Social and economic context


For this assignment on International Management, Italy was purposefully selected in order to provide a large amount of cultural variance, measured in terms of the scores on Hofstede's dimensions (1980, 1991) as it belongs to a Latin-European (France, Spain, Italy, Belgium), cluster (Ronen and Shenkar) being distinct from the Anglo (USA, UK, Ireland) cluster. In order to understand the social and economic context in which a first phase of socially responsible initiatives emerged - especially in the post-war period and to better contextualize the more systematic and widespread current approach to HR and CSR, a historical background of Italy's socio-economic situation is provided in this paper. It also attempts to place the challenges and responses to cross cultural management issues in Italy.

  1. Provide an analysis of the context of one of the E.U countries through the social and business viewpoints. Evaluate the key social practices and impact on HR within the country.
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    Three interdependent conceptual threads need to be considered in managing people internationally: stakeholder consideration; locus of human value; and multicultural/strategizing oppositions. (Jackson, 2002, pp)

    Corporate and community are the two categories, and often distinct in several societies, identified from a stakeholder perspective in relation to a corporate organisation. The local community may be seen as a mere source of labour in the context of societies tending towards a free market economy resulting in a high regard for shareholder value. Government and local communities may be high profile stakeholders when governmental or institutional involvement in the finances and control of enterprises is predominant.

    Reconciling the distinctions between these two groups and between the lives of people in the community, is a major objective of management of people with different approaches across cultures. Perception of people in organisations is a major cultural influence (locus of human value). An instrumental cultural perspective may therefore give rise to a contractual relationship with the employee who provides his or her time in exchange for wages. Alternatively, a humanistic cultural perspective may give rise to an obligatory relationship of commitment among members of the corporation.

    Such competing centrifugal (multicultural) and centripetal (strategic) forces in international management often leads to local cultural adaptation and adoption, as well as globalisation of management principles through international strategy, resulting in different combinations of solutions to this issue with varying success. (Jackson, 2002, pp10-11)

    The social and economical context of Italy in relation to international human resource management can utilise these conceptual threads through aspects such as social issues, infrastructure and government, economic performance, education level, career development and performance appraisal methodologies, unemployment and social exclusion, health concerns, the aging population and environmental issues. With a proper appreciation of these factors and aligning the HR function with overall business strategy, a manager can work towards sustainable competitive advantage in a global organisation through local human capital.

    Social Overview

    Italy's population is about 58 million (CIA, 2007). Predominant religion is Roman Catholic (about 90%), and the rest includes Protestant and Jewish communities and a growing Muslim immigrant community (CIA, 2007). An educated workforce is indicated as 66% of the population is in 15-64 age-group and literacy is 98.4%.

    Italian is the official language though German, French and Slovene speakers are found in small groups. English is spoken by many businesspeople. Illegal immigration, organized crime, corruption, high unemployment, sluggish economic growth, and the low incomes and technical standards of southern Italy compared with the prosperous north are some of the issues that affect Italy (CIA, 2007).

    Economy Overview

    The industrially diversified economy of Italy is on par with the total and per capita output of France and the UK. With a 7% unemployment rate, the developed industrial north Italy is dominated by private companies and a less-developed, welfare-dependent, agricultural south produces a country in contrast (Eurostat, 2007).

    Italy's GDP per capita in 2007 was $35494 (World Bank, 2008). The average wage in 2005 was �30521 per annum. With this high cost of labour, a HR manager must ensure that Italian employees offer high value added services (EIRO, 2007).

    Impact on HR

    Unemployment, Productivity & Wages

    The unemployment rate in Italy has all along been one of the highest in Europe (Eurostat) and is low only since late 2007, as less rigid job labour contracts and accelerated growth has encouraged hiring (Istat). Since 2005 employment has seen strong growth, including growth in employment of migrant workers. As Italy ages, the effective labour force is on the decline.

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    Employment growth is noticed significantly among immigration and older workers (Istat). Further, growth in employment is due to more companies hiring part-time and temporary workers, without the same benefits and job security as full-time staff. Added to this is a decline in the 15 to 24 years age group as a proportion of the total Italian population (Istat).

    To counter this anomaly, raising the productivity of those employed is necessary. Italy's performance in this regard is poor and raising productivity means raising the human capital component of value added. More of Italy's youth, a scarce resource, delay entry into jobs and seek to improve their educational qualifications and their human capital rating to enhance future earning potential.

    With a 7% unemployment overall, workforce is highly available. This leads to a strong competition for positions. Transparent selection criteria can ensure ethical decision-making. Evidence shows that some employers discriminate on the basis of geographic priority education zones (OECD, 2007).

    Equally, with 15% of the population earning the relatively high minimum wage, governmental increases in that wage could imply significant organisational costs. Public policy changes significantly influence people management decisions in relation to low wage employees. The HR manager needs to be aware of these issues.

    Education & Training

    The level of education and training of the workforce influences the amount of value added contribution that they can make to the organisation. Italy's education system is above average level of educational attainment (OECD).

    Public investment in education, less than 1% of GDP, is below average, with emphasis on primary and secondary education than on tertiary levels. Italy has universal enrolment in pre-school from the age of 3, which may improve performance of pupils from disadvantaged backgrounds in the long term. This may provide a wider range of educated workers by the time they have reached working age.

    Italy doubled its graduation rate between 2000 and 2005, largely attributed to the 2002 reform of tertiary education allowing university students enrolled in long programmes to obtain a degree after 3 years of study while the demand for advanced qualifications is rising faster than the supply (OECD).

    The intensity of participation in non-formal job-related education and training is comparatively low in Italy. Also, continuing education and training in Italy tends to reinforce, rather than moderate, disparities that arise from initial education and training.

    Most universities are public and very low in cost with insufficient teachers, overpopulated classes and attendance is not mandatory, resulting in the average graduating age at 28 years. A study identified much worse employment prospects for recent graduates (25-29 years) than for the next segment of graduates (30-34) which suggests that the transition from the university to the labour market in Italy is slower than in the rest of Europe (Moscati and Rostan, 2000). Italian graduates seem to face problems in the labour market as their degree is not as effective on increasing the likelihood of employment (Nunez and Livanos, 2007).

    Career Development & Performance Appraisal

    There is some evidence that Italian firms may lag behind those of other countries in the way they nurture and develop human capital (Bloom, et al, 2008). Italian firms trail their competitors when it comes to formal systems of evaluation selection and reward of managerial talent. Within Italy, family firms and domestic firms are more likely to hire, assess, reward, promote and dismiss their employees based on personal relationship rather than performance. Interestingly, Italian multinationals tend to treat their managers in the same manner as other European multinationals (Bandiera, et al, 2008). Awareness of these issues is vital for an international HR manager.

    Italy has low power distance and values culture very highly. According to Hodgetts, "Cultures with low power distance scores prefer flatter, decentralized organizational structures and therefore a smaller proportion of supervisors and the lower strata of workers are often, highly qualified people" (Hodgetts, et al, 2005, p.102).

    Aging Population

    Italy has the highest proportion of over 65 in 2006, and a very low average age of exit from the labour market at 58.8 years (OECD), encouraged by defunct publicly funded schemes encouraging early retirement. The majority of workers are under the general public pension schemes, though there has been a push towards private schemes since 2003. Since official predictions suggest that pensions will cost 4% of GDP by 2050, mandatory contributions from businesses to supplement the pension fund may be required. There may also be a move against age discrimination (OECD).


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    8.5% GDP is spent on healthcare, and the World Health Organisation ranked Italy's health care services second best in the world in 2000. Public sources cover 75% of health expenditure. Private expenditure has risen since co-payment schemes were introduced, amounting to 25% in 2002 (WHO, 2004). Some cost is borne directly by the patient, but supplementary insurance can mitigate these costs. Though the workforce will likely be healthy, there will be mandatory insurance costs and supplementary health insurance schemes are a good incentive for prospective employees.

    Industrial Action

    Wildcat strikes are common, with a commission to manage the industrial action (EIRO, 2007). The HR manager needs to be aware of the possibilities of lost days and lost productivity due to industrial action and ways to avoid it.


    Whilst there are many opportunities for organisations investing in Italy, including a highly available, productive, well-educated workforce, there are also costs involved. Costs include mandatory investment in training and health insurance, along with a high minimum and average wage.

    With a better appreciation of cultural specifics like the aging population and the increase in migrants, the HR manager can help achieve sustainable competitive advantage through value added human capital.

  3. Develop one of the following ethics concepts: Fair justice, Utilitarian, Deontological, Corporate social responsibility. According to the ethical concept defined and the country selected in question 1, develop a key managerial issue to manage between UK and the selected country and provide an ethical way to solve this issue.
  4. Corporate Social Responsibility (CSR)

    "Law determines suitable programmes and controls such as the economic activity could be addressed and coordinated towards social purposes". In this context CSR can be viewed as substantial innovation in terms of corporations' real interest in building trust relationships with society (Zamagni, 2003).

    CSR involves "achieving commercial success in ways that honour ethical values and respect people, communities, and the natural environment" (Porter & Kramer, 2006).

    CSR may be classified as ethical, altruistic, or strategic (Lantos, 2002). A mandatory ethical CSR seeks a firm to obey all laws and avoid causing harm due to its business. The harm caused may be pollution, faulty products, and unfair labour practices (Lantos). Charitable funding that alleviates external social problems without a necessary financial benefit for the firm defines altruistic CSR. Altruistic CSR is at the stockholders' expense and may be illegitimate (Lantos). Engaging in philanthropic activities that also benefit the firm and help attain its strategic goals typifies strategic CSR (Lantos).

    Generally business has focussed on maximizing profits. Consumers do not support this short-term approach and managers increasingly find it necessary to account for the long-term health of their companies. It is necessary to realise a business culture with balanced relationships among all stakeholders and help social capital emerge (Maak, 2007).

    The narrow outlook of short-term profits at the cost of the society and environment needs to be curbed. For business sustenance adoption of the triple bottom line is necessary. Business can solve social and environmental problems created by its activities, with a strong commitment by business and all stakeholders.

    The long-term success of the company is tied to CSR activities. Business and society are mutually dependent and only their mutual good health will help them sustain and thrive in the future. This paper outlines these views on CSR, presents a brief CSR strategy and analyses an ethical dilemma based on the perspectives.

    Friedman (1970) claimed that "the sole social responsibility of a business is to be profitable, operating within the stipulated legal framework."

    Porter and Kramer (2002) contended that with a focus on the contextual conditions critical to their industries and strategies, companies ensure that their stakeholders create greater value. They called for corporate philanthropy to be rooted in a firm's competences and linked to its business environment.

    Sustainability applies to the 'Triple Bottom Line' (Elkington, 1994, 1998, 2004) of "economic, social, and environmental contexts" (Crane & Matten, 2004). Norman and MacDonald contended that the concept of a Triple Bottom Line is only a "Good old-fashioned Single Bottom Line plus Vague Commitments to Social and Environmental Concerns." (Norman & MacDonald, 2004)

    With the Triple Bottom Line Elkington (1994, 1998, and 2004) sought to expand the traditional reporting framework. In addition to financial performance reports he sought to take into account environmental and social performance as well as a set of value, questions and procedures. Business must consider the expectations of stakeholders and control the impact of their activities on economy, society and environment.

    According to Maak (2007), "sustainable relationships by companies create a sense of good will for multiple stakeholders and the community and not just shareholders and management".

    Business and society have a direct and contentious relationship. Many companies' CSR efforts, however, are "less effective because they do not take into consideration their goals and strategies and instead are generic and fragmented activities" (Porter & Kramer, 2006). Many CSR initiatives are only public relations campaigns unrelated to the business operations (Porter & Kramer, 2006). According to Maak (2007), "conservation and sustainable practices lead to substantial cost reductions for companies."

    Increasing expansion of international markets and businesses has led to a rise in ethical difficulties for businesses within the workplace and the communities in their domain. For their own interest, companies need to develop and incorporate elements of CSR in their agenda.

    Egri et al. (2006) conducted an extensive multi-level study of the individual and national effects on attitudes towards corporate responsibilities (CR) in 28 countries. Their analysis of what influences corporate responsibility outcomes across countries, differentiates three different types of corporate responsibility (social, environmental and economic) and also account for three country level factors (societal culture, degree of government intervention, and trade openness). In addition to reporting that personal values have a direct relationship with the type of CR that managers are likely to support in different countries, the study reveals that managers in traditional cultures that promote ethical idealism and communitarian norms, and tend to have a Roman Catholic heritage (e.g., Colombia and Italy) were more supportive of social CR than environmental or economic CR.

    The main elements of a CSR strategy

    • Adoption and implementation of the ethical code,
    • The constitution of a risk management committee,
    • The introduction of an environmental management system,
    • A detailed analysis of the triple-bottom-line approach using suitable indicators evaluating impacts on stakeholders,
    • External independent qualitative survey on stakeholders' evaluation of social responsibility.

    Ethical issue and resolution

    As in many countries with unequal wealth distribution, corrupt business practices and significant interference from the State or politicians is prevalent in certain parts of Italy. According to a recent BBC News report "the study alleges that 20% of Italian shops pay regular hush money to criminals to carry on business undisturbed. The proportion is much higher in southern Italy. In Sicily, eight out of 10 shops pay a regular monthly sum to the Mafia." (BBC News, 2008)

    To counter such unethical practices while sustaining a healthy business relationship, a UK company in its business transactions with Italy will require evolving an ethical code that aims at ensuring a triple bottom line orientation.

    In recent years both an Italian CSR Multi-stakeholder Forum and an Italian Centre for Social Responsibility have been created in Italy. Firms' attitudes and behaviour differ according to their geographical position. Research shows that the attention of northern Italy towards the environment and care for social issues is much deeper than in southern Italy (Chamber of Commerce of Milan, 2002).

    The ethical code may be adopted by the UK business in Italy, by applying Simon Zadek's 5-stage approach (Zadek, 2004):

    Defensive stage:

    Identify stakeholders and create awareness about the Vatican endorsement of 'moral responsibility' of ensuring positive environmental, social and economic impact

    Compliance stage:

    Express and communicate the need and approach for a triple bottom line orientation; foster debate and respond to criticism

    Managerial stage:

    Allow modifications in business terms in line with the triple bottom line agenda and change business processes and parameters

    Strategic stage:

    Redefine and recast organisation strategy; accentuate competitive advantages by repositioning products and services as responsible to all stakeholders

    Civil stage:

    Communicate beyond stakeholders to affecting parties (politicians, corrupt intermediaries) about societal good and the imperative of triple bottom line orientation

    The UK management will also have to have an alert and active reporting system to advocate its approach and actions to the Italian society. Through application of CSR ethical principles the management can operate on more sustainable long-term business with local support.

  5. Review the concepts of Cross-cultural Management within the chosen country. You have to promote one of your team members at the managerial position in this country. How would you define his/her main challenges to be successful in order to manage a team in this target country?

Cross-cultural management

The cross-cultural manager faces many and different challenges. Communication difficulties arise in managing a team from a different culture, accenting issues related to hierarchy and decision making protocols (Brett et al, 2006). Historical and cultural contexts influence cognition, perception and interpretation. Each culture is distinct, based around a diverse set of values, priorities and contexts. In a foreign country the manager, with an open mind towards these cultural differences, can ensure effective communication within the team and deliver performance. A review of the cross cultural management aspects in Italy and the challenges faced by a UK manager being promoted to a managerial position in Italy are addressed in this paper.

It is necessary to be aware that challenges arise due to cultural differences in an international context. For instance, ethnocentric adoption of American managerial style within a foreign country with an assumption that it will be equally effective in achieving the goals of the organisation is na�ve (Hofstede, 1993).

Successful cross-national management, therefore, requires a good understanding of cultural differences and can be acquired through exposure, experience or training. The five fundamental cultural dimensions of power distance, uncertainty avoidance, individualism-collectivism, masculinity and time orientation, offer explanations for cultural differences (Hofstede, 2000).

The manager in a new country must adapt to the cultural needs of the team and can face interpersonal conflicts, misinterpretations and reduced returns from global diversity and knowledge sharing if there is failure to understand and acclimatise to the social and cultural norms of the host country.

With awareness of cultural differences, managers can develop skills required to decode unspoken subtleties underlying communications and behaviours integrated into the cultural context. As managers develop their understanding of these expectations and become comfortable with the environment they adapt behaviour to meet the needs of their team, motivation and improve performance (Brett et al, 2006).

For a UK manager being promoted to lead an Italian team, there are several key differences in communications and cultural context that influence the best style of management to adopt (Gorrill, 2007). The most obvious difference in communication is that the language spoken is Italian, but there are less obvious communications differences. Though the international business language is English, it is extremely important for an international manager to make an effort to use Italian.

Italian culture is highly individualistic and values individual responsibility and close family ties. In general, Italian businesses are owned by individuals and families. This individualism prompts Italians prefer to do business with familiar people (Gorrill, 2007). Initiatives towards building a rapport with the Italians can have positive impact through an attempt to speak Italian, which demonstrates wilful effort and strength of character.

Significant to Italian business culture is Bella Figura, the ability to dress well and project an aura of confidence, style, demeanour and formality (Gorrill, 2007). 'When in Rome, do as the Romans do', and the Romans, like other Italians, essentially make a Bella Figura. Since appearances and other's opinions are considered vital, it is necessary that all communications and business materials are aesthetically pleasant to the Italian team.

In spite of using Italian, the UK manager may face potential pitfalls such as over-reliance on the telephone. The uninitiated UK manager phoning members of their team could find that they appear curt and unresponsive. Italians prefer in-person contact, so it is important to spend time developing relationships. Major business deals are not concluded over the phone or by mail. According to Gorrill (2007), "Italians prefer to conduct business face to face where eye-contact can be made."

Formal style and the language convey insights into the culture through written communication such as letters. Italians traditional and formal culture is present in the form of protocols required in business writing, and the expected adherence to strict styles and formats. Within an Italian business setting it is appropriate to use last names until suggested otherwise. These factors are also seen in Italian organisational structures, as they have typically had centralised government, transportation systems and businesses (Gorrill, 2007).

Whilst governmental organisations have been traditionally highly centralised, there have been recent moves to modernise and decentralise the operations (OECD, 2007). Hofstede (1993) highlighted these social structural issues in recognising the low power distance in the culture. By being aware of the hierarchical and stratified nature of society, UK managers can ensure that they adapt to cultural norms by involving people further up the hierarchy than necessary for the decision making process in the UK (Brett, et al, 2006).

Italians are emotional and expressive communicators with large hand gestures during conversations (Gorrill, 2007). They tend to be wordy, eloquent, emotional, and demonstrative, often communicating with facial and hand gestures (Gioseffi, 1997). A similar approach is taken when they come to make a business presentation. With a desire to be eloquent and positive, the Italians speak at considerable length to ensure the audience realises they have thought of all the points (Carte & Fox, 2008). Also, to be involved with the Italians, the UK manager needs to know and understand the protocols for the non-verbal communication. A handshake with direct eye contact and a smile often suffices between strangers.

Forging business relationships is an important part of the culture (Gorrill, 2007). Business lunches are often a good time to develop these relationships, and the conversation will often cover politics and current affairs over business-related topics. As a result, "Italians are often guided by their feelings and in business situations this is important to remember, as establishing solid relationships based on trust are a vital for successful business negotiations" (Gorrill, 2007).

Italian tendency to argue and debate is carried over into business meetings (Gorrill, 2007). Meetings are formal and follow strict protocols, with the central decision maker listening to all opinions and reaching a compromise that meets the needs of the strategic objectives. Though this is a top-down decision structure, again demonstrating the high power distance and hierarchy of the culture, all opinions are discussed. Discussion of opinions may also involve more heated arguments than in a UK office because it is considered necessary to consider all possibilities to come to a conclusion. For this reason, decisions often take longer to make than is typical within the UK, and the UK manager should be aware of this, and not plan to finalise decisions with a single agenda point.

Meetings are formal but with flexible time keeping. Italians are "polychronic" and the English "monochronic". Italians have greater multitasking opportunity, arguing more than one idea at a time and a generally more flexible outlook. When scheduling a meeting or indeed, a deadline, the UK manager should ensure that there is a certain amount of acceptable flexibility within the request and that the team members agree to the expectations (Carte & Fox, 2008).

It is clear that there are many potential factors that can serve to reduce the efficiency of multicultural teams. These issues include differences in communications styles, and cultural norms related to protocols, hierarchies and time perception. However, by ensuring awareness, cultural flexibility, understanding and willingness to adapt, the UK manager can address these difficulties and benefit from the improved access to knowledge and information available in a diverse, cross-cultural team.