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MNC Strategic Responses to Ethical

Pressure: An Institutional Logic Perspective

Justin Tan

Liang Wang

ABSTRACT. In this study, we aim to investigate how

multinational corporations (MNCs) balance ethical pres-

sures from both the home and host countries. Drawing on

theories from institutional theory, international business,

and business ethics, we build a theoretical framework to

explain the ethical behavior of MNCs. We apply theinstitutional logic concept to examine how MNCs with

established logics and principles that have grown in the

home country respond to local ethical expectations in

the host country. We differentiate the core values from

the peripheral components of a MNC’s institutional logic

and propose that a MNC will pursue distinctive ethical

strategies under different scenarios and choose the ‘‘right’’

configuration of core values and peripheral compo-

nents that align with institutional environment in host

countries.

KEY WORDS: multinational corporations (MNCs),

business ethics, institutional logic

Introduction

Both business ethics and international business

researchers have long recognized the importance and

urgency of examining ethical issues related to mul-

tinational corporations (MNCs) because of their

powerful influences on economic, social, and even

political landscapes in the era of globalization

(Simpson, 1982). The literature in the past generally

posits an optimistic projection that the global tri-umph of MNCs, supposedly headquartered in the

developed countries and representing a set of thor-

ough ethical philosophies embodied as codes of

conduct, triple button lines, corporate social respon-

sibility (CSR), and will introduce a new mode of

business practices to the developing countries by

spreading a set of universal organizational patterns

and business ethical standards (De George, 1993). As

a recent example of this line of research, Kwok and

Tadesse (2006) find that the presence of MNCs over

the past four decades reduces the level of corruption

in the host country.

Unfortunately, this optimistic view of MNCs has

been increasingly challenged as the pace of global-

ization accelerated, with evidence suggesting thatMNCs often approach ethical issues differently in

the home and the host countries (Tan, 2009a). First,

rather than spreading a universal code of ethics,

MNCs, such as Nike in Indonesia and Gap in E1

Salvador in mid-1990s, have been found to allegedly

take advantage of loose ethical regulations and

institutions in emerging markets and exploit sweat-

shop workers (Arnold, 2003; Varley et al., 1998).

Second, as emerging markets such as China rapidly

acquire status as world economic powers and obtain

confidence in setting their own policy agendas,MNC subsidiaries in such countries are facing

increasing pressures to conform to cultural, institu-

tional, and legal expectations that sometimes directly

contradict MNC practices in the home country. For

example, Internet companies such as Google and

Yahoo! were recently criticized for cooperating with

the Chinese government to self-censor any politi-

cally or culturally inappropriate information in

China (Dann and Haddow, 2008). Third, foreign

direct investment (FDI) from developing and tran-

sition economies has grown considerably, account-

ing for about 17% of world outward flows in 2006according to the United Nations (UNCTAD,

2006). As MNCs originating from a wide range

of developing countries such as Argentina, India,

China, South Africa, Thailand, and Turkey continue

to grow and extend their reach at an astonishing

pace, the ethical practices of these newcomers,

especially in other developing countries, generate

additional complexities for the global business ethics

landscape (Aykut and Ratha, 2004). These challenges

Journal of Business Ethics (2011) 98:373–390 Ó Springer 2010DOI 10.1007/s10551-010-0553-7



have been increasingly attracting academic, mana-

gerial, and public attention, calling for a new theo-

retical framework to explain how MNCs approach

ethical issues (Tan, 2009b).

Applying the concept of institutional logic, thisarticle attempts to offer an overarching framework to

explain how MNCs with different backgrounds

manage a wide range of ethical issues, such as human

rights, labor rights, corruption, and environmental

issues, in varying host countries. The institutional

logic approach aims to explain how the underlying

differentiated belief systems of higher-order societal

institutions shape the cognition and behavior of

individuals and organizations, which at the same

time can actively reshape and change these belief

systems (Jackall, 1988; Friedland and Alford, 1991;Scott, 2000; Thornton and Ocasio, 1999, 2008).

Despite the rapidly growing literature on institu-

tional logic, most research has been conducted

within certain geographic boundaries, overlooking

cross-border situations in which an organization

with logics rooted in its homeland and is challenged

to adapt to new environments when it goes abroad

(Meyer and Hammerschmid, 2006; Stovel and

Savage, 2006; Suddaby and Greenwood, 2005;

Thornton, 2004).

What specific challenges does an organization

face in terms of institutional logic if it goes abroad?

How does it respond, and what are the conse-

quences? We believe that the answers to these

questions will not only offer researchers a unique

perspective to explain and predict the ethical

behavior of MNCs, but also advance our under-

standing of institutional logics by extending the

concept to international business. We approach

the above questions by (1) identifying the logic

dilemma that an organization encounter when it

launches an overseas business and (2) building a

conceptual framework to disentangle MNCs’ dif-ferent strategic approaches to ethical pressures. By

addressing these questions, we attempt to build a

theoretical framework for future research to exam-

ine the co-evolution process through which MNCs

are shaped by and reshapes the institutional and

ethical environments. In addition, we also extend

the institutional logics literature to cross-border

settings, a direct reply to the recent call to analyze

how and why actors manipulate and change insti-

tutional logics (Thornton and Ocasio, 2008).

Transplantation of institutional logics

and ethical beliefs

It has been long acknowledged that business ethics

are culturally defined (England, 1975). Empiricalstudies generally support the idea that different cul-

tures interpret, often persistently, the same ethical

issues in different ways (Ford et al., 2005; Goodwin

and Goodwin, 1999; Rashid and Ibrahim, 2008;

Sarwono and Armstrong, 2001; White and Rhodeback,

1992). The tendency of a culture to reproduce and

reinforce its own idiosyncratic beliefs is echoed by

the institutional theory. From the institutional the-

ory perspective, an isolated cultural system can be

theorized as an institutional field in which isomor-

phic pressures at the societal level prescribe appro-priate beliefs and practices for organizations and

individuals to obtain legitimacy. As a powerful tool

to examine the interaction between an organization

and its surrounding institutional environment,

institutional theory has been recommended as a

unifying framework to theorize the behaviors of

MNCs (Westney, 1993). Such potential to explain

MNC behavior, however, has yet been fully realized

in part, because the cross-culture complexity faced

by MNCs challenges the assumption of a structur-

alized and homogenous field. The institutional the-

ory in its early days emphasizes the molding effect of

institutional forces in a structuralized environment

where homogeneity dominates. It assumes that

organizations are subject to coercive, mimetic, and

normative pressures which nourish isomorphism

by shaping business practices in a somewhat pre-

dictable fashion (Dimaggio and Powell, 1983;

Meyer and Rowan, 1977; Powell and DiMaggio,

1991; Zucker, 1977). In contrast, MNCs are chal-

lenged to satisfy divergent expectations simulta-

neously to achieve external legitimacy in diverse

countries and cultures (Glynn and Abzug, 2002). Atthe same time, the capability of MNCs to proac-

tively influence, rather than passively react to, local

institutional environments should not be underesti-

mated. A theoretical framework for MNC ethical

behavior thus must incorporate the diverse and

heterogeneous nature of the global context and

MNCs’ awareness of and capability to play with the

complexity.

Given that a MNC’s ethical response to diverse

expectations in the host and home environments

374 Justin Tan and Liang Wang



is fundamentally a multi-level phenomenon, any

attempt to develop a framework must simulta-

neously encompass institutional factors about orga-

nizations and societies. To do so, we believe that the

institutional logic theory offers a unique perspective.An institutional logic is a value and belief system by

which a particular social world works (Friedland and

Alford, 1991; Jackall, 1988; Lounsbury, 2007; Meyer

and Hammerschmid, 2006; Thornton and Ocasio,

1999). As a new approach in institutional theory, the

institutional logic literature differs from the tradi-

tional isomorphism approach (Dimaggio and Powell,

1983; Meyer and Rowan, 1977; Powell and

DiMaggio, 1991; Zucker, 1977) by highlighting that

individuals and organizations can respond to insti-

tutional pressures in relatively non-deterministicways when contending logics co-exist (Thornton

and Ocasio, 2008). In such context, self-interested

institutional entrepreneurs are able to exploit old

logics and create new ones, eventually triggering

institutional changes (Dimaggio and Powell, 1988;

Fligstein, 1987; Maguire et al., 2004). It has been

found that institutional entrepreneurs may pro-

mote their preferred logics by using storytelling

(Zilber, 2006) and rhetorical strategies (Suddaby and

Greenwood, 2005) as well as tool-kit approaches

(Boltanski and Thaevenot, 2006; Swidler, 1986).

The varying organizational responses could eventu-

ally reshape the belief and value system at the societal

level. More specifically, the institutional logics of

organizations in the same society embody the fun-

damentals of the prevailing institutional logics in the

society, although organizations differ from one an-

other in terms of the composition of the contending

logics and the way that they practice these logics.

This feature makes the concept of institutional logics

an ideal tool to mediate the tension between insti-

tutional entrepreneurship and institutional homo-

geneity and isomorphism.

Ethical beliefs as institutional logics

One key assumption of this article is that institutional

logics determine whether an activity is ethical. An

ethical belief in a particular context is defined by,

and is part of, the institutional logic in a given cul-

ture and/or country. The term ‘‘institutional logic’’

was coined by Alford and Friedland (1985, p. 428) as

a set of practices grounded in explicit norms gov-

erning behavior, a legal rule with a sanction attached

and an implicit premise of action. The two authors

later revised the concept to include a set of materialpractices and symbolic constructions that constitutes

an institution’s organizing principles (Friedland and

Alford, 1991). Thornton and Ocasio further refine

the term as ‘‘the socially constructed, historical

pattern of material practices, assumptions, values,

beliefs, and rules by which individuals produce and

reproduce their material subsistence, organize time

and space, and provide meaning to their social

reality’’ (1999, p. 804). Logics enable individuals and

organizations to make sense of environmental

ambiguities by prescribing and proscribing actionsthat reenact institutional logics and make them

durable (Suddaby and Greenwood, 2005).

One major contribution of the institutional logics

approach to institutional theory is to conceptualize

society as an inter-institutional system of societal

sectors in which each sector represents a different set

of expectations for individual and organizational

behavior and social relations (Alford and Friedland,

1985; Friedland and Alford, 1991; Thornton, 2004;

Thornton and Ocasio, 2008). The central societal

sectors of the contemporary capitalist West have

been summarized as capitalism, bureaucracy, and

democracy (Alford and Friedland, 1985); a capitalist

market, bureaucratic state, democracy, the nuclear

family, and Christian religion (Friedland and Alford,

1991); or markets, corporations, professions, states,

families, and religions (Thornton, 2004). Viewing

society as an inter-institutional system allows

researchers to view any context as potentially

influenced by the contending logics of the different

societal sectors (Thornton and Ocasio, 2008). These

co-existing contending institutional logics enable

individuals and organizations to interpret their ambiguous world in heterogeneous ways (Suddaby

and Greenwood, 2005; Thornton and Ocasio,

2008).

Core values and peripheral components

The institutional logics literature often treats values

as inalienable components of logics without defining

375MNC Strategic Responses to Ethical Pressure



the concept of values (for example, see Thornton

and Ocasio, 1999, 2008). Rokeach (1973, p. 5 )

defines values as ‘‘enduring beliefs that a specific

mode of conduct is personally or socially preferable

to an opposite or converse mode of conduct or end-state of existence.’’ Other definitions of values

include ‘‘a conception of the desirable’’ (Kluckhohn,

1951), ‘‘criteria or standards of preference’’

(Williams, 1968), ‘‘enduring beliefs’’ (Rokeach,

1973), ‘‘evaluative beliefs’’ (Marini, 2000), and

‘‘well-organized structures of cognitions’’ (Michener

et al., 2004). Schwartz and Bilsky (1987) identify five

features shared by most definitions of values: (1)

concepts or beliefs, (2) desirable end states or

behaviors, (3) transcending specific situations, (4)

guiding selection or evaluation of behavior andevents, and (5) ordering by relative importance.

More recently, a theory of a universal psychological

structure of human values has been proposed and

empirically tested (Schwartz, 1992, 1994; Schwartz

and Bilsky, 1987, 1990; Schwartz et al., 2001; Smith

and Schwartz, 1997). This line of research aims to

identify what may be a comprehensive set of dif-

ferent types of basic human values recognized across

cultures. For example, Schwartz et al. (2001) sum-

marize 10 motivationally distinct value constructs

and use cross-national data to test their distinctive-

ness.

In this article, we treat values as an individual’s

enduring beliefs which serve as his or her ‘‘latent

guides for evaluations of the social world’’ (Hitlin

and Piliavin, 2004, p. 365). A core value refers to

an aggregate value structure, a group-level phe-

nomenon (Hitlin and Piliavin, 2004). Core values

are within-culture value systems that are shared by

the majority of indigenous individuals. For exam-

ple, Feldman (1988) identifies three core values of

Americans: support for equality of opportunity,

economic individualism, and a free enterprise sys-tem. Core values sit at the center of an insti-

tutional logic. In contrast, peripheral components

of an institutional logic are prescribed by the

core values. As complementary derivatives of the

core values, peripheral components consummate an

institutional logic. For example, support for inter-

national free trade is probably a peripheral com-

ponent derived from the core American value of

support for a free enterprise system (Feldman,

1988).

Geographical boundaries of institutional logics

Cultural heterogeneity across geographic boundaries

has often been cited to explain differences in man-

agerial practices. For example, Saxenian’s (1994)prominent analysis comparing Silicon Valley and

Route 128 attributes the differences between the

two regions to the degree of cooperation promoted

by the local culture (Sorenson and Baum, 2003).

Core values and institutional logics reside within and

vary across geographical boundaries. Geographical

heterogeneity in core values tends to be stable over

time (Hitlin and Piliavin, 2004). For example, Sch-

wartz and Sagie (2000) report that different value

priorities distinguished the East European from the

West European nations before the fall of SovietUnion and these core value differences have largely

persisted. Location-specific core values and institu-

tional logics often take root in traditions and cultures

that are accumulated over long periods of time.

Bhappu (2000) illustrates that the Japanese family – a

system dating back to the feudal Edo era

(1600–1868) – provides an institutional logic for

Japanese corporate networks and Japanese manage-

ment practices which is distinct from that of their

Western counterparts. Furthermore, institutional

logics may vary at the regional level (Marquis, 2003;

Marquis and Lounsbury, 2007; Marquis et al., 2007).

For example, Lounsbury (2007) compares two

competing logics – one in Boston and one in New

York – in the American mutual-fund industry and

found their effects on the diffusion of new practices

to be distinctly different.

It is widely acknowledged that contending insti-

tutional logics can coexist in a single context, which

is often bounded geographically (Friedland and

Alford, 1991; Scott, 2000; Suddaby and Greenwood,

2005; Thornton, 2004; Thornton and Ocasio, 1999,

2008). Within-boundary variation, however, oftenshares the same core values. For example, the two

contending institutional logics in the American

mutual-fund industry (Lounsbury, 2007) share the

same American core values of support for equality of

opportunity, economic individualism, and a free

enterprise system (Feldman, 1988). The difference

between the two logics – the conservative approach

in Boston versus the speculative approach in New

York – is a derivative of the core American values.

We conclude that they are divergent in terms of the




peripheral components of institutional logics but are

similar in terms of core values.

Logic transplantation

What would happen if an organization expands its

business to a foreign area that is dominated by an

alien culture? In the case of the American mutual-

fund industry, for example, suppose a Boston firm

chooses to expand to New York. We speculate that

the Boston firm not only brings to New York its

monetary investments but also its Boston-style

institutional logics through expatriation of employ-

ees, replication of managerial practices, and head-

quarters-subsidiary communications. Although theBoston firm’s New York subsidiary will sooner or

later find that it has to do business in a new sur-

rounding where New York logics prevail, its old

Boston-style logics will still constitute its organizing

principles over a reasonably long period because

institutional logics are generally stable and not prone

to change (Thornton and Ocasio, 2008). As a result,

the New York mutual-fund industry will witness

a Boston invader with transplanted Boston-style

logics. We call this phenomenon ‘‘transplantation

of institutional logics’’ or ‘‘logic transplantation,’’

referring to the relocation of a whole or partial

institutional logic from a home location to a host

location due to the expansion or relocation of

organizational operations.

The above example is a unique case because

Boston and New York are both on the east coast of

the United States and share the same core American

values, such that the New York subsidiary will still

feel quite ‘‘at home.’’ In a much larger scale, the past

century has witnessed enormous transplantations of

logics due to the increasing economic globalization.

American corporations have already outsourcedcalling-center services to India, low-end manufac-

turing activities to China, and even certain R&D

activities to foreign countries, where different insti-

tutional logics prevail. This unseen wave of logic

transplantation due to globalization presents new

challenges to organizations. More specifically, logic

transplantation involves a logic dilemma when the

home core values and the host core values differ. On

the one hand, the invader with transplanted insti-

tutional logics is challenged to adapt to the new

environment in the host country; on the other hand,

the invader surrounded by new institutional logics is

also challenged to maintain conformity with the old

environment in the home country. An organization

has to satisfy the contending logic expectations andrequirements in both the home and host countries to

survive in both places. A logic dilemma emerges

when activities which aim to satisfy logic expecta-

tions and requirements in the home country con-

tradict the logic counterparts in the host country.

For example, in Schwartz and Sagie’s study (2000), a

Western European firm was highly likely to

encounter a logic dilemma if it expanded its business

to Eastern Europe shortly after the end of the Cold

War because of the distinctive and persistent core

values in Eastern Europe.

A model of MNC ethical approaches

Local ethical pressure in the host country

Our literature review thus far pictures the MNCs’

institutional environment as a mosaic of diverse

values, norms, and traditions with no universal

ethical standard. Some activities which are standard

practices in one country may be considered

unethical in other countries. Overseas subsidiaries

of MNCs are surrounded by divergent institutional

logics which often define ethical behavior in fun-

damentally different ways. Therefore, the ethical

expectations in the host country can be different

from those in the home country. For example, an

American MNC will find that the Japanese

expectation of lifetime employment generally con-

tradicts US expectations. Similarly, an Indian MNC

will probably find its Canadian employees have

much higher expectations of job security and

healthcare. Although certain ethical norms suchas anti-corruption are widely acknowledged and

almost globally accepted, specific practices with

regard to these universal values vary dramatically

around the world. We posit that these local ethical

pressures, which are often idiosyncratic, will shape

a MNC’s ethical approach in a particular host

country. The higher local ethical pressure in the

host country, the more difficult it will be for a

MNC to maintain its homegrown principles of

ethics.




CSR ingrainedness of the MNC

The concept of CSR has been widely applied in

business ethics research, although the definition of

CSR remains ambiguous and expanding (Carroll,1999; Fisher, 2004). While offering a new definition

of CSR is certainly beyond the scope of this article,

we view CSR from an institutional logic perspective

and define CSR as an organization’s pursuit of

external legitimacy by satisfying social, institutional,

and ethical expectations, which are often beyond the

purely economic and legal responsibilities of business

firms (Boatright, 2007). By CSR ingrainedness, we

mean the degree to which a corporation prioritizes

CSR in its strategy and systematically and routinely

incorporates CSR into its daily practices. In MNCswith high CSR ingrainedness, CSR principles gen-

erally will be practiced as taken-for-granted repeti-

tive social behaviors and thus can be self-reproduced

(Greenwood et al., 2008). Although most CSR

initiatives in the recent decades were launched in the

developed countries and a North–South divide (i.e.,

developed vs. developing countries) in terms of

CSR clearly exists (Gugler and Shi, 2009), we are

skeptical that a developed-country MNC will nec-

essarily have a higher degree of CSR ingrainedness

than its developing-country counterparts. Our skep-

ticism is derived from the fact that many developed-

country MNCs fail to maintain CSR principles (for a

recent example, see the Siemens Bribery Scandal,

The Economist, 2008) and that some developing-

country MNCs, such as Cemex (Mexico) and

Petrobras (Brazil), are among the leaders in their

respective industries in terms of adopting CSR

principles (UNCTAD, 2006). Regardless of a MNC’s

nationality, we posit that the more a MNC is

ingrained in CSR, the more resistant it will be to

abandon its existing CSR principles and to adopt local

ethical practices in the host county.

Ethical approaches of MNCs

The impact of local ethical pressures in a host

country and CSR ingrainedness of a MNC on the

MNC’s ethical approach in the host country can be

represented by the two-by-two model presented in

Figure 1. In this figure, local ethical pressure is on

the horizontal axis, with a continuum running from

weak to strong, and CSR ingrainedness is on the

vertical axis, with a continuum running from low to

high. Cell 1 (upper left) identifies a MNC with a

high degree of CSR ingrainedness that enters a host

country with weak local ethical pressure. Cell 2(upper right) identifies a MNC with a high degree of

CSR ingrainedness that enters a host country with

strong local ethical pressure. Cell 3 (lower left)

identifies a MNC with a low degree of CSR

ingrainedness that enters a host country with weak

local ethical pressure. Cell 4 (lower right) identifies a

MNC with a low degree of CSR ingrainedness

that enters a host country with strong local ethical

pressure. We hypothesize that an MNC will

approach ethical issues in different ways in these four

situations.

Defiance

In terms of management and ownership, MNCs in

the past were most likely to be from developed

capitalist countries such as the United States, Eur-

ope, or Japan. Only in recent decades, we have

witnessed the growth and rise of MNCs from

developing countries. The traditional view of MNC

ethical issues focuses on how developed-country

MNCs manage their business in developing coun-

tries. Barnet and Muller (1974), for example, believe

that the underdeveloped world is a ‘‘supreme man-

agement problem’’ for MNCs managers. As the lag

between developing and developed countries in

terms of technological advances, economic devel-

opment, and social justice generally persisted over

the past century, the optimistic view treats MNCs as

presumably representatives of superior management

skills, efficiency, and overall CSR. For example, a

manager of IBM is expected to be esteemed because

of common values with regard to the economic

activity and work-related behavior that he or sheembraces (England and Lee, 1974; Simpson, 1982).

By investing in the underdeveloped world, MNCs

introduce and spread ‘‘theoretically correct and

managerially ethical’’ business practices from the

developed world to the host country. This optimistic

view of the ethical behavior of MNCs echoes the

convergence literature in international business

(Ralston et al., 1997), which suggests that develop-

ing countries are expected to assimilate ideologically

driven values common to the industrialized Western




countries (Dunphy, 1987). MNCs are the vehicles of these common values that are perceived to be

legitimate.

Then how would MNCs spreading common

values respond to local ethical expectations that

deviate from the taken-for-granted values in the

industrialized and sometimes self-proclaimed civi-

lized world? According to institutional logic theory,

individuals and organizations are capable of shaping

their institutional environments by exploiting the

contending logics of different societal sectors

(Thornton and Ocasio, 2008). This capability is

limited, however, in the case of logic transplantation

because the organization is operating in two societies

that are composed of distinctive societal sectors. For

example, when a US company invests in a highly

corrupt developing country, it will face the chal-

lenge to conform to both the host and the home

countries. A defiance strategy ignores local norms

and values and resists the institutional pressure in the

host country. In the above example, if the host

country generally regards the American way of

dealing with corruption as desirable, and thus placesrelatively little pressure on the American MNC to

comply with the corrupt local system, the American

company can choose to maintain its American

identity and continue to carry out its business in an

American way. The subsidiary may reproduce an

organization-level micro-society which is totally

distinct from the host society. The advantage of a

defiance strategy is that it maintains logic consistency

within the organization: there are no logic conflicts

between the subsidiary and headquarters. As the

MNC behaves consistently in both the host and

home countries and does not sacrifice its codes of

conduct, it also benefits by avoiding potential ethical

dilemmas, especially from the perspective of the

international community. This defiant reaction also

establishes a foundation for the host country to learn

and adopt the global standards of common values

and beliefs that originated in the developed coun-

tries. Defying local ethical expectations, an MNC

can act as an agent of change in the host institu-

tion by introducing regulatory pressures from the

1. Defiance

Definition: The MNC defies local ethical

expectations and maintains both the

core and peripheral parts of its

institutional logic

Ethical risk: Low

E.g., MNCs that embody Global Business

Citizenship.

2. Camouflage

Definition: The MNC acts like a

chameleon, maintaining the core of its

institutional logic but blending in

peripheral parts from the host country

Ethical risk: High

E.g., Google self-censors its search engine

in China while claiming freedom of

information in the U.S.

3. Negotiation

Definition: The MNC manipulates both the

core and peripheral of its institutional

logic to satisfy ethical expectations in

both the home and host countries

Ethical risk: High

E.g., Nike in Indonesia and the Gap in E1

Salvador. Ethical wilderness in terms of

either the MNC or the host country.

4. Compliance

Definition: The MNC complies with local

ethical expectations and abandons both

the core and peripheral parts of its

institutional logic

Ethical risk: Low

E.g., U.S. subsidiaries of Chinese MNCs

comply with U.S. regulations on

corruption.

Idiosyncratic Ethical Pressure in the Host Country

Weak Strong

C S R I n g r a i n e d n e s s o f t h e M N C H

i g h

L o w

Figure 1. A two-by-two matrix of local ethical pressure and CSR ingrainedness.




international community, demonstrating a ‘‘cleaner’’

way of doing business and creating a younger gen-

eration of professionals who are ingrained with new

values and beliefs (Kwok and Tadesse, 2006). With

this in mind, we propose the following:

Proposition 1: When a MNC with a high degree of

CSR ingrainedness enters a host country with low

local ethical pressures, the MNC will likely defy

local ethical expectations and maintain both the core

and peripheral parts of its institutional logic. A

defiance strategy involves low ethical risks.

However, such defiance also has disadvantages.

First, a defiance strategy may blind the MNCs to the

needs of potential local customers. The defiant

MNC may not be motivated to fully understand thelocal customers’ needs based on their local value and

belief systems. Local customers may not regard the

MNC’s products and services as legitimate. Second,

the defiant company risks losing business opportu-

nities because local players deem the company’s

behavior as inappropriate and unacceptable. In someextreme cases, a defying company can eventually be

forced to leave the host country. In sum, a defiance

strategy allows the MNC to avoid internal logic

conflicts at the expense of losing competitiveness in

the host country. When the cost of losing compet-

itiveness in the host country becomes unbearable, a

defiant strategy will no longer be a sustainable

solution (Figure 2).

Camouflage

Google, the US-headquartered Web search engine,has been strongly criticized for violating fundamental

Figure 2. Four ethical approaches: defiance, camouflage, negotiation and compliance. Notes: The squares refer to the

local ethical expectations in the host country. The rounds refer to an organization’s institutional logics which consist of

core value and peripheral components.




human rights in China before eventually pulling

out of the country. Its China mainland branch,

Google.cn, was blamed for kowtowing to the

Chinese government and self-censoring what the

government deems inappropriate. Other famousInternet companies such as Yahoo! faced similar

criticisms (Dann and Haddow, 2008). Although

these companies justify their behavior by claiming

that they are obeying the laws in China, such

explanation failed to gain full legitimacy in the eyes

of the international community that regards Chinese

censorship law as unjust (Dann and Haddow, 2008).

These criticisms harm Google’s reputation in other

markets where a wide range of stakeholders,

including Internet users, doubt its moral principles in

terms of freedom of information (Brenkert, 2009).Why do these companies risk compromise their

moral principles and potentially jeopardize their

business in the home country? The quick answer is

that the Chinese market, now the second-largest

economy in the world, is too important to abandon,

but at the same time the Chinese government is too

powerful and iron-handed to be ignored. More

generally speaking, substantial differences exist be-

tween different cultures that heterogeneously shape

people’s beliefs and values (Ralston et al., 1993).

For example, the Chinese government’s attack on

Google over Internet pornography actually received

wide domestic support (Juan and Qiang, 2009). In

order to resolve cross-cultural ethical conflicts,

Hamilton et al. (2009) suggest a heuristic decision

model that is theoretically insightful but difficult to

implement in practice. This is because emerging

economies with their phenomenal growth have

increasingly regained confidence in their existing

political, institutional, and social systems and their

traditional values and beliefs, all of which are often

inconsistent with values held in the developed

world. Therefore, a MNC will face high local ethicalpressures from both the government and the citi-

zenry if it chooses to operate in these countries.

When the level of CSR ingrainedness of a MNC

is high, a more effective response to such local

ethical pressures is to act like a chameleon. Cha-

meleons are able to camouflage their skin color by

matching it with their surroundings. Beneath its

transparent skin, a chameleon has several pigment

cell layers which allow it to change its color. In

general, a chameleon becomes light when the

pigment is concentrated and becomes dark when it

is dispersed throughout the cells (Encyclopedia-

Britannica, 2008). When a chameleon changes its

skin color to blend in with its surroundings, the

rearrangement of the pigment cells occurs in thesecell layers but the inner structures remain intact. The

idea of camouflage has been borrowed to describe

chameleon-like behavior of individuals by assimi-

lating rapidly and somewhat superficially with alien

cultural surroundings (Downie et al., 2006; John-

ston, 2007; Walker, 2003). For example, Alexander

Korda (1893–1956), founder of London Films, is

described as a skillful cultural chameleon:

Faced with a distinct and potentially alien culture, he

[Korda] rapidly assimilated to local ways. … Onarriving in Vienna the young director had adopted a

more mature image, growing a moustache and beard,

sporting a monocle and even carrying a cane, with a

view to presenting potential investors with the image

of an experienced, successful filmmaker. In Holly-

wood he removed the beard but developed the

moustache, playing up the exoticism of the Hungarian

Magyar persona that he adopted there. Once in Lon-

don he became clean shaven and took to expensive

Saville Row suits, mirroring the look of a successful

City financier, the kind of man with whom potential

investors in London Films could do business (Walker,

2003, p. 14).

We define camouflage as an organization’s stra-

tegic response to the logic-transplantation dilemma

by assimilating the peripheral institutional compo-

nents, partly or entirely, in the host country while

maintaining its core institutional values rooted in the

home country. The camouflage strategy is a com-

promise between the need to adapt to the host

country pressure and the need to satisfy the home

country mandate. This compromise enables an

organization to maintain logic consistency withinthe organization and to remain competitive in the

host country. By acting like a chameleon, organi-

zations can possibly maintain legitimacy in both the

home and host countries (Johnson et al., 2006).

As a metaphor, we draw an analogy between what

happens when an organization adopts a camouflage

strategy and the mechanism of a chameleon’s color

change. The camouflage strategy involves borrowing

peripheral components from alien logics and

blending them with the logic elements rooted in the




home country. As Hannan and Freeman (1989) first

postulated, the blending processes erode categorical

boundaries, whereas the segregating processes

establish boundaries. The proposition about the

erosion of categorical boundaries due to a blendingprocess has been echoed by recent studies (Axelrod

and Cohen, 1999; Gutierrez, 1999; Rao et al.,

2005). According to this view, organizations pur-

suing a camouflage strategy can ‘‘borrow routines,

artifacts, and symbols from a rival category and

innovatively recombine them with elements from

their own category’’ (Rao et al., 2005, p. 971).

Consistent with this line of reasoning, we propose

that the blending process involved in a camouflage

strategy is hierarchical. Sitting at the center of the

logic hierarchy, core values work as a blueprint, acode which entails cognitive recognition and

imperative standing (Carroll and Hannan, 2000; Rao

et al., 2005). The more compatible the foreign logic

components are with the core values, the easier they

can be blended with the institutional logics. In

contrast, the core values are consistent and stable.

Although the blending processes in the peripheral

components erode the boundaries among institu-

tional logics, the core values of these logics remain

separated. In other words, the blending processes

will occur only at the bottom of the logic hierarchy

(i.e., peripheral components) but not at the top

(i.e., core values).

A camouflage strategy is characterized by hierar-

chical blending. It differentiates the camouflage

phenomenon from the blending phenomenon

which occurs in a homogeneous cultural context

(Rao et al., 2005). In general, a camouflage strategy

involves more complicated challenges to organiza-

tions and high ethical risks. This is consistent with

previous studies which find that legitimizing an

organization in a foreign country is more challeng-

ing than legitimizing an organization domestically(Johnson et al., 2006; Berger et al., 1998). Addi-

tionally, a camouflage strategy can also be unsus-

tainable if the ethical risks become too high. For

example, as domestic criticism grew, Google even-

tually pulled out of China. Under such circum-

stance, we suggest the following:

Proposition 2: When a MNC with a high degree of

CSR ingrainedness enters a host country with high

local ethical pressures, the MNC will be likely to

pursue a camouflage approach: to maintain the core

of its institutional logic but to blend in with the

peripheral parts of the host country. A camouflage

strategy involves high ethical risks.

Negotiation

The traditional view of MNCs, which optimistically

posits that MNCs from developed countries will

spread the common values and beliefs fine-tuned in

the industrialized world to underdeveloped world,

implicitly assumes that MNCs are more or less

similarly ingrained with CSR principles and practice

them accordingly. Contrary to such optimistic view,

however, many developed-country MNCs take

advantage of the poor regulation and weak institu-

tional pressures in the developing countries. The

recent rapid growth of overseas investments in

the developing countries from other developing-

country MNCs increases the magnitude of this

problem. We posit that these MNCs have a

low degree of CSR ingrainedness. A MNC well

ingrained with CSR will prioritize CSR in its

strategy, systematically and routinely incorporating

CSR into its daily practices. In contrast, a MNC not

ingrained with CSR will generally fail to practice

CSR as a taken-for-granted repetitive social behav-ior. When these types of MNCs enter foreign

markets that do not have strong ethical pressures and

corresponding governmental regulations, they will

likely compromise their own moral principles for

potential business opportunities.

From the institutional theory perspective, the

negotiation strategy embodies a process of local

translation, rather than universal diffusion, of insti-

tutional logics. Zilber (2006, p. 283) proposes two

metaphors of institutionalization: ‘‘the ‘diffusion’

metaphor comes from physics and connotes trans-mission of a given entity from one area to another’’

and ‘‘the ‘translation’ metaphor comes from lin-

guistics and connotes an interaction that involves

negotiation between parties and reshaping what is

finally transmitted (institutionalized).’’ It has been

proposed that recent theoretical developments in

institutional theory have moved from the ‘‘diffu-

sion’’ to the ‘‘translation’’ model to under-

stand institutional processes (Creed et al., 2002;




Czarniawska and Joerges, 1996; Doorewaard and

van Bijsterveld, 2001; Frenkel, 2005; Perry, 1995;

Sahlin-Andersson, 1996; Zilber, 2006). More spe-

cifically, the concept of translation was first offered

by Latour, ‘‘The spread in time and space of any-thing – claims, orders, artifacts, goods – is in the

hands of people: each of these people may act in

many different ways, letting the token drop, or

modifying it, or deflecting it, or betraying it, or

adding to it or appropriating it’’ (Latour, 1986,

p. 267). Building on such notion, Czarniawska and

Joerges (1996) emphasize ‘‘how the essence of an

idea changes as it moves from one social context to

another and as it shifts from being an abstract idea to

an object with real existence (ideas translated into

objects) or an enacted practice (ideas translated intoaction)’’ (Frenkel, 2005, p. 279).

Unlike the seemingly smooth diffusion of a uni-

tary practice throughout a field or focal population

(Strang and Soule, 1998), logic transplantation

involves competing logics and possible resistance

because in this case the institutional environments

are fragmented and contested (Schneiberg, 2007;

Schneiberg and Soule, 2005). In the process of

transplantation, MNCs often have to deal with

confrontation and communication between distinc-

tive logics and possible transformation of local logics.

More specifically, a negotiation strategy involves

two-way translation. On the one hand, the ‘‘diffu-

sion’’ of general logics developed in the home

country needs to be translated for the logic-

transplanting organization; on the other hand, the

local managerial logics and practices rooted in the

host country need to be translated for the organi-

zation. Thus, a negotiation strategy is not simply a

case of rejecting or adopting values and beliefs but

rather a dialectical process in which distinctive logic

components are translated and interpreted and be-

come integral parts of a new hybrid institutionallogic. Thus, we have the following proposition:

Proposition 3: When a MNC with a low degree of

CSR ingrainedness enters a host country with low


pursue a negotiation approach: it will manipulate

both the core and peripheral of its institutional logic

to satisfy the ethical expectations in both the home

and host countries. A negotiation strategy involves

high ethical risks.

Compliance

A compliance strategy involves complete compli-

ance with the local ethical expectations, following

local norms, imitating local institutional models and

obeying local rules (Oliver, 1991). The subsidiaryimitates the local players’ institutional models and

become an ‘‘indigenous’’ part of the host society.

The obvious advantage of a compliance strategy is

that competitiveness in the host country is main-

tained. The local organizations regard the MNC as a

legitimate player and local customers are likely to

regard the invader’s products or services as legiti-

mate.

A compliance strategy is often found in, but is not

limited to, the operations of developing-country

MNCs in the developed world where relativelyuniversal values and norms are often buttressed by

governmental regulation, not-for-profit watch-dog

surveillance, and consumer scrutiny. Gugler and Shi

(2009), for example, find that most Chinese com-

panies are just beginning a learning process on CSR

initiatives and are often motivated to engage in CSR

to secure contracts with international clients. The

number of Chinese companies that make overseas

investments and rank as MNCs is limited. When a

Chinese MNC operates in a developed country like

the United States, it begins a learning process on the

CSR highway under pressure to assimilate with the

strong ethical expectations in the host country. For

example, after Lenovo acquired IBM’s PC Division

in 2004, the Chinese MNC emphasized that Lenovo

is not ‘‘a traditional Chinese company, with a rigid

and closed mind; rather, the culture of the new

Lenovo is fully open and global. The official lan-

guage of the new Lenovo is English’’ (Tung and

Liu, 2007, p. 576). As a result, Lenovo quickly

adopted CSR initiatives. Its current official multi-

dimensional commitment to social responsibility –

including product quality and safety, employeewelfare, ethical corporate behavior, social invest-

ments, environmental affairs, and so forth (Lenovo,

2009) – is fundamentally similar to that of well-

respected American MNCs.

However, a compliance strategy also involves

conflicts with internal logics. It poses challenge for

the headquarters and the fully localized subsidiary to

communicate and cooperate because of differences

in their basic institutional logics. They may even

regard one another’s activities as illegitimate. The




internal logic conflicts may dampen the synergy of

the organization between the headquarters and the

subsidiaries and eventually make the organization

less efficient and/or less effective. In sum, a com-

pliance strategy allows the invader not to losecompetitiveness in the host country, but this is

accomplished at the expense of internal-logic con-

flicts. Following this line of reasoning, we suggest

the following:

Proposition 4: When a MNC with a low degree of



pursue a compliance approach: it will comply with

local ethical expectations and abandon both the core

and peripheral parts of its institutional logic. A

compliance strategy involves low ethical risks.

Discussion and conclusion

Situated at the intersection of three interconnected

bodies of literature, i.e., institutional theory, inter-

national business, and business ethics, we draw from

multiple sources and build a theoretical framework

to explain the ethical behavior of MNCs. We

investigate this phenomenon from the institutional

logic perspective and examine how a MNC withestablished logics and principles that have grown in

the home country responds to local, and contradic-

tory, ethical expectations in the host country. One

unique feature of the article is that it separates the

core values from the peripheral values of a MNC’s

institutional logic and proposes that a MNC will

pursue distinctive ethical strategies and choose a

‘‘right’’ configuration of core and peripheral values

from both the home and host countries. In partic-

ular, we develop a two-by-two matrix and propose

that (1) if a MNC with a high degree of CSR in-grainedness enters a host country with low local

ethical pressures, it will pursue a defiance approach

by defying local ethical expectations and maintaining

both the core and peripheral parts of its institu-

tional logic; (2) if a MNC with a high degree of


local ethical pressures, it will pursue a camouflage

approach by maintaining the core of its institutional

logic but blending in peripheral parts from the host

country; (3) if a MNC with a low degree of CSR

ingrainedness enters a host country with low local

ethical pressures, it will pursue a negotiation ap-

proach by manipulating both the core and peripheral

of its institutional logic to satisfy the ethical expec-

tations in both the home and host countries; and (4)if a MNC with a low degree of CSR ingrainedness

enters a host country with high local ethical pres-

sures, it will pursue a compliance approach by

abandoning both the core and peripheral parts of its

institutional logic to comply with local ethical

expectations. Additionally, we propose that these

four strategies involve different ethical risks.

Contribution to business ethics in the global context

This article contributes to the international business

and business ethics literatures by examining the

ethical behavior of MNCs and the concept of CSR

in cross-cultural contexts. Sociologists have found

that organizations can borrow symbols from a rival

category and innovatively recombine them with

elements from their own category, resulting in an

erosion of categorical boundaries (Rao et al., 2005).

More generally, ‘‘culture is not a unified system that

pushes action in a consistent direction. Rather, it is

more like a toolkit … from which individuals select

different pieces’’ (Swidler, 1986). This article sup-

ports this line of reasoning by identifying the pos-

sibility that a MNC borrow peripheral institutional

elements from the host country and blend them with

homemade logic on the one hand while sustaining

its core values on the other hand (Hitlin and Piliavin,

2004). Thus, we extend the convergence–diver-

gence–crossvergence literature by identifying both

the stickiness and the flexibility of institutional log-

ics. In sum, MNCs act like institutional entrepre-

neurs by developing boundary blurring strategies and

blending institutional logics and practices, in spite of constraints on their ability to change the core values

of any well-developed institutional logics.

Contributions to institutional logic

This article contributes to the institutional logics

literature in three ways. First, it extends the insti-

tutional logics literature to cross-border contexts

in which organizations are challenged to meet




contending institutional norms and rules. When the

home and host countries have fundamentally dif-

ferent core values, MNCs encounter cross-border

institutional pressures. As they are increasingly facing

such pressures in the era of globalization, this articleincreases the generalizability and applicability of the

institutional logics literature. Second, this article

extends the concept of institutional logics by dif-

ferentiating core institutional values from peripheral

components. By scrutinizing the components of the

key concepts, we provide a framework for the

institutional logics literature to analyze how certain

parts of the institutional logics are changed while the

other parts remain intact. Third, we establish a

framework for logic camouflage and negotiation

through which institutional entrepreneurs proac-tively manage the institutional logics to solve the

dilemma resulting from logic transplantation. Fur-

ther development of logic camouflage and negotia-

tion will expand the scope of institutional logics

theory and build a bridge between institutional

logics theory and international business theory.

Implications for future research

Globalization has been viewed as a homogenization

process from which the diffusion of manage-

rial practices will lead to increasing institutional

and cultural similarities among different countries

(Chandler, 1970; Meyer et al., 1997; Ritzer, 2008).

Robertson (1995) coined the term globalization to

capture the way in which homogenization and

heterogenization intertwine in the process of glob-

alization. According to this view, globalization is

‘‘the universalization of the particular and the par-

ticularization of the universal’’ (Robertson, 1995,

p. 25). What is universalized and what is particu-

larized? We suggest that logic-transplanting organi-zations will resist change of their core values,

although they may intentionally borrow peripheral

components from alien logics to neutralize institu-

tional pressures in the local environments. On the

one hand, the world seems to have become homo-

geneous due to the borrowing and blending of

peripheral components; on the other hand, the

world remains heterogeneous due to the persistence

of distinctive core values. In particular, the four

ethical approaches discussed in this article provide a

general framework to understand the coexistence of

homogenization and heterogenization against the

backdrop of globalization. We believe there is much

to be gained by further disentangling the phenom-

enon of logic transplantation. The propositionsdeveloped here may require empirical studies.

Qualitative studies on the process of how an orga-

nization transplants institutional logics and pursues

camouflage and negotiation ethical strategies are

needed to fully understand this intriguing phenom-

enon. Additionally, we observe that the ethical

responses of MNCs will eventually have impact on

the institutional environment and trigger institu-

tional change in the host countries. Based on the

two-by-two matrix developed in the article, it is

clear that the four ethical approaches have differentimpacts on the host countries. The defiance and

compliance approaches are two ends of a contin-

uum: MNCs pursuing the former have a strong

impact on the host country by acting as evangelist of

established values and beliefs; MNCs pursing the

latter have a weak impact on the host country due to

their complete assimilation with the local environ-

ment. The camouflage and negotiation approaches

are somewhere between the two ends of the con-

tinuum: their impacts on the host countries can only

be examined on a case-by-case basis. How do the

camouflage and negotiation approaches affect insti-

tutional change in the host country? How do the

ethical responses of MNCs co-evolve with the

institutional environment in the host country?

Answers to these questions in the future will enrich

our understanding of ethical issues related to MNCs.

Implication for practice

In the organization literature, it is generally accepted

that firms should act according to their surroundingenvironments and managers should constantly con-

sider the environment in their decision making. This

certainly applies to MNC managers who are often

frustrated by inconsistent expectations from the

home and host countries. Once the institutional and

cultural gaps expand and result in ethical concerns,

MNC managers will find themselves under attack.

Expatriate managers, for example, are often misun-

derstood by both their colleagues in the headquarters

and their clients in the foreign subsidiary, even




though they are likely the most knowledgeable

about the needs of each side.

How do MNC managers respond to the challenge

of conflicting ethical expectations? Our two-by-two

matrix suggests that the responses depend on howdeeply a MNC is ingrained with CSR principles and

the degree of local ethical expectation. Under dif-

ferent scenarios, a MNC could pursue distinctive

ethical approaches which are defined by the different

composition of institutional logic: defying local

pressure, acting like a chameleon, negotiating for its

own interest, or complying with local expectations.

One unique feature of our framework is that it is

built upon the broadly defined concept of institu-

tional logic which may require a specific definition,

often qualitatively, in empirical studies. For example,Lounsbury (2007) identifies two competing logics

(i.e., trustee vs. performance logics) in the mutual-

fund industry. This unique feature enhances the

framework’s potential to be applied to a variety of

contexts. On the other hand, however, this also

means that the framework may not offer clear

practical implications for MNC managers until

institutional logic is precisely defined in the partic-

ular research setting. For instance, in an empirical

study on the unionization approaches of MNCs, we

will observe that MNC managers be put in the

battlefield of conflicting institutional logics around

the world. With institutional logic being contextu-

alized with unionization in this setting, our theory

predicts whether a MNC with a pro-union logic

should maintain its logic (defiance), completely

abandon it (compliance), to translate logics (negoti-

ation), or to act like a chameleon (camouflage). We

suggest that the choice depends on the strength of

pressure in the local market and the CSR ingrain-

edness of the MNC. For example, we expect that

Wal-Mart’s managers in China act differently from

Lenovo’s managers in USA.In particular, we suggest that a MNC will act as a

chameleon when its highly ingrained CSR principles

does not match the strong local ethical expectations

in the host country, whereas a MNC not well

ingrained with CSR will act as a negotiator if it

enters a country with low ethical expectations. We

believe that the camouflage approach is a relatively

new byproduct of globalization. For example, after

being strongly criticized in the West, Google pulled

out of China. According to our model, Google was

acting like a chameleon before leaving China. Google’s

awkward situation vividly showcases the high ethical

risks involved in a camouflage strategy. Since stra-

tegic responses and environmental mandates are not

static but rather influence one another and co-evolveover time (Tan and Tan, 2005), these chameleon-

like and negotiator-like MNCs nevertheless deviate

from the agenda to set universal ethical standards, as

they leverage, probably reluctantly, the ethical and

institutional expectations across countries. A global

governance structure (Detomasi, 2007) is certainly

needed to build a universal code of conducts

(De George, 1993), but the task is beyond the

capabilities of any single MNC.

Acknowledgments

This research is in part supported by grants from the

Social Science and Humanities Research Council of

Canada and Guanghua-Cisco Global Leadership In-

stitute. Comments and suggestions from Christine Oli-

ver and Wesley Cragg are gratefully acknowledged.

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E-mail: [email protected]


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