Pro-market reforms and developing country multinational corporations
Corresponding Author
Luis Alfonso Dau
International Business and Strategy Group, Northeastern University, Boston, Massachusetts, U.S.A.
Luis Alfonso Dau, International Business and Strategy Group, Northeastern University, 309 Hayden Hall, 360 Huntington Ave., Boston, MA 02115, U.S.A. E-mail: [email protected]Search for more papers by this authorCorresponding Author
Luis Alfonso Dau
International Business and Strategy Group, Northeastern University, Boston, Massachusetts, U.S.A.
Luis Alfonso Dau, International Business and Strategy Group, Northeastern University, 309 Hayden Hall, 360 Huntington Ave., Boston, MA 02115, U.S.A. E-mail: [email protected]Search for more papers by this authorAbstract
Building on the institution-based view of strategy, I study the impact of pro-market reforms on developing country firm multinationality. I propose that reforms increase multinationality by reducing institutional imperfections and increasing domestic competition, thus inducing firms to expand internationally. However, I argue the effect is higher for private firms than state firms because the former are compelled to be more responsive to institutional changes and opportunities in order to survive. Three-level RCM Poisson analyses of a panel of the largest firms in Latin America for the period 1989 to 2009 provide robust support for the arguments.
REFERENCES
- Aiken LS, West SG. 1991. Multiple Regression: Testing and Interpreting Interactions. SAGE Publications: London, U.K.
- Amann E, Nixson FI. 1999. Globalisation and competitiveness of the Brazilian steel industry: 1988–97. Journal of Development Studies 35(6): 59–88.
- Anand J, Brenes ER, Karnani E, Rodriquez A. 2006. Strategic responses to economic liberalization in emerging economies: lessons from experience. Journal of Business Research 59: 365–371.
- Appiah-Adu K. 1999. The impact of economic reform on business performance: a study of foreign and domestic firms in Ghana. International Business Review 8: 463–486.
10.1016/S0969-5931(99)00017-7 Google Scholar
- Ayyagari M, Dau LA, Spencer J. 2009. The strategic response of business group affiliates in emerging markets to increased inward FDI. In Academy of Management Meeting: Best Paper Proceedings, GT Solomon (ed). Academy of Management: Briarcliff Manor, NY.
- Bevan A, Estrin S, Meyer K. 2004. Foreign investment location and institutional development in transition economies. International Business Review 13(1): 43–64.
10.1016/j.ibusrev.2003.05.005 Google Scholar
- Bhagwati J. 2004. In Defense of Globalization. Oxford University Press: New York.
- Bliese PD, Ployhart RE. 2002. Growth modeling using random coefficient models: model building, testing, and illustrations. Organizational Research Methods 5(4): 362–387.
- Blomstrom M. 1986. Foreign investment and productive efficiency: the case of Mexico. Journal of Industrial Economics 35(1): 97–110.
- Booth L, Aivazian V, Demirguc-Kunt A, Maksimovic V. 2001. Capital structures in developing countries. Journal of Finance 56(1): 87–130.
- Boycko M, Shleifer A, Vishny RW. 1996. A theory of privatization. The Economic Journal 106(435): 309–319.
- Buhner R. 1987. Assessing international diversification of West German corporations. Strategic Management Journal 8(1): 25–37.
- AJ Cigler, BA Loomis (eds). 2006. Interest Group Politics ( 7th edn). Congressional Quarterly Press: Washington, D.C.
- Collins JM. 1990. A market performance comparison of U.S. firms active in domestic, developed, and developing countries. Journal of International Business Studies 21(2): 271–287.
- Cuervo-Cazurra A. 2007. Sequence of value-added activities in the internationalization of developing country MNEs. Journal of International Management 13: 258–277.
- Cuervo-Cazurra A. 2008. The internationalization of developing country MNEs: the case of Multilatinas. Journal of International Management 14: 138–154.
- Cuervo-Cazurra A, Dau LA. 2009a. Structural reform and firm exports. Management International Review 49: 479–507.
- Cuervo-Cazurra A, Dau LA. 2009b. Structural reform and firm profitability in developing countries. Academy Of Management Journal 52(6): 1348–1368.
- Cuervo-Cazurra A, Dau LA. 2009c. Multinationalization in response to reforms. In Academy of Management Meeting: Best Paper Proceedings, GT Solomon (ed). Academy of Management: Briarcliff Manor, NY.
- Cuervo-Cazurra A, Genc M. 2008. Transforming disadvantages into advantages: developing-country MNEs in the least developed countries. Journal of International Business Studies 39: 957–979.
- Cuervo-Cazurra A, Maloney MM, Manrakhan S. 2007. Causes of the difficulties in internationalization. Journal of International Business Studies 38(5): 709–725.
- Daniels JD, Bracker J. 1989. Profit performance: do foreign operations make a difference? Management International Review 29(1): 46–56.
- Dau LA. 2011. Reforms, multinationalization, and profitability. In Academy of Management Meeting: Best Paper Proceedings, L Toombs (ed). Academy of Management: Briarcliff Manor, NY.
- Dawar N, Frost T. 1999. Competing with giants: survival strategies for local companies in emerging markets. Harvard Business Review 77(2): 119–129.
- del Sol P, Kogan J. 2007. Regional competitive advantage based on pioneering economic reforms: the case of Chilean FDI. Journal of International Business Studies 38(6): 901–927.
- Demsetz H. 1973. Industry structure, market rivalry, and public policy. Journal of Law and Economics 16: 1–9.
- Dixit A, Grossman GM, Helpman E. 1997. Common agency and coordination: general theory and application to government policy making. Journal of Political Economy 105: 752–769.
- Djankov S, La Porta R, Lopez-de-Silanes F, Shleifer A. 2002. The regulation of entry. Quarterly Journal of Economics 117(1): 1–37.
- Domínguez LV, Brenes ER. 1997. The internationalization of Latin American enterprises and market liberalization in the Americas: a vital linkage. Journal of Business Research 38(1): 3–16.
- Dunning JH. 1981. Explaining the international direct investment position of countries: toward a dynamic or developmental approach. Weltwirtschaftliches Archiv 117(1): 30–64.
- Dunning JH. 1986. The investment development cycle revisited. Weltwirtschaftliches Archiv 122(4): 667–676.
- Edwards S. 1993. Openness, trade liberalization, and growth in developing countries. Journal of Economic Literature 31(3): 1358–1393.
- Errunza VR, Senbet LW. 1981. The effects of international operations on the market value of the firm: theory and evidence. International Finance 36(2): 401–417.
- Eslava M, Haltiwanger J, Kugler A, Kugler M. 2004. The effects of structural reforms on productivity and profitability enhancing reallocation: evidence from Colombia. Journal of Development Economics 75(2): 333–371.
- Frazier PA, Tix AP, Barron KE. 2004. Testing moderator and mediator effects in counseling psychology research. Journal of Counseling Psychology 51(1): 115–134.
- Frye T, Shleifer A. 1997. The invisible hand and the grabbing hand. American Economic Review 87(2): 354–358.
- Fukuyama F. 2004. State-Building: Governance and World Order in the 21st Century. Cornell University Press: Ithaca, NY.
- Ghemawat P, Khanna T. 1998. The nature of diversified business groups: a research design and two case studies. Journal of Industrial Economics 46(1): 35–61.
- Glaeser EL, La Porta R, Lopez-de-Silanes F, Shleifer A. 2004. Do institutions cause growth? Journal of Economic Growth 9(3): 271–303.
- Grant RM, Jammine AP, Thomas H. 1988. Diversity, diversification, and profitability among British manufacturing companies. Academy of Management Journal 31(4): 771–801.
- Guillen MF. 2001. Is globalization civilizing, destructive, or feeble? A critique of six key debates in the social science literature. Annual Review Of Sociology 27: 235–260.
- Henisz WJ. 2000. The institutional environment for multinational investment. Journal of Law, Economics, & Organization 16(2): 334–364.
- Henisz WJ, Zelner BA, Guillen MF. 2005. The worldwide diffusion of market-oriented infrastructure reform, 1977–1999. American Sociological Review 70(6): 871–897.
- Hitt MA, Beamish PW, Jackson SE, Mathieu JE. 2007. Building theoretical and empirical bridges across levels: multilevel research in management. Academy of Management Journal 50: 1385–1399.
- Hofmann DA, Gavin MB. 1998. Centering decisions in hierarchical linear models: implications for research in organizations. Journal of Management 24(5): 623–641.
- Hofmann DA, Griffin MA, Gavin MB. 2000. The application of hierarchical linear modeling to organizational research. In Multilevel Theory, Research, and Methods in Organizations: Foundations, Extensions, and New Directions, K Klein, SWJ Kozlowski (eds). Jossey-Bass: San Francisco, CA; 467–511.
- Holburn GLF, Zelner BA. 2010. Political capabilities, policy risk, and international investment strategy: evidence from the global electric power generation industry. Strategic Management Journal 31(12): 1290–1315.
- Hymer S. 1976. The International Operations of National Firms: A Study of Direct Investment. MIT Press: Cambridge, MA.
- IMF. 2004. World Economic Outlook: Advancing Structural Reforms. International Monetary Fund: Washington, D.C.
- Katrak H. 2002. Does economic liberalization endanger indigenous technological developments? An analysis of the Indian experience. Research Policy 31(1): 19–30.
- Kaufmann D, Kraay A, Mastruzzi M. 2007. Governance matters VI: aggregate and individual governance indicators, 1996–2006. Working Paper No. 4280, World Bank, Washington, D.C.
- Khanna T, Palepu K. 1997. Why focused strategies may be wrong for emerging markets. Harvard Business Review 75(4): 41–51.
- Khanna T, Palepu K. 2000. The future of business groups in emerging markets: long-run evidence from Chile. Academy of Management Journal 43(3): 268–285.
- Kornai J. 1990. Vision and Reality: Market and State. Routledge: New York.
- P-P Kuczynski, J Williamson (eds). 2003. After the Washington Consensus: Restarting Growth and Reform in Latin America. Institute for International Economics: Washington, D.C.
- Kutner MH, Nachtsheim CJ, Neter J, Li W. 2004. Applied Linear Regression Models ( 5th edn). McGraw-Hill/Irwin: New York.
- Laffont JJ, Tirole J. 1990. The politics of government decision making: regulatory institutions. Journal of Law, Economics, & Organization 6: 1–31.
- Laird NM, Ware JH. 1982. Random-effects models for longitudinal data. Biometrics 38(4): 963–974.
- Lawson C. 1994. The theory of state-owned enterprises in market economies. Journal of Economic Surveys 8: 284–309.
10.1111/j.1467-6419.1994.tb00104.x Google Scholar
- Leonidou LC, Katsikeas CS, Palinhawadana D, Spyropoulou S. 2007. An analytical review of the factors stimulating smaller firms to export. International Marketing Review 24(6): 735–770.
- Lora E. 1997. Structural reforms in Latin America: what has been reformed and how to measure it. Working Paper No. 348, Inter-American Development Bank Research Department, Washington, D.C.
- Lora E. 2000. What makes reforms likely? Timing and sequencing of structural reforms in Latin America. Working Paper No. 424, Inter-American Development Bank Research Department, Washington, D.C.
- Lora E. 2001. Structural reforms in Latin America: what has been reformed and how to measure it. Working Paper No. 466, Inter-American Development Bank Research Department, Washington, D.C.
- Lora E, Panizza U, Quispe-Agnoli M. 2004. Reform fatigue: symptoms, reasons, and implications. Federal Reserve Bank of Atlanta Economic Review 89(2): 1–28.
- Makino S, Isobe T, Chan CM. 2004. Does country matter? Strategic Management Journal 25(10): 1027–1043.
- J Mander, E Goldsmith (eds). 1996. The Case Against the Global Economy and for a Turn Toward the Local. Sierra Club Books: San Francisco, CA.
- Meyer KE, Estrin S, Bhaumik SK, Peng MW. 2009. Institutions, resources, and entry strategies in emerging economies. Strategic Management Journal 30(1): 61–80.
- North DC. 1981. Structure and Change in Economic History. Norton: New York.
- North DC. 1990. Institutions, Institutional Change, and Economic Performance. Cambridge University Press: Cambridge, U.K.
10.1017/CBO9780511808678 Google Scholar
- North DC, Thomas RP. 1973. The Rise of the Western World: A New Economic History. Cambridge University Press: Cambridge, U.K.
- Olson M. 1971. The Logic of Collective Action. Harvard University Press: Cambridge, MA.
- Peng MW. 2002. Towards an institution-based view of business strategy. Asia Pacific Journal of Management 19(2/3): 251–267.
10.1023/A:1016291702714 Google Scholar
- Peng MW. 2003. Institutional transitions and strategic choices. Academy of Management Review 28(2): 275–296.
- Peng MW, Sun SL, Pinkham B, Chen H. 2009. The institution-based view as a third leg for a strategy tripod. Academy of Management Perspectives 23(4): 63–81.
10.5465/AMP.2009.43479264 Google Scholar
- Perez-Batres LA, Pisani MJ, Doh JP. 2010. Latin America's contribution to IB scholarship. Academy of International Business Insights 10(1): 3–6.
- Ployhart RE, Holtz BC, Bliese PD. 2002. Longitudinal data analysis: applications of random coefficient modeling to leadership research. Leadership Quarterly 13(4): 455–486.
- Rabe-Hesketh S, Skrondal A, Pickles A. 2005. Maximum likelihood estimation of limited and discrete dependent variable models with nested random effects. Journal of Econometrics 128: 301–323.
- R Ramamurti, and JV Singh (eds). 2008. Emerging Multinationals from Emerging Markets. Cambridge University Press: Cambridge, U.K.
- Raudenbush SW, Bryk, AS. 2002. Hierarchical Linear Models: Applications and Data Analysis Methods ( 2nd edn). SAGE Publications: Thousand Oaks, CA.
- Rodrik D. 1996. Understanding economic policy reform. Journal of Economic Literature 34(1): 9–41.
- Rodrik D. 2006. Goodbye Washington consensus, hello Washington confusion? A review of the World Bank's economic growth in the 1990s: learning from a decade of reform. Journal of Economic Literature 44(4): 973–987.
- Sahay R, Goyal R. 2006. Volatility and growth in Latin America: an episodic approach. Working paper No. 06–287, International Monetary Fund, Washington, D.C.
- Sambharya RB. 1996. Foreign experience of top management teams and international diversification strategies of U.S. multinational corporations. Strategic Management Journal 17(9): 739–746.
- Schneyer J. 2005. La excepcion a la regla (The exception to the rule). AmericaEconomia, 18 August: 66–67.
- Shleifer A, Vishny RW. 1993. Corruption. Quarterly Journal of Economics 108(3): 599–617.
- Stiglitz J. 2002. Globalization and Its Discontents. Norton: New York.
- Thomas DE, Eden L, Hitt MA, Miller SR. 2007. Experience of emerging market firms: the role of cognitive bias in developed market entry and survival. Management International Review 47: 845–867.
- Uhlenbruck K, Rodriguez P, Doh J, Eden L. 2006. The impact of corruption on entry strategy: evidence from telecommunication projects in emerging economies. Organization Science 17(3): 402–414.
- UNCTAD. 1992. World Investment Report, 1992. United Nations: Geneva, Switzerland.
- UNCTAD. 2010. World Investment Report, 2010. United Nations: Geneva, Switzerland.
- Vaaler PM, Schrage BN. 2006. Home country governance quality and the ‘bonding’ hypothesis: evidence from industrialized, emerging-market and less-developed countries. In Transformations in Global Governance: Implications for Multinationals and Other Stakeholders, S Vachani (ed). Edward Elgar: London, U.K.
- Vaaler PM, Schrage BN. 2007. Legal system and rule of law effects on US cross-listing to bond by emerging-market firms. In Academy of Management Meeting: Best Paper Proceedings, GT Solomon (ed). Academy of Management: Briarcliff Manor, NY.
- Vassolo RS, De Castro JO, Gomez-Mejia LR. 2011. Exchange: managing in Latin America: common issues and a research agenda. Academy of Management Perspectives 25(4): 22–36.
- Vickers J, Yarrow G. 1988. Privatization: An Economic Analysis. MIT Press: Cambridge, MA.
- Vogelsang I. 1990. Public Enterprise in Monopolistic and Oligopolistic Industries. Chur: New York.
- Williamson J. 1990. Latin American Adjustment: How Much Has Happened? Institute for International Economics: Washington, D.C.
- Williamson J. 2000. What should the World Bank think about the Washington consensus? World Bank Research Observer 15(2): 251–264.
- Williamson J. 2004. The strange history of the Washington consensus. Journal of Post Keynesian Economics 27(2): 195–206.
- World Bank. 1995. Bureaucrats in Business: The Economics and Politics of Government Ownership. Oxford University Press: Oxford, U.K.
- World Bank. 2010. World development indicators online. Available at: http://www.worldbank.org/data (accessed 10 January 2012).
- Worldscope. 2003. Worldscope Database Datatype Definitions Guide. Thomson Financial: New York.
- Zaheer S. 1995. Overcoming the liability of foreignness. Academy Of Management Journal 38(2): 341–363.