The Institutional Context of Multinational Management

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• The Institutional Context of Multinational
  Management

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Institutional Context Social Institutions

• Institutional context includes other elements
  besides national culture that can produce
  important business related differences among
  societies
• Understanding institutional context is important
  for better multinational management
• Social Institutions evolve within constrains of
  national culture and it is defined as
• A complex of positions, roles, norms, and values
  organizing stable patterns of human resources to
  sustain important societal structures.
• There are three key social institutions
  influencing businesses
• Economic systems
• Level of industrialization
• Religions
• Other important social institutions
• Educational systems Family

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Social Institutions and Influence on Society

• Three Dimensions of Social Institutions
• Regulative social institution
• Capacity to constrains behaviors through rules
• Cognitive social institution
• Refers to widely shared knowledge regarding how
  things are done (self-control)
• Normative social institution
• Refers to values and norms promulgated by the
  social institution

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Social Institutions and Influence on Organizations

• The pressure to follow similar paths in
  management practices is organizational
  isomorphism
• Coercive isomorphism
• social institutions forces organizations to adopt
  certain practices
• Mimetic isomorphism
• organizations purposefully copy the strategies of
  the most successful organizations
• Normative isomorphism
• organizations indirectly copy designs, cultures
  and strategies by conforming to professional and
  technical norms (Happen without conscious effort)

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1) Economic Systems

• The system of beliefs, activities, organizations,
  and relationships that provide the goods and
  services of a society
• Capitalist/market economy
• production is decentralized to private owners
  (ex., owners perform activities to make profits)
• Socialist/command economy
• production resources are owned by the state and
  production decisions are centrally coordinated
• Mixed economy
• combines aspects of capitalist and socialist
  economies (ex., Sweden, France, Denmark, Italy,
  and India)

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Implications from Economic Systems

• 1. Type of Economic Systems associated with level
  of government intervention
• MNC may want to see the index of economic freedom
  to determine the extent of governmental
  intervention
• For example In mixed economies, multinationals
  should expect to subordinate its economic goals
  and respect social objectives. Also, MNC should
  expect to develop more formal relations with the
  government.
• 2. Market transitions changes societies
  experience as they move from socialism to a
  market-based economy.
• Opportunity to MNC but will need to turn around
  inefficient, formerly state-owned companies to
  perform business functions and there may be
  important motivational issues with workers
• 3. Privatization refers to the transfer of state
  ownership to private individuals and provide
  significant opportunities to invest in foreign
  companies and to access new markets and cheap
  labor.

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2) Industrialization

• Refers to how production is organized and
  distributed in society
• Pre-industrial society
• agriculture dominates the economic environment
• Industrial society
• dominance of the secondary or manufacturing
  sectors
• Post-industrial society
• emphasis on the service sectors

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Industrialization Implications

• Direct correspondence between type of
  industrialization and economic development
• Industrial societies favor growth and innovation,
  present significant market size and growth, and
  are favorable environment for business
• Pre-industrial countries provide cheap labor and
  untapped markets
• Post-industrial societies put emphasis on
  quality-of-life as opposed to economic achievement

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3) Religion

• Shared set of beliefs, activities, and
  institutions that have basis upon faith in
  supernatural forces
• Forms the foundation of human society and
  provides individuals with guidelines to deal with
  issues
• Christianity, Islam, Hinduism, and Buddhism are
  followed by almost 71 of the worlds population

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Christianity

• Religion based on the life and teachings of Jesus
• The most practiced religion around the world
• Protestantism emphasizes wealth and hard work for
  the glory of God
• Ten commandments provides the basis for ethical
  behaviors

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Islam

• Religion based on the submission to the will of
  Allah (God)
• The second largest of the worlds religions
• Muslims live according to Islamic laws or
  Shariah
• Based on five pillars confession, prayer,
  alms-giving, fasting, and pilgrimage to Mecca
• Implications for multinationals
• Accommodate praying five times a day
• The Ramadan a month of fasting
• Natural concern with social justice
• Prohibits the payment or receipt of interest
• Gender roles

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Hinduism

• Acceptance of the ancient traditions of India
  that are based on the Vedic scriptures
• Currently 760 million Hindus living around the
  world
• Belief in reincarnation
• The caste system
• Ethical behaviors respect for parents
• Implications for multinationals
• Spiritual achievement is an important value for
  most Hindus
• Caste system is very pervasive
• Need to be aware of caste system, e.g.. lower
  caste supervising higher caste can be a problem

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Buddhism

• Religious tradition that focuses on the reality
  of world suffering and the ways one can be freed
  from suffering
• Craving and desires produce suffering
• Dominant religion in Asia
• Implications for multinationals
• Encourages hard work laziness is seen as
  negative
• Emphasizes teamwork all beings are
  interconnected
• Emphasis on compassion and love

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Religiosity

• Is the indication of the importance of acceptance
  of the core philosophies of religion in ones
  life
• Understanding country level religiosity is useful
  because gives MNC an idea of the degree of
  responsiveness needed to accommodate religion on
  business practices

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4) Education

• Organized networks of socialization experiences
  that prepare individuals to act in society
• Central element in organization of society
• Helps construct competencies, professions, and
  professionals
• Implications to Multinationals
• Gives an idea of the skill level of workers in
  any society
• Usually the more educated, the more skills
  workers have
• Educational attainment scores help MNC to
  determine the nature of the workforce

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Globalization and Convergence

• Globalization is pushing organizations to be more
  similar
• Global customers and products
• Growing levels of industrialization and economic
  development
• Global competition and global trade
• Other Convergence forces
• Cross-border mergers, acquisitions, and alliances
• Cross-national mobility of managers
• Internationalization of business education