Chapter 3 Emphasizing Cultures, Ethics, and Norms

LEARNING OBJECTIVES After studying this chapter, you should be able to: 1.Define what culture is and articulate its two main manifestations: language and religion 2.Discuss how cultures systematically differ from each other 3.Understand the importance of ethics and ways to combat corruption 4.Identify norms associated with strategic responses when firms deal with ethical challenges 5.Participate in three leading debates on cultures, ethics, and norms 6.Draw implications for action

WHERE DO INFORMAL INSTITUTIONS COME FROM? informal institutions - cultures, ethics, and norms  socially transmitted information and are part of the heritage that we call cultures, ethics, and norms  ethnocentrism - self-centered mentality within a society; people tend to perceive their own culture, ethics, and norms as “natural, rational, and morally right”

CULTURE culture - national identity of nation-states Prof. Geert Hofstede - conducted perhaps the most comprehensive study of how values in the workplace are influenced by culture: “the collective programming of the mind which distinguishes the members of one group or category of people from another”

LANGUAGE lingua franca - dominance of one language as a global business language  English-speaking countries contribute the largest share of global output  globalization calls for the use of one common language  nonnative speakers of English who can master English increasingly command a premium in jobs and compensation  expatriate manager not knowing the local language misses a lot of cultural subtleties and can only interact with locals fluent in English

RELIGION  set of common beliefs and practices generally held by a group of people, often codified as prayer, ritual, and religious law  religion also encompasses ancestral or cultural traditions, writings, history, and mythology, as well as personal faith and mystic experience  leading religions: Christianity (approximately 1.7 billion adherents), Islam (1 billion), Hinduism (750 million) and Buddhism (350 million)

CLASSIFYING CULTURAL DIFFERENCES context - underlying background upon which interaction takes place low-context cultures - culture in which communication is usually taken at face value without much reliance on unspoken context high-context cultures - culture in which communication relies a lot on the underlying unspoken context, which is as important as the words used

CLASSIFYING CULTURAL DIFFERENCES cluster - countries that share similar cultures together as one  cluster approach groups countries that share similar cultures together as one cluster  three influential sets of clusters: Ronen and Shenkar, GLOBE, and Huntington civilizations  civilization - highest cultural grouping of people and the broadest level of cultural identity people have

DIMENSION APPROACH dimension approach has endeavored to overcome limitations:  context only represents one dimension  cluster approach has relatively little to offer regarding differences among countries within one cluster

DIMENSION APPROACH power distance - extent to which less powerful members within a country expect and accept that power is distributed unequally individualism - perspective that the identity of an individual is fundamentally his or her own collectivism - idea that the identity of an individual is primarily based on the identity of his or her collective group masculinity - sex-role differentiation femininity - sex-role differentiation uncertainty avoidance - extent to which members in different cultures accept ambiguous situations and tolerate uncertainty long-term orientation - emphasizes perseverance and savings for future betterment

ETHICS ethics - principles, standards, and norms of conduct governing individual and firm behavior code of conduct - set of guidelines for making ethical decisions ethical relativism -“When in Rome, do as the Romans do” ethical imperialism - absolute belief that “there is only one set of Ethics (with a capital E), and we have it” corruption - abuse of public power for private benefits usually in the form of bribery Foreign Corrupt Practices Act (FCPA) - US law enacted in 1977 that bans bribery to foreign officials norms - prevailing practices of relevant players that affect the focal individuals and firms

Economic Development: Western Values vs. Eastern Values Belief in the superiority of Western values has recently been challenged by two sets of Eastern values: Islam and Asian (Confucian). Islamic fundamentalism, which, rightly or wrongly, argues that Western dominance causes the lackluster economic performance of Muslim countries. Marketing of Western products in these countries is seen as a cultural invasion. Islamic fundamentalists prefer to go “back to the roots” by moving away from Western influence. Asian (Confucian) values are widely viewed as the engine behind the “Asian economic miracle.” Not only do Asians proudly proclaim the validity of “Asian values,” but leading Western scholars also increasingly endorse such a view.

Cultural Change: Convergence vs. Divergence In this age of globalization, one side of the debate argues that there is a great deal of convergence, especially toward more “modern” Western values such as individualism and consumerism. Another side suggests that Westernization in consumption does not necessarily mean Westernization in values. In a most extreme example, on the night of September 10, 2001, 9/11 terrorists enjoyed some American soft drinks, pizzas, and movies and then went on to kill thousands of Americans the next day. A middle-of-the-road group makes two points. First, with the end of the Cold War, the rise of the Internet, and the ascendance of English, there is no doubt some convergence—at least on the surface and among the youth.

Opportunism versus Individualism/Collectivism Opportunism is a major source of uncertainty that adds to transaction costs, and institutions emerge to combat opportunism. However, critics argue that emphasizing opportunism as “human nature” may backfire in practice by causing distrust that could lead to opportunistic behaviors. Transaction cost theorists acknowledge that opportunists are a minority in any population. However, theorists contend that because of the difficulty in identifying a minority of opportunists before they cause any damage, it is imperative to place safeguards that, unfortunately, treat everybody as a potential opportunist. United States, the leading individualist country, is among societies with a higher level of spontaneous trust, whereas there is greater interpersonal and interfirm distrust in the large society in China.