Lecture 9 (Institutions)

Question 1

Definition of an institution

Answer 1

Rules of game in a society (North, 1990)

Structures and activities that provide stability
and meaning to social behavior (Scott, 1995)

Question 2

The three pillars of institutions

Answer 2

Regulative pillar 
(Rules, regulations “that promote certain types of behavior and restrict others”) Examples: Intergovernmental agreements; traffic laws; company’s confidentiality policies
- Laws 
- Regulations
- Policies

Normative Pillar (Social norms, values, beliefs that are socially shared and carried out by individuals). The “correct” way of doing things (from school, religion or government); moral support

example: Environmental attitudes
- Social norms
- Values
- Beliefs
- Assumptions

Cognitive-cultural (Generally shared perceptions of what is typical or taken for granted)
How it works: Imitation; taken-for-grantedness; cultural support
- Cognitions
- Schemes
- Frames
- Shared Knowledge

Question 3

Examples of measures of each pillar (slides)

Answer 3

Regulative
– Trevino et al. 2008, in the FDI context: trade & tax reforms, financial
account liberalization.
– Selected indicators from: World Bank’s World Governance Indicators; World Economic Forum’s Global Competitiveness Report; IMD’s World Competitiveness Yearbook (e.g., antitrust regulation, intellectual property protection)

• Normative
– Trevino et al. 2008 (combined with cognitive): education, political
uncertainty, investment treaties, privatization
– Selected indicators from the above sources (e.g., government transparency, corruption, political risk) (Gaur and Lu, 2007)

• Cognitive-cultural
– Based on Hofstede’s dimensions
– Differences in languages and religions

Question 4

Legitimacy and Isomorphism (becoming similar)

Answer 4

To survive & thrive, firms need legitimacy and credibility

Legitimacy: acceptance through conforming to rules and norms

In sociology, an isomorphism is a similarity of the processes or structure of one organization to those of another.

Question 5

Examples of measures of each Pillar (Trevino et al. paper 2008)

Answer 5

Regulative pillar
- Tax reform, We posit that org. legitimisation takes place primarily through the lens of the regulative pillar because of the tangibility of reforms and due to the presence of sanctions for non-compliant behaviour.

Normative:

• Education plays an important role in the transmission of societal norm and beliefs from generation to generation. Fundamentally, educational systems socialise by transmitting values such as, for example, respect for others, politeness and rejection of violence and perhaps openness to foreigners… “we argue that educational attainment legitimize through the normative pillar because it acts as a normative expectation.
• Bilateral investment treaties - acts as a symbolic representation between the host country and the rest of the world and this manifests change via the normative pillar.
• Privatization .. societal acceptance of this shift from the state to the private sector represents the normative pillar.

Cognitive pillar:
Political uncertainty profile of the host country act as part of a nation’s symbolic representation to the rest of the world (cognitive pillar) and, if change is to occur, it must originate from actors willing to challenge the status quo with respect for example corruption.

Question 6

Examples of measures of each Pillar (Busenitz et al. 2000)

Answer 6

Busenitz et al. study is using the three institutional pillar to examine entrepreneurship

The regulatory dimension of the institutional profile consists of laws, regulations and government policies that provide support for new businesses, reduce the risk for individuals starting a new company and facilitate entrepreneurs’ efforts to acquire resources.

The cognitive dimension consists of the knowledge and skills possessed by the people in a country pertaining to establishing and operating a new business. Within countries, particular issues and knowledge sets become institutionalised, and certain knowledge becomes part of the shared

The normative dimension measures the degree to which a country’s residents admire entrepreneurial activity and value creative and innovative thinking (Beliefs, values etc.)

Question 7

What are the three types of isomorphism?

Answer 7

1. Coercive (regulatory pillar)
2. Normative (normative pillar)
3. Mimetic (Cognitive-cultural pillar)

Question 8

What are examples of Coercive isomorphism and implications of it ?What is the relation to the regulative pillar?

Answer 8

Examples: Property rights, contract enforcement

Implications:

• reduces uncertainty (good for domestic / “domesticated” firms.
• Barriers to entry for foreigners.
• Implication for entry mode

relationship to the regulative pillar:
The Country’s legal environment frames the laws and isomorphic pressures on firms such as retail regulations, pricing, store opening hours, land planning. This is the relation. It is legitimised through conformance.

Question 9

What are examples of normative isomorphism and relation to normative pillar?

Answer 9

Isomorphic pressures can be on firms can be from customer preferences and expectations:

• ToysRus do adjust their products (wood products in Europe, porcelan in Japan, plastic in the US perhaps) depending on where they sell them.
• McDonalds has also done significant changes of its menu to meet local taste and thereby comply with normative isomorphism.
• Moreover, in DK supermarket chains have to have large amounts of ecological products: this stems from normative aspects.

Relationship to normative pillar: The beliefs and moral obligations of a country links to how isomorphic pressures on firms forms in terms customer preferences and expectations.

Bonus: Normative similarities between countries -> can root out in greater likelihood of entry.

Question 10

What are examples of mimetic isomorphism and what is its link to the cognitive-cultural pillar?

Answer 10

Example: Burger King copying McDonalds.

the relationship:

• Cognitive schemas in the host country
• Cognitive schemas in the organization
becomes:
• Uncertainty (E.g., cultural suitability of a product or practice)
• Habits and inertia

through imitation and imprinting.

Question 11

What are the levels of institutions?

Answer 11

World: International Agreements, International Industry standards

Country: Regulations, traditions, laws

Industry: Suppliers, Customers

Firm: Internal institutions (structures, standards, practices)

Departments.