Peng GlobalStrategy 3rdEd Ch 4

Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.OutlineUnderstanding institutionsAn institution-based view of strategyThe strategic role of culturesThe strategic role of ethicsA strategic response frameworkDebates and extensionsImplications for strategists

Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.*

Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Dimensions of InstitutionsInstitutions: DefinitionsHumanly devised constraints that structure human interaction (North)Regulatory, normative, and cognitive structures and activities that provide stability and meaning to social behavior (Scott)Table 4.1

DEGREE OF FORMALITYEXAMPLESSUPPORTIVE PILLARSFormal Institutions Laws Regulatory (coercive) Regulations RulesInformal institutions Norms Normative Cognitive Cultures Ethics


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Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Understanding Institutions (contd)Institutional framework - formal and informal institutions governing individual and firm behavior - supported by three pillarsFormal institutions - laws, regulations, rules - supported by the regulatory pillar (the coercive power of governments)Informal institutions - norms, cultures and ethics - supported by the normative and cognitive pillars



Understanding Institutions (contd)What Do Institutions Do?

Key function - Reduce uncertaintyHow Do Institutions Reduce Uncertainty?

Relational contracting - informal, relationship-based, personalized exchangesArms length transaction - formal, rule-based, impersonal exchange with third part enforcementInstitutional transitions - fundamental and comprehensive changes to the rules that affect all organizations


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Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The Costs and Benefits of Informal, Relationship-Based, Personalized ExchangeFigure 4.1


Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The Costs and Benefits of Formal, Rule-Based, Impersonal ExchangeFigure 4.2



An Institution-Based View of StrategyThere is a need to discuss the relationship between strategic choices and institutional frameworksInfluence of task environment has been explored in strategy literature

Porters diamond model explains competitive advantage of globally leading industries in different countries, criticized for ignoring history and institutions Strategic choices are selected within and constrained by institutional frameworks in developed economiesStriking differences between institutions in developed and emerging economies has pushed the institution-based view to the forefrontStrategic choices are direct outcomes of the dynamic interaction between institutions and firms


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The Porter Diamond: Determinants of National Competitive AdvantageSource: Reprinted by permission of Harvard Business Review from The competitive advantage of nations (p. 77) by Michael Porter, March/April 1990. Copyright 1990 by the Harvard Business School Publishing Corporation; all rights reserved.

Figure 4.3


Institutions, Firms, and Strategic ChoicesSources: Adapted from (1) M. W. Peng, 2000, Business Strategies in Transition Economies (p. 45), Thousand Oaks, CA: Sage Publishing.; (2) M. W. Peng, 2002, Towards an institution-based view of business strategy (p. 253), Asia Pacific Journal of Management, 19 (2): 251267.Figure 4.4Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


Two Core PropositionsManagers and firms rationally pursue their interests and make choices within the formal and informal constraints in a given institutional framework.While formal and informal constraints combine to govern firm behavior, in situations where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty to managers and firms.



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The Five Dimensions of CulturePower Distance

Refers to the extent that the members of a society expect and accept that power is distributed unequallyIn Brazil, the richest 10% of the population receives about 50% of the national income (high power distance)In Sweden, the richest 10% gets 22% of the national income (low power distance)


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The Five Dimensions of CultureIndividualism vs. Collectivism

IndividualismTies between individuals are looseIndividual achievement and freedom highly valuedCollectivismTies between individuals are strongCollective accomplishments highly valuedIn difficult times, the United States oftentimes practices layoffs (individualism) while Japan oftentimes institutes across-the-board pay cuts (collectivism)Masculinity versus femininity


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The Five Dimensions of CultureUncertainty avoidance

Low uncertainty avoidance countries: place a premium on job security, career patters, and retirement benefits; resist change (Greece)High uncertainty avoidance countries: willing to take risk with less resistance to change (Singapore)Long-term orientation Cultures with long-term orientation: emphasize perseverance and savings for future betterment (China)Cultures with short-term orientation: want quick results and instant gratification.Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


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Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The Strategic Role of EthicsEthics: Norms, principles, and standards of conduct that govern individual and firm behaviorAll agree - ethics can make or break a firmValue of an ethical reputation is magnified during crisis


Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Views on Business EthicsManaging Ethics Overseas

What is ethical in one country may be unethical or illegal in other countriesTwo perspectives on dealing with ethical dilemmas overseas (Donaldson)

Ethical relativism - when in Rome, do as the Romans doEthical imperialism - absolute belief that there is only one set of Ethics, and we have it!Donaldsons three guiding principles:

Respect for human dignity and basic rightsRespect for local traditions Respect for institutional context


Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Views on Business Ethics (contd)Ethics and Corruption

Corruption distorts the basis for competitionCorruption: tendency for inverse relationship with economic development. There are exceptionsU.S. firms are subject to the Foreign Corrupt Practices Act (FCPA)



Strategic Responses to Ethical ChallengesEXAMPLES INTHE TEXTSTRATEGICBEHAVIORSSTRATEGICRESPONSESReactiveDeny responsibility, do lessthan requiredFord Pinto fire (the 1970s)DefensiveAdmit responsibility, but fight it, do the least that is required Nike (the early 1990s), Facebook (2011)AccommodativeAccept responsibility, do allthat is requiredFord Explorer roll-overs (the 2000s)ProactiveAnticipate responsibility, domore than is requiredBMW (the 1990s)Table 4.5


Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Debates and ExtensionsOpportunism versus Individualism/CollectivismCultural Distance versus Institutional DistanceBad Apples versus Bad Barrels


The Savvy StrategistUnderlying context of institutional structures, resources and capabilities impact strategic choicesInstitutions, culture, and ethics implications: homework, cross cultural intelligence, and ethics are part of strategy Institution-based view answers to the four fundamental questions

Why do firms differ? Institutional frameworks shape firm differencesHow do firms behave? Institutional differencesWhat determines the scope of the firm? Development of formal institutional frameworksWhat determines the international success and failure of firms? Institutional frameworks govern strategic choicesCopyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


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Peng GlobalStrategy 3rdEd Ch 4

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Transcript of Peng GlobalStrategy 3rdEd Ch 4