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Interal

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Introduction

Since LEGOs inception in 1932, the company has not only experienced extreme pressure from competitors, but it has overcome numerous challenging obstacles from the external environment to become the world’s largest toy manufacturer (Financial Times, 2016). Upon analysis of LEGOs strengths through Institutional Theory (IT) and Resource-Based View (RBV), this essay aims to combine these two theories to explain LEGOs internationalisation process.

Firstly, the two frameworks will be used to analyse the period (1932-1990s) where LEGO established a culture centred on product quality and innovation. As a result, the company achieved legitimacy within the institutional environment which spurred their international expansion. Within this analysis, the strategic decision to enter specific markets, and the methods they used to so will be outlined.

Secondly, LEGOs recovery from their financial crisis in 2003, is an excellent example of how new capabilities can be made, and existing ones rebuilt to deploy resources using organisational processes to produce a desired effect.

Institutional theory

Institutional theory describes companies that operate in foreign markets conform to the institutional environments in order to gain legitimacy from the perspective of other institutional bodies. These institutions are the rules, norms and beliefs that define socially acceptable behaviour and therefore influence economic activity (Scott, 1995). The degree to which a company can conform to these institutions determines whether or not the institutions act as constraints or resources in providing the company with a competitive advantage.

Scott (1995) also developed three pillars of institutional structure: cognitive, normative and regulative. Kostova’s adapted these structures to the country level which effectively highlights how formal government policies

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