Institutions and Business Strategy (Essay Sample)

Introduction The rapid technological advancement and globalization have resulted in a similarly rapid growth of the existing and emerging economies. As a result, companies; new and existing, are trying their level best to match up as they face the challenges regarding market entry. Various companies are employing different entry strategies in order to make it in the perfect way and fit. However, the question of what determines a foreign market strategy remains unanswered since no particular entry strategy has been recognized as the Universal approach. Before deciding on which entry strategy to adopt, a company has to take into consideration some other factors, and institutions are amongst them. However, some companies have a lot of focus on their internal resources and capabilities (). Of course, that is important but might not be beneficial minus consideration of other factors. Definition of the term "institutions" in the context of business strategy Even though they are just commonly known as the "rules of the game," many economists have come up with the best definitions of the term "institutions" in line with business strategy. Of all the other meaningful definitions, this paper adopts the definition by Richard Scott that explains institutions as the regulative, normative, and cognitive structures and activities that provide stability and meaning to social behavior (Peng et al 2009, p.64). In an attempt to make this definition sound more clear and relevant in the context of business strategy, it is further supported by the similar definition by the world bank. The world bank have it that "institutions" are sets of rules governing the actions of individuals and organizations, as well as the interaction of participants in the development process (). Therefore, to sum it up, institutions consists of rules, laws, and regulations that govern a body or an operation, in this case, the market entry. Therefore, institutions can be viewed at another angle as the humanly-devised rules affecting incentives, potentially determining the cross-national differences in prosperity. Having said that, it comes out clear that the institutions would at some given point affect business, company, or a country in international trade (). Most economists argue that many investors view that as not a useful framework for providing a solution or a resolution in the business arena. The notion stands that even if a strategy is put in place to come up with the best and an all-inclusive institution, there would still be losers and beneficiaries going by the institution. In an attempt to solve such a scenario, () talks of an efficient institution as the one which caters for both the losers and the gainers. For instance, he talks about the need to compensate the losers or the beneficiaries to impose their choice. However, in the real sense, losers are never compensated and would rather make all attempts to block the institution change that would be beneficial in the long run. This variation clearly shows why some societies adopt institutions that appear to be disastrous to the economic growth. This has been evident especially with the institutions that shape the incentives and determine the distribution of resources. As a result, the need of the society to participate in making the decision over conflicting situations becomes necessary. The role of institutions in a foreign market entry Whenever foreign companies enter the market of another country, the country has to identify and adapt to the host’s institutions. The institutions here do not only streamline the structure and operations of the foreign-based company but also points towards safeguarding the local similar companies. To survive and grow, the foreign companies or the multinational corporations (MNCs) have to balance their internal and the external institutional pressures (). Such companies would be subjected to two external institutions one from the home country and another from the foreign (host) country. However, the role of the institutions majorly is after conformity and survival of all the companies whether local or foreign. Going by the Crux of institutional theory, the set institutions guides a company in determining the best market in the world (). For instance, selection of appropriate market and environment for an operation depends on with the possibility of the firm to conform. With this, the institution would ensure that the company or the firm is a legitimate failure to which it cannot survive. These guidelines, therefore, puts the firm on course until it becomes adapted to the new market. Another role played by the institutions in determining the foreign market entry is on the knowledge of the international firm and adaptability. As illustrated by () whenever a firm enters a foreign market, the firm tends to be disadvantaged in various ways. The firm would be lacking the essential knowledge regarding various dimensions in the host country such as legal policies, political stand, social norms, and customers’ preference. Therefore, the set of rules and regulation that forms the institution would act as a guideline that would eventually make it easy for the foreign company to adapt and do the right thing. Furthermore, just to make everything simple, most foreign companies do strategies their entry by involving an existing local company in the form of a partnership like a joint venture or strategic alliance. All these are done just to simplify the procedures stated out in the market entry institutions. Role of culture in shaping the institutions Culture is broadly viewed as the social norms and individual beliefs that contribute to the shaping of individual incentives. This interpr...