Chapter 3The Institutional Context ofMultinational Management        © 2011 Cengage Learning. All Rights Reserved. May not...
Learning Objectives•• Understand the national context and how it affects the    Understand the national context and how it...
Learning Objectives•• Understand the basic economic systems and influence    Understand the basic economic systems and inf...
Learning Objectives•• Understand social inequality and its implications for    Understand social inequality and its implic...
Institutional Context•• Includes other elements besides national culture that    Includes other elements besides national ...
National Context•• Made up of the respective national cultures and social    Made up of the respective national cultures a...
Exhibit 3.1: A Model of theNational Context   © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or ...
Social Institutions•• Complex of positions, roles, norms, and values    Complex of positions, roles, norms, and values   o...
Key Social Institutions that          Influence Organizations•• Three key social institutions that influence business   Th...
Economic Systems•• Economic systems: system of beliefs, activities,    Economic systems: system of beliefs, activities,   ...
Economic Systems•• Capitalist/market economy: production is decentralized    Capitalist/market economy: production is dece...
Economic Systems•• Important implications based on    Important implications based on   •• Dominant market type      Domin...
Dominant Market Type: Index          of Economy Freedom•• The absence of government coercion or constraint on    The absen...
Exhibit 3.2: Selected Top andBottom 10 Countries on Indexof Economic Freedom   © 2011 Cengage Learning. All Rights Reserve...
Economic Systems: Implications•• Decisions to operate in a country can be made based on the    Decisions to operate in a c...
Market Transitions•• Changes societies experience as they move from   Changes societies experience as they move from   soc...
Industrialization•• Cultural and economic changes that occur because of   Cultural and economic changes that occur because...
Industrialization•• Pre-industrial society: agriculture dominates the   Pre-industrial society: agriculture dominates the ...
Exhibit 3.3: Selected countries and thedistribution of employment by primary,secondary and tertiary sectors    © 2011 Ceng...
Implications of          industrialization•• Direct correspondence between industrialization and   Direct correspondence b...
Industrialization•• Postindustrial societies   Postindustrial societies    •• Domination of service sector, knowledge base...
Exhibit 3.4: Materialist scoresof selected countries   © 2011 Cengage Learning. All Rights Reserved. May not be scanned, c...
Exhibit 3.5: Postmaterialistscores of selected countries   © 2011 Cengage Learning. All Rights Reserved. May not be scanne...
Religion•• Shared set of beliefs, activities, and institutions that    Shared set of beliefs, activities, and institutions...
Exhibit 3.6: Distribution ofReligions Around the World   © 2011 Cengage Learning. All Rights Reserved. May not be scanned,...
Christianity•• Religion based on the life and teachings of Jesus   Religion based on the life and teachings of Jesus   •• ...
Islam••   Based on the submission to the will of Allah (God)      Based on the submission to the will of Allah (God)••   T...
Hinduism••   Timeless and eternal religion – no single founder     Timeless and eternal religion – no single founder••   B...
HinduismImplications for multinationals Implications for multinationals   •• Spiritual achievement is an important value f...
Buddhism•• Religious tradition that focuses on the reality of world   Religious tradition that focuses on the reality of w...
Education•• Education: organized networks of socialization   Education: organized networks of socialization   experiences ...
Education: Implications•• Gives an idea of the skill level of workers in any   Gives an idea of the skill level of workers...
Exhibit 3.7: PercentageEnrollment in Tertiary Educationfor Relevant Age Groups    © 2011 Cengage Learning. All Rights Rese...
Exhibit 3.8: Percentage of GDPspent on R & D    © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied o...
Social Inequality•• Refers to the degree to which people have privileged    Refers to the degree to which people have priv...
Social Inequality: Implications•• Many MNCs are facing significant criticisms for their   Many MNCs are facing significant...
Social Inequality: Implications•• Multinational companies can consider the GINI index   Multinational companies can consid...
Exhibit 3.9: The GINI Index forSelected Countries   © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copi...
The National Context and          International Management•• Social institutions are key aspects of understanding    Socia...
The National Context and            International Management:            Conclusion••   The national context affects a com...
Upcoming SlideShare
Loading in …5
×

Chapter 3

413 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
413
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
7
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Chapter 3

  1. 1. Chapter 3The Institutional Context ofMultinational Management © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  2. 2. Learning Objectives•• Understand the national context and how it affects the Understand the national context and how it affects the business environment business environment•• Understand the influence of the institutional context of Understand the influence of the institutional context of countries countries•• Define social institutions and understand the basic Define social institutions and understand the basic forms of social institutions forms of social institutions•• Understand how social institutions influence both Understand how social institutions influence both people and organization people and organization © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  3. 3. Learning Objectives•• Understand the basic economic systems and influence Understand the basic economic systems and influence on multinational operations on multinational operations•• Understand basic stages of industrialization and Understand basic stages of industrialization and implications for multinationals implications for multinationals•• Understand the world’s basic religions Understand the world’s basic religions•• Develop an understanding of education Develop an understanding of education © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  4. 4. Learning Objectives•• Understand social inequality and its implications for Understand social inequality and its implications for multinationals multinationals•• Understand the importance of the national context and Understand the importance of the national context and its connection with other international management its connection with other international management areas areas © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  5. 5. Institutional Context•• Includes other elements besides national culture that Includes other elements besides national culture that can produce important country differences can produce important country differences•• Dominant institutional context of any society has an Dominant institutional context of any society has an effect on individuals and organizations effect on individuals and organizations•• Understanding the institutional context is therefore Understanding the institutional context is therefore extremely important for better multinational extremely important for better multinational management management © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  6. 6. National Context•• Made up of the respective national cultures and social Made up of the respective national cultures and social institutions of any society institutions of any society•• National cultures as well as institutions of any society National cultures as well as institutions of any society shape the important norms, values, and beliefs in any shape the important norms, values, and beliefs in any society society © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  7. 7. Exhibit 3.1: A Model of theNational Context © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  8. 8. Social Institutions•• Complex of positions, roles, norms, and values Complex of positions, roles, norms, and values organizing stable patterns of human resources to organizing stable patterns of human resources to sustain important societal structures sustain important societal structures•• Social institutions affect organizations as well as Social institutions affect organizations as well as individuals individuals•• Help define what are legitimate and correct Help define what are legitimate and correct management practices in a society management practices in a society•• Organizations are induced to follow similar paths Organizations are induced to follow similar paths © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  9. 9. Key Social Institutions that Influence Organizations•• Three key social institutions that influence business Three key social institutions that influence business environment environment •• The economic systems The economic systems •• The level of industrialization The level of industrialization •• The religions The religionsAdditionally, Additionally, •• Education Education •• Level of social inequality Level of social inequality © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  10. 10. Economic Systems•• Economic systems: system of beliefs, activities, Economic systems: system of beliefs, activities, organizations and relationships that provide the goods organizations and relationships that provide the goods and services of a society and services of a society•• Typified by extremes of capitalism, socialism and a Typified by extremes of capitalism, socialism and a mix of both mix of both•• Important implications based on Important implications based on •• Dominant market type Dominant market type •• Market transitions Market transitions © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  11. 11. Economic Systems•• Capitalist/market economy: production is decentralized Capitalist/market economy: production is decentralized to private owners to private owners •• Owners perform these activities to make profits Owners perform these activities to make profits•• Socialist/command economy: production resources are Socialist/command economy: production resources are owned by the state owned by the state •• Production decisions are centrally coordinated Production decisions are centrally coordinated•• Mixed economy: combines aspects of capitalist and Mixed economy: combines aspects of capitalist and socialist economies socialist economies •• E.g., Sweden, France, Denmark, Italy and India E.g., Sweden, France, Denmark, Italy and India © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  12. 12. Economic Systems•• Important implications based on Important implications based on •• Dominant market type Dominant market type •• Market transitions Market transitions © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  13. 13. Dominant Market Type: Index of Economy Freedom•• The absence of government coercion or constraint on The absence of government coercion or constraint on the production, distribution, or consumption of goods the production, distribution, or consumption of goods and services beyond the extent necessary for citizens and services beyond the extent necessary for citizens to protect and maintain liberty itself to protect and maintain liberty itself•• The index includes 10 indicators ranging from trade The index includes 10 indicators ranging from trade policy, taxation policies, and the level of governmental policy, taxation policies, and the level of governmental intervention in the economy, to property rights and intervention in the economy, to property rights and regulation regulation © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  14. 14. Exhibit 3.2: Selected Top andBottom 10 Countries on Indexof Economic Freedom © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  15. 15. Economic Systems: Implications•• Decisions to operate in a country can be made based on the Decisions to operate in a country can be made based on the dominant economic type dominant economic type•• In mixed economies, multinationals should expect to In mixed economies, multinationals should expect to subordinate its economic goals and respect social objectives subordinate its economic goals and respect social objectives•• Multinationals should also expect to develop more formal Multinationals should also expect to develop more formal relations with the government in mixed economies relations with the government in mixed economies•• Index of economic freedom can be used to determine the Index of economic freedom can be used to determine the extent of governmental intervention extent of governmental intervention © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  16. 16. Market Transitions•• Changes societies experience as they move from Changes societies experience as they move from socialism to a market based economy socialism to a market based economy•• Multinational implications Multinational implications •• Need to turn around inefficient formerly state-owned Need to turn around inefficient formerly state-owned companies to become cost effective companies to become cost effective •• Motivational issues with workers Motivational issues with workers •• Interpersonal trust, teams, meritocracy Interpersonal trust, teams, meritocracy © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  17. 17. Industrialization•• Cultural and economic changes that occur because of Cultural and economic changes that occur because of how production is organized and distributed in society how production is organized and distributed in society•• Stages of industrialization Stages of industrialization •• Pre-industrial Pre-industrial •• Industrial Industrial •• Postindustrial Postindustrial © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  18. 18. Industrialization•• Pre-industrial society: agriculture dominates the Pre-industrial society: agriculture dominates the economic environment economic environment•• Industrial society: dominance of the secondary or Industrial society: dominance of the secondary or manufacturing sectors manufacturing sectors•• Postindustrial society: emphasis on the service sectors Postindustrial society: emphasis on the service sectors © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  19. 19. Exhibit 3.3: Selected countries and thedistribution of employment by primary,secondary and tertiary sectors © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  20. 20. Implications of industrialization•• Direct correspondence between industrialization and Direct correspondence between industrialization and economic development economic developmentIndustrial societies favor growth and innovation Industrial societies favor growth and innovation •• Governments provide favorable environment Governments provide favorable environment •• Opportunities for significant market size and growth Opportunities for significant market size and growthPre-industrial countries provide cheap labor and Pre-industrial countries provide cheap labor and untapped markets untapped markets •• Poor infrastructure for business Poor infrastructure for business © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  21. 21. Industrialization•• Postindustrial societies Postindustrial societies •• Domination of service sector, knowledge based Domination of service sector, knowledge based •• Emphasis on quality-of-life as opposed to economic Emphasis on quality-of-life as opposed to economic achievement achievement •• Non economic incentives favored Non economic incentives favored •• Post-materialist values, individual expression, and Post-materialist values, individual expression, and movement toward more humane societies movement toward more humane societies © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  22. 22. Exhibit 3.4: Materialist scoresof selected countries © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  23. 23. Exhibit 3.5: Postmaterialistscores of selected countries © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  24. 24. Religion•• Shared set of beliefs, activities, and institutions that Shared set of beliefs, activities, and institutions that have basis upon faith in supernatural forces have basis upon faith in supernatural forces•• Forms the very foundation of human society Forms the very foundation of human society•• Provides individuals with guidelines to deal with issues Provides individuals with guidelines to deal with issues•• Christianity, Islam, Hinduism and Buddhism are Christianity, Islam, Hinduism and Buddhism are followed by almost 71% of the world’s population followed by almost 71% of the world’s population•• 20% of world’s population are non religious 20% of world’s population are non religious © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  25. 25. Exhibit 3.6: Distribution ofReligions Around the World © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  26. 26. Christianity•• Religion based on the life and teachings of Jesus Religion based on the life and teachings of Jesus •• The most practiced religion around the world The most practiced religion around the world •• Protestantism emphasizes wealth and hard work Protestantism emphasizes wealth and hard work •• Ten commandments – basis for ethical behaviors Ten commandments – basis for ethical behaviors •• Dignity of human life, labor and happiness Dignity of human life, labor and happiness Implications for multinationals: Implications for multinationals: Business environment conducive to these values Business environment conducive to these values Sunday holiday for prayer Sunday holiday for prayer © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  27. 27. Islam•• Based on the submission to the will of Allah (God) Based on the submission to the will of Allah (God)•• The second largest of the world’s religion The second largest of the world’s religion•• Islamic laws or Shari’ah, based on five pillars Islamic laws or Shari’ah, based on five pillarsImplications for multinationals Implications for multinationals •• Giving alms Giving alms •• Prohibits the payment or receipt of interest Prohibits the payment or receipt of interest •• Society divided by gender -- women’s role at home Society divided by gender women’s role at home © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  28. 28. Hinduism•• Timeless and eternal religion – no single founder Timeless and eternal religion – no single founder•• Based on the Vedic scriptures Based on the Vedic scriptures•• Oldest, embodied in the ancient traditions of India Oldest, embodied in the ancient traditions of India •• Currently 760 million Hindus worldwide Currently 760 million Hindus worldwide •• Quest for ultimate reality and truth Quest for ultimate reality and truth •• Hindus live life according to the principles of Hindus live life according to the principles of Dharma (righteousness) Dharma (righteousness) •• Belief in Karma and reincarnation Belief in Karma and reincarnation © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  29. 29. HinduismImplications for multinationals Implications for multinationals •• Spiritual achievement is an important value for Spiritual achievement is an important value for Hindus Hindus •• Respect for elders, age and wisdom Respect for elders, age and wisdom •• Clear guidelines for ethical behavior Clear guidelines for ethical behavior •• Inequality in social structure of India Inequality in social structure of India © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  30. 30. Buddhism•• Religious tradition that focuses on the reality of world Religious tradition that focuses on the reality of world suffering and the ways one can be freed from suffering suffering and the ways one can be freed from suffering•• Craving and desires produce suffering Craving and desires produce suffering•• Dominant religion in Asia Dominant religion in AsiaImplications for multinationals Implications for multinationals •• Encourage hard working – laziness seen as negative Encourage hard working – laziness seen as negative •• Emphasizes teamwork – all beings are interconnected Emphasizes teamwork – all beings are interconnected © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  31. 31. Education•• Education: organized networks of socialization Education: organized networks of socialization experiences which prepare individuals to act in society experiences which prepare individuals to act in society•• Central element in organization of society Central element in organization of society•• Helps construct competencies, professions, and Helps construct competencies, professions, and professionals professionals © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  32. 32. Education: Implications•• Gives an idea of the skill level of workers in any Gives an idea of the skill level of workers in any society society•• The more educated, the more skills workers have The more educated, the more skills workers have•• Multinationals can look at educational attainment Multinationals can look at educational attainment scores to determine the nature of the workforce scores to determine the nature of the workforce•• Also look at other scores Also look at other scores •• Math and Science Math and Science •• R & D expenditure R & D expenditure © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  33. 33. Exhibit 3.7: PercentageEnrollment in Tertiary Educationfor Relevant Age Groups © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  34. 34. Exhibit 3.8: Percentage of GDPspent on R & D © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  35. 35. Social Inequality•• Refers to the degree to which people have privileged Refers to the degree to which people have privileged access to resources and positions within societies access to resources and positions within societies•• In societies that have high social inequality, a few In societies that have high social inequality, a few individuals have the ability to control and use important individuals have the ability to control and use important resources resources•• These select few use access to resources to acquire These select few use access to resources to acquire more power, thereby perpetuating inequality further more power, thereby perpetuating inequality further © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  36. 36. Social Inequality: Implications•• Many MNCs are facing significant criticisms for their Many MNCs are facing significant criticisms for their operations in countries with high social inequalities operations in countries with high social inequalities•• Criticized for using low wages, child labor, workplaces Criticized for using low wages, child labor, workplaces•• Realize social responsibility is in their interest too Realize social responsibility is in their interest too•• Many actively avoid countries with high inequalities to Many actively avoid countries with high inequalities to prevent potential negative publicity prevent potential negative publicity © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  37. 37. Social Inequality: Implications•• Multinational companies can consider the GINI index Multinational companies can consider the GINI index as an indicator of the degree of social inequality as an indicator of the degree of social inequality © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  38. 38. Exhibit 3.9: The GINI Index forSelected Countries © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  39. 39. The National Context and International Management•• Social institutions are key aspects of understanding Social institutions are key aspects of understanding the business environment in any country the business environment in any country•• Social institutions shape norms, values, and beliefs Social institutions shape norms, values, and beliefs that determine acceptable and unacceptable business that determine acceptable and unacceptable business practices practices•• Along with culture, form national context of a country Along with culture, form national context of a country © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  40. 40. The National Context and International Management: Conclusion•• The national context affects a company’s strategy The national context affects a company’s strategy•• Determines the comparative advantage of nations, Determines the comparative advantage of nations, which ultimately determines which strategies which ultimately determines which strategies multinational companies choose multinational companies choose•• Determines the global platform, namely the areas of Determines the global platform, namely the areas of business that can be performed the best in a country business that can be performed the best in a country•• Human aspect of international management: Human aspect of international management: relationship between workers and superiors, relationship between workers and superiors, motivation, human resource management, and design motivation, human resource management, and design © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

×