Institutions and the Global Marketplace

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Institutions and the Global Marketplace
Institutions are the parameters placed and enforced on a society to define acceptable behavior and interaction, also known as rules of the game (North, 1991). Institutional frameworks have two facets one formal the other informal. Formal rules are those imposed on a society by the state or ruling body, which has the authority to administer the rules. Informal institutions are the constraints placed on a society that are found in their “norms, culture, and ethics” (Peng M. , 2014, p. 94). Peng (2014) further states that three pillars “regulatory, normative, and cognitive” (94) support these institutions. Because the state has the authority to enforce its rules, regulatory pillar is its main support for formal institutions. Normative (how practices, principles, and ethics of others in a society affect the behavior of the individual) and cognitive (the individuals intrinsic understanding of what is right and wrong) pillars support informal institutions. While most societies have formal institutions, all societies have some informal institutions.
In the context of global business strategy, institutions play the role of regulating commerce and thereby reducing the cost of transaction. The nature of institutions varies from one country (or even region within a country) to the next. Even among developed western nations, differences in rule of law exist. For example in the United States, a company is free to insert any truth in publication, advertising, or products no matter how tasteless or offensive, it may not be wise business but it is legal. In the United Kingdom, that same article, ad, or product may be banned or result in a fine (Waters, 2008; Quinn, 2012; Cohen, 2011). In emergin...

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...19(2), 251-267. Retrieved from
Peng, M. (2014). Global Strategy (3rd ed.). Mason, OH: Cengage Learning.
Quinn, B. (2012, November 11). Kent man arrested after picture of burning poppy posted on internet. Retrieved from The Guardian:
Reuters. (2012, October 7). Factbox: Venezuela's nationalizations under Chavez. Retrieved from Reuters:
U.S. State. (2012, June). 2012 investment climate statement - Venezuela. Retrieved from U.S. Department of State:
Waters, D. (2008, February 8). On the trail of manhunt 2. Retrieved from BBC News:
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