Part III

Institutional theory enables a high level of understanding of organizational behaviour through

an examination of external pressures affecting organizations and their practices
(Mayer & Rowan, 1977, Stanger et al., 2013, Adebanjo et al., 2017,). Richard Scott (1995)
identified three regulatory (coercive), normative, and cognitive pillars that support the
institutional framework, which consists of formal and informal institutions that regulate
personal and corporate behaviour in the fields of politics, law, and society.
The regulatory pillar supports formal institutions, include laws, regulations, and rules,
whereas the normative and cognitive pillars support informal institutions, such as norms,
cultures, and ethics ( Peng, 2017, p. 37). From an institutional perspective, the political
system is the rules governing how a country is politically controlled (Peng, 2017, p.44). For
instance, a country’s political system may have an impact on the local economy, as well as
the specific firm and business environment as it regulates a set of laws, policies and
institutions. However, companies should evaluate how local laws and legislation, political
risk and stability can impact their operations. In reference to the case study, Dicoma has
expanded its operations to five countries such as Costa Rica, Nicaragua, Panama, Guatemala
and Honduras in Central America with similar colonial history, Spanish language, Catholic
region, Roman-Germanic legal framework, presidential republic system as well as tax system
quite similar to Costa Rica. Despite the similarities, whilst Dicoma is doing well in the host
country, Costa Rica, some foreign market it is struggling and operations are inconsistent ( or,
some foreign markets Dicoma is struggling and operations are inconsistent whilst it is doing
well in the host country, Costa Rica).

Nicaragua
From an institutional-based view, regulatory forces (formal pressures) such as political
unrest, arbitrary enforcement of government regulations and trade barriers in Nicaragua can
lead to an economic contraction, job losses, the reputational risk for companies and a
decrease in consumer and business confidence (Borda et al., 2019; Market Challenges of
Nicaragua, 2020). The reason behind this situation is that Nicaragua has severe restrictions
on freedom of expression and association, political discrimination against state workers who
support the opposition creates violation between anti-government protestors and pro-
government groups and police; government hostility towards foreign companies caused
supply chain disruptions, high-security cost and prevented employees from to travel to work
(Nicaragua Events of 2019, 2020). Foreign companies are also threatened by government
authorities with arbitrary enforcement of laws, imposing excessive fines and delays for
believing to support the opposition’s strikes and minor administrative discrepancies to make
suppliers unable or unwilling to continue to export products in Nicaragua (Market
Challenges of Nicaragua, 2020) Informal institution such as the reputation of a company
can be suffered by a corrupt government. For instance, businesses that remained open during
anti-government protest suffered reputational harm for supporting a corrupt regime ( or,
businesses that remained open during institutional crisis faced reputational risk as for
supporting the corrupt regime) (Market Challenges of Nicaragua, 2020). Hence, Nicaragua
represents 12 per cent of sales revenues of Dicoma in 2018 due to above mentioned
Nicaragua’s institutional crisis.

Therefore, Nicaragua economy mostly unfree. Its overall score has decreased by 0.3 points in
2018 and 1.2 points in 2019 indicate that it is below the regional and world average with a
lower score for investment freedom, trade freedom, business freedom, government integrity
outweighing an improvement in property rights[CITATION Mil18 \t \m Mil19 \n \t \l 1033 ].