Chapter
Copyright© 2004 Thomson Learning All rights reserved
3
The Institutional Context of
Multinational Management
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Learning Objectives
• Understand the national context a...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Learning Objectives
• Understand the basic economic sys...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Learning Objectives
• Understand the convergence perspe...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Institutional Context
• Includes other elements besides...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Social Institutions
• Complex of positions, roles, norm...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Social Institutions and
Influence on Society
• Regulati...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Social Institutions and
Influence on Organizations
• Or...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Organizational Isomorphism
• Coercive isomorphism: forc...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Economic Systems
• Economic systems: system of beliefs,...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Economic Systems
• Capitalist/market economy: productio...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Economic Systems:
Implications
• Decisions to operate i...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Economic Systems:
Implications (cont.)
• Multinationals...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Exhibit 3.2: Selected Country
Scores on Index of Econom...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Economic System: Market
Transitions
• Changes societies...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Economic System:
Privatization
• Privatization: transfe...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Exhibit 3.3: Selected Countries
and the Amount of Money...
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Industrialization
• How production is organized and dis...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Industrialization
• Pre-industrial society: agriculture...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Exhibit 3.4: Distribution of Production
Activities by S...
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Implications of
Industrialization
• Direct corresponden...
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Industrialization
• Pre-industrial countries provide ch...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Exhibit 3.5: Materialist Scores of
Selected Countries
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Exhibit 3.6: Post-materialist
Scores for Selected Count...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Religion
• Shared set of beliefs, activities, and insti...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Exhibit 3.7: Distribution of
Religions Around the World
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Christianity
• Religion based on the life and teachings...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Islam
• Religion based on the submission to the will of...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Islam (cont.)
• Implications for multinationals
• Accom...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Hinduism
• Acceptance of the ancient traditions of Indi...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Hinduism (cont.)
• Implications for multinationals
• Sp...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Buddhism
• Religious tradition that focuses on the real...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Buddhism (cont.)
• Implications for multinationals
• En...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Religiosity
• Indication of the importance of acceptanc...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Exhibit 3.8: Religiosity of Selected
Countries from the...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Education
• Education: organized networks of socializat...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Education: Implications
• Gives an idea of the skill le...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Exhibit 3.9: Educational
Attainment Scores for a Select...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Exhibit 3.10: Mathematics
Scores for Top 10 Countries
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Exhibit 3.11: Science Scores for
Top 10 Countries
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Organizations Alike:
Globalization and Convergence
• Gl...
Copyright© 2005 South-Western/Thomson Learning All rights reserved
Globalization and
Convergence
• Other convergence force...
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Chapter 03: The Institutional Context of Multinational Management

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Multinational Management: A Strategic Approach
4th Edition
Authors: John B. Cullen, K. Praveen Parboteeah

Published in: Business
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Chapter 03: The Institutional Context of Multinational Management

  1. 1. Chapter Copyright© 2004 Thomson Learning All rights reserved 3 The Institutional Context of Multinational Management
  2. 2. 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
  3. 3. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  4. 4. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  5. 5. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  6. 6. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  7. 7. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  8. 8. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  9. 9. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  10. 10. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  11. 11. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  12. 12. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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.
  13. 13. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  14. 14. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.2: Selected Country Scores on Index of Economic Freedom
  15. 15. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  16. 16. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  17. 17. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.3: Selected Countries and the Amount of Money Raised by Privatization
  18. 18. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  19. 19. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  20. 20. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.4: Distribution of Production Activities by Sectors
  21. 21. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  22. 22. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  23. 23. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.5: Materialist Scores of Selected Countries
  24. 24. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.6: Post-materialist Scores for Selected Countries
  25. 25. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  26. 26. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.7: Distribution of Religions Around the World
  27. 27. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  28. 28. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  29. 29. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  30. 30. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  31. 31. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  32. 32. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  33. 33. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  34. 34. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  35. 35. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.8: Religiosity of Selected Countries from the World Values Survey
  36. 36. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  37. 37. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  38. 38. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.9: Educational Attainment Scores for a Selected Number of Countries
  39. 39. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.10: Mathematics Scores for Top 10 Countries
  40. 40. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.11: Science Scores for Top 10 Countries
  41. 41. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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
  42. 42. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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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