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

LECTURE 2. INSTITUTION- BASED VIEW OF INTERNATIONALIZATION YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  AGENDA ​1. W...

LECTURE 2. INSTITUTION- BASED VIEW OF INTERNATIONALIZATION YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  AGENDA ​1. What are institutions ​2. Formal and informal institutions ​3. Discussion ​4. Institutions in developing countries YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY This Photo by Unknown Author is licensed under CC BY-SA WHY CARE ABOUT INSTITUTIONS IN GLOBAL BUSINESS? This Photo by Unknown Author is licensed under CC BY-NC  INSTITUTIONS ​Institutions are humanly devised constraints that shape human interaction, providing stability and meaning to social life Their main purpose is to reduce uncertainty in life YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  TYPES OF INSTITUTIONS Formal (codified) Informal (not codified) Douglas North (economist) Regulatory Normative Cultural-cognitive Richard Scott (sociologist) YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  LEGITIMACY ​Legitimacy is a generalized perception that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions. Firms conform to Firms obtain Firms institutions institutional legitimacy survive pressures YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  INSTITUTIONAL PRESSURE Firms that are exposed to the same institutional pressures are likely to adopt similar practices and strategies and gain legitimacy from the stakeholders through this process. In other words, firms want to conform to the institutional pressures in order to obtain legitimacy from the stakeholders in the given institutional environment. Institutional pressures on the firm YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  NON-CONFORMITY TO INSTITUTIONAL PRESSURES AND FAILURE IN FOREIGN MARKETS Specific reasons The underlying reason of that contributed to failure: failure: Canadian nationalism and hockey-inspired firms did not conform to informal Tim Hortons in the brand did not institutions in the host market; USA resonate with US In other words, firms did not obtain customers legitimacy based on the cultural- Smiling to customers cognitive pillar Walmart in Germany at the entrance was strange for German customers YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  LOF AND LEGITIMACY Legitimacy Liability of foreignness YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  FIRM-FOCUSED VIEW OF THE INSTITUTION-BASED VIEW Formal institutions Legitimate ways of Firm strategy ? doing Informal business institutions A firm’s survival and growth depends on how legitimate its strategy and practices are in the given institutional framework YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  A LINK BETWEEN FORMAL AND INFORMAL INSTITUTIONS Informal Formal institutions institutions Source: Peng, M., & Meyer, K. 2016. International Business. Chapter 2. Formal institutions: Political, economic and legal systems. Cengage Learning., p. 35 YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  CULTURE: KEY INFORMAL INSTITUTION ​Culture – a way of life of a group of people, the configuration of all the more or less stereotypical patterns of learned behavior, which are handed down from one generation to the next through means of language and imitation. Peng, M., & Meyer, K. (2016). International Business. Chapter 2. Formal institutions: Political, economic and legal systems. Cengage Learning., p. 60 GEERT HOFSTEDE’S DIMENSIONS OF CULTURE Cultural dimension Meaning Power distance High power distance means members in a society accept and expect that power is distributed unequally Individualism/ Collectivism means preference for tightly-knit framework in a collectivism society where individuals belong to groups with particularistic values Masculinity/femininity Masculinity represents preference in a society for achievement, assertiveness and material rewards of success Uncertainty avoidance High uncertainty avoidance means members in a society are DEPARTMENT OF MANAGEMENT uncomfortable with uncertainty and ambiguity, thus requiring rigid 4 SEPTEMBER 2024 YULIA MURATOVA ASSOCIATE PROFESSOR CheckAARHUS codes of out www.hofstede-insights.com UNIVERSITY forbehavior more information  HOW CAN CULTURE RELATE TO INTERNATIONALIZATION? ​1. What are the implications of high uncertainty avoidance in the home market for internationalization of firms from that market? ​(e.g., in terms of likelihood of going global and factors of location choice?) ​2. High collectivism in a host market: Is it easier or more difficult for foreign firms to operate in that type of a host market? YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  SUBNATIONAL INSTITUTIONAL DIFFERENCES Source: Musolino, D. 2018. The North-South Divide in Italy: Reality or Perception? European Spatial Research and Policy, 25(1): 29-53. https://czasopisma.uni.lodz.pl/esrap/article/view/3278/2873 YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY THE DANGER OF IGNORANCE https://ourworldindata.org/trust “Polarized societies will be prone to competitive rent-seeking that impedes agreement about the provision of public goods and that creates positive incentives for growth-reducing policies” Source: Luiz, J.M. 2015. The impact of ethno-linguistic fractionalization on cultural measures: Dynamics, endogeneity and modernization. Journal of International Business Studies, 46: 1080-1098. https://www.worldatlas.com/articles/most-ethnically-diverse-countries-in-the-wor  WHAT CAUSES TROUBLE (MOSTLY) IN DEVELOPING COUNTRIES-1: Absence, weakness of or contradiction between formal institutions (institutional voids) These voids can be:  substituted by informal institutions  any change of the current status quo is resisted by parties benefiting from the voids  filled in by new rules and regulations (which can be triggered by foreign firms) YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  Source: Davies, R., McNabb, K., Namunane, S., Palansky, M. 2024. How firms find new ways to evade taxes: Evidence from cargo scanners in Uganda. https://www.theigc.org/blogs/taxing-effectively/how-firms-find-new-ways-evade-taxes-evidence-cargo-scanners-uganda YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  WHAT CAUSES TROUBLE (MOSTLY) IN DEVELOPING COUNTRIES-2: Misalignment among institutions (institutional pillars) Formal (codified) Informal (not codified) Regulatory Normative Cultural-cognitive YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  TECH FIRMS IN INDIA CASE Why did it take a while for the foreign tech firms to realize that they need to take the demand for censoring their content seriously? To answer this question, consider institutional voids and misalignment between formal and informal institutions in the country. YULIA MURATOVA 4 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY DEPARTMENT OF MANAGEMENT A ARHUS UNIVERSITY