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Institutional contexts
WHAT ARE INSTITUTIONS
Structures and activities that provide stability to a society
They consist of:
o Family system
o Education system
o Economic system
o Religious systems
o Social systems
o Political systems
These sets of systems altogether provide the set of conditions of which organizations take action on
o Rules of the game which allows organizations to compete with each other in a national context
o Non-conformity results in increased costs and risks, and decreases legitimacy
Costs like fines or penalties; risks like learning how to fit in; legitimation is following the rules of the game, which
is defined by institutional contexts
Institutions are largely defined by the legal system of a society laws and regulations
Weak trade unions; lower Strong trade unions; higher employment Labour collective (workers have
Industrial relations employment protection; fluid labor protection; less fluid labour markets; longer rights to jobs & associated benefits);
markets job tenure state-controlled labor market
Austria, Germany, Japan, Finland, Denmark, Former Soviet Union, Cuba, North
Examples USA, Canada, UK, Australia, NZ
Belgium, Netherlands, Switzerland Korea
Examples:
Practical work in a company and accompanying instruction at a vocational
school – these are the two pillars of the German dual vocational training
model.
The fact that participants receive a monthly salary is particularly attractive for
the apprentices.
People in North Korea do not have the freedom to choose their occupations
once you’re assigned a job from the government, it is your lifelong job; it is fixed
by the government as a means of exerting control over the people
The reason the government assigns jobs is very simple: As part of strict control
over all kinds of resources under its collectivism system, the government
researches how many people are needed in each industry and location, and
assigns people accordingly
Intellectual property
Supranational laws and standards
o Internationally agreed-upon regulations and standards
o Agreements, standards, and legal frameworks developed by:
International organizations
Eg UN, OECD, ILO (International Labor Organization)
International economic treaties
Eg EU, NAFTA, Mercosur, ASEAN, APEC
o Different levels of validity
Directly binding
Obligation to implement the agreement through national law
Strictest way
Indirectly binding
Obligation to implement the agreement but not directly passed into law
Non-binding
Guidelines and recommendations only
No legal obligation for implementation
Samsung:
In 2013 – more vertical differentiation for
CE, IM and DS departments
o Mechanistic structure
More traditional type of structure
Organized by functional or divisional, more horizontal differentiation
Organized in a hierarchical manner – decision making tends to be highly centralized and formalized, from top
down
o Organic structure
4 different structure types that are interconnected to each other
Low levels of differentiation, no hierarchy
No separated or differentiated functions; meaning that decision making happens anywhere
Everyone is interdependent on each other, decentralized authority
Determining organizational structure
o Role of institutions
A broader context
Provide ground rules of a society to which organizational have to comply
Political, social, and legal rules
Eg governance structure should follow the institutional context
o Role of societal/national culture
More informal
Provide more direct effects on organizational structure
Subconscious influence on value orientations of leaders of the organization
Subconscious influence on the extent to which members/employees of organization accept the
structure
ORGANIZATIONAL CULTURE
Effects on members
o Gives a sense of belonging and oneness (identity) to members
o Provides a mechanism through which members’ behaviours are shaped to achieve organizational goals
Explains why group members behave in similar ways – bc culture sets a norm, sets behaviour standards whereby
people have to comply or follow to support their business goals so that they can improve business outcomes
together
o Becomes a major obstacle for organizational change
Shaped not just by societal/national culture
o Industry characteristics can also be important; aids in shaping norms and values
o Eg one organization in construction, the other in service/ IT both cultures would be very different
Construction industry – involves a lot of physical work, depends on customers’ needs, highly values safety and
order
IT industry – being flexible, fast, importance around data security
4 archetypes of organizational culture Family, Eiffel tower, Guided missile, Incubator
STRATEGIC CONTEXT
Strategy is how businesses achieve their goals, missions and values so that they can increase their business outcomes
Two conflicting strategic directions in managing international operations that shape a different set of MNE strategies:
o Direction for differentiation
Emphasis on local adaptation
Focus on responding to local environments
Adapt to local consumers needs
Local culture and institutional contexts
o Direction for internal consistency
Emphasis on integration of international activities
Need to be consistent between HQ and subsidiaries
Less focused on local culture and institutional context, more interested in how to transfer their HQ systems and
knowledge towards their subsidiaries
Why do firms want to integrate their international operations?
o Organizational replication logic
Tendency of firms to duplicate existing structures and procedures that are effective
Taking successful management in home operation to overseas
o Imperative for control
Want to have control over subsidiaries
Standardization of policies and procedures
To reduce complexity and uncertainty involved in controlling overseas subsidiaries and offices
Subsidiary full of uncertainty bc they have not been in that overseas market yet
In reality, it is a balancing act
o Cannot escape pressures for local adaptation
o Depends also on the industry
Some industries (eg food) tend to adopt certain strategies in other countries
Relationship
Dependent (on the
between local HR Independent Dependent (on the corporate HR) Interdependent
corporate HR)
functions
Influencing; using
Implementing; control over all Process champion; formal &
informal processes Coordination & integration; small
high-grade positions via informal influence on local
Corporate HR role to integrate; limited HQ HR function; guardians of the
career management & activities via career management
to dealing with the organizational culture
international mobility & international mobility
corporate elite
Focus on local Do not strive for efficiency or local Focus on both local adaptation
Goals Focus on global efficiency
responsiveness responsiveness to same degree and global efficiency
McDonalds Global
Example of a typical TNC in the service operation (tertiary sector)
It is the world's largest chain of hamburger fast-food restaurants with over 35,000 outlets in 119 different countries across the globe
To cater for different cultures in different countries, local specialization is used different types of burgers and menus are available
in different countries
Although the product may look the same, there are differences in energy intake, fat content, protein content, serving weight and etc.
The Big Mac is also often used as a symbol for American capitalism and the price of the Big Mac in different countries is used as a
reference point for comparing the cost of living in different countries called the 'Big Mac Index'. Currently, Switzerland is the most
expensive and Venezuela the cheapest.
It is a TNC bc it centralizes some strategic decisions to cut costs while remaining responsive to cultural distinctions; and while their
HQ is in the US where the company was originally founded in 1940, many of their offshore operations are owned locally by host-
country franchisees that are independent businesspeople.
P&G
Transnational company
Puts huge focus on gaining insight into consumers’ everyday lives, focus on what consumers need and demand
Both local adaptation and global efficiency is key
Eg Pampers in the US tape diapers, Japan pull up diapers – reinvent their key products based on the target market
P&G regularly provides training so their employees can be exposed to different environments, capabilities, people, and more
importantly, different projects knowledge-sharing is a very important work culture in P&G
For instance, it has sent over 50 people to its innovation centres outside of Singapore to learn and get hands-on experience so they
can come back and share their knowledge with their peers here
Microsoft
Global
HQ in America
Don’t have to alter their products to meet cultural trends or preferences
NOTES
Coercive, mimetic, normative ways of control, ways that an organization is pressured into behaving a certain way; standards of
practice that need to be followed
Coercive
o Rules and regulations
o HR/ organization must comply with laws eg minimal wage
Mimetic
o Peer pressure
o Similar organizations behave in a certain way, so we must behave the same way
o Eg other company pays staff a certain amount, so you would want to match that to stay competitive
Normative
o Not legal obligations, but code of practice; standards that are observed industry associations
o Eg different industries like accounting, CPA sets standards
Difference between low differentiation and high internal consistency
o Differentiation is external; how they look at things externally
Companies are rarely standing still; often heading from one to another
o Highlight evidence that shows that the company is undertaking a certain approach now
o And then show how there is also evidence to suggest that they may be moving to another strategy
Downside of global approach
o Not adaptable – harder to react to local change and forces
Local model adapted to local context can be adapted globally by the head office and rolled out in every other country