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Intro to business > Week 3: Modules 3 and 4 > Flashcards

Week 3: Modules 3 and 4 Flashcards

1
Q

Path dependency model

A
  1. Inputs (people, framworks, external shocks)
  2. Process (creating, maintaining, developing, disrupting)
  3. Outputs (institutions and institutional voids) create functional and behavioral outcomes)
  4. Path dependecy goes back to input
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2
Q

What are institutions?

A

Rules of the game that structure political, economic and social interaction that are devised by humans.
This way they can prevent oppertunistic behavior relatively easy my matching penalties to iet.

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3
Q

Scott’s institutional pillars

A
  1. Regulatory: rules, laws
  2. Normative: Informal expectation, social expectations, attitudes. Principles that are demanded by society
  3. Cognitive structures. How we look at the world, values and norms, internalized view
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4
Q

Schools of thoughts on the role of institutions

A
  1. Economists believe institutions reduce uncertainty. This is based on game theory
  2. Sociologist believe institutions shape behavior.
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5
Q

What is institutional isomorphism?

A

Processes forcing units within institutional context to become similar to other units in the same institutional context.

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6
Q

What are the institutional levels?

A
  1. Individual behaviour/values
  2. Group institutions
  3. Organizational institutions
  4. Industry institutions
  5. National institutions
  6. Supranational institutions
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7
Q

What are the institutional spheres

A
  1. State (governments, ministries etc.)
  2. Market (BV, NV etc. )
  3. Civil society (NGOs, charities etc.)
  4. Intersection state & market= state-owned corporations and public-private partnerships
  5. IS State and Society = universities and hospitals
  6. IS Society and market = familiy businesses
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8
Q

What are the institutional logics

A
  1. Iron hand
  2. Invisible hand
  3. Intangible hand
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9
Q

The Iron hand logic

A

Corrective approach based on regulation of activities

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10
Q

The invisible hand logic

A

Competitive approach from free supply and demand

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11
Q

The intangible hand logic

A

cooperative approach from loyalty to the group, done in a decentralized way.

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12
Q

What are the varieties of capitalism?

A
  1. Liberal market model
  2. Coordinated market model
  3. Asian market model
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13
Q

Liberal market model

A

Model with big market and small state, profit-centric. Mostly in Anglo-Saxon countries. Little employee protection. They react to price signals

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14
Q

Coordinated market model

A

Spheres are equally large. Primary focus is on all stakeholders. This is in EU. A lot more employee protection. Not solely reliant on price signals.

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15
Q

Asian model

A

Big market and big state overlap. Small civil society. There are many state-owned enterprises (e.g. China)

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16
Q

How do institutions develop?

A

Over time:
1. Anarkic tribe (no need)
2. Trade beyond village
3. Long-distance trade
4. Further expansion
5. Modern trade

With every step/ development, institutions were created to support trade activities. More formal institutions were created to manage the complexities of the world.

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17
Q

What are institutional voids of emerging economies?

A
  1. Absence of specialized intermediary firms
  2. Lack of regulatory systems
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18
Q

What is path dependency?

A

Past influences the present and the future.

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19
Q

How to spot institutional voids in different spheres

A
  1. State: politician’s accountability & independence
  2. Market: quality of property rights and access to capital
  3. Society: media independence, importance civil groups
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20
Q

What is an institutional transition?

A

One complex system of institutions is replaced by another system. Is either done gradually or through shock-therapy

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21
Q

What is the shock therapy transition?

A

Replacement is all at once. This was done by Poland and some other Sovjet-states

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22
Q

Wat is the gradual approach of transition?

A

Slow adaptation of new model. This is done by China and Vietnam.

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23
Q

What are formal constraints

A

laws, regulations, property rights etc.

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24
Q

What are informal constraints

A

sanctions, taboos, generally accepted ways, traditions etc.

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25
Q

What are transaction costs

A

The costs of organizing economic transactions. Divided in:
1. Search and information costs
2. Bargaining costs
3. Enforcement costs

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26
Q

Two core propositions of the institution-based view

A
  1. Company rationally pursue interests within framework given to them
  2. If formal constraints are unclear, informal constraints will prove more important in society.
27
Q

Political system

A

how a country is governed politically. Two primary systems: democracy and autocracy

28
Q

What is democracy

A

A political system in which governments attain legitimacy through elections. Democracies vary in the power of politicians, legislation etc. Rules are laid out in constitution.

29
Q

Crucial variations among democracies

A
  1. Proportional vs first-past-the post
  2. Direct vs indirect elections
  3. Representative vs direct democracy
  4. Centralization of power
30
Q

Proportional representation

A

A system that allocates seats according to what amount of vote each party received.

31
Q

First-past-the-post system

A

The candidate with the relative majority of votes gets the seat per constituency

32
Q

Direct democracy

A

Voters choose country’s leaders with executory powers (France and USA)

33
Q

Indirect democracy

A

Voters choose their representatives in parliament. This is in most European countries.

34
Q

Representative versus direct democracy

A

Most countries have a representative system, but in some cases citizens can vote directly on certain laws. This can lead to irregularity but gives voters more power.

35
Q

Centralization of power

A

In some countries, regional authorities have a lot of power. Central point of power needs to be considered.

36
Q

Authoritarianism

A

System in which power is in hands of one person of small elite. Usually combines strong ideology and military control.

37
Q

Why do politcs matter to businesses?

A
  1. Politicians will decide on the rules - could be (dis)advantageous to businesses
  2. Political systems determine how businesses may influence legislative processes
  3. Determine how often rules are changed, a source of political risk
38
Q

Political risk

A

Risk associated with political changes that may negatively impact the company

39
Q

Lobbying

A

Making your views known to decision-makers in hopes of positively influencing their decisions

40
Q

Corruption

A

abuse of public powere for private benefit. Mostly illegal.

41
Q

Economic system

A

Rules of the game in terms of how a country is governed economically

42
Q

Market economy

A

Market economy is led by Smith’s invisible hand. Small government, private ownership. Government only does what private sector can’t.

43
Q

What is a command economy?

A

Government-owned production. Plan economy.

44
Q

Six primary elements of a competition-based economic system (Eucken)

A
  1. Right to private property (legal)
  2. Right freedom to make contracts with others to trade property (legal)
  3. the economic liability of economic agents (legal)
  4. Markets should be open to international trade
  5. stable currency that’s not manipulated by government by short-term objectives
  6. Stable economic policy in order to stimulate investments.
45
Q

4 secondary elements of the competition-based economic system

A
  1. Control of monopolies
  2. Accounting for externalities
  3. Incomes policy
  4. Prevention of abnormal supply
46
Q

What is economic liability according to Eucken?

A

Individuals are liable for negative effects of their economic actions on others.

47
Q

Goals of competition rules and regulations

A
  1. Prevent the concentration of market power
  2. force those with market power to act as if they were exposed to competitive markets.
48
Q

What does accounting for externalities mean?

A

This means that business have to pay for the costs they create for others.

49
Q

What does income policy mean and is it still relevant?

A

Aim to create socially acceptable distribution of wealth. Today this isn’t as relevant as it used to be.

50
Q

apprenticeship system

A

Vocational training system for crafts and professions. This requires collaboration between state, businesses and a long-term commitment between apprentice and their employers.

51
Q

What is a legal system?

A

Rules of the game on how a country’s laws are enacted and enforced.

52
Q

What is civil law?

A

Legal tradition that uses comprehensive statutes and codes as primary means in order to form a legal judgment. Written in books of laws. There is traditionally more protection for employees and consumers.

53
Q

What is common law?

A

Originating from English customary law, these are shaped by precedents and traditions from previous judicial decisions. Allows more freedom in design of contracts to fill legal gaps. Usually in favour of big businesses because of high legal fees.

54
Q

What is case law?

A

Rules of law that have been created by precedents in previous court cases.

55
Q

What is legal certainty?

A

Clarity over relevant rules that apply in a given situation.

There’s less legal certainty in common law countries.

56
Q

What are property rights?

A

legal right to use and exploit an economic property.

57
Q

What are intellectual property rights?

A

Rights associated with ownership of intellectual property (intangible property resulting from intellectual activity)

Mostly about patents, trademarks and copyrights

58
Q

4E’s to protect IPR

A
  1. Enforcement: difficult if demand is high
  2. Education: educating about counterfeits.
  3. External pressures. don’t pressure host government, but incentivize them to enforce IPR.
  4. Economic growth: Develop local industries that will thrive on their own production lines.
59
Q

patents

A

exclusive legal rights awarded by governments to inventors to get income from such inventions.

60
Q

copyrights

A

Exclusive legal rights of authors and publishers to publish and disseminate their work.

61
Q

trademarks

A

Exclusive legal rights for firms to use specific names, brands and designs to differentiate products.

62
Q

Corporate governance

A

rules by which shareholders and other interested parties control corporate decision-makers.. Specify distribution of rights and responsibilities among different participants in the corporations. and spell out rules and procedures for making decisions on corporate affairs.

63
Q

How can companies asses political risk

A
  1. Approach panel of country experts. This can also be done with ratings of political risks but those are not really reliable
  2. Indices based on symptons of political instability like crime rates, pverty and labour strikes
  3. Political constraint index: checks and balances are highly important for stability.
64
Q

What are the important considerations for managers before they expand operations abroad?

A
  1. Develop thorough understanding of the formal institutions governing firm behaviour.
  2. Beware of small institutional differences between seaminlgy similar countries
  3. Changes in formal institutions can be influenced by engaging in processes in the economic, poitical and legal systems.

Intro to business (11 decks)

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