International Business and Its Response to Institutional Voids

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International business responses to institutional voids

One of the key features and challenges of international business is the business’ response and ability to adjust the strategy to institutional voids in different countries. While common differentiation of factors influencing a company is limited by the separation of internal and external factors, in international business, a country’s institutional voids could force an internal change of strategy within the company. A new approach to institutional voids suggests that information on how companies adapt their strategy to institutional voids could be used to form a theory base for further adaptations.

Key learning points from within the article

From the article “International business responses to institutional voids” written by Doh et al., we can understand the importance of the following learning points:

Factors that encourage learning and assessment of international business responses to institutional voids

Institutional voids help in understanding interactions between buyers and sellers

Institutional voids reflect conditions that prevent seamless communication between sellers and customers. The lens of institutional voids helps to identify the current situation on the market, how it works, and what measures could take place to improve that work. In the article, the author suggests that institutional voids point and direct to dysfunctions in the market (Doh et al., 2017). Not addressing those dysfunctions could potentially result in such issues as opportunism and corruption.

Business strategy strongly connects to external factors influencing the business

In the article, Doh et al. (2017) explain that institutional voids cover a wide range of institutions, including ones that have a direct influence on the market and those that only marginally influence the market. As international businesses adjust their strategy to institutional voids and substitute for missing institutions, they also are forced to adapt to the market conditions. The matter highlights the fact that in international business, the strategy is sourced from external factors.

Analyzing how different companies respond to institutional voids can help reduce the cost of operating transactions

Addressing institutional voids for international business in different countries requires additional funding that could potentially result in increased cost of the final product. In the article, the authors state that transaction costs sometimes determine the structure of firms. Additional expenses could be reduced by the utilization of information acquired from previous experience of other companies in a similar situation. In explaining common strategies for international market entry, Watson et al. (2018) noted that the financial performance of the business in complex international markets requires additional monitoring and research for acknowledging competitive market forces.

Institutional voids present an advantage to businesses capable of addressing them

Local and foreign firms could benefit from institutional voids if they can address them. Overcoming challenges set by institutional voids could give monopolistic advantages to the business as not all companies could thoroughly address the issues possessed by missing or insufficiently functioning institutions.

Businesses can substitute for missing or ineffective institutions

Companies that have enough resources to solve a problem within the country’s institutions can contribute through assistance in problem-solving or even substituting the missing or ineffective institutions. In an article on a similar topic, Murithi et al. (2019) emphasized that negotiating institutional settings could improve organizational performance and growth. The contribution of resources to institutional voids also promotes the company’s goods and services and helps to establish a positive connection with customers.

There are three common strategies for firms to address institutional voids

According to Doh et al. (2017), there are three strategic options for firms. The first and most common one implies adapting through internalizing functions of missing institutions. Companies often choose this strategy as it is easier for them to diversify their activities within the internal market. The second option is to shape or alter the new conditions to suit the business’ needs, which could be performed through political influence or forming a partnership between the firm and the state. The last strategy is to avoid operating in an environment with missing or malfunctioning institutions. As lately the majority of companies in UAE switched to activities in digital areas, following the first strategy and developing a product that suits the requirements of the foreign market will require significantly fewer efforts.

The issue of institutional voids requires further research

The authors note that due to the complex nature of institutional voids and the different contexts and reasoning behind institutional voids, the study that explores several cases could be useful but requires further research. There is a significant variety of existing responses to institutional voids, and each of them is equally significant for the study. Moreover, due to the abovementioned variety of contexts, each case requires detailed analysis, complicating the whole research process.

The evaluation of outcomes requires taking more information into account

In conclusion, the authors suggested that nonmarket exchanges, such as ethical behavior, legitimacy, and the company’s trustworthiness, also could play a significant role in contributing to institutional voids. Thus, further research requires an analysis that would equally take into account nonmarket exchanges as well as financial performance results.

For example, a UAE-located transportation company ACI Logistics offers air cargo, charter, transportation, and warehousing services and is willing to expand to other countries aside from Mumbai, Nairobi, and London branches (ACI Logistics, n.d.). In addressing institutional voids in the country of expansion, such as issues with transportation infrastructure, the company could choose and implement one of two recommended options. As the first one is more common, implementation of the strategy would focus on adapting to the internal market and providing services that do not require road communications, such as drone delivery services. Alternatively, implementing the second strategy option would include forming a partnership with the state and contributing to building the infrastructure.

References

ACI Logistics. (n.d.) Reliable cost-effective supply chain solutions worldwide. Web.

Doh, J., Rodrigues, S., Saka-Helmhout, A., & Makhija, M. (2017). International business responses to institutional voids. Journal of International Business Studies, 48, 293–307. Web.

Murithi, W., Vershinina, N., & Rodgers, P. (2019). Where less is more: Institutional voids and business families in Sub-Saharan Africa. International Journal of Entrepreneurial Behavior & Research, 26(1), 158-174. Web.

Watson, G. F., Weaven, S., Perkins, H., Sardana, D., & Palmatier, R. W. (2018). International market entry strategies: Relational, digital, and hybrid approaches. Journal of International Marketing, 26(1), 30–60. Web.

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