The Multiple Dimensions of Institutional Complexity in International Business Research

Alain Verbeke, Rob van Tulder, Elizabeth L Rose, Yingqi Wei, Alain Verbeke, Rob van Tulder, Elizabeth L Rose, Yingqi Wei

• Publisher: Emerald Publishing Limited
• Year: 2021
• ISBN:
  9781800432468
• Topic: Business
• Subtopic: Business generale
• Index: Business

The Multiple Dimensions of Institutional Complexity in International Business Research provides a fresh overview of many novel international business research challenges as they pertain to salient institutional dimensions with a locational component.
The first part of the Volume includes chapters honoring the work of Eleanor Westney. These chapters address subject matter related to globalization challenges in the realm of the 'new normal' of populism and de-globalization tendencies. They focus on how the 'new normal', as well as various rapidly evolving institutions, will affect the functioning of multinational enterprises. The subsequent parts explore the impacts on international business of home country institutions; host country institutions; cross-country and subnational institutions; and finally, sustainability pressures.
The book is strongly focused on the multiple contemporary dimensions of institutions and how they affect internationally operating firms. It is a must read for scholars and postgraduate students interested in the 'new normal' on a global scale.

CHAPTER 1

INSTITUTIONS 2.0: WHICH INSTITUTIONS MATTER IN IB RESEARCH?

Alain Verbeke, Rob van Tulder, Elizabeth L. Rose and Yingqi Wei

Analysis of institutions has been at the heart of international business (IB) research, ever since it became established as a credible field of scientific inquiry, starting in the late 1950s. Institutional complexity has been on the rise during the past six decades, thereby requiring new approaches to analyze them, a perspective we coin as “Institutions 2.0.” This research volume provides an overview of some of the most salient dimensions of the present institutional complexity facing managers and policy-makers, who are involved in IB transactions and in establishing institutional frameworks, respectively.

PART I

The first four chapters in this volume reflect today’s new globalization challenges, specifically the emergence of the digital economy and changing societal views on the benefits of globalization itself. In Chapter 2, “International Business and Multi-level Institutional Change: Looking Back and Facing Forward,” Westney, in whose honor we composed this volume, acknowledges the challenges facing MNEs (multinational enterprises) as a result of growing anti-globalization sentiment – challenges that have been amplified by the COVID-19 pandemic. While volatility and uncertainty make it difficult to predict specific outcomes, it is inevitable that current conditions will be the impetus for long-run institutional changes. As IB scholars, it is incumbent upon us to develop – and share with societal stakeholders – reliable assessments of the main institutional trends and their possible impacts on internationally operating firms.

Despite today’s emerging “new normal,” Westney shows that the field of IB is well-positioned to rise to this challenge – given its past accomplishments and more recent research developments. She reminds us that global expansion actually ceased for a 15-year period in the not-so-distant past, beginning in 1970. During that time, a series of crises left both scholars and managers asking whether dramatic global changes were either temporary or indicative of a “new normal” – questions that ring familiar today. While the specific circumstances of the 1970s and 1980s differ from today’s, she highlights similarities between past and present from which IB research can gain substantial insight.

Oddly familiar concerns, at that time, existed over US-European trade relations and declining international confidence in US leadership, paired with domestic unrest in a number of countries. MNEs found themselves the target of considerable opposition and discontent, due to their alleged power and perceived role in the ever-widening disparity between upper and lower economic classes. In response, many national governments shifted economic policies to favor domestic interests. These policies often targeted specific industries, thereby creating considerably more policy variation across nations. In response, MNEs recognized the growing importance of local knowledge, and shifted more power to subsidiaries while enhancing headquarters’ role in planning and coordination.

The field of IB research also responded in a variety of ways. It was observed that crises “politicized” internationally operating value chains at two levels – that of national policy and that of international economic institutions. MNEs were found to have a dual role within their various institutional contexts, as both policy-compliers and policy-influencers. The IB field shifted from an internal organizational focus on areas such as firm-level structures and diversification to a more external orientation. The notion of “local responsiveness” can also be traced back to firm responses to government demands during this period, though the construct is conceptualized more broadly today. However, Westney argues that the IB field still discarded its prior emphasis on the collective impact of MNEs as it transitioned to a firm-level focus.

Now, like before, IB is experiencing not just one, but a series of deep crises. While COVID-19 is top of mind, it is only the most recent in a long series of significant changes – including the 2008 economic collapse, the rise of populism in the United States, and Brexit. Unlike before, the targets of discontent are more diffuse than in the past. Today’s main target is typically “global elites,” but Westney suggests that a focus on these social groups is sometimes linked to specific MNEs, particularly those operating in political salient industries.

After identifying similarities between the present and the past, Westney looks ahead to the future of IB research. She proposes that despite long lead times, it will become much harder to publish findings based solely on pre-crisis data. Research will become more context-specific, focusing on industries uniquely targeted by new regulations or societal discontent, such as those providing medical equipment, health care services, or information and communication technologies (ICT). Case studies on specific firm-level responses will become more influential, offering an important and relevant contribution during this turbulent time.

Westney closes her chapter by outlining several gaps in extant IB research. She highlights under-explored industries, such as agribusiness and multinational investment management companies. There is also comparatively less research on how MNEs influence their institutional context versus how they comply with it. Emerging markets have been a prevalent research context for some time, but this crisis renders research in OECD countries equally relevant. She argues it may be the right moment to revisit what “local responsiveness” now means, not due to any error or oversight in the past, but because its meaning has been changing over time. Lastly, and consistent with the aim of this volume, she encourages IB scholars to embrace the institutional theory, in its fullest interdisciplinary sense, offering numerous illustrative examples from other fields to inspire future IB research.

In Chapter 3, “Global Strategic Analysis and Multi-level Institutional Change,” Lessard pays homage to his MIT colleague, Eleanor Westney. He revisits Westney’s research trajectory within the realm of institutions, describes her influence on his own scholarly work, and highlights her contributions to strategy analysis. In parallel, Lessard’s chapter also highlights the importance of an integrative, multi-level framework for strategy analysis in research and teaching. Levels can range from global society and global industries to nations, firms, and intra-firm activities. While in the past, these levels used to be reasonably well defined, for example, firms nested in industries, nested in nations, nested in institutions, complex inter-relationships, and layering within today’s global economy makes them less distinct. Lessard argues that the IB field has developed useful frameworks for each level, but their integration across levels has been more difficult – both for classroom usage and managerial practice. Yet, in today’s uncertain environment, both conventional strategy analysis and navigating the complexity of multiple institutional levels are critical to firm-level functioning.

Lessard argues that IB equates to “business in context,” whereby context “equates to institutions” – this volume’s key theme. Institutions are best represented as a trio of: (i) formal rules and laws; (ii) dominant narratives; and (iii) norms of what “should be.” All three dimensions are present within each level of a multi-level institutional framework, thereby adding to the complexity of any strategic analysis. Lessard reminds us that perceptions of institutions depend upon one’s vantage point. For example, managers and business scholars tend to view institutions as being located outside the firm, but other stakeholders will view firms as institutions in their own right.

Vital to integrating relevant strategy analysis frameworks across levels is the notion of value. Value creation, capture, and delivery are keys. Lessard offers his own integrative framework, “RATs/CATs,” which he calls an “internationally-grounded version of create, capture, and deliver.” It is a resource-based framework, rooted in perspectives such as Teece’s dynamic capabilities. He shows the relevance of this model for his own research and reflects on the influence of Westney in its development.

Within this framework, RAT reflects questions related to Relevance, Appropriability, and Transferability in a new location. R comes first, relating to the level of the customer and a firm’s customer value proposition. A operates at the level of competitors/institutions and reflects value capture, while T reflects capabilities and transaction costs. The RAT component of the model reflects the decision to go global, whereas the CAT aspect explores implications of being global, that is, whether the new home/host combination itself has Complementary resources and capabilities that are themselves Appropriable and Transferable.

Lessard closes his chapter with some reflections. He acknowledges that teaching multi-level strategy analysis can be challenging. A focus on value creation, at the customer level, is the ideal entry point into the model. From there, one can move up to strategy analysis at the industry/competitor levels, and then down to an analysis of the firm’s capabilities and organizational structures that will best deliver that value. Lessard also reflects on the difficulty for scholars to stay up to date, arguing that most of them do not have a full command of strategy analysis at all levels. This makes it easy to lose touch with ongoing developments at neglected levels.

Making sense of the volatility in today’s world requires complex, nested scenarios and a focus on the triple-bottom-line, but Lessard sees 2020 as an opportunity for rejuvenation. Long-held assumptions are being challenged and overturned. The time is ripe for research that explores emerging phenomena, using a variety of existing theories, and developing further the most relevant conceptual frameworks. However, doing so will require the IB field to acknowledge that there are many different ways to make sense of empirical phenomena, thereby suggesting that the field may become more diverse going forward.

In a world of growing nationalism, Chapter 4 offers an inquiry into the future of globalization, international organizing, and integrated supply chains. The chapter’s highly respected author, Kobrin, poses the question: “Is a Networked World Economy Sustainable?” – a question that resonates stronger than ever amidst the current COVID-19 pandemic.”

Early views on globalization predicted that it – along with technological change and the arrival of the digital economy – would blur the relevance of local, national, and regional boundaries. However, Kobrin challenges this view by observing that open international borders are currently being reassessed and questioned inside many nations. The origin of this line of questioning began neither with the arrival of COVID-19, nor with the recent adoption of nationalist policies in a number of nations, but rather with the Great Recession of 2008–2009.

Kobrin supports the view that globalization is cyclical. Globalization requires very specific conditions to be in place; these arguably no longer exist. Instead, globalization is now seen as threat – a threat to a nation’s culture, economy, and, now, even the physical health of its citizens. Kobrin argues that this nationalism needs to be taken seriously. It cannot simply be written off as an irrational perspective. The need to feel part of a nation, the fear of the ubiquitous “other,” and a heightened importance of a localized perspective are all very real; those actors adopting nationalist views may be acting rationally and in their own self-interest.

Some parallels can be drawn between this more recent, second wave of globalization and that of the first, a century ago, but Kobrin argues that this second wave differs greatly in terms of both the breadth and depth of globalization involved. Have global supply chains really reached their limit? Have technological and economic conditions changed, such that it is impossible to go back and replicate what exists within national markets? For better or worse, we now find ourselves in a situation where these inconvenient questions must be raised.

Kobrin argues that only now we can fully consider the risks of operating concentrated, complex, global supply chains – whereby these should be assessed not just in terms of production efficiency, but also in terms of technological capability and agility. Globalization has taken us from markets and bureaucracies to organization via relational networks, where value is created through mutual dependence and one’s relationship with the whole. Recent trade wars and COVID-19 illustrate the risk of such mutual dependence. Value creation in relational networks decreases the relevance of any single geography on its own, but nationalism prioritizes independence through a focus on a narrow geography – two perspectives that are clearly at odds with one another. These opposing forces suggest that attempts to revert to national markets may be achieved only with some simultaneous destruction of economic value. Technology may, perhaps paradoxically, strongly inhibit the unraveling of globalization. Societies and governments may push for independence, only to come up against a less-visible and less-understood reality – that of mutual interdependence. The opposing forces at play suggest that globalization efforts, integrated value chains, and more broadly international organizing, will face turbulent times ahead.

While Chapter 4 analyzes the complex, inter-firm relational networks that characterize today’s global value chains, Chapter 5 (“Network Effects and Multi-level Dynamics in the Internationalization of Digital Platforms: A Reflection”) explores different intra-firm networks, specifically those that arise between users and providers of digital platforms.

In this chapter, Guillén reflects upon the fact that all digital platforms are not equivalent, and, therefore, are also not equivalent when it comes to internationalization. Foreign expansion decisions and the relative success thereof will depend not only on the type of network effects sought by the firm, but also on the degree of fit between those targeted network effects and the internationalization strategy chosen. While digitally oriented firms face many internationalization challenges similar to non-digital firms, they typically differ in their need for network effects to establish economies of scale.

This chapter offers a multi-level perspective that can be the starting point for building a conceptual framework on digital business within our field. Network effects for digital platforms can operate at three different levels: local, national, and global. Firms’ internationalization strategies will vary by level. Local network effects require proximity, as in the case of Uber, with digital platforms expected to succeed in one city at a time. National network effects are conceptualized as simultaneous local networks operating within a nation, whereas global networks are those where physical proximity is less relevant.

Firms seeking global network effects need to operate in as many countries as they possibly can. There is thus more incentive for these firms to internationalize relative to those seeking local network effects. Successful sequencing and timing of internationalization moves by firms seeking local network effects can occur almost randomly, but at higher levels of network effects, firms must sequence their foreign expansion moves in a more rapid fashion – and possibly do them all at once.

Digital platforms must decide on their strategic approach both for building a new customer base in a new region and for engaging with their new regulatory stakeholders. Some platforms may focus on customers and less on regulators, whereas others may adopt the opposite approach. The decision rests, inter alia, on the risk of being banned from specific locales. For some digital platforms, this will have less of an impact on the affected firms than for others.

Despite the well-documented rise of the digital economy, the significant impacts from COVID-19, and the growing prevalence of anti-globalization sentiment, Chapter 6 (“Renewing the Relevance of IB: Can Some History Help?”) challenges whether the field of IB will step up to take on these grand challenges in today’s “new normal.” As is the case in other management disciplines, the relevance of IB research has been put into question. Institutional pressures to publish and to write solely for scholarly audiences often outweigh incentives to improve the practice of management. While the aim of our field is to assess possible responses to the rapidly changing context of IB, Chapter 6 suggests that some of the answers we seek can be found by nurturing a better understanding of the past.

In this chapter, Jones argues that an historical research approach can help improve the relevance of IB scholarship and provide informed responses to grand challenges. While an historical approach is not the norm in our field, it accurately predicted the shift of activities using standardized labor to emerging markets and it made calls a long ago for a stronger focus on poverty, climate change, and pandemics – topics not only relevant but particularly critical today. Critiques of the limited relevance of IB research (and management research more broadly) are not new, but Jones offers the suggestion that historical explorations can both illustrate extant path dependencies of intellectual thought and help enhance our knowledge of contextual factors that contributed to key prior findings in our field.

Intellectual path dependency can constrain thinking. For example, Jones reminds us that old measures cannot capture new or changing phenomena. An emphasis on entry strategies, while neglecting exit, may simply reflect an enduring post-WWII growth paradigm. Unfortunately, the pendulum is now swinging in the opposite direction via the forces of populism and anti-globalization. Jones also highlights the paucity ...