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23/24 Summary Strategy and Nonmarket Environment (Radboud, MAN-MST025 1) - Articles & Lectures
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Chapter 1 Genesis of the Nonmarket FieldThere are four main perspectives that provide an adequate overture for the nonmarket concept.
Neoclassical Economics
According to this perspective, nonmarket forces regulate exchanges between economic actors outside
the market system. Neoclassical economics focused on the determination of prices, outputs, and
income distributions in markets by means of supply and demand. According to this perspective,
market institutions and firms were hereby separated from nonmarket institutions and the relationship
between firms and markets was explained by either exogenising nonmarket factors or by neutralising
their effects altogether. Along this line, nonmarket factors are exogenous from economic models.
This perspective acknowledged the existence of nonmarket effects but considered them as separated
and neutral to the market mechanisms and firms. This perspective is deficient in considering external
factors on market mechanisms or economic activity.
Organisation Theory
This stream commenced to regard nonmarket matters as various factors which do permeate economic
exchanges of individual firms, as well as intra-organisational and inter-organisational collaborations.
This perspective regards nonmarket mechanisms as cooperating with market endeavours. This
cooperation assumes a socialised or bounded rationality instead of the simplicity of market
determined issues assumed by neo-classics.
Organisation theory presumes that there are issues regarding exchanges that cannot be completely
foreseen or regulated by market mechanisms or transaction costs economics which are both rationally
bounded.
Nonmarket exchange mechanisms became necessary for improving the efficiency of market exchange
mechanisms as these are plagued by information asymmetry, property rights, bargaining and other
problems.
Forwarding the theory that nonmarket institutions have the explicit purpose of regulating transactions
and solving market failures, the (organisation theory) field raised the awareness that social behaviour
is also involved in market exchanges under the forms of trust, commitment, and opportunistic
behaviour which influence the behaviour of firms in economic exchange and networking. For this
reason, normative rules are necessary to limit inefficiencies and injustices caused by bounded
rationality and opportunistic behaviour within market exchanges. Hereby nonmarket institutions or
mechanisms with a social purpose started to play a key role as potential remedies in market exchanges
failure.
Where market mechanisms fail, nonmarket matters serve to remedy market failure and to act as a
higher hierarchy for conflict resolution in market exchanges.
This perspective complements the neoclassical economics perspective and it gradually builds the role
or function of nonmarket matters.
,Political Theory
Political mechanisms complement the nonmarket field by discussing “voice” mechanisms, referring to
politics. Voice entails protest, opposition and mobilising public opinion so that an improvement or
desired reform can be achieved. Through voice organisations can also force a management change by
mobilising public opinion as an alternative way to market failure. As a result, this perspective adds to
the organisation theory stream which considers hierarchies as solving market failures. In this case
organisations use voice mechanisms to appeal to higher hierarchies or institutions.
For political scientists, nonmarket refers to the power-based correctives used to improve all
organisations when competition fails to repair market mechanisms. If competition does not lead to the
exit of inefficient or ineffective organisations, the political voice is needed to change objectionable
states of affairs. Nonmarket voice repairs market failure or inefficient market mechanisms and
political mechanisms complement the nonmarket environment as related to power.
The coercive use of power by political institutions strongly differs from the nonmarket concept in
the previous perspective, where it is regarded as a cooperative and normative mechanism.
Sociology
A sociology perspective complements the field as it starts reasoning from the point of view of
societies. Economic factors, normative rules and voice mechanisms are not enough for societies to
survive. For survival, in addition, societies need social integration, social institutions, collective
interests, and motivating values.
Nonmarket aspects are regarded as often conflicting with interdependent market ones. From this
perspective nonmarket institutions were regarded as generating wealth, power, solidarity, and social
order. Social institutions were regarded as rules and regulations ensuring social welfare and buffering
the society from possible consequences of market failures.
A complex of positions, roles, norms and values lodged in particular types of social structures and
organising relatively stable patterns of human activity with respect to fundamental problems in
producing life-sustaining resources, in reproducing individuals, and in sustaining viable societal
structures within a given environment. Due to the variety that can be considered in this category,
social institutions also need to be distinguished from more complex and more complete social entities,
such as societies or cultures, of which any given institution is typically a constitutive element.
Social institutions are establishments of relative permanence of a distinctly social sort
characterised by essential elements as: a set of mores or rules fulfilled by peoples acting collectively,
in established complementary capacities or offices.
The Nonmarket Concept
The economic subsystem is mainly enacted through market institutions and organisations (firms). In
this context, nonmarket refers to exogenous non-economic subsystems, institutions and organisation
and to their distinct functions, issues and interactions with market ones.
Based on the above perspectives the nonmarket environment refers to (Boddewyn, 2003):
- Values expressing the purposive pursuit of public interests.
- Internal and external interchange mechanisms of coercion and cooperation that complement
and balance competition in a reciprocal manner at various levels of interaction.
, - Relationships among market and nonmarket organisation resting principally on their actors’
sovereignty rights.
- The conflictual integration in the light of their failures of society’s economic, political, social
and cultural organisations.
Table 1: Main differences between the market and nonmarket environment
At the heart of nonmarket exchanges is not money (as in markets) but information.
Table 2: Core elements of the market and nonmarket
The focus of the nonmarket environment is the creation of shared value, which is defined as “policies
and operating practices that enhance the competitiveness of a company while simultaneously
advancing the economic and social conditions in the communities in which it operates (Porter &
Kramer, 2011).
Concluding Remarks
The market environment thus entails the interaction with competitors, suppliers, and customers, while
the nonmarket environment refers to the interaction with different stakeholders that are not necessarily
concerned with the economic performance of the business.
The sustainability of an organisation’s competitive advantage also depends on its ability to manage
the influences coming from the nonmarket environment.
Chapter 2 Advancing the Nonmarket Environment
The following sections describe and clarify what institutions, issues, interests and information entail
and how they interrelate in the nonmarket environment.
, Institutions
North (1990) defines institutions as follows: “the rules of the game in a society or, more formally, are
the humanly devised constraints that shape human interaction”. Constraints, in this regard, are defined
as formal rules (laws) and informal restraints (taboos, customs), which usually contribute to the
perpetuation of order and safety within a market or society.
- Informal constraints are more a result of tradition and cultural tradition.
- Formal institutions serve to solve the problem of trust and protection.
Formal constraints are in general much easier to identify.
Institutions arising from culture are rules, procedures and goals which are not primarily represented in
a formal organisation and which are not monitored and sanctioned by a central authority. Institutions
are categorised into three pillars, see table below.
Table 3: Pillars of institutions
- Institutions in regulatory processes have the ability to establish rules, monitor if others
comply with these rules and they can sanction, reward or punish (can be formal and informal).
- Normative rules introduce a prescriptive, evaluative and obligatory dimension into social life,
which include both values and norms (can be formal and informal).
o Values are conceptions of the preferred or the desirable, together with the
construction of standards to which existing structure or behaviour can be assessed and
compared.
o Norms specify how things should be done.
- Cognitive-cultural recognises that internal interpretive processes are shaped by external
cultural frameworks; “the shared conceptions that constitute the nature of social reality and
the frames through which meaning is made”.
Table 4: Varying emphasis: three pillars of institutions
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