GB720 Unit 9 Integrative Framework Paper Example

Rule-Takers and Rule-Makers: A Unit 9 Integrative Framework Paper on Firms and the Policies Around Them

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Purdue University Global

GB720: Business Policy in a Global Economy

Unit 9 Integrative Framework Paper

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[Date]

Harwell Structures and its cases are composite and illustrative; the theories and sources cited are real.

Two Directions, One Relationship

The term's units looked at the relationship between firms and policy from two directions. In some, policy acted on the firm: Pillar Two repriced Harwell's Hungarian incentives, Germany's supply chain law reached its plant through customers, and OSHA's proposed heat rule would change its Alabama operations. In others, the firm acted on policy: Harwell considered how to be heard in the USMCA review, whether to sign a partnership agreement with Hungary's government and how much to spend on lobbying. A framework for the relationship must explain both directions and how they connect.

The model has three parts. An institutional environment, the rules, norms and expectations around the firm, acts on it. A policy process, the legislatures, agencies and negotiations that make rules, receives the firm's efforts to shape them. Between them sits the firm, whose dependence on particular resources determines which rules matter to it and how it responds. A feedback loop connects the two: rules the firm helps shape become part of the environment it must then take.

The Theories and What Each Supplies

Institutional economics. North (1990) defined institutions as the rules of the game, formal and informal, that structure economic interaction, and argued that organizations both operate within institutions and act to change them when the returns justify it. North supplies the model's basic structure: firms are rule-takers and, sometimes, rule-makers.

Isomorphism and decoupling. DiMaggio and Powell (1983) explained why organizations come to resemble each other under coercive, mimetic and normative pressure, and Meyer and Rowan (1977) explained why organizations sometimes adopt structures ceremonially without changing practice. These accounts supply the mechanisms by which the environment acts on the firm, and they predict when the firm's response will be real and when it will be for show, as the Unit 3 analysis of the supply chain law found.

Comparative capitalism. Hall and Soskice (2001) and the extension to dependent market economies supply the variation in environments. The same firm faces different institutional settings in different countries, as the Unit 4 comparison of Hungary and Alabama showed, and its relationship with the state differs accordingly.

Resource dependence. Pfeffer and Salancik (1978) argued that organizations depend on external parties for critical resources and act to manage that dependence. Hillman et al. (2009) reviewed how the theory has been applied to firms' relationships with governments. Resource dependence supplies the hinge of the model: it explains which rules a firm responds to and which it tries to change. Harwell depends on German customers, so their requirements bind it; it depends on rules of origin for access to North American markets, so it acts to shape them.

Nonmarket strategy. Baron (1995) supplies the outward direction: how firms act on the policy process through information, coalitions and political activity, as analyzed in Unit 5.

Resource Dependence as the Hinge

The model's central claim is that resource dependence determines the direction of the relationship for any given rule. Where a firm depends heavily on a party that imposes a rule, such as a customer or a host government, the firm is mainly a rule-taker and its response follows institutional theory: adoption, with decoupling where monitoring is weak. Where a firm depends on a rule for access to a market or resource, and holds information or resources the rule-makers need, it becomes a rule-maker and its behavior follows nonmarket strategy. The same firm can be a rule-taker on one issue and a rule-maker on another, and comparative capitalism explains why the balance differs across countries.

Whether a firm takes a rule or tries to make it depends less on the rule than on what the firm depends on.

What the Integration Adds

Taken separately, each theory explains part of what the term's cases showed. Institutional theory explains why Harwell's Hungarian plant adopted its customers' due diligence structures, but not why the company tried to shape the USMCA rules. Nonmarket strategy explains the USMCA effort, but not why the plant's new structures stayed ceremonial. Comparative capitalism explains why the Hungarian and Alabama governments treated the company differently, but not which of their rules the company cared most about. Resource dependence connects them: it tells us which rules matter to a firm, and therefore whether the firm will respond as a taker, as institutional theory describes, or act as a maker, as nonmarket strategy describes. The integration therefore does more than combine theories. It specifies the condition under which each one applies.

Four Propositions

Proposition 1. Firms adopt the formal structures required by organizations they depend on for revenue, regardless of whether a law binds them directly. This would be refuted by evidence that suppliers outside a law's scope rarely adopt structures their in-scope customers require.

Proposition 2. Structures adopted under coercive pressure are coupled to practice only where the pressuring party monitors practice rather than documents. This would be refuted if suppliers subject only to document requests changed practices as much as those subject to audits.

Proposition 3. Firms engage in nonmarket strategy on rules that govern their access to critical resources, and favor information strategies where they hold information policymakers lack. This would be refuted if firms' political activity bore no relation to their resource dependence on the rules in question.

Proposition 4. Firm-specific arrangements with governments are more common in dependent market economies than in liberal market economies. This would be refuted if partnership agreements of the Hungarian kind were as common in liberal market economies.

The Model Against Earlier Cases

The earlier units fit the model. The supply chain law case shows Propositions 1 and 2: Harwell adopted the customers' structures and changed practice only where an audit occurred. The USMCA review shows Proposition 3: Harwell acted on a rule governing its market access, through information. The Hungary and Alabama comparison shows Proposition 4: the Hungarian government offered a firm-specific deal while Alabama offered a general program. The Pillar Two case shows the feedback loop: an international rule repriced host incentives, and firms with nonmarket capacity are positioned to shape the new ones, the claim examined in Unit 10.

Boundaries and Next Studies

The model is built for multinational manufacturers operating across several institutional settings. It may fit less well for firms in a single country or for firms whose main resource dependence is on financial markets rather than customers or governments. Testing the propositions would require studies across many firms, such as comparisons of suppliers' responses to customer requirements under different monitoring regimes, which the policy research paper in Unit 10 begins to approach for one rule.

References

Baron, D. P. (1995). Integrated strategy: Market and nonmarket components. California Management Review, 37(2), 47-65. https://doi.org/10.2307/41165788

DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147-160. https://doi.org/10.2307/2095101

Hall, P. A., & Soskice, D. (Eds.). (2001). Varieties of capitalism: The institutional foundations of comparative advantage. Oxford University Press.

Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource dependence theory: A review. Journal of Management, 35(6), 1404-1427. https://doi.org/10.1177/0149206309343469

Meyer, J. W., & Rowan, B. (1977). Institutionalized organizations: Formal structure as myth and ceremony. American Journal of Sociology, 83(2), 340-363. https://doi.org/10.1086/226550

North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge University Press.

Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. Harper & Row.