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?

4. KEY TERMINOLOGY • Institutional Environment – External: Includes a company’s societal culture and national context. • Institutional Environment – Internal: Includes a company’s 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.

5. 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)

6. 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

7. 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 other’s 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

13. 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 other’s 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

16. 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 theory’s reach into timely new applications

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