Because learning changes everything.

Culture and Ethics

in International
Business

© 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
 Introduction

• Successful international managers need cross-cultural

literacy - an understanding of how cultural differences
across and within nations can affect the way in which
business is practiced
• A relationship may exist between culture and the costs of
doing business in a country or region

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 What Is Culture?

Culture is a system of values and norms that are

shared among a group of people and that when
taken together constitute a design for living where
-values are abstract ideas about what a group
believes to be good, right, and desirable
-norms are the social rules and guidelines that
prescribe appropriate behavior in particular
situations
Society refers to a group of people who share a
common set of values and norms

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 Values And Norms

• Values provide the context within which a society’s norms

are established and justified and form the bedrock of a
culture
• Norms include folkways (the routine conventions of
everyday life) and mores (norms that are seen as central
to the functioning of a society and to its social life)
• The values and norms of a culture are the evolutionary
product of a number of factors at work in a society
including religion, political and economic philosophies,
education, language, and social structure

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 Classroom Performance System

Abstract ideas about what a group believes to be

good, right, and desirable are called

a) norms
b) values
c) folkways
d) mores

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 Social Structure

Social structure refers to a society’s basic social

organization

Two dimensions to consider:

• the degree to which the basic unit of social organization is
the individual, as opposed to the group
• the degree to which a society is stratified into classes or
castes

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 Classroom Performance System

The basic social organization of a society is its

a) culture
b) social strata
c) social structure
d) caste system

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 Individuals And Groups

• A group is an association of two or more people who have

a shared sense of identity and who interact with each
other in structured ways on the basis of a common set of
expectations about each other’s behavior
• Societies differ in terms of the degree to which the group is
viewed as the primary means of social organization

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 Individuals And Groups

• In many Western societies, there is a focus on the

individual, and individual achievement is common
• This contributes to the dynamism of the US economy, and
high level of entrepreneurship
• But, leads to a lack of company loyalty and failure to gain
company specific knowledge, competition between
individuals in a company instead of team building, and less
ability to develop a strong network of contacts within a firm

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 Individuals And Groups

• In many Asian societies, the group is the primary unit of

social organization
• This may discourage job switching between firms,
encourage lifetime employment systems, and lead to
cooperation in solving business problems
• But, might also suppress individual creativity and initiative

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 Classroom Performance System

The group is the primary unit of social organization

in

a) Japan
b) the United States
c) Switzerland
d) Mexico

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 Classroom Performance System

Which of the following is not characteristic of

individualism?

a) individual achievement
b) low managerial mobility
c) low company loyalty
d) entrepreneurial behavior

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 Social Stratification

All societies are stratified on a hierarchical basis into

social categories, or social strata

While all societies are stratified to some extent, they

differ by:
• the degree of mobility between social strata
• the significance attached to social strata in business
contacts

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 Religious And Ethical Systems

• Religion is a system of shared beliefs and rituals that are

concerned with the realm of the sacred
• Ethical systems are a set of moral principles, or values,
that are used to guide and shape behavior
• Religion and ethics are often closely intertwined
• Four religions dominate society -Christianity, Islam,
Hinduism, and Buddhism
• Confucianism is also important in influencing behavior and
culture in many parts of Asia

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 Religious And Ethical Systems
Map 3.1 World Religions

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 Language

• Language refers to the spoken and unspoken means of

communication
• Language is one of the defining characteristics of culture

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 Spoken Language

• Countries with more than one language often have more

than one culture
• English is becoming the language of international
business, but knowledge of the local language is
beneficial, and in some cases, critical for business
success

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 Unspoken Language

• Unspoken language refers to nonverbal communication

such as facial expressions, personal space, and hand
gestures
• Failing to understand the nonverbal cues of another
culture can lead to communication failure

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 Classroom Performance System

The most widely spoken language in the world is

a) Chinese
b) Spanish
c) Hindi
d) English

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 Education

• Formal education is the medium through which individuals

learn many of the language, conceptual, and mathematical
skills that are indispensable in a modern society
• Education is important in determining a nation’s
competitive advantage
• General education levels can also be a good index for the
kinds of products that might sell in a country

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 Culture And The Workplace

Table 3.1: Work-Related Values for 15 Selected Countries

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 Cultural Change

• Culture evolves over time, although changes in value

systems can be slow and painful for a society
• Social turmoil is an inevitable outcome of cultural change
• As countries become economically stronger, cultural
change is particularly common

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 Implications For Managers

• Societies differ because their cultures vary

• Cultures vary because of profound differences in social structure,
religion, language, education, economic philosophy, and political
philosophy

There are three important implications that flow from these

differences:
1. There is a need to develop cross-cultural literacy
2. There is a connection between culture and national
competitive advantage
3. There is a connection between culture and ethics in
decision making

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 Cross-Cultural Literacy

• Cross-cultural literacy is critical to the success of

international businesses
• Companies that are ill informed about the practices of
another culture are unlikely to succeed in that culture
• Managers must also beware of ethnocentric behavior, or a
belief in the superiority of one's own culture

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 Culture And Competitive Advantage

• The connection between culture and competitive

advantage is important because:
• it suggests which countries are likely to produce the most
viable competitors
• it has implications for the choice of countries in which to
locate production facilities and do business

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 Ethics

Ethics refers to accepted principles of right or wrong

that govern the conduct of a person, the members
of a profession, or the actions of an organization
Business ethics are the accepted principles of right
or wrong governing the conduct of business people
Ethical strategy is a strategy, or course of action,
that does not violate these accepted principles

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 Ethical Issues In
International Business

The most common ethical issues in business

involve:
• employment practices
• human rights
• environmental regulations
• corruption
• the moral obligation of multinational companies

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 Employment Practices

If work conditions in a host nation are clearly inferior

to those in a multinational’s home nation, should
companies apply:
• home country standards
• host country standards
• something in between

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 Human Rights

• In developed countries, basic human rights such as

freedom of association, freedom of speech, freedom of
assembly, and freedom of movement, are taken for
granted
• In other countries, these rights may not exist

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 Environmental Pollution

• Ethical issues arise when environmental regulations in

host nations are far inferior to those in the home nation
• Environmental questions take on added importance
because some parts of the environment are a public good
that no one owns, but anyone can despoil
• The tragedy of the commons occurs when a resource held
in common by all, but owned by no one, is overused by
individuals, resulting in its degradation

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 Corruption

• Some economists believe that in a country where

preexisting political structures distort or limit the workings
of the market mechanism, corruption in the form of black-
marketeering, smuggling, and side payments to
government bureaucrats to “speed up” approval for
business investments may actually enhance welfare
• Other economists have argued that corruption reduces the
returns on business investment and leads to low economic
growth

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 Moral Obligations

• Social responsibility refers to the idea that businesspeople

should take the social consequences of economic actions
into account when making business decisions, and that
there should be a presumption in favor of decisions that
have both good economic and good social consequences
• Social responsibility can be supported for its own sake
simply because it is the right way for a business to behave

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 Classroom Performance System

Which is not an area where multinational firms are

concerned about ethics?

a) Human rights
b) Trade regulations
c) Environmental regulations
d) Corruption

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 Ethical Dilemmas

• Ethical dilemmas are situations in which none of the

available alternatives seems ethically acceptable
• The ethical obligations of a multinational corporation
toward employment conditions, human rights, corruption,
environmental pollution, and the use of power are not
always clear cut

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 The Roots Of Unethical Behavior

Figure 4.1: Determinants of Ethical Behavior

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 Personal Ethics

• Personal ethics (the generally accepted principles of right

and wrong governing the conduct of individuals) influence
business ethics
• Expatriates may face pressure to violate their personal
ethics because they are away from their ordinary social
context and supporting culture, and they are
psychologically and geographically distant from the parent
company

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 Decision Making Processes

People may behave unethically because they rely

on economic analysis when making decisions and
fail to ask the relevant question:
Is this decision or action ethical?

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 Organizational Culture

• Organization culture refers to the values and norms that

are shared among employees of an organization
• In firms with an organization culture that does not
emphasize business culture, unethical behavior may exist

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 Unrealistic Performance Expectations

• When the parent company sets unrealistic performance

goals, managers may cut corners or act in an unethical
manner
• Organizational culture can legitimize unethical behavior or
reinforce the need for ethical behavior

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 Leadership

• Leaders help to establish the culture of an organization,

and set the example that others follow
• When leaders act unethically, subordinates may act
unethically, too

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 Straw Men
Straw men approaches offer inappropriate guidelines for ethical
decision making in a multinational enterprise

There are four common straw men approaches:

• The Friedman doctrine suggests that the only social responsibility of business
is to increase profits, so long as the company stays within the rules of law
• Cultural relativism argues that ethics are culturally determined and that firms
should adopt the ethics of the cultures in which they operate, or in other
words, “when in Rome, do as the Romans do”
• The righteous moralist approach claims that a multinational’s home country
standards of ethics should be followed in foreign countries
• The naïve immoralist asserts that if a manager of a multinational sees that
firms from other nations are not following ethical norms in a host nation, that
manager should not either

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 Classroom Performance System

According to ________, a company’s home-country

standards of ethics are the appropriate ones to
follow in foreign countries.

a) the righteous moralist

b) the naïve immoralist
c) the Friedman doctrine
d) cultural relativism

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 Utilitarian And Kantian Ethics

• Utilitarian approaches to ethics hold that the moral worth

of actions or practices is determined by their
consequences
• Actions are desirable if they lead to the best possible
balance of good consequences over bad consequences
• Problems with utilitarianism include measuring the
benefits, costs, and risks of an action, and the fact that
the approach fails to consider justice
• Kantian ethics are based on the philosophy of Immanuel
Kant who argued that people should be treated as ends
and never purely as means to the ends of others

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 Rights Theories

• Rights theories recognize that human beings have

fundamental rights and privileges which transcend national
boundaries and cultures
• Rights theories establish a minimum level of morally
acceptable behavior
• Moral theorists argue that fundamental human rights form
the basis for the moral compass that managers should
navigate by when making decisions which have an ethical
component

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 Classroom Performance System

________ recognize that human beings have

fundamental rights and privileges which transcend
national boundaries and cultures.

a) Kantian ethics
b) Utilitarian approaches
c) Straw men
d) Rights theories

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 Ethical Decision Making

To ensure ethical issues are considered in business decisions,

firms should:
• favor hiring and promoting people with a well-grounded sense of
personal ethics
• build an organizational culture that places a high value on ethical
behavior
• makes sure that leaders within the business not only articulate the
rhetoric of ethical behavior, but also act in manner that is
consistent with that rhetoric
• put decision making processes in place that require people to
consider the ethical dimension of business decisions
• develop moral courage

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 Hiring And Promotion

• Businesses should strive to identify and hire people with a

strong sense of personal ethics
• Companies should refrain from promoting individuals who
have acted unethically
• Prospective employees should find out as much as they
can about the ethical climate in an organization prior to
taking a position

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 Organization Culture And Leadership

• To foster ethical behavior, businesses need to build an

organization culture where:
• the business explicitly articulates values that place a strong
emphasis on ethical behavior, perhaps using a code of ethics (a
formal statement of the ethical priorities a business adheres to)
• leaders in the business give life and meaning to the code of
ethics by repeatedly emphasizing their importance, and then
acting on them
• the business puts in place a system of incentives and rewards
that recognize people who engage in ethical behavior and
sanction those who do not

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 Classroom Performance System

What is a company’s formal statement of ethical

priorities called?

a) Mission statement
b) Code of ethics
c) Code of values
d) Organizational culture

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 Decision-Making Process

To determine if a decision is ethical, managers can

ask:
• Does my decision fall within the accepted values of standards
that typically apply in the organizational environment?
• Am I willing to see the decision communicated to all
stakeholders affected by it?
• Would the people with whom I have significant personal
relationships approve of the decision?

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 Moral Courage

Moral courage:
• enables managers to walk away from a decision that is
profitable, but unethical

• gives an employee the strength to say no to a superior who

instructs her to pursue actions that are unethical

• gives employees the integrity to go public to the media and blow

the whistle on persistent unethical behavior in a company

• does not come easily and employees have lost their jobs when
acting on this courage

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 Summary

In the end, there are clearly things that an

international business should do, and there are
things that an international business should not do
But, not all ethical dilemmas have a clean and
obvious solution

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 End of Main Content

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© 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
© McGraw Hill No reproduction or further distribution permitted without the prior written consent of McGraw Hill.