Institutional Exceptions on Global Projects

Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the National Science Foundation. 2 This research has benefited significantly from the inputs of scholars associated with the Ronald Coase Institute. 2 " When you hear hoofbeats, think Horses, not Zebras—unless you're in Africa. " This inductive study, which takes institutional theory as a starting point for interviews, offers an examination of 23 cases where an entrant firm reported unforeseen costs after failing to understand cognitive-cultural, normative or regulative institutions in an unfamiliar host societal context. The findings, which include propositions and a generalized model, contribute to theoretical knowledge of how institutional exceptions—misjudgments, misunderstandings and conflicts—arise, how they are resolved, and how they typically involve three general phases: ignorance, sensemaking, and response. The findings also identify the kinds of costs that an entrant incurs in each of the three phases, and the conditions that lead to the growth of these costs. 3 There is an ever-growing body of scholarly research to assess and categorize differences in cross-national cultural values (eg. Although there is considerable variation in terms and rubrics, these studies typically draw out a general hypothesis that socially-constructed differences between cultures impede the success of cross-cultural collaborative ventures. In the words of House et. al. (2002), " From a practical point of view, the complexity of cross-national negotiations, mergers, assignments, and leadership probably depends on the extent of the difference between the two cultures. " Despite widespread support for this premise, in reality there has been a dearth of investigation to examine the actual dynamics and conditions by which cross-national variations in cultural values and institutions are translated into the kinds of complications and costs that have been so readily assumed by mainstream researchers (Shenkar, 2001). To enhance understanding of how cross-cultural friction actually arises, we analyzed a set of 23 case-studies collected from foreign entrant firms such as Bechtel, Walt Disney and the World Bank. All of the case studies involved an " institutional exception, " a concept that emerged during the course of this study that we define as a misjudgment, misunderstanding or conflict that occurs when a foreign entrant fails to understand host societal institutions. Our analysis shows the dynamics by which institutional exceptions unfold, and the conditions under which institutional exceptions tend to have the most costly consequences …