Strategic Choice Theory in International Business

Executive Summary

This paper presents a critical synthesis of different articles on the application of the strategic choice theories in contemporary international business economics and management. The strategic choice theory was conceptualized during rigorous industrial relations dynamics in the United States. Prior to this theory, the business practices were characterized by relative stability. Most of the theories generated assumed high levels of political and socioeconomic stability. In the wake of globalization, organizations are characterized by rapid changes that occur due to management strategies that sometimes lead to fragile employment relationships within the business premises. Theories developed in stable corporate environments were guided by consensus ideologies. Labor unions formed permanent conglomerates of employment relationships. However, the contemporary business world is characterized by many changes in terms of industrial relations and tensions management. Traditional industrial relations models perceive organizational management and leadership as strategies that respond the pressure and needs of industrial trade unions. Theories involving strategic choice assume that political players make selections based on the decisions of other actors. As a result, when players expect unfavorable responses from the actors, they try to avoid the dependent situations under which the reactions are anticipated to arise.

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Keywords: Strategic Choice theories, Globalization, Management, International Business, Institutional Leadership

Strategic Choice Theory

Introduction

Strategic choice theories acknowledge the presence of players that influence decision-making processes in contemporary institutions around the world. The prevalence of globalization has given these players a chance for involvement in strategic decisions. Due to the wave of rapid changes in modern businesses, a failure of management boards to acknowledge the role of internal and external actors in decision-making processes forms a prerequisite for industrial conflicts and political tensions between the players, environment, and other economic determiners. Numerous theorists suggest that boards are increasingly responding to external pressures by embracing involvement whilst discarding passive managerial practices. This paper provides a critical analysis of various articles on the application of the strategic choice theory in contemporary international businesses.

Analysis of the Strategic Choice Theory

The development is attributed to the fact that the modern institutions and business management responsibilities are diversified and inclusive. Scholars utilize different perspectives to demonstrate the usefulness of strategic choice theories in the modern business practice and economics. Institutional board involvement in the strategic decision-making process has been deemed vital, especially to the changing requirements and external pressures in the global business environment. For instance, a recent study shows that increasing litigation is mostly directed towards boards in case of failure to get involved in decision-making procedures that lead to external damages (Surroca & Zahra, 2013). The board members are charged personally to take full responsibility for the adverse effects that result from negligence. Consequently, directors perceive themselves as having a mounting exposure to legal action because of insufficient participation in the strategic decision-making processes. Additionally, Surroca and Zahra (2013) reveal that pension funds mount pressure on institutional boards. With pension funds forming an important part of the public stock trading, the top management of any organization cannot overlook the bulky work involved. Therefore, boards come in to increase their oversight and involvement in an attempt to avoid adverse effects that can emerge, particularly if pricing mechanisms are not adopted appropriately. In this sense, strategic theorists have shown the role of involvement in the modern day decision-making processes. Passive management practices have no place given such unstable circumstances (Surroca & Zahra, 2013).

The strategic choice theory can be perceived as an analytic perspective that is based on preferences made by individuals with a view of shaping decision-making frameworks. Some authors relate this approach to the rational choice analysis and game theories. Rational choice perspectives see individual players as making selections based on costs and benefits. On the other hand, the game theory focuses on the interdependence of actors in decision-making (Surroca & Zahra, 2013). The modern business environment faces high levels of uncertainty, perhaps due to the rapid technological changes. Prevailing high-tech systems can become outmoded in the near future owing to constant innovation. This phenomenon renders some businesses out of the market as consumers and stakeholders embrace the new technology. Consequently, choices and strategies undertaken by actors in an organization or industry have a significant influence on their success and sustainability. As organizations transit from the traditional business practices into the emerging new ways, the levels of uncertainty exacerbate. This situation raises a need for rational choice analysis. In some circumstances, the level of uncertainty varies since individuals are unaware of what choices other actors are likely to make. In other cases, the participants are not known (Surroca & Zahra, 2013). For instance, during regime transition periods, the decision makers struggle to satisfy both self and public interests with a view of adhering to the guidelines whose configuration determine the most likely recipients of profitability or liability in the near future.

Some economists posit that organizational actors boast of some degree of autonomy in business practice (Andrews & Johansen, 2012). This state of affairs implies that they can leverage the external initiatives such as the choice to enter or exit business environments. They can also make adaptive arrangements to thrive in changing business orientations. Nevertheless, the environment is believed to limit the span of the organizational level of autonomy by fixing certain conditions within which organizations perform appropriately (Andrews & Johansen, 2012). The premise of this concept is that the organizational agents have an ample understanding of the environments in which they chose to operate in due to their experience and exposure. For an organization to thrive well in the rapidly changing business world that is characterized by considerable globalization, the management ought to have a good understanding of the political environment that guides their practice, especially in foreign markets where political perspectives and restrictions differ significantly from one country to another. For example, while leadership is unquestionable in Russia, the political atmosphere provides room for democracy and right of employees to fair treatment and good pay in the United States. These two business environments offer different levels of autonomy to organizational actors. While the employees’ democratic rights are respected in the US, autocracy rules prevail in the Russian economic environments (Andrews & Johansen, 2012). Therefore, for organizations investing in the two antagonistic environments, different management ideologies will have to be embraced for the organizations to thrive and achieve success. As a result, there will be a need to make strategic choices in an attempt to decide the fitting businesses that can suitably succeed in each business landscape.

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Organizational strategic managers can choose the appropriate business environment that they believe suits the organization. Multinational corporations employ strategic choice analysis in determining the countries in which their ventures can thrive successfully (Andrews & Johansen, 2012). Along these lines, political assessment is vital to gauge the degree of autonomy and restrictions that are imposed in the different countries. As a result, only those countries where the political atmosphere favors the economic interests of the organizational agents, and their executives will be chosen. For instance, no managers will wish to venture into countries such as Syria where terrorism and atrocities dominate. On the other hand, multinationals have flooded the emerging economies such as China and Vietnam because not only do such countries have a potential economic growth but also a favorable climate for investment (Andrews & Johansen, 2012). The political atmosphere is welcoming. Moreover, policies do not restrict commerce. In addition, the management has room to choose its employees and clientele besides the business location. Environment selection calls for the involvement of other stakeholders since entry and exit of international markets can be very costly in the event of management errors. The strategic choice analysis integrates both subjective and objective perspectives into selecting organizational environments in which they operate. Conditions that do not favor easy entry can be approached through collaborative and social interactions. Such arrangements provide room for the organizational actors to have a restricted degree of autonomy as they remain within outlined boundaries. This nature of dualism implies that the organization’s internal actors and external parties in the environment converge to share institutionalized norms and relationships. The environment contains both tradition-defined dimensions as well as market variables that are conceptualized by both strategic contingency and economic theorists. This phenomenon is evident particularly in service industries such as healthcare systems that are common in the Asian business environments.

Sanial (2014) reveal that strategic choices encompass stating and affirming the beneficiaries of the organization and their entitled benefits. As a result, the organization’s management needs some measure of performance. Determination of intended beneficiaries, nature of the benefits, and method of transferring them lie in the hands of the top management of the organization together with its governors (Sanial, 2014). This postulation implies a contrary opinion to the notion of involvement where other subordinate staff and departmental managers need to be engaged in decision-making processes. In the internal environment of organizations, the possibility of in-house tensions and conflicts arise whereby some components feel alienated or totally despised, especially where beneficiary’s express dissatisfaction. The internal conflicts act as internal constraints to the management by setting up a limit to the extent of autonomy. If the internal conditions are disobeyed, industrial conflicts break out. This set of circumstances has detrimental effects on the organization. Formation of trade unions to fight organizational disobedience to internal restrictions that were set up by subordinate staff was common in the last two decades. However, contemporary organizations have realized decreased formations and the role of the trade unions (Sanial, 2014). This situation can have attributed to the role that information integration and globalization play in revolutionizing businesses. People have different and viable avenues of expressing their views. Managers have also embraced interactive practices that see sharing of information for corrective measures. The internal environment is characterized by politics within the organization that influence action determinism (Sanial, 2014). This phenomenon features two opposing sides that include the dominant decision-making group and implementers. Sanial (2014) asserts that the two antagonistic groups engage in a political process in a bid to realize a point of mutual acceptance of previously unacceptable policies. Research has shown that the groups can reach a level of coalescence whereby pressures of contrary opinion are eliminated through negotiation. This process is crucial since it underpins the successful implementation of internal strategic decisions.

Virtuous corporate behavior is a product of strategic choice (Sanial, 2014). The conception of corporate choices is vital in determining groups that have a legitimate interest in the way the firm performs to attain its objectives. This concept is implemented by organizations by their top managements as a strategic choice to engage in constructive and no-harm initiatives that benefit the concerned groups. It is the role of the top management to make strategic decisions on corporate responsibility and execution of crucial actions to achieve the desired levels of performance. Such decisions entail the assessment of the organization’s capabilities and limitations. Therefore, it calls for a managerial analysis of the firm’s strengths, weaknesses, opportunities, and threats (Sanial, 2014).

The strategic choice theory has been perceived as consistent with organizational evolution theories and organizational transformation (Vitkiene, 2013). Through a learning process, managers acquire new and better ideologies that help to elevate the organization to a higher level. For instance, through a contextual understanding of the business in which the organization operates, the management learns how to influence its growth and sustainability through engaging the policy makers in interactions and collaborations (Vitkiene, 2013). This engagement establishes a favorable relationship between the organization and its environment. This theory shows that the environment does not underpin the success of the business, but the organization is depicted as having a great influence in shaping it. Collaborations bring about the transformation that reshapes firms to fit in the environment. The organization rearranges itself internally as a strategic mechanism to thrive in the external environment. Through learning and transformation, organizational actors place their firms strategically in the prevailing business environment (Vitkiene, 2013).

One aspect of the organizational environment is the technology that has been empirically proven to have a significant influence on the success contemporary businesses, especially in the service industry firms such as smartphone and computer manufacturers among others. In the modern world, technology changes rigorously. A company that does not embrace pro-active technological growth strategies can easily go out of business due to replacement by other innovations (Robey, Anderson, & Raymond, 2013). This technological displacement shapes the mobile telecommunications industry today. For instance, the invention of the IOS and Android operating systems by the Apple Inc. and Google Inc. respectively displaced the BlackBerry Limited, which is still struggling to reinvent itself to compete with the new technology, to some extent. The fall in returns on capital for BlackBerry Inc. in 2013 was highly attributed to management failures in their strategic choice roles in the face of technology (Robey et al., 2013). Many businesses have closed due to failure to respond fast to changes in technology.

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Conclusion

The analysis of the articles reveals that different authors support the authenticity and viability of strategic choice perspectives as evidenced in the modern corporate world. The application of the strategic choice theory has been shown in the role of top management in shaping the organization in different environments (that are characterized by internal political processes) through action determinism and technological advancement. Consequently, businesses need to ensure an apt response to new international business perspectives to remain relevant in the face of globalization and changing enterprise ideologies.

Reference

Andrews, R., & Johansen, M. (2012) Organizational Environments and Performance: A Linear or Nonlinear Relationship? Public Organization Review, 12(2), 175-89.

Robey, D., Anderson, C., & Raymond, B. (2013). Information Technology, Materiality, and Organizational Change. Journal of the Association for Information Systems, 14(7), 379-98.

Sanial, G. (2014). Exploring U.S. Coast Guard organizational preparedness through chaos and complexity theories. Emergence: Complexity & Organization, 16(4), 1-16.

Surroca, T., & Zahra, S. (2013). Stakeholder Pressure on MNEs and the Transfer of Socially Irresponsible Practices to Subsidiaries. Academy of Management Journal, 56(2), 549-72.

Vitkiene, E. (2013). Relationship between Corporate Ethos and Learning and Developing Organization in Changing Economic Environment. Management of Organizations: Systematic Research, 1(65), 125-36.

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