Chapter The The Institutional Institutional Context Context of of Multinational Multinational Management Management © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Learning Objectives •• Understand Understand the the national national context context and and how how itit affects affects the the business business environment environment •• Understand Understand the the influence influence ofof the the institutional institutional context context ofof countries countries •• Define Define social social institutions institutions and and understand understand the the basic basic forms forms ofof social social institutions institutions •• Understand Understand how how social social institutions institutions influence influence both both people people and and organization organization © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Learning Objectives •• Understand Understand the the basic basic economic economic systems systems and and influence influence on on multinational multinational operations operations •• Understand Understand basic basic stages stages ofof industrialization industrialization and and implications implications for for multinationals multinationals •• Understand Understand the the world’s world’s basic basic religions religions •• Develop Develop an an understanding understanding ofof education education © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Learning Objectives •• Understand Understand social social inequality inequality and and its its implications implications for for multinationals multinationals •• Understand Understand the the importance importance ofof the the national national context context and and its its connection connection with with other other international international management management areas areas © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Institutional Context •• Includes Includes other other elements elements besides besides national national culture culture that that can can produce produce important important country country differences differences •• Dominant Dominant institutional institutional context context ofof any any society society has has an an effect effect on on individuals individuals and and organizations organizations •• Understanding Understanding the the institutional institutional context context isis therefore therefore extremely extremely important important for for better better multinational multinational management management © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part National Context •• Made Made up up ofof the the respective respective national national cultures cultures and and social social institutions institutions ofof any any society society •• National National cultures cultures as as well well as as institutions institutions ofof any any society society shape shape the the important important norms, norms, values, values, and and beliefs beliefs inin any any society society © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 3.1: A Model of the National Context © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Social Institutions •• Complex Complex ofof positions, positions, roles, roles, norms, norms, and and values values organizing organizing stable stable patterns patterns ofof human human resources resources toto sustain sustain important important societal societal structures structures •• Social Social institutions institutions affect affect organizations organizations as as well well as as individuals individuals •• Help Help define define what what are are legitimate legitimate and and correct correct management management practices practices inin aa society society •• Organizations Organizations are are induced induced toto follow follow similar similar paths paths © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Key Social Institutions that Influence Organizations •• Three Three key key social social institutions institutions that that influence influence business business environment environment •• The The economic economic systems systems •• The The level level ofof industrialization industrialization •• The The religions religions Additionally, Additionally, •• Education Education •• Level Level ofof social social inequality inequality © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Economic Systems •• Economic Economic systems: systems: system system ofof beliefs, beliefs, activities, activities, organizations organizations and and relationships relationships that that provide provide the the goods goods and and services services ofof aa society society •• Typified Typified by by extremes extremes ofof capitalism, capitalism, socialism socialism and and aa mix mix ofof both both •• Important Important implications implications based based on on •• Dominant Dominant market market type type •• Market Market transitions transitions © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Christianity •• Religion Religion based based on on the the life life and and teachings teachings ofof Jesus Jesus •• The The most most practiced practiced religion religion around around the the world world •• Protestantism Protestantism emphasizes emphasizes wealth wealth and and hard hard work work •• Ten Ten commandments commandments –– basis basis for for ethical ethical behaviors behaviors •• Dignity Dignity ofof human human life, life, labor labor and and happiness happiness Implications Implications for for multinationals: multinationals: Business Business environment environment conducive conducive toto these these values values Sunday Sunday holiday holiday for for prayer prayer © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Islam •• •• •• Based Based on on the the submission submission toto the the will will ofofAllah Allah (God) (God) The The second second largest largest ofof the the world’s world’s religion religion Islamic Islamic laws laws or or Shari’ah, Shari’ah, based based on on five five pillars pillars Implications Implications for for multinationals multinationals •• Giving Giving alms alms •• Prohibits Prohibits the the payment payment or or receipt receipt ofof interest interest •• Society Society divided divided by by gender gender women’s women’s role role atat home home © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Hinduism •• •• •• Timeless Timeless and and eternal eternal religion religion –– no no single single founder founder Based Based on on the the Vedic Vedic scriptures scriptures Oldest, Oldest, embodied embodied inin the the ancient ancient traditions traditions ofof India India •• Currently Currently 760 760 million million Hindus Hindus worldwide worldwide •• Quest Quest for for ultimate ultimate reality reality and and truth truth •• Hindus Hindus live live life life according according toto the the principles principles ofof Dharma Dharma (righteousness) (righteousness) •• Belief Belief inin Karma Karma and and reincarnation reincarnation © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Hinduism Implications Implications for for multinationals multinationals •• Spiritual Spiritual achievement achievement isis an an important important value value for for Hindus Hindus •• Respect Respect for for elders, elders, age age and and wisdom wisdom •• Clear Clear guidelines guidelines for for ethical ethical behavior behavior •• Inequality Inequality inin social social structure structure ofof India India © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Buddhism •• Religious Religious tradition tradition that that focuses focuses on on the the reality reality ofof world world suffering suffering and and the the ways ways one one can can be be freed freed from from suffering suffering •• Craving Craving and and desires desires produce produce suffering suffering •• Dominant Dominant religion religion ininAsia Asia Implications Implications for for multinationals multinationals •• Encourage Encourage hard hard working working –– laziness laziness seen seen as as negative negative •• Emphasizes Emphasizes teamwork teamwork –– all all beings beings are are interconnected interconnected © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Education •• Education: Education: organized organized networks networks ofof socialization socialization experiences experiences which which prepare prepare individuals individuals toto act act inin society society •• Central Central element element inin organization organization ofof society society •• Helps Helps construct construct competencies, competencies, professions, professions, and and professionals professionals © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Education: Implications •• •• •• Gives Gives an an idea idea ofof the the skill skill level level ofof workers workers inin any any society society The The more more educated, educated, the the more more skills skills workers workers have have Multinationals Multinationals can can look look atat educational educational attainment attainment scores scores toto determine determine the the nature nature ofof the the workforce workforce •• Also Also look look atat other other scores scores •• Math Math and and Science Science •• RR && DD expenditure expenditure © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 3.7: Percentage Enrollment in Tertiary Education for Relevant Age Groups © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 3.8: Percentage of GDP spent on R & D © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Social Inequality •• Refers Refers toto the the degree degree toto which which people people have have privileged privileged access access toto resources resources and and positions positions within within societies societies •• InIn societies societies that that have have high high social social inequality, inequality, aa few few individuals individuals have have the the ability ability toto control control and and use use important important resources resources •• These These select select few few use use access access toto resources resources toto acquire acquire more more power, power, thereby thereby perpetuating perpetuating inequality inequality further further © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Social Inequality: Implications •• Many Many MNCs MNCs are are facing facing significant significant criticisms criticisms for for their their operations operations inin countries countries with with high high social social inequalities inequalities •• Criticized Criticized for for using using low low wages, wages, child child labor, labor, workplaces workplaces •• Realize Realize social social responsibility responsibility isis inin their their interest interest too too •• Many Many actively actively avoid avoid countries countries with with high high inequalities inequalities toto prevent prevent potential potential negative negative publicity publicity © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Social Inequality: Implications •• Multinational Multinational companies companies can can consider consider the the GINI GINI index index as as an an indicator indicator ofof the the degree degree ofof social social inequality inequality © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 3.9: The GINI Index for Selected Countries © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part The National Context and International Management •• Social Social institutions institutions are are key key aspects aspects ofof understanding understanding the the business business environment environment inin any any country country •• Social Social institutions institutions shape shape norms, norms, values, values, and and beliefs beliefs that that determine determine acceptable acceptable and and unacceptable unacceptable business business practices practices •• Along Along with with culture, culture, form form national national context context ofof aa country country © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part The National Context and International Management: Conclusion •• •• •• •• The The national national context context affects affects aa company’s company’s strategy strategy Determines Determines the the comparative comparative advantage advantage ofof nations, nations, which which ultimately ultimately determines determines which which strategies strategies multinational multinational companies companies choose choose Determines Determines the the global global platform, platform, namely namely the the areas areas ofof business business that that can can be be performed performed the the best best inin aa country country Human Human aspect aspect ofof international international management: management: relationship relationship between between workers workers and and superiors, superiors, motivation, motivation, human human resource resource management, management, and and design design © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part ... context and and its its connection connection with with other other international international management management areas areas © 2011 Cengage Learning All Rights Reserved May not be scanned, copied... extremely extremely important important for for better better multinational multinational management management © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated,... •• Help Help define define what what are are legitimate legitimate and and correct correct management management practices practices inin aa society society •• Organizations Organizations are