“Strategies of Foreign Firms to Overcome Infrastructure Deficiencies in Developing Economies” by Ms. Juan Bu
STRATEGY AND IB SEMINAR
Ms. Juan Bu
School of Business Administration
University of Miami
We analyze how foreign firms overcome infrastructure deficiencies in developing economies. Drawing insights from the resource dependence theory, we study how soft and hard infrastructure deficiencies constrain a foreign firm’s investment scale in developing economies. We propose that foreign firms can overcome the constraints from infrastructure deficiencies using three strategies: learning, in which they gain experience on how to operate with deficient infrastructure; influencing, in which they spend more time with the host government to reduce uncertainties of resource acquisition; and limiting, in which they restrain their dependence on a narrow type of infrastructure. We argue that the first two strategies are more effective in addressing hard infrastructure deficiencies, and the last strategy is more effective in addressing soft infrastructure deficiencies. This is because the dependency on soft infrastructure is harder to be altered due to the host government’s dominant role as the resource provider, whereas the dependency on hard infrastructure is easier to be reduced because third parties (e.g., private physical infrastructure builders) may exist as alternative providers. We test our arguments on a panel dataset of 2,219 foreign firms operating in 56 developing economies during 2006-2014.