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MGT704_LectureSlides_Week3_Chapter41.pptxMGT704 Global Business Management
Week 3: Cross-border institutions, cultures and ethics
Outline
Understanding institutions
An institution-based view of strategy
The strategic role of culture
The strategic role of ethics
A strategic response framework for ethical challenges
Debates and extensions
The savvy strategist
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Dimensions of Institutions
Understanding Institutions: Definitions
Humanly devised constraints that structure human interaction (North 1990)
Regulatory, normative, and cognitive pillars and activities that provide stability and meaning to social behavior (Scott 1995)
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
DEGREE OF FORMALITY
EXAMPLES
SUPPORTIVE PILLARS
Formal Institutions
Laws
Regulatory (coercive)
Regulations
Rules
Informal institutions
Norms
Normative
Cognitive
Cultures
Ethics
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Understanding Institutions (continued)
Institutional framework: Formal and informal institutions governing individual and firm behavior – supported by three pillars
Formal institutions: Laws, regulations and rules – supported by the regulatory pillar (the coercive power of governments)
Informal institutions: Norms, cultures, and ethics – supported by the normative and cognitive pillars
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Understanding Institutions (continued)
What do institutions do?
Key function – Reduce uncertainty
How do institutions reduce uncertainty?
Relational contracting: Informal, relationship-based, personalized exchanges
Arm‘s length transaction: Formal, rule-based, impersonal exchange with third part enforcement
Institutional transitions: Fundamental and comprehensive changes to the rules that affect all organizations
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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An Institution-Based View of Business Strategy
There is a need to discuss the relationship between strategic choices and institutional frameworks
Influence of task environment has been explored in strategy literature
Porter’s “diamond” model explains competitive advantage of globally leading industries in different countries, but it is criticized for ignoring history and institutions
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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An Institution-Based View of Business Strategy (continued)
Strategic choices are selected within and constrained by institutional frameworks in developed economies
Striking differences between institutions in developed and emerging economies has pushed the institution-based view to the forefront of strategy discussions
Strategic choices are direct outcomes of the dynamic interaction between institutions and firms
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Porter’s Diamond: Determinants of National Competitive Advantage
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Source M. Porter, 1990, The competitive advantage of nations (p. 77), Harvard Business Review, March–April, © 1990 by Harvard Business School Publishing, all rights reserved.
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Institutions, Firms, and Strategic Choices
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Two Core Propositions
Managers and firms rationally pursue their interests and make choices within the formal and informal constraints in a given institutional framework.
While formal and informal constraints combine to govern firm behavior, in situations where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty to managers and firms.
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The Strategic Role of Culture: The Five Dimensions of Culture (Hofstede 1997)
Power Distance
Refers to the extent that the members of a society expect and accept that power is distributed unequally
In Brazil, the richest 10% of the population receives about 50% of the national income (high power distance)
In Sweden, the richest 10% gets 22% of the national income (low power distance)
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The Strategic Role of Culture: The Five Dimensions of Culture (continued)
Individualism versus Collectivism
Individualism
Ties between individuals are loose
Individual achievement and freedom highly valued
Collectivism
Ties between individuals are strong
Collective accomplishments highly valued
In difficult times, the United States often practices layoffs (individualism) while Japan oftentimes institutes across-the-board pay cuts (collectivism)
Masculinity versus Femininity
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The Strategic Role of Culture: The Five Dimensions of Culture (continued)
Uncertainty avoidance
High uncertainty avoidance countries: Place a premium on job security, career patters, and retirement benefits; resist change (Greece)
Low uncertainty avoidance countries: Willing to take risk with less resistance to change (Singapore)
Long-term orientation
Cultures with long-term orientation: Emphasize perseverance and savings for future betterment (China)
Cultures with short-term orientation: Want quick results and instant gratification.
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The Strategic Role of Ethics
Ethics: Norms, principles, and standards of conduct that govern individual and firm behavior
Numerous firms introduce a set of guidelines for making ethical decisions
Value of an ethical reputation is magnified during crisis
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Views on Business Ethics
Managing ethics overseas
What is ethical in one country may be unethical or illegal in other countries
Two perspectives on dealing with ethical dilemmas overseas (Donaldson 1996)
Ethical relativism: “When in Rome, do as the Romans do”
Ethical imperialism: Absolute belief that “there is only one set of Ethics, and we have it.”
Donaldson’s three guiding principles
Respect for human dignity and basic rights
Respect for local traditions
Respect for institutional context
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Views on Business Ethics (continued)
Ethics and Corruption
Corruption distorts the basis for competition
Corruption causes misallocation of resources and slows economic development. There are exceptions
US firms are subject to the Foreign Corrupt Practices Act (FCPA)
Australian firms are subject to the Fair Work Act
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Strategic Responses to Ethical Challenges
EXAMPLES IN
THE TEXT
STRATEGIC
BEHAVIORS
STRATEGIC
RESPONSES
Reactive
Deny responsibility, do less
than required
GM (the 2000s)
Defensive
Admit responsibility but fight
it, do the least that is required
Nike (the 1990s)
Accommodative
Accept responsibility, do all
that is required
Ford (the 2000s)
Proactive
Anticipate responsibility, do
more than is required
BMW (the 1990s)
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Sources Based on text in (1) P. Dowling & D. Welch, 2005, International Human Resource Management, 4th ed., Cincinnati; Cengage Learning; (2) M. Gannon, 2008, Paradoxes of Culture and Globalization, Thousand Oaks, CA; Sage; (3) D. Ricks, 1999, Blunders in International Business, 3rd ed., Oxford, UK: Blackwell.
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Debates and Extensions
Opportunism Versus Individualism/Collectivism
Individualism: Little distinction when dealing with in-group and out-group members; more opportunistic with in-group members
Collectivism: More collaborative when dealing with in-group members; discriminate more harshly against out-group members; more opportunistic with out-group members
Cultural Distance Versus Institutional Distance
Cultural distance: Difference between two cultures along identifiable dimensions
Institutional distance: Extent of similarity or dissimilarity between institutions of two countries
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The Savvy Strategist
Underlying context of institutional structures, resources, and capabilities impact strategic choices
Institutions, culture, and ethics implications: Homework, cross cultural intelligence, and ethics are part of strategy
Institution-based view answers to the four fundamental questions
Why do firms differ? Institutional frameworks shape firm differences
How do firms behave? Institutional differences
What determines the scope of the firm? Development of formal institutional frameworks
What determines the international success and failure of firms? Institutional frameworks govern strategic choices
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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