TOPICS

Topics

Topics

Cross-Cultural Issues

Kluckholn (1951) described culture as "patterned ways of thinking, feeling and reacting, acquired and transmitted mainly by symbols, constituting the distinctive achievements of human groups, including their embodiments in artifacts." Hofstede defined culture as "the collective programming of the mind which distinguishes the members of one human group from another."

Cultural differences can affect the success or failure of international firms in a number of important ways. First, because of different preferences and tastes, consumers and customers in foreign countries may not use the same products and/or services demanded by domestic consumers and customers. Even where there is a demand, adaptations may have to be made to the product/service and/or the advertising message. Second, managing and motivating people with vastly different cultural values and attitudes requires variations in management style, systems and practices (Manu, 2002). Third, in international assignments, the use of the same criteria and training programs to identify candidates and prepare them for living and working in a foreign environment may doom the assignment to failure. Fourth, concepts and constructs that guide business decisions and activities may be very different across countries. Principals among these are the concepts of morality, mind games, competitiveness, and rights.

Global Law & Finance

Horizontal FDI is characterized by a duplication of in vestment on the domestic and the foreign market which means that the foreign plant produces for the foreign market. Vertical FDI, by contrast, involves the al location of different stages of production across various countries depending on relative factors prices and final out put is then sent back to the home country or it is sold on third markets. Companies in vest abroad when the gains from lower variable transportation (or information) costs are higher than the additional fixed costs involved. Firms choose their most favour able strategy after the ob servation of a random productivity co efficient. Domestic companies would first ex port and then set up affiliates abroad if transportation costs fall. According to G. Buch, Alexander Lipponer “banks substitute FDI and cross border ser vices in the sense that they do not in vest their capital in these countries but still pro vide some cross-border ser vices. Over all, our results point to wards complementarily rather than substitutionality between FDI and cross-border financial ser vices.

These two forms of entering a foreign market share many common determinants, and banks pro vide more ser vices to countries in which they have also large foreign direct investments (and vice versa).” The com bi nation between domestic and head quarters-country borrowing depends on the relative creditor -friendliness of the le gal systems and the most advantageous mix ture of domestic country and head quarters-country financing depends on the financial health of the company because claim enforceability is optimistically related both to creditor-friendliness and to balance between the size of claims in the head quarters and domestic-country capital markets. MNEs diminish the credit spread on their debt by equating the marginal enforceability of debt claims in different capital markets leading to ...