17. In situations where formal constraints are unclear or fail informal constraints will play a larger role in reducing uncertainty and providing constancy to managers and firms. This is one of the two core propositions underpinning an institution-based view of global business. Which situation illustrates this proposition?
Answer: B
The features of a city demonstrate a deep concern and commitment to environmental protection.
This situation illustrates the proposition that informal constraints can play a significant role in reducing uncertainty for managers and firms. A city’s commitment to environmental protection reflects a collective norm that influences business decisions and fosters a stable operating environment.
A) Several businesses relocate to incorporate overseas because of a new domestic tax policy that will increase their tax liability by 15%.
This option describes a scenario where formal constraints, specifically tax policies, are clearly defined and impactful. It does not illustrate the role of informal constraints, as the relocation decision is primarily driven by a formal regulatory change rather than a commitment to shared values or norms.
B) The features of a city demonstrate a deep concern and commitment to environmental protection.
This option is correct as it highlights how the informal norms and values of a city regarding environmental protection can influence corporate behavior. Such features create a stable environment for businesses that align with these values, thereby reducing uncertainty and enhancing constancy in managerial decision-making.
C) A major corporation is planning to build a new headquarters. When choosing between three major U.S. cities corporate officials consider the cost of living for their employees the distance from major airports and the tax credits offered by the states for creating jobs.
This choice focuses on tangible, formal factors such as costs and incentives that influence the decision-making process. It does not adequately illustrate the impact of informal constraints, as the decision is primarily influenced by measurable economic factors rather than social norms or values.
D) Because of high taxes in a country the rising costs of doing business in that country.
This option highlights a formal constraint—high taxes—that leads to increased operational costs for businesses. It does not reflect the role of informal constraints in shaping corporate behavior or reducing uncertainty, as it is based on explicit financial considerations rather than shared norms.
Conclusion
The correct answer, option B, effectively illustrates the proposition that informal constraints can significantly influence business decisions by reflecting societal values. In contrast, the other options focus primarily on formal constraints or economic factors, thus failing to demonstrate the concept of informal norms providing constancy and reducing uncertainty in the business environment.