chapter copyright© 2004 thomson learning all rights reserved 3 the institutional context of...

Chapter

Copyright© 2004 Thomson Learning All rights reserved

3The Institutional Context of Multinational Management

Copyright© 2005 South-Western/Thomson Learning All rights reserved

Learning Objectives

• Understand the national context and how it affects the business environment

• Understand the influence of the institutional context of countries

• Understand how social institutions influence both people and organizations

• Understand the national context and how it affects the business environment

• Understand the influence of the institutional context of countries

• Understand how social institutions influence both people and organizations


Learning Objectives

• Understand the basic economic systems and influence on multinational operations

• Understand industrialization and implications for multinationals

• Understand the world’s basic religions• Develop an understanding of education

• Understand the basic economic systems and influence on multinational operations

• Understand industrialization and implications for multinationals

• Understand the world’s basic religions• Develop an understanding of education


Learning Objectives

• Understand the convergence perspective on organizations

• Understand the importance of the national context and its connection with other international management areas

• Understand the convergence perspective on organizations

• Understand the importance of the national context and its connection with other international management areas


Institutional Context

• Includes other elements besides national culture that can produce important differences

• Understanding the institutional context is therefore extremely important for better multinational management

• Includes other elements besides national culture that can produce important differences

• Understanding the institutional context is therefore extremely important for better multinational management


Social Institutions

• Complex of positions, roles, norms, and values organizing stable patterns of human resources to sustain important societal structures

• Three key social institutions• Economic systems• Level of industrialization• Religions

• Complex of positions, roles, norms, and values organizing stable patterns of human resources to sustain important societal structures

• Three key social institutions• Economic systems• Level of industrialization• Religions


Social Institutions and Influence on Society

• Regulative social institution: constrains behaviors through rules

• Cognitive social institution: widely shared knowledge regarding how things are done

• Normative social institution: values and norms promulgated by the social institution

• Regulative social institution: constrains behaviors through rules

• Cognitive social institution: widely shared knowledge regarding how things are done

• Normative social institution: values and norms promulgated by the social institution


Social Institutions and Influence on Organizations

• Organizational isomorphism: pressure to follow similar paths in management practices

• Organizational isomorphism: pressure to follow similar paths in management practices


Organizational Isomorphism

• Coercive isomorphism: forces that coerce organizations to adopt certain practices

• Mimetic isomorphism: organizations purposefully copy the strategies of the most successful organizations

• Normative isomorphism: conformance to professional and technical norms

• Coercive isomorphism: forces that coerce organizations to adopt certain practices

• Mimetic isomorphism: organizations purposefully copy the strategies of the most successful organizations

• Normative isomorphism: conformance to professional and technical norms


Economic Systems

• Economic systems: system of beliefs, activities, organizations, and relationships that provide the goods and services of a society

• Important implications based on• Type of economic systems• Market transitions• Privatization

• Economic systems: system of beliefs, activities, organizations, and relationships that provide the goods and services of a society

• Important implications based on• Type of economic systems• Market transitions• Privatization


Economic Systems

• Capitalist/market economy: production is decentralized to private owners • Owners perform activities to make profits

• Socialist/command economy: production resources are owned by the state • Production decisions centrally coordinated

• Mixed economy: combines aspects of capitalist and socialist economies• Ex., Sweden, France, Denmark, Italy, and India

• Capitalist/market economy: production is decentralized to private owners • Owners perform activities to make profits

• Socialist/command economy: production resources are owned by the state • Production decisions centrally coordinated

• Mixed economy: combines aspects of capitalist and socialist economies• Ex., Sweden, France, Denmark, Italy, and India


Economic Systems: Implications

• Decisions to operate in a country can be made based on the dominant economic type

• In mixed economies, multinationals should expect to subordinate its economic goals and respect social objectives.

• Decisions to operate in a country can be made based on the dominant economic type

• In mixed economies, multinationals should expect to subordinate its economic goals and respect social objectives.


Economic Systems: Implications (cont.)

• Multinationals should expect to develop more formal relations with the government in mixed economies.

• Index of economic freedom can be used to determine the extent of governmental intervention

• Multinationals should expect to develop more formal relations with the government in mixed economies.

• Index of economic freedom can be used to determine the extent of governmental intervention


Exhibit 3.2: Selected Country Scores on Index of Economic Freedom


Economic System: Market Transitions

• Changes societies experience as they move from socialism to a market-based economy

• Multinational implications• Need to turn around inefficient, formerly state-

owned companies to perform business functions• Motivational issues with workers

• Changes societies experience as they move from socialism to a market-based economy

• Multinational implications• Need to turn around inefficient, formerly state-

owned companies to perform business functions• Motivational issues with workers


Economic System: Privatization

• Privatization: transfer of state ownership to private individuals

• Implications• Significant opportunities to invest in companies • Opportunities to access new markets and cheap

labor

• Privatization: transfer of state ownership to private individuals

• Implications• Significant opportunities to invest in companies • Opportunities to access new markets and cheap

labor


Exhibit 3.3: Selected Countries and the Amount of Money Raised by Privatization


Industrialization

• How production is organized and distributed in society• Types

• Pre-industrial• Industrial• Post-industrial

• How production is organized and distributed in society• Types

• Pre-industrial• Industrial• Post-industrial


Industrialization

• Pre-industrial society: agriculture dominates the economic environment

• Industrial society: dominance of the secondary or manufacturing sectors

• Post-industrial society: emphasis on the service sectors

• Pre-industrial society: agriculture dominates the economic environment

• Industrial society: dominance of the secondary or manufacturing sectors

• Post-industrial society: emphasis on the service sectors


Exhibit 3.4: Distribution of Production Activities by Sectors


Implications of Industrialization

• Direct correspondence between industrialization and economic development• Industrial societies favor growth and innovation• Favorable environment for business• Industrial societies present significant market size

and growth

• Direct correspondence between industrialization and economic development• Industrial societies favor growth and innovation• Favorable environment for business• Industrial societies present significant market size

and growth


Industrialization

• Pre-industrial countries provide cheap labor and untapped markets

• Post-industrial societies• Emphasis on quality-of-life as opposed to economic

achievement

• Pre-industrial countries provide cheap labor and untapped markets

• Post-industrial societies• Emphasis on quality-of-life as opposed to economic

achievement


Exhibit 3.5: Materialist Scores of Selected Countries


Exhibit 3.6: Post-materialist Scores for Selected Countries


Religion

• Shared set of beliefs, activities, and institutions that have basis upon faith in supernatural forces

• Forms the foundation of human society• Provides individuals with guidelines to deal with issues• Christianity, Islam, Hinduism, and Buddhism are

followed by almost 71% of the world’s population

• Shared set of beliefs, activities, and institutions that have basis upon faith in supernatural forces

• Forms the foundation of human society• Provides individuals with guidelines to deal with issues• Christianity, Islam, Hinduism, and Buddhism are

followed by almost 71% of the world’s population


Exhibit 3.7: Distribution of Religions Around the World


Christianity

• Religion based on the life and teachings of Jesus• The most practiced religion around the world• Protestantism emphasizes wealth and hard work for

the glory of God• Ten commandments provides the basis for ethical

behaviors

• Religion based on the life and teachings of Jesus• The most practiced religion around the world• Protestantism emphasizes wealth and hard work for

the glory of God• Ten commandments provides the basis for ethical

behaviors


Islam

• Religion based on the submission to the will of Allah (God)

• The second largest of the world’s religions• Muslims live according to Islamic laws or Shari’ah• Based on five pillars

• Religion based on the submission to the will of Allah (God)

• The second largest of the world’s religions• Muslims live according to Islamic laws or Shari’ah• Based on five pillars


Islam (cont.)

• Implications for multinationals• Accommodate praying five times a day• The Ramadan: a month of fasting• Natural concern with social justice• Prohibits the payment or receipt of interest• Gender roles

• Implications for multinationals• Accommodate praying five times a day• The Ramadan: a month of fasting• Natural concern with social justice• Prohibits the payment or receipt of interest• Gender roles


Hinduism

• Acceptance of the ancient traditions of India that are based on the Vedic scriptures• Currently 760 million Hindus living around the world• Belief in reincarnation• The caste system• Ethical behaviors; respect for parents

• Acceptance of the ancient traditions of India that are based on the Vedic scriptures• Currently 760 million Hindus living around the world• Belief in reincarnation• The caste system• Ethical behaviors; respect for parents


Hinduism (cont.)

• Implications for multinationals• Spiritual achievement is an important value for most

Hindus• Caste system is very pervasive • Need to be aware of caste system, e.g.. lower caste

supervising higher caste can be a problem

• Implications for multinationals• Spiritual achievement is an important value for most

Hindus• Caste system is very pervasive • Need to be aware of caste system, e.g.. lower caste

supervising higher caste can be a problem


Buddhism

• Religious tradition that focuses on the reality of world suffering and the ways one can be freed from suffering

• Craving and desires produce suffering• Dominant religion in Asia

• Religious tradition that focuses on the reality of world suffering and the ways one can be freed from suffering

• Craving and desires produce suffering• Dominant religion in Asia


Buddhism (cont.)

• Implications for multinationals• Encourages hard work; laziness is seen as negative• Emphasizes teamwork; all beings are

interconnected• Emphasis on compassion and love

• Implications for multinationals• Encourages hard work; laziness is seen as negative• Emphasizes teamwork; all beings are

interconnected• Emphasis on compassion and love


Religiosity

• Indication of the importance of acceptance of the core philosophies of religion in one’s life

• Gives an idea of the degree of responsiveness needed to accommodate religion

• Indication of the importance of acceptance of the core philosophies of religion in one’s life

• Gives an idea of the degree of responsiveness needed to accommodate religion


Exhibit 3.8: Religiosity of Selected Countries from the World Values Survey


Education

• Education: organized networks of socialization experiences that prepare individuals to act in society

• Central element in organization of society• Helps construct competencies, professions, and

professionals

• Education: organized networks of socialization experiences that prepare individuals to act in society

• Central element in organization of society• Helps construct competencies, professions, and

professionals


Education: Implications

• Gives an idea of the skill level of workers in any society

• The more educated, the more skills workers have• Multinationals can look at educational attainment

scores to determine the nature of the workforce

• Gives an idea of the skill level of workers in any society

• The more educated, the more skills workers have• Multinationals can look at educational attainment

scores to determine the nature of the workforce


Exhibit 3.9: Educational Attainment Scores for a Selected Number of Countries


Exhibit 3.10: Mathematics Scores for Top 10 Countries


Exhibit 3.11: Science Scores for Top 10 Countries


Organizations Alike: Globalization and Convergence

• Globalization is pushing organizations to be more similar• Global customers and products• Growing levels of industrialization and economic

development• Global competition and global trade

• Globalization is pushing organizations to be more similar• Global customers and products• Growing levels of industrialization and economic

development• Global competition and global trade


Globalization and Convergence

• Other convergence forces• Cross-border mergers, acquisitions, and alliances• Cross-national mobility of managers• Internationalization of business education

• Other convergence forces• Cross-border mergers, acquisitions, and alliances• Cross-national mobility of managers• Internationalization of business education

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