Firms In Advanced Economies Research Articles

Whither the Walking Dead? The Consequences of Artificial Intelligence for Zombie Firms

Abstract Zombie firms have been a prominent yet controversial subject of academic and policy debates in recent years. In this article, we first revisit the economic consequences and driving factors of zombie companies and then, based on this assessment, discuss the implications of artificial intelligence (AI) for zombie firms. We document that the share of zombie firms in advanced economies has risen considerably over the past three decades, and that this increase has been a significant drag on productivity growth. We further find that persistently low interest rates are a significant causal factor underlying the rise of zombie companies. Turning to AI, we argue that an AI-induced productivity boom may counteract the drag from zombie firms and improve firm performance, mitigating corporate zombification. Moreover, by leading to higher interest rates that force zombie firms to exit markets, AI may boost productivity further in the longer run – a so far overlooked channel in the debate on the economic implications of AI.

Economics of technology cycle time (TCT) and catch-up by latecomers: Micro-, meso-, and macro-analyses and implications

This paper provides an analytical review of the literature on the role of technology cycle time (TCT) in the catching-up process of latecomers at the firm, sectoral, and national levels. At the national level, latecomer economies follow a detour that consists of economic growth through specialization in short-TCT sectors during the catching-up phase, followed by a shift to long-TCT sectors in the post-catching-up phase. The paper then discusses the double-edged nature of TCT at the sectoral level, such that short TCT can either be a window of opportunity associated with the rapid obsolescence of existing technologies and thus low entry barriers, or another source of difficulty associated with the truncation of learning from existing technologies. Only latecomers with a certain absorptive capacity can benefit from short TCT as a window of opportunity. Finally, at the firm level, this paper discusses the issue of possible convergence in the behavior of catching-up firms towards those of mature firms in advanced economies. At all three levels, the keywords are detours and convergence. Given the barriers to entry in long-TCT sectors, latecomers pursue a strategy of detouring into short-TCT sectors. That is, instead of trying to emulate incumbents by entering long-TCT sectors, latecomers take the opposite route. Subsequently, as latecomers improve their capabilities over time, they shift their specialization from short to long TCT sectors, thereby achieving convergence in behavior and strategy at the firm, sectoral, and national levels.

Does Technological Intensity Matter for Global Cross‐Border Mergers and Acquisitions in Manufacturing, 1998–2018?

AbstractDespite being a key feature of the globalising world since the 1980s, the patterns and relationships between acquirer and target firms in cross‐border mergers and acquisitions (M&As) have only gained attention in recent years. By examining the data between 1998 and 2018 through multinomial logistic regression models, this paper investigates the goodness of match on technological intensity (the closeness of technological capabilities) between acquirer and target firms and the effects of geographical, cultural and institutional proximity in global cross‐border M&As in manufacturing sectors. Our results suggest that firms are more likely to acquire overseas counterparts with similar levels of technological intensity in manufacturing. Moreover, geographical proximity is significant in the M&As of target firms in low‐tech and medium‐low‐tech sectors, while cultural and institutional proximity matter for cross‐border M&As among medium‐high‐tech and high‐tech firms. High‐tech acquirer firms in advanced economies tend to acquire their high‐tech counterparts located in larger economies, while technological intensity is more important for high‐tech acquirer firms based in non‐advanced economies, as the closeness of technological knowledge with potential target firms allows them to generate potential synergies and overcome cultural gaps and foreignness in distant host countries.

Polish subsidiaries in Germany – post-transition country firms’ legitimation strategies

Legitimacy in foreign markets, a concept rooted in institutional theory, has traditionally been examined for firms originating from advanced economies. However, it becomes more complex for firms from emerging and post-transition economies. Polish firms began establishing foreign subsidiaries after the accession to the EU, primarily in European markets. In this context, Germany was a key destination for Polish foreign direct investment (FDI). However, scholarly literature about foreign subsidiaries established or acquired by Polish firms is limited. This article presents the analysis of the legitimation strategies employed by post-transition country firms in advanced economies, using Polish subsidiaries in Germany as empirical cases. The empirical context is chosen due to its economic significance and the close linkages between Poland and Germany. With a conceptual framework, the authors synthesise legitimation strategies discussed in scholar literature and highlight some unique challenges for post-transition economy’s firms. The article presents outcomes from a qualitative study, extending the framework and offering some fresh perspectives in the field of international business legitimacy.

Contrasting knowledge development for internationalization among emerging and advanced economy firms: A review and future research

Knowledge development—an integral part of firms’ internationalization—has generated a considerable amount of research on how firms from emerging and advanced countries acquire, integrate, and utilize knowledge. Despite theoretical justifications for the context significance for internationalization, the existing literature is fragmented and overlooks whether and how firms originating in distinct countries differ in their knowledge development processes. Relying on the antecedents, decisions, and outcomes, and the theory, context, characteristics, and methodology frameworks, we bridge this gap by reviewing 81 papers published in leading journals since 2007. Our paper extends the literature by classifying knowledge development during firm internationalization from emerging and advanced countries. We show how environmental and status differences create diverse effects on the type of knowledge firms seek, the ways they acquire and integrate it, and the consequent internationalization decisions. Among notable further directions, we emphasize shifting focus from organization- to individual-level learning in diverse organizational contexts.

The efficacy of marketing skills and market responsiveness in marketing performance of emerging market exporting firms in advanced markets: The moderating role of competitive intensity

Emerging market exporting firms in advanced economies must manage a highly dynamic landscape owing to factors such as changing market needs and fierce competition. Hence, these firms need to develop unique marketing skills for superior performance. Accordingly, this study draws on the resource-based and dynamic capability theory to empirically examine the role of marketing skills in developing a dynamic capability—market responsiveness—for improved marketing performance, and the changes in this relationship under highly competitive intensity. Using a sample (n = 98) of firms originating from an emerging market (Pakistan) mainly exporting to advanced markets (the United Kingdom, the United States or both), the findings show that marketing skills, positively mediated by market responsiveness, influence the marketing performance of such firms in advanced markets. The indirect relationship is positively moderated by a higher level of competitive intensity. This study extends the dynamic capability and export marketing streams of literature, particularly for emerging market exporting firms in advanced markets, and provides useful performance implications to export marketing managers.

Bankruptcy prediction for private firms in developing economies: a scoping review and guidance for future research

The majority of studies on corporate bankruptcy detection are devoted to publicly-traded firms in advanced economies. Literature on bankruptcy prediction for private corporations is generally restricted and that for such corporates in undeveloped markets is even more limited. Existent evidence on privately-owned corporate bankruptcy forecasting is substantially dedicated to advanced countries. Implementing a scoping review structure of Arksey and O’Malley (Int J Law Manag 57:461–485, 2005), this paper carries out a review of literature concerning bankruptcy forecasting for privately-held firms in undeveloped economies. The main emphasis of the scoping review is to examine the reasons and motives for research, emerging trends and research gaps in modelling bankruptcy risk for private corporations in developing countries. The results of this scoping review show that the estimation of bankruptcy probability for privately-traded corporations in developing economies is a relevant discipline that has not been appropriately examined and has some unique and unexplored areas due to its sophistication and distinctive business ethos of private corporates.

Does innovation and financial constraints affect the propensity to save in emerging markets?

Despite the surge in corporate savings and heightened interest in understanding the reasons for this behaviour, little is known about the forces behind this stylised phenomenon in emerging markets (EMs). Using a large sample of firms from nine African countries over the period 2001–2015, we posit and find that the propensity to save is higher in this context due to limited access to external finance. However, when we examine the effects of innovation on corporate savings, we find that the results are reversed as, relative to Non-R&D firms, R&D firms save less of their operating cash flow. This is in stark contrast to the extant literature in advanced economies, which shows that savings are essential to smoothen lumpy, irreversible and risky investments in innovation. We find this is due to the reversal in firm-specific factors, with R&D firms in this context being larger and more mature; hence, relying less on internal financing sources compared to young and less-mature R&D firms in advanced economies. We interpret our results as suggestive of the overarching influence of access to external finance as a major determinant of the propensity to save and deterrent to investing in innovation. Our finding helps explain the glut in innovation amongst small and young firms in emerging markets and calls for policies that promote innovation.

Systems Integration and the Dynamics of Partial Outsourcing

Firms in advanced economies are increasingly outsourcing software and technology development as well as other knowledge work to a worldwide supply base. Standard economic and learning models predict that focal firms should outsource either all or none of a particular activity unless extra resources are required during cyclical demand peaks or access is needed to some tightly appropriable intellectual property. However, recent evidence shows that, even when these exceptions do not apply, many firms pursue a partial outsourcing strategy. We develop a dynamic optimization model to provide a rational explanation for this observation. In our model, learning from prior projects occurs at both the subsystem level and the overall systems level (e.g., systems integration and architecture). Learning at the two levels interacts such that integration capabilities can dynamically build and decay. The model generates conditions where partial outsourcing is rational and dominates the extreme conditions of complete insourcing or complete outsourcing. Our model also specifies the conditions for regime change between insourcing and outsourcing and cycling between insourcing and outsourcing, and overshooting or undershooting the long‐run outsourcing target. Furthermore, we show that these results are highly path‐dependent under short horizons. The model also provides explanation for interesting questions such as why the rate of outsourcing might be U‐shaped in the rate of technological change and why startups so often insource in contrast to more established counterparts in similar industries.

Thrifty firms and thriftless households are risks to growth

▀ Structural changes in savings behaviour by households and especially firms in advanced economies in recent years pose threats to global growth. Household savings may have been compressed by high wealth levels, pointing to the risk of a sharp rise in saving and fall in spending if asset prices correct. One positive compared to a decade ago, however, is that US personal saving is less depressed than then. ▀ The bigger risk is arguably on the corporate side, where firms' net savings have risen on average by 2–3 percentage points of GDP since the early 1990s. This has been accompanied by weakening investment, especially in net terms. The reasons behind this are varied – post‐crisis caution, demographic factors and a shift to R&D intensive industry may all have played a role. But a key factor is likely to have been changes in incentives facing executives, leading them to prioritise stock buybacks over investment. This risks creating a long‐term low‐growth feedback loop.

Using involvement to enhance employee engagement in IT firms: examining leadership initiatives in a key developing national context

Many organisational leaders increasingly use employee involvement to serve their interests, spurred by the unitarist rationale of leader-member exchange (LMX). Existing research into employee involvement and participation (EIP) management has mainly focused on manufacturing firms in advanced economies and has not kept pace with developments in settings where practice is primarily governed by organisational leaders plus greater use is made of informal and technologically assisted EIP. Consequently, this paper investigates the management of EIP in IT firms at the forefront of these developments in India. The findings reveal how an array of informal initiatives, including social media, are being used to permeate traditional LMX and EIP boundaries to reinforce unitarist leadership goals. Limitations to some of these initiatives are elucidated, as they are unevenly used and contested by employees. Thus, the paper contributes to critiques of LMX as an ancillary framework for EIP.

Real Exchange Rates, Economic Complexity, and Investment

We show that the response of firm-level investment to real exchange rate movements varies depending on the production structure of the economy. Firms in advanced economies and in emerging Asia increase investment when the domestic currency weakens, in line with the traditional Mundell-Fleming model. However, in other emerging market and developing economies, as well as some advanced economies with a low degree of structural economic complexity, corporate investment increases when the domestic currency strengthens. This result is consistent with Diaz Alejandro (1963)-in economies where capital goods are mostly imported, a stronger real exchange rate reduces investment costs for domestic firms.

Real Exchange Rates, Economic Complexity, and Investment

We show that the response of firm-level investment to real exchange rate movements varies depending on the production structure of the economy. Firms in advanced economies and in emerging Asia increase investment when the domestic currency weakens, in line with the traditional Mundell-Fleming model. However, in other emerging market and developing economies, as well as some advanced economies with a low degree of structural economic complexity, corporate investment increases when the domestic currency strengthens. This result is consistent with Diaz Alejandro (1963)—in economies where capital goods are mostly imported, a stronger real exchange rate reduces investment costs for domestic firms.

Catch-up as a Survival Strategy in the Solar Power Industry

Abstract We evaluate the strategies of the emerging market firms in the context of nascent industries. We use the Indian solar power industry as the empirical setting, against the backdrop of the evolution of the global industry, While in traditional industries emerging market firms learn from advanced economy multinational enterprises (MNEs) and slowly upgrade their capabilities, in the intensely competitive environment of nascent innovative industries, emerging market firms are exposed to global competition in their home market right from the early years. This shortens their catch-up clock. As a result, their long-term survival depends on their ability to catch-up fast, both in output and innovation capabilities. In the solar power industry, we find that innovations stem, in the main, from advanced economy firms. Further, Chinese firms are beginning to move from cost-based imitation to innovation. In contrast, with a few key exceptions, most firms in the Indian solar industry remain locked within a narrow niche of downstream site-based installation. Their operations are opportunistic, short term, and without specific catch-up goals, a scenario that does not bode well for the industry's future in India.

Spatial distribution of innovation networks, technological competencies and degree of novelty in emerging economy firms

ABSTRACTThis paper analyses the relationship of the accumulation of technological competencies at the firm level, the spatial distribution of the firm's innovation networks and the degree of novelty of product innovation. Firm-based primary data collected in two innovative regions in emerging economies are used to predict higher degrees of novelty in emerging economy firms. Similarly to advanced economy firms, the results show that international linkages are associated with higher degrees of novelty. However, new-to-the-world innovation in emerging country firms is fundamentally externally driven, suggesting that international linkages seem to be a compensating mechanism for the initially lower technological capabilities rather than a complementary source of knowledge.

Collective financing among Chinese entrepreneurs and department store retailing in China

Chinese entrepreneurship in department store retailing differed from that seen in other emerging economies before 1940. Rather than the leading examples of the format being owned by advanced economy firms, in China a small group of Cantonese entrepreneurs established what became known as the ‘Big Four’ department stores in Shanghai. By 1940 the ‘Big Four’ department stores were among the most famous stores in China, and among the biggest businesses in China. None of these Chinese entrepreneurs had any prior experience in department store retailing. Rather this article explains how their success in department store retailing was dependent on a business model that enabled these Chinese entrepreneurs to act as informal investment bankers (or ‘shadow’ banks) for the thousands of overseas Chinese wanting to invest surplus savings in mainland China, so creating large indigenous business groups.

Patterns of knowledge use in ‘low-tech’ industries

The innovativeness of low- and medium-technology (LMT) manufacturing firms in advanced economies has been the research focus of a growing body of literature since the beginning of the last decade. This paper reviews the main research findings and highlights the largely unresolved problem in LMT research of the contradiction between the presumed homogeneity of LMT sectors because of the formal category of ‘low R&D intensity’, and the heterogeneity of the same firms in LMT sectors. To overcome this problem, the paper proposes an empirical taxonomy of innovative LMT firms based on the dimension of knowledge. To sketch out this knowledge-oriented taxonomy, the paper uses the concept of the ‘distributed knowledge base’. In this approach, four different patterns of knowledge use in LMT firms can be identified. This conceptual perspective has consequences for understanding the sources and directions of innovation strategies in LMT firms and the perspectives of LMT sectors pertaining in advanced economies, such as the EU. Additionally, specific recommendations on innovation policy can be inferred from these considerations that go beyond the current state of the art. Overall, this paper sums up some of the findings of past low-tech research, and reinterprets its central findings.

The Speed and Extent of New Venture Internationalisation in the Emerging Economy Context

Objective : The objective of this paper is to explore to what extent the patterns of the internationalisation process described in the new venture (NV) internationalisation theory, developed on the experience and practice of advanced economy firms, apply to the emerging economy context. Research Design & Methods : The paper is a systematic literature review developed on the basis of peer reviewed journal articles on NV internationalisation in emerging economies. It critically evaluates the applicability of arguments proposed by the NV internationalisation theory to the emerging economy context. Findings: In contrast to firms from advanced economies, internationalisation of NV from emerging economies is mainly driven by push factors related to their domestic markets. Transportation, communication and digital technology play a less relevant role in emerging economies; besides, their significance is more context specific; while their absence does not inhibit rapid internationalisation. Implications & Recommendations: To better understand the process of NV internationalisation in the emerging economy context, it is necessary to study to what extent other theoretical logics contribute to its explication. Further research should also seek to synthesise findings of research on other major theoretical frameworks. Contribution & Value Added: The paper contributes to the NV internationalisation theory by offering some propositions on the specifics of international entrepreneurship in the emerging economy context.

The Resource-based View and SME Internationalisation: An Emerging Economy Perspective

Objective : The aim of the paper is to advance the development of theory in the field of international business by seeking to understand to what extent the resource-based view (RBV), built on the experience and evidence from advanced economies, helps understand the internationalisation process of emerging economy SMEs. Research Design & Methods : The paper is built on a systematic literature review of peer-reviewed journal articles on SME internationalisation motives and enablers in emerging economies. Findings: The RBV arguments explain the internationalisation process of emerging economy SMEs only to some extent. In contrast to advanced economy firms, the internationalisation of SMEs from emerging economies is more likely to be driven by the exploitation of cost advantage, and motivation to gain new knowledge that is unavailable domestically and enhance their domestic market reputation. Besides it is more handicapped by a lack of internationalisation experience or international ties. Implications & Recommendations: To understand the process of emerging economy SME internationalisation, it is necessary to study to what extent other logics contribute to its explication. Further research should also seek to synthesise findings of the above major theoretical frameworks in the context of emerging economy SME internationalisation process. Contribution & Value Added: The originality of this work lies in studying the internationalisation motives and enablers of indigenous SMEs in emerging economies and challenging the applicability of the RBV arguments in this specific context.

Accessing vs sourcing knowledge: A comparative study of R&D internationalization between emerging and advanced economy firms

Research and development (R&D) internationalization is on the rise for advanced economy multinationals (AMNEs) as well as emerging economy multinationals (EMNEs). We study EMNE R&D internationalization by comparing it to that by AMNEs in the context of an emerging, knowledge-intensive industry. We find that these two are fundamentally different processes. While the internationalization of AMNEs’ R&D activities can largely be explained in terms of the twin strategies of competence exploitation and competence creation, EMNE R&D internationalization is rooted in the firms’ overall catch up strategy to get on par with industry leaders. An in-depth comparison of knowledge flows reveals that within AMNEs, headquarters often serves the primary source of knowledge for R&D subsidiaries. In contrast, within EMNEs, headquarters accesses knowledge from R&D subsidiaries in advanced economies for innovation catch-up. Within this dichotomy, the innovative capabilities of EMNE headquarters develop more slowly and with greater difficulty than those of AMNE subsidiaries.