Week 4

Question 1

What are the extant theories and reasoning behind bribery for firms?

Answer 1

1. Prior research suggests that firms with greater efficiency are more likely to export.
   –> Bribing firms may have advantageous positions within foreign markets and therefore greater exports can be expected.
2. Bribery paid to government officials may strengthen a firm’s position within the domestic market.
   –> Therefore, firms may be less inclined to expand to foreign markets if they have an advantageous position in the domestic market.

Question 2

What are common causes of bribery?

Answer 2

1. Close relationships with government officials: Firms that have close ties with officials are more likely to engage in bribery due to a sense of obligation and reduced risks.
2. Proactive firms: Some firms actively use bribery as a strategic tool to acquire preferential treatment or benefits.
3. Interpersonal relationships: Personal connections between firms and officials lower the risks associated with firms.

Question 3

How may a non-bribing firm struggle to compete with bribing firms in a regulated market where government officials are prone to seeking personal benefits by taking bribes? (2)

Answer 3

From a bribing firms perspective, bribery is a ‘quicker, and perhaps more effective, strategic instrument’ for going through the regulatory process.
1. Non-bribing firms may be put at a disadvantage as they may face regulatory challenges such as:
- Higher rejection rates when requesting for public resources
- Facing stricter regulations
- Longer decision times
- Higher costs
3. These firms also miss out on the benefits of economies of scale, reducing their ability to compete effectively in foreign markets.

Question 4

What is Hypothesis 1a and Hypothesis 1b for the paper “Does Bribery in the Home Country Promote or Dampen Firm Exports?”

Answer 4

• H1a: There will be a positive association between a firm’s bribe amounts paid to government officials in the home country and its export intensity.
• H1b: There will be a negative association between a firms bribe amounts paid to government officials in the home country and its export intensity.

Question 5

What were the results for H1a and H1b in the paper “Does Bribery in the Home Country Promote or Dampen Firm Exports?”

Answer 5

H1a: Not supported, the coefficient of bribery in the home country suggests that a 1 percent increase in bribery in the home country lowers export intensity by 1.43 percent.
H1b: Supported, it is found that as bribery in the home country increases, firm exports decrease.

Question 6

Explain Nonmarket Strategy (NMS)

Answer 6

This is a firms action to improve its competitive position and performance by actively managing the institutional or societal contexts of business competition in which it operates.

Question 7

What are the 2 interrelated components of Nonmarket Strategy?

Answer 7

Corporate Political Activity (CPA) & Strategic Corporate Social Responsibility (SCSR).

Question 8

What are weak institutional contexts? (3)

Answer 8

Institutions which do not adequately support market transactions.

Question 9

How can firms deal with weak institutional contexts? (3)

Answer 9

1. Adapting to existing institutional structures (Adaptive Approaches)
2. Adding to such structures by establishing supplementary local institutional structures (Additive Approaches)
3. Transforming the institutional context itself.
   (Transformative Approaches)

Question 10

Define transaction costs

Answer 10

Expenses related to capturing and protecting value

Question 11

Define institutional costs

Answer 11

Costs associated with the specific institutional environment a firm operates in.

Question 12

Define and Explain the variables associated with Strategic Intent and Governance for the nonmarket strategy typology (7)

Answer 12

1. Strategic Intent
   
   • Adaptation - Firms accept the current institutional environment and choose to operate outside the market using governance modes that incur lower costs.
     - Augmentation- The company adds to the current environment by setting up new structures, like alliances or local business groups, that benefit participants in those groups. This strategy reduces costs for those involved without impacting the rest of the market environment directly.
   • Transformation- Firms may aim to change the institutional environment itself, reducing costs and enabling more value creation and appropriation through the market.
2. Governance mode selected for implementation:
   In pursuing their adaptive, additive, or transformative intent, the firm must also choose whether to do so on its own, or in collaboration with others.
   
   • Independent
   • Collaboration
     
     • Bilateral Governance- Agreements between 2 parties.
     • Multilateral Governance- Multiple parties and can include alliances with other firms or partnerships with nonmarket stakeholders (NGOs, activists, communities, regulators, etc…)

Question 13

Define Internalization Strategies and state its placement in the nonmarket typology:

Answer 13

Internalization is where firms place the transaction within firm boundaries to create an appropriate value. (Most likely Vertical Integration)
Strategic Intent: Adaptive
Governance: Independent

Question 14

Define Partnership Strategies and state its placement in the nonmarket typology:

Answer 14

A partnership is creating a hybrid governance form that lowers the risk of opportunism and allows two parties to collaborate to mutual benefit.
Strategic Intent: Adaptive
Governance: Collaborative

Question 15

Define Proactive Strategies and state its placement in the nonmarket typology:

Answer 15

Firms seeking to augment the institutional environment volunteer to share value with others unilaterally in the expectation of being rewarded for doing so.
Strategic Intent: Additive
Governance: Independent

Question 16

Define Collective Strategies and state its placement in the nonmarket typology:

Answer 16

Firms seeking to augment the institutional environment by developing new rules and norms in collaboration with others to jointly create and manage common pool resources.
Strategic Intent: Additive
Governance: Collective

Question 17

Define Coalition Strategies and state its placement in the nonmarket typology:

Answer 17

Firms seeking to transform the institutional environment to alter governing institutions in ways that benefit them all.
Strategic Intent: Transformational
Governance: Collective

Question 17

Define Influence Strategies and state its placement in the nonmarket typology:

Answer 17

Firms seeking to transform the institutional environment by influencing governing institutions to their exclusive advantage.
Strategic Intent: Transformational
Governance: Independent

Question 18

Opportunism

Answer 18

When someone takes advantage of a situation for their own benefit which may have negative implications for the opposing party.

Question 19

What factors influence the adaptive approach a firm may select?

Answer 19

1. Firms with strong technological capabilities may face a higher risk of appropriation from exchange partners and may therefore prefer vertical integration.
2. Firms with experience in countries with high institutional costs are less sensitive to political hazards.
3. The institutional environment may have rules and norms which selectively privilege certain governance forms, it also may have certain legal restrictions to limit the range of alternatives available to firms–> This makes it harder for entrepreneurial startups or foreign subsidiaries to generate value.

Question 20

What institutional scenarios best suit additive approaches? (4)

Answer 20

1. Contexts where pressure from activists’ increase the chance of stricter regulations.
2. Additive approaches have a larger chance of success when an institutional environment facilitates transparency and information diffusion.
3. Additive approaches are more likely to succeed when actors involved are structurally embedded in a network of prior ties.
4. When there are competitive conditions, advanced technology, or third-party monitors to indicate whether the firm is complying with self-imposed rules. (More so in developed countries)

Question 21

What determines a transformative approaches success? (1)

Answer 21

The influence of the political context and on the capabilities and experience of the firm itself.

Question 22

Define an incomplete institution

Answer 22

Institutions where regulations are either absent or too unpredictable or weakly enforced for transacting parties to rely on them.

Question 23

In Incomplete Institutions: Internalization or Partnership

Answer 23

Internalization: Within incomplete institutions, there are institutional costs which are driven by the risk of opportunistic behavior by transaction partners.

Question 24

In Incomplete Institutions: Proactive or Collective

Answer 24

In this case, Both.
- Proactive approach: this is appealing for firms as it is an opportunity for them to differentiate themselves from the competition using philanthropy and CSR initiatives which can secure future cooperation of future stakeholders.
- Collective Approach: Collective strategies are also more likely to be pursued under incomplete institutions, firms within the market would work together alongside non-market stakeholders, to establish guidelines to follow –> this helps them avoid the need for new, stricter regulations from outside authorities.

Question 25

In Incomplete Institutions: Influence or Coalition

Answer 25

Coalition: This is mainly because incomplete institutions have high institutional costs which affect all firms symmetrically. Political action to lower these costs is in the mutual interest of all parties and initiatives –> this provides broad benefits which are relatively easy to design.

Question 26

Define Captured Institutions

Answer 26

Captured institutions are ones which are controlled or influenced by the very firms that are they are supposed to regulate. Meaning the elite actors influence the institutional environment in their favor, putting the non-elite actors at a disadvantage.

Question 27

In Captured institutions: Internalization or Partnership

Answer 27

Partnership: Firms aim to pursue a partnership strategy with firms which have better connected actors through political ties, alliances with politically connected firms or links to influential or high-status global actors.

Question 28

In Captured Institutions: Proactive or Collective

Answer 28

None

Question 29

In Captured Institutions: Influence or Coalition

Answer 29

Influence: Firms often approach these institutions with an influence strategy as firms with a favored status may have a strong position to further improve their situation.
(Rather than beat them, join them; [the elite actors]).

Question 30

The choice of non-market strategies is also depending on the following characteristics of the firm: (2)

Answer 30

• Capabilities of the firm (Strong = Independently / Inferior = Partnership)
• Firms facing institutional costs that are relatively specific to them are more likely to choose adaptive approaches.