formal and informal institutions in international business formal and informal institutions in international business

Laws, rules, social conventions and norms are all examples of institutions. 1993. Batjargal, B. Three components of individualism. Administrative Science Quarterly, 44(4): 653683. Dau, L.A., Chacar, A.S., Lyles, M.A. It is also important to highlight why informal institutions matter and need to be studied in their own right (Godlewska, 2019; Granville & Leonard, 2010; ODonnell, 1996; Saka-Helmhout, Chappin, & Vermeulen, 2020; Weyland, 2002; Williamson, 2009). This strand examines how formal and informal institutional configurations and coordination mechanisms arise and evolve in different markets over time (Hall & Soskice, 2001; Streeck & Thelen, 2005). Institutions are understood as formal and informal rules and regulations. Principal-principal conflicts under weak institutions: A study of corporate takeovers in China. Fukuyama, F. 2004. Supporting: 13, Mentioning: 200 - This paper argues that the role of informal institutions as well as formal ones is central to understanding the functioning of corporate governance. 2009. First, it provides a brief but rich introduction to the topic of informal institutions and IB. Anyone you share the following link with will be able to read this content: Sorry, a shareable link is not currently available for this article. The impact of market based institutional reforms on firm strategy and performance: Review and extension. Theoretical issues in cultural psychology. They can also exist at the department level within a company. Given the clear distinction made between formal and informal institutions in the definitions for this perspective, it has also facilitated greater work on the latter (e.g., Gao, Yang, Huang, Gao, & Yang, 2018; Kshetri, 2018; Makhmadshoev, Ibeh, & Crone, 2015; Sartor & Beamish, 2014; Sun, Chen, Sunny, & Chen, 2019). Towards a renaissance in international business research? Economics and Law, 18(1): 1728. Academy of Management Review, 40(1): 7695. Thousand Oaks: Sage Publications. Journal of International Business Studies, 44(3): 235262. Scott, W. R. 2008. Guanxi and organizational dynamics: Organizational networking in Chinese firms. Rijeka: InTech. Informal institutions rule: Institutional arrangements and economic performance. Describing the differences between the two cultural traditions (and even the differences within each tradition) is beyond the scope of this editorial, but it is important to note these conceptualizations are different from that of informal institutions as the shared unwritten rules or expectations of social behavior. Adoption of an organizational practice by subsidiaries of multinational corporations: Institutional and relational effects. Of course, an alternative is to provide concerted efforts to integrate both literatures, which we would welcome, but doing so properly would be a more challenging approach. Collectively, they are likely to become important models for future research on informal institutions and will thus help to advance the field. False True Stephan, U., Uhlaner, L. M., & Stride, C. 2015. We encourage additional work in these areas. Stability vs. flexibility: The effect of regulatory institutions on opportunity type. False True No two democracies have ever reportedly gone to war with each other. Competitive strategy. However, there has been particularly limited research on informal institutions in some parts of the world, especially in some parts of the developing world. Most of these have received limited attention in the IB literature and would be worthy of further study. AbstractIntroduction and AimsEntrepreneurship and the business environment, in general, are being influenced by the existence of formal and informal institutions. After a rigorous review process, ten papers were accepted. Moreover, if we understand institutions as existing at different levels, there may be many institutions existing at the same time. University of South Carolina. Two of the SI articles extend this research by examining the informal institution of social trust. This editorial and Special Issue seek to address these gaps. We thus look forward to a rich and engaging academic conversation on the topic in the years to come. Strategic Equilibrium refers to the static case where institutions tend to remain static over time. We use the terms multinational enterprise (MNE) and multinational corporation (MNC) interchangeably in this editorial. Informal institutions are unwritten, so they are largely invisible. Zhou, L., Wu, W. P., & Luo, X. This editorial introduces the literature on informal institutions and international business (IB) as well as the Special Issue. Informal institutions and democracy. Golesorkhi et al., (2019: 105) state that informal institutions consist of culture. We have access to British, American, European, Asian and Middle Eastern Universities and colleges. On beyond interest: Rational, normative and cognitive perspectives in the social scientific study of law. Our assessments, publications and research spread knowledge, spark enquiry and aid understanding around the world. Medical innovation: A diffusion study. Institutional distance and the multinational enterprise. An aspect of similarity among the three institutional paradigms is that they all suggest that institutions constrain the behavior of actors. Oviatt, B., & McDougall, P. 1994. An institution-based view of global IPR history. Learning across geographic space: Pro-market reforms, multinationalization strategy, and profitability. The concept of culture. Lessons from rule changes in professional American baseball. Millington, A., Eberhardt, M., & Wilkinson, B. Informal institutions are equally known but not laid down in writing and they tend to be more persistent than formal rules (North, 1997). informal institutions are socially shared rules, usually unwritten, that are created, communicated, and enforced outside of officially sanctioned channels'. Universals in the content and structure of values: Theoretical advances and empirical tests in 20 countries. Journal of World Business, 53(3): 403414. International Business Review, 27(1): 259268. Academy of Management Review, 24(3): 522537. ), Individualism and collectivism: Theory, method, and applicationsNewbury Park: Sage. Furthermore, when formal institutions change, there is a clear paper trail, allowing for a straightforward examination of such change, whereas when informal institutions change or evolve, the resulting markers can be subtle and difficult to capture.2 As a result, studies examining informal institutions often rely on imperfect conceptualizations and measurements, which complicates their publication in top journals and thus reduces the incentives for authors to develop this type of work. Informal institutions and international business: Toward an integrative research agenda, Journal of International Business Studies, https://doi.org/10.1057/s41267-022-00527-5. However, they can overlap at times (Calvert, 1995; Helmke & Levitsky, 2004; Knight, 1992). Journal of International Business Studies, 11(1): 931. Helmke, G., & Levitsky, S. 2004. Experiments in financial democracy: Corporate governance and financial development in Brazil, 18821950. Multiple institutional logics in organizations: Explaining their varied nature and implications. Crossan, M. M., Lane, H. W., & White, R. E. 1999. Cao, Z., Li, Y., Jayaram, J., Liu, Y., & Lumineau, F. 2018. We thank Editor Alain Verbeke and the anonymous reviewers for their detailed and constructive feedback on this manuscript. We would encourage further work on emerging and developing countries in regions such as Latin America, Africa, the Middle East, and Central Asia, among others; as well as comparative studies across different parts of the world. 17). Culture and the self: Implications for cognition, emotion, and motivation. Jiang, G. F., Holburn, G. L., & Beamish, P. W. 2014. Profiting from globalization: Pro-market reforms, firm internationalization strategy, and firm profitability. This definition of institutions as guidelines is therefore largely compatible with Norths (1990, 2005) definition as rules of socially sanctioned behavior. ), Trade and market in the early empires economies in history and theoryGlencoe: The Free Press. Gendered effects of climate shock, formal and informal financial institutions, and welfare in post-conflict Somalia February 2023 DOI: 10.21203/rs.3.rs-2625587/v1 Work on informal institutions has been more limited, likely in part due to the difficulty in their conceptualization and limited availability of appropriate measures (Sartor & Beamish, 2014). European Management Journal, 32(1): 132136. Corruption distance and FDI flows into Latin America. Immergut, E. M. 1998. The moderating impact of informal institutional distance and formal institutional risk on SME entry mode choice. Chicago: University of Chicago Press. 2. Political Studies, 44(5): 936957. Suchman, M. C. 1997. Buckley, P., & Casson, M. 1976. Journal of Management, 39(2): 531566. 2019. Penrose, E. 1959. Baltimore: Johns Hopkins Press. Institutions and social conflict. Another paper, entitled MNC response to superstitious practice in Myanmar IJVs: Understanding contested legitimacy, formalinformal legitimacy thresholds, and institutional disguise, by Andrews, Nimanandh, Htun, and Santidhirakul, uses a qualitative methodology to examine the effects of superstition in Myanmar on MNEs. You are not currently authenticated. Institution-based view: appreciating the 'rules of the game' More recently, increasing appreciation that the 'rules of the game' (formal and informal institutions) shape firm strategy and performance (North 1990) That 'institutions matter' is hardly novel (see Hall and Soskice 2001; Scott 1995), but how they matter is critical (Peng . Hitt, M. A., Li, D., & Xu, K. 2016. International strategy: From local to global and beyond. Buckley, P. J., Doh, J. P., & Benischke, M. H. 2017. Suchman, M. C. 1995. Formal institutions are the written rules (e.g., laws and regulations), whereas informal institutions are the unwritten rules that create expectations of appropriate and inappropriate social behavior (Helmke & Levitsky, 2004, 2006 ; North, 1990, 2005; Pejovich, 1999; Sartor & Beamish, 2014 ). Orcos, R., Prez-Aradros, B., & Blind, K. 2018. The nature of the formal organization is permanent while informal organization has a temporary nature. California Law Review, 77: 455471. 'Formal and Informal institutions shape the conduct of international business.' Discuss the following using illustrative examples: a) What are the main formal and informal types of institutions an international business needs to analyse when looking to do business in a country? A. These written and unwritten rules function together as part of this system, where changes in one can affect the other. In the latter, this perspective is often referred to as Comparative Institutionalism (Hotho & Pedersen, 2012). Hotho, J. J., & Pedersen, T. 2012. The IB literature has devoted considerable attention to OI (e.g., Dau et al., 2015; Kostova, 1999; Kostova & Roth, 2002; Kostova & Zaheer, 1999; Oliver, 1997; Xu & Shenkar, 2002). The formal sector is the part of South Africa's economy that includes all formal businesses that pay their taxes and are regulated. Addressing the cross-boundary missing link between corporate political activities and firm competencies: The mediating role of institutional capital. Bringing institutions into performance persistence research: Exploring the impact of product, financial, and labor market institutions. Over time, other disciplines beyond economics have increasingly contributed to this framework, including sociology (e.g., Coleman, 1990; Nee, 1998), political science (e.g., Peters & Pierre, 1999), political economy (Campbell, 1998), Law (Abbott, 2008), and international business (e.g., Cantwell, Dunning, & Lundan, 2010; Meyer, Estrin, Bhaumik, & Peng, 2009), making it a multidisciplinary paradigm. We unlock the potential of millions of people worldwide. Indeed, recent IB research in this strand categorizes institutional contexts on the basis of actual practice instead of on formal or written rules, precisely to ensure that both formal and informal institutional configurations are considered (Witt & Reading, 2013; Witt, Kabbach de Castro, Amaeshi, Mahroum, Bohle, & Saez, 2018). Northeastern University, 309 Hayden Hall, 360 Huntington Ave., Boston, MA, 02115, USA, Florida International University, 11200 S.W. Markets and hierarchies, analysis and antitrust implications: A study in the economics of internal organization. Li et al., (2016: 590) state that the informal institutions are captured by national culture. Lebanon shows that the most important corporate features can be informal. Journal of International Business Studies, 46(3): 308331. In previous articles, we have discussed the advantages and strategies of each, but today we are making a thorough comparison. Fioretos, O., Falleti, T. G. & Sheingate, A. Offshoring innovation to emerging markets: Organizational control and informal institutional distance. Some of these norms can be so embedded and fundamental to the functioning of a social structure that even individual members may fail to realize they exist and just see them as the way things are (Chacar, Celo & Hesterly, 2018; Chacar & Hesterly, 2008). Economic integration, democracy and the welfare state. For instance, how do informal institutions interact with internalization theory (Buckley & Casson, 1976), the Uppsala model of sequential internationalization (Johanson & Wiedersheim-Paul, 1975), the Eclectic paradigm (Dunning, 1980), the products life cycle theory (Vernon, 1966), network theory (Johanson & Mattsson, 1987), the upper echelons theory (Hambrick, Li, Xin, & Tsui, 2001; Li & Hambrick, 2005), work on born globals (Knight & Cavusgil, 1996; Oviatt & McDougall, 1994), and so on? 1992. Section4 identifies gaps in the literature and proposes a future research agenda. Jepperson, R. L., Wendt, A., & Katzenstein, P. J. These institutions are diverse and may include community mechanisms or customary local governance institutions. The study of informal institutions can be quite useful for advancing other theoretical frameworks used in IB. As a result, there has been limited work on the topic, a lack of clarity on how to conceptualize and measure informal institutions, and a limited understanding of the role they play in IB. This is similar to the three pillars in OI, while allowing a greater role for both formal and informal institutions, and a more explicit distinction between them and the cognitive realm. Granville, B., & Leonard, C. S. 2010. Compositional gaps and downward spirals in international joint venture management groups.