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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
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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
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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
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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
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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.
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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
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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.
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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.
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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
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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;
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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
local ethical pressures, the MNC will be likely to
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
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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
CSR ingrainedness enters a host country with high
local ethical pressures, the MNC will be likely to
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
CSR ingrainedness enters a host country with high
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
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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
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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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390 Justin Tan and Liang Wang
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