“Home Country Underdevelopment and Firm Strategy” by Professor Alvaro Cuervo-Cazurra
STRATEGY AND IB SEMINAR
Professor Alvaro Cuervo-Cazurra
D'Amore-McKim School of Business
International Business and Strategy Group
Overcoming Human Capital Voids in Underdeveloped Countries
We analyze how firms in underdeveloped countries overcome human capital voids—a prevalence of very low levels of skills among individuals—to improve performance. Building on the knowledge-based view, we argue that managers can strategically select organizational upgrading mechanisms to compensate for the negative effect of the human capital deficiencies of employees on firm performance improvement. We propose that external mechanisms (e.g., operating a joint venture with foreign partners) are better than internal mechanisms (e.g., internal research and development) because external mechanisms provide appropriate ready-made knowledge for learning of low-skilled labor, whereas internal mechanisms create additional learning inefficiencies. However, these influences change in countries with more developed human capital: external mechanisms have a lower compensating influence, whereas internal mechanisms become less inefficient.
“Deeply Buried Gold Cannot Shine”: Signaling to Overcome the Liability of Emergingness on Exports
Building on signaling theory, we analyze how emerging market firms (EMFs) can address the negative impact of the liability of emergingness (LOE) on exports. Because of information asymmetries, foreign customers use EMFs’ underdeveloped home institutions as a shortcut informational cue to evaluate their unobservable quality and purchase less from them. To reduce the LOE, EMFs can leverage upgrading mechanisms as signals of high quality to reduce information asymmetries. This argument shifts the conversation from how upgrading mechanisms can directly contribute to firm quality to how they also possess symbolic value. Moreover, signals with higher external accreditation are more effective in reducing the LOE because they can efficiently reach and be easily interpreted by foreign customers. This effectiveness in signaling is more prominent in low-tech industries.