Favor prevalence in emerging markets: A multi-level analysis

Favors are a medium of exchange for social capital. Social capital creates social, political, and economic benefits for individuals, organizations, communities, and societies around the world. Favors promote cooperation between individuals and are used to bond individual actors with other individuals, groups, communities, and institutions. Favors are prevalent in business in emerging markets because of the presence of institutional voids, limited social and geographic mobility, and strong reciprocity norms. Favors create benefits and liabilities for business organizations and their networks. They produce outcomes beyond the favor exchange process that can be characterized as productive or perverse. Despite their prevalence and importance, favors and their dynamics are not well understood. We explore the antecedents, content, process, and consequences of favors. We conclude our multi-level analysis of favors with a discussion of the “breakeven” point for favors—the point where favors tip from having a positive effect to having a negative effect on organization performance. We present an integrated framework to explain the dynamics of favors in emerging market business contexts, and develop propositions to guide future research.     

Estimating the performance effects of business groups in emerging markets

Business groups—confederations of legally independent firms—are ubiquitous in emerging economies, yet very little is known about their effects on the performance of affiliated firms. We conceive of business groups as responses to market failures and high transaction costs. In doing so, we develop hypotheses about the effects of group affiliation on firm profitability: affiliation could either boost or depress firm profitability, and members of a group are likely to earn rates of return similar to other members of the same group. Using a unique data set compiled largely from local sources, we test for these effects in 14 emerging markets: Argentina, Brazil, Chile, India, Indonesia, Israel, Mexico, Peru, the Philippines, South Africa, South Korea, Taiwan, Thailand, and Turkey. We find evidence that business groups indeed affect the broad patterns of economic performance in 12 of the markets we examine. Group affiliation appears to have as profound an effect on profitability as does industry membership, yet strategy scholars have a much clearer grasp of industries than of groups. Moreover, membership in a group raises the profitability of the average group member in several of the markets we examine. This runs contrary to the wisdom, conventional in advanced economies, that unrelated diversification depresses profitability. Overall, our findings suggest that the roots of sustained differences in profitability may vary across institutional contexts; conclusions drawn in one context may well not apply to another. Copyright © 2001 John Wiley & Sons, Ltd.     

Price dispersion and seller heterogeneity in retail food markets

Price dispersion, i.e. a homogeneous product being sold at different prices by different sellers, is among the most replicated findings in empirical economics. The paper assesses the extent and determinants of spatial price dispersion for 14 perfectly homogeneous food products in more than 400 retailers in a market characterized by the persistence of a large number of relatively small traditional food stores, alongside large supermarkets. The extent of observed price dispersion is quite high. When prices in an urban area (where the spatial concentration of sellers is higher) are compared with those in smaller towns and rural areas, differences in search costs and the potentially higher degree of competition do not yield lower prices. Other counteracting factors, including differences in seller costs and consumer incomes, make prices, on average, higher in the urban area for 11 of the 14 products considered. For many, but not all, the products supermarkets proved to be less expensive than traditional retailers, although average savings from food shopping at supermarkets were extremely low. Finally, the results of the study provide evidence that retailers have different pricing strategies and these differences also emerge for supermarkets belonging to the same chain. The results presented in the paper suggest that a variety of factors play a role in explaining price dispersion. In addition to differences in seller costs, the contemporaneous heterogeneity of retailers (in terms of services provided) and consumers (in terms of search costs and preferences) makes the emergence of monopolistic competition possible as well as allowing small traditional food retailers to remain in business.     

Price wars and price collusion in China's airline markets

In the absence of an effective antitrust law, both fare wars and price collusion have been pervasive in China's airline markets, causing concern for both airlines and consumers. A study of monthly airfare data from 2002 to 2004 confirms that fare wars occur periodically, as well as price collusion. Both tend to be short-lived. The fact that collusion is more likely to occur in January and April when demand is high, as revealed by China Eastern's and China Southern's price-war and collusion models, has been confirmed by interview information obtained from the airlines' sales managers. However, there is also evidence in these models suggesting that collusion can be more easily formed when demand is low. High airport concentration measured by the HHI may facilitate collusion in certain circumstances, but it may also lead to more price wars under other conditions. Concentration in both airports and routes does not appear to systematically affect the occurrence of fare wars and collusion in all the models estimated. We also reject the possibility that mutual forbearance due to multimarket contact plays any important anti-competitive role in China's airline markets.     

Price relations between export and domestic rice markets in Thailand

Many rice importing countries argue that rice exporting nations isolate their domestic markets through the use of stabilization pricing policies which cause international rice markets to become excessively volatile. For the argument to hold any weight, price transmission between exporting countries’ domestic and export markets should be unidirectional whereby export prices are driven by domestic prices but domestic prices are not affected by export prices. The study tests the hypothesis on Thailand, traditionally the world’s largest rice exporter. The results from the causality tests are not entirely clear, however the results from the impulse response functions show that while the shocks originating in the domestic market are higher in magnitude in the export market in the short-run, the shocks originating in the export market are more persistent in the domestic market. This suggests that although Thailand’s domestic policies are somewhat effective in the immediate months after the shock they allow price transmission from its export market to transfer over to its domestic market in the long-run. The results therefore imply that Thailand’s domestic pricing programs are not heavily distorting world rice markets.     

Business groups and corporate transparency in emerging markets: Empirical evidence from India

This study examines the difference in corporate transparency of firms affiliated with business groups and unaffiliated firms in India. Based on previous studies we measured corporate transparency using equity analysts’ forecast error and dispersion. We find that firms affiliated with business groups are less transparent than unaffiliated firms. Lack of transparency leads to higher analyst forecast error and dispersion. This study also finds that business group-affiliated firms with more intra-group capital transactions have higher forecast error and dispersion. The findings of this study suggest that firms affiliated with business groups are less transparent due to their reliance on internal capital markets, and therefore lack incentives to disclose information to market participants. As a result, the information asymmetry between business groups and the capital market is higher, restricting the activities of information intermediaries such as equity analysts, who play an important role in the external capital market.     

Competition in Turkish mobile telecommunications markets: Price elasticities and network substitution

This paper estimates demand elasticities for Turkish mobile telecommunications markets. In contrast to most other studies, firm-level data is used to estimate dynamic panel data models including instrumental variable techniques. Both short- and long-run elasticities are calculated, yielding a long-run price elasticity of −0.72 for the post-paid market and of −0.33 for the pre-paid market. The short-run price elasticity is estimated to be −0.36 for the post-paid market and −0.20 for the pre-paid market. In addition, there is evidence of fixed-to-mobile traffic substitution for consumers who use pre-paid cards.     

Brands in,from and to emerging markets: The role of industrial relationships

Adopting an explicit stance of a brand from a corporate viewpoint and taking an industrial marketing management perspective, this article identifies the causes and effects of internationalisation for brands from advanced and emerging markets. It aims to offer significant insights in advancing industrial marketing scholarship and practice. From an extensive review of extant literature, this article put forth two conceptual models (i) for brands from advanced into emerging markets, and (ii) for brands from emerging into advanced markets. These models underpin an industrial setting and are informed by Wernerfelt (1995) resource-based view of the firm as they impact on the future of corporate brand management in an international industrial marketing context.     

Innovation and new product introductions in emerging markets: Strategic recommendations for the Indian market

While radical innovations and growth strategies supporting such innovations may provide the firm with very high returns, there are also considerable risks in devising and implementing such innovations. Apart from the business risks of venturing into new territories and new markets, radical innovations also carry with them the burden of accounting for market and environmental factors that are often not under the control of the firm. The opportunities presented by the emergence of several Asian markets, such as India and China, are particularly appealing for Western countries willing to expand into these markets. However, market characteristics, institutional development, and customer behaviors bring into sharp focus the choice of a specific innovation and new product development strategy for such markets. This paper examines these various strategic issues in the context of India. The paper concludes with strategic recommendations for managers and some propositions for future academic research.     

Demand supply network opportunity development processes in emerging markets: Positioning for strategy realization in Russia

This paper aims to shed light on the management of supply chains, or rather, demand supply networks (DSN) in emerging markets by foreign companies. According to our definition, specific DSN opportunity development processes are directed towards better functionality and coordination of product, finance and information flows across the DSN. As a consequence, improved performance of the DSN may be achieved, in order to support and realize competitive business strategy and facilitate value creation for customers. To illustrate the concepts and the model, empirical evidence is presented that establishes the role of changing network structures and incumbent capabilities as constraints for DSN opportunity capture, especially in emerging markets. Our results show that DSN positioning strategies designed to overcome these constraints and facilitate opportunity capture, must be proactive, well-timed and innovative.     

The impact of entrepreneurial orientation on B2B branding and business growth in emerging markets

This study examines the relation between entrepreneurial orientation and brand orientation in industrial small and medium-sized enterprises (SMEs) and the extent to which the two contribute to business growth in emerging markets. The authors develop and empirically test a structural model using data collected from Hungary, a country that has undergone a political and economic transition during the past two decades since the fall of the iron curtain. The results show that entrepreneurial orientation has a positive effect on business growth in emerging markets, whereas brand orientation has an adverse effect. Furthermore, the study examines whether there are differences (1) between B2B firms and B2C firms operating in emerging markets and (2) between B2B firms operating in emerging markets (Hungary) and in developed markets (Finland). The results from comparative analyses suggest that while B2B firms and B2C firms do not differ significantly from each other, there are notable differences between emerging markets and developed markets. Specifically, the study finds that although brand orientation does not contribute to business growth in Hungarian B2B firms, it has a positive effect on growth in B2B firms operating in Finland.     

Financing behaviour of R&D investment in the emerging markets: the role of alliance and financial system

This paper examines the financing behaviour of research and development (R&D) investments in emerging markets. Drawing on institutional theory and using panel data of generalized methods of moment estimation for a sample of 302 firms from 20 countries during the period 2003–2015, we find that emerging market firms tend to use internal funds for financing R&D investments. Interesting results emerged when the sample was divided as alliance and non‐alliance firms, and bank‐based and market‐based financial systems. The results show that R&D financing behaves differently for alliance and non‐alliance firms. Alliance firms use both internal and external funds for R&D investments, while non‐alliance firms do not use external funds. We also document that a country's financial system influences the choice of available sources of finance. Firms from countries that follow a bank‐based financial system tend to rely on external funds while firms from countries that follow a market‐based financial system depend more on internal funds for financing R&D investments. This study is important as it provides new evidence on financing R&D investments in emerging countries taking into account the institutional arguments of financing choices, and so should guide stakeholders about appropriate sources of R&D financing.     

Scope,timing and strategic adjustment in emerging markets: Manufacturer strategies and the case of MRI

This study examines the realized strategies of all domestic manufacturers in a growing, high technology, industrial market characterized by high levels of regulatory, demand, and technological uncertainty. These manufacturers have behaved quite differently and experienced varying levels of success in the market. A typology of entry strategies grounded in an intensive analysis of these data is presented. Specifically, it addresses the timing and scope of a firm's entry into the market, strategic adjustments over time, and the impact of these decisions on the firm's performance. It is proposed that these strategies represent trade-offs between the risks of resource commitment and competitive preemption. Specific, testable hypotheses based on this typology are also provided.     

Establishing brand equity among business-to-business referral sources in the emerging markets: The case of specialty medical practice

The goal of this study is to establish brand equity among business-to-business (B2B) referral sources in the emerging markets. We consider the case of specialty medical practices (SMPs) within these markets to achieve this objective. In this regard, we conducted a qualitative study among doctors/managers involved in SMPs in a developed market to understand the functioning of an SMP, and observe the process of building brand equity among referral sources. Based on the insights, we propose a conceptual framework to establish brand equity for SMPs in the emerging markets that focuses on B2B relationships. This is one of the first studies to explore the SMP industry in the emerging markets. We also highlight future directions and call for empirical validation of the proposed framework.