1. The Institutional Context of Multinational Management3
The Institutional Context of Multinational Management

2. Institutional Context & Social Institutions
Institutional context includes other elements besides national culture that can produce important business related differences among societies
Understanding institutional context is important for better multinational management
Social Institutions evolve within constrains of national culture and it is defined as:
A complex of positions, roles, norms, and values organizing stable patterns of human resources to sustain important societal structures.
There are three key social institutions influencing businesses
Economic systems
Level of industrialization
Religions
Other important social institutions
Educational systems & Family

3. Social Institutions and Influence on Society
Three Dimensions of Social Institutions:
Regulative social institution:
Capacity to constrains behaviors through rules
Cognitive social institution:
Refers to widely shared knowledge regarding how things are done (self-control)
Normative social institution:
Refers to values and norms promulgated by the social institution

4. Social Institutions and Influence on Organizations
The pressure to follow similar paths in management practices is organizational isomorphism
Coercive isomorphism:
social institutions forces organizations to adopt certain practices
Mimetic isomorphism:
organizations purposefully copy the strategies of the most successful organizations
Normative isomorphism:
organizations indirectly copy designs, cultures and strategies by conforming to professional and technical norms (Happen without conscious effort)

5. 1) Economic Systems
The system of beliefs, activities, organizations, and relationships that provide the goods and services of a society
Capitalist/market economy:
production is decentralized to private owners (ex., owners perform activities to make profits)
Socialist/command economy:
production resources are owned by the state and production decisions are centrally coordinated
Mixed economy:
combines aspects of capitalist and socialist economies (ex., Sweden, France, Denmark, Italy, and India)

6. Implications from Economic Systems
1. Type of Economic Systems associated with level of government intervention
MNC may want to see the index of economic freedom to determine the extent of governmental intervention
For example: In mixed economies, multinationals should expect to subordinate its economic goals and respect social objectives. Also, MNC should expect to develop more formal relations with the government.
2. Market transitions changes societies experience as they move from socialism to a market-based economy.
Opportunity to MNC but will need to turn around inefficient, formerly state-owned companies to perform business functions and there may be important motivational issues with workers
3. Privatization refers to the transfer of state ownership to private individuals and provide significant opportunities to invest in foreign companies and to access new markets and cheap labor.

7. 2) Industrialization
Refers to how production is organized and distributed in society
Pre-industrial society:
agriculture dominates the economic environment
Industrial society:
dominance of the secondary or manufacturing sectors
Post-industrial society:
emphasis on the service sectors

8. Industrialization Implications
Direct correspondence between type of industrialization and economic development:
Industrial societies favor growth and innovation, present significant market size and growth, and are favorable environment for business
Pre-industrial countries provide cheap labor and untapped markets
Post-industrial societies put emphasis on quality-of-life as opposed to economic achievement

9. 3) Religion
Shared set of beliefs, activities, and institutions that have basis upon faith in supernatural forces
Forms the foundation of human society and provides individuals with guidelines to deal with issues
Christianity, Islam, Hinduism, and Buddhism are followed by almost 71% of the world’s population

10. Christianity Religion based on the life and teachings of Jesus
The most practiced religion around the world
Protestantism emphasizes wealth and hard work for the glory of God
Ten commandments provides the basis for ethical behaviors

11. Islam Religion based on the submission to the will of Allah (God)
The second largest of the world’s religions
Muslims live according to Islamic laws or Shari’ah
Based on five pillars: confession, prayer, alms-giving, fasting, and pilgrimage to Mecca
Implications for multinationals:
Accommodate praying five times a day
The Ramadan: a month of fasting
Natural concern with social justice
Prohibits the payment or receipt of interest
Gender roles

12. Hinduism
Acceptance of the ancient traditions of India that are based on the Vedic scriptures
Currently 760 million Hindus living around the world
Belief in reincarnation
The caste system
Ethical behaviors; respect for parents
Implications for multinationals
Spiritual achievement is an important value for most Hindus
Caste system is very pervasive
Need to be aware of caste system, e.g.. lower caste supervising higher caste can be a problem

13. Buddhism
Religious tradition that focuses on the reality of world suffering and the ways one can be freed from suffering
Craving and desires produce suffering
Dominant religion in Asia
Implications for multinationals
Encourages hard work; laziness is seen as negative
Emphasizes teamwork; all beings are interconnected
Emphasis on compassion and love

14. Religiosity
Is the indication of the importance of acceptance of the core philosophies of religion in one’s life
Understanding country level religiosity is useful because gives MNC an idea of the degree of responsiveness needed to accommodate religion on business practices

15. 4) Education
Organized networks of socialization experiences that prepare individuals to act in society
Central element in organization of society
Helps construct competencies, professions, and professionals
Implications to Multinationals:
Gives an idea of the skill level of workers in any society
Usually the more educated, the more skills workers have
Educational attainment scores help MNC to determine the nature of the workforce

16. Globalization and Convergence
Globalization is pushing organizations to be more similar
Global customers and products
Growing levels of industrialization and economic development
Global competition and global trade
Other Convergence forces
Cross-border mergers, acquisitions, and alliances
Cross-national mobility of managers
Internationalization of business education