1. Chapter 4 : Emphasizing Institutions, Culture, and Ethics Highlights the roles of institutions, culture and ethics that may influence a firm’s strategies and profitability. Student Name : Munira Mustafa Student ID : 2010135033 Lecturer Name : Mr Shamsul Baharin Saihani

2. What is Institutions? 1)The humanly devised constraints that structure human interaction based on the rules of game metaphor (North, 1990). 2)Institution is related to the government in which sets and enforces certain policies. Institutional Framework consist of 2: 1)Formal Institution – government enacts & enforces law & regulations & rules 2)Informal Institution – not a pre-established set of rules that an individual and a firm must abide, more to norms & culture Key Functions of Institutions: 1)To minimize the risks associated with doing business by reducing the uncertainties 2)Provide stability to enable firms to operate in the most efficient way which benefits the consumers

3. Institution and Uncertainty The role of a government is to be able to reduce uncertainty, as it increases a firm’s efficiency and reduces the cost of doing business. Institution- based View Two main propositions: 1)Firms consciously pursue their interest and strategies within institutional constraint 2)Combinations of formal and informal institutions are supposed to govern a firm’s behaviour

4. The Strategic Role of Culture What is Culture? The collection of values, beliefs, behaviours, customs, and attitudes that differentiate one society from another.

5. Problem in Dealing with Cultural Differences 1) Company and management orientation - Cultural orientation : Ethnocentrism – one’s own way of doing things is the best and will not seek to adapt local culture practices Polycentrism – Firms must seek to do things the way locals do Parochialism – The only way to do something is the way it is done in one’s own culture 2) Host society acceptance Firms easy to succeed in foreign lands should the host country be receptive to foreign way of doing things 3) Degree of cultural differences It refers to whether key cultural differences are small or great 4) Ability to adjust to foreign culture Inability to adjust to foreign culture sometimes associated with culture shock

6. Impact of Culture on Businesses 1)The inability to understand different cultures which may cause a devastating effect 2)In order to avoid cultural problem, training is important to raise cultural sensitivity 3)Cultural sensitivity is a state of heightened awareness for the values and frames of reference of the host culture 4)Different cultural framework: -Geert Hofstede’s five dimensions of culture -Trompenaar’s seven cultural framework -The GLOBE study Role of Culture 1)Important to better understand the different cultures 2)Help to avoid blunders or wrong decisions in foreign markets

7. The Strategic Role of Ethics What is ethics? The principles of what is right and wrong that an individual and firms use to make strategic choices to guide their behaviour Impact of Ethics What is ethical is not necessarily legal but what is legal is sometimes unethical. Three different views: 1)A positive view- firms are self-motivated to act and behave ethically 2)A negative view- firms are the followers in which they jump onto the “bandwagon effect” under social pressure to appear more legitimate without necessarily becoming more ethical 3)An instrumental view- Ethical behaviour is a useful instrument that can lead to firm profitability

8. Ethics and International Business 1)Managing ethics in foreign land is a challenging task as what is ethical in one country may be regarded as unethical or even illegal in other country 2)Firms face an ethical dilemma when dealing in foreign land as to whether to impose home country ethical values or tolerate the host country’s ethical values 3)Thomas Donaldson three guiding principle: i)Respect for human dignity and basic rights ii)Respect for local traditions iii)Respect for institutional context