Lecture 3: Comparative & Cross-Cultural Management

Comparative & Cross-Cultural Management 3: Institutions Dr. Gerwin van der Laan Plan for Today Questions from you Bonus test Institutions Transaction Cost (~ International Business) approach Comparative Capitalisms approach Connecting the approaches Bonus test Bonus test Go to...

Comparative & Cross-Cultural Management 3: Institutions Dr. Gerwin van der Laan Plan for Today Questions from you Bonus test Institutions Transaction Cost (~ International Business) approach Comparative Capitalisms approach Connecting the approaches Bonus test Bonus test Go to canvas and take the quiz Only works when I opened it 10 questions, multiple choice (order of questions and answers is randomized) 8 minutes, approximately No talking Remain quiet until announced otherwise Even after you have finished Talking about the quiz is fraud & talking about something else is annoying Institutions Link from MNEs to institutions Some stakeholder needs are formal rules Labour laws (employees), product standards (consumers), taxation (government) Some needs are informal (cognitive-cultural-normative) Expectations w.r.t. treatment at work (employees), metaphors/symbols recognized in marketing campaigns (consumers), corruption (government) Together, these ‘social structures’ that are ‘resilient’ and ‘produce stability’ are called institutions. Complying with these needs enhances firm legitimacy. Cultural-cognitive-normative vs regulative elements Cultural-cognitive- Regulative normative Examples Norms, symbols Laws, rules, contracts Origins & change Evolving through repeated Rational choice interactions (naturalistic) Compliance perspective Avoid guilt, belong to a Sanctions, cost-benefit group, taken for granted analysis Focus in research Process Property Link from MNEs to institutions Multinational Enterprises are active in multiple countries They also need to balance stakeholder needs between countries What is legitimate in one country, is not in another The ‘distance’ between the home and the host economies matters Institutions provide resources (not only constraints) Institutions in International Business  Transaction Cost Economics Oliver Williamson Different organizational ‘forms’; each with transaction costs (TC) Market vs. hierarchy (=integrated firm) Export vs. horizontal MNE Joint venture / long term contract / … vs. vertical MNE Rational actors pick most efficient solution Transaction costs Search costs Cost of finding a supplier/distributor Negotiation/contracting cost Negotiating with a partner, legal cost involved in drafting agreements, thinking through what risk you want covered Enforcement cost Checking whether you get what you are entitled to and taking (legal) action when this is not the case  Graphical comparison Transaction costs Market Hierarchy Asset specificity Complexity Uncertainty  Effect of institutions Key institutional domains Finance Labor relations Educational systems Inter-company relations But also Legal system (clear/strong rules / enforcement / corruption) Political system (stable / role of state) Graphical analysis: institutional change Transaction costs Market Hierarchy Courts more reliable Negotiating simpler due to IT Spot finance easier to secure Complexity Governance mode changes  Intermediate conclusions Institutional context affects the slope and position of TC curves MNEs choose those countries where costs are lowest, given complexity What needs to be vertically integrated at home, may be feasibly outsourced abroad Institutional change affects business decisions One or more curves move Inflection point of curves changes (and hence firm strategies)  Characteristics of TCE/IB approach Focus is on single institutions Rational choice of actors among alternative host economies Fit of firm with institutional environment determines success Institutions are given Distance  Distance concept The more ‘distant’ a host economy, the higher the cost of transacting there Distance: cultural, administrative/political, geographical, economic (CAGE) Argument: routines/practices at home work less well depending on distance Methodological question: distance or profile effect?  Distance vs Profile Example: Corruption Perception Index Denmark (90) Netherlands (79) USA (69) Botswana (59) Greece (49) Many equidistant countries Effect on transaction cost the same? Is it distance or country profile that affects transaction costs? Most research focuses on the US Institutions in Comparative Capitalisms  Characteristics of CC approach Institutions are interdependent and complementary Institutions affect the identity and incentives of actors and hence their strategies/resources. Firms are coalitions of actors. Comparative institutional advantage derives from social structures which support specific economic activities Institutional change is path dependent  Configurations: LME vs CME “Systematically, interdependent configurations” (Aoki) Hall & Soskice Liberal Market Coordinated Market Economy Economy Source of finance Short-term, market Long-term, industrial Labor relations Deregulated Coordinated, employee protection Inter-company relations Competitive Cooperative Education/training General education Vocational/firm-specific Role of State Minimalist, market Directed to achieve regulators developmental or social goals  Germany Example of CME Cross-ownership (firms own shares in other firms; banks lend for the long term) Cooperative relationships between employees and employers (e.g. codetermination) Government supports industry through national funds (green steel), cheap energy and easy access to foreign markets Current threat Courts ruled against a specific form of government support Industrial relations erode and firms start to cut costs Concluding  Both perspectives make sense Whether perspective on individual institutions or configurations… …actors assumed ‘exogenous’ or affected by institutions… …firms seen as rational black boxes or coalitions… …institutions seen as constraints or also as enablers… Institutions have an impact on firm internationalization Module 2: how do firms (internationalization) strategies hinge on culture and (other) institutions?  Thank you! Next week: tutorials Hang around if you have a question. Otherwise: o u ! y ek e e e S tw e x n Thank you!