Nonmarket strategy research through the lens of new institutional economics: An integrative review and future directions

• Author: Sinziana Dorobantu,Aseem Kaul,Bennet Zelner
• Date: 01 January 2017
• Published date: 01 January 2017
• DOI: http://doi.org/10.1002/smj.2590

Strategic Management Journal

Strat. Mgmt. J.,38: 114–140 (2017)

Published online EarlyView in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2590

Received 30 April 2014;Final revision received9 April 2016

NONMARKET STRATEGY RESEARCH THROUGH THE

LENS OF NEW INSTITUTIONAL ECONOMICS: AN

INTEGRATIVE REVIEW AND FUTURE DIRECTIONS

SINZIANA DOROBANTU,1*ASEEM KAUL,2and BENNET ZELNER3

1Department of Management and Organizations, Leonard N. Stern School of

Business, New York University, New York, New York, U.S.A.

2Strategic Management & Entrepreneurship Department, Carlson School of

Management, University of Minnesota, Minneapolis, Minnesota, U.S.A.

3Department of Logistics, Business & Public Policy,Robert H. Smith School of

Business, University of Maryland, College Park, Maryland, U.S.A.

Research summary: We use a novel theoretical framework to synthesize ostensibly disparate

streams of nonmarket strategy research. We argue that faced with weak institutions, rms can

create and appropriate value by either adapting to, augmenting, or transforming the existing

institutional environment, and can do so either independently or in collaboration with others.

We use the resultingtypology of six distinct nonmarket strategies to provide an integrative review

of nonmarket strategy research. We then extend this framework to examine the choice between

nonmarket strategies, arguing that this choice depends upon whether the existing institutional

environmentis incomplete or captured, and discussing other drivers of nonmarket strategy choice,

the relationship between these strategies, and their social impact, so as to provide an agenda for

future research.

Managerial summary:The pursuit of competitive advantage often requires rms to operate

in contexts where existing rules and regulations provide inadequate protection. Disruptive

technologies open up new opportunities for value creation, but it takes years before appropriate

regulations areintroduced. Economic reforms open up new markets, but these are often regulated

to favor incumbents and politically connected insiders. In such environments, managers must

decide whether to adapt their strategies to the existing institutional environment, devote resources

to improve it, or try to transform it altogether. In this article, we develop an integrativetheoretical

framework that connects and synthesizes researchexamining each of these options, and offers some

preliminary thoughts on how managers may choose among these differentapproaches. Copyright

© 2016 John Wiley & Sons, Ltd.

INTRODUCTION

During its relatively brief history, the eld of

strategic management has broadened its scope of

Keywords: nonmarket strategy; institutional environment;

stakeholder relations; corporate social responsibility; cor-

porate political strategies

*Correspondence to: Sinziana Dorobantu. Leonard N. Stern

School of Business, New York Univeristy, 40 West 4th

Street, Suite 707, New York, NY 10012, U.S.A. Email:

sdoroban@stern.nyu.edu

Copyright © 2016 John Wiley & Sons, Ltd.

inquiry to consider not just the market interactions

that rms undertake in the pursuit of economic

rents, but also the nonmarket interactions in which

they engage for this purpose. Yet, despite a shared

focus on rms’ interactions with different elements

of the institutional environment— the “rules of

the game” governing economic interaction (North,

1990: 3; see also Ostrom, 1990: 51; Williamson,

1991: 287)— different streams of nonmarket strat-

egy research have developed largely independently

of each other. Research on rms’ strategies to adapt

Nonmarket Strategy: An Integrative Review and Future Directions 115

to different institutional environments (Delios and

Henisz, 2000; Henisz, 2000b; Henisz and Delios,

2001; Henisz and Zelner, 2001; Peng, 2003) has

developed separately from research on rms’ corpo-

rate political action to inuence these environments

(Bonardi, Holburn, and Vanden Bergh, 2006; Oliver

and Holzinger, 2008), and both of these streams

remain largely disconnected from research on “pri-

vate politics” between activists and rms (Baron,

2001, 2003; Eesley and Lenox, 2006; Reid and Tof-

fel, 2009), stakeholder relations (Godfrey, Merrill,

and Hansen, 2009; Henisz, Dorobantu, and Nartey,

2014), and related work within the domains of cor-

porate social responsibility (Aguilera et al., 2007;

Vogel, 2006) and industry self-regulation (Barnett

and King, 2008; King and Lenox, 2000; Lenox,

2006). As a result, while individual studies pro-

vide insight into different facets of rms’ nonmar-

ket strategies, nonmarket research as a whole fails

to deliver an integrated understanding of the costs,

benets, and corresponding tradeoffs of different

strategic options.

In this article, we develop a novel, integrative

theoretical framework to synthesize ostensibly

disparate streams of nonmarket strategy research.

We ground our review in the New Institutional

Economics (NIE) (North, 1986; Williamson,

2000), arguing that the diverse activities under the

umbrella of nonmarket strategy reect different

ways of addressing institutional contexts that make

transactions costly (or impossible) to undertake

through the market. The study of nonmarket

strategy may thus be conceived as the study of

the alternative strategies that rms employ to

create and appropriate value in the face of such

“institutional costs.”1Building on this perspective,

we argue that rms can deal with weak institutional

contexts— those that do not adequately support

market transactions— in three ways: by adapting

to existing institutional structures, adding to such

structures by establishing supplementary local

institutional structures, or transforming the insti-

tutional context itself. Further, rms do so either

independently or collaboratively with others. The

resulting framework offers a typology of six distinct

types of nonmarket strategies— internalization,

partnership, proactive, collective, inuence, and

1We do not mean to suggest that all nonmarket strategy research

is (or should be) grounded in the NIE, but rather that the NIE lens

is useful for reexamining and integrating research on nonmarket

strategy.

coalition— based on strategic intent (adaptive,

additive, or transformative) and the governance

mode selected for implementation (independent or

collaborative).

We use this novel typology to briey review

prior literature on each type of nonmarket strategy,

highlighting the connections among the different

streams. Building on the idea that nonmarket strate-

gies reect alternative ways of dealing with weak

institutions, we then explore the factors that drive

the choice among the six strategy types. Specif-

ically, we argue that this choice will depend on

whether existing institutional structures are incom-

plete (i.e., containing gaps that hinder all actors

equally) or captured (i.e., asymmetrically favoring

some actors over others) (Acemoglu and Johnson,

2005; Ostrom, 1990), and we develop propositions

linking the choice of nonmarket strategy to the

nature of the institutional environment. We also

consider how nonmarket strategy choice is driven

by rm capabilities and the nature of institutional

costs, the relationships among different nonmarket

strategies, and their social impact. These exten-

sions of our integrative framework point to future

opportunities for research in this important and

growing area.

Our review contributes to research on nonmarket

strategy in several ways. First, our novel typology

draws together various streams of prior work under

a common framework, stressing that these streams,

while often studied independently, represent a port-

folio of options from among which rms choose to

address weak institutional environments. We thus

connect research on entry modes (e.g., Anderson

and Gatignon, 1986; Brouthers, 2002; Meyer et al.,

2009) and business groups (Guillén, 2000; Khanna

and Palepu, 2000; Peng, Lee, and Wang, 2005)

with research on political risk management and

stakeholder engagement (Baum and Oliver, 1991;

Baysinger, 1984; Henisz et al., 2014; Siegel, 2007)

as representing alternate ways in which rms adapt

to institutional voids. Wefurther link this research to

work on corporate social responsibility (CSR) (e.g.,

Aguilera et al., 2007; Maxwell, Lyon, and Hack-

ett, 2000), industry self-regulation (e.g., King and

Lenox, 2000; Lenox, 2006), and other forms of

private politics (Baron, 2001, 2003; Reid and Tof-

fel, 2009) through which rms establish additional

institutional structures at the local level; as well as

to research on corporate political action targeted at

legislators and regulators (e.g., Bonardi et al., 2006;

De Figueiredo and Tiller, 2001; Hillman, Keim,

Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 114–140 (2017)

DOI: 10.1002/smj