MN 2

• Institution-based view


  Institutions matter
• Institution-based view


  • Managers rationally follow interest and make decisions within formal and informal limits of institutional framework
  • If formal institutions fail, informal ones take over to clarify things and provide constancy
• Institutions


  The basic determinants of a country's national economic performance
• Types of political systems

  • Totalitarian
  • Communist totalitarianism
  • Theocratic totalitarianism
  • Tribal totalitarianism
  • Right-wing totalitarianism
• Types of economic systems

  • Market economy
  • Command economy
  • Mixed economy
• Types of economies within market economy


  • Coordinated market
  • Liberal market
• Types of legal systems

  • Theocratic law
  • Civil law
  • Common law
• International Strategy Tripod


  • Resource-based view
  • Industry-based view
  • Institution-based view
• Institution-based view


  The institutional environment, including regulations, norms, and governance structures, influences the strategies of multinational enterprises
• Institutions


  • Establish formal rules
  • Reduce uncertainty and limit the range of acceptable actions
• Liability of foreignness


  The disadvantages and challenges faced by foreign firms or organizations when they enter a new market or operate in a foreign country
• How institutions help firms overcome liability of foreignness

  • Reduce uncertainty
  • Reduce transaction costs
  • Constrain opportunism
• Core propositions of the institution-based view

  • Managers and firms rationally pursue their interests and make choices within the formal and informal constraints of a given institutional framework
  • When formal constraints fail or are unclear, informal constraints will play a larger role in reducing uncertainty and providing constancy
• Collectivism vs. individualism, totalitarian regimes vs. democratic systems, proportional representation vs. first-past-the-post election systems, direct vs. indirect elections, representative vs. direct democracy, and centralization of power (e.g., federations, country of nations) are examples of differences in political systems and their impact on international business strategies
• Market economy


  Private ownership of businesses, supply and demand dictate market conditions, and free competition is encouraged
• Command economy


  Government plans the goods and services produced, including quantities and prices. Businesses are state-owned, and the government allocates resources
• Mixed economy


  Features elements of both market and command economies
• Types of legal systems


  • Common law
  • Civil law
  • Religious or theocratic law
• Common law


  Based on tradition, precedent, and custom. Judges are arbiters, and juries are decision-makers. Features detailed contracts and a significant need for lawyers
• Civil law


  Based on a detailed set of laws organized into codes. Typically involves shorter contracts
• Religious or theocratic law


  Based on religious teachings, affecting how business is conducted in countries where this applies
• How legal systems deal with contractual issues, property rights, IP issues, product safety, and liability