a. What is the theory espoused by Chandler?

-Theory of Chandler (1962) shows the important of contingency theory---the theory

that claims that there is no perfect or direct formulation in doing business, because it
is always contingent upon the internal and external factor of the environment
especially the institutional environment. He suggested that changes in strategy, and
in structure, are directly related to changes in the market or in general in the firm -
relevant environment.

b. What is an institution according to Scott? Oberman?

Institutions are defined as regulatory structures, governmental agencies, laws, courts,

and professions by Scott. And define by Oberman as conditions and set limits for
maintaining a stable system; they regulate social relations to maintain conformity with
existing value patterns and consistency among these patterns themselves. In short they
define it as our safety or security and guidelines to follow to have a peaceful and well-
built system in an organization.

c. What are the three types of pressure identified by DiMaggio and Powell?

Institutional theory identifies three types of pressure:

1. Coercive- conforming in response to unavoidable requirements, such as regulatory

pressure, for example, there are requirements for you to be able to operate your
business in a specific place or environment, it could be a business permit, business
insurance, environmental regulations and etc., it is mandated by the regulatory
agencies.

2. Normative- conforming in response to cultural norms, these are the standards or

expectation from society that are set to be considered in engaging any type or kind
of businesses in specific country.

3. Mimetic- conforming to meet (mimic) the behaviors of competitors, mimetic

pressures can bring more competitive advantage, because it is imitating the
organizational structure of the competitors believing that it’s more beneficial.

d. What are the institutional environments in China that were identified in this
study?

The typical institutional environment in China that MNES have to cope with is:
  Chinese culture, Chinese traditional culture is also called Confucianism,
Confucianism is not a religion but a set of guidelines for proper behavior.
Confucianism considers people as a part of the social network. The whole
society is just a huge network in which a person plays different roles. In any part
of the world we consider the culture of a specific place in respect of what they
believe and normally do, in china, they believe that building a strong relationship
with every individual being is important, MNE’s in China should have this strong
kind of relationship with the Chinese people.

 Governmental system - Government acts as a coercive pressure on MNES.

MNES are not only demanded to abide by the policies and regulations issued by
government, but also to meet the expectations of government, such as large
scale of investment, transferring high technologies or management skill, and so
on. Aside from culture environment, Government system should be considered
because before anything else, we have to get their approval first because they
set rules and regulations for MNE’s and MNC’s to follow for them to operate in
their desired workplace in China or in any foreign place they planned in operating
a business.

 Non-governmental organizations (NGO’S) - The emergence of NGOS seeking to

promote more ethical and socially responsible business practices is beginning to
cause substantial changes in corporate management, strategy, and governance.
NGOS have their own advocacy and human rights work that put pressure or
motivation to the MNES to promote ethical structure of businesses.

e. What are the strategies adopted by MNEs towards the institutional environment?

If MNES want to strive for a favorable institutional environment or to deal with the
unfavorable institutional pressures in China, four strategies are recommended:

 Guanxi strategy- Confucianism culture indicates that a guanxi strategy is the

most important strategy for doing business in China. Guanxi generally refers to
relationships or social connections based on mutual interests and benefits. (Yang
1994). Like I what I said above Chinese people value the relationship among
each other, so it’s like offering them something to get their approval.
 Commitment strategy- Commitment can be taken as a tool to build good
relationships between MNES and the Chinese governments. So as what have I
said that there are set rules and advocacies are being promoted, we as an
investor should be committed in doing it the right way and giving them also what
they deserve like for example paying taxes.
 Competitive strategy- A competitive strategy means that MNES can bargain with
the Chinese government. It can be seen as an action taken by MNES to reduce
institutional uncertainty and ensure the resource supply in China. In short you
have to know what your advantages are and what is not, to know where to stand
in terms of being competitive.
  Leverage strategy- Commitment can be taken as a tool to build good
relationships between MNES and the Chinese governments.

f. Provide a conclusion (At least 5 sentences)

- This topic shows how big and successful China is, but as what I’ve read it’s not
easy to deal and cope with them especially in their three institutional
environment. It also has recommendations when it comes to strategies to do on
how to operate with them considering those differences from our own local
environment, There are also some pressures that will push MNES to promote
ethical system and structures in China, but it’s not much worrisome if MNES
follow and consider rules and guidelines being set for a stable economic and
social system. Moreover, it’s good to invest in China because they have a lot of
advantages to offer.

Reference: Gao, Yongqiang. (2008). Institutional Environment and MNEs’ Strategy in

Transitional China. Managing Global Transitions. 6. 5-21.

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