Building on Knowledge-Based Theory, I study the relationship between pro-market reforms, firm internationalization strategy, and firm profitability in developing countries. I argue that pro-market reforms augment firm profitability because they increase the competitiveness of local markets, allowing firms to increase their market experiential knowledge and ultimately their profitability. However, I also explain that the effects of reforms on firm profitability may be enhanced by the international strategic choices of firms because such choices may increase the potential for absorptive capacity and learning. I propose that developing-country firms that operate in international markets increase their market experiential knowledge by learning how to compete at international levels, which makes it easier to be competitive in their home market in response to reforms. This effect is especially pronounced for developing-country firms that establish subsidiaries in advanced economies, as it forces them to develop their market knowledge to the highest international levels. It is also stronger for firms that become multinationals before the start of pro-market reforms implementation because such firms have a head-start over other local firms by learning how to compete at international levels before the local market becomes more competitive. In short, I argue that the different aspects of a firm's internationalization that help increase its market experiential knowledge enhance the benefits of pro-market reforms on firm profitability because they make it easier for the firm to compete successfully in a market where such reforms are implemented. Using a panel of the largest 500 companies in Latin America from 1989-2008 and data from multiple sources, the analyses provide robust support for these arguments.
展开▼
