2- F: Political, Economic, and Legal Environments

3- G: Informal Institutions: Cultural, Social, and Ethical Challenges

a) Outline two major theories of culture and assess their relevance and limitations when applied to the
conduct of international business.
(Major Theories of Culture in International Business)

Culture encompasses a wide range of values and standards, which can exhibit significant diversity even
within a single nation such as the United States. This diversity contributes to the intricate nature of social
processes within society.

The Hofstede's Dimensions Approach is an established theoretical framework developed by Geert

Hofstede to analyse and understand cultural differences among countries.

Hofstede's Five Dimensions refer to a well-established framework developed by Geert Hofstede that offers
a systematic framework for examining disparities in culture across various societies. These dimensions
(Power Distance, Individualism vs. Collectivism, Masculinity vs. Femininity, Uncertainty Avoidance, and
Long-Term Orientation) are widely recognized and accepted in the field of cross-cultural communication.

However, it's important to acknowledge certain constraints when considering this framework. The research
on cultural diversity in the workplace is outdated and may not fully reflect current societal values. It also
suffers from sampling bias, a systematic error in selecting participants, and primarily focuses on IBM
employees, limiting the scope of cultural diversity. Furthermore, Hofstede's proposed characteristics do
not provide a comprehensive understanding of cultural complexity, necessitating further research to
address this limitation and gain a more comprehensive understanding of cross-cultural differences.
The second theoretical perspective on culture is presented by Ronen and Shenkar, known as the cluster
method. Ronen and Shenkar's cluster method categorizes countries with similar cultural characteristics into
distinct groups. The study identified eight clusters, which later expanded to ten, covering regions like Arab,
Aegean, Latin America, East European, Latin European, Nordic, Germanic, Sub-Saharan African, Anglo,
South Asia, and Confucian. These clusters facilitate businesses to adopt similar practices and tactics, but the
lack of differentiation or emphasis on cultural distinctions among nations within the same cluster is a
significant issue.

B) Describe and assess the relevance of the main approaches to ethics in international business.
Ethics in the context of International Business:

The Middle of the Road Approach, Ethical Relativism, and Imperialism (Peng and Meyer) are three
approaches to ethical conduct in international business. Ethical relativism involves adhering to the host
country's ethics and morals, while ethical imperialism requires maintaining the home country's ethical
standards. The Middle Ground Approach balances human rights, local traditions, and institutional context
to develop a nuanced ethical position when conducting business overseas.

Kantian Ethics, a philosophy by Immanuel Kant, asserts that ethical behavior relies on individual
rationality and moral decision-making. It advocates for businesses to respect individual autonomy, treating
employees as ends rather than means, and prioritizing human dignity in decision-making processes.

The utilitarian approach, as advocated by Jeremy Bentham and John Stuart Mill, aims to maximize
happiness and minimize harm, aligning with the principles of ethical sourcing and fair treatment of coffee
farmers.
Virtue Ethics emphasizes personal virtues like honesty, generosity, and fairness, promoting ethical decision-
making and fostering integrity within organizations. It encourages businesses to instill these virtues in their
culture.

The fairness approach is a principle that evaluates actions based on fairness and equitable distribution of
benefits and burdens among stakeholders. McDonald's commitment to honesty and fairness exemplifies this
approach, ensuring consistency and moral relevance in business practices.

Considerations for International Business Ethics:

International business ethics demand a firm stance on crucial considerations. Cultural sensitivity is a
vital factor, requiring a balanced approach that respects local traditions while upholding global ethical
standards. Additionally, ethical decisions must align with the interests of all stakeholders to promote
long-term trust and sustainable business relationships. To maintain relevance, ethical frameworks must
undergo continuous assessments that adapt to evolving societal norms.

For example, Apple Inc. shows a commendable ethical leadership role by addressing labour rights concerns
in its supply chain and ensuring fair treatment of workers in various countries. Its middle-of-the-road
approach is an excellent demonstration of a nuanced international business ethics strategy that respects local
contexts while upholding global ethical standards.
c) Describe what corporate social responsibility is, the main approaches to CSR that international
businesses take, and the main challenges that CSR seek to deal with.

Corporate Social Responsibility (CSR) is a concept that evaluates social issues or benefits alongside legal
and economic considerations. It follows triple bottom-line strategies - economic, social, and
environmental achievement - and is crucial for safeguarding production factors for future generations.

International businesses should prioritize ethical employment practices that uphold human rights,
such as ensuring safe working conditions, rectifying unfair dismissals, allowing employees time to seek
alternative employment before termination, imposing overtime limits, and prohibiting child labor.

Preventing corruption is another CSR practice, as demonstrated by the OECD's (Organization for
Economic Co-operation and Development) anti-bribery legislation in 1997. Businesses operating
internationally should adhere to environmental regulations, as demonstrated by Ben & Jerry's Ice Cream in
the agricultural and dairy sectors and Levi Strauss conserving water in jeans production.

CSR can be categorized into four approaches: proactive, defensive, accommodative, and reactive.
Reactive strategic behavior involves doing the bare minimum and recognizing responsibility but refusing
to acknowledge it. The defensive strategy acknowledges accountability but fails to execute necessary
actions. The accommodative approach acknowledges responsibility and does as they request, as seen in the
athletic apparel industry. The proactive approach anticipates responsibility and goes above and beyond
what is required.

However, CSR faces several obstacles, including resource inequality, disregard for environmental
sustainability by profit-driven businesses, social compliance concerns, and ignorance regarding
cultural diversity and human rights in different countries.

d) Describe, using examples, the major political, economic and legal institutions an international
business needs to take into account in designing its strategy.

When businesses enter international markets, they need to pay attention to political, commercial, and
legal considerations. The governance principles of a nation are totalitarianism versus democracy and
collectivism versus individualism.
In the United States, individualism is valued while collectivism is associated with social welfare and
government ownership of production. Totalitarianism can take various forms such as those seen in historical
entities like Nazi Germany and the Soviet Union. Countries like Mexico, Turkey, and Portugal have
implemented collectivism under communism. The Middle East is an example of a region governed according
to Islamic principles. In tribalism, absolute authority is vested in a single tribe. Military authority in a nation
is typically found on the right wing. Political systems are governed by institutions, and directives and
strategies are established through the constitution. Norway is a preeminent illustration of this. Different
representation methods like proportional representation, first past the post, and power centralization are
observable. Regulations specific to each category impact international businesses. Therefore, businesses
need to possess knowledge of the regulatory framework of the country they are entering before venturing in.

The economic system of an economy denotes its governance structure. There are three classifications of
economic systems: command economy, mixed economy, and market economy. In a market economy,
supply and demand are determined by market forces. Canada, Singapore, New Zealand, Switzerland, and
the United Kingdom are examples of market economies. In a command economy, the government is
responsible for all decisions about the national welfare. Examples of countries with command economies are
the former Soviet Union, Cuba, and North Korea. In a mixed economy, private enterprises and government
intervention coexist. Examples of countries with mixed economies are Sweden, the United Kingdom, and
Iceland.

Legal systems function as formal frameworks overseeing a nation, and they establish rules and regulations.
The three classifications of legal systems are civil law, common law, and religious law. Common law is
composed of customary practices, precedents, and traditions. It has been adopted by around eighty nations,
including Canada, New Zealand, India, Pakistan, and Hong Kong. Civil law is observed in nations situated
in Eastern and central Asia, East Asia, and Central Asia. Approximately 135 countries have adopted civil
law systems. Religious law is a body of law that originates from religious doctrines. For example, an
estimated thirty countries follow a composite system of Islamic law, civil law, and common law.
Organizations must acquire a comprehensive understanding of intellectual property law before venturing
into a foreign jurisdiction.

e) Describe, using examples, the major informal institutions an international business needs to take
into account in designing its strategy.