Institutional Complementarity and Substitution as an Internationalization Strategy: The Emergence of an African Multinational Giant

Abstract

Research Summary We examine the internationalization decisions made by one of Africa's most successful companies, South African Breweries, as it underwent a period of aggressive expansion. We see processes of both institutional complementarity and substitution at different phases and with different motives. At first it sought countries that played to its strength, namely the knowledge of doing business in environments of institutional uncertainty, but later it pursued an institutional diversification strategy whereby it attempted to minimize its institutional risk exposure. As it became larger, its aspirations increased too, and its over‐exposure to emerging market institutional risk saw it engage in institutional substitution into advanced countries. Through this phased international process, it was able to develop its internal assets, and this enabled the moves into developed markets. Managerial summary We demonstrate that firms can exploit their knowledge of ‘weak’ institutional settings and turn it into a source of advantage as they internationalize into locations with similar institutional ‘weaknesses.’ Using the case of one of Africa's most successful multinational enterprises, we illustrate the value gained from initially capitalizing upon institutional complementarity (utilizing the comparative advantage linked to institutional know‐how) by exploiting the experience of the home country's environment into similar settings. Over time and through learning‐by‐doing, pressure arose to diversify the risk linked with over‐exposure to institutional uncertainty and country risk, and this was associated with the process of institutional substitution into more advanced countries. We see emerging multinational learning and building its capabilities by leveraging its understanding of its home country institutional environment. Copyright © 2016 John Wiley & Sons, Ltd.

Effects of subnational regional corruption on growth strategies in emerging economies: Evidence from Russian domestic and international M&A activity

“…Hence, we found that in addition to the degree of similarity of the corruption environment of the target with the one of the acquirer, the corruption context of the home environment itself matters for a firm's external growth strategies. The existence of multiple effects is consistent with Luiz et al (), who demonstrate that under some circumstances, home and host institutions can be both complements and substitutes.…”

“…The home context shapes the initial resource endowments of emerging economy firms which, in turn, influence their growth pathways (Narula, ). In particular, emerging market firms can leverage the capabilities they have built for navigating their home environments to similar environments (Luiz et al, ). They can take advantage of, inter alia , their “ ability to function in difficult business environments ” (Ramamurti, , p. 42) when expanding to similar environments.…”

“…Based on an analysis of firms in developed economies, Witt and Lewin (2007) note that firms are likely to invest abroad when their needs and their home environment are misaligned because of inadequate or slow institutional adjustments. Similarly, research regarding emerging market firms has demonstrated that FDI can be motivated by the opportunity to take advantage of a better institutional environment abroad (Boisot & Meyer, 2008;Cuervo-Cazurra, 2012;Luiz et al, 2017;Luo & Wang, 2012;Madhok & Keyhani, 2012;Ramamurti, 2012). Moreover, it has been argued that during the 1990s, Russian firms resorted to FDI to escape the economic and political system at home (Bulatov, 1998;Kalotay, 2002).…”

“…Following Galang (2012), in this article, we advocate for a more nuanced view of the effects of corruption on the growth strategies of emerging economy firms. Given the importance of withincountry variations in economic and institutional characteristics in emerging countries for strategy outcomes (Chabowski, Hult, Kiyak, & Mena, 2010;Chan, Makin, & Isobe, 2010;Luiz, Stringfellow, & Jefthas, 2017;Shi, Sun, & Peng, 2012), we study to what extent the subnational regional corruption environment of a firm influences the firm's acquisition activity. In this context, we explore the role of corruption in geographic expansion across both subnational regions and countries.…”

Institutions and the location strategies of South African firms in Africa

“…They tend to be more capable of navigating complicated institutional landscapes in a way that MNEs from developed countries cannot. A recent study on the internationalization of SABMiller by Luiz, Stringfellow, and Jefthas () further demonstrates that as the firm entered various markets, especially those with institutional weaknesses, it was able to employ its home‐country experience and knowledge to countries with similar levels of institutional growth.…”