International Business Institutions On Strategy Assignment: Impact Of MNEs
Question
Task: Critically discuss how institutions influence Multinational Enterprises’ choices for their international operations and strategies.
Answer
Introduction
The present international business strategy assignment sheds light on the concept of International business strategy which is defined as the plans, which can guide for commercial transactions that take place within the entities for different countries. However, this is also known as a business strategy or plan, which is created by an organisation for doing the business within the international markets. International strategy generally needs to analyse the international market, defining goals; studying resources; understanding the dynamics of the market along with developing offerings as well. Hence, the international business strategy assignment highlights the “influence of institutions on Multinational Enterprises based on their internal strategies and operations” as well.
Discussion
Influence of institutions on Multinational Enterprises
Based on the context of multinational corporations (MNCs), as per the views ofNorth (1990), the institutional theory is known to suggest about MNCs, which should confirm for the requirements and rules for local social environments where they can operate for being perceived as legitimate. Organisations within emerging economies have been committed to the internationalization processes for protecting themselves through the existing turmoil within the domestic markets. For instance, the Brazilian firms have been known to be late in implementing internationalization strategies due to the physical size of the country; lack within government incentives along with the cause of protectionist measures which has been responsible for isolating the domestic market till the year of the 1990s. Local government seems to encourage the Brazilian enterprises for operating abroad and for changing the business dynamics as well. Eventually, the investigation on the international business strategy assignment displays that the strength based on the domestic market has discouraged certain enterprises by diversifying their operations for operating within unfamiliar environments that impose a greater risk and cost as well.
Institution-based view
As evidenced by Meyer, Estrin, Bhaumik & Peng (2009), the institutions are considered to be independent variables, this particular view generally focuses upon the dynamic interaction within the institutions as well as organisations that undertake the strategic choices resulting in the relationship. It has been evidenced in the international business strategy assignment that an enterprise, which embeds within a specific institutional environment, seems to seek for optimisation of its performance as per the respective context where it operates. The institution-based view argues that institutional forces exerts significant impact on the performance of the organizations since they are responsible for causing changes to the strategies adopted by exporters and for influencing the competency within the market segment (Ahmed & Brennan, 2019) . Hence, the rise within this view has been a dominant perspective within strategy as well as IB research for the emerging economies.
Figure 1: Institution-based view
Source: (Peng, Wang & Jiang, 2008)
Institutionalization and institutions
The concept of Organisational institutionalism examined in this segment of international business strategy assignment emphasizes the processes and institutions within the organisational level. This has been found to insert the organisations within the various contexts for enabling analysis for the interactions consisting of the external and internal environment (Ahrne, Brunsson & Seidl, 2017). This strives for the assurance of their continuity within the midst for contextual pressures along with situating the analysis for resulting an organisational model. There are certain limitations, which are imposed by institutional environments upon the organisations that attempt to ensure their survival, which has been imposed with normative; regulatory and cognitive-cultural elements as well (Biesenthal, Clegg, Mahalingam, & Sankaran, 2018).
According to Lucke&Eichler (2016), it is noted herein international business strategy assignment that institutional environment is also described as the set of regulations and rules, which organisations need to abide for obtaining expected support as well as legitimacy, by the environment where they operate. However, the institutional theory is known to be used by the institutions for influencing the MNEs. The particular perspective helps in understanding how institutional mechanisms are found to function along with their influence upon the performance and strategy of the enterprises.
Institutional theory
Within the context of multinational corporations and enterprises, the use of institutional theory is known to suggest that the MNEs should abide by the requirements and rules for the local social environment where they tend to operate for being perceived as legitimate (Rodgers, Stokes, Tarba& Khan, 2019). Application of institutional theory within the study of influencing MNEs elucidated in the context of international business strategy assignment can help in examining the critical issues along with allowing for theorizing within the multiple levels based on analysis that is significant for the multinational organisations (Corbett, Webster & Jenkin, 2018). For instance, the use of Neo-Institutional theory seems to suggest about the structure as well as actions of an organisation that are affected through the social environment. As stated by Gaur, Kumar & Singh (2014), the institutional context consists of three domains such as regulatory (coercive pressures); the normative (normative pressures); as well as the cognitive (mimetic pressures) along with its impact upon the entry modes of the organisations which might be detected.
It has been argued by Holmes, Miller, Hitt & Salmador (2013) in regards with the case scenario of international business strategy assignment that according to institutional theory, the adoption and practice of an organisation seem to be influenced by the institutional environment that surrounds the organisation.
It has been evidenced that institutional theory has been concentrated on explaining and showing dissimilarities within the practices of the organisations over the national borders. For instance, the enterprise groups of Korea; Japan and Taiwan have displayed some distinctive patterns for ownership; finance; management along with production while the uniform patterns for each country because of the legitimacy and seeking behaviours. Accordingly, in comparison with the auto industries of Korea; Argentina; Spain and Taiwan have held common aim for employing the similar policies and the development patterns that are differentiated dramatically due to the difference within the institutional arrangements. As opined by Buchanan, Le & Rishi (2012), there are several approaches related to the institutional theory, which emphasizes the relationships within the organisations as well as the institutional environments.
An institution based view explored in the international business strategy assignment generally focuses upon the dynamic relations for the organisations and the institutions along with considering the strategic choices being a result of such an interaction.
The approaches are business systems approach; varieties of capitalism approach; and societal effect approach which are the strands of institutionalism as well. It has been argued that adoption based on institutionalised elements can result in leading to structural equivalence for the organisation along with the global institutional environment as well. In contrast, based on the proponents for application of comparative institutional approaches for the MNCs, it has been known to focus upon the primary rejection of the idea that the MNCs seems to converge within transnational best practice mode.
The international business strategy assignment examines the views of Bénassy-Quéré, Coupet & Mayer (2007) that apart from these approaches, the contingency theory of institutionalism based on organisational design is considered to state about the structure, which can fit for the contingency producing certain beneficial outcomes regarding MNEs. This theory is also known to imply being an institutional fit for the organisations. The contingency fits have been found to produce with internal effectiveness and on the other hand, the institutional fit seems to produce an external legitimacy as well as support. This leads to conflict within institutional theories and contingency through prescribing various structures as per their fits.
The views of Keig, Brouthers& Marshall (2019) also supports the arguments raised on this international business strategy assignment that the strands of institutional theory along with the contingency theory proves to be making important contributions to the understanding of the institutional environment where the MNCs are found to be confronted. However, the theories of institutionalism are known to neglect the reactive and active roles that are played by the MNEs within the process for transnational as well as globalisation institution building. It can result in being problematic as it can hinder the development based on an in-depth understanding of dynamic interrelationship within the transnational institutions and the MNCs as well.
As argued by Bhaumik, Driffield, Gaur, Mickiewicz & Vaaler (2019) on the case of international business strategy assignment, as compared with the overall approaches and theories of institutionalism, resource dependency theory and agency theory are known to help influence the MNEs for taking certain non-market strategies along with the behaviours for dealing with the host government. Resource dependency theory of institutionalism stands for external resources based on an organisation affecting organisational behaviour. As per the procurement related to external resources, it seems to be a significant tenet for both the tactical and strategic management for any organisational culture. Focusing on organisational power and politics, the particular theory has been operationalised for the resource-based theory. As per this theory described in the international business strategy assignment, the units are known to be differentially valuable for dealing with the crises that emanate through the external environment.
An institution based view based on strategy has been the result for consideration for both the streams for the context of business strategy. It tends to conceive strategic choices resulting in dynamic interaction within the MNE organisations and the informal and formal institutional environments as well. It has been evidenced in this aspect of international business strategy assignment that both the formal institutions and culture are interrelated for affecting the strategies of the firms. However, some of the specific institutions such as intellectual property protection seem to be significant for enforcement and law; and the collective influence based on institutions consists of a critical influence for the international strategies of the MNE organisations. Nevertheless, the complexity of the institutions is considered carefully within executives strategic decisions. When the organisations are known to consider the entry for a foreign market, they tend to consider the use of institutional distance within the host countries and localities as well.
On the contrary, as evidenced by Filatotchev, Poulsen & Bell (2019), agency theory seems to be applicable for the hierarchical model for the MNCs where the subsidiaries mostly exploit competencies. On the other hand, modern MNCs are found to be increasingly viewed for being differentiated networks, where the subsidiaries function for the traditional competence as per the exploiting role. Furthermore, agency theory outlined herein international business strategy assignment is mainly applied while the decision rights of subsidiaries are loaned through the headquarters whereas; resource dependency theory is applied when subsidiaries are known to own the rights of decisions. This theory has been considered to provide a better basis for understanding the relationships within the creation of competence subsidiaries along with their parent MNEs. Hence, as per the differentiated network of MNCs, both the theories can be stated as important for understanding the full range related to the relationships of headquarter subsidiary.
Types of institutions and their impact upon the options and decisions of MNEs
According to Rodgers, Stokes, Tarba& Khan (2019), it has been evidenced that there exist three types of institutional isomorphism, which is responsible for shaping the behaviour of an organisation such as mimetic isomorphism, which relies upon imitation based on successful procedures and structural arrangements. On the other hand, coercive isomorphism defined in this part of international business strategy assignment is considered as the response to political impositions and normative isomorphism stands for resulting for the influences through professional elements that are exerted by the cognitive consolidation and construction that includes a set of working methods and norms that are shared by profession members. Organisations have been immersed within the internationalisation process and are continuously involved with the institutional systems as well as subject as per the influence based on various institutional levels however consisting of a dynamic; non-linear; fragmented and multi-dimensional environment as well. The main role of institutions within the society has been for reduction of uncertainty through the establishment of stable structure based on human interaction.
International isomorphism is known to describe the process within which the organisations can obtain increasing similarity within the structure. The respective process is generally assumed for being driven primarily through the desire of decision makers for creating organisations which can excel and confirm within their practice based on ideas; social rules as well as practices. As there are three major types of institutions such as, normative; isomorphism and mimetic and coercive. Isomorphism is known to be the similarity within the structure and the process for any organisation whether it is a result of being independent development and limitation for the similar constraints.
Thus, considering the overall discussion on the international business strategy assignment, it can be evidenced that the determination for the entry modes can be examined with the use of the framework of institutional theory. The sources of isomorphic pressures affect the strategic unit of international business and the choice of entry mode such as international institution environment, which is the parent organisation, and institutional environment of host country as well. These entry modes needs to adopt the similar forms of organisation along with the policies; structure as well as practices, thus becoming isomorphic for confirming the behavioural norms in the organisational environment. The companies which makes use of licensing agreements; exporting and joint ventures ends to demonstrate external isomorphism and the companies which makes use of mixed mode of entry tends to demonstrate the lower levels of isomorphic pressures.
The differences within the informal and formal institutions highlighted in the international business strategy assignment compose the distance of the institutions along with impacting upon the ways through which the organisations enter into the foreign markets. For instance, according to Ciszewska-Mlinari? & Tr?pczy?ski, (2019), greater institutional distance is known to contribute for the liabilities for foreignness which are the challenges that need to be managed in an effective manner for meeting with the success within the new market. Hence, most of the organisations are found to follow regional and international strategies where they tend to invest within the selected region for the whole world.
As opined by Kostova and Marano (2019), MNCs have been operating within a global institutional environment that is shaped increasingly through the global regulatory; economic; political and social institutions. However, MNCs do not consider the adaptation of global institutional environment, which brings the aspect of actively shaping the transnational institutions. Nevertheless, as per the recent research, it has been obtained that MNCs seem not to respond to the economic and technological uncertainties but are known to actively include the growth for transnational standards as well as regulations. For instance, the transnational standard has been distinguished within three areas that impact the business activities of MNCs such as “product standards; standards regulating who is a fit and proper corporate person; and standards for fair dealing” as well. Product standards have been influenced actively by the MNCs, which are single powerful like Microsoft that was found to use its monopoly power for forcing the suppliers and the customers in adopting the application of Windows. On the other hand, it is also demonstrated herein international business strategy assignment that MNCs are known to be shaped through transnational standard-setting which might not be well understood concerning the regulatory dimensions.
The proliferation of transnational institutions within the form of conventions; protocols; standards and regimes seems to be a growing influence for the organisational practice. The setting of standard is known to entail a complex dynamic for elaboration as well as negotiation; monitoring and implementation of the standards. This helps in impacting the research and development; production; distribution and marketing; litigation; finance and audit as well. Setting the standards of the organisations helps in influencing the MNCs to adopt their operations and strategies abiding those particular standards as well as coordinate with the other firms as well. These aspects outlined in the international business strategy assignment are considered as the regulations that need to be followed for developing international business strategy of the MNCs. However, the types of standards obtained by the organisational are referred to as the specification of procedures and principles through which the institutions can assure to provide with an appropriate learning and research environment. This makes organisational standards similar with the quality standards while using the expectations as well as norms of provision.
Figure 2: Transnational institution influencing MNCs
Source: (Lundan and Li, 2019)
Through this, it can be evidenced in this section of international business strategy assignment that mimetic and normative isomorphism has supported the adaptation for several quality standards, for instance, ISO 9000. Major organisations view introduction for ISO standards to be a necessity for the success of businesses as their suitability has been constructed institutionally beside any proof about the standards that can meet with the reality. MNCs are known to operate transnationally as well as globally along with institutionalising the practices of management as well as structures for corporate wider level. This has been associated with the above argument mentioned in the context of international business strategy assignment about the MNCs to play an active role in shaping the global institutional environment. Kern, Almond, Edwards &Tregaskis (2019), stated that Japanization of organisational and work practices for instance, within the UK,for dominance of Anglo-Saxon practices of style management as well as Germany orFinland, was found to be concerned with the role played by MNCs, while practising the patterns of work systems and transferring management for hosting the country environments.
However, according to the third concept of institutionalisation, the subsidiaries and headquarters of MNCs are still embedded locally within the host and home countries, as well as the practices of institutionalisation, are strongly dependent upon specific concepts of institutionalisation based on the local environments. As per this context of international business strategy assignment, it emphasizes mimetic isomorphic pressures that led to diffusion for several practices of management, for instance, the spread in new systems of accounting software like SAP. This helps for escalator and global lifts industry and diffusion for teamwork within the European industry of car manufacturing.
Formal and informal institutional influence
Formal institutions are referred to as constitutions; form of government and contracts as well which are enforced through the official authorities. However, informal institutions involve customs; traditions; moral values; and similar other norms for the behaviour that have passed the time of test (Mousourakis, 2019). The informal institutions tend to be more persistent rather than the formal rules.
The readings of Cai, Ramis Ferrer & Luis Martinez Lastra (2019) explored in this segment of international business strategy assignment illustrates that the organisations consist of a greater distance of informal institutions as per the locations of corporate social performance. On the other hand, a greater distance of the formal institution within the MNEs brings moderate benefits for a corporate social performance about a good international scope. With the use of institutional distance being a theoretical lens, it has been examined that greater institutional diversity consists of disparate influences upon social performance as per various types of MNEs.
Each MNE is conceptualised as a unique portfolio for the locations and footprints are used for examining the impact based on formal and informal institutional distances upon the corporate social performance of the MNEs. There is a moderating influence for a greater formal institutional distance, which results in slowing an increased benefit rates related to the greater scope of internationalisation. However, according to Edwards, Schnyder & Fortwengel (2019), there also exist a direct influence for a greater informal institutional distance, which lowers the levels based on corporate social performance that is independent of the international scope for the MNEs. Thus, formal and informal institutional distances comprise of disparate implications regarding the organisations for their success in entering into the foreign markets.
Hence, the study developed herein international business strategy assignment signifies that the informal and formal institutions also impact the global strategy and decisions of the MNE organisations. For instance, as per the World Bank, it has been defined that these institutions are the sets of informal and formal rules which are influenced through the other branches related to the government and also creates difficulty for independent decisions. As stated by Bhaumik, Driffield, Gaur, Mickiewicz &Vaaler (2019), these institutions also impact the operations of MNE organisations .For instance, as per the aspect of Foreign Direct Investments location, the use of panel data regarding 65 host countries and 29 sources within the period of 1995-2009 led to the determinants for bilateral FDI stocks that focuses upon the cultural and institutional factors. Thus, this results in the significance of cultural and institutional distance along with FDI, which consists of predominant regional aspects as well. FDI for the developing countries are known to be positively affected through the host country whereas; foreign investors are found to prefer investing within the developed countries which seems to be politically unstable along with being much more corrupted as compared with the home.
According to the views of Cuervo-Cazurra, Gaur & Singh (2019), it is clear in this context of international business strategy assignment that this ensures that the foreign investors are known to prefer investing within the countries consisting of less diverse societies as compared with their own. However, a significant step for the process of internationalisation based on the firms of the emerging economy seems to be the shift through exports towards foreign direct investment (FDI). It has been integrated about the institution and resource-based view for suggesting about the organisations which might make use of institutional advantages that are known to be much more likely for making the shift. It has been evidenced that the organisations which are affiliated with the business group, comprises of the group and firm-level international experience along with marketing and technological resources as well as operating within the service industries which can shift through the exports of FDI.
As per the above discussion on international business strategy assignment, it has been stated by Humphrey, Todeva, Armando &Giglio (2019), that the informal institution of a country with varied forms of cultural dimension based on future and collectivism orientation shape the formal institutions of the country. Thus, eventually, each of the institutions tends to affect the inward level of a country’s foreign direct investment in a different way. This brings the context of institutional quality which provides a significant and positive effect upon FDI.
What is the impact of institutions outlined in the international business strategy assignment upon strategies and choices of MNEs?
As per the knowledge from the above discussion provided within the international business strategy assignment, it has been evidenced by Aguilera and Grøgaard, (2019) that various institutional environments seem to be influential for the development of a global strategy. Adjustment based on the strategy is known to be relevant as per the success for international markets. This highlights that before the development of entry strategies for the MNE organisations, companies are found to consider other factors specifically institutions. For instance, formal institutions consist of a profound impact on global strategy for the business. The global strategies solely determine the basis for resource-based and industry considerations.
Institutions highlight a direct impact for determining how well the organisations can formulate as well as implement strategies. Thus, institutions that are the rules for the game are known to importantly shape the strategies of the MNE organisations. Thus, according to Iqball, Yun, Akhtar & Nyarko (2020), it is stated herein international business strategy assignment that knowing game rules indicates the failure and success of global projects. As per the business regulations of formal institutions, institutionalised structure within the emerging economies are not that entrepreneurial friendly though the countries are found to be working for the improvement of the business regulations. Besides the positive development, the emerging economies are not that supportive for new ventures. Thus, the countries consisting of weaker institutions such as within emerging economies need a different global strategy as compared with the countries consisting of stronger institutions, which are found in the developed economies.
Conclusion
To conclude, the present international business strategy assignment has highlighted the facts related to institutional influence upon Multinational Enterprises as per their international strategies and operations as well. Institutional theory impacting upon the MNE organisations along with various institutions has been emphasized in the present discussion. However, the impact based on various institutions for the options and decisions of MNEs has also been discussed in the above study prepared within the international business strategy assignment along with examples such as FDI locations of MNE organisations.
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