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Oscillating between a relationship-based and a market-based model: The Salim Group
Abstract
As institutional transitions in emerging economies intensify, the basis for competition is theorised to move from relationship-based to market-based. An in-depth analysis of the strategy of the Salim Group, one of the largest ethnic Chinese conglomerates in the Asia-Pacific region, supports the view that the strategy of this conglomerate can be understood as moving between the extremes of crony capitalism (the relationship-based model) and the existing Western norms for multinational business (the market-based model). Both models are essential for its success, but the former, relationship-based model seems more important in early times and the latter, market-based model becomes more significant during recent institutional changes. We also find evidence that the strategic movement between those extremes takes the form of irregular oscillatory dynamics.
... More specifically, we know little about how entrepreneurs' prior exposure to an institutional environment affects their management orientations in business exchanges when they start new ventures in a new institutional environment. Furthermore, organizational behavior coevolves with institutional transitions (e.g., Dieleman & Sachs, 2006). This begs the question of whether firms with different initial managerial preferences for formality or informality in business transactions would converge or diverge over time as an economy evolves, especially in the context of dramatic institutional transition. ...
... These transitions include government decentralization, the privatization of state-owned enterprises, and conformity to international uniform rules. Previous studies have found that in institutional changes toward rule-based economies in emerging markets, such as China, firms operating there tend to shift from a personalized to a depersonalized mode (Dieleman & Sachs, 2006;Hoskisson, Eden, Lau, & Wright, 2000). Consistent with the prior literature, we observed that formal elements have become increasingly important in local firms in parallel with the advance of formal institutions in China. ...
... More specifically, we know little about how entrepreneurs' prior exposure to an institutional environment affects their management orientations in business exchanges when they start new ventures in a new institutional environment. Furthermore, organizational behavior coevolves with institutional transitions (e.g., Dieleman & Sachs, 2006). This begs the question of whether firms with different initial managerial preferences for formality or informality in business transactions would converge or diverge over time as an economy evolves, especially in the context of dramatic institutional transition. ...
... These transitions include government decentralization, the privatization of state-owned enterprises, and conformity to international uniform rules. Previous studies have found that in institutional changes toward rule-based economies in emerging markets, such as China, firms operating there tend to shift from a personalized to a depersonalized mode (Dieleman & Sachs, 2006;Hoskisson, Eden, Lau, & Wright, 2000). Consistent with the prior literature, we observed that formal elements have become increasingly important in local firms in parallel with the advance of formal institutions in China. ...
The management paradigms in the West mainly rely on legal contracts and explicit rules (formality), while the management traditions in the East emphasize social relationships and implicit norms (informality). In an era of ‘West-meets-East’, balancing formality and informality is becoming critical for firms, especially those facing institutional differences in transnational contexts and institutional transitions. In this research, we conducted a comparative multicase study on returnee entrepreneurs and local entrepreneurs in China. We found that at the early stage of venturing, returnee entrepreneurs emphasized formality more than informality, while local entrepreneurs stressed informality more than formality. However, the formality-informality balance among both returnee and local entrepreneurs converged over time in line with the institutional transition in China. Returnee entrepreneurs increased the emphasis on informality (but kept the dominant position of formality), whereas local entrepreneurs gradually shifted from informality to formality. The spatial pattern of asymmetrical balancing and the temporal pattern of transitional balancing are both rooted in the Chinese philosophy of Yin-Yang balancing.
... While these questions have been explored in the literature to some extent (see, e.g., Carney and Gedajlovic 2002;Rodrigues and Child 2003;Peng 2002Peng , 2006Dieleman and Sachs 2006;Madhok Liu 2006;Yang et al. 2009), our knowledge of the answers to them remains shallow, evidenced by a recent Boston Consulting Group report (2010) which underscores this void in the literature. ...
... A parallel view is offered by Dieleman and Sachs (2006). They contend that as institutional transitions intensify in EMs -that is, as institutions modernize -the basis for competition in the environment moves from relationship-based to market-based, oscillating between these forms, but with irregular dynamics caused by both external (that is, exogenous) and internal (that is, endogenous) influences. ...
As emerging markets have become significant economic entities in the new world economy, the evolution and composition of economic institutions in them has inspired a rich literature in the organizational sciences. Among the institutions that have received some attention are the large, diversified conglomerates and networks of closely affiliated businesses (Khanna and Palepu 2010; Ramamurti and Singh 2009). Given their increasing impor-tance, these groups have attracted scholarly attention from a variety of theoretical perspectives. For example, researchers have focused on insti-tutional environments (Chung Khanna and Rivkin 2001) and organi-zational capabilities (Amsden and Hikino 1994; Kock and Guillen 2001) as drivers of the organizational strategies and structural configurations of these groups operating in many emerging markets (EMs). Even with this increased attention, however, we still know very little about how firm capabilities and organizational strategies and the particular environments in which these emerge co-evolve over time and reflect the changes that underscore the nature of their institutional environments (Teece et al. 1997; Kock and Guillen 2001; Khanna and Palepu 2006). Among the questions that require exploration are at least the follow-ing. How do the reciprocal interactions between firms and environmental institutions affect organizational renewal, adaptation, and selection? How do organizational, institutional and market mechanisms shape, and how are they in turn shaped by, their economic, social and political environ-ments, independently and in concert? How do institutional isomorphism, interdependence and path-dependence create an environment of mutual and reciprocal influence between institutional change and organizational action? How do the institutional context and the internationalization 483 484 Institutional approaches to international business of firms interact; that is, are there any path-dependencies in the inter-nationalization of EM firms? Do these differ from those of developed country internationalizing firms? What roles do endogenous factors, such as managerial intent, knowledge and willingness to internationalize, and exogenous variables such as the nature of markets and institutions, affect internationalization patterns? How do the reciprocal interactions among these happen? For example, how have increased liberalization of international trade and investment regimes and the opening of markets that were once passionately protected by EM governments changed these firms' capabilities? What are the motivating forces that have driven EM multinationals out of their markets to date? Are these forces changing, and if so, how? What are the internationalization paths that EM firms have chosen to follow in light of these institutional transformations and market drivers? How different are these from those that have been followed by internationalizing firms from the developed Western economies in the latter part of the last century? While these questions have been explored in the literature to some extent (see, e.g., Yang et al. 2009), our knowledge of the answers to them remains shallow, evidenced by a recent Boston Consulting Group report (2010) which underscores this void in the literature. Yet, it seems natural that we can learn a lot about these issues from studies that consider the historical, cultural and evolutionary antecedents of firm behavior in these markets and their institutional contexts as co-evolutionary frameworks. We address this issue in this chapter by showing how Turkish internationalizing firms have evolved and function in the dis-tinctive institutional environment of Turkey in which they are embedded today, and how they have been propelling themselves into international markets during the recent past. While our work is exploratory and is based on our study of internationalizing firms in only one EM, Turkey, we believe that it is worthy of inspiring significant questions and future work on this interface in other EMs. Extending earlier work in this area (Carney and Gedajlovic 2002; Kock and Guillen 2001), we show how the institutional environments and organizational strategies of Turkish firms have co-evolved during the past nine decades (1923–2012) and that this co-evolution was complex and dynamic, yet interdependent. Our study draws from earlier work on business group (BG) behavior in EMs (Khanna and Yafeh 2007) and from work on Turkish BGs (Yaprak and Karademir 2010, 2011; Karademir et al. 2005; Goksen and Usdiken 2001). As that research stream shows, Turkish BGs share many common features with highly diversified BGs found in other emerging markets
... (2002, p. 708 Parmigiani 2007). Dieleman and Sachs (2006) on the other hand found that the ad hoc shifts between the relationship-based and market-based strategies at a Chinese conglomerate resembled "irregular oscillatory dynamics" leading to the conclusion that intermediate stages are not necessarily a conscious part of the overall firm strategy. Nickerson and Zenger (2002) describe how firms may purposefully use modulation between different governance modes to attain what they term dynamic efficiency gains: ...
In this dissertation I address the question of how to effectively manage ties with sup-
pliers. Buyer-supplier relationship management is an important strategic capability,
and interfirm governance has received ample attention in both the academic as well
as practice-oriented literature. Most governance studies take as their point of departure governance modes (such as make, buy, ally and hybrid) which are linked to a
predefined set of governance mechanism as well as performance outcomes. Empirical
studies have shown that firms in reality take a more dynamic approach to governance
by simultaneously employing governance mechanisms that belong to different modes.
No comprehensive framework exists to account for this multidimensionality of gover-
nance, while little attention has been paid to the dynamic change of governance over
time. I address these gaps by proposing a typology of governance mechanisms, and by
conducting a longitudinal case study of supplier relation management at Renault and
Nissan. This approach enables me to address some of the shortcomings of the Supply
Chain Management discipline that result from a tendency to rely on survey-based
research.
... The paper undertakes such an investigation in four steps. First, it focuses on emerging economies, which are characterized by insufficient and immature institutions (Peng, 2003;Dieleman & Sachs, 2008) due to the changing nature of their location's economic, institutional and business environments (Meyer & Peng, 2005). Such economies seem to be influenced easily by MNEs entrepreneurship (Reus & Rottig, 2009) because it contributes to the incremental creation of a new institutional stability, e.g., "the newly legitimated characteristics of an emerging institutional framework" (Chung & Beamish, 2005, p. 36). ...
This paper examines how an emerging economy's institutional context motivates different forms of MNE entrepreneurship, which, subsequently, leads either to economic development or economic growth. To do so, the paper distinguishes emerging economies' institutional environment into a state of stable conditions and a state of crisis and it reconciles such a distinction with Cantwell's et al. (2010) coevolution framework. Secondary statistic data, in conjunction with the appreciative method, have been applied to test the three hypotheses developed. Results reveal that in the periods 1990-2001 and 2008-2011 institutional avoidance and adaptation took place. In the period 2002-2007 institutional coevolution emerged, while in the period 2012-2016 institutional avoidance prevailed. JEL Classifications: L22, L220, L24, L240
... Therefore, with the improvement of marketrelated institutions, the importance of guanxi is eroding and will give way to modern, market-related governance such as contractual governance and Western relational governance. Several studies have lent support to this view by showing the declining significance of guanxi in Chinese business practices (Dieleman and Sachs 2006;Guthrie 2001). This study adopts this institutional view as a theoretical lens through which to explain the interaction of guanxi and Western relational governance. ...
With the growing importance of strategic alliances and supply chains as competitive units, academics and practitioners are interested in understanding the techniques used by firms to leverage interfirm relationships to gain a competitive advantage. Studies conducted in the Western context underline the role of relational governance (i.e., the modern Western way), whereas works in the Chinese context highlight the importance of guanxi (i.e., the traditional Chinese way). Today’s Chinese economy operates as a hybrid of the Western modern business model and traditional Chinese patterns with the coexistence of Western relational governance and guanxi. Therefore, this study addresses two issues: (1) whether these two types of governance interact as substitutes or complements in leveraging interfirm relationships and (2) whether and how foreign firms differ from their Chinese domestic counterparts in the use of these two types of governance to improve performance. Drawing on data collected from 132 third-party logistics providers in China, this study shows that Western relational governance and guanxi function as substitutes in improving performance. Moreover, while guanxi contributes to performance in a similar manner in Chinese domestic firms and foreign firms, Western relational governance is more effective for foreign firms than for Chinese domestic firms. Furthermore, the joint role (i.e., interaction effect) of Western relational governance and guanxi in improving performance also differs: these two forms of governance function as substitutes in foreign firms, whereas they have no significant interaction in Chinese domestic firms.
... So, there are differences between family-owned, and state-owned family business groups, each has a different set of actors, agency cost, and strategy. Informal ties that characterize the business groups are-cross-holdings, coordinated actions, and board interlocks (Dieleman and Sachs 2006). ...
The main purpose of this paper is to strengthen the theoretical underpinning of the relationship between emotion and investment decision-making. Since investment decisions are made both under the condition of risk and uncertainty, emotion acts as a crucial antecedent for making a better investment decision. Absence of emotion while making investment decisions can hinder for making better decisions. So, for being a successful investor, he/she should not only depend on the market fundamentals but also should be aware of their own emotion. This is because emotion is having a significant role in investment decision-making. However, a successful investor not only depends on their self-emotion but also to control and regulate their emotion carefully for making advantageous decisions.
... This is grounded on the following reasoning: economic growth, in the long run, is a question of development of more complex institutions (Dunning & Fortanier, 2007;Cantwell et al., 2010;Lundan, 2011) to deal with the uncertainties-imperfections that arise from more complex exchanges, involving both market and non-market actors. This is especially important in emerging economies, for two reasons: first, because emerging economies are characterized by weak and immature institutions (Peng, 2003;Dieleman & Sachs, 2008), and, second, because weak institutions tend to incrementally change and be influenced more easily than other stable and accepted counterparts in mature economies (Oliver, 1991). These two features emerge as useful conditions that can facilitate a powerful two-way dynamic relationship (co-evolution) between the development of corporations and institutions. ...
The goal of this research is to unlink conceptually the three-dimensional relationship (namely, MNEs, institutions and economic growth) in order to examine how MNEs contribute to a country's institutional development, and, subsequently, to its economic growth. In this perspective, the purpose of our paper is not to provide penetrating new insights, like Cantwell et al. (2010), but to adopt and nurture them within conceptual reasoning. This main objective is split into two complementary intentions. First, to synthesize the relevant literature with the holistic and integrative theoretical framework by Cantwell et al. (2010). And second, to apply this synthesis to the emerging economy of Turkey as a useful and "sui generis" institutional setting, for the 1990-2011 period, in order to shed novel light on the functioning of institutional avoidance, institutional adaptation and institutional co-evolution.
... Similarly, long serving Singapore Premier Lee Kwan Yew had little faith in the entrepreneurial and technological talents of native Singaporeans and under the aegis of the Economic Development Board he oversaw the creation of large government linked groupings to achieve developmental goals (Zutshi & Gibbons, 1998). In Indonesia, Suharto enlisted an elite group of about 20 Chinese entrepreneurs to build an industrial base (Dieleman & Sachs, 2006) and later helped several family members establish their own groups (Mursitama, 2006). Government leaders in Malaysia, Philippines, and Thailand each selected a small group of entrepreneurs to lead development efforts, provided them with credit, domestic monopolies, and protected them from foreign competition. ...
The Asian economic landscape is dominated by various types of business group. Asian Business Groups provides a comprehensive review and introduction to the different types of business group. The origins and founding context of groups from particular national settings form the basic structure of the book. Emphasis is given to both the similarities and differences in group governance and performance and the implications for Asian international competitiveness are addressed.
... Cuervo-Cazurra (2006) makes the distinction between family-owned, widely held, and state-owned business groups, while noting that each type has a different set of actors, agency costs, and strategies. In business groups, informal ties – such as cross-holdings, board interlocks, and coordinated actions – are strong (Chung, 2006; Dieleman and Sachs, 2006). While business groups exist throughout the world, they are relatively more prevalent in emerging economies ( Peng et al., 2005; Yiu et al., 2005). ...
A principal-agent perspective dominates corporate governance research. This perspective focuses primarily on the modern corporation in developed economies with widespread ownership and no controlling shareholders. We argue that a principal-agent perspective may have limited application in emerging economies, because most corporations in these countries are controlled by a family or the state with concentrated ownership. As a result, there is more potential for conflict between majority shareholders (principals) and minority shareholders (principals) than there is between shareholders (principals) and managers (agents). We term this variant of corporate governance problem the"principal-principal" problem, and draw on institutional theory, which focuses on the formal and informal constraints giving rise to this problem, to explore its underlying root causes. Overall, we suggest that a principal-principal perspective is a more fruitful approach to corporate governance in emerging economies, because prescriptions derived from the standard principal-agent model may be ineffective or may even exacerbate governance problems in these settings.
... The success of ethnic Chinese entrepreneurs in Southeast Asia, for example, is explained at least partially by their status as diaspora members with international social networks that span multiple countries (Dieleman & Sachs, 2006;Yeung, 2006). Networks, especially those arising from ethnic and cultural links, are specific to individuals (Bjorkman & Kock, 1995;Liesch, Welch, Welch, McGaughey, Peterson, & Lamb, 2002). ...
This study examines the role that the bicultural identity of members of an ethnic diaspora (the Indian diaspora in Canada and the United States) can play in affecting the level of economic engagement between their country of residence (COR) and country of origin (COO). Specifically, it examines how differences in bicultural identity can explain the varying levels of engagement by diasporic members in different trade and investment facilitation behaviors, and how the different components of bicultural identity, cultural distance, and cultural conflict, could affect the level of economic engagement between the diasporic members’ COR and COO. Results indicate that cultural distance and cultural conflict and their interaction do have a significant impact on economic engagement behaviors; these effects are complex and multifaceted and are mediated by the diaspora’s social networks in both the COR and COO.
... Guillén (2000) considers that valuable political capabilities may also lead to diversification and growth when foreign capital flow asymmetries exist. Brazilian BG may acquire and sustain institutional power through superior political contacts (Dieleman & Sachs, 2006) not only when the government is a minor shareholder but also when connections are developed with campaign donations. ...
... This practice is not confined to local firms. For example, the Singapore-listed Golden Agri Resources (GAR) is known to have several important current and former government officials (Tarigan[I23], 2010) and other prominent individuals 'on the payroll' (Dieleman and Sachs, 2006,retainer basis by GAR (Surya[I9]and Akbar[I10], 2010). Anthony Salim, who helms The Salim Group (the parent company for Singapore's Indo Agri) also enjoys close relations with the ruling government, having also held the position as secretary general of the president's Economic and Financial Resilience Council, before Aburizal Bakrie (Eklof, 2002). ...
Since 1982, haze pollution has become an almost annual occurrence in Southeast Asia, with the worst episodes being in the period of 1997–1998 and in 2006–2007. Haze originates from peat and forest fires, mostly in Indonesia. The negative effects of haze can be observed at the global level, with increased carbon emissions exacerbating climate change, and more importantly at the regional level, with serious environmental and socioeconomic effects in Indonesia and its neighbouring countries. Most of these fires are manmade, and can be traced back to land clearing activities of commercial oil palm plantations. This article questions why these companies have been able to burn with such impunity, even though using fire for land clearing is against Indonesian law. It argues that local and foreign plantation companies have cultivated strong patronage linkages with key patrons among the ruling elite. Hence, patrons are encouraged to protect their clients from the repercussions of their actions. This weakens the power of the state in terms of law enforcement, where national laws against the use of fire are thus rendered useless in the face of powerful economic interests. Well-connected companies therefore continue to use fire as a cost-efficient way to clear land while disregarding its serious environmental and socioeconomic implications.
... The intensification of informal networks during institutional transitions is predicted by our Proposition 2, which stresses the heavier reliance on informal constraints to combat potential opportunism and facilitate transactions when formal market-supporting institutions are underdeveloped. Outside China, the intensification of informal networks as a driver for firm strategies has been reported in Argentina (Guillen, 2000), Indonesia (Dieleman & Sachs, 2006), India (Kedia, Mukherjee, & Lahiri, 2006), and Russia (Puffer & McCarthy, 2007). Per Proposition 1, managers and firms behave rationally under these circumstances. ...
... The intensification of informal networks during institutional transitions is predicted by our Proposition 2, which stresses the heavier reliance on informal constraints to combat potential opportunism and facilitate transactions when formal market-supporting institutions are underdeveloped. Outside China, the intensification of informal networks as a driver for firm strategies has been reported in Argentina (Guillen, 2000), Indonesia (Dieleman & Sachs, 2006), India (Kedia, Mukherjee, & Lahiri, 2006), and Russia (Puffer & McCarthy, 2007). Per Proposition 1, managers and firms behave rationally under these circumstances. ...
This article identifies the emergence of the institution-based view as a third leading perspective in strategic management (the first two being the industry-based and resource-based views). We (a) review the roots of the institution-based view, (b) articulate its two core propositions, and (c) outline how this view contributes to the four fundamental questions in strategy. Overall, we suggest that the institution-based view represents the third leg of a strategy tripod, overcomes the long-standing criticisms of the industrybased and resource-based views ’ lack of attention to contexts, and contributes significant new insights as part of the broader intellectual movement centered on new institutionalism.
... First, we need to develop a more comprehensive understanding of the role of co-evolution in the growth and expansion of BG affiliates from EMs. While there is a growing body of literature on the co-evolution of environmental contexts and firm behavior (see for example, Hoskisson IMR 27,2 et al., 2000, Carney and Gedajlovic, 2002; Rodrigues and Child, 2003; Dieleman and Sachs;, 2006, 2008), we do not yet have a clear understanding of how this co-evolution might affect internationalization. Second, we need to develop a better understanding of how international involvement might affect the financial and market performance of EMMNCs. For instance, will the firm's performance, financial and otherwise, show a continuously increasing pattern, increasing then decreasing, an S-shaped, or some other pattern as the EM firm increasingly internationalizes? ...
Purpose
The purpose of this paper is to review the extant literature on the institutional, market‐centered, and the resource‐based perspectives on the internationalization of BGs in emerging markets; to suggest that business group affiliation is an important ingredient in the internationalization of emerging market MNCs; and to offer examples of internationalization from one emerging market, Turkey.
Design/methodology/approach
This is a critical literature review integrating two strands of literature, the institutional, market‐centered and resource‐based theories of internationalization and the OLI and the LLL models of emerging market multinationals' international expansion.
Findings
The theorizing indicates that an integrated theoretical approach should lead to a better understanding of emerging market business group affiliates' internationalization.
Research limitations/implications
As a literature integration paper, the paper is limited in its practical implications.
Originality/value
The paper is a critical literature review and is likely to lead to testable hypotheses about the internationalization of business group affiliates from emerging markets.
... In addition, the wide discretion afforded family managers allows many of these transactions to escape close internal or external review, which allows them to allocate resources quickly and discretely. For example, Indonesia's Salim Group, a second generation family firm and once Southeast Asia's largest diversified firm, prospered by brokering deals between Indonesian President Suharto's business interests and those of Japanese and western investors (Dieleman & Sachs 2006). Indeed, in Southeast Asia, family business groups have a long history of playing a central role in mediating foreign investment and the policy goals of industrializing states (Carney & Gedajlovic, 2002). ...
Why do family businesses exist? What factors explain their versatility, limitations and success within and across different industrial and geographic contexts? We develop a transaction-cost framework that addresses these questions. In doing so, we identify a class of asset we term generic non-tradables (GNTs), that are firm-specific, but generic in application. We reason that family firm governance provides relative advantages in developing, sustaining, and appropriating value from GNTs through combinations with other types of assets. We propose that these advantages as well as some concomitant disadvantages explain the versatility, limitations and success of family business enterprise.
... First, we need to develop a more comprehensive understanding of the role of co-evolution in the growth and expansion of BG affiliates from EMs. While there is a growing body of literature on the co-evolution of environmental contexts and firm behavior (see for example, Hoskisson IMR 27,2 et al., 2000, Carney and Gedajlovic, 2002; Rodrigues and Child, 2003; Dieleman and Sachs;, 2006, 2008), we do not yet have a clear understanding of how this co-evolution might affect internationalization. Second, we need to develop a better understanding of how international involvement might affect the financial and market performance of EMMNCs. For instance, will the firm's performance, financial and otherwise, show a continuously increasing pattern, increasing then decreasing, an S-shaped, or some other pattern as the EM firm increasingly internationalizes? ...
The recent expansion of emerging market multinationals into world markets has generated a rich literature. While this literature has addressed the potential motivations, behaviors, and strategic implications of these firms moves abroad, their possible role as facilitating agents in regional expansion has not been adequately explored. In this paper, we explore this question through a critical review of the literature and examples from Turkish multinationals. We also offer questions for future research.
... In economies with a better institutional infrastructure, the market-centered strategy relying on the resource-based logic of competitive advantage, which orients the firm toward the efficient enhancement of internal resources, is thought to be more effective. For example, Dieleman and Sachs' (2006) intensive case study of the Slim Group in Indonesia found that the group's strategy moved from the extreme of crony capitalism (the relationship-based model) to the existing Western norms for multinational business (the market-based model) as the institutional environment of Indonesia became more developed. ...
From the perspective of social exchange theory, we explore the downside of social networking. In particular, we discuss the From the perspective of social exchange theory, we explore the downside of social networking. In particular, we discuss the
impact of network properties on cronyism. We identify two types of network, clique and entrepreneurial, and two forms of competition, impact of network properties on cronyism. We identify two types of network, clique and entrepreneurial, and two forms of competition,
inter- and intra-network. We argue that network competition generally increases the likelihood of cronyism, and the effect inter- and intra-network. We argue that network competition generally increases the likelihood of cronyism, and the effect
of competition on cronyism is moderated by network type. We outline directions for future research and derive practical implications. of competition on cronyism is moderated by network type. We outline directions for future research and derive practical implications.
KeywordsCronyism-Social networks-Social exchange-Cliques-Inter-network competition KeywordsCronyism-Social networks-Social exchange-Cliques-Inter-network competition
... Soeharto became President in 1965, and in 1968 the government granted exclusive rights to import the cloves popularly used to flavor Indonesian cigarettes to two companies, one owned by Seoharto's brother and the other by Liem, which averaged annual net revenues of more than US$ 1 million from 1968 to 1980 (Tipton, 2008a). Although there is evidence that leading Chinese firms are altering their approach, including the Salim Group (Dieleman & Sachs, 2006), across the region Chinese firms have exploited such monopoly positions either explicitly created or implicitly sanctioned by government leaders. John Mathews defines " dragon multinationals " as Asian firms able to exploit linkage, leverage, and learning effects (Mathews, 2006). ...
This paper examines the structures of capitalism in Southeast Asia. Following the lead of Gordon Redding and others, it argues
that parallel to varieties of capitalism elsewhere, there are distinctive features to the Southeast Asian business system,
but that institutions play a relatively large role compared to firm specific resources or industry structures. Historically,
with the exception of Thailand all the countries in the region are former colonies. All including Thailand share a distinctive
style of nationalism, and partly as a result of this, all are governed by states that claim to be strong and lay wide claims
but whose capacities are low. Typical features of the region, particularly the roles of large business groups and the Chinese
minority, also can be interpreted as a result of this history. One of the outcomes of the analysis is an extension of the
varieties of capitalism approach along the dimensions of state capacity and state direction, and of the approach to the internationalizing
firm along the dimensions of dynamic capacity and control of subsidiaries. A further outcome is a questioning of the traditional
picture of indigenous Southeast Asian business people as lacking in entrepreneurial skills, or more broadly of Southeast Asian
nations as lacking in entrepreneurial values. Rather, the past history of these countries has resulted in a set of structures
that militate against successful entrepreneurial activity.
... Although we have sought to link the emergence of diversification discount with variables associated with institutional transitions, these are relatively simple measures that barely scratch the surface of institutional transitions. The actual mechanisms of how these changes impact firm strategies remain to be explored (Dieleman & Sachs, 2006;Peng & Zhou, 2005). Further, while we focus on the overall diversification premium/discount here, future work may want to explore the impact of institutional transitions on related versus unrelated diversification (Li, Ramaswamy, & Petitt, 2006). ...
Recent development of an institution-based theory of corporate diversification has uncovered a diversification premium in emerging economies, suggesting that some business group-affiliated companies may outperform competing firms not affiliated with business groups. Is the diversification premium found in emerging economies likely to hold over time? This article extends the institution-based theory by arguing that as institutional transitions unfold, diversification premium in emerging economies is likely to dissipate over time and eventually become a diversification discount. We empirically draw on a data set from South Korea between 1984 and 1996 involving 84 business groups and 751 group-affiliated and independent firms to substantiate this claim via a “chop shop” method. To the best of our knowledge, this represents the first study that documents the longitudinal process of how a diversification premium becomes a diversification discount during institutional transitions.
... On the one hand, if it is national culture that primarily drives strategic choices, the intense reliance on interpersonal relationships may last a long time or at least will not experience a noticeable decline as market reforms deepen, since culture changes relatively slowly (Hofstede, 2007). On the other hand, if it is institutional (under)development that shapes strategic choices, we will probably see a gradually reduced role of interpersonal relationships and a heavier reliance on market-based capabilities as formal market-supporting institutions are gradually implemented (Ahlstrom and Bruton, 2007;Dieleman and Sachs, 2006;White, 2000;Xu et al., 2006; Zhou and Peng, 2006;Zhou et al., 2003). Evidence supportive of the institution-based view, articulated in Peng (2003), is now emerging. ...
Leveraging the recent research interest in emerging economies, this Perspective paper argues that an institution-based view of international business (IB) strategy has emerged. It is positioned as one leg that helps sustain the “strategy tripod” (the other two legs consisting of the industry- and resource-based views). We then review four diverse areas of substantive research: (1) antidumping as entry barriers; (2) competing in and out of India; (3) growing the firm in China; and (4) governing the corporation in emerging economies. Overall, we argue that an institution-based view of IB strategy, in combination with industry- and resource-based views, will not only help sustain a strategy tripod, but also shed significant light on the most fundamental questions confronting IB, such as “What drives firm strategy and performance in IB?”Journal of International Business Studies (2008) 39, 920–936. doi:10.1057/palgrave.jibs.8400377
... ies reinforces the use of relational ties. Empirical evidence informing this issue is scarce and mixed. Consistent with notions of institutional change, Guthrie (2001) documents that many Chinese firms are now less likely to use informal, network-based practices and more likely to adopt economic strategies and practices that resemble foreign firms. Dieleman and Sachs's (2006) case analysis of an ethnic Chinese conglomerate in Asia indicates that over time its strategic decisions changed from a reliance on personal and political ties to a greater reliance on impersonal models, such as the adoption of international best practices. In contrast, Zhou et al. (2003), from their survey of 620 firms in 1999/ 2000, s ...
As business transactions become more complex in China – an increasingly market-driven economy – are managers more likely to employ relational ties or contracts? Consistent with the view that personal institutions govern transactions in China, our analysis of 361 buyer–supplier exchanges indicates that managers rely more on relational ties as asset specificity and uncertainty increase. We also find some support that impersonal institutions govern market transactions: as uncertainty increases, managers craft more customized contracts. Surprisingly, there is no association between contracts and asset specificity. These results hold for both local and foreign firms. Journal of International Business Studies (2008) 39, 526–534. doi:10.1057/palgrave.jibs.8400363
... Similarly, long serving Singapore Premier Lee Kwan Yew had little faith in the entrepreneurial and technological talents of native Singaporeans and under the aegis of the Economic Development Board he oversaw the creation of large government linked groupings to achieve developmental goals (Zutshi & Gibbons, 1998). In Indonesia, Suharto enlisted an elite group of about 20 Chinese entrepreneurs to build an industrial base (Dieleman & Sachs, 2006) and later helped several family members establish their own groups (Mursitama, 2006). Government leaders in Malaysia, Philippines, and Thailand each selected a small group of entrepreneurs to lead development efforts, provided them with credit, domestic monopolies, and protected them from foreign competition. ...
What does the future hold for Asian business groups? This paper discusses three rival hypotheses whose predictions for the
future of Asian business groups differ from the predictions of the prevailing institutional voids hypothesis. The latter is
a two stage model that posits that business groups first emerge to solve market failures for affiliated firms. Subsequently
government initiates the construction of a “soft market infrastructure” that plug institutional voids and so weakens the rationale
for group affiliation. Groups should then unravel and dissolve. Yet, business groups remain important in Asian countries that
have attained high levels of market development, which casts doubt on the institutional voids hypothesis. In this paper I
review three alternative hypotheses of business group development—life cycle, state-led industrialization, and crony capitalism
perspectives. A synthesis of these rival hypotheses suggests that Asian business groups are likely to persist in many possible
future scenarios.
... Business groups in Malaysia, Thailand, and Indonesia have not exhibited any coherent pattern of restructuring after the crisis. Rather, indigenous business groups that possessed connections with the ruling political powers have generally avoided losses and benefited from the crisis by acquiring failed businesses (Dieleman & Sachs, 2006). The conflict between indigenous people and ethnic Chinese has further distorted the restructuring process and aggravated cronyism and corruption. ...
Business groups played an important role in the economic development of East Asian countries. Yet business groups in East
Asia face an uncertain future. Following the Asian Crisis, foreign creditors and investors have demanded that business groups
have more transparent operations and stronger corporate governance. At the same time, as governments in East Asia have loosened
trade barriers, business groups have become subject to intense competition in domestic markets. This paper argues that business
groups can survive or even prosper by taking initiatives in corporate restructuring. This paper also highlights some areas
for further research on business groups in this region.
... With slight tongue in cheek, we can say that we have practiced what we preached, by considering both the product scope and geographic scope of the Special Issue simultaneously when selecting papers. In terms of product scope, we have included theoretical (Cuervo-Cazurra, 2006; Li, Ramaswamy, & Petitt, 2006), qualitative (Dieleman & Sachs, 2006 Issue. Some of them offer first-of-a-kind contributions, which push the frontier of our existing understanding. ...
This study examined several hypotheses regarding the location choice of foreign direct investment from newly industrialized economies (NIEs). Using a sample of 328 Taiwanese firms in the analysis, this study found that the firms' motivations had a significant impact on the choice of their investment location (developed countries vs. less developed countries), yet this impact was moderated by the capabilities that the firms possessed. The results suggest that both asset-exploitation and asset-seeking aspects of investments are predictive of the NIE firms' location choice of investment.© 2002 JIBS. Journal of International Business Studies (2002) 33, 403–421
... Yet, he also understood that technical and managerial competence were important, and gave his son the free reign to build up these capabilities. For two decades the firm managed to simultaneously build up the crony business model and pursue the son's strategic vision of a modern, more international, better structured and more professional company (Dieleman and Sachs, 2006). With the disappearance of the world of cronyism for which he built the company, the founder stepped back and the son was able to exploit the crisis to restructure the business and make it more adapted to emerging conditions. ...
We investigate whether large family groups in emerging economies can proactively change their environment. We use a coevolutionary approach, which accounts for the influence of context on the entrepreneur and for the freedom of the latter to modify it. We find that entrepreneurs can shape institutions to their advantage, illustrated by the Salim Group, which achieved growth by aligning with and influencing politicians, eventually 'morphing into an institution'. We unravel unique coevolutionary patterns, which we use to extend existing theories. Our first contribution is to initiate a new line of inquiry in coevolution theory, focusing on individual companies coevolving with institutions. Secondly, we document factors that increase and decrease strategic choice for family groups in emerging economies. Thirdly, we find that the Salim Group became part of the crony Suharto regime. The group became both an institutional entrepreneur and an entrepreneurial institution, demonstrating that companies and institutions are not necessarily mutually exclusive. Copyright (c) Blackwell Publishing Ltd 2008.
The main purpose of this chapter is to examine the performance implications of corporate political ties (CPT) that the business organizations establish with the government in the long run. Since the relevant literature mostly focuses on the outcome of these relations, they miss the process which creates the outcomes. Hence, there is no consensus over the performance implications of corporate political ties in the relevant literature. In the chapter, the author examines the CPT-performance relation by taking the process into the center of the study which is conducted in a state-dependent national business system. More specifically, the author examines how the Turkish organizations adapt their political ties in the face of changing political environment and what are the performance implications of this adaptation.
In the study of strategy, Porter focuses on industry structure. Barney focuses on firm resources. Peng’s third leg—institutions—is the focus of this chapter. Peng’s argument is that institutions play a critical role in strategy formulation. They are more than ‘background’ factors. This chapter examines the role of institutions and national cultures in strategy formulation, with particular reference to developed, developing, and transition societies. The central idea is that strategy cannot be divorced from institutions and cultures. As institutions and cultures change, strategies also need to change. Strategy models make sense only in the context of institutions and cultures. Strategy models developed in the West with different institutions and cultures may not apply to other countries whose institutions and cultures are different. The chapter reviews the meaning of institutions, the impact of institutions on strategy, and the nexus between culture and strategy. There is discussion on how business decision making in emerging and transition societies differs from the West because of differences in institutions. This has important implications for Western corporations engaged in international business. Their successful strategies in the West may be totally irrelevant to competing in emerging and transition countries. The implicit assumption that strategies are generic and apply everywhere is not supported by research. Countries matter. Emerging and transition societies are changing. This means businesses operating in these societies will also need to change their strategies. These and similar issues and challenges form the core of the discussion in this chapter.
The focus of the paper is on Principal–Principal (PP) conflicts which differ significantly from traditional Principal–Agent (PA) conflicts that dominate the corporate governance discourse in developed economies. In emerging economies, PP conflicts are the dominant form of governance conflicts. PP conflict is a term used to characterize the conflicts between controlling shareholders and minority shareholders. The genesis of this type of conflict is the weak institutional structure prevalent in the emerging economies that results in concentrated ownership in the form of family control and business group structure. Since PP conflicts are the result of completely different corporate dynamics, it requires remedies that differ considerably from the remedies of PA conflicts. This paper reviews the extant literature on PP conflicts with the aim to decipher its characteristics, institutional antecedents, and organizational consequences.
Family-managed firms take actions to protect their reputations. We theorize that one such action involves avoiding corporate political activity (CPA) that expose firms to social attack, especially when also invested in corporate social responsibility. Because large firms are frequent targets for social attack, the same sensitivity that encourages most family managers to avoid CPA encourages it among the largest as a buffer. Supportive analysis of Standard and Poor’s 500 firms shows that family-managed firms spend, on average, 86% less on CPA, even less when invested in substantive corporate social responsibility. The largest invest as much or more in CPA as nonfamily peers.
Corporate governance has advanced hugely in the last two decades and many governance best practices have emerged that focuses on measures companies should take in order to improve their governance. These suggested mechanisms are effective in developed markets because they are a remedy for problems that occur in those markets. But are these mechanisms also effective in emerging markets? By reviewing the literature, this paper critically discusses and compares the effectiveness of governance mechanisms (both internal and external) in emerging and developed markets and finds that while the classic mechanisms such as board structure and independence are not effective in emerging markets, there exist some alternative mechanisms such as external audit or dividend policy that are more effective.
Foreign managers often perceive cultural practices, such as gift giving and guanxi, as being unethical. This can leave them at a disadvantage when negotiating in China. This study describes a concept for the benefit of MNEs so they can leverage performance through acquiring insider status. The study suggests that foreign managers should aim to build a solid reputation to facilitate reciprocal exchange when doing business in China. Such reciprocity can help to establish affective ties to cement a relationship. Establishing affection can also lead to greater interpersonal trust and, subsequently, some degree of loyalty can then emerge as a mechanism for generating ethical cronyism and performance advantages.
We investigate how value chain governance can evolve in the transport biofuel sector beyond logistics and operations optimization, drawing on cases of eighteen manufacturers in four Belt and Road countries. We find that key motivations for vertical integration include control of strategic factors such as security of supply and gaining access to the retail market, subject to inter-institutional and intra-organizational barriers. We contribute to a theory of governance mode selection by suggesting plural governance mode offers a key strategic choice under institutional constraints. In BRI countries, plural mode could be less disruptive when integrating value chains.
In this chapter, we investigate characteristics of entrepreneurial family firms across three East Asian countries (Korea, China, and Japan), and suggest that these firms exhibit heterogeneous characteristics depending on the unique combination of the formal and informal institutional constraints surrounding each country. Further, we assess the effects of Confucianism on the role of the family in the process of their firm creation, and identify hierarchical relationships, paternalism, seniority, and preservation of group harmony as common characteristics of entrepreneurial family firms across the three countries. Several management issues they face are discussed.
This paper investigates how companies manage risk associated with political ties in the context of the 'return of state capitalism' in an emerging economy. We show that existing studies of firms' copying strategies under autocratic regimes are of limited relevance in the context of Hungary, because they lack a sophisticated, theoretically underpinned conceptualisation of 'the state'. We develop a more fine-grained analysis of the role of the state in emerging markets and show that the type of 'state capitalism' that is emerging in Hungary is characterised by the fusion of a governing elite's political power and economic interests. We show that such a situation poses unique challenges to companies with implications for existing theories of companies' 'buffering strategies'. Based on interviews with business leaders in Hungary, we identify two coping strategies: responsiveness –whereby firms accommodate state pressures by giving in to them – and a non-responsive strategy of 'dormancy', which consists in firms putting forward-looking activities on hold and focussing on survival. We discuss implications for theories of state capitalism. 2
The private sector has an important role in poverty reduction in Asia. The Private Sector's Role in Poverty Reduction in Asia argues that the best way to create sustainable projects is to create win-win situations where both private companies and individuals working their way out of poverty can benefit. The book provides a practical guide for managers and individuals working in the private sector in the least developed areas of Asia to help make a difference to the lives of others. The book's opening chapter considers the private sector's role in poverty reduction in Asia and following chapters discuss the variable nature of development, developing economy environments in Asia and business practices and strategies in these economies. A number of Asian economies are considered in turn, including: China; Vietnam; Thailand; Cambodia; Laos PDR; Southeast Asian countries; South Asian countries; Central Asian countries; and the Himalayas. The final chapter looks at creating sustainable win-win situations.
Marketing outsourcing has been viewed as a key strategy of a firm to increase marketing performance by using an external professional supplier as a partner. In the existent literature, the relationship between strategic marketing outsourcing and performance remains a problem. Hence, the purpose of this paper is to propose the conceptual model and examine the relationships between determinants of strategic marketing outsourcing and marketing performance by supplementing the moderating effect of relational marketing capability. The study was conducted by using a postal questionnaire sent to tourism businesses in Thailand. Those questionnaires asked marketing executives to be the key informants. The results indicate that focusing on collaboration with other partners is related to mainly customer orientations, which are customer value increase and customer response effectiveness, as well as marketing practice efficiency. These also lead to greater marketing performance. With relational marketing capability as a moderator, it influences importantly about whether to choose strategic marketing outsourcing or not.
Despite the efforts of Southeast Asian governments and of ASEAN, transboundary haze continues to be a major environmental problem in Southeast Asia. This book demonstrates that the issue is complex, and explains why efforts to solve the problem in purely political terms are ineffective, and likely to continue to be ineffective. The book shows how state-led, state-incentivised agribusiness development lies at the heart of the problem, leading to a large rise in palm oil production, with extensive clearing of forests, leading to deliberate or accidental fires and the resulting haze. Moreover, although the forest clearing is occurring in Indonesia, many of the companies involved are Malaysian and Singaporean; and, further, many of these companies have close relationships with the politicians and officials responsible for addressing the problem and who thereby have a conflict of interest. The author concludes by discussing the huge difficulties involved in overturning this system of 'patronage politics'.
Interfirm contractual relations form an essential part of firms' survival. Such relations will likely differ across markets due to country-specific factors. Despite this understanding, there are few studies that examine interfirm contractual relations across markets. This article examines determinants of contractual completeness in two heterogeneous emerging markets (Tanzania and Poland). The terms “advanced” (Poland) and “less advanced” (Tanzania) are used to distinguish these two emerging markets and in the development of the hypotheses. The findings indicate that the dimensions involving weaker relational ties among firms have a stronger positive effect on contractual completeness in the relatively advanced emerging market than in the less advanced one, while stronger relational dimensions had a stronger positive effect in the less advanced emerging market.
Purpose
The purpose of this paper is to study the migration of the Indian diaspora to Canada and the USA and its role in fostering trade and investment between them using its transnational social networks.
Design/methodology/approach
This study was based on interviews with 25 Indian immigrants, 13 in Canada and 12 in the USA.
Findings
The social networks that immigrants had in both their country of residence (COR) and country of origin (COO) act as conduits of trade and investment between the two. The Indian diaspora further facilitates economic engagement between the COO and COR by running cross‐border businesses, introducing Indian products and brands in the COR, introducing the Indian culture and helping non‐Indians to invest in India. Within the COO, the diaspora's social networks often helped Indians in India connect with markets, suppliers and potential business partners in the COR.
Research limitations/implications
The sample size was 25 people and was restricted to managers, executives and entrepreneurs of Indian origin, since it was assumed that these people are the most likely to drive trade and investment between the COO and COR.
Practical implications
For policy makers in COOs, the paper stresses the importance of maintaining social and economic ties to the diaspora, who can often bring important trade and investment related benefits to the COO. For CORs, the paper reveals the importance of utilizing the transnational networks that the diaspora possess, that can be beneficial for the COR companies in entering new markets. Leveraging both the human and social capital of the diaspora in a mutually beneficial way is one of the biggest challenges for policy makers in both the COO and the COR.
Social implications
The paper shows that within the COR, the local Indian community provides social and moral, rather than financial support to newly arrived Indian immigrants.
Originality/value
The paper explains the linkage between diasporas, trade and migration by focusing on the reasons for diaspora immigration, the social networks that the diaspora has, and the diaspora activities in the COR. It contributes to the literature on social networks by pointing out the importance of the diaspora's transnational social networks in both the COR and COO in driving trade and investment between them. It also adds to the brain circulation literature through its finding that pull factors, rather than push factors, were responsible for the vast majority of Indian immigration to the USA and Canada, and that by making diaspora‐friendly policies, brain circulation will be made easier, and this can help both the COO and COR in the long run.
Recent evidence has linked illegal peat and forest fires in Indonesia to commercial oil palm plantations. Fire is the most cost‐efficient way to clear land for planting, but these fires release smoke causing transboundary haze pollution. The countries worst affected by the haze are neighbouring Malaysia and Singapore. Malaysian and Singaporean investors control more than two‐thirds of the Indonesian oil palm plantation sector and they have been implicated in the fires alongside local plantations. Using information obtained from interviews with individuals linked to the sector, this paper aims to explain why these companies continue to burn despite the dire consequences of the haze. It identifies patronage politics as a common business culture in Southeast Asia, and argues that because these Malaysian and Singaporean investors are already familiar with patronage practices at home, they have easily inserted themselves into existing patronage networks in Indonesia. Hence, these companies enjoy the protection of their Indonesian patrons during their operations. Furthermore, in a business atmosphere defined by patronage politics, clients are largely motivated by material gain. This explains why Malaysian and Singaporean investors continue to clear land by fire in the interests of cost‐efficiency, despite their home countries suffering the worst effects of haze.
Recent evidence has linked illegal peat and forest fires in Indonesia to commercial oil palm plantations. Fire is the most cost-efficient way to clear land for planting, but these fires release smoke causing transboundary haze pollution. The countries worst affected by the haze are neighbouring Malaysia and Singapore. Malaysian and Singaporean investors control more than two-thirds of the Indonesian oil palm plantation sector and they have been implicated in the fires alongside local plantations. Using information obtained from interviews with individuals linked to the sector, this paper aims to explain why these companies continue to burn despite the dire consequences of the haze. It identifies patronage politics as a common business culture in Southeast Asia, and argues that because these Malaysian and Singaporean investors are already familiar with patronage practices at home, they have easily inserted themselves into existing patronage networks in Indonesia. Hence, these companies enjoy the protection of their Indonesian patrons during their operations. Furthermore, in a business atmosphere defined by patronage politics, clients are largely motivated by material gain. This explains why Malaysian and Singaporean investors continue to clear land by fire in the interests of cost-efficiency, despite their home countries suffering the worst effects of haze.
The study focuses on an international firm's relational capabilities that mediate to effectively facilitate organizational collaborations. We assess how the influence that arises from an international firm's cooperative strategies including market futures, trust and business network may affect the exploitation of the firm's relational capabilities and its impact on performance, using survey data from 320 firms. This study empirically tests how the effects of an international firm's market futures, trust and business network influence the exploitation of the firm's relational capabilities. Results of structural equation modeling do indicate that trust and business network influence the exploitation of a firm's relational capabilities. This study confirms that the leveraging of an international firm's relational capability within its focal trust and business networking does achieve superior performance.
Many theoreticians search for balance or optimal mix so as to cope with the many 'either-or' dilemmas in organizations. This paper offers some early evidence that a more useful response may lie in oscillation between the opposing poles of dilemmas and that these oscillatory patterns are more effi-caciously adaptive if they are irregular. It also argues that the opposing poles of a particular dilemma, and the entire set of such poles stemming from multiple concurrent dilemmas at various levels and subdivisions of an organization, form a complex system of coevolving causalities. The paper is based on three extensive and original field studies, involving a Europe-based multinational, an Indonesian conglomerate, and ten multinational Swiss and German-based companies.
This thesis involves three main issues: (1) socioeconomic structures of the clusters, (2) the role of actors in local business associations, and (3) the interplay between the two. The research consisted of fieldwork conducted from July 2007 to July 2008. This included in-depth interviews with participating local people (retailers, manufacturers, subcontractors, workers, and suppliers) and local government, a survey of 210 firms (local retailers, manufacturers, and retailers who have their own workshops) using a questionnaire, and participation and observation of meetings of local business associations and rotating saving groups. Ismalina found the main conclusion about the dynamics of the studied Indonesian clusters: The simultaneity of market relations and social embeddedness among participating firms emerges in the three studied clusters and constitutes socioeconomic structures of the clusters. Socioeconomic structures of the clusters not only are supported by individual cooperation but also originate from collective actions that occur in local business associations. Collective action is not simply a mode of harmonizing interests but rather is employed to mitigate conflicts among local people. Some local actors in local business associations have a significant role in creating a peaceful, fair, and healthy business environment. This is part of the way they facilitate socioeconomic structures of a cluster and how they support the advancement of the dynamic process. Thus, the actors use local business associations to facilitate the collective learning of the members.
This research attempts to extend the discussion of business groups in emerging economies by treating business groups as a form of interorganizational network that generates relational rents among affiliated firms by creating technological and managerial capabilities. Based on the relational view, this research investigates whether value created by business groups depends upon sharing, combining, and exchanging unique and specific resources or assets among affiliated firms. Results show that technological capabilities contribute to create relational rents in terms of affiliated firms’ investment in R&D and human capital. Managerial capabilities also contributed to generating relational rents through investment in managerial knowledge acquisition for affiliated firms without R&D units and in training for affiliated firms with R&D units. However, learning by exporting and learning from imported input do not yield relational rents within business groups. Overall, these findings reveal that business groups as interorganizational networks are contingent on their internal, unique, and specific capabilities, as social capital theory argues.
A central proposition in organization theory is that discrete organizational forms are matched to environmental conditions, market strategies, or exchange conditions. This paper develops a contrary theoretical proposition. We argue that efficiency may dictate modulating between discrete governance modes (i.e., structural modulation) in response to a stable set of exchange conditions. If governance choices are discrete, as much of organization theory argues, then the consequent steady-state functionality delivered by these organizational forms is itself discrete. However, if the desired functionality lies in-between the steady-state functionality delivered by two discrete choices, then efficiency gains may be available by modulating between modes. We develop an analytical model of structural modulation and examine factors that influence when modulation is ef- ficiency enhancing, as well as the optimal rate of modulation. We conclude that under certain conditions structural modulation is efficiency enhancing. Further, contrary to theories that highlight the potentially destructive consequences of inertia on organizational survival, we identify important efficiencyyielding benefits of inertia.
This study examines the relationship between the nature of the Chinese Family Business (CFB) and the business strategies adopted, in the setting of the Hong Kong watch industry. The nature of the CFB is conceptualized and measured as a set of sub-dimensions, represented by continuous variables. It is hypothesized that 'CFB-ness' is positively associated with 'traditional' business strategies, but inhibitive of 'upgrading'. The results show that the hypotheses are partially supported. While the findings support the view that firms' strategic choices are constrained by material and ideational influences in their environment, only a small proportion of the variation in business strategies is accounted for by 'CFB-ness', leaving ample room for human agency. Overall, the results support a 'middle view' between the deterministic and voluntaristic perspectives, whereby firms exercise strategic choice within an environment that predisposes, but does not fix, their behaviour.
... because they are the objects of any exchange; enforcement of contracts, because the exchange must be meaningful and borrowing possible; information, because the parties to the exchange must agree on its content. It is the role of governmental institutions, be it governments themselves, NGO's or international institutions like the World Bank, to help securing the underpinnings of markets. Everybody, including economists, knows that guaranteeing these conditions fully is always very difficult. But in some situations, or in some markets, it is more difficult than usual. A large volume of research has documented the importance of personal relationships in economic activity in developing countries (see for example the papers collected in Aoki and Hayami, forthcoming, or the examples discussed in the World Development Reports, 1997, and 1998-99). When formal arrangements are unreliable, difficult to access, or too costly, personal relationships provide valuable channels of information and enforcement, based as they are on familiarity, trust, and, if necessary, the possibility of punishing a cheating party by excluding him from the flow of regular transactions. Personal contacts are essential even in exchanges of homogenous goods: the survey in Fafchamps and Minten (forthcoming), for example, documents
Researchers and managers have assumed that the overseas Chinese business networks do not conduct strategic planning. Summarizes, in general, the literature on the overseas Chinese networks’ decision-making style and compares it with perspectives from established schools of strategic planning. Specifically enhances understanding of the overseas Chinese networks’ business style, generates awareness of the style’s strengths and weaknesses, and explores strategic implications for foreign multinational corporations that enter into alliances with, or compete against the overseas Chinese networks.
Social capital is an important concept for multinational firms. Firms operating in global markets rarely have adequate resources to compete effectively in global markets; they access the needed resources through formal and informal relationships with other firms. The cultures in Asian countries have emphasized relationships much more strongly than Western firms. Thus, relational capital, based on guanxi (China), kankei (Japan) and inmak (Korea), provides the framework for business dealings in many Asian countries. As a result, the social capital of many Asian firms gives them a potential competitive advantage in global markets. Western firms must develop social capital and learn to manage relational networks to gain and sustain a competitive advantage in global markets. Western firms can learn how to develop and manage social capital from Asian firms. Alternatively, social capital has some disadvantages. Firms are limited by their networks and thus experience opportunity costs and path dependence. Additionally, while Asian firms often have strong network ties in their domestic markets, they have to develop many more ties globally to operate effectively in global markets. As a result, the development and management of social capital has become of critical importance for competitive advantage in global markets.
This paper develops a model that incorporates personal and business networks, firm action, and performance based on the existing literature. It explores the links between information and entrepreneurial-type action, and action and performance. Survey data was collected from a sample of 100 manufacturing firms in Thailand. Results show that entrepreneurs value the information they receive from their networks. However, there is little statistical support for tangible links between personal or business networks and entrepreneurial action and performance, or between action and performance.
Given the paucity of corporate governance research on Third World multinational enterprises (MNEs), we provide an exploratory description of the patterns of interlocking directorates as corporate governance in Thailand-based MNEs in this study. Specifically, we raise a key question: Do the interlocks network attributes and individual board directors of MNEs differ systematically from those of non-MNEs? Drawing upon resource dependence theory, we hypothesize that, compared with non-MNEs, MNEs in Thailand (1) have more densely connected interlocks, (2) occupy more central locations in the interlocks network, (3) have more ethnic Chinese directors, and (4) appoint more military directors. Data from the top 200 listed firms in Thailand support three of the four hypotheses, and suggest a number of implications and future research directions.
This book addresses ethnic Chinese issues, as well as ethnic Chinese relations with China and with indigenous groups in the region. © 1997 Institute of Southeast Asian Studies, Singapore. All rights reserved.
Financial experts in the West suggest that diversified business groups-or affiliated companies under one parent-in emerging markets should break up. Dismantling these mammoth conglomerates could reduce the debt and inefficiencies that some of them incur; that logic is based on the success that companies in advanced economies had when they unbundled their assets in the 1980s. But the authors argue that breaking up business groups such as the Korean chaebol and India's Tata Group is premature. Emerging economies lack a soft infrastructure-the banks, business schools, corporate governance processes, and so on, that are the foundation of economic growth. And building such an infrastructure takes time. Many business groups in emerging markets make up for the absence or weakness of market intermediaries by filling in themselves. For instance, they're venture capitalists when they use funds from one business group affiliate to fund a new one. They're labor market substitutes when business-group headquarters creates management training programs based on the knowledge and experience of managers across several business affiliates. Instead of breaking up the conglomerates now, governments should start the long-term development of market institutions for finance, labor, and goods and services. In the meantime, business groups should strive to improve the way they substitute for those market institutions. The authors suggest several Western business tools and models that business groups can use to boost their role as market intermediaries and to prepare for the eventual development of those institutions.
How do organizations make strategic choices during the time of fundamental institutional transitions such as those sweeping numerous emerging economies? To answer this question, a two-phase model of institutional transitions is developed in this article. I focus on the longitudinal process to move from a relationship-based, personalized transaction structure calling for a network-centered strategy to a rule-based. Impersonal exchange regime suggesting a market-centered strategy. I then identify the points of inflection; predict strategic choices for incumbent, entrepreneurial, and foreign firms; and delineate their performance implications.
Organizations evolve through periods of incremental or evolutionary change punctuated by discontinuous or revolutionary change. The challenge for managers is to adapt the culture and strategy of their organizations to its current environment, but to do so in a way that does not undermine its ability to adjust to radical changes in that environment. They must, in other words, create an ambidextrous organization—one capable of simultaneously pursuing both incremental and discontinuous innovation.
Emerging economies are low-income, rapid-growth countries using economic liberalization as their primary engine of growth. They fall into two groups: developing countries in Asia, Latin America, Africa, and the Middle East and transition economies in the former Soviet Union and China. Private and public enterprises have had to develop unique strategies to cope with the broad scope and rapidity of economic and political change in emerging economies, This Special Research Forum on Emerging Economies examines strategy formulation and implementation by private and public enterprises in several different regional settings and from three primary theoretical. perspectives: institutional theory, transaction cost economics, and the resource-based view of the firm. In this introduction, we show how different theoretical perspectives can provide useful insights into enterprise strategies in emerging economies. We discuss the special methodological as well as empirical challenges associated with doing research in emerging economies. Finally, we briefly summarize the individual contributions of the works included in our special research forum.
"What determines the scope of the firm?" is one of the most fundamental questions in strategic management. We argue that, in addition to product relatedness, a focus on institutional relatedness - defined as an organization's informal linkages with dominant institutions that confer resources and legitimacy - helps answer this question. We address this question both longitudinally (firms in developed and emerging economies over time) and cross-sectionally (developed versus emerging economies), thus contributing to an institution-based theory of corporate diversification.
Globalisation is often presumed to be an economically, socially and culturally homogenising force. The deterioration of capitalism's major rival in the early 1990s has paved the way for a truly global economy in which all participants increasingly operate under the general logic of capitalism-that is, a market-orientated system of production and exchange, private ownership and a flexible labour market predicated upon self-interest. Yet, while the pressures of globalisation are obviously formidable and increasingly felt by all, economic societies remain diverse and have responded to these pressures in unique ways. This article makes its case for the continued diversity of capitalism by emphasising the unique mode of economic organisation that has emerged in Southeast Asia; one rooted in the demands of globalisation as well as in the cultural foundations of the Overseas Chinese. The evolution of ethnic-Chinese business networks, which define Southeast Asia's political economy, constitutes a unique reaction to the pressures of globalisation and has laid the basis for a distinct articulation of capitalism in the region.
This article uses data from a field study of five large U.S. restaurant chains to model how chains use a plural form - simultaneous use of company and franchise units - to maintain uniformity and achieve systemwide adaptation to changing markets. From interview and observational data, I identify organizational structure, control systems, career paths, and strategy-making processes as four means through which the combination of company and franchise units helps chains achieve their objectives. The paper shows how the control and innovation processes provided by this plural form ameliorate some of the weaknesses and leverage some of the strengths of the company and franchise arrangements, enhancing the performance of the chain overall.
Highlighting an important facet of diversity among organizations operating in different institutional environments, this article presents a model of the growth strategy of the firm in planned economies in transition such as Eastern Europe, the former Soviet republics, and China. Focusing on the stylized state-owned enterprises, we explore the interaction between institutions and organizations in these countries. Given the institutional constraints, neither generic expansion nor acquisitions, two traditional strategies for growth found in the West, are viable for firms in these countries. Instead, firms settle on a network-based strategy of growth, building on personal trust and informal agreements among managers. The institutional environment that leads to this unique strategy of growth is examined, and boundary conditions, limitations, and implications of this model are discussed.
Research on multinational corporations (MNCs) shows that they have tried various structural solutions to solve the dilemma of trying to “balance” global control and efficiency with local country-specific sensitivity, autonomy, and innovation, with the Transnational form preferred. Failings of the strategy-structure sequence lend credence to the emerging strategy-process perspective. To date, the best lesson for MNC strategy-process concerns pertaining to the global vs. country dilemma comes from March's classic paper on “balancing” exploitation vs. exploration. 21st century MNCs exist in a more rapidly changing world, however, where static “balance” solutions may be insufficient. The tradition of “circular organizing” is one alternative to the failing “balance” solution; it offers a dynamic strategy-process approach to MNC management. Another is Dupuy's concept of “tangled hierarchies” where top-down and bottom-up influence forces are interwoven such that global exploitation or country-specific exploration dominates in timely fashion. It calls for clearly defined control and autonomy regimes, with space given for emergent rules governing the rotation rate. Key questions are: What is the optimal rate at which they should rotate supremacy, and how to get this to happen and persist? Since normal quantitative methods can’t track complex, nonlinear, emergent phenomena, an in-depth longitudinal case analysis was conducted of a global MNC in the cosmetics industry, as it progressed through its early years of formation. Our case covers twelve years, during which the MNC goes through several kinds of tangled hierarchies. The dynamics in our case are rich enough to illustrate many aspects of the “tangled hierarchy” approach, while also offering new clues about oscillation rates. A number of implications for managers are discussed. Principal among these is the “edge of chaos” idea, in which managers have to avoid too-fast or too-slow oscillation rates. Very fast rates can degenerate into chaos and then collapse into the exploitation or exploration “traps.” Firms also fall into the traps simply because managers don’t understand or can’t tolerate the idea of oscillation dynamics.
A proposed theoretical framework for the study of multinationality and performance includes both benefits and costs of geographic expansion over different phases of internationalization. Data on 1,489 Japanese firms over 12 years show a consistent horizontal X S-shaped X relationship between multinationality and performance. Further, firms investing more heavily in intangible assets, such as technology and advertising, achieved greater profitability gains from growth in foreign direct investment. Our framework and findings highlight complexity and temporal dynamics.
Examines the correlation between the exploration of new possibilities and the exploitation of old certainties in organizational learning. Also discusses the difficulty in balancing resource management between gaining new information about alternatives to improve future returns (i.e., exploration) and using information currently available to improve present returns (i.e., exploitation). Two models which evaluate the formation and use of knowledge in organizations are developed. The first is a model of mutual learning in a closed system having fixed organizational membership and stability. The second is a model which considers the ways in which competitive advantage is affected by knowledge accumulation. The analysis indicates that the choice to rapidly develop exploitation over exploration might be effective in the short term, but is potentially detrimental to the firm in the long term. (SFL)
Why did corruption and cronyism impede growth in some Asian countries but not in others? Building upon theoretical advances in the fields of rent-seeking, transaction costs, and the new institutional economics, this study finds that if there is a balance of power among a small and stable number of government and business actors, cronyism can actually reduce transaction costs and minimize deadweight losses; while either too few or too many actors leads to bandwagoning politics that increases deadweight losses from corruption. By examining corruption and cronyism through the lens of transaction costs, and showing why a particular set of government-business relations- although corrupt - also lowered transaction costs and made investment more credible while another set of relations did not, this study provides the outlines of a story that can both explain one aspect of corruption and also yields a theoretically-grounded causal mechanism that lets us distinguish between types of corruption.
This paper examines the relationships between geographic scope, product diversification and the corporate performance of Japanese multinational enterprises. The model developed and tested in this paper extends research on the geographic scope-performance relationship by exploring both the antecedents and consequences of geographic scope. We test our research model with data on the corporate performance of 399 Japanese manufacturing firms. The path analytic (Partial Least Squares (PLS)) approach taken in this study emphasizes the integrated nature of these relationships and points to the different performance outcomes as a firm undertakes investments in new product areas, in proprietary assets and in international markets. We find performance to be higher in more multinational firms. That is, geographic scope and proprietary assets, particularly in highly product diversified firms in Japan, has strong positive associations with the performance of Japanese firms. We find that geographic scope is positively related to firm profitability, even when controlling for the competing effect of the possession of proprietary assets. This finding demonstrates that expansion into new geographic markets was an effective strategy for improving the performance of Japanese firms in the 1990s.
The late twentieth century has witnessed the establishment of new forms of capitalism in East Asia as well as new market economies in Eastern Europe. Despite the growth of international investment and capital flows, these distinctive business systems remain different from each other and from those already developed in Europe and the Americas. This continued diversity of capitalism results from, and is reproduced by, significant differences in societal institutions and agencies such as the state, capital and labour markets, and dominant beliefs about trust, loyalty, and authority. This book presents the comparative business systems framework for describing and explaining the major differences in economic organization between market economies in the late twentieth century. This framework identifies the critical variations in coordination and control systems across forms of industrial capitalism, and shows how these are connected to major differences in their institutional contexts. Six major types of business system are identified and linked to different institutional arrangements. Significant differences in post-war East Asian business systems and the ways in which these are changing in the 1990s are analysed within this framework, which is also extended to compare the path-dependent nature of the new capitalisms emerging in Eastern Europe.
This review and introduction to the Special Issue on 'Strategy Research in Emerging Economies' considers the nature of theoretical contributions thus far on strategy in emerging economies. We classify the research through four strategic options: (1) firms from developed economies entering emerging economies; (2) domestic firms competing within emerging economies; (3) firms from emerging economies entering other emerging economies; and (4) firms from emerging economies entering developed economies. Among the four perspectives examined (institutional theory, transaction cost theory, resource-based theory, and agency theory), the most dominant seems to be institutional theory. Most existing studies that make a contribution blend institutional theory with one of the other three perspectives, including seven out of the eight papers included in this Special Issue. We suggest a future research agenda based around the four strategies and four theoretical perspectives. Given the relative emphasis of research so far on the first and second strategic options, we believe that there is growing scope for research that addresses the third and fourth. Copyright Blackwell Publishing Ltd 2005.
This article focuses on a key question: Why do strategies of firms from different countries differ? Drawing from recent research on business strategies in Asian organizations, this article outlines the emergence of an institution-based view of business strategy which sheds light on why firms differ, reviews four streams of research in a broad range of countries, and critiques and extends some of the current work by suggesting a number of future research directions. Keywords: institution, business strategy, Asia This article focuses on a key question: Why do strategies of firms from different countries and regions differ? This is the very first question among the five most fundamental questions in strategic management raised by Rumelt, Schendel and Teece (1994:564). 1 Since the diversity of firm strategies around the world can arise as the result of many possible forces internal or external to the organization, this question engenders a wide variety of disparate answers from economists (Nelson, 1991) and sociologists (Carroll, 1993). Thus far, strategy researchers have primarily focused on industry conditions (Porter, 1980) and firm resources (Barney, 1991) as drivers of firm differences, leading to competition- and resource-based