MICHAEL A. HITTTEXAS A&M UNIVERSITY

ANDTEXAS CHRISTIAN UNIVERSITY

FEBRUARY 2016

Institutional Complexity and Firm Strategy

Introduction A Meta-analysis of 359 Studies across 32 Countries over a 40 Year

Period Found that the Internationalization-Performance Relationship was Moderated by Home Country Formal and Informal Institutions (Arregle, Murano, Hitt, Spadafora & van Essen, 2016)

A Recent Review of Research on International Strategy Over the Past 50 years Suggested the Important Role of Institutions (Hitt, Li & Zu, 2016)

Peng and Colleagues (2009) Argued for an Institution-Based View of Firm Strategy

Research Has Shown that the Concepts of Institutional Distance, Regional Institutions and Institutional Complexity Are Important Influences on Strategy (Hitt, 2016)

Institutions

Institutions Refer to the formal and Informal Rules and Norms that Provide Order and Structure in Society and Guide Individual and OrganizationalActions (North, 1990; Scott, 1995)

Institutional Distance (Eden & Miller, 2009) Research on Cultural Distance (Shenkar, 2001, 2012) and Research on Formal Institutional Distance (Zaheer, Schomaker & Nachum, 2012) Have been Criticized for Oversimplification

Asymmetric Effects of Institutional Distance Stronger Weaker and Weaker Stronger

Emerging Economy Firms Can Benefit from Stronger Institutions in Host Country Developed Economy Firm May Experience Problems Navigating Weaker Institutions in Host County (Xu & Hitt, 2016)

Institutional Environments

While There Has Been Considerable Research on the effects of Specific Institutions (e.g., Political Risk, Intellectual property Protection)., Institutional Environments Are Complex (Ostrom, 2005; Kogut & Ragins, 2006; Batjargal, 2010)

Institutions Have independent and Interdependent and thus Collective Effects on Managerial Decisions (and Strategies) (Delmas & Toffel, 2009; Hitt et al, 2004

Institutional Environments (Cont’d)

Institutions Are Diverse and Multilevel making InstitutionalEnvironments Complex

Formal and Informal Institutions (Holmes et al, 2013)

Multilevel Institutions (Ostrom, 2005) Regional/Subregional (Arregle, Miller, Hitt & Beamish, 2013; Ahlstrom et al, 2014) Subnational (Shenkar, 2012; Burgelsdijk, 2013)

Host Region Institutional Diversity Affects Firms’ InternationalStrategies (Arregle, Miller, Hitt & Beamish, 2016)

Configurational Effects –Integrative Influence (Batjargal et al, 2013)

Resource Orchestration in Different Institutional Environments

National Formal Institutions Establish the “Rules of the Game” (North, 1990) and Influence the Development and Practice of Lower Level Formal and Informal Institutions and Other Norms

Industry Structure and Norms Are Affected by National Institutions

National Institutions Place Constraints on Industry Actors (e.g., Regulations, Economic Policies)

As such, Strong and Efficient National Institutions Restrain the Amount of Dynamism (e.g., Specific Regulations) and Munificence (e.g., Restricting Access to Natural Resources, Constraints on Money Supply)

Resource Orchestration in Different Institutional Environments (cont’d)

Industry Attributes Influence the Strategic Behavior of Firms. Norms of Behavior (Industry Recipes) Develop in Industries (Spender, 1989)

In turn, the Industry Recipes (Norms) Influence the Strategies Used to Leverage a Firm’s Resources and Capabilities (e.g., Exploiting a Current Capability; Creating New Market Opportunities)