Entry Modes at the Base of the Economic Pyramid: The Emergence of Hybrid Organizational Forms

Abstract

Multiple scholars have recently called for more research on how macro-level institutions affect the transaction costs, and subsequent governance choice, of entering firms in less developed markets. This paper answers that call by examining the effects of institutions on the choice of hybrid governance forms in markets at the Base of the Economic Pyramid (BoP) where institutions are the weakest and often most variable. It does so by using contract theory to unpack the construct of uncertainty into two component parts, imperfect foresight and unobservability, theoretically correlating them with specific institutional arrangements at the BoP. The paper develops and tests seven hypotheses on the effects of specific institutions on the incidence of BoP-focused hybrid firms using panel data from 1960 to 2011 and time-varying, country-level, institutional indicators derived from four different World Bank datasets.