Academy of Management Review 2000, Vol. 25, No. 3, 509-524.

INTRODUCTION TO SPECIAL TOPIC FORUM

PRIVATIZATION AND ENTREPRENEURIAL TRANSrORMATION:TRANSFORMATION: EMERGING ISSUES AND A rUTUREFUTURE RESEARCH AGENDA

SHAKER A. ZAHRA Georgia State University

R. DUANE IRELAND University of Richmond

ISABEL GUTIERREZ Carlos III University

MICHAEL A. HITT Texas A&M University

Privatization has become a popular strategy to promote economic development in emerging, developing, and developed economies. Despite its popularity, little atten­ atten- tion has been devoted to examination 01of the organizational and managerial implica­implica- tions 01 of privatization or to the effect 01 of privatization on companies' ability to innovate and engage in entrepreneurial activities. In this artiele article we discuss privatization's increasing importance and present a model that links privatization to a firm's entre­ entre- preneurial activities. We coneludeconclude with a discussion 01 of issues that we believe deserve scholars' attention in theory development and subsequent empirical examination.

The global economic landscape is undergoing major effect on the outcomes that countries or unprecedented change that is multifaceted and companies can achieve through privatization. wide ranging in nature (Hitt, Harrison, & Ireland, Following decades of experimentation with in press b; Ireland & Hitt, 1999) and that is various systems of state ownership and controLcontrol, clearly evident in the adoption of privatization many nations have adopted privatization strate­strate- as a strategy on a worldwide basis. The primary gies as a centerpiece of their national policies-policies­ purpose of this strategic option is to promote policies that aim to promote and support social economic development in emerging, develop­develop- progress and economic development or to initiate ing, and developed economies. Emerging econ­ econ- economic renewal. Over $700 billion in assets omies and their markets, however, are charac­charac- have been privatized in the world's economies in terized by economic, sociaLsocial, or political the last decade alone, approximately 40 percent of instability (Hitt, Dacin, Levitas, Arregle, & Borza, which has occurred in emerging economies (Ra­(Ra- in press a). There are also substantial differ­differ- mamurti, this issue). Brazil is expected to privatize ences in the institutional infrastructure between as much as $80 billion in assets before its ongoing emerging and developed economies (Newman, conversion of public assets to private ownership is this issue). Given that the idiosyncratic charac­ charac- completed (Doh, this issue). Countries using pri-pri­ teristics of an economy's structure can pro­ pro- vatization strategies as a primary policy tool to foundly affect the rules of exchange in its mar­ mar- induce and promote economic growth represent kets (North, 1990), these differences can have a most of the world's regions, including Africa, Asia, Latin America, and Europe. By placing the meanmeanss of production outside of Duane Ireland was on the lacultyfaculty at Baylor University state ownership and controLcontrol, privatization un-un­ while working on this special topic lorum.forum. leashes the forces and discipline of the free mar-

509 510 Academy of Management Review July ket.ket. TheThe resultingresulting patternpattern ofof actionaction (i.e.,(i.e., privat­privat- ofof privatization on on organizationalorganizational transforma­transforma- ization)ization) andand reactionreaction (Le.,(i.e., the the forceforcess of of aa freefree tion.tion. OrganizationalOrganizational transformationtransformation includesincludes marketmarket economy)economy) stronglystrongly influenceinfluence thethe degreedegree changeschanges inin organizationalorganizational values,values, cultures,cultures, sys­sys- toto whichwhich governmentsgovernments controlcontrol their their nationalnational tems,tems, andand strategies.strategies. TransformationTransformation centerscenters on on economieseconomies (D'Souza(D'Souza & & Megginson,Megginson, 1999;1999; Mel­Mel- how aa firm firm isis organized, governed,governed, andand man­ man- loan,loan, 2000).2000). Privatization,Privatization, therefore,therefore, hashas the the po­po- aged as itit adjusts toto thethe competitivecompetitive realitiesrealities of tentialtential toto transformtransform national national economies,economies, indus­indus- a market economy.economy. Changes inin cognitive,cognitive, stra­stra- tries,tries, andand organizationsorganizations byby infusinginfusing aa spiritspirit ofof tegic,tegic, culturaLcultural, and structural structural dimensions that entrepreneurialentrepreneurial risk risk taking.taking. TheseThese changeschanges areare areare required toto supportsupport organizational transfor­transfor- inin process currentIycurrently across the world's six major mation may induceinduce or expand entrepreneurial continents,continents, making privatization anan integralintegral part actions, calculated risk taking, and innovation. of emerging,emerging, developing, and developeddeveloped coun­coun- Entrepreneurial activities are importantimportant forfor tries'tries' twenty-first-centurytwenty-first-century strategicstrategic agendas.agendas. Effec­Effec- achieving efficiency, improvingimproving productivity, tivetive privatizations, however, where state-ownedstate-owned and creating wealth (BaumoL(Baumol, 1996).1996). These activ­activ- industriesindustries are privatized without creating signifi­signifi- ities foster innovation that leads to the introduc­introduc- cant unemployment and related disruptions, are tion of a new product, process, technology, sys­sys- difficult to achieve (Melloan,(Melloan, 2000). ConsequentIy,Consequently, tem, technique, resource, or capability to the some of the in sorne of the contributors in thisthis special topic forumforum firm or its markets (Covin & Miles, 1999). Innova­Innova- challenge us to proceed cautiously when forming forming tion is the foundation for competitive advantage expectations about privatization's outcomes. expectations about privatization's outcomes. in the new global economy (Hitt(Hitt, Nixon, Hoskis­ Hoskis- When examining privatization as a change son, & Kochhar, 1999). An entrepreneurial trans­trans- strategy, researchers are concerned with privat­privat- formation, in which the firm engages in more ization's effects on the creation of wealth. To entrepreneurial activities, risk taking, and inno­ inno- date, most privatization researchers have fo­ fo- vation, is key to an organization'organization's s transitransitiontion cused on the country as the unit of analysis, from what is often a state-owned status to one of primarily examining the macroenvironmental competing in a market-based economy. conditions that lead to privatization (e.g., Fila­Fila- Even though one reason to privatize firms is to totchev, Hoskisson, Buck, & WrightWright, 1996; GalaLGalal, promote entrepreneurial transformation, achiev-achiev­ Iones,Jones, Tandon, & Vogelsang, 1994; Grosse & ing such a transformation is more difficult in an Yanes, 1998). Researchers also have examined transformation is more difficult in an emerging economy than in a developed econ­ the factors that lead to the use of particular emerging economy than in developed econ- approaches to privatization (e.g., Miller, 1995; omy. Typically, the sparse resources and capa-capa­ Minniti & Polutnik, 1999; Ramamurti, 1992). Most bilities previously state-owned enterprises pos-pos­ of this research has been grounded in economic sess are inadequate to support an entrepreneurial or financial theories, leaving important organi­organi- transformation. As a result,result newly privatized firms zational issues unexplored. in emerging economies often find it necessary to Further, in prior research scholars have not ex-ex­ seek financial,financiaL technological,technologicaL and managerial re-re­ amined the major organizational transformations sources and capabilities from more richly en-en­ that occur following privatization. These transfor-transfor­ dowed firms (Hitt et al., in press a). mations can be far reaching, possibly leading to To compete successfully in a market-based the formation of new stakeholder groups and re-re­ economy, privatized firms also must quickly defining the patterns of these stakeholders' inter-inter­ learn how toto use newly acquired resources actions with thethe firm.firmo The effects of these groups' (Zahra, Ireland, & Hitt,Hitt inin press). Rapidly acquir-acquir­ interaction patterns on a firm may be significant,significant inging application-oriented and learning-basedlearning-based creating a need for extensive organizational and skills is oftentimes facilitated by thethe develop-develop­ behavioral adjustments. ment of cooperative arrangements, suchsuch asas jointjoint ventures andand equityequity strategicstrategic alliances (Hitt,(Hitt Ire-Ire­ land,land, & Hoskisson, in press c).c). SomeSorne of thesethese THE PURPOSE OF THE SPECIAL TOPIC alliances are formedformed with companies thatthat are FORUM are outside thethe privatized firm'sfirm's domestic market. With thisthis AcademyAcademy ofol Management ReviewReview AlthoughAlthough suchsuch internationalinternational jointjoint venturesventures are aa specialspecial topictopic forum,forum, thethe authors seekseek toto contrib-contrib­ challengingchallenging organizationalorganizational form,form, thethe raterate ofof ute to our understandingunderstanding of thethe potentialpotential effectseffects theirtheir formationformation continuescontinues toto increaseincrease (Yan,(Yan, 1998). 2000 Zahra, Ireland, Gutierrez, and Hitt 511

Regardless of the mode used to acquire and entrepreneurship are wellwe11 positioned to achieve apply new skills, firms find how to use modern technological and economic progress. technologies and the related skills required to In the next section we examine the domain engage in successful commercial activities dif­dif- and importance of privatization. A model that ficult without adequate levels of absorptive ca­ca- links the antecedents and the process of privat-privat­ pacity (Cohen & LevinthaLLevinthal, 1990). This capacity ization to entrepreneurial transformation fol­fol- a110wsallows privatized firms to assimilate and exploit lows this discussion. Thereafter, we review the new knowledge. Assimilation and exploitation key themes in the articles appearing in the spe­spe- of new knowledge can ignite innovation in pri­pri- cial topic forum, highlighting their contribu­contribu- vatized firms. Developing absorptive capacity tions. We also describe major areas for future can be difficultdifficult, given that firms from developed research and challengescha11enges scholars fafacece as they markets have learned how to buffer their core seek to build theories that are capable of effec­ effec- technologies from appropriation by other firms, tively capturing the relationships between pri-pri­ even those with whom they form strategic alli­alli- vatization and entrepreneurial transformation. ances. Written contracts are a formal means of preventing appropriation, whereas interactions preventing appropriation, PRIVATIZATION:DOMAIN AND IMPORTANCE based on trust that have evolved over time are an informal yet equa11yequally effective means of pro­pro- To capture a complex phenomenon, in most tecting a firm's inte11ec:tual intellectual property. definitions of privatization authors highlight the Recent research results highlight the impor­impor- change in a firm's ownership and, as a conse­ conse- tance of these capabilities. Uhlenbruck and De­ De- quence, the change in its governance and con­ con- Castro (in press) found that acquisitions of trol systems (e.g., Ramamurti, 1992). Changes in newly privatized firms from emerging markets firms' ownership occur in several ways (Ra­ (Ra- by companies from developed countries en­en- mamurti, this issue; Ramirez, 1998). These hanced the acquired firm's performance. Trans­Trans- changes, however, typically produce a transfer ferring new technologies, managerial skills, of ownership of fu11yfully or partiallypartia11y owned public and financial resources from the acquiring to or state-owned enterprises to private parties. the acquired firm led to higher performance. The This transfer determines the appropriation of transfer of skills facilitates the acquired and residual rents (profits) and the allocationa11ocation of re­ re- recently privatized firms' efforts to transform sidual decision rights (ownership rights). into viable competitors in a market-based econ­econ- Ramamurti (this issue) notes that privatization omy (Hitt et al., in press b). can be defined in both a narrow and a broad Focusing on the organizational transforma­ transforma- sense. The different definitions indica indicatete that as tion that may fo11owfollow privatization and privatiza­privatiza- a process, privatization has many shapes (Doh, tion's potential effects on entrepreneurial activ­activ- this issue). Viewed broadly, privatization is any ities, this special topic forum is designed to action that increases the role of the private sec­sec- improve our understanding of several phenom­phenom- tor in the economy. In this broad sense, activi­ activi- ena, including (l) (1) the factors that serve as a ties that would constitute privatization might catalyst for privatization in countries at different include the sale of public assets, deregulation, stages of their economic development; (2) differ­differ- opening state monopolies to greater competi­ competi- ent privatization strategies and their unique tion, contracting out, the private provision of characteristics; (3) the effect of privatization on public services, joint capital projects using pub-pub­ the process of organizational transformation, lic and private finance, reduced subsidies, and particularly in promoting firm-level entrepre­entrepre- increasing or introducing user charges (Jackson neurship; and (4) the implications of organiza­organiza- & Price, 1994). tional transformation for the effective manage­manage- From a narrow lens, privatization is any ac­ ac- ment of privatized firms. Our goaL goal, indeed our tion that transfers sorne some or a11all of the ownership hope, is to highlight the importance of privatiza­privatiza- and/or control of state-owned enterprises to the tion in creating a new set of organizational dy­dy- private sector. As Ramamurti (this issue) ob-ob­ namics that promote innovation, risk taking, serves, privatization of one type does not neces­ neces- proactive management management, and entrepreneurship. sarily imply privatization of the other type. For This emphasis is based on the fact that coun­ coun- example, a nation might privatize sorne some of its tries, industries, and organizations that foster state-owned enterprises without deregulating 512 Academy of Management Review July the industryindustry or thethe base economyeconomy inin which thosethose privatization, this template may be deeply em­em- enterprises compete.compete. bedded, taken for granted, and oftentimes mind­mind- Another form of thethe narrow definition of pri­pri- lessly enacted. To facilitatefacilitate the privatization vatization is thethe transfer of ownership and deci­ deci- process, a firm isis challenged to take actions sion-makingsion-making authority fromfrom federaLfederal, state, state, oror mu­mu- through which a private sector template can be nicipal governments to the hands ofof private institutionalized within itsits managerial ranks. investorsinvestors (DeCastro (DeCastro & Uhlenbruck, 1997;1997; Ogden Therefore, Johnson and colleagues view privat­privat- & Watson, 1999;1999; Vickers & Yarrow, 1988).1988). The ization as a process of institutionalinstitutional change. potential effects of narrow and broad types of Figure 1 indicates that different types of pri­pri- privatization provide an importantimportant research vatization activities can be observed from link­ link- question. Although not the focus focus of the special ing the two dimensions of ownership rights and topic forum, we revisit this issue inin our discus­discus- the appropriation of profiprofits.ts. In prior research sion of future research directions. scholars have failed to recognize the different The appropriation of residual rents (profits)(profits) types of privatization, thereby overlooking a ma­ma- can occur through private or public mecha­mecha- jor sosourceurce of variation in the observed results of nisms. When itit occurs through private mecha­mecha- priprivatization.vatization. nisms, profits go to private owners as rewards Four types of organizational forms are evident for risk taking, entrepreneurial activities, and in Figure l.1. Cell 1 represents the "pure public efficient and innovative management (Jensen(Jensen & firm," where ownership rights are in the hands Meckling, 1976). These profits also can be used of public owners and the appropriation of profits in ways that benefit the public welfare, such as is used for the public good. This type of organi­organi- expanding companies' operations to create jobs zation dominated many underdeveloped and so­ so- and reduce unemployment (Hart(Hart, 1995). These cialist countries in the second half of the twen­ twen- actions should benefit the firm, its shareholders, tieth century. In cell 2 public owners control and the general public welfare. ownership (decision) rights while residual rents Allocation of ownership rights is another key are appropriated through market (private) dimension in understanding privatization. Own­Own- means. Here, two major organizational forms ership rights refer to the locus of authority for are prevalent: franchises and regulated firms. making strategic choices (Jensen & Meckling, Both organizational forms have been used 1976). These rights usually occur on a contin­contin- widely in developed and emerging economies. uum, ranging from wholly public to totally pri-pri­ In cell 3 private owners hold ownership rights, vate. Owners generally hahaveve the authority to but the appropriation of profits is performed for decide the firm's strategic goalgoals,s, develop its the public good. Such organizations typically competitive strategy, and allocate its resources. are classified as "not-for-profit." Finally, in cellce1l4 4 Certainly, this is the case when private parties hold hold ownership. FIGURE 1 When public managers, When public managers, representing state Classification of Firms with Ownership Rights owners or a owners or a specific constituency, control own­own- and Profit Orientation ership and, hence, decision rights, the mandate embodied in their organizations' founding char­char- Ownership rights ters will be discharged. Public managers, there-there­ fore, often must address a set of complex-complex­ ~ Private Public indeed, competing-goals that include creating employment opportunities, managing national Pure private firm .FRegulated I:l Franchises resources, and ensuring social justice. Achiev-Achiev­ .2.20 Yes 9~~~~~~~~• "E ing these diverse goals frequently entails satis­satis- .;:: I:lo o. .~0>4 (4) (2) ficing multiple political claims, which may re-re­ 2 ti sult in significant deviations from market-based g;]j e oc. efficiency. Thus, considered from a micro leveLlevel, U o Not-for-profitNot-lor-profit Pure public firm - organization these managers often operate from an institu- 'O0... 1. No organization these managers often operate from an institu­ o. tionalized public sector template when encoun-encoun­ (3)(3) (1)(l) tering ______L--_ tering privatization. Johnson, Smith, and Cod-Cod­ ------ling (this issue) propose that at the onset of Source: Adapted fromlrom Salas (1998).(998). 2000 Zahra, Ireland, Gutierrez, and Hitt 513 private owners toto whom thethe profits are also dis-dis­ AA MODELMODEL OFOF PRIVATIZATION:ANTECEDENTSANTECEDENTS bursed hold thethe ownership rights.rights. This cell, AND EFFECTSEFFECTS therefore,therefore, depicts thethe prototypical "pure private AsAs shownshown inin FigureFigure 2,2, aa complexcomplex setset of vari-vari­ firm."firm." ables interactsinteracts toto affect thethe modemode andand processprocess ofof We suggest thatthat multiple outcomes are possi-possi­ privatization (DeCastro(DeCastro & Uhlenbruck, 1997; ble when privatizing pure publicly owned firmsfirms JohnsonJohnson & Loveman, 1995; Ogden & Watson, (Figure 1). Most researchers readily recognize a 1999). These variables, however, differ signifi-signifi­ firm's movement from pure public to pure pri-pri­ cantly between developed and emerging econ-econ­ vate forms, but thethe other forms of organization omies. Although inin both typestypes of economies gov-gov­ require further study. For instance, the state ernments aspire to curtail governmental control, might permit the private appropriation of resid-resid­ ernments aspire to curtail governmental controL improve productivity, and ual rents, thereby moving the firm from cell 1 to promote competition, improve productivity, and efficiency, in emerging cell 2. Franchising and management contracts induceinduce market-based efficiency, in emerging affect can be used to achieve this change. A final type economies other motives can significantly affect of privatization entails moving the public firm privatization efforts. Often, inin emerging econo-econo­ (cell 1) to a not-for-profit status (cell 3). The state mies, privatization has been implemented in re-re­ might make this change to avoid the costly man-man­ sponse to demands from the International Mon-Mon­ agement of public firms while promoting effi-effi­ etary Fund (IMF). Governments of emerging ciency and social good. Although theoretically economies that seek loans to support economic interesting, management scholars have not sys-sys­ development often have been required to intro-intro­ tematically examined this type of privatization duce substantial economic liberalization poli-poli­ strategy. cies (Hoskisson, Eden, Lau, & Wright,Wrighí, in press). As the above discussion suggests, privatiza-privatiza­ Thus, in these economies privatization is used tion is a multidimensional construct that can as a means of transplanting a procapitalist po-po­ affect different facets of organizational transfor-transfor­ litical ideology by liberalizing the economy, pro-pro­ mation in multiple ways. Similarly, several moting foreign investment, infusing new tech­tech- forces can influence these dimensions, affecting nology, and increasing national standards of the overall gains that companies are able to living. In sorne some emerging economies privatiza­privatiza- achieve following privatization. Understanding tion is also used as a means to upgrade infra-infra­ how to achieve these gains, however, requires structure and facilitate future industrial growth. an appreciation of the antecedents of privatiza­privatiza- An improved infrastructure supports companies' tion and the resulting changes from privatiza­privatiza- efforts to enhance the efficiency of their opera­opera- tion. tions and also can facilitate the creation and

FIGURE 2 A Model of the Privatization Process and Outcomes

Organizational transformation Entrepreneurial Antecedents g Privatization Organizational transformation Entrepreneurial ______l ______lFirst-order First-order effects outcomesoutcom es

~ f------. • *IncentivesSIncentives •* Macro •* FormForm (typology)(typology) • InnovationInnovation •*StructureStructure •* Micro •* ProcessProcess • Venturing • CultureC uture

Second-orderSecond-order effectseffects

•* LearningLearning •* Greater technologicaltechnological opportunitiesopportunities •* AccessAccess to to networksnetworks 514 Academy of Management Review July growth of new firms, which are the engine of ables discussed earlier (Figure 2) to the types of economic and technological progress (Acs & Au­Au- privatization strategies followed. dretsch, 1993). Macroenvironmental factors alone do not ex­ Macroenvironmental factors alone do not ex- PRIVATIZATION STRATEGIES: MODES AND plain the selection of enterprises targeted for PROCESSES privatization. The importance of the enterprise to the national welfare or other sectors of the Privatization can be partial or fulLfull, occurring national economy plays a key role in the se selec-lec­ in ways that include the sale of a company's tion process (Shafik, 1996). The economic impor­impor- assets or shares (through public bidding or ne-ne­ tance of an enterprise usually is determined by gotiated agreements) to domesdomestictic or foreign in­in- its potential contributions in fulfilling market vestors; the granting of leases, concessions, or demand, creating jobs, and meeting the needs of management contracts; and employee or man-man­ other sectors in the national economy. These agement buyouts (Djankov, 1999). Countries em­ em- evaluations, however, are also often based on ploy different strategies in privatizing their the perceived importance of the enterprise for economies (Cuervo & Villalonga, this issue) and national sovereignty and identity. The greater use different strategies in separate economic the importance attached to national sover­sover- sectors, or apply different strategies within the eignty, the les lesss likely it is that an enterprise will same sector at different points in time. These be privatized. differences reflect variations in political ideol­ideol- Other factors that influence the selection of ogy, stage of development, national cultures, and enterprises for privatization include their cost of and long-term development plans (Filatotchev, Wright,Wright Buck, & Dymonia, 1999a; Filatotchev, operations, solvency, and track record in earn­earn- Buck, Dymonia, 1999a; Filatotchev, Wright,Wright Buck, & Zhukov, 1999b). ing profits (Shafik, 1996; Shleifer & Vishny, 1994). Researchers have documented the frequency For example, poorly performing public enter­enter- with which different modes of privatization have prises frequently are among the first to be pri­pri- been used, as well as the resulting outcomes vatized, perhaps to buffer the taxpayer from (success or the lack thereof; Djankov, 1999; their operating costs. The decision to select an D'Souza & Megginson, 1999; Welfens, 1992). Yet, enterprise for privatization also depends on the as Cuervo and Villalonga (this issue) observe, availability of competent managerial leaders little attention has been given to documenting who can oversee the firm's transformation. This the processes used to implement these strate­strate- is a particularly difficult task in emerging econ­econ- gies or to examining the relationship between omies, where the lack of qualified senior exec­ exec- them and subsequent changes in a company's utives can make the transformation of a public public structure or organizational culture. StilLStill, there is enterprise into a private firm challenging (Oz­ enterprise into a private firm challenging (Oz- anecdotal evidence that the process by which a kaya & Askari, 1999). firm is privatized could affect its future gains Most prior research on the antecedents of pri-pri­ (Dean, Carlisle, & Baden-Fuller, 1999; Johnson & vatization has been descriptive in nature or Loveman, 1995; Smith, Golden, & Pitcher, 1999). based on case studies (Johnson & Loveman, These observations are consistent with research 1995; Soulsby & Clark, 1996). Moreover, this re­re- indicating that the speed, direction, and magni­magni- search has not been well grounded in theory, tude of changes introduced to revise a compa­compa- making it difficult to draw solid conclusions ny's business definition, strategy, or organiza­organiza- about the relative importance of the different tional structure can affect the outcomes of these antecedent variables or to predict which firms efforts (Huber & Glick, 1995). As noted in Figure are most likely to be privatized. Therefore, an 2, we separate these outcomes into first- and important opportunity exists for management second-order effects. scholars to explore the determinants of privat­privat- ization and their relative importance. It shou1dshould be recognized that privatization decisions are First-Order Effects of Privatization not totally rationaLrational, because political factors af­af- Privatization also creates a new context in fect the choice of companies to be privatized. which firms must compete to survive and suc­suc- Future research on privatization would also ceed. The transformation accompanying privat-privat­ benefit from connecting the antecedent vari- ization changes the enterprise's structure and 2000 Zahra, Ireland, Gutierrez, and Hitt 515 the way it is managed, thereby leading to fun­fun- compelling them to pursue strategies that in­in- damental changes in the firm's culture (Johnson crease shareholder wealth. Managers assume & Loveman, 1995). Privatization also changes the burden of reorganizing the existing capital managers' incentives (Wright, Hoskisson, and labor stocks, establishing sales and market-market­ Busenitz, & DiaLDial, this issue). Below we examine ing units, implementing new accounting and changes in managerial incentives, as well as control systems, deciding new product strate­strate- organizational structure and culture following gies, and developing and implementing new in­ in- privatization. vestment programs (Sachs & Lipton, 1990). As a Managerial incentives. Managers of state­state- resultresult, managers' reputations and compensation owned enterprises usually have limited discre­discre- should be tied to the firm's performance, provid-provid­ tion to initiate and implement strategic changes ing them with incentives to formulate and im­im- (Cragg & Dyck, 1999) and are constrained by plement strategies that increase shareholder bureaucratic control controlss that limit the scope of value (Zahra, 1996). There is evidence that man-man­ their activities and authority. SorneSome of the con­con- agers' compensation increases following privat-privat­ trols are financial in nature, specifying perfor­ perfor- ization and that the compensation of managers mance quotas and targets. Financial controls in privatized companies is similar to that of typically reflect the objectives of political policy other publicly heheldId corporations (Cragg & Dyck, makers (Vickers & Yarrow, 1988). Commonly, fi­fi- 2000). Increased discretion and compensation nancial control controlss stifle managerial efforts to can improve managers' willingness to take risks think strategically about the organization's pur­pur- and support innovation (Hoskisson, Hitt, & HilLHill, pose and the actions to be taken to achieve it 1993; Wright et al., this issue). (Hitt et al., in press c). Central or governmental Organizational structure and culture. The planning authorities often have the responsibil­responsibil- freeing of prices, reduction in regulation, and ity to establish public managers' compensation increase in competition associated with economic (Cragg & Dyck, 2000). transition highlight the inefficient arganizationorganization of Following privatization, a new set of dynam­dynam- firms beforebefare the privatization process. For firms to ics occurs. Notably, senior managers begin to survive economic liberalization, they often need to plan and develop strategies based on analyses be restructured. Limited research exists in which of industry and market conditions. Managers authors have examined the changes in a firm's also have the discretion to redefine arganiza­organiza- organizational structure and culture following pri-pri­ tional goals to reflect the objectives of their key vatization. The implications of these changes, if stakeholders (Yarrow, 1986). Furthermore, they any, for managerial decision making have not have greater discretion in aligning resource al­ al- been well documented (Cragg & Dyck, 1999, 2000). locations with the firm's objectives. Discretion is However, sornesome research indicates that privatized the capability through which managers select companies often experience structural and cul-cul­ and support projects tbat that they believe are vital tural changes that affect their operations (Cuervo to accomplish the firm'sfirnm's long-term goals. Re­Re- & Villalonga, this issue; Johnson & Loveman, 1995). source allocation decisions, therefore, should re­ re- For example, privatized firms become subject to flect market realities ondand the manogers'managers' judg­ judg- market pressures and are forced to become more ments about the strategic actions that have the efficient and cost effective, which often requires highest probobilityprobability of leodingleading to firm profitabil-profitabil­ employee attrition (D'Souza & Megginson, 1999). ity. Thus, after privatization,privotizorganizational learning, increased nature of interactions between partners). Once technological opportunities, and gaining access they achieve technological proficiency, how-how­ to networks. ever, somesorne privatized firmsfirms experiment with Improved organizationalorganizationa11earning. learning. Ideally, the new R&D processes to develop innovations. Ex-Ex­ first-order effects discussed aboveaboye (Figure 2) will perimentation also enables privatized firmsfirms toto create an internal environment that encourages develop a new set of routines that can be useful managers to experiment and explore new stra-stra­ inin making thethe transitiontransition from imitationimitation toto inno-inno­ tegictegic alternatives. The changes privatization in-in­ vation (Kim,(Kim, 1997). duces usually are so radical thatthat a new organi-organi­ IncreasedIncreased technologicaltechno1ogica1 opportunities. WeWe de-de­ zational mindset is needed toto comprehend and finefine technologicaltechnological opportunities as thethe potential capitalize on thethe opportunities thatthat become forfor productproduct and processprocess innovationinnovation within an available toto thethe firmfirm (Smith et al.,aL 1999). Thus, industry.industry. As indicatedindicated inin Figure 2,2, we expect privatizationprivatization can be viewed as a "frame-"frame­ thesethese opportunitiesopportunities toto increaseincrease subsequentsubsequent toto breaking" event thatthat compels managers toto envi-envi­ privatization.privatization. PrivatizationPrivatization oftenoften encouragesencourages for-for­ sionsion and examine theirtheir industry,industry, environment,environment eigneign investmentsinvestments (Filatotchev(Filatotchev etet al.,al., 1999a) thatthat 2000 Zahra, Ireland, Gutierrez, and Hitt 517 facilitate or even promote technology transfer. ability toto assimilate new technology increases. Foreign partners may be willing to transfer the Assimilation increases thethe ease and speed of technology because of a potentially significant innovation diffusion, therebythereby ignitingigniting innova-innova­ returnretum on their investment over time. Also, for-for­ tion.tion. Given thethe interdependence of economic eign partners may learnleam new capabilities from sectors, innovation in one industry can fuel in-in­ the venture (Hitt et al., in press a; Zahra2ahra et al., in novation inin other industries, therebythereby enhancing press). The flow of modernmodem technology into a thethe totaltotal set of technologicaltechnological opportunities. newly privatized economy can spark innovation National culture is another factor that can de-de­ as local entrepreneurs use this technology to terminetermine thethe nature and size of emerging techno-techno­ pursue promising market opportunities. The logical opportunities. SomeSorne research indicates transfer of technology alsoalso allows local entre-entre­ that national cultural variables play a major preneurs to integrate separate technologies im­im- role in determining the rates of innovation ported from different countries. This process fu-fu­ (Shane, 1995). In societies valuing risk taking els experimentation and innovation, leading to and innovation, entrepreneurs are likely to seek higher productivity. and identify market opportunities that might Following privatization, technologicaltechnologicaloppor­ oppor- havehave been overlooked prior to the liberalization tunities are likely to increase, because local en-en­ of the economy. Further, coupled with the adop-adop­ trepreneurs are more willing to take risks, either tion of imported technologies, the effect of na-na­ by forming their own companies or by forming tional cultures in these societies on creating joint ventures. This process is made easier by technological opportunities will increase fol-fol­ informal and formal sources of venture capital lowing privatization. These opportunities will that increase following the liberalization of an expand as domestic entrepreneurs become con­ con- economy, encouraging entrepreneurs to identify nected to influential networks within and across and pursue new market opportunities. Also, de­de- their national borders. velopmental financial institutions (DFIs) often Gaining access to networks. Liberalization of play an important role in financing privatized an economy and extensive privatization are also companies' strategic actions or entrepreneurial expected to link domestic producers and entre­ entre- efforts. George and Prabhu (this issue) describe preneurs to venture capitalists, investors, and DFIs and their roles in emerging economies. technology providers outside their national bor-bor­ DFIs' role is similar to that of large institutional ders. As stated previously, privatization often investors present in developed countries. These encourages foreign investments in the form of organizations provide long-term capital through cooperative ventures and the increased avail­avail- loans or take equity positions in newly privat­ privat- ability of institutional capital. Following privat-privat­ ized firms. Sorne Some DFIs offer a range of other ization, foreign investors become an important important services in addition to providing cap­cap- linkage between local firms and external itaLital, such as serving in a consulting-type capac­capac- sources of ideas, technology, and capital. Matur­Matur- ity. In this capacity DFIs assist in efforts to iden­iden- ing relationships between domestic firms and tify market opportunities, search for managerial foreign investors al alsoso build trust, thereby allow­allow- talent, and conduct feasibility studies. These ing a free flow of information and ideas leading services and growing access to capital can in­in- to additional ventures. Of course, the develop­develop- crease the competitiveness of privatized firms ment of trust and the leaming learning that can occur as (George & Prabhu, this issue).issue). a result of its emergence can lead to additional The identification and arnd pursuit of new techno­ techno- cooperative ventures and enhancod enhanced innovation. logical opportunities vary across countries and Domestic firms might develop their own trade economies. The speed of actions taken to iden­iden- associations or cooperative organizations to in­ in- tify and pursue these opportunities depends crease their chances of survival. As in devel­ devel- partially on the national economy's levellevel of oped countries, trade associations and other or­ or- technological sophistication, as well as its ab­ab- ganizations that are framed around mutual sorptive capacity (ability(ability to leam). learn). A country's interests disseminate information. The purpose absorptive capacity is is, determined by its prior of this information is to educate members re­re- investmentsinvestments to to acquimacquire andand assimilate techno­techno- garding current market opportunities and pos possi-si­ logicallogical skillsskills (Mowery(Mowery & Oxley, 1995).1995). As the bilities, as well as the nature of different com­com- absorptive capacity of the country expands, itsits petitive strategies, and to provide the insightsinsights 518 Academy of Management Review July required to lobby local and state officials. Effec­Effec- Figure 2 indicates that the macro and micro tive lobbying efforts are those through which firm changes discussed can directly influence privat-privat­ representatives articulate common industry posi­ posi- ization outcomes. In prior research scholars tions about issues of critical interest to trade as­as- have linked changes in a firm's institutional sociation members. Cooperative associations also context to increased innovation and venturing serve as a catalyst for further new venture part­part- (Kirzner, 1973; Morris, 1998). Macroinstitutional nerships among members (Doh, this issue). changes are crucial in inducing strategic changes (Newman, this issue). ENTREPRENEURIAL OUTCOMES OF PRIVATIZATION CAVEATS AND EXTENSIONSOF MODEL Our model highlights two key entrepreneurial The aboye above discussion suggests that privatiza-privatiza­ outcomes of privatization: innovation and new tion can yield diverse but important outcomes ventures (or venturing; Figure 2). We refer to that create wealth for nations and companies. innovation as the creation of goods and ser­ser- Nonetheless, articles in this issue also indicate vices, where product innovation also includes that the lack of institutional infrastructure might upgrades and extensions of existing products serve as a barrier to successful entrepreneurial (incremental innovation). It also includes radi­ radi- efforts (see Newman and Spicer, McDermott, & cal new product development. Whether radi­ radi- Kogut, this issue). cally new or modified products, these innova­innova- Newman explains that although institutional tions are necessary to capitalize on the change is necessary to promote the organiza­organiza- technological opportuni opportunitiesties created by liberal­liberal- tional changes desired, too much institutional ization of the economy and the resulting privat­ privat- change can inhibit second-order leaming.learning. When ization. Product innovations help to meet the this occurs, sornesome managers rely on obsolete or growing expectations of consumers who have dis­ dis- older inappropriate routines that lead to non­ non- cretionary incomes created through risk taking in adaptive mimetic changes (Newman & Nollen, the new economy. Process innovations or the in­in- 1998). This type of institutional "upheaval," as troduction of new methods of producing goods or Newman (this issue) calls it, has especially services also should flourish following privatiza­ privatiza- strong effects on firms that were embedded in tion. Process innovations are necessary to assim­assim- the central planning systems in the former so­ so- ilate foreign technologies in domestic industries cialist countries. These firms did not possess and to build new and efficient manufacturing sys­ sys- sufficient entrepreneurial capabilities and are tems. Thus, process innovations contribute to the unable to operaoperatete effectively in a market-market­ operational efficiencies and improved productiv­ productiv- oriented economy without significant support. ity levels often reported following privatization. Equally important, Johnson and colleagues New ventures involving the creation of new (this issue) argue that public sector managers business or a move into new domestic and inter­ inter- develop a mindset, through institutionalization national markets are perhaps the most visible processes, that is counterproductive with re-re­ changes following privatization. Favorable tax spect to effective privatization. These authors laws rewarding calculated risk-taking practices observe that privatization requires a shift from can encourage new business creation. Changes in one institutional template to another. For these property laws also accompany privatization, mak­ mak- reasons and others, Spicer and colleagues (this ing it safer for individualindividuals s or groups of investors to issue) argue that entrepreneurship is better fos­ fos- create, own, and manage a 'new new enterprise. tered through gradual privatization processes Domestic and intemationalinternational venturing are im­ im- (as completed through negotiated property portant means for developing new revenue rights reform processes) rather than large-scale sources (Zahra, 1996). Venturing is made possi­ possi- rapid privatizations. The gradual approach per-per­ ble by the emergence of supportive industries mits experimentation with infrastructure needs and services (e.g., intemationalinternational consultants), in­ in- and institutions to determine the ones that are creased exposure to different economic systems, more effective as compared to an immediate and access to networks. Domestic companies change to a total market-based economy. also join forces with intemationalinternational firms to pen­ pen- In addition to institutional barriers, privatized etrate new domestic and intemationalinternational markets. firms in emerging economies might experience 2000 Zahra, Ireland, Gutierrez, and Hitt 519 unique agency costs. In these countries the cor­ cor- environment. Clearly, this is an empirical ques­ ques- porate governance structures and laws govern­govern- tion. Indeed, Ramamurti (this issue) suggests ing ownership rights often are underdeveloped that the causes of privatization and their effects and/or weak (Dharwadkar, George, & Brandes, are understood properly only through a dynam­dynam- this issue). The weak governance structures and ic-not a static-model: one that encompasses limited protection of minority shareholders often analyses of firm, industry, and country effects. create the potential for significant agency prob­prob- These works, coupled with all the issues ad­ ad- lems. Managers in newly privatized firms might dressed in the special topic forum, suggest sev­sev- expropriate the firm's assets, grant themselves eral areas for future research. special privileges, and become entrenched, op­ op- posing change and innovation. Of course, these FUTURE RESEARCH outcomes are antithetical to those expected from privatization, as described earlier. Dharwadkar The articles in this special topic forum provide and colleagues, therefore, suggest that stronger a wealth of issues for scholars to examine as governance structures and protection of owner­owner- they conduct future studies on privatization. Ta­Ta- ship rights are required to overcome the agency ble 1 summarizes the focus, level of analysis, problems sornesome privatized firms experience. economic context, theoretical basis, and vari-vari­ These authors also propose that certain owner­owner- ables examined in each of the contributions in-in­ ship, organizationaL organizational, and capital structures are cluded in the special topic forum. The theoreti­theoreti- likely to be more effective in the emerging econ­econ- cal arguments the contributors articulate, as omy contextocontext. These structures can mitigate well as the propositions they offer, should be agency costs and improve firm performance. tested empirically. Interestingly, firms in which DFIs are in­in- Further, we suggest below other avenues for volved, by providing capitaL capital, are likely to hahaveve additional research. The area of privatization stronger governance mechanisms. In fact, and entrepreneurial transformation is particu-particu­ George and Prabhu (this issue) argue that DFI larly rich in research opportunities. The increas-increas­ involvement in firm governance increases value ing globalization of the world economy high­ high- creation. DFIs usually encourage efficient re­ re- lights the need for a greater appreciation and source utilization and act to prevent agency understanding of the effects of privatization on plOblems.problems. However, DFIs might not become in­in- entrepreneurial transformation. volved in the governance of a firm unless it is Several areas require further research. First, vital to the national economic interest or priori­priori- the effects of different types and levels of privat­privat- tiesoties. Thus, DFIs may help prevent or resolve ization should be explored. We believe that all sornesome but not all of the potential agency prob­ prob- privatization activities are unlikely to have the lems in newly privatized firms. same outcomes; as such, more work must be Wright and colleagues (this issue) suggest done to identify the specific effects of each type that the agency problems can be mitigated with and level of privatization to havehave a better theo-theo­ the right incentive structure. Specifically, a com­com- retical understanding of the outcomes expected bination of appropriate ownership, organization­organization- from privatization. Ramamurti's (this issue) sug­ sug- aLal, and incentive structures, along with institu­ institu- gestion of the difference between broad and tional investor involvement, can reduce the narrow privatizations may be a framework agency problems and increase the effectiveness through which sorne some of these research questions of privatization. Outcomes such as these may could be explored. become part of the negotiated processes that Second, the increasing growth of cooperative Spicer and colleagues (this issue) discuss. arrangements (e.g., strategic alliances) among Doh (this issue) argues that privatization firms is another issue requiring study. Do alli­ alli- takes many forms, as suggested earlier. More ances facilitate privatized firms' efforts to com­ com- important, Doh emphasizes the benefits a firm pete successfully in market-based economies? gains by being a first mover in privatization. Are the most successful partnerships formed be­ be- Interestingly, he says that the benefits of the tween newly privatized firms within the same first mover are greater when it partners with an economy or between a newly privatized firm incumbent. Second and third movers, Doh ar­ ar- and another company from a developed econ­ econ- gues, are at a significant disadvantage in this omy? 520 Academy of Management Review July

TABLETABLE 11 ArticlesArticles in in This This Issue:Issue: Themes Themes and and Theoretical Theoretical BasesBases

EconomicEconomic LevelolLevel of Aulhor(s'Author(s) ConlexlContext AnalysisAnalysis TheoryTheory BaseBase OwnershipOwnership SlruclureStructure DependenlDependent Variables

RamamurtíRamamurti EmergingEmerging MultípleMultiple AgencyAgency theory theory •* PartíalPartial ownershipownership SelectíonSelection of of firmsfirms to to be economieseconomies •* Dispersed ownershipownership privatízedprivatized •* Employee stock stock ownershipownership plansplans •* Local groupsgroups •* MultínationalMultinational enterprisesenterprises

Doh Emerging FirmFirm IntegratíonIntegration ofof l/OI/O Not applicableapplicable First mover advantageadvantage and economieseconomies andand resource- resource- enentrepreneurialtrepreneurial basedbased view view transformationtransformation

Johnson,Johnson, Smith, Smith, & Emerging Manager Microinstitutional Not applicable Entrepreneurial mindset Codling economieseconomies andand firmfirm perspective

Cuervo & Villalonga Emerging and Firm Agency theory Not applicable Company performance advancedadvanced and public choice economieseconomies theorytheory

Wright, Hoskisson, Transition Firm AgencyandAgency and Management ownership Managerial behavior and Busenitz, & Dial economies cognitíoncognition theory (through buyouts'buyouts) entrepreneurial activities

Newman TransitíonTransition Firm Organizational Not applicable Organizational economies learning,learning, transformation, learning, and institutional theory, entrepreneurial behavior and organizational change theory

George & Prabhu Emerging Country Stakeholder theory •* Management and Firm performance economies and firm and corporate employee governance *• Foreign firms *• Domestic individuals and firms

Spicer, McDermott, Emerging Firm InstítutíonalInstitutional Not applicable EffectiveEffectíve policies, focused on & Kogut economies theory gradual restructuring, that foster entrepreneurship

Dharwadkar, George, Emerging Firm Agency theory *• Ownership dispersion Managerial behavior and & Brandes economies (dominant vs. distributed) firm performance *• Ownership typetype (outsider vs. insider)insider)

As TablerabIe 1 indicates, the authors of articles ialial cognitioncognition theorytheory toto explain managerial be-be­ published in this special topic forum have used havior. Still, we need to understand how thesethese several theoretical bases, includingincluding industrial theoreticaltheoretical perspectives can be integratedintegrated toto de-de­ organization (I/O)(l/O) economics, the resource-resource­ velop a theorytheory of privatized firmfirm behavior. based view of thethe firm,firm, and institutionalinstitutional theory,theory, WhichWhich of thesethese theoreticaltheoretical perspectives provide toto describe newly privatized firms' behavior. Or-Or­ thethe most effective explanations of privatized ganizational learning and organizational firmsfirms and managerial behavior? Are therethere other change theoriestheories also have been applied toto help potent theoriestheories thatthat can help in understanding us understand how newly privatized firmsfirms react thesethese importantimportant phenomena?phenomena? toto theirtheir changing environments.environments. Finally, authors BeyondBeyond thesethese pointspoints andand theoreticaltheoretical issuesissues isis have analyzed agency theorytheory and entrepreneur- aa specificspecific setset ofof researchresearch questionsquestions we believe 2000 Zahra, Ireland, Gutierrez, and Hitt 521

scholarsscholars shouldshould address inin future future research. research. For tures may flourish in the general population. example, research should should be completed thatthat Clearly, we need additional research to under­under- will contributecontribute to our understanding of how thethe stand how the entrepreneurial mindset develops institutionalinstitutional infrastructure infrastructure affects affects the the entrepre­entrepre- in the general population, as well as insightsinsights neurial potential of privatization. What stepssteps about why thisthis mindset permits sornesome to identifyidentify can be taken to change thethe infrastructure infrastructure simul­simul- and exploit opportunities while others fail to do so taneouslytaneously with privatization? How can privat­privat- (Shane(Shane & Venkataraman, 2000). Moreover, addi­addi- izationization be successfullysuccessfully implemented?implemented? tional research should be conducted to isolate the Johnson and colleaguescolleagues (this(this issue)issue) argue thatthat outcomes of entrepreneurial ventures outside of an entrepreneurial mindset is not common privatized firms in transition economies. among managers in privatized firms, although There is a need to understand human resource this mindset likelylikely is related positively toto strong management (HRM) requirements in newly pri­ pri- performance following privatization. We need vatized firms, especially in transition econo­econo- more research on how to infuse an entrepreneur­entrepreneur- mies. How can employees' skills, motivation, ial mindset in managers within newly privat­ privat- and productivity be enhanced? What are the ized firms. Moreover, what is the relationship most effective ways in which explicit and tacit between a global mindset (Hitt et al., 2001b) and knowknowledgeledge can be developed and transferred an entrepreneurial one? Is a combination of the among the workforces of former state-owned en­ en- two mindsets one that would be even more fa­fa- terprises? According to Welsh, Luthans, and cilitative of firm success while privatizing and Sommer (1993).(1993), the HRM challenges might be following the completion of the privatization particularly significant in these firms. process? Perhaps managerial incentives are the answer, as suggested by Wright and colleagues CONCLUSIONS (this issue), in that appropriate incentives might stimulate and support development of appropri­appropri- Privatization is a frequently used strategic op­op- ate entrepreneurial mindsets. tion in today's rapidly globalizing economy. We need empirical work, however, in which Driving the popularity of this strategy is the scholars examine this issue. Do the incentives desire of different nations' governments to spur reduce the agency problems identified by Dhar­Dhar- the type of economic activity that will allow wadkar and colleagues (this issue)? If not, why their countries to be productive participants in not, and what incentives might overcome global markets-markets that, in many in-in­ agency problems? Can DFIs facilitate the forma­forma- stances, are becoming more consistent with the tion of entrepreneurial mindsets by providing forces of free market economies in their opera-opera­ more effective governance of privatized firms? tional and legislative contexts. The popularity of Are there better meanmeanss of establishing effective privatization is evident in developing and de-de­ governance in privatized firms? If so, do these veloped, as well as emerging, markets. In devel­devel- meanmeanss vary by the characteristics of unique na­ na- oped markets, formerly state-controlled indus-indus­ tional cultures? tries are being deregulated (e.g., utilities). Thus, Peng (in press) argues that changes in transi­transi- privatization occurs in selected sectors, and be-be­ tional economies to a free market system un­un- cause of an active free market in other sectors, leash the power of entrepreneurship. His argu­argu- there are many successful examples (best prac-prac­ ments relate to general entrepreneurial ventures tices) of the newly deregulated firms to follow. developed in the economy, as opposed to privat-privat­ In emerging economies, however, it is com-com­ ized firms. For example, Peng suggests that in mon for many industries to be operated or con-con­ Central and Eastern Europe, about 5 percent of the trolled by the national or state governments. adult population has started a new venture-aventure--a Furthermore, privatization might be required by figure similar to the percent of the population in external parties for the financing needed (e.g., the United StatesStates engaging in entrepreneurial IMF), encouraging these governments to liberal-liberal­ ventures. McCarthy, Puffer, and Shekshnia (1993) ize their economies. In these cases there is also describe the resurgence of an entrepreneurial mass, and oftentimes rapid, privatization. Mass class in Russia. Therefore, while privatized firms privatization is intendedintended to support a rapid pri-pri­ may experience problems operating entrepre-entrepre­ vatization program, in which thethe state's role is neurially in a free market, entrepreneurial ven- minimized and thethe market's role maximized 522 Academy of Management Review July

(Spicer et al., this issue). The twin goals of mass and the pursuit of competitive advantage. Entrepreneur-Entrepreneur­ privatization often may be speed and fairness ship: Theory and Practice, 23(3): 47-63. (Newman & Nollen, 1998). Nonetheless, because Cragg, M. I., & Dyck, I.1. J. 1999. Management control and infrastructures required to privatize enterprises privatization in the United Kingdom. Rand Journallournal 01of in a "fair" manner might not be developed Economics, 30: 475-497. quickly during a mass privatization program or Cragg, M. 1.,I., & Dyck, I.1. J. 2000. Executive pay and UK privat-privat­ process, the fairness dimension in countries ex­ ex- ization: The demise of "one country, two systems." lour­Jour- nal 01 of Business Research, 47: 3-18. periencing a rapid privatization process often becomes a subject of debate among cicitizenstizens and Dean, A., Carlisle, Y., & Baden-Fuller, C. 1999. Punctuated and continuous change: The UK water industry. British their government representatives. Journallournal 01of Management,Management 10(1998 Conference Issue): S3­S3- As this discussion and sorne some of the artieles articles S18. ineludedincluded in the special topic forum indicate, DeCastro, J., & Uhlenbruck, N. 1997. Characteristics of privat-privat­ there are few previous exemplars or models of ization: Evidence from developed, less-developed, and privatization in the global economy. The privat­privat- former communist countries. Journallournal 01of International ized firms in developed markets frequently are Business Studies, 28: 123-143. resource rich, whereas those in emerging mar­mar- Djankov, S. 1999. Ownership structure and enterprise re-re­ kets are resource pOOLpoor. The emerging market structuring in six newly independent states. Compara­Compara- context is more uncertain, with economic, sociaL social, tive Economic Studies, 41(1): 75-95. and political instability (Hitt et al., in press a). D'Souza, J., & Megginson, W. L. 1999. The financial and op-op­ These characteristics of the environment elearlyclearly erating performance of privatized firms during the 1990s. affect the rules of exchange in markets (Narth,(North, Journal 01of Finance, 54: 1397-1438. 1990). There are majarmajor differences in the institu­institu- Filatotchev, I., Hoskisson, R. E., Buck, T., & Wright, M. 1996. tional infrastructures between emerging and de­ de- Corporate restructuring in Russian privatization. Cali­Cali- veloped economy countries (Newman, this issue). fornialornia Management Review, 38(2): 87-105. Thus, the entrepreneurial outcomes are not as cer­cer- Filatotchev, 1.,I., Wright, M., Buck, T., & Dymonia, N. 1999a. Ex­Ex- tain as suggested in the previous literature on the porting and restructuring in privatized firms from Russia, Ukraine and Belarus. World Economy, 22: 1013-1037. economic transformation in transition economies. Economy, The work published in this special topic forum Filatotchev, I., Wright, M., Buck, T., & Zhukov, V. 1999b. Corpo­Corpo- rate provides sorne some explanations and describes activ­ activ- rate entrepreneurs and privatized firms in Russia, Ukraine, and Belarus. Journal 01of Business Venturing, 14: 475-492. ities that might be necessary to promote mare more effective entrepreneurial efforts. The artielesarticles pre­ pre- Galal, A., Jones, L., Tandon, P., & Vogelsang, I.1. 1994. Welfare consequences 01of selling public enterprises: An empirical sented herein also offer an interesting set of an­an- analysis. New York: Oxford University Press. swers to existing but complex questions, along Grosse, R., & Yanes, J. 1998. Carrying out a successful pri­ with new research questions. J. pri- questions. vatization: The YPF case. Academy 01of Management Ex-Ex­ We are pleased to commend the authars'authors' con­ con- ecutive, 12(2): 51-63. tributions to you. We hope these artielesarticles will Hart, 0.1995.0. 1995. An economist's perspective on the theory of the stimulate interesting and productive analyses firmofirm. In O. 0. E. Williamson (Ed.), Organization theory: of important research questions about privatiza­ privatiza- From Chester Barnard to the present and beyond: 154-154­ tion and entrepreneurial transformations across 171. New York: Oxford University Press. multiple types of economic structures. Hitt,Hit!, M. A., Dacin, M. T., Levitas, E., Arregle, J.-L., & Borza, A. In press a. Partner selection in emerging and developed mar-mar­ ket contexts: Resource-based and organizationalorganizationallearning learning perspectives. Academy 01of Management Journal. REFERENCES Hitt,Hit!, M. A., Harrison, J. S., & Ireland, R. D. In press b. Creating Acs, Z., & Audretsch, D. (Eds.). 1993. Small lirmsfirms and entre­entre- value through mergers and acquisitions: A complete guide preneurship: An East-West comparison. Cambridge, MA: to successfulsuccesslul M&As. New York: Oxford University Press. Cambridge University Press. Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. In press c. Baumol, W. J. 1996. Entrepreneurship: Productive, unproduc­ Productive, unproduc- Strategic management: Competitiveness and globaliza-globaliza­ tive, and destructive. lournalJournal 01of Business Venturing, 11: 11: tion (4th ed.). Cincinnati: South-Western Publishing. 3-22. Hitt, M. A., Nixon, R. D., Hoskisson, R. E., & Kochhar, R. 1999. Cohen, W. M., & Levinthal, D. A. 1990. Absorptive capacity: A Corporate entrepreneurship and cross-functional fertil­fertil- new perspective on learning and innovation. Adminis­Adminis- ization: Activation, process and disintegration of a new trative Science Quarterly, 35: 128-152. product design team. Entrepreneurship: Theory and Covin, J. G., & Miles, M. P. 1999. Corporate entrepreneurship Practice, 23(3): 145-167. 2000 Zahra, Ireland, Gutierrez, and Hitt 523

Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. In press. Peng, M. W. In press. How do entrepreneurs create wealth in Strategy in emerging economies. Academy olof Manage­Manage- transition economies? Academy ofol Management Execu-Execu­ ment Journal. tive.tive. Hoskisson, R. E., Hitt, M. A., &8&HilLHill, C. W. 1.L. 1993. Managerial Ramamurti, R. 1992. Why are developing countries privatizing? incentives and investment in R&D in large multiproduct Journal ofol lnternationalInternational Business Studies, 23: 225-249. firms. Organization Science, 4: 325-341. Ramirez, M. D. 1998. Privatizing and regulatory reformrelorm in Huber, G. P., & Glick, W. H. 1995. Organizational change and Mexico and Chile: A critical overview. Quarterly Review redesign: Ideas and insights lorfor improving performance.perlormance. ofol Economics and Finance,finance. 38: 421-439. New York: OxlordOxford University Press. Sachs, J., & Lipton, D. 1990. Poland's economic reform.relorm. For-for­ Ireland, R. D., & Hitt, M. A. 1999. Achieving and maintaining eign Affairs, 69(3): 47-66. strategic competitiveness in the 21st century: The role 01of Salas, V. 1998. Conceptualizing privatization. Paper pre-pre­ strategic leadership. Academy olof Management Execu­Execu- sented at the annual meeting of01 the Academy of01 Man-Man­ titive,ve. 13(1): 43-57. agement, San Diego, CA. Jackson, P., & Price, C. (Eds.). 1994. Privatization and regula­regula- Shafik, N. 1996. Selling privatization politically. Columbia tion: A review ol of the issues. London: Longman. JournalJoumal olof World Business,Business. 31(4): 21-29. Jensen, M. C., & Meckling, W. 1976. Theory 01of the firm:lirm: Man­Man- Shane, S. 1995. Uncertainty avoidance and the preferenceprelerence lorfor agerial behavior, agency costs, and ownership struc­struc- innovation championing roles. JournalJoumal olof lntemationalInternational ture. Journal olof Financialfinancial Economics.Economics, 3: 305-360. Business Studies, 26: 47-68. Johnson, S., & Loveman, G. 1995. Starting over: Poland alterafter Shane, S., & Venkataraman, S. 2000. The promise 01of entre-entre­ communism. Harvard Business Review.Review, 73(2): 44-57. preneurship as a fieldlield 01 of research. Academy olof Manage-Manage­ Kanter, R. M. 1989. When giants leamlearn to dance. New York: ment Review, 25: 217-226. Simon and Schuster. Shleiler,Shleifer, A., & Vishny, R. W. 1994. Politicians and firms. Kim, 1.L. 1997.lmitation1997. Imitation to innovation: The dynamics olof Korea's Quarterly JournalJoumal olof Economics,Economics. 109: 995-1025. technological learning. Boston: Harvard Business Smith, A.,A" Golden, P., & Pitcher, P. 1999. The dock clock is ticking: School Press. ticking: Surviving privatization and deregulation by utilizing the Kirzner, I. 1973. Competition and entrepreneurship. Chicago: running time. European Management Jouma],Journal, 17: 409-421. University 01of Chicago Press. Soulsby, A., & Clark, E. 1996. The emergence 01of post-post­ McCarthy, D., Puffer, S., & Shekshnia, S. 1993. The resurgence communist management in the Czech Republic. Organ­Organ- 01of an entrepreneurial dass class in Russia. JoumalJournal olof Man­ Man- ization Studies,Studies. 17: 227-247. agement lnquiry,Inquiry, 2: 125-137. Uhlenbruck, K., & DeCastro, J. In press. Foreign acquisitions Melloan, G. 2000. Designing a loreignforeign policy lor for the new in Central and Eastern Europe: Outcomes 01of privatiza-privatiza­ millennium. Wall Street Journal, January 4: A23. tion in transitional economies. Academy ofol Manage-Manage­ Miller, A. N. 1995. British privatization: Evaluating the re­ re- ment Journal. sults. Columbia JoumalJournal olof World Business.Business, 30(4): 82-98. Vickers, J., & Yarrow,Yanow, G. 1988. Privatization: An economic Minniti, M., & Polutnik, 1. L. 1999. Financial development and analysis. Cambridge, MA: MIT Press. small firms linancingfinancing in Slovenia. Comparative Eco­Eco- Welfens, P. J. J. 1992. Foreign investment in the East European nomic Studies, 41(2/3): 111-133. transition. Management Internationallntemational Review, 32: 199-218. Monis,Morris, M. H. 1998. Entrepreneurial intensity: Sustainable Welsh, D. H. B.,B" Luthans, F., & Sommer, S. B. 1993. Managing advantages lorfor individuals, organizations.organizations, and societies. Russian factorylactory workers: The impact 01of U.S. based be­ be- Westport, CT: Quorum. havioral and participative techniques. Academy ol of Man-Man­ Mowery, D. C., & Oxley, J. E. 1995. Inward technology transfer agement Journal,Joumal. 36: 58-79. and and competitiveness: The role 01of national innovation Yan, A. 1998. Structural stability and reconfiguration 01of in-in­ systems. Cambridge JoumalJournal ol of Economics.Economics, 19(1): 67-93. ternational joint ventures. Journal olof lnternationalInternational Busi-Busi­ Newman, K. L., & Nollen, S. ~998.1998. Managing radical organi­organi- ness Studies,Studies. 29: 773-796. zational change. Thousand Oaks, CA: Sage. change. Thousand Oaks, CA: Sage. Yarrow,Yanow, G. 1986. Privatization in theory and practice. Eco-Eco­ North, D. 1990. lnstitutions.Institutions, institutional change and economic nomic Policy,Policy. 2: 324-377. performance.perlormance. New York: Cambridge University Press. Cambridge University Press. Zahra, S. 1996. Governance, ownership and corporate entre­entre- Ogden, S., & Watson, R. 1999. Corporate performance and preneurship: The moderating impact 01of industry techno-techno­ stakeholder management: Balancing shareholder and logical opportunities. Academy ol of Management Jouma],Journal, customer interests in the U.K. privatized water industry. 39: 1713-1735. Academy ol of Management Journal, 42: 526-538. Zahra, S. A.,A" Ireland, R. D., & Hitt, M. A. In press. International Ozkaya, M., & Askari, H. 1999. Management 01 of newly privat­privat- expansion by new venture firms:lirms: International diversity, ized companies: Its importance and how little we know. mode of market entry, technological learning and per-per­ World Development, 27: 1097-1114.[097-1114. formance.lormance. Academy ofol Management Journal. 524 Academy of Management Review July

Shaker A. Zahra is prolessorprofessor 01of strategic management at the J. Mack Robinson College 01of Business at GeargiaGeorgia State University in Atlanta. He is also a visiting professorprolessar 01of entrepreneurship at Jonkoping International Business School in Sweden. His research centers on entrepreneurship in new ventures and established companies, technology management.management, and global strategy.

R. Duane Ireland is a prolessorprofessor 01of management and holds the W. David Robbins Chair in Business Policy at the University 01of Richmond. He received his Ph.D. from Texas Tech University. His research interests include carporatecorporate governance, factorslactors influ­ influ- encing environmental search processes, strategy forlar entrepreneurial ventures and established organizations, and knowledge acquisition through strategic alliances.

Isabel Gutierrez is a proles professorsor 01 of management at Carlos III University, Spain. She received her Ph.D. from the University 01of Seville. Her current research interests include localized competition, industry structure, and the dynamics 01 of competitive interac-interac­ tions. She is al alsoso interested in the loundingfounding characteristics, strategy, and performance 01of entrepreneurial ventures.

MichaeIMichael A. Hitt is a distinguished prolessorprofessor of01 management and holds the Paul M. and Rosalie Robertson Chair in Business Administration at Texas A&M University. He received his Ph.D. from the University 01of Colorado. His research interests focuslocus on international strategic alliances, innovation, corporate governance, and the impor­ impor- tance 01 of human capital (knowledge) in the new economy.