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Strategy of firms in unstable institutional environments

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Abstract

Institutional instability as one of the most common characteristics of developing countries and its impacts on the strategy of firms is explored in this study. We conducted detailed field research based on 32 semi-structured interviews with top managers of textile firms in Iran. Results show that managers in developing countries engage in a political struggle to ensure that institutional uncertainty is balanced by a reasonable political give and take. It is argued that power and legitimacy are key resources for firms' survival in institutionally unstable environments. Some theoretical foundations for the strategy of firms in unstable institutional environments are developed.

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Notes

  1. See Scott (2001), chapter 1 for a discussion of Durkheim’s contribution to institutional theory in sociology.

  2. One should be careful in generalizing about developing countries because they are a widely diverse set of countries. The situation of highly structured societies such as that of China is vastly different of the situation of smaller countries. Our data will show that middle-sized developing countries in transition, such as Iran, are in the situation described.

  3. http://www.sci.org.ir/portal/faces/public/sci_en/sci_en.selecteddata/sci_en.yearbookdata.

  4. This is a saying in Iran meaning that each one is obliged to care only about his/her own safety and interests.

  5. This is a saying in Iran suggesting that one who only cares about the daily works.

  6. Ever since the Islamic revolution, there was a constant struggle among groups and individuals participating to the regime establishment (Sciolino, 2001).

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Authors and Affiliations

  1. Concordia University, Montreal, QC, Canada

    Mehdi Farashahi

  2. HEC Montreal, Montreal, QC, Canada

    Taïeb Hafsi

  3. Department of Management, John Molson School of Business, Concordia University, 1455 de Maisonneuve Blvd. W., Montreal, QC, H3G 1M8, Canada

    Mehdi Farashahi

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  1. Mehdi Farashahi
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Correspondence to Mehdi Farashahi.

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Farashahi, M., Hafsi, T. Strategy of firms in unstable institutional environments. Asia Pac J Manag 26, 643–666 (2009). https://doi.org/10.1007/s10490-008-9129-9

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