Performance of the Firms in a Free‐Trade Zone: The Role of Institutional Factors and Resources

DOIhttp://doi.org/10.1111/emre.12163
AuthorMostafa Ebrahimpour Azbari,Mohsen Akbari,Milad Hooshmand Chaijani
Published date01 June 2019
Date01 June 2019
Performance of the Firms in a Free-Trade
Zone: The Role of Institutional Factors
and Resources
MOHSEN AKBARI,
1
MOSTAFA EBRAHIMPOUR AZBARI
1
and MILAD HOOSHMAND CHAIJANI
2
1
Department of Management, University of Guilan, Guilan, Iran
2
Management, University of Tehran, Tehran, Iran
Many countries have tried to establish free zones in order to strengthen the competitive advantage of their local
companies in global competition. Judging the role of free zones in the performance of companies without
analyzing the relevant institutional factors can be confusing, especially in countries like Iran where the
government extensively intervenes in the economy. In such economies, institutional factors (institutional support,
political relationship, and legitimacy) coupled with resources (financial, human and physical resources) can be
more effective at addressing companiesperformance. Using the resource-based view (RBV) and institutional
theory, this paper surveyed 151 companies located in the Anzali Free Trade and Industrial Zone (AFTIZ). The
results show that the resources have a positive impact on the firmscompetitive advantage and performance. While
institutional factors strengthen the resources, they do not moderate the relationship among resources, competitive
advantage, and performance.
Keywords: resource-based view (RBV); institutional theory (IT); competitive advantage; free zones
Introduction
Countrieshave adopted many differentways of improving
competitiveness and economic development. One way is
investmentin free zones; that is, specificareas of a country
in which trade tariffs are normal, rationing is eliminated,
and bureaucracy that hinders attraction of new business
and foreign capital is diminished (Young and Miyagiwa,
1987; Chiu et al., 2011). Multinational companies
(MNC) established in these zones are tax-exempt and
may be eligible for additional incentives. Free zones are
usually established in developing countries and are
defined as powerful centers for work production, raw
material importation, and productexportation. As a result,
these zones can reduce unemployment and poverty and
improve the domestic economy (Paradopulos, 1987). We
can also view free zones as key areas for economic
development because they can import technology,
management skills, and capital to the country, and
incorporatedomestic elements of production with modern
science and technology that help develop the country at
the level of the global economy. In fact, free zones are
instruments for entering global markets and using the
comparative adv antage of a domestic economy in
international commerce. Moreover, countries that have
invested in free zones have sought to attract more
companies to operate in these zones. The more active
the residentcompanies are, the more benefitsthe economy
of these countries will enjoy.
In recent decades, firmsperformance in transitional
economies has been a controversial issue in managerial
studies. The resource-based view (RBV) is a newly
distinguished theory that tries to explain the roots and
origins of higherperformance among firms in competitive
environments.According to the RBV, holdinga bundle of
resources that are valuable, rare, inimitable, and non-
substitutable can enable firms to sustain above-average
returns (Grant, 1991; Liang et al., 2010) and they can
enjoy a sustained competitive advantage if they
successfully exploit valuable, rare, and inimitable
resources (Barney, 1991). Followingthis argument, many
management scholars and managers are eager to know
what strengthens these resources to create sustainable
competitive advantage and higher performance.
Correspondence: Mohsen AkbariDepartment of Management,University
of Guilan, Guilan, Iran. E-mailakbarimohsen@gmail.com
European Management Review, Vol. 16, 363378, (2019)
DOI: 10.1111/emre.12163
©2018 European Academy of Management
Free zones are highly attractive fordifferent companies
because, according to several studies, the performance of
companies has increased in terms of popularity,
investment, customer satisfaction, and income. On the
other hand, the efficiency of free zones helps attract
various companies (Chiu et al., 2011). Thus, there is a
winwin relationship between free zones and the
companies.
Companies established in these areas are continuously
exploiting the facilities and equipment assigned to them.
In this regard, with respect to the RBV, these zones can
lead the firms to a higher performance through creating
appropriate resources for them. According to the RBV,
the heterogeneity of resources in the companies of free
zones can be a factor that leads them to compete with
international and multinational companies (Contractor
and Lorange, 2002).This means that more heterogeneous
companies can compete better in the market and have
more resources and capabilities to gain sustainable
advantages and higher performance (Morgan et al.,
2006).By incorporatingand adopting economic networks,
companies established in free zones can share their
heterogeneous resources and develop their competitive
advantage over other companies (Gulati, 1998; Hite and
Hesterly, 2001; Hadley and Wilson, 2003; Poulis et al.,
2012). The empirical and practical cases for this issue
are Indian and Chinese companies and the way they
compete (Mathews, 2006; Elango and Pattnaick, 2007;
Luo and Tung, 2007; Chittoor et al., 2009). While many
studies have used the RBV to explain the performance of
firms in free zones, few have addressed the impact of the
institutional factors on companiesperformance
(Auh and Menguc, 2009). According to the institutional
theory, institutional factors have the highest effect on
companiesstrategy and performance (Hoskisson et al.,
2000; Peng et al., 2008). Infact, factors such as traditions,
pressures, norms, habits, and legitimation can help
develop the companys resource and capabilities. These
factors can also increase legitimation and lead to
consistency wit h standard norms and pressures. In order
to develop the resources, managers should be aware of
the institutional factors and their influence on the
resources(Auh and Menguc, 2009). Thesefactors can also
be the origin of required resources for companies,
especially in transitional economies (Guo et al., 2014).
In a comprehensive view, researchers state that RBV
and institutional theory can represent a more complete
explanation of firms performance (Arndt, 1981;
Homburg et al., 1999). Therefore, the present study
attempts to illustrate how firms in free zones can increase
their performance using RBV and institutional theory.
While investiga ting the role of these zones in f irms
performance, we examine the less-argued concept of
institutional factors (including norms, pressures, and
legitimacy) in these zones.
For this purpose, and due to the paucity of relevant
studies in the literature, we aim to develop a model that
combines the RBV and the institutional theories to
overcome the theoretical problem of the research, in two
ways. The first is byexplaining the impact of institutional
factors on the development of companies that are
established in free zones. The second way is by
investigating the moderating role of institutional factors
in the relationship between resources, competitive
advantage, and companiesperformance. In the following
sections, we briefly discuss the literature and discuss the
analysis of our case in the Anzali Free Trade Industrial
Zone (AFTIZ).
Literature review and hypotheses
development
Institutional factors and resources in free zones
Institutional theory is based on a number of principals,
including legal, normative, and cognitive ones (Scott,
1995). Several studies have considered these three
principals as the pivots of an organization to analyze
institutional pressures (Kostova and Roth, 2002). Legal
pressures reflect laws and regulations in companies
environment that limit and promote various types of
behavior and include formal and informal laws (North,
1990; Kostova, 1999). The normative component is
composed of deeds, values, beliefs, norms, traditions,
and customs. Because of its legitimacy, this component
is appropriateand valuable for people (Scott, 1995;March
and Olsen, 1998). The cognitive component also reflects
shared social knowledge (such as insights, organization-
based stereotypes, co-workers, and social culture) that is
obvious and widely shared (Scott, 1995; Kostova and
Roth, 2002). In the institutional theory, each of these
aspects can influence (that is, reinforce or weaken) the
others. For instance, social commitments can
unconsciously seep into a culture and gradually become
a common deed in society (Kim et al., 2013).
Primary theories related to the institutional perspective
have emphasized the need for firms to adapt to
institutionalfactors and their environment in order to gain
legitimacy (Meyer and Rowan, 1977; DiMaggio and
Powell, 1983; Scott, 1987; Davidsson et al., 2006).
However, recent development in institutional theory
shows that organizations seek both social legitimation
(through concentration on environment and institutional
factors) and economic productivity (accentuating
competition forrare resources and caring aboutfunctional
environment). In fact, while organizations care about
institutional environment, they also compete for rare
resources (DiMaggio and Powell, 1983; Scott, 1987;
Oliver, 1997; Grewal and Dharwadkar, 2002). In other
364 M. Akbari et al.
©2018 European Academy of Management

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