© 2010 Cengage Learning. All rights reserved. CHAPTER 3 GLOBAL t PENG © 2010 Cengage Learning. All rights reserved.

Chapter 3 LEARNING OBJECTIVES After studying this chapter, you should be able to: Explain where informal institutions comes from. Define culture and articulate its two main manifestations. Articulate three ways to understand cultural differences. Explain why understanding cultural differences is crucial for global business. Explain why ethics is important. Identify ways to combat corruption. Identify norms associated with strategic responses when firms deal with ethical challenges. Explain how you can acquire cross-cultural literacy. © 2010 Cengage Learning. All rights reserved.

LO1: WHERE DO INFORMAL INSTITUTIONS COME FROM? Socially transmitted information, part of the heritage we call cultures, ethics and norms. Informal institutions © 2010 Cengage Learning. All rights reserved.

© 2010 Cengage Learning. All rights reserved. LO2: CULTURE “the collective programming of the mind which distinguishes the members of one group or category of people from another.” Geert Hofstede © 2010 Cengage Learning. All rights reserved.

LO2: TWO COMPONENTS OF CULTURE Of the nearly 6,000 languages spoken in the world, English is a distant second to Chinese in terms of number of native speakers. And yet, its status as the lingua franca, the global business language, is unmistakable. This is due to two factors: English-speaking countries contribute the largest share of global economic output, and recent globalization has called for the use of one language. Because religious differences have led to numerous challenges, knowledge about religious is crucial even for non-religious managers. For example, half of annual toy sales in the US occur during the month before Christmas. Managers and firms ignorant of religious traditions and differences may end up with embarassments or disasters. Language Religion © 2010 Cengage Learning. All rights reserved.

LO3: THREE WAYS TO UNDERSTAND CULTURAL DIFFERENCES Context Approach: context is the background against which interaction takes place. In Low context cultures, such as North American or Western Europe, communication usually taken at face value without much reliance on unspoken conditions or assumptions. “No” means “no.” In High context cultures, such as Arab and Asian countries, communication relies heavily upon unspoken conditions or assumptions. “No” does not necessarily mean “no.” © 2010 Cengage Learning. All rights reserved.

LO3: THREE WAYS TO UNDERSTAND CULTURAL DIFFERENCES Cluster Approach: groups countries that share similar cultures into a cluster. The underlying view of this approach is that people and firms are more comfortable doing business with other countries within the same cluster. Having a common language, history, religion or culture reduces the liability of foreignness when operating abroad. © 2010 Cengage Learning. All rights reserved.

LO3: THREE WAYS TO UNDERSTAND CULTURAL DIFFERENCES Dimension Approach: focuses on multiple dimensions of cultural differences both within and across cultures. This approach is far more influential than the context or cluster approach for two reasons: The context approach only represents on dimension. The cluster approach has relatively little to offer regarding the differences between countries within a single cluster. There are five dimension to the Dimension Approach: Power Distance – the extent to which less powerful members within a country expect and accept that power is distributed equally. Individualism vs. collectivism – the idea that an individual’s identity is fundamentally his or her own. Masculinity vs. femininity – sex role differentiations. Uncertainty avoidance – the extent to which members in a culture accept or avoid ambiguous situations and uncertainty. Long-term orientation – emphasizes perseverance and savings for future betterment © 2010 Cengage Learning. All rights reserved.

LO5: THE IMPORTANCE OF ETHICS Ethics – the principles, standards, and norms of conduct that govern individual and firm behavior. The value of an ethical reputation is magnified during a time of crisis. The three views on firms’ ethical motivations are: Negative View – suggests that firms may simply jump onto the ethics bandwagon under social pressure to appear more legitimate without necessarily becoming better. Positive View – maintains that some (though not all) firms may be self-motivated to do it right regardless of social pressure. Instrumental View – believes that good ethics may simply be a useful instrument to help make money. Three views on firms’ ethical motivations: Negative view Positive view Instrumental view © 2010 Cengage Learning. All rights reserved.

LO5: MANGAING ETHICS OVERSEAS Three Core Principles Respect for human dignity and basic rights Respect for local traditions There are two schools of thought on how to manage ethics overseas. Ethical relativism follows the line of thought “When in Rome, do as the Romans do.” Ethical imperialism refers to the absolute belief that “There is only one set of Ethics, and we have it.” Americans are especially renowned for believing that their ethical values should be applied universally. Respect for institutional context © 2010 Cengage Learning. All rights reserved.

© 2010 Cengage Learning. All rights reserved. LO6: CORRUPTION The abuse of public power for private benefits usually in the form of bribery, in cash or in kind. © 2010 Cengage Learning. All rights reserved.

LO7: STRATEGIC RESPONSES TO ETHICAL CHALLENGES A reactive strategy is passive. Firms do not feel compelled to act when problems arise, and denial is the first line of defense. A defensive strategy focuses on regulatory compliance. An accommodative strategy involves accepting responsibility as an organizational norm, and cognitive beliefs and values are increasingly internalized. A proactive strategy involves anticipating institutional changes, and doing more than is required. © 2010 Cengage Learning. All rights reserved.

DEBATE: Are cultures converging or diverging? Some argue for a convergence toward “modern” Western values such as individualism and consumerism. Divergence – others argue that Westernization in consumption does not indicate Westernization of values. vs. Or…Crossvergence © 2010 Cengage Learning. All rights reserved.

LO8: ACQUIRING CULTURAL INTELLIGENCE Three phases… Awareness Knowledge Skills © 2010 Cengage Learning. All rights reserved.

LO8: CULTURAL INTELLIGENCE © 2010 Cengage Learning. All rights reserved.