The Institutional Context of Multinational Management

1. 3 The Institutional Context of Multinational Management

2. Learning Objectives • Understand the national context and how it affects the business environment • Understand the influence of the institutional context of countries • Understand how social institutions influence both people and organizations

3. Learning Objectives • Understand the basic economic systems and influence on multinational operations • Understand industrialization and implications for multinationals • Understand the world’s basic religions • Develop an understanding of education

4. Learning Objectives • Understand the convergence perspective on organizations • Understand the importance of the national context and its connection with other international management areas

5. Institutional Context • Includes other elements besides national culture that can produce important differences • Understanding the institutional context is therefore extremely important for better multinational management

6. Social Institutions • Complex of positions, roles, norms, and values organizing stable patterns of human resources to sustain important societal structures • Three key social institutions • Economic systems • Level of industrialization • Religions

7. Social Institutions and Influence on Society • Regulative social institution: constrains behaviors through rules • Cognitive social institution: widely shared knowledge regarding how things are done • Normative social institution: values and norms promulgated by the social institution

8. Social Institutions and Influence on Organizations • Organizational isomorphism: pressure to follow similar paths in management practices

9. Organizational Isomorphism • Coercive isomorphism: forces that coerce organizations to adopt certain practices • Mimetic isomorphism: organizations purposefully copy the strategies of the most successful organizations • Normative isomorphism: conformance to professional and technical norms

10. Economic Systems • Economic systems: system of beliefs, activities, organizations, and relationships that provide the goods and services of a society • Important implications based on • Type of economic systems • Market transitions • Privatization

11. Economic Systems • Capitalist/market economy: production is decentralized to private owners • Owners perform activities to make profits • Socialist/command economy: production resources are owned by the state • Production decisions centrally coordinated • Mixed economy: combines aspects of capitalist and socialist economies • Ex., Sweden, France, Denmark, Italy, and India

12. Economic Systems: Implications • Decisions to operate in a country can be made based on the dominant economic type • In mixed economies, multinationals should expect to subordinate its economic goals and respect social objectives.

13. Economic Systems: Implications (cont.) • Multinationals should expect to develop more formal relations with the government in mixed economies. • Index of economic freedom can be used to determine the extent of governmental intervention

14. Exhibit 3.2: Selected Country Scores on Index of Economic Freedom

15. Economic System: Market Transitions • Changes societies experience as they move from socialism to a market-based economy • Multinational implications • Need to turn around inefficient, formerly state-owned companies to perform business functions • Motivational issues with workers

16. Economic System: Privatization • Privatization: transfer of state ownership to private individuals • Implications • Significant opportunities to invest in companies • Opportunities to access new markets and cheap labor

17. Exhibit 3.3: Selected Countries and the Amount of Money Raised by Privatization

18. Industrialization • How production is organized and distributed in society • Types • Pre-industrial • Industrial • Post-industrial

19. Industrialization • 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

20. Exhibit 3.4: Distribution of Production Activities by Sectors

21. Implications of Industrialization • Direct correspondence between industrialization and economic development • Industrial societies favor growth and innovation • Favorable environment for business • Industrial societies present significant market size and growth

22. Industrialization • Pre-industrial countries provide cheap labor and untapped markets • Post-industrial societies • Emphasis on quality-of-life as opposed to economic achievement

23. Exhibit 3.5: Materialist Scores of Selected Countries

24. Exhibit 3.6: Post-materialist Scores for Selected Countries

25. Religion • Shared set of beliefs, activities, and institutions that have basis upon faith in supernatural forces • Forms the foundation of human society • Provides individuals with guidelines to deal with issues • Christianity, Islam, Hinduism, and Buddhism are followed by almost 71% of the world’s population

26. Exhibit 3.7: Distribution of Religions Around the World

27. 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

28. Islam • Religion based on the submission to the will of Allah (God) • The second largest of the world’s religions • Muslims live according to Islamic laws or Shari’ah • Based on five pillars

29. Islam (cont.) • 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

30. 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

31. Hinduism (cont.) • 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

32. 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

33. Buddhism (cont.) • Implications for multinationals • Encourages hard work; laziness is seen as negative • Emphasizes teamwork; all beings are interconnected • Emphasis on compassion and love

34. Religiosity • Indication of the importance of acceptance of the core philosophies of religion in one’s life • Gives an idea of the degree of responsiveness needed to accommodate religion

35. Exhibit 3.8: Religiosity of Selected Countries from the World Values Survey

36. Education • 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

37. Education: Implications • Gives an idea of the skill level of workers in any society • The more educated, the more skills workers have • Multinationals can look at educational attainment scores to determine the nature of the workforce

38. Exhibit 3.9: Educational Attainment Scores for a Selected Number of Countries

39. Exhibit 3.10: Mathematics Scores for Top 10 Countries

40. Exhibit 3.11: Science Scores for Top 10 Countries

41. Organizations Alike: 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

42. Globalization and Convergence • Other convergence forces • Cross-border mergers, acquisitions, and alliances • Cross-national mobility of managers • Internationalization of business education