国际企业管理 5 朱吉庆 国际企业管理国际企业管理 55 朱吉庆 博士 讲师 Emphasizing Institutions, Cultures, and Ethics Part III: 制度与文化分析

4–2 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

4–3 Understanding Institutions Informal definition: “Rules of the game” Formal definition: “Humanly devised constraints that structure human interaction” (North) Institutions certainly affect individual and firm behaviors An institution-based view of strategy:  Covering institutions, cultures, and ethics  Strategists need to appreciate the “big picture” in which competition around the globe takes place.

4–4 Understanding Institutions (cont’d) An Institutional Framework  Formal and informal institutions that govern individual and firm behavior  These formal and informal institutions are supported by three “pillars” (Scott) Table 4.2

4–5 What Do Institutions Do? Institutions affect the strategy of firms by:  Reducing uncertainty.  Signaling conduct as acceptable or not, which constrains the range of acceptable actions. Uncertainty can lead to transactions costs  Transaction costs: Costs associated with economic transactions—or more broadly, costs of doing business  A major source of transaction costs: Opportunism  “Self-interest seeking with guile” (Williamson)  The possibility of opportunism introduces uncertainty

4–6 Why Is It Important to Reduce Uncertainty? Without stable institutional frameworks—  Transaction costs may be so high (e.g., extensive opportunism) that certain transactions would not take place.  Example: If credible institutional frameworks are absent, investors may choose to put money abroad (e.g., capital flight from Russia).  Investment is severely limited without an effective system of property rights (SIA 4.1: Argentina).  However, certain informal institutions can substitute for a lack of formal property rights.

4–7 How to Reduce Uncertainty? Two kinds of institutions—informal and formal— reduce uncertainty in economic transactions Relational contracting: based on informal institutions  Informal, relationship-based, personalized exchange (Figure 4.1)  Benefits outweigh costs, up to a certain point. Arm’s-length transaction: based on formal institutions  Formal, rule-based, impersonal exchange with third-party enforcement (Figure 4.2)  Benefits outweigh costs, when the scale and scope of the economy become very large

4–8 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.

4–9 Informal Institutions Constraints on socially sanctioned norms of behavior.  Professional norms do not have the force of law, but are obeyed by those in a profession.  Physicians, professors, lawyers, and accountants  Commercial norms are adhered to by most persons in a modern economy.  In developing nations, personal relations substitute for formal institutions when commercial and professional norms are not well established.

4–10 Informal Institutions (cont’d) Informal institutions suggest expected behaviors  Everyone knows these unwritten “rules” (drinking with colleagues) If formal constraints fail, informal constraints play a larger role in reducing uncertainty This is especially important during institutional transitions  Fundamental and comprehensive changes introduced to the formal and informal rules of the game that affect organizations as players  “Transition economies:” A subset of emerging economies, such as China, Russia, Poland  The importance of guanxi and blat during China’s and Russia’s recent institutional transitions, respectively

4–11 Source: M. W. Peng, 2003, Institutional transitions and strategic choices (p. 280), Academy of Management Review, 28 (2): 275–296. Copyright © Reprinted by permission of Academy of Management Review via Copyright Clearance Center. The Costs and Benefits of Formal, Rule-Based, Impersonal Exchange

4–12 Formal Institutions  An expensive legal and regulatory framework of courts, police, lawyers, regulators, and other mechanisms that enforce laws and regulations to facilitate the widening of markets Benefits of Formal Institutions  Support arm’s-length transactions by bringing distant parties (strangers) together.  Foster rule-based transactions that attract new players into a global economy that cannot operate on informal institutions alone.  Facilitate economic expansion and growth

4–13 An Institution-Based View of Strategy Institutional frameworks are more than the “task environment” The Porter “diamond” model: Determinants of national competitive advantage in certain industries (Figure 4.3)  First published in 1990: Very influential  However, it has been criticized because it ignores histories and institutions  The institution-based view asks (for example): What is behind firm rivalry? (see Opening Case)

4–14 The Porter Diamond: Determinants of National Competitive Advantage Figure 4.3 Source: Reprinted by permission of Harvard Business Review from “The competitive advantage of nations” (p. 77) by Michael Porter, March/April Copyright © 1990 by the Harvard Business School Publishing Corporation; all rights reserved.

4–15 An Institution-Based View of Strategy (cont’d) Institutions are more than background conditions  Institutions provide guidelines to firms as to how they can act, and what can be done with legal or other guarantees. Institutions directly impact a firm’s formulation and implementation of strategy (Figure 4.4).  In two words: Institutions matter.  The key question: How do they matter?

4–16 Institutions, Firms, and Strategic Choices Figure 4.4 Sources: Adapted from (1) M. W. Peng, 2000, Business Strategies in Transition Economies (p. 45), Thousand Oaks, CA: Sage Publishing.; (2) M. W. Peng, 2002, Towards an institution-based view of business strategy (p. 253), Asia Pacific Journal of Management, 19 (2): 251–267.

4–17 Two Core Propositions Managers and firms rationally pursue their interests and make strategic choices within institutional constraints  Opening Case: Japanese pharmaceutical firms do not as relentlessly pursue new innovations as US firms do.  Closing Case: Why do some entrepreneurs choose to engage in counterfeiting? While formal and informal constraints combine to govern firm behavior, when formal constraints fail, informal constraints play a larger role  Informal, political connections are helpful – in both emerging and developed economies

4–18 The Strategic Role of Culture Culture  “The collective programming of the mind which distinguishes the members of one group or category of people from another” (Hofstede)  Is the most informal and least codified part of a country’s institutional framework.  Impacts the strategy of firms.  Firms must understand cultural rule sets of the society in which they are doing business just as they must understand its legal regulations and professional and commercial norms.

4–19 Hofstede’s Dimensions of Cultural Values Power Distance  Distinguishes the levels of hierarchy accepted by the society. Individualism versus Collectivism  Focuses on the importance of the individual versus the group in social and business situations. Masculinity versus femininity  Measures the degree of sex role differentiation. Uncertainty Avoidance  Identifies the tolerance for ambiguity. Long-term Orientation  Emphasizes perseverance and savings for future betterment.

4–20 Hofstede Dimensions of Culture a Table 4.3 a. When the scores are the same, countries are listed according to their alphabetical order. Arab countries, East Africa, and West Africa are clusters of multiple countries. Germany and Yugoslavia refer to the former West Germany and the former Yugoslavia, respectively. Sources: Adapted from G. Hosftede, 1997, Cultures and Organizations: Software of the Mind (pp. 26, 53, 84, 113, 166), New York: McGraw-Hill. Data on the first four dimensions are based on surveys of IBM employees during 1968–72, first published in G. Hosftede, 1980, Culture’s Consequences, Beverly Hills, CA: Sage Publishing. Data on the fifth dimension are based on surveys of students during the 1980s, first published in The Chinese Culture Connections, 1987, Chinese values and the search for culture-free dimensions of culture, Journal of Cross-Cultural Psychology, 18: 143–164.

4–21 Culture and Strategy Power Distance  French and Italian managers have a penchant for centralized authority; French and Italian subsidiaries abroad are more likely to have majority ownership control.  Solicitation of subordinate feedback and participation (“empowerment”), widely used in Western European and North American countries, is seen as a sign of weak leadership and low integrity in higher power distance countries (Egypt, India, Mexico, and Russia).

4–22 Culture and Strategy (cont’d) Individualism versus Collectivism  Individualist U.S. firms often desire to find ways to differentiate, whereas collectivist Japanese firms have a tendency to converge on a defensible position.  Because entrepreneurs are usually willing to take more risk, individualistic societies tend to foster relatively more entrepreneurship.  Collectivism may result in relatively lower levels of entrepreneurship.  Singapore and Japan currently score very low on entrepreneurship.

4–23 Culture and Strategy (cont’d) Masculinity versus Femininity  High masculinity countries  “Good” managers are typically assertive, decisive, and “aggressive” (only in masculine countries does this word carry a positive connotation)  Firms may have a relative advantage in mass manufacturing (e.g., Japan).  High femininity countries  Managers are less visible, more intuitive  Firms may have a relative advantage in small-scale, customized manufacturing, agricultural and forestry exports, and service industries (e.g., Sweden, Norway, Netherlands, and Denmark).

4–24 Culture and Strategy (cont’d) Uncertainty avoidance  Managers in low uncertainty avoidance countries (e.g., Great Britain) rely on experience and training.  Managers in high uncertainty avoidance countries (e.g., China) rely more on rules and procedures.  Example: The Swissair crash (1998)  U.S. commentators: Rules are there to be broken during emergencies!  Swissair officials: Rules exist exactly for such emergencies!

4–25 Culture and Strategy (cont’d) Long-term orientation: Cultures with long-term orientation nurture firms with longer horizons in strategic planning.  Japanese and Korean firms are willing to forego short-term profits to focus more on market share.  SIA 1.1: Matsushita’s 250-year plan  Western firms focus on short-term quarterly profits  Chapter 10 Closing Case: In the oil industry, there is a recent tendency to shorten the planning horizon from years to 5 years or less.

4–26 The Strategic Importance of Culture Understanding cultural differences is crucial, especially when competing internationally and globally. Culturally naïve and ignorant firms may commit strategic blunders.  Chevy Nova car – “No go” in Spanish  White Elephant brand battery from China  Mitsubishi Motors in America: $34 million fine to settle sexual harassment charges in a low masculinity country (relative to Japan)

4–27 The Strategic Role of Ethics Ethics: Norms, principles, and standards of conduct governing individual and firm behavior Ethics: Not only an important part of informal institutions, but also deeply reflected in formal laws and regulations  What is illegal is typically unethical  What is legal may be unethical (e.g., mass lay-off downsizing)  What is unethical is not always necessarily illegal Recent interest in business ethics:  Fueled by unethical scandals at Enron, WorldCom, Parmalat, etc  Ethics Officer Association: 12 member firms (1992)  1,000 firms (2004) In this book, ethics is not only emphasized here, but also throughout all chapters (see critical discussion questions ON ETHICS in every chapter, especially Chapter 12)

4–28 Views on Business Ethics A negative view  Firms are forced to jump on the ethics “bandwagon” under social pressures while not necessarily becoming more ethical. A positive view  Firms want to do it right regardless of social pressures. An instrumental view  Ethics: A useful instrument for good profits  The value of ethical reputation is magnified during a crisis Institution-based explanation  All of the above may be accurate, for some firms  See the Strategic Response Framework (Table 4.5)

4–29 Managing Ethics Overseas Ethical standards are different around the world  Whistle blowers, ethical in America, are unethical in Japan  Microsoft’s competitive actions, after surviving U.S. legal scrutiny, are found to be unethical and illegal by the EU Ethical relativism  When in Rome, do as the Romans do Ethical imperialism  There is only one set of good Ethics, and we have it! Three “middle-of-the-road” guiding principles  Respect for human dignity and basic rights.  Respect for local traditions (e.g., gift-giving)  Respect for institutional contexts

4–30 Ethics and Corruption Corruption: Abuse of public power for private benefit usually in the form of bribery (in cash or in kind) The correlation between a high level of corruption and a low level of economic development is strong  Table 4.4: Transparency International corruption rankings  SIA 4.2: Guinness in Africa The US Foreign Corrupt Practices Act (FCPA)  Many other OECD countries, until the mid-1990s, allowed corruption expenses to be tax deductible – a clear sign of ethical relativism  Despite the FCPA since 1977, no clear sign U.S. firms are more “ethical”  There is a global movement among OECD member countries to criminalize corruption activities since the late 1990s To win the global anti-corruption battle  Three supportive pillars will have to work together.

4–31 Transparency International Corruption Rankings Table 4.4 Source: Adapted from Transparency International Corruption Perceptions Index 2003 (first two columns) and Bribe Payers Index 2002 (third column), (accessed October 19, 2003).

4–32 A Strategic Response Framework Table 4.5 Sources: Based on (1) A. Carroll, 1979, A three-dimensional conceptual model of corporate social performance, Academy of Management Review, 4: 497–505; (2) M. Clarkson, 1995, A stakeholder framework for analyzing and evaluating corporate social performance, Academy of Management Review, 20: 92–117; (3) S. Wartick & P. Cochran, 1985, The evolution of the corporate social performance model, Academy of Management Review, 10: 758–769.

4–33 Debates and Extensions Cultures versus Institutions Opportunism versus Individualism/Collectivism  SIA 4.3: Honda: Burned by individualism? Cultural Distance versus Institutional Distance “Bad Apples” versus “Bad Barrels”

4–34 Implications for Strategists If strategy is about the “big picture,” the institution-based view reminds strategists not to forget the “bigger picture” Why do firms differ?  Institutions shape firm attributes and strategies.  Firms must legitimize their activities overseas by adopting different structures, appearances, or strategic partners. How do firms compete?  Strategic changes affecting domestic and foreign firms operating in emerging economies are influenced by institutional transitions in those economies (such as changing from JVs to WOS in China)

4–35 Implications for Strategists (cont’d) What determines the scope of the firm?  The well-developed formal institutional frameworks in the West call for a reduced corporate scope (less diversification).  The more informal institutional frameworks in emerging economies provide more benefits for a wider corporate scope (see Chapter 9 for details) What determines the international success and failure of firms?  Firm performance is, in part, determined by the institutional frameworks governing strategic choices.

4–36 Key Terms arm’s-length transactions cognitive pillar collectivism corruption culture domestic demand dumping ethical imperialism ethical relativism ethics factor endowments femininity firm strategy, structure, and rivalry formal institutions formal, rule-based, impersonal exchange with third-party enforcement individualism informal institutions informal, relationship-based, personalized exchange in-group institutional distance institutional framework Institutional transitions institution-based view institutions liability of foreignness long-term orientation masculinity normative pillar opportunism out-group power distance regulatory pillar related and supporting industries relational contracting transaction costs transition economies uncertainty avoidance