Institutional theory

Institutional theory is "A widely accepted theoretical posture that emphasizes rational myths, isomorphism, and legitimacy."

There are two dominant trends in institutional theory:
 * Old Institutionalism sometimes associated with Historical institutionalism
 * New institutionalism

Institutional theory
(Scott, 1995) indicates that, in order to survive, organisations must conform to the rules and belief systems prevailing in the environment (DiMaggio and Powell, 1983; Meyer and Rowan, 1977), because institutional isomorphism, both structural and procedural, will earn the organisation legitimacy (Dacin, 1997; Deephouse, 1996; Suchman, 1995). MNCs operating in different countries within multiple institutional environments are typically under diverse pressures. Some of those pressures in host and home institutional environments are testified to exert fundamental influences on HRM practices (Rosenzweig and Singh, 1991; Zaheer, 1995). There is substantial evidence that firms in different types of economies react differently to similar challenges (Knetter, 1989). Social, economic, and political factors constitute an institutional structure of a particular environment which provides firms with advantages for engaging in specific types of activities there. Companies can perform efficiently if they receive the institutional support.