Managing institutional voids: A configurational approach to understanding high performance antecedents

Journal of Business Research xxx (xxxx) xxx–xxx

Contents lists available at ScienceDirect

Journal of Business Research journal homepage: www.elsevier.com/locate/jbusres

Managing institutional voids: A configurational approach to understanding high performance antecedents☆ Esteban R. Brenesa, a b

⁎,1

, Luciano Ciravegnab,1, Caleb A. Pichardoa,1

INCAE Business School, Costa Rica King's College, University of London, United Kingdom and INCAE Business School, Costa Rica

A R T I C LE I N FO

A B S T R A C T

Keywords: Qualitative comparative analysis Institutions Strategy Transaction costs Organizational configurations Family business Networks Latin America Agribusiness

This study analyzes the known antecedents of firm performance in emerging markets. It proposes a configurational approach for identifying the combinations of antecedents that are equifinally linked to high performance under different levels of institutional voids. The paper examines a sample of 200 firms based in 12 economies, focusing on the role of family management, vertical integration, firm size, internationalization and collaboration with other organizations. This study extends the research agenda on strategy and performance in emerging markets through a novel methodological approach, focusing on asymmetric and equifinal causal relationships. It examines an understudied region (Latin America) and industry (Agribusiness).

1. Introduction This study examines organizational configurations linked to high/ low performance in emerging markets, exploring how they vary depending on institutional voids. The weakness of markets' supporting institutions—or institutional voids—affect emerging markets by increasing the costs of doing business by, for example, making it cumbersome to obtain permits or to enforce contracts (Aulakh & Kotabe, 2008; Khanna & Palepu, 2000). Empirical evidence illustrates that firms based in emerging markets use different governance structures and strategies, such as family management and network collaborations, to manage institutional voids (Claessens, Djankov, Fan, & Lang, 2003; Gammeltoft, Barnard, & Madhok, 2010; Hoskisson, Eden, Lau, & Wright, 2000; Luo, 2003; Miller, Lee, Chang, & Breton-Miller, 2010).2 Institutional voids are a common feature of emerging markets, but their severity varies greatly from one emerging market to another (Acemoglu, Robinson, & Woren, 2012; Luo, Sun, & Wang, 2011). In Latin America, some markets, such as Haiti, consistently rank among the worst performers in most indexes measuring institutional voids, whereas others, such as Chile, have dramatically improved the quality of their pro-market institutions and now outrank some developed

economies. What remains unclear is whether and how the combination of factors that allows firms to be successful changes across countries affected by high or moderate institutional voids (Cuervo-Cazurra, Ciravegna, Melgarejo, & Lopez, 2017; Narayanan & Fahey, 2005; Peng, Sunny, Brian, & Hao, 2009). This study addresses this gap in the literature by examining the antecedents of high performance of 200 firms operating in 12 emerging markets affected differently by institutional voids. The institutional perspective and the literature on emerging markets provide empirical evidence of the strategies that firms use to compensate for institutional voids. Such strategies generally involve managing transactions through non-market mechanisms, such as internalizing them or using relational governance systems (Chittoor, Ray, Aulakh, & Sarkar, 2008; Hoskisson et al., 2000; Khanna & Yafeh, 2007; Kumar, Mudambi, & Gray, 2013). However, it is unclear whether any of these theory-grounded antecedents is, per se, sufficient to achieve high performance and what other antecedents need to be combined with it for the outcome to occur. For example, being vertically integrated may lead to high performance only if the firm also engages in internationalization to diversify from the risk of depending on an institutionally weak domestic market. In this hypothetical case, high performance would entail a combination of two antecedents, neither of

☆ The authors are grateful to Constanza Bianchi and Santiago Mingo for their support and comments. This study was sponsored by the Steve Aronson Chair of Strategy and Agribusiness, INCAE Business School. ⁎ Corresponding author. E-mail addresses: [email protected] (E.R. Brenes), [email protected] (L. Ciravegna), [email protected] (C.A. Pichardo). 1 INCAE Business School, 2 km west of Procesa Nursery # 1, La Garita, Alajuela, Costa Rica. 2 There are numerous ways to define institution. We focus here on formal institutions—ones that are formally defined, as opposed to, for example, those based on customs and unwritten rules.

https://doi.org/10.1016/j.jbusres.2018.03.022 Received 20 March 2017; Received in revised form 12 March 2018; Accepted 19 March 2018 0148-2963/ © 2018 Elsevier Inc. All rights reserved.

Please cite this article as: Brenes, E.R., Journal of Business Research (2018), https://doi.org/10.1016/j.jbusres.2018.03.022

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al.

tape, and suboptimal protection of property rights (Acemoglu et al., 2012; Khanna & Palepu, 2013). Institutional voids can be characterized in different ways and have different effects on firms, though the focus here is on formal market-supporting institutions (Godfrey, 2011; Khoury & Prasad, 2016). Institutional voids increase transaction costs; for example, frequent changes in market regulations make it difficult for firms to plan their future strategies, while cumbersome regulations require firms to spend more of their resources to obtain permits and pay taxes (Hoskisson et al., 2000; North, 1990). Institutional voids also increase the risk of opportunism. Where the institutions designed to monitor and enforce contractual compliance do not work well, the incentives to cheat are higher, and, thus, the risk of opportunism in transactions is higher (Williamson, 1985). Thus, cumbersome regulatory frameworks, slow and inefficient courts, and corrupt rule enforcement mechanisms—all of which tend to be more common in emerging economies—make firms less protected from fraud, contractual breach, and other forms of opportunism than they would be if these sorts of institutional voids were less severe (Acemoglu et al., 2012; Arruñada, 2007). For example, “Gamma” an agribusiness company based in Peru, a country with moderate institutional voids, expanded its portfolio by launching new processed food products. The first challenge it faced was to find local suppliers capable of providing products that comply with its own safety standards. With weak local institutions, the government entities supervising food safety often fail to monitor and enforce standards in a comprehensive way, and some private-sector actors take advantage of this by engaging in non-transparent practices with regard to standards compliance. As a result, Gamma, with over US $10 million in sales per year, leveraged its resources and integrated vertically. It purchased a supplier, invested in it and, thus, ensued it could access the needed inputs. Additionally, Gamma engaged in internationalization, entering two different foreign markets. Being in foreign markets helped when the company could not launch one of its new products domestically due to a delay by the national food regulation body in clarifying rules about the product's packaging and labeling. This example demonstrates the challenges faced by a firm operating in a business environment affected by inefficient regulation, weak rule of law, lack of transparency with regard to food safety standards, and unethical corporate behavior. It also shows how the firm compensated for these problems through the use of internal resources, vertical integration, and internationalization. The institutional perspective on strategy and international business emphasizes the importance of institutions when studying firm strategy and performance, illustrating that institutional contexts help to explain the differences between firms from emerging markets and their competitors in developed economies (Chakrabarty, 2009; Cuervo-Cazurra, 2012; Wright et al., 2005). However, institutional voids vary across emerging markets. To extend the institutional perspective, it is necessary to go beyond the emerging vs. non-emerging market division and study the effects of institutional quality variation on firm behavior and performance across emerging markets (Luo et al., 2011). This is one of the research gaps that this study addresses by proposing that the use of a configurational, fsQCA-based approach will advance one's understanding of the topic precisely because of its emphasis on equifinality and combinations of causal paths. The literature on emerging-market firms provides different explanations of how firms based in these markets achieve high performance in spite of the institutional voids that affect their domestic economies (Bianchi & Ostale, 2006; Luo & Chung, 2013; Mair, Martí, & Ventresca, 2012; Miller et al., 2010; Peng, Sun, Pinkham, & Chen, 2009). For example, some authors point out that family businesses, which are prevalent in emerging markets, are an antecedent of high performance in these specific contexts (Chakrabarty, 2009; Khanna & Yafeh, 2007; Miller et al., 2010). Other scholars emphasize that emerging-market firms tend to be heavily embedded in relational networks with other firms and organizations and use such networks to

which would be sufficient on its own, but which, working in tandem, would allow the firm to overcome institutional voids. Drawing on complexity theory and on previous studies in strategic management, this paper argues that there might be multiple ways in which firms achieve high performance (Aversa, Furnari, & Haefliger, 2015; Fiss, 2007; Meyer, Tsui, & Hinings, 1993). In the context of emerging markets, such as those of Latin America, firms achieve high performance by combining different sets of mechanisms that help them compensate for institutional voids, and such mechanisms vary depending on the severity of those voids (e.g. Ciravegna & Brenes, 2016). The study explores the combinations of antecedents of high performance using fuzzy set qualitative comparative analysis (fsQCA). This is a qualitative method that captures equifinality, as well as asymmetric and multi-causal outcomes. The method is suitable to exploring subjects such as high performance in emerging markets, where there are competing theoretical explanations for the same phenomenon (Kan, Adegbite, El Omari, & Abdellatif, 2016; Schneider & Wagemann, 2012). Thus, this paper responds to the calls for management scholars to use research methods other than linear regressions (e.g., Delios (2017) in the Journal of Management Studies; Welch, Piekkari, Plakoyiannaki, and Paavilainen-Mäntymäki (2011) in the Journal of International Business Studies)—in particular, fsQCA (Delbridge and Fiss (2013) in the Academy of Management Review; Misangyi et al. (2017) in the Journal of Management). The main contribution of this paper is twofold. First, it studies high performance in emerging markets using fsQCA, a novel research method that allows for equifinality. The study explores multi-causal, non-symmetric configurations of antecedents that lead equally to high ROE, corroborating previous work that used conventional linear regression methods or case-based qualitative methods. Second, the paper extends the research on strategic configurations (e.g., Aversa et al., 2015; Brenes, Ciravegna, & Woodside, 2017; Fiss, 2007, 2011) by examining them in a different geographic context (Latin America, as called for by Aguilera, Ciravegna, Cuervo-Cazurra, & Gonzalez-Perez, 2017) and industry (agribusiness, as called for by Brenes, Camacho, Ciravegna, & Pichardo, 2016) and with reference to a contextual feature (institutional voids). In doing so, two of the main research streams that have thus far used fsQCA become linked: studies of strategic configurations (Fiss, 2007) and studies of institutions and country contexts (Crilly, 2011; Pajunen, 2008). Finally, the exploratory study provides new empirical insights into the way in which the antecedents of performance combine with each other, depending on the severity of the institutional voids. This study is structured as follows. It begins with a discussion of the literature streams pointing to each of the antecedents of high performance examined here. Second, it introduces a theoretical background based on the antecedents of firm performance. Third is a description of the method used to analyze what paths lead to high (and low) performance. The final two sections present, respectively, an analysis of the results and conclusions about the paper's contributions and the value of the research to future studies. 2. Theoretical background 2.1. Institutional voids A growing number of studies discuss the challenging business conditions of emerging economies, attributing them to the weakness of the institutions that regulate and support their markets (Khoury, Junkunc, & Mingo, 2015; Wright, Filatotchev, Hoskisson, & Peng, 2005). Drawing on new institutional economics, Khanna and Palepu (2013) argue that emerging markets suffer from institutional voids—voids in the market-supporting institutions that underlie the functioning of developed countries' economies. Such institutional voids include, among other things, uncertainty in the regulatory frameworks, inefficient ruleenforcing mechanisms, malfunctioning factor markets, excessive red 2

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al.

produces the chicken used in its restaurant outlets precisely to ensure that the quality of inputs complies with its standards. This would be difficult to enforce in a context affected by weak regulatory, judiciary, and rule enforcement institutions (Brenes, Chattopadyay, Ciravegna, & Montoya, 2014). In sum, TCE argues that firms tend to integrate vertically when transaction costs are high or when factors markets fail to offer the necessary inputs, and there is empirical evidence showing that firms in emerging markets often follow such a strategy (Brouthers, 2002; Claessens et al., 2003). Thus, this study includes vertical integration as one of the antecedents of high performance in its analytical model, examining how firms combine it with other organizational features to manage different levels of institutional voids. Two points remain to be clarified: whether vertical integration is a sufficient condition for high performance; and which, if any, other antecedents interact with vertical integration to generate high performance. This study examines the configurations in which vertical integration works as an antecedent for high ROE, exploring whether and how firms combine it with other strategies to manage their business successfully in markets affected by institutional voids.

compensate for institutional voids—for example, to protect themselves from possible contractual breaches by unknown suppliers or buyers when courts may be slow, corrupt, and inefficient (Khanna & Palepu, 2013; Luo, 2003; Manolova, Manev, & Gyoshev, 2010). Firms operating in emerging markets may also internationalize more aggressively than do firms based in developed markets—possibly to escape from challenging home-market contexts—and enter advanced economies to benefit from the advantages of sophisticated consumers and functioning institutions (Guillén & García-Canal, 2009; Luo & Tung, 2007; Ramamurti, 2012). Finally, according to transaction cost economics (TCE), firms should internalize transactions to protect themselves from the risk of rent expropriation, where the, for example, rule of law provides insufficient protection against contract breach (Williamson, 2005) - empirical evidence on vertical integration and control in the retail industry in Latin America seem to support this (Ciravegna & Brenes, 2016). The explanations of institutional voids-compensating mechanisms focus on the way in which firms govern their transactions and access resources, highlighting the role of vertical and horizontal diversification, relationships with allied businesses, and family management (Khanna & Yafeh, 2007; Peng & Luo, 2000). All of these explanations are theoretically supported. What remains unclear is whether these antecedents, by themselves, are sufficient for high performance, or whether sufficient conditions for high performance involve complex and unique combinations of such antecedents, which change according to the level of institutional voids. For example, being a family business is a sufficient antecedent to success in economies with high institutional voids, but only for those firms that are also large enough to afford vertical integration; however, in economies affected by less-severe institutional voids, non-integrated smaller family businesses may perform better. The study sheds some light on this multi-theoretical, complex outcome (high performance under different institutional voids contexts) by applying a novel exploratory method, fsQCA, and examining the subject in the context of agribusiness in Latin America—consistent with the Strategic Management in Latin America Conference (SMLA) initiative (Brenes, Camacho, et al., 2016). The method used in the study starts from the theoretical premise that to understand how high performance is achieved, a configurational approach is the most suitable and the most consistent with the strategy theory that guides the research question, an issue clearly stated by, among, others, Misangyi et al. (2017).

2.3. Network collaborations The literature on emerging-market firms illustrates that the use of inter-firm networks, alliances, and personal contacts is not only prevalent but also often associated with positive effects on performance (Khanna & Rivkin, 2001; Luo, 2003). When it comes to their transactions, emerging-market companies can adopt hybrid governance mechanisms based on long-term relations and mutual reciprocity, which reduce the need to rely on overburdened courts, lengthy legal processes, and often inefficient and corrupt law enforcement mechanisms (North, 1990; Park & Luo, 2001; Peng & Luo, 2000). Network collaborations allow businesses to compensate for the inefficiencies in the regulatory and judiciary systems by relying, instead, on long-term relationships based on reciprocity, even for transactions that would be governed by more conventional market relationships, such as pure market transactions, in contexts where institutions function better. Network collaborations allow firms to reduce the risk of opportunism without having to internalize transactions—one reason for their common use in emerging economies. A manager of one of the firms in the sample stated in an interview, “We have to use our contacts. The few times we used unknown suppliers, we had issues. You have to understand that here it is different from the US or Europe. You can try to use the legal system, of course. And sometimes it may even work in a fair way. But you never know how long it will take. It is simpler to simply rely on a contact, someone who has a reciprocal interest in not cheating”.3 The founder of a juiceprocessing firm provided a different reason for the use of contacts: “It is hard to find a company that offers a high-quality service and that always delivers. There is a lot of information, but a lot of it is of not credible. How do you find the good firms in between a sea of bad ones? You ask friends, family, everybody you know. And often enough, something comes up”.4 Empirical evidence about emerging-market firms indicates that network collaboration can be an antecedent of high performance (Peng & Luo, 2000). However, whether networks are a sufficient antecedent of high performance in the context of different institutional voids remains unclear. Thus, the present study examines whether or not the firms that achieve high performance in different institutional contexts collaborate within their networks and whether they do so in combination with other strategies, such as vertical integration.

2.2. Vertical integration According to transaction cost economics (TCE), firms choose to govern their transactions with mechanisms other than the market, such as hierarchy and networks, for several reasons, most notably to reduce the risk of opportunistic behavior by their counterparts (Williamson, 1985). The likelihood of opportunistic behavior depends on many factors, including the extent to which the legal, regulatory, and judiciary institutions ensure that mutual obligations are met (North, 1990). There is empirical evidence that institutional voids increase the cost of ensuring contractual compliance, pushing firms to search for alternative governance mechanisms, including vertical integration (Peng, Wang, & Jiang, 2008). Consistent with TCE, firms based in emerging markets often internalize transactions and govern them hierarchically to reduce the costs associated with monitoring and enforcing contracts and the risk of opportunistic behavior in contexts where the rule of law is weak (Brenes, Martínez, & Pichardo, 2016; Hoskisson et al., 2000; Rugman & Verbeke, 2003). Firms may also internalize transactions when factors markets fail to provide them with the needed inputs, ranging from skilled labor to a reliable electrical grid to the supplier of a specific part or component (Fauver, Houston, & Naranjo, 2004; Wright et al., 2005). This fact helps to explain why firms in emerging markets are often vertically integrated and operate along multiple, diversified value chains (Khanna & Palepu, 2013). The Guatemalan fast food chain Pollo Campero, for example,

3 4

3

Interview: Marketing Manager, Food Processing Firm, Colombia. Interview: CEO, Juice Processing Firm, Costa Rica.

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al.

relationships with partners, buyers and suppliers, based on interpersonal ties (Uzzi, 1996). These personal relationships compensate for institutional voids, as they allow different parties to transact with each other on the basis of reciprocity and reputation—instead of relying on formal rule enforcement mechanisms—thus reducing transaction costs (Chakrabarty, 2009; Manolova et al., 2010; Peng & Luo, 2000). Family businesses are best placed to develop the relational capital, or social capital, that underlies links with other organizations—including buyers, suppliers, regulators and policy makers—precisely because they are run by the extended family rather than by professional managers who may, at any time, change jobs (Carney, 2005). In sum, the literature argues that the traits of a family business can support firm performance in emerging markets. Thus, the study includes the family business in its model and examines whether and how it links with other antecedents of high performance across markets characterized by different levels of institutional weakness.

2.4. Internationalization Another mechanism that emerging-market firms can use to manage institutional voids is internationalization (Aguilera et al., 2017; Chittoor et al., 2008; Kumar et al., 2013; Peng, 2002; Peng et al., 2008; Puffer & McCarthy, 2001). By establishing operations in foreign markets, firms can reduce the risk of depending on one highly volatile market and also gain access to inputs not available at home (Guillén & García-Canal, 2009; Lu, Xu, & Liu, 2009; Luo & Tung, 2007; Yamakawa, Peng, & Deeds, 2008). Referring to the application of Dunning's OLI (ownership advantages, location advantages, internationalization advantages) internationalization model to developing country multinationals (DMNCs), Cuervo-Cazurra (2012: 160) argues: “DMNCs are more likely to move abroad not only to exploit O advantages developed in the home country, but also to reduce O disadvantages. Acquiring firms are likely to move abroad to improve O advantages at home. Moreover, DMNCs may invest abroad to escape L disadvantages at home in the form of poor institutions or asphyxiating regulation. They are also likely to enter advanced economies in the input market (rather than the product market) to obtain L advantages—such as advanced finance, technology, or management skills”.

3. Method This study examines a sample of 200 small and medium-sized agribusinesses from 12 emerging economies. The focus is on 12 countries located in the humid tropics of Latin America (Bolivia (13), Colombia (8), Costa Rica (48), Dominican Republic (6), Ecuador (13), El Salvador (23), Guatemala (32), Honduras (17), Mexico (8), Nicaragua (17), Panama (5), and Peru (10)) in order to limit the effects of geography (which affects the nature of crops) on the strategy and performance of the firms examined (FAO, 2007; Garcia, 2005). The focus is on agribusiness because it is a strategic sector in Latin America, but, unfortunately, it remains underrepresented in the international business and strategy literature (Da Silva, Baker, Sheperd, Jenane, & Miranda-da-Cruz, 2009; Reardon & Barrett, 2000; Rosales & Kuwayama, 2012). For two main reasons, the study examines only firms engaged in at least some value-added activity other than pure farming, such as cleaning, sorting, packaging, processing, and selling (Ketelhöhn, Brenes, & Pérez, 2012). First, simple agricultural production has fewer strategic and developmental implications for the region because commodity producers are more vulnerable to price fluctuations and price pressures by large buyers. Producers that also add some value to their goods, on the other hand, can better withstand commodity price fluctuations and extract a higher share of the final sales value of the good. Second, value-added agribusinesses have more strategic choices to make, such as whether to integrate vertically more or to internationalize more. Businesses involved only in farming in Latin America tend to sell their produce to traders and foreign large buyers, who then decide whether or not to export it or to add value in the final stages. To examine the antecedents of high performance, a questionnaire building on Brenes, Montoya, and Ciravegna (2014) and a pilot study with 17 firms were implemented in 2013 in three of the countries examined. The data collection instrument was revised using feedback provided during the pilot study. The questionnaire requested qualitative information on the ways in which institutional voids affect business. Official lists provided by the 12 countries' Agriculture Ministries and Agriculture Export Chambers were used to identify 350 firms, excluding those whose telephone and email contacts could not be verified. A consulting firm based in Costa Rica helped to circulate the questionnaire and asked that the CEO or General Manager complete it, as firms based in emerging markets are generally centralized and hierarchical, with the CEO or General Manager as the key decision maker (Dominguez & Brenes, 1997; Wright et al., 2005). After completing the questionnaire, if deemed necessary, the firms provided further information through follow-up email and/or telephone conversations. Data collection took place between June 2013 and June 2014, in Spanish, the native language of all of the interviewees and two of the authors. The final tally was 247 completed questionnaires, a response rate of 70.5%. The final sample consisted of 200 firms, excluding those that had information missing or that did not fully comply with the

Empirical evidence on the relationship between internationalization and performance is one of the most debated issues in international business (Glaum & Oesterle, 2007). Although there is empirical evidence that internationalization contributes positively to the performance of emerging-market firms, some authors argue that such positive effects occur after an initial negative impact (thus pointing to a U- or Sshaped relationship) (Contractor, Kumar, & Kundu, 2007). The president of one of the sample firms pointed out in an interview: “Entering the Colombian market was fundamental for our strategy. We are now less dependent on only our national market. If things go bad at home, we have another large market [in which] to expand”.5 Another manager illustrated the point from a different angle: “For us it is strategic to be in multiple countries. We can source our products from a broader range of suppliers, some of which we didn't know before going out of our home market”.6 The founder of one of the companies stated: “If there are currency devaluations, or changes in regulation, we can simply increase production in one country and reduce it in another. Entering different countries, [we] not only … expanded our market, we actually became a better organization, more efficient, more adaptable”.7 This study includes internationalization in its model, examining whether and how firms combine it with transaction governance mechanisms (vertical integration, collaboration, family management) to succeed in contexts with high and moderate institutional voids.

2.5. Family governance A large body of empirical evidence illustrates the prevalence of family ownership in emerging markets (Khanna & Palepu, 2000; Khanna & Yafeh, 2007; Miller et al., 2010). Several features of family firms, including their emphasis on parsimony (the preservation of capital and a long-term perspective) and personalism (the direct involvement of the entrepreneur), make them particularly suitable to operating in markets affected by volatility, factor market failures, and suboptimal protection of propriety rights (Carney, 2005). Parsimony and the emphasis on long-term business development, linked to the idea of preserving and enriching the family assets, allows family firms to be resilient and adaptable—key strategic qualities in emerging markets (Chrisman, Chua, & Steier, 2011). Family businesses often have long-term 5

Interview: CEO, Food Processing Firm, Ecuador. Interview: President, Food Processing Firm, Costa Rica. 7 Interview: CEO, Food Processing Firm, Mexico. 6

4

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al.

higher the number, the more vertically integrated the firm. Their answers were crossed-checked for consistency and included in the data. The maximum number of activities they perform on the value chain is eight, and there is a minimum value of one for a couple of firms. There is also an average of three activities for the 200 firms included in the sample.

inclusion criteria. 3.1. Antecedents and measure In this study, the outcome ‘high performance’ is defined as firms achieving an average annual return on equity (ROE) equal to or higher than 8%, which is consistent with previous studies of the same industry (Damodaran, 2014; Katchova & Enlow, 2013). Thus, external sources validate the calibration, as indicated by fsQCA guidelines (Schneider & Wagemann, 2012). Causal conditions are described below8:

3.1.3. Year sales This antecedent serves as a proxy for firm size, as the number of employees may not provide an accurate picture of the resources that the firm can leverage. Values range between US $100,000 and $30,000,000, the average being $7,848,550 (see Annex A1). According to Gonzales, Hommes, and Mirmulstein (2014), in Latin America, SMEs are commonly defined either by employee number or as firms with an average yearly maximum turnover of US $1,000,000. This study uses the same definition, so that the firms considered “large” are those with a turnover higher than US $1,000,000, which in most Latin American countries would qualify as not being SMEs.

3.1.1. High institutional voids To measure institutional voids, this study uses the “Institutions, First Pillar” of the The Global Competitiveness Report (GCI) (World Economic Forum, 2014), which ranks countries and provides a score according to the quality of their institutions, on a scale starting from n.1 for the best institutional quality. The indicator uses secondary sources, aggregating scores that capture the quality of the following formal institutions: “property rights” (2 indicators); “ethics and corruption” (3); “influence peddling” (2); “government efficiency” (5); “safety” (4); “corporate ethics” (1); and “accountability” (4)910 (World Economic Forum, 2014). These scores provide is a very suitable indicator of the way in which institutional voids affect the business environment because they capture both public and private institutions and have been developed precisely to characterize the competitiveness of the business context. Countries that rank lower on the institutions indicator have lower institutional quality, which the study uses as a proxy for having moresevere institutional voids. The sole focus is on the countries included in the study, whose scores measure between 3.05 and 4.2 on a 1-to-7 scale. Using this scale, one can measure changes in organizational configurations across economies that, though affected by institutional voids, have different institutional contexts. In addition, the adequate management of public finances is essential to guarantee confidence in the national business environment. At the same time, the transparency of the private sector is essential to companies; this can be achieved through the use of standards, as well as through audit and accounting practices that guarantee access to information in a timely manner. The analyses described in this paper used different indicators, such as the Doing Business Index (DBI) of the World Bank, and obtained similar results (World Bank, 2017).11

3.1.4. Family business The questionnaire asked whether family members are directly involved in the management of the firm and whether the family is the largest shareholder. In all cases, the respondents indicated that familyowned businesses are also family-managed. Antecedent 1 indicated that the firm was family owned and managed, while 0 indicated non-family. Of the 200 firms in the sample, 146 are owned and managed by a family group. 3.1.5. Internationalization Internationalization is represented by the number of markets in which the company has a physical presence, such as a sales office. Its values range between one and eight markets. In the sample, 30% of firms have a presence in one market, and only 2% are in eight markets. 3.1.6. Network collaboration Respondents were asked whether they collaborated with their network of suppliers, buyers and/or others. Collaboration was measured as 1 (network collaboration) or 0 (no collaboration). In this case, 135 firms reported network collaboration. 3.2. Fuzzy set qualitative comparative analysis The study includes a fuzzy set qualitative comparative analysis (fsQCA), a method based on Boolean math and fuzzy sets that allows one to link a given outcome—in this case, superior performance measured as high ROE—to different combinations of antecedents (Rihoux & Ragin, 2009). Strategic configurations are complex systems in which different sets of causal factors can simultaneously and non-exclusively lead to the same outcome—i.e., equifinality (Fiss, 2007, 2011; Woodside, 2013). Theoretically, firms use organizational “archetypes” of combinations of structures and strategies to achieve high performance (Misangyi et al., 2017). They are best studied through methods for discovering how high-low variation in a given causal antecedent, such as the quality of institutions, affects the configurations that lead to an outcome—in this study, high performance (Crilly, 2011; Misangyi et al., 2017; Pajunen, 2008; Ragin, 2008). Unlike regression analysis, fsQCA is particularly suitable for studying outcomes for which multiple theoretical explanations are possible, and for which previous work indicates the possibility of asymmetric and complex causality. FsQCA is also a method suitable for qualitative exploration in settings in which empirical evidence is scarce, such as agribusiness in Latin America; hence, qualitative work is needed before developing precise hypotheses (Delios, 2017; Misangyi et al., 2017; Welch et al., 2011). Simply put, what fsQCA does is to look for the presence of certain factors, or antecedents, which, combined with other causal factors are sufficient for an outcome to occur. Thus, it allows the researcher to explore for

3.1.2. Vertical integration This antecedent was measured by asking the respondents to specify the activities they perform on the value chain—such as washing, selecting, processing, and packaging—and then to number them. The 8 In the Annex A1, there is basic table with descriptive indicators for variables used in this paper. 9 The World Economic Forum (2014) points out: “Although the economic literature has focused mainly on public institutions, private institutions are also an important element in the process of creating wealth. The global financial crisis, along with numerous corporate scandals, has highlighted the relevance of accounting and reporting standards and transparency for preventing fraud and mismanagement, ensuring good governance, and maintaining investor and consumer confidence.” For more information, go to: http:// www20.iadb.org/intal/catalogo/PE/2014/14421.pdf 10 Data used to build this pillar come from different sources such as hard data, national and international official information, and especially the Executive Opinion Survey (EOE). This survey works as the most important tool for the method used to produce the set of indicators mentioned above. The EOE questions are given on a 1–7 Likert scale, where 1 indicates that it is the most unfavorable position for the indicator and 7, the most favorable. 11 The models were also tested using different combinations of context antecedents, including combinations of GDP and indicators of institutional voids. The results show support for the authors' main theory-grounded expectations, such as the use of alternative mechanisms to compensate for institutional voids. Here, the model shown is the most plausible from a theoretical perspective, while also being methodologically correct—that is, having high explanatory power in terms of coverage and consistency.

5

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al.

and 0.6 (Ragin, 2006; Schneider & Wagemann, 2012). In the outcome tables, “YES” means that the condition is present, while “NO” means that the condition is absent, and, finally, “NRO” denotes that the condition, whether present or not, is not relevant to the outcome. Note that every configuration is different since all firms selected for this study are different in several ways; thus, every configuration represents firms with a specific configuration.

Table 1 Calibration and fuzzy set score membership. Source: Elaborated by the authors. Outcome/antecedents

Membership score

Fuzzy set values

Outcome: high ROE

0.25 0.08 0.03 4.2 3.4 3.05 8 4 2 22,550,000 750,500 100,000 1 0.5 0 6 4 2 1 0.5 0

0.95 0.5 0.05 0.95 0.5 0.05 0.98 0.5 0.12 0.95 0.5 0.05 Dichotomized variable

High institutional voids

Vertical integration

Year sales

Family businessa

Number of markets

Network collaborationb

a b

4. Findings and implications Four configurations of organizational antecedents are linked to high performance (high ROE). Building on theory, the study's expectations were to find some configuration in which, under moderate institutional voids: a) firms combine size with vertical integration and internationalization; b) firms, disregarding their size, do not vertically integrate or internationalize, but use networks; and c) large family firms do not use networks, may or may not be vertically integrated, and are internationalized. Under high institutional voids, the expectation was that d) firms would be vertically integrated, large, internationalized, and would either use networks or be family managed (see Annex A2). Therefore, the expectations going into this research were that some configurations would combine vertical integration and size, while others would combine networks (as an alternative, external mechanism for governing transactions) or family management (as an alternative access to resources) with internationalization (as a way to diversify risk). Additional expectations were that internationalization would be combined with size because it requires resources; and that high institutional voids would prevent high performance under all circumstances, or they would allow it but with very different configurations from those leading to high performance under moderate institutional voids. The study's findings in the context of moderate institutional voids were consistent with the expectations about voids-compensating mechanisms (first configuration: networks with size, without vertical integration; second configuration: vertical integration with size and internationalization; third configuration: family management with size, without vertical integration), though with some differences (see Table 2). The first difference from expectations is that the antecedent “size,” appears in all configurations. The anticipated result was that some firms might achieve high performance by being not necessarily big, not vertically integrated, and not necessarily internationalized (see Annex A2). A very similar result was obtained (first configuration) but was combined with size, which points to the importance of having sufficient resources to manage in contexts affected by institutional voids. Second, in a context with high institutional voids, the configuration linked to high performance includes all antecedents (fourth configuration) (see

0.95 0.5 0.05 Dichotomized variable

146 firms are family business. 135 firms have network collaborations.

multiple, non-symmetric cases of causality in complex scenarios and to assess equifinality. It does not test the strength (or significance) of any of the antecedents of the outcome; nor does it make use of control variables, precisely because it does not “test” causal links, but explores the belonging of each case (in this study, a firm) to the sets where certain features (antecedents and outcome) are present (Kan et al., 2016; Woodside, 2012). Thus, several scholars have suggested that fsQCA should be used more often to research topics to which complexity, asymmetric causality, and equifinality apply, such as strategy research, which is grounded in configurational logic (Fiss, Cambré, & Marx, 2013; Kogut, MacDuffie, & Ragin, 2004; Meyer et al., 1993; Misangyi et al., 2017; Pajunen, 2008; Woodside, 2012). 3.3. Calibration Antecedents were calibrated following the tenets of QCA (Ragin, 2008; Schneider & Wagemann, 2012). FsQCA starts with a data matrix, and the function of this feature is to tell where cases are either member or non-members of a category (Kent, 2008). The calibration and fuzzy set (see Table 1) score membership for this study is described below: 3.4. Coverage and consistency

Table 2 Configurations leading to high performance. Source: Elaborated by the authors.

The consistency index gauges the degree to which the cases share a simple or complex condition in displaying the outcome in question—consistency is analogous to a correlation in statistical analysis. The coverage index in fsQCA assesses the degree to which a simple and complex causal condition (recipe) “accounts for” instances of an outcome condition—coverage is analogous to an r2 in statistical analysis (Prado & Woodside, 2015). FsQCA uses coverage and consistency as measures of the extent to which the examined models are valid and representative of the sample. They are very different from the measures of significance used in other methods, such as linear regressions, but they do provide the researcher with a guide for selecting and improving fsQCA models. Consistency shows the degree to which the cases sharing a given combination of conditions display the outcome in question. Coverage shows the degree to which a causal combination accounts for instances of an outcome (Woodside & Zhang, 2012). Following fsQCA methods, this study establishes that the outcome would be valid if consistency were higher than 0.88 and if coverage ranged between 0.2

Configuration

First

Second

Third

Fourth

No No Yes No NROa Yes 0.89 0.17 0.12 0.89 0.28

No Yes Yes No Yes NROa 0.90 0.10 0.03

No No Yes Yes Yes No 0.92 0.03 0.03

Yes Yes Yes Yes Yes Yes 0.89 0.07 0.03

Causal configurations High institutional voids Vertical integration Year sales Family business Number of markets Network collaboration Consistency Raw coverage Unique coverage Overall solution consistency Overall solution coverage a

6

Not relevant for the outcome.

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al.

Table 2). This is consistent with the expectation of finding either no configuration or a more complex configuration linked to high performance and high institutional voids, but it is a stronger result than expected in terms of its theoretical plausibility. An interesting observation here is that only the fourth configuration includes high institutional voids among its antecedents. This observation illustrates that where institutional voids are more severe, there may be less flexibility regarding the organizational settings that lead firms to be profitable—there is only one configuration linked to high performance under high institutional voids. On the contrary, where institutional voids are moderate, firms achieve high performance with different but equifinal combinations of voids-compensating mechanisms. Consistent with theory, and as expected, vertical integration (second configuration), family management (third configuration), and networks (first configuration) are alternative voids-compensating mechanisms, sufficient when combined with size (first configuration) or both size and internationalization (second and third configurations) to lead to high performance in contexts with moderate institutional voids. The first configuration represents firms that achieve high ROE operating in a context affected by moderate institutional voids. These firms are not family businesses and do not integrate vertically. However, they are large in terms of sales, and they cooperate within a network. Whether or not they operate in many markets is not a relevant antecedent (i.e., it does not affect the outcome). These are resourceful firms that overcome moderate institutional voids in their domestic context by relying on network resources instead of integrating vertically, and they are not family-managed, consistent with the literature on networks and firm strategy (Peng & Luo, 2000). The second configuration includes moderate institutional voids as an antecedent, together with vertical integration, large size, operations in many foreign markets, and not being a family business. Cooperating in a network is an antecedent that does not influence the outcome. These firms are large, vertically integrated, and highly internationalized. They overcome the moderate institutional voids of their context and achieve high ROE by combining vertical integration with internationalization; they neither rely on family management systems nor count on network resources for their success. This finding is consistent with the TCE and institutional perspective literature (Peng, Sun et al., 2009; Rugman & Verbeke, 2003; Williamson, 1985): it shows that vertical integration can help firms protect their transactions in contexts of moderate institutional voids, but that it is effective only when firms also diversify their risks by internationalizing. This latter point could be explained by the fact that being more vertically integrated in their home market entails higher investments and, hence, higher exposure to the volatility of markets affected by institutional voids, making it important to combine this vertical integration with internationalization. The third configuration represents family businesses based in a market affected by moderate institutional voids. Again, among the antecedents for high ROE are firms' size and the number of markets in which they operate. These firms succeed by combining in-house resources, family management and internationalization, without relying on inter-firm networks, and they may use family-based ties instead of formal network alliances. Their configuration is consistent with the literature on family business and internationalization (Khanna & Yafeh, 2007). The fourth configuration represents firms that achieve high ROE in markets affected by high institutional voids. These firms are large family businesses that integrate their operations vertically, collaborate with network partners, and operate across a high number of markets. The configuration is consistent with the institutional perspective and TCE literature, as well as with studies of emerging-market business groups (Khanna & Palepu, 2000; Peng, Sun et al., 2009; Rugman & Verbeke, 2003). Achieving high ROE is possible in the highly challenging environments of markets in which institutions are weak. However, high ROE outcomes may entail combining different organizational features that help compensate for market failures, such as diversifying

Table 3 Configurations leading to high performance — Family Business only. Source: Elaborated by the authors. Configuration

First

Second

No No Yes Yes NROa 0.94 0.16 0.08 0.90 0.21

Yes Yes Yes Yes NROa 0.89 0.13 0.04

Causal configurations High institutional voids Vertical integration Year sales Number of markets Network collaboration Consistency Raw coverage Unique coverage Overall solution consistency Overall solution coverage a

Not relevant for the outcome.

vertically, internationalizing, and relying on networks.

4.1. Focusing on family business Family-managed firms represented 73% of the study sample. Given that the literature argues that family businesses are the predominant—and, often, most successful—type of firm in emerging markets, the analyses in this study focused specifically on family firms and excluded the other 27%—the non-family firms (Chakrabarty, 2009; Miller et al., 2010). The analysis explored the configurational antecedents that lead family businesses to achieve a high ROE and obtained two configurations. The first configuration shows firms operating in moderate institutional voids (see Table 3), which are less vertically integrated. Being internationalized and large are the antecedents. These firms may or may not collaborate within their network. The implication is that these firms manage to succeed in their countries, despite moderate institutional voids, by internationalizing their operations, which, according to the “institutional escapism” argument, allows them to diversify risks (Witt & Lewin, 2007; Yamakawa et al., 2008). As for other configurations, size, which is a proxy for resources, is also an important factor, consistent with the resource-based view (Wernerfelt, 1995). Firms that adopt the second configuration achieve high ROE in markets affected by high institutional voids. As in the first configuration, firms are large and internationalized and may or may not collaborate within their network. However, they are more vertically integrated. These firms compensate for market failures by internalizing transactions; for example, they develop extensive training programs for all levels of staff to manage the low educational standards of the countries in which they operate. The results show that family businesses operating in emerging markets with moderate institutional voids may manage the voids by internationalizing and being large. However, being a large, internationalized family business is not enough in markets affected by severe institutional voids; firms also have to internalize some transactions (vertical integration). Combining family governance with size, vertical integration and internationalization allows these firms to manage the market failures and volatility associated with high institutional voids, consistent with TCE and the literature on emerging-market firms (Carney, 2005; Cuervo-Cazurra, 2012; Rugman & Verbeke, 1992; Williamson, 1985). The results of the model that focuses only on family firms are consistent with the results obtained including non-family firms, indicating that the antecedents chosen to manage high institutional voids are similar for both family and non-family managed firms and providing further theoretical validation for the above configurations (Rihoux & Ragin, 2009). 7

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al.

Table 4 Configurations leading to high performance. Year sales excluded from the model. Source: Elaborated by the authors. Configuration

First

Second

Table 5 Configurations leading to high performance. Year sales and family business excluded from the model. Source: Elaborated by the authors.

Third

Configuration

Causal configurations High institutional voids Vertical integration Family business Number of markets Network collaboration Consistency Raw coverage Unique coverage Overall solution consistency Overall solution coverage

Second

Third

Fourth

No NROa Yes No 0.92 0.06 0.20 0.86 0.27

Yes Yes NROa Yes 0.86 0.20 0.10

NROa Yes Yes No 0.86 0.04 −0

Yes Yes Yes NROa 0.92 0.15 −0

Causal configurations No Yes No Yes NROa 0.90 0.10 0.05 0.89 0.20

No No Yes Yes NROa 0.90 0.12 0.06

Yes Yes Yes Yes Yes 0.89 0.06 0.01

High institutional voids Vertical integration Number of markets Network collaboration Consistency Raw coverage Unique coverage Overall solution consistency Overall solution coverage a

a

First

Not relevant for the outcome.

Not relevant for the outcome.

vertically. The second configuration is that of firms facing high institutional voids. These firms manage such voids by being more vertically integrated and collaborating with network partners. They may or may not be internationalized. The third configuration represents firms that are international and more vertically integrated but not collaborating in networks. These firms achieve a high ROE whether they operate in a context with high or moderate institutional voids. Finally, the fourth configuration is that of firms dealing with high institutional voids. They are internationalized, vertically integrated, and may or may not collaborate in networks. Comparing the configurations, one can see that all firms that operate in markets with high institutional voids, or in markets that may or may not have high institutional voids, integrate vertically, consistent with TCE and with the work of Khanna (Khanna & Palepu, 2000; Khanna & Palepu, 2013; Khanna & Yafeh, 2007; Rugman & Verbeke, 2003). The only firms that might succeed in spite of high institutional voids, without necessarily being internationalized (second configuration), have network collaborations and vertical integration as antecedents.

4.2. Alternative configurations linked to high performance Being a large firm in terms of sales appeared important in all configurations, and this is consistent with the RBV. Although being large may help firms manage institutional voids, there could also be other explanations; for example, the larger size may allow for better economies of scale and, thus, high ROE. In order to control for this possibility and following the suggestions received when presenting this study to industry leaders, the first model (Table 2) excludes the “Year Sales” variable that captures firm size. The results are again consistent with the previous model, showing three configurations (Table 4). In the first configuration, firms manage moderate institutional voids through vertical integration and internationalization, and in the second, they manage via internationalization and family governance. Again, the results illustrate that agribusinesses operating in Latin America can achieve high performance through different combinations of antecedents when institutional voids are not severe. In both cases, network collaborations do not seem to matter for the outcome. The third configuration represents firms managing in a context with high institutional voids, and, again, it involves the use of all antecedents: family firms that have international operations, integrate vertically, and collaborate with network partners. These results emphasize that, even excluding the role of firm size as captured by year sales, the firms that obtain high ROE in the markets most affected by institutional voids deal with them by combining multiple strategic and governance arrangements. The results also show that combinatorial research methods such as fsQCA, as established by Fiss (2011), are required to capture these configurations. In order to generate more insights for practitioners, the last outcome model (Table 5) was run without the variable “family firm” because, although family governance prevails in emerging economies, it tends to be an inherited and not an actively chosen governance form. Although it is interesting—and consistent with both the family business and emerging market literatures—to find that family governance is linked to high performance in markets affected by institutional voids, the finding does not offer lessons for firms that are not family firms and do not intend to become so. Additionally, family governance is also highly subject to change through time, as the quality of family human assets changes and is not always balanced by non-family assets (Verbeke & Kano, 2012). The new model without year sales and family firms finds four configurations (Table 5). Interestingly, in this case, two configurations take place in the face of high institutional voids. Again, the results are theoretically and methodologically consistent. The first configuration represents firms that achieve high performance in contexts with moderate institutional voids. These firms are internationalized but do not collaborate in networks, though they may or may not integrate

4.3. Configurations linked to low performance To complement the analysis of the configurations linked to high performance, and following the suggestions of fsQCA texts (Hubbard, 2015; Woodside & Zhang, 2012), the study also examined the configurations linked to the opposite outcome—that is, low performance. This is important because fsQCA allows capturing asymmetric causality: the configurations linked to low performance do not have to be, and often are not, the symmetric opposite of those linked to high performance, and this is a better representation of reality than the symmetric causality implicit in linear regression studies (Ordanini, Parasuraman, & Rubera, 2014). Complex causal relationships, such as those of organizational antecedents linked to performance, tend to be asymmetric and, thus, best captured by methods that allow for unpacking of this asymmetric causality (Spanos, 2008; Trafimow & Marks, 2015). The “low performance” model tests which configurations of antecedents are equifinally linked to firms that achieve “low performance,” intended as the opposite of “high performance” within the study's empirical context, and, hence, are measured as obtaining an average ROE lower than 8%. It is worth mentioning that, in the sample of 200 firms, there are 53 observations of firms with ROE lower than 8%. The result is an interesting model12 showing three different configurations (Table 6). The results are plausible and theoretically consistent: as expected, 12 To try to obtain different outcomes discriminating by different cutoff points, the study used a cutoff point of 0.85, which gives a result with three configurations in which other interesting results emerge.

8

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al.

5. Conclusion

Table 6 Configurations leading to low performance. Source: Elaborated by the authors. Configuration

First

Second

Third

Yes No No No No No 0.86 0.09 0.07 0.85 0.16

No Yes Yes No Yes No 0.87 0.02 0.01

Yes Yes No Yes No No 0.85 0.06 0.05

This study explores the configurations that lead to high performance in contexts affected by institutional voids of different severity, focusing on agribusinesses based in the humid tropics of Latin America. Thus, it contributes to the literature on emerging-market firms using a novel methodological approach, responding to calls for non-linear research studies in strategy and international business, and especially for methods that allow for equifinality—that is, equal causal paths to the same outcome (Misangyi et al., 2017; Woodside, 2012, 2013). This study focuses on a sample of agribusinesses to identify the configurations of five theory-grounded antecedents that lead to the outcome “high performance” in contexts affected by different levels of institutional voids. The antecedents examined are: being a family business; being a large firm in terms of sales per year; integrating vertically; internationalizing; and collaborating within a network. The evidence presented here is limited to one sector, agribusiness; one region of the developing world, the humid tropics of Latin America; and the empirical specificities of the sample described in the methods section. The authors acknowledge that this is a limitation. Nonetheless, the results are interesting from a theoretical and a managerial perspective. From a theoretical perspective, the results illustrate that: a) none of the antecedents are, by themselves, sufficient to obtain high performance; b) different combinations of antecedents are equifinally linked to high performance in emerging markets with institutional voids; and c) the severity of institutional voids influences the configurations linked to high performance, as predicted by the institutional perspective on management (Peng & Heath, 1996). Even within the same industry and region, there are multiple strategic configurations that equally lead to successful outcomes. This finding is consistent not only with the methodological justification for using fsQCA, but also, as Fiss (2007) argues, with the key principles of strategy, as exposed by, for example, Porter (1996) and emphasized by Meyer et al. (1993) and Misangyi et al. (2017). Empirically, this result has not yet, to the authors' knowledge, been shown in the context of Latin America, and, thus, the findings also contribute to the debate about strategy and performance in emerging markets, with fresh empirical evidence on an under-studied region and industry. Therefore, this study contributes to the institutional perspective on strategy and to the debate on strategy in emerging markets through a novel methodological approach that is in line with the idea that different managerial models and strategies may suit different contexts. The study illustrates that where institutional voids are severe, firms may need to adopt multiple strategies to deal with them in ways that simultaneously internalize risks (vertical integration), diversify from them (internationalization), and also use external family-level and network resources (internationalization and networks) (Aulakh & Kotabe, 2008; Luo et al., 2011). When family business is the focus, the results are similar: achieving high performance in markets with higher institutional voids entails more-complex organizational configurations. Consistent with the literature, the results show that large family businesses are more likely to achieve high performance in emerging markets with moderate institutional voids if they internationalize (Yiu, Lu, Bruton, & Hoskisson, 2007). However, to achieve the same outcome in markets with higher institutional voids, large, internationalized family businesses need more vertical integration, presumably to compensate for market failures that cannot be addressed just by family management. In sum, in this study's empirical context—agribusiness in the humid tropics of Latin America—firms that achieve high ROE behave consistently with TCE theory and with the view of internationalization as a way to counteract the risk of operating in a volatile environment (Chittoor et al., 2008; Kumar et al., 2013). However, they do so in ways that combine the insights of different theories in unique configurations, adapted to the variations in institutional voids found across emerging markets. This shows that in order to improve one's understanding of emerging-market firms and the

Causal configurations High institutional voids Vertical integration Year sales Family business Number of markets Network collaboration Consistency Raw coverage Unique coverage Overall solution consistency Overall solution coverage

two thirds of the configurations occur under high institutional voids, and only one third under moderate institutional voids. Two configurations entail smaller firms, again in contrast to the configurations obtained for high performance, all of which were large in terms of sales as an antecedent. The first configuration is that of an agribusiness firm that does not have the governance mechanisms to compensate for institutional voids: it neither internalizes transactions nor uses networks or family management. It is not large, and it does internationalize. This suggests that it is a mainly domestic firm that lacks the resources to actively manage the high institutional voids of the country where it is based, and not being internationalized, the firm suffers for it. The second is a case of a large, vertically integrated, non-family firm, internationalized, not using networks, based in a moderate institutional voids context. This configuration, very similar to the second configuration linked to high performance (Table 2), illustrates the value of an asymmetric causality analysis—it shows that being based in a context of moderate institutional voids, and being large, vertically integrated and internationalized, does not, per se, ensure high performance. In this case, it is possible that the firm has overstretched its resources by trying to be simultaneously vertically integrated and internationalized, and, lacking external resources (via networks or family), it has failed to achieve high performance. Again, the firms here are not failing but are simply lower-performing. And conditions sufficient for high performance do not require all firms to share such antecedents to achieve high performance. In the real world, some firms do, while others do not. The qualitative evidence helps to explain this result better. During the two to three years preceding data collection, the firms that share these antecedents invested heavily in vertical integration by, for example, acquiring new plants and machinery. When surveyed, they had not yet completed their vertical integration; their new internal capacity was either not yet operational or was still operating at low capacity due to it being new. As a result, they were still amortizing the cost of the new equipment and not yet fully benefiting from vertical integration, and this negatively affected their ROE. The last configuration is the case of a family firm facing high institutional voids, not large, vertically integrated, not internationalized and not using networks. This case illustrates that under high institutional voids, the lack of internal and external resources, captured, respectively, by year sales and networks, can contribute to reducing a firm's capacity to deal with the extra challenges caused by weak institutions. Additionally, it illustrates that it may be difficult for a small family firm to become vertically integrated and internationalize simultaneously. Finally, the results confirm that under high institutional voids, it is harder to perform well; having some antecedents, such as being a family firm and being vertically integrated, is not sufficient for high performance unless combined with other antecedents: being large and internationalized and using networks.

9

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al.

mance. This approach makes the paper different from the prior literature in that it goes beyond analyzing institutional voids from a dichotomous perspective in which they either occur or do not (Peng, Sun et al., 2009). Nevertheless, further research is needed to corroborate the results of this study with information from other countries and other sectors.13

role of institutions, it is necessary to refine the level of analysis and go beyond a simple case of emerging-market firms vs. developed-economy firms (Gammeltoft et al., 2010). This study contributes to the research on institutional voids and emerging-market firms, illustrating how different levels of institutional voids affect the organizational configurations that lead to high perforAnnexes

Annex A1 Descriptive indicators. Source: Elaborated by the authors. Descriptive indicators

Mean

Standard deviation

Minimum

Maximum

ROE High institutional voids Vertical integration Year sales Family business Number of markets Network collaboration

0.11 3.55 2.70 7,848,550 0.56 2.51 0.68

0.07 0.41 1.90 1.042877⁎ 0.40 1.56 0.47

0.03 3.05 1 1⁎⁎ 0 1 0

0.25 4.2 8 3⁎ 1 8 1

⁎ ⁎⁎

e + 007. e + 005.

Annex A2 Expectations leading to high performance. Source: Elaborated by the authors. Configuration

a)

b)

c)

d)

No Yes Yes NROa Yes NROa

No No NROa NROa No Yes

No NROa Yes Yes Yes No

Yes Yes Yes Yes Yes Yes

Causal configurations High institutional voids Vertical integration Year sales Family business Number of markets Network collaboration a

Not relevant for the outcome.

13 Scatter plots XY are built on the configurations with the highest consistency. The cases with high ROE membership scores in the results are mainly in the upper triangle, which indicates a high consistency score for sufficiency. The configuration statement is sufficient but not necessary to identify high ROEs. (Woodside & Zhang, 2012) (See Annex A3).

10

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al.

Annex A3 Scatter plots. Source: Elaborated by the authors.

Scatter Plots

Scatter Plots

Table 2

Table 3

Scatter Plots

Scatter Plots

Table 4

Table 5

11

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al.

Brouthers, K. D. (2002). Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 33, 203–221. Carney, M. (2005). Corporate governance and competitive advantage in family-controlled firms. Entrepreneurship Theory and Practice, 29(3), 249–265. Chakrabarty, S. (2009). The influence of national culture and institutional voids on family ownership of large firms: A country level empirical study. Journal of International Management, 15(1), 32–45. Chittoor, R., Ray, S., Aulakh, P. S., & Sarkar, M. B. (2008). Strategic responses to institutional changes: ‘Indigenous growth’ model of the Indian pharmaceutical industry. Journal of International Management, 14(3), 252–269. Chrisman, J. J., Chua, J. H., & Steier, L. P. (2011). Resilience of family firms: An introduction. Entrepreneurship Theory and Practice, 35(6), 1107–1119. Ciravegna, L., & Brenes, E. R. (2016). Learning to become a high reliability organization in the food retail business. Journal of Business Research, 69(10), 4499–4506. Claessens, S., Djankov, S., Fan, J., & Lang, L. (2003). Why does corporate diversification matter to productivity and performance? Evidence from East Asia. Pacific-Basin Finance Journal, 11, 365–392. Contractor, F. J., Kumar, V., & Kundu, S. K. (2007). Nature of the relationship between international expansion and performance: The case of emerging market firms. Journal of World Business, 42(4), 401–417. Crilly, D. (2011). Predicting stakeholder orientation in the multinational enterprise: A mid-range theory. Journal of International Business Studies, 42(5), 694–717. Cuervo-Cazurra, A. (2012). Extending theory by analyzing developing country multinational companies: Solving the Goldilocks debate. Global Strategy Journal, 2(3), 153–167. Cuervo-Cazurra, A., Ciravegna, L., Melgarejo, M., & Lopez, L. (2017). Home country uncertainty and the internationalization-performance relationship: Building an uncertainty management capability. Journal of World Business, 53(2), 209–221. Da Silva, C., Baker, D., Sheperd, A., Jenane, C., & Miranda-da-Cruz, S. (2009). Agro industries for development. London: FAO & UNIDO, e-book. http://www.fao.org/docrep/ 013/i0157e/i0157e00.pdf, Accessed date: May 2012. Damodaran, A. (2014). Damodaran online data, accessed 13/10/2014 at. http://pages. stern.nyu.edu/~adamodar/New_Home_Page/biomission.asp. Delbridge, R., & Fiss, P. (2013). Styles of theorizing and the social organization of knowledge. Academy of Management Review, amr-2013.

References Acemoglu, D., Robinson, J. A., & Woren, D. (2012). Why nations fail: The origins of power, prosperity, and poverty. Vol. 4. New York: Crown Business. Aguilera, R. V., Ciravegna, L., Cuervo-Cazurra, A., & Gonzalez-Perez, M. A. (2017). Multilatinas and the internationalization of Latin American firms. Journal of World Business, 52(4), 447–460. Arruñada, B. (2007). Pitfalls to avoid when measuring institutions: Is doing business damaging business. Journal of Comparative Economics, 35(4), 729–747. Aulakh, P. S., & Kotabe, M. (2008). Institutional changes and organizational transformation in developing economies. Journal of International Management, 14(3), 209–216. Aversa, P., Furnari, S., & Haefliger, S. (2015). Business model configurations and performance: A qualitative comparative analysis in formula one racing, 2005–2013. Industrial and Corporate Change, 24(3), 655–676. Bianchi, C. C., & Ostale, E. (2006). Lessons learned from unsuccessful internationalization attempts: Examples of multinational retailers in Chile. Journal of Business Research, 59(1), 140–147. Brenes, E. R., Camacho, A. R., Ciravegna, L., & Pichardo, C. A. (2016). Strategy and innovation in emerging economies after the end of the commodity boom—Insights from Latin America. Journal of Business Research, 69(10), 4363–4367. Brenes, E. R., Chattopadyay, A., Ciravegna, L., & Montoya, D. (2014). Pollo Campero in the USA. Management Decision, 52(9). Brenes, E. R., Ciravegna, L., & Woodside, A. G. (2017). Constructing useful models of firms' heterogeneities in implemented strategies and performance outcomes. Industrial Marketing Management, 62, 17–35. Brenes, E. R., Martínez, C., & Pichardo, C. A. (2016). Centrolac. Academia Revista Latinoamericana de Administración, 29(1), 2–19. Brenes, E. R., Montoya, D., & Ciravegna, L. (2014). Differentiation strategies in emerging markets: The case of Latin American agribusinesses. Journal of Business Research, 67(5), 847–855.

12

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al.

organizational analysis. Academy of Management Journal, 36(6), 1175–1195. Miller, D., Lee, J., Chang, S., & Breton-Miller, L. (2010). Filling the institutional void: The social behavior and performance of family vs non-family technology firms in emerging markets. Journal of International Business Studies, 40, 802–817. Misangyi, V. F., Greckhamer, T., Furnari, S., Fiss, P. C., Crilly, D., & Aguilera, R. (2017). Embracing causal complexity: The emergence of a neo-configurational perspective. Journal of Management, 43(1), 255–282. Narayanan, V. K., & Fahey, L. (2005). The relevance of the institutional underpinnings of Porter's five forces framework to emerging economies: An epistemological analysis. Journal of Management Studies, 42(1), 207–223. North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge university press. Ordanini, A., Parasuraman, A., & Rubera, G. (2014). When the recipe is more important than the ingredients: A qualitative comparative analysis (QCA) of service innovation configurations. Journal of Service Research, 17(2), 134–149. Pajunen, K. (2008). Institutions and inflows of foreign direct investment: A fuzzy-set analysis. Journal of International Business Studies, 39(4), 652–669. Park, S. H., & Luo, Y. (2001). Guanxi and organizational dynamics: Organizational networking in Chinese firms. Strategic Management Journal, 22(5), 455–477. Peng, M. W. (2002). Towards an institution-based view of business strategy. Asia Pacific Journal of Management, 19(2–3), 251–267. Peng, M. W., & Heath, P. S. (1996). The growth of the firm in planned economies in transition: Institutions, organizations, and strategic choice. Academy of Management Review, 21(2), 492–528. Peng, M. W., & Luo, Y. (2000). Managerial ties and firm performance in a transition economy: The nature of a micro-macro link. Academy of Management Journal, 43(3), 486–501. Peng, M. W., Sun, S. L., Pinkham, B., & Chen, H. (2009). The institution-based view as a third leg for a strategy tripod. The Academy of Management Perspectives, 23(3), 63–81. Peng, M. W., Sunny, L. S., Brian, P., & Hao, C. (2009). The institution-based view as a third leg for a strategy tripod. The Academy of Management Perspectives, 23(3), 63–81. Peng, M. W., Wang, D. Y., & Jiang, Y. (2008). An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39(5), 920–936. Porter, M. E. (1996). What is strategy. Published November. Prado, A. M., & Woodside, A. G. (2015). Deepening understanding of certification adoption and non-adoption of international-supplier ethical standards. Journal of Business Ethics, 132(1), 105–125. Puffer, S., & McCarthy, D. (2001). Navigating the hostile maze: A framework for Russian entrepreneurship. Academy of Management Executive, 15(4), 24–36. Ragin, C. C. (2006). Set relations in social research: Evaluating their consistency and coverage. Political Analysis, 14(3), 291–310. Ragin, C. C. (2008). Redesigning social inquiry fuzzy sets and beyond. Chicago and London: University of Chicago Press. Ramamurti, R. (2012). What is really different about emerging market multinationals? Global Strategy Journal, 2(1), 41–47. Reardon, T., & Barrett, C. B. (2000). Agroindustrialization, globalization, and international development: An overview of issues, patterns, and determinants. Agricultural Economics, 23(3), 195–205. Rihoux, B., & Ragin, C. C. (2009). Configurational comparative methods: Qualitative comparative analysis (QCA) and related techniques. Applied social research methods series. 51. Thousand Oaks, CA: Sage. Rosales, O., & Kuwayama, M. (2012). China y América Latina y el Caribe: Hacia una relación económica y comercial estratégica. Santiago. Comisión Económica para América Latina y el Caribe (CEPAL). Rugman, A. M., & Verbeke, A. (1992). A note on the transnational solution and the transaction cost theory of multinational strategic management. Journal of International Business Studies, 23(4), 761–771. Rugman, A. M., & Verbeke, A. (2003). Extending the theory of the multinational enterprise: Internalization and strategic management perspectives. Journal of International Business Studies, 34(2), 125–137. Schneider, C. Q., & Wagemann, C. (2012). Set-theoretic methods for the social sciences: A guide to qualitative comparative analysis. Cambridge University Press. Spanos, A. (2008). Stephen T. Ziliak and Deirdre N. McCloskey's The cult of statistical significance: How the standard error costs us jobs, justice, and lives. Erasmus Journal for Philosophy and Economics, 2008, Ann Arbor (MI): The University of Michigan Pressxxiii+ 322 1(1), 154–164. Trafimow, D., & Marks, E. (2015). Basic and Applied Social Psychology, 37, 1–2. Uzzi, B. (1996). The sources and consequences of embeddedness for the economic performance of organizations: The network effect. American Sociological Review, 674–698. Verbeke, A., & Kano, L. (2012). The transaction cost economics theory of the family firm: Family-based human asset specificity and the bifurcation bias. Entrepreneurship Theory and Practice, 36(6), 1183–1205. Welch, C., Piekkari, R., Plakoyiannaki, E., & Paavilainen-Mäntymäki, E. (2011). Theorising from case studies: Towards a pluralist future for international business research. Journal of International Business Studies, 42(5), 740–762. Wernerfelt, B. (1995). The resource-based view of the firm: Ten years after. Strategic Management Journal, 16(3), 171–174. Williamson, O. E. (1985). The economic institutions of capitalism. Simon and Schuster. Williamson, O. E. (2005). Transaction cost economics. Handbook of new institutional economics (pp. 41–65). US: Springer. Witt, M. A., & Lewin, A. Y. (2007). Outward foreign direct investment as escape response to home country institutional constraints. Journal of International Business Studies, 38(4), 579–594. Woodside, A., & Zhang, M. (2012). Identifying X-consumers using causal recipes: “Whales”

Delios, A. (2017). The death and rebirth of international business research. Journal of Management Studies, 54(3), 391–397. Dominguez, L. V., & Brenes, E. R. (1997). The internationalization of Latin American enterprises and market liberalization in the Americas: A vital linkage. Journal of Business Research, 38(1), 3–16. Fauver, L., Houston, J. F., & Naranjo, A. (2004). Cross-country evidence on the value of corporate industrial and international diversification. Journal of Corporate Finance, 10(5), 729–752. Fiss, P. C. (2007). A set-theoretic approach to organizational configurations. Academy of Management Review, 32(4), 1180–1198. Fiss, P. C. (2011). Building better causal theories: A fuzzy set approach to typologies in organization research. Academy of Management Journal, 54(2), 393–420. Fiss, P. C., Cambré, B., & Marx, A. (2013). Configurational theory and methods in organizational research. Emerald Group Publishing. Food and Agriculture Organization (2007). Challenges of agribusiness and agro industries development. ftp://ftp.fao.org/docrep/fao/meeting/011/j9176e.pdf, Accessed date: May 2012. Gammeltoft, P., Barnard, H., & Madhok, A. (2010). Emerging multinationals, emerging theory: Macro-and micro-level perspectives. Journal of International Management, 16(2), 95–101. Garcia, M. (2005). Agribusinesses in the new millennium. Santiago, Comisión Económica para América Latina y el Caribe (CEPAL). Glaum, M., & Oesterle, M. J. (2007). 40 years of research on internationalization and firm performance: More questions than answers? Management International Review, 47(3), 307–317. Godfrey, P. (2011). Toward a theory of the informal economy. Academy of Management Annals, 5(1), 231–277. Gonzales, E., Hommes, M., & Mirmulstein, M. L. (2014). MSME Country indicators: Towards a better understanding of micro, small, and medium enterprises (No. December, 2014). Analysis note. International Finance Corporation-World Bank Group. Washington DC Retrieved from http://ifcwebapp.github.io/ msmecountryindicators/analysis note.pdf. Guillén, M. F., & García-Canal, E. (2009). The American model of the multinational firm and the “new” multinationals from emerging economies. The Academy of Management Perspectives, 23(2), 23–35. Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. (2000). Strategy in emerging economies. Academy of Management Journal, 43(3), 249–267. Hubbard, R. (2015). Corrupt research: The case for reconceptualizing empirical management and social science. SAGE Publications. Kan, A. K. S., Adegbite, E., El Omari, S., & Abdellatif, M. (2016). On the use of qualitative comparative analysis in management. Journal of Business Research, 69(4), 1458–1463. Katchova, A. L., & Enlow, S. J. (2013). Financial performance of publicly-traded agribusinesses. Agricultural Finance Review, 73, 58–73. Kent, R. (2008). Using fsQCA: A brief guide and workshop for fussy-set qualitative comparative analysis. http://www.ccsr.ac.uk/publications/teaching/2008-10.pdf, Accessed date: July 2014. Ketelhöhn, N., Brenes, E., & Pérez, F. (2012). Estrategias de diferenciación en empresas agrícolas. INCAE Business Review, 2(5). Khanna, T., & Palepu, K. (2000). The future of business groups in emerging markets: Long-run evidence from Chile. Academy of Management Journal, 43(3), 268–285. Khanna, T., & Palepu, K. (2013). Winning in emerging markets: A road map for strategy and execution. Harvard Business Press. Khanna, T., & Rivkin, J. W. (2001). Estimating the performance effects of business groups in emerging markets. Strategic Management Journal, 22(1), 45–74. Khanna, T., & Yafeh, Y. (2007). Business groups in emerging markets: Paragons or parasites. Journal of Economic Literature, 331–372. Khoury, T. A., Junkunc, M., & Mingo, S. (2015). Navigating political hazard risks and legal system quality venture capital investments in Latin America. Journal of Management, 41(3), 808–840. Khoury, T. A., & Prasad, A. (2016). Entrepreneurship amid concurrent institutional constraints in less developed countries. Business & Society, 55(7), 934–969. Kogut, B., MacDuffie, J. P., & Ragin, C. C. (2004). Prototypes and strategy: Assigning causal credit using. Kumar, V., Mudambi, R., & Gray, S. (2013). Internationalization, innovation and institutions: The 3 I's underpinning the competitiveness of emerging market firms. Journal of International Management, 19(3), 203–206. Lu, J., Xu, B., & Liu, X. (2009). The effects of corporate governance and institutional environments on export behavior in emerging economies. Management International Review, 49(4), 455–478. Luo, X. R., & Chung, C. N. (2013). Filling or abusing the institutional void? Ownership and management control of public family businesses in an emerging market. Organization Science, 24(2), 591–613. Luo, Y. (2003). Industrial dynamics and managerial networking in an emerging market: The case of China. Strategic Management Journal, 24(13), 1315–1327. Luo, Y., Sun, J., & Wang, S. L. (2011). Comparative strategic management: An emergent field in international management. Journal of International Management, 17(3), 190–200. Luo, Y., & Tung, R. L. (2007). International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38(4), 481–498. Mair, J., Martí, I., & Ventresca, M. J. (2012). Building inclusive markets in rural Bangladesh: How intermediaries work institutional voids. Academy of Management Journal, 55(4), 819–850. Manolova, T. S., Manev, I. M., & Gyoshev, B. S. (2010). In good company: The role of personal and inter-firm networks for new-venture internationalization in a transition economy. Journal of World Business, 45(3), 257–265. Meyer, A. D., Tsui, A. S., & Hinings, C. R. (1993). Configurational approaches to

13

Journal of Business Research xxx (xxxx) xxx–xxx

E.R. Brenes et al. and “Jumbo Shrimps” casino gamblers. Springer Science + Business Media, LLC. Woodside, A. G. (2012). Proposing a new logic for data analysis in marketing and consumer behavior: Case study research of Large-N survey data for estimating algorithms that accurately profile X (extremely high-use) consumers. Journal of Global Scholars of Marketing Science, 22(4), 277–289. Woodside, A. G. (2013). Moving beyond multiple regression analysis to algorithms: Calling for adoption of a paradigm shift from symmetric to asymmetric thinking in data analysis and crafting theory. Journal of Business Research, 66(4), 463–472. World Bank. Doing business. (2017). http://espanol.doingbusiness.org/methodology/ methodology-note (consulted on January 2018).

World Economic Forum (2014). The global competitiveness report 2014–2015. Wright, M., Filatotchev, I., Hoskisson, R. E., & Peng, M. W. (2005). Strategy research in emerging economies: Challenging the conventional wisdom. Journal of Management Studies, 42(1), 1–33. Yamakawa, Y., Peng, M. W., & Deeds, D. L. (2008). What drives new ventures to internationalize from emerging to developed economies. Entrepreneurship Theory and Practice, 32(1), 59–82. Yiu, D. W., Lu, Y., Bruton, G. D., & Hoskisson, R. E. (2007). Business groups: An integrated model to focus future research. Journal of Management Studies, 44(8), 1551–1579.

14