Institutional theory helps in understating the intense pressures on MNCs from underdeveloped countries (DiMaggio and Powell 1983). Institutional theory is based on the fact that coercive and normative problems in the environment that result in organizations having to change their practices according the Host country. According to Kim and Gray (2005) the above mentioned competitive pressures which exert pressure on organizations to imitate their competitors in the marketplace, taking into consideration practices that have proven to be effective and can be applied in their international operations. Thus as per the Institutional theory the before mentioned pressures are based on the postulation that the best possible strategies, decisions and practices may be considered at any particular point (Kostova and Roth 2002).
International markets give rise to greater homogenization, as the organizations contend with similar products and pace of the technical changes taking place in the market (Duysters and Hagedoorn 2001). Therefore, it is can be said, the HRM practices of MNCs may change in to an emerging global paradigm, or, maybe, a more model which promotes developed countries (Smith and Meiksins 1995). Keeping in mind the Institutional theory, If management policies in a MNC develop towards assimilation, there is a `country of origin effect'- whereby most MNCs start activities in a region and have a single headquarters.
When an MNC comes into a new country, it may bring its own unique organisational culture or international HRM policies or adopt local employment laws. Many writers may stress that local or `host country' effect is more compelling than the `country of origin' effect with regards to HRM practices e. g., in the African system of work organisation, the head of the group is seen as the father and is expected to provide for the group members. Management style is a variant of organisational culture and can be subjected to issues if taken from country of origin and applied elsewhere.
Similarly, employment practices with regards to the development of human resources may become standardised to provide a consistent `high performance' within the organisation. Employment terms such as wage levels, holidays, benefits or working hours are usually locally determined, even though there may be some international guidelines that will incorporate organisational employment principles. Resource Based Theory and MNC The resource based theory The concept of strategy formulation and the resource based view are inextricably associated; Grant (1991) identifies three ways in which the resource-based approach can be tailored to develop a successful and revealing long term strategy.
Firstly MNC‘s of underdeveloped countries should adopt a strategy that takes advantage of the internal primary resources and core competences. Next it is very important that the MNC ensures that it fully utilizes the available resource base and therefore operates efficiently. Finally the firm must routinely evaluate the effectiveness of long-standing resources and the need for new resources.
Many MNC that have managed to perform well in the long-term share the following commitments “nurturing talent, developing technologies and building capabilities” (Grant 1991), which provide flexibility to adapt to changing market conditions. The RBV examines two distinct levels of the firm structure, firstly the resources followed by the manner in which “resources are deployed to create competences” (Johnson & Scholes 1999). There are three distinct groups of resources, tangible, intangible and human resources.
Tangible resources are quite simply the physical and financial assets of the MNC; however in terms of understanding the value of these resources the associated factors must be comprehended. Namely the “age, condition capability and location of each of these resources” (Johnson & Scholes, 1999, p. 155).