Tripod Peng, Wang and Jiang (2004) Argue

Tripod

Peng, Wang and Jiang (2004) argue that the institutional perspective should join the resource-based view and the industry-based view of international business. The authors support this view with four different anecdotes that illustrate the importance of institutions in economic development, but also in the strategic choices that the businesses make.

Intuitively, there is some logic to the views that the authors express. The firm's internal resources do not just interact with the market, but they also interact with the institutions in a nation. This concept is particularly important in international business. The first is that in international business, the choices that firms face multiply across the different parts of the world, and the institutions in each county will impact these decisions. Nations impose themselves on economies in a variety of ways, and these choices affect the desirability of any given industry, and also impact the resources. It is this interconnectedness between industry, resources and institutions that highlights why the tripod analogy makes sense.

Peng (2009) elaborates on this, outlining that all three contribute to strategy -- firms set strategy taking into account institutions. For students of international business, this should not be a surprise. Firms regularly take into account the political environment, legal environment and economic environment of a nation when setting strategic course, and all of these things are formed as the result of institutions. Trade and tax policy are often factors -- this can be seen frequently when governments seek to attract businesses with things like free trade zones.

Gao, Murray, Kotabe and Lu (2010) provide further evidence to support the tripod theory. In a major longitudinal study, they find that the institutional environment does affect competencies and their behaviors. This finding supports the idea that institutions matter in business. Further support comes from Peng, Yamakawa and Lee (2009), who discussed the legal framework with respect to bankruptcy laws. Naturally, the legal environment is one of the major institutions that are discussed. For example, in the original paper, Peng, Wang and Jiang (2004) note that the absence of institutions makes itself known when problems.

Peng et al.'s argument is supported by four anecdotes. While the anecdotes provide compelling narratives, it is perhaps more important to consider whether or not these issues are part of the broader pattern that the authors imply. This seems entirely reasonable. Firms can gain or lose market access on the basis of institutions -- perhaps more so than industries and firm resources.

This begs the question of why the concept of the institution-based view was ignored for so long. The first thought is that industry structure and firm structure are better-studied. There are economic models to describe these. Another thought is that among Western nations, there is little change between the institutions. While there may be nuanced differences in the institutions in these markets, the institutions are not likely to prove the deciding factor in strategy. This is different when emerging markets are taken into consideration, something that the Chinese-born Peng is much more likely to do. He recognizes correctly that in a more globalized world there are substantial differences in institutional environments and that these are going to impact strategic decision-making, just as much if not more than firm resources or the prevailing industry conditions.