Master Thesis
The Impact of Formal and Informal Institutions on the
International Performance of German Automotive
Manufacturers in Emerging Economies
By
Gerson van Elburg
Supervisor:
Prof. Dr. G. de Jong
Co-assessor:
Dr. M.H.F. Ridder de van der Schueren
University of Groningen
Table of Contents
Abstract ... 3
1. Introduction ... 4
2. Literature Review ... 6
2.1 Institutional Theory ... 6
2.2 Formal and Informal Institutions ... 8
Abstract
1.
Introduction
The automotive industry is struggling to achieve the same growth results it achieved in the western economies in the 20th century. Growth rates in the developed markets such as North America and Europe seem to be stalling (See Appendix, Figure 1), and the car manufacturers (also known as original equipment manufacturers, or OEMs) within the automotive industry are looking to other areas of the globe that offer growth rates enabling the OEMs to expand their business. Strategy&, the strategic consultancy branch of PwC, documented in their industry perspective of the automotive sector for 2016 that emerging markets present the most significant growth opportunities for the global automotive sector (Hirsch, Jullens, Wilk, & Singh, 2016) (See Appendix, Figure 2). Given that the emerging markets of the world offer the most potential in terms of growth rates and potential market share in the worlds up and coming leading industries, many multinationals, including the automotive OEMs, have paid increasing attention to these markets since around the 1990’s (Hitt, Ahlstrom, Dacin, Levitas, & Svobodina, 2004). Companies that secure market share in these emerging markets, some of which are already show great return on investment (e.g. China), are the key to ensure a bigger revenue stream in the coming years.
The theoretical stream that seeks to research and understand these phenomena is the institutional view. The institutional view of international business (IB) strategy has long been neglected but is now slowly being recognized as a crucial part of succeeding or failing in foreign markets (Dunning & Lundan, 2008; North, 1990; Peng, Wang, & Jiang, 2008). Apart from the initial industry-based view of the firm (Porter, 1980), and popular resource based view of the firm (Barney, 1991; Wernerfelt, 1984), the institutional aspect of international business strategy is gaining momentum as IB scholars call for the recognition of institutions as an integral part of IB strategy (Hoskisson, Eden, Lau, & Wright, 2000; Oliver, 1997). Early researchers of the institutional framework, such as North (1990), state that people in the Western world seem to think the world runs on formal rules, when actually actions are based mostly on informal rules, behavioral norms, and codes of conduct. Out of all the behavioral actions being performed each day, little to none are an immediate result of formal rules (North, 1990). Whichever firm incorporates an effective way of dealing with differences in informal institutions is likely to gain a competitive advantage over its direct competitors.
As of yet, little research has explored the institutional theory in depth or applied its implications to a specific field of business. This research will do so and aims to provide meaningful implications the institutional theory has on the automobile industry in emerging markets. This research will specifically focus on the three biggest German premium automobile manufacturers, Audi, BMW, and Mercedes, and how their international performance might be affected by the differences in the formal and informal institutions between home country Germany, and the largest emerging markets; the BRIC countries (Brazil, Russia, India, and China).
competitive automotive industry. Doing so helps strategists to ensure better performance in these emerging markets, which would result in increased revenue and profits for the OEM in the emerging markets. In order for this study to provide these insights, the following research question will be answered:
What is the impact of formal and informal institutions on the international performance of German automotive manufacturers in emerging economies?
To answer this research question the article is organized as follows. A literature review on the formal and informal institutions and FDI will be given in order to link these concepts together. Hypotheses about the nature of the relationships of the constructs will be given. The section after will be a description of the chosen methodology, in which the dependent, independent, and control variables will be explained together with the method of analysis. The article will continue with the results of the analysis, after which the findings and implications will be discussed. The article concludes with a discussion of the findings and recommendations for future research.
2.
Literature Review
2.1 Institutional Theory
Although popular, these views are not without criticism. Researchers have argued that these views miss one vital concept when it comes to strategy; context (Peng, Sun, Pinkham, & Chen, 2009). In response to the omission of industrial and organizational context in the industry- and resource-based view, the third theoretical pillar in strategic research spawned; the institutional-based view (DiMaggio & Powell, 1983; Meyer, Estrin, Bhaumik, & Peng, 2009; Peng et al., 2009). This view focuses on using socio-political and cultural institutions both inside and outside of the firm to create a competitive advantage (Marquis & Raynard, 2015). North (1990) is among the earliest and most influential authors when it comes to informal and formal institutions. He describes institutions as the ‘rules of the game’, both formally (explicitly stated) and informally (codes of conduct, expected behaviors, norms). While the formal rules appear to have the most authority and power to make people behave in a way that these rules dictate, informal institutions may dictate most of the behavioral choices each person makes in their day to day lives (North, 1990).
With the world becoming more and more integrated, and with the growing economies (or emerging markets) gaining interest from MNEs as great avenues for future economic rents, businesses need to analyze and navigate the institutional factors of these economies (Meyer, Estrin, Bhaumik, & Peng, 2009; Oliver, 1997). Western MNEs with a corporate and cultural background dominated by western values will see their business either thrive or fail because of these differences, making ‘cultural distance’ (Hofstede, 1984, 2003, 2011) a key factor to organizational survival and performance (Marquis & Raynard, 2015; Peng et al., 2009; Seelos & Mair, 2007). An institutional approach to business strategy in emerging markets is therefor incredibly useful because these markets are experiencing economic and social changes that offer great potential if properly researched and understood (Marquis & Raynard, 2015; Roland, 2000).
direction of the economy towards growth, stagnation, or decline (DiMaggio & Powell, 1983; North, 1990).
Now that the institutional theory has indicated that formal and informal institutional factors play a big role in performance, the next section explains the concepts and how they relate to each other.
2.2 Formal and Informal Institutions
2.2.1 Formal institutions
The institutional theory offers a bridge between the economic and the social sciences (Peng et al., 2009). Although both fields differ in their approach and findings on institutions, one thing is agreed upon; institutions matter. Institutions have an impact on, for instance, the amount of autonomy a subsidiary gets (De Jong, Van Dut, Jindra, & Marek, 2015), what style of managerial leadership is most efficient and accepted among lower ranking employees (Alvesson, 2012), and in a study by Makino, Isobe, and Chan, (2004) the outcomes even showed that country effects (which can be seen as proxies for institutions) explain the variance in performance between foreign subsidiaries in emerging markets.
As the model of Williamson (2000) describes, informal institutions can become formal through laws and regulations. It is therefor of importance to heed the laws and regulations of a host country when planning on conducting business in that economy. Especially if those markets differ in terms of culture and institutions (Hofstede, 2003), it is very important to keep this in mind. That is why the first concept to be tested for influence on international performance is the formal institutional state of the country. The first hypothesis of this study is:
H1: Similar or better formal institutions in the host country have a positive effect on OEM performance in emerging markets.
2.2.2 Work ethic
Azim, & Krishnan, 1995), meaning that a difference in work ethic can lead to differences and potentially hiccups in decision making procedures, which can result in inefficiency or conflict.
Furthermore, work ethic is also linked to individual contribution to the firm performance. As Sagie, Elizur, and Koslowsky, (1996) describe, a person that has a high work ethic is expected to invest more time and effort in his or her work, leading to higher performance. Even if this has only a small impact on the employee’s overall performance, the total contribution of all employees will add up and contribute to the organizational effectiveness in a positive way. It should be noted, however, that the empirical results on studies relating work ethic to organizational performance are divided (Sagie et al., 1996). It is therefor interesting to see what the results of this study are, and that perhaps the industry and market setting of this study can give an indication about when work ethic might positively or negatively influence organizational performance. Judging by the fact that a high work ethic promotes more effort and time invested, the interaction between work ethic and performance will be hypothesized to be positive, leading to the following hypothesis:
H2: Similar or greater work ethic in the host country has a positive effect on OEM performance in emerging markets.
2.2.3 Independence
In a meta analysis of studies relating to perceived job control and autonomy by Spector (1986), one of the studied variables that job autonomy had influence over was performance. Performance in this meta-analytical study was constructed of supervisory ratings. Seeing as supervisors will not give high ratings if there is conflict, inefficiency, or if company targets are consistently not met, supervisory ratings are a good proxy for performance.
performance. Employees will experience their jobs as being smothering or too authoritarian. Therefor our hypothesis on the sameness of institutions of independence is:
H3: Similar or greater independence in the host country has a positive effect on OEM performance in emerging markets.
2.2.4 Trust
Trust is seen as one of the most important aspects in not only a business relationship, but in all relationships. Trust can in some cases even be substituted for contracts and provide a better relationship than a one that is based solely on a legally binding contract (Macdonald, Kleinaltenkamp, & Wilson, 2016; Mahama & Chua, 2016). That is only when that trust is secured and not betrayed. A relationship is altered when trust is non existent or is betrayed in the form of psychological contract breaches (Robinson, 1996). Having the same level of initial trust in people gives relationships a better chance of being on the same level, minimizing the chance that one party takes advantage of the other. This is why the following hypothesis is:
H4: Similar or greater trust in the host country has a positive effect on OEM performance in emerging markets.
Figure 3: Conceptual framework
3.
Methodology
3.1 Research design
The methodology of this research will be specified according to the different steps of the ‘research onion’, introduced by Saunders, Lewis, and Thornhill (2007). The research onion defines the different stages (or layers) through which an effective methodology structure can be set up. The stages of the research onion from first to last are; research philosophy, research approaches, research strategies, time horizons, and data collection methods (Saunders et al., 2007).
The research philosophy this paper adopts is the positivistic approach, which assumes that a phenomena exists between subjects, regardless of the interpretation of different researchers (Monette, Sullivan, & De Jong, 2005).
literature it can be deducted that the institutional theory states that institutions matter, and that institutional similarities facilitate synergies in international business environments, leading the hypotheses to predict that there is a positive relationship between the different formal and informal institutional variables and international company performance.
The research strategy this paper uses is the archival strategy, which lets the researcher create a sample of the population and gather quantitative data (Flick, 2011). In this case the performance of automotive manufacturers with certain formal and informal institution is sampled by including the three biggest premium automotive manufacturers from Germany. Also, a sample of markets with differing institutions is established by selecting the largest emerging market countries and comparing their institutions to the ones in Germany.
The study will adopt a longitudinal panel approach which gathers data on intervals over a period of time, creating an overview of how the independent variables have an effect on the dependent variable over time (Blumberg, Cooper, & Schindler, 2011; Saunders et al., 2007). A longitudinal study is preferred over a cross-sectional study, as the longitudinal study tracks changes over time, giving a more detailed idea about the international performance of the respective companies. This is why the data of the study will cover a length of 5 years, between 2010 and 2015.
markets on OEM sales, the sales figures of China were specifically reported in each end of year report while this was not the case for the other BRIC countries.
3.2 Dependent Variable
The dependent variable of this research is the performance of the three German OEMs in the respective emerging markets over 5 years. The performance is measured by the number of car sales by the OEM per million of vehicles sold in the total market in each respective market over the designated study period (from 2010 till 2015). The formula for calculating this number is as follows:
𝑂𝐸𝑀 𝑐𝑎𝑟 𝑠𝑎𝑙𝑒𝑠 𝑝𝑒𝑟 𝑚𝑖𝑙𝑙𝑖𝑜𝑛
= 𝑌𝑒𝑎𝑟𝑙𝑦 𝑐𝑎𝑟 𝑠𝑎𝑙𝑒𝑠 𝑂𝐸𝑀 𝑐𝑜𝑢𝑛𝑡𝑟𝑦 𝑥
𝑌𝑒𝑎𝑟𝑙𝑦 𝑠𝑎𝑙𝑒𝑠 𝑡𝑜𝑡𝑎𝑙 𝑐𝑎𝑟 𝑚𝑎𝑟𝑘𝑒𝑡 𝑐𝑜𝑢𝑛𝑡𝑟𝑦 𝑥 × 1,000,000
Taking the sales per million of new vehicles sold in the total market accounts for the fact that the car markets in the BRIC countries differ significantly in size. Taking the total number of sales of an OEM in China and comparing that to the total sales in Brazil will give a skewed view of the actual performance in each respective market because of the total market size.
The paper focuses on three different German OEMs instead of just one in order to increase the number of observations and thereby the reliability of this study (Blumberg et al., 2011; Saunders et al., 2007). The fact that these OEMs are competitors and are all in the premium automotive segments of the emerging markets makes it so that their combined data provides the more accurate overview of the total premium automotive segment in each country.
The number of sales of the OEMs in each market is a fitting proxy for the performance of an automotive OEM because of the cutthroat competition in the car market. An OEM must perform significantly in order to be competitive, have sales, and grow those sales in the face of fierce competition (Jean, Tan, & Sinkovics, 2011; Porter, 1980; Shane, 1996).
3.3 Independent Variables
The data for the independent variables is collected from the WVS – Wave 6, which includes measurements made globally between 2010 and 2014. Given that global cultural values are fairly rigid, engrained, and take a long time to change (Alvesson, 2012), and that the observations are made in the time period that this study covers, it can be concluded that these values accurately reflect the cultural and
institutional values during the selected time period of this study. The independent variables are constructed using multiple questions from the WVS.
3.3.1 Formal Institutions
The first independent variable of this study is ‘difference in formal institutions’. The informal institutional quality of a country is measured by the following measurements of the WVS – Wave 6: trust in the police (V113), trust in the
courts (V114), trust in the labor unions (V112), trust in universities (V119), trust in major companies (V120), trust in banks (V121). The mean of these variables is
calculated and the average value of the variables indicates the level of ‘formal institutions’ for the respective emerging market. This value is then compared to the average values of Germany. The difference between the two compared values is the variable ‘difference in formal institutions’.
3.3.2 Work Ethic
The second independent variable is ‘work ethic’. The variable ‘work ethic’ in this study is measured by combining the following three measurements from the WVS, namely; how important in your life is work (V8), children are encouraged to
value hard work (V13), hard work brings success (V100). The mean of these variables
3.3.3 Independence
The following independent variable of this study is ‘difference in independence’. This variable is measured using the following four measurements from the WVS – Wave 6; children are encouraged to value independence (V12),
children are encouraged to value obedience (V21), how much freedom of choice and control over own life (V55), I am creative and it is important to do things one’s own way (V70), how much independence do you have in performing your tasks at work (V233). The mean of these variables is calculated and the average value of the
variables indicates the level of ‘independence’ for the respective emerging market. This value is then compared to the average values of Germany. The difference between the two compared values is the variable ‘difference in independence’.
3.3.4 Trust
The last independent variable is ‘difference in trust’. The overall level of trust within a country in this study is composed of the following four measures of the WVS – Wave 6: can people be trusted (V24), people would take advantage you (V56), how
justified is taking a bribe (V202), people can only get rich at the expense of others (V101). The mean of these variables is calculated and the average value of the
variables indicates the level of ‘trust’ for the respective emerging market. This value is then compared to the average values of Germany. The difference between the two compared values is the variable ‘difference in trust’.
3.4 Control Variables:
3.4.1 GDP
adjusted to purchasing power parity (PPP). Purchasing power parity entails that the purchasing power of one unit of currency is exactly the same in the foreign economy as in the domestic economy, once it is converted into foreign currency at that rate (Taylor, 2003). This will give the fairest reflection of what the population of each country can actually purchase with the country’s GDP.
3.4.2 Inflation
Inflation is another variable that can alter the performance of an OEM abroad. High inflation in the host country negatively impacts price setting and profit planning for foreign investors (Buckley et al., 2009). It can lead to the devaluation of the earnings of a multinational, and will therefor be hypothesized to negatively impact the performance of an OEM. The inflation rate is based on the consumer price index, which measures a ‘basket’ of specific goods and services in a country in order to give as fair as a representation of the actual change in purchasing power in the measured country.
3.4.3 Market size
One variable that comes to mind when measuring the performance of automobile sales in a market is the size of the market itself. However, seeing as measurement of OEM sales per million of total market sales is relative, the effect of the emerging market size is negated, making a market size control variable unnecessary.
4.
Analysis
4.1 Descriptive statistics
The difference in formal institutions between each BRIC country and Germany varies greatly. Whereas Russia scores -7.77 on the difference with Germany’s formal institutions, the formal institutions of India appear to be largely better with a score of 5.34 higher than Germany. Intuitively this sounds strange as Germany is known for its thorough and refined administrative proceedings, yet according to the chosen measurements of the WVS the Indians appear far more pleased with the institutions in place.
The BRIC countries seem to score about the same when it comes to measuring work ethic. It appears that that the work ethic score in all BRIC countries is at least 4.7 and at most nearly 6.7 points higher on a scale of 1 to 10. Observed in the data is the fact that Germans value other aspects of life more than work, and would place work importance lower on a 1 to 10 spectrum than the BRIC countries do.
Independence is again a widely differing factor, both significantly less and significantly higher than in Germany. India and Russia (-7.60 and -6.48 respectively) score a lot lower on the ‘independence’ measurement than Germany, while Brazilians seem to enjoy more independence than their German counterparts. China has reported about as much independence as Germany, with only a 0.12-point difference.
The country with the lowest trust in other people seems to be Brazil with a score of 6.5 lower than Germany. Russians trust people only a little bit less, with a score of -.83 relative to Germany. The two other countries, India and China, differ about the same with the German baseline with a 1.57 and 1.64 respectively.
GDP is a control variable with an understandably large standard deviation. The economic situation between the BRIC countries differs significantly, which can be seen in the statistics of the GDP variable. With a low point in purchasing power of $4404.7 USD in 2010 in India and $25144.1 USD in Russia in 2013. This annual income is far from the income needed to purchase a premium German vehicle, yet because of the large polarization of the poor and wealthy in the BRIC countries, a small portion of the population is able to purchase these vehicles (Cevik & Correa-Caro, 2015).
between 2010 and 2013 saw a jump to 11.36 in 2014 and 12.91 in 2015. This fluctuation makes it interesting to see if the inflation rate has a significant relationship with the dependent variable.
Table 1: Descriptive statistics
N Minimum Maximum Mean Std. Deviation BRICSalesMillion 72 1142.00 31099.00 10226.94 8012.23 DiffFormalInst 72 -7.77 5.34 -1.49 4.68 DiffWorkEthic 72 4.73 6.67 5.97 .75 DiffIndep 72 -7.60 5.44 -2.28 5.25 DiffTrust 72 -6.50 1.64 -1.03 3.33 GDP 72 4404.70 25144.10 13988.72 7083.77 Inflation 72 1.41 12.91 6.61 3.03 Valid N (listwise) 72 4.2 Correlation
most variables are not correlated to the point at which they become a problem. The high correlation between ‘GDP’ and ‘DiffFormalInst’ is a problem, but will be solved in the next section.
Table 2: Correlations 1. 2. 3. 4. 5. 6. 7. 1. BRICSalesMillion 1 2. GDP .341** 1 3. Inflation -.373** .183 1 4. DiffFormalInst -.453** -.972** -.061 1 5. DiffWorkEthic .564** .536** -.456** -.687** 1 6. DiffIndep .020 .040 -.371** -.145 .692** 1 7. DiffTrust .401** -.358** -.186 .322** -.372** -.684** 1
**. Correlation is significant at the 0.01 level (2-tailed).
4.3 Assumptions
4.3.1 Multicollinearity
Multicollinearity can cause several issues. It can produce models that have no statistical significance despite a large R squared, let small changes in the data have big consequences for the estimates, and cause estimates to be larger than believable and sometimes in the ‘wrong direction’ (O’Brien, 2007). The elaborate model in this paper, model 2, has a high level of multicollinearity (see table 3 and 4). A VIF of 10 and a tolerance lower than .10 seem to be the most widely accepted cutoff points for when multicollinearity becomes a problem (O’Brien, 2007). In model 2 four of the six variables in the model have a VIF of over 10.
problem when there is multicollinearity. The possibility to make theoretical recommendations and the accuracy of the estimates are valued more than the predictive power of the model in this paper, so the two variables causing multicollinearity are dropped.
4.3.2 Normality
Another assumption multiple regression analysis makes is that the errors between observed and predicted values in the regression analysis have a normal distribution. This assumption can be tested by performing a Kolmogorov-Smirnov or a Shapiro-Wilk test, or plotting a Q-Q plot of the residuals of the regression. Table 7 shows the outcomes of the Kolmogorov-Smirnov and the Shapiro-Wilk test and figure 4 shows the Q-Q plot of the residuals. The table with the outcomes for the Kolmogorov-Smirnov and the Shapiro-Wilk test shows a significance level that is below the 0.05 threshold for both tests, indicating that the assumption of normality is violated. The Q-Q plot shows that the observations deviate from the ‘normal’ line, suggesting that there is no normality.
There is, however, the question of the importance of this violation. While it is true that non-normality can distort the calculation of p-values in small sample sizes (<200 observations), the outcomes can still be relevant, as long as the violation of normality is mentioned and the outcomes of the model are being interpreted with caution (Osborne & Waters, 2002).
4.3.3 Linearity
the results may be underestimated because of the violation of the linearity assumption by the ‘inflation’ variable.
4.3.4 Homoscedasticity
As with linearity, homoscedasticity can be visually checked by plotting the standardized residuals against the standardized predicted value. This will result in a Q-Q plot (Osborne & Waters, 2002). Figure 4 shows this plot. Homoscedasticity is present when the size of the error term differs across values of an independent variable. Figure 4 shows that this is the case because the observations create a cone shaped pattern extending outwards. This is an indication of heteroscedasticity.
4.4 Regression analysis
A linear regression will be conducted on the data because there are multiple interval independent variables, and one interval dependent variable. The following tables show the outcomes of the regression analysis. Table 5 provides a summary of the two models, which have been corrected for multicollinearity. Model 1 is the baseline model with the remaining control variable, and model 2 is the complete model with the control variable and the three independent variables. Table 6 shows the coefficients of both models.
The baseline model (model 1) shows an adjusted R squared of .127, meaning almost 13% of the variance in the dependent variable is explained by just the control variable ‘inflation’. And with a very high confidence level (p<0.01), the control variable is statistically significant.
Model 2 is also highly significant at the 1% level. Adding the three independent variables has produced a model that predicts 77.1% of the dependent variable after accounting for degrees of freedom.
Table 6 shows the individual outcomes of the variables in the regression analysis. Inflation has a small positive impact on the sales of an OEM abroad, and is just within the most lenient limit of statistical significance at the 0.1 percent level.
limits of being statistically significant. Hypothesis 1 is rejected because of the insignificant outcome of the formal institutional independent variable.
Work ethic positively influences the dependent variable. With a significant (p<0.01) coefficient of .84, the analysis confirms that the higher the work ethic in a country, the higher the sales performance of an OEM in that country. This confirms hypothesis 2.
The independence variable was removed from the model to solve the multicollinearity issue. Hypothesis 3 is therefor rejected. Judging by the preliminary indication of the impact of the difference of independence between the home and host country shown in the correlation matrix in table 2, the variable had little correlation with the dependent variable to begin with and was also largely statistically insignificant.
The last independent variable is the difference in trust between the home and host country. This variable is significant at the 1% level (p<0.01), and has a positive coefficient of .779. This means that an increase in the difference in trust between the home and host country positively influences the sales performance of an OEM in that country, which confirms hypothesis 4.
5.
Discussion
5.1 Contributions
This research has proven that the differences in institutions between the home and host country of an OEM matter when it comes to their performance abroad. This finding signals that the difference in institutions should be part of future models looking to predict the performance of an automotive OEM abroad. Specifically, the two proven hypotheses should be part of the models. The difference in both work ethic and trust shows a positive relationship with the sales figure in the host market.
home country can be expected to see higher sales than the ones that score lower on ‘trust’ and ‘work ethic’. This analysis can be of importance when an OEM is forced to downsize its operations and only wants to focus on the strongest markets for instance. This research also contributes to the literature on institutions. While much of the literature on institutions is theoretical in nature and aims to uncover the best way to record and measure institutions, this research focuses on the practical application of such measurements. It furthers the literature by actively making use of the current theories in the institutional literature and applying it to a specific business area.
5.2 Limitations
This thesis has generalized a lot when it comes to formal and informal institutional values. One might look at the calculated scores of these countries and make inferences about the people in the host country when in fact these scores are just an aggregate of perhaps an imperfect measurement of a construct. The measures of the WVS are merely the perceptions of the people who answer these questions. As to the actual level of each construct in this research (formal institutions, work ethic, independence, trust), the measurements of the WVS might not be the exact representation of those specific constructs. The survey answers are based on how people think they score on each of these subjects. It could very well be that the actual work ethic of Germans is higher than that of the Brazilians, yet when asked how they would rate themselves, a different outcome might be produced.
measuring cultural and institutional values. Future research will have to focus on more detailed and accurate measurements of institutions. Simply combining data from the WVS or Hofstede’s work will carry the same statistical and theoretical issues that these measurements have. Also the scope of research into this area can be improved upon. More data from more years and every market segment will help to create a clearer and more accurate model from which solid theoretical inferences can be made. This research takes the performance of a company as its main focus (the dependent variable) while stating that the culture of the home country is equal to the culture and institutions of the company. One can question this assumption. Companies are heterogeneous entities and although the fields of formal and informal institutions and comparative culture seem to agree that national culture impacts the company culture (Marquis & Raynard, 2015; Peng et al., 2008), it is not yet proven that the culture and institutions of a company are exactly aligned with that of home country of the company.
Another limitation of this research is its flaws in the assumptions that are required for a perfect multiple regression analysis. The violations of normality, homoscedacity, and to a lesser degree linearity, might influence the results. As explained in their respective sections, both assumptions only cause slight issues and increase the chance of a statistical error (type 1 or 2), which is not to say that these types of errors are actually present. The violations do, however, take some of the theoretical strength away from the findings.
5.3 Future Research
premium automotive markets of the BRIC countries. Future research is encouraged to widen the scope of this kind of research to other industries and markets.
Of course, the difference in institutions is only a small part in the total puzzle that is increasing sales in foreign markets, but every bit of statistically proven information will be a positive contribution, especially when it comes to the high stakes and large amounts of money that these automotive OEMs deal with every day. Further research is encouraged to keep discovering new elements that positively impact company performance abroad.
6. Conclusion
In conclusion, the field researching institutional and cultural values has a lot to offer. In an effort to answer the research question: ‘What is the impact of formal and informal institutions on the international performance of German automotive manufacturers in emerging economies?’, this paper has shown that the institutional differences of the home and host country of a company matter when looking at the sales performance. Both the difference in work ethic and in trust in other people in the host market is positively related to the sales performance of an automotive OEM. Although there is still a long way to go when it comes to accurately measuring institutional and cultural constructs, this research shows that strategic inferences can already be made. The more these fields of research progress, the more implications it will have for the optimization of strategy and performance of multinational companies.
7.
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8.
Appendix
Table 3: Model summary c
Table 4: Coefficients a
Table 6: Coefficients a
Table 7: Normality test
Figure 2. Vehicle sales in millions in emerging markets. Source: PwC Autofacts, 2016 Q1 Forecast Release.
Figure 5: Relationship BRICSalesMillion – DiffFormalInst
Figure 7: Relationship BRICSalesMillion – DiffIndep
