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Several researchers have pointed out severally that culture should be one of the most significant things that need to be addressed by any individual or company engaging in business. The effect of culture on the success and achievement, amongst other factors, is one of the commonly debated issues in the current world of business. A perfect example of the significance given to the cultural issues is the extensive attention paid to the success. Business managers and executives are moving around more frequently than ever before. According to Oppenheim (2003), this trend continues increasing in the future. O'Ryan, De Miguel, Miller, and Pereira (2011) consider that the universe is getting smaller and that the horizons are getting wider, particularly the managerial ones. As companies relocate to various countries, they must be aware of the cultural implications they might face. Irrespective of the level of open-mindedness, they have been formed and nurtured in their own societies, with beliefs and customs that are an extreme basis of misconceptions and biases.
The fact that the economy of Chile is strongly reintegrating and engaging into the international world of business is more than motivation to perform a research in this area. According to O'Ryan, De Miguel, Miller, and Pereira (2011), the Chilean society is witnessing significant changes, and similar to its Latin American neighbors, the country is striving to find its way and place in the present globalization process. O'Ryan, De Miguel, Miller, and Pereira (2011) cite that the effect of the Chilean culture on the manner in which the Chileans undertake business activities has been recently investigated in Chile. This is perhaps because of the disappointment of the earlier economic models and the comparative success of other countries. It should be noted that the lack of literature on this particular topic is also another motivation to explore this area. There is some adequate literature concerning the Chilean culture, as well as the American one. However, very few researchers have written about cross-cultural relations between the USA and Chilean economies. In this regard, this research is aimed at performing a cross-cultural analysis between the United States of America and Chile.
2. Research Question 1: Major Elements and Dimensions of Culture
According to Lazo (2012), cultural dimension refers to a framework for cross-cultural communication developed by Geert Hofstede. The framework describes the impacts of the culture of a society on the value of its members, as well as the relationship between cultural values and behavior. The framework is achieved by using a structure derived from the factor analysis. By putting together the national scores of the cultural dimensions, the model allows performing an international comparison between cultures, which is also referred to as comparative research. This research will use the dimensions of culture to perform a cross-cultural analysis between Chile and the United States of America. The main elements and dimensions of culture include communication, religion, ethics, values and attitudes, ethics, social structures, variances in attitudes across culture, and various meanings of words.
2.1.1. Spoken Languages
The official language of the Republic of Chile is Spanish, with certain exceptions of isolated immigrants and native communities. According to Heiss and Navia (2007), apart from Spanish, the Chileans speak about eight languages, and seven languages seem to be extinct. The Aymara language is common in the northern regions, such as Tarapaca, Parinacota, Iquique, and Arica. The second language spoken is Huilliche, which is popular in the South of Mapuche, in such regions as Valdiva and Chiloe. The ethnic population of the Huilliche speaking community stands at about 17000 Chileans. Kunza is the third language spoken in the country. It is popular in such regions as Socaire, Caspana, and Peine. The Kunza language has been dormant in Chile. Another language spoken by a considerable number of the Chileans is Mapudungun. It is common in the central and southern provinces, such as Malleco and Cautin. The ethnic population of the Mapudungun speaking community stands at 604000 Chileans. The Qawasqar language is also popular in Patagonia, in such regions as the Isle of Welligton. Yamana is also one of the Chilean languages spoken in such regions as Isla Navarino, Patagonia, Ukika, and Puerto Williams. Spanish is the most popular language used for communication in Chile. It should be noted that over 50% of Chileans have the Spanish language skills.
2.2. Different Meanings of Words across Languages
2.2.1. High Context vs. Low Context
Language is one of the key components that should be considered when a business decides to go global. Being cognizant of the cultural differences might significantly contribute to the success of negotiating any business deals. In addition, ignoring the cultural differences might result in several misunderstandings or end of a business meeting. The cultures of different countries have been classified by a conceptualization of low and high context, particularly with respect to interpersonal communication. In the high-context cultures, according to Johnson, Lindsey, and Zakahi (2001), communication is frequently not explicit and depends more on situational cues, non-verbal behavior, and trust. On the other hand, in the low-content cultures, various interpretations more frequently rely on what is said or written. In nature, the high-context cultures are regarded as collectivist cultures. In such cultures, individuals seem to develop more intimate relationships with each other and engage in personal communication. On the contrary, according to Johnson, Lindsey, and Zakahi (2001), individuals in the low-context cultures seem to be more individualistic in nature. In such cultures, individuals are more estranged from each other and engage in impersonal communication.
The Chileans are high context culture individuals. Therefore, the US companies opting to explore opportunities in Chile should consider that the Chileans prefer to communicate in a too informal manner. They can start talking about their families in a situation that most Americans will perceive as formal. The Chileans believe that in such a way, they are trying to be friendly. In addition, Johnson, Lindsey, and Zakahi (2001) point out that the interpersonal relationships are an essential part of the Chileans. For a Chilean, good conversation topics include wine, family, and sights that they might recommend. The subjects to be avoided comprise local politics, religion, human rights violations, and events in the recent Chilean history, involving the armed forces. As a result, foreign companies should avoid engaging in these topics and focus on their goal because such issues are divisive and emotional among the Chileans. According to O'Ryan, De Miguel, Miller, and Pereira (2011), the Chileans are sovereign and proud people, and overall sentiment is that foreign companies should be involved in the internal differences of Chile or how it resolves these differences. As a foreigner, meddling in the affairs of Chile might be catastrophic as it might lead to the cancellation of licenses. As a result, foreign companies must critically analyze their CSR initiatives to ensure that they do not link with the internal affairs of the country. Should the government of Chile or the media request the opinion of the organization about local politics, human rights violations and events in the recent history, it is a good idea to have diplomatic information.
2.2.2 Non-verbal vs. Verbal Communication
The Chileans are likely to use a lot of body language and converse at a closer distance than the Americans do. Frequently, they prefer to place one hand on the other persons shoulder. This might not be appropriate for other cultures. It is important to restrain from backing away, even if one is uncomfortable. The Chileans maintain a close distance when communicating. As a result, they can step forward in order to come closer to their partner (Hall, Hondroyiannis, Swamy, & Tavlas, 2011). When communicating to the Chileans, it is important to maintain an eye contact in order to show sincerity, something that other low-context cultures might find difficult. Slapping of the right hand fist into the left hand palm indicates aggressiveness and possibility for a physical confrontation (Kleinberg, & Fordham, 2010). Showing an open palm with the separated fingers is a symbol for being stupid.
From a verbal perspective, gestures and louder tones of voice accompanied by the oral expressions are used in order to emphasize certain points. They are also considered as tools used to convince the other communicating party concerning a certain point of view or a particular perspective regarding a certain issue.
Many Chileans are Roman Catholics. Johnson, Lindsey, and Zakahi(2001) point out that there is a gradual shift in the attitudes of people towards others and that the society seems not to reflect all the teachings and faith of the Catholic Church within the last decade. Social researchers also point out that the Catholic Church has influenced directly the governance of the country. The Chilean government and the opposition regularly consult the Catholic Church. It should be noted that the Catholic Church is culturally regarded as an institution of significant moral and financial power that holds the morals and values of Chile. Most Chileans consider the church as a place for seeking security and reassurance during the times of problems. However, at a personal level, the majority of the Chileans seem to find themselves in disagreement with the position of the church concerning such issues as abortion and teaching of sexual education at school, especially during the rise and onset of AIDs and divorce. It is worth mentioning that the Chileans have been increasing and advocating for the movements towards a more open dialogue both out and in of the church so as to address issues. According to Johnson, Lindsey, and Zakahi(2001), similar debate has been taken to the workplace where there may be a certain employee experiencing criticism or obtaining the support for his/her actions. Adherence and respect to the Catholic holidays remains extremely important in Chile.
Christianity is the second largest religion in Chile after Catholicism. About 17% of the Chileans are Christians. David Trumbull, an American Missionary, and the German immigrants Protestants, especially the Lutherans, brought Protestantism to Chile during the first half of the 19-th century. Later, Presbyterians, Seventh-day Adventists, Anglicans Pentecostals and Methodists came to Chile.
2.4.1. Corporate Social Responsibility (CSR)
Little is known concerning how and why corporate social responsibility emerged in the less developed nations. In many North American countries and European corporate agendas, corporate social responsibility (CSR) has been working its way up in a steady manner (Perez Arrau, Eades, & Wilson, 2012). In such regions, CSR is frequently defined as the activities and status of the organization in relation to its perceived social obligations. In the developed economies, such as the United States of America, the societal obligations of companies are increasingly perceived as the pursuit of the triple bottom line. Nevertheless, the need to comprehend corporate social responsibility from a wider spectrum has significantly grown. The 2012 World Summit on Sustainable Development (WSSD) has emphasized a focus on social and poverty reduction. Regardless of the promises of CSR initiatives, policymakers and managers seem to have little comprehension of how these programs take hold. Most of the knowledge concerning CSR has been developed via the study of the North American and European corporate agendas, whereas the studies in the less developed countries, such as Chile, have begun emerging. It should be noted that most of studies are still focused on the specialized industries and issues. Johnson, Lindsey, and Zakahi (2001) examined the CSR initiatives in the developing countries. The scholars try to find out how CSR is defined by these countries, the factors driving its adoption, and the barriers to its adoption in the following countries.
Various research findings indicate that corporate social responsibility is apparently taking hold in the Chilean economy, despite the number of companies having a full CSR program appearing to be small. Johnson, Lindsey, and Zakahi (2001) note that the concept of corporate social responsibility became more widely accepted in the Chilean setting in the year 2000. For instance, according to the Chilean Federation of Industry, the SOFOFA (La Sociedad de Fomento Fabril), which is a private non-profit trade organization with about 25000 corporate affiliates, started offering the corporate social responsibility awards in 1998. Just like in the case of Europe and North America, Johnson, Lindsey, and Zakahi(2001) stress that the roots of corporate social responsibility appeared long before this date. Several Chilean companies have been undertaking the CSR-type activities for several years; however, these initiatives have not been frequently considered as CSR (Mercurio, 2009). Nevertheless, according to O'Ryan, De Miguel, Miller, and Pereira (2011), these initiatives were frequently fragmented actions, policies or programs compared to the contemporary CSR, which is integrated into a robust management model.
In their study conducted in 2005, Johnson, Lindsey, and Zakahi (2001) argue that the Chilean CSR initiatives only comprised two of five dimensions of culture. The two dimensions included: raising the quality of life of workers and making commitment to the community. From the survey, it is evident that little emphasis is placed on the environment responsible marketing practices or high business ethics. The majority of the recent studies argue that corporate social responsibility in Chile has rapidly moved beyond what had been suggested by the 2005 research. According to Johnson, Lindsey, and Zakahi (2001), corporate social responsibility is gaining strength and occupies a significant place in the Chilean corporate agenda. Johnson, Lindsey, and Zakahi (2001) also confirm this contention.
There are various terms used to describe the CSR initiatives in Chile, which ranges from social responsibility to sustainability and sustainable development, as well as strategic social responsibility. Regardless of the terminology used to describe the CSR initiatives, CSR represents the actions beyond philanthropy and legal obligations. According to Johnson, Lindsey, and Zakahi (2001), CSR remains a conscience driven, morally correct concept that gives the legitimacy to an organization.
The most fully developed Chilean CSR initiatives are based on the long tradition of philanthropy and religious convictions. Nevertheless, the majority of the Chilean organizations are capable of clearly differentiating between philanthropy, historical foundations of religion, and ethics. While defining a more fully formulated corporate social responsibility initiative, researchers have noted the significance of integrating the initiative into the strategy of a company, as well as creating key relationships (Rodriguez, & Gomez, 2009).
The investigation of the prevalence of corruption in Chile essentially suffers from the inadequacy of pre-existing academic research onto which both contemporary and historical analysis could be performed. According to O'Ryan, De Miguel, Miller, and Pereira (2011), this scenario might be explained partially by various reasons. Firstly, the academic studies seem to be more reactive than proactive. It means that some issues are seldom researched until they are perceived either significant and problematic or topical. O'Ryan, De Miguel, Miller, and Pereira (2011) assert that the configuration of the historical scenarios in Chile has implied that the issue of corruption has been recognized to be significantly less prevalent and less obvious than in other countries of Latin America. According to Lazo (2012), Chile seems not to be apparently in the same category as Mexico, Brazil or Venezuela in terms of corruption in the political system. As a result, the body of research has seemed to concentrate on those cases where corruption is more easily observable or evident. Secondly, the aspects of corruption in Chile might also explain the inadequacy of research material. According to Oppenheim (2003), corruption does exist in Chile; though, it has been typically low-key, presuming its specific aspects. The low intensity of corruption, according to Lazo (2012), is certainly very difficult to classify, measure, and define in relation to other flagrant abuses of persons, ruling parties, or sectors of the society. Thirdly, according to Lazo (2012), the low-intensity activities might become an integral component of the political culture. They have acknowledged the ways how politics should be fulfilled. As a result, they have failed to raise objections from the opinion of the public. Johnson, Lindsey, and Zakahi (2001) point out that these issues are perceived unacceptable only when the political atmosphere changes. Nevertheless, corruption has been evident in Chile. Corruption in the Chilean economic atmosphere seems to be influenced by the political environment of a specific period, as well as by the social context.
According to Johnson, Lindsey, and Zakahis (2001) study, the high prevalence of public perception of corruption contradicts the official rankings that rate Chile as the least corrupt nation in Latin America. According to the findings of the study, there is an approximately 18% decrease in the discernment of institutional corruption. This study also concurs with Lazos (2012) study claiming that corruption in Chile is influenced by the political atmosphere. The political parties seem to be perceived as the most corrupt, with a prevalence of 42%. The municipalities and courts, which both registered 28%, are ranked as the second most corrupt institutions in Chile. The Congress of Chile is ranked third. Based on these rankings, the US companies opting to seize the opportunities in the Chilean economy will experience some problems in case they have to follow the law. With the courts ranked the second most corrupt institutions, a multinational company might not be capable of finding justice from the courts. On the other hand, the fact that Chile is not as corrupt as other countries of Latin America puts it in a better place to do business. It implies that most companies would prefer doing business in Chile as compared to other countries of Latin America, such as Mexico, Brazil, or Venezuela.
2.5. Values and Attitudes
According to O'Ryan, De Miguel, Miller, and Pereira (2011), cultural values and attitudes need to be considered by the parties conducting business. The objective is that the parties conducting business must be aware of the role played by values and attitudes in order not to interfere with communication between themselves. Various values and attitudes discussed include business manners and customs, as well as the Chilean social structure.
2.5.1. Variances in Attitudes across Cultures
According to Johnson, Lindsey, and Zakahi (2001), the Chileans seem to have a sophisticated attitude towards time. Whereas punctuality is appreciated and expected in the culture of business, their attitude towards time orientation is very flexible. As a result, the representatives of the American companies should not be surprised when the scheduled meetings commence about 10 to 15 minutes later from the appointed time. Negotiations might also last longer since the Chileans are likely to clarify a number of details and spend a lot of time on establishing relationships. Including extra time into the schedule and being patient can assist in building the business relations with the Chileans partners. Arriving on time when invited to a social event is regarded as rude by the Chileans.
The individualistic cultures, which are dominant in North America, tend to have a monochromic time orientation. It implies that they have a robust way of doing one task at a time. On the other hand, the collectivist cultures, such as the Chilean one, seem to have a polychronic orientation of time. It implies that the Chileans think about and try to do several tasks simultaneously. As a result, whereas the representatives of the US companies might prefer discussing various topics by following an order, the Chileans might like to follow no order until the previous topic is finished. According to Johnson, Lindsey, and Zakahi (2001), Americans feel that following no order during business communication is a barrier to the communication process, thus resulting in the omission of key subjects. According to Johnson, Lindsey, and Zakahi(2001), the Chileans feel that following an order of doing tasks consumes a plenty of time and does not allow them to finish their tasks.
The dimension of uncertainty avoidance can be used to describe how the Chileans deal with change. Uncertainty avoidance refers to the degree to which members of the society feel threatened by change or unknown circumstances. They have created various institutions and beliefs in order to avoid any change. According to Johnson, Lindsey, and Zakahi(2001), this cultural dimension is concerned with the manner in which the society deals with the fact that the future can never be known. There are those societies that believe that the future can be controlled, and those that allow the future to unfold. Johnson, Lindsey, and Zakahi (2001) state that ambiguity comes together with change. Scholars consider that various cultures have to adapt to these changes in various ways. Chile scores highly in this dimension, which is similar to other countries of Latin American belonging to the former Spanish kingdom. The high score in uncertainty avoidance indicates high concern for laws, controls, and regulations. It should be noted that the Chilean society does not accept change and is adverse to any risk. The high level of uncertainty avoidance (86%) indicates the Chilean low level of tolerance to uncertainty. In order to minimize or reduce the levels of uncertainty that comes along with change, the Chileans use strict policies, laws, and regulations. The main goal of the Chilean society is to be in control of everything in order to eliminate or avoid the uncertainty. Because of these high uncertainty avoidance aspects of the Chilean culture, the society does not accept change readily.
Irrespective of the level in the workforce, Chilean women are at slim disadvantage because of the machismo ethic, which has been evident in Chile. The Chilean men are considered as dependable and in charge of making significant decisions. According to Johnson, Lindsey, and Zakahi(2001), the Chilean women take a supportive role in the non-traditional fields of employment, such as management and business. According to Heiss and Navia (2007), women have similar opportunities at all levels of the educational system to enter several aspects of the society. Nevertheless, few Chilean women are enthusiastic to commit themselves to a full time career unless they can get support of the family members. The Chilean women and men admire and respect those women who have managed to get some influential positions.
2.5.2. Business Manners and Customs across Cultures
The Chileans have relationships that are driven by culture. For instance, the initial business meetings should be used to build business relationships and establish trust between the partners. The foreign executives who are time conscious are likely to wait longer upon arriving to an appointment. This makes the Chileans seem as if they were busy and in demand. However, when inviting an important person for a business meeting, the Chileans are likely to reduce the waiting time. However, the concept of keeping an individual waiting is not often the case with the reputable corporations that have international ideologies.
Irrespective of t gender, most Chilean business meetings commence with a handshake, particularly in the first meetings. As the relationship continues to develop, both parties negotiating a business deal become demonstrative. These demonstrations might include kissing onto the cheek or embracing between men. It is important not to rush to the issue when in the business meeting since the Chileans usually commence with some polite chats. Usually, the first part of the conversation is often devoted to discussing their families. They frequently consider the business meetings as being between two individuals, which is the reason for personal interaction.
The insider status and relationships in the Chilean culture of business seem to be more significant. Connections or pitutos are used in getting information or business deals. As such, a representative of a foreign company should ask the employees whether they know another individual who can do a certain job much better than they do. This implies that getting the license of operating in Chile can be very difficult if a company has no connection with potential persons. Having a connection with local Chileans is significant when seeking for any help. It should be noted that it is a common practice that people of the same family work in one company. The majority of the employment opportunities are not published in the newspaper because the concept of pituto prevails.
2.5.3. Social Structures
The dimension of power distance can be used to explain the social status within the Chilean society. According to Heiss and Navia(2007), the dimension of power distance deals with the fact that people in the society are not equal. The dimension of power distance expresses the attitudes of a cultural society towards the inequalities among its members. Heiss and Navia (2007) define power distance as the degree to which the less powerful members of organizations and institutions within a nation accept and expect that power is not equally distributed. Despite Chile scoring lower on the power distance index than the majority of the countries of Latin America (at 63), it occupies an intermediary to high position on this cultural dimension. According to Heiss and Navia(2007), the leftovers of the authoritarian past of Chile are evident in various fields. Studies indicate that the organizational structures display the tall pyramids and the low levels of delegation. The symbols of a social status are used to underline power differences. As a result, a hierarchical social structure and rigid social classes are present in Chile. It is uncommon for executives in the higher levels to associate with the ordinary employees outside their workplace.
3. Research Question 2: The Integration of Chilean Culture into the Business Environment
3.1.1. US Trade Relations
Only 15.8% of the exports of Chile are destined for the United States. Most of exports from Chile have been given preferential access to the market of the United States via the general system of preferences (GSP). According to Lazo (2012), since the 1990s, Chilean business has been aimed at stabilizing the market access, fearing the withdrawal of the GSP at any moment, and introducing new regulations. As a result, Chile got an opportunity when George Bush launched the Initiative for the Americas in 1990 (Bull, 2007). In 1994, the US administration invited Chile to join formally the North American Free Trade Agreement (NAFTA), but due to the failure of attaining a renewal of the Trade Promotion Authority (TPA), the US agreement with Chile remained pending (Bull, 2007). During his first term in office, George Bush negotiated with Chile in order to renew the TPA, which was premised on the insertion of different environmental and labor issues. By that time, the multilateral agreements for the Free Trade Area of the Americas had taken place. The NAFTA established the grounds not only for the multilateral agreements, but also the bilateral ones that were pursued by the USA (Beckman, Colwell, & Cunningham, 2009).
The NAFTA is typified by negligible region institution building. It openly rejects the common minimum principles in the spheres of environment and labor; though, it acknowledges the rights of every party to implement the principles and legislation beyond which the participants in the market are referred to the existing standards established by the industry associations. In addition, according to Bull (2007), the NAFTA relies on a dispute resolution mechanism in order to deal with the failure of any parties to enforce their own environmental and labor laws.
The initial American proposal in the agreements with Chile was modeled on the NAFTA. The following proposal permitted the use of the trade and monetary sanctions in the spheres of noncompliance with the environmental or labor laws. Lazo (2012) points out that the Chilean business community and the government, fearing the US accusations of social dumping, strongly opposed this proposal. Bianchi and Ostale (2006) claim that since the USA partly did not emphasize the strict implementation of the TPA, Chile was capable of influencing the outcome. As a result, the USA and Chile reached a compromise negotiation that was principally similar to the NAFTA in the sense that it has a mechanism for resolving conflicts and lacks certain standards (Kleinberg, & Fordham, 2010). Thus, different trade agreements cannot be taken into consideration until an extremely time-consuming and sophisticated process is concluded (Amoros, Atienza, & Romani, 2008).
3.1.2. EU Trade Relations
According to Bianchi and Ostale(2006), the European Union is one of the Chiles single largest markets. Chile exports about 22% of its products to the European Union. As such, the Chilean government and business community were interested in securing the stable market accessibility for their agricultural and fish products (Bull, 2007). The political and social issues seem to be of equal significance as the market accessibility for the European Union when negotiating with Chile. The Chileans had a background knowledge concerning the European preference for the inclusion of the social issues in the agreements (Kleinberg, & Fordham, 2010). In addition, the Chilean government and business community were worried about the non-governmental organizations that link the environmental issues and trade. Chile wanted to make sure that these NGOs did not influence a campaign against the possible trade treaties. As such, Chile proposed robust regulations, backed by the laws on labor and environmental rights. Nevertheless, the EU negotiators who emphasize the implementation of the dialogue institutions watered down their proposals (Bull, 2007).
On the one hand, the position of the EU indicated the EUs long-standing way of rejecting agreements based on the sanctions, especially concerning the trade agreements and labor standards. On the other hand, the position indicated the emerging approaches to the social regulations oriented towards the European Union level. The outcome was an ambitious treaty; though, it ironically included some extremely short formal statements concerning social issues. The agreement between Chile and the EU states that the contracting parties should foster participation of social speakers in the issues related to social integration and living standards.
3.1.3. Asia and Other Trade Relations
The global financial crisis of 2008 and increasing impetus towards the South-South trade cooperation might have accelerated the growing trade relations between Asia and Chile. According to Bull (2007), the relations were initially led by the private sector that reacted to different investment barriers, increasing business opportunities, and falling trade. In addition, inter-regional investment has significantly increased significantly; though, there was no inter-regional trade from Asia to Chile.
The assessment of the free trade agreements (FTA) between Chile and Asian countries indicates that progress has been made in decreasing trade and regulatory hindrances. Much should be accomplished in the future agreements in order to expand and solidify the process of deep economic integration between Chile and Asian countries (Hudec, 2002). In the FTA between Chile and Asian countries, traditional areas, such as services and goods, are essentially well covered (Bull, 2007). Comparatively, comprehensive provisions and fast liberalization on the service typify most trade relations between Chile and other countries. Several trade relations between Chile and other countries, such as Singapore, also extend beyond the services and goods in order to support deeper economic integration via various provisions and issues on the IPRs. The Trans-Pacific Strategic Economic Partnership Agreement and the Chile-Australia Free Trade Agreements are of particular importance. However, the Asia-Chile FTAs adopt somewhat watchful approach to the liberalization of sensitive regulatory hindrances in the economic areas, such as competition, government procurement, and investment (Beckman, Colwell, & Cunningham, 2009). The FTAs have helped Chile build great business confidence and trust that are important for the investment flows and inter-regional trade.
3.2. Major Industries
The manufacturing industry of Chile witnessed a strong performance between 1985 and 1991. During this period, the Industrial Development Association (IDA), also referred to as Sociedad de Fomento, anticipated an increase of about 7% to 10 % in the industrial input (O'Ryan, De Miguel, Miller, & Pereira, 2011). Unexpectedly, the manufacturing industry grew by 12.3% during the first three quarters. During this period, the manufacturing sector grew averagely at a rate of 6.2%. This rate contrasted favorably with the average rate of growth during the 1960s, which was 5.1% per year. Nevertheless, regardless of the ever-changing behavior of manufacturing as a whole, the development of various industries within this sector was not even. Certain industries were capable of capitalizing on Chiles comparative advantage, therefore expanding at an extremely fast speed. In several cases, this expansion was because of the development of the speedy growth in exports, as well as the development of the new international markets. Nevertheless, other industries in the manufacturing sector became victims of decreases in the relative prices, which was caused by either the loss of international importers or trade liberalization. Such industries were forced to decrease the scope of their operations.
The Chilean manufacturing industry accounts for over 18% of its GDP. According to Soto and Zurita (2011), manufacturing is significantly dependent on the processing and refining of Chiles agricultural, mineral, forestry and fishing resources. Examples of the manufactured products from Chile include copper wire and piping, wine, juices, fertilizers, fruit and seafood canning, jams, chocolates, chemical wood pulp, timber, doors and window frames, and so on.
The recent value for the manufacturing industry of Chile, or the value added, was about US $ 27146630000 as of 2011 (O'Ryan, De Miguel, Miller, & Pereira, 2011). Azzimonti and Sarte (2007) define the value added as the net output of any sector after subtracting the intermediate inputs and adding all the outputs. The value is computed without making deductions for depreciation of the fabricated assets or degradation and depletion of natural resources. Over the past half a century, the value for the manufacturing industry of Chile fluctuated between US $ 27146630000 in 2011 and US $ 850703200 in 1960. (O'Ryan, De Miguel, Miller, & Pereira, 2011). The graph below shows the trend of the value added since 1961 to 2011.
Source: O'Ryan, De Miguel, Miller, and Pereira (2011).
3.2.2. Copper Mining
Despite the decline in the relative importance of copper in the 1970s and 1980s, it remains one of the most significant products of the country. The mining sector of Chile represented about 6.7% of the GDP in 1992, as compared to the 8.9% in 1985 (Meyer, 2014). Exports from copper represented about 30% of the total export value. It was a significant decline in relation to the 1960s when copper exports accounted for about 80% of the total exported products (Rodriguez & Gomez, 2009). Mining exports represented approximately 48% of the total exported goods in 1991 (Meyer, 2014).
Two main developments are notable with respect to the copper mining sector of Chile. The first development was a significant increase in the output of copper from 1987 to 1991, as well as a comparative decrease in the production of blister copper. The second development was the establishment of a state-owned corporation referred to as Corporacion del Copre (CODELCO). CODELCO was the largest producer of copper in the world.
The CODELCO law of 1992 allowed the corporation to establish joint ventures with the private sector in order to work on the unexploited copper deposits. Therefore, in 1995, the main step undertaken by the corporation was to invite the foreign mining companies to take part in the joint explorations in Northern Chile. According to Azzimonti and Sarte (2007), the foreign mining companies were to become important as new investment projects were underway. The increase significance of the foreign mining companies resulted from the international business community that perceived Chile as good place for conducting business. It should be noted that the CODELCO law was passed during the Pinochet administration. This law introduced the compensation rules in cases of nationalization and encouraged investments in the copper mining sector.
Presently, copper contributes about 20% of GDP of the country and accounts for about 60% of the total export products. Because of copper mining, the economy of Chile seems to be growing by about 6% yearly, whereas the unemployment and inflation rates are desirably low (Azzimonti, & Sarte, 2007). The governments income from copper during the period of 2000 to 2005 was about 2.1 billion dollars annually. The income rose to US $ 11.5 billion between 2005 and 2011 as the Chinese copper exports increased (Meyer, 2014). Copper mining has significantly contributed to the economy of the country by reducing the poverty levels (Beckman, Colwell, & Cunningham, 2009). The copper mining sector of Chile is hybrid. The state-owned corporation competes with the private companies. During its early years, CODELCO suffered from the lack of improvements.
The emerging markets for copper everywhere seem to make copper be used in manufacturing of cars and various equipments, as well as construction of bridges. Amoros, Atienza, and Romani (2008) point out that the international demand for copper has significantly increased since the rural population has been moving to the cities.
The Chilean wine sector has built its reputation as a world exporter of good-value and inexpensive wines. In order to increase profitability and capture the new markets, particularly in Asia, the wine sector of Chile is focusing on brand image and quality. Chile has been ranked as the worlds fifth largest wine exporter after Italy, Spain, France, and Australia. Chile enjoys about 8% market share of wine globally (Schiff, 2002). In 2013, the countrys exports from wine grew by about 8.9% to approximately $ 1.69 billion, translating into about 700 million liters of wine (Lazo, 2012). The overall wine consumption by the Chileans per capita declined from 15 liters in 2010 to 13 liters in 2011 as the demand for other beverages and beer has been increasing. The 2020 strategic plan for the wines of Chile is to increase the domestic sales to about $ 480 million and double the exports to $ 3 billion by end of this decade (Beckman, Colwell, & Cunningham, 2009).
The large producers led by Santa Rita Vina San Pedro and Concha y Toro, dominate in the Chilean wine sector. According to Beckman, Colwell, and Cunningham (2009), there are more than 300 exporters of wine in Chile; though, the dominant ten exporters account for about 52% of Chiles total wine. In the wine sector, economies of scale are significant, with the Chilean wine business experiencing competition, particularly from Argentina that has been a success in the USA.
4. Research Question 3: Comparing Culture and Business of Chile and the USA
Chile is a politically stable and upper-middle-income country. It population is about 17.5 million persons. In 1810, Chile declared its independence from Spain, but it attained its full independence in 1818. By 1932, Chile had formed a mass electoral democracy that endured until 1973. Between 1932 and 1972, the presidents pursuing state-led development and political and social incorporation of the working classes governed the country. In 1973, the Chilean military overthrew the Allende government in a violent coup and rapidly consolidated control of the nation under General Augusto Pinochet. Chiles transition to democracy happened under the regulations established by the military dictatorial administration of 1973-1990. By the end of this military administration, the number of the killed people had increased to about 3216, and the figure for the tortured or imprisoned persons had been more than 38000. In 1980, Chile adopted a constitution that exemplified the spirit of the National Security Doctrine (NSD) of the Cold War under the government of Pinochet. According to Fernandes and Paunov (2012), the NSD aimed at establishing protected democracy that secured military instruction over the civilian authorities and restricted political pluralism.
Pinochet lost the poll in 1988, therefore allowing for elections in 1989. Since the culmination of his government was definite, the period represented a transition from one admin to another, which occurs in the well-defined democracies. Pinochets outgoing administration rejected the democratic oppositions request to negotiate reforms, instead it unilaterally proposed constitutional amendments.
Several scholars have argued that the Chilean military administration agreed to reform the 1980 constitution in order to give it legitimacy and secure its acceptance by the opposition. The reforms of the 1989 eliminated several protected democracies, though not all. Several freedoms limiting the freedoms of individuals had persisted until the 2005 reforms were conducted. For instance, the presence of the senators inhibited electoral majorities from attaining the commanding majority status in the Senate. Limitations on national security provisions and individual liberties, which informed decisions on the formation of political parties and activities, as well as education, remained regardless of the efforts of the democratic government to transform them all. Pinochets outgoing regime successfully implemented the set reforms would receive the consent of the incoming administration, while retaining certain authoritarian provisions.
The USA, unlike Chile, is well-established democracy that has existed for centuries. The USA gained its independence on July 4, 1776, earlier than Chile (Johnson, Lindsey, & Zakahi, 2001). The USA has enjoyed stable governance for a very long time. The stable political environment in the USA plays a significant role in attracting new investors. The political stability in both Chile and the United State varies in terms of time. With respect to political stability, a foreign investor would prefer the USA to Chile because of the several years of political stability in the United States of America.
4.2.1. Growth Focus
In 2012, the largest economic sectors of Chile were agriculture, mining, and services. With respect to agriculture, Chile focuses on producing different kinds of wine that meet the set global stands. In relation to mining, Chile focuses on increasing copper export. In relation to services, the economic sector of the country focuses on tourism and finance. These economic sectors indicate the growth focus. The key focus areas of the Chilean economy include agriculture, mining, and services.
The agricultural sector accounts for about 5% of GDP and employs about 14% of labor force of the country (Ramirez, 2006). The main agricultural products include pears, apples, wheat, corn, peaches, asparagus, beef, fish, timber, and grapes among others. The position of Chile in the Southern Hemisphere results in an agricultural season cycle that is opposite to those of the main consumer markets, mainly located in the Northern Hemisphere. The unique climate and geography of Chile make it appropriate for the production of wine. They have also made Chile the top 10 wine producers worldwide.
Mining is one of Chiles economic pillars. The government strongly supports foreign investment in this sector. The Chilean government has made the mining laws flexible in order create a suitable environment for investment because there are large amounts of copper deposits. The country has become the world copper mining capital since it produces about one-third of copper globally.
The Chilean service sector has grown consistently and faster in the recent decades since it has been reinforced by quick information technology and communication development. According to Greenaway and Kneller (2007), Chilean foreign policy acknowledges the significance of the tertiary industry to the economy. The tertiary sector boots Chileans international liberalization and results in the signing of various FTAs. The countrys service exportation portfolio comprises mainly aeronautical, maritime, retail and tourism services.
4.3. Human Resources Management Function in Chile
Similar to other models of management, in Chile, human resource management (HRM) appeared in the 1980s. In the globalized world, the most significant Chilean companies rapidly adopted HRM because of the observation of the general practices of management of their international rivals, educated employees, recommendations from the consulting companies, or fashionable books. Despite HRM and certain practices penetrating organization in Chile, Rodriguez and Gomez (2009) also acknowledge that its adoption has not been straightforward. In Chile, for instance, HRM has clashed with certain aspects of the local culture and society. As a result, HRM in Chile has taken a hybrid form in organizations. The cultural aspects have been combined with the theoretical perspective of HRM.
5. Research Question 4: Comparison between Culture and Business of the US Firms Conducting Business in Chile
5.1. South America Emerging Markets
5.1.1. Chile Growth Attraction to FDI
Chile is one of the best economies in Latin America. Chiles social progress and sustained growth have been highlighted by various international organizations. In addition, in 2010, Chile became the first country from Latin America that joined the Organisation for Economic Co-operation and Development (OECD). According to Hsing (2012), stability, competitiveness and excellent business prospects of Chile have positioned the country as the best destination for foreign investment. According to Schiff (2002), Chile has been ranked as the 11th largest recipient of Foreign Direct Investment (FDI). Chile has also been classified among the 20 countries with the highest recipients for the second consecutive year with a record of US $ 30323 million as FDI.
Within the 8 years from 2005 to 2012, the countrys GDP increased at annual rate of 4.6%. Despite the European debt crisis of 2012, the economy of Chile showed its pliability to adverse economic conditions, and its GDP increased by 5.6% to US $ 268413 (Perez, Eades, & Wilson, 2012). As such, Chiles per capita income reached US $ 15410 (Perez, Eades, & Wilson, 2012).
5.2. Political Ramifications
5.2.1. Stability of the Government of Chile
The stability of the government plays a significant role in attracting foreign business. According to Ramirez (2006), the increasing essentiality and significance of FDI for attaining economic development has created interest in the foreign investment decisions. Studies indicate that foreign investments consider sociopolitical stability of Chile as one of the most important considerations in allotting finances to the foreign projects. This is because of the belief that the absence of sociopolitical stability is likely to make foreign investors subject to the whim of forces beyond control. Symptoms of political instability include strikes, demonstrations, and assassinations. It is wrong to claim that Chile does not witness these symptoms. They might be present in Chile but at a relatively lower level that can attract foreign investors.
5.2.2. Policy Making and FDI
Policymaking plays a significant role in attracting FDI (Poniachik, 2002). In 2012, Chile managed to attract a record of 28.2 billion dollars in FDI, which is a 63% increase from 2011. Chiles main policy seeks to attain technological innovation, modernization, international integration, and improved infrastructure.
In a proposal to encourage technological innovation, the Chilean government is setting the public internet access centers and offering loans to help small firms to acquire computers. Technological innovations that are currently taking place in Chile allow the country to compete with other developed countries, such the USA, in terms of labor.
With regard to modernizing the state, the Chilean government has realized that establishing a business in Chile involves 12 steps, compared to an average of three in the USA. The Chilean government is harnessing technology in order to assist in reducing bureaucracy and increasing transparency. The government will increase FDI by eliminating bureaucracy in the business settings.
Chiles policy also emphasizes on international integration. The Chilean government aims at strengthening its international integration by negotiating additional FTAs and double taxation treaties (DTTs). These measures will attract foreign investments. Through negotiations, the government is looking for different business opportunities for the Chilean firms abroad.
5.3. Costs and Benefits to the US investors
5.3.1. Historical Growth of FDI of the USA in Chile
Foreign Direct Investment (FDI) of the USA in Chile was about US $ 40 billion in 2012. This was a14% increase in FDI from 2011 (Soto & Zurita, 2011). The direct investment in Chile by the USA is most reported in the insurance, finance and manufacturing sectors. On the other hand, Chiles FDI in the USA was about US $ 414 million in 2012, which represents an increase of 14.7% from 2011. According to Meyer (2014), the sales of the US services in Chile by the majority of the US-owned affiliates were about US $ 9.7 billion in 2011, whereas the sales of services in the USA by the majority of the Chile-owned companies were US $ 177 million in 2011 (Soto & Zurita, 2011).
5.3.2. Chile Investment Attraction by the USA, the EU, and Other Nations
Other countries have also aimed at attracting the Chilean initiatives. The EU and the USA are using the Organizations for Economic and Cooperation Development (OECD) Model Convention to attract Chilean FDI. As a member of the OECD, Chile is likely to trade with other member countries. In fact, Chile adopts the OECDs Base Erosion and Profit Shifting (BEPS) Action Plan aimed at the eradication of double taxation. This step is likely to attract the Chilean firms to operate in other OECD nations adopting the OECDs Action Plan.
A global business cultural analysis of Chile Is performed in the following research. Various aspects considered in performing the analysis include communication, different meaning of words across languages, religion, ethics, a well as values and attitude. It is evident that the Chilean high-context culture might pose a significant challenge to the US firms opting to invest in its economy. When communicating to the Chileans, it is important to maintain an eye contact in order to show sincerity. It is also found out that the majority of Chileans is Catholics. The US-Chile trade relations are principally similar to the NAFTA in the sense that it has a mechanism for resolving conflicts and lacks certain standards. The major industries in Chile include mining, wine and manufacturing. The key focus areas of the Chilean economy include agriculture, mining, and services. Chiles main policy seeks to attain technological innovation, modernization of the state, international integration, and improved infrastructure.