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Indigenous firms in developing countries with large domestic markets have unique advantages: the low-end provides “natural” protection from foreign competition, while higher-end segments provide incentives for foreign firms to localize activities and develop channels for future capability-building. Paradoxically, in their eagerness to support development efforts of local firms, states often nullify these advantages and limit the opportunities and capabilities that local firms can leverage in the upgrading
process. Using the case studies of three large industrial sectors in China that faced similar prospects but had widely different outcome, this paper develops a framework for understanding how policy shapes the growth and segmentation of markets, and thus the opportunity for industrial upgrading of indigenous firms. The cases show how restrictive demand- and the supply-side policies often inadvertently limited the opportunities for upgrading through their effect on the availability of know-how, inputs and resources required for industrial upgrading (the supply-side), and through their effect on the incentives for upgrading (the demand-side). Given that each segment is a crucial rung on the development ladder, industrial upgrading efforts stall when state policy inadvertently knocked out rungs on the development ladder.
Social compliance programs employed by MNEs face significant challenges in enforcing labor standards across global supply chains. This study examines whether buyers can improve social performance by introducing modern management systems to their suppliers. We analyze an intervention by Nike Inc. to promote the adoption of lean manufacturing in apparel suppliers across eleven developing countries since 2008. Using difference-in-differences estimates from a panel of over 300 factories, we find that lean adoption produced a 15 percentage point reduction in failing labor compliance grades, which are associated with wage and work hours violations. However, we find no effect of the lean program on health, safety, and environmental compliance. This pattern is consistent with the hypothesis that modern manufacturing systems improve labor standards primarily through changes in the relationship between labor and management, rather than increased managerial technical competence.
Why do nondemocratic regimes provide constituency service? This study develops theory based on a national field audit of China's "Mayor's Mailbox," an institution that allows citizens to contact local political officials. Analyzing government responses to over twelve hundred realistic appeals from putative citizens, we find local service institutions in China are comparably responsive to similar institutions in democracies. Two key predictors of institutional quality are economic modernization and the intensity of local social conflict. We explain these findings by proposing a demand-driven theory of nondemocratic constituency service; in order to sustain the informational benefits of citizen participation, service institutions must increase responsiveness according to citizen demand. We then offer supplementary evidence for this theory by analyzing the content of real letters from citizens to local officials in China.
This paper uses the notion of institutional logics to advance our understanding of institutional change in the ICT start-up eco-system in Japan. We chose to study ICT start-ups because the rates of entry, growth, and exit are faster in this sector than in others, making it easier to observe institutional change. Our study, based on data from interviews, closed master classes and document analysis, is presented in three steps. First, we describe the two logics that coexist in the ICT start-up eco-system, namely Corporate Logic and Venture Logic, and practices under each logic in three arenas, namely the capital market, the labor market, and social networks. Second, we identify several factors that enabled the emergence of Venture Logic during the period since the mid-1990s. Third, looking into the future, we discuss the reasons why we predict that the two logics are likely to co-exist in this field, resulting in organizational heterogeneity.
Governments set rules; businesses operate by following these rules. This idealized notion of political economy is more inaccurate today than ever before. Business leaders, including technology entrepreneurs, must participate in rulemaking due to deregulation and liberalization, prominent global risks (such as climate change and migration) that do not respect national borders, and digital technology that is spewing new issues requiring new rules. Business leaders are expected to be corporate diplomats.
Corporate diplomacy is not about turning businessmen into part-time politicians or statesmen. Rather, it involves corporations taking part in creating, enforcing, and changing the rules of the game that govern the conduct of business. It goes well beyond delegating external communications and lobbying to a public relations agency or a law firm. Precise understanding of corporate diplomacy would help businesses compete more effectively in the global economy. This column clarifies corporate diplomacy, its benefits and challenges.
This paper uses the notion of contracting strategy to advance research in plural sourcing. We develop and test a theoretical framework to explain how plural-sourcing firms strike the make-and-buy balance depending on their contracting strategy. The focal firm’s choice of a contracting strategy is associated with a specific supplier portfolio design, with a bargaining-based strategy resulting in many, narrowly capable suppliers with short tenure, and a relationship-based contracting strategy resulting in fewer, broadly capable suppliers with long tenure. Focal firms with the latter strategy incur lower overall contracting costs than those with the former, and therefore outsource more. Focal firms seek to influence contracting costs associated with their supplier portfolio for “nearly the same inputs” and “nearly the same suppliers”. Empirical analysis corresponding to the two levels, namely
patent prosecution and legal services at Fortune 500 firms, provide consistent support for our theory.