Witold J. Henisz

The Institutional Environment for Economic Growth

This article forges an explicit link between an objective measure of political constraints and variation in cross-national growth rates. It derives a new measure of political constraints from a simple spatial model of political interaction that incorporates information on the number of independent branches of government with veto power and the distribution of preferences across and within those branches. The derived variable is found to have a statistically and economically significant impact on growth rates using simple ordinary least squares, three-stage least squares and generalized method of moments estimation techniques. Copyright 2000 Blackwell Publishers Ltd..

Uncertainty, Imitation, And Plant Location: Japanese Multinational Corporations, 1990-1996

In a study of a sample of 2,705 international plant location decisions by listed Japanese multinational corporations across a possible set of 155 countries in the 1990-1996 period, we use neoinstitutional theory and research on political institutions to explain organizational entry into new geographic markets. We extend neoinstitutional theorys proposition that prior decisions and actions by other organizations provide legitimization and information to a decision marked by uncertainty, showing that this effect holds when the uncertainty comes from a firms lack of experience in a market but not when the uncertainty derives from the structure of a markets policymaking apparatus.

Japanese Firms' Investment Strategies in Emerging Economies

This study jointly examines the effects of organizational capabilities and public and private expropriation hazards on the level of equity ownership chosen for foreign subsidiaries in emerging markets. Specifically, we explore the mechanisms by which 660 Japanese multinational corporations draw upon industry-specific, country-specific and total international experience to mitigate these hazards in FDI for their 1,727 subsidiaries in 18 emerging markets. Results strongly support a novel specification that forges a link between the capabilities and the public and private expropriation hazards literatures.

The Worldwide Diffusion of Market-Oriented Infrastructure Reform, 1977-1999

Why do countries differ so much in the extent to which they adopt neoliberal, marketoriented reform in their infrastructure industries? Building on world-society and neoinstitutional theories in sociology, this paper argues that international pressures of coercion, normative emulation, and competitive mimicry strongly influence the domestic adoption of market-oriented reform. The paper considers the effect of such pressures on the adoption of four reform elements: the privatization of state-owned firms, the formal separation of the regulatory authority from the executive branch, the de facto elimination of executive political influence on the regulatory authority, and the opening of the retail market to multiple service providers. It finds generally robust support for its arguments using a multivariate probit analysis of reform adoption in the telecommunications and electricity industries of as many as 71 countries and territories between 1977 and 1999. The results also suggest that the coercive effect of lending by the IMF and World Bank differs for each reform element. The paper discusses the possibility that, by leading countries to adopt some reform elements but not others, international coercion may not produce ideal outcomes.

Legitimacy, Interest Group Pressures, and Change in Emergent Institutions: The Case of Foreign Investors and Host Country Governments

We offer a simple model of policymaking emphasizing socialization and limits on human cognition to explicate mechanisms of change in emergent (as opposed to established) institutions. Emergent institutions are more susceptible to change, and their opponents may use frames or existing reference points to illustrate inconsistency with prevailing notions of legitimacy. Broader institutional structures and specific organizational characteristics moderate pressure for change. This perspective has novel implications for strategy and policy design.

Learning about the institutional environment

Cross-national variation in institutional environments adds uncertainty to foreign operations, which in turn affects international strategy decisions such as when to enter a market, the entry mode used if entering, as well as the performance of foreign entries. Although all firms are exposed to the influence of a host countrys institutional environment, firms exhibit differential responses to this influence based on resident knowledge and capabilities. Managers in a multinational firm must therefore work to align their strategies with both the hazards and opportunities they face in a given institutional environment, as well as with the firm-specific knowledge and capabilities at their disposal. Rather than taking institutions as an immutable constraint when making decisions, a firm can cultivate and exploit its ability to successfully manage diverse institutional hazards in its host country environments.

The Strategic Organization of Political Risks and Opportunities

Firms compete for rents not only within the marketplace, but also through their efforts in the political arena to manipulate regulations, laws and other institutions that govern the marketplace. The field of strategic organization has traditionally focused on the first form of competition, leaving the latter, often distinguished as non-market strategy, largely to scholars from the field of political economy. This research primarily examines how a firm’s political environment – the configuration of formal policymaking institutions, regulatory rules, partisan composition and interest group influence – determines the form and efficacy of its non-market behavior, such as lobbying and making donations to political actors. We urge scholars of strategic organization to enter the field of non-market strategy. Because investigation of the process by which firms manage political opportunities and risks requires that the political environment be taken into account, strategic organization scholars who follow our suggestion will need to cross the disciplinary boundary of positive political economy (PPE). As adherents of multidisciplinary analysis, these scholars are better equipped and likely more willing to cross this boundary than their disciplinary counterparts in PPE are to venture into disciplines such as sociology and organization theory. Moreover, we believe that continued growth of the field of nonmarket strategy, including the development of managerially relevant knowledge, depends critically on the incorporation of constructs and insights from these disciplines. At the same time, scholars of strategic organization would benefit from the novel opportunities that non-market topics provide to ply their tools of trade. We focus on two current growth areas. The first is the social context of policymaking. Political economy scholars take a rationalist, equilibrium approach to the policymaking process – and thus to non-market strategy – that focuses on economic influences to the neglect of cultural biases and beliefs that in reality play a critical role. Scholars of strategic organization possess the multidisciplinary skills necessary to analyze how firms’ non-market strategies reflect and exploit these social institutions. STRATEGIC ORGANIZATION Vol 1(4): 451–46

Information or influence? The benefits of experience for managing political uncertainty

We examine the extent to which two sources of uncertainty over the future policy environment - political hazards and regime change - influence foreign-owned subsidiary exit rates. We find that prior exits by peer firms enhance exit rates, particularly when political hazards are high. We also find that a multinational firm’s own experience under the current political regime has a moderating influence on subsidiary exit rates in the presence of political hazards, but it enhances exit rates after a change in the political regime. These findings support the argument that in contrast to the informational benefit conferred by prior peer firms’ exits, own firm experience proxies for actual or perceived influence in a nation’s policy-making process.

Interest Groups, Veto Points and Electricity Infrastructure Deployment

In this paper we examine the effects of interest group pressure and the structure of political institutions on infrastructure deployment by state-owned electric utilities in a panel of 78 countries during the period 1970 ??? 1994. We consider two factors that jointly influence the rate of infrastructure deployment: (1) the extent to which the consumer base consists of industrial consumers, which are capable of exerting discipline on political actors whose competing incentives are to construct economically inefficient ???white elephants??? to satisfy the demands of concentrated geographic interests, labor unions and construction firms; and (2) veto points in formal policymaking structures that constrain political actors, thereby reducing these actors??? sensitivity to interest group demands. A higher fraction of industrial customers provides political actors with stronger incentives for discipline, reducing the deployment of white elephants and thus the infrastructure growth rate, ceteris paribus. Veto points reduce political actors??? sensitivity to interest group demands in general and thus moderate the relationship between industrial interest group pressure and the rate of infrastructure deployment.

Toward a unified theory of project governance: economic, sociological and psychological supports for relational contracting

Large, global, cross-sectoral, multi-phased civil infrastructure projects tend to be one-off projects for which transactions have no strong ‘shadow of the future’, but where elements of relational contracting are still ubiquitous. Such projects evolve through discrete phases—financial and technical feasibility, conceptual design, detailed design, construction, operations and renovation/replacement—each phase of which can be viewed as a discrete transaction during which key participants and stakeholders rotate in and out of the project. This discontinuity of participation across phases in the projects lifecycle creates a heretofore neglected contractual hazard of ‘displaced agency’. Similar governance challenges arising from displaced agency are found in long-lived aerospace and defence programmes, large-scale software initiatives and other sectors. We review, integrate, extend and apply economic, legal, sociological and psychological governance perspectives on relational contracts to address the extreme ...