Abstract
Research summary: Emerging markets are characterized by underdeveloped institutions and frequent environmental shifts. Yet, they also contain many firms that have survived over generations. How are firms in weak institutional environments able to persist over time? Motivated by 69 interviews with leaders of emerging market firms with histories spanning generations, we combine induction and deduction to propose reputation as a meta-resource that allows firms to activate their conventional resources. We conceptualize reputation as consisting of prominence, perceived quality, and resilience, and develop a process model that illustrates the mechanisms that allow reputation to facilitate survival in ways that persist over time. Building on research in strategy and business history, we thus shed light on an underappreciated strategic construct (reputation) in an undertheorized setting (emerging markets) over an unusual period (the historical long run). Managerial summary: Why are some firms able to persistently survive in challenging, uncertain, and underdeveloped business environments? To explore this question, we analyze in-depth interviews with leaders of emerging market firms that have survived over decades and even centuries. We find that firm reputation is a key strategic driver, and propose new ideas about the ways through which reputation facilitates survival. We elaborate how a favorable reputation allows a firm to more fully utilize its existing resources by decreasing uncertainty. We also propose that reputation has offensive and defensive properties that make it valuable to firms during both positive and negative economic cycles. Finally, we discuss why a reputation-based source of competitive advantage is hard to imitate, and outline three general approaches for building reputation. Copyright © 2017 John Wiley & Sons, Ltd.
Highlights
Emerging markets are characterized by institutional voids (Khanna and Palepu, 1997)
In emerging markets, a favorable reputation can act as a meta-resource that moderates whether a firm can activate its conventional resources, and illuminate the mechanisms that connect reputation to long run survival
We propose that reputation is crucial for survival in emerging markets, because it allows firms to overcome and capitalize on the transaction uncertainty created by institutional voids
Summary
Emerging markets are characterized by institutional voids (Khanna and Palepu, 1997). Doing so can be difficult and failure rates are high; for instance, emerging market banks had an estimated failure rate of 25 percent over a seven year period in the 1990s (Brown and Dinc, 2005). Emerging markets are rife with examples of firms and business groups that have survived over decades, generations, and even centuries. Grupo Bimbo, founded in Mexico in the 1940s, endured national and international turbulence to emerge as one of the world’s largest bakeries; Tata Group was founded in 1868 and developed into a leading Indian business group despite facing colonialism, rebellions, and major social transformations; and Koç Holding, founded in 1926, survived numerous national and regional crises to maintain its foothold as Turkey’s leading business group. Emerging markets present researchers with a puzzle: How are firms competing in such weak institutional environments able to persist across time?
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