Cross cultural management 3e by cullen ch03

Chapter 3
The Institutional Context of
Multinational Management

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Learning Objectives
•• Understand
Understand the
the national
national context
context and
and how
how itit affects
affects the
the
business
business environment
environment
•• Understand
Understand the
the influence
influence ofof the
the institutional
institutional context
context ofof
countries
countries
•• Understand
Understand how

how social
social institutions
institutions influence
influence both
both
people
people and
and organizations
organizations

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Learning Objectives
•• Understand
Understand the
the basic
basic economic
economic systems
systems and
and influence
influence
on
on multinational
multinational operations
operations
•• Understand
Understand industrialization
industrialization and
and implications

implications for
for
multinationals
multinationals
•• Understand
Understand the
the world’s
world’s basic
basic religions
religions
•• Develop
Develop an
an understanding
understanding ofof education
education

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Learning Objectives
•• Understand
Understand the
the convergence
convergence perspective
perspective on
on
organizations
organizations
•• Understand
Understand the

the importance
importance ofof the
the national
national context
context and
and
its
its connection
connection with
with other
other international
international management
management
areas
areas

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Institutional Context
•• Includes
Includes other
other elements
elements besides
besides national
national culture
culture that
that
can
can produce

produce important
important differences
differences
•• Understanding
Understanding the
the institutional
institutional context
context isis therefore
therefore
extremely
extremely important
important for
for better
better multinational
multinational
management
management

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Social Institutions
•• Complex
Complex ofof positions,
positions, roles,
roles, norms,
norms, and
and values
values
organizing

organizing stable
stable patterns
patterns ofof human
human resources
resources toto
sustain
sustain important
important societal
societal structures
structures
•• Three
Three key
key social
social institutions
institutions
•• Economic
Economic systems
systems
•• Level
Level ofof industrialization
industrialization
•• Religions
Religions
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Social Institutions and
Influence on Society
•• Regulative
Regulative social

social institution:
institution: constrains
constrains behaviors
behaviors
through
through rules
rules
•• Cognitive
Cognitive social
social institution:
institution: widely
widely shared
shared knowledge
knowledge
regarding
regarding how
how things
things are
are done
done
•• Normative
Normative social
social institution:
institution: values
values and
and norms
norms
promulgated
promulgated by
by the

the social
social institution
institution

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Social Institutions and
Influence on Organizations
•• Organizational
Organizational isomorphism:
isomorphism: pressure
pressure toto follow
follow similar
similar
paths
paths inin management
management practices
practices

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Organizational Isomorphism
•• Coercive
Coercive isomorphism:
isomorphism: forces
forces that
that coerce
coerce

organizations
organizations toto adopt
adopt certain
certain practices
practices
•• Mimetic
Mimetic isomorphism:
isomorphism: organizations
organizations purposefully
purposefully copy
copy
the
the strategies
strategies ofof the
the most
most successful
successful organizations
organizations
•• Normative
Normative isomorphism:
isomorphism: conformance
conformance toto professional
professional
and
and technical
technical norms
norms

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Economic Systems
•• Economic
Economic systems:
systems: system
system ofof beliefs,
beliefs, activities,
activities,
organizations,
organizations, and
and relationships
relationships that
that provide
provide the
the goods
goods
and
and services
services ofof aa society
society
•• Important
Important implications
implications based
based on
on
•• Type
Type ofof economic
economic systems
systems
•• Market

Market transitions
transitions
•• Privatization
Privatization
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Economic Systems
•• Capitalist/market
Capitalist/market economy:
economy: production
production isis decentralized
decentralized
toto private
private owners
owners
•• Owners
Owners perform
perform activities
activities toto make
make profits
profits
•• Socialist/command
Socialist/command economy:
economy: production
production resources
resources are
are
owned
owned by

by the
the state
state
•• Production
Production decisions
decisions centrally
centrally coordinated
coordinated
•• Mixed
Mixed economy:
economy: combines
combines aspects
aspects ofof capitalist
capitalist and
and
socialist
socialist economies
economies
•• Ex.,
Ex., Sweden,
Sweden, France,
France, Denmark,
Denmark, Italy,
Italy, and
and India
India
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Economic Systems:

Implications
•• Decisions
Decisions toto operate
operate inin aa country
country can
can be
be made
made based
based
on
on the
the dominant
dominant economic
economic type
type
•• InIn mixed
mixed economies,
economies, multinationals
multinationals should
should expect
expect toto
subordinate
subordinate its
its economic
economic goals
goals and
and respect
respect social
social
objectives.

objectives.

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Economic Systems:
Implications (cont.)
•• Multinationals
Multinationals should
should expect
expect toto develop
develop more
more formal
formal
relations
relations with
with the
the government
government inin mixed
mixed economies.
economies.
•• Index
Index ofof economic
economic freedom
freedom can
can be
be used
used toto determine
determine
the

the extent
extent ofof governmental
governmental intervention
intervention

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Exhibit 3.2: Selected Country
Scores on Index of Economic
Freedom

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Economic System: Market
Transitions
•• Changes
Changes societies
societies experience
experience as
as they
they move
move from
from
socialism
socialism toto aa market-based
market-based economy
economy
•• Multinational

Multinational implications
implications
•• Need
Need toto turn
turn around
around inefficient,
inefficient, formerly
formerly state-owned
state-owned
companies
companies toto perform
perform business
business functions
functions
•• Motivational
Motivational issues
issues with
with workers
workers

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Economic System:
Privatization
•• Privatization:
Privatization: transfer
transfer ofof state
state ownership
ownership toto private

private
individuals
individuals
•• Implications
Implications
•• Significant
Significant opportunities
opportunities toto invest
invest inin companies
companies
•• Opportunities
Opportunities toto access
access new
new markets
markets and
and cheap
cheap
labor
labor

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

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Industrialization
••
••

How
How production
production isis organized
organized and
and distributed
distributed inin society
society
Types
Types
•• Pre-industrial
Pre-industrial
•• Industrial
Industrial
•• Post-industrial
Post-industrial

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Industrialization
•• Pre-industrial
Pre-industrial society:
society: agriculture
agriculture dominates
dominates the
the

economic
economic environment
environment
•• Industrial
Industrial society:
society: dominance
dominance ofof the
the secondary
secondary or
or
manufacturing
manufacturing sectors
sectors
•• Post-industrial
Post-industrial society:
society: emphasis
emphasis on
on the
the service
service
sectors
sectors

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Exhibit 3.4: Distribution of Production
Activities by Sectors

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

market size
size
and
and growth
growth

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

achievement
achievement

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Exhibit 3.5: Materialist Scores of
Selected Countries

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Exhibit 3.6: Post-materialist
Scores for Selected Countries

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Religion
•• Shared
Shared set
set ofof beliefs,
beliefs, activities,
activities, and
and institutions
institutions that
that
have
have basis
basis upon

upon faith
faith inin supernatural
supernatural forces
forces
•• Forms
Forms the
the foundation
foundation ofof human
human society
society
•• Provides
Provides individuals
individuals with
with guidelines
guidelines toto deal
deal with
with issues
issues
•• Christianity,
Christianity, Islam,
Islam, Hinduism,
Hinduism, and
and Buddhism
Buddhism are
are
followed
followed by
by almost
almost 71%
71% ofof the

the world’s
world’s population
population

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