Effects of Ethical Conflicts in Business

Ethical Relativism or Imperialism: The Effects of Ethical Conflicts on Top Manager Behavior under Host Country Context and International Joint Venture Performance.

Defined by Shenkar & Zeira (1987); Ren et.al (2009), international joint ventures (IJVs) are jointly owned organizational entities by two or more legally distinct organizations, in which the headquarters of at least one is located outside the country of operation of the entity. Alliance literature suggests that the ability to bridge cultural differences is often found important to the success of IJVs and the lack of such ability is a major contributor to failure (Yan & Luo, 2016). Among various dimensions of cultural differences, cross-cultural ethical conflicts have a great influence when two firms from different countries manage an IJV together, because what is considered an unacceptable practice in a Western context because core principles would be violated, may be acceptable in another because those core principles would not be violated – e.g. monetary gift giving (Irwin, 2012). So, how do top managers representing partners in an IJV reconcile these ethical conflicts under certain boundary conditions, and how does this type of reconciliation influence strategic decision-making and eventually affect IJV performance?

Prior research has shown that the cultural differences between alliance partners play a pivotal role in affecting alliance performance (Boyd & Webb, 2008). Culture differences between joint venture partners have usually been considered a major factor that might influence venture failure or unsatisfactory performance (Cartwright & Cooper, 1993). Among various forms of alliance, IJVs are particularly susceptible to damage by cultural differences because top managers representing different cultures must work in concert to achieve mutual goals in IJVs, and the strength and success of an IJV rest on the interactions of its people (Yan & Luo, 2016). Previous research has focused on cultural differences in strategic alliance from national and organizational levels (Sirmon & Lane, 2004). E.g. Homburg & Pflesser (2000) argue that there are various dimensions to any alliance partner’s organizational culture including shared values, norms and artifacts.

Besides looking at analyses of national and organization levels, a few research has explored how individual level factors affect IJV performance. For example, Leung et al., (2013) argue that top management trust influences IJV performance. Yet the impact of ethical conflicts at individual level under certain boundary conditions on IJV performance remains largely undeveloped.  Do top managers representing partners in IJVs show different patterns of behavior in different countries? How do ethical conflicts affect the decision-making behavior of top managers and in turn influence IJV performance? Considering the important managerial implications, the author addresses these questions by drawing on ethical relativism theory. According to conventional ethical relativism, what is right for you as an individual depends upon what your culture thinks is right for you (Beebe, 2003). Therefore, the author contends that among top managers who hold higher standards of ethics, ethical relativism will be triggered under lax host country regulations, which means the managers will compromise to fit in host business context which might facilitate IJV performance. Reversely, ethical imperialism will be triggered in response to more stringent host country regulations, which means the managers will maintain high standards of ethics to avoid breach of regulations which might damage IJV performance.

In this article, I strive to explore the dynamic relationship of individual level reaction of decision-making, which is elicited by ethical conflicts under host country regulations and the impact on IJV performance. By providing theoretical and practical insights, I propose that the association between cross-cultural ethical conflicts and top manager ethical relativism/imperialism is moderated by host country regulations, and the reaction of top manager decision-making will in turn influence IJV performance. I test my hypotheses by conducting a survey on top managers and their direct staff working for IJVs, formed by Sino-US firms which operate either in China or in the U.S.

The contribution of this research is twofold. First, the present research contributes to the knowledge of culture differences and alliance literature at the individual level by revealing that ethical conflicts affect top manager behavior in IJVs under certain boundary conditions. Second, the present research contributes to the managerial practices considering that ethical conflicts elicit the altering of strategic decision-making of IJV top managers towards ethical relativism or ethical imperialism contingent upon how lax or stringent host country regulations are. The managerial implications of the results will help top management team members better understand the impact of ethical conflicts and the possible options when forming and managing IJVs under certain business contexts.

References

Boyd, D. E. and K. L. Webb (2008). “Interorganizational ethical conflict within alliances: A conceptual framework and research propositions.” Journal of Business-to-Business Marketing 15(1): 1-24.

Cartwright, S. and C. L. Cooper (1993). “The role of culture compatibility in successful organizational marriage.” The Academy of Management Executive 7(2): 57-70.

Homburg, C. and C. Pflesser (2000). “A multiple-layer model of market-oriented organizational culture: Measurement issues and performance outcomes.” Journal of marketing research 37(4): 449-462.

Irwin, J. (2012). “Doing business in China: An overview of ethical aspects.” UK: Institute of Business Ethics.

James R. Beebe. “Ethical Relativism.” University at Buffalo, Copyright 2003.

Pothukuchi, V., et al. (2002). “National and organizational culture differences and international joint venture performance.” Journal of International Business Studies 33(2): 243-265.

Ren, H., et al. (2009). “Performance of international joint ventures: what factors really make a difference and how?” Journal of Management 35(3): 805-832.

Shenkar, O. and Y. Zeira (1987). “International joint ventures: Implications for organisation development.” Personnel Review 16(1): 30-37.

Sirmon, D. G. and P. J. Lane (2004). “A model of cultural differences and international alliance performance.” Journal of International Business Studies 35(4): 306-319.

Yan, A. and Y. Luo (2016). International joint ventures: Theory and practice, Routledge.

Wai On, L., et al. (2013). “Top management team trust, behavioral integration and the performance of international joint ventures.” Journal of Asia Business Studies 7(2): 99-122.