Michael Jakobsen
Asia Research Community
Dept. of International Economics, Government and Business
Copenhagen Business School
Spring 2021
International Business is not an Exact
Science!
Reality can be so complex that equally valid observations from differing perspectives can appear to be
contradictory! On the notion of ‘structuration’ and ‘contextualisation’
No Three!
Four!
2
From the previous lecture
 Three key concepts
 Ontology
 where ontological realism seeks to understand and explain that which exists
in the world independently of how we understand it, ontological
constructivism focuses on how these factors are created and perceived by the
individual
 Epistemology
 the epistemological notion of objectivity can be described as the question of
whether we can acquire knowledge about the world as it is without that
knowledge being distorted by human interpretation and explanation
 Axiology

Philosophers have argued that it is impossible to avoid a certain value
attribution in the research process. Therefore, the discussion is not
ultimately about value freedom, but more about whether values are a
part of and shape, scientific (or any) practice
3
From the previous lecture
 Three philosophies of science
 Positivism
 This method is generally modelled on the quantitative-oriented natural science
approach

That which can be observed empirically exists in the world, while that which cannot be
observed cannot be claimed to exist or be worth bothering about scientifically
 Structuralism
 Structuralism are not interested in how phenomena are perceived by the individuals
who experience them, but rather in what the phenomena really are once we peel away
their surface
 The aim is to generalise about how structures form phenomena, individuals and their
actions. Structuralism are thus highly reductionist and objectivising
 Phenomenology
 A phenomenological perspective assumes that phenomena understood as observable
facts and events are always phenomena for someone, and can therefore never be
studied independently of how they are perceived by others
 The object of study only become something (ontology) when there is someone who
recognise them (epistemology).
4
From the previous lecture
 Perceptions of the global context (facts or fiction?)
 De- or re-coupling in relation to the global economic
 Flat or spiky
 IB sliced
 Glocalised organised
 It is your choice!
5
From the previous lecture
 Contextualising perceptions of the state
 The regulatory stats (beneficial towards citizens and business in general)
 Governs the economy mainly through regulatory agencies that are empowered to enforce
various standards such as protecting against market failures, monopolistic pricing, abuses
of market power and providing collective goods that the marked itself cannot provide
(Hong Kong)
 The Welfare state (beneficial like the regulatory state)
 The state plays a key role in the protection and promotion of the economic and social well-
being of its citizens through the redistribution of funds by the state (Japan, South Korea
and Taiwan)
 The developmental state (monopolistic and self-empowering)
 Has a more independent or autonomous political power as well as more control over the
economy so that neither the corporate- nor the working class’ short term or narrow
interests takes control. Can be either authoritarian or democratic (China, Indonesia,
Malaysia, Thailand)
 The predatory state (a failed kind of state)
 Are governed by elites who monopolized power through the use of opaque decision-making
procedures, weak institutions and a lack of market competition so as to generate profits
that benefits them rather that societal at large (Philippines)
6
The Changing Nature of the State
 On the ‘sandwiched’ state
 An institutional macro perspective of markets
 Developed markets, emerging markets, BOP markets
 External factors impacting state performance
 WTO, global value chains (FDI flows), IMF
 Internal factors impacting state performance
 NGOs, civil society and agency (micro institutions)
 Defining the ‘size’ of the ‘room’ in which states have to maneuver
 A combination of external and internal factors affecting state performance
 The sandwiched state
 A dynamic perception of state performance in ‘glocalised’ business systems
 The institutional setup and agency from civil society (contextual impacts)
 Changing forms of states as a consequence of the dynamic glocalised business systems
7
About this Lecture
 On the institutional context: Perceptions and dynamics
 How to think institutions?
 Institutional dynamics
 Institutions and agency
 Institutions and business networks
8
Employing International Business Theories as the main
theoretical approach
Towards a holistic approach
Institution-based views:
Formal and informal rules
of the game
Fundamental question:
Generic theories
What determines the success and
failure of firms around the globe
Firm specific theories
?
Resource-based view:
Firm-specific resources
and capabilities
Source: Peng and Meyer 2019: 10
9
On the Notion of Culture in International Business
Studies
 Various definitions of ‘culture’
 1. The collective programming of the mind

Hofstede’s dimensions (1. individualism/collectivism, 2. masculinity/femininity, 3. uncertainty
avoidance, 4. power distance, 5. long versus short term normative orientation, 6. indulgence versus
restraint)

Sophisticated stereotypes (Osland and Bird 2000))
 2. National culture (a political project)
 3. Primordial understandings of culture

An argument for legitimising nationalism based on a constructed concept of culture
 4. Culture in an ethnic context

Is a political perception of identity in a multicultural (national) setting
 5. Clifford Geertz’s definition of ‘culture’

‘The concept of culture is essentially a semiotic one. Believing that man is an animal suspended in
webs of significance he himself has spun I take culture to be those webs, and the analysis of it to be
therefore not an experimental science in search of a law but an interpretive one in search of meaning’
(Clifford 1973: 5).
 6. Corporate or organisational culture?
10
Employing Institutional Theory: The Overall Framework
An institution-based view focuses on the dynamic interaction within institutions, between institutions , between
institutions and organisations/firms, and between institutions and civil society/agency
Institutional theory considers organisations/firms strategic choices as the outcome of an critical interaction with
the institutional set-up (Peng 2002).
Institutions are thus not to be perceived as a set of static entities that relate to each other in a structural
functional way. On the contrary, they are flexible in their very constitution due to external impacts (MNCs and
international organisations) and internal impacts (agency and general influences from civil society)
Global sphere
Civil society
Ins titutions
Dynamic
interaction
Formal and
informal cons traints
Organis ations
Industry conditions
and firm-s pecific
res ources
Strategic
choices
Corporate sphere
Source: Peng (2000)
11
BREAK
A Soft Beginning Towards Understanding Institutional
Theory
 The Peng et al test (from around late 1990s):
 Hypothesis: ‘National institutions matter independently of cultural
background’
 Two assumptions
 Assumption one:
 If national institutional influence predominates then Chinese-American and
Caucasian-American entrepreneurs would show similar patterns of response to
environmental perceptions and strategic orientation compared with those of
mainland Chinese entrepreneurs
 Assumption two:
 If cultural influence predominates, then mainland Chinese and ChineseAmerican entrepreneurs would show similar patterns of response to
environmental perceptions and strategic orientation when compared with those
of their Caucasian-American counterparts
13
A Soft Beginning Towards Understanding Institutional
Theory
 The Peng et al test: Their findings:
 Strong support for the national institutional perspective
 Chinese-American and Caucasian-American entrepreneurs tend to share more
similarities in terms of their environmental perceptions and strategic orientations when
compared with their counterparts in mainland China
 Despite a presumed cultural link between mainland Chinese and Chinese-American
samples, these two groups differ significantly on many dimensions
 Case: the Chinese diaspora and notions of Chinese-ness
 This provide some preliminary evidence suggesting that it is the institutional setup
rather than specific cultures that drive conceptions of identity as well as strategical
orientations
14
Institutional Frameworks and Human Agency (1)
 Hancké and Goyer (2005) are critical towards a rigid understanding of
institutional frameworks and their capability to dictate pre-defined adjustment
paths for agents within the institutional setup
 According to them, the following assumptions are problematic:
 1. Since institutional frameworks operate as filters for external stimuli/shock,
agents perceive similar challenges very differently in differently organised
institutional frameworks and thus act accordingly (institutional initiated
agency)
 2. The formation of agents’ preferences is a result of existing internal
institutional structure (structures motivate agency to act in a predictable way)
 Basically, agents develop and pursue their strategies as they have been shaped
by the institutional set-up (philosophy of science approach?)
15
Institutional Frameworks and Human Agency (2)
 Reactions against such deterministic impact of institutions on agents have resulted in
two forms of constructivism:

A ‘soft’ constructivist position implies that institutions do not only regulate economic and
political action, but also provide elements that ‘produces’ as much as regulates human agency


This view stresses that institutions provide agents with tools for thinking and developing
various kinds of strategies thus aiding creative modes of thinking but only within frameworks
established by the institutional setup
A more ‘tough’ form of constructivism suggest a radical break with the prevailing form of
institutionalism

It emphasises strategic agency that in principle set no limits to the types of solutions that
agents can bring to bear on problematic aspects of the institutional set-up meaning changing
them or even abolish them
16
Institutional Frameworks and Human Agency (3)
 Hancké and Goyer agree with the following two perceptions of constructivism:

Generally, agents pursue own interests, but these interests are a direct consequence of the
interaction with the institutional framework in which the agents find themselves

Thus, institutional frameworks may constrain but may also offer new opportunities as a result of
these constraints as they allow for forms of learning that may go beyond the possibilities
originally recognised by the established framework

The philosophy behind this perception of the relationship between institutional frameworks and
human agency?
 Employing a phenomenological approach
 In particular the dynamic relationship between context and individual
resulting in strategic agency
17
Institutional Frameworks and Human Agency (4)
 Arguably, human beings and the organisations they construct within civil society
such as interests groups, companies and other kinds of organisations have two main
implications:
 1. Change rather that stasis characterises human societies and organisations, as
agents are permanently evaluating their position and react accordingly
 2. Institutional frameworks are therefore caught up in an almost permanent process
of redefinition that allow agents operating within them to explore interpretations
that can be rather different from the ones that were initially intended by the
institutional setup thus pushing further changes
 This creates tensions between a government and the institutional set-up in which it
is embedded. Governments are generally working towards institutional stability,
whereas the institutional set-up is by definition in a constant state of flux due to
human agency
18
BREAK
Zooming Further in on an Institutional Perspective of Society
• An institutional framework as perceived by North 1990 onwards (economic)
•
Formal and informal institutional constraints: a dynamic relationship
–
Formal constraints: include policy guidelines, judicial decisions and economic conventions
–
–
Informal constraints: include local sanctioned norms of behaviour, which are embedded in
traditional culture and value systems
–
•
They form a set of fundamental political, economic and legal ‘rules of the game’ that establish the formal basis for
acceptable governance of civil society, industry, exchange and distribution, domestically as well as internationally
‘Informal institutions’ are thus broader based societal constructs than formal institutions. They furthermore provide
basic elements for the construction of localised mind-set behind, for example, employees within the formal
institutions
In situations where formal institutional constraints fail, that is, are not properly implemented and/or
do not function according to (formal) expectations, then informal institutional constraints, that is,
institutions not organised by or related to the state, come into play to reduce voids/uncertainty
thereby providing an alternative stability for civil society as well as for domestic and foreign
companies alike (North 1990)
20
A Sociological Approach Towards ‘Reading’ the Relationship Between the
Institutional Framework and Human Agency

According to Richard Scott institutions are social structures that provide stability and meaning but
not various kinds of ‘rules of the game’ to social life (Scott 2014).

Scholars that stress regulative elements pays attention to rational choice and design. Regulative
elements are more formalised, more explicit, more easily planned and strategically deployed by state
officials.


Here Scott is talking about formal institutions that guide and/or structure social behaviour. Informal
institutions are to some extend suppressed in order to make people conform to formal requirements.
Scholars emphasising normative elements, however, stress the social embeddedness of political and
economic behaviour.

The notions of normative elements are more difficult to identify, as they can be found in both formal and
informal institutions (defined by context!).

If the normative elements originate from the regulative elements then we are talking about official norms
and values that are to streamline behaviour in, for example, a multi-cultural societal landscape.

In case the normative elements originate from the informal institutions then these normative elements have
the capability of impacting on the formal institutions/regulative elements thus making them work in
multiple ways not necessary envisioned by officialdom and/or job descriptions.
21
A Sociological Approach Towards ‘Reading’ the Relationship
Between the Institutional Framework and Human Agency
(continued)

We thus have the normative elements that flows back and forth between the formal and informal
institutions as well as within the informal institutions themselves!


Scott goes on to say: ‘personal ties and informal relations between actors, as well as specific situational
demands often trump narrowly defined self-interest and utilitarian concerns’.


This is an interesting observation when trying to identify the key signifiers that actors identify in order to
make them capable of navigating a dynamic socio-political and/or administrative landscape
Here he almost negates the notion of rational choice and designs that define the regulative elements thus emphasising
context and situated-ness as key signifiers in social interaction
Scott then touches on the third and final pillar within an institutional set-up: ‘The most recent contributors
to the institutional discourse are those who stress the importance of cultural-cognitive elements’.

The elements are cultural because they are socially constructed symbolic representations; they are cognitive in that
they provide vital templates for framing individual perceptions and decisions’ (Scott 2010). (tacit knowledge)
22
A Sociological Approach Towards ‘Reading’ the Relationship Between the Institutional
Framework and Human Agency (continued)

Scott sees the relationship between the three elements (regulative, normative, cultural cognitive) as
constituting inter-dependent elements that together forms the overall framework for complementary
but competing forms of governance within a society.

Critique of Scott:


Here I am a bit sceptical as I see Southeast Asian societies as consisting of not one but several societies
within.

This means that when analysing Malaysia on the basis of regulative, normative and culture-cognitive
elements understood as constituting the overall societal matrix then this is a too simplified way of
analysing that particular society.

According to my perception there are several ‘societies’ with their own regulative, normative and culturecognitive elements that together make up Malaysia. They are organised in a layered and macro-political
defined order that reflects the current political and economic power elite.
The dynamic socio-political landscape that various actors have to navigate is thus not a onedimensional landscape but a multi-dimensional one that consist of a complex multi-ethnic web of
meaning and power relations that is not easy for actors to disentangled when trying to formulate a
socio-political economic strategy after which to navigate.
23
Dimensions of Institutions
Degree of formality
Examples
Supportive pillars
Formal institutions
Laws
Regulations
Rules
Regulatory (coercive)
Informal institutions
Norms
Cultures
Ethics
Normative
(Culture) - cognitive
(Source: Peng and Meyer 2019: 33)
24
Institutions and Business Systems
 Definition
 Business systems refers to the institutions governing
economic activity inside and outside the firm
State/formal Institutions
(macro)
Game changer
 What are institutions?
Business
systems
Company
Global/local
economy
Civil Society/informal institutions
(micro)
 North (economist): formal and informal institutions
 Scott: (sociologist) regulative, normative and cultural-
cognitive pillars
25
BREAK
(Business)Network Practices as Firm Specific
Reflections of the Institutional Setup
From a generic IB approach towards a firm specific
approach
The main focus here is not necessarily on the networks
themselves but rather on the institutional as well as firm specific
context from which they emerge
27
Various Perceptions of Asian Network Practices
 How the global transforms the local (Carney 2005)
 Convergence approaches in relation to the global and local predict a gradual erosion of
local influences on organisational practice
 Two phases:


1. local institutions influence global network practices – domestication of global inputs

2. global and local institutions interact thus influencing local (business) network formation and
renewal – integration into for example global value chains followed by a gradual standardisation of
business practices
What kind of perception of the global economy is Carney forwarding here?


Drivers: WTO? Consequences: increasing local formalisation (moving up the value chain)?
OBS: Globalisation intensifies interfaces, but not necessarily by converging the global and the
local
 Impact of culture and local political imperatives in this connection (contextualisation)?
28
On the Power of Context
According to Carney (2005) governance structures in a company are generally
perceived to be more enduring than surrounding institutional changes
E. Schein’s generic organisational cultural model (2004)

1. artefacts (physical or verbally expressions)

2. values (mission and vision)

3. basic assumptions (firm specific values deeply ingrained in the organisation)
 Contextualising Schein’s model

Market context/characteristics?

Institutional context/characteristics?
29
Networking in an Institutional Context
 General network characteristics in different types of markets (Carney
2005)

The more national institutions provide secure property rights, contract enforcement and
transparency, the less do network forms of governance yield commercial advantages

Is determined by the relationship between formal and informal institutions in the country in question
(conventional business contracts and relational business contracts)

Local alliances framed as networks are more useful the more regulatory systems create risks or
obstacles for foreign investors (institutional voids, corruption, collusion)

Where local networks are relatively open to foreign firms or where there are effective
intermediaries, using local networks is a more rewarding strategy than bypassing them

Are useful even in relatively well regulated markets
30
On the relationship between state, Institutions and firms
 According to Peng and Zhou (2005) network changes are provoked by institutional
changes/transitions
 Governance structure and thus business network strategies and network practices changes
due to the impact of institutional transitions

Dominated by institutions –greater adaptation to host country institutions leads towards
stronger subsidiary autonomy thus creating tensions between HQ and subsidiaries

Strength: strong and weak networks are end points in a continuum (there are no no-network
practices, that is, B2B or B2G relations only based on formal rules and regulations)

Content: institutional transitions (political and economic) shape the content of different
networks which focus on B2B and B2G ties


On the impact of institutional voids
Remember Hancké and Goyer’s discussion of the relationship between institutions and agency
31