Strategy and Non-Market Environment (SNME)
Content
Strategy and Non-Market Environment (SNME).................................................................................... 1
Lecture 1: Introduction to global market and non-market strategies............................................... 3
Baron (1995) Integrated strategy: market and nonmarket components ...................................... 3
Hu (1995) The international transferability of the firm’s advantages ........................................... 5
Tallman & Cuervo-Cazurra (2021) Global strategy......................................................................... 6
Porter (1985) Competitive advantage: creating and sustaining superior performance ............... 7
Lecture 2: Market strategies: Internalization and entry mode choices ............................................ 9
Dunning (1980) Toward eclectic theory of international production: some empirical test ......... 9
Zaheer (1995) Overcoming the liability of foreignness (LOF) ...................................................... 12
Meyer et al. (2009) Managing knowledge in foreign entry strategies: RBV analysis ................. 13
Hill et al. (1991) An eclectic theory of the choice of international entry mode ......................... 15
Lecture 3: Market strategies: International location choice ........................................................... 16
Flores & Aquilera (2007) Globalization and location choice: an analysis of US multinational
firms in 1980 and 2000 ................................................................................................................. 17
Porter (1998) Clusters and the new economics of competition .................................................. 18
Goerzen et al. (2013) Global cities and multinational enterprise location strategy ................... 21
Lecture 4: Market strategies: Global value chains ........................................................................... 23
Strange & Humphrey (2019) What lies between market and hierarchy? Insights from
internalization theory and global value chain theory ................................................................. 23
Krause et al. (2007) The relationship between supplier development, commitment, social
capital accumulation and performance improvement ................................................................ 25
Gereffi & Lee (2012) Why the world suddenly cares about global supply chains ...................... 26
Verbeke (2020) Will the Covid-19 pandemic really change the governance of GVC? ................ 27
Lecture 5: Market strategies: case-based dialogue ......................................................................... 28
Vermeulen & Barkema (2002) Pace, rhythm and scope: process dependence in building a
profitable multinational corporation ........................................................................................... 28
Koster et al. (2010) Resuming internationalization at Starbucks ................................................ 29
Lecture 6: Non-Market Environment and Institutional Theory ....................................................... 31
DiMaggio & Powell (1983) The iron cage revisited: Institutional isomorphism and collective
rationality in organizational fields................................................................................................ 31
Voinea & Van Kranenburg 2017: Nonmarket strategic management (Ch. 1-3) .......................... 32
Lecture 7: Non-market strategies: corporate political activity (CPA) & corporate social
responsibility (CSR) ........................................................................................................................... 36
Voinea & Van Kranenburg 2017: Nonmarket strategic management (Ch. 4-5) .......................... 36
Mellahi et al. (2016) A review of the nonmarket strategy literature: toward a multi theoretical
integration ..................................................................................................................................... 38
1
, Dorobantu, Kaul & Zelner (2017) Nonmarket strategy research through the lens of new
institutional economics: an integrative review and future directions ........................................ 40
Lecture 8: Non-market strategies: Institutional entrepreneurship and new organizational forms 43
Lawrence (1999) Institutional strategy ........................................................................................ 43
Tracey, Philips & Jarvis (2011) Bridging institutional entrepreneurship and the creation of new
organizational forms: a multilevel model .................................................................................... 45
Navis & Glynn (2010) How new market categories emerge: temporal dynamics of legitimacy,
identity and entrepreneurship in satellite radio.......................................................................... 46
Lecture 9: Integrated strategies (market and non-market): dialogue ............................................. 49
Aldrich & Fiol (1994) Fools rush in? The institutional context of industry creation ................... 49
Lux, Crook & Woehr (2011) Mixing business with politics: a meta-analysis of the antecedents
and outcomes of corporate political activity (CPA) ..................................................................... 50
Lecture 11: Example exam questions ............................................................................................... 52
2
,Lecture 1: Introduction to global market and non-market strategies
MNEs increasingly need to consider their non-market environment, in addition to and in
conjunction with (integration) the market environment
Baron (1995) Integrated strategy: market and nonmarket components
The environment of a business is composed of market and nonmarket components, and any
approach to strategy formulation must integrate both market and nonmarket considerations.
Strategies must be tailored to those structure, dynamics, competencies and characteristics.
- Market environment: includes those interactions between the firm and other parties
that are intermediated by markets or private agreements.
o Market strategy: concerted pattern of actions taken in ME to create value by
improving economic performance (e.g. entry mode).
o Typically: voluntary, economic transactions and exchange of property
o Competitive (market) strategy is about being different. It means deliberately
choosing a different set of activities to deliver a unique mix of value"
▪ Competitive advantage: relative to competitors
- Nonmarket environment: includes those interactions that are intermediated by the
public, stakeholders, government, the media and public institutions.
o Consists of the social, political, and legal arrangements that structure the
firm's interactions outside of, and in conjunction with, markets
▪ Company
▪ Company’s Market Environment
• Competitors, customers, suppliers
▪ Company’s Nonmarket Environment
• Activists, media, regulators, governments, citizens, NGO’s
o Nonmarket strategy: a concerted pattern of actions taken in NME to create
value by improving its overall performance by managing the institutional or
societal context of economic competition →shape firm's ME
o Importance NM strategies
▪ More when more opportunities are controlled by governments (NME)
and are less important when markets control opportunities.
▪ The more direct challenges from interest and activist groups there are
▪ Political, social, and natural aspects of global arena become more
intertwined and progressively salient for performance and survival
o Nonmarket issues have effect at two levels: firm & industry
- The nonmarket environment is characterized by four I's:
1. Issues: what nonmarket strategies address; open a foreign market
2. Institutions the relevant set of bodies that the firm must interact with
3. Interests individuals and groups with preferences about, or a stake in, an issue
4. Information what interested parties know/ believe about relation between actions
and consequences and about preferences and capabilities of interested parties
Since many nonmarket issues arise from market activity, one approach is to view nonmarket
strategies as complements to market strategies that in some cases can be used to
address directly the five market forces Porter (1985) identifies:
- Threat of new entrants/competitive advantage: Nonmarket strategies not only can
help realize competitive advantage, they can also help offset competitive
disadvantage. In both ways, it helps defending against rivals.
- Current rivalry: nonmarket strategies can be used more broadly to structure the
rules of market competition. Consequently, some market strategies are pursued by
industries rather than by individual firms and hence do not provide a competitive
advantage against industry rivals.
- Substitutes/new entrants: Nonmarket strategies can be essential in creating market
opportunities and defending against substitutes and new entrants.
3
, - Bargaining power of buyers/suppliers: Nonmarket strategies can also address
threats arising from the bargaining power of buyers and suppliers.
Drawback of using nonmarket strategies to address Porter’s five forces: institutions in
which regulatory policies are decided are quite different from the institution of markets.
- Alternate approach: consider NM factors as a sixth force to be defended against.
o Drawback: does not sufficiently emphasize interaction between the five forces
and nonmarket issues.
o Furthermore, nonmarket action can be directed at creating or realizing market
opportunities for firms.
- Most effective approach: integrate NM analysis and strategy formulation into
strategy process and focus both on specific NM issues that affect the firm and on NM
action as complements to, or substitutes for, market actions
- NME is endogenous and not exogenous (i.e. firms can influence it)
Firm create value by developing market & nonmarket assets
- Include expertise and competency in dealing with NM forces and reputation.
- Nonmarket advantage: extent that its NM assets and competencies are unique or
difficult to replicate
o Can be damaged by rivals (replication) and activists/ other interest groups
o Principal NM capability that can’t be replicated: knowledge, expertise, and skill
of managers in addressing nonmarket issues.
o Asset: e.g. develop reputation and personal relations
- Value of NM competency also depends on competencies of firm's allies, and of its
competitors, in dealing with nonmarket issues.
- At any instant in time, these distinctive competencies and firm-specific nonmarket
assets are fixed, but over time they can be developed (or lost).
Strategies and borders
- Comprehensive global or international NM strategy seems unlikely to be successful.
o Nonmarket strategies are more likely than market strategies to be multi-
domestic when institutions and the interests differ across countries.
- In the nonmarket environment, examples of global strategies are:
o Supporting and working for free trade in every country;
o Applying universal ethical principles in all its operations; and
o Implementing environmental policies in which the same abatement standards
are maintained in every country.
Integrated (global) market and non-market strategy
4
Content
Strategy and Non-Market Environment (SNME).................................................................................... 1
Lecture 1: Introduction to global market and non-market strategies............................................... 3
Baron (1995) Integrated strategy: market and nonmarket components ...................................... 3
Hu (1995) The international transferability of the firm’s advantages ........................................... 5
Tallman & Cuervo-Cazurra (2021) Global strategy......................................................................... 6
Porter (1985) Competitive advantage: creating and sustaining superior performance ............... 7
Lecture 2: Market strategies: Internalization and entry mode choices ............................................ 9
Dunning (1980) Toward eclectic theory of international production: some empirical test ......... 9
Zaheer (1995) Overcoming the liability of foreignness (LOF) ...................................................... 12
Meyer et al. (2009) Managing knowledge in foreign entry strategies: RBV analysis ................. 13
Hill et al. (1991) An eclectic theory of the choice of international entry mode ......................... 15
Lecture 3: Market strategies: International location choice ........................................................... 16
Flores & Aquilera (2007) Globalization and location choice: an analysis of US multinational
firms in 1980 and 2000 ................................................................................................................. 17
Porter (1998) Clusters and the new economics of competition .................................................. 18
Goerzen et al. (2013) Global cities and multinational enterprise location strategy ................... 21
Lecture 4: Market strategies: Global value chains ........................................................................... 23
Strange & Humphrey (2019) What lies between market and hierarchy? Insights from
internalization theory and global value chain theory ................................................................. 23
Krause et al. (2007) The relationship between supplier development, commitment, social
capital accumulation and performance improvement ................................................................ 25
Gereffi & Lee (2012) Why the world suddenly cares about global supply chains ...................... 26
Verbeke (2020) Will the Covid-19 pandemic really change the governance of GVC? ................ 27
Lecture 5: Market strategies: case-based dialogue ......................................................................... 28
Vermeulen & Barkema (2002) Pace, rhythm and scope: process dependence in building a
profitable multinational corporation ........................................................................................... 28
Koster et al. (2010) Resuming internationalization at Starbucks ................................................ 29
Lecture 6: Non-Market Environment and Institutional Theory ....................................................... 31
DiMaggio & Powell (1983) The iron cage revisited: Institutional isomorphism and collective
rationality in organizational fields................................................................................................ 31
Voinea & Van Kranenburg 2017: Nonmarket strategic management (Ch. 1-3) .......................... 32
Lecture 7: Non-market strategies: corporate political activity (CPA) & corporate social
responsibility (CSR) ........................................................................................................................... 36
Voinea & Van Kranenburg 2017: Nonmarket strategic management (Ch. 4-5) .......................... 36
Mellahi et al. (2016) A review of the nonmarket strategy literature: toward a multi theoretical
integration ..................................................................................................................................... 38
1
, Dorobantu, Kaul & Zelner (2017) Nonmarket strategy research through the lens of new
institutional economics: an integrative review and future directions ........................................ 40
Lecture 8: Non-market strategies: Institutional entrepreneurship and new organizational forms 43
Lawrence (1999) Institutional strategy ........................................................................................ 43
Tracey, Philips & Jarvis (2011) Bridging institutional entrepreneurship and the creation of new
organizational forms: a multilevel model .................................................................................... 45
Navis & Glynn (2010) How new market categories emerge: temporal dynamics of legitimacy,
identity and entrepreneurship in satellite radio.......................................................................... 46
Lecture 9: Integrated strategies (market and non-market): dialogue ............................................. 49
Aldrich & Fiol (1994) Fools rush in? The institutional context of industry creation ................... 49
Lux, Crook & Woehr (2011) Mixing business with politics: a meta-analysis of the antecedents
and outcomes of corporate political activity (CPA) ..................................................................... 50
Lecture 11: Example exam questions ............................................................................................... 52
2
,Lecture 1: Introduction to global market and non-market strategies
MNEs increasingly need to consider their non-market environment, in addition to and in
conjunction with (integration) the market environment
Baron (1995) Integrated strategy: market and nonmarket components
The environment of a business is composed of market and nonmarket components, and any
approach to strategy formulation must integrate both market and nonmarket considerations.
Strategies must be tailored to those structure, dynamics, competencies and characteristics.
- Market environment: includes those interactions between the firm and other parties
that are intermediated by markets or private agreements.
o Market strategy: concerted pattern of actions taken in ME to create value by
improving economic performance (e.g. entry mode).
o Typically: voluntary, economic transactions and exchange of property
o Competitive (market) strategy is about being different. It means deliberately
choosing a different set of activities to deliver a unique mix of value"
▪ Competitive advantage: relative to competitors
- Nonmarket environment: includes those interactions that are intermediated by the
public, stakeholders, government, the media and public institutions.
o Consists of the social, political, and legal arrangements that structure the
firm's interactions outside of, and in conjunction with, markets
▪ Company
▪ Company’s Market Environment
• Competitors, customers, suppliers
▪ Company’s Nonmarket Environment
• Activists, media, regulators, governments, citizens, NGO’s
o Nonmarket strategy: a concerted pattern of actions taken in NME to create
value by improving its overall performance by managing the institutional or
societal context of economic competition →shape firm's ME
o Importance NM strategies
▪ More when more opportunities are controlled by governments (NME)
and are less important when markets control opportunities.
▪ The more direct challenges from interest and activist groups there are
▪ Political, social, and natural aspects of global arena become more
intertwined and progressively salient for performance and survival
o Nonmarket issues have effect at two levels: firm & industry
- The nonmarket environment is characterized by four I's:
1. Issues: what nonmarket strategies address; open a foreign market
2. Institutions the relevant set of bodies that the firm must interact with
3. Interests individuals and groups with preferences about, or a stake in, an issue
4. Information what interested parties know/ believe about relation between actions
and consequences and about preferences and capabilities of interested parties
Since many nonmarket issues arise from market activity, one approach is to view nonmarket
strategies as complements to market strategies that in some cases can be used to
address directly the five market forces Porter (1985) identifies:
- Threat of new entrants/competitive advantage: Nonmarket strategies not only can
help realize competitive advantage, they can also help offset competitive
disadvantage. In both ways, it helps defending against rivals.
- Current rivalry: nonmarket strategies can be used more broadly to structure the
rules of market competition. Consequently, some market strategies are pursued by
industries rather than by individual firms and hence do not provide a competitive
advantage against industry rivals.
- Substitutes/new entrants: Nonmarket strategies can be essential in creating market
opportunities and defending against substitutes and new entrants.
3
, - Bargaining power of buyers/suppliers: Nonmarket strategies can also address
threats arising from the bargaining power of buyers and suppliers.
Drawback of using nonmarket strategies to address Porter’s five forces: institutions in
which regulatory policies are decided are quite different from the institution of markets.
- Alternate approach: consider NM factors as a sixth force to be defended against.
o Drawback: does not sufficiently emphasize interaction between the five forces
and nonmarket issues.
o Furthermore, nonmarket action can be directed at creating or realizing market
opportunities for firms.
- Most effective approach: integrate NM analysis and strategy formulation into
strategy process and focus both on specific NM issues that affect the firm and on NM
action as complements to, or substitutes for, market actions
- NME is endogenous and not exogenous (i.e. firms can influence it)
Firm create value by developing market & nonmarket assets
- Include expertise and competency in dealing with NM forces and reputation.
- Nonmarket advantage: extent that its NM assets and competencies are unique or
difficult to replicate
o Can be damaged by rivals (replication) and activists/ other interest groups
o Principal NM capability that can’t be replicated: knowledge, expertise, and skill
of managers in addressing nonmarket issues.
o Asset: e.g. develop reputation and personal relations
- Value of NM competency also depends on competencies of firm's allies, and of its
competitors, in dealing with nonmarket issues.
- At any instant in time, these distinctive competencies and firm-specific nonmarket
assets are fixed, but over time they can be developed (or lost).
Strategies and borders
- Comprehensive global or international NM strategy seems unlikely to be successful.
o Nonmarket strategies are more likely than market strategies to be multi-
domestic when institutions and the interests differ across countries.
- In the nonmarket environment, examples of global strategies are:
o Supporting and working for free trade in every country;
o Applying universal ethical principles in all its operations; and
o Implementing environmental policies in which the same abatement standards
are maintained in every country.
Integrated (global) market and non-market strategy
4
