Strategy in emerging economies and the theory of the firm

Indigenous emerging economy (EE) firms are increasingly competing in global markets or against multinational corporations (MNCs) in their home markets. But their institutional context at the national and local levels often suffers from what has been termed ‘institutional weakness’ which is believed to put them at a competitive disadvantage on the global playing field. Yet little is known about how EE institutional weakness at the national level translates into competitive disadvantage at the firm level. In this perspectives paper, we examine this shortcoming in the literature. We utilize three popular theories of the firm–neoclassical economics, the resource‐based view, and the nexus of contracts view–to examine how EE institutional weakness at the national level affects strategic choices at the firm level. We then explain how these strategic choices affect firm boundaries, internal organization, and the nature of competitive advantage for firms in EEs.