How Do Differences in Institutions Matter for Management Around the World (Essay Sample)

Institutional differences in management
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Institutional differences in management
Management refers to the art and science of administering different organizations. The organizations include businesses, government bodies, and non-profit organizations. Institutions refer to the roles, regulations, and legislation that influence various organizations. Institutions could also be norms, traditions and beliefs applied in different organizations. Institutions play a significant role in the management of organizations. Institutions are fundamental in economic growth and development. Organizations differ due to culture, area of operation, and mode of operation. Every organization exists in a specific environment and hence has various benefits and challenges. Researchers and scholars in management believe that institutions matter, although it is difficult to identify the institutions and the way they matter. This paper discusses how differences in institutions matter in management using various systems, approaches, and institutional domains. The report also identifies specific institutional advantages and disadvantages encountered by managers running businesses in different countries.
First, due to modernization, technological advancements, and globalization, international business and hence Multinational Enterprises have been brought into existence (Jackson and Deeg, 2008). Multinational enterprises exist in different business environments. They also face various challenges while choosing a strategic location and coping with institutional diversity across regions and countries. Other international businesses are exposed to political hazards and uncertainties due to the distance between the host country and the home country. Multinational companies operate in countries other than their home countries and face differences in routines, capabilities, standard practices, and resource endowment differences. Global enterprises may also benefit from host countries' environments (Parkhomenko and Otenko, 2018). International firms face less competition in host countries when compared to home countries. Conducting businesses in other countries also boosts the company’s reputation and profile, influencing business success. The experience of multinational enterprises obtained across national borders outlines the benefits of institutions in the emerging markets in understanding business performance and strategies. Scholars in international business link global enterprise success to the proper adoption of business strategies and environments of host countries. Differences in institutions matter based on differences in international business and comparative Capitalism.
The international business focuses on how institutions make proper location choices by creating incentives and avoiding constraints. However, a global company is limited and narrow in scope as it focuses on summarizing different variables that impact specific business activities. International business gives little attention to the topographical landscapes of other institutions and their diversity. Comparative Capitalism examines the interactions of institutions in different economic environments to form varieties of Capitalism. The comparative capitalism approach contributes to the analysis of non-market forms of coordination. The system uses comparative institutional advantage theory to identify the strengths and weaknesses of different economic activities rather than distance. Focusing on distance and other economic factors views institutions as resources for solving financial problems. The comparative capitalism approach helps in shaping the supply of economic inputs such as capital and labour available for different institutions. The process is fundamental in explaining the relative advantages of particular countries like Japan based on increased firm innovations.
International business scholars use cost, resources, and distance variables to explain institutional configurations, change, and comparative advantages. Host countries impose certain costs and restrictions, such as legal restrictions on foreign business, affecting location, timing, and entry modes. For instance, many multinational enterprises choose wholly owned subsidiaries or joint ventures for political purposes. Institutions are also resources that could be scarce or plenty in influencing the success of different strategies and corporations in different environments. Market and non-market-based resources use firm-specific capabilities to strengthen political and internal control. The institution must ensure that a firm's specific resources are in line with the business environments of host countries. Institutional distances between host and home countries are critical in international business. The institutional differences identify universal dimensions such as culture that facilitate business outcomes. Institutions influence transaction costs, resources, and distance involved in international trade. However, the global business literature seems unclear on the impacts of institutional diversity on innovation and corporate strategies. The International business literature does not also take into consideration the changes and diversities in institutions.MNEs strategies include adapting well to the diverse environments in the host country, selective specialization achieved through arbitrage in different locations and standardization through home country activities or export of country activities to foreign countries.
Additionally, various institutional systems are applied in different constantly changing institutions (Fainshmidt et al., 2018). Some institutional frameworks include Varieties of Capitalism (VOC) and National Business Systems (NBS). Varieties of Capitalism classify advanced economies based on profits, risk, and resource allocation mechanisms. The market economies are ranked into coordinated and liberal market economies. Liberal market economies focus on coordinating company activities through competitive markets and allocating resources based on demand and supply. In liberal economies, firms raise capital through private equity markets and the stock exchange. Coordinated market economies are less competitive, and coordination is ensured via inter-organizational networks such as collective bargaining and business confederations (Hall, 2018). Examples of countries using liberal market economies include the United States and the United Kingdom, while Germany applies the CME. The following table outlines the differences between the LMEs and CMEs.
Coordinated Market Economies

Liberal Market Economies

Wages are negotiated at the industrial or national level.

Wages are bargained at the firm level during the hiring process.

Skill specialization is required among workers in a particular industry.

Workers have general skills that can be applied in any industry

Collaborative inter-firm relations

Competitive and arms-length interfirm relations

Managers cooperate effectively with workers to make major decisions.

The relationship between managers and employees is weak and adverse. Managers are the main decision-makers.

Equal income distribution

Unequal income distribution.

Incremental levels of innovation

Radical innovation levels.

The National Business System is used in institutions regarding the state, human capital, financial markets, and social capital. Following the contrasting logic and priorities, the National Business System emphasizes the different ways of structuring the economy. Both systems are helpful in developed economies. However, the NBS and VOC do not take into consideration the emerging economies. Its concentration limits varieties of CapitalismIts concentration also limit types of Capitalism to key institutional dimensions only. For instance, VOC disregards firms' influence in autonomous states and does not also account for the interaction of firms and the state. The VOC also overlooks political networks that matter in institutions by concentrating on interfirm networks. The VOC ignores cultural variations that are instrumental in economic interactions. Finally, the VOC is limited as it is only applicable to countries with LME and CME characteristics.
The variety of institutional systems also takes into consideration the role of several institutions in the economy. First, it identifies the different ways the state or the executive branch influences the economy. The state dominates the economy by being directly and actively involved in the economy through ownership of enterprises. For instance, in China, the states own 80% of the country’s total stocks. The state also intervenes indirectly through active participation in corporate governance, favouritism, and capital provisions. For instance, the Russian tycoon’s wealth was facilitated by the accumulation of assets through Putin. However, corruption practised in many countries renders states powerful in the allocation of resources. The state, through welfare, also ensures protection and promotion of citizens' well-being by equitable distribution of resources. The welfare state Favors employment stability and provides proper coordination of political relations. The regulatory state ensures the protection of property rights such as patents and copyrights. Developmental state looks into the long-term interests of a nation hence exerting complete control of the economy. The state al...