Three essays on institutional voids and firms' strategy in emerging markets

Abstract

Emerging economies do not only present growth prospects to entrant firms but also significant operational challenges. Some of these operational difficulties emanate from the institutional environment in the emerging economies. The institutional environment plays an important role in establishing and sustaining market transactions. Inefficiencies in the institutional environment create institutional voids which shape entrant firms’ strategic decisions and actions. Yet, the current state of knowledge about how the institutional environment affects firms’ strategic actions in emerging economies is equivocal. This thesis sheds light on this gap by answering the question of how do institutional voids influence firms’ strategic actions in emerging economies. The contribution of this thesis is organized into three research articles. The first article is aimed at understanding the influence of institutional voids on firms’ resources commitment in emerging countries. Specifically, the study analyses the relationship between institutional voids and firms’ resources commitment in emerging country using data on Italian firms operating in China. The study reveals that the relationship between institutional voids and firms’ resource commitment is more complex than the linear relations proposed in the extant literature. The study finds support for an inverted U-shaped relationship between institutional voids and firms’ resource commitment. The second research paper focuses on analyzing business model adaptation to institutional voids in developing countries. The paper employs a qualitative research design to address the question of which process does a newly established developing country-based firm go through to adapt a business model designed for developed countries to institutional voids in its local market and which components of the business model are modified during the adaptation process. Based on a case study of Jumia - an online retailing company in Africa established with the aim to mimic the success of Amazon.com across the African continent, we show that newly established developing country-based firms attempting to exploit in their local context the success of an established business model designed for developed economies, cannot simply replicate that model, but have to adapt it with the aim of filling various institutional voids of their home country. We find that the business model adaptation to institutional voids in a developing country involves four phases consisting of clarification phase, legitimacy phase, localization phase and consolidation phase. Throughout these phases, specific institutional voids are filled, and significant adjustments are made to various components of a firm’s business model. The third paper reviews current state of institutional voids – resource commitment literature and maps future research directions. To this end, the study systematically analyzes relevant journal articles for their key findings, theoretical frameworks, contextual dimensions and methodological approaches. Based on this review, significant gaps in the literature were identified and a research agenda is developed to guide future scholarship in this important domain of research.