UNDERSTANDING OF THE INSTITUTIONAL NORMS

Understanding Of The Institutional Norms

Understanding Of The Institutional Norms

1. Introduction

The explosion of cross-border interfirm collaborative agreements, and of the resulting research interest in global strategic alliances and international joint ventures, has been well documented (e.g., [Contractor and Lorange, 2002 and Johnson et al., 2002]). Concomitantly, another stream of research— institutional theory—has enjoyed a surge in scholarly attention in recent years [Dacin et al., 2002, Greewood and Hinings, 1996, Greewood et al., 2002, Makhija and Stewart, 2002, Osborn and Hagedoorn, 1997, Roth and Kostova, 2002, Scott, 2001, Seo and Creed, 2002 and Xu and Shenkar, 2002]. However, few scholars have attempted a systematic integration of the two literatures (see [Lu and Lake, 1997] for an exception). This is both surprising and disappointing, because each field can strongly enrich the other. Institutional theory, often applied to organizational subunits, organizations and organizational fields, has seldom been applied to interorganizational relations. The generalizability and reach of institutional theory can be greatly expanded by such novel application. Likewise, our understanding of international alliances can be deepened by examining them through the lens of institutional theory. Erecting this bridge between the two literatures, in order to better understand alliance integration processes, is the purpose of this .

[Hymer, 1960/1976] first observed that foreign entrants incur unfamiliarity costs due to differences in home and host countries' economic, social, legal, political and cultural systems. This observation can be transferred to the interactions found in international alliances: Diverse institutional environments of international alliance partners inject unfamiliarity costs into their interactions. In addition, because such liability of foreignness stems from institutional differences, the larger these differences, the greater the liability is likely to be [Miller and Parkhe, 2002]. Extending this point beyond external institutional environments to also include internal institutional environments, we may state generally that the greater the institutional differences between international alliance partners, the greater the integration challenges are likely to be.

2. A prefatory note on terminology

International alliances are a type of “hybrid” organizational arrangement in which two or more partners collaborate to generate gains for themselves by using resources and/or governance structures from participating organizations [Borys and Jemison, 1989]. Institutions are defined as “relatively widely diffused practices, technologies or rules that have become entrenched in the sense that it is costly to choose other practices, technologies or rules. Practices, technologies or rules can therefore be more or less institutionalized depending on the extent of their diffusion and the strength of these self-activating mechanisms—the set of rewards and sanctions—that hold them in place in an institutionalized field” [Lawrence et al., 2002].

Institutional environments comprise the “set of fundamental political, social and legal ground rules that establishes the basis for production, exchange and distribution” [Davis and North, 1971]. Put another way, institutional environments are those “characterized by the elaboration of rules and requirements to which individual organizations must conform if they are to receive support and legitimacy” [Scott and Meyer, 1991].

Functional pressures for deinstitutionalization are those that arise from perceived problems in performance levels ...