Institution-Based View of Internationalization
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Questions and Answers

What determines a firm's survival and growth according to the institutional framework?

  • Size of the firm
  • Market competition
  • Its products quality
  • The legitimacy of its strategy and practices (correct)

Culture is a key informal institution that influences behavior patterns passed down through generations.

True (A)

What are the two types of institutions mentioned?

Formal and informal institutions

A firm's strategy must align with the __________ framework to ensure its legitimacy.

<p>institutional</p> Signup and view all the answers

Match the type of institution with its description.

<p>Informal institutions = Handed down through language and imitation Formal institutions = Political, economic, and legal systems Culture = Configuration of stereotypical patterns of behavior Strategy = Plan to achieve business objectives</p> Signup and view all the answers

What primarily causes trouble in developing countries according to the content?

<p>Misalignment among institutions (C)</p> Signup and view all the answers

Regulatory institutions are always aligned with cultural-cognitive institutions in developing countries.

<p>False (B)</p> Signup and view all the answers

What issue did foreign tech firms in India face regarding content censorship?

<p>They initially did not take the demand for censoring their content seriously due to institutional voids.</p> Signup and view all the answers

The two types of institutions that can misalign in developing countries are __________ and __________.

<p>formal, informal</p> Signup and view all the answers

Match the types of institutions with their definitions:

<p>Regulatory = Codified rules and laws Normative = Social norms and values Cultural-cognitive = Shared beliefs and understandings Informal = Non-codified practices and customs</p> Signup and view all the answers

What is the main purpose of institutions?

<p>To reduce uncertainty in life (C)</p> Signup and view all the answers

Legitimacy refers to a perception that actions are undesirable within a constructed system of norms.

<p>False (B)</p> Signup and view all the answers

Name the two main types of institutions mentioned.

<p>Formal and informal institutions</p> Signup and view all the answers

Institutions provide _____ and meaning to social life.

<p>stability</p> Signup and view all the answers

Which of the following is classified as a formal institution?

<p>Laws and regulations (C)</p> Signup and view all the answers

Informal institutions are always codified and written down.

<p>False (B)</p> Signup and view all the answers

Match the following types of institutions with their corresponding characteristics:

<p>Regulatory = Formal constraints such as laws Normative = Social obligations and values Cultural-cognitive = Shared beliefs and meanings</p> Signup and view all the answers

Who is associated with the concept of institutions as humanly devised constraints?

<p>Douglas North</p> Signup and view all the answers

What does high power distance in a society imply?

<p>Members accept and expect unequal distribution of power. (D)</p> Signup and view all the answers

Collectivism emphasizes a strong preference for the individual over the group.

<p>False (B)</p> Signup and view all the answers

What societal feature is represented by masculinity in Hofstede's dimensions?

<p>Achievement and assertiveness</p> Signup and view all the answers

High uncertainty avoidance means members in a society are uncomfortable with ________ and ________.

<p>uncertainty, ambiguity</p> Signup and view all the answers

Match the cultural dimension with its meaning:

<p>Power distance = Acceptance of unequal power distribution Individualism = Preference for individual over group Masculinity = Preference for achievement and material success Uncertainty avoidance = Discomfort with uncertainty and ambiguity</p> Signup and view all the answers

Which of the following is a characteristic of high collectivism in a host market?

<p>Need for foreign firms to integrate with local groups. (A)</p> Signup and view all the answers

In high uncertainty avoidance cultures, firms are more likely to expand globally.

<p>False (B)</p> Signup and view all the answers

What is a potential challenge for foreign firms in a highly collectivistic host market?

<p>Integration into local community and group dynamics</p> Signup and view all the answers

Why do firms conform to institutional pressures?

<p>To obtain legitimacy from stakeholders (C)</p> Signup and view all the answers

Non-conformity to institutional pressures may lead to success in foreign markets.

<p>False (B)</p> Signup and view all the answers

What pillar must firms obtain legitimacy from in a foreign market?

<p>Cultural-cognitive pillar</p> Signup and view all the answers

Walmart's strategy in Germany included _______ at the entrance, which was strange for customers.

<p>smiling</p> Signup and view all the answers

Match the firm with its failure reason in foreign markets:

<p>Tim Hortons = Canadian brand did not resonate with US customers Walmart = Entrance greeting was strange for German customers</p> Signup and view all the answers

What is the liability of foreignness?

<p>The disadvantage faced by firms when entering foreign markets (B)</p> Signup and view all the answers

All firms are likely to gain legitimacy in foreign markets simply by offering low prices.

<p>False (B)</p> Signup and view all the answers

What causes rent-seeking behavior in polarized societies?

<p>Absence of formal institutions (C)</p> Signup and view all the answers

What resulted from Tim Hortons not conforming to local cultural expectations in the US?

<p>Failure to resonate with US customers</p> Signup and view all the answers

According to the institutional-based view, _______ results from conforming to institutional norms.

<p>legitimacy</p> Signup and view all the answers

Informal institutions can help fill the void created by the absence of formal institutions.

<p>True (A)</p> Signup and view all the answers

What is a key factor that resists change in the presence of institutional voids?

<p>Parties benefiting from the voids</p> Signup and view all the answers

Which of the following is a strategy firms often use to gain legitimacy?

<p>Adopting similar practices as local competitors (C)</p> Signup and view all the answers

The presence of institutional voids can create _____ incentives for growth-reducing policies.

<p>positive</p> Signup and view all the answers

Match the following concepts with their descriptions:

<p>Institutional voids = Weakness of formal institutions Rent-seeking = Competition for resources without productive contribution Informal institutions = Unwritten rules guiding behavior Growth-reducing policies = Regulations that hinder economic development</p> Signup and view all the answers

Flashcards

What are institutions?

Institutions are rules, norms, and practices that govern human interactions and provide stability to society.

Formal institutions

Formal institutions are codified rules and regulations enforced by legal systems, such as laws, contracts, property rights, and government policies.

Informal institutions

Informal institutions are unwritten norms, customs, values, beliefs, and traditions that guide behavior, such as ethical codes, social conventions, and religious doctrines.

Regulatory institutions

Regulatory institutions define and enforce rules to regulate economic activity, such as licensing, competition policies, and environmental regulations.

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Normative institutions

Normative institutions establish standards and expectations for appropriate behavior, such as professional codes of conduct, industry standards, and ethical guidelines.

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Cultural-cognitive institutions

Cultural-cognitive institutions shape individual beliefs, values, and cognitive frameworks, such as educational systems, religious beliefs, and cultural norms.

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Legitimacy of institutions

Legitimacy is the general perception that actions of an entity are acceptable and appropriate within the existing norms, values, and beliefs of society.

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Importance of institutions in global business

Institutions provide stability, predictability, and a framework for economic activities, facilitating global business by reducing uncertainty and risk.

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Legitimacy of Strategy

The extent to which a company's actions and strategies are aligned with the formal and informal institutions of the environment in which it operates.

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Survival and Growth of Firms

A company's ability to thrive and expand in a market depends on how well its actions align with both formal and informal institutions.

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Culture as an Informal Institution

Cultural norms, values, and traditions act as an informal institution that shapes behavior and influences business practices.

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Power Distance

The degree to which less powerful members of a society accept and expect inequality in power distribution.

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Individualism vs. Collectivism

Individualism prioritizes individual goals and needs, while collectivism emphasizes group harmony and loyalty.

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Masculinity vs. Femininity

Masculinity values assertiveness, competition, and achievement, while femininity emphasizes cooperation, quality of life, and relationships.

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Uncertainty Avoidance

The level of tolerance for uncertainty and ambiguity in a society. Higher uncertainty avoidance means a strong preference for rules and clear structures.

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High Uncertainty Avoidance and Internationalization

Firms from societies with high uncertainty avoidance may be less likely to internationalize, as they prefer predictable environments and established structures.

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High Collectivism and Foreign Firms

Foreign firms may find it easier to operate in a host market with high collectivism, as group harmony and trust can facilitate business relationships.

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Impact of Subnational Institutional Differences

Subnational institutions, like regional or provincial governments, can create distinct challenges and opportunities for firms, influencing their strategies and operations.

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Institutional Voids

These are gaps or weaknesses in the formal rules and laws that govern economic activity in a country.

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Why do Voids Resist Change?

When there are institutional voids, individuals and groups who benefit from the existing system will often resist any changes that could disrupt their advantages.

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Foreign Firms and Voids

Foreign companies entering a country with institutional voids can sometimes create new rules and regulations to better regulate their own business activities.

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The Danger of Ignorance

The lack of information or understanding about institutional voids can lead to ineffective economic policies and hinder development.

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Institutional Pillars

Different types of institutions that shape society, including formal (codified) rules and informal (unwritten) norms and beliefs.

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Misalignment of Institutions

When different types of institutions (formal and informal) don't work together harmoniously, leading to conflicts and inefficiencies.

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Institutional Pressures

Forces that influence firms to adopt similar practices and strategies, often driven by regulations, norms, and cultural expectations within a specific environment.

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Legitimacy

The perception that a firm's actions are acceptable and appropriate within the given institutional environment, building trust and approval from stakeholders.

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Liability of Foreignness

The inherent disadvantage faced by foreign firms operating in a new market due to a lack of familiarity with local institutions, norms, and culture.

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Conformity to Institutional Pressures

Adjusting business practices and strategies to meet expectations set by formal and informal institutions in a specific environment, seeking legitimacy and acceptance from stakeholders.

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Non-conformity to Institutional Pressures

Failing to align business practices and strategies with the expectations of local institutions, resulting in a lack of legitimacy, stakeholder disapproval, and potentially, failure in the market.

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Cultural-Cognitive Pillar

A dimension of institutional pressures that reflects the influence of shared beliefs, values, and cognitive frameworks within a society on business practices.

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Firm-Focused View of the Institution-Based View

An approach that focuses on how firms strategically respond to institutional pressures and adapt their practices to achieve legitimacy and success in a given environment.

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Legitimate Ways of Doing Business

Practices and strategies that conform to the expectations of both formal and informal institutions, ensuring acceptance and approval from stakeholders.

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Study Notes

Lecture 2: Institution-Based View of Internationalization

  • Lecture focused on the institution-based view of international business, exploring how institutions shape business behavior
  • Agenda included: defining institutions, differentiating formal and informal institutions, a discussion, and institutions in developing countries
  • A SWOT analysis was shown, along with Porter's Five Forces as an example of frameworks for understanding these factors
  • Images of multinational retail companies like Tesco, Walmart, and Carrefour were used to illustrate the topic of institutions in global business
  • Institutions are defined as humanly devised constraints that shape interactions, giving stability and meaning to social life
  • Their key purpose is reducing life's uncertainties
  • Two main types of institutions are distinguished: formal (codified) and informal (not codified)
  • Formal institutions include regulatory, normative, and cultural-cognitive pillars

Types of Institutions

  • Regulatory institutions are codified rules (regulations, laws, and other official documents)
  • Normative institutions comprise shared values and standards of behavior (norms and customs)
  • Cultural-cognitive institutions relate to shared interpretations and understandings of the world

Legitimacy

  • Legitimacy is a generalized perception that an entity's actions are desirable, proper, or appropriate
  • Firms conform to institutional pressures for legitimacy
  • Institutional pressure on firms stems from a range of stakeholders

Institutional Pressure

  • Firms exposed to similar pressures often adopt similar practices
  • Firms seek legitimacy from stakeholders in a given environment

Non-Conformity and Failure in Foreign Markets

  • Failure of firms in foreign markets can result from not conforming to informal institutions (such as cultural norms)
  • This includes a lack of cultural legitimacy in international markets

Liability of Foreignness

  • Foreign companies may face a liability of foreignness issue, meaning they lack legitimacy
  • The opposite of legitimacy is an opposing force known as the liability of foreignness (LOF).

Firm-Focused View

  • A firm's survival hinges on how legitimate its strategies and practices are within its institutional framework
  • Formal and informal institutions influence how firms approach business operations
  • Formal and informal institutions interact to govern firm behavior
  • Informal institutions are particularly influential if formal constraints are unclear

Culture as an Informal Institution

  • Culture is the configuration of stereotypical patterns of learned behaviors, passed down through generations
  • Geert Hofstede's dimensions of culture were introduced (power distance, individualism/collectivism, masculinity/femininity, uncertainty avoidance)

Culture and Internationalization

  • High uncertainty avoidance in a domestic market can affect internationalization strategies (in terms of likelihood of going global)
  • High collectivism in a host market can make internationalization of businesses easier or more complex.

Subnational Differences

  • Subnational differences exist within countries, affecting business dealings across areas

What Causes Trouble in Developing Countries?

  • Institutional voids (absence, weakness, or contradiction between formal institutions) are a significant problem within developing nations
  • Foreign firms can be subject to informal institutional pressures and resistance to changing established norms / status quo
  • Misalignment of formal and informal institutions (institutional pillars) also creates problems in developing nations (including misalignment between regulatory, normative, and cultural-cognitive types)
  • This issue was discussed using the example of tech firms in India

Case Study Examples

  • The struggles faced by foreign firms, like Tim Hortons in the U.S. and Walmart in Germany, highlight the difficulties in international markets because of a lack of legitimacy or cultural issues.
  • Further example: how firms in countries like Uganda find ways to evade taxes due to misalignment or weaknesses in regulations/institutions.

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Lecture 2: Institution-Based View of Internationalization (AARHUS University, 2024)

Description

This quiz explores the institution-based view of international business, focusing on how formal and informal institutions shape business behavior. It covers key frameworks such as SWOT analysis and Porter's Five Forces, along with practical examples from multinational companies. Test your knowledge on the roles of institutions in global commerce.

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