Microsoft + China = Relative Ethics? 

An application of Prof. Hofstede's Individualism Index

The Chinese government successfully influenced Gates' ethics regarding Microsoft expansion in China. How to look at Gates' culturally relativist business ethics?

Bill Gates wanted Microsoft to be the dominant operating system of the world: his philosophy and mission was and is to have Microsoft products in every computer, and help businesses and individuals realize their full potential (self-actualization) through the medium of technology. He has achieved his vision in no small part because of both his personal ethics, as well as the business ethics of the American individualist market system which fosters and rewards his type of behavior.

The direct power or indirect influence of Gates' business style and ethics upon other business leaders globally is immense. Microsoft's global market domination and Gates' resultant position as one of the wealthiest men in the world gives, to many observers, validation of his business ethics. His actions navigating the Chinese government's restrictions upon Microsoft's Internet Explorer were closely watched, and considered by other business leaders as an example set to follow in China.

In order to gain market share in China, Gates agreed to the Chinese government's demand that Microsoft's Internet Explorer and MSN Spaces (blog site) help it limit free speech, blocking words such as "freedom", "democracy" and "demonstration", "human rights" and "Taiwan independence", changing his business ethics from a strongly individualistic approach.

National wealth is likely to cause individualism (Professor Geert Hofstede, http://www.geert-hofstede.com) and Gates’ public speeches and investments in China demonstrate his belief is similar - that China’s speech restrictions and other human rights violations will “improve towards” Western standards as a result of increased individual and societal wealth. If their theses are accepted, the question then becomes, has Gates made an ethical business decision? Gates shifted from the American core belief in “absolute freedom of speech” to a “modified censorship” closer to China’s collectivist culture, primarily to achieve the business objective of tapping into the second largest, soon to be largest, population of Internet users in the world.

Gates suggested that the world is flattening and becoming a level playing field. (http://news.bbc.co.uk/2/hi/business/4660244.stm) Was he right in negotiating with the Communist government, acquiescing to their demands, putting a higher value on Chinese rather than his own American cultural mores? The highly individualistic, self-actualizing American cultural values are diametrically opposed to collectivist Chinese values of community over self-actualization. In American business ethics, the right of the corporation to freely compete in a market to fulfill its raison d’etre – growing shareholder value – is held paramount. Did Gate’s decision fall within the business ethic parameters of an American company? Did his decision fall within American social ethic parameters of free speech and human rights? Did he behave ethically at all from the American perspective?

American Cultural Beliefs and Values in Business and Society

Bill Gates is one of the wealthiest individuals in the world from the wealthiest country in the world, leading one of wealthiest MNCs (Multi-National Corporations) in the world; trying to dominate the software market of the largest, fastest growing, and one of the few remaining communist societies, in the world.

Hofstede describes American cultural beliefs and values as one dominated by individualism, and explores how this contributes to American business executives’ decision-making. Microsoft, like all companies entering into China, had to temper its proto-typical American business expectations and processes, proceeding distinctly differently from how it gained market-share in the US and Europe. Gates had to invest substantially extra time, effort as well as dollars into building a long-term relationship with the Chinese Communist government, in the hopes of future profitability. China’s rapidly developing socio-economic environment from a purely communist to its current “Communist Market Socialism” is volatile, where ever-shifting Communist policy developments demanded Gates’ close attention to the China market to protect Microsoft’s interests in piracy prevention, intellectual property protection, and fair market access.

Microsoft, established in 1975, still holds to its original mantra as reflected in its 2006 annual report, “At Microsoft, we work to help people and businesses throughout the world realize their full potential.” Some of its main values are: integrity, passion for customers and technology, always looking for ways to improve the products that they produce, making the best quality products and being accountable to investors, employees and customers. Gates had the vision of insisting IBM package Microsoft products with their personal computers while allowing him to maintain rights over the software – allowing him to corner the hardware market led by IBM. Over time, Gates evolved his philosophy of market dominance from not allowing any type of software mingling to seeing ways of making patches that would fix current problems and potential problems. This in turn enabled Microsoft to allow access and being more user-friendly with other companies’ products, while still maintaining proprietary rights of its software.

Hofstede generally describes Americans as “individualists” who feel this is at the core of each person’s success. Freedom, risk, self and corporate improvement, are ideals for an individualist. This translates into people being able to make their own decisions on a day-to-day basis. The saying, “The early bird gets the worm,” or “Keeping one step a head of the Joneses,” are illustrative of individualists’ competitive qualities. Hofstede also discusses Americans have a low avoidance index which translates into fewer rules, greater risk takers, and allows for difference in thinking, beliefs and values. These dimensions are what drive businesses like Microsoft to move into new economies and seize opportunities.

Microsoft needed to enter the Chinese market for three reasons. First, the prevention of China’s rampant pirating and copying software/hardware. Second, access to China’s enormous market. Third, decreasing operating/ production costs by basing research and development centers in China. Microsoft’s entry into China was initially small due to the Communist government’s limitations. Communist governments in particular tend to be protectionist of its nascent industries; as China is of its Information Communications Technology (ICT) industry. The Chinese Communist Party (CCP), in typical collectivist/ patriarchical fashion, seeks to set and control all technology standards (instead of letting the market and users make the standardization decisions.)

In order to negotiate China market entrance, Microsoft has to operate under the supervision of the Chinese government. It has also had to invest hundreds of millions of dollars in Research and Development (R&D) centers all over China, in conjunction with CCP agency-mandated joint ventures.

The Degree Of CCP Dominance In China’s Economy – A Collectivist Phenomenon

This degree of state dominance in market mechanisms was a great compromise conceded by American company Microsoft and its prototypically driven American CEO, Gates, who are accustomed by both culture and practice to exerting their individual will upon the markets.

In terms of Hofstede’s Individualism Index (IDV), China’s government dominates the operations of its economy to perhaps the greatest degree relative to almost all other countries. On the continuum of Individualist to Collectivist, China’s Communist government ranks up to the 61st least Individualist, out of 74 countries studied. Hofstede finds that the more Collectivist the culture of a people, the less they tend to seek self-actualization, preferring to maintain an “acquiescence” to authoritative leadership for the sake of “group harmony” and respect for others in the form of solidarity with the community. China, as a rapidly developing economy, is still one of the poorest nations in the world, with over one fifth of the world’s population under the patriarchic care of the Communist government. Hofstede notes that there is strong correlation between gross domestic product and the individualism of a culture.

The Collectivist phenomenon emphasizes the importance of the group, the strength of the group in demanding loyalty or acquiescence of individual desires to the good of the whole. Chinese culture is dominated by Confucian ethics, which dictates adherence to a strict hierarchical model of history, age, social position, gender, intellectual learning, loyalty to the state, filial piety to ancestors, all ascribing a citizen’s position in society.

This Chinese socio-cultural phenomenon translates into a high Power Distance Index (PDI) score, which reinforces the need for (or the ease in existence of) a strong “patriarchical” government. Although the Communist State’s manifesto is one of equality in all societal organizational forms, in reality it is the Chinese Collectivist phenomenon which permeates and forms all Chinese societal organization.

This translates, at the State’s policy development level, into one of “father-knows-best,” including the determination of economic operations, control over all aspects of its unique “social market,” and dictates based upon a “moral” authority over its people. Despite what “the people” may desire in their market choices, they are confined within the choices dictated by the State.

One of these choices is in the selection of software systems which are the nervous and circulatory system of every economy. China’s government has not permitted the market’s hand to make the choices for businesses and government agencies. Rather, it has created its own standards: for example, in mobile transmissions, it created its own unique CDMA standard, requiring all carriers and hardware manufacturers to ascribe to its technology regardless of costs, and applying loyalist propaganda, fines, and blacklists to define company and citizen’s choices. In software, to avoid use of Microsoft’s “overpriced,” monopolistic products, it has dictated use of competitor Red Hat’s Linux-based products (known as freeware or open source software, which costs significantly less than Microsoft’s products.)

Bill Gates, in negotiating with the Chinese government to make its market more open to Microsoft, had to concede investing significant dollars in building research & development centers in China’s major tier one and tier two cities. In this choice, he is trading off short-term market “loss-leaders” in hopes of long-term market gains. For a long-range decision-making framework such as the Communist Chinese government’s model, it gains in having R&D centers built for free, its “children” (citizens) gaining valuable experience and exposure to intellectual property for free, and extra time to make other market-protecting moves for its economy.

National Wealth Is More Likely Than Not To Cause Individualism?

Bill Gates’ view is held by many American IT firms: Speech restrictions in China are likely to relax given the enormous wealth being created across China; wealth will lead to individualism (rather than increased individualism will lead to increased wealth).

Hofstede hypothesized that the increase in individualism was explained by the increase in national wealth, and showed a statistical relationship between individualism and national wealth; where the arrow of causality pointed from wealth to individualism: countries became more individualist after they increased in wealth, not wealthier by becoming more individualist first. He saw the causation as increasing wealth leading to increased individualism rather than increasing individualism leading to increased wealth. Hofstede posits, we need to fight poverty if we want to promote human rights/individualism, rather than promote individualism/human rights as a way of fighting poverty.

Low Individualism (IDV) ranking in China

According to Hofstede’s cultural dimensions, the Chinese rank lower than any other Asian country in the Individualism (IDV) ranking, at 20 compared to an average of 24. This is attributed in large part to the high level of emphasis on a Collectivist society by the CCP. (Hofstede, 2005) The low Individualism ranking is manifest in Chinese people valuing membership in a close and committed “group,” be that a family, extended family, or extended relationships, more than self-expression or self-actualization. Loyalty in a collectivist culture is paramount. The society fosters strong relationships where everyone takes responsibility for fellow members of their group.

From Confucian to Communist rule

Cultural values are relatively stable, but can change over the course of generations from contact with other cultures. China provides an example of changing cultural values resulting from internal political change. The CCP founded the People’s Republic of China in 1949 and brought political change greatly affecting traditional religious and Confucian values. After nearly 60 years of transferring from Confucianism to Communism, Chinese society enters the global economic stage, suddenly bombarded with diversified foreign cultures and expectations of multinational corporations who bring foreign direct investment (FDI); contributing to the continuing evolution of Chinese cultural values. Gates and other MNC leaders think the CCP should follow the “American’s way” to create national wealth. The CCP fears loss of control over the Chinese people if individualism is permitted to grow; but it also needs FDI to support the growth of China. In negotiations, it takes the position that China’s market is self-sustaining, and if the MNC wants access, it must adapt to the CCP’s demands.

Is the formula of “Free speech = high individualism = national wealth” proveable?

From Hofstede’s perspective, it is seen that high individualism and the associated rights such as free speech are not causes of national wealth. However, they are still key factors to attracting FDI which leads to the development of national wealth and GDP per capita.

Foreign direct investors, like Microsoft, must balance their expectations of the CCP, which has other concerns aside from free speech. For example, China’s rapid movement from an agrarian nation to one of multiple huge urban manufacturing centers has created a migrant peasant population, hundreds of millions large, seeking work in the cities. The CCP must control media coverage and advertising of factories opening or hiring, because migrant peasants would descend upon factories, becoming mobs demanding employment. The CCP must also protect the interests of the minority urban population whose affluence has attracted the resentment of the huge rural population; private property owners fear another radical populist social revolution. On this giant landmass of 1.3 billion disparate subcultures of people, the social justification for political authoritarianism is deeply entrenched.

Free Speech Rights vs Rights to Development: Cultural Relativism?

As more companies expand into “closed” market economies, the position they take on censorship, human rights, and other politically charged areas is increasingly complex. Microsoft grappled with the issue of what is held close to the hearts of Americans: freedom of speech and lack of censorship. The CCP on the other spectrum, holds close to their hearts the need for censorship, and has many government regulatory offices to keep the Chinese public closed from politically charged information. The overarching question is: which approach is more ethical, or is this actually a case of cultural relativism?

For some groups, Microsoft has violated an ethical value held close to highly individualistic Western societies: that of restricting freedom; whether freedom of speech, access to information, or political choices. Microsoft recently addressed U.S. Congress regarding its deal “acquiescing” to the CCP. In his speech, Krumholtz indicated that “Microsoft believes that issues of Internet content and customer security go to the heart of our values as a company” (Microsoft Congressional Testimony, 2006). Krumholtz also stated, “...A difficult judgment of risks and benefits of these powerful technologies [exist], not just in China, but in a wide range of societies where cultural and political values may clash with [American] standards of openness and free expression” (Microsoft Congressional Testimony, 2006). It is seen as a violation of what America stands for, as well as contradicting the United Nations Agreements on Human Rights.

Hofstede’s research revealed that there is a relationship between economic growth and a shift toward individualism. Having said this, Cetron and Davis (2006) indicate in their article, “The Dragon versus the Tiger: China and India Reshape the Global Economy,” that China’s economic growth is one of the fastest growing economies, despite being communist (India’s government is a democracy. They point out, Western hackers are working on developing software to counter the censorship filters, and suggest, “…The outside world may break through the Great Firewall of China sooner than Beijing would like". The introduction of the internet and the technology which runs this medium makes it difficult for censoring at all levels which is perhaps where the Chinese Government feels that if companies like Microsoft, Google and others sign off on their policies to limit search power, blogging, access to “politically charged” information, etc that they will be able to control. In “Despite Web Crackdown, Prevailing Winds are Free,” Guo Liang observes, “The internet is open technology, based on packet switching and open systems, and is totally different from traditional media, like radio or TV or newspaper." The article goes on to say this is a censors’ nightmare as it is not possible to monitor all the possibilities. Therefore, Microsoft’s agreeing to the CCP’s demands isn’t as limiting as it would appear.

The use of this form of technology has great potential to provide the much loved ideal of freedom of speech in the Westerners perspective. It also gives some security to those using this medium of “protection” from being found out by the Chinese regulatory agents. In a culture which ranks high on the uncertainty avoidance scale, this would suggest that the risk of searching and blogging would be low and a greater willingness for Chinese citizen’s use of these tools.

Krumholtz’ Congressional Testimony (2006) indicates, this type of technology is creating a more open and transparent approach. Krumholtz quoting from Bill Gates, “You may be able to take a very visible Web site and say that something shouldn’t be there, but if there is a desire by the population to know something, it is going to get out.”

Ethical Relativism

The ethical relativism perspective to this question accepts that both the American cultural approach and the CCP cultural approach are correct in their own ways. It is hard to suggest that one is of greater importance then the other. Does this then suggest it is cultural relativism? By Lund’s (1998) definition, “This [cultural relativism] means that every culture has an equal right to be different, distinct and unique”; and in her article “Development and Rights,” she clarifies that a synergy between universalism and cultural relativism, is the ideal to be sought – neither approach is absolutist.

Where do we go from here? Alder’s approach looks at ethical decision-making process in stages: problem recognition, information search, construction of alternatives, choice, and implementation. Microsoft and Gates may have gone through a similar process, leading to their decision to acquiesce to the CCP. We may infer some of this from the Congressional Testimony presented by Krumholtz.

The first question focused on describing American cultural briefs & values, they mainly revolved around the individualist culture. Maslow explained that there were five needs that had to be satisfied. They are physiological, safety, self-actualization and esteem. The essential one of the needs is self-actualization. This is used by Americans much more so than in foreign countries like China.

The second question focused on the degree of government control over economic forces. Per Hofstede, China rates the highest of Asian cultures on the collectivist side, where the people are not likely to seek self-actualization since it is a lesser priority. China is becoming an economic power but still is one of the poorest countries of the world, and until per capita GDP increases for more of the poor in China, its culture and government will continue to be strongly collectivist, forcing American companies to make concessions in order to gain market growth in China

The third question considered whether individualism leads to wealth or wealth leads to individualism, and which is “better” or “more ethical.” It is considered here that cultural relativism is the best approach for American firms in China,

The fourth question focused on ethical issues between free speech rights of the individual versus development rights of the community. This review is concluding that Gates’ negotiations with China were more expedient in achieving all objectives: by extending his short-term view to a long-term view corresponding with the Chinese culture’s long-term view, acceding his more prototypical American business culture values of speed and market dominance, as well as the American sociocultural emphasis upon free speech human rights and high individualism; Gates was able to achieve market entre and cooperation with the CCP’s many agencies. This review also concludes that Gates’ negotiations with China will lead to greater access to information (despite current censorship levied by the CCP), contributing to increased wealth of the Chinese people (more information leads to more self-actualization and perhaps increased entrepreneurship), and drive movement towards increased individualism and associated human rights (by Western cultural ideals) such as free speech.