Which view suggests that the success of firms is constrained by institutional rules?

Which view suggests that the success of firms is constrained by institutional rules?

• A. Resource-based view
• B. Market-based view
• C. Institution-based view
• D. Consumer-based view

Answer: (C)

The institution-based view is centered on the idea that the behavior and success of firms are significantly influenced by the institutional framework that surrounds them. This framework includes laws, regulations, norms, and informal rules that govern business practices within specific contexts. According to this perspective, firms operate within a set of constraints and opportunities established by these institutions, which can affect their competitive advantage and overall performance. By focusing on the institutional environment, this view highlights how factors such as government policies, cultural norms, and social expectations shape the strategies that firms can adopt. For example, a firm may be limited in its ability to operate or expand in a certain country due to regulatory requirements or might find opportunities to thrive where there is supportive legislation. Thus, it emphasizes that a firm’s success is not solely a result of its internal resources or market forces, but also significantly bounded by the rules and structures imposed by the institutional context. This understanding is essential for managers and business leaders as it prompts them to consider the broader socio-political environment when making strategic decisions.

The institution-based view is centered on the idea that the behavior and success of firms are significantly influenced by the institutional framework that surrounds them. This framework includes laws, regulations, norms, and informal rules that govern business practices within specific contexts. According to this perspective, firms operate within a set of constraints and opportunities established by these institutions, which can affect their competitive advantage and overall performance.

By focusing on the institutional environment, this view highlights how factors such as government policies, cultural norms, and social expectations shape the strategies that firms can adopt. For example, a firm may be limited in its ability to operate or expand in a certain country due to regulatory requirements or might find opportunities to thrive where there is supportive legislation. Thus, it emphasizes that a firm’s success is not solely a result of its internal resources or market forces, but also significantly bounded by the rules and structures imposed by the institutional context.

This understanding is essential for managers and business leaders as it prompts them to consider the broader socio-political environment when making strategic decisions.