Institutional Perspectives on International Business. Eden, L. 2010. Princeton: Princeton University Press. Journal of International Business Studies, 39: 920936. The effects of institutional development and national culture on cross-national differences in corporate reputation. This is truly unfortunate, as IB by its very nature is interdisciplinary, contextual, and cross level, providing distinctive advantages over many of these other fields for the study of informal institutions. Suchman, M. C. 1997. Institutional theory in the study of multinational corporations: A critique and new directions. Cultures consequences: International differences in work-related values. These reconciliation efforts would thus help provide a more solid foundation for work in IB not only on informal institutions, but on institutions in general. Formal (regulatory) differences are generally transparent and require clearly discernable adjustments. Ledeneva, A. V. 1998. Journal of International Business Studies, 41(5): 861881. Much of this literature therefore would be better categorized as being part of the culture literature. Muellner, J., Klopf, P., & Nell, P. C. 2017. Informal institutions are defined as morals, values, conventions, norms, traditions, codes of conduct, habits, attitudes, and beliefs. Judge, W. Q., Fainshmidt, S., & Brown, L., III. The hierarchical structure of collectivism. Organizational legitimacy under conditions of complexity: The case of the multinational enterprise. Then, it reviews the literature by summarizing the three main institutional traditions to show where work on informal institutions fits in. The other paper, entitled Public sentiment is everything: Host country public sentiment toward home country and acquisition ownership during institutional transition, by Yiu, Wan, Chen, and Tian, examines informal institutions in the context of ownership in foreign acquisitions. In turn, they influence how the institutional framework evolves (North, 1990: 5). Academy of Management Journal, 48(5): 794813. Public Choice, 139(3): 371387. Aguilera, R. V., & Grgaard, B. In situations where formal constraints are unclear, informal constraints will play a larger role in reducing uncertainty. It is also known as Neo-Institutional Theory (Meyer, Scott, Zucker, DiMaggio, & Powell, 2005). OI makes it a point to tell us that institutions not only constrain, but also enable behavior (Clemens & Cook, 1999). Ultimately, this editorial strives to reveal what we can learn from studying informal institutions in an IB context, how informal institutions can help enhance our understanding of IB theory and phenomena, and how the study of informal institutions in IB can help contribute to other fields. This paper proposes that MNEs tend to hire employees with government experience and pay them a salary premium as a means of acquiring knowledge about the host markets formal and informal institutions. Zhou, K. Z., & Poppo, L. 2010. Institutions and Organizations. Scott, W. R. 2013. This can help enhance other theories by bringing an important contextual element that they often lack. Sociology without social structure: Neoinstitutional theory meets brave new world. Do informal institutions matter for technological change in Russia? By this we mean that either theoretically the two terms are used interchangeably, which measures of culture are used to capture informal institutions, or both (see footnote for specific examples).4 Furthermore, the main measures of culture used in this literature (e.g., Hofstede, 1980, 2001; House, 1998; Schwartz, 1992) are based on values and do not capture shared rules, such as norms, customs, and traditions. Institutional environments and organizations: Structural complexity and individualism. Moreover, by outlining the three main institutional traditions, how their logics can be incommensurable, and the role of informal institutions in each, it helps clarify prior ontological confusion in the literature and sets up the field to move forward on a more solid foundation in its study of informal institutions and international business. institutions are multifaceted, durable social structures, made up of symbolic elements, social activities, and material resources They are relatively resistant to change They tend to be transmitted across generations, to be maintained and reproduced (Ibid: 49). Handbook of organizational learning and knowledge management. Journal of International Business Studies, 41 (8) (2010 . 2010. Block, F. 1994. New York: The Free Press. Williamson, C. R. 2009. The Cultural-Cognitive pillar refers to the taken-for-granted beliefs and cognitive schemas and structures. Influence of institutional differences on firm innovation from international alliances. The roots of this perspective can be traced back to an older version of the institutional perspective dating back to at least the early 20th century and the work of Weber, Marx, and others. (7 marks) b) Describe, using . A comparison of multinationals in five countries. Do country-level institutional frameworks and interfirm governance arrangements substitute or complement in international business relationships? (ed.) Informal institutions rule: Institutional arrangements and economic performance. Rijeka: InTech. European Management Journal, 32(1): 132136. Lewellyn, K. B., & Bao, S. R. 2014. Interorganizational relations in industrial systems: A network approach compared with the transaction-cost approach. North, D. C. 1981. Garrett, G., & Weingast, B. Chicago, IL: University of Chicago Press. As opposed to the other two perspectives that separate institutions into formal and informal, Scott (1995) proposes that institutions are made up of three institutional pillars: Regulative, Normative, and Cultural-Cognitive. Barney, J. Punctuated Evolution tells us that institutions are always changing gradually and incrementally, but that there are moments when there are large changes (Blyth, 2002; Krasner, 1984). Each of these efforts have been valuable in creating bridges, but there is still a way to go if one seeks to combine the frameworks. Chen, C. C., Chen, Y. R., & Xin, K. 2004. Stark, D. 1996. Our analysis is based on the Helmke and Levitsky framework of informal institutions and . In other words, following formal rules may lead to certain outcomes, while following related informal rules may lead anywhere from very similar to very different outcomes, depending on how well aligned the two sets of rules are. San Francisco: Jossey-Bass Publishers. The new comparative economics. Steinmo, S. 2008. (Eds.). Formal institutions are the written rules (e.g., laws and regulations), whereas informal institutions are the unwritten rules that create expectations of appropriate and inappropriate social behavior (Helmke & Levitsky, 2004, 2006 ; North, 1990, 2005; Pejovich, 1999; Sartor & Beamish, 2014 ). Furthermore, by providing a review of the literature on informal institutions and IB, as well as a summary of the SI papers, it shows what has been done by past work and how the articles in this SI add to that conversation. The grabbing hand: Government pathologies and their cures. Historical institutionalism in comparative politics. Together, they also help further our understanding of how informal institutions shape IB, displaying variation across areas of study, topics, theoretical frameworks, levels of analysis, and contexts. Scott suggests that the Regulative pillar encompasses the formal and informal rules and enforcement mechanisms as outlined by North (1990), which would mean that RCI fails to include the Normative and Cultural-Cognitive pillars altogether. Thelen, K., & Steinmo, S. 1992. Toward a theory of international new ventures. However, it may also occur unconsciously, such as when social sentiment evolves slowly over time on an issue, leading to new and shifting norms and expectations. 15 Informal International Lawmaking as a Panacea in the Absence of Regime Focus? Scott, W. R. 2008. Journal of Management, 17(1): 99120. Kostova, T., & Roth, K. 2002. International Business Review, 25(2): 589603. Therefore, an interdisciplinary, inter-framework conversation could bear fruit as a means of learning from each other and examining the same issues from vastly different points of view. A theory of structure: Duality, agency, and transformation. Journal of European Public Policy, 4(1): 1836. The World Bank is seeking a consulting firm to undertake a study on informal settlement upgrading in Somalia. State building: Governance and world order in the 21st century. American Journal of Sociology, 102(6): 17021723. From typology to taxonomy: A configurational analysis of national business systems and their explanatory power. Lyles, M. A. Hitt et al., (2016: 60) refer to informal institutions (e.g., culture). Global standardization or national differentiation of HRM practices in multinational companies? 2011. What formal and informal institutions and institutional systems are today is a function in large part of what they were yesterday (North, 1990, 2005). Fainshmidt, S., Judge, W. Q., Aguilera, R. V., & Smith, A. Our assessments, publications and research spread knowledge, spark enquiry and aid understanding around the world. Organizationsare groups of individuals bound by some common purpose to achieve objectives (North, 1990: 5). Internationalization and the performance of born-global SMEs: The mediating role of social networks. Offshoring innovation to emerging markets: Organizational control and informal institutional distance. Knight, J., & Sened, I. Path dependency tells us that history matters. New York: Norton. Stephan, U., Uhlaner, L. M., & Stride, C. 2015. Crossan, M. M., Lane, H. W., & White, R. E. 1999. North, D. C. 2005. Academy of Management Review, 39(1): 7679. Of the different institutional perspectives, HI has received relatively less focus in IB and related literatures (Aguilera & Grgaard, 2019), with some notable exceptions (e.g., Musacchio, 2009; Schneider, 2004). Download Free PDF. Indeed, of the three traditions, this has been the one that has generated the largest research output in IB, in part because of its focus on the national and organizational levels of analysis (Kostova et al., 2020). Djankov, S., Glaeser, E., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. Hofstede, G. 2001. Asia Pacific Journal of Management, 19(23): 251267. It is thus not surprising that six of the ten SI papers most closely connect with this tradition. Informal institutions and international entrepreneurship. 'Formal and Informal institutions shape the conduct of international business.' Discuss the following using illustrative examples: a) What are the main formal and informal types of institutions an international business needs to analyse when looking to do business in a country? Jackson, G., & Deeg, R. 2019. In this view, the focus is on efficiency. Organization Studies, 41(11): 15511575. Scott, W. R. 1995. The social construction of organizational knowledge: A study of the uses of coercive, mimetic, and normative isomorphism. American Economic Review, 91(5): 13691401. Research here needs to pay special attention to change dynamics and the process of institutional change (see e.g., Chacar & Celo, 2012; Chacar et al., 2018). There are many exceptions as work within traditions may diverge, for instance by relaxing a commonly held assumption or developing alternate mechanisms. For instance, examining how unwritten norms of a global supply chain provide invisible threads that connect international organizations, governments, MNEs, and other players would be a fascinating topic to study. Socially shared norms and values. Streeck, W., & Thelen, K. A. In S. Ghoshal, & D. E. Westney (Eds. Varieties of capitalism and institutional comparative advantage: A test and reinterpretation. In Zimbabwe today, the informal sector is the economy. Inductive reasoning and bounded rationality. New York: Russel Sage Foundation. For instance, instead of seeing them as opposing underlying assumptions, theory could be developed for how the twin forces of profit-maximization and legitimacy-maximization create conflicting forces that lead to cognitive compromise. Definitions of culture vary in the literature, but it is often defined as a broader term in IB that captures the collective programming of the human mind that distinguishes the members of one human group from those of another. Social trust in subnational regions and foreign subsidiary performance: Evidence from foreign investments in China. Journal of International Business Studies, 45(9): 10721095. We primarily use MNE, but we use MNC when it is included in a direct quote or in the title of a particular paper. Yet even if many actors fail to realize informal institutions even exist, they are the invisible strands that weave together the social fabric of society, which is why it is so critical to make them a key focus of IB. Holmes, R. M., Jr., Miller, T., Hitt, M. A., & Salmador, M. P. 2013. Letter from the editor-in-chief: Lifting the veil on how institutions matter in IB research. Furthermore, it also embraces the logic of the process of diffusion (Djelic, 1998; Duina, 1999). Law, finance, and the international mobility of corporate governance. It has been used particularly by game theorists (e.g., Bates, Greif, Levi, Rosenthal, & Weingast, 2020). 1966. International investment and international trade in the product cycle. informal institutions are socially shared rules, usually unwritten, that are created, communicated, and enforced outside of officially sanctioned channels'. Big questions, grand challenges, and the future of IB scholarship. 2018. Informal institutions and international business: Toward an integrative research agenda, Journal of International Business Studies, https://doi.org/10.1057/s41267-022-00527-5. In L. A. Samovar, & R. E. Porter (Eds. An institution-based view. Amit Kumar is a Masters student of Diplomacy, Law and Business at the Jindal School of International Affairs, O.P. Institutions. . However, most of the work in IB on informal institutions has been in the subfields of international management and strategy, with limited work from other areas such as international entrepreneurship, and even less from other subfields of IB such as international finance, accounting, marketing, supply chain, and others. However, whereas RCI often examines aspects related to micro-analytic exchanges, HI mostly focuses on aspects at the country level over extended periods of time (Fioretos et al., 2016). institutions and organisations: the Cambridge Judge Business School, the Boston Consulting Group, Nokia, Dell . However, this distinction leads to other aspects that are important to consider. b) Describe and critically assess the role of SWOT analysis . They can also exist at the industry/sector level such as with the formal and informal rules among firms in an industry created by their membership in an industry association or chamber of commerce. Academy of Management Journal, 50(1): 175190. Scharpf, F. W. 1997. As another example, unwritten norms of acceptable and unacceptable behavior in an accounting firm may lead to unethical accounting practices and corrupt behavior. Furthermore, the relative importance of the formal and informal institutions seems to differ around the world. Cao et al., (2018: 304) state that national culture is an important aspect of informal institutions. At the same time, it would be important to find a balance between the institutional perspectives, by seeking to be more socially embedded than RCI and less so than OI, while also being more open to different levels of analysis than most HI research has been. When actors are unsure as to what the best way to act is, they may tend to imitate others and in the process become more isomorphic (or similar). Introduction The impressive worldwide growth of foreign direct investment (FDI) has resulted in multinational enterprises (MNEs) becoming important players in both developed and emerging markets ( Dunning and Lundan, 2008 ). Witt, M. A., & Jackson, G. 2016. ), Communication between culturesBelmont: Wadsworth. Arthur, W. B. Institutions rule societal issues in the areas of politics (e.g., corruption, transparency), law (e.g., economic liberalization, regulatory regime), and society (e.g., ethical norms, attitudes toward entrepreneurship). Institutions, institutional effects, and institutionalism. International Business: Research, Teaching, and Practice, 9(1): 120. ), Trade and market in the early empires economies in history and theoryGlencoe: The Free Press. Home country supportiveness/unfavorableness and outward foreign direct investment from China. One is formal and well- organized. Sewell, W. 1992. In short, examining informal institutions at different levels of analysis, as well as the interactions of these institutions across levels of analysis, can thus lead to a rich and valuable stream of literature. Towards a renaissance in international business research? In the latter, this perspective is often referred to as Comparative Institutionalism (Hotho & Pedersen, 2012). Google Scholar. We discuss a possible way to address these issues in the Reconciliation Efforts section below. Scott explains that the Regulative pillar includes formal and informal rules, as well as enforcement mechanisms. Mizruchi, M. S., & Fein, L. C. 1999. March, J. G., & Olsen, J. P. 2006. With the aim of bringing awareness of the need to shift from the use of learning management systems (LMS) to social media sites (SMS), this study explores students' experiences of the use of SMS for learning . ), Ideas and foreign policy: Beliefs, institutions, and political change: 173206. The chapter reviews the theories behind, the design of, the implementation of and empirical evaluations (where they exist) of court programs in the United States . Weyland, K. 2002. We believe this can lead to very interesting future IB work on informal institutions. Academy of Management Proceedings, 180183. As mentioned in section2, papers can for instance examine the specific role of informal institutional structures such as Guanxi/Guanxiwang in China, Blats/Svyazy in Russia, Wasta in the Arab World, Yongo in Korea, Kankei in Japan, Jeito/Jeitinho in Brazil, and grease payments in different parts of the world. Comparing capitalisms: Understanding institutional diversity and its implications for international business. Il passe ensuite en revue la littrature des trois principales traditions institutionnelles en expliquant pour chacune d'elles le rle des institutions informelles et en les reliant la littrature IB et aux articles du numro spcial. Special issue introduction: Historical research on institutional change. Kshetri, N. 2018. The article finds that the combination of high levels of social trust and strong formal institutions leads multinational enterprises (MNEs)6 to require a smaller percentage of their subsidiary managers to be from the home market. Socio-Economic Review, 16(1): 538. However, defining informal and formal institutions are fairly more difficult and many give different interpretations to the definitions. ), Social psychology: Handbook of basic principles: 857913. Harmon, D., Green, S., & Goodnight, G. T. 2015. Kostova, T., Roth, K., & Dacin, M. T. 2008. Journal of International Business Studies, 48(9): 10451064. Chicago: University of Chicago Press. Scotts definition of institutions is as follows: Institutions provide guidelines and resources for acting as well as prohibitions and constraints on action (Scott, 1995: 50). This belies the importance of incorporating informal institutions more squarely into institutional work in IB. Khanna, T., & Palepu, K. G. 1997. Journal of International Business Studies, 48: 123147. Granovetter, M. 2017. Managing legitimacy: Strategic and institutional approaches. Realo, A., Allik, H., & Vadi, M. 1997. 2010. Theory and Society, 15(12): 1145. A brief history of GLOBE. The formal sector includes most widely known private businesses. Peng, M. W., Wang, D. Y. L., & Jiang, Y. An institution-based view of executive compensation: A multilevel meta-analytic test. Comparative Politics, 16(2): 223246. We also thank Bettina Alvarez Canelon and Maria Denisse Jimenez Malespin for their research assistance, as well as our families and friends for their encouragement throughout the process. Westney, D. E. 1993. Rao, H., Monin, P., & Durand, R. 2003. He also sought to tease out some of the mechanisms for how institutions are transmitted and change over time, so he developed the concepts of translation and bricolage (ibid). Granovetter defines institutions as follows: Social institutions are sets of persistent patterns defining how some specified collection of social actions are and should be carried out (Granovetter, 2017: 136). The article finds that public sentiment in the host country toward the MNEs home country impacts the level of acquisitions by that firm in that host country. Journal of International Business Studies, 41(7): 11191140. Academy of Management Review, 24(3): 522537. Emerging . Posteriormente revisa a literatura sobre as trs principais tradies institucionais, explicando para cada uma o papel das instituies informais e conectando-as literatura de IB e artigos dessa edio especial. We thus propose that much of this valuable research would be better classified as being part of the IB literature on culture and not on informal institutions. A second article, entitled Understanding the unwritten rule of the game: Government work experience and salary premiums in foreign MNC subsidiaries, by Sofka, Grimpe, and Kaiser, examines informal institutions in the context of government work experience and MNE salaries. This displays how little actual work has been done on informal institutions and IB, indicating a clear gap and area for future research. language Organizational behavior 2: Essential theories of process and structure, 371. This paper finds that the effect of absorptive capacity on firm performance is greater in markets where informal institutions are in place that reduce behavioral and environmental uncertainty, and where informal institutions are well aligned with formal institutions. Organizational culture and leadership (1st ed.). Formal and Informal Lawmaking by the International . El objetivo es estimular la conversacin acadmica sobre el tema, mostrando cmo las instituciones informales son esenciales en el estudio de los negocios internacionales. This is unfortunate, as work on informal institutions could help enrich IB work not only across sub-disciplines, but also that connects sub-disciplines. This editorial introduces the literature on informal institutions and international business (IB) as well as the Special Issue. Journal of International Business Studies, 43(5): 477497. Cambridge: Cambridge University Press. This helps clarify what informal institutions are and are not, and to disambiguate them from terms such as organizations and culture. Most IB work on institutions has focused on formal institutions in part because they are much more straightforward to conceptualize and measure. Therefore, in the long term, change will appear much more gradual and evolutionary. Buckley, P., & Casson, M. 1976. American Journal of Sociology, 108(4): 795843. However, the topic of informal institutions per se has received limited attention in this framework, likely due to its focus primarily being on the three pillars instead of on the formal and informal institutional distinction. This article has been with the authors for one revision and was single-blind reviewed. Lessons from rule changes in professional American baseball. Journal of Economic Literature, 38(3): 595613. Academy of Management Perspectives, 23: 6381. International Organization, 50(2): 325347. Journal of World Business, 51(1): 5873. What are informal institutions in a business? In W. W. Powell, & P. J. DiMaggio (Eds. North, D. C. 1990. New York: Free Press. Informal institutions and international business: Toward an integrative research agenda. Once the papers were finalized, we developed this essay, which provides an introduction and literature review that contributes to the SI and also to the topic at large. However, the bulk of prior research has focused on formal institutions, such as in studying how market reforms and other regulatory changes affect international business strategy and performance over time (e.g., Dau, Moore, & Kostova, 2020; Young, Welter, & Conger, 2018). Duina, F.G. 1999. In addition, a key distinguishing factor between formal and informal rules is the enforcement in place. Steinmo, S., Thelen, K., & Longstreth, F. Capturing unwritten rules, such as shared norms of behavior, can be challenging, as they can be considered invisible and tacit, and thus elusive (Dau, 2010, 2016; Dau, Moore, & Bradley, 2015). ), Handbook of institutional approaches to international business: 236273. Laws, rules, social conventions and norms are all examples of institutions. Journal of Political Economy, 113(5): 949995. Administrative Science Quarterly, 44(4): 653683. Scopus Subject Areas The impact of formal and informal institutional distances on MNE corporate social performance. Cambridge: Cambridge University Press. Pejovich, S. 1999. American Journal of Sociology, 83(2): 340363. Journal of International Business Studies, 49(4): 407441. Whereas the former focuses on a Logic of Instrumentality or Instrumental Rationalitywhere organizations seek to increase efficiency and their economic benefitsthe latter explains behavior based on a Logic of Appropriateness. The new version came into prominence with the work of several organizational theorists (e.g., DiMaggio & Powell, 1983; Meyer & Rowan, 1977; Scott, 1995). This section therefore provides a brief description of the main institutional traditions that have been developed in the literature. This strand has sought to bridge especially aspects from RCI and from OI by drawing concepts from both. A the institutional framework, governing a particular context is made up of formal and informal institutions governing individual and firm behavior. Russian institutions, this book demonstrates how informal institutions can both support and obstruct the achievement of formal policy goals . Economic theories of organization. Annual Review of Sociology, 23(1): 263287. ), The handbook of economic sociologyPrinceton: Princeton University Press. These institutions are diverse and may include community mechanisms or customary local governance institutions. Knowledge will set you free: Enhancing the firms responsiveness to institutional change. The last column in Table1 aims to summarize these efforts, while also adding some elements we believe could help further bridge the gap across the frameworks. The issue with this is that the three paradigms are based on different assumptions, boundary conditions, and mechanisms or logics that are incommensurable or at odds with each other (Hay & Wincott, 1998). Organization Science, 15(2): 200209. International practitioners thus would be well served learning as much about the informal institutional environment of a market, as well as its relationship to the formal institutional environment, as a means to increase the likelihood of success of their ventures.
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