Institution-based view (third leg in the “strategy tripod”) Flashcards
Institutions are defined as
“Regulative, normative, and cognitive structures and activities that provide stability and meaning to social behaviour” (Scott, 1995).
What do institutions govern?
(Societal transactions in)
- politics (e.g. corruption, transparency)
- law (e.g. economic liberalisation, regulatory regime)
- society (e.g. ethical norms, attitudes towards entrepreneurship).
What do firms have to consider before they enter a new market?
A country’s political risk as political risk affects the stability of their markets (Simon, 1984).
What are the IB issues for the legal aspect of the institution-based model?
- antidumping as entry barriers
- corporate governance in emerging economies
What is antidumping?
A protectionist tariff that a domestic government imposes on foreign imports that’s it believes are priced below fair market value. (Antidumping duties - taxes on imported goods - objective is to prevent injury to producers of competing products in the importing (domestic) country).
Describe the institution-based view of strategy.
The institution-based view of strategy focuses the strategic choices of the firm in response for formal and informal constraints presented by the institutional framework (of the country it seeks to enter).
Research that supports the institution-based view: Hoskisson et al, (2000)
According to Makino, Isobe, & Chan research (2004), “in emerging economies, country effects, which are proxies for institutional differences, are more salient.”
Transition economies:
Emerging economies countries going through institutional transitions (i.e. China, Hungary & Russia going from a communist to a capitalist system).
Key Question for Firms in Emerging Economies:
How are we going to play the game, when the rules of the game are changing and not completely know?
