By asking a series of questions that pertain to each of the five areas, executives can map the institutional contexts of any nation. The five contexts are a country’s political and social systems, its degree of openness, its product markets, its labor markets, and its capital markets.
The best way to do this, the authors have found, is by using the five contexts framework. A better approach is to understand institutional variations between countries. But these analyses can be misleading they don’t account for vital information about the soft infrastructures in developing nations. Corporations also depend on composite indexes for help making decisions. Many firms choose their markets and strategies for the wrong reasons, relying on everything from senior managers’ gut feelings to the behaviors of rivals. If Western companies don’t come up with good strategies for engaging with emerging markets, they are unlikely to remain competitive. These gaps have made it difficult for multinationals to succeed in developing nations thus, many companies have resisted investing there. Part of the problem is that emerging markets have “institutional voids”: They lack specialized intermediaries, regulatory systems, and contract-enforcing methods. Many firms simply go with what they know-and fall far short of their goals. It’s no easy task to identify strategies for entering new international markets or to decide which countries to do business with.
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