COPING WITH COGNITIVE-CULTURAL, NORMATIVE AND REGULATIVE INSTITUTIONAL ASSYMETRY ON GLOBAL PROJECTS: A learning perspective

Global managers report that high unforeseen costs impact project outcomes and that many unforeseen costs arise from national institutional differences – differences in participants’ core beliefs, values, norms and legal, political and economic regulative systems. How do institutional differences impact firm success rates? Can these costs be quantified, measured, modeled and predicted? Are these costs lessened through trial-and-error accumulation of global experience? This article posits a mathematical model of institutional learning, to show that unforeseen institutional transaction costs arise as a function of institutional asymmetry and that firms adaptively mitigate these costs by developing two knowledge competencies: global process knowledge, a general capability to successfully enter into any foreign environment; and local institutional knowledge, a specific capability to maneuver effectively and efficiently within the framework of cognitive-cultural, normative, and regulative institutions in a specific local environment. These two types of knowledge are a core competitive advantage for global AEC firms.