Peng INST Chapter 2 REVISED (2nd Edition)

Peng INST Chapter 2 REVISED (2nd Edition) - Peng Global...

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Unformatted text preview: Peng Global Business 2e Chapter 2 Understanding Formal Institutions: Politics, Laws, and Economics 1 2 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. identify two types of institutions—formal and informal. 2. explain how institutions reduce uncertainty. 3. identify the two core propositions underpinning an institution-based view of global business. 4. understand the differences between democracy and totalitarianism. 5. list the differences among civil law, common law, and theocratic law. 6. articulate the importance of property rights and intellectual property rights. 7. outline the differences among market economy, command economy, and mixed economy. 8. participate in two leading debates on politics, laws, and economics. 9. draw implications for action. 3 INTRODUCTION Institutions Formal and informal policies popularly known as “the rules of the game.” Institutional transitions Fundamental and comprehensive changes introduced to formal and informal rules of the game that affect firms as players (e.g., Opening Case). Institution-based view Success or failure of firms around the globe is determined by the ability to understand and take advantage of the rules of the game (i.e., formal and informal institutions). 4 UNDERSTANDING INSTITUTIONS Institutional framework - formal and informal institutions governing individual and firm behavior. Formal institutions – include laws, regulations, and rules. In global business, these may be imposed by home and/or host countries. The primary supportive pillar is called the regulatory pillar which is the coercive power of governments (e.g., laws that compel payment of taxes). 5 UNDERSTANDING INSTITUTIONS Informal institutions – include norms, culture, and ethics. Informal institutions are supported by two pillars: Normative pillar - how the values, beliefs, and actions of other relevant players - collectively known as norms - influence the behavior of individuals and firms (e.g., rush to invest in India and China). Cognitive pillar - internalized, taken-for-granted values and beliefs that guide individual (e.g. Enron whistle blowers) and firm behavior (Enron social norm not to rock boat). 6 7 WHAT DO INSTITUTIONS DO? Institutions reduce uncertainty by signaling to firms and individuals which conduct is legitimate and acceptable and which is not....
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This note was uploaded on 03/16/2011 for the course MGMT 418 taught by Professor Byles during the Spring '11 term at VCU.

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Peng INST Chapter 2 REVISED (2nd Edition) - Peng Global...

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