To read the full version of this content please select one of the options below:

Knowledge will set you free: Enhancing the firm’s responsiveness to institutional change

Luis Alfonso Dau (Northeastern University, Massachusetts, USA)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 18 April 2016

Abstract

Purpose

The purpose of this paper is to combine notions from the POST Model of Economic Geography and Learning Theory from International Business to study how firms may enhance their responsiveness to institutional processes and changes through different forms of international learning. Focussing on one form of institutional changes, namely pro-market reforms, the paper analyzes how firms may boost the potential benefits from such changes through international strategies that increase their access to knowledge spillovers and absorptive capacity. These strategies include international product diversification, enhancing innovation capabilities, informal institutional exposure, accumulated internationalization knowledge, and overall experiential knowledge.

Design/methodology/approach

The hypotheses are tested using generalized least squares models with AR(1) panel-specific autocorrelation and heteroskedasticity correction. Based on the preliminary analyses performed in these studies, the author also executes a Hausman test, Bartlett’s test, and James/Alexander’s test. The results of these analyses indicate that the use of random effects is appropriate; that moderating effects are present; and that multivariate analyses using these moderators are suitable, respectively.

Findings

The results indicate that pro-market reforms have a positive and significant effect on the profitability of firms from developing countries. Furthermore, they provide support for the positive moderating effects of international product diversification, innovation capabilities, informal institutional exposure, accumulated internationalization knowledge, and overall experiential knowledge. Together, these findings suggest that through their international strategic decisions, MNEs can enhance their access to knowledge and become more responsive to institutional changes in their home market.

Research limitations/implications

This paper contributes to the economic geography literature by linking the POST Model with the classification of types of knowledge from Learning Theory. The paper analyzes how characteristics of place, organization, space, and time play a different role for each of the three basic types of knowledge that is relevant for international firms: institutional, business, and internationalization. Furthermore, the paper contributes to the literature on reforms and firm profitability by delving deeper into the moderating effect of strategic decisions on the relationship between reforms and firm performance. This allows us to have a deeper comprehension of how various sources of international learning may enhance the responsiveness of firms to institutional changes.

Originality/value

The paper provides several important contributions to the international strategy literature. First, it contributes to Learning Theory by combining it with the POST Model of Economic Geography to study how each of the three sources of knowledge (and their subcomponents) can be further broken down into factors of place, organization, space, and time. Second, it contributes to the literature of institutional change by studying how knowledge acquired through vastly different means can provide firms with sources of competitive advantage over other local competitors when responding to institutional changes in their home market. Third, it contributes to the literature on reforms and profitability by studying five novel moderators of this relationship.

Keywords

Acknowledgements

The author is grateful for the support of special issue editor William Newburry and the three anonymous reviewers for their developmental suggestions throughout the review process. The author would also like to thank the dissertation committee, Professors at the University of South Carolina, Ellie Banalieva, Amilcar Barreto, Catherine Bradley, Paula Caligiuri, Laurie Delaney, Denise Garcia, Doris Hurtado, Harry Lane, Maria Lo Piccolo, Elizabeth Moore, Ania Palka, Sheila Puffer, Ravi Ramamurti, Chris Robertson, Ravi Sarathy, Adam Shambaugh, and the authors ' family for their valuable suggestions and support on the work. This paper is based on the author ' s dissertation work and is therefore related to and builds on the other papers that arose from the dissertation research and other doctoral projects (e.g. Ayyagari et al., 2009, 2015; Cuervo-Cazurra and Dau, 2009a, b, c; Dau, 2010, 2011, 2012, 2013, 2014; Dau and Cuervo-Cazurra, 2014; Khoury et al., 2014). Self-citations were kept to a minimum during the review of the manuscript for the sake of the double-blind review process. All errors are the author ' s.

Citation

Dau, L.A. (2016), "Knowledge will set you free: Enhancing the firm’s responsiveness to institutional change", International Journal of Emerging Markets, Vol. 11 No. 2, pp. 121-147. https://doi.org/10.1108/IJoEM-02-2014-0019

Publisher

:

Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited