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International Business WEEK 4 Informal Institutions in International Business and National
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WEEK 4 Informal Institutions in InternationalBusiness and National Culture in the Business
Environment
04 October 2022 15:10
Informal Institutions in International Business
LECTURE PART D MODELS AND APPROACHES FOR UNDERSTANDING CULTURE IN INTERNATIO
National Culture in the Business Environment BUSINESS
FORMAL INSITIUTION • Hofstede’s Six Dimensions of National Culture
They ‘‘are the humanly devised constraints that structure political, economic, and
social interaction’’ (North, 1991: 97).
•
They represent shared cultural or social norms that shape behaviour (e.g.
traditions, beliefs, customs, values).
They are not written or non-codified and hard to untangle! Their enforcement
comes from social expectations, but not enforced by legal bodies.
• Trompenaars’ Seven Dimensions of Culture build's on Hofstede
• Low(er)-context vs. High(er)-context Cultures by Hall (1976)
“socially shared rules, usually unwritten, that are created, communicated,
and enforced outside of officially sanctioned channels.” (Helmke and LECTURE PART B LECTURE PART C NATIONAL CULTURE The GLOBE project’s nine dimensions of culture
Levitsky 2004) Unpacking Informal institutions!!
NATIONAL CULTURES IN IB
• Informal institutions remain elusive and hard to be untangled (Dau et al., 2022),
but some of its elements are: culture, religion, trust, the power/role of informal A kind of mental programming, or patterns of thought, feeling and action that each person
social connections, history.. acquires in childhood, and then applies throughout life - the collective programming of the
• Informal institutions also tend to be more persistent (difficult to change) than mind
formal institutions and they can be more powerful than formal institutions. (Hofstede 1980; 2001).
• Typically, informal institutions can be region/country -specific, but they can also
The sum of norms, behaviors, beliefs, customs, rules and values shared by a population of a
travel across borders (ideologies and religions); having a wider impact.
nation. Also refers to specific characteristics such as language, religion, and cultural history and
INFORMAL INSIT. AFFECT FORMAL INSIT AND VICE VERSA (NOT COMPLETELY In what ways can religion be considered a formal institution? traditions. (Collinson et al. 2017; Pavão et al. 2019)
SEPARATE FROM ONE ANOTHER)
• Formal texts with rules: Bible, Tanakh, Talmud, Quran • Differences in culture can be huge barriers
• e.g. language: English is often the official business language, but reliance on it
1. Assertiveness
Informal institutions are shared cultural or social norms that function in similar • Leaders/Authorities: The Pope, Rabbis
ways to formal institutions (such as laws) that shape our behaviour (e.g. beliefs, may weaken ability to adopt to other cultures The degree to which individuals are (and should be) assertive,
customs) Perhaps more difficult: in what ways can religion be considered an informal institution? • gestures such as a handshake confrontational, and aggressive in their relationship with others.
• MNEs operate internationally: Globally about 75 million people work for multinational
They are well-known, but often not written down and not easy to change! • National cultures are shaped by religion • Low: Sweden, Japan, New Zealand
enterprises (MNEs)
• Informal interpretation of formal rules • National culture influences corporate culture – companies develop certain behaviors, values, • High: US, Germany, Mexico
Shared belief systems have been a vital part in the development of international and beliefs based on their underlying national culture
trade and globalisation, and are reinforced and developed through these processes RELIGION AND INTERNATIONAL BUSINESS 2. Future Orientation
• Helps to develop better products, design more effective HRM strategies, create compelling
of interconnection and exchange. Religion is core to many cultures, providing individuals with a sense of meaning and
marketing stories, and meet the needs of customers (Collinson et al. 2017) The extent to which individuals engage (and should engage) in fu
belonging and influencing working life.
INFORMAL INSITUTIONS AND GLOBALISATION Religions are ‘systems of life-regulation’ that help shape societies, including their
oriented behaviors such as planning, investing in the future, and
WHY BENEFICIAL TO UNDERSTAND CULTURES IN IB
The first phase of globalisation could not have happened without the increasingly ‘economic ethic’ and ways of doing business (bank interest in some Muslim countries). delaying gratification.
widespread acceptance of ideas such as those of Adam Smith and David Ricardo
• Low: Russia, Argentina, Italy
(free market economics) AFFECTS INTERNATIONAL BUSINESS, HOW PEOPLE BEHAVE ACCORDING TO RELIGION
--> Affect their way to trade and such • High: Singapore, Canada, Switzerland
This represented a convergence in belief system s among key economic decision-
makers (including the world’s major central banks) While religion was not the sole determining factor, it played an important role in shaping 3. Gender Egalitarianism
the development of capitalism
These belief systems structure people’s behaviours in similar ways to formal Protestantism in particular was crucial for shaping western capitalist modernity in terms The degree to which a collective minimizes (and should minimize
institutional rules of individualism, rationalism and the ‘Protestant work ethic’ (e.g. Weber, 2002: 212–213) gender inequality.
This included important elements of autonomy and agency, but also personal • Low: Japan, Italy, Egypt
For example, the gold standard depended on the credibility of central banks’ responsibility, where hard work and the investment of time and effort would be • High: Sweden, Poland, Costa Rica
commitment to the gold parity rewarded.
4. Uncertainty Avoidance
Markets believed governments would defend this no matter what SOCIAL "CONNECTIONS" The extent to which a society, organization, or group relies (and s
Who I know to get things done! Adaptation IB need to take account for
These certainties derived from the belief system governing central bank behaviour:
rely) on social norms, rules, and procedures to alleviate unpredic
the gold standard was a socially constructed institution – institutional trust is a TRUST/INSTITUTIONAL TRUST of future events. The greater the desire to avoid uncertainty, the
very important part of the story people trust their formal institutions , political systems, and to what extent do they trust
one another? This varies across countries but has significant implications!
people seek orderliness, consistency, structure, formal procedure
INTERACTION BETWEEN FORMAL AND INFORMAL laws to cover situations in their daily lives.
EX. Anti-vaccine: people stop trusting the government despite being good. Affects the • Low: US, India, Bolivia, Greece
trade of vaccine.
• High: Sweden, France, Switzerland, Germany, Costa Rica
5. Power Distance
would cultural convergence or divergence be best to MNCs?(multinationalcooperation) The extent to which the community accepts and endorses author
ARE CULTURES REALLY CONVERGING? - TOO SIMPLE power differences, and status privileges.
How people think, feel, behave, live and work depends on the context, skills, behaviors, communication, • Low: US, Denmark, Australia , Israel
authority….
A lot of differences and exceptions even in the same cultures. • High: Russia, Thailand, Mexico, Philippines
6. Institutional collectivism (individualism vs. collectivism)
LEVELS OF INSITUTIONS: SUPRA/NATIONAL/INTERNATIONAL INSTITUTIONS VS The degree to which organizational and societal institutional pra
NATIONAL INSTITUTION
encourage and reward (and should encourage and reward) collec
Supra-national/International institutions distribution of resources and collective action.
Formal: Formal rules and policies set by bodies such as IMF, World Bank, WTO
Informal: Expectations between countries (war in Ukraine). • Low: Germany, Greece, Argentina, Italy
• High: Sweden, South Korea, Japan
National institutions
Formal: “laws, policies, regulations, constitutions, contracts, property rights, and 7. In-group/family collectivism
formal agreements” (Dau et al., 2022:986) SUMMARY The degree to which individuals express (and should express) prid
Informal: “local beliefs, unwritten but socially shared rules and constraints that
generate social behaviour expectations. These include shared norms, customs, Institutions establish the ‘rules of the game’ and therefore shape the behaviours loyalty, and cohesiveness in their organizations or families.
traditions, sanctions, and reward structure” (Dau et al., 2022: 986) • Low: Denmark, Finland, Sweden, New Zealand
of international business
• High: Iran, India, China
Formal institutions cannot be meaningfully separated from informal institutions
8. Performance orientation
The degree to which a collective encourages and rewards (and sh
(see e.g. where a formal institutional change fails to produce behavioural change encourage and reward) group members for performance improve
because of persistent informal institutions) and excellence.
Some of the elements informal institutions are: culture, religion, trust, the • Low: Russia, Argentina, Italy
• High: US, Singapore, Hong Kong
SUMMARY power/role of informal social connections, history.. Etc. These aspects also show
1. Institutions are both formal and informal. 9. Humane orientation
differences across the globe. The degree to which a collective encourages and rewards (and sh
2. They both interact in different ways: The informal institutions can inform the
formal institutions, but the former can also substitute the later, complement it, encourage and reward) individuals for being fair, altruistic, gene
There are powerful informal institutions that are largely shared internationally,
accommodate it compete with it ! caring, and kind to others.
3. There are various levels of analysing institutions – what is relevant to IB are : facilitating trade and cooperation, but there are also significant national • Low: Germany, Spain, France, Singapore, Brazil
The supranational institutions that govern international trade and business • High: Ireland, Malaysia, Egypt, Philippines
agreements differences that can create challenges (and opportunities?) when conducting
The country-specific/region specific institutions
international business
Practices shall adapted while conducting international business deals
Management Practices shall vary across the MNC
Informal institutions affect how international businesses operate – an important
area to consider when, for example, entering a new market MANAGING ACROSS NATIONAL AND CULTURAL BOUNDRIES
- Have a good communication system and aware of cultural particularities
LECTURES Page 1
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