Pan-Pacific Conference XXXIV. Designing New Business Models in Developing Economies

The Role of Institutions and Strategic Resources in the Emergence of
Multilatinas
Garcia, Fernando
Dalton State College
Helms, Marilyn M.
Dalton State College
Rutti, Raina M.
Dalton State College
Fernando Garcia, Dalton State College, 650 College Dr., Dalton, USA, GA 30720, +1 (706) 272-4600
ABSTRACT
Multinational enterprises from emerging economies
are entering international markets in unconventional
ways and are becoming increasingly important in
the global economy. Recent literature has identified
the need to include Latin American emerging
economies for context. The purpose of this paper is
to develop a model which addresses gaps in the
literature by examining roles of institutional factors
on firm resources through analysis of
internationalization efforts in Multilatinas. By
integrating institutional theory and resource-based
view, our model proposes home country conditions
influence development of strategic resources within
firms, and in turn drive internationalization efforts.
Implications and future research are discussed.
INTRODUCTION
Emerging economies increasingly provide new
market, investment, and sourcing opportunities for
multinational enterprises (MNEs) [2] and in turn,
receive larger proportions of global foreign direct
investments (FDIs) [1]. Since 2005 the global
economy has witnessed the emergence of modern
MNEs predominantly from emerging economies
[13]. These ‘new’ multinationals originate from
heterogeneous country-specific contexts
characterized by their unique social, political, and
economic environments [10]. Research has shown
that new MNEs from emerging economies are
arising from fast-growing emerging economies,
implementing accelerated internationalization
strategies, exploiting current competencies, and
exploring new ways to access foreign markets to
drive FDIs [9].
Despite operating in inefficient economies with a
high degree of government intervention in economic
affairs, and a high degree of risk and uncertainty of
institutional variables [20], Latin America provides
a thriving business environment characterized by
falling poverty, a booming middle-class and
increasing commodity-based trade that are largely
driven by the economic growth [15]. In this
perspective, the term ‘Multilatina’ refers to an MNE
that is based in Latin America.
PROPOSITION DEVELOPMENT
Resource-Based View (RBV). RBV provides the
framework for understanding the process of
resource development when firms engage in
internationalization efforts. Expanding the firm’s
position using its strategic resources requires
resource development in one market prior to
entering a second. This notion is supported by
Wernerfelt [19], who suggested that firms develop
resources before going international. The
development of a firm’s capabilities and its ability
to obtain and exploit available resources is
contingent upon its operating environment [3]. This
view is consistent with Conner’s [6] assertion that
the success of the firm depends on the environment
in which it operates and that the firm’s performance
depends on the interaction of the firm’s assets, the
competitors’ assets, and environmental constraints.
Institutional Theory. According to institutional
theory, organizational structure evolves through an
adaptive process [16]. According to this view,
organizations respond to their environment by
replicating its salient features and adapting them,
over time, into their own structures. Therefore, we
can posit that a firm’s decision to develop strategic
resources depends on the firm’s institutional home
country conditions. Specifically, Multilatinas
develop distinctive advantages from an environment
that is underdeveloped in nature due to a lack of
institutional support and unstable environments [9].
These firm-specific advantages arise from their
ability to cope with home country difficulties and
allow them to develop a unique position to enter
other emerging markets.
Political Risk. Political risk was found to be a
crucial factor affecting Multilatinas’ decisions to
develop strategic resources that will help them
respond to the host country’s discriminatory
policies, changing policies, and eventual
expropriations of the firms’ assets [18]. Thus, we
expect that a high level of political risk will
encourage Multilatinas to develop firm specific
advantages that would help them succeed in
politically unstable environments. In this context,
we examine three firm capabilities that Multilatinas
develop under adverse political conditions and
institutional development: adaptation capacity,
absorptive capacity, and innovation capacity.
Adaptation Capacity. An organization’s adaptation
capacity refers to its capacity to survive
environmental conditions. The ability to survive in
increasingly complex environments have a direct
impact on the organization’s long-term survival and
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