Institutional misalignment and cost of doing business abroad: a Varieties of Capitalism approach

Abstract

Cost of Doing Business Abroad (CDBA) and the variety of causes leading to this phenomenon have remained an important research stream in International Business. In this paper, we set forth a new perspective on the CDBA by incorporating institutional misalignment between the home and the host country as a component of the CDBA. Through the lens of Varieties of Capitalism from political economics, we develop an integrated set of propositions to describe why and how institutional misalignment can create additional cost for multinational enterprises (MNEs). Specifically, we discuss how the differences in institutional configurations between the home and the host country create institutional misalignment. Furthermore, we theorise why institutional misalignment is inevitable as MNEs cross national borders and how this creates additional economic as well as social costs for MNEs.