Informal institutions and international business: Toward an integrative research agenda

Abstract

This editorial introduces the literature on informal institutions and international business (IB) as well as the Special Issue. Informal institutions serve as the invisible threads that connect the fabric of social groupings, making them a critical element in the study of IB, but also especially challenging to capture both theoretically and empirically. As a result, there has been limited work on the topic, a lack of clarity on how to conceptualize and measure informal institutions, and a limited understanding of the role they play in IB. This editorial and Special Issue seek to address these gaps. Specifically, this editorial teases out the definitions of institutions, formal institutions, and informal institutions, and clarifies how they differ from organizations and culture. It then reviews the literature on the three main institutional traditions, explaining for each the role of informal institutions, and connecting them to the IB literature and Special Issue articles. Finally, it identifies gaps and proposes a future research agenda. The goal is to stimulate the academic conversation on the topic by showing how informal institutions are essential in studying international business.

Social trust and the location choices of foreign firms in China–The moderating role of formal institution and cultural distance

“…Previous studies, based on theories such as transaction cost theory, eclectic paradigm and internationalization process model, explored the impact of firms' own investment motives (Dunning, 2009), internationalization experience (Johanson and Vahlne, 1977), host country infrastructure development (Cheng and Kwan, 2000), labor quality (Gao, 2005), market size (Birkinshaw et al, 2006), and natural resources (Yao et al, 2017) on MNEs' location choices. In recent years, more and more scholars have focused on the importance of institutions in the choice of location for overseas investment, rather than studying firm behavior in a "vacuum" (Dau et al, 2022). Institutions are the formal and informal "rules of the game in a society" (North, 1990), which include formal and informal institutions.…”

“…Second, although some scholars have studied the relationship between institutions in subnational regions of the host country and the location choice of FDI, as Lu et al (2018) and Dau et al (2022) have pointed, the bulk of prior research has focused on formal institutions, such as the level of corruption (Brada et al, 2012), host country governance (Louie and Rousslang, 2007) or tax rates (Davies and Killeen, 2018). In contrast, study on informal institutions has been more limited (Sartor and Beamish, 2014).…”

“…Actually, even in countries with strong formal institutions, the number of informal institutions is more than formal institutions (North, 1990), and some of the most striking differences between countries are often caused by informal institutions (Bruton et al, 2009). In recent years, more and more scholars have called for more research on informal institutions (e.g., Lu et al, 2018;Brockman et al, 2020;Dau et al, 2022), to increase understanding of how informal institutions affect firms' internationalization strategies and performance.…”

“…This study is important for understanding the role of subnational regional informal institutions in influencing strategic decisions of MNEs. Specifically, we respond to the call for more research on informal institutions (Brockman et al, 2020;Dau et al, 2022) and expand the literature on institutions by examining the effect of subnational regional informal institutions (an important yet under-studied area) on the location choices of foreign firms and by revealing the mechanisms of the effect. Most prior studies focus on the effect of formal institutions (Young et al, 2018), and we find that social trust in subnational regions influence the location choices of foreign firms through information advantages, cost advantages, and innovation advantages.…”

Local, yet global: Implications of caste for MNEs and international business

“…Even though emerging economies have seen developments in their formal institutions, informal institutions are difficult to change and affect MNE operations in important ways (Minbaeva et al, 2022;Waylen, 2014). Underscoring this, IB scholars have examined the effects of informal institutions like guanxi, blat, jietinho and jaan-pehchaan on MNE operations (Chua et al, 2009;Ledeneva, 1998;McCarthy et al, 2012) and highlighted the need to further study such institutions (Dau, Chacar, Lyles, & Li, 2018;Parboteeah & Cullen, 2003).…”