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The Influence of Religion, Ethics, and Culture on International Business

Seminararbeit 2015 12 Seiten

BWL - Unternehmensführung, Management, Organisation



The Influence of Religion, Ethics, and Culture on International Business

The Influence of Religion and Ethical Systems

The Influence of Culture
Business Practices
Cost of Doing Business
Future Economic Development

Outsourcing Production – Ethical or Unethical?



The Influence of Religion, Ethics, and Culture on International Business

a. What are the implications for international business of differences in the dominant religion or ethical system of a country?
b. Choose two countries that appear to be culturally diverse. Compare the cultures 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, and (c) business practices.
c. Under what conditions is it ethically defensible to outsource production to the developing world where labour costs are lower and when such actions involve laying off long-term workers in the firm’s home country?

18 December 2015

Annegret Baetz

The Influence of Religion, Ethics, and Culture on International Business

Nowadays many firms produce and sell worldwide and employ workers from different nations. How do differences in a country’s religion or ethical system influence their global business operations? How does culture affect them? Is outsourcing production to developing countries ethically defensible? The aim of this paper is to address these questions.

The Influence of Religion and Ethical Systems

Religion comprises shared beliefs, values, and rituals (Aswathappa, 2008; Deresky, 2014; Hill, 2007). Values are assumptions regarding what is good, right, or important. Ethical systems involve codes of conduct and values that externally form a group of people’s behaviour (Hill, 2007). Ethical systems are often based on religion and religion expresses ethical principles (Mead and Andrews, 2009).

Measured by percentage of world population in 2010 (Pew Research Center, 2015), Christianity (31.4%) is the biggest religion, followed by Islam (23.2%). By 2050, however, the Islamic population will be approximately equivalent to the number of Christians. The following section describes how those two religions and their ethics impact on international business.

The Christian religion dates back to more than 2,000 years ago. It is a monotheistic religion, centred on the life and death of God’s son Jesus Christ (Deresky, 2014). Christianity consists of four main denominations of which Protestantism affects business most (Hill, 2007). Protestantism encourages hard work and wealth acquisition (Aswathappa, 2008). It is believed that reinvesting wealth pleases God more than ‘worldly’ consumption. In 1904, the sociologist Max Weber found that this Protestant work ethics facilitated the development of capitalism in Western Europe as it led to capital investment in enterprises (Hill, 2007). Although Weber’s theory historically has certain plausibility for the rise of capitalism in Western Europe, capitalism also advanced elsewhere for reasons other than the Protestant ethical system (Dahrendorf, 1983).

Islam is also a monotheistic religion. Muslims believe in Allah and live according to the Quran and the Sharia which is the Islamic law (Deresky, 2014). Prophet Muhammad was a trader (Hill, 2007) and the Quran supports free enterprise and commerce (Aswathappa, 2008). Islamic ethics teaches that profits should benefit the collective which individuals are bound to as a member of society (Hill, 2007). Muslims believe that Allah controls time. This may result in a loose time schedule. Business meetings take place around the five daily prayers for which space needs to be provided. Companies can expect a decrease in productivity and contractual agreements during the holy month Ramadan. In strict Islamic countries women are prohibited full participation in business (Deresky, 2014).

It is worth noting that the link between a country’s religion and ethical system does not always apply. Until 1949, China’s official ethical system was Confucianism which contrary to Christian and Islamic ethics does not result from religion. Confucian teachings still influence the code of conduct in East Asia (Hill, 2007). They mainly focus on three ethical principles: honesty, loyalty, and reciprocal obligation (Aswathappa, 2008). These are crucial for the ‘guanxi’ network from which assistance and information can be acquired but must be repaid. Guanxi might be more powerful than the law. Honesty fosters the establishment of trustworthy relationships between business partners and loyalty to superiors results in obedience of commands (Hill, 2007). In turn, life-time employment is expected (Aswathappa, 2008).

Taken together, these findings suggest that a country’s dominant religion and ethical system influence international business as they shape society’s behaviour. However, this must be interpreted with caution because a shared religion or ethics does not necessarily result in the same workplace behaviour. For instance, two countries with the same religion might have different attitudes towards business due to other influences such as culture. The cultural influence will be discussed in the next part.

The Influence of Culture

This chapter outlines the cultures of Germany and Saudi Arabia regarding their influence on business practices, the cost of doing business, and the likely future economic development.

According to a definition provided by Luthans and Doh (2012, p. 108), culture constitutes “(…) acquired knowledge that people use to interpret experience and generate social behaviour. This knowledge forms values, creates attitudes, and influences behaviour.” Deresky (2014) highlights that culture is inherited from earlier generations, shared, and passed on to future generations.

Moving on from the first part, Islamic values and traditions play a major role in the Saudi Arabian culture. Ancient tribal structures gave rise to the importance of loyalty towards family and friends. Relationships and connections are an important cultural element defining the status one holds within the society (Hill, 2007).

By contrast, Germans are mainly Christian (61.6%) (EKD, 2015). The religious influence is not as great as in Saudi Arabia but may have contributed towards the appreciation of structure as Germans believe that everything is managed best by a well-structured plan. They are highly objective: a goal is achieved by task-oriented work and thorough analysis (Schroll-Machl, 2003).

Saudis’ communication can be classified as high context, meaning it is indirect and nonverbal features need to be interpreted to comprehend the complete message (Aswathappa, 2008). Saudis believe in ‘saving face’ (Deresky, 2014) whereas Germans prioritise honesty (Schroll-Machl, 2003). They communicate explicitly and mean exactly what they say (Deresky, 2014). Saudis might perceive this low context communication as abrupt and unfriendly (Shoult et al., 1999).

International business is also affected by a culture’s understanding of time. Saudis have ‘plenty of time for everything’ (Shoult et al., 1999) while Germans expect punctuality and strict time management (Reuvid, 2002).

Business Practices

The underlying culture shapes business practices in both countries.

According to their monochronic time understanding, Germans perceive a person arriving late as unreliable and untrustworthy to conduct business with. Conference calls are regularly used to reach a consensus. Since Germans are objective, they waste no time for small talk but convince each other through logical arguments (Schroll-Machl, 2003). As a consequence of low Power Distance (The hofstede centre, 2015a), hierarchies are neglected and decisions solely based on people’s knowledge and competence. Decisions take long because everybody’s point of view matters which possibly stems from individualism (The hofstede centre, 2015a). Rule-orientation causes protocols and legally binding contracts to be obligatory (Deresky, 2014). As Germans value structure, they strictly follow any implementation plan agreed upon. Obstacles will be communicated towards the higher authority in order to perform a detailed analysis again (Schroll-Machl, 2003).

Saudi Arabian business practices differ from German ones in several key features. Appointments often begin late, are open and commonly interrupted (Deresky, 2014). Face-to-face meetings are essential to network and socialise because the development of long-term personal relationships is important in the collectivistic Saudi Arabian society (The hofstede centre, 2015b) – only then will business negotiations start (Chanlat et al., 2013). Saudis value their friends’ and family’s opinion. Agreements are based on trust and commitment, thus a verbal agreement is as valuable as a contract (Deresky, 2014). The high Power Distance (The hofstede centre, 2015b) may have caused that final decisions are made by authority. As time is in Allah’s hands, deadlines are refused and considered rude (Hill, 2007). Because a decision’s importance correlates with the time involved to make it, decisions might also take long (Deresky, 2014).

Cost of Doing Business

The German culture values safety (Reuvid, 2002) and avoids risk (The hofstede centre, 2015a). This affects the cost of doing business in three ways. Firstly, it translates into bureaucratic structures and laws concerning product or workplace safety (Hill, 2007). For instance, The World Bank (2015) ranks Germany 107th for the ease of starting a business due to regulatory processes required. Costs may therefore increase. Secondly, Germans exercise control to avoid uncertainty which tends to be costly. Business plans are controlled by interim progress reports (Reuvid, 2002) and internal review mechanisms (Chanlat et al., 2013). Lastly, standardisation of procedures and workflows reduces uncertainty (Schroll-Machl, 2003). Companies invest in training in order that employees are skilled and understand their role. Benefits are believed to outweigh costs in the long run (Mead and Andrews, 2009).



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Titel: The Influence of Religion, Ethics, and Culture on International Business