Abstract
This paper presents a review and critique of the 20-year-old literature on institutional distance, which has greatly proliferated. We start with a discussion of the three institutional perspectives that have served as a theoretical foundation for this construct: organizational institutionalism, institutional economics, and comparative institutionalism. We use this as an organizing framework to describe the different ways in which institutional distance has been conceptualized and measured, and to analyze the most common organizational outcomes that have been linked to institutional distance, as well as the proposed explanatory mechanisms of those effects. We substantiate our qualitative review with a meta-analysis, which synthesizes the main findings in this area of research. Building on our review and previous critical work, we note key ambiguities in the institutional distance literature related to underlying theoretical perspectives and associated mechanisms, distance versus profile effects, and measurement. We conclude with actionable recommendations for improving institutional distance research.
Highlights
International business scholars have long recognized the importance of national context and contextual embeddedness of organizations (Westney, 1993), and have studied the impact of ‘‘distance’’, i.e., cross-country contextual differences, on firms’ strategies, management practices, and organizational outcomes (e.g., Johanson & Vahlne, 1977; Kogut & Singh, 1988; Kostova & Zaheer, 1999)
In later work, we find that organizational institutionalism has been gradually supplemented by institutional economics
Theoretical Ambiguities We found that the papers in our study are not sufficiently explicit and precise with regard to the particular strand of institutional theory they draw upon, whether organizational institutionalism, institutional economics, or comparative institutionalism
Summary
International business scholars have long recognized the importance of national context and contextual embeddedness of organizations (Westney, 1993), and have studied the impact of ‘‘distance’’, i.e., cross-country contextual differences, on firms’ strategies, management practices, and organizational outcomes (e.g., Johanson & Vahlne, 1977; Kogut & Singh, 1988; Kostova & Zaheer, 1999). With increased globalization, developed country MNCs are finding themselves in unfamiliar territories, as they enter emerging markets and developing and transition economies. A growing number of emerging market MNCs are aggressively expanding to the most competitive markets in the world, which often operate under very different economic systems and institutional rules (Fortune, 2018). Even if they do not directly invest abroad, many companies are participants in global production networks, which indirectly expose them to multiple foreign environments (Levy, 2008). Understanding cross-country differences and their impact on business, and learning how to navigate successfully across diverse environments have become front-and-center tasks for global managers
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