and low levels of unemployment. There is an emphasis on taxation and spending policies that redistribute income from the rich to the poor and active approach is taken to finding jobs for the citizens.

17 Urbanization Another long-term trend in demography is the move by people from rural areas into towns and cities. This process is called urbanization. The developed world is already highly urbanized with three quarters of the population living in towns and cities. According to the UN (2007), numbers living in urban areas are projected to increase to 5 billion or 60% of the world's population by 2030.

18 Mini Case: Rapid Urbanization in Africa (Page 182 Textbook)
Group Discussion: Question: Discuss the rate of increase in urban population and how it will push up demand for resources.

19 Review Questions (Page 184 Textbook)
1. The table below (Table 6.5: p.184 textbook)) shows social spending as a percentage of GDP from 1990 to 2005. What is the trend in social spending over the period from 1990 to 2005? To answer this, look first at the OECD average. Do any countries buck the trend? Which countries were the highest spenders in 2005 and which the lowest? How would you explain Sweden's high levels of expenditures compared to those of the US? Some commentators have argued that globalization is leading to a 'race to the bottom' with regard to welfare spending. Do the figures lend support to that argument?

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