INSTITUTIONAL ENVIRONMENTS, INSTITUTIONAL CHANGE, AND INTERNATIONAL ALLIANCES

INSTITUTIONAL ENVIRONMENTS, INSTITUTIONAL CHANGE, AND INTERNATIONAL ALLIANCES

Third Annual IB Research Forum, “Institutions and International Business”

Fox School of Business & ManagementMarch 23, 2002

Outline of Remarks

• Why Institutional Theory in the Study of International Alliances?• Core Issue• New Model, “Unbundling the Stages of Alliance Integration”• Research Propositions and Implications• Looking Ahead

ARVIND PARKHEIndiana University

INSTITUTIONAL THEORY: AN UNDERUTILIZED PERSPECTIVE IN INTERNATIONAL ALLIANCE

RESEARCH

• Institutional Impact on Alliances: Illustrative Examples

• Gaps in the Literature

• Unique Role of Institutional Perspective

CORE ISSUE

•This much is known:Multilevel differences in partner characteristics can reduce the effectiveness and longevity of international alliances (Parkhe, 1991)

• Pushing this thought further, reconciliation of Type II differences, or alliance integration, requires institutional change

• How can we conceptualize and specify – in other words, better understand – this “black box” of change process?

KEY TERMINOLOGY

Institutional Environment – External: Includes a company’s societal culture and national context.

Institutional Environment – Internal: Includes a company’s corporate culture and management practices

Integration (of alliance partners): Mutual adaptation, or lack thereof, with respect to managerial values, practices, and systems (VPSs) within the boundaries of an international alliance (Danis & Parkhe, 2002)

Managerial Values: commonly accepted ideals and norms that managers use, perhaps implicitly, in guiding their organizations and their own behaviors and decisions in a professional context.

KEY TERMINOLOGY (cont.)

Managerial Practices: commonly accepted general management behaviors and routines that are considered appropriate in managing organizations and/or conducting business

Managerial Systems: operational procedures or structures that are commonly used to resolve specific types or sets of organizational problems

Institutional Change: “the abandonment of institutionalized practices, structures, and goals, and/or the adoption of institutionally contradictory practices, structures, and goals, by an individual organization or field of organizations” (Kraatz & Moore, 2002)

Deinstitutionalization: “the process by which institutions weaken and disappear” (Oliver, 1992; Scott, 2001: 182)

FIGURE 1Unbundling the Stages of Alliance Integration

I.PrecipitatingEvents

II. Deinstitutionalization III. Preinsitutionalization

VII. Proto-Institutions VI. ReinstitutionalizationIVa. TheorizationIVb. Mimicry

V.Relational

Efforts

FIGURE 2Unbundling the Stages of Alliance Integration:

Underlying Processes

I. PrecipitatingEvents

Jolt to current institutions

II. DeinstitutionalizationWeakening of current institutions

III. PreinsitutionalizationSearch for new solutions

VII. Proto-InstitutionsSpread of new institutions to wider organizational fields

VI. ReinstitutionalizationAdoption, objectification, achievement of legitimacy

IVa. TheorizationIVb. MimicryChoice of new solution and search for legitimacy

V. RelationalEfforts

Promotion by alliance champion

FIGURE 3aUnbundling the Stages of Alliance Integration:

Representative Steps


Jolt to current institutions•Partner scanning and selection•Pre-contractual negotiations•Cognition of differences in VPSs








FIGURE 3bUnbundling the Stages of Alliance Integration:

Representative Steps



II. DeinstitutionalizationWeakening of current institutions•Injection of new ideas disturbs socially – constructed consensus•Established VPSs destabilized•Possibility of institutional change arises







FIGURE 3cUnbundling the Stages of Alliance Integration:





III. PreinsitutionalizationSearch for new solutions•Partners independently seek viable solutions to their own problems•Recognize each other’s successful practices•Link differences in outcomes to differences in VPSs, in turn to differences in institutional environments






FIGURE 3dUnbundling the Stages of Alliance Integration:








IVa. TheorizationChoice of new solution and search for legitimacy•Specification of a general organizational failing•Development, specification of abstract categories of integration and elaboration of chains of cause and effect•Choose integration mode•Simplify, distill properties of new VPSs and explain the (superior) business outcomes they produceIVb. MimicrySearch for legitimacy•Justification of innovation through pragmatic legitimacy



FIGURE 3eUnbundling the Stages of Alliance Integration:









V. Relational EffortsPromotion by alliance champion•Communication and behavior transparency•Mutual adaptation•Mutual learning through - use of expatriates - training programs - company visits - technology transfer agreements - personal transfers

FIGURE 3fUnbundling the Stages of Alliance Integration:







VI. ReinstitutionalizationAdoption, objectification, achievement of legitimacy•Upward diffusion of ideas (alliance boundary spanner senior management)•Downward diffusion of ideas•Innovations “objectified”, gain social consensus concerning their pragmatic value, diffuse even further•Density of adoption promotes cognitive legitimacy, new ideas become taken-for-granted as the natural, appropriate arrangement




FIGURE 3gUnbundling the Stages of Alliance Integration:






VII. Proto-InstitutionsSpread of new institutions to wider organizational fields•Outward diffusion of ideas (across other alliances, companies, industries, countries)





FIGURE 3hUnbundling the Stages of Alliance Integration:

Underlying ProcessesI. Precipitating

EventsJolt to current institutions•Partner scanning and selection•Pre-contractual negotiations•Cognition of differences in VPSs

II. DeinstitutionalizationWeakening of current institutions•Injection of new ideas disturbs socially – constructed consensus•Established VPSs destabilized•Possibility of institutional change arises

III. PreinsitutionalizationSearch for new solutions•Partners independently seek viable solutions to their own problems•Recognize each other’s successful practices•Link differences in outcomes to differences in VPSs, in turn to differences in institutional environments

IVa. TheorizationChoice of new solution and search for legitimacy•Specification of a general organizational failing•Development, specification of abstract categories of integration and elaboration of chains of cause and effect•Choose integration mode•Simplify, distill properties of new VPSs and explain the (superior) business outcomes they produceIVb. MimicrySearch for legitimacy•Justification of innovation through pragmatic legitimacyV. Relational Efforts

Promotion by alliance champion•Communication and behavior transparency•Mutual adaptation•Mutual learning through - use of expatriates - training programs - company visits - technology transfer agreements - personal transfers

VI. ReinstitutionalizationAdoption, objectification, achievement of legitimacy•Upward diffusion of ideas (alliance boundary spanner senior management)•Downward diffusion of ideas•Innovations “objectified”, gain social consensus concerning their pragmatic value, diffuse even further•Density of adoption promotes cognitive legitimacy, new ideas become taken-for-granted as the natural, appropriate arrangement

VII. Proto-InstitutionsSpread of new institutions to wider organizational fields•Outward diffusion of ideas (across other alliances, companies, industries, countries)

RESEARCH PROPOSITIONS & IMPLICATIONS

• Growing sophistication of alliance literature is evident from recent focus on processes, as opposed to merely outcomes

• Unbundling model of critical integration processes should be vigorously tested in multiple settings using a variety of research designs

• Such empirical research will (a) deepen our understanding of international alliances in new, fruitful directions, and (b) push institutional theory’s reach into timely new applications

LOOKING AHEAD

• Ongoing Story

• Recap of Recent Developments

• Hot Issues/Remaining Issues

• Expanded Model

• Concluding Thoughts

THANK YOU!

INSTITUTIONAL ENVIRONMENTS, INSTITUTIONAL CHANGE, AND INTERNATIONAL ALLIANCES

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