chapter copyright© 2007 thomson learning all rights reserved 3 the institutional context of...

Chapter

Copyright© 2007 Thomson Learning All rights reserved

3The Institutional Context of Multinational Management

Copyright© 2007 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

• Define social institutions and understand the basic forms of social institutions

• Understand how social institutions influence both people and organization

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

• Understand the influence of the institutional context of countries

• Define social institutions and understand the basic forms of social institutions

• Understand how social institutions influence both people and organization


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 social inequality and its implications for multinationals

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

• Understand social inequality and its implications for multinationals

• 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


National Context

• Made up of the respective national cultures and social institutions of any society

• National cultures of any society shape the important norms, values, and beliefs in any society

• Made up of the respective national cultures and social institutions of any society

• National cultures of any society shape the important norms, values, and beliefs in any society


Exhibit 3.1: A Model the National Context


Social Institutions

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

• Three key social institutions• The economic systems• The level of industrialization• The religions

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

• Three key social institutions• The economic systems• The level of industrialization• The religions


Social Institutions and Influence on Society

• Regulative social institution: constrains behaviors through rules

• Cognitive dimension: widely shared knowledge regarding how things are done

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

• Regulative social institution: constrains behaviors through rules

• Cognitive dimension: widely shared knowledge regarding how things are done

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


Social Institutions and Influence on Organizations

• Social institutions affect organizations as well as individuals

• Help define what are legitimate and correct management practices in a society

• Organizations are pressured to follow similar paths• Organizational isomorphism: pressure to follow similar

paths in management practices

• Social institutions affect organizations as well as individuals

• Help define what are legitimate and correct management practices in a society

• Organizations are pressured to follow similar paths• 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 these activities to make profits

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

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

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

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

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


Economic Systems: Index of Economy Freedom

• The absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself

• The index includes 10 indicators ranging from trade policy, taxation policies, and the level of governmental intervention in the economy to property rights and regulation

• The absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself

• The index includes 10 indicators ranging from trade policy, taxation policies, and the level of governmental intervention in the economy to property rights and regulation


Exhibit 3.2: Selected Top and Bottom 10 Countries on Index of Economic Freedom


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

• Multinationals should also 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

• 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

• Multinationals should also 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


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• Postindustrial

• How production is organized and distributed in society• Types

• Pre-industrial• Industrial• Postindustrial


Industrialization

• Pre-industrial society: agriculture dominates the economic environment

• Industrial society: dominance of the secondary or manufacturing sectors

• Postindustrial society: emphasis on the service sectors

• Pre-industrial society: agriculture dominates the economic environment

• Industrial society: dominance of the secondary or manufacturing sectors

• Postindustrial society: emphasis on the service sectors


Exhibit 3.4: Selected countries and the distribution of employment by primary, secondary and tertiary 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

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

achievement• People more likely to espouse individual expression

values and movement toward more humane societies

• Post-materialist values

• Pre-industrial countries provide cheap labor and untapped markets

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

achievement• People more likely to espouse individual expression

values and movement toward more humane societies

• Post-materialist values


Exhibit 3.6: Post-Materialist scores of selected countries


Religion

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

• Forms the very 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 very 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• 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• 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 religion• 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 religion• Muslims live according to Islamic laws or Shari’ah• Based on five pillars


Islam

• 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

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

Hindus• Caste system is also very pervasive • Need to be aware of caste system• Ex: Lower caste supervising higher caste can be a

problem

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

Hindus• Caste system is also very pervasive • Need to be aware of caste system• Ex: 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

• Implications for multinationals• Encourage hard working – laziness is seen as

negative• Emphasizes teamwork – all beings are

interconnected• Emphasis on compassion and love

• Implications for multinationals• Encourage hard working – 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 to 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 to needed to accommodate religion


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


Education

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

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

professionals

• Education: organized networks of socialization experiences which 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 skills 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• Also look at other scores

• Gives an idea of the skills 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• Also look at other scores


Exhibit 3.9: Educational Attainment Scores for Selected Countries


Exhibit 3.10: Mathematics Scores for top 10 countries


Exhibit 3.10: Science Scores for the Top 10 countries


Social Inequality

• Refers to the degree to which people have privileged access to resources and positions within societies

• In societies that have high social inequality, a few individuals have the ability to control and use important resources as sources of control

• Refers to the degree to which people have privileged access to resources and positions within societies

• In societies that have high social inequality, a few individuals have the ability to control and use important resources as sources of control


Social Inequality: Implications

• Multinational companies are facing significant criticisms for their operations in countries with high social inequalities

• Many multinational companies are realizing that it is sometimes in their interest to be more socially responsible to mitigate social inequalities

• Many multinational companies now actively avoid countries with high inequalities to prevent potential negative publicity

• Multinational companies are facing significant criticisms for their operations in countries with high social inequalities

• Many multinational companies are realizing that it is sometimes in their interest to be more socially responsible to mitigate social inequalities

• Many multinational companies now actively avoid countries with high inequalities to prevent potential negative publicity


Social Inequality: Implications

• Multinational companies can consider the GINI index as an indicator of the degree of social inequality

• Multinational companies can consider the GINI index as an indicator of the degree of social inequality


Exhibit 3.12: The GINI Index for Selected Countries


The National Context and International Management

• Social institutions are key aspects of understanding the business environment in any country

• Social institutions shape norms, values, and beliefs that determine acceptable and unacceptable business practices

• Social institutions are key aspects of understanding the business environment in any country

• Social institutions shape norms, values, and beliefs that determine acceptable and unacceptable business practices


The National Context and International Management: Conclusion

• The national context • Has significant influence on a company’s strategy• Determines the comparative advantage of nations,

which ultimately determines which strategies multinational companies choose

• The national context • Has significant influence on a company’s strategy• Determines the comparative advantage of nations,

which ultimately determines which strategies multinational companies choose



• The national context • Also determines the global platform, namely the

areas of business that can be performed the best in a country

• Plays an important role in the human aspect of international management

• Is a determinant of the nature of the relationship between workers and their superiors

• The national context • Also determines the global platform, namely the

areas of business that can be performed the best in a country

• Plays an important role in the human aspect of international management

• Is a determinant of the nature of the relationship between workers and their superiors



• The national context • Determines how people view work and sets the

state for motivation in an international context• Influences how multinational companies approach

human resource management policies• An important influence on how organizations are

designed

• The national context • Determines how people view work and sets the

state for motivation in an international context• Influences how multinational companies approach

human resource management policies• An important influence on how organizations are

designed

chapter copyright© 2007 thomson learning all rights reserved 3 the institutional context of...

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national context slide

key social institutions

society national cultures

social inequality

respective national

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important norms

organization slide