FUNDAÇÃO GETULIO VARGAS
ESCOLA BRASILEIRA DE ADMINISTRAÇÃO PÚBLICA E DE EMPRESAS CENTRO DE FORMAÇÃO ACADÊMICA E PESQUISA
MESTRADO ACADÊMICO EM ADMINISTRAÇÃO
CRISTINA BRAGA MOREIRA
THEORIZING LATIN AMERICA: TRANSACTIONS, RESOURCES AND
INSTITUTIONS
FUNDAÇÃO GETULIO VARGAS
ESCOLA BRASILEIRA DE ADMINISTRAÇÃO PÚBLICA E DE EMPRESAS CENTRO DE FORMAÇÃO ACADÊMICA E PESQUISA
MESTRADO ACADÊMICO EM ADMINISTRAÇÃO
CRISTINA BRAGA MOREIRA
THEORIZING LATIN AMERICA: TRANSACTIONS, RESOURCES AND
INSTITUTIONS
Dissertação apresentada à Escola Brasileira de Administração Pública e de Empresas da Fundação Getúlio Vargas para obtenção do grau de Mestre.
Orientador: Ronaldo Couto Parente
Ficha catalográfica elaborada pela Biblioteca Mario Henrique Simonsen/FGV
Moreira, Cristina Braga
Theorizing Latin America : transactions, resources and institutions / Cristina Braga Moreira. – 2013.
45 f.
Dissertação (mestrado) - Escola Brasileira de Administração Pública e de Empresas, Centro de Formação Acadêmica e Pesquisa.
Orientador: Ronaldo Couto Parente. Inclui bibliografia.
1. Planejamento estratégico. 2. Negócios. 3. Concorrência. 4. Terceirização. 5. América
Latina. I. Parente, Ronaldo Couto. II. Escola Brasileira de Administração Pública e de
Empresas. Centro de Formação Acadêmica e Pesquisa. III.Título.
AGRADECIMENTOS
À Deus por me prover saúde e paz para conseguir atingir os meus objetivos;
À minha mãe, Glaura Braga, e à minha madrinha Glena Braga por serem meus alicerces emocionais e sem as quais eu certamente não teria chegado até aqui;
Ao meu pai, Aldemir Moreira, pelo apoio e pelo exemplo no papel fundamental que o estudo possui para o meu desenvolvimento pessoal;
Aos meus colegas de Mestrado (que hoje tenho o prazer de chamar de amigos) Débora Tayt-son, Leonardo Oliveira, Manuela Dantas e Mariana Brandão, pela ajuda nos momentos de insegurança, pelo ombro nos momentos de decepção e pela companhia sempre presente nos momentos de alegria;
A minha gerente Karla Montellano e a todos meus colegas na Procuradoria Geral do Estado do Rio de Janeiro pela compreensão e apoio nessa reta final do Mestrado;
Aos professores da EBAPE/FGV, em especial professor Rafael Goldszmith, pela oportunidade de aprendizado e crescimento profissional;
A Celene Melo e demais funcionários da EBAPE/FGV pelo carinho e disponibilidade sempre presentes;
Ao professor Ronaldo Parente pela oportunidade de aprofundar meus conhecimentos em um
tema tão interessante como “International Business”;
ABSTRACT
In the late 1980s, Latin America, at that the time one of the least developed regions of the
world, experienced a period of significant political and economic changes that led to a
prominent place in today’s economic world. As a consequence, Latin America has
become a top research theme among scholars all over the world. In an attempt to
contribute to this body of research, we conducted a qualitative research in order to test the
applicability of existing theories in the fields of international business and strategy.
Following Meyer and Peng (2005), we outlined the three most advanced theories in these
two fields of study: (1) organizational economic theories; (2) resource-based theories; and
(3) institutional theories. For each of these theories, we then discuss their contribution to
the understanding of the key issues in Latin America such as building competitive
advantages, economic liberalization vs. government regulation, and internationalization.
Our findings contribute to the literature by discussing and understanding how Latin
America research has influenced or impacted the development theory in the fields of IB
and Strategy. We conclude by offering some suggestions and opportunities for future
research.
KEYWORDS: Institutional Theory, Resource Based View, Transactions Costs, Latin
RESUMO
Nos anos 80, a América Latina, uma das regiões menos desenvolvidas do mundo, enfrentou um período de mudanças econômicas e políticas significativas que levaram essa região a um lugar de destaque no mercado mundial. Por conseguinte, a América Latina foi objeto de diversos estudos, que, por sua vez, foram compilados nesta revisão de literatura, a fim de que se possam identificar quais os avanços foram feitos no âmbito da Gestão e Negócios Internacionais. Como base, tomou-se a metodologia aplicada por Meyer e Peng (2005), fazendo um paralelo entre três importantes teorias da área (Teoria de Baseada em Recursos, Teoria Baseada no Custo das Transações e Teoria Institucional) e alguns assuntos-chave de extrema relevância ao entendimento do tema (Construindo Vantagens Competitivas, Liberalização Econômica versus Regulação Governamental e Internacionalização) Ao final, delimitamos as contribuições da América Latina ao estudo da Gestão e Negócios Internacionais, fazendo algumas sugestões para futuros pesquisas nesse âmbito.
PALAVRAS-CHAVE: Teoria de Baseada em Recursos, Teoria Baseada no Custo das
CONTENTS
1. INTRODUCTION ... 4
2. THEORETICAL FOUNDATION AND LITERATURE REVIEW ... 9
Transaction Cost Theory (TCT) and Agency Theory (AT) ... 9
Resource Based Theory (RBT)... Erro! Indicador não definido. Institutional Theory (IT) ... Erro! Indicador não definido. Internationalization Theory (IT) ... 12
3. RESEARCH METHOD AND DATA COLLECTION ... 14
4. DATA ANALYSIS AND RESULTS ... 16
Economic Liberalization x Government Regulation in Latin America ... 18
Building competitive advantages in Latin America ... 20
Internationalization and its particularities in Latin America ... 23
5. DISCUSSION AND IMPLICATIONS ... 27
INTRODUCTION
International Business (IB) has been studied by scholars since early twentieth
century. After many decades, there are already several theories that seek to explain the
functioning of the international market from different points of view (GROOSE &
BEHRMAN, 1992), although, these theories are not sufficient to encompass all the
possibilities that a theme as vast as IB might present. As a field o management theory, IB
was highlighted mainly after 1960`s, (STOPFORD, 2008) due to real advances in trade
and inter-company relations.
According to Groose & Behrman (1992), IB theory should explain how the issues
related to the government are concerned with MNE (Multinational Enterprises) activities,
how this activities are negotiated, which are the trade-offs when dealing with international
buyers/sellers (mostly product diversification versus market expansion), and what are the
benefits taken from the trade and organizational methods employed. To Luo (2004), IB
addresses the cooperation and competition simultaneously between MNE units and their
global stakeholders such as global competitors, foreign governments and corporate
members.
In the early 1980`s, the most developed countries were surpassed by the new
industrialized countries, which, by that time, were gaining prominence and, due to the
widespread liberalization and the adoption of market based policies, received a new
designation: Emerging Economies (EE). This group, which is composed of transition
economies such as the former Soviet Union and China along with other developing
countries in Asia, Middle East, Africa and Latin America, are home to over 80 per cent of
the world’s population and has been facing an extremely rapid urbanization and massive
migration from rural areas to cities (EUROPEAN CENTRAL BANK, 2012).
Latin America case is even more peculiar then the rest of the EEs. In the late
1980s, these economies were closed to most of the large foreign companies, including the
industrial and state-owned enterprises (SOE). In addition, the most prominent economic
sectors in these EEs were labor-intensive and based on the use of natural resources. Then,
in the 1990s, most of Latin America countries implemented pro-market reforms that lead
were exposed to higher levels of domestic competition, which encouraged these
companies to seek opportunities abroad in order to expand their markets, either as a
defense mechanism or just because they were capable to compete with their multinational
rivals (STAL & CAMPANARIO, 2010). It was also noted that the privatization programs,
within the liberalization initiatives in Latin America, raised investment opportunities
mostly through mergers and acquisitions (M&A) (ROCHA et al, 2007).
Known for their considerably low degree of sophistication in terms of market
supporting institutions and fewer locational advantages based on assets creation, such as
infrastructure and human capital, the EEs from Latin America had a superior performance
during and after the 2008 World Crisis1, which has been sustained by rising real wages and credit to the private sector. (KOSKISSON et al, 2000; NARULA & DUNNING,
2000). Actually, between 2000 and 2009, the Growth Domestic Product (GDP) index per
capita has risen by over 70 per cent in these countries. (EUROPEAN CENTRAL BANK,
2012).In turn, the Latin America GDP index remained around 3.5 per cent in 2012, while
developed countries were still struggling to reignite recovery, making Latin America
increase in importance in the world scenario. (UNCTAD, 2012),
The emerging markets multinationals (EMMNEs) are perceptively different from
the Industrialized Countries MNES, once they are often challenged in fending off
competition from foreign MNEs in their home market. Is also outstanding their need in
catching up with the developed ones in terms of technology and best
practices. (HOSKISSON et al, 2000). The EMMNEs are very peculiar regarding the
relationship with their governments, their degree of political involvement, and the relative
importance of their home markets. These companies have country-specific and
firm-specific advantages in terms of natural resources, economies of scale, labor and capital
costs that might lead them to achieve the success they are facing nowadays. (PENG &
PARENTE, 2012)
Even though the strategies and performance aspects of EMMNES have been deeply examined, relatively few conceptual advances were achieved regarding companies whose international participation is primarily through export operations, which in mainly the case of the EMMNEs (AULAKH et al, 2000). In the specific case of Latin America, the region
1
has been understudied as Elahee and Vaidya (2001) proved by concluding that fewer than 6 percent of the articles from the two leading international management journals, Journal of International Business Studies and Management International Review, actually mentioned Latin America, while the most prominent strategy researchers in emerging economies, like Hoskisson (2000), Lu (2001), Wright (2000) and Peng (2001, 2005, 2006) showed that most studies gave priority to the research in companies from Asia or from transition economies.
Since the seventies, researchers have been attracted to the phenomenon of the EMMNEs (Heenan & Keegan 1979). Wells (1983) was one of the first scholars to propose a theoretical explanation for the emergence of MNCs, arguing that there are certain conditions under which it is theoretically possible that companies, operating in developing countries, could establish a proprietary advantage that is exploitable by FDI (Forward Direct Investment), one of the most prominent subjects regarding this field of knowledge. However, the major focus of the literature has been on the interaction of MNEs and local firms through knowledge diffusion, forward and backward linkages, and competition (MEYER & KLAUS, 2005).
Latin America, including Mexico and countries from Central and South America, is home to about 500 million people, representing one-third of the developing world's economy. The participation of Latin American companies increased in the international scenario through emphasis on competitive advantages built around manufactured products, strategies based on product, service, and price differentiation, and participation in value-adding activities (DOMINGUEZ & BRENES, 1997). Since MNEs from Latin America are actually competing with companies from developing countries in both domestic and international markets, an understanding of their strategies and performance can provide important insights into management thought and practice in the contemporary global environment (AULAKH et al, 2000).
Therefore, we opted to apply the same methodology used by Meyer and Peng
(2005) to the context of Latin America, in order to explore the following research
question: how do existing IB and strategy theories have been applied in the context of the
Latin American markets, which are part of the new research stream of emerging markets?
Following Meyer and Peng (2005) and departing from our research question above,
Resource-Based Theories (RBTs) and Institutional Theories (ITs). Within this context, our
focus remained on the continuity, novelty and scope that a particular theory should attend
in order to gain a widespread acceptance. These theories correspond to the three pillar of
the dominant paradigm in IB research; the OLI paradigm developed by Dunning (1993). In
analogy, RBTs relate to the ownership advantages (O); ITs explore a fundamental aspect
of locational advantages (L); and Organizational Economics Theories underpins
internalization incentives (I).
From our literature review, we identify three major issues faced by scholars when
trying to build a Latin American research agenda within the scope of IB and strategy
theories:
o Economic Liberalization x Government Regulation
o Building competitive advantages
o Internationalization and its particularities
The first two issues were deeply approached by scholars of all three theories from
the OLI paradigm. Although, most of them explain that EMMNEs` international expansion behavior were modifications of the prevailing theories of internationalization, which focused on the developed countries behavior (Dunning 1981, Dunning et al. 1998, Mathews 2006). Due to this fact, we either contextualized the Internationalization theories within the IB and strategy field of knowledge, bringing it to the Latin American company’s reality.
The purpose of our paper is to contribute to the large body of research in emerging economies with a qualitative research testing the applicability of existing theories in the fields of IB and strategy in Latin America. We divided this dissertation in five parts. After the introduction, we describe the literature used as a background to the issues analysis, in
order to review and contextualize the theories. Then, we present the research method used
1. THEORETICAL FOUNDATION AND LITERATURE REVIEW
As pointed out by Porter (1990), the competitiveness of a nation in a global
context depends on the capacity of its industry innovations and improvements, with
companies gaining advantage against the world's best competitors as a consequence of
pressure and challenge. Strong domestic rivals, aggressive home based suppliers and
demanding local customers might benefit from this industry innovation and improvements
in order to aim the global market.
However, to achieve this global market, many obstacles should be overcome by
emerging economies, especially the ones related to managing radical strategic and
organizational changes instead of traditional approaches that used to succeed in these
countries. The scholars intentions by going deep in IB and management studies is to
identify hidden features and assumptions that are often unnoticed when conducting
research in mature market economies (KLAUS & MEYER, 2005).
To frame our approach of IB and management theories, we review the three sets
chosen, once they summarize most of what have been studied lately about the IB and
management and do cover a good part of the literature.
Transaction Cost Theory (TCT) and Agency Theory (AT)
The main Organizational Economics Theories (OET), that are Transaction Cost
Theory (TCT) and Agency Theory (AT), have been developed under the assumption of
relatively static and well-developed market mechanisms. Both TCT and AT have a wide
application in the social sciences, including economics, finance, marketing, organization theory, political science, sociology and strategic management (EISENHARDT, 1989;
CARROLL et al., 1999). These theories form a very significant part of the theoretical core
of the strategic management field (BARNEY & OUCHI, 1986; RUMELT et al. 1994).
They understood that companies would prefer foreign production if the net benefits of using cross-border markets to organize the transactions of goods and services were perceived to be lower than those of hierarchical control. They would first enter those markets with which they were most familiar and then based on knowledge acquired from exporting to or investing in those markets, they would enter progressively less familiar markets. This approach became widely known as 'internalization' approach and prominent among its proponents were Buckley and Casson (1976) and Hennart (1982). Internalization theories focused on the conditions, prompting the foreign investment decision and the choice of the foreign entry mode. Internalization approach was extended by Dunning (1980, 1988), through his eclectic paradigm, which have been used in this dissertation, which posited that there were three major sets of interdependent factors that influenced the extent, geography and industrial composition of foreign production undertaken by a firm - Ownership advantages (O), Location advantages (L) and Internalization advantages (I).
Williamson (1991) mentions the challenges within OET and proposes that differences in institutions can be conceived as ‘shift parameters’ that alter the slope or intercept of transaction costs (TCs). Actually, transaction cost analysis provides theoretical
explanation for integration, focusing on individual economic exchanges to predict which
governance mode reduces the sum of production and transaction costs for that particular
exchange (WILLIAMSON, 1981, 1985). In other words, TCT provides the idea that a
choice between full and partial ownership will depend on the costs and benefits derived
from sharing ownership (e.g., joint ventures) in relation to those of full ownership (e.g.,
wholly-owned subsidiaries) (HENNART, 1991). At the same time, AT is concerned with
resolving the alleged agency problem that occurs when cooperating parties have different
goals and division of labor and one of them (the principal) delegates the work to the other
(the agent) who performs it (EISENHARDT 1989).
Resource Based Theory (RBT)
The Resource Based View (RBV) of the company is a perspective that tries to
explain the strategic behavior of the company based on the idea that the selection,
advantages over their rivals (WERNERFELT, 1984; BARNEY, 1991). RBV scholars
stated that companies are able to earn heightened returns if they have superior resources,
which are protected by some form of isolating mechanism preventing their diffusion
through the industry. Edit Penrose (1959) was the first to raise this issue by pointing out
that a company is more than a simple administrative unit; it is also a collection of
productive resources used by different users during a certain period of time determined by
administrative decisions.
In addition, Barney (1991), referring to the same theme, made clear that abnormal
rents can be earned from resources that are valuable (when they enable a company to
conceive or implement strategies that improves its efficiency or effectiveness), rare (which
cannot be easily found), incorrectly imitable (due to a combination of unique historical
conditions, causally ambiguous and social complex) and non-compatible (without any
equivalent resources that are themselves either not rare or imitable).
One of the main concepts that ascend from RBV perspective is the dynamic
capabilities approach (EISENHARDT & MARTIN, 2000; TEECE et al., 1997), which
transforms the essentially static view into one that can encompass competitive advantage in a dynamic context (BARNEY, 2001). As Helfat (2007) stated, “dynamic capabilities are the capacity of an organization to firmly create, extend or modify its resource base”. Chandler (1990) indicates that organizational capabilities includes lower management
collaborators and workforce, skills of middle and top management, and facilities for
production and distribution acquired to use fully the economies of scale and scope. Such
organizational capabilities provided the economic profits that, in some way, financed the
continuing growth of the company.
Institutional Theory (IT)
transparency), law (e.g., economic liberalization, regulatory regime), and society (e.g., ethical norms, attitudes toward entrepreneurship). (PENG et al, 2003).This theme tends to be ignored by IB and strategy researchers, whom considered most significant TCT, ATs
and RBTs models, once they are more independent of the environmental peculiarities
(MEYER & PENG, 2005).
Within the Institutionalism scholars, we might divide them in two groups. The “old ones”, leaded by Veblen (1904), and the “neoclassical institucionalists” like North (1990) and Williamson (1985). In terms of IB and management research, the second group seems
to be more relevant, considering that North (1990) actually focused in the interaction
between informal institutions and entry strategies, one of the most studied subjects in this
field. Still, there are insufficient prospects that address adaptation strategies, structures and
processes to institutional idiosyncrasies, in order to facilitate the development of MNEs.
(MEYER & PENG, 2005)
Internationalization Theory
Although the Internalisation Theory also provided a few explanations for the
international expansion activities of companies, most of it was developed in the context of companies from the developed countries. Although, the internationalization process models (Vernon 1966, Johanson & Wiedersheim Paul 1975) added some interesting points of view to the topic.
Vernon (1966) focused on the effect of product cycle on investment in foreign markets by US companies, arguing argued that those focused on exploiting the advantages of the country of origin, but subsequently, once the products became more mature and competition became more intense, these companies tended to shift production abroad. (CHITHOOR, 2009). A trade cycle, conceived for most of the products the aimed international markets, consisted of export dominance in the first phase, production in the foreign country in the second phase, foreign firm competition in foreign markets in the third phase, and foreign firm competition in the home market in the fourth phase.
its operations following a path such as: (1) no regular export, (2) export through independent representatives or agents, (3) establishment of sales subsidiaries and finally, (4) production /manufacturing plants. Their comprehension about the knowledge of markets embrace the fact that companies would first enter the most familiar markets and then, based on knowledge acquired from exporting to or investing in those markets, they would enter progressively less familiar markets. (CHITHOOR, 2009).
Others points of view within internationalization theory overlooked the active role played by the state, providing the institutional/contextual perspective, exemplified by research on Asian companies (YEUNG 1994, ZUTSHI & GIBBONS 1998). Sarkar et al. (1999) added that former theories need to be accompanied by contextual idiosyncrasies of specific industries and geography to be understood widely(CHITHOOR, 2009).
Our intention by choosing the three sets of theories was not to do an exhaustive
approach of the IB and management vision of Latin America framework. Indeed, the
reasons that led us to make this choice are very similar to the ones alleged by Meyer and
Peng (2005). Even knowing that might have other points of view, once RBTs, OETs and
ITs are the most popular ones, it became more feasible to analyze Latin America situation
2. RESEARCH METHOD AND DATA COLLECTION
Considering investigating the contributions that have been made to Latin America
IB and strategy literature, we focus on the three important research issues (Economic
Liberalization x Government Regulation; Building competitive advantages; and
Internationalization and its particularities) and how they are related to the relevant articles
published about the research in IB and strategy theories within Latin America framework.
In order to select the most significant articles that might have contributed to the
evolution of Latin America development in IB and strategy studies, we have
systematically collected all the articles in leading IB and management journals published
during 1992-2011 (inclusive) that focused on Latin America-related issues. By searching
the keywords previously cited (Latin America, International Business, International
Management) in research databases such as PROQUEST, Science Direct, Scopus, etc, we
ended up with 196 articles that were published in 21 journals.
After selecting the articles, we carefully read all the articles looking for
applications / mentions of the leading theories as mentioned earlier (Institutional Theory,
Resource Based View and Transactions Costs Economy) and the issues that could have a
relation with the theories. Then, we carefully looked at the articles again and eliminated
those articles that were talking about foreign companies in Latin America, considering
these companies are not EMMNEs. The resulting sample size for our analysis was 151
Table 1 Journals x Quantity of Articles in the sample Journal
Country of
Origin Number of Articles
Academy of Management Journal USA 8
Academy of Management Review USA 1
Brazilian Administrative Review Brazil 6
Cuadernos de Administracion Colombia 7
Gestão e Produção Brazil 10
Innovar Brazil 3
International Business Review Belgium 10
Journal of Business Research USA 36
Journal of International Business Studies USA 13
Journal of International Management USA 9
Journal of Management Studies USA 4
Journal Of Technology Management & Innovation
Chile
10
Journal of World Business USA 9
Management International Review USA 11
Mundo Agrario – Revista de Estudios Rurales Argentina 2
Organization Science USA 3
Organization Studies Netherlands 2
Strategic Management Journal USA 7
151
4. DATA ANALYSIS AND RESULTS
After categorizing and analyzing our data, we realized that a large quantity of
articles (52) was applied Institutional Theory, while Resource-based theories could be
found in 29 articles and Transaction Cost Theory were found 12 articles. Another 17
articles mentioned the issues in a wide perspective or even approached all the theories
simultaneously. Examining these articles, we cross check each article to match one of the
Table 2 – The Theories and The Issues: Who collaborated to improve IB and Management Theory in Latin America:
Theories Economic Liberalization x
Government Regulation
Building Competitive Advantages
Internationalization and its particularities
Transaction Costs Theory
CUERVO-CAZURRA & DAU, 2009
AULAKH et al 2000
STUCK & SCHROEDER, 1994, SILVA et al, 2006, KOTABE et al, 2000; ZAMBALDI et al, 2011; TORRE et al 2011; KHANNA & RIVKIN, 2001; AMATO NETO, 2006; KOLJATIC & SILVA, 2008;
BUCKLEY&HENNART,
1986
Resource-Based Theory HAAR & ORTIZ-BUONAFINA, 1995
DOMINGUEZ & BRENES, 1997, COLBURN, 2006
GROSSE, 1992; BRENES et
al, 2008; CARVALHO, 2005;
TARZIJÁN et al, 2008; HUMPHREY, 1995; CRAVIOTTI et al, 2010; RAMOS-GARZA, 2009; MORRIS & PAVETT, 1992; HOWELL et al, 2003; LEFORT & UZUA, 2008; FRANCO & CARVALHO, 2004; ROBINS et al, 2002; OGASAVARA, 2010; GOMES, 2003; GOMES AND RANFT, 2003; LAKSHMAN & PARENTE, 2008
RANGAN & DRUMMOND,
2004; MCDERMOTT &
CORREDOIRA, 2010;
BOEHE, 2007, 2011;
Institutional Theory
AGUDELO & CASTAÑO, 2010;
ANAAND et al, 2006;
TOULAN, 2002;
COUTINHO, 1996; PEREIRA
et al, 2006; VARGAS, 2006;
CUERVO-CAZURRA & DAU 2009.
HERMELO & VASSOLO, 2010;
JAVALGI et al 2010; PEREZ, 2007
RAMAMURTI 1992, 2000; Makhija,1993,
RIVAS & MAYORGA 2010; TORO 2004;
TREVINO & MIXON JR, 2004;
LENARTOWICZ et al, 2003;
RODRIGUES, 2004;
LOVETT et al, 2009;
HOWELL et al 2007; GOMEZ
& WERNER, 2004; Griffith et
al, 2000; LENARTOWICZ &
JOHNSON, 2002; CAMPOS et
al, 2007; HILLMAN & KEIM,
1994; BERLIN, 1996;
MESCKIA & RICCIO, 2008;
MCDERMOTT et al, 2009;
KHANNA & PALEPU, 2000;
ICKIS, 2006; KHANNA &
RIVKIN, 2006
LENARTOWICZ &
JOHNSON, 2002
GWARTY & STROUP, 1990; PENG & PARENTE, 2005; BUCHELLI & AGUILERA, 2010; OETZEL, 2005; GIFFORD et al, 2010; CUERVO-CAZURRA, 2007; VIEIRA, 2006; BIANCHI & SALEH, 2011
Next, we discuss and analyze each of the research issue fought in the context of
Theory, Resource Based View and Transactions Costs Economy), contributing to a deeper understanding of IB and strategy study.
Economic Liberalization x Government Regulation in Latin America
Government regulations and economic liberalization in Latin America had a significant impact on companies’ exports and in helping these companies to develop new opportunities. Most of these effects come from lower transaction costs and from creating necessary conditions for companies to improve their efficiency and competitiveness to international levels (CUERVO-CAZURRA & DAU, 2009). Moreover, other benefits accrued in terms of export strategies when these companies from emerging economies tend to achieve higher profits in the foreign markets where they internationalize. Also from the cost-based side, government regulations and economic liberalization allow strategies that enhance export performance in developed country markets while differentiation strategies increase performances in other developing countries, like the Latin American EEs (AULAKH et al, 2000). As an example, export development in Brazilian companies, the biggest country in Latin America, was directed by currency issues and marketing capabilities, and was very dependent on the financial flexibility, (i.e., the ability to handle export sales in different currencies). (HAAR & BUONAFINA, 1995)
Not surprisingly, since our older articles are from the 90`s, most authors discussed the economic changes they faced at that time along with their impact on the society from an institutional point of view. Our data analysis shows that almost all of the countries in Latin America faced the adoption of neoliberal policies as a response to the impact of the 1980s debt crisis. The 2008 crisis and its consequences were widely discussed (DOMINGUEZ & BRENES, 1997, COLBURN, 2006, VARGAS, 2009) even if considering that the countries that suffered from it cannot be seen as homogeneous. Probably the main consequence of the adoption of neoliberal policies was the wave of privatization; however, this consequence could be seen in other countries. According to Ramamurti (1992), “Privatization was more likely to be pursued by countries with high
budget deficits, high foreign debt, and high dependence on international agencies like the
World Bank and the IMF. In regions such as Latin America and Asia, the trend was also
more likely in countries (a) that seemed to have "overused" state enterprises in the past,
more ready to assume tasks once assigned to state enterprises.” (RAMAMURTI 1992, p.15).
It is important to stress that the impact of the pro-market reforms, that are the reforms involving a reduction of the government intervention in the economy and an improvement in national governance (WILLIAMSON, 2004), could not be felt in a similar way by all the countries. Early-reforming countries had to deal with the lack of credibility of the region with the investors by deeply discounting sales price, offering special privileges and protections, and absorbing risks that late-reforming countries were able to pass on to MNEs (RAMAMURTI, 2000). The Chilean companies, on the other hand, benefited from their know-how of business strategy during economic liberalization in order to have a competitive advantage in comparison to other Latin American countries. (DEL SOL & KOGAN, 2007)
In fact, all the government intervention may not be seen as harmful. Makhija (1993) stated that host government intervention relates to the specific objectives of the government vis-a-vis MNEs. Perez (2007) understood that governments (and other stakeholders) are questioning their relevance and ability to adapt to the changing circumstances and demands from society, attempting to develop new organizational models (like Public R&D laboratories) and management strategies. Companies have responded remarkably well to changes in their environment due to economic liberalization (ANAAND et al, 2006; TOULAN, 2002), although many changes could be observed in Latin America only a few years after the neoliberal policies were implemented. We could easily notice that Institutional pro-market reforms seem to benefit domestic companies over foreign MNEs, which facilitate domestic firms “multinationalization” (RIVAS & MAYORGA 2010).
(COUTINHO, 1996; PEREIRA et al, 2006; VARGAS, 2006). Oetzel (2005) argued that political risk may vary over time as the host country’s policy priorities change, particularly the policies which favor some industries over others.
While observing the Latin America reality, our data base suggest that, indeed, pro- market reforms had a positive effect on companies’ profitability due to their improved ability to perform external monitoring and by decreasing companies’ agency costs (CUERVO-CAZURRA & DAU 2009). This impact seems to be stronger for domestic state-owned and domestic private companies than for subsidiaries of foreign companies (WILLIAMSON, 1991). In addition, in Latin America home market, decisions to internationalize, as well as the presence of internationalizing domestic competitors, might anticipate the product acceptance, as well as to contribute to the suppliers internationalization (FABIAN et al, 2009).
Indeed, the Government Regulation positively influences the performance of companies in the international market. The Pro-market reforms helps subsidiaries of foreign firms improve their profitability, but not as much as they help domestic state-owned or private firms, because the agency problems faced by the subsidiaries of foreign firms are less affected by the other type of reforms (CUERVO-CAZURRA & DAU 2009). We also concluded that improvements in corporate governance have little impact on the relationship between managers at headquarters and subsidiary managers even though they still face divergent interests in the employment relationship.
Building competitive advantages in Latin America
The Government Regulation issue might be seen in the approach of the ownership-control structure (i.e., economic rights and voting rights), which affects the performance both directly and in terms of social ties. Moreover, the ownership-control structure might lead to an increasing performance of the company when the concentration of voting rights is lower or even when the voting rights of the controlling shareholders are aligned with their own economic rights (SILVA et al, 2006).
From a Resource-Based View perspective, many scholars conducting researches in Latin America tried to build a common understanding based on the successful factors, strategies and technological novelties that led to a superior performance and competitive advantages (GROSSE, 1992; BRENES et al, 2008; CARVALHO, 2005; TARZIJÁN et al, 2008; HUMPHREY, 1995; CRAVIOTTI et al, 2010). For instance, some articles in our database focused on managers (RAMOS-GARZA, 2009; MORRIS & PAVETT, 1992; HOWELL et al, 2003) and support the idea that the company value might be affected by raising the proportion of outside directors inside the company (LEFORT & UZUA, 2008). In Mexico, support for innovation in terms of the organizational-level factor was a good predictor of individual behavior differences, indicating that it may moderate the impact of national value differences on the transferability of management practices. (GOMEZ & RANFTB, 2003)
American studies.In Chile, companies that present more exacerbated agency conflicts tend to incorporate professional directors to the boards, in an effort to improve corporate governance and ameliorate the agency problem (LEFORT & URZÚA, 2008)
Our data shows that the strategies related to the technological novelties have been influenced by company size, industrial sector to which the company belongs, and the nationality of foreign capital (FRANCO & CARVALHO, 2004). The relation between parent firms and their subsidiaries is endowed of interdependence even if it is expected that the subsidiaries aim to achieve autonomy from parent firms in some key areas (ROBINS et al, 2002). After all, subsidiary profitability tends to be higher when the parent company is committed to raise the number of investments in the host country (OGASAVARA, 2010). Moreover, the subsidiary might also contribute significantly to the knowledge acquisition of the parent company (GOMES, 2003).
In terms of knowledge acquisition and capabilities, in the Brazilian case, the technological knowledge sharing has a positive impact on product performance under conditions of high technological dynamism (LAKSHMAN & PARENTE, 2008). Chilean companies, due to a dynamic environment, face a stronger link between the environment and the use of their capabilities, building competitive advantage trough management techniques (DRNEVICH & KRIAUCIUNAS, 2011).
With regards to innovation, Gomes and Ranft (2003) argue that organizational-level factors are good predictors of individual behavior differences, indicating that it may moderate the impact of differences in the country so as to transfer management practice and the knowledge creation. In addition, this knowledge creation seems to be positively related to both product and financial performance, while technological knowledge sharing has a positive impact on product performance under the conditions of high technological dynamism (LAKSHMAN & PARENTE, 2008).
organizational culture approach. In Argentina, distinct governance rules support institutions and anchor their multiplex, crosscutting network qualities, which underpin their ability to provide improved collective resources and reshape the ties between firms. (McDERMOTT et al, 2009)
In Latin America studies, organizational culture has a significant importance within the management investigation, mainly when focusing on the importance of regional subcultures and intra-country cultural variation (LENARTOWICZ et al, 2003; RODRIGUES, 2004). It is important to understand that, even when talking about parent firms and its subsidiaries, the culture factor might exert an important influence in the inherent mechanism of the company (LOVETT et al, 2009; HOWELL et al 2007; GOMEZ & WERNER, 2004).
When looking at Latin America in the entrepreneurial context, corporate culture is useful in counteracting local business practices, which act as obstacles to the fulfillment of corporate values (BERLIN, 1996). The larger the corporate cultural differences between local and foreign partners are, the bigger the instability of international joint ventures, whereas the survival of the alliances does not seem to be affected either by the economic and political uncertainty (MESCKIA & RICCIO, 2008).
Internationalization and its particularities in Latin America
time, it is possible to establish a small, yet positive, relationship between local outsourcing linkages and global workflow interdependence in product development (BOEHE, 2007).
Some particularities could be highlighted by the scholars on that subject. Mexican companies, initially, experienced negative performances as they expand internationally due to the liability of foreignness; however, over a time, through gaining of experience and through organizational learning, they eventually reap the positive benefits from international expansion (THOMAS, 2006). In turn, within Brazilian Biotechnology companies, scholars presented an clear focus towards internationalization, export growth, intention to export, creation of competence to cope with internationalizing, new entrant companies registered with higher innovation potentials and abilities to global products, receiving venture capital investments, indicating larger volumes of financial and organizational resources (JUDICE, 2006).
In our sample, regarding internationalization and its implications, the Institutional Theory suggests that government participation guarantee their own “protective and productive role” (GWARTY & STROUP, 1990). Therefore, the strategy formulation would necessarily be constrained by public policies that might help companies by uncertainty reduction (PENG & PARENTE, 2012). When acting against foreign MNEs, the host government is constrained by the political power of the firms’ home country over the host country and by the relationship between the company and its home country (BUCHELLI & AGUILERA, 2010). It is crucial for a country to define a modern industrial policy, that could be able to integrate the incentive to innovation as well as to exports, in order to serve as a tool to foster development, and an affective policy depends on Government’s ability in supplying agents with a favorable context towards adequate regulation, purchasing policy, availability on financing facilities and fiscal incentives (PEREIRA et al, 2006).
country are more likely to start “multinationalizing” using production subsidiaries (CUERVO-CAZURRA, 2007).
In some specific cases, we could notice the increasing alignment to the standardization of Latin American products in order to achieve the profit goals abroad (VIEIRA, 2006). In general, researches on the marketing strategy within standardization might be home-host or an intermarket type. In the home-host scenario, the main concern is to explore the extent to which a standardized program and the process can be transferred from the home market to a specific foreign market and which factors need to be considered in a strategic decision. However, the intermarket perspective is defining whether it is possible to transfer a standardized set of programs and processes from one foreign market to another or to apply a uniform marketing in a regional market (CHUNG, 2003)
The institutional perspective in Chile, for instance, showed that a greater effort in international business, process innovation, and the use of export promotion programs can contribute positively to export performances, and some forms of intervention are better than others: trade displays and trade missions do not affect the probability of exporting permanently, but exporter committees show a positive and significant impact (ALVAREZ, 2004).
Trust, commitment and their influence on importing firms' performance in an emerging market context are also significant topics in the Institutional approach of IB (BIANCHI & SALEH, 2011). Internationalization is a process of increasing commitments to foreign operations. The experience in terms of entering a new market is fundamental once each country has its own particularities that might influence the whole process of internationalization. This means that a company doing business abroad is always committed to the cause, in general, and the markets of the countries where it is already operating particularly. This kind of commitment is positively affected by demand-driven foreign market expansion (JOHANSON & VAHLNE, 2003). The emerging markets have as main characteristic an economic volatility when compared to developed countries, which leads the EEs to a more fragile situation when committing to other countries (HERMELO & VASSOLO, 2010).
5. DISCUSSION AND IMPLICATIONS
Latin America development has increased year after year and it is expected that this movement willcontinue in this sense. Although, some considerable issues must be pointed out in order to provide a better understanding of the Latin America framework and how the theories are being applied in IB and strategy field.
Ronald Coase`s work on Transaction Cost Theory has been debated regarding its applicability in the IB and strategy fields, and, despite the fact they are in a reduced number, its contributions to the developing of a theoretical framework for Latin America emerging markets are significant, as we may infer from the table 3.
Table 3 – Latin America issues associated with transaction cost economics and agency theory
Challenge to theory Implications Methodological challenges
TCs limit the supply of credit to small and medium
enterprises (SMEs)
Credit rationing and lower risk credit contracts due to collateral-dependency and constraints due to asymmetric information.
Provide the resources needed to the expansion of credit supply
Understand the match between activities to be controlled and control structure
Firms facing increasing market integration to a region need to develop more centralized strategies
Need greater harmonization of business structures
Agency Costs decreases when accompanied by improvements in external monitoring
Domestic state-owned and domestic private firms are more benefited by pro market reforms than subsidiaries of foreign firms
Need to limit the influence of the reforms in order to build a more equally economic condition
Table 4 – Latin America issues associated with Resource based theories
Challenge to theory Implications Methodological challenges
Capabilities can influence firm performance through a range of means and mechanisms
Technological novelties are influenced by the size of firms, the industrial sector to which the firm belongs and the nationality of foreign capital
Need to investigate if this factors are only meaningful in terms of technological novelties
Ties within parent firms and its subsidiaries might influence their profit
Remains a certain form of strategy dependency within both companies
Identification and measurement on the strength and scope of this ties in order to build a theoretical background on this approach
Firms may opt to seek domestically to resources and capabilities that have been developed in the course of internationalization
Relationship between local outsourcing linkages and global workflow interdependence might influence in the product development
How experience influences the firms, especially in emerging markets, and which are the best diversification strategies on them
The Institutional Theory, on the other hand, is very much in evidence in the whole theoretical framework within Latin America, as Treviño and Mixon Jr (2004) also observed in their research by assuring that institutional theory and institutional distance (i.e., the extent of similarity between the regulatory, cognitive and normative institutions of the two countries, for example) provide alternate and complementary explanations for Latin American MNE behavior. The Government also should place greater emphasis on institutional reform, mostly in terms of macroeconomics, in order to attract greater levels of inward FDI.
Table 5 – Latin America issues associated with Institutional theories
The existing theories of internationalization, per se, are too broad to explain certain attributes of the internationalization process adopted by emerging economy firms and seek to strengthen the existing theories by suggesting directions for new theorization in this context. The EMMNEs expansion need to overcome the 'late mover' disadvantage, besides acquiring resources and capabilities to successfully compete with established players from the developed economies. (GUILLEN 2000)
From this point of view, it is viable to understand the reasons the EMMNES, mostly the Latin American ones, internationalize themselves, what challenges they face as a host country or even why they prefer hierarchies over markets (RAMMAMURTI, 2008). That is probably the reason that, in terms of quantity, there are more Institution researches in Latin America than the ones supporting other theories. This predominance might mean that the actors inside the dynamic picture understood how the global market works. The “rules of the game in a society”, like North (1990) simplified the Institutional role, are fundamental to a well succeed international incursion because, nowadays, the interaction among the stakeholders is imperative and the rules applied in this interaction need to work fine. In this research, we do not focus on the comparison between Latin America and the rest of the world due to its peculiarities, diminishing the extent of our results. Although, as
Challenge to theory Implications Methodological challenges
In Latin America, Institutional pro-market reforms benefit domestic firms over foreign MNEs
Host government intervention generally is related to specific objectives of the government vis-a-vis multinational firms
Need to re-think the reforms in order to turn them
uncharacterized as dumping practices
Culture may delay the ability to effectively standardize the process of development strategies across intra and inter-cultural relationships
Regional subcultures and intra-country cultural variation does have a significant importance within the management investigation.
Need to understand how culture influences the relationship between parent firms and its subsidiaries
Forming a strategic alliance with a foreign multinational firm might be a superior mechanism for ensuring good corporate governance to the firms
The attention provided by home country firm managers to different locational factors depends on the level that each group of host countries has reached in their main objective
Meyer and Peng (2005) pointed to, such comparison might fail to explore institutional similarities and differences due to the role of cultural patterns inside Latin America`s companies.
Meyer (2004) suggested that IB scholars might get into the inner logic of multinational companies that should enhance both policy and management decisions crucial for the future of the global economy, facilitating beneficial outcomes. In terms of Latin America, in which policy resolutions are so more imperative to the international path than market decisions, this logic is even more fundamental. Both TCE and RBT approach might help MNEs in environments of weak infrastructure and institutions to achieve greater collective efficiencies and access to global markets (MESQUITA & LAZARINI, 2008).
In this line of thinking, one extremely important concern is the urgency in correcting the unbalanced rules that function in favor to the establishment of better conditions that warrant international company development without resource to direct investment abroad (CASTAÑOS AND RODRIGUEZ, 2004). The development of both Japanese and European companies, as an example, was due to changes in these types of rules and they might lead Latin America to a different level in the international market, even though the Institutional reality in both regions is completely different from those in Latin America.
This study allows us to deduce, just like Alvarez (2004) concluded in his seminal work, that a greater effort in international business, processing innovation and the exploitation of export promotion programs might contribute positively to EMMNEs development. Cultural affinity is also very important in order to build a strategy to go abroad, when analyzing ownership, location and internalization factors (GALAN & GONZALEZ-BENITO, 2006), which are the factors that are deeply rooted in the theories chosen by us in this work.
In their work, Meyer and Peng (2005) signaled the need for separate research efforts in different regions with more comparative studies, like we aimed in this research. And, like they predicted, the institution-based view of business strategy must be further examined once, even predominant in our database, this theory is also the most complex one when compared with the other two theories explored by us. However, its’ complexity is more attached to Latin America reality.
Other conclusions might be taken from previous researches within emerging markets in general. Chittoor (2009) stated that companies from emerging economies such as India and Argentina tended to internationalize in neighboring and other developing countries (and not into developed countries) primarily through country-specific ownership advantages. In this same sense, Meyer (2006, 2007) added that IB research explicitly contributes to the theoretical development of the larger field of business disciplines and social sciences. Peng (2006) argued that research with a focus on emerging economies helps lead to the emergence of an institution-based view of strategy, in parallel with the traditional industry- and resource-based views.
Of course, as most of the work in this area, we needed to limit the scope of the research in order to have a feasibility review. As its predecessor, this research also fails to cover non-management research, even though we agree that management, which encompasses strategy theories, unlike disciplines such as accounting, marketing and finance, is the largest contributing discipline of IB research. The option for the three sets of leading theories is based on Meyer and Peng (2005) proposal, which, on the other hand, was based on their own readings and contributions.
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