Social Ties in Emerging Markets: The Motivational and Functional Mechanisms


Student thesis: Doctoral Thesis

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  • Wenting ZHU

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Awarding Institution
Award date20 Jul 2016


This thesis examines contract ineffectiveness in the links between institutional factors and firms’ efforts to seek business ties and political ties and uncovers the manner in which both types of ties affect firm performance in emerging markets. Two interrelated essays explore the motivational and functional mechanisms of social ties in emerging markets.
The first essay proposes that institutionally induced contract ineffectiveness is a significant factor motivating a firm to seek social ties in emerging markets. The effectiveness of contracts is bounded by the institutional environment in which a firm operates. When firms form supply chain partnerships in emerging markets, they may experience contract ineffectiveness, which is defined as a firm’s perceived limits of contracts with respect to safeguarding interests and coordinating activities. Specifically, we identify two institutional factors (information transparency and legal enforceability) that may give rise to a firm’s contract ineffectiveness, as they determine how effectively a firm designs and enforces a contract. In addition, we reveal that contract ineffectiveness prompts firms to seek social ties, including business ties and political ties, to overcome the institutionally induced limits of contracts. These efforts, however, are moderated by the type of predominant pressure a firm bears. While equity pressure strengthens the relationship between contract ineffectiveness and a firm’s pursuit of social ties, efficiency pressure weakens this relationship because seeking social ties imposes an extra burden of efficiency. Informed by data collected from 187 distributors in China, our study reveals the motivational mechanisms underlying a firm’s efforts to seek social ties in emerging markets.
The second essay integrates the theories of dynamic capabilities and relational governance to examine how business ties and political ties affect firm performance. The findings indicate that the contributions of both types of ties to firm performance are mediated by increased adaptive capability and reduced supplier opportunism. In addition, legal enforceability and demand uncertainty determine the relative prominence of these two process intermediaries, in joint consideration with the type of social ties (i.e., business ties and political ties). Specifically, political ties foster firm performance mainly by constraining supplier opportunism when legal enforceability is weak, whereas adaptive capability has a stronger mediating effect in the business ties-firm performance link when demand uncertainty is high.