Evaluating International Ethical Climates: A Goal Programming Model

James J. Hoffman

ABSTRACT. A critical concern for firms pursuing international expansion strategies involves identifying countries that offer a good fit with the firms overall ethical orientation. Unfortunately, little has been written to aid firms in identifying countries that offer this type of fit. This paper presents a model that combines the concepts of strategic management, cross-cultural management, business ethics, and the management science technique of goal programming. The purpose of the model is to aid managers in identifying countries for international expansion that offer the best fit with the firms ethical orientation. The paper also extends the existing literature on crosscultural management and business ethics by applying a computer optimization model to evaluate potential countries for international expansion in a way that has not been done before.

Over the years one of the most prominent corporate growth strategies has been the expansion into global markets. One of the primary benefits that global expansion offers firms is access to new markets and opportunities to utilize economies of scale. However, in order for international expansion to be successful these firms must identify countries with cultures that offer a good fit with the firms ethical orientation. By selecting countries that offer a good fit with the firms ethical orientation, organizations can minimize culture shock and thus help maximize firm profitability. Unfortunately, many firms that pursue international expansion as a strategy do not always select countries that offer a good fit with the firms ethical orientation. Although several models have been developed over the past 30 years to aid managers in the identification and analysis of the multiple relationships that must be dealt with when

expanding into international markets (Farmer and Richman, 1964; Estafen, 1970; Kugel, 1973), none of these models provide managers with specific information pertaining to how well a countrys unique cultural dimensions will fit with a firms ethical orientation. The purpose of this paper is to develop a model that will provide managers with information to aid them in selecting countries for international expansion that offer the best fit with the firms ethical orientation. Once this information is generated by the model, it can be used by itself or in conjunction with information generated by other international business models (i.e. models that take into consideration political, legal, technological, economic factors, and/or other social factors) in order to determine a countrys overall level of suitability as a site for international expansion. In order to develop such a model, this paper draws on literature from the fields of business strategy, cross-cultural management and business ethics, and also utilizes goal programming in order to provide managers with a computerbased cultural evaluation model on which to base international expansion decisions. The specific objectives of the paper are to: (a) review previous literature that examines the effect of national culture background on an individuals ethical orientation. (b) develop an international expansion model that: (1) aids managers in selecting country(s) for international expansion that offer the best fit with the firms ethical orientation; and (2) utilizes the management science technique of goal programming, and micro computer technology to

Journal of Business Ethics 17: 18611869, 1998. 1998 Kluwer Academic Publishers. Printed in the Netherlands.

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James J. Hoffman groups (e.g., extended family, clan, or other organization) from which they cannot detach themselves. Essentially individualist people tend to be self-orientated while collectivist people are more grouporientated. 2. Masculinity is defined as being the extent to which masculine traits are dominant in societal members. Typical masculine values include assertiveness, lack of concern for others, competitiveness, and the quest for material wealth. 3. Power distance is defined as the extent to which the less powerful individuals in a society accept inequality in power and consider it as normal. Although inequality exists within every culture, the degree to which it is accepted varies across cultures. 4. Uncertainty avoidance is defined as the extent to which individuals within a culture are made nervous by situations that are unstructured, unclear, or unpredictable, and the extent to which these individuals attempt to avoid such situations by adopting strict codes of behavior and a belief in absolute truth. Vitell et al. (1993) theorized that all four of these cultural dimensions relate to ethics in the sense that they may influence an individuals perception of ethical situations, norms for behavior, and ethical judgements, among other factors. The implication being that as societies differ with regards to different cultural dimensions so will the various components of their ethical decision making differ. Results from empirical studies that have examined the effect of culture on ethical decision making have been mixed. In a laboratory experiment that analyzed the ethical decision making of graduate business students, nationality was found to be related to ethical decision behavior (Hegarty and Sims, 1979). In a study of managers from France, the United States, and Germany, Fritzsche and Becker (1984) found differences between the levels of idealism and ethical pessimism. Fritzsche and Becker determined that cultural backgrounds were the causes for the variation in the results.

provide an efficient and effective framework on which to base these types of international expansion decisions. (c) apply the model to an example decision involving the selection of a country for international expansion. The impact of national cultural background on an individuals ethical orientation Culture is a term that was originally developed in the field of anthropology yet has recently gained significance as a research area in the study of management and organizations (Smircich, 1983). From a business perspective, culture can be viewed on three different levels, national, organizational and individual (Trompenaars, 1993). At the national level culture can be viewed as the way in which attitudes are expressed in a particular country or regional society. At the organizational level culture can be viewed as the way in which attitudes are expressed within a specific organization. At the individual level culture can be viewed as the way in which people within functional areas of the organization tend to share certain professional and ethical orientations (Trompenaars, 1993). At the national level, the literature is extremely rich in its support of cultural differences across national boundaries. Adler (1983) provided an indepth analysis of how individuals vary across cultures and the extent to which management phenomena are universal. Clearly, the most extensive work on culture, in the management literature, has been provided by Hofstede (1980, 1983, 1984, 1994). Hofstede (1983, 1984) developed four cultural dimensions (individualism, masculinity, power distance, and uncertainty avoidance) which help facilitate an understanding of differences among societies. These dimensions are defined as follows: 1. Individualist cultures are defined as being those societies where individuals are primarily concerned with their own interests and the interests of their immediate family. Collectivist cultures, in contrast, assume that individuals belong to one or more in

Evaluating International Ethical Climates Other researchers have reached different conclusions. In a major study of cross-cultural ethics, Lee (1981) compared the ethical beliefs of British managers working in Hong Kong with the ethical beliefs of Chinese managers. Lee concluded that the evaluation frameworks of Chinese and British managers were extremely similar and attributed this to a possible acculturation of the British managers. Lees (1981) conclusions have been supported by the findings of later cross-cultural studies. Studies conducted by Tsalikas and Nwachakwu (1988), Izraeli (1988), Tsalikas and Nwachakwu (1989) and most recently Abratt et al. (1992) all have suggested that ethical beliefs vary little from culture to culture. One explanation for these mixed results may stem from the fact that although the subject groups in the Tsalikas and Nwachakwu (1988), Izraeli (1988), Tsalikas and Nwachakwu (1989), and Abratt et al. (1992) studies are from different countries, their respective cultures may be somewhat similar in regard to one or more of Hofstedes four cultural dimensions. For example, the recent study by Abratt et al. (1992) focused on the ethical beliefs of managers from South Africa and Australia. As reported above, findings from the study suggested that culture has little or no impact on the ethical beliefs of managers. While the managers in the study represent two different countries (Australia and South Africa) both of these countries cultures rest on the upper dimension of Hofstedes (1983) individualism index. Thus based on Hofstedes typology, it is not surprising that the ethical beliefs of managers from South Africa and Australia are similar. It can be theorized that in order for an organization to be successful there must be some degree of fit between an organizations ethical orientation and the national culture of the country within which the organization conducts business. Given that the literature reviewed above suggests that national cultural background can affect the ethical orientation of individuals who work in an organization and also how societies at large may view an organizations actions, the need for a model that aids managers in selecting country(s) for international expansion that offer the best fit with the firms ethical orientation is very evident.

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The firm ethics/national culture fit model The field of business strategy deals with the process of matching or fitting the organization with its changing environment in the most advantageous way. This includes adapting the organization itself (via internal changes) to fit the external environment or in some cases finding the best external environment (for example in the case of global expansion) to fit the internal environment. The Firm Ethics/National Culture Fit model, shown in Figure 1, uses the concept of business strategy to help identify the country that provides the best cultural fit with a firms ethical orientation. Determination of a countrys unique cultural dimensions Since there are many cultural dimensions that must be considered when selecting an expansion country and the possible combinations and permutations can be quite large. The first step of the Firm Ethics/National Culture Fit model is to determine what unique cultural dimensions a country should have to fit most advantageously with the firms ethical orientation. These cultural dimensions can be referred to as the countrys critical cultural dimensions (CCDs) since they are critical to the international expansion efforts future success. In the Firm Ethics/National Culture Fit model a firm would only examine those critical cultural dimensions that are most important for international expansion to be successful. In the goal

Figure 1. The firm ethics/national culture fit model for country selection.

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James J. Hoffman computer loaded or the data for the model may be more easily obtained by merging files from data sources into a variety of goal programming software packages (see Bitran (1979); Kiziltan and Yucaoglu (1983)). The use of computer technology allows decision makers to generate expansion country selection solutions even when a substantial number of country CCDs are included in the model. The informational output of the goal programming model is quite extensive and goes far beyond any simple tabular solution. The model provides the best strategically fitting country(s) for international expansion and also provides information on how well the choice satisfied the prioritized goals established by management on the CCDs. In addition, the goal programming model provides trade-off information of the CCDs that can help improve international expansion decisions. For example, the model can define the exact trade-off values for alternative countries. These trade-off values can be used to revise the priority structure to improve the country selection choice. In other words, the model offers information that can be used by managers to suggest refinements in the model for a better solution. Indeed, one real advantage of using the goal programming model is that minor changes in the models parameters can be easily made and a new solution can be quickly generated with the computer. Tabular methods, on the other hand, might require a substantial investment in time and effort for revision and recalculation of a new solution.

programming model these critical cultural dimensions are first ranked in order of importance. For example, if a high level of individualism is a critical cultural dimension, and a major goal of the firm is to locate in a country with a high level of individualism, the firm might rank the individualism dimension as its highest cultural dimension priority, then power distance, uncertainty avoidance, and so on until all the critical cultural dimensions have been included in the model. Once the CCDs are ranked, the next step is to weight them for each alternative expansion country that is examined. An index similar to the one used by Hofstede (1983) or scales similar to the ones used by Trompenaars (1993) could be used to assign weights to the CCDs.

Evaluation and site selection During the second step of the Firm Ethics/National Culture Fit model, several alternative expansion countries are identified. Relevant information about each country is then entered into the goal programming part of the model. The model will evaluate the information and determine which country provides the culture that best fits with the firms ethical orientation. The GP formulation of the goal programming model is shown in Appendix 1. To use this model, a decision maker must decide the number of countries (i.e., the alpha parameter in the model) in which a firm wants to expand simultaneously. While most firms expand into only one country at a time, this model can easily accommodate multiple expansion country problems. In the goal programming model, the variables or unknowns (i.e., xj) that are being determined are the best strategically fitting country culture characteristics. The strategic fit is described in the model as mathematical constraints, composed of the previously mentioned weighting scale values (i.e., aij) for each countrys CCDs that management defines as desirable. Management must also define the relative importance, via a priority or ranking (i.e., Pki) for each of the countrys CCDs. Once the model is formulated it can be

Application of the firm ethics/national culture model To illustrate how the Firm Ethics/National Culture model works, a case study is presented in which a U.S. corporation wants to evaluate 40 different countries that offer the potential for international expansion in order to determine which country (i.e., alpha = 1) offers the culture that best fits with the firms ethical orientation. For the purposes of the case study a decision was made to utilize Hofstedes typology as a basis for identifying a countrys CCDs.

Evaluating International Ethical Climates The U.S. corporation that will be used for the purposes of the case study is Ben & Jerrys which produces and sells ice cream. Ben & Jerrys was chosen because of the companys high ethical standards. Although the illustrative example discussed here is purely hypothetical, it is very relevant to Ben & Jerrys current situation since the company is beginning to expand internationally. Ben & Jerrys ethical orientation is exemplified by their three-part mission statement, formally stated in 1988 and reproduced here in its entirety (for a further discussion of Ben & Jerrys see Pearce and Robinson, 1997):
Ben & Jerrys is dedicated to the creation and demonstration of a new corporate concept of linked prosperity. Our mission consists of three interrelated parts: Product Mission: To make, distribute, and sell the finest quality, all-natural ice cream and related products in a wide variety of innovative flavors made from Vermont dairy products. Social Mission: To operate the company in a way that actively recognizes the central role that business plays in the structure of society by initiating innovative ways to improve the quality of life of a broad community local, national, and international. Economic Mission: To operate the company on a sound financial basis of profitable growth, increasing value for our shareholders, and creating career opportunities and financial rewards for our employees.

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Underlying the mission of Ben & Jerrys is the determination to seek new and creative ways of addressing all three parts, while holding a deep respect for the individuals, inside and outside the company, and for the communities of which they are a part.

Ben & Jerrys mission statement suggests that the company would place a high value on low masculinity, low power distance, low individualism, and low uncertainty. For the purposes of this illustrative example it is assumed that Hofstedes masculinity dimension of culture would be most important to the firm and that Ben & Jerrys wants to expand to a culture that has an ethical orientation that is similar to there own ethical orientation on each of Hofstedes four cultural dimensions. In Table I the assessment of each countrys CCDs is based on the index developed by Hofstede (1983). The four selection criteria are structured in the goal programming model as the parameters in the goal constraints. The actual desired goals (i.e., Betai) are usually set at an idealistic level of perfection that can rarely be achieved. The goal programming model will seek a solution that minimizes deviation from those impossible Betai goals by selecting the country whose selection criterion comes closest to the Betai. The ranked priorities (Pk) of the goals are based on the importance of each CCD relative to the other CCDs. While a single specific ranking is used in this example, it may be

TABLE I Data for national culture case study application (alternative country contribution toward goal (aij)) Selection criteria objective Masculinity index of the country Power distance index of the country Individualism index of the country Uncertainty avoidance index of the country Unit of measure Desired goal (Beta1) 05 11 06 08 Ranked priority Denmark (x1) 16 18 74 23 Sweden (x2) 05 31 71 29 Israel (x3) 47 13 54 81 ... ... Malaysia (x40) 050 104 026 036

0-115 index 0-115 index 0-115 index 0-115 index

1 2 3 4

... ... ... ...

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James J. Hoffman decision information. The solution-generated deviation provides detailed information on how much deviation there will be between the needs of the firm and the selected countrys contribution to filling those needs. The post-solution information provided by the goal programming model can also be extended by considering the dual solution to the problem and performing a sensitivity analysis on select desired goal parameters (Betas). The selection of one country over another invariably involves tradeoffs between the selection criteria. The dual variable values for each of the selection criteria provides very detailed tradeoff information. A sensitivity analysis can be performed on each of the selection criteria goals that may be of special interest to the firms management. In Table III, the Betas dual solution and sensitivity analysis values of the specific selection criteria objective of the Masculinity dimension

desirable to perform Pk sensitivity analysis (Schniederjans, 1995) to see if other rankings will improve the resulting solution. Based on the information in Table I, the goal programming model for the international expansion problem can be formulated as presented in Appendix II. Each of the xj decision variables in the model represents a different country from which one is to be selected. A computer that utilizes a FORTRAN program based on Bitrans zero-one programming procedures (Britran, 1979) can be used to solve the expansion country selection problem. Of the 40 countries from which to select, the goal programming model selected Sweden (i.e., x2) as the country that fits best with the firms ethical orientation. A complete break-down of the goal accomplishment in this selection is presented in Table II. The goal deviation and its interpretation in Table II are very useful post-

TABLE II International country selection model solution for national culture case study application Selection criteria objective Masculinity index of the country Power distance index of the country Individualism index of the country Uncertainty avoidance index of the country Ranked priority (Pk) 1 2 3 Solution generated deviation (d d+) 00 20 65 Goal Accomplishment and interpretation on model selection of Sweden (x2) Fully accomplished Selection does not fully satisfy the power distance goal (20 more than the goal of 11) Selection does not fully satisfy the individualism goal (65 more than the goal of 6) Selection does not fully satisfy the uncertainty avoidance goal (21 more than the goal of 8)

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TABLE III Dual solution values and sensitivity analysis of masculinity index objective of 5 Selection criteria objective Dual variable values Sensitivity analysis for the masculinity objective of 5 16 16 16 16

Mssculinity index of the country Power distance index of the country Individualism index of the country Uncertainty avoidance index of the country

100. 1.18 0.27 0.55

Evaluating International Ethical Climates are presented. The dual solution values provide tradeoff information on the amount of deviation that can be reduced from the existing solution if a change in the goal of 5 is permitted. If the corporation would be willing to increase the target value of 5 on the Masculinity index to a value of 16, an alternative expansion country selection is possible that would improve the cultural fit even better than the Sweden selection. The dual value of 1.18 for the Power Distance selection criteria in Table III indicates that a decrease of 1.18 is possible for each 1 point decrease in the Masculinity index value. The sensitivity analysis defines boundaries under which the changes can be made in the selection criteria. We can see in Table 3 that the value index requirement for the selection criteria of index value of Masculinity can be increased from 5 to a boundary limit of 16. The result of such an increase would be a new country selected that would reduce negative deviation (or decrease the Power Distance value index by 13 (i.e., 11 1.18)). Once this trade-off information is identified the next step of the model is to analyze it in the context of the specific firm that is under examination. If the benefits gained in having an expansion country with a lower Power Distance index value outweigh the increase in the Masculinity index value, then the model would have been rerun and the next set of trade-off information would be analyzed using the same method as described above. After an expansion country selection is made, the dual solution values and sensitivity analysis can be performed for each of the four selection criteria in this problem if desired. As can be seen from the Masculinity Index criteria, this information would provide detailed tradeoff values for any or all existing possible combinations of selection criteria.

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Conclusions The decision of where to expand internationally is a critical and complex issue for the firm that must be dealt with on a continuing basis by top managers. This paper has presented a Firm

Ethics/National Culture fit model for expansion country evaluation that offers several benefits to managers. These benefits include: 1) the model provides trade-off information revealing where subjective weighting scale values should be revised or re-evaluated to improve the expansion country selection; 2) the model simultaneously considers all decision making criteria to derive an optimal selection; 3) the model permits ordinary ranked prioritization of decision making criteria; 4) when using the model it is easy to change critical culture dimensions and objective factor estimates (i.e., model parameters) and solve for a new solution with little or no effort from management. While the multi-criteria model presented in this paper provides a powerful decision making tool for country selection, the information it generates with duality and sensitivity analysis possess some limitations. One of the limitations is that the dual solution values are limited to a single change. That is, multiple changes in selection criteria values will not necessarily result in desirable changes reflected in all of the dual decision values. A second limitation is that changes beyond the boundaries defined by sensitivity analysis cannot be interpreted from the dual solution values. Such changes can be determined by using the model as a simulation tool. That is, the change can be observed by making a parameter change in the model and resolving the problem to see the simulated effect of the change in the new solution. These limitations, and others that are commonly discussed when using the methodologies presented in this paper (see Schniederjans, 1984, 1995) limit the interpretation of the information from the model, but not its use in country selection. Despite the limitations the careful application of the methodologies proposed in this paper will reveal accurate and useful planning information that is not currently available to managers. In addition to these limitations a couple of key assumptions were also made in this paper that deserve mention. One assumption was that companies are risk averse, not wanting to expand in countries that present ethical challenges. While in most cases this is true, in some cases companies may want to expand to countries that have

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James J. Hoffman Pk : vector of k, k = 1, 2, . . . , K ordinal ranks where P1 > P2 > > > Pk; a : number of multiple country locations to consider; aij : matrix of factor weighings for the i targeted location factor objectives when the j country is selected; and bi : vectors of i, i = 1, 2, . . . , m target location factor objectives

very low ethical standards. Companies that sell tobacco and/or alcohol based products may be examples of such companies. Future studies may want to further examine this issue by setting up a model wherein one could measure ethical risk more carefully. Another assumption was that one can really get at power distance, individuality, masculinity, and uncertainty avoidance for any country that is not host-country or evaluator biased. Based on Hofstedes work we felt this was a reasonable assumption although an argument to the contrary could probably be made. Overall, it is hoped that the Firm Ethics/ National Culture Fit model developed in this paper provides managers with a decision aid that is helpful in reducing the risk of international expansion. It is also hoped that this paper serves as a point of reference for future research on the firm ethics/national culture fit issue.

Appendix 2. Formulation of country selection model for case study application Minimize z = P1(d1+ + d1) + P2(d2+ + d2) + P3(d3+ + d3) + P4(d4+ + d4) Subject to: X1 + X2 + X3 + . . . + X40 = 1 16X1 + 5X2 + 47X3 + . . . + 50X40 + d1 d1+ =5 18X1 + 31X2 + 13X3 + . . . + 104X40 + d2 + d2+ = 11 74X1 + 71X2 + 54X3 + . . . + 26X40 + d3 + d3+ =6 23X1 + 29X2 + 81X3 + . . . + 36X40 + d4 + d4+ =8 and xj = 0 or 1; di, di+ > 0 References
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Appendix 1. Firm ethics/national culture fit model formulation

minimize Pk (d + d+)
k=1 n

subject to:

j=1 n

xj = a aij + di di+ = bi (for i = 1, 2, . . . , m)

j=1

and xj = 0 or 1 and di, di+ 0 where

(for j = 1, 2, . . . , n) (for i = 1, 2, . . . , m)

xj : decision variables, such that: xj = 1: locate in country j from j = 1, 2, . . . , n countries;

di, di+: vectors of underachievements and overachievements of targeted location factor objectives, i, i = 1, 2, . . . , m;

xj = 0: do not locate in country j:

Evaluating International Ethical Climates

Fritzsche, D. and H. Becker: 1984, Linking Managerial Behavior to Ethical Philosophy An Empirical Investigation, Academy of Management Journal 27, 166175. Hegarty, W. and H. Sims: 1979, Organizational Philosophy, Policies, and Objectives Related to Unethical Decision Behavior: An Laboratory Experiment, Journal of Applied Psychology 64(3), 331338. Hofstede, G.: 1980, Cultures Consequences: International Differences in Work-Related Values (Sage, Beverly Hills, CA). Hofstede, G.: 1983, National Cultures in Four Dimensions: A Research-Theory of Cultural Dimensions Among Nations, International Studies of Management and Organization 13, 52. Hofstede, G.: 1984, The Cultural Relativity of the Quality of Life Concept, Academy of Management Review 9, 389398. Hofstede, G.: 1994, Management Scientists are Human, Management Science 1, 413. Izraeli, D.: 1988, Ethical Beliefs and the Behavior of Managers A Cross-Cultural Perspective, Journal of Business Ethics 7, 263271. Kiziltan, G. and E. Yucaoglu: 1983, An Algorithm for Multiobjective Zero-One Linear Programming, Management Science 29, 14441453. Kugel, Y.: 1973, A Decisional Model for the Multinational Firm, International Management Review 13, 314. Lee, K. H.: 1981, Ethical Beliefs in Marketing Management: A Cross Cultural Study, European Journal of Marketing 15, 5867.

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College of Business, Florida State University, Tallahassee, FL 32306-1042, U.S.A.