17-09-2013

Cultural
Environment
Facing Business

Dr. Shivam M. Popat

LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Define what culture is and articulate its two

main manifestations: language and religion
2. Discuss how cultures systematically differ from
each other
3. Understand the importance of ethics and
ways to combat corruption
4. Identify norms associated with strategic
responses when firms deal with ethical
challenges
5. Participate in three leading debates on
cultures, ethics, and norms
6. Draw implications for action

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WHERE DO INFORMAL INSTITUTIONS

COME FROM?
informal institutions - cultures, ethics, and norms

sociallytransmitted information and are part of the

heritage that we call cultures, ethics, and norms

ethnocentrism - self-centered mentality within a

society; people tend to perceive their own culture, ethics,
and norms as “natural, rational, and morally right”

CULTURE

culture - national identity of nation-states

Prof. Geert Hofstede - conducted perhaps the

most comprehensive study of how values in the
workplace are influenced by culture: “the
collective programming of the mind which
distinguishes the members of one group or
category of people from another”

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What is Culture?

“Culture is that complex whole which includes

knowledge, belief, art, morals, law, custom,
and other capabilities acquired by man as
a member of society.”
- Edward Tylor

Components of Culture

 Values

 Norms

 Society

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The Determinants of Culture

CLASSIFYING CULTURAL DIFFERENCES

context - underlying background upon which

interaction takes place

low-context cultures - culture in which

communication is usually taken at face value
without much reliance on unspoken context

high-context cultures - culture in which

communication relies a lot on the underlying
unspoken context, which is as important as the
words used

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CLASSIFYING CULTURAL DIFFERENCES

cluster - countries that share similar cultures together as one
cluster
approach groups countries that share similar cultures
together as one cluster

threeinfluential sets of clusters: Ronen and Shenkar, GLOBE,

and Huntington civilizations

civilization
- highest cultural grouping of people and the
broadest level of cultural identity people have

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DIMENSION APPROACH
dimension approach has endeavored to
overcome limitations:
context only represents one dimension
cluster approach has relatively little to offer
regarding differences among countries within one
cluster

DIMENSION APPROACH
power distance - extent to which less powerful members
within a country expect and accept that power is distributed
unequally
individualism - perspective that the identity of an individual is
fundamentally his or her own
collectivism - idea that the identity of an individual is primarily
based on the identity of his or her collective group

masculinity - sex-role differentiation

femininity - sex-role differentiation
uncertainty avoidance - extent to which members in
different cultures accept ambiguous situations and tolerate
uncertainty
long-term orientation - emphasizes perseverance and
savings for future betterment

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ETHICS

ethics - principles, standards, and norms of conduct governing

individual and firm behavior
code of conduct - set of guidelines for making ethical
decisions
ethical relativism -“When in Rome, do as the Romans do”
ethical imperialism - absolute belief that “there is only one
set of Ethics (with a capital E), and we have it”
corruption - abuse of public power for private benefits usually
in the form of bribery
Foreign Corrupt Practices Act (FCPA) - US law enacted
in 1977 that bans bribery to foreign officials
norms - prevailing practices of relevant players that affect the
focal individuals and firms

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Economic Development: Western Values

vs. Eastern Values

Belief in the superiority of Western values has recently

been challenged by two sets of Eastern values: Islam
and Asian (Confucian).
Islamic fundamentalism, which, rightly or wrongly,
argues that Western dominance causes the lackluster
economic performance of Muslim countries. Marketing
of Western products in these countries is seen as a
cultural invasion. Islamic fundamentalists prefer to go
“back to the roots” by moving away from Western
influence.
Asian (Confucian) values are widely viewed as the
engine behind the “Asian economic miracle.” Not only
do Asians proudly proclaim the validity of “Asian
values,” but leading Western scholars also increasingly
endorse such a view.

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Cultural Change: Convergence

vs. Divergence
In this age of globalization, one side of the debate argues
that there is a great deal of convergence, especially
toward more “modern” Western values such as
individualism and consumerism.
Another side suggests that Westernization in consumption
does not necessarily mean Westernization in values. In a
most extreme example, on the night of September 10,
2001, 9/11 terrorists enjoyed some American soft drinks,
pizzas, and movies and then went on to kill thousands of
Americans the next day.
A middle-of-the-road group makes two points. First, with
the end of the Cold War, the rise of the Internet, and the
ascendance of English, there is no doubt some
convergence—at least on the surface and among the
youth.

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Opportunism versus
Individualism/Collectivism
Opportunism is a major source of uncertainty that adds to
transaction costs, and institutions emerge to combat
opportunism.
However, critics argue that emphasizing opportunism as “human
nature” may backfire in practice by causing distrust that could
lead to opportunistic behaviors.
Transaction cost theorists acknowledge that opportunists are a
minority in any population. However, theorists contend that
because of the difficulty in identifying a minority of opportunists
before they cause any damage, it is imperative to place
safeguards that, unfortunately, treat everybody as a potential
opportunist.
United States, the leading individualist country, is among societies
with a higher level of spontaneous trust, whereas there is greater
interpersonal and interfirm distrust in the large society in China.

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Cultural Shock

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