Role of Informal Networks in Mitigating the Liability of Outsidership: Case of the Iranian Bazaar

Abstract

This paper proposes a refinement of the Uppsala internalization model (Johanson & Vahne, 1977; Johanson & Vahne, 2009) grounded in the network theory, by developing an intermediate position between an ‘insider’ and ‘outsider’ for conditions when the transformation of an outsider into an insider (as suggested by the model) is limited by institutional constraints. A ‘mediator’ position would then represent one of the sides of ‘patron-client’ informal networks (Denoeux, 1993), whereby the other side is represented by the ‘insider.’ We argue that this set up would help mitigate the Liability of Outsidership (Johanson & Vahne, 2009), a replacement of the Liability of Foreignness (Hymer, 1976; Zaheer, 1995) in a modern networked business world. We contextualize our proposition for the case of Iran, a large Middle Eastern economy with known institutional limitations and suggest that the informal network of local merchants (bazaaries) could play an important mediating role in MNE internationalization process in this country. We review the history of the bazaar to demonstrate our arguments.