Week 2 Flashcards
Industry-based view (Porter 1980)
This view argues that the conditions in an industry heavily influence firm strategy and performance.
Resource-based View (Barney 1991)
This view follows the belief that firm-specific differences (in resources) are what drive strategy and performance.
Institution-based view
The institutional-based view focuses on the different aspects formal and informal institutions and how it may influence key strategic decisions.
These institutions govern societal transactions in areas in politics, law, and society.
Institutional transitions definition
Frequently occurring in emerging markets, “institutional transitions” are when fundamental and comprehensive changes are introduced into the formal and informal rules of the game that affect firms as players.
Transition economies
These are often countries within a subset of emerging economies which have transformations so significant and pervasive that they are known as transition economies.
Example: Looking at Eastern bloc countries such as China, Hungary, and Russia, there has been a significant impact on the institutional transitions as these countries transition from communist to capitalist countries.
Define dumping/antidumping
Dumping is a strategy for foreign MNC’s where the exporter sells their product into a foreign country below cost abroad, and plans to raise prices after eliminating local rivals.
This is an important factor to consider in the institutional-based view as antidumping laws may heavily influence the rate of success in the expansion. However, most research on entry barriers has a focus on market-based variables such as economies of scale, whereas nonmarket-based variables such as antidumping laws (which would be considered a significant entry barrier) are often overlooked.
Despite the assumption that strong economic growth can only occur in well regulated economies, China has been able to sustain economic growth over the past 3 decades, regardless of their underdeveloped formal institutions.
How has China made this possible?
Interpersonal Networks (Guanxi) - It has been suggested that there is a macro-micro link due to managers in the Chinese society serving as informal substitutes for formal institutional support.
Meaning, the micro, interpersonal relationships amongst managers are translated into a macro, interorganizational strategy of relying on networks and alliances to grow the firm.
Why is the principal-agent theory often a poor assumption among emerging economies?
The principle-agent theory, often a focus on dispersed ownership and conflict between managers and shareholders, is often considered an exception rather than an assumption around the world.
Most corporations around the world are controlled by a family or the state (especially in emerging economies).
Recent research suggests crucial corporate governance conflicts are not principal-agent conflicts, but rather principal-principal conflicts between two classes of principals (Controlling/Major Shareholders vs Minority Shareholders).
What neo-institutionalist principles do MNC’s challenge? (4)
- Organizational Field
- Isomorphism
- Decoupling and ceremonialism
- Legitimacy
Define Organizational Field and explain Principle 1 for Organizational Fields
Organizational fields encompass populations of competing organizations and interorganizational relationships.
Principle 1:
1. Within these fields, patterns of organizational action become institutionalized.
2. This generates institutional pressures on domestic firms.
3. If the organization exercises these pressures, legitimacy is granted.
What is the Provocation for MNC’s that challenge Principle 1 for Organizational Fields?
The traditional meaning of “Organizational Field” does not apply to MNCs.
- MNCs and their subsidiaries face multiple, fragmented, nested, or often conflicting institutional environments.
–> These inconsistencies between the environments do not easily allow the emergence of shared patterns necessary to define a field.
How do MNC’s analyze their organizational field? (2)
- MNCs form their own unique group or environment within the business world. Their organizational field is both broad (including all other MNCs) and narrow (specific values and practices).
- If the MNC subsidiary is considered, the meaning of an “organizational field” may have a different focus and expression. MNC’s form their own intraorganizational field which serves as an “institutional environment” for their subunits.
Define Isomorphism and explain Principle 2
Isomorphism is the process in which organizations in a certain field start to resemble each other over time.
Principle 2: There is substantial isomorphism among organizations that results from the adoption and diffusion of certain business models, practices, and structures established as a standard in that respective field.
What is the MNCs Provocation to the Isomorphism Principle 2?
Provocation to Isomorphism Principle: Institutional isomorphism is often limited for MNCs. This is because:
- Isomorphism only occurs in a field.
- There are pressures from the host country on MNCs but rarely for local isomorphism. This is normally because MNCs have an offering of value which is appreciated by local constituents, meaning it would not always be expected for MNCs to adopt locally established practices.
Define Decoupling and Ceremonialism and Principle 3
- Decoupling: This is where there is a gap in an organization between formal policies, procedures, or standards, and the actual way they operate.
- Ceremonialism: This is where organizations adopt formal structures, policies, or procedures primarily for show, rather than for practical use or real effectiveness.
- Principle 3: Organizations engage in ceremonial adoption of institutionalized structures and practices while decoupling themselves toward structures and practices they may deem more economically efficient.
