Global Strategy Mike W. Peng c h a p t e r 44 Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted

Global StrategyGlobal StrategyMike W. PengMike W. Peng

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Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Global StrategyGlobal StrategyMike W. PengMike W. Peng

Chapter 4

Emphasizing Institutions,

Cultures, and Ethics

Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Outline

• Understanding institutions

• An institution-based view of strategy

• The strategic role of cultures

• The strategic role of ethics

• A strategic response framework

• Debates and extensions

• Implications for strategists


Dimensions of Institutions

•Institutions: Definitions “Humanly devised constraints that structure

human interaction” (North) “Regulatory, normative, and cognitive

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


Understanding Institutions (cont’d)

Institutional framework - formal and informal institutions governing individual and firm behavior - supported by three pillarsFormal 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


Understanding Institutions (cont’d)• What Do Institutions Do?

Reducing uncertainty

Signaling conduct as acceptable or not, which constrains the range of acceptable actions.

• Uncertainty can lead to transaction costsTransaction costs: Costs associated with economic

transactions – or more broadly, costs of doing business

A major source of transaction costs: Opportunism— defined as “self-interest seeking with guile” (Williamson)

The possibility of opportunism introduces uncertainty

4–6

The Costs and Benefits of Informal, Relationship-Based, Personalized Exchange

Figure 4.1Source: M. W. Peng (2003), Institutional transitions and strategic choices (p. 279), Academy of Management Review, 28 (2): 275–296.

Source: M. W. Peng (2003), Institutional transitions and strategic choices (p. 280), Academy of Management Review, 28 (2): 275–296. 4–7

The costs and benefits of formal, rule-based, impersonal exchange

A

B

C

T1 T2 Time

Costs/Benefits

Costs

Benefits


An Institution-Based View of 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, 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

9

10

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.


Culture

“the collective programming of the mind which distinguishes the members of one group or category of

people from another.”

Geert Hofstede

12


The Five Dimensions of Culture

• Power DistanceRefers 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)


The Five Dimensions of Culture• 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

The Five Dimensions of Culture• Uncertainty avoidance

Low uncertainty avoidance countries: place a premium on job security, career patters, and retirement benefits; resist change (Greece)

High 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.



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


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)

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


Views on Business Ethics (cont’d)

• Ethics and CorruptionCorruption distorts the basis for competitionCorruption: tendency for inverse relationship

with economic development. There are exceptions

U.S. firms are subject to the Foreign Corrupt Practices Act (FCPA)


Strategic Responses to Ethical Challenges

EXAMPLES INTHE TEXT

STRATEGICBEHAVIORS

STRATEGICRESPONSES

Reactive Deny responsibility, do lessthan 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 allthat is required

Ford Explorer roll-overs (the 2000s)

Proactive Anticipate responsibility, domore than is required

BMW (the 1990s)

Table 4.5


Debates and Extensions

• Opportunism versus Individualism/Collectivism

• Cultural Distance versus Institutional Distance

• “Bad Apples” versus “Bad Barrels”

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


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Global Strategy Mike W. Peng c h a p t e r 44 Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted