Institution-Based View of Internationalization
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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

    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</p> Signup and view all the answers

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

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

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

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

    Informal institutions are always codified and written down.

    <p>False</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.</p> Signup and view all the answers

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

    <p>False</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.</p> Signup and view all the answers

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

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

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

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

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

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

    What causes rent-seeking behavior in polarized societies?

    <p>Absence of formal institutions</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</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</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

    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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