The use of favors by emerging market managers: Facilitator or inhibitor of international expansion?

Abstract

This article explores the use of favors by emerging market managers, the impact of using favors on their firms’ growth, legitimacy, and reputation in a variety of business environments, and how the use of favors affects firms’ paths to international expansion. We discuss the concept of favors, and to illustrate the process of favors, we look at culturally rooted examples of their use by managers from the BRIC countries of Brazil, Russia, India, and China. Utilizing neo-institutional theory, we create a typology of four types of environments in which managers and firms from emerging markets conduct business with various relational entities (e.g., governments, customers, suppliers, competitors, alliance partners). We posit that the use of favors by managers compensates for the relatively weak legitimacy of formal institutions in emerging market environments, with favors illustrating the resulting reliance upon informal cultural-cognitive institutions. We develop propositions regarding the impact of the use of favors on the organizational outcomes of growth, legitimacy, and reputation of emerging market firms doing business in each of the four environments. This leads to further propositions regarding how the use of favors can influence their firms’ internationalization growth paths. We conclude that the impact of favors on international growth paths results from the fit or non-fit of their use with the level of legitimacy of the formal institutional environment of the focal relational entity in various business transactions.

Appendices

Appendix

Culturally based favors in the BRICs

Brazil: The use of jeito

One of the distinguishing features of Brazilian culture is the notion of “jeito” or “jeitinho” (diminutive of jeito). It has been described as “… a particular way in which Brazilians are able to bend rules in their favour and overcome major obstacles. Jeitinho has been celebrated by many as flexibility in doing business and organizing. However, if stretched too far, jeitinho can raise serious legal and ethical issues in which foreign companies prefer not to get involved (Rodrigues & Barros, 2002)” (as cited in Child et al., 2009: 212). Although the jeitinho is typically Brazilian, it is also a confirmation of the “personalist” and “social” dimension of this Latin American culture, and is rooted in the colonial history of Brazil (Amado & Brasil, 1991). The jeito arose in reaction to the very formal and rigid government bureaucracy, a legacy of the Portuguese colonial administration, which exists to this day. It also fits with the relationship-oriented nature of Brazilian as well as other Latin cultures (Schuster, 2006).

Russia: The use of blat or sviazi

Blat has been defined as “the Russian term for an unofficial system of exchange of goods and services based on principles of reciprocity and sociability” (Fitzpatrick, 2000). Sviazi is the Russian word for connections (Efremova, 2000; Yakubovich, 2005). The use of blat or sviazi is usually accomplished through personal relationships or networks, mostly longstanding, among family members and friends, including those from the military, educational institutions, home towns, and work settings, and importantly during the Soviet period, the communist party, including the Komsomol, the communist youth league. Using blat or sviazi as a member within one’s personal network is a culturally embedded expectation. Blat or sviazi typically involves an exchange for the sake of a relationship rather than a monetary payment (Fitzpatrick, 2000; Ledeneva, 2000). Sviazi, rather than blat, has emerged as the preferred term for the practice of favors in post-Soviet business. The use of favors remains a reaction to the weak and ineffective formal institutions and the predominance of a pervasive bureaucracy (Batjargal, 2007a, b).

India: The use of Jaan-pehchaan

India’s age-old practice of जान-पहचान or its English equivalent, jaan-pehchaan or jān-pehchan, loosely translated as “you get something done through somebody you know,” is the Indian version of favors. Jaan-pehchaan has also been defined as Hindi networks affecting firm performance (Batjargal, 2007b). The Hindi word jaan or jān (जान) means “life” (Bhandwale, 2004), “to know” (McGregor, 1993; Mohanan, 1994), and “acquainted, wise, intelligent,” while the word pehchaan or pehchan (पहचान) means “recognition, identity” (Bhandwale, 2004; McGregor, 1993). Zhu et al. (2005) define jān-pehchan as “who you know” and state that it reinforces the criticality of “familiarity” and “right connections” as a means for furthering one’s business interests. They examined the dynamics of how Indian business managers value relationship building in the context of jān-pehchan or “right connections.” India’s collectivistic society favors cohesive jaan-pehchaan connections as they are developed based on criteria such as caste (varnas), gender, language, religion, sect, community, philosophy, and culture, and can create difficulties for outsiders when doing business (Schuster, 2006: 413).

China: The use of guanxi

Guanxi is a deeply rooted cultural norm in Chinese business. The term consists of two words, guan, “to close up, or do someone a favor” and xi, “to tie up, and extend long-term relationships.” Guanxi relationships are carefully developed over time and can be further categorized based on three primary kinships: chia-ren (family or kin members), shou-ren (relatives, people in same village, classmates, friends) and shreng-ren (strangers, acquaintances) (Luo, 2000, 2002). According to Fan (2002), a person possessing all variations of guanxi may be viewed differently and be treated as being of higher status. While such guanxi relationships are dynamic and change over time, there is a tendency to favor guanxi members who have family guanxi (intimate and/or blood ties) that is accompanied by greater affection (qingqing) and benevolence (ren). When establishing new business guanxi relationships, a more utility-driven, opportunistic aspect exists in creating long-term relationships (Fan, 2002). Dunfee and Warren (2001) found that few Chinese managers possess extensive business guanxi connections and thus relied upon four complex types of guanxi, in a ranked order, to achieve their long-term business relationship objectives. Chinese managers aspire to develop such strong “guanxi bases” of close-knit networks with the ultimate goal of granting numerous favors in times of bounty and seeking reciprocity in times of necessity (Michailova & Worm, 2003).