frank mcdonald, jeremy clegg, martha o’hagen luff & nicolas li bam sig international business...

Symposium - Institutional Distance & Strategies of MNCs

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Institutional Distance & Strategies of MNCs

Frank McDonald, Jeremy Clegg, Martha O’Hagen Luff & Nicolas Li

BAM SIG International Business and International Management BAM Annual Conference Belfast 2014


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BackgroundInternational Business (IB) and International

Management (IM) research often consider the same or similar topics, but the theories and methodologies underpinning research are often different

This work considers this issue using as an example an important contemporary issue - the importance of institutional distance for MNC strategies

This work was sponsored by Academy of International Business , UK and Ireland Chapter and the British Academy of Management, Special Interest Group in International Business and International Management.


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Major Theories of Institutional DistanceTwo major macro approaches to the theoretical underpinning of institutional distance1. Old institutional theory and Variants of

Capitalism (National Business Systems) 2. New institutional theoryNew institutional economics (North)New institutional sociology (DiMaggio and

Powell)3. Scott’s Three pillars – Regulative,

Normative and Cognitive


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Old Institutional TheoryOld institutional theories tend to focus on how

formal institutional systems interact with economic forces to determine the ways economic transactions take place and their outcomes

Institutions are seen as constraining and shaping the behaviour of economic agents

Little on the sociological underpinning of institutions

Little on the processes whereby institutional systems affect the economic transactions by the interaction between agents, organizations and institutions


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New Institutional TheoryNew institutional economics and sociology focuses

on how formal and informal institutions set the ‘rules of the game’ that largely determine the major characteristics of the ways economic transactions take place

New institutional economics (NIE) focuses on the affect of institutional systems on transaction costs and risk and the subsequent implications for the efficiency of outcomes

New Institutional Sociology (NIS) focuses on the process of how institutional systems affect the ways of conducting economic transactions by interactions between agents, organizations and institutions – tend to have less emphasis on the efficiency of outcomes than NIE


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Concepts of Institutional DistanceHistory of institutional distance – ‘psychic distance’ (Johnasen

and Vahlne, 1977) – ‘cultural distance’ (Hofstede – Kogut and Singh, 1988) – problems of not including key institutional factors - also affected by the rise of NIE and NIS

Scott provides a synthesis of NIE and NIS – the framework is based on three pillars – leads to measures of institutional distance based on three pillars – regulative, cognitive and normative

In IB research tends to focus on institutional distance and consequent problem of liability of foreignness (Zaheer, 1995) and implications for MNC strategies particular entry mode options

In IM research less clear cut focus on conceptual ideas of institutional distance more centred on understanding working of organizational structures and management of issues arising from institutional/cultural distance


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ApproachAn analysis of papers published (in the last five years) in

world elite journals in the areas of general management, strategy and organizational studies plus all IB/IM journals 3* and above and Journal of International Management

Identify key theoretical and methodological approaches used in papers in the studies involving institutional distance and MNC strategies

A classification of these papers into those with primarily an IB approach and those with an IM approach

Using these classification the key characteristics of IB and IM research approaches are considered to indicate commonalities and differences and to explore how an improved interface between IB and IM might improve our understanding in this area


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IB and IM PapersThe following type of focus in the papers determine if it was defined as IB or IM International Business focus eg FDI

issues, foreign trade issues, entry mode, & internationalization processes issues (50 papers)

International Management focus eg cross cultural management issues, international HRM, organizational factors in MNCs, & HQ – subsidiary relationships (22 papers)


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Distribution of PapersJournal

No. ofPapers

AMR 2

AMJ 1

ASQ 1

SMJ 8

OS 0

JIBS 18

IBR 16

MIR 11

JIM 11

JWB 4

Gen Man

Strategy

JIBSIB/IM

% of Papers


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Distribution of IB & IM PapersApproximately 70% of papers were focused on IB

issuesOnly Journal of International Management had

majority of papers in IM (64%) General Management journals had a 50-50 split JIBS, MIR and SMJ were approximately 70% IBIBR (81%) and JWB (100%) IB

The distribution of the type of journals and the focus of the papers indicates that work on Institutional Distance is primarily centred on IB types of study


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Use of TheoryFour broad theoretical approaches were used-NIE – based on approaches influenced by work

of North and WilliamsonNIS – based largely on approaches influenced

by work of DiMaggio and PowellScott’s three pillars approach Miscellaneous approach based on a multitude

of variations of combinations of NIE, NIS and Scott, plus many other approaches and combinations of approaches

NB Many of the papers had no clear theoretical foundation


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Distribution of Theory in PapersThe most commonly used theoretical

approach was the miscellaneous approach (approx 49%)

Second most used was Scott’s three pillars approach (approx 25%)

NIE (approx 17 %) and NIS (approx 9%) Most common theoretical approach in IB

papers was a tie (Scott’s three pillars and the miscellaneous approach)

Most common approach in IM papers was the miscellaneous approach


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Distribution of Theory in PapersThe IB/IM journals had a larger proportion of

papers using the miscellaneous approach Scott’s three pillar approach was most commonly

used in papers in SMJ and JIBSIBR, JWB and JIM papers were nearly exclusively

based on a miscellaneous approach

It seems that the theoretical basis for most papers is based on a rather ad hoc approach – this is the case for both IB and IM papers

Only AMJ, AMR & SMJ had no papers based on the miscellaneous approach and of these only the SMJ had more than 2 papers


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Methodologies Approx 76% of studies were quantitative with

approx 12% for both qualitative and conceptual studies

Conceptual papers appeared mainly in IBR and MIR, with one in JIBS and two in AMR (all AMR papers are conceptual)

Qualitative papers in all journals except SMJ, AMJ and ASQ (but very few papers on institutional distance in these journals)

Most qualitative studies had no firm theoretical basis

Techniques used in quantitative papers varied but cutting edge techniques were rare and mainly in ASQ, AMJ, SMJ and JIBS


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Methodologies Quantitative data was mainly from either small

scale surveys - or more often large public or commercial data bases

Variables for measuring institutional factors often from published indices Kogut and Singh index, World Bank measures, Transparency International, Hofstede’s indices, WEF indices

Most of the conceptual papers were on minor issues rather than issues such as developing conceptual models to apply contemporary social science theories such as those in NIE and NIS to business and management issues – or to develop understanding on interaction processes between institutions, organizations and agents


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Methodologies Very few papers on conceptual/theoretical

development are being publishedThe conceptual and qualitative work that is

published is not centred on issues such as applying social science theories on matters such as the evolution of institutional systems, the relative importance of formal and informal institutional systems, the role of power in institutional systems etc

Very little qualitative work is going even in IM studies

Cutting edge quantitative techniques are not commonly used in both IB and IM studies


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Commonalties Both IB and IM tend to use a miscellaneous

theoretical approach – or Scott’s three pillars approach

No concentred use of NIE or NIS other than Scott’s synthesis

Very little theory building or conceptual framework construction in both IB and IM

No clear movement to use social science literature on institutional systems, eg interaction between formal and informal institutions and organizations and agents to develop understanding on how differences in institutional systems affects processes connected to IB and IM


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Commonalties

No focus on work to understand how the evolution of institutional systems affects IB and IM activities, or on how these activities effect the evolution of institutional systems

No focus on how best to measure institutional factors – in IB and much of IM heavy reliance on published indices – with little effort to justify why these measures are a good proxies for measuring institutional distance


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DifferencesIB more focused on institutional distance and

more likely to have some sort of theoretical and conceptual underpinning – more centred on outcomes – less interested in processes

IM more centred on understanding processes and linkages – but lack coherent theory building from this work – little on outcomes

Both IB and IM not centred on cutting edge empirical techniques – perhaps a major issue especially for quantitative work – but IB tends to be more static and linear in its approach to empirical work


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A Way Forward?Establishing stronger theoretical foundations –

based on state of the art social science theories on institutions – including evolution of systems

Greater integration between IB and IM to develop understanding on how institutional distance affects IB factors such as Trade FDI, internationalization processes, entry modes etc and how this then affects IM issues such as organizational systems and management practices (and vice versa)

Improved understanding on how institutional systems interact with agents (foreign and indigenous) and organizations (foreign and indigenous) and how institutional distance affects this


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A Way Forward?Using the results of outputs from greater

integration between IB and IM in this area to theory build – thereby providing a stronger and more coherent theoretical and conceptual base from which to expand our understanding to develop useful policy and managerial implications

From the results of theory building develop more robust and well formulated arguments for how to measure institutional variables

Apply cutting edge techniques to empirical examinations and hypotheses testing.

frank mcdonald, jeremy clegg, martha o’hagen luff & nicolas li bam sig international business...

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