Bonardi, Jean-Philippe and Urbiztondo, Santiago and Quélin, Bertrand (2009): International expansion, diversification and regulated firms' nonmarket strategy.
Download (267kB) | Preview
Previous studies have shown that regulated firms tend to diversify for different reasons than unregulated ones. This is the case for product but also for geographical diversification, i.e. international expansion. The logic generally advanced is that regulated firms tend to diversify when they face costly and difficult relationships with the regulatory authority in charge of their sector. This approach, however, does not explain (1) what is really at the core of the problem in regulated firms’ relationships with regulators, (2) why these firms cannot overcome part of the problem by developing nonmarket strategies –lobbying, campaign contributions, etc.– to influence regulatory decisions, and (3) why they sometimes opt for international expansion rather than product diversification. In this paper, we propose a theoretical model that provides potential answers to these questions. We start by considering the firm-regulator relationship as an incomplete information problem, in which the firms know things that the regulator does not, but can cannot convey hard information about these things. In this setting, we show that when firms face tough nonmarket competition domestically, going abroad can create a mechanism that makes information transmission credible and therefore strengthen their position in their home market. International expansion, in consequence, can be a way to solve some of the problems that regulated firms face at home in addition to a way for these firms to grow their business abroad.
|Item Type:||MPRA Paper|
|Original Title:||International expansion, diversification and regulated firms' nonmarket strategy|
|Keywords:||International diversification, regulated firms, lobbying|
|Subjects:||L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification, and Scope
L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation
F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms; International Business
|Depositing User:||Jean-Philippe Bonardi|
|Date Deposited:||07. Apr 2009 04:51|
|Last Modified:||13. Feb 2013 11:12|
Amit, R., Livant, J. 1988. Diversification strategies, business cycles and economic performance. Strategic Management Journal. 9: 99-110
Armstrong, M., Doyle, J. Vickers, J. 1996: The Access Pricing Problem: A Synthesis. Journal of Industrial Organization. Vol. 44, No.2
Baron, D.P. 1995. Integrated strategies: Market and Nonmarket components. California Management Review. 37, 2: 47-65
Baron, D.P. 1997. Integrated Strategy and International Trade Disputes: The Kodak-Fujifilm Case
Journal of Economics and Management Strategy. 6, 2: 291-346
Baron, D.P. 2001. Theories of Strategic Nonmarket Participation: Majority-Rule and Executive Institutions. Journal of Economics and Management Strategy. 10, 1: 46-89
Bernheim, D.B., Whinston, M.D., 1986: Menu Auctions, Resource Allocation, and Economic Influence. Quarterly Journal of Economics. Vol.101, No.1: 1-32
Bonardi, J.P. 2004. Political and international strategies of former telecom monopolies: The Asymmetric Behaviors of Former Monopolies. Strategic Management Journal. February. 25, 2: 101-120
Bonardi, J.P., Holburn, G., Vanden Bergh, R. 2006. Nonmarket Performance: Evidence from U.S. Electric Utilities. Academy of Management Journal. December
Bonardi, J.P., Urbiztondo, S., Quélin, B. 2008. The political economy of regulatory convergence in public utilities. International Journal of Network Economics and Management. Forthcoming
Buckley, P., Casson, M. 1976. The economic theory of foreign investment. Economica. 28: 1-27
Byrnes, J. 1985. Diversification strategies for regulated and deregulated industries. Lexington Books, Lexington, MA
Calzolari, G. 2004. Incentive regulation of multinational enterprises. International Economic Review. 45: 257-282.
Dahm, M., Porteiro, N. 2008. Informational lobbying under the shadow of political pressure. Social Choice and Welfare. 30, 4: 531-559.
Daniels, J., Pitts, R., Tretter, M. 1985. Organizing for dual strategies of product diversity and international expansion. Strategic Management Journal. 6, 3: 223-237.
de Figueiredo, J.M., Cameron, C.M. 2006. Endogenous Cost Lobbying: Theory and Evidence. Paper presented at the Sixth Annual Strategy and the Business Environment Conference, Stanford University, March 24-25.
de Figueiredo, R.J., Edwards, G. 2007. Does Private Money Buy Public Policy ? Campaign Contributions and Regulatory Outcomes in Telecommunications. Journal of Economics and Management Strategy.
de Figueiredo, R.J., Spiller, P.T., Urbiztondo, S. 1999. An Informational Rationale for the Administrative Procedures Act. Journal of Law, Economics and Organization. Vol.15, No.1, Spring.
Dunning, J.H. 1979. Explaining changing patterns of international production: In defence of the eclectic theory. Oxford Bulletin of Economics and Statistics. 41: 269-295.
Gerpott, T., Jakopin, N. 2005. The degree of internationalization and the financial performance of European mobile network operators. Telecommunications Policy. 29: 635-661.
Garcia Canal, E., Guillen, M. 2008. Risk and the strategy of foreign location choice in regulated industries. Strategic Management Journal. 29: 1097-1115.
Geiger, S.W., Hoffman, J.J. 1998. The impact of the regulatory environment and corporate level diversification on the firm performance. Journal of Managerial Issues. X, 4: 439-453.
Grossman, G., Helpman, E. 1994. Protection for Sale. American Economic Review. 84, 4: 833-850.
Grossman, G., Helpman, E. 2001. Special Interest Politics. Cambridge, MA: The MIT Press.
Henisz, W. 2003. The power of the Buckey and Casson thesis revisited: The ability to manage institutional idiosyncracies. Journal of International Business Studies. 34: 173-184.
Hill, C., Hansen, G. 1991. A longitudinal study of the causes and consequences of changes in diversification in the U.S. pharmaceutical industry 1977-1986. Strategic Management Journal. 12: 187-199.
Holburn, G. 2001. Regulatory institutions and firm strategy: Theory and evidence from the electric power industry. Mimeo, PhD dissertation, University of California Berkeley, Haas School of Business.
Hyman, L.S. 2000. America’s electric utilities: Past, present, and future. (7th ed.). Vienna, VA: Public Utilities Reports.
Jensen, M. 1986. Agency costs of free cash flows, corporate finance and takeovers. American Economic Review. 76: 323-329.
Kashlak, R., Joshi, M. 1994. Core business regulation and diversification patterns in the telecommunications industry. Strategic Management Journal. 15: 603-611.
Laffont, J-J., Tirole, J. 1993. A Theory of Incentives and Regulation. Cambridge: MIT Press.
Lyon, T.P., Maxwell, J.W. 2004. Astroturf: Interest Group Lobbying and Corporate Strategy. Journal of Economics and Management Strategy. 13, 4: 561-597.
Madsen, T., Walker, G. 2007. Incumbent and entrant rivalry in a deregulated industry. Organization Science. 18, 4: 667-687.
Mahon, J., Murray, E. 1980. Deregulation and strategic transformation. Journal of Contemporary Business. 9: 123-138.
Markusen, J. 2004. Multinational firms and the theory of international trade. Boston: MIT Press.
Montgomery, C. 1985. Product market diversification and market power. Academy of Management Journal. 28: 789-798.
Palmer, K. 1991. Diversification by regulated monopolies and incentives for cost-reducing R&D. American Economic Review. 81, 2: 266-270.
Parker, D. 2003. Performance, risk and strategy in privatized, regulated industries. International Journal of Public Sector Management. 16, 1: 75-100.
Ramaswamy, K., Thomas, A., Litschert, R. 2004. Organizational performance in a regulated environment: The role of strategic orientation. Strategic Management Journal. 15: 63-74.
Reger, R., Duhaime, I., Stimpert, J. 1992. Deregulation, strategic choice, risk and financial performance. Strategic Management Journal. 13: 189-204.
Russo, M.V. 1992. Power plays: Regulation, Diversification and backward integration in the electric utility industry. Strategic Management Journal. 13: 13-27.
Sambharya, R. 1995. The combined effect of international diversification and product diversification strategies on the performance of U.S. based multinational corporations. Management International Review. 35: 197-218.
Sappington, D. 2003. Regulating horizontal diversification. International Journal of Industrial Organization. 21: 291-315.
Sarkar, M., Cavusgil, S., Aluakh, P. 1999. International expansion of telecommunications carriers: The influence of market structure, network characteristics and entry imperfections. Journal of International Business Studies. 30: 361-382.
Schuler, D., Rehbein, K., Cramer, R. 2002. Pursuing strategic advantage through political means: A multivariate approach. Academy of Management Journal. 45: 659-672.
Thomson, S. 1999. Increasing marginal utilities: Diversification and free cash flow in newly privatized UK utilities. Review of Industrial Organization. 15: 25-42.
Yoffie, D., Bergenstein, S. 1985. Creating Political Advantage: the Rise of the Corporate Political Entrepreneur. California Management Review. 28, 1: 124-139.
Vietor, R. 1994. Contrived Competition: Regulation and Deregulation in America. Belknap Press: Boston, MA.
Wiersema, M., Bowen, H. 2008. Corporate diversification: The impact of foreign competition, industry globalization, and product diversification. Strategic Management Journal. 29, 2.
Wolf, B. 1977. Industrial diversification and internationalization: Some empirical evidence. Journal of Industrial Economics. 177-191.
Zaheer, S. 1995. Overcoming the liability of foreignness. Academy of Management Journal. 38: 341-363.