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Chapter 3: Emphasizing Cultures, Ethics, & Norms
Chapter Outline
LO1: Explain where informal institutions come from.
1. Key Concepts
2. Key Term
3. Discussion Exercise
LO2: Define culture and articulate its two main manifestations.
1. Key Concepts
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Chapter 3: Emphasizing Cultures, Ethics, & Norms
2. Key Terms
3. Discussion Exercise
LO3: Articulate three ways to understand cultural differences.
1. Key Concepts
2. Key Terms
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Chapter 3: Emphasizing Cultures, Ethics, & Norms
3. Discussion Exercise
LO4: Explain why understanding cultural differences is crucial for global business.
1. Key Concepts
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Chapter 3: Emphasizing Cultures, Ethics, & Norms
LO5: Explain why ethics is important.
1. Key Concepts
2. Key Terms
LO6: Identify ways to combat corruption.
1. Key Concepts
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Chapter 3: Emphasizing Cultures, Ethics, & Norms
2. Key Term
Corruption: The abuse of public power for private benefits, usually in the form of
bribery
3. Discussion Exercise
As mentioned at the close of this section, corruption and bribery will not be eliminated until
every country criminalizes such actions and enforces anti-corruption legislation strictly.
Though there have been some broad-level agreements on anti-corruption laws, the reality is
that corruption and bribery are still rampant in many countries because these countries lack
articulate, effective legislation or enforcement of such legislation.
Imagine that you are the CEO of a firm that is about to enter into a foreign country. While
this country has passed anti-corruption laws, the lack of enforcement of this legislation is
notorious. It is a well-known fact in the business community that bribery is both accepted
and required to attain any measurable success. How would you guide your firm through this
situation? Would you engage in an action that you consider unethical but others consider
ethical? Would you impose your own ethical standards and avoid bribery at all costs? Would
you press government officials to enforce anti-corruption laws that are already in the books?
LO7: Identify norms associated with strategic responses when firms deal with ethical
challenges.
1. Key Concepts
As an important informal institution, norms are the prevailing practices of relevant players—
the proverbial “everybody else”—that affect the focal individuals and firms. How firms
strategically respond to ethical challenges is often driven, at least in part, by norms. Shown
in Exhibit 3.6, four broad strategic responses are (1) reactive strategy, (2) defensive strategy,
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Chapter 3: Emphasizing Cultures, Ethics, & Norms
(3) accommodative strategy, and (4) proactive strategy.
2. Key Terms
3. Discussion Exercise
On September 16, 2008, insurance giant AIG (American International Group) received an
$85 billion bailout package from the United States Federal Reserve to meet its financial
obligations and maintain liquidity. The support package was increased to an estimated
$182.5 billion by May of 2009. After the first bailout plan, it was discovered that AIG spent
$444,000 on a retreat for its employees and distributors, $86,000 on an executive hunting
trip, and $343,000 on a corporate event in Arizona. In March 2009, AIG announced that it
would pay $165 million in bonuses, in spite of its historic losses and dependence on
government intervention. All of this was legal of course, but was roundly criticized as
unethical usage of taxpayers’ dollars.
What was the ethical strategy that AIG took with respect to company expenditures and the
payment of bonuses? In your opinion, what strategy should they have taken? Can you think
of a way in which AIG could have paid the bonuses while also maintaining a positive ethical
reputation? Would you have approved AIG’s spending on these recreational events and
bonuses? Give an explanation for your answer.
LO8: Explain how you can acquire cross-cultural literacy.
1. Key Concepts
The institution-based view argues that firm performance is determined, at least in part, by
the informal cultures, ethics, and norms governing firm behavior. This emphasis on informal
institutions suggests two broad implications for savvy managers around the globe. First,
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Chapter 3: Emphasizing Cultures, Ethics, & Norms
managers should enhance their cultural intelligence, defined as 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. While skills can be taught in a
classroom, the most effective way to learn them is total immersion in a foreign culture.
Savvy managers should also be aware of the prevailing norms and their transitions globally.
This is not to suggest that every local norm needs to be followed. Failing to understand the
changing norms or adapting to them in an insensitive and unethical way may lead to
unsatisfactory or disastrous results.
2. Key Term
3. Discussion Exercise
Debate: Ethical Dilemma/Emerging Markets
Criticizing Hofstede’s Framework
1. Key Concepts
Despite the influence of Hofstede’s framework, debate continues to rage. Criticisms include:
Cultural boundaries are not the same as national boundaries.
Being more familiar with Western cultures, Hofstede might inevitably be more
familiar with dimensions relevant to Westerners. Thus, crucial dimensions relevant to
Easterners (Asians) could be missed.
Hofstede’s research was based on surveys of more than 116,000 IBM employees
working at 72 national subsidiaries from 1967 to 1973. However, because of such a
single firm or single industry design, it was possible that Hofstede’s findings captured
what was unique to that industry or to IBM. Given anti-American sentiments in some
countries, some individuals might refuse to work for an American employer. Thus, it
was difficult to ascertain whether employees working for IBM were true
representatives of their respective national cultures.
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Chapter 3: Emphasizing Cultures, Ethics, & Norms
Because the original data are now over 40 years old, critics contend that Hofstede’s
framework would simply fail to capture aspects of recent cultural change
Hofstede responded to all four criticisms. Most results were supportive of his findings.
Overall, while Hofstede’s work is not perfect, on balance, its values seem to outweigh its
drawbacks.
Closing Case Discussion Guide
Monetizing the Maasai Tribal Name
Living in Kenya and Tanzania, the Maasai, with their recognizable red attire, represent one of the
most iconic tribes in Africa. Known as fierce warriors, the Maasai have won the respect of rival
tribes, colonial authorities, and modern governments of Kenya and Tanzania. Together with
lions, giraffes, and zebras, a Maasai village is among the “must-see” places for a typical African
safari trip.
Experts estimate that perhaps 10,000 firms around the world use the Maasai name, selling
everything from hats to legal services. While these firms made millions, neither a single Maasai
individual nor the tribe ever received a penny from the companies using their name. This has
caused a huge ethical and legal debate to erupt. Legally, the Maasai case is weak. The tribe has
never made any formal effort to enforce intellectual property rights (IPR) of its culture and
identity.
Although steeped in tradition, the Maasai are also constantly in touch with the modern world.
Their frequent interactions with tourists have made them aware of how much value there is in the
Maasai name. But they are frustrated by their lack of knowledge about the rules of the game
concerning IPR. Fortunately, they have the help of Ron Layton, a New Zealander and former
diplomat who now runs nonprofit Light Years IP, which advises groups in the developing world
such as the Maasai. Layton previously helped the Ethiopian government wage a legal battle with
Starbucks, which marketed Harrar, Sidamo, and Yirgacheffe coffee lines from different regions
of Ethiopia without compensation.
Emboldened by the success in fighting Starbucks, Layton worked with Maasai elders such as
Issac ole Tialolo to establish a nonprofit registered in Tanzania called Maasai Intellectual
Property Initiative (MIPI). Together, they crafted MIPI bylaws that reflected traditional Maasai
cultural values while satisfying the requirements of Western courts—in preparation for an
eventual legal showdown. Layton himself made no money from MIPI—his only income was the
salary from his own nonprofit Light Years IP. A $1.25 million grant from the US Patent and
Trademark Office (USPTO) helped to defray some of the expenses. The challenge now is to have
more tribal leaders and elders sign up with MIPI so that it comes to be viewed both externally
and internally as the legitimate representative of the Maasai tribe. How the tribe can monetize its
name remains to be seen.
Video Cas
Watch “Communicating Across Cultures” by Sir David Bell of Pearson
1. Bell gave an example in which a group of people were offended when they were told that
what they did was “quite good.” Why were they offended and what was his point?
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Chapter 3: Emphasizing Cultures, Ethics, & Norms
2. What did Bell’s example of the pantomime illustrate? Can you think of forms of verbal or
nonverbal communication in your country that could be misunderstood by people from other
parts of the world?
3. One of Bell’s objectives is to have people from various countries feel that they are all part of
the same company and to value the same things. To what extent would that help overcome
communication barriers among different cultures?
accomplishing that objective. The key thing is the thought put into the response.
4. Bell indicated that one approach to improving cross-cultural communication is to
periodically shift people around so that they are exposed to different parts of an organization
and the world. What are the limitations and opportunities? Do you think technology could
help in shifting people as he suggests?
Additional Discussion Material
(From Prep Cards
Critical Discussion Question
1. Suppose that you are on a plane and the passenger sitting next to you tries to have a
conversation with you. You would like to be nice but don’t want to disclose too much
information about yourself (such as your name). He or she asks: “What do you do?” How
would you answer this question?
2. On Ethics: Assume that you work for a New Zealand company exporting a container of
kiwis to Azerbaijan or Haiti. The customs official informs you that there is a delay in
clearing your container through customs, and it may take a month. However, if you are
willing to pay an “expediting fee” of US $200, he will try to make it happen in one day.
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Chapter 3: Emphasizing Cultures, Ethics, & Norms
What would you do?
3. On Ethics: Most developed economies have some illegal immigrants. The United States has
the largest number with between 10 and 11 million. Without legal US identification (ID)
documents, they cannot open bank accounts or buy houses. Many US firms have targeted
this population, accepting the ID issued by their native countries and selling them products
and services. Some Americans are furious with these business practices. Other Americans
suggest that illegal immigrants represent a growth engine in an economy with relatively little
growth elsewhere. How would you participate in this debate?
Students’ answers will vary. The students who favor illegal immigrants will probably argue
that America has always welcomed foreigners and that these immigrants are often willing to
do jobs, which are typically low-paying and labor-intensive, that many Americans are
unwilling to perform. The students who disapprove of illegal immigrants will probably
argue that these immigrants are taking away job opportunities from tax-paying citizens and
using their government-sponsored resources (such as police protection, fire protection, and
emergency healthcare) for which they have not contributed via payment of taxes
Review Question
1. Where do informal institutions come from?
Informal institutions come from socially transmitted information and are part of the heritage
that is called cultures, ethics, and norms
2. What is the difference between a low-context culture and a high-context culture?
In high-context cultures, communication relies heavily on unspoken conditions or
assumptions, which are as important as the words used. In low-context cultures,
communication is usually taken at face value without much reliance on unspoken conditions
or assumptions, which are features of context.
3. Describe the three systems for classifying cultures by clusters.
The first is the Ronen and Shenkar clusters, proposed by management professors Simcha Ronen
and Oded Shenkar. Brazil, India, Israel, and Japan are classified as independents. The second set
of clusters is called the GLOBE cluster, named after the Global Leadership and Organizational
Behavior Effectiveness project led by management professor Robert House. The GLOBE project
identifies 10 clusters and covers 62 countries. The third set of clusters is the Huntington
civilizations, popularized by political scientist Samuel Huntington. Huntington divides the world
into eight civilizations.
4. Describe the differences among the five dimensions of Hofstede’s framework.
The differences among the five dimensions of Hofstede’s framework are as given below.
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Chapter 3: Emphasizing Cultures, Ethics, & Norms
5. What is the difference between ethical relativism and ethical imperialism?
Ethical relativism follows the cliché, “When in Rome, do as the Romans do.”
Ethical imperialism refers to the absolute belief that “There is only one set of Ethics (with a
capital E), and we have it.”
6. How would you define corruption in a business setting?
