Culture, Institutions And International Strategy

Culture, Institutions and International Strategy.

For those firms who want to expand their business internationally, it is inevitable for them to face the cultural challenge. This article stresses the impact of culture on international operation as well. According to institutional-based view, informal and formal institutions have their own way to reduce risk. For informal ones, they rely on relational contact which is informal relationship based and personalized exchange. What is more, Human capital and Relationship capital are important factors to perform successfully in international market which is related to informal institution thought. Also, the article help me to understand the relationship between institution, firms and strategic choices which institutions provide guidelines to firm and effect the way they formulate and implement strategy. For example, Microsoft tries to change their strategy according to Chinese government since the intellectual property protection law is weak which caused it to lost more than billion dollars in Chinese market. Today, Bill Gates openly concedes that tolerating piracy turned out to be Microsoft's best long-term strategy and reduce their price to suit, both, local consumers and law (Kirkpatrick, 2007). Clearly, Microsoft’s strategy was affected by an institution (government) since the law of property rights protection is weak and aim to protect the socialist public properties not private properties (Li, 2004).

International strategy, culture and institutions

Beside the strategic objective that driven firms (lecture 6), firms should consider other characteristics, which is cultural factor, to enter a new market. Firms prefer to enter markets with similar cultures because they understand better consumers' needs and take fewer risks. Moreover, they can better manage their new employees if the new market’s culture is similar to their own since they want to gain superior knowledge on that culture and overcome liability of foreignness. Failure to realize the different between formal and informal institutions in different countries will cost and delay the firm operation. From the above example of Microsoft, it took 15 years for them to learn how to do business in China (Kirkpatrick, 2007). Interestingly, the more similar of culture of new market to a firm, less knowledge and innovation the firm will gain from entering that market. I fully agree to this extent since the different between two cultures is not much enough to gain enough knowledge. However, the more different the firm faces, the more risk involved. From my point of view, firms should weight the benefit and risk involved in selection of entry to match its strategic objective as well.

In addition, culture’s effect plays important role to different mode of entry especially on how to manage their operation and relationship between their counterparts. Beside, the article stated that some cultural dimensions (Hofstede’s model) directly affect the formation of technology-based strategic alliances. In my opinion, sometimes cultural dimension can be related to the way and pace that firms expand its business across boarder. For instance, firms from high uncertainty avoidance culture tend to choose less risky path to expand. They might perform exporting first in order to learn new market before move more aggressively into that market. In this way, it might take longer time to expand its business compared to those cultures with low uncertainty avoidance. From my own view, most big MNCs who abruptly expand its operation abroad tend to be western country with low uncertainty avoidance; moreover, they tend to move faster than some Asian countries with high uncertainty avoidance such as Japan. Looking at the automobile industry in China, Japanese firms such as Honda and Toyota expanded its operation slower than those western companies (Tao, 2006) due to the fact that they invested their money into more promising market such as US instead of China whose market is new and unclear.

Geographic clustering: regionalization

Agglomeration is a good way to expand the operation internationally; however, I disagree to some extent. It obviously promotes specialization within specific region which firm can fully utilize the human capital and other related resources such as regional pool of specialized suppliers. What’s more, firm can gain better understanding of cultures and institutional environments. However, closely located competitors might seize the important resources such as talented employee and, also, imitate its technology and knowledge. Also, in this fast changing business world, responding