THE THIRD LEG IN THE STRATEGY TRIPOD – Institutional Based View
Strategy has come to play a significant role in international business (IB) in recent times. This is predicated on the fact of complexities associated with globalisation. The interplay of various factors of production in an environment could have been sufficient for MNEs in taking investment decisions. However, experience has shown otherwise. In this light, strategising in the international business arena has been dominated by industry and resource based views, somewhat ignoring the magnitude of institutional impact on investment decisions.
EVALUATION OF ‘THE THIRD LEG IN THE STRATEGY “TRIPOD”’
According to Peng et al (2008), citing Porter(1980) Barney (1991) the industry-based view is rooted in the assumption that the strategy employed by MNEs is determined by the conditions within the industry of focus. Also, the resource based view tends to narrow performance and international business strategy to resources in specific firms. The aggregated views are functions of research findings carried out in environments whose institutions are seemingly standardised and stable. Meanwhile these views have not been able to deal with the nagging questions posed by strategy as regards investment locations.
Recent research directions have established remarkable differences in the institutional frameworks of emerging economies relative to developed economies. This is largely due to long history of cultural, legal and political platforms that organise their businesses. According to Peng et al (2008), the effect of these formal and informal institutions are quite remarkable in shaping strategies and performance even in developed economies. This may not have come to the front burner without recent research on the relationship between institutions and organisational strategies in emerging economies.
Peng et al (2008) are of the view that earlier approach to international IB strategy did not offer institutions appropriate place in the strategy discourse. In furtherance to this, Peng et al (2008) argue that the institutions should actually be recognised as the third leg in the strategy tripod. The other legs being resource based and industry based views. Let us explore the institutions and how they impact IB strategies.
In understanding an institution, the renowned Economist Searle (2005 pp.21) defines an institution as ‘any collectively accepted system of rules (procedures, practices) that enable us to create institutional facts’. It follows that the institutions set the rules for doing business in any environment. As such an MNE is only going to be successful where it understands, assimilates and applies the rules of the environment for competitive advantage. Peng et al’s (2008) argument on the institutional view of strategy focuses on legal, social and political aspects as these have been found to change quite significantly in emerging economies upon both internal and external impacts.
EFFECTIVENESS OF THE FOUR CASES OFFERED IN SUPPORTING THE CENTRAL ARGUMENT
Peng et al (2008) posit that in transacting business in a developed economy, the supporting institutions operate albeit silently at the background. This is in contrast to the situation in emerging economies where the weight of institutions plays visible roles in consummating transactions. These visible roles have tendencies to alter the business equation in favour of MNEs who have taken proactive steps in influencing the institutional outcomes. Place this fact side by side the growing importance of emerging economies, it becomes imperative that institutional view of strategy becomes as important as the traditional views. Emerging economies like China and India are great examples where institutions’ actions and inactions play great roles in balancing the IB strategy tripod.
Growing The Firm In China
Peng et al (2008) note that it is puzzling to see China growing...
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