Working Paper
| HBS Working Paper Series
| 2013
Entrepreneurs, Firms and Global Wealth since 1850
G. Jones
This working paper integrates the role of entrepreneurship and firms into debates on why Asia, Latin America and Africa were slow to catch up with the West following the Industrial Revolution and the advent of modern economic growth. It argues that the currently dominant explanations, which focus on deficient institutions, poor human capital development, geography and culture are important, but not sufficient. This is partly because recent research in business history has shown that several of the arguments are not empirically proved, but especially because the impact of these factors on the creation and performance of innovative business enterprises is not clearly specified. Modern economic growth diffused from its origins in the North Sea region to elsewhere in western and northern Europe, across the Atlantic, and later to Japan, but struggled to get traction elsewhere. The societal and cultural embeddedness of the new technologies posed significant entrepreneurial challenges. The best equipped to overcome these challenges were often entrepreneurs based in minorities who held significant advantages in capital-raising and trust levels. By the interwar years productive modern business enterprise was emerging across the non-Western world. Often local and Western managerial practices were combined to produce hybrid forms of business enterprise. After 1945 many governmental policies designed to facilitate catch-up ended up crippling these emergent business enterprises without putting effective alternatives in place. The second global economy has provided more opportunities for catch up from the Rest, and has seen the rapid growth of globally competitive businesses in Asia, Latin America and Africa. This is explained not only by institutional reforms, but by new ways for business in the Rest to access knowledge and capital, including returning diaspora, business schools and management consultancies. Smarter state capitalism was also a greater source of international competitive advantage than the state intervention often seen in the past.
Keywords: Wealth and Poverty;
globalization;
business history;
institutional change;
political economy;
emerging economies;
developing countries;
industrial development;
culture;
human capital;
Economic History;
History;
Wealth and Poverty;
Business History;
Emerging Markets;
Globalization;
Developing Countries and Economies;
Manufacturing Industry;
Mining Industry;
Service Industry;
Latin America;
Asia;
North and Central America;
Africa;
South America;
Europe;
Article
| Harvard Business Review
|
January–February 2013
When the Crowd Fights Corruption
Paul M. Healy and Karthik Ramanna
Corruption is the greatest impediment to conducting business in Russia, according to leaders recently surveyed by the World Economic Forum. Indeed, it's a problem in many emerging markets, and businesses have a role to play in combating it, according to Healy and Ramanna. The authors focus on RosPil—an anticorruption entity in Russia set up by Alexey Navalny, a crusader against public and private malfeasance in that country. As of December 2011, RosPil claimed to have prevented the granting of dubious contracts worth US$1.3 billion. The organization holds corrupt politicians' and bureaucrats' feet to the fire largely through internet-based crowdsourcing, whereby often-anonymous people identify requests for government-issued tenders that are designed to generate kickbacks. Should entities like RosPil be supported, and should companies fashion their own responses to corruption? On the one hand, there are obvious public-relations and political risks; on the other hand, corruption can erode a firm's competitiveness, the trust of customers and employees, and even the very legitimacy of capitalism. The authors argue that heads of many multinational companies are well positioned to combat corruption in emerging markets. Those leaders have the power to enforce policies in their organizations and networks, and they enjoy the ability to organize others in the industry against this pernicious threat.
Keywords: corruption;
emerging economies;
entrepreneurship;
globalization;
Crime and Corruption;
Entrepreneurship;
Ethics;
Globalization;
Russia;
Georgia (nation, Asia);
India;
Article
| American Journal of Sociology
|
January, 2013
Spanning the Institutional Abyss: The Intergovernmental Network and the Governance of Foreign Direct Investment
Juan Alcacer and Paul Ingram
Global economic transactions such as foreign direct investment must extend over an institutional abyss between the jurisdiction, and therefore protection, of the states involved. Intergovernmental organizations (IGOs), whose members are states, represent an important attempt to span this abyss. IGOs are mandated variously to smooth economic transactions, facilitate global cooperation, and promote cultural contact and awareness. We use a network approach to demonstrate that the connections between two countries through joint-membership in the same IGOs are associated with a large positive influence on the foreign direct investment that flows between them. Moreover, we show that this effect occurs not only in the case of IGOs that focus on economic issues, but also on those with social and cultural mandates. This demonstrates that relational governance is important and feasible in the global context and for the most risky transactions. Finally we examine the interdependence between the IGO network and the domestic institutions of states. The interdependence between these global and domestic institutional forms is complex, with target-country democracy being a substitute for economic IGOs, but a complement for social and cultural IGOs.
Keywords: Globalization;
Market Transactions;
Foreign Direct Investment;
Government and Politics;
Risk and Uncertainty;
Networks;
Culture;
Complexity;
Public Administration Industry;
Article
| American Economic Journal: Economic Policy
|
August 2012
Surviving the Global Financial Crisis: Foreign Ownership and Establishment Performance
Laura Alfaro and Maggie Chen
We examine the differential response of establishments to the recent global financial crisis with particular emphasis on the role of foreign ownership. Using a worldwide establishment panel dataset, we investigate how multinational subsidiaries around the world responded to the crisis relative to local establishments. We find that first, multinational subsidiaries fared on average better than local counterfactuals with similar economic characteristics. Second, among multinational subsidiaries, establishments sharing stronger vertical production and financial linkages with parents exhibited greater resilience. Finally, in contrast to the crisis period, the effect of foreign ownership and linkages on establishment performance was insignificant in non-crisis years.
Keywords: Globalization;
Financial Crisis;
Multinational Firms and Management;
Data and Data Sets;
Business Subsidiaries;
Production;
Finance;
Performance;
Ownership;
Article
| Quarterly Journal of Economics
|
November 2012
The Organization of Firms Across Countries
Nicholas Bloom, Raffaella Sadun and John Van Reenen
We argue that social capital as proxied by trust increases aggregate productivity by affecting the organization of firms. To do this we collect new data on the decentralization of investment, hiring, production, and sales decisions from Corporate Headquarters to local plant managers in almost 4,000 firms in the United States, Europe, and Asia. We find that firms headquartered in high trust regions are more likely to decentralize, with trust accounting for about half of the variation in decentralization in our data. To help identify causal effects, we look within multinational firms, and show that higher levels of bilateral trust between the multinational's country of origin and subsidiary's country of location increases decentralization, even after instrumenting trust using religious and ethnic similarities between the countries. Trust raises aggregate productivity through two channels: (1) trust facilitates reallocation between firms by allowing more efficient firms to grow as CEOs can decentralize more decisions and (2) trust complements the adoption of new technologies, thereby increasing productivity within firms during times of rapid technological change.
Keywords: Decentralization;
Social capital;
Theory of the Firm;
Firm Objectives, Organization, and Behavior;
business economics;
Management of Technological Innovation and R＆D;
Technological Change: Choices and Consequences;
Diffusion Processes;
Organizational Structure;
Performance Productivity;
Trust;
Technology Adoption;
Multinational Firms and Management;
Citation:
Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. "The Organization of Firms Across Countries."
Quarterly Journal of Economics 127, no. 4 (November 2012). (
Slides from 2008, Harvard Business School Working Paper, No. 12-005, August 2011.)
Article
| Organization Science
|
September–October 2012
Egalitarianism, Cultural Distance, and Foreign Direct Investment: A New Approach
Jordan I. Siegel, Amir N. Licht and Shalom H. Schwartz
This study addresses an apparent impasse in the research on organizations' responses to cultural distance. Using historically motivated instrumental variables, we observe that egalitarianism distance has a negative causal impact on FDI flows. This effect is robust to a broad set of competing accounts, including the effects of other cultural dimensions, various features of the prevailing legal and regulatory regimes, other features of the institutional environment, economic development, and time-invariant unobserved characteristics of origin and host countries. We further show that egalitarianism correlates in a conceptually compatible way with an array of organizational practices pertinent to firms' interactions with non-financial stakeholders, such that national differences in these egalitarianism-related features may affect firms' international expansion decisions.
Keywords: FDI;
foreign direct investment;
neo-institutionalism;
multinational firm;
cultural distance;
egalitarianism;
regulatory arbitrage;
Pollution Haven Hypothesis;
Foreign Direct Investment;
Global Strategy;
Culture;
Entrepreneurship;
Citation:
Siegel, Jordan I., Amir N. Licht, and Shalom H. Schwartz. "
Egalitarianism, Cultural Distance, and Foreign Direct Investment: A New Approach."
Organization Science 23, no. 5 (September–October 2012). (This study addresses an apparent impasse in the research on organizations' responses to cultural distance. Using historically motivated instrumental variables, we observe that egalitarianism distance has a negative causal impact on FDI flows. This effect is robust to a broad set of competing accounts, including the effects of other cultural dimensions, various features of the prevailing legal and regulatory regimes, other features of the institutional environment, economic development, and time-invariant unobserved characteristics of origin and host countries. We further show that egalitarianism correlates in a conceptually compatible way with an array of organizational practices pertinent to firms' interactions with non-financial stakeholders, such that national differences in these egalitarianism-related features may affect firms' international expansion decisions.)
Working Paper
| HBS Working Paper Series
| 2012
Entrepreneurship in the Natural Food and Beauty Categories Before 2000: Global Visions and Local Expressions
Geoffrey Jones
This working paper examines the creation of the global natural food and beauty categories before 2000. This is shown to have been a lengthy process of new category creation involving the exercise of entrepreneurial imagination. Pioneering entrepreneurs faced little consumer demand for natural products, and little consumer knowledge of what they entailed. The creation of new categories involved three overlapping waves of entrepreneurship. The first involved making the ideological case for natural products. This often entailed investment in education and publishing activities. Second, entrepreneurs engaged in the creation of industry associations which could advocate, as well as give the nascent industry credibility and create standards. Finally, entrepreneurs established retail stores, supply and distribution networks, and created brands. Entrepreneurial cognition and motivation frequently lay in individual, and very local, experiences, but many of the key pioneers were also highly globalized in their world views, with strong perception of how small, local efforts related to much bigger and global pictures. A significant sub-set of the influential historical figures were articulate in expressing strong religious convictions. The paper concludes that by the 1990s it was evident that the success of entrepreneurial pioneers in building the market for green products created a new set of issues, especially related to the legitimacy of their businesses and of the concept of greenness.
Keywords: globalization;
marketing;
Beauty and Cosmetics Industry;
business history;
consumer goods;
entrepreneurs;
environment;
food;
Food;
Globalization;
Business History;
Agribusiness;
Agriculture and Agribusiness Industry;
Beauty and Cosmetics Industry;
Consumer Products Industry;
Food and Beverage Industry;
Asia;
Europe;
Latin America;
Middle East;
North and Central America;
Article
| Organizational Behavior and Human Decision Processes
|
July 2012
Collaborating Across Cultures: Cultural Metacognition and Affect-Based Trust in Creative Collaboration
Roy Y.J. Chua, Michael W. Morris and Shira Mor
We propose that managers' awareness of their own and others' cultural assumptions (cultural metacognition) enables them to develop affect-based trust in their relationships with people from different cultures, enabling creative collaboration. Study 1, a multi-rater assessment of managerial performance, found that managers higher in metacognitive cultural intelligence (CQ) were rated as more effective in intercultural creative collaboration by managers from other cultures. Study 2, a social network survey, found that managers lower in metacognitive CQ engaged in less sharing of new ideas in their intercultural ties but not intracultural ties. Study 3 required participants to work collaboratively with a non-acquaintance from another culture and found that higher metacognitive CQ engendered greater idea sharing and creative performance, so long as they were allowed a personal conversation prior to the task. The effects of metacognitive CQ in enhancing creative collaboration were mediated by affect-based trust in Studies 2 and 3.
Keywords: Management;
Cross-Cultural and Cross-Border Issues;
Relationships;
Trust;
Social and Collaborative Networks;
Creativity;
Article
| Organization Science
|
March–April 2012
The Rise and Fall of Small Worlds: Exploring the Dynamics of Social Structure
Ranjay Gulati, Maxim Sytch and Adam Tatarynowicz
This paper explores the interplay between social structure and economic action by examining some of the evolutionary dynamics of an emergent network that coalesces into a small-world system. The study highlights the small-world system's evolutionary dynamics at both the macro level of the network and the micro level of an individual actor. This dual analytical lens helps establish that, in competitive and information-intensive settings, a small-world system could be a highly dynamic structure that follows an inverted U-shaped evolutionary pattern, wherein an increase in the smallworldliness of the system is followed by its later decline due to three factors: (1) the recursive relationship between the evolving social structure and individual actors' formation of bridging ties, which eventually homogenizes the information space and decreases actors' propensity to form bridging ties, creating a globally separated network; (2) self-containment of the small-world network, or increasing homogenization of the social system, which makes the small world less accepting of and less attractive to new actors, thereby limiting formation of bridging ties to outside clusters; and (3) fragmentation of the small-world network, or the small-world system's inability to retain current clusters. The study uses data on interorganizational tie formation in the global computer industry in the period from 1996 to 2005 to test the hypothesized relationships.
Keywords: Culture;
System;
Relationships;
Globalization;
Industry Clusters;
Information;
Networks;
Competitive Strategy;
Computer Industry;
Article
| Harvard Business Review
|
July–August 2012
The Growth Opportunity That Lies Next Door
G. Jones
This article uses the case of Natura, the largest Brazilian beauty company and one of the world's top twenty beauty companies, to explore how the logic of globalization is changing for corporations from emerging countries as growth opportunities in those countries outpace those in developed markets. For 30 years Natura attempted to move, with mixed results, into developed markets even as the opportunities of its region have grown stronger and stronger. Ultimately Natura has moved beyond stereotypes of globalization, recognizing that winning in Argentina, Chile, and Mexico can be an entry onto the world stage every bit as effective as conquering Paris or New York.
Keywords: Brazil;
marketing;
globalization;
green marketing;
environment;
Globalization;
Developing Countries and Economies;
Geographic Location;
Growth and Development Strategy;
Beauty and Cosmetics Industry;
Latin America;
Europe;