Chapter 4 Emphasizing Institutions, Cultures, and Ethics

Global Strategy 1e Michael Peng Global Strategy Mike W Peng c h a p t e r 4 Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly acce.

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be scanned, copied or duplicated, or posted to a publicly

accessible website, in whole or in part.

Outline

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Dimensions of Institutions

• Institutions: Definitions

human interaction” (North)

structures and activities that provide stability and meaning to social behavior” (Scott)

Table 4.1

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

(cont’d)

informal institutions governing

individual and firm behavior - supported

by three pillars

 Formal institutions - laws, regulations, rules

- supported by the regulatory pillar (the coercive power of governments)

 Informal institutions - norms, cultures and ethics - supported by the normative and cognitive pillars

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Understanding Institutions

(cont’d)

constrains the range of acceptable actions.

transactions – or more broadly, costs of doing business

defined as “self-interest seeking with guile”

(Williamson)

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The Costs and Benefits of Informal,

Relationship-Based, Personalized Exchange

Figure 4.1

Source: M W Peng (2003), Institutional transitions and strategic

choices (p 279), Academy of Management Review, 28 (2): 275–

296.

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 Porter’s “diamond” model explains competitive advantage

of globally leading industries in different countries,

criticized for ignoring history and institutions

• 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

• Strategic choices are direct outcomes of the dynamic interaction between institutions and firms

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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.

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“the collective programming of the mind which

distinguishes the members of one group or category of

people from another.”

Geert Hofstede

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The Five Dimensions of Culture

• Power Distance

society expect and accept that power is

distributed unequally

receives about 50% of the national income (high power distance)

national income (low power distance)

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• Individualism vs 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 oftentimes practices layoffs (individualism) while Japan oftentimes institutes across-the-board pay cuts (collectivism)

• Masculinity versus femininity

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on job security, career patters, and retirement benefits; resist change (Greece)

risk with less resistance to change (Singapore)

perseverance and savings for future betterment (China)

and instant gratification.

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The Strategic Role of Ethics

• Ethics: Norms, principles, and standards of conduct that govern individual and firm behavior

• All agree - ethics can make or break a firm

• Value of an ethical reputation is magnified during

crisis

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Views on Business Ethics

• Managing Ethics Overseas

in other countries

• Two perspectives on dealing with ethical dilemmas overseas (Donaldson)

of Ethics, and we have it!”

• Donaldson’s three guiding principles:

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Views on Business Ethics (cont’d)

• Ethics and Corruption

with economic development There are

exceptions

Practices Act (FCPA)

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Strategic Responses to Ethical Challenges

EXAMPLES IN THE TEXT

STRATEGIC BEHAVIORS

STRATEGIC RESPONSES Reactive Deny responsibility, do less

than required

Ford Pinto fire (the 1970s)

Defensive Admit responsibility, but fight

it, do the least that is required

Nike (the early 1990s), Facebook (2011)

Accommodative Accept responsibility, do all

that is required

Ford Explorer roll-overs (the 2000s)

Proactive Anticipate responsibility, do

more than is required

BMW (the 1990s)

Table 4.5

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Debates and Extensions

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The Savvy Strategist

and capabilities impact strategic choices

cross cultural intelligence, and ethics are part of strategy

questions

differences

formal institutional frameworks

firms? Institutional frameworks govern strategic choices

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