Institutions and International Business

Institutional theory (for analysis of the roots of institutional theory, see Bill and Hardgrave, 1981; Hodgson, 1994) is one of the most important perspectives in international business. Hence, it has attracted the attention of scholars in the last few years (Doh et al., 2012; Tihanyi et al., 2012; Wood and Demirbag, 2012). It has become so prevalent that it is sometimes difficult to delineate what is not an institution or what remains non-institutionalized in a home- or host-country context. Rightly so, institutional definitions differ within diverse theoretical streams of literature (Hotho and Pedersen, 2012). There are three quite different theoretical interpretations of institutions that in our view do not compete with each other, but there is quite a high level of congruity, complementarity and compatibility among them in terms of the core of their argument in relation to institutions being rules and belief systems that should be followed or established stable and resilient social structures which define and enforce the guiding principles for social behaviour. While North (1990) classifies institutions into formal (laws, regulations, rules) and informal (norms, practices, values), Scott (1995, 2008) categorizes the institutional pillars into regulative (laws, regulations, rules), normative (norms, practices) and cultural-cognitive (culture, ethics, morality, values), and Whitley (1992, 2010) labels the key institutions as proximate (laws, regulations, state structures, policies, labour system, financial system) and background (norms governing relationships, ethics, values).