1. Chapter Copyright© 2004 Thomson Learning All rights reserved 3 The Institutional Context of Multinational Management

2. Copyright© 2005 South-Western/Thomson Learning All rights reserved Learning Objectives Understand the national context and how it affects the business environment Understand the influence of the institutional context of countries Understand how social institutions influence both people and organizations Understand the national context and how it affects the business environment Understand the influence of the institutional context of countries Understand how social institutions influence both people and organizations

3. Copyright© 2005 South-Western/Thomson Learning All rights reserved Learning Objectives Understand the basic economic systems and influence on multinational operations Understand industrialization and implications for multinationals Understand the world’s basic religions Develop an understanding of education Understand the basic economic systems and influence on multinational operations Understand industrialization and implications for multinationals Understand the world’s basic religions Develop an understanding of education

4. Copyright© 2005 South-Western/Thomson Learning All rights reserved Learning Objectives Understand the convergence perspective on organizations Understand the importance of the national context and its connection with other international management areas Understand the convergence perspective on organizations Understand the importance of the national context and its connection with other international management areas

5. Copyright© 2005 South-Western/Thomson Learning All rights reserved Institutional Context Includes other elements besides national culture that can produce important differences Understanding the institutional context is therefore extremely important for better multinational management Includes other elements besides national culture that can produce important differences Understanding the institutional context is therefore extremely important for better multinational management

6. Copyright© 2005 South-Western/Thomson Learning All rights reserved Social Institutions Complex of positions, roles, norms, and values organizing stable patterns of human resources to sustain important societal structures Three key social institutions Economic systems Level of industrialization Religions Complex of positions, roles, norms, and values organizing stable patterns of human resources to sustain important societal structures Three key social institutions Economic systems Level of industrialization Religions

7. Copyright© 2005 South-Western/Thomson Learning All rights reserved Social Institutions and Influence on Society Regulative social institution: constrains behaviors through rules Cognitive social institution: widely shared knowledge regarding how things are done Normative social institution: values and norms promulgated by the social institution Regulative social institution: constrains behaviors through rules Cognitive social institution: widely shared knowledge regarding how things are done Normative social institution: values and norms promulgated by the social institution

8. Copyright© 2005 South-Western/Thomson Learning All rights reserved Social Institutions and Influence on Organizations Organizational isomorphism: pressure to follow similar paths in management practices

9. Copyright© 2005 South-Western/Thomson Learning All rights reserved Organizational Isomorphism Coercive isomorphism: forces that coerce organizations to adopt certain practices Mimetic isomorphism: organizations purposefully copy the strategies of the most successful organizations Normative isomorphism: conformance to professional and technical norms Coercive isomorphism: forces that coerce organizations to adopt certain practices Mimetic isomorphism: organizations purposefully copy the strategies of the most successful organizations Normative isomorphism: conformance to professional and technical norms

10. Copyright© 2005 South-Western/Thomson Learning All rights reserved Economic Systems Economic systems: system of beliefs, activities, organizations, and relationships that provide the goods and services of a society Important implications based on Type of economic systems Market transitions Privatization Economic systems: system of beliefs, activities, organizations, and relationships that provide the goods and services of a society Important implications based on Type of economic systems Market transitions Privatization

11. Copyright© 2005 South-Western/Thomson Learning All rights reserved Economic Systems Capitalist/market economy: production is decentralized to private owners Owners perform activities to make profits Socialist/command economy: production resources are owned by the state Production decisions centrally coordinated Mixed economy: combines aspects of capitalist and socialist economies Ex., Sweden, France, Denmark, Italy, and India Capitalist/market economy: production is decentralized to private owners Owners perform activities to make profits Socialist/command economy: production resources are owned by the state Production decisions centrally coordinated Mixed economy: combines aspects of capitalist and socialist economies Ex., Sweden, France, Denmark, Italy, and India

12. Copyright© 2005 South-Western/Thomson Learning All rights reserved Economic Systems: Implications Decisions to operate in a country can be made based on the dominant economic type In mixed economies, multinationals should expect to subordinate its economic goals and respect social objectives. Decisions to operate in a country can be made based on the dominant economic type In mixed economies, multinationals should expect to subordinate its economic goals and respect social objectives.

13. Copyright© 2005 South-Western/Thomson Learning All rights reserved Economic Systems: Implications (cont.) Multinationals should expect to develop more formal relations with the government in mixed economies. Index of economic freedom can be used to determine the extent of governmental intervention Multinationals should expect to develop more formal relations with the government in mixed economies. Index of economic freedom can be used to determine the extent of governmental intervention

14. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.2: Selected Country Scores on Index of Economic Freedom

15. Copyright© 2005 South-Western/Thomson Learning All rights reserved Economic System: Market Transitions Changes societies experience as they move from socialism to a market-based economy Multinational implications Need to turn around inefficient, formerly state- owned companies to perform business functions Motivational issues with workers Changes societies experience as they move from socialism to a market-based economy Multinational implications Need to turn around inefficient, formerly state- owned companies to perform business functions Motivational issues with workers

16. Copyright© 2005 South-Western/Thomson Learning All rights reserved Economic System: Privatization Privatization: transfer of state ownership to private individuals Implications Significant opportunities to invest in companies Opportunities to access new markets and cheap labor Privatization: transfer of state ownership to private individuals Implications Significant opportunities to invest in companies Opportunities to access new markets and cheap labor

17. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.3: Selected Countries and the Amount of Money Raised by Privatization

18. Copyright© 2005 South-Western/Thomson Learning All rights reserved Industrialization How production is organized and distributed in society Types Pre-industrial Industrial Post-industrial How production is organized and distributed in society Types Pre-industrial Industrial Post-industrial

19. Copyright© 2005 South-Western/Thomson Learning All rights reserved Industrialization 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 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

20. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.4: Distribution of Production Activities by Sectors

21. Copyright© 2005 South-Western/Thomson Learning All rights reserved Implications of Industrialization Direct correspondence between industrialization and economic development Industrial societies favor growth and innovation Favorable environment for business Industrial societies present significant market size and growth Direct correspondence between industrialization and economic development Industrial societies favor growth and innovation Favorable environment for business Industrial societies present significant market size and growth

22. Copyright© 2005 South-Western/Thomson Learning All rights reserved Industrialization Pre-industrial countries provide cheap labor and untapped markets Post-industrial societies Emphasis on quality-of-life as opposed to economic achievement Pre-industrial countries provide cheap labor and untapped markets Post-industrial societies Emphasis on quality-of-life as opposed to economic achievement

23. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.5: Materialist Scores of Selected Countries

24. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.6: Post-materialist Scores for Selected Countries

25. Copyright© 2005 South-Western/Thomson Learning All rights reserved Religion Shared set of beliefs, activities, and institutions that have basis upon faith in supernatural forces Forms the foundation of human society Provides individuals with guidelines to deal with issues Christianity, Islam, Hinduism, and Buddhism are followed by almost 71% of the world’s population Shared set of beliefs, activities, and institutions that have basis upon faith in supernatural forces Forms the foundation of human society Provides individuals with guidelines to deal with issues Christianity, Islam, Hinduism, and Buddhism are followed by almost 71% of the world’s population

26. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.7: Distribution of Religions Around the World

27. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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 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

28. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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 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

29. Copyright© 2005 South-Western/Thomson Learning All rights reserved Islam (cont.) 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 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

30. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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 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

31. Copyright© 2005 South-Western/Thomson Learning All rights reserved Hinduism (cont.) 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 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

32. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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 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

33. Copyright© 2005 South-Western/Thomson Learning All rights reserved Buddhism (cont.) Implications for multinationals Encourages hard work; laziness is seen as negative Emphasizes teamwork; all beings are interconnected Emphasis on compassion and love Implications for multinationals Encourages hard work; laziness is seen as negative Emphasizes teamwork; all beings are interconnected Emphasis on compassion and love

34. Copyright© 2005 South-Western/Thomson Learning All rights reserved Religiosity Indication of the importance of acceptance of the core philosophies of religion in one’s life Gives an idea of the degree of responsiveness needed to accommodate religion Indication of the importance of acceptance of the core philosophies of religion in one’s life Gives an idea of the degree of responsiveness needed to accommodate religion

35. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.8: Religiosity of Selected Countries from the World Values Survey

36. Copyright© 2005 South-Western/Thomson Learning All rights reserved Education 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 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

37. Copyright© 2005 South-Western/Thomson Learning All rights reserved Education: Implications Gives an idea of the skill level of workers in any society The more educated, the more skills workers have Multinationals can look at educational attainment scores to determine the nature of the workforce Gives an idea of the skill level of workers in any society The more educated, the more skills workers have Multinationals can look at educational attainment scores to determine the nature of the workforce

38. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.9: Educational Attainment Scores for a Selected Number of Countries

39. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.10: Mathematics Scores for Top 10 Countries

40. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 3.11: Science Scores for Top 10 Countries

41. Copyright© 2005 South-Western/Thomson Learning All rights reserved Organizations Alike: 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 Globalization is pushing organizations to be more similar Global customers and products Growing levels of industrialization and economic development Global competition and global trade

42. Copyright© 2005 South-Western/Thomson Learning All rights reserved Globalization and Convergence Other convergence forces Cross-border mergers, acquisitions, and alliances Cross-national mobility of managers Internationalization of business education Other convergence forces Cross-border mergers, acquisitions, and alliances Cross-national mobility of managers Internationalization of business education