The firm as an architect of polycentric governance: Building open institutional infrastructure in emerging markets

Abstract

Research Summary We apply pattern‐matching techniques to contrast qualitative case study data with perspectives from strategic management and institutional economics about how a firm can address voids in market‐based institutions. We identify a novel approach whereby the firm builds an open institutional infrastructure (OII) by investing in a pool of resources widely accessible beyond its exchange partners. To collectively govern OII, the firm must empower other actors within multilateral cross‐sector partnerships, and it must enforce the resulting rules through relational norms based on alignment between public and private value creation. These findings, achieved by adapting Elinor Ostrom's principles of polycentric governance to corporate actors who take the lead in building OII, advance our understanding of new organizational forms that transcend the traditional boundaries of firms and markets. Managerial Summary Emerging markets typically present additional obstacles for business operations because they lack the necessary underlying institutional infrastructure such as access to capital and labor markets. We introduce a new way for firms to overcome these obstacles—which we call building an OII—by investing in such infrastructure themselves and making it available to their commercial partners, local communities, and even to competitors. Firms must empower those actors to take the lead in collectively defining the rules for accessing this infrastructure, by orchestrating cross‐sector partnerships. This process creates relational norms around the alignment of public and private interests, which ultimately can promote firms' competitive advantage.

Strategy and the Institutional Envelope

“…A second, far less studied, pathway, involving the institutional infrastructure (Gatignon and Capron 2018), is the way that the institutional envelope influences the resources available for executing the strategies made possible through the strategy space. Providing a highly differentiated experience may be a great strategy for a hotel in a competitive market.…”

“…It is also useful to distinguish the institutional envelope from one of its key components, the institutional infrastructure, defined as the set of resources such as capital, talents, technology, and regulatory framework, that firms need to set up their operations and grow (Gatignon and Capron 2018). Emerging markets are often plagued with severe deficiencies in their institutional infrastructure, constraining development of robust markets and businesses (Khanna andPalepu 2010, Mair et al 2012).…”

Towards a Theory of Ecosystems

“…There is an increase in studies that consider the ways in which organizations shape their ecosystems-and the implications of these choices. Gatignon and Capron (2017) considered Natura, a Brazilian eco-friendly cosmetics firm, and showed how it built an ecosystem, linking with underprivileged women across Brazil and tribes in the Amazon and other biomes to ensure the distribution and supply of its products. They pointed out that Natura chose not to become the sole hub, but rather to create a broader ecosystem involving entire communities as well as public, private, and nonprofit partners collaborating together, given that the benefits from this multilateral approach outweighed its expected benefit from being the sole hub.…”

Towards a theory of ecosystems

“…There is an increase in studies that consider the ways in which organizations shape their ecosystems—and the implications of these choices. Gatignon and Capron () considered Natura, a Brazilian eco‐friendly cosmetics firm, and showed how it built an ecosystem, linking with underprivileged women across Brazil and tribes in the Amazon and other biomes to ensure the distribution and supply of its products. They pointed out that Natura chose not to become the sole hub, but rather to create a broader ecosystem involving entire communities as well as public, private, and nonprofit partners collaborating together, given that the benefits from this multilateral approach outweighed its expected benefit from being the sole hub.…”