Clarifying the relationships between institutions and global strategy

Abstract

Research summary We review the relationships between institutions and global strategy and explain several clarifications for future research. First, studies need to clarify the standard used to assess quality in institutional dimensions they research rather than let readers assess them from the measures. Second, analyses need to specify the theoretical approach used, which may be based on the paradigm from a single discipline (economics, sociology, politics, psychology) or the integration of underlying disciplines, as often seen in management. This must form the basis of a consistent set of assumptions rather than a potpourri of arguments from incompatible logics. Third, investigations need to clarify the direction of relationship and mechanisms. On the one hand, studies on the impact of institutions on strategy should clarify the institutional influences used (adapt, appeal, avoid). On the other hand, research on the effect of strategy on institutional change should clarify the institutional strategies (inform, influence, incentivize) and institutional spillovers (compete, command, copy) by which firms change institutions. Managerial summary The study of institutions (controls of the behavior of individuals and firms) has become a popular topic analyzed in global strategy. Unfortunately, there is some confusion on how institutions affect the global strategy of firms because of differences in the viewpoints used to explain the relationships. We clarify past arguments by explaining the need to identify the standards used to assess quality in institutions, and the assumptions of approaches based on underlying disciplines (economics, sociology, politics, or psychology) as well as those that integrate these disciplines like in management. We also explain the mechanisms by which institutions affect the global strategy of firms (adapt, appeal, avoid), as well as the mechanisms by which global strategies influence the transformation of institutions via institutional strategies (inform, influence, incentivize) and institutional spillovers (compete, command, copy).

Relational ownership, institutional context, and internationalization of state‐owned enterprises: When and how are multinational co‐owners a plus?

“…After proposing our baseline hypotheses following the conventional wisdom of IB and international economics, we discuss them from the “liability of stateness” (LoS) (Kalasin et al, 2019; Musacchio et al, 2015) and “government as strategist” (GaS) (Cuervo‐Cazurra et al, 2014; Lenway & Murtha, 1994) conflicting views. Then, we integrate the LoS and GaS views with an institutional context‐based approach (Cuervo‐Cazurra, Mudambi, & Pedersen, 2019) based on both the varieties of capitalism (Hall & Soskice, 2001; Jackson & Deeg, 2008; Mariotti & Marzano, 2019) and the quality of government action (La Porta, Lopez‐de‐Silanes, Shleifer, & Vishny, 1999; Rothstein & Teorell, 2008). Merging these perspectives yields better understanding of SOEs' internationalization process, and it enables fruitful discussion of the institutional boundary conditions under which foreign MNEs can help SOEs to cope with difficulties they face when they are defining and implementing their internationalization strategies.…”

“…By doing so, we refer to the IB literature on the moderating effect of institutions (for recent surveys and critical considerations see Aguilera & Grøgaard, 2019; Cuervo‐Cazurra et al, 2019). Specifically, we argue that the co‐ownership of state and foreign investors in strategically and politically sensitive industries such as those in which SOEs operate can lead to specific principal–principal conflicts with respect to the rights of minority MNE owners in the face of the controlling state‐owner's manipulations (V. Z. Chen et al, 2019; Renders & Gaeremynck, 2012; Singla, George, & Velyath, 2017).…”

Defining and deterring corporate social irresponsibility: embracing the institutional complexity of international business

“…By emphasizing the salience of formal institutions, IB scholars risk neglecting the role of social means of enforcement (Cuervo-Cazurra et al, 2019). Because CSI is broadly associated with the formal institutional environment in which the firm operates, current studies do not fully consider the relevance of intra-organizational factors, such as firms and managers in avoiding or enacting CSI behaviors, in addition to the role of various intra-organizational factors among supply chains and industry sectors.…”

Male and female entrepreneurs’ employment growth ambitions: the contingent role of regulatory efficiency

“…Second, formal institutional arrangements shape not only the number of women (and men) exploring entrepreneurial opportunities and making strategic choices, but also in what ways these women form and realize growth ambitions (Brush et al 2009;Thébaud 2015). We utilize both economic and management approaches to understanding how entrepreneurs both operate within controls and adopt to controls imposed by formal institutions (Cuervo-Cazurra et al 2019). That is, from an economics standpoint, stringent formal institutions limit market exchanges, and are quite explicit about the laws and regulations, and high-quality (i.e., market supporting) institutions facilitate market transactions; from a management standpoint, entrepreneurs can analyze, understand, and learn how to operate within institutional constraints (Cuervo-Cazurra et al 2019).…”

“…We utilize both economic and management approaches to understanding how entrepreneurs both operate within controls and adopt to controls imposed by formal institutions (Cuervo-Cazurra et al 2019). That is, from an economics standpoint, stringent formal institutions limit market exchanges, and are quite explicit about the laws and regulations, and high-quality (i.e., market supporting) institutions facilitate market transactions; from a management standpoint, entrepreneurs can analyze, understand, and learn how to operate within institutional constraints (Cuervo-Cazurra et al 2019). In this respect, formal institutions can set the "rules of the game" in such a way that male entrepreneurs have a high (or low) relative rewards for setting high employment growth ambitions compared to female entrepreneurs (Baumol 1990;North 1990;Estrin and Mickiewicz 2011).…”