Abstracts
SESSION 1: Strategic Responses to Institutional Changes
Discussant: Arvind Parkhe, Temple University
A Capabilities-based Perspective of Post-Liberalization Strategic Responses of Less Developed Countries (LDC) Domestic Firms
Omar Malik, Philadelphia University
Abstract: We apply the dynamic capabilities perspective to the strategic problems of post-liberalization LDC domestic firms. Our central premise is that liberalization leads to higher competition that spurs strategic changes in domestic firms and that firm-level changes are shaped through evolutionary considerations of initial resource conditions, strategic choices and dynamic capabilities. Our classification of firms along two dimensions of core and complementary capabilities leads to an assessment of their initial resource positions. We link these initial resource positions to specific strategic paths, identifying and elaborating dynamic capabilities required for each pair of initial resource conditions and strategic path choice. We also predict evolutionary fitness implications for each initial resource conditions-strategic path-dynamic capability set.
Institutional Reforms in the Gulf Cooperation Council Economies: A Conceptual Framework
Nir Kshetri and Riad A. Ajami, University of North Carolina-Greensboro
Abstract: Institutions are slow to change in the Gulf Cooperation Council (GCC) economies. More to the point, institutions promoting free market and free economy are severely lacking in the region. Moreover, the nature and amount of institutional changes vary across economies in the region. Concepts and theory building are lacking on the dynamics and forces related to institutional changes in the GCC economies. In an attempt to fill this void, this paper draws upon two research streams related to institutional theory to propose a framework for identifying clear contexts and attendant mechanisms associated with institutional changes the GCC economies. The first stream of research focuses on how GCC decision makers are likely to deal with legitimacy-related pressures when they have to appease and serve conflicting and competing demands from diverse institutional actors. The second stream of research is devoted to understanding how ideas related to institutional reforms are “encapsulated” and subsequently undergo progressive and regressive changes.
Institutional Quality and the Environment for Entrepreneurship in Emerging Markets
Jonathan P. Doh and Scott L. Newbert, Villanova University, Joseph A. LiPuma, Boston University
Abstract: In this paper, we investigate the relationship between institutional quality and entrepreneurial success in emerging markets. We hypothesize that higher quality institutional environments will result in greater firm-level economic performance. Further, we predict that these effects will vary for small versus large firms. We test our hypotheses using a comprehensive data set drawn from the World Bank Business Environment Survey (WBES). We find that institutions are important to both large and small firms, but that small firms are especially vulnerable to poor quality institutional environments. We draw implications of our findings for policymakers and practitioners.
SESSION 2: Nexus between Multinationals and Developing Economies
Discussant: Ronaldo Parente, Rutgers University
Is There a Liability of Localness? How Emerging Market Forms Respond to Regulatory Punctuations
Luis A. Perez-Batres, Appalachian State University Lorraine Eden, Texas A&M University
Abstract: In the 1990s, emerging economies all over the world deregulated, privatized and liberalized their domestic markets. These regulatory punctuations caused radical institutional changes for emerging economy firms (EMFs). We argue that, for EMFs, regulatory punctuations created a liability of localness, parallel to the liability of foreignness that firms face when they go abroad. Whereas liability of foreignness comes from the differences caused by changing one’s geographic place from “here” to “there”; liability of localness comes from changing one’s point in time from “then (pre-exogenous shock)” to “now (post-exogenous shock)”. In both cases, firms incur additional costs, and the ones that survive are ones that best develop strategies for coping with “being in a strange land”. We apply our arguments to the Mexican banking industry, which was privatized and liberalized in the 1990s.
Toward Better Corporate Citizenship of Foreign Multinational Corporations in China
Maria Lai-Ling Lam, Malone College
Abstract: This study examines the perceptions of Chinese executives concerning corporate social responsibilities in their Chinese subsidiaries of foreign multinational corporations in China. These Chinese subsidiaries are found in the elementary stage of corporate citizen development even though their headquarters are in the advanced stage. The key challenges of moving Chinese subsidiaries to be better corporate citizens in China are: specific Chinese business culture, intellectual property rights, internal due process, insufficient Chinese government support, and lack of knowledge of Chinese subsidiaries. Through this study, foreign multinational corporations need to invest in social capital that facilitates the transfer of knowledge of comprehensive corporate responsible practices from the headquarters to their Chinese subsidiaries, and to encourage their Chinese subsidiaries to be more actively engaged with external business partners that support corporate social responsibility.
Institutions, Firm Legitimacy and Management: MNEs in China
Sophie H. Xiao, University of Sydney
Abstract: This study explores how MNEs establish and maintain legitimacy in China and identifies three sets of factors that shape the organizational legitimacy landscape: (1) the environment's institutional characteristics, (2) the organization's institutional characteristics, and (3) the legitimation process through which the organization adapts to the environment and the environment builds its perceptions of the organization. This study uses MNEs as subject to discuss how organizational legitimacy is formed and transformed when there is complexity in these factors and further suggest that a higher level of complexity in any of these factors makes it more difficult for organizations to establish and maintain their legitimacy. It builds a model of MNE legitimacy in the context of Chinese national institutions and internal institutions within foreign firms. By using survey data obtained from MNEs operating in Hubei Province, this study develops formal propositions on the relationship between these factors and tests the propositions in three operational aspects (HRM, HQ-Subsidiary Relations and Network Management) based on three dimensions of institution (regulatory, normative and cognitive) and three determinants of legitimacy (institutional characteristics, organization's characteristics, and the legitimation process).
SESSION 3: Institutional Transformations and Industry Level Responses
Discussant: Ram Mudambi, Temple University
Strategic Responses to Institutional Changes:
'Indigenous Growth' Model of the Indian Pharmaceutical Industry
Raveendra Chittoor and Sougata Ray, Indian Institute of Management Calcutta,
Preet S. Aulakh, York University, MB Sarkar, University of Central Florida
Abstract: We examine the strategic responses in the Indian pharmaceutical industry to the dual institutional changes arising from economic liberalization of the Indian economy and the WTO mandated intellectual property regime. An examination of the relative position and growth of Indian firms vis-à-vis foreign multinationals, changes in the resources and capabilities of these firms, and scope in terms of product market internationalization and overseas acquisitions during the 1995-2005 period suggests an ‘indigenous growth’ model in the Indian pharmaceutical industry which is in contrast to the FDI initiated growth witnessed through full or partial privatization of state-owned firms in other geographical contexts. Second, internationalization of both inputs and product-markets has been the dominant mode to overcome the pressures arising from institutional changes. We discuss the drivers of this model and provide implications for future research on strategic responses to institutional changes within other industries in India as well as for comparative research across different political and institutional settings.
Environment, Resources and Interpretation: Influences in the Internationalization Strategies of Food Industry in Brazil
Rene E. Seifert Jr., and Clóvis L. Machado-da-Silva, CEPPAD/UFPR
Abstract: This article analyzes the strategies of internationalization of companies in the food industry from Parana State, in Brazil. The logic of analysis sought to corroborate the idea that internationalization is a strategic phenomenon cognitively mediated in face of environmental pressures and the resources within the organization. Therefore, the role of environment, resources and interpretive schemes are analyzed and used to explain three strategic internationalization patterns found in the food industry of Parana: domestic, reluctant and active international action. Based on those constructs, and from an institutional and cognitive perspective of analysis, the study contributes to the debate related to homogeneity, heterogeneity and organizational strategic action.
Breakout from Bollywood? Internationalization of Indian Film Industry
Mark Lorenzen, Copenhagen Business School,
Florian Arun Taeube, Imperial College London
Abstract: In the context of an emerging economy, the paper analyzes indigenous growth and internationalization. Using novel and original data, the paper studies the Indian film cluster in Mumbai, Bollywood. It argues that as the world’s biggest commercial film cluster and a conspicuous growth phenomenon in an emerging economy context, Bollywood can be seen as a paradigmatic case for adding to our understanding of the development of film clusters outside the USA, as well as suggesting more general insights into the growth and internationalization of industries in emerging economies. The empirical analysis of the paper points to the importance of home market, government regulation, and industry structure for Bollywood’s recent export growth. The paper discusses how the existence of a well-defined and geographically centered social network among producers, directors and other key roles in filmmaking in Mumbai supports the development of a ‘Bollywood model’ of filmmaking with a industry structure remarkably different from Hollywood’s.
SESSION 4: Globalization and Institutional Transformation
Discussant: Robert D. Hamilton III, Temple University
Does the Shadow of Political Risk Fall on Asset Prices? Oily Evidence
Reid W. Click and Robert J. Weiner, George Washington University
Abstract: In the oil sector, emerging economies appear to be moving in the opposite direction from that assumed in the conventional wisdom on their integration into the world economy – as oil prices have soared, institutions such as regulatory stability, and contract sanctity and enforcement appear to be in decline, while political risk appears to be increasing. Does institutional deterioration harm the value of the very natural resources on which these countries depend? This paper investigates the cost of political risk by estimating the discount on the value of real assets – petroleum (crude oil and natural gas) reserves – associated with the country in which the reserves are located. We utilize a global transactions database of 1,655 mergers and acquisitions in which petroleum reserves were traded during the period 2000-2006. To capture the riskiness of the location, we consider the political risk rating calculated by International Country Risk Guide (ICRG) and the country risk rating published in Institutional Investor. Controlling for factors that affect reserve value, we demonstrate the value-destruction of political risk, and estimate the asset discount for 37 countries. Furthermore, contrary to the assumption in the scholarly literature, we show that the discount depends on market conditions – the higher the expected future market prices of oil and gas, the larger is the discount, regardless of a country’s riskiness. Our findings suggest that treating political risk and market risk separately is likely to yield inaccurate estimates of asset value. The results are salient for evaluating investment opportunities in industries where political risk depends on world markets.
Economies of Connectedness: Concept and Application
Marleen Dieleman, Leiden University
Wladimir M. Sachs, ESC Rennes Business School
Abstract: We argue that diversification can partly be explained by means of a novel concept, “economies of connectedness”, denoting personal relationships of the owners that are used to add new businesses to an otherwise diversified portfolio. “Economies of connectedness” is a term complementing existing concepts of cronyism and corruption, which are necessarily illegal while diversification resulting from sharable personal relations is not necessarily so. The concept is illustrated by an original empirical study of Indonesia’s Salim Group. The in-depth longitudinal case study shows the interplay of conventional economies of scope with “economies of connectedness”. We find that economies of connectedness play an important role for the Group in enhancing diversification in a weak institutional environment. Over time however, as economic institutions modernize, economies of connectedness decrease.
Offshoring-led Institutional Changes in Emerging Economies: A Conceptual Framework
Nir Kshetri, University of North Carolina-Greensboro Nikhilesh Dholakia University of Rhode Island Lailani Alcantara, University of Tsukuba
Abstract: Offshoring activities have led to significant transformations in formal and informal institutions in emerging economies. An important but under-examined issue with respect to both institutional theory and offshoring pertains to the patterns of offshoring-led institutional changes. In an attempt to fill this void, this paper proposes a framework for identifying clear contexts and attendant mechanisms associated with offshoring-led institutional changes in emerging economies. Managerial lessons for planning a successful offshoring strategy and policy implications are discussed and directions for future research are suggested.