The chapter provides a conceptual framework for consideration for decision makers in firms from smaller developing economies during an era of increased economic nationalistic rhetoric in developed economies and shifting global trade patterns. Talking a longer term view, one might see this current level of political rhetoric as a continuation of the contest between globalization and free market ideology against viewpoints associated with mercantilism and other forms of economic nationalism. The impact of these trends on strategies of firms from developing economies within global value chains is explored. There are three basic strategic suggestions for firms from smaller developing countries which are interested in expanding internationally within the framework of operating within a global value chain.
TopIntroduction To Strategy In Developing Economies
Crafting a strategic approach for a firm will always be difficult and complex as strategy involves long-term planning. Without using a crystal ball, predicting the future is fraught with uncertainty. Designing a strategic approach requires matching the internal capabilities of the firm with the expected future external needs and conditions of the market (Ensign, 2008), therefore, a good understanding of both the internal and external environments in which a firm operates would be expected to improve the outcomes of strategic planning. But even with good information, decisions are often influenced by the human brain’s limitations of processing large amounts of information and unconscious biases which often produce less than optimal decisions (e.g., Kahneman, 2011; MacLean & Dror, 2016; Montibeller & Winterfeldt, 2015). Filtering through information and giving the proper weight to different and often conflicting pieces of information is often a critical factor in making good strategic decisions. Therefore, in crafting strategy, separating emerging trends from temporary fads and political rhetoric could be considered crucial to success, but this is much easier to do in hindsight than in foresight.
One of the biases which can be harmful when evaluating information is called the availability bias, where decision makers give more weight to easily available information and tend to downplay less obvious or less easily accessible information (e.g., Rönnlund & Rosling, 2018: Schwarz et al., 1991; Tversky & Kahneman, 1973). Although social media has changed the way people access information to some extent, the media coverage of major events and trends tend to frame how individuals perceive much of the external world. When making decisions, people tend to overreact by giving more weight to information coming from news stories and current headlines and often ignore less obvious sources of information. For example, it has been shown investors tend to overreact to stories of companies in the news and undervalue the more fundamental aspects of a company’s strategy and operations when making investment decisions (e.g., Das & Krishnakumar, 2015; Heston & Sinha, 2016; Piccoli, Chaudhury, Souza, & da Silva, 2017); and we also see government leaders often overreacting in response to recent news stories when making public policy (Maor, 2016).
At the time of writing there is a lot of attention in the media being paid to possible trade wars, which due to the availability bias tends to make many people perceive the level of economic nationalism as increasing rapidly, yet a closer look at the trade statistics does not necessarily support this view. In fact in 2017, despite all the rhetoric of economic nationalism, global trade growth rates were the highest they have been in six years in terms of both volume and value (WTO, 2018, p. 30).
Perceived changes in the global environment are likely to affect strategic decision making for most firms, but creating strategy in a large company in a developed economy, where access to financial and human resources are assumed, can be quite different than developing strategy in a company from a smaller developing economy which has access to a different set of resources. Changes in global environmental conditions are likely to influence strategic decisions differently in firms originating from developed as opposed to smaller developing countries.
This article will first look at the often reported phenomenon of the rise of economic nationalistic attitudes, then move on to look at more fundamental changes affecting international trade and finally explore the impact both of these situations might have on strategic decision making in firms originating and primarily operating in smaller developing markets.