Business Ethical Values in China and the U.S.

Laura L. Whitcomb Carolyn B. Erdener Cheng Li

ABSTRACT. The research presented in this paper focuses on business ethical values in China, a country in which the process of institutional transformation has left cultural values in a state of flux. A survey was conducted in China and the U.S. by using five business scenarios. Survey results show similarities between the Chinese and American decision choices for three out of five scenarios. However, the results reveal significant differences in rationales, even for similar decisions. The implications of similarities and differences between the U.S. and Chinese samples are discussed.

Introduction Reforms initiated in 1978 to transform Chinas centrally planned economy into a market economy have led to fundamental changes in Chinese society. This investigation seeks to contribute to a clearer understanding of ethical decision-making in China, using data from a survey on business ethical values conducted in China and the U.S. An examination of ethical decision-making in China is particularly important for a number of reasons: (1) the philosophical foundations of Chinese culture differ substantially from Western philosophical tradi-

tions; (2) comparative management studies have noted significant differences in the work values of East Asian and Western cultures; and (3) Chinas rapid economic growth and increased involvement in international trade and investment makes a broader understanding of Chinese perspectives relevant to business ethics more important than before. This paper examines the literature in both business ethics and comparative management relevant to the study of cross-cultural ethics, particularly as it pertains to China. It the describes the methodology and results of a survey conducted in both China and the U.S. which uses five business scenarios. Analysis of the results includes consideration of Confucian, Maoist, and recent market-oriented influences on Chinese values as well as differences in institutional environments.

Literature review A key question for cross-cultural research on ethical behavior is whether people from different countries will define right and wrong in the same ways when faced with the same ethical dilemma. The answer to this question has significant normative implications for corporations involved in business in more than one country. The field of business ethics, which relies heavily on Western philosophical principles as its theoretical foundation, suggests that perceptions of right and wrong are fundamentally alike. While the field of comparative management has largely neglected ethical issues, its emphasis on differences in values cross-culturally and the need for managers to adjust to different cultures suggests that ethical

Laura L. Whitcomb is Associate Professor of Management in the School of Business and Economics at California State University, Los Angeles. Carolyn B. Erdener is Associate Professor of Management in the School of Business at Hong Kong Baptist University. Cheng Li is Associate Professor of Management in the School of Business and Economics at California State University, Los Angeles.

Journal of Business Ethics 17: 839852, 1998. 1998 Kluwer Academic Publishers. Printed in the Netherlands.

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Laura L. Whitcomb et al. tutional environment in shaping or constraining ethical choices has been largely overlooked.

decisions may be different also. Research on international business ethics and comparative management will be addressed here in turn.

2. Comparative management research 1. International business ethics research The field of business ethics seeks out ways to apply principles from Western philosophies, such as utilitarianism, universalism, rights theory, or theory of justice, to ethical questions faced by business managers. Work by Donaldson (1989) exemplifies attempts to provide normative guidance for managers of multinational corporations who must develop codes of conduct for personnel operating in very diverse environments. Although empirical research in business ethics has focused on the U.S., some studies have also been conducted in other countries. The current literature indicates that this trend may be on the rise. For example, single-country studies have recently been conducted in Australia (Soutar et al., 1994), Britain (Davis and Worthington, 1993; Mitchell et al., 1994), India (Cyriac and Dharmaraj, 1994), Italy (Hinterhueber, 1991), and Russia (Kolosov et al., 1993). Comparative studies across countries include work on Australian and South African managers (Abratt et al., 1992), managers in Israel and the U.S. (Izraeli, 1988), Nigerian and U.S. views on bribery and extortion (Tsalikis and Nwachukwu, 1991), and U.S. and Swiss managers (Ulrich and Thielemann, 1993). Similar results across cultures have been found in a number of these studies,1 perhaps reflecting the existence of similar historical and philosophical traditions and complementary institutional environments. Differences have been identified with respect to such issues as bribery (Becker and Fritzsche, 1987; Tsalikis and Nwachukwu, 1991; Tsalikis and LaTour, 1995) and employee relations (Langlois and Schlegelmilch, 1990). While relevant conceptual frameworks have begun to appear in the literature (Kohls and Buhler, 1994; Robertson, 1993; Vitell et al., 1993; Vogel, 1992; Wines and Napier, 1992), their selection of variables appears heavily influenced by psychology, and the role of the instiComparative management research places particular emphasis on the dynamic relationship between individual behaviors and the environmental context of a given country. In comparing these relationships across many countries, comparative management focuses on the influence of two national characteristics on managerial behavior: culture and institutions. Both are relevant to business ethical decision-making, which encompasses the values embedded in personal belief systems as well as those encoded institutionally as law. Until recently, comparative management studies used measures of culture from Taiwan and Hong Kong as proxies for determining how China compared with the rest of the world (Hofstede, 1980; Hofstede and Bond, 1988; Tung, 1988).2 Confucianism provides the philosophical basis for the collectivist and power distance values prevalent in East Asia. Hofstede and Bond (1988, p. 8) summarized Confucian teaching into four key principles: (1) the stability of society is based on unequal relationships between people ruler/subject, father/son, older brother/younger brother, husband/wife, and older friend/younger friend; (2) the family is the prototype of all social organizations; (3) virtuous behavior toward others lies in reciprocity; (4) virtuous behavior includes self-improvement through education, diligence, perseverance, and moderation in all things. Although the Confucian classification of society, into the classes of scholaradministrator, farmer, artisan, and merchant, ranked business at the lowest level, Confucianbased societies in Asia have been characterized by rapid economic development in recent decades, and comparative management studies have attempted to link this success with Confucian values (Chinese Culture Connection, 1987; Hofstede and Bond, 1988; Redding, 1990). Surveys measuring managerial values in China have often proven difficult to carry out in a

Business Ethics in China and the U.S. meaningful way. Results could be bimodal and hard to interpret (Adler et al., 1989). Among the most important recent studies on this subject is that by Ralston et al. (1993) comparing managerial values in China, Hong Kong, and the U.S.3 Despite the dominant ethical content of Confucianism, comparative management studies of Confucian values have not focused upon ethical issues. The literature concerning the impact of the institutional environment upon management behavior is very broad-based, covering numerous disciplines. The economic system literature, comparing centrally planned and market systems, was an important part of early comparative studies in this vein (Granick, 1960, 1967; Richman, 1969). Particular attention has been paid in recent years to Japan ( Johnson, 1982; Aoki, 1988; Fruin, 1994) and also to newly industrializing countries in East Asia (Wade, 1990; Whitley, 1992). Research on the impact of economic reforms on Chinese management behavior includes Byrd (1992) and Lee (1991). Reforms in centrally planned economics sharply redefine corporate sources of legitimacy. Different interorganizational norms, particularly differences in mode of interaction between business and government, would be expected to strongly influence ethical decision-making.

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have necessitated greater attention to such issues by the Chinese government than previously. For each of the five situations portrayed in the instrument, two responses were solicited. First, subjects were asked to indicate on a 0 to 10 point Likert scale what their own decision would have been in the situation described. Second, they were asked to indicate the reasoning behind each decision. The categories of responses derived by Fritzsche and Becker (1984) were presented as options in a multiple choice format, together with an open-ended discussion option. Two hypotheses were tested for each vignette:
Hypothesis 1: Chinese and U.S. subjects will select the same behavioral choice when faced with the same ethical dilemma. Hypothesis 2: Chinese and U.S. subjects will select the same rationales to justify their behavioral choices.

Research method and design The present study extends a line of research in the management and business ethics literature that uses vignettes to present various kinds of ethical dilemmas managers often face in business situations (Fritzsche and Becker, 1984; Becker and Fritzsche, 1987; Premeaux and Mondy, 1993). In order to facilitate wider generalization and comparison with previous research, the same set of vignettes used by Fritzsche and Becker (1984) were used in this study (see Appendix). Issues such as bribery, employee mobility among companies, pollution, and product safety problems, which are dealt with in these vignettes, have received increased emphasis in recent years by the Chinese press. Market reforms and the growth of private ownership

The hypotheses are based on theories that ethical values are universal: judgements concerning what is right or wrong in business situations are expected to be identical cross-culturally. Rejection of the first hypothesis provides support for theories that ethical choices are influenced by the cultural and institutional environment. Rejection of the second hypothesis provides support for the idea that justifications behind ethical decisions are influenced by the cultural and institutional environment. Original data for this study were collected in China and the U.S. from November 1993 to early January 1994. The Chinese group was comprised of 181 undergraduate engineering students in an introductory management class at a university in Beijing, China. The average age was about 20, and they had little or no work experience. Engineering is a very common background for Chinese managers and administrators engineering students interested in taking a management course represent a likely sample for future Chinese managers. Given that the work experience of current managers was shaped by the institutions and values that are now being displaced, it is logical to explore the ethics and values of those now being trained for managerial positions under the new system. In order to approximate the backgrounds of the Chinese

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Laura L. Whitcomb et al. were also used to check whether the frequency distributions of rationales are the same for the two samples. Results from each of the five vignettes will be discussed in turn.

subjects, the U.S. sample was made up of 60 undergraduate students, 34 majoring in business and 26 in engineering. The average age was 24 years old, and work experience was minimal. Translation of the vignettes and response categories was performed by a team of two bilingual individuals, one native in Chinese and the other native in English. The materials were back-translated into English by a third individual for verification purposes.

Vignette #1 The first vignette concerns a bicycle company which must make a payment to a foreign country businessman if they are to gain access to his countrys market, which has been estimated at around $5 million in annual profit for the company. The Chinese and U.S. samples differed significantly both in terms of how they would resolve this situation and in the reasoning behind their decision. The Chinese respondents, as shown in Table I, are much more likely than their American counterparts to make the $500,000 payment to the middleman to get their products into the foreign country. The average score is 7.01 for Chinese and 5.38 for Americans. In explaining their reasoning, Chinese respondents overwhelmingly indicated that this was

Statistical analysis The findings from the U.S. and Chinese student samples are summarized in Tables I through V. Scores in each table represent likelihood of taking the action, where 0 means definitely would not and 10 means definitely would. Rationales given for the decisions and the percentage of subjects who choose each rationale are also included in the tables. For each vignette, ttests were conducted to see whether the mean of the Chinese sample was significantly different from that of the U.S. sample. Chi-squared tests

TABLE I Vignette #1 1. Scores: likelihood to take the action (0 = definitely would not; 10 = definitely would) Average U.S. China 5.38 7.01 Std. dev. 3.28 2.73

t-test for means of the U.S. and China: t = 3.8, a < 0.001. Two means are significantly different at higher than 99.9% confidence level. 2. Reasons for decisions (frequency distributions) Choice A B C D E F G Reason Against company policy Illegal Bribe; unethical No one is hurt Is an acceptable practice in other countries Is not unethical, just the price paid to do business Other U.S. 05% 09 24 10 17 22 12 China 02% 01 01 06 06 59 25

c2 test for distributions of the U.S. and China: c2 = 649, degrees of freedom = 6, a < 0.005. The two distributions are significantly different at higher than 99.5% confidence level.

Business Ethics in China and the U.S. not unethical, just the price paid to do business (59%). Among the responses choosing other, 28 (15% of the total sample) wrote that they were not really against paying, but were concerned about the credibility of the middleman. Five (3%) simply said it was a good business deal. Only one respondent (0.55%) thought it was illegal and another one thought it was a bribe and unethical. The Americans, on the other hand, were more apt to conclude that the transaction was a bribe and unethical (24%) or was illegal (9%). The price paid to do business was still selected by 22% of the sample. Another 17% justified their decision by saying that this was an acceptable practice in other countries.

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Vignette #2 The second vignette concerns a new employee who is presented by his new employer to reveal the technological secrets of his former employer.

As shown in Table II, both Chinese and U.S. respondents tended toward not revealing information to the new employer. The mean response for the Chinese sample was 3.51, only slightly less than that of the U.S. sample at 3.64. The distributions of the rationales behind their decisions, however, are still quite different. The difference between the two samples can be largely attributed to the Americans first choice, indicating that it is unethical for the employee to provide and unethical for the employer to ask (31%). This is close to double the percentage of Chinese subjects selecting the same rationale (17%) more than one half of the chi-squared value is from this choice. The option of a security agreement was a popular one in both samples, ranking as the number one choice in the Chinese responses (25%) and as the second choice by the Americans (19%). Seventeen percent of the Chinese and 15% of the U.S. respondents chose to compromise through provide some but not all information. Among the Chinese who chose other, nine (or another 5%) also indicated they

TABLE II Vignette #2 1. Scores: likelihood to take the action (0 = definitely would not; 10 = definitely would) Average U.S. China 3.64 3.51 Std. dev. 2.89 3.00

t-test for means of the U.S. and China: t = 0.294, a = 0.769. H0: Two means are the same cannot be rejected at higher than 23.1% confidence level. 2. Reasons for decisions (frequency distributions) Choice A B C D E F G Reason Unethical for Smith to provide and unethical for employer to ask Unethical for employer to mislead Smith when he was hired Protect Smiths reputation Provide some but not all information Decision based on whther security agreement is in force To keep job; loyalty to new employer Other U.S. 31% 17 05 15 19 03 10 China 17% 10 10 17 25 06 15

c2 test for distributions for the U.S. and China: c2 = 13.5, degrees of freedom = 6, 0.025 < a < 0.005. The two distributions are significantly different at higher than 95% confidence level.

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Laura L. Whitcomb et al. quences of getting caught (35% vs. 20% for the Americans). The Americans, on the other hand, indicated as their most popular rationale an overwhelming concern for the environment (46%), which is ranked a distant second (23%) among the Chinese. The differences on these two choices also explain most of the overall difference between the two distributions in terms of the chi-squared value. Only 6% of the American respondents used large potential with low risk to justify their decisions. The percentage of the Chinese who selected this choice is more than twice that of the Americans at 13%.

would provide some information for various reasons.

Vignette #3 The third vignette concerns a decision on whether or not to use a new technology that will give the company an edge on competitors but will also exceed legal limits on air pollution. Respondents are asked if they would use this new equipment at night, expecting thereby to avoid detection. The U.S. and Chinese samples both tended towards not approving the decision to exceed acceptable pollution standards. The average scores in Table III are 2.72 and 2.78 for the Chinese and the U.S. samples respectively. But again the distributions of rationales were significantly different. Concern for the environment and risk of getting caught are the two top choices in both samples. However, the Chinese respondents were more concerned with the negative conse-

Vignette #4 The fourth vignette describes an editor who wants to publish an authoritative account of the history of the atomic bomb, but who is unable to persuade the author to omit the final chapter containing a detailed description of how a bomb is made.

TABLE III Vignette #3 1. Scores: likelihood to take the action (0 = definitely would not; 10 = definitely would) Average U.S. China 2.78 2.72 Std. dev. 2.96 3.20

t-test for means of the U.S. and China: t = 0.119, a = 0.906. H0: Two means are the same cannot be rejected at higher than 9.4% confidence level. 2. Reasons for decisions (frequency distributions) Choice A B C D E F G Reason It would be illegal Concern for the environment/life Risk of getting caught with resulting negative consequences too great Not their fault; equipment would be installed if available The pollution would not really hurt the environment Large potential with low risk Other U.S. 13% 46 20 07 02 06 07 China 16% 23 35 04 02 13 07

c2 test for distributions of the U.S. and China: c2 = 18.5, degrees of freedom = 6, 0.005 < a < 0.01. The two distributions are significantly different at higher than 99% confidence level.

Business Ethics in China and the U.S. Both the mean responses and rationale distributions were significantly different. As shown in Table IV, the Chinese were much less likely to publish the book, with an average score of only 2.25. Although the American respondents were slightly inclined not to publish the book, the average score of 4.31 is much higher. The most popular rationale for not publishing the book was the potential danger to the world safety (36% for the Chinese and 46% for the Americans). The primary cause of the overall difference between the two samples is that the U.S. respondents were much more apt to dismiss the problem because the information was already available (28% vs. 9% for the Chinese), while the Chinese respondents were more concerned with legal ramifications (31% vs. 11% for the Americans).

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Vignette #5 In the fifth vignette, an auto parts contractor faces bankruptcy if its buyer, an automobile manufacturer, finds out that a part it supplies is

defective. If unreported the defect can result in serious, possibly fatal, accidents. A product development manager must decide whether to blow the whistle on his employer by informing the auto company. Both samples tended towards blowing the whistle, with nearly identical mean scores of 7.74 for the Chinese and 7.72 for the Americans (see Table V). However, the rationale given by the two groups to justify their decision are still different at the 95% confidence level. The most important source of difference between the two distributions is that a third of the American subjects cited possible injury or death as the main rationale (33%), versus only slightly more than a sixth of the Chinese (18%). Although a minor choice for both groups, loyalty to the company was cited by significantly more Chinese (9%) than Americans (2%). The difference on this choice is the second largest contributor to the overall difference between the two distributions in terms of the chi-squared value. There are also some underlying similarities in the reasoning of the two groups. The most

TABLE IV Vignette #4 1. Scores: likelihood to take the action (0 = definitely would not; 10 = definitely would) Average U.S. China 4.31 2.25 Std. dev. 3.54 3.04

t-test for means of the U.S. and China: t = 4.319, a < 0.001. Two means are significantly different at higher than 99.9% confidence level. 2. Reasons for decisions (frequency distributions) Choice A B C D E F Reason Too dangerous to world safety May create image detrimental for company Concerned with legal ramifications Dont see responsibility as theirs to make choice Those who want the information can get it now from other sources Other U.S. 46% 07 11 02 28 07 China 36% 15 31 04 09 06

c2 test for distributions of the U.S. and China: c2 = 37.1, degrees of freedom = 5, a < 0.005. The two distributions are significantly different at higher than 99.5% confidence level.

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TABEL V Vignette #5

1. Scores: likelihood to take the action (0 = definitely would not; 10 = definitely would) Average U.S. China 7.72 7.74 Std. dev. 2.62 2.91

t-test for means of the U.S. and China: t = 0.036, a = 0.971. H0: Two means are the same cannot be rejected at higher than 2.9% confidence level. 2. Reasons for decisions (frequency distributions) Choice A B C D E F Reason Ward has no additional responsibility; loyalty will keep him quiet Risk of injury or death too low to halt sale The company has a responsibility to the public; criminal and dishonest to remain silent Risk to firms image, profitability, and long run potential too great to remain silent Chances of causing injury or death too great to remain silent Other U.S. 2% 07 33 20 33 06 China 0 9% 05 37 28 18 04

c2 test for distributions of the U.S. and China. c2 = 12.4, degrees of freedom = 5, 0.025 < a < 0.05. The two distributions are significantly different at higher than 95% confidence level.

popular rationale among the Chinese respondents, public responsibility of the firm, also tied with possible injury or death as the number one choice in the U.S. sample (33% for the Americans and 37% for the Chinese). Risk to the companys long-term profitability was cited by 28% of the Chinese and 20% of the Americans.

Discussion The first hypothesis, that Chinese and American ethical decisions would be the same, was rejected in two out of five situations. The decision differences were greatest for vignette #1, involving payment to a middle man for access to a lucrative foreign market, and vignette #4, concerning publication of a book with instructions on how to make an atomic bomb. The hypothesis was supported for vignette #2, on sharing privileged information with a new employer, vignette #3,

regarding air pollution, and vignette #5, on reporting a defective automobile part. The second hypothesis, which tests the differences in the distributions of the rationales behind each decision, was rejected in all cases. Differences in Chinese and American values appear to be reflected primarily in the rationales behind ethical decisions, rather than in the decisions themselves. The following discussion will examine the differences between the Chinese and American choices and rationales in terms of differences in cultural values and in institutional environments.

1. Cultural values There are three streams of thought which could impact business ethical values in China: Confucianism, Maoism, and the market ethic introduced during the reform period. Confucianism is recognized as the dominant

Business Ethics in China and the U.S. influence on values in East Asia, and it differs substantially from Western philosophical approaches to ethics. It is not a utilitarian philosophy: material profit is viewed as often in direct conflict with the dictates of virtue (de Bary et al., 1960, pp. 1617). Confucius was, for his time, an innovator in his basic concept that good government was fundamentally a matter of ethics (Fairbank and Reischauer, 1978, p. 44). The Chinese state was essentially based on a model of the family, and the maintenance for order was founded on the morally enriched prescriptions for relationships (Redding, 1990, p. 44). Confucianism consists of principles for appropriate behavior so as to retain harmonious interaction among people. It includes an emphasis on preference for in-groups (in which there is a degree of trust) over out-groups as well as the role of loyalty by subordinates to superiors in hierarchical relationships. Chinas Confucian heritage has provided an enduring foundation for Chinese values, despite the economic and political upheavals of the nineteenth and twentieth centuries, and Maoist thought blended aspects of Confucianism with Marxism (Metzger, 1977; Tu, 1976; Shenkar and Ronen, 1987; Tung, 1988). But, along with important continuities, there were also wrenching contradictions between the value systems of Confucianism and Maoism. Maos egalitarian ideology sought to overturn the traditional Confucian hierarchy of relationships: where Confucianism had instilled loyalty to family, father, and emperor, Maoism now diverted it to the people, the party, and the leader (Fairbank and Reischauer, p. 491). Particularly during the Cultural Revolution (19661976), the traditional Confucian loyalties were disdained to the extent that people were expected to attack their superiors and turn in their friends and family members to authorities for politically incorrect thought and behavior. The economic reform period following the Cultural Revolution entailed sharp criticism of Maoist ideology. New goals for economic productivity required an overhaul of the entire system of incentives, and moral suasion was replaced by material rewards to improve motivation and enterprise performance. Deng

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Xiaopings proclamation that to get rich is glorious introduced a new market ethic, where profit is viewed as the primary, overriding goal. As people enjoy more economic freedom and witness individual wealth growing at a very rapid rate among certain groups, this new market ethic, which contrasts starkly with both Confucian and Maoist values, has become increasingly prevalent in China. The Chinese responses in this study reflect a mixed influence of traditional Confucian values and the market ethic. The Confucian ethical tradition still appears to influence Chinese decisions in morally complex situations. In comparison with the U.S. sample, more emphasis is placed on interpersonal relationships a point that is relevant to negotiations with business partners and also to superior/subordinate interactions. In a situation which would be viewed as bribery in the U.S. (vignette #1), using a middleman to smooth out the problems was almost unanimously considered acceptable and was not even viewed as an ethical issue by the vast majority of the Chinese respondents. Greater emphasis than the Americans on trust of the middleman (vignette #1) and loyalty to the employer (vignette #5) also reflects the influence of Confucianism on the Chinese. Yet there is also clear evidence of a new market orientation. Economic reforms appear to be furthering the development of a strong market ethic in China. Certain actions seem to become acceptable in China especially when they can be defended on the basis of enterprise profitability, rather than individual self-interest. In vignette #1, the situation was viewed primarily as a business deal. In vignette #3, the focal issue for many Chinese appears to be a concern with possible negative consequences of violating the law, rather than a concern with protecting the physical environment. In both of these two cases, the actions in question did not seem to conflict with the ethical values of most Chinese respondents. The emergence of the market ethic is also evidenced by the fact that more Chinese than Americans used profit-related rationales, such as large potential with low risk in vignette #3 and long-run profit in vignette #5, to explain their decisions.

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Laura L. Whitcomb et al. values. Institutional differences seem to influence the responses to most of the vignettes. In vignette #1, when comparing the responses on issues involving bribery, it should be noted that China does not have an equivalent to the U.S. Foreign Corrupt Practices Act, which prohibits bribery in foreign countries. It is the U.S., not China, which is unique in this respect: Becker and Fritzsche (1987) found similar differences from the U.S. on this vignette in France and Germany. With regard to vignette #3, social consciousness of environmental problems is presumably lower in China, as there is no parallel to the U.S. environmental movement there. As in many developing countries, pollution is much worse in China than in the U.S., but trade-offs have deliberately been made in order to promote economic development. Chinese government authorities would be more apt to make exceptions in enforcement of pollution regulations for enterprises seeking to use new technology. Although the exact implication of the concern with legal ramifications (vignette #4) by the Chinese is difficult to interpret, the authors believe that this concern is related to the fact that information on how to make nuclear bombs is still considered, at least in the perception of most Chinese people, as a military secret. Revealing this information, therefore, would constitute a violation of law. In general, the Chinese government imposes very strict control on dissemination of information and freedom of speech is severely limited in Chinese society. Differences in this vignette seem for the most part to result from differing institutional environments and differing perceptions about the availability of information. The difference between the Chinese and the Americans in attitude toward possible personal injuries (vignette #5) is significant. In the U.S., product safety related law suits often involve millions of dollars for both compensatory and punitive damages, and receive broad coverage in the media. In contrast, China has fairly limited, and often unenforced, product safety regulations. Punishment for product safety violations is usually limited to compensatory damages. The concept of punitive damages is mostly unheard of and does not apply in product safety cases.

In the results of this survey, evidence of Maoist ideology is by no means prevalent. In vignette #5 which involves a defective auto part, however, strong emphasis on public responsibility by the Chinese respondents could be interpreted as more consistent with the Maoist ethic than the Confucian ethic. In contrast with Confucianisms focus on loyalty to the in-group, such as family or people from the same town, Maoist ideals tried to stretch that loyalty to much larger and more general groups, such as the people. During the Cultural Revolution era, serving the people was, in theory, the only legitimate objective for any business. Although Maoist ideology as a whole is rapidly diminishing in China today, responsibility for the people has been integrated into the new business ethical values and frequently used by the Chinese media and consumers as the foundation of criticism against certain business practices. Situations embodying conflicts between the employee and his employer appeared problematic for the Chinese subjects in this study. Confucian values emphasize loyalty very strongly. Ethical values concerning the reciprocal obligations of a superior to his subordinate in return for loyalty from the subordinate are relevant to the interpretation of the Chinese reaction to divulging information on a former employer. According to Confucian values, the new employer would be considered deceptive and therefore undeserving of loyalty, whereas the fealty relationship between the previous employer and employee remains in effect even after the employee has left (vignette #2). On the other hand, the market ethic would argue that personal job security should take precedence over loyalty to the previous employer. Being pulled between these opposite values, many Chinese respondents tried to seek compromises, either through legal means such as security agreements or by providing some but not all information.

2. Institutional environment Decision making differences between China and the U.S. that surfaced in this study also reflect institutional differences as well as differences in

Business Ethics in China and the U.S. Conclusion China represents a country in which the process of institutional transformation has left cultural values in a state of flux. After experiencing first a thorough denunciation of Confucianism followed by an overturn of Maoist values, the value system of the Chinese people has gone through a continual process of remaking. The gradual shift throughout the 1980s from central planning to a market system has affected not just the way in which resources are allocated, but also Chinese values and the way in which economic decisions are legitimized. Compared with the American respondents, the Chinese are at least equally, and sometimes more, motivated by profit. A typical Chinese respondent would be more willing than the Americans to accept business practices based on interpersonal relationships, and more likely than the Americans to use informal, in some cases illegal from the American point of view, means to achieve his/her profit objective. Although the survey results do not establish a direct link between ethical decision making and the institutional environment, the differences in the results, particularly those on issues such as bribery, environmental protection and product safety, are consistent with the institutional differences between the U.S. and China. Despite the fact that comparative management studies demonstrate significant differences between the values of Chinese and Americans, decisions regarding ambiguous ethical situations were shown in this study to be quite similar in three out of five cases. However, Chinese and Americans seem to use different processes of reasoning to defend those decisions. This suggests that even if an international code of ethics for U.S. multinationals could be derived, the way in which a U.S. company persuades its foreign stakeholders should probably be adjusted for the cultural values and economic and political institutions of that country. Considerable research is still needed to more clearly understand the linkages between cultural values, the institutional environment, and ethical decision-making in China. New vignettes could be designed to highlight issues and values specific

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to China. Studies on managers, rather than students, could expand our understanding of current values held by those now in decisionmaking positions. Due to its rapid institutional change, China provides a unique opportunity to study how ethical values change when the institutional environment changes. Research on these issues not only will be helpful to an understanding of the Chinese situation, but also will contribute to general theory in ethical decision making.

Appendix Scenarios Used in Data Collection (Fritzsche and Becker, 1984) Vignette #1: Rollfast Bicycle Company has been barred from entering the market in a large foreign country by collusive efforts of the local bicycle manufacturers. Rollfast could expect to net 5 million dollars per year from sales if it could penetrate the market. Last week a businessman from the country contacted the management of Rollfast and stated that he could smooth the way for the company to sell in his country for a price of $500,000. If you were responsible, what are the chances that you would pay the price? Vignette #2: Bill Smith has recently accepted a job with a young vigorous microcomputer manufacturer. The microcomputer manufacturers are engaged in intense competition to become the first on the market with a software package which utilizes the English language and thus is easily used by the average customer. Smiths former employer is rumored to be the leader in this software development. When Smith was hired he was led to believe his selection was based upon his management potential. The morning beginning the third week on the new job, Smith received the following memo from the president: Please meet with me tomorrow at 8:15 for the purpose of discussing the developments your former employer has made in micro-computer software. If you were Smith, what are the chances you would provide your new employer with the software information? Vignette #3: Master Millers had developed a special milling process which yields a wheat flour

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Laura L. Whitcomb et al. began examining the test reports, he discovered that the transaxle tended to fail when loaded at more than 20% over rated capacity and subjected to strong torsion forces. Such a condition could occur with a heavily loaded car braking hard for a curve down a mountain road. The results would be disastrous. The manufacturers specifications call for the transaxle to carry 130% of its rated capacity without failing. Ward showed the results to his supervisor and the company president who indicated that they were both aware of the report. Given the low likelihood of occurrence and the fact that there was no time to redesign the assembly, they decided to ignore the report. If they did not deliver the assemblies on time, they would lose the contract. John must now decide whether to show the test results to the auto manufacturer. If you were Ward, what are the chances that you would notify the auto manufacturer?

which when used for bread provides a lighter more uniform texture than conventionally milled wheat flour. Unfortunately, the process gives off more dust than the emission control equipment presently installed can handle and still maintain emissions within legal limits. Due to lack of availability, the company is unable to install new emissions control equipment for at least two years; however, if it waited that long to introduce the new process, competitors would very likely beat it to the market. The general manager wants to use the new process during the third shift which runs from 10 p.m. to 6 a.m. By using the process at that time, the new flour could be introduced and the excess pollution would not be detected due to its release in the dark. By the time demand becomes great enough to utilize a second shift, new emission control equipment should be available. If you were responsible, what are the chances you would approve the general managers request? Vignette #4: Ted Jones, senior editor of J&P Publishing Company, has just received a manuscript from one of his most successful authors. It provides the most authoritative account yet published of the history of the development of the atomic bomb. However, the final chapter contains a detailed description of how the bomb is made. Jones has tried to convince the author to omit the last chapter stating that such information should not be made readily available to the mass market in paperback form. The author believes the chapter is critical to the success of the book and thus will not agree to its deletion. If you were Jones, what are the chances that you would publish the book? Vignette #5: Jack Ward is working in product development for an auto parts contractor. Wards firm received a large contract last summer to manufacture transaxles to be used in a new line of front wheel drive cars which a major auto manufacturer plans to introduce in the near future. The contract is very important to Wards firm, which has recently fallen on hard times. Just prior to obtaining the contract, half of the firms employees, including Ward, had been scheduled for an indefinite layoff. Final testing of the assemblies ended last Friday and the first shipments are scheduled for three weeks from today. As Ward

Notes
Using 28 scenarios compiled from previous studies, very few statistically significant differences were found between managers in SouthAfrica and Australia (Abratt et al., 1992, p. 34). According to the authors of the study, These findings support the views of Izraeli (1988), Lee (1981), and Tsalikis and Nwachukwu (1988; 1989) who contend that culture has little or no impact on ethical beliefs (Abratt et al., 1992, p. 34). 2 In the influential study by Hofstede (1980) comparing forty countries, both Taiwan and Hong Kong were categorized as collectivist (as opposed to individualist) cultures with large power distance (inequality in society is accepted). They differed in that Taiwan was feminine (emphasizing caring for others) while Hong Kong was masculine (aggressive, materialistic) and that Taiwan had strong uncertainty avoidance (intolerance of ambiguity which is countered by structures or behavioral norms which reduce uncertainty) while Hong Kong had week uncertainty avoidance. It was assumed that Maoist thought would lead to differences in Chinese cultural values, but the direction of change was difficult to predict (Tung, 1988). 3 In the study of managerial values by Ralston et al. (1993), Hong Kong was chosen to represent a halfway point with a capitalist system similar to the U.S.
1

Business Ethics in China and the U.S.

and a Confucian culture similar to China. Hong Kong and China scored closely on Machiavellianism (preference to use social power, i.e., informal contacts rather than formal contracts or authority channels) and dogmatism (preference for precedent over new ideas/flexibility): both were significantly higher than the U.S. Hong Kong fell between the U.S. and China on intolerance of ambiguity and locus of control; Chinese responses thus reflected stronger tendencies to view situations in black or white terms and to attribute performance to external forces. China also scored highest on Confucian dynamism, a factor developed by the Chinese Culture Connection (1987) combining a set of Confucian values viewed by respondents as relatively important (persistence, ordering relationships by status, thrift, having a sense of shame) and relatively unimportant (personal steadiness, protecting your face, respect for tradition, and reciprocation of favors). This cultural dimension has been found to be correlated with economic growth rates, and previous work had predicted that China would score high on this dimension, given its economic success during the 1980s while still in transition toward a market economy (Hofstede and Bond, 1988). Ralston et al. concluded that both culture and economic institutions interacted in a complex manner to affect differences in managerial values.

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School of Business and Economics, California State University, Los Angeles, CA 90032, U.S.A.