Comparative Institutional Analysis and Institutional Complexity

• DOI: http://doi.org/10.1111/joms.12178
• Author: Christina L. Ahmadjian
• Date: 01 January 2016
• Published date: 01 January 2016

Comparative Institutional Analysis and Institutional

Complexity

Christina L. Ahmadjian

Hitotsubashi University

ABSTRACT For multinational corporations (MNEs), the ability to navigate institutional

complexity is a key to success or failure. MNEs face a complex landscape of national

institutional differences in the countries in which they do business, and decisions on how to

respond to these differences are very much strategic ones, reflecting agency and management

skill. To understand how institutional complexity affects MNE behaviour, it is necessary to

examine how institutions vary on a national or societal level and how these affect firm

structure and capabilities in both home and host countries.

Keywords: comparative institutional analysis, institutional complexity, institutional theory,

multinational corporations

INTRODUCTION

How institutional differences affect MNEs has long been an important research topic in

international business studies. Researchers have examined how the distance between

home and host country culture and institutions affects the decision of an MNE to enter

a market and how conflicting legitimacy pressures in home and host markets affect

MNE structure and behaviour (Kostova and Zaheer, 1999; Rosenzweig and Singh,

1991; Xu and Shenkar, 2002). The empirical research that dominates this field, how-

ever, tends to rely on relatively simple representations of institutional differences and

MNE responses to them. For example, single indicators such as dimensions of culture

(Kogut and Singh, 1988) or type of legal system (La Porta et al., 1998) often represent

institutional differences, and discrete measures of mode of entry tend to capture MNE

responses to these institutional differences. This approach enables large-scale cross-

national studies, but it does not capture the complexity of institutions that distinguish

national systems (Jackson and Deeg, 2008) or the wide range of behaviours that a firm

can adopt in response to such complexity (e.g., Oliver, 1991).

Address for reprints: Christina L. Ahmadjian, Graduate School of Commerce and Management, Hitotsubashi

University, 2-1 Naka, Kunitachi City, Tokyo 186-8601, Japan (christina.ahmadjian@r.hit-u.ac.jp).

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C2015 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

Journal of Management Studies 53:1 January 2016

doi: 10.1111/joms.12178

In this essay, I explore how insights from Comparative Institutional Analysis (CIA)

contribute to a deeper understanding of MNE responses to national institutional com-

plexity, that is, competing and potentially incompatible prescriptions from multiple insti-

tutional logics (Greenwood et al., 2011). The CIA approach to understanding national

diversity strives to identify, classify, and explain the distinctive configurations of institutions

that characterize national business systems. These approaches go by various monikers,

including Varieties of Capitalism (Hall and Soskice, 2001a) and National Business Sys-

tems (Whitley, 1992, 1999). While various approaches differ in such aspects as the num-

ber of distinct systems of capitalism, the specific institutions that define and distinguish

these systems, and the mechanisms by which institutions combine into distinctive config-

urations, they share a fundamental assertion that national institutional systems shape the

strategy, structure, and fundamental assumptions of firms.

Several aspects of the CIA perspective make it particularly relevant to understand-

ing how MNEs face institutional complexity. It considers institutions at the national

level and highlights the link between national institutional context and the capabilities

of firms, considering institutions as enablers and determinants of comparative institu-

tional advantage. What is highly relevant for the study of MNEs and institutional com-

plexity is that it considers institutions not as single, stand-alone entities, but as

complementary configurations that support comparative institutional advantage. The

CIA perspective further enriches our knowledge of how institutions determine a

MNE’s competitive advantage by showing how MNEs must navigate institutional com-

plexity, not only to gain acceptance and legitimacy, but also to preserve comparative

institutional advantage. Furthermore, it suggests that adapting and adjusting to institu-

tions in a host country requires a response not simply to a single institution, but to an

entire system.

The objective of this essay is to utilize the CIA perspective to better understand

MNEs, as well as to demonstrate how it can enrich the organizational institutionalism

(OI) approach to institutional complexity. While both the CIA and OI perspectives

address how organizations deal with institutional complexity, the two perspectives con-

sider institutions at different levels: OI focuses on the field, which is defined as ‘a commu-

nity of organizations that partakes of a common meaning system and whose participants

interact more frequently and fatefully with one another than with actors outside the

field’ (Scott, 1995, p. 56), while CIA focuses on the national system. Furthermore, CIA

views institutions in their role of organizing economic activity, while in OI institutions

have a broader role in social life. Yet, despite this difference in emphasis, the core ideas

from CIA, that institutions exist in complementary configurations and can be a source

of comparative advantage, can also be used to inform an OI approach.

This essay begins with a brief overview of the CIA perspective, highlighting how its

notions of comparative institutional advantage and institutional complementarities can

better inform our understanding of MNEs and institutional complexity. In the second

half of the essay, I employ concepts from the CIA perspective to develop propositions

on how national-level systems of institutions are likely to affect MNE responses to insti-

tutional complexity in their host markets. The intention is not to develop a definitive

framework to explain MNE responses to national institutional systems, but rather to

illustrate ways in which key insights of the CIA perspective can offer a systematic

13Institutional Analysis and Institutional Complexity

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C2015 John Wiley & Sons Ltd and Society for the Advancement of Management Studies