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Institutional analysis


This chapter provides a further discussion on institutional analysis and its significance for understanding tourism. It is organised into three main sections. The first discusses the multiple layers of the institutional environment. The second discusses the multi-scale institutional analysis based on competing for institutional logics, interplay, legitimisation, and governance perspectives. The chapter then considers the issue of organisational survival and change over time through the lens of the relative “mortality” of organisations. The significance of understanding tourism and examples from a range of different contexts are noted throughout the chapter.

The layers of the institutional environment

The institutional environment consists of multiple layers, because of the interaction among different actors at different levels of governance (Zhang & Merchant, 2020). The framework presented in Figure 3.1 captures these multiple layers under four headings: international, central (national), regional, and local. Businesses are positioned at the centre of this framework because they have to navigate the institutional layers every day in order to succeed. These layers are conceptualised by governments at different levels: central, regional, and local. Collaboration both within and between these layers is crucial in terms of institutional coordination, yet it can be very challenging because their functions and interests may not align.

In a case where interests diverge, the institutional environment becomes extremely complex to navigate. This is especially well recognised in federal systems, such as Australia, Canada, Germany, and the United States, where substantial divergence can occur between the state’s and federal government's perspectives on certain issues. A good example of this is the responses of different US states to the COVID-19 pandemic, where different states simultaneously enacted different regulations on travel and


Multilateral and bilateral policy making

International legal regime, including for trade

International organizations


Regional development and business initiatives

Regional governance, policy making and regulation


Local urban and rural development

Business support

Representing local community

Multi-layered institutional environment for tourism businesses

Figure 3.1 Multi-layered institutional environment for tourism businesses.

biosecurity measures in response to the disease and its economic impacts (Studdert et al., 2020; see Box 3.1). Such divergence was also mirrored in the international sphere in terms of international travel restrictions (Seyfi et al., 2020). Businesses have to understand all four layers and, just as importantly, they need to realise that they operate on all four levels. This is especially important for tourism firms because of the movement of international tourists between different institutional jurisdictions. The institutional environment is somewhat stable when the regulations are effective and the boundaries clearly defined for organisations to follow. When regulations are not effective, and there are no mechanisms in place to enforce them, organisations tend to rely on informal relationships with the governments at different levels depending on their goals; such a situation makes the institutional environment more dynamic and also increases the level of uncertainty for businesses and their strategies.


Travel restrictions were an integral part of the responses of national, regional, and local governments to reduce or “flatten” the curve of disease transmission. However, their use often varied substantially between jurisdictions as they sought to balance economic, health, and political considerations. By the end of September 2020, nearly half of the US states had imposed interstate travel restrictions. Eight had imposed restrictions on entrants from all states, 12 had imposed them only on entrants from selected high-prevalence areas, and four had shifted between these positions. A common feature of these restrictions was a requirement that entrants, whether residents or non-residents, had to self-quarantine for 14 days, although active monitoring of compliance to these orders appeared to vary. Several states also modified their restriction orders to permit proof of negative tests for COVID-19 infection in lieu of self-quarantining. However, in the US context, any measure that may be construed as a potential limit in interstate trade and mobility raises substantial legal issues. The US Supreme Court has long recognised an implicit constitutional right to travel, consisting of: "the right to enter and leave a state, the right ‘to be treated as a welcome visitor rather than an unfriendly alien’ when visiting a state, and the right to become a citizen of any state” (Studdert et al., 2020). In the US, any restrictions on the right to travel across state lines are given close legal scrutiny with respect to its appropriateness and reasonableness, although it should be noted that different courts may arrive at different conclusions. In seeking to review restriction orders and their implementation, courts are extremely mindful that there is no discrimination with respect to out-of-state visitors, for example, with respect to ease of meeting quarantine requirements. This issue is important,

because when states treat out-of-state travellers differently, they confront greater constitutional uncertainty than when their regulations affect residents and non-residents even-handedly. Courts are that, historically, differential travel restrictions have served as a pretext for turning away minorities or impoverished people and for economic protectionism. Courts also tend to be more sceptical when exceptions are granted to some interests and activities but not to other, similar ones.

(Studdert et al., 2020)

As a result, health-related travel restrictions in the US travel restrictions are more likely to withstand legal scrutiny if they apply equally to residents and non-residents, allow well-justified exceptions (e.g., recent negative tests for a disease, evidence of vaccination), are timelimited and regularly reviewed, and are grounded in epidemiologic data. Nevertheless, it is notable that institutional differences and a lack of coordination were at the heart of the US national pandemic response.

Yet state or regional isolationism is a poor substitute for national leadership in pandemic response. Even as it refused to suspend Maine’s travel restrictions, the Maine court quoted Supreme Court Justice Benjamin Cardozo’s admonition in Baldwin v. Seelig, an economic protectionism case, that “The Constitution was framed ... upon the theory that the peoples of the several states must sink or swim together, and that in the long nm prosperity and salvation are in union and not division”. Cardozo’s plea for unity could be read today as a call for the coordinated, coherent federal response to Covid-19 that has been so lacking. Such a response might have mitigated the disparities now driving interstate divisions and the desperation states feel to protect themselves when no one else will. Infectious diseases may not recognise political boundaries, but disease-control policies certainly do.

(Studdert et al., 2020)

The international layer of the institutional environment is occupied by a number of international and supranational bodies that operate within specific policy areas and responsibilities. Central to these from a tourism perspective is the United Nations (UN) and its associated bodies, including the UN World Tourism Organization (UNWTO). Other significant bodies of the UN relevant to tourism include the UN Environmental Program (UNEP) and the UN Development Program (UNDP). However, arguably of even greater significance is the World Trade Organization (WTO), because of its role in setting the international structure for trade and investment, and organisations such as the OECD, for policy transfer, and the World Bank, for development funding (Carrillo-Hidalgo & Pulido-Fernandez, 2019). Significantly, the emphasis on public-private partnership that is often so strong at the national and regional level is also given a strong focus internationally, for example in the UNWTO, where global tourism business interest organisations, such as the World Travel & Tourism Council (WTTC), are also important because of their influence on international and domestic policies (Coles & Hall, 2008). What is important about the international sphere is that the multilateral and bilateral agreements that are made between countries sets the context for international mobility and affects many, if not all,

Institutional analysis 59 tourism businesses in one way or another, but so many firms are unaware or dimly aware of these critical structures and their implications for inbound, outbound, and domestic tourism.

The national layer of the institutional environment is represented by authoritative central government power over policymaking, a focus on state development, and the protection of the sovereign state. The central government has the authoritative power to make and amend policies, which are focused on developing the state (Baranov et al., 2015; Wang et al., 2020). For example, the central government usually controls treaty-making powers with other countries. For example, in Australia in the late 2020, the Morrison national government sought new legislative and regulatory powers for the foreign affairs minister to review and cancel agreements to stop state, territory and local governments, and universities from entering agreements with foreign governments that are considered by the minister to be detrimental to Australia’s foreign policy (Murphy & Hurst, 2020). Although the cen-tral/national government layer of the institutional environment may seem dominating because of its authoritative ability to override decision-making in many cases, depending on the constitution of the countiy, networks at the regional and local levels can interfere with policy development and implementation at the national level (Kujala et al., 2020). The institutional environment is therefore not static (Shipilov., 2012), but continuously evolving. As a result, the central government’s priorities can change, thus influencing the dynamics between different layers of the institutional environment.

The regional layer of the institutional environment consists of policy initiation at the regional scale, and a focus on regional development and governance. The regional government can propose policy changes or applications by the central government in relation to their region (Baranov et al., 2015). The main aim of engaging in negotiations for policy change is usually related to regional development objectives. Often, the central government has an overarching objective and sets goals for regional development targets. In cases where central, regional, and local policies aim for the same development outcomes, the institutional environment is easier to navigate.

Organisational attributes and an organisation's strategic importance in terms of developing the economy at different levels influence the institutional environment. Organisations form relationships at different layers, which places them in an interesting position, as they must manage their relationships with the government at each layer to achieve their goals. Organisations use their own resources, such as financial resources, to shape policy development. This is evident in exchange-based relations, where MNEs help fund governmental projects and in return may receive certain privileges and avoidance of administrative review. This may be particularly important in countries in which the transparency of business relations withthe government is opaque. Nevertheless, in many countries, collaboration with the government at different levels help MNEs to achieve their goals as part of public-private partnerships.

The institutional environment becomes more challenging when the goals between the central, regional, and local governments diverge, as this can undermine formal institutions. This makes formal institutions more ambiguous and challenging for organisations to follow and causes them to rely more on informal institutions to achieve their goals. As a result, the importance of formal institutions decreases, whereas that of informal institutions increases. This makes the institutional environment more unstable and challenging for organisations to navigate, because the existing regulations are ambiguous (Puffer et al., 2016). Further, differing goals between organisations and governments at different layers can affect resource allocation and organisational development.

Networks between industry and government officials may be public or hidden, depending on the institutional and political context (Dang et al., 2020). In some cases, the connections between industry and government officials may be hidden because this enables organisations to better deal with a complex institutional environment. Nevertheless, in some jurisdictions, this situation shows that such silent relationships enable organisations to facilitate their operations by overcoming ambiguous regulations (Saka-Helmhout, 2020). However, such silenced relationships can have negative consequences for organisations if they are broken, and particularly if they are seen as being inappropriate. These consequences may include losing access to administrations, which presents organisations with more difficulties in terms of handling institutional complexity. For example, the grounding of the Boeing 737 Max in 2019 as a result of plane crashes revealed that there was an inappropriate closeness to the relationship between the US Federal Aviation Administration (FAA) and Boeing officials, which reduced proper scrutiny of the jet’s systems and safety (Josephs, 2019). Networks with the government at all three levels serve to enable organisational interests, although the public acceptance of such networks depends on the specific political culture as to what is “normal politics” and the degree of independence from external interest that is expected of politicians and members of the bureaucracy. Nevertheless, such factors, which are often hidden in more formal accounts of political systems, affect the relative complexity of the institutional environment and the difficulties it can present for organisations, especially those derived from other political cultures and responsibilities.

In general, the relationship between corruption and tourism is only substantially discussed at an aggregate scale in the tourism literature (Poprawe,

Institutional analysis 61 2015; Lv & Xu, 2017; Haseeb & Azam. 2020). Interestingly, Ming and Liu (2020) examined China’s anti-corruption campaign as a form of political uncertainty in China’s tourism industry. They found that when the Chinese central government launched its anti-corruption campaign, firms in the tourism industry experienced a significant decline in firm value, with the effect being stronger for companies majoring in high-end tourism products. They also found that tourism companies’ long-term financial performance declined after the anti-corruption campaign, with the decrease in firms’ financial performance being driven by a decline in demand. However, the nature of the relationship between industry and government is one that warrants closer analysis in a tourism context. There is also something of a paradox that while governments, industries, and numerous academic commentators frequently stress the supposed importance of public-private partnerships, the development of networks and cooperative relations, there is often little discussion at what point such relationships become inappropriate. While from a governmental or public good perspective it is to be hoped that such relations will contribute to the competitiveness of tourism from a destination perspective, there must clearly become a point where individual firm benefits in such relationships become more significant for the firm than they do for the greater good. Nevertheless, such questions are clearly important as they underlie public trust in tourism-related institutions (Nunkoo et al., 2012; Roy et al., 2017).

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