INSTITUTIONAL ENVIRONMENTS, INSTITUTIONAL CHANGE, AND INTERNATIONAL ALLIANCES

1

• INSTITUTIONAL ENVIRONMENTS, INSTITUTIONAL CHANGE,
  AND INTERNATIONAL ALLIANCES
• Third Annual IB Research Forum, Institutions and
  International Business
• Fox School of Business Management
• March 23, 2002
• Outline of Remarks
• Why Institutional Theory in the Study of
  International Alliances?
• Core Issue
• New Model, Unbundling the Stages of Alliance
  Integration
• Research Propositions and Implications
• Looking Ahead
• ARVIND PARKHE
• Indiana University

2

• INSTITUTIONAL THEORY AN UNDERUTILIZED
  PERSPECTIVE IN INTERNATIONAL ALLIANCE RESEARCH
• Institutional Impact on Alliances Illustrative
  Examples
• Gaps in the Literature
• Unique Role of Institutional Perspective

3

• CORE ISSUE
• This much is known
• Multilevel differences in partner characteristics
  can reduce the effectiveness and longevity of
  international alliances (Parkhe, 1991)
• Pushing this thought further, reconciliation of
  Type II differences, or alliance integration,
  requires institutional change
• How can we conceptualize and specify in other
  words, better understand this black box of
  change process?

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KEY TERMINOLOGY Institutional Environment
External Includes a companys societal culture
and national context. Institutional Environment
Internal Includes a companys corporate
culture and management practices Integration (of
alliance partners) Mutual adaptation, or lack
thereof, with respect to managerial values,
practices, and systems (VPSs) within the
boundaries of an international alliance (Danis
Parkhe, 2002) Managerial Values commonly
accepted ideals and norms that managers use,
perhaps implicitly, in guiding their
organizations and their own behaviors and
decisions in a professional context.
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KEY TERMINOLOGY (cont.) Managerial Practices
commonly accepted general management behaviors
and routines that are considered appropriate in
managing organizations and/or conducting
business Managerial Systems operational
procedures or structures that are commonly used
to resolve specific types or sets of
organizational problems Institutional Change
the abandonment of institutionalized practices,
structures, and goals, and/or the adoption of
institutionally contradictory practices,
structures, and goals, by an individual
organization or field of organizations (Kraatz
Moore, 2002) Deinstitutionalization the
process by which institutions weaken and
disappear (Oliver, 1992 Scott, 2001 182)
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FIGURE 1 Unbundling the Stages of Alliance
Integration
I. Precipitating Events
II. Deinstitutionalization
III. Preinsitutionalization
IVa. Theorization IVb. Mimicry
VII. Proto-Institutions
VI. Reinstitutionalization
V. Relational Efforts
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FIGURE 2 Unbundling the Stages of Alliance
Integration Underlying Processes
I. Precipitating Events Jolt to current
institutions
II. Deinstitutionalization Weakening of current
institutions
III. Preinsitutionalization Search for new
solutions
IVa. Theorization IVb. Mimicry Choice of new
solution and search for legitimacy
VII. Proto-Institutions Spread of new
institutions to wider organizational fields
VI. Reinstitutionalization Adoption,
objectification, achievement of legitimacy
V. Relational Efforts Promotion by alliance
champion
8
FIGURE 3a Unbundling the Stages of Alliance
Integration Representative Steps

• I. Precipitating
• Events
• Jolt to current institutions
• Partner scanning and selection
• Pre-contractual negotiations
• Cognition of differences in VPSs

II. Deinstitutionalization Weakening of current
institutions
III. Preinsitutionalization Search for new
solutions
IVa. Theorization IVb. Mimicry Choice of new
solution and search for legitimacy
VII. Proto-Institutions Spread of new
institutions to wider organizational fields
VI. Reinstitutionalization Adoption,
objectification, achievement of legitimacy
V. Relational Efforts Promotion by alliance
champion
9
FIGURE 3b Unbundling the Stages of Alliance
Integration Representative Steps
I. Precipitating Events Jolt to current
institutions

• II. Deinstitutionalization
• Weakening of current institutions
• Injection of new ideas disturbs socially
  constructed consensus
• Established VPSs destabilized
• Possibility of institutional change arises

III. Preinsitutionalization Search for new
solutions
IVa. Theorization IVb. Mimicry Choice of new
solution and search for legitimacy
VII. Proto-Institutions Spread of new
institutions to wider organizational fields
VI. Reinstitutionalization Adoption,
objectification, achievement of legitimacy
V. Relational Efforts Promotion by alliance
champion
10
FIGURE 3c Unbundling the Stages of Alliance
Integration Underlying Processes
I. Precipitating Events Jolt to current
institutions
II. Deinstitutionalization Weakening of current
institutions

• III. Preinsitutionalization
• Search for new solutions
• Partners independently seek viable solutions to
  their own problems
• Recognize each others successful practices
• Link differences in outcomes to differences in
  VPSs, in turn to differences in institutional
  environments

IVa. Theorization IVb. Mimicry Choice of new
solution and search for legitimacy
VII. Proto-Institutions Spread of new
institutions to wider organizational fields
VI. Reinstitutionalization Adoption,
objectification, achievement of legitimacy
V. Relational Efforts Promotion by alliance
champion
11
FIGURE 3d Unbundling the Stages of Alliance
Integration Underlying Processes
I. Precipitating Events Jolt to current
institutions
II. Deinstitutionalization Weakening of current
institutions
III. Preinsitutionalization Search for new
solutions

• IVa. Theorization
• Choice of new solution and search for legitimacy
• Specification of a general organizational failing
• Development, specification of abstract categories
  of integration and elaboration of chains of cause
  and effect
• Choose integration mode
• Simplify, distill properties of new VPSs and
  explain the (superior) business outcomes they
  produce
• IVb. Mimicry
• Search for legitimacy
• Justification of innovation through pragmatic
  legitimacy

VII. Proto-Institutions Spread of new
institutions to wider organizational fields
VI. Reinstitutionalization Adoption,
objectification, achievement of legitimacy
V. Relational Efforts Promotion by alliance
champion
12
FIGURE 3e Unbundling the Stages of Alliance
Integration Underlying Processes
I. Precipitating Events Jolt to current
institutions
II. Deinstitutionalization Weakening of current
institutions
III. Preinsitutionalization Search for new
solutions
IVa. Theorization IVb. Mimicry Choice of new
solution and search for legitimacy
VII. Proto-Institutions Spread of new
institutions to wider organizational fields
VI. Reinstitutionalization Adoption,
objectification, achievement of legitimacy

• V. Relational Efforts
• Promotion by alliance champion
• Communication and behavior transparency
• Mutual adaptation
• Mutual learning through
• - use of expatriates
• - training programs
• - company visits
• - technology transfer agreements
• - personal transfers

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FIGURE 3f Unbundling the Stages of Alliance
Integration Underlying Processes
I. Precipitating Events Jolt to current
institutions
II. Deinstitutionalization Weakening of current
institutions
III. Preinsitutionalization Search for new
solutions
IVa. Theorization IVb. Mimicry Choice of new
solution and search for legitimacy
VII. Proto-Institutions Spread of new
institutions to wider organizational fields

• VI. Reinstitutionalization
• Adoption, objectification, achievement of
  legitimacy
• Upward diffusion of ideas (alliance boundary
  spanner ? senior management)
• Downward diffusion of ideas
• Innovations objectified, gain social consensus
  concerning their pragmatic value, diffuse even
  further
• Density of adoption promotes cognitive
  legitimacy, new ideas become taken-for-granted as
  the natural, appropriate arrangement

V. Relational Efforts Promotion by alliance
champion
14
FIGURE 3g Unbundling the Stages of Alliance
Integration Underlying Processes
I. Precipitating Events Jolt to current
institutions
II. Deinstitutionalization Weakening of current
institutions
III. Preinsitutionalization Search for new
solutions
IVa. Theorization IVb. Mimicry Choice of new
solution and search for legitimacy

• VII. Proto-Institutions
• Spread of new institutions to wider
  organizational fields
• Outward diffusion of ideas (across other
  alliances, companies, industries, countries)

VI. Reinstitutionalization Adoption,
objectification, achievement of legitimacy
V. Relational Efforts Promotion by alliance
champion
15
FIGURE 3h Unbundling the Stages of Alliance
Integration Underlying Processes

• I. Precipitating
• Events
• Jolt to current institutions
• Partner scanning and selection
• Pre-contractual negotiations
• Cognition of differences in VPSs

• II. Deinstitutionalization
• Weakening of current institutions
• Injection of new ideas disturbs socially
  constructed consensus
• Established VPSs destabilized
• Possibility of institutional change arises

• III. Preinsitutionalization
• Search for new solutions
• Partners independently seek viable solutions to
  their own problems
• Recognize each others successful practices
• Link differences in outcomes to differences in
  VPSs, in turn to differences in institutional
  environments

• VI. Reinstitutionalization
• Adoption, objectification, achievement of
  legitimacy
• Upward diffusion of ideas (alliance boundary
  spanner ? senior management)
• Downward diffusion of ideas
• Innovations objectified, gain social consensus
  concerning their pragmatic value, diffuse even
  further
• Density of adoption promotes cognitive
  legitimacy, new ideas become taken-for-granted as
  the natural, appropriate arrangement

• VII. Proto-Institutions
• Spread of new institutions to wider
  organizational fields
• Outward diffusion of ideas (across other
  alliances, companies, industries, countries)

• IVa. Theorization
• Choice of new solution and search for legitimacy
• Specification of a general organizational failing
• Development, specification of abstract categories
  of integration and elaboration of chains of cause
  and effect
• Choose integration mode
• Simplify, distill properties of new VPSs and
  explain the (superior) business outcomes they
  produce
• IVb. Mimicry
• Search for legitimacy
• Justification of innovation through pragmatic
  legitimacy

• V. Relational Efforts
• Promotion by alliance champion
• Communication and behavior transparency
• Mutual adaptation
• Mutual learning through
• - use of expatriates
• - training programs
• - company visits
• - technology transfer agreements
• - personal transfers

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• RESEARCH PROPOSITIONS IMPLICATIONS
• Growing sophistication of alliance literature is
  evident from recent focus on processes, as
  opposed to merely outcomes
• Unbundling model of critical integration
  processes should be vigorously tested in multiple
  settings using a variety of research designs
• Such empirical research will (a) deepen our
  understanding of international alliances in new,
  fruitful directions, and (b) push institutional
  theorys reach into timely new applications

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• LOOKING AHEAD
• Ongoing Story
• Recap of Recent Developments
• Hot Issues/Remaining Issues
• Expanded Model
• Concluding Thoughts
• THANK YOU!