Chapter 3
Informal Institutions:
Cultures, Ethics, and Norms
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
1
3-1 Culture (1 of 3)
• Informal institutions: Institution represented by cultures, ethics, and norms
• Ethnocentrism: A self-centered mentality by a group of people who perceive
their own culture, ethics, and norms as natural, rational, and morally right
• Culture: The collective programming of the mind that distinguishes the
members of one group or category of people from another
− Includes language, religion, social structure, and education
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
2
3-1 Culture (2 of 3)
Language
• Lingua franca: A global business language
• English-speaking countries contribute the largest share of global output.
• Countries sharing a common language will find it easier to do business
with each other.
• Recent globalization has called for the use of one common language.
Religion
• Religion is a major manifestation of culture.
• Approximately 85% of the world’s population reportedly possesses
some religious belief.
• Knowledge about religions is crucial, even for non-religious managers.
Religion
Practitioners
Christianity
1.7 billion
Islam
1.6 billion
Hinduism
1 billion
Buddhism
500 million
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
3
3-1 Culture (3 of 3)
Social Structure
• Social structure: The way a society broadly organizes its members
• Social stratification: The hierarchical arrangement of individuals into social categories (strata)
such as classes, castes, and divisions within a society
• Social mobility: The degree to which members from a lower social category can rise to a higher
status, healthiness of a society
Education
• Education is an important component of culture.
• Education can be used to maintain social stratification or to break down social barriers.
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
4
3-2 Cultural Differences (1 of 2)
• There are three ways to understand cultural differences:
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
5
Figure 3.1 High-Context versus Low-Context
Cultures
Context: The underlying background upon which social interaction takes place
• Low-context culture: A culture in which communication is usually taken at face value
without much reliance on unspoken context
• High-context culture: A culture in which communication relies a lot on the underlying
unspoken context, which is as important as the words used
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
6
Table 3.2 Cultural Clusters
Cluster: Countries that share similar cultures
• Civilization: The highest cultural grouping of people and the broadest level of cultural identity
people have
Ronen and Shenkar Clusters
GLOBE Clusters
Huntington Civilizations
Anglo
Anglo
Western (1)
Arab
Middle East
Islamic
Eastern Europe
Eastern Europe
Slavic-Orthodox
Far East
Confucian Asia
Confucian (Sinic)
Germanic
Germanic Europe
Western (2)
Latin America
Latin America
Latin American
Latin Europe
Latin Europe
Western (3)
Near East
Southern Asia
Hindu
Nordic
Nordic Europe
Western (4)
Sub-Saharan Africa
Sub-Saharan Africa
African
Independents: Brazil, India, Israel, Japan
Japanese
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
7
Figure 3.2 Hofstede Dimensions of Culture
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
8
3-2 Cultural Differences (2 of 2)
• Power distance: The extent to which less powerful members within a culture expect and accept
that power is distributed unequally
• Individualism: The idea that an individual’s identity is fundamentally their own
• Collectivism: The idea that an individual’s identity is fundamentally tied to the identity of their
collective group
• Masculinity: A relatively strong form of societal-level gender role differentiation whereby men
tend to have occupations that reward assertiveness and women tend to work in caring
professions
• Femininity: A relatively weak form of societal-level gender role differentiation whereby more
women occupy positions that reward assertiveness and more men work in caring professions
• Uncertainty avoidance: The extent to which members in a culture accept or avoid ambiguous
situations and uncertainty
• Long-term orientation: Dimension of how much emphasis is placed on perseverance and
savings for future betterment
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
9
Table 3.2 Some Cross-Cultural Blunders
Examples of Cross-Cultural Blunders
• Electrolux, a major European home appliance maker, advertised its powerful vacuum machines
in the United States using the slogan “Nothing sucks like an Electrolux!”
• In the United States, some Brazilian and Japanese expatriates treated American secretaries as
personal servants, insisting that they serve coffee. Shortly after arrival, a British expatriate
angered minority employees by firing several Black middle managers (including the head of the
affirmative action program). They were all sued by employees.
• In Malaysia, an American expatriate was introduced to an important potential client he thought
was named “Roger.” He proceeded to call this person “Rog.” Unfortunately, this person was a
“Rajah,” which is an important title of nobility in high power distance Malaysia. Upset, the Rajah
walked away from the deal.
• A Japanese subsidiary CEO in New York, at a staff meeting consisting of all American
employees, informed everyone of the firm’s grave financial losses and passed on a request
from headquarters in Japan that everyone redouble efforts. The staff immediately redoubled
their efforts—by sending their resumes out to other employers.
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
10
Discussion Activity
Non-verbal communication (e.g., tone of voice, gestures, and facial expressions)
can be important in all cultures, but would it be more important in a high-context
or low-context culture? Why?
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
11
3-3 Ethics
• Ethics: The principles, standards, and norms of conduct that govern individual and firm
behavior
• Code of conduct (code of ethics): A set of guidelines for making ethical decisions
• Ethical relativism: A perspective that suggests that all ethical standards are relative
• Ethical imperialism: A perspective that suggests that “there is one set of Ethics (with a
capital E) and we have it”
• Managing Ethics Overseas: Three “Middle-of-the-Road” Approaches
Approaches to Managing Ethics Overseas
• Respect for human dignity and basic rights
• Respect for local traditions
• Respect for institutional context
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
12
Table 3.4 Texas Instruments (TI) Guidelines on Gifts in China
Guidelines
• These China-Specific Guidelines are based on TI’s Global Standard Guidelines, taking into consideration China’s
local business climates, legal requirements, customs, and cultures as appropriate. Employees of TI entities in China
(“TIers”) should comply with both these China-Specific Guidelines and Global Standard Guidelines. In any event of
conflict, the stricter standard will apply.
• Acceptable gifts include calendars, coffee cups, appointment books, notepads, small pocket calculators, and
ballpoint pens.
• Gifts with excessive value refer to those that are worth more than RMB 200 yuan (approximately US$32), and need
approval from Asia finance director.
• If you are not sure when you can accept or offer any gift, the following two quick tests are recommended:
a. “Reciprocity” Test. Ask this question: Based on your knowledge of TI’s policy and culture, would TI under similar
circumstances allow you to provide a TI business partner a gift of an equivalent nature? If the answer is no,
then politely refuse the offer.
b. “Raise Eyebrow” or “Embarrassments” Test. Ask those questions: Would you “raise eyebrows” or feel
uncomfortable in giving or receiving the gift in the presence of others in a work area? Would you feel
comfortable in openly displaying the gift you are offering or receiving? Would you feel embarrassed if it were
seen by other TI business partners or by your colleagues/supervisor?
• No cash or cash equivalent gift cards may be given. Gift cards that are redeemable only for a specific item (and not
cash) with a fixed RMB
value,
such
as a©moon
cakeAllcard,1
are permitted
as long
the giftorisposted
otherwise
Peng, Global
Business,
5th Edition.
2023 Cengage.
Rights Reserved.
May not be scanned,
copiedas
or duplicated,
to a publicly consistent
13
accessible website, in whole or in part.
with these guidelines.
3-3 Ethics (2 of 2)
• Corruption: The abuse of public power for private benefits, usually in the form
of bribery
• Foreign Corrupt Practices Act (FCPA): A US law enacted in 1977 that bans
bribery of foreign officials
• Extraterritoriality: The reach of one country’s laws to other countries
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
14
Polling Activity
It is “ethical imperialism” to prohibit companies headquartered in one’s own
country from engaging in bribery when doing business in other countries with
such traditions.
� Agree
� Disagree
� Not Sure
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
15
Table 3.5 Strategic Responses to
Ethical Challenges
Strategic Responses
Strategic Behaviors
Examples in the Text
Reactive
Deny responsibility, do less than required
GM (the 2000s)
Defensive
Admit responsibility but do the least that is required
Facebook and Google–
YouTube (the 2010s)
Accommodative
Accept responsibility, do all that is required
Ford (the 2000s)
Proactive
Anticipate responsibility, do more than is required
BMW (the 1990s)
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
16
3-5 Debates and Extensions (1 of 4)
Debate 1: Drivers of Economic Development: Western Values versus
Eastern Values
• Western values: Protestant work ethic
• Challenged by Eastern values: Islam and Asian (Confucian)
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
17
3-5 Debates and Extensions (2 of 4)
Debate 2: Cultural Change: Convergence versus Divergence
• Globalization of consumption has led to a convergence toward individualism,
consumerism, and materialism
• Challenged by the argument that Westernization in consumption does not
necessarily mean Westernization in values
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
18
3-5 Debates and Extensions (3 of 4)
Debate 3: Opportunism versus Individualism/Collectivism
• Opportunism is a major source of uncertainty.
• Opportunists are a minority in any population.
• In-group: Individuals and firms regarded as a part of “us”
− Individualists may be more opportunistic when dealing with in-group members.
• Out-group: Individuals and firms not regarded as a part of “us”
− Collectivists may be more opportunistic when dealing with out-group members.
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
19
3-5 Debates and Extensions (4 of 4)
Debate 4: Cultural Distance versus Institutional Distance
• Cultural distance: The difference between two cultures along identifiable
dimensions (such as individualism)
• Institutional distance: The extent of similarity or dissimilarity between the
regulator, normative, and cognitive institutions of two countries
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
20
3-6 Management Savvy
• Cultural intelligence: An individual’s ability to understand and adjust to new
cultures
• Acquisition of cultural intelligence passes through 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 the ability to identify the symbols, rituals, and taboos in other cultures—
also known as cross-cultural literacy.
− Skills are based on awareness and knowledge, plus good practice.
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
21
Table 3.6 Implications for Action: Six Rules
of Thumb When Venturing Overseas
Implications for Action
• Be prepared
• Slow down
• Establish trust
• Understand the importance of language
• Respect cultural differences
• Understand that no culture is inherently superior in all aspects
Peng, Global Business, 5th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
22