The influence of the government on private sector businesses is now more pervasive than
ever. The operations of firms, to a large extent, depend on how well the firms are
tackling social, political and environmental issues. This situation forces the private sector
to carefully examine not only the market environment, but also the non-market
environment. Non-market players can be quite instrumental in the public policy decisionmaking
process, which may also influence the company and relevant industry practices.
This thesis examines the non-market environment and the non-market strategies of firms
in Indonesia – an emergent economy.
The main objective of this thesis is to investigate the institutional changes in emerging
economies and their impact on the firms’ choice of non-market strategies using the case
of Indonesia. Specifically, the objectives of the study are: to empirically identify the
political and social antecedents in the non-market environment in Indonesia; to explore
and examine the characteristics and nature of the non-market environment in Indonesia;
to investigate how institutional changes in an emerging economy influence a firm’s
choice of non-market strategies; to analyse the relationship between non-market strategies
and the performance of the firms, and to discuss the policy implications of non-market
strategies. In this thesis, the South Sulawesi region of Indonesia was selected as the
research area as it illustrates the dynamic changes that define an emerging market.
A qualitative research approach using grounded theory and case study principles was
applied to provide a framework and to advance the description of the cases. In total, the
study used data interviews from 27 participants as the primary means of collecting data.
Twenty-three of the participants are owners or directors of small firms. In addition, there
were two government officials, a journalist and a non-governmental organisation (NGO)
member.
The main finding of the study is that the institutional environment in Indonesia, as with
many other emerging economies, is characterised by an unstable environment with
ongoing institutional changes. Firms engage in non-market strategies to help deal with
the uncertainty and instability surrounding their non-market environment. These
strategies also assist firms in managing the institutional and societal environments. Nonmarket
strategies such as building political connections, political donations and social
strategies clearly serve the primary objectives of the firms. Implementing non-market
strategies also influenced the performance of firms as reflected in the firms’ getting more
government contracts, increasing number of workers, and receiving various assistance
and supporting activities from government officials to mitigate the regulatory burden.
Nonetheless, while implementing non-market strategies are seen by firms to be necessary,
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firms should not have to resort to some of these strategies especially bribery, or any other
strategy that involve corrupt exchange with government officials. Many of these nonmarket
strategies would not have been necessary if supporting market institutions are well
established and a supportive regulatory environment is put in place. Corrupt exchange
will do more harm than good to the development of small firms in Indonesia. Moreover,
unstable regulatory environments such as the situation in Indonesia will make firms
earmark more resources to strengthen their non-market strategies rather than building
their core company competencies. Hence, it is critical for the government to address the
non-market environment through various measures including developing clear guidelines
and improving transparency. Maintaining a corruptive and collusive non-market
environment will become difficult if business-government interaction is made more
transparent.
These findings imply opportunities for policy-makers and practitioners, as well as future
researchers in the field of strategic management. This study suggests that the relations
between government and firms should be more transparent. Several actions that may be
taken in the short-term include creating clearer policies and measures that may lead to
reducing the red tape bureaucracy. To have clear regulations and improve the current
legal framework, the local government should include other stakeholders, especially
small firms in setting up a business-friendly environment. Given the strong influence of
the government on the business environment in emerging markets, policy-makers should
also prioritise efforts to improve small firms’ knowledge and expertise in dealing with
market forces.
The significance of this research resides in two primary areas. First, this thesis
contributes through an interpretive perspective to strategic management theory and
practice, particularly for firms in emerging economies. This study contributes to
knowledge on micro-level analysis of business-government interactions. Previous studies
mostly focused on macro-level analysis such as country and industry analyses. In this
study, we contribute to the extant literature on the non-market environment in emerging
economies and non-market activities of small firms. Moreover, by studying the political
embeddedness of the firms and their political behaviour, the knowledge in the field of
non-market strategy can be further extended. Therefore, this study enriches our
understanding on the importance of relational strategies as part of non-market strategies,
particularly in economic transitional and weak institutional environment.
Second, given the lack of information regarding the political behaviour of small firms,
this study fills in the gap in terms of how small firms behave towards regulation, which
will allow policy-makers to design more effective policies for small firms. In addition, it
will increase the knowledge of policy-makers on the impact of public policy on small
firms’ operations; which will be particularly useful, since small firms are increasing in
number across all industries in Indonesia, and in emerging economies, in general.