Using the transparency index to categorize European countries.

Gordon, Peter J. ; Patterson, Tori E.

INTRODUCTION

Corporations operating in diverse geographic areas typically use differing corporate strategies in different countries based on similarities and differences. Usually, efforts are made to clump countries together into sub-markets with common consumer characteristics or similar cultural backgrounds. However, corporations must also acknowledge that while one basis may be used for grouping countries together in order to create marketing efficiencies, different criteria might be necessary to develop strategies that are not directly related to consumer markets. In particular, this may be true in the areas of government relations, lobbying and contracting. Approaches to these activities need to be adapted to different country groupings.

Economic and demographic variables are often the most basic way of comparing and grouping countries. While such variables may identify the economic ability to purchase, by themselves they do an incomplete job of identifying similar and dissimilar markets. Culture based variables may do a better job of defining market opportunities and grouping countries together, where the same strategies may be used.

Possibly the most quoted cross-country cultural comparison is that of Geert Hofstede. Hofstede recognized that a comparison of various cultures could be done based upon five dimensions: power distance, individualism, masculinity, uncertainty avoidance and long-term orientation. These dimensions refer to expected social behavior, "man's search for the Truth," and importance of time (Keegan and Green, 2004).

Hofstede's first dimension, power distance, indicates the degree to which lower level members of society accept an uneven distribution of power. Individuals in some countries expect an unequal power distribution, while people in other cultures would be far less likely to accept this. The higher the power distance, the more hierarchical layers subordinates would have to go through to reach their upper-level supervisor (Keegan and Green, 2004).

Individualism, the second dimension in Hofstede's cultural typology, refers to the extent to which people in a society are individually minded. The people in individualist cultures tend to be primarily concerned with the interests of themselves and their immediate family, while those in a collectivist culture are more readily integrated into groups. The United States is very individualistic, while many Asian cultures fall into the collectivist category. Individualistic societies embrace individual achievements; however, in collectivist cultures groups or teams would be praised for achievements (Keegan and Green, 2004).

The third identified dimension is masculinity. Masculine societies tend to place men in assertive and ambitious roles, while women fulfill a nurturing role. Conversely, men and women's roles overlap in feminine cultures. Men in masculine cultures may have a difficult time respecting a woman in a business meeting (Keegan and Green, 2004).

Uncertainty avoidance refers to the extent of individuals' dislike for unclear or ambiguous situations. Some cultures are much more tolerant of uncertainty, while other countries require more structure and certainty. Low levels of uncertainty avoidance mean a society is more accepting of risk taking. Alternately, high levels would indicate to marketers the need for such things as warranties and no-hassle return policies to provide a higher comfort level of individuals (Keegan and Green, 2004).

Hofstede added the fifth dimension, long-term orientation, because certain dimensions of the Asian culture were not explained by his initial typology using four dimensions. Long-term orientation refers to a culture's sense of immediacy. Cultures with a short-term orientation favor immediate gratification while long-term oriented cultures are satisfied with a deferred gratification, which may also foster a slower pace of conducting business (Keegan and Green, 2004).

Sudhir Kale built on Hofstede's framework by identifying European countries using the first four dimensions--power distance, uncertainty avoidance, individualism and masculinity--and clustering them together by commonalities. He found that countries with small power distance, medium uncertainty avoidance, medium-high individualism and high masculinity prefer "high performance" products and favor marketing efforts that use a "successful-achiever" theme. The countries in this first cluster were Austria, Germany, Switzerland, Italy, Great Britain and Ireland.

Kale identified a second cluster as Belgium, France, Greece, Portugal, Spain and Turkey. This cluster exhibited the characteristics of medium power distance, strong uncertainty avoidance, varied individualism and low-medium masculinity. Marketing to the second cluster requires a status appeal, risk reduction and emphasis on product functionality.

The final cluster Kale identified reacted favorably to novelty and variety as well as environmentally and socially conscious companies and products. Denmark, Sweden, Finland, Netherlands and Norway fall into this third cluster. Each exhibited small power distance, low uncertainty avoidance, high individualism and low masculinity (Kale, 1995).

While the preceding discussion, and a variety of other methods, do provide a basis for utilizing the same marketing strategies in countries that are clustered together, they may not provide sufficient insight into the most effective methods for dealing with politicians, government bureaucracy, lobbying, bidding and a variety of non-governmental procedures and operations.

DEVELOPING CORRUPTION BASED CLUSTERS

Clustering countries may also be helpful in developing strategies to adjust corporate behavior to match the level of transparency and corruption in groups of countries. Although the Foreign Corrupt Practices Act (FCPA) prohibits US corporations from engaging in direct bribery (as does similar legislation in the European Union) anticipating the behaviors and motivations of various foreign officials and corporate bureaucrats one might encounter in the course of doing business may be a useful strategic tool.

Transparency may be defined as the existence of, and adherence to, publicly disseminated standards and procedures in the conduct of business and government. The greater the transparency, the less corruption exists. Transparency International (TI) is an international non-government coalition against corruption. Through surveys of business people, academics and risk analysts, TI develops a Corruption Perceptions Index (CorPI) score and ranks countries on the basis of these perceptions. The 2006 CorPI scores for the Top 20 countries, plus that of other European countries and selected "bordering countries" are shown in Table 1.

DIVIDING EUROPE ACCORDING TO THE TRANSPARENCY INDEX

Corporations attempt to group countries together, often based purely on geographic location. However, by incorporating the TI index, one can more meaningfully develop clusters of countries where a similar negotiation strategy may be employed. Using CorPI index data, this study divides countries into a number of segments with clearly different standards of corruption and transparency. The attempt here is to cluster countries not merely by geography, but to group them according to the integrity of their processes and level of corruption.

In order to illustrate this methodology, this paper has attempted to use the CorPI to divide Europe into a number of corruption based clusters. Lately much has been written about the "single market" that the European Union represents. While in economic terms the EU does present a single market, cultural differences between countries remains quite large. In particular, the level of corruption and the transparency of procedures varies greatly. While this application has been limited to Europe, a similar technique can be utilized in other parts of the world.

Even a cursory examination of Table 1, along with a little geographic knowledge, would indicate that there are some clear trends when one tries to group European countries together. The most "transparent" group of countries would be the Nordic Europe group consisting of Finland, Iceland, Denmark, Sweden and Norway. These countries represented 5 of the top 8 slots on the CorPI index rankings--numbers 1, 2, 4, 6 and 8. The mean CorPI index for these countries was 9.34.

The next group of European countries could be broadly described as Anglo/Germanic Europe--Switzerland, Netherlands, Austria, United Kingdom, Germany and Ireland. These countries ranked 7, 9, 11, 11, 16 and 18. (Luxembourg, ranked 11th, could also be included in this group) The mean CorPI index for these countries was 8.4.

A third Euro group could be defined as Gallic. This small group of countries would include France and Belgium, ranking 18 and 20, with a mean CorPI index of 7.35. Arguably, Luxembourg could also be included in this group, as well as the Anglo/Germanic group.

A fourth group could be defined as the "Mediterranean/EU" group, which would include Spain (#23) Portugal (#26) Malta (#28) Italy (#45) Cyprus (#47) Greece (#54). Although not bordering the Mediterranean, Portugal is included in this grouping, due to its proximity and cultural similarity to Spain. The mean CorPI index of this group is 5.78.

A fifth cluster would include the new EU members--the Baltics (Estonia (#24), Latvia (#49) and Lithuania (#46)), Poland (#61), Hungary (#41), Czech Republic (#46), Slovakia (#49) and Slovenia (#28). The mean CorPI score for these countries was 5.125.

Finally, a cluster could be described as "Developing Europe". This includes the former Soviet-influenced countries and newly emergent republics which aspire to join the European Union at some time in the future. For some, membership is likely relatively soon (Bulgaria (#57), Croatia (#69), Romania (#84) while for others, EU membership is a very distant prospect, such as for the remaining parts of former Yugoslavia (other than Croatia), Serbia (#90), Bosnia and Herzegovina (#93--country now divided), Macedonia (#105); and the remaining European former-Soviet republics of Georgia (#99), Ukraine (#99) and Belarus (#151). Developing Europe has a mean CorPI score of 2.98.

Interestingly, while the ranking based on CorPI does bear some similarity to the ranking of countries based on per capita GDP, the differences are perhaps more striking than the similarities. (See table 3) Per Capita GDP data was obtained from the CIA World Factbook. While the CIA list does contain some internal inconsistencies, because the date of the information on each country ranges from 2003 to 2005, and the distortion caused by exchange rate fluctuation, it is a broadly accepted comparative list. While higher GDP countries generally tend to be nearer to the top of the list and lower GDP countries tend to be lower on the list, grouping countries by GDP would result in significantly different grouping than does CorPI grouping. Therefore the use of an index for transparency might be a unique indicator of the way in which business is conducted and provide a good basis for developing negotiating guidelines according to CorPI groupings.

CONCLUSIONS

This paper uses Transparency International's Corruption Perceptions Index to segment Europe into six distinct areas. Multi-national corporations may find such a grouping of countries useful in developing negotiation strategies with purchasing and sales agents and in dealings with government officials. The Nordic group of countries tends to have the highest level of transparency, while the former Soviet influenced areas that have yet to join the European Union exhibit the least transparent processes.

REFERENCES

Cambridge Factfinder (2004). Cambridge, United Kingdom: Cambridge University Press.

CIA--The World Factbook. www.cia.gov.cia/publications/factbook/rankorder/2004rank.html. (update 12 December, 2006).

Czinkota, Michael R. and Illka A. Ronkainen (2004). International Marketing, (7th edition). Mason, Ohio: South-Western.

Hofstede, Geert (1988). The Confucius Connection, Organizational Dynamics, 16 (Spring), 4-21.

Hofstede, Geert (1994). Management Scientist Are Human, Management Science, 40 (1), 4-13.

Kale, Sudhir H. (1995). Grouping Euroconsumers: A Culture-Based Clustering Approach, Journal of International Marketing, 3 (3) 42.

Keegan, Warren J. and Mark S. Green (2000). Global Marketing, (2nd edition), Upper Saddle River, New Jersey: Prentice-Hall, Inc.

Transparency International, www.transparency.org/layout/set/ print/policy_research/surveys_indices/cpi/2006.

Peter J. Gordon, Southeast Missouri State University

Tori E. Patterson, The Magellan Exchange

Table 1: Transparency Index for Selected Countries *

Country Country 2006 CorPI Confidence
Rank Score range

1 Finland 9.6 9.4 - 9.7
1 Iceland 9.6 9.5 - 9.7
1 New Zealand 9.6 9.4 - 9.6
4 Denmark 9.5 9.4 - 9.6
5 Singapore 9.4 9.2 - 9.5
6 Sweden 9.2 9.0 - 9.3
7 Switzerland 9.1 8.9 - 9.2
8 Norway 8.8 8.4 - 9.1
9 Australia 8.7 8.3 - 9.0
9 Netherlands 8.7 8.3 - 9.0
11 Austria 8.6 8.2 - 8.9
11 Luxembourg 8.6 8.1 - 9.0
11 United Kingdom 8.6 8.2 - 8.9
14 Canada 8.5 8.0 - 8.9
15 Hong Kong 8.3 7.7 - 8.8
16 Germany 8 7.8 - 8.4
17 Japan 7.6 7.0 - 8.1
18 France 7.4 6.7 - 7.8
18 Ireland 7.4 6.7 - 7.9
20 Belgium 7.3 6.6 - 7.9
20 Chile 7.3 6.6 - 7.6
20 USA 7.3 6.6 - 7.8
23 Spain 6.8 6.3 - 7.2
24 Estonia 6.7 6.1 - 7.4
26 Portugal 6.6 5.9 - 7.3
28 Malta 6.4 5.4 - 7.3
28 Slovenia 6.4 5.7 - 7.0
37 Cyprus 5.6 5.2 - 5.9
41 Hungary 5.2 5.0 - 5.4
45 Italy 4.9 4.4 - 5.4
46 Czech Republic 4.8 4.4 - 5.2
46 Lithuania 4.8 4.2 - 5.6
49 Latvia 4.7 4.0 - 5.5
49 Slovakia 4.7 4.3 - 5.2
54 Greece 4.4 3.9 - 5.0
57 Bulgaria 4 3.4 - 4.8
60 Turkey 3.8 3.3 - 4.2
61 Poland 3.7 3.2 - 4.4
69 Croatia 3.4 3.1 - 3.7
79 Morocco 3.2 2.8 - 3.5
84 Romania 3.1 3.0 - 3.2
90 Serbia 3 2.7 - 3.3
93 Armenia 2.9 2.7 - 3.0
93 Bosnia and
 Herzegovina 2.9 2.7 - 3.1
99 Georgia 2.8 2.5 - 3.0
99 Ukraine 2.8 2.5 - 3.0
105 Macedonia 2.7 2.6 - 2.9
111 Albania 2.6 2.4 - 2.7
121 Russia 2.5 2.3 - 2.7
151 Belarus 2.1 1.9 - 2.2

* List includes the top 20 countries, other European countries and
other countries which might be considered very long term prospects
for membership of the EU, even though they fall (substantially)
outside the geographic boundaries of Europe.

Source: Transparency International, 2006

Table 2: The Six "Europes"

Cluster Title Mean Countries
Number TI

1 Nordic Europe 9.34 Finland, Iceland,
 Denmark, Sweden,
 Norway
2 Anglo/Germanic 8.4 Switzerland,
 Europe Netherlands,
 Austria,
 United Kingdom,
 Germany, Ireland
3 Gallic Europe 7.35 France, Belgium
4 Mediterranean/EU 5.78 Spain, Portugal,
 Malta, Italy,
 Cyprus, Greece
5 New EU 5.13 Estonia, Latvia,
 Lithuania, Poland,
 Hungary, Czech
 Republic, Slovakia,
 Slovenia
6 Developing Europe 2.98 Bulgaria, Croatia,
 Romania, Serbia,
 Bosnia-Herzegovina,
 Macedonia, Georgia,
 Ukraine, Belarus

Table 3: Transparency Index Rank and Per Capita
GDP Rank for Selected Countries *

TI Country Country Per Capita
Rank GDP Rank

1 Finland 22
1 Iceland 12
1 New Zealand 37
4 Denmark 13
5 Singapore 29
6 Sweden 26
7 Switzerland 18
8 Norway 6
9 Australia 19
9 Netherlands 23
11 Austria 17
11 Luxembourg 2
11 United Kingdom 25
14 Canada 16
15 Hong Kong 15
16 Germany 24
17 Japan 20
18 France 27
18 Ireland 8
20 Belgium 21
20 Chile 80
20 USA 7
23 Spain 36
24 Estonia 58
26 Portugal 56
28 Malta 55
28 Slovenia 50
37 Cyprus 49
41 Hungary 62
45 Italy 28
46 Czech Republic 53
46 Lithuania 70
49 Latvia 71
49 Slovakia 63
54 Greece 45
57 Bulgaria 89
60 Turkey 95
61 Poland 73
69 Croatia 77
79 Morocco 145
84 Romania 101
90 Serbia 142
93 Armenia 133
93 Bosnia and Herzegovina 130
99 Georgia 157
99 Ukraine 115
105 Macedonia 105
111 Albania 129
121 Russia 84
151 Belarus 102

* List includes the top 20 countries, other European
countries and other countries which might be considered
very long term prospects for membership of the EU, even
though they fall (substantially) outside the
geographic boundaries of Europe.

Sources: Transparency International, 2006; CIA
World Factbook (update 12 December, 2006)