Overcoming Institutional Voids:

A Reputation-Based View of Long

Run Survival
Cheng Gao Tiona Zuzul
Geoffrey Jones Tarun Khanna

Working Paper 17-060

 Overcoming Institutional Voids:
A Reputation-Based View of Long Run
Survival
Cheng Gao Tiona Zuzul
Harvard Business School London Business School

Geoffrey Jones Tarun Khanna

Harvard Business School Harvard Business School

Working Paper 17-060

Copyright © 2017 by Cheng Gao, Tiona Zuzul, Geoffrey Jones, and Tarun Khanna
Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may
not be reproduced without permission of the copyright holder. Copies of working papers are available from the author.
 Overcoming Institutional Voids:
A Reputation-Based View of Long Run Survival

Cheng Gao
Harvard Business School

Tiona Zuzul
London Business School

Geoffrey Jones
Harvard Business School

Tarun Khanna
Harvard Business School

Abstract
Emerging markets are characterized by underdeveloped institutions and frequent environmental
shifts. Yet they also contain many firms that have survived over generations. How are firms in
weak institutional environments able to persist over time? Motivated by 69 interviews with
leaders of emerging market firms with histories spanning generations, we combine induction and
deduction to propose reputation as a meta-resource that allows firms to activate their
conventional resources. We conceptualize reputation as consisting of prominence, perceived
quality, and resilience, and develop a process model that illustrates the mechanisms that allow
reputation to facilitate survival in ways that persist over time. Building on research in strategy
and business history, we thus shed light on an underappreciated strategic construct (reputation) in
an under-theorized setting (emerging markets) over an unusual period (the historical long run).

Keywords: Emerging Markets, Institutional Voids, Reputation, Business History, Intangible

Resources

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Overcoming Institutional Voids:

A Reputation-Based View of Long Run Survival 1

Cheng Gao, Tiona Zuzul, Geoffrey Jones and Tarun Khanna

INTRODUCTION

Emerging markets are characterized by institutional voids (Khanna and Palepu, 1997). To

survive and thrive over time, firms operating in these markets must respond to unpredictable

(but predictably frequent) shocks―political instability, violence, macroeconomic

fluctuations, and even war―without the benefit of specialized intermediaries that can analyze

market information, facilitate transactions, and provide signals of credibility (Khanna and

Palepu, 1997; Khanna and Rivkin, 2001). Doing so can be difficult and failure rates are high;

for instance, emerging market banks had an estimated failure rate of 25 percent over a seven

year period in the 1990s (Brown and Dinc, 2005). Nonetheless, emerging markets are rife

with examples of firms and business groups that have survived over decades, generations,

and even centuries. For example, Grupo Bimbo, founded in Mexico in the 1940s, endured

national and international turbulence to emerge as one of the world’s largest bakeries; Tata

Group was founded in 1868 and developed into a leading Indian business group despite

facing colonialism, rebellions, and major social transformations; and Koç Holding, founded

in 1926, survived numerous national and regional crises to maintain its foothold as Turkey’s

                                                            
1
A revised version of this paper is forthcoming in Strategic Management Journal. The authors would like to
thank Gautam Ahuja, Ethan Bernstein, Yo-Jud Cheng, David Collis, Mauro Guillen, Budhaditya Gupta, Connie
Helfat, Chris Kobrak, Daniel Malter, Chris Marquis, Rory McDonald, Leslie Perlow, Mike Pfarrer, Jan Rivkin,
Amy Shuen, Laszlo Tihanyi, Anthea Zhang, Minyuan Zhao, two anonymous referees, and participants in the
2013-2014 HBS Seminar on the Craft of Inductive Qualitative Research, 2014 HBS Strategy Doctoral Students
Seminar, 2015 ACAC PhD Research Development Workshop, and 2015 Academy of Management Annual
Meeting paper session for helpful comments. The Division of Research and Faculty Development at the Harvard
Business School kindly supported the research on which this paper is based.

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leading business group. Emerging markets thus present researchers with a puzzle: How are

firms competing in such weak institutional environments able to persist across time?

Research in strategy has increasingly focused on the relationship between institutions

and firm outcomes, proposing that effective strategies depend on and vary across different

institutional environments (e.g. Ahuja and Yayavaram, 2011; Garcia-Canal and Guillen,

2008; Hiatt and Sine, 2014; Marquis and Raynard, 2015; Peng, Sun, Pinkham, and Chen,

2009). Scholars have argued that institutions are more than just background conditions

(Meyer, Estrin, Bhaumik, and Peng, 2009), and directly influence the strategic actions

available to an organization (Ingram and Silverman, 2002). In this view, firms can achieve

and sustain competitive advantage through strategies that overcome, shape, and capitalize on

the nature of their institutional environments (Marquis and Raynard, 2015).

Strategies that account for institutional environments might be especially important in

emerging markets (Hiatt and Sine, 2014). Emerging markets are replete with institutional

voids: they lack institutions that can help facilitate market transactions (Khanna and Palepu,

2010). Banks cannot always ensure access to credit; courts cannot guarantee the enforcement

of intellectual property rights; auditors cannot reliably certify a firm’s financial operations.

As a result, the demands, constraints, and challenges facing firms in emerging markets are

different than those facing their counterparts in mature markets. Theories and findings from

developed market settings are not necessarily applicable in emerging market contexts

(Khanna, 2014; Marquis and Raynard, 2015). Bettis, Gambardella, Helfat, and Mitchell

(2014: 3) thus argued that there are “clear opportunities” to develop new theory for

institutionally-underdeveloped settings in order to expand our understanding of “world-wide

strategic management.” This paper builds on one such opportunity.

Motivated by a set of 69 publicly available interviews with the founders and leaders

of firms with histories spanning generations in emerging markets across continents, we

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combine induction with deductive reasoning to propose theory on how firms competing in

institutionally weak settings are able to survive over the long run. Through an inductive-

deductive theory-building process (c.f. Gavetti and Rivkin, 2007), we propose firm reputation

as a key strategic construct in these settings. Driven by our data, we propose that in emerging

markets, reputation consists of three elements: prominence, perceived quality, and resilience.

The first two elements―prominence and perceived quality―have been established by

research in developed markets (Rindova, Williamson, Petkova, and Sever, 2005). We extend

this definition by proposing that a previously untheorized component―resilience (beliefs

about a firm’s ability to withstand shocks)―is essential in emerging markets. Our emerging

markets research context allowed us to inductively uncover the importance of resilience, as

the lack of institutional intermediaries in such settings sharply illuminated its significance.

Particularly, in settings where a firm’s survival cannot be taken for granted, and where

institutional intermediaries cannot guarantee remediation, the belief that a firm will survive

crises to fulfill its obligations is critical in driving stakeholder actions. Thus, by focusing on

the context of emerging markets, we both build on and extend existing theory on the meaning

of reputation.

We also propose a process model that illustrates the mechanisms that allow reputation

to facilitate long-term survival. Because emerging markets feature institutional voids that

hinder potential transaction partners from credibly signaling, accessing, and validating

relevant information, a key structural feature that deters welfare-enhancing transactions

between two parties is potential transaction uncertainty. In developed markets, counterparties

can rely on mature institutions to decrease uncertainty and hedge against transactional risks,

both by guaranteeing quality ex-ante, and by providing remediation ex-post. We propose that,

when institutional credibility enhancers and adjudicators are not present, a firm’s reputation

can provide transactional confidence. This, in turn, can increase the quantity of profit-reaping

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transactions, allowing the firm to activate its conventional resources. This suggests that, in

emerging markets, a positive reputation has cumulative effects: although a favorable

reputation is difficult to acquire (and might even develop by chance), it can generate

cascading positive feedback loops that can act as a source of sustained survival. We thus

propose that reputation is a meta-resource, highlighting its higher-order ability to activate and

moderate other resources (analogous to meta-routines2 and meta-knowledge3).

Our process model has implications for theory and practice. We contribute to research

on emerging markets (e.g. Guillen, 2000; Henisz, Dorobantu, and Nartey, 2014; Khanna and

Rivkin, 2001; Luo and Chung, 2013; Mair, Martí, and Ventresca, 2012; Siegel, 2007) by

proposing reputation as a meta-resource that can help firms mitigate and capitalize on

institutional voids to attain longevity. We also add to research on reputation as a strategic

asset (e.g., Rindova et al., 2005). By deconstructing reputation into three components,

theorizing the importance of resilience, and elaborating the mechanisms that connect

reputation to survival, we build new theory on how this intangible asset might affect firm

outcomes. More generally, our conceptualization of reputation augments theories of strategy

suggesting that, in uncertain environments, successful firms enact continuous change (e.g.

Eisenhardt and Martin, 2000; Helfat et al., 2009; Helfat and Peteraf, 2003; O’Reilly and

Tushman, 2008; Rindova and Kotha, 2001; Teece, Pisano, and Shuen, 1997). We propose

that in environments characterized by institutional voids, reputation provides the stakeholder

buy-in that enables firms to engage in change.

We thus position reputation as a central concept at the intersection of strategy and

emerging markets theory. By proposing a baseline theory of how reputation might affect

survival, we hope to inspire future research that extends, refines, tests, and challenges our

                                                            
2
 Higher-order routines for changing conventional routines; see Feldman and Pentland (2003). 
3
Knowledge used to differentiate between the hierarchical levels of knowledge types; see Evans and Foster
(2011).

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hypotheses. For instance, although our data illuminated the importance and inter-related

nature of three components of reputation―prominence, perceived quality, and resilience―it

did not allow us to disentangle the individual effects of these components. We thus focus our

theorizing on the impact of reputation as a holistic construct, and hope to motivate research

on whether and how these features are connected, conflicting, or reinforcing in driving

outcomes in emerging market settings. Similarly, by focusing on long-lived firms in

emerging markets, we propose mechanisms that connect reputation to survival for firms

across both negative and positive economic cycles. We hope that future research on a larger

sample of firms will build on these ideas to test whether (and how) more or less (favorable)

reputation is connected to firm success or failure.

The remainder of this paper is organized as follows. First, we describe current theory

on emerging markets. Next, we provide an overview of the relevant literature on reputation.

We then outline the methods―an inductive-deductive approach―underlying our theory

development. We develop a process model and a series of propositions, illustrated with

interview quotes, that position reputation as a meta-resource that allows firms to mitigate and

capitalize on institutional voids over time. We conclude by discussing the implications of

these propositions for research in strategy.

THE INSTITUTIONAL VOIDS OF EMERGING MARKETS

Definitions of emerging markets vary. The term was first used by the International Finance

Corporation in the early 1980s to promote mutual fund investments in developing countries

(Van Agtmael, 2007). Since then, various criteria have been used to define emerging markets,

including GDP levels, poverty rates, stages of capital market development, and growth

potential (Hoskisson, Eden, Lau, and Wright, 2000). Regardless of definition, emerging

markets represent an important part of the global economic system: in the past 50 years,

emerging markets have nearly doubled their share of world GDP, investment, trade, and

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private consumption.4 Advancing academic theory and knowledge of this setting has never

been more relevant.

We follow Khanna and Palepu (1997, 2010) in defining emerging markets as

“transactional arenas” where counterparties cannot easily or efficiently come together due to

the absence of specialized intermediaries that support and facilitate transactions between

buyers and sellers. Examples of such intermediaries include credibility enhancers (including

auditors and third-party certifications), information analyzers (including credit ratings and

Consumer Reports ratings), aggregators and distributors that provide low cost matching

services (including banks, trading companies, and labor unions), transaction facilitators

(including equity exchanges and platforms such as eBay), and adjudicators and regulators

(Khanna and Palepu, 2010). These intermediaries are crucial for facilitating transactions in all

markets, because information asymmetry and anticipation of transaction difficulties

discourage contracting and exchange. Their absence results in high uncertainty: it is easier to

engage in corruption or theft in an environment that lacks functional governance structures,

independent checks and balances, transparent reporting standards, and efficient judicial

adjudication systems (Hoskisson et al., 2000). Lack of effective political, governance, and

regulatory institutions also increases the probability of instability and unrest in the very basic

foundations of economic life, which further exacerbates the constraints to exchange. Hence,

we define markets as “emerging” when institutional voids (an absence of intermediaries)

leaves participants struggling to find ways to bring buyers and sellers together to engage in

mutually productive exchange.

Our definition of emerging markets allows us to theorize beyond simply “developing

countries,” which research often equates with emerging markets, to all markets that have

structural deficiencies due to institutional voids. While a majority of emerging markets today

                                                            
4
Rachman G. 2014. The future still belongs to the emerging markets. Financial Times 3 February.

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are located in developing countries, many contemporary advanced economies were once

themselves emerging markets. An additional advantage of defining emerging markets in

structural terms is that doing so allows us to avoid problems of tautology (defining emerging

markets as emerging because they have not yet “emerged”), while also allowing for a variety

of emerging market forms (Khanna and Palepu, 2010). That is, we conceptualize markets as

falling along a continuum featuring different degrees of emergence: at one end,

“dysfunctional” markets have an extreme degree of institutional voids, while at the other end,

“developed” markets feature few institutional voids.

Strategy research on emerging markets has focused primarily on uncovering the

drivers of short-term competitive advantage. One body of research has argued that when

institutions are incomplete, incumbents, including business groups, dominate (e.g., Guillen,

2000; Khanna and Palepu, 1997; Khanna and Rivkin, 2001; Luo and Chung, 2005), although

there is debate regarding whether this advantage is driven by value creation (Khanna and

Yafeh, 2007) or value extraction such as tunneling or corruption (Morck, Wolfenzon, and

Yeung, 2005). A related body of work has argued that dominant incumbents can gain

competitive advantage through nonmarket actions that can mitigate political hazards,

including lobbying (Choi, Jia, and Lu, 2014), stakeholder engagement (Henisz et al., 2014),

and corporate social responsibility (Marquis and Qian, 2013). Network-based studies have

examined the effect of political ties on outcomes (Zhu and Chung, 2014), and how such

effects are moderated by institutional maturity (Shi, Markoczy, and Stan, 2014) and regime

shocks (Siegel, 2007) that can transform network contacts from assets into liabilities.

While these studies have illuminated some of the factors associated with competitive

advantage in emerging markets over the short or medium term, the drivers of long term

survival remain comparatively undertheorized. For example, Khanna and Rivkin’s (2001)

analysis of business groups showing a positive association between group affiliation and

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performance was based on a dataset spanning approximately a decade. Henisz et al.’s (2014)

study on stakeholder engagement employs a dataset spanning 15 years, one of the longest

time spans for quantitative studies on this topic. There is little theory on whether mechanisms

of competitive advantage are sustainable, replicable, and relevant to survival that persists

over generations and centuries. As Jones and Khanna (2006) argued, for emerging market

firms, history matters: their survival is dependent on factors and processes that allow them to

endure shocks and crises over the long run. We therefore ask: how are some firms in

emerging markets able to survive over the long term?

REPUTATION IN EMERGING MARKETS

Two primary bodies of literature have informed the definition of reputation as a strategic

construct: an economic perspective, and an institutional perspective (Rindova et al., 2005).

The economic perspective on reputation emphasizes its information signaling properties in

the context of asymmetric information (Sorensen, 2014), and defines it as observers’

expectations about a firm’s attributes, and particularly its ability to generate high-quality

products (Rindova et al., 2005). In this rational view, reputation is based on inferences from a

firm’s past actions (Weigelt and Camerer, 1988), and particularly its output quality (Allen,

1984; Clark and Montgomery, 1998; Shapiro, 1983). Complementing the economic

perspective, the institutional perspective on reputation emphasizes the importance of social

context. In this view, reputation comprises a set of collective beliefs about a firm, shaped

partially through the evaluations of high-status institutions (Pfarrer, Pollock, and Rindova,

2010; Raub and Weesie, 1990; Rindova et al. 2005). In this view, high-status institutions,

including industry analysts (Zuckerman, 1999), media establishments (Pollock and Rindova,

2003), and ratings certification contests (Rao, 1994), engage in evaluations that shape a

firm’s reputation in the eyes of other stakeholders.

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 Drawing on both definitions, most strategy research on reputation is grounded in the

resource-based view, suggesting that valuable, rare, inimitable, and non-substitutable

resources generate competitive advantage (Barney, 1991; Peteraf, 1993; Wernerfelt, 1984).

Strategy scholars have typically conceptualized reputation as one of a firm’s many intangible

resources. For example, Hall’s (1993) taxonomy of competitive advantage argued that

“reputation of products and company” alongside eight other intangible assets (including trade

secrets, contracts and licenses, databases, know-how, and intellectual property rights) can

lead to sustainable competitive advantage.

Research building on this view has suggested that a good reputation can strengthen

while a bad reputation can harm a firm’s performance (Fombrun and Shanley, 1990; Roberts

and Dowling, 2002), and that firms that invest in and manage their reputations can gain a

competitive edge over their rivals (Agarwal and Helfat, 2009; Rindova et al. 2005). Studies

have suggested that a favorable reputation can help a firm realize the potential of its

resources, enhancing its ability to attract and retain strategic human capital (Turban and

Cable, 2003), lowering its cost of capital and increasing its ability to raise financing (Stuart,

Hoang, and Hybels, 1999), increasing its ability to choose high quality partners (Dollinger,

Golden, and Saxton, 1997) and form alliances (Stern, Dukerich, and Zajac, 2014), and

helping mitigate the impact of negative events (Love and Kraatz, 2009). Reputation, signaled

through institutional intermediaries such as credibility enhancers, can also reduce transaction

costs (Williamson, 1981) for a firm by ameliorating a transaction partner’s concerns about the

firm’s propensity to engage in opportunism

Antecedents of reputation include a firm’s financial performance and management

practices (Staw and Epstein, 2000), the frequency of its market actions and complexity of its

repertoire (Basdeo, Smith, Grimm, Rindova, and Derfus, 2006), its responses to layoffs and

downsizing (Flanagan and O’Shaughnessy, 2005), and changing management fashions

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(Bermiss, Zajac, and King, 2013). Firms can manage and exploit reputation through brands.

To assess reputation, buyers “tend to use brand names as signals of quality and value and

often gravitate to products with brand names they have come to associate with quality and

value” (Herbig and Milewicz 1995: 8). Brands can even induce economies of scale in

generating and spreading reputation; for example, a firm with a favorable reputation due to

high quality performance in one product can transfer that positive reputation to another

product via its brand name (Moorthy, 1985).

Strategy research on reputation has primarily focused on, and was developed in, the

context of mature markets. There is limited research on how reputation functions in emerging

markets. What dimensions of reputation are important in emerging markets? Is it one of many

intangible resources affecting outcomes? Or does it interact with other resources in patterned

ways that can lead to success or survival? Even the fundamental assumptions about the ways

reputation operates are not necessarily met in settings replete with institutional voids. For

example, is perceived quality a key dimension, as the economic view would suggest, in

settings where a firm’s ability to abide by its agreements or withstand future shocks might be

in question? Emerging markets by definition lack the institutional intermediaries that help

shape collective perceptions, a core assumption of the institutional perspective on reputation

(Rindova et al., 2005: 1034) and even of transaction cost economics (Williamson, 1981).

How does reputation operate, given a lack of intermediaries such as credibility enhancers and

information analyzers (Khanna and Palepu, 2010)?

One area of research that has explored reputation in the context of emerging markets

is business history. Business historians have examined emerging markets from the broad arc

of history (e.g., Jones, 2005; Jones, 2013), and have begun to suggest the importance of

reputation in allowing firms to achieve sustained, long run success (e.g., Kobrak, 2013;

McKenna and Olegario, 2012; Olegario and McKenna, 2013). For instance, Jones’ (2000)

10 
 
historical analysis of British multinational trading companies from the eighteenth century to

the present day suggested the firms’ reputations helped them withstand long run shocks and

change their strategies over time. Connell’s (2004) research on the long run survival of the

Jardine Matheson trading group demonstrated how the group’s reputation was leveraged to

take advantage of various perceived opportunities. And Pak’s (2013) study on J.P. Morgan

showed how in the early twentieth century―a time when the U.S. was an emerging

market―J.P. Morgan’s reputation played a crucial role in facilitating transactions in private

banking, a secretive world characterized by little public information. However, the historical

conceptualization of reputation as a key driver of long run survival is undertheorized in

strategy.

DATA AND METHODS

We develop our contribution through an approach that combines inductive and deductive

reasoning, an analytical process different than that typical of inductive, qualitative research

(see Lounsbury and Glynn, 2001; Rindova, Pollock, and Hayward, 2006; Gavetti and Rivkin,

2007 for other examples of similar methods). Our theory was motivated by an analysis of 69

interviews with the founders and leaders of firms featuring histories spanning an average of

73 years, in emerging markets across Central and South America, Africa, South Asia, and the

Middle East. Inductive analysis of the interviews revealed the importance of reputation, and

suggested initial ideas about how it might promote long term survival in emerging markets.

However, given some limitations of the data, and the stock of existing research on reputation

and on emerging markets, we engaged in deductive theory-building to develop a process

model encompassing both insights from prior research and those first gleamed through the

interviews. Our aim is building rather than testing theory: the proposed model can be further

refined and validated empirically in future studies.

Data

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We analyzed a set of 69 semi-structured interviews, typically ranging from one to two hours,

publicly available as part of the “Creating Emerging Markets” project of the Business History

Initiative at Harvard Business School.5 The respondents were current and former leaders at

the CEO, Chairman, or Founder level of top emerging market firms. The mean and median

age of both the firms and respondents in our sample at the time of interview was close to 70

years (see Appendix 1 in the online supplement for a full list of firms, respondents, their

positions, and summary statistics of the dataset).

The firms were selected through a systematic process that started with identifying the

top business firms in a particular emerging market. For each country, a team of academic

researchers polled between three and ten country experts (determined by the size of the

country) to identify a list of top firms with a living founder or elder leader that has led the

firm for at least a decade, and in many cases, multiple decades. By “top firms,” the

researchers referred to firms that have survived over the long run, rather than firms with the

highest current performance in their industries. Common firms across these different lists

were then discussed, and cross-checked with publicly available rankings of the top firms in a

country, to generate a final list of sampled firms. During the deliberation process, the

researchers targeted respondents over 60 years old to not only reduce respondent bias (older

respondents could be more frank since their words no longer affected their career prospects),

but also to capture leaders’ and firms’ responses to the many changes―both good and

bad―that had occurred in their firms and their emerging markets over the past several

decades. The researchers sent out interview requests to a final list of firms; remarkably, the

requests were never declined except for logistical reasons (some interviews took several years

to schedule and execute, sometimes due to the health issues of the respondents).

                                                            
5
Full data citation listed in the references section. Website: http://www.hbs.edu/businesshistory/emerging-
markets

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 The interviews were conducted by a set of professional academic interviewers,

trained to follow best practices (including asking non-leading questions, and probing for

detail where appropriate). When possible, the researchers travelled to the respondents’ offices

to conduct the interviews so that respondents would feel at ease. The interviews began with

open-ended questions asking the respondent to describe his or her firm’s development from

inception to the present, focusing on the respondent’s own experiences in leading the firm.

The questions were carefully worded in order to avoid guiding the respondent down any

particular path. Open-ended questions were followed-up with specific questions to explore

the “hows” and “whys” behind each critical issue, decision, or action that the respondents

described.

Notably, the researchers conducting the interviews were blind to the purpose of their

use in any future studies. This is a strength of our research design and unique in qualitative

studies, as it reduces potential sources of interviewer bias (including by attenuating the

possibility of confirmation bias). In particular, the interviews were conducted without a focus

on reputation as a topic of inquiry—its importance emerged inductively from the data.

We chose to analyze this data set for several reasons. First, the interviews—to our

knowledge, the largest set of in-depth academic interviews with the leaders of top firms

across the world—provided rare access to the leaders of emerging market firms. In fact, in

many cases, these interviews were the first academic research interviews granted by the

respondents in their entire careers. They thus provided an opportunity to draw on executives’

perspectives to develop theory on the mechanisms underlying firm activities in emerging

markets, especially important given the dearth of both quantitative and qualitative data in this

context writ large.6

                                                            
6
In fact, the lack of systematic data (quantitative and qualitative) was the motivator of the “Creating Emerging
Markets” data collection project.

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 Second, the data provided a unique “theoretical sampling” of the top firms in

emerging markets.7 The firms and respondents were chosen because of their long histories;

they thus represent “unusually revelatory, extreme exemplars” (Eisenhardt and Graebner,

2007: 27) of long-lived firms. Theoretical sampling – particularly of extreme cases (whether

notable failures or successes) – is a useful tool for building theory, because it allows

researchers to generate insights that might be obscured or absent in typical settings or in

large-N, comparative studies (Eisenhardt and Graebner, 2007; Pratt, 2009; Eisenhardt,

Graebner, and Sonenshein, 2016). By examining firms with long histories, including periods

of success and failure, we hoped to uncover processes that appeared connected to survival,

with special attention to the mechanisms that were replicated across multiple cases; our aim

was not to propose constructs that explained variance in outcomes. This allowed us to

respond to calls for theories on how firms can overcome, and survive, in challenging

emerging market contexts―an underdeveloped area of research due to the challenges of

obtaining emerging markets data.8

Finally, the data provided a high level of transparency and reproducibility. Because

the interview transcripts are available from the Business History Initiative website for direct

download, our data is transparent and our inductive process is replicable. This is highly

unusual in qualitative studies, since full interview transcripts and field notes are usually not

available to other scholars.

                                                            
7
 Theoretical sampling – that is, the selection of a set of cases based on a theoretical similarity (for instance, a
particular organizational configuration (e.g. Battilana and Dorado, 2010), industry and firm age (e.g. Santos and
Eisenhardt, 2009), and similar history of success (e.g. Dougherty and Hardy, 1996)) – is commonly employed as
the sampling method of choice in research aimed at developing theory. Indeed, because theoretical sampling
allows for constant comparison of the processes underlying similarities, it is considered “more important than
statistical sampling in an exploratory qualitative study” (Kram, 1983: 611).
8
On one hand, research examining top firms in this setting typically consists of teaching-oriented case studies,
which tend to focus on determinants of success in extreme cases at a particular static point in time (e.g.
Ghemawat 2007; Ghemawat and Siegel, 2011). On the other hand, academic work on emerging markets
typically comprises large-N quantitative studies that focus on estimating average industry effects of a particular
determinant of success (e.g. Douma, George, and Kabir, 2006; Henisz et al., 2014; Khanna and Rivkin, 2001;
Tan and Peng, 2003). 

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 Of course, the nature of the data also brings up potential limitations. Despite the

benefits of theoretical sampling, our choice to analyze firms that have survived over the long

run might make it difficult to develop generalizable theory. However, the firms in our sample

have experienced both successes and failures in the wide sweep of their histories. Their

leaders’ appreciation of reputation comes from their exposure to both good and bad times. In

the interviews, leaders often mentioned the challenges they had faced, the failures they had

experienced, and the mistakes they had made. In other words, there was significant variation

in performance within the firms’ individual histories, and our theory development benefitted

from this heterogeneity. In addition, the use of retrospective and public data brings up

concerns about respondent bias, including retrospective bias and impression management

(Golden, 1992). However, given the seniority of the respondents, the elapsed time between

the interviews and the events described helped foster greater candor and openness by the

respondents, as interviews generally no longer affected the respondents’ careers. Nonetheless,

we addressed these concerns by combining inductive analysis with deductive theory-building,

as elaborated below.

Inductive data analysis

Given the paucity of research on how firms sustain longevity in emerging markets, we began

by engaging in inductive analysis to identify constructs that our respondents believed were

critical for survival over time (Edmondson and McManus, 2007). We started our analysis

with no a priori theoretical preferences or hypothesis, following the principles of a grounded

approach (Corbin and Strauss, 2008; Charmaz, 2014). Our goal was to identify within and

across our interviews the patterns, processes, and relationships that appeared connected to

survival. We coded the interviews, using the qualitative data analysis software QSR-NVivo to

organize our codes, and developed an emergent set of first-order codes that appeared related

to success across time and multiple cases. Examples of such codes include

15 
 
professionalization, diversification, political activity, and brands. We then engaged in

repeated cycles of coding, iterating between coding and writing analytical memos, to adjust,

refine, and cluster the first order codes into second-order theoretical categories, or themes

(Corbin and Strauss, 2008). (See Appendix 2 in the online supplement for our data structure).

Through this process, we recognized the importance of a second-order theme we

conceptualized as “reputation.” Although never directly asked about reputation, leaders often

either mentioned reputation explicitly, or discussed mechanisms and processes related to firm

prominence, perceptions of quality, and resilience. (See Appendix 3 in the online supplement

for examples). After iterating between the data and existing theory, we realized that what the

respondents were describing most closely matched theoretical conceptualizations of firm

reputation. We sharpened our analysis to explicate an anatomy of reputation.

Deductive theory-building process

At this stage, given the constraints of the data and the stock of existing research on reputation

and emerging markets, instead of developing theory by solely relying on our inductive

analysis, we stepped beyond the interviews and engaged in a deductive theory-building

process by synthesizing the emergent theme of reputation with the academic literature. This

involved developing the category of reputation to deductively consider, in theoretically

generalizable ways, how it might shape long term survival. That is, while the interviews

motivated our focus on reputation, we developed our propositions by leveraging resource-

based theories of competitive advantage as well as a stream of research in business history

that has suggested the importance of reputation in emerging economies in earlier historical

periods, including the 18th to 20th centuries. We iterated between the interviews, findings, and

this literature to refine our theory development. This cycle of analysis eventually resulted in

our proposed conceptualization of reputation as a meta-resource that drives resource

activation in emerging markets.

16 
 
A REPUTATION-BASED THEORY OF LONG RUN SURVIVAL IN EMERGING

MARKETS

Emerging markets are characterized by high potential transaction uncertainty. Because

emerging markets lack intermediary institutions that provide, analyze, and certify

information, there is great uncertainty regarding a firm’s propensity to abide by its promises,

and even its future existence. We conceptualize reputation as a construct that provides firms

with transactional confidence that overcomes this potential transaction uncertainty through

both defensive and offensive mechanisms. We propose that these mechanisms increase the

quantity of firm transactions: defensive mechanisms can provide a firm more time to exploit

existing business opportunities, while offensive mechanisms can allow a firm to capture new

business opportunities. We propose that these mechanisms are valuable during both negative

and positive economic cycles; the increased transactions they engender can allow a firm to

activate its existing conventional resources in order to fulfill transactions. Synthesizing these

findings, we propose that reputation functions as a meta-resource that activates and

moderates conventional firm resources. Finally, we suggest that reputation has cumulative

effects―driven by the difficulty of acquiring reputation and the reinforcing mechanisms at-

play once reputation is acquired―and propose that reputation can function as a potential

source of persistent survival.

[ INSERT FIGURE 1 AROUND HERE ]

The challenge of emerging markets: potential transaction uncertainty

Emerging markets are characterized by high levels of potential transaction uncertainty that

can prevent economic transactions (Khanna and Palepu, 2010). For example, Arturo

Acevedo, President of Grupo ArcelorMittal (Acindar), reflected:

“Lack of predictability in Argentina creates uncertainty and this drives

companies’ unwillingness to commit resources.”

17 
 
 Across the interviews, potential transaction uncertainty generally took one of two

main forms. One was counterparty behavioral uncertainty. A lack of information regarding

counterparties and weak institutions for contract enforcement and adjudication created

uncertainty regarding whether a firm would abide by the terms of an agreement, including the

quality of the output to be exchanged, the timeliness of fulfillment, and the probability of

reneging. This behavioral uncertainty constrained potential transactions. For example, Jose

Grana Miró Quesada, Chairman of Graña y Montero (a Peru-based construction and real

estate group), noted how a lack of information on whether a counterparty would submit

payment for a potential project ultimately prevented the project from occurring. He recalled:

“We won a bid for a bridge…We signed the contract, but [the counterparty]
wouldn’t make the advance payment. I remember [the President of Peru] called
me and complained, asking why we weren’t working yet. I told him, ‘Mr.
President, we haven’t received the down payment. How could we start working?’
…That bridge was never built.”

In another example, Dionisio Garza Medina, Former President and CEO of Alfa

S.A.B. (a multinational Mexican business group), recalled how a multinational business

partner, AT&T, lost faith in its joint telecom investments in Mexico after its other partners

ignored or obstructed the terms agreed to in contracts. There was little AT&T could do in

response, due to the lack of independent legal institutions, an insidious institutional void:

“[After a promised telecommunications reform] we partnered with AT&T,

with the dream that the business was going to grow significantly…We
invested one billion dollars between both companies…Then we realized that
what was written in the law was not going to be enforced in real life…The
President of AT&T said, ‘In your country I will not spend another cent,
because laws are not enforced’ ”

Another type of transaction uncertainty was environmental uncertainty: even when

both parties to a transaction acted according to their agreements, frequent environmental

shocks (including regulatory and political shocks, expropriation, coups, chaos, wars) still

posed a threat. For example, Arturo Acevedo, President of Grupo ArcelorMittal―Acindar

(the leading producer of long carbon steel in Argentina), recalled:

18 
 
 “The second crisis, which I consider the toughest, was the 1978-1981 period,
the time of the guerrilla-military war in Argentina... All plants along that strip
were deeply affected. The guerrillas killed several of our managers and took
over our plants, and the military would walk into our plants to get guerrilla
fighters out. It was a terrible time.”

Because of these shocks, firms faced the risk that their operations – or the operations

of their partners, suppliers, and buyers – would cease to exist or become severely disrupted.

For example, Dionisio Garza Medina (CEO of Alfa S.A.B.) recalled:

“In 1979 I was full of dreams and aspirations…In 1981, I was in technical
bankruptcy…[This was] a period of high interest rates…Mexico suffered
devaluation…There was high inflation; the interest rates went up from 5% to
15%, devaluation of the peso, price controls: we [thought we] were dead!”

The constant possibility of debilitating environmental shocks such as negative

regulatory actions often weighed heavily on firms in emerging markets. For example,

Hakeem Belo-Osagie, Chairman of the Nigeria-based United Bank for Africa (one of

Africa’s leading multinational financial institutions), emphasized how the burden of

managing against political risks and regulatory uncertainty in the absence of institutions

required dedicating significant organizational resources and constant attention:

“The biggest challenge in Africa…is that you constantly have to manage…

the regulatory agencies…Things can go horribly wrong if you do not manage
that aspect very well.”

In the examples above, the challenge for each firm, as its leaders described, was

mitigating potential transaction uncertainty. To engage in exchanges, customers and partners

had to believe that the firm could overcome both behavioral uncertainty (that it would act in

accordance with agreements) and environmental uncertainty (that it would withstand shocks

and ensure business continuity). In developed markets, credible information analyzers and

verifiers as well as stable and independent regulatory, political, and legal institutions help

mitigate such concerns. In emerging markets, firms have to overcome potential transaction

uncertainty to engage in business despite the absence of such institutions.

Reputation provides transactional confidence

19 
 
We propose that a firm’s reputation can help to both overcome and capitalize on transaction

uncertainty. Voids in institutions ensure that in emerging markets, there is no guarantee that a

firm will abide by its agreements, or continue to operate in the face of environmental shocks.

To engage in transactions with a firm, stakeholders have to believe the firm will both honor

its promises and withstand shocks. A favorable reputation can act as a credible signal that

helps mitigate uncertainty and provides transactional confidence. We propose that, in

emerging market settings, reputation consists of prominence, perceptions of quality, and

resilience.

For instance, Savannah Maziya, group CEO of Bunengi Holdings (one of Africa’s

leading infrastructure and mining conglomerates), emphasized how the firm’s success in its

first mining project led to prominence that cascaded into enormous opportunities over time:

“I think getting our first mine was a game-changer…Then that just leapt into other
projects and leapt into other opportunities. We are today who we are based on
that first project, because it proved to everybody…that we could do this kind of
business.”

Guillermo Murchison, CEO of Murchison S.A. Estibajes y Cargas (a large port

services and warehousing firm based in Argentina), summed up the importance of a

reputation for quality of products, behaviors, and adherence to promises in operating in an

environment replete with institutional voids:

“They [clients] trusted me; they knew we always did everything the right way.
The company still enjoys a great reputation. People value those things.”

Finally, Antonio Madero (Founder, Chairman and CEO of Sanluis Corporation, a

leading Mexico-based automotive parts maker), emphasized the importance of having a

reputation for resilience, or the ability to withstand challenging and unexpected shocks, built

through the firm’s response to prior challenges:

“After the crisis of 2009, the orders increased and our growth rate over the
following 5 years is 21 percent per year. Why? Because we have the trust of our
clients who saw how we managed to overcome the crisis.”

20 
 
Keshub Mahindra, the former Chairman of the Mahindra Group (a leading multinational

Indian business group), echoed this sentiment, noting that the firm’s reputation stemmed from

the fact that stakeholders saw, “in spite of very difficult conditions, we are able to do

business.” In emerging markets, perceived resilience is critical because a firm’s continual

existence is certainly not something taken for granted. As Arturo Acevedo, President of

Grupo ArcelorMittal, noted:

“Argentina is a very unpredictable country… and we are managing to survive,

which is certainly no easy thing.”
As the above quotes illustrate, firms with prominence, a reputation for delivering

quality products and engaging in quality behaviors (including honoring agreements), and

having resilience (including surviving prior environmental challenges), can build

transactional confidence. We thus offer the following proposition:

Proposition 1: In emerging markets, a favorable reputation – comprising

prominence; beliefs about quality; and beliefs about resilience – can help firms
overcome and capitalize on informational voids by reducing potential transaction
uncertainty.

Transaction confidence operates through defensive and offensive mechanisms

We propose that, by providing transactional confidence, reputation affects firm outcomes

through two mechanisms. By reducing potential transaction uncertainty, a favorable

reputation can allow a firm to (1) overcome institutional voids by buffering against threats

(the defensive mechanism); and (2) capitalize on institutional voids by generating new

opportunities (the offensive mechanism).

Defensive mechanism: Buffering against threats

First, a favorable reputation can buffer a firm against threats by allowing for

flexibility in its responses. By providing transactional confidence, a favorable reputation can

convince counterparties that a firm is acting in an appropriate and trustworthy way. In

emerging markets, firms will have to adapt in response to threats and shocks to survive; a

21 
 
favorable reputation can ensure adaptations are not seen as signals of behavioral drift that

dissuade future transactions.

For example, when the Mahindra Group’s auto division had to lay off 500 people due

to weak demand, there were no riots or turmoil because the community trusted that there

must have been a good reason for the layoffs, given the reputation that the Mahindra Group

had cultivated with the local community over time. This was despite India’s history of

industrial strife, often marked by labor union militancy. A riot or turmoil would have severely

disrupted the Mahindra Group’s ability to exploit its business model and engage in

transactions. Keshub Mahindra, former Chairman of the Mahindra Group, contrasted his

firm’s peaceful layoff against another factory’s more turbulent layoff that was marked by

resentment-fueled strikes. He emphasized how the group’s favorable reputation allowed it to

buffer against a demand shock by giving it more flexibility and leeway to adapt and operate:

“Last week, we laid off 500 people because of [low] demand in the auto
industry. Apart from a little thing in the papers, no one cared because…they
trust us. They know that we would not have done this unless we had good
reasons. The building of trust and confidence has been our most useful tool.”

Julio Werthein, Founder of Grupo Werthein (one of the largest diversified business groups in

Argentina), also emphasized how his firm’s reputation shielded it from domestic crises that

lowered general investor trust in Argentina. When asked whether domestic crises jeopardized

his operations abroad, Werthein emphasized that: “That was no problem, because people

trusted our management.” As the quotes illustrate, in emerging markets, a firm’s reputation

can allow it to respond to threats without inspiring stakeholder doubts about its intentions or

its future trajectory.9

Offensive mechanism: Capitalize on new opportunities

                                                            
9
Another example that underscores this point is Khanna, Palepu, and Herrero’s (2007) case study on Tetra Pak
Argentina, a multinational food packaging and processing company of Swedish origins. When the Argentinian
currency collapsed, Tetra Pak was still trusted by the market due to its favorable reputation as a firm that acted
in accordance with its promises. As the case notes, this played a key role in its survival.

22 
 
 Second, a favorable reputation can allow a firm to attract new customers and partners,

and thus generate new opportunities. For instance, Adi Godrej, Chairman of the Godrej

Group (one of India’s largest diversified business groups) described how the group was able

to leverage its reputation to enter into transactions with customers in new industries:

“We did… better than most Indian businesses because we were among the few
[that] had a strong brand…we used the family name…in the branding. Our
cupboards were called Godrej Cupboards, our refrigerator was a Godrej
Refrigerator, and our locks were Godrej Locks... So the Godrej brand ran
across many categories…it became a well-known name. For example, our real
estate development business has leveraged the brand strength very well. That
helps us considerably.”

A favorable reputation can also allow firms to develop relationships with new partners.

For instance, Suresh Krishna, chairman of Sundram Fasteners (the largest maker of industrial

fasteners in India and a constituent company of TVS Group, one of India’s leading industrial

business groups), recalled the importance of reputation from his affiliation with TVS group

that allowed him to get his “foot in the door” when he first launched Sundram Fasteners.

Despite having the technological capabilities, it was the reputation of TVS, a trading and

distribution oriented business group, that allowed Krishna to gain the access to transaction

partners to exploit his technology and resources and thus successfully build a manufacturing

oriented business. Krishna recalled:

“It was a great platform. TVS had already been in existence for 50 years in
1962…That helped a lot in at least getting your foot into the door…Saying they
knew who I was, and they knew TVS meant something. I didn’t have to
explain the group; everybody knew the group. It was a tremendous advantage.
The minute they saw TVS, they’d say, ‘Okay,’ and all doors opened…If I had
been an independent, stand-alone, fresh out of school entrepreneur, I think the
journey would have been 100 times more difficult.”

Additionally, Fazle Hasan Abed, the founder and Chairman of BRAC (a Bangladesh-

based development organization that is the largest NGO in the world by number of

employees), emphasized that BRAC’s positive reputation was instrumental in facilitating

growth from Bangladesh into new geographies worldwide.

23 
 
 “We have a reputation of being able to deliver whatever we promise, and that
helps us...As soon as we went to Afghanistan [from Bangladesh] in 2001,
everybody flocked to fund BRAC, because we had the reputation.”

In the examples above, leaders emphasized that the extent to which they capitalized on

an opportunity—whether in a new market or with new partners—depended on how much

counterparties (businesses or consumers) knew them, trusted the quality of their products and

behaviors, and believed in their ability to overcome shocks and crises. This notion is

consistent with studies showing that business groups with strong reputations are most likely

to capitalize on new opportunities that emerge during policy shocks that result in market

liberalization (Khanna and Palepu, 1999; Ghemawat and Khanna, 1998).

Thus, we propose that in emerging markets, reputation―by reducing transaction

uncertainty―buffers firms against threats, and enables them to capitalize on new

opportunities. We summarize this in the following two-part proposition:

Proposition 2a: In emerging markets, by reducing potential transaction uncertainty,

a favorable reputation buffers a firm against threats.

Proposition 2b: In emerging markets, by reducing potential transaction uncertainty,

a favorable reputation enables a firm to capitalize on new opportunities.

Defensive and offensive mechanisms increase quantity of transactions

We propose that the defensive and offensive mechanisms of reputation increase the quantity

of a firm’s transactions, allowing a firm to activate its conventional resources.10 By buffering

against threats, the defensive mechanism can provide a firm with more time to exploit

existing business opportunities, increasing its quantity of transactions. For example, the

Mahindra Group’s reputation provided the firm with time to exploit its business

opportunities, even when other firms in India were unable to do so. Keshub Mahindra noted:

“Overseas, when you have a fall in demand you can lay off people…. In India, you
can hardly ever do that, so even if you are facing a low-demand situation, you are
stuck with the cost of labor.”
                                                            
10
For simplicity, we focus on quantity and abstract away from the potential impact on the “quality” of a firm’s
transactions. For brevity, we can think of a notion of “quality-adjusted” quantity, which we do not explore in
this study but see as a promising area for further research.

24 
 
In this case, Mahindra Group’s favorable reputation uniquely allowed it to adapt to negative

demand conditions by laying off people, so that it could continue to operate and exploit its

business model to increase transactions. In contrast, competitors without such a favorable

reputation would be greatly constrained from adapting via layoffs, since labor union

militancy in response to a layoff could severely disrupt operations.

By allowing a firm to capture new business opportunities through attracting new

customers and partners, offensive mechanisms can directly increase the quantity of

transactions that a firm captures. More transactions to execute means greater utilization of

otherwise idle resources. For example, when Godrej Security Safes leveraged its reputation to

move into the refrigerator sector, new refrigerator orders meant Godrej had to increase its

utilization of its conventional resources in order to fulfill these new transactions.

We thus propose that these mechanisms allow firms to increase the quantity of their

transactions under both positive and negative macro-economic conditions. The leaders

interviewed had steered their firms through positive and negative times, across periods of

economic boom and bust. During challenging economic cycles, the defensive mechanism

allowed their firms to engage in adaptation, including downsizing, without compromising

stakeholders’ confidence. During times of boom, the offensive mechanism allowed the firms

to attract new customers, partners, and engage in further expansion. We summarize this in the

following proposition:

Proposition 3: In emerging markets, by buffering against threats and allowing for

new opportunities, a favorable reputation increases a firm’s quantity of
transactions.

Reputation as a meta-resource that moderates conventional resources

We thus propose that reputation is a meta-resource that moderates the degree to which a firm

can activate its conventional resources. In emerging markets, because high potential

transaction uncertainty discourages transactions, having strong inputs and capabilities for

25 
 
producing output is not enough to ensure a firm will attract customers and partners. We

suggest that, unless a firm is able to leverage its reputation to attract counterparties in the

absence of institutional guarantors, its resources and capabilities―no matter how

powerful―will remain idle and unused. This notion was succinctly summed up by Rahmi

Koç, Chairman of Koç Holding (Turkey’s largest diversified business group):

“Perception is most important. You can have good items, but if your brand is
not associated with quality and history, you do not get satisfactory margins.”

As this quote illustrates, the inter-related nature of reputation’s underlying components –

prominence (in Koç’s words, “perception”), perceptions of quality (“quality”), and resilience

(“history”)—can facilitate survival.

We conceptualize reputation as a meta-resource because of its high order ability to

activate, leverage, and moderate other resources. The use of the “meta” label is analogous to

work on organizational routines differentiating between lower-order operative routines and

higher order decision procedures―meta-routines― consisting of routines for changing

conventional routines (Feldman and Pentland, 2003). Similarly, in evolutionary economics,

meta-routines are viewed as the genes of an organization―higher-order routines that affect,

constrain, and influence generic firm activity patterns (Nelson and Winter, 1982). We

summarize this idea with the following proposition:

Proposition 4: In emerging markets, a favorable reputation acts as a meta-resource

that allows a firm to activate its conventional resources.

Cumulative effects: Reputation as a basis for long run survival in emerging markets

Having proposed the ways that reputation enables firms to overcome and capitalize on

institutional voids in volatile institutional environments, our hypotheses give rise to an

additional question: if reputation is so important, how can it be a source of sustained

survival? In other words, why should there exist a heterogeneous distribution of reputation

across firms, instead of a situation of competitive parity, where all firms invest in reputation

26 
 
and thus with competition the heterogeneity in reputation disappears over time? Reconciling

insights from the interviews with theories of competitive advantage, and the resource-based

view in particular, we propose that reputation has persistent and sticky effects because, first,

acquiring reputation without an extant base of reputation is exceedingly difficult, and second,

once acquired, reputation begets more reputation.

First, we suggest that, to acquire reputation, firms not only have to be able to produce

good quality output, but also needed to focus on managing perceptions of resilience. That is,

firms have to convince stakeholders that they are likely to persist and thrive over time. For

example, Rafael Guilisasti Gana, Vice Chairman of Viña Concha y Toro (Latin America’s

top producer of wine), noted the complexity involved in building reputation. As his statement

indicates, doing so involved not just making quality wines, but also influencing stakeholder

perceptions of the firm as one deeply embedded in its industry and value chain:

“To meet that requirement, you need to make quality wine… but… it’s not
just about explaining quality, but also about aspiring to international
recognition and endorsement―not from consumers themselves, but from the
entire distribution chain: wine critics, restaurants and on- premise
consumption.”

Acquiring reputation without an extant base of reputation is likely to be difficult.

Research suggests that it may involve contributions to the public good. Because this process

is complex, time consuming, expensive, and require expertise to execute, it may be difficult

to imitate (e.g., Henisz et al., 2014; Khanna and Palepu, 2004). Often, a firm’s early

reputation may thus emerge through luck. For example, Adi Godrej (Chairman of the Godrej

Group) noted that the reputation of the Godrej name was actually initially propelled by a

lucky shock:

“We were helped tremendously by a major explosion in the Bombay docks

during the Second World War. There was a ship carrying ammunition which
exploded in the docks, and it created major damage in the Fort area of what
was then Bombay. A lot of offices suffered destruction and many of the
British safes were destroyed, whereas almost all the contents of our safes were
perfectly alright. And that led to great success later for our safe business.”

27 
 
After this, Godrej noted that the Godrej name became well-known, and because of its

reputation for quality, the firm was able to successfully expand its product portfolio into

many new and different industries. This example not only illustrates the role that luck often

plays in bestowing reputation, but also suggestively highlights the causal direction of

reputation in affecting outcomes.

Although it might be difficult to acquire initially, we also propose that, once initiated,

reputation can be reinforced in cascading positive feedback loops. Having a favorable

reputation might lead to more opportunities, which can further increase reputation, which can

lead to even more opportunities, and so on. For example, Antonio Madero, Founder,

Chairman and CEO of Sanluis Corporation, noted how having a level of favorable reputation

helped build more reputation via self-reinforcing positive feedback loops:

“Everything is public in the business world. If you are successful in your own
business…then you acquire an outstanding reputation…and people will pay
attention to what you have to say…We are growing in what we do globally;
we are adding product lines directed toward the same type of customer
because we already have a very good reputation.”

Thus, acquiring and developing reputation is likely to be a time dependent and

socially complex process. While this might make reputation difficult to acquire, it also

suggests that reputation is potentially a durable source of sustained advantage (Barney, 1991;

Peteraf, 1993). Moreover, the potentially reinforcing nature of reputation underscores its

importance in emerging markets. As its effects compound over time, reputation can build

ever-growing confidence that a firm will overcome institutional voids; that is, over time,

reputation can become an increasingly credible signal reducing potential transaction

uncertainty. We thus propose that a firm’s reputation can serve as a core basis of strategy for

competing in emerging markets. We synthesize via the following proposition:

Proposition 5: In emerging markets, a favorable reputation can be a source of long

term survival.

28 
 
DISCUSSION

In this paper, we theorize reputation as a driver of long term survival in emerging markets.

We propose that, in emerging markets, a favorable reputation can act as a meta-resource that

moderates whether a firm can activate its conventional resources, and illuminate the

mechanisms that connect reputation to long run survival. Specifically, we propose that

reputation is crucial for survival in emerging markets, because it allows firms to overcome

and capitalize on the transaction uncertainty created by institutional voids. We propose that

reputation is a unique strategic construct in emerging markets in that, through its offensive

and defensive channels, it can be beneficial regardless of whether a firm is on the upswing or

downswing of a volatile cycle. Furthermore, reputation’s socially-complex and intangible

nature implies both a high barrier to imitation and reinforcing feedback loops that facilitate

increasing returns over time; we propose that reputation can thus allow firms to survive and

persist over generations.

In developing this theory, we contribute to a growing literature on institutional voids

in emerging markets (e.g. Guillen, 2000; Henisz, Dorobantu, and Nartey, 2014; Khanna and

Rivkin, 2001; Luo and Chung, 2013; Mair, Martí, and Ventresca, 2012; Siegel, 2007). Our

conceptualization of reputation as a meta-resource provides a mechanism-based view into

one way that institutional voids might be mitigated and leveraged as a source of advantage.

At a more general level, we contribute to knowledge on how intangible assets affect

organizational outcomes, responding to Pfarrer et al.’s (2010: 1145) call for scholars to

develop theory that “precisely specify and capture the type of intangible asset studied and the

context within which its effects are investigated” in order to gain “greater insights into the

mechanisms through which intangible assets provide competitive advantages.” In so doing,

we augment existing theories of strategy that stress the importance of continuous change. For

example, research on the importance of dynamic capabilities emphasizes that firms can adapt

29 
 
to changing environments across time by changing, organizing, and recombining resources,

capabilities, and routines (e.g. Teece, Pisano, and Shuen, 1997; Eisenhardt and Martin, 2000;

Rindova and Kotha, 2001; Helfat and Peteraf, 2003; Helfat et al., 2009). We propose

reputation can be an antecedent that allows firms to engage in change. We suggest that

reputation, at its core, provides stability (maintaining a favorable reputation engenders

transactional confidence due to the stable informational cues it provides); we propose that it

is this very stability that provides a spring-board for firms to reorient resources to adapt to a

changing environment. The example of the Mahindra Group illustrates this idea: when

Mahindra had to lay off 500 people to adapt to changing market conditions, they were able to

do so without interference from the community because of their favorable reputation, while

layoffs by other firms elsewhere were met with unrest and angst.

Building reputation

Our theory also managerial implications for firms hoping to build reputation in emerging

market settings. Given the importance of reputation for firm outcomes, understanding how

reputation is built has direct implications for firm strategy. However, research on how firms

develop reputation is surprisingly underdeveloped. Our theory suggests that, in emerging

markets, firms might benefit from a reputation not only for producing quality products, but

also for withstanding environmental shocks. This implies three general―though not mutually

exclusive nor collectively exhaustive―approaches for firms without reputation to attain

reputation: (1) through serendipity; (2) through providing a solution to a pressing need

(thereby filling an institutional void); or (3) through partnerships. Further research elucidating

and testing these mechanisms can have important implications for knowledge on firm

strategy in emerging markets.

Building reputation through serendipity

30 
 
 In developed markets, firms without reputation can build up reputation by performing

well―that is, demonstrating their quality―in certification contests (Rao, 1994). However,

the challenge for firms trying to build reputation in emerging markets is that these settings

lack precisely the information analyzers and certifiers that can credibly evaluate and rate

firms (Khanna and Palepu, 2010). Moreover, in these settings, having high quality products is

not enough: firms must also engender beliefs in their ability to persistently deliver such

quality in the face of a shifting environment. Our data suggest that one way firms attain and

develop reputation is through serendipity: exogenous shocks that allow firms to demonstrate

their adherence to promises, and their ability to survive despite uncertainty. For instance, in

the Godrej example, the Bombay mine explosion was a major news event, and because

Godrej’s safe was the only safe that survived the explosion, it allowed the firm to not only

gain salience (being known), but also become known for resilience (the ability to survive

shocks). The channel for acquiring salience and demonstrating quality here is the prominence

of the exogenous news event: a mine explosion that gained the attention of many

stakeholders. We see great potential for future research to explore the role of luck in building

reputation and engendering success and survival in emerging market settings.

Solution-driven approach: Filling institutional voids

While we propose that a favorable reputation can help firms overcome institutional

voids, our theory also suggests that filling an institutional void can be another general

approach that helps firms build reputation. Because institutional voids affect a large number

of stakeholders, a firm that fills a void will likely gain the stakeholders’ attention. And

because filling the void will also require adherence to promises and stability, it will likely

build and influence stakeholders’ perceptions about the firm’s potential for future survival.

One example of this from our interviews is provided by BRAC, the Bangladeshi-

based organization that is now the world’s largest NGO. BRAC acquired a reputation in the

31 
 
economic development community for being a judicious steward of funds and an entity that

would credibly deliver on its promises. The formation of this reputation goes back to the

organization’s founding. In the early 1970s, as the area that is now known as Bangladesh

reeled from a devastating cyclone in 1970 and a formal separation from Pakistan in 1971,

BRAC’s founder, the former head of Shell in the region, obtained a grant from the British

foundation, Oxfam, to build houses for rehabilitation purposes. He ensured that his small

team over-delivered on his promises by building more houses than promised and by offering

to return unused money. Since then, BRAC has invested over more than four decades in

being seen, among other things, as a credible entity. In the emerging markets environment

where it is hard to assess the credibility of potential arms-length transaction partners, BRAC

acquired a reputation by filling this institutional void that transcends conventional industry

boundaries.

Partnership-driven approach

A third general approach to building reputation might be through leveraging the

existing reputation of an established firm to use for one’s own benefit, including through a

mutual arrangement such as an affiliation or alliance. For example, when Sundram Fasteners

was launched from scratch, its founder leveraged its affiliation with the reputable TVS

Group, reminding every counterparty he interacted with that his venture was affiliated with

TVS, which provided the founder great access to potential suppliers and customers. Prior

research has suggested that new firms can build reputation by partnering with multiple, well-

established firms (e.g. Stuart et al., 1999). We propose that doing so might be especially

important in emerging market contexts, where affiliation can signal that a firm is likely to

keep its promises and is likely to survive environmental maleficence. However, the difficulty

of this approach is that acquiring affiliation and partnership with reputed establishment firms

is not a trivial matter (since establishment firms often have little incentive to affiliate with an

32 
 
unknown entity). In our data, for example, we observe that reputation-building affiliations

and partnerships are often driven by kinship ties.

Cumulative effects of building reputation

More generally, our theory suggests that firms in emerging markets should prioritize

building reputation as a strategic objective early in their development. The cumulative effects

of reputation suggest timing is particularly important: once a firm has a stock of reputation, it

becomes easier to develop even more reputation. While we outlined above three general

approaches for acquiring reputation, each approach is challenging. Luck is unpredictable and

hard to plan for, filling an institutional void is inherently complicated (if it were easy, there

wouldn’t be a void), and getting a reputable firm to commit to a partnership is difficult (since

it requires an agreement where both parties have aligned incentives). Thus, because it is

difficult to acquire reputation, and since reputation is socially complex and thus needs to be

cultivated over time, having an early start might be key. We see great scope for future

research to further unpack and integrate these divergent approaches.

OPPORTUNITIES FOR RESEARCH

The purpose of our study was building theory; we hope that improvements in the availability

and quality of data will eventually allow scholars to empirically test our theoretical

propositions. Our study cannot reliably dismiss all possible alternative explanations (for

instance, the existence of processes or mechanisms driving both reputation and longevity),

and cannot entirely account for potential endogeneity or reverse causality. To test the

proposition that reputation is a meta-resource, empirical studies in institutionally-weak

environments should interact a firm’s reputation measure with its measure of conventional

resources in estimating performance, while controlling for alternative explanations and

reverse causality. We propose that the coefficient on the interaction term should be positive.

33 
 
 We also hope future research will build on and extend our ideas. First, we do not

explore the potential downsides of favorable reputation, or the potential benefits of a negative

reputation. Future studies could explore whether firms with negative reputations can navigate

institutional voids in alternative ways (for instance, through crony capitalism) to achieve the

same outcomes (for instance, accessing capital from the state instead of markets (Leuz and

Oberholzer-Gee, 2006)). Second, we do not consider what occurs when a firm has a different

reputation among different stakeholders: for example, a positive reputation with consumers

and suppliers, but a negative one with environmental activists. We thus see the development

of a deeper understanding of the “liability of reputation” (Pfarrer et al., 2010; Rhee and

Haunschild, 2006), and the relationship between favorable and non-favorable reputations in

emerging markets, as important areas for future research. Third, because our data was

constructed through theoretical sampling, we cannot examine whether there are firms that

have survived over the long run despite lacking strong favorable reputations, and whether

there are firms that failed in spite of possessing strong favorable reputations. Future research

can further refine our theory by examining instances where a favorable reputation did not

forestall failure, and the lack of favorable reputation did not constrain success.

Additionally, while we propose that reputation can be broken into three component

factors―prominence, perceptions of quality, and resilience―we cannot separate their

isolated effects on a firm’s overall reputation, or on its long-term survival. Many of the

respondents emphasized the importance of the cumulative, reinforcing nature of these

components in driving long-run survival. In theorizing the effects of reputation as a cohesive

construct, we thus follow qualitative studies that aggregate multiple codes into an over-

arching construct that serves as the basis for theorizing (e.g. Huy, 2011; Fauchart and

Grueber, 2011). Reputation’s components are likely reinforcing, and characterized by

nonlinear relationships such as self-reinforcing feedback loops. Moreover, stakeholder action

34 
 
may be driven by their overall, aggregate perceptions of a firm. Nonetheless, we hope our

propositions can motivate future studies testing the impact and relative importance of each

component, and on disentangling their complex relationships. When, if ever, will resilience

matter more than prominence and perceptions of quality? Does this vary across the stages in a

firm’s, industry’s, or emerging market’s state of development?

Finally, by considering only emerging market settings, we do not explicitly theorize

the comparative effects of reputation in emerging versus mature markets. The idea of

reputation as a meta-resource is consistent with studies in mature markets showing that

reputation can help a firm realize the potential of its other resources (e.g. Dollinger, Golden,

and Saxton, 1997; Stuart et al., 1999; Turban and Cable, 2003; Love and Kraatz, 2009; Stern

et al., 2014). Nonetheless, our model suggests that reputation’s ability to mitigate and

capitalize on institutional voids would be significantly less transparent (and at the theoretical

extreme, even redundant) in developed markets, where mature market institutions (such as

information analyzers, credibility enhancers, functional adjudication mechanisms, ex-post

watchdogs et cetera) reduce the risks of transacting with unknown parties. Structurally, this

suggests that the greater the extent and degree of institutional voids in an environment, the

greater the upside of reputation’s meta-resource effects will be. We see potential for large-

scale quantitative studies to compare the effects of reputation on survival or performance in

emerging markets and in more developed settings.

We thus shed light on the importance of an underappreciated construct (reputation) in

an under-theorized setting (emerging markets) over an unusual period (the long run), in the

hopes of motivating future research. Given the fluctuations of successes and failures in

modern emerging economies, the increasing interdependence between emerging and

developed economies, and the lack of theory beyond developed market settings (Bettis et al.,

2014), developing academic theory on how success can be attained and sustained in

35 
 
institutionally-underdeveloped environments has never been more important. We hope our

proposed theory is a first step in motivating further research and practice in this vein.

36 
 
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41 
 
Figure 1. Proposed anatomy of reputation as a meta-resource in emerging markets

Firm
Conventional Meta-
Resources Resource
(Activation
moderated by P2a and P2b P3
meta-resource)
Offensive Increases
e.g. Labor Firm P1 Mechanisms quantity of
Reputation Allows firms to transactions
Prominence, capitalize on new because firms
e.g. Technology perceptions Provides transactional have more
opportunities
of quality, confidence through time to exploit
and informational cues existing
e.g. Capital resilience. opportunities
that help overcome and more
information-based voids Defensive avenues to
e.g. Equipment Mechanisms capture new
Buffers firms
opportunities
against threats
e.g. Raw inputs

P4 Transactions activate conventional resources

Time (Cumulative effects and sustained advantage)

P5

42 
 
[ONLINE SUPPLEMENT] Appendix 1: Interviews analyzed and summary statistics
Name Position Industry Country
Kwasi Abeasi CEO, Africa Investconsult Ltd. Financial Services Ghana
Fazle Hasan Abed Founder and Chair, BRAC Microfinance, Bangladesh
Development
Arturo Acevedo President, Grupo ArcelorMittal―Acindar Steel, Mining Argentina
Abbas Akbarally Chairman, Akbar Brothers Diversified Sri Lanka
Hamdi Akin Founder and Chairman, Akfen Holding Construction, Turkey
infrastructure
Roberto de Andraca Chairman, Cap S.A. Steel Chile
Roberto Angelini Rossi Chairman, Empresas Copec S.A. and AntarChile S.A. Petroleum, Forestry, Chile
Fishing
Gülsüm Azeri Group President, Şişecam; CEO, OMV Petrol Ofisi Chemicals and glass; Turkey
(current) Petroleum
Alberto Bailleres CEO, Grupo Bal Diversified Mexico
Rahul Bajaj Chairman, Bajaj Group Diversified India
Hakeem Belo-Osagie Chair, United Bank for Africa (currently with Etisalat Financial services Nigeria
Nigeria)
Alberto Benavides de la Founder and Chairman, Compañía de Minas Mining Peru
Quintana Buenaventura
Jorge Born Former President, Bunge y Born (now Bunge Limited) Agribusiness, Food Argentina
Cem Boyner CEO, Boyner Holding Retail Turkey
Federico Braun President and Chairman, Sociedad Anónima Importadora Supermarkets Argentina
y Exportadora de la Patagonia (SAIEP) (La Anónima)
Manu Chandaria Chairman and CEO, Comcraft Group Steel and Aluminum Kenya
Ricardo Claro Chairman, Claro Group (defunct; main company, Shipping Chile
Compañia Sud Americana de Vapores S.A.)
Nalli Kuppuswami Chetti Chairman, Nalli Silk Sarees Textiles, retail India
Paulo A. Cunha Chair, Grupo Ultra Petroleum and Natural Brazil
Gas; Chemicals
Felipe Antonio (Tony) CEO, Corporacion Custer Food, Chemicals Peru
Custer
Hubert Danso CEO and Vice Chairman, Africa Investor Financial Services, South
Media Africa
William Engels Member of the Board, Bunge Limited Agribusiness Argentina
Andre Esteves CEO, BTG Pactual Financial Services Brazil
Dionisio Garza Medina Former President and CEO, Alfa S.A.B. de C.V. Diversified Mexico
Jorge Gerdau Johannpeter Chairman, Gerdau Advisory Council; former CEO, Steel Brazil
Grupo Gerdau
Adi Godrej Chairman, Godrej Group Diversified India
Jose Grana Miró Quesada Chairman, Graña y Montero Construction, Real Estate Peru
Rafael Guilisasti Gana Vice Chairman, Vina Concha y Toro S.A. Wine Chile
Yusuf Hamied CEO, Cipla Pharmaceuticals India
Tomás Hudson President, Imperial Chemical Industries (ICI) (now part Chemicals Argentina
of Akzo Nobel)
Ranjan Kapur Executive Chairman, Ogilvy & Mather India Advertising India
Rahmi M. Koc Honorary Chairman, Koç Holding Diversified Turkey
Suresh Krishna Chairman, Sundram Fasteners Metal products India
Ritu Kumar Founder, Ritika Private Limited Fashion, textiles, retail India
Amalia Lacroze de Fortabat President and Chair, Loma Negra Cia Industrial Cement Argentina
Argentina S.A. (Now belongs to other investors)
Agustin Legorreta Former President, Banco Nacional de Mexico Financial Services Mexico
Erling Lorentzen Former CEO, Aracruz Celulose Pulp and Paper Brazil
Andrónico Luksic Craig Vice Chairman, Banco de Chile and Quiñenco S.A. Banking, Mining Chile
Antonio Madero Founder and CEO, SANLUIS Corporación S.A. de C.V Automotive Parts Mexico
Jorge Marín Correa President, Compañía General de Electricidad s.a. (cge) Electricity, Natural Gas Chile
Keshub Mahindra Former Chairman, Mahindra Group Diversified India
Carlos Wizard Martins Founder, Grupo Multi Education Brazil

 
 
 Name (continued) Position (continued) Industry (continued) Country
Savannah Maziya CEO, Bunengi Holdings; Chair, Parsons Brinckerhoff Infrastructure, Mining South
Africa Africa
Eliodoro Matte Larraín President, Empresas CMPC S.A. Pulp and Paper Chile
Eva Muraya Group CEO, Brand Strategy and Design Ltd Advertising and Kenya
Marketing
Guillermo Murchison CEO, Murchison, Estibajes y Cargas S.A. Shipping and Logistics Argentina
Prithvi Raj Singh Oberoi Executive Chairman, EIH Limited Hospitality, Tourism India
Victor Gbolade Osibodu Chairman and CEO, Vigeo Limited Diversified Nigeria
Husnu Ozyegin Chairman, FIBA Holding Financial Services Turkey
Luis Alejandro Pagani CEO, Grupo Arcor Food Production Argentina
Horst Paulmann Kemna President, Cencosud S.A. Retail Chile
Nii Quaynor Chair, Network Computer Systems and Ghana Dot Com Internet Provider Ghana
Prathap Reddy Founder and Chairperson, Apollo Hospitals Healthcare India
Guler Sabanci Chair, Sabancı Holding Diversified Turkey
Manuel Sacerdote Regional President, BankBoston (Argentina) (now ICBC) Financial Services Argentina
Ricardo Salinas Pliego CEO, Grupo Salinas Diversified Mexico
Pedro Moreira Salles Chair, Itaú Unibanco Financial Services Brazil
Daniel Servitje Montull CEO, Grupo Bimbo Food Production Mexico
Roberto Setubal President and CEO, Itaú Unibanco Financial Services Brazil
Reinaldo Solari Chairman, S.A.C.I. Falabella Retail Chile
Ratan Naval Tata Chairman, Tata Trust; Former Chairman, Tata Group Diversified India
Luiza Helena Trajano President, Magazine Luiza Retail Brazil
Murat Vargi Founder and Chair, MV Holding Diversified Turkey
Rodolfo Viegener Former President, FV S.A.; Former Chairman and CEO, Faucets and plumbing Argentina
Ferrum S.A. products
Sven Von Appen Chairman, Ultramar Agencia Maritima Shipping and Logistics Chile
Gordon & Morine Chairman and CEO (Gordon) and Executive Director Diversified Uganda
Wavamunno (Morinne), Spear Group
Julio Werthein President, Grupo Werthein Diversified Argentina
Augusto Felipe Wiese de CEO, Grupo Wiese Diversified Peru
Osma
Selcuk Yasar Founder and Honorary Chairman, Yaşar Holding Diversified Turkey
Note: Names listed in alphabetical order by surname; Spanish names ordered by first surname (apellido paterno). Analyzed
interviews represent the complete set of all available interviews at time of analysis (January 2016); interviews are publicly
available through the HBS Creating Emerging Markets Project (see full citation in references page).

Summary statistics of interview data at time-of-interview*:

Data
Firms Mean Age 73
Median Age 74
Max 190
Min 12
Respondents Mean Age 69
Median Age 69
Max 93
Min 44
Most represented countries Argentina 11
India 11
Chile 10
Brazil 8
Turkey 8
Most represented industries Diversified 16
Financial services 8
Retail 4
* Firm age estimates calculated based on firm founding year, discovered through archival research. In some cases, defining a
precise firm founding year is difficult due to corporate development events or unclear origin markets. Thus, some founding years
are approximations based on archival research findings.

 
 
[ONLINE SUPPLEMENT] Appendix 2: Subset of data structure

First-Order Codes Second-Order Themes

Formal planning Planned vs. emergent strategy
Emergence
Luck
New opportunities Adaptation
Change of action due to new
information/circumstance
New idea and practice
New political activity
Perceived mistake Sense-making
Perceived success
Perceived luck
Adaptive learning Learning
Business learning (early formative)
Professionalization
Brand awareness / Prominence Reputation
Quality of products/services
Perceived stability/resilience
 

 
 

 
 
[ONLINE SUPPLEMENT] Appendix 3: Illustrative examples of coding of reputation

Interviewee Quote First-Order Code

Adi Godrej “Fortunately, being in consumer products, if your brand is doing reasonably well, Prominence
Chairman, Godrej Group and if it is growing, then you don’t get affected by setbacks of other kinds…Many
(one of India’s largest Indian groups which were very strong say in the 1950s or in the 1960s, some of
diversified business them almost disappeared because the socialist regime created difficulties for
groups) growth…We were fortunate that the brand carried our success quite strongly”

Sir Fazle Hasan Abed “We have a reputation of being able to deliver whatever we promise, and that Quality
Founder, Chairman, helps us in also finding money in Africa to try and develop programs... As soon as
BRAC we went to Afghanistan [from Bangladesh] in 2001, everybody flocked to fund
(largest NGO in the BRAC, because we had the reputation. And so we started getting funding from
world by number of sources that we didn’t know, we didn’t want, so all kinds of money started
employees) flowing in. We became very quickly the largest NGO in Afghanistan.”

Federico Braun “There are no mysteries in the supermarket business...In fact, in world retailing Resilience
President of La Anónima history, innovations are quickly imitated…La Anónima is seen as a company that
(one of Argentina’s meets its commitments, has longtime and loyal employees – and this is important
largest supermarket – and keeps its word. However simple they may seem, these qualities are not that
chains) easy to find. I don’t believe technology is a distinctive factor, like bar codes, or
scanning…”

Jose Grana Miró Quesada “Considering that the company had already secured some success, we set out to Resilience
Chairman of Grana y find the reasons underlying that success and to determine what we had to preserve
Montero (the oldest and moving forward…So, we conducted a survey with our customers, workers and
largest construction suppliers…[and found that] clients relied on a company like Graña y Montero on
company in Peru) account of its reputation, because it was a serious business. That was something
we had missed…Our goal is not to be the largest or the richest, but rather the most
reliable company in the industry. Our surveys have shown that clients make no-
bid decisions based on reliability. And if you are the most reliable company, your
prestige will help you grow your business.”