Politics is the major factor that spoils economic environment, beside natural disasters and calamities. Lets forget about the cracks within the economic theories whose implementation results catastrophic such as ‘Efficient Market Hypothesis’ nearly collapsed US economy in 2007-08.
In recent days, I feel myself more interested to the cultural impact on doing business. Reinforcement by the World Economic Forum, Word Bank and Asian Development Bank in their annual economic forecasts that legal and political systems in a country are all in all factors affecting doing business.
It is precisely unthinkable to put a timeframe for change in culture. However, it is not strenuous to say way of doing business changes with the change in culture. Cultural change has integral relationship with the cost of doing business.
This week, I ordered my phone case from Hong Kong and its sticker from China when the phone actually was bought from US. My friend next door merely goes to market, rather hovers on computer screen ordering someone to drop things to his home.
That simply means, the traditional means of shopping is gradually eliminating. Not only our thoughts and visions but our physical world seems to gradually squeezing within the 15-in screen.
This has opened opportunities for multinational companies seek cheap labour in countries other than they normally operate. The small business transaction has gone international. And absolutely venturing into international business requires cross-cultural literacy.
Scholars have not arrived to specific definition of culture. Taylor defines it as ‘complex whole of knowledge, belief, art, morals, law, custom’ while Hofstede says culture is ‘the collective programming of the mind which distinguishes the members of one human group from another’.
Value is an abstract idea and it is based on what a group of people think is right or wrong while norms are the social rules which spells out appropriate behaviour in specific context and situations. Combination of values and norms together determine the culture.
Social structure, more often called culture, obviously has impacts on economy. Of many social structures, individualism is more popular in west while eastern countries have collective structure. Individual is the smallest unit of social structure.
Individualism focuses on individual achievement but can lead to a lack of company loyalty and failure to gain company-specific knowledge, competition between individuals in a company rather than team building, and a limit on people’s ability to develop a strong network of contacts within a firm.
Lets see example from post-World War II Japan. Collective culture in Japan gradually split when the government laid down policies promoting individualism. Government failed to provide security old-age people. To tap this vacuum, the companies indirectly implanted collectivism.
Now, its neither the children nor the government but the companies who came forward with policies to look after their employees in old age. This had immense impact on how business was done. Employees’ loyalty to companies grew to such great that a company virtually turned into a family. This loyalty is hardly observable in Europe and the US.
If we have to compare this instance from Japan with the situation in Africa or South Asia, the undeniable conclusion would be that companies failed to capitalise on the collectivism.
I believe religious attachments can also have effect on economic activities. Like Weber said that it was the Protestant work ethic (focus on hard work, wealth creation and frugality) that was the driving force of capitalism.
On the other hand, Hindus and traditional Buddhists, value spiritual rather than material achievements. They tend to give rather than produce. More specifically, Hindus would prefer to prepare for ‘next life’ than working on what is in hand. Thus, there is less work ethic or focus on entrepreneurship. Unlike Hinduism, Buddhism facilitates some mobility to individuals to work with different social class, thus facilitating little more economic viability.
Loyalty, reciprocal obligations and honesty, the three main ingredients of Confucianism might lead to a lowering of the cost of doing business in Confucian societies such as China. Loyalty towards seniors is major factor to reduce conflict between management and labour there.
Individuals and groups involved in businesses are better off having developed cross-cultural literacy. For international companies, the connection between culture and competitive advantage is important because it suggests which countries are likely to produce the most viable competitors.
Big companies run countries looking for cheap labour. Cheap labour is available where poverty is ruling. This also means the community might have less entrepreneurial culture. Will the hunt just for cheap labour produce a quality goods to be delivered to customers in time?