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EMPHASIZING CULTURES, ETHICS, & NORMS
Learning Objectives
After studying this chapter, you should be able to:
1. Explain where informal institutions come from.
2. Define culture and articulate its two main manifestations.
3. Articulate three ways to understand cultural differences.
4. Explain why understanding cultural differences is crucial for global business.
5. Explain why ethics is important.
6. Identify ways to combat corruption.
7. Identify norms associated with strategic responses when firms deal with ethical
challenges.
8. Explain how you can acquire crosscultural literacy.
Chapter Summary
This chapter focuses on informal institutions, particularly culture, ethics, and norms. The
section on culture begins by explaining the complexity of culture and offers students an
insight into culture by discussing two facets of culture: language and religion. We look at
three approaches to classifying cultural differences—the context approach, the cluster
approach, and the dimension approach—and then consider how culture influences global
business. The section on ethics defines ethics, discusses how to manage ethics in other
cultures, and looks at corruption. Finally, the section on norms discusses the four
different strategies a firm can take to deal with potential ethical issues: reactive,
defensive, accommodative, and proactive.
Opening Case Discussion Guide
The Opening Case illustrates how expats might encounter cultural differences when
working abroad and interacting with a local workforce. The case presents the
recollections of a Swiss engineer working for the French firm Alstom in Saudi Arabia.
Have students focus on identifying different cultural norms and behaviors held by the
Swiss engineers and their Saudi counterparts. Then have them examine how people
responded to these differences, and what kinds of responses and attitudes had a positive
effect on relations. Use this case as a way to get students thinking about how to
understand and respond to cultural differences as they move ahead in this chapter.
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LESSON PLAN FOR LECTURE
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Brief Outline and Suggested PowerPoint Slides:
Learning Outcome PowerPoint Slides
Learning Objectives Overview 2: Learning Objectives
LO1 3: Where Do Informal Institutions Come
Explain where informal institutions come From?
from. 4: Ethnocentrism
LO2 5: Culture
Define culture and articulate its two main 6: Two Components of Culture
manifestations.
LO3 7: Context Approach
Articulate three ways to understand cultural 8: Cluster Approach
differences. 9: Dimension Approach
LO4 1011: Cultural Differences and Global
Explain why understanding cultural Business
differences is crucial for global business.
LO5 12: Ethics
Explain why ethics is important. 13: The Importance of Ethics
14: Managing Ethics Overseas
LO6 15: Corruption
Identify ways to combat corruption. 16: Combating Corruption
LO7 17: Strategic Responses to Ethical
Identify norms associated with strategic Challenges
responses when firms deal with ethical
challenges.
LO8 18: Cultural Intelligence
Explain how you can acquire crosscultural 19: Acquiring Cultural Intelligence
literacy. 20: Cultural Intelligence
Debate 21: Are Cultures Converging or Diverging?
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CHAPTER OUTLINE
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LO1: Explain where informal institutions come from
1. Key Concepts
Informal institutions come from “socially transmitted information and are a part
of the heritage that we call cultures, ethics, and norms.” In the following sections,
these three components are discussed in greater detail.
2. Key Terms
Ethnocentrism is a selfcentered mentality held by a group of people who
perceive their own culture, ethics, and norms as natural, rational, and morally
right.
3. Discussion Exercise
The importance of cultures, ethics, and norms can be illustrated by pointing out
certain behaviors that are accepted in some cultures but considered major
breaches of decorum in others. For example, in Japan, chopsticks should not be
stuck vertically in a bowl of rice, since this is a funerary rite. If there are any
international students in the course, the instructor may want to invite them (with
cultural sensitivity, of course) to share their observations on the differences
between the US and their native country. The weight of cultural differences can
also be examined through a discussion of the “Ugly American,” an epithet that is
used in other countries to refer to what is perceived to be the stereotypical, loud,
arrogant and ethnocentric behavior of Americans when abroad. How do cultural
differences between the US and other countries fuel such stereotypical images?
LO2: Define culture and articulate its two main manifestations
1. Key Concepts
This section discusses the “culture” component of informal institutions. Here,
culture is defined as “the collective programming of the mind which distinguishes
the members of one group or category of people from another.” In talking about
culture, it is important to remember that there is no strict, onetoone
correspondence between cultures and nations. While we often think of “Chinese”
culture, in reality, there are numerous cultural groups within China, many of
which would not identify themselves as “Chinese” at all.
2. Key Terms
Culture is the collective programming of the mind which distinguishes the
members of one group or category of people from another.
Lingua franca is a global business language.
3. Discussion Exercise
This section identifies two major components of culture that are critical for
successful global business – language and religion. Keeping in mind the definition
of culture given above, first, ask students to identify other components of culture,
such as cuisine, dress or rituals. Then, have the entire class reflect on how these
components affect business activities. How would a firm market a certain product
to a culture distinguished by traditional stories? How would a firm move into a
culture that emphasizes hunting? How would your business take advantage of
differences in eating habits or fashion choices?
LO3: Articulate three ways to understand cultural differences/LO4: Explain why
understanding cultural differences is crucial for global business
1. Key Concepts
Because of the cultural diversity in the world, the ability to see the systematic
differences between cultures is extremely important. For effective global
business, managers must be able to understand not only the distinctive aspects of
a particular culture, but how those aspects compare and contrast to other cultures.
This section introduces three approaches to classifying culture: the context approach,
the cluster approach, and the dimension approach. While all three are informative,
the dimension approach is more influential, since it classifies cultures according
to multiple dimensions, and provides for a means of making comparisons across
culture.
2. Key Terms
Civilization is the highest cultural grouping of people and the broadest level of
cultural identity people have.
Cluster is a group of countries that have similar cultures.
Collectivism refers to the idea that an individual’s identity is fundamentally tied
to the identity of his or her collective group.
Context is the background against which interaction takes place.
Femininity a relatively weak form of societallevel sexrole differentiation
whereby more women occupy positions that reward assertiveness and more men
work in caring professions.
Highcontext cultures is a culture in which communication relies heavily on the
underlying unspoken conditions or assumptions, which are as important as the
words used.
Individualism refers to the idea that the identity of an individual is
fundamentally his or her own.
Longterm orientation a perspective that emphasizes perseverance and savings
for future betterment.
Lowcontext cultures is a culture in which communication is usually taken at
face value without much reliance on unspoken conditions or assumptions.
Masculinity refers to a relatively strong form of societallevel sexrole
differentiation whereby men tend to have occupations that reward assertiveness
and women tend to work in caring professions.
Power distance is the extent to which less powerful members within a culture
expect and accept that power is distributed unequally.
Uncertainty avoidance refers to the extent to which members of a culture accept
or avoid ambiguous situations and uncertainty.
3. Discussion Exercise
The Hofstede Dimensions of Culture (Ex. 3.3, pg. 39) displays the cultural
characteristics of a country/region according to a number of criteria. Divide the
class into groups, and assign each group a particular country that is shown in the
exhibit. Each group should then create a set of guidelines for the conduct of
business that is appropriate for each culture. Afterwards, assign each group a
second culture, different from the first, and have them outline what policy or
philosophical changes would be necessary given the differences between the
cultures.
LO5: Explain why ethics is important/LO6: Identify ways to combat corruption
1. Key Concepts
The term “ethics” refers to the principles, standards, and norms of conduct that
govern individual and firm behavior. While there is substantial overlap between
what is ethical and what is legal, it is not complete; that is to say, something that
is legal can often times be considered unethical. Likewise, what is ethical in one
culture may not be considered so in another. This section introduces two
approaches to dealing with this difference: ethical imperialism and ethical
relativism. This section also looks at three motivations that a firm has in dealing
with ethical issues: a negative view, a positive view and an instrumental view.
The section concludes with an examination of the issues involved in the battle
against corruption.
2. Key Terms
Ethics refers to the principles, standards, and norms of conduct that govern
individual and firm behavior.
Code of conduct is a set of guidelines for making ethical decisions.
Corruption is often defined as the abuse of public power for private benefits,
usually in the form of bribery.
Ethical imperialism is the absolute belief that “there is only one set of Ethics
(with a capital E), and we have it.”
Ethical relativism is a perspective that suggests that all ethical standards are
relative.
3. Discussion Exercise
As mentioned at the close of this section, corruption and bribery will not be
eliminated until every country criminalizes such actions and enforces anti
corruption legislation strictly. Though there have been some broadlevel
agreements, the reality is that corruption and bribery still run rampant in many
countries because of the lack of effective legislation, or because of the lack of
enforcement.
Imagine that you are the CEO of a firm that is about to enter into a foreign
country. While this country has passed anticorruption laws, the absence of any
enforcement is notorious. What is more, it is quite well known in the business
community that bribery is both accepted and required in order to attain any
measurable success. How would you guide your firm through this situation?
Would you engage in an action that you consider unethical but which others
consider ethical? Would you impose your own ethical standards and avoid bribery
at all costs? Or, would you press government officials to enforce anticorruption
laws that are already in the books?
LO7: Identify norms associated with strategic responses when firms deal with
ethical challenges
1. Key Concepts
This section discusses the four approaches that a firm can take when challenged with
ethical issues: reactive strategy, defensive strategy, accommodative strategy,
proactive strategy.
2. Key Terms
Accommodative strategy is a response to and ethical challenge that involves
accepting responsibility.
Defensive strategy is a response to an ethical challenge that often involves
denial and belated action to correct problems.
Norms are the prevailing practices of relevant players that affect the focal
individuals and firms.
Proactive strategy is a strategy that anticipates ethical challenges and addresses
them before they happen.
Reactive strategy is a response to an ethical challenge that often involves denial
and belated action to correct problems.
3. Discussion Exercise
On September 16, 2008, AIG (American Insurance Group), received an $85
billion bailout package from the US Federal Reserve in order to meet its financial
obligations and maintain liquidity. The support package was increased to a
potential $182.5 billion by May 2009. After the first bailout plan, it was
discovered that AIG spent $444,000 on a retreat for employees and distributors,
$86,000 on an executive hunting trip, and $343,000 on a corporate event in
Arizona. In March 2009, AIG announced that it would pay $165 million in
bonuses, in spite of its historic losses and dependence on government
intervention. All of this was legal, of course, but roundly criticized as an unethical
use of taxpayers’ dollars.
What was the ethical strategy that AIG took with respect to company expenditures
and the payment of bonuses? In your opinion, what strategy should they have
taken? Can you think of a way in which AIG could have paid the bonuses while
also maintaining a positive ethical reputation? Would you have approved the
spending and bonuses? Why or why not?
LO8: Explain how you can acquire crosscultural literacy
1. Key Concepts
Success in global business requires two principles relevant to informal
institutions. First, managers should enhance their cultural intelligence, that is, an
individual’s ability to understand and adjust to new cultures. While there are
different ways this knowledge can be acquired, the most effective is through a
total immersion experience. Second, managers should be aware of the prevailing
norms and their transitions globally. Firms that fail to appreciate the passing of
old norms and adapt accordingly are likely to fall behind or even go out of
business.
2. Key Terms
Cultural intelligence is an individual’s ability to understand and adjust to new
cultures.
Debate: Are Cultures Converging or Diverging?
1. Key Concepts
What is the direction in which cultures change? Some argue that cultures are
becoming more similar, especially with Western values. Others argue that
globalization in consumption does not lead to convergence of cultures. Two key
positions prevail in this debate:
Convergence is the view that cultures around the world are becoming more similar.
Divergence is the view that consumption of Western products does not equate to the
adoption of Western values.
Crossvergence is the view that acknowledges that while there is some level of
similarity among cultures, there are still significant cultural differences.
Closing Case
Closing Case Discussion Guide
Can a government legislate morality? Maybe not but it can legislate behavior.
That legislation may not always stop bad behavior but if properly enforced, it may
make violators sorry what they did and serve as an example to deter others. The
FCPA was intended to stop bribery or at least stop companies that are either based
or operate in the US from engaging in bribery. The law did not stop Siemens
from bribery but it did make the practice expensive for the firm.
Closing Case Discussion Questions
1. What are the costs and benefits of bribery?
In many countries bribery has long been an established way of doing business,
thus it may be a means of achieving objectives that might not otherwise be
possible. However, it also has the potential cost of negative public relations and
government penalties if it is discovered and publicized.
2. Is the FCPA unnecessarily harsh or do its provisions dispense the appropriate
level of punishment?
This is a question in which thoughtful responses are more important than the
actual answer. Students’ answers should reflect whether they think there has
been a truly dramatic change in values at Siemens or whether Siemens is simply
trying to project a repentant image.
3. In your view, how heavily should Siemens be fined? In addition to fines, what
else can be done?
This is a question in which thoughtful responses are more important than the
actual answer. Some may point out that as a minimum, given the magnitude of the
FCPA violations, the firm should be closely monitored for some time to be sure
that a change has actually occurred.
4. Are some of Siemens employees “bad apples” or is Siemens a “bad barrel”?
This is a question in which thoughtful responses are more important than the
actual answer. However, based solely on the facts presented in this case, the
bribery took place in many countries over a fairly extensive period, which
suggests that bribery was an accepted practice in this corporate culture, making
it a bad barrel. Of course, this does not mean that Siemens is not capable of
changing its corporate culture.
Video Case
Watch “Communicating Across Cultures” by Sir David Bell of Pearson.
1. Bell gave an example in which a group of people were offended when they
were told that what they did was “quite good.” Why were they offended and
what was his point?
He contrasted “American English” and “English English” in the use of the
word “quite.” He said that in the U.S. “quite good” means “very good” but
in the UK “quite good” means “awful.” Even when two people share the
same language, the use of the language can be different if it involves people
from different countries and it is important to be alert to those differences.
2. What did Bell’s example of the pantomime illustrate? Can you think of forms
of verbal or nonverbal communication in your country that could be
misunderstood by people from other parts of the world?
The pantomime was intended to train new employees from the US but it
involved an old custom in England that was much different than in the US as
well as some comments that were not politically correct. As a result, the
pantomime was less effective than it might otherwise have been. Student
examples will vary.
3. One of his objectives is to have people from various countries feel that they
are all part of the same company and to value the same things. To what extent
would that help overcome communication barriers among different cultures?
Student opinions will likely vary. Some will agree but will point out the
challenge of accomplishing that objective. The key thing is the thought put
into the response.
4. Bell indicated that one approach to improving crosscultural communication is
to periodically shift people around so that they are exposed to different parts
of an organization and the world. What are the limitations and opportunities?
Do you think technology could help in shifting people as he suggests?
Again, student opinions will likely vary. Answers should reflect that people in
this work environment need to be encouraged to keep an open mind, to be
sensitive to others, and to approach the global workplace with a focus on
learning. The key thing is the thought put into the response.
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ADDITIONAL DISCUSSION MATERIAL
*Review Questions
*Critical Discussion Questions
Review Questions
1. Where do informal institutions come from?
Informal institutions are represented by cultures, ethics, and norms. Where do
informal institutions come from? They come from socially transmitted
information and are part of the heritage that we call cultures, ethics, and norms.
2. What is the difference between a lowcontext culture and a highcontext culture?
Highcontext cultures: communication relies on the underlying unspoken context,
which is as important as the words used. Lowcontext cultures: communication is
usually taken at face value without much reliance on unspoken context.
3. Describe the three systems for classifying cultures by clusters.
The first is the Ronen and Shenkar clusters of eight geographic areas. The
second set of clusters is called the GLOBE cluster, named after the Global
Leadership and Organizational Behavior Effectiveness project which identifies
ten clusters. The third set of clusters is the Huntington civilization, which divides
the world into eight civilizations.
4. Describe the differences among the five dimensions of Hofstede’s framework.
First, power distance (the extent to which less powerful members within a
country expect and accept that power is distributed unequally), second
individualism (the perspective that the identity of an individual is fundamentally
his or her own) versus collectivism (the identity of an individual is primarily
based on the identity of his or her collective group such as family, village, or
company) third, masculinity versus femininity (refers to sexrole differentiation),
fourth, uncertainty avoidance (refers to the extent to which members in different
cultures accept ambiguous situations and tolerate uncertainty), finally, longterm
orientation emphasizes perseverance and savings for future betterment.
5. What is the difference between ethical relativism and ethical imperialism?
Ethical relativism follows the cliché, “When in Rome, do as the Romans do.”
Ethical imperialism refers to the absolute belief that “There is only one set of
Ethics (with the capital E), and we have it.”
6. How would you define corruption in a business setting?
Corruption is often defined as the abuse of public power for private benefits
usually in the form of bribery (in cash or in kind).
7. What language is considered the lingua franca of the modern business world?
Why?
Lingua franca: a global business language (English is currently the example) and
recent globalization has called for the use of one common language. Reasons:
Englishspeaking countries contribute the largest share of global output, drive
trade and investment around the world and produce products and services
marketed in English.
8. Using Peng Atlas Map 5, identify the four major religions in the world and where
they are distributed geographically.
The four leading religions are (1) Christianity (approximately 1.7 billion
adherents), (2) Islam (1 billion), (3) Hinduism (750 million), and (4) Buddhism
(350 million). Christianity is concentrated in the Americas, Australia, and
Europe. Islam is in Northern Africa, Western Asia, Malaysia, and Indonesia.
Hinduism is in India. Buddhism is in Eastern Asia.
9. Name two major components of a country’s culture and three ways to
systematically understand cultural differences.
Two major components: language and religion. Three ways to understand
cultural differences are the (1) context, (2) cluster, and (3) dimension
approaches.
10. Give three examples of how your own personal ethics might be reflected in a
firm’s code of conduct.
In regards to the examples, the important thing is not so much the answer as the
extent to which the student demonstrates thought in providing the answer.
11. Name and describe Thomas Donaldson’s three guiding ethical principles.
First, respect for human dignity and basic rights should determine the absolute
minimal ethical thresholds for all operations around the world, second, respect
for local traditions suggests cultural sensitivity, and finally, respect for
institutional context calls for a careful understanding of local institutions.
12. Explain the difference between a reactive strategy and a defensive strategy when
dealing with an ethical challenge.
A reactive strategy is passive. (Even when problems arise, firms do not feel
compelled to act, and denial is usually the first line of defense.) A defensive
strategy focuses on regulatory compliance but in the absence of regulatory
pressures, firms often fight informal pressures coming from the media and
activists.
13. What might be the outcome if several firms within an industry decide to adopt the
same accommodative strategy to a shared ethical challenge?
It becomes legitimate to accept a higher level of ethical and moral responsibility
beyond what is minimally required legally.
14. Give an example of a proactive strategy to an ethical challenge that demonstrates
your understanding of the concept.
Proactive firms anticipate institutional changes and do more than is required. In
regards to the example, the important thing is not so much the answer as the
extent to which the student demonstrates thought in providing the answer.
15. Explain the concept of crossvergence.
This involves the convergence of different cultures on some things while retaining
differences in other areas. For example, some cultures may retain traditional
aspects of lifestyles while following the business practices of other cultures with
different lifestyles or they may accept some lifestyles or values of a different
culture while rejecting others.
16. Describe the three phases that lead to cultural intelligence.
The three phases: (1) awareness, (2) knowledge, and (3) skills. Awareness refers
to the recognition of both the pros and cons of your “mental software” and the
appreciation of people from other cultures. Knowledge refers to ability to identify
the symbols, rituals, and taboos in other cultures—also known as crosscultural
literacy. Finally, skills are based on awareness and knowledge, plus good
practice.
Critical Discussion Questions
1. Suppose that you are on a plane and the passenger sitting next to you tries to have
a conversation with you. You would like to be nice but don’t want to disclose too
much information about yourself (such as your name). He or she asks: “What do
you do?” How would you answer this question?
This is a question in which the answer is not as important as the thought process
and the ability to clearly articulate.
2. ON ETHICS: Assume that you work for a New Zealand company exporting a
container of kiwis to Azerbaijan or Haiti. The customs official informs you that
there is a delay in clearing your container through customs, and it may last a
month. However, if you are willing to pay an “expediting fee” of US$200, he will
try to make it happen in one day. What would you do?
It should be noted that there was an amendment to the Foreign Corrupt Practices
Act (FCPA) which deals with socalled “grease payments.” In essence, in such a
case it would be legal to pay the official to do his or her job but it would not be
legal to pay the official to let something into the country that was prohibited or
allow a lower valuation than is proper. However, what is legal and what is
ethical are not always the same thing and thus students may have different
opinions.
3. ON ETHICS: Most developed economies have some illegal immigrants. The
United States has the largest number, with between 10 to 11 million. Without
legal US identification (ID) documents, they cannot open bank accounts or buy
houses. Many US firms have targeted this population, accepting the ID issued by
their native countries and selling them products and services. Some Americans are
furious with these business practices. Other Americans suggest that illegal
immigrants represent a growth engine in an economy with relatively little growth
elsewhere. How would you participate in this debate?
This is a question in which the answer is not as important as the thought process
and the ability to clearly articulate. Those who are in favor of immigrants will
probably argue that America has always welcomed foreigners and that these
immigrants are often willing to do jobs (typically lowpaying and laborintensive)
that many Americans are unwilling to perform. Those who are against
immigrants will probably argue that immigrants are taking job opportunities
away from taxpaying citizens and using governmentsponsored resources (such
as police protection, fire protection, and emergency healthcare) that they have
not contributed to through the payment of taxes.