Chapter 2 Terms

Question 1

Institutional transition:

Answer 1

Fundamental and comprehensive changes introduced to the formal and informal rules of the game that affect firms as players

Question 2

Institution-based view:

Answer 2

A leading perspective in global business that suggests that the success and failure of firms are enabled and constrained by institutions

Question 3

Institution:

Answer 3

Formal and informal rules of the game

Question 4

Institutional framework:

Answer 4

Formal and informal institutions that govern individual and firm behavior

Question 5

Formal Institutions Examples:

Answer 5

Laws, Regulations, Rules

Question 6

Supportive Pillar of Formal Institutions

Answer 6

Regulatory (Coercive)

Question 7

Informal Institutions Examples:

Answer 7

Norms, Cultures, Ethics

Question 8

Supportive Pillars of Informal Institutions

Answer 8

Normative and Cognitive

Question 9

Formal institution:

Answer 9

Institution represented by laws, regulations, and rules

Question 10

Regulatory pillar:

Answer 10

The coercive power of governments

Question 11

Informal institution:

Answer 11

Institution represented by cultures, ethics, and norms

Question 12

Normative pillar:

Answer 12

The mechanism through which norms influence individual and firm behavior

Question 13

Norms:

Answer 13

Values, beliefs, and actions of relevant players that influence the focal individuals and firms

Question 14

Cognitive pillar:

Answer 14

The internalized (or taken-for-granted) values and beliefs that guide individual and firm behavior

Question 15

Transaction cost:

Answer 15

The cost associated with economic transactions or, more broadly, the cost of doing business

Question 16

Opportunism:

Answer 16

The act of self-interest seeking with guile

Question 17

Transition economy:

Answer 17

Label for a subset of emerging economies, particularly those moving from central planning to market competition (such as China, Poland, Russia, and Vietnam)

Question 18

The key role of institutions is to:

Answer 18

The key role of institutions is to reduce uncertainty by constraining the range of acceptable actions.
− Uncertainty can lead to transaction costs.
− Transaction costs also rise from opportunism, the act of seeking self-interest with guile.

Question 19

Unstable and unreliable institutional frameworks:

Answer 19

− Increase transaction costs
− Decrease transactions

Question 20

Bounded rationality:

Answer 20

The necessity of making rational decisions in the absence of complete information

Question 21

Nonmarket (political) strategy:

Answer 21

A strategy that centers on leveraging political and social relationships

Question 22

2 Core Propositions of the Institution Based View

Answer 22

Proposition 1: Managers and Firms rationally pursue their interests and make choices within the formal and informal constraints in a given institutional framework

Proposition 2: While formal and informal institutions combine to govern firm behaviour, in situations where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty and providing constancy managers and firms.

Question 23

Political system:

Answer 23

The rules of the game on how a country is governed politically

Question 24

Democracy:

Answer 24

A political system in which citizens elect representatives to govern the country on their behalf

Question 25

− Totalitarianism (dictatorship):

Answer 25

A political system in which one person or party exercises absolute political control over the population

Question 26

Communist totalitarianism:

Answer 26

centers on a communist party

Question 27

Right-wing totalitarianism:

Answer 27

is characterized by its intense hatred against communism

Question 28

Theocratic totalitarianism:

Answer 28

refers to the monopolization of political power in the hands of one religious party or group

Question 29

Tribal totalitarianism

Answer 29

refers to one tribe or ethnic group monopolizing political power and oppressing other tribes or ethnic groups

Question 30

Political risk:

Answer 30

Risk associated with political changes that may negatively impact domestic and foreign firms

Question 30

Authoritarianism:

Answer 30

A political system in which political plurality is undermined and concentrated government power is imposed

Question 31

Geopolitics:

Answer 31

International political relations

Question 32

Legal system:

Answer 32

The rules of the game on how a country’s laws are enacted and enforced

Question 33

Civil law:

Answer 33

A legal tradition that uses comprehensive statutes and codes as a primary means to form legal judgments

Question 34

Common Law:

Answer 34

A legal tradition that is shaped by precedents and traditions from previous judicial decisions

Question 35

Theocratic Law:

Answer 35

A legal system based on religious teachings

Question 36

Property right:

Answer 36

The legal right to use an economic property (resource) and to derive income and benefits from it

Question 37

Intellectual property (IP):

Answer 37

Intangible property that is the result of intellectual activity

Question 38

Intellectual property rights (IPR):

Answer 38

Right associated with the ownership of intellectual property

Question 39

Patent:

Answer 39

Exclusive legal right of inventors of new products or processes to derive income from such inventions

Question 40

Copyright:

Answer 40

Exclusive legal right of authors and publishers to disseminate their work

Question 41

Trademark:

Answer 41

Exclusive legal right of firms to use specific names, brands, and designs to differentiate their products from others

Question 42

Piracy:

Answer 42

Unauthorized use of intellectual property

Question 43

Economic System:

Answer 43

Rules of the game on how a country is governed economically

Question 44

Market Economy:

Answer 44

An economy that is characterized by the “invisible hand” of market forces

Question 45

Command Economy:

Answer 45

An economy that is characterized by government ownership and control of factors of production

Question 46

Mixed Economy:

Answer 46

An economy that has elements of both a market economy and a command economy

Question 47

State Owned Enterprise:

Answer 47

A firm owned and controlled by the state (government)

Question 48

Moral Hazard:

Answer 48

Recklessness when people and organizations (including firms and governments) do not have to face the full consequences of their actions

Question 49

State Capitalism:

Answer 49

A capitalist, market-based system with substantial state ownership

Question 50

Hybrid Organization:

Answer 50

An organization that incorporates elements from different institutional logics

Question 51

Macro Environment:

Answer 51

1. The national/international economy 2. Technology 3. Government & Politics 4. The natural environment 5. Demographic Structure 6. Social structure

Question 52

The industry Environment:

Answer 52

1. Suppliers 2. Competitors 3. Customers

Question 53

PEST Analysis:

Answer 53

Political, Economic, social, Technological enological

Question 54

5 Forces:

Answer 54

1. Supplier Power 2. Industry Rivalry 3. Threat of Entry 4. Threat of Substitutes 5. Buyer Power

Question 55

Political Changes:

Answer 55

Changes in government economic Policy e.g. taxation, government spending, monetary policy Changes in legal requirements (employment law, health and safety legislation, licensing practices, environmental regulations, competition policy Changes in the government ownership (nationalization, privatization, e-regulation)

Question 56

Economic Changes:

Answer 56

Changes in the level of economic activity (growth rates , rates of unemployment, inflation) Changes in Wage Rates and Income distribution Changes in Exchange Rates

Question 57

Social Changes:

Answer 57

Changes in Demographics (size of population, age distribution) Changing Attitudes (work life balance, concern for environment, ethical standards) Changes in Social Structure (Socio economic groupings, social mobility)

Question 58

Technological Changes:

Answer 58

1. Development of new products and processes 2. Automation 3. Developments in information and communications technology 4.Developments in the natural sciences