Chapter 3: Informal Institution Reading - University of London PDF

Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges University of London Business and Management in a Global Context Chapter 3: Informal Institutions: Cultural, Social and Ethical Challenges...

Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges University of London Business and Management in a Global Context Chapter 3: Informal Institutions: Cultural, Social and Ethical Challenges - Reading Material Lecturer: M.Nageb Nageb 1 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Nageb 2 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges CHAPTER 3: INFORMAL INSTITUTIONS: CULTURAL, SOCIAL AND ETHICAL CHALLENGES Aims of the explain the concept of culture and provide means by chapter which different cultures can be analysed and described identify the different type of language and religion across the globe, and their relevance to understanding cultures and behaviours pinpoint the importance of ethics in international business, and how what is considered ethical varies across countries, and religions introduce possible managerial responses to informal (and formal) institutions, with particular reference to corporate social responsibility activities examine possible strategies for corporate sustainability practices analyse corruption in the international business environment and assess corruption reduction strategies. Nageb 3 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Learning By the end of this chapter, and having completed the Outcome Essential reading and activities, you should be able to: define what culture is and articulate two of its manifestations, namely language and religion discuss how cultures systematically differ from each other assess how language competences shape intercultural interactions explain how religions shape cultures describe the importance of ethics articulate corporate social responsibility challenges faced by companies operating in the global economy assess how institutions influence companies’ corporate social responsibility activities participate in leading debates about culture and social responsibility draw implications for management action. Nageb 4 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Study Guide Define what culture is 1. 1. Culture has been described as ‘the way things are done round Defining culture here’ and is a system of values and norms that are shared among a group and that, when taken together, constitute a design for living. Values are abstract ideas about what a group believes is good, right and desirable Norms are the social rules and guidelines that prescribe appropriate behaviour in particular situations, e.g. routine conventions of everyday life like dress codes, social manners and accepted codes of conduct. Culture evolves over time 2. Culture can be seen as the programming of the mind that develops over time which distinguishes the members of one group or category of people from another. Some countries have multiple culture like the USA. Some culture transcend national boundaries. E.g. the spread of Islam and Christianity over many countries Culture is dynamic, it is always changing Culture can affect the cost of doing business in a particular location 3. How to understand differences in culture? Peng and Meyer distinguishes between three approaches – context, cluster and the dimension approach. The this is the underlying background upon which Context interaction takes place. Approach Low Communication is at face value context without much reliance on unspoken culture – context. Spoken words have literal USA, W. interpretation. In other words ‘yes’ Europe means ‘yes. High context Communication relies a lot on the culture – underlying, unspoken context. Arab and Asian countries Nageb 5 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Criticism Only looks at one dimension Also does not look at unspoken words which are also important. All cultures, national, business or otherwise have products of history and tradition. The Cluster in this case is a group of countries that Cluster share similar cultures. There are three main Approach theories of culture ( see hereunder ). In international business, people will feel more comfortable doing business with countries and businesses from the same cluster. GLOBE (Global Leadership Organisation Behaviour Effectiveness) has (6) Confucian Asia, (7) Eastern Europe, (8) Middle East, (9) Southern Asia and (10) Sub-Sahara Africa. Criticism – this approach tells us little about the differences between countries within a cluster ( e.g between Argentina and Brazil ) Addenda – From Peng and Myer The Cluster Approach The cluster approach groups countries that share similar cultures together as one cluster. There are three influential sets of clusters, Table 1 hereunder illustrates them side by side. Ronen and Globe Huntington Shenkar Clusters Civilisation Clusters (House et al) Anglo Anglo Western Nordic Nordic Europe Western Germanic Germanic Western Europe Latin Europe Latin Europe Western Israel - Western Central and Eastern Slavic- Eastern Europe Orthodox Europe Nageb 6 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Arabic Middle East Islamic Near Eastern - - India Southern Asia Hindu Sub-Sahara Sub-Sahara African Africa Latin America Latin America Latin American Brazil - Latin American Far East Confucian Asia Confucian (Sinic) Japan - Japanese The first is the Ronen and Shenkar clusters, proposed by management professors Simcha Ronen and Oded Shenkar. These clusters are (1) Anglo, (2) Nordic, (3) Germanic, (4) Latin Europe, (5) Latin America, (6) Near Eastern, (7) Arabic and (8) Far East. The second set of clusters is called the GLOBE clusters, named after the Global Leadership and Organisational Behaviour Effectiveness project led by management professor Robert House. The GLOBE project identifies ten clusters, five of which use identical labels as the Ronen and Shenkar clusters: (1)Anglo, (2) Germanic Europe, (3) Latin America, (4) Latin Europe and (5) Nordic Europe. In addition, GLOBE has (6) Confucian Asia, (7) Eastern Europe, (8) Middle East, (9) Southern Asia and (10) Sub-Sahara Africa, which roughly (but not completely) correspond with the respective Ronen and Shenkar clusters The third set of clusters is the Huntington civilisations, popularized by political scientist Samuel Huntington. A civilization is the ‘highest cultural grouping of people and the broadest level of cultural identity people have’. As shown in the above Table 1 Huntington divides the world into eight civilisations: (1) African, (2) Confucian (Sinic), (3) Hindu, (4) Islamic, (5) Japanese, (6) Latin American, (7) Slavic-Orthodow and (8) Western. Although this classification shares a number of similarities with the Ronen and Shenkar and GLOBE Nageb 7 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges clusters, Huntington’s Western civilization is a very broad cluster that is subdivided into Anglo, Gemanic, Latin Europe and Nordic clusters by Ronen and Shenkar and GLOBE. Across the three systems (columns), even though some clusters share the same labels, there are still differences. For example, Ronen and Shenkar’s Latin America cluster does not include Brazil (which is regarded as an ‘independent’), whereas GLOBE and Huntington’s Latin America includes Brazil. In addition to such an uncontroversial classification scheme, Huntington has advanced a highly controversial idea that the Western civilization will clash with the Islamic and Confucian civilisations in the years to come. Incidents such as 9/11, the Afghanistan war and the Danish cartoons have often been cited as evidence of such a clash. For our purposes, we do not need to debate the validity of Huntington’s provocative thesis of the ‘clash of civilisation’. We will leave your political science or international relations classes to debate that. However, we do need to appreciate the underlying idea that people and firms are more comfortable doing business with other countries with the same cluster. This is because common history, religion and customs within the same cluster reduce the liability of outsidership when operating abroad. Nageb 8 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges The Value Most extensive work has been done by Hofstede Dimensions approach - Individualism loyalty to self and family or to the Hofstede vs wider group. The extent to which people are expected to take care of collectivism themselves and to choose their own affiliations as opposed to showing a preference for a closely bonded social framework where people look after each other and organisations protect their members’ interests. Power relates to the acceptance of the Distance distance between those with power and those without; for example, low power distance cultures values a lesser gap between. The extent to which the less powerful members of organisations expect and accept that power is distributed unequally Uncertainty relates to tolerance of uncertainty Avoidance and ambiguity. For example, low uncertainty avoidance cultures would be more tolerant of uncertainty and so not avoid it. High uncertainty cultures prefer rules and structured circumstances Masculinity vs quantity of life versus quality of life femininity – relates to the degree to which a culture values assertiveness, competition, and materialism (stereotypically associated with masculinity) versus the degree to which people value relationships and show concern for others (stereotypically associated with femininity). It is unfortunate that Hofstede used such sexist connotations and some later writers prefer to substitute the terms quantity of life versus quality of life Nageb 9 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Addenda on Culture - Hofstede researched on IBM - conducted on the staff of IBM and established Value Dimensions. High Low Power e.g. Latin, near e.g. Germanic, Distance Eastern, Less Anglo, Nordic - Unequal developed Asian less distribution greater centralisation of power centralisation flatter top down chain structures of command subordinates expect involvement & participation Uncertainty e.g. Latin, near e.g. Anglo & Nordic Avoidance Eastern & flexibility & - security, Germanic, Japan creativity order & Task structure, less structure control are written rules & task preferred reg., specialists less written to & experts, rules ambiguity, standardisation, more uncertainty strong work generalists & & change ethic variability Risk tolerance, dissent, conflict Individualism e.g. Anglo, more Collectivist e.g. - extent developed Latin & Less developed people Nordic Latin, near Eastern prefer to autonomy, & less developed live and individuality, Asian work in choice and independence, individualist responsibility reciprocal or impersonal obligation collectivist defends family business relationship interest more important than task Nageb 10 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Masculinity e.g. Japan, Femininity e.g. - social Germanic and Anglo Nordic gender assertiveness feminist values roles are competitiveness, are gender distinct decisiveness roles material success cooperativeness participative 1. Hofstede carried out cross - cultural research at 66 national offices of IBM and formulated one of the most influential models of work-related cultural differences. Model is called cross culture value dimension. This has an impact on all aspects of management & organisation behaviour: motivation, team working, leadership style, conflict management and HR policies. Limitation - research done on one company around the world - IBM - American Biased; Research invalid as conducted in 1980s. Overtime values have change e.g. Singaporean are more individualistic. EXAMPLES KLM travel giving equal rights to homosexuals if OF they can register as formally living together BUSINESS CULTURE Management By Objectives (MBO) – Fails to work in French, Swedish and Dutch organisations and societies where intervention by superior is felt to be too autocratic Participative management style does not work in India and Greece as subordinate feels that the superiors should make all the decisions since he is paid for it Cultural homogeneity and cultural diversity influences a firm’s global activities in terms of: Nageb 11 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges - Organisation Structure, HRM, Marketing, Conduct of Government-Business Relations, Finance, Management Style EXAMPLES 1 Performance Appraisal Systems OF Direct appraisal for Westernistic / individualistic MANAGEMENT countries CULTURE Not applicable in collectivist countries which may result in loss of face and spoil superior-subordinate relationship In third world countries, indirect feedback through withdrawal of privileges is more acceptable 2 Management By Objectives (MBO) More accustomed to USA where open discussion between superior & subordinate is welcomed to resolve issues of work Works for low to medium power distance and moderate uncertainty avoidance Germans have high uncertainly avoidance, hence MBO needs to be adjusted 3 Strategic Management In countries like USA with low uncertainty avoidance, radical approach and ideas are encouraged to beat competitors More difficult to follow in Germany and France Singapore companies (Temasek Holdings, DBS, Singtel) are taking more risks and having more investments in other countries 4 Humanisation of Work In individualistic countries like USA, ‘Job Enrichment’ is widely practiced In more feminine and less individualistic countries like Sweden, semi-autonomous type of motivation of work is widely used Helping culture in Switzerland allows for flexible working hours Nageb 12 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges 5 Categories of Thinking Eastern way of living is practicing perseverance and thrift, and respecting trading and social obligations Less obvious in the west where virtues tend to be derived from truth These values are seen in management training and management practices What to i HRM practices - e.g. white collar workers (high consider in power distance) vs. Blue collar jobs (low power the distance) management of ii Structure - Tall (high power distance) or flat (low International power distance) Business across iii Finance - Japan - Banks – not interested in borders? dividends but capital gains(high uncertainty avoidance vs. US - stock Exchange – interested in dividends – accept changes to make quick profits (low uncertainty avoidance ) iv Marketing - change based on the language of the country. e.g. Advertisement - Masculinity - show more male - Japan and femininity - show balanced family life - US v Management style – autocratic (high power distance – China) or democratic (low power distance – distance) - Switzerland vi Govt business relations - issue of gifts in certain countries ; Gifts giving is corruption e.g in Singapore but in Japan it is acceptable amongst politician vii Mode of entry - signing of contract important for certain culture - Western - written agreement holds in court. Japan spoken words more important; Middle Eastern based on relationships as well as in China – Guan Xi Nageb 13 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Conclusion - Training essential for international managers before posting to overseas; Also training on Hofstede cross culture value dimension would be advisable Study Guide Draw implications for management action Implication for What are the implications of all of this for Managers managers? It is vital for international businesses to develop cross-cultural literacy. To be successful, you have to be able to conform and adapt to the value system and norms of the host country. One way you can gain knowledge of the local culture is to hire local citizens. Developing a cadre of cosmopolitan managers who have been exposed to different cultures can also be helpful. It is important to avoid being ethnocentric, believing that your ethnic group or culture is superior to that of others. A second reason for companies to be aware of cultural differences is the link between culture and competitive advantage. The value systems and norms of a country influence the costs of doing business, which of course then affect the competitive advantage of the company. A society’s class structure affects the relationship between management and labour, for example – look at Japan’s strong worker loyalty system, where lifetime employment guarantees affect the success of Japanese companies. Similarly, it has been suggested that a more individualistic culture promotes entrepreneurial activities as compared to a culture that emphasises collective behaviour. These differences provide companies with insight as to which countries are most likely to produce competitors, and which countries will be the best for investing or selling (see also Chapter 12 on the subject of location attractiveness). Nageb 14 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges A third reason is that cultural sensitivity leads to better cross-cultural management of diverse workforces. Collinson, Narula and Rugman (2017) summarise a number of research studies and suggest that cultural diversity can be managed by: Recognising diversity Building diversity issues into such areas as recruitment, HRM planning, strategy, location decisions and alliances. This helps avoid clashes and inefficiency. Identifying where and to what degree local divisions should be encouraged to take the lead in expressing and managing diversity. Getting a cultural balance in particular areas of strategic and tactical decision-making Leading from the top with behaviours that signal the valuing of cultural diversity Articles A 1, 2, 3 Video V 1 What is culture in International Business from a Business Professor V 1a Hofstede cultural framework from a Business Professor V 1b Hofstede model of National Culture – Jim Riley Nageb 15 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Study Guide Articulate its Manifestation – Language Assess how language competences shape intercultural interactions 2 The Importance of language Languages Language influences culture. It is how we communicate with each other, both in spoken and unspoken form and how it is how we perceive the world. Some countries have more than one language. Spoken Language Most multinational companies have adopted English (lingua franca i.e the default global business language) as the official corporate language, to enable knowledge sharing and communication. But people with different culture may understand English words differently. Language -Mirror of culture; Speech, posture, eye contact; Mastery of language is necessary before acculturation (learning another culture) takes place E.g. Yeo Hiap Seng having problem in Thai market as Yeo’s means horse urine Unspoken Language Body Language – Includes personal rapport, physical space, conversation styles – Arabs like coming close together and do the people from the South Asia ( India etc ) Article A 4 (need to learn Japanese to interact in Japan), 5 ( Joseph Schooling – Malay translation means Joseph going to School ) 6 (China overcoming problem of Chinglish – Toilets for disabled persons read deformed toilet) 7 (KL Islamic agency requires food items with word ‘dog’ to be renamed, drawing ridicule) Nageb 16 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Video V 2 Language and Culture Study guide Articulate its manifestation – religion 3 Religion What is religion? and ethics Religion is the systems of shared belief and rituals that are concerned with the realm of the sacred. Closely related to religion are ethical systems, or sets of moral principles or values that guide and shape behaviour. So, you might think of Christian ethics or Islamic ethics. How Religion affects Business? Christianity - Most followers of Christianity live in Europe, the Americas or other countries settled by Europeans. Christians are divided into Roman Catholics, those who belong to the Orthodox church and Protestants. Islam – The Koran supports free enterprise and legitimate profits and the right to protect private property, but advocate the use of profits in a righteous, socially beneficial manner Hinduism – central tenets are spiritual growth and development. Achieving nirvana is through material and physical self-denial. Hinduism emphasises spiritual rather than individual achievement – the drive for entrepreneurial behaviour present among protestant is not present here. Buddhism - like Hinduism, stresses spiritual achievement and the afterlife over involvement in this world and lack of emphasis on entrepreneurial behaviour. Confucianism – key principles are loyalty, reciprocal obligations and honesty – these could lower the cost of doing business. Influences behaviour and shapes culture in many parts of Asia Note: Religious beliefs and activities affect business through religious festivals, daily and weekly routines that vary across religions e.g. prayer times, sacred days, fasts. Recall the Nageb 17 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges international furore over the Danish newspaper publishing cartoons involving the Muslim prophet Mohammed. Showing respect for other religions and associated values will help you by avoiding conflicts and creating a basis for doing business. An individual’s religion may also help shape his/her attitude towards work and entrepreneurship. Video V 3 Religion as Culture 4 Ethics Study Guide Describe the importance of ethics Introduction Ethics Ethics refers to the principles of right and wrong, standards and norms of conduct governing individual and company behaviour. Ethics are not only an important part of informal institutions but are also deeply reflected in formal laws and regulations. Business ethics are the accepted principles of right or wrong governing the conduct of business people. An ethical strategy is a course of action that does not violate these principles. Managing ethics overseas is challenging because what is ethical in one country may be unethical elsewhere. How should you deal with ethical dilemmas that arise when operating internationally? The Friedman doctrine argues that the only responsibility of business is to increase profits. Friedman (1970) claimed that as long as the company stayed within the letter of the law, ethics did not enter the equation. So, in other words, he would argue that it is not the responsibility of a company to take on social expenditures beyond what is mandated by law, and what is required to run a business efficiently. What Hill (2010) calls the naïve immoralist approach argues that if a manager of a multinational company sees that companies from other countries are not following ethical norms in a host country, that manager should ignore the norms as well. Nageb 18 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Peng and Meyer (2011) suggest three approaches. Ethical relativism follows the saying ‘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’. Companies often run into problems adopting either of these two approaches. Therefore Donaldson (1996) suggests a - ‘middle of the road’ approach in international business by observing three principles when overseas – respect for human dignity and human rights, respect for local traditions, and respect for institutional context. In practice these principles may clash in specific circumstances, leaving the business manager to behave as diplomatically as he/she can in the prevailing situation. Ethics provides a useful bridge between culture, language, religion and the subject of a major way forward – corporate social responsibility – which we will now look at. Articles A 8 & 9 (China - fined GSK and Pfizer for bribing doctors to use its medicines in returns for holidays) A 10 ( JP Morgan Chase has agreed to pay US$ 264M to settle a foreign bribery case dubbed the ‘ princelings case ‘ in which the bank gave prized jobs to friends and relatives of China’s elite.) A 10a ( Qualcomm, a US-based semiconductor and telecommunications equipment company, was slapped with a US$7.5M fine for hiring relatives of Chinese officials in exchange for business between 2002 and 2012, A 10b ( Former Wells Fargo chief executive John Stumpf – promoted toxic sales culture – employees had to cheat to get sales or get fired) A 11 Better growth through ethics (the Asean Corporate Social Responsibility Network (ACN) will engage businesses to teach them global standards on human rights, labour practices Nageb 19 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges and environmental awareness – ACN will conduct seminars on how and why corruptions occurs and encourage ‘integrity pacts’ to get businesses to agree not to pay bribes.) Video V4 Ethics in International Business V4a Business Ethics – Jim Riley Study Guide Articulate corporate social responsibility challenges faced by companies operating in the global economy 5 Corporate Carroll’s four part requirement of a socially responsible social corporation responsibilit y in international According to Carroll to make profit is the first (economic) business. responsibility followed by compliance with the law, which are both required. The third is expected, that of being ethical. The fourth refers to discretionary responsibilities. It is desirable that the organisation fulfils these. It is when a company fulfils responsibilities at all levels that it is defined as socially responsible. Therefore we can use this to develop a definition of the socially responsible firm as it refers to: Those businesses that, in addition to legal and economic responsibilities, recognise an obligation to protect and promote the welfare of society In the aforesaid we have mentioned what is an ethical dilemma. But how do companies deal with the issue of ethical dilemma that often arise when doing business internationally. Organisations have stakeholders whose expectations need to be satisfied to get their support when doing business. If you take an instrumental view you will take notice of all stakeholders because this may indirectly improve the firm’s financial performance. Nageb 20 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges If you take a normative view, your firm will be self- motivated to fulfil social obligations because it is the right thing to do. As a result of rising global concerns and the stakeholder view, firms increasingly develop CSR triple bottom line strategies ( One approach to manage the stakeholders and to minimise the impact of stakeholders’ view is to adopt the CSR triple bottom line strategies )– this takes into account Economic Making profits within the ambit if law Social Taking care of the needs of society Environmental Against global warming/pollution performance Article A 12 Triple Bottom Line A 12a UOB Net Emission target by 2050 – covers carbon intensive sectors – real estate, oil and gas, automotive etc Video V 5 Elkington Triple Bottom Line V 5a What is Corporate Social Responsibility? V 5b Carroll’s CSR pyramid – Jim Riley International businesses are faced with at least four major CSR concerns: 1. Environment. This is hot contestable topic these days as the damage to the environment is irreversible. What you need to understand is the term “ sustainable development”, this means that the growth is maintain without depletion of natural resources. For eg. if trees are cut in one area then equivalent trees are planted in other areas – hence the term sustainable. Here the following issues need to be addressed: Nageb 21 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges many countries are establishing environmental regulations and hence companies have to abide by them. As a result MNCs may look towards “pollution haven” countries that have lax regulations for pollution – particularly the developing countries who are eager to attract MNCs – the so-called “race to the bottom” some MNCs could choose to lower standards when operating abroad, seeing it as an opportunity to lower costs by producing where regulations impose least costs, and using the threat of relocation to prevent the foreign government from raising legal requirements. some MNCs may raise standards when operating abroad. This may have the advantages of: - satisfying stakeholders who may be closely monitoring - achieve economies of scale from common practices and standards - to achieve first-mover-advantage in new technologies and practices that are environmentally friendly. - There is the public relations advantage of raising standards 2. Employment Practices. The question is which employment practices would apply, the home or the host country. Actually it is clear, when in Rome due as the Romans do. However there are certainly ethical practices which MNCs must abide to. Meyer and Peng mention about Nikes’ poor working conditions in the sub contracting plants worldwide. In addition Apple also faces the same problem as Nike in its Fox Conn contract manufacturing plant in China where severe and unethical employment practices drove about 10 people to their suicide. Faced by public pressure Tim Cooks, the CEO of Apple, had to intervene to ensure that the plants satisfy minimum ethical employment practices. Clearly this is necessary to preserve the good global brand name of Apple. It is therefore highly essential that MNCs, like what Adidas does, is to introduce standards of engagement on their suppliers. These are written policies and standards for corporate conduct and ethics. Nageb 22 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges 3. Human Rights. Human rights record is questioned especially in developing countries, such as Myanmar, and some countries in Africa. Some would argue that the presence of MNCs would act as a spur in encouraging change in such countries while others would argue that the law must be amended to protect the interest of the locals. Whatever the rhetoric, basic human needs in employment must be observed wherever MNCs operate globally. Myanmar, which has one of the worst human rights records in the world, are so brutally repressive that no investment can be justified Example: China: Draconian repression of Muslims in Xinjiang amounts to crimes against humanity: Uyghurs, Kazakhs and other predominantly Muslim ethnic minorities in China’s Xinjiang Uyghur Autonomous Region face systematic state-organized mass imprisonment, torture and persecution amounting to crimes against humanity, Amnesty International said as it launched a new report and campaign today. Some governments passed legislations, like USA and UK, banning imports from Xinjang. 4. Corruption. The organisation for Cooperation and Development ( OECD ) passed anti-bribery measures in 1997, which obligates member states to make the bribery of foreign public officials a criminal offence. There is a distinction between extortion and bribery. The former relates to forcibly getting money or in kind from MNCs by public officials especially in developing countries, while the latter is giving money to get something e.g. a license to operate which the MNCs are not legally entitled to. Also in some countries like in Japan gift giving is a wide business practise and cannot be construed as a bribe if cultural relativism is considered. In fact, some economists believe that in certain cases speed payments, or payments made to speed up approval for business investments, can be justified, for example, if they enhance public welfare by creating jobs. Others argue, however, that corruption can become ingrained as a way of doing business, and hard to stop if it is part of a country’s way of getting things done. 6.Institution Study Guide s and CSR strategies Assess how institutions influence companies’ corporate social responsibility activities Nageb 23 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Participate in leading debates about culture and social responsibilities The formal and informal institutions operating in a country influence the types of CSR strategies. Nageb 24 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Article A 16 McDonald will require suppliers to follow new standards for raising and slaughtering chickens serving in its restaurants; Suppliers such as Tyson Food and Cargill Inc should take steps improve animal welfare The formal and informal institutions operating in a country greatly influence types of CSR strategies firms can adopt, and the levels of success experienced. Nageb 25 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges In liberal market economies like the USA and the UK firms have a high discretion over their activities. Firms will undertake voluntarily policies, programmes, and strategies, with the extent of these actions dependent on the expectations of different stakeholders of the firm. In more co-ordinated market economies, for example in Germany and Scandinavia, much more implicit CSR takes place with CSR being part of the fabric of the legal, political, and social and cultural institutions, and indeed may not only be morally demanded but legally demanded, e.g. in Germany paying health care benefits for all those employed for more than 20 days a month. Addenda on the Implicit and Explicit CSR and varieties of capitalism How Co- Implicit CSR is more institution ordinated relevant here which would affect CSR Market comprise strategies. Economies - the values, norms and rules and are part of the organisation’s code of practice - pursue a utilitarian principle – where behaviour must benefit the majority of stakeholders CSR is part of legal, political, social and cultural institutions Not morally but legally required e.g. Health Care benefits in Germany Liberal Explicit CSR is more Market relevant here Economies - represented by voluntary corporate policies, programmes and strategies - ethical behaviour is due to the expectation of the society Nageb 26 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Undertake policies, programmes, strategies voluntarily based on the expectation of stakeholders Many developed countries have adopted some degree of convergence in CSR strategies. Strategic Responses to Ethical challenges ( see below figure ) Strategic Responses Strategic Behaviour Examples Reactive firms can react Ford Pinto incident in obstructively and 1970s. The issue was deny every that the fuel system accusation, misleading was obstructed, or distorted and however, Ford argued attempts to obstruct that death rate was investigation not substantially different from that of vehicles by Ford’s competitors. In addition, Ford’s engineer argued that they followed strict product safety and risk reduction method on the production of Ford Pinto. Thus, denying all accusation. Nageb 27 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Defensive firm could response although the wages defensively, were low, Nike admitting some errors claimed they have of commission but little control over the does not react employees’ contract obstructively. as production was undertaken by third party. In addition, Nike also claim that the wages were the mean of wages paid around the region like those in Cambodia, Laos Accommodative Firms response by There was an incident accepting under about Ford explorer pressure social tire malfunction in responsibility for its the 2000s. The driver actions to comply of the ford explorer with public interest was unable to control the vehicle in emergency situation, resulting in the rolling over. Ford and Firestone later admit that there was a malfunction in their tires prompting them to recall all Ford explorers and lower the tire’s pressure to 26 PSI as well as lowering the suspension to improve the centre to gravity. Proactive seeking to learn what To give an example, are the interests of Amazon is a huge stakeholders and multinational responses without enterprise that made pressure from them, a lot of profit doing more than what worldwide. In order they have to do to to avoid blaming or satisfy the creating negative stakeholders picture about the company, they voluntarily increases minimum wages for employees to $15 per hour even though the legal requirement is just $7 per hour. Nageb 28 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Four Classic Corporate Social Responsibilities (CSR) strategies ( Willcocks, 2021 ): Rating Strategy Performance Reactive Deny Doing less than Responsibility required Defensive Admit Doing less than Responsibility, but required fight it Accommodative Accept Doing what is Responsibility required Proactive Anticipate Doing more than is Responsibility required How do managers decide how to behave in some situations. Personal ethics and cultural perspective will tend to influence managers decision making process. The following are some ways through which managers can ensure that ethical issues are being considered in organisations a recruitment and selection must be geared towards getting people with good track record b ethical organisation culture need to be established. Often this will relate to having a code of practice with an emphasis on ethics. Good ethical behaviour should be rewarded while unethical behaviour should be punished and set as an example for others. Often instituting good ethical behaviour is the responsibility of the leader – leadership by example. The rhetoric of leaders must be supported by their actions – Microsoft’s Bill Gates and Warren Buffet donated about US$30B each to Melinda Gates Fund. c companies can develop moral courage – by not retaliating against employees who complain about unethical actions firms can put decision making processes in place that require people to consider the ethical dimension of business decisions. Nageb 29 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Study Guide Draw implications for management action 7 How do managers decide how to behave in some situations? The following are some ways through which managers can ensure that ethical issues are being considered in organisation Recruitment Organisations must hire the right ethical people so that and Selection they behave ethically Ethical Good values are reflected in the organisation culture. organisation This could be supported by a code of practice where all culture employees would have to abide by the code. In addition leadership by example rather than relying on rhetoric would ensure ethical behaviour. Decision A standard operating procedure on how decisions should making be made for the benefit of stakeholders would also add process to an organisation behaving ethically. Article A 13 & 14 (Thailand is accused of illegal immigrants held captive and forced into unpaid labour sometimes on boats at sea for years without receiving any payment for their work: the French Giant Carrefour suspended purchases of Thai Prawns in June following the publication) A 15 (Starbucks serves dollops of social do-gooderism – provides comprehensive health benefits for both full and part time employees). Ralph Nader championed the questioned the Motor industry on safety. South African abuse of Human Right treatment during the apartheid prompted shareholders to pressure their companies to pull out of the country) A 16a US Blocks imports of palm oil from Malaysia’s Sime Darby – The ban is over allegations of forced labour in the production process, the US customs and Border Protection (CBP) said. Nageb 30 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges 8 CSR and Sustainability Sustainability has become a critical component of corporate social responsibility approaches in recent years, especially in the face of climate change challenges. The idea here is that businesses must support wider sustainable development beyond their own profit goals. A 1987 report by the World Commission on Environment and Development defined sustainable development as ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’. Willard (2012) has suggested a five-stage sustainability journey for business enterprises. The stages are: 1. pre-compliance 2. compliance 3. beyond compliance 4. integrated strategy 5. purpose/passion. According to this framework, companies evolve from an unsustainable model of business (stages 1, 2 and 3), to a sustainable business framework (stages 4 or 5). Executive thinking also evolves from positioning ‘green’, ‘environmental’, and ‘sustainable’ initiatives as expensive and bureaucratic threats in the early stages, to seeing them as catalysts for strategic growth in the later stages (see Willard, 2012). By stage 4 the firm has transformed its business model into a sustainable ‘borrow-use-return’ design. This is to help to build a ‘circular economy’. A circular economy is one that is restorative and regenerative by design, and which aims to keep products, components and materials at their highest utility and value at all times, distinguishing between technical and biological cycles (see Willcocks, 2021a, Chapter 3, p.93, figure 3.1). This involves practices such as recycling, refurbishing, servicing rather than disposal, with the focus on reuse and minimising waste. Driven by a passionate, values-based commitment to improve the well-being of the company, society, and the environment, a Stage 5 company would help to build a better world because it is the right thing to do. ( Stage 4 companies do most of the things a Stage 5 company does but ‘do the right things’ in order to become successful businesses). Nageb 31 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges 9 Dealing with Corruption This is another part of corporate social responsibility. How do international businesses deal with the challenges of experiencing differing degrees of corruption in countries and business practices across the world? Corruption occurs on a large scale in markets and in transactions between businesses. Cuervo-Cazurra, (2016) has provided a neat framework for analysing corruption, and the points of leverage for governments and companies wanting to behave more ethically, to which you are referred now (see Willcocks, 2021a, pp.96, figure 3.3). This identifies the causes of corruption, in terms of demand for and supply of bribes, and low risk and punishments from behaving corruptly. If proper controls and punishments are put in place at government and company level, it is possible to gain more desirable outcomes in terms of country development and company profitability. Poor corruption governance by a company can be very costly, leading to business losses, reputational damage, higher costs, deadlines not met, and barriers to innovation – as just some examples. There are many ways forward, including: tighter national and international rules, policing and more certain higher punishments non-state actors publishing guidelines and standards clearer, detailed corporate directives and their policing Instilling stakeholder values militating against corruption Addenda Dealing with Corruption How do international business deal with the challenges of experiencing differing degrees of corruption in countries and business practices across the world? Transparency International, an anti-corruption, non-governmental organisation that monitors levels of corruption across the globe, define corruption as “ the abuse of entrusted power for private gain.” This is in the form of bribery. Nageb 32 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges From Wikipedia: Corruption is a form of dishonesty or a criminal offense which is undertaken by a person or an organization which is entrusted in a position of authority, in order to acquire illicit benefits or abuse power for one's personal gain The most transparent and least corrupt countries were New Zealand; Denmark, Finland; Switzerland; Singapore; Norway; Netherlands; Luxembourg; and Germany. The most corrupt countries were Somalia; South Sudan; Syria; and Venezuela. If proper controls and punishments are put in place at government and company levels, it is possible to gain more desirable outcomes in terms of country development and company profitability. Corruption is not just a government-business phenomenon; it also occurs massively in markets and in transactions between business. Causes of Corruption The moral dimension has an intrinsic component and refers to a "mentality problem", and an extrinsic component referring to circumstances like poverty, inadequate remuneration, inappropriate work conditions and inoperable or over-complicated procedures which demoralize people and let them search for "alternative" solutions. According to a 2017 survey study, the following factors have been attributed as causes of corruption: Greed of money, desires. Higher levels of market and political monopolization Low levels of democracy, weak civil participation and low political transparency Higher levels of bureaucracy and inefficient administrative structures Low press freedom Low economic freedom Large ethnic divisions and high levels of in-group favouritism Gender inequality Poverty Political instability Weak property rights Nageb 33 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Contagion from corrupt neighbouring countries Low levels of education Lack of commitment to society Extravagant family Unemployment Lack of proper policies against corruption It has been noted that in a comparison of the most corrupt with the least corrupt countries, the former group contains nations with huge socio-economic inequalities, and the latter contains nations with a high degree of social and economic justice Undoubtedly, corruption needs to be combatted by business, not least because it can be inordinately, and can also do irreparable damage to the brand and business relationship. The costs of poor corporate governance of corruption for a company are: Business losses, reputational damage or weakened competitive position, deadlines not met, higher costs and lower productivity, poorer quality than expected, failure to realise benefits, barriers to innovation. There are many ways for reducing corruption in international trade. These include: 1 Policy Laws can be passed to prevent corruptive behaviour; for example in the US the foreign Corrupt Practices Act and in Singapore, Mr Lee Kuan Yew set the up the Corrupt Prevention Investigation Bureau (CPIB) to monitor and investigate the behaviour of senior civil servants. 2 Non – State Actors Such as the International Standards Organisation (ISO) who develop and publish international standards to guide best practice. 3 Code of conduct This states the behaviour of all employees, what they should do or should not do e.g should not receive any gifts from outside parties unless declared to the organisation. Nageb 34 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges 4 Role Model Set by Senior management An ethical culture led by the senior management is a good role model for others to emulate. Such action increases the risks of doing business in such countries. 5 From Wikipedia According to the amended Klitgaard equation limitation of monopoly and regulator discretion of individuals and a high degree of transparency through independent oversight by non-governmental organisations (NGOs) and the media plus public access to reliable information could reduce the problem. Djankov and other researchers have independently addressed the role information plays in fighting corruption with evidence from both developing and developed countries. Disclosing financial information of government officials to the public is associated with improving institutional accountability and eliminating misbehaviour such as vote buying. The effect is specifically remarkable when the disclosures concern politicians' income sources, liabilities and asset level instead of just income level. Any extrinsic aspects that might reduce morality should be eliminated. Additionally, a country should establish a culture of ethical conduct in society with the government setting the good example in order to enhance the intrinsic morality. Enhancing civil society participation Creating bottom-up mechanisms, promoting citizens participation and encouraging the values of integrity, accountability, and transparency are crucial components of fighting corruption. As of 2012, the implementation of the "Advocacy and Legal Advice Centres (ALACs)” in Europe had led to a significant increase in the number of citizen complaints against acts of corruption received and documented and also to the development of strategies for good governance by involving citizens willing to fight against corruption. Video V6 What is Corruption? V7 Singapore: How to stop corruption Nageb 35 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Tutorial Questions Challenges and Risks and How to manage them Of what use might knowledge of Geert Hosftede's work on culture to a manager of engaged in International Business. Hofstede researched on IBM - conducted on the staff and established Value Dimensions. Power Distance Level of acceptance by a society of the unequal distribution of power in an organisation or boss- subordinate relationships. The higher the power distance the greater the unequal distribution of power. High Power Distance Low Power Distance tall organisation structure Flat organisation structure centralised decentralised high level of bureaucracy for companies with low power/authority - people questions authority high wage differential - people low wage differential - cannot higher up are making important distinguish between the major decisions so fair to have higher decisions makers and other decision wages makers - so end up with more equal distribution of wages. white collar workers are more blue collar workers feel more the desired. People want to climb up same working for the common good the ladder to have some authority of the company. Uncertainty Avoidance Extent to which people in a society feel threatened by ambiguous and uncertain situations, and preferences for rules and structure. High Uncertainty Avoidance Low Uncertainty Avoidance do not like ambiguities/uncertainties more initiative/ imagination are - want them to be removed, very risk allowed and encouraged; for averse creative industry need to locate at a low uncertainty avoidance country Nageb 36 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges majority of activities are low risks , Processes are not a means to and full of processes, SOP, full of end instructions centralisation of power; people decentralisation of power; people prefer to be specialists in a narrow prefer to be generalists in broad functional areas areas ( prefer variety) promotion according to seniority promotion is on performance highly standardised products less standardised products Masculinity vs Femininity Masculine cultures value competitiveness, assertiveness, ambition, and the accumulation of wealth and material possessions, whereas Feminine cultures place more value on relationship and quality of life. Masculinity Values Femininity Values aggressiveness more tolerant focus on achieving something more understanding; regardless of cost to the exclusion of others focus on career progress focus on quality of life very decisive; argue issues and once top down decision making structure decided will go for it not quite acceptable Individualism vs Collectivism Tendency of people to look after themselves and their immediate family only and neglect the needs of society, or alternatively act predominantly as a member of the group or organisation Individualistic Society Collective Society expected to be rewarded for a team work is expected success willing to be penalised for failure success because everyone contributed but no one accepts responsibility for failure high differential in pay less differential in pay e.g financial services e.g production line Nageb 37 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Hofstede Limitations His empirical data was collected 30+ years ago. Societies have evolved due to globalisation so his ideas may not apply today. Culture is important in the success of firms but it is just one of the factors Relevance of Hofstede's Research Knowledge about culture helps manager to know what incentives and penalties are good for getting people to do what should be done. Knowledge about kind of societies especially for outsourcing is important. Need to decide whether legal contracts are required. If individual and masculine society then probably legal contract rather than verbal agreement. Risks do present cultural issues Sample Examination Questions 1a Define culture b Describe and assess the context, cluster and dimensions approaches to international culture c What challenges and risks do cultural issues present to an international business and how can these be managed? 1a Define culture Culture can be seen as the programming of the mind that develops over time which distinguishes the members of one group or category of people from another. It is a system of values and norms that are shared among a group and that, when taken together, constitute a design for living. 1b. Describe and assess the context, cluster and dimensions approaches to international culture There are namely 3 approaches to the vast difference in culture in various countries and regions. Namely they are context, cluster and value dimension. Below we will find how these three approaches differ from each other. Nageb 38 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Context approach is the underlying background upon which interaction takes place. It divides into high and low, Unspoken words are high context culture. (E.g-gestures; Japanese do not like to say ''No'' in public.)Low context culture communication is at face value where spoken words have a literal meaning. Cluster approach is when A group of countries sharing similar cultural characteristics as mention by GLOBE-Global Leadership and Organisational Behavior Effectiveness.(E.g-Confucian Asia, Eastern Europe ,Middle East, Southern Asia and Sub-Sahara Africa). When considering about value dimension Hofstede has done the most extensive work about it. He compared the cultural differences between countries by using the following value dimensions. Power-distance high and low, which mean the unequal distribution of power. Individualism Vs. Collectivism loyalty to self and family or to the wider group.Masculinity Vs. Femininity describes competition, and materialism (stereotypically associated with masculinity) versus the degree to which people value relationships and show concern for others (stereotypically associated with femininity),Uncertainty avoidance, relates to tolerance of uncertainty and ambiguity. For example, low uncertainty avoidance cultures would be more tolerant of uncertainty and so not avoid it. High uncertainty cultures prefer rules and structured circumstances and high and low Long-term and short-term orientation. After all when talking about the limitations each accord; Miscommunication can be seen as a major culprit in context culture.(E.g-In India looking down when a superior speaks to you is a sign of respect but in the western world lack of eye contact is classified as rude.) Moreover this approach only consider on one dimension. Whereas in cluster approach it tells us little differences between countries within a cluster. In addition, in value dimension The research was done only on one organisation, IBM and only Based on marketing department. Upon all, the research claim to be too old and invalid,30 years old. On a brighter side, these value dimensions are still relevant in status quo. On the whole, the foresaid are the approaches a company should consider when going global as the culture in all the countries are unique and cannot be ignored. Nageb 39 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges 1c.What challenges and risks do cultural issues present to an international business and how can these be managed? There are many issues an international business would face when doing business on a foreign country mainly due to the differences in culture. Wal-Mart is a business which had a joint venture in India with Bharti which is now terminated due to lack of ability to conceive the cultural indifference. And we can categorize the challenges and risks which Wal- Mart failed to comprehend while carrying its business operations. When considering it in term of its structure, according to value dimension, in USA it has a low power distance which is a flat structure whereas in India they have high power distance, a tall structure and there is more centralization. Secondly there were issues in terms of Wal-Mart’s production sector, In USA, there is a wider product range which is of higher price. In India, due to the low income groups people find it difficult to afford expensive products. Also, problems may arise in terms of finance. Where in USA it is basically short term oriented while in India it’s not; long term oriented. In USA shareholders of a company plays a dominant role whereas in India Banks hold the topper of the list. But USA would not have been willing to show any interest on Indian banks. Challenges are evident in terms of Marketing. In USA, they tries to have an individualistic approach thus wants a High product range reflecting individual taste and preferences whereas in India with its collectivism approach, tends to show family as an important unit. If we look from the management style point of view;. In USA, the management style is more participative in both genders, male and female, whereas in India it is directional and evidence show discrimination when hiring female into higher positions. Lastly, Wal-Mart faced risks regarding Government Business Relations. For example in India, Businesses must support the government policies such as giving donations. Whereas in USA businesses follow the regulations prescribed by the law. However, for an international firm to succeed, they must have a crystal clear understanding about the informal institution of the host country in order to reach business targets and to get away from issues they will have to encounter while engaging in the business. Nageb 40 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges ANOTHER STUDENTS’ ESSAY 1a.Define culture Culture can be seen as the programming of the mind that develops over time which distinguishes the members of one group or category of people from another. 1b.Describe and assess the context, cluster and dimensions approaches to international culture There are namely 3 approaches to the vast difference in culture in various countries and regions. Firstly, the context approach is the underlying background under which interaction takes place. High and low context language is present. For high context culture, unspoken words are important as for low context culture, it is defined by the literal meaning. However, it considers only one dimension. In this case, both spoken and unspoken words are equally important. Secondly, we have the cluster approach which is the categorization of countries with similar cultural characteristics also known as clusters. For instance Southern Asia, Confusion Asia, Middle East, Eastern Europe and Sub- Sahara Africa as stated by GLOBE. This approach tells us very little about the difference between one country from another, within or between clusters. Lastly, there is the value dimensions approach invented by Hofstede. He compared cultures of different countries by using 5 identifiable value dimensions namely Individualism VS Collectivism, Low VS High power distance, Masculinity VS Femininity, Low VS High Uncertainty Avoidance and Long term VS Short term Orientation. This approach is generalized based on observation on a single company which is IBM and at a specific department, Marketing. Moreover, the research is outdated. On a brighter note, these value dimensions are still relevant in status quo. Ergo, these are the approaches a company should consider when going global as the culture in all the countries are unique and cannot be ignored. Nageb 41 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges 1c.What challenges and risks do cultural issues present to an international business and how can these be managed? There are many issues an international business would encounter when doing business on foreign land due to the difference in culture. There may be a lack of understanding and appreciation of the host country’s culture leading to broken ties between the company and the host country. Walmart engaged in international business in India and had a joint venture with Bharti. However, due to the inability to comprehend the cultural differences it is now dissolved. First and foremost, the risk and challenges Walmart would face is in terms of its structure. According to Hofstede’s Value dimension approach, in USA it has a low power distance, a flat structure and more delegation whereas in India they have high power distance, a tall structure and there is more centralization. Secondly, there are challenges in terms of their production. In USA, innovation is evident and there is a wider product range which is of higher price to reflect the product range. In India, low income groups are present and people are hence unable to afford expensive products. Thus, there is mass production to cater to the low income consumers. Thirdly, in USA arm’s length is present which is based on the principle that parties should have equal influence in transactions. It removes opportunities for deals derived via personal ties which may manipulate the market. In developing countries such as India, bribery such as grease money is available which facilitates the rapid processing of bureaucratic paperwork. Fourthly, problems may arise in terms of finance. In USA, shareholders play an important role in the market whereas in India the banks are top on the priority list. Shareholders in India are not taken into interest as compared to the banks. Fifthly, challenges are imminent in the marketing perspective. In India, they show the dominance of the male race in advertisements however in USA, advertisements highlight how products could enhance relationships between people. Lastly, if we look from the management style point of view, an international business like Walmart could face challenges here as well. In USA, the management style is more participative whereas in India it is directional and converges away from femininity and towards masculinity. Nageb 42 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges For an international firm to succeed, they will have to consider the informal institutions in the host country so as to cater to the needs and to prevent any unwanted conflicts to arise. Mock 2015 As firms engage in more and more cross-border activities, knowledge of cultural differences between societies becomes crucial for international managers. Therefore: a) Explain the context, cluster and dimensions approaches to understanding cultural differences between societies. (6 marks) b) What are the implications of the knowledge of cultural differences between societies for managers of international firms? (13 marks) c) Suggest four ways in which a Human Resource Manager might implement his or her functions differently in a Chinese subsidiary compared to in a US subsidiary. Please explain your reasoning. (6 marks) Introduction Culture is a collection of believes, norms, values and behaviours, customs that distinguishes one society from another. a. Context – When there is interaction in a social setting language becomes important. The language being interpreted therefore becomes important. Cluster – some countries have similar characteristics – cluster of cultures become important. Ronen and Shenkar are attributed to study of clusters. No less than 10 clusters that deem to cover the cluster of countries. Huntington - there are sporadic differences between country’s country. Within clusters there are divergences of culture. Do note that if Beer does well as in Spain then it should sell well in other countries that have the same characteristics e.g. like S. America or similarly a TV soap opera in Spain can therefore be sold in S.America. Dimensions Approach – associated with Hofstede – Power distance, uncertainty avoidance, individualism, masculinity short and long term orientation. Trompenaars is also associated with culture. b. Need to incorporate – Ethnocentric, Cross cultural literacy, Culture and Competitive Advantage Nageb 43 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Can discuss based on the following guidelines: marketing structure Management style Risk taking behaviour of managers. Not all functions are influenced by cultural factors. c four ways in which a Human Resource Manager might implement his or her functions differently in a Chinese subsidiary compared to in a US subsidiary China US Gender Less pay – less More pay – more productive productive Recruitment Informal process Formal process Mgt style Take orders Need to be consulted Staff appraisal Less likely to have Open public argument public discussion – with manager. safe face; group Individual rewards. reward May 2015 Zone A Q3 Globalisation exposes transnational corporations to complex ethical issues and requires them to create appropriate corporate social responsibility ( CSR ) policies. Discuss this assertion under the following headings: a Using appropriate illustrations, explain the three approaches that companies can adopt to deal with ethical dilemmas that arise when operating internationally. 12 marks b Using appropriate examples, describe the four strategies that an international business can adopt with respect to CSR 13 marks Examiner’s Report Reading for this question The material is contained in the subject guide, Chapter 3, p.41, Peng and Meyer (2011) Chapter 3, and Willcocks (2013) Chapter 3. Nageb 44 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Approaching the question For a), candidates should be familiar with three approaches: ‘ethical relativism’ ‘ethical imperialism’ ‘middle of the road’ and be able to describe each with suitable examples of their use and the dilemma created (3 marks for each approach). Other named approaches are acceptable. The examiners expected a discussion of ethics and ethical dilemmas for international businesses, with examples for a total of 3 marks. For b), on CSR the answer should include some discussion of what CSR is and the notion of a triple bottom line – economic, social and environmental – and provide examples of CSR in action (for 3 marks). The main part of the answer should be on CSR strategies. The four that need to be described are: reactive defensive accommodative proactive each with an illustrative example (for 2 marks each). Additional marks were assigned for strong answers in the strategies, or for additional discuss on the challenges in CSR. May 2015 Zone A (Q8) & Zone B (Q5) Formal and informal institutions greatly affect and shape the strategies that are possible in specific countries and markets. Therefore: a Describe, using examples, the major political, economic and legal institutions an international business models needs to take into account in designing its strategy. 7 marks b Describe, using examples, the major informal institutions an international business needs to take into account in designing its strategy. 7 marks c Define PESTEL and SWOT analyses and describe, using examples, how these can be used to develop an environmental analysis for international business strategy development. 11 marks Nageb 45 Chapter 3: Reading - Informal institutions: Cultural, Social and Ethical Challenges Examiner’s Report