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Journal of World Business xxx (2014) xxx–xxx

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Journal of World Business

j ourn a l hom e pa g e : ww w . e l se v i e r . c om / l oca t e / j w b

The decline of global market leaders§

Xiaowen Tian a,*, John W. Slocum b,1
a
Faculty of Business, Bond University, Queensland 4229, Australia
b
Game Development Department, Guild Hall, Southern Methodist University, Dallas, TX 75275-0333, United States

ARTICLE INFO ABSTRACT

Integrating capability-based and institution-based views in a multilevel framework, we argue that managerial capability to
acquire loans to finance business expansion has an inverted U-shaped relationship with global market leadership. The
Article history:
Available online xxx negative effect on global market leadership of excessive loan-acquiring capability is amplified under business-friendly market
institutions that ease access to credit. Managerial capability to utilize resources productively positively moderates the
Keywords:
relationship between loan-acquiring capability and global market leadership. The role of resource-utilizing capability is
Global market leadership attenuated under business-friendly market institutions that facilitate overinvestment. The study helps explain recent decline of
Managerial capabilities global market leaders in advanced market economies.
Market friendly institutions
Capability-based view 2014 Elsevier Inc.. All rights reserved.
Institutional-based view

1. Introduction debt crisis, in particular, a number of market leader companies based in

Competition has intensified in accelerated globalization since the 1980s.
In essence, competition is all about market leadership – companies compete
with each other for a leading market share in an industry. Competition for
market leadership has now become truly global with the rise of companies
based in emerging market countries like Brazil, Russia, India and China in the
last two decades or so. Indeed, evidence abounds on the intensity of
competition for global market leadership. The share of emerging market
countries in Fortune Global 500 market leader companies increased from
4.8% in 1996 to 23.4% in 2011. This illustrates that losers in the battle for
global market leadership were mainly companies based in mature market
countries, while challenges were primarily companies based in emerging
market countries.2 In other words, nearly 20% of market leader companies
based in mature market countries were dethroned over the period, and their
vacancies were filled by rising global market leaders based in emerging
market countries. In the recent global financial crisis and European
mature market countries, such as the Lehman Brothers Holdings, Morgan
Stanley, either collapsed or been weakened.
Research focused on the success of firms is often attributed to their
managers’ ability to acquire and utilize resources effectively and efficiently
(Helfat et al., 2007; Sirmon & Hitt, 2009). Little research has been undertaken
however to examine the relation-ship between managerial capability and the
firm’s institutional environment that may lead to the firm’s decline. To what
extent was managerial capability responsible for the decline of global market
leaders? Given that most losers in the battle for global market leadership were
based in mature market countries, did market institutions somehow contribute
to the decline of global market leaders? How did market institutions interact
with managerial capability in undermining global market leaders? The
questions involve variables residing at different levels of analysis, and needs
to be addressed by integrating different theoretical perspectives. Integrating
capability-based view (CBV) and institution-based view (IBV) in a multilevel
framework, we provide in the paper an integrated answer to the questions to
fill an important research gap.

CBV intended to improve the all-inclusive conceptual frame-work of

§
The authors would like to thank Mike Harvey, David Lei, and Chuck Snow for their resource-based view (RBV) by singling out managerial capability as a key
constructive comments on an earlier draft of this manuscript. An earlier version of this paper
was presented at the Annual Australia and New Zealand International Business Conference,
determinant of competitive advantage at the firm level (Adner & Helfat,
Auckland, 2014. 2003; Helfat et al., 2007; Ray, Barney, & Muhanna, 2004; Sapienza, Autio,
* Corresponding author. Tel.: +61 7 55951695. George, & Zahra, 2006; Sirmon & Hitt, 2009; Teece, 2007). Managerial
E-mail addresses: xtian@bond.edu.au (X. Tian), jslocum@cox.smu.edu capability has been defined as the ability of managers to take actions to
(J.W. Slocum).
1
acquire (resource investments) and utilize these resources (resource
Tel.: +1 214768 3157.
2 deployment) to generate sales (Kraaijenbrink, Spender, & Groen, 2010;
In 1996, there were 24 companies based in emerging market countries on the list of Fortune
Global 500 market leader companies ranked by sale revenue. In 2011, the figure increased to Sirmon & Hitt, 2009, p. 1376). As was in the case of RBV, however, CBV
117.

1090-9516/$ – see front matter 2014 Elsevier Inc.. All rights reserved.
http://dx.doi.org/10.1016/j.jwb.2014.01.003

Please cite this article in press as: Tian, X., & Slocum, J. W. The decline of global market leaders. Journal of World Business (2014), http://
dx.doi.org/10.1016/j.jwb.2014.01.003
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neglected the ‘dark’ side of managerial capability (Arend, 2004). In response
to the criticism, Sirmon, Hitt, Arregle, and Campbell (2010) recently
distinguished between capability strength and capability weakness. They
pointed to the role of capability weakness in affecting competitive advantage.
They based their argument on a linearity assumption: the more a firm
developed its managerial capability compared to its rivals, the greater its
competitive advantage; conversely, the less a firm developed its managerial
capabilities, the greater competitive disadvantage the firm experienced. Their
distinction between capability strength and capability weakness was based on
a linear assumption. As Sirmon et al. (2010, p. 1390) put it: a firm suffers
from capability weakness ‘‘when the value of a firm’s capability is below
parity.’’ Moreover, they overlooked the potential negative impact that market
institutions can play on the relationship between managerial capability and
competitive advantage.
In our paper, we argue that managerial capability does not necessarily
have a linear relationship with competitive advantage. Capability-
strengthening may as well lead to loss of competitive advantage and decline
of global market leadership. Global market leadership indicates competitive
advantage of the firm over rivals in the industry or ‘‘competitive advantage
and its empirical correlate – relative performance’’ (Sirmon et al., 2010, p.
1387; Beck & Wiersema, 2013; also Arend, 2008). Specifically, we contend
that excessive development of managers’ ability to acquire loans to finance
business expansion is likely to lead to decline of global market leadership. As
equity sources are often limited, a firm often has to borrow to meet the
financial need. Growing debts expose a firm to financial risks that adversely
affect further development of the firm. Consequently, the relationship
between loan-acquiring ability of senior managers and global market
leadership is likely to be inverted U-shaped. Managers need to know the
turning point on the inverted U-shaped curve. In this study, the turning point
was found to be an estimated value of 1.06 in the sample of Fortune Global
500 market leader companies, slightly lower than the mean value of 1.08.
Therefore, the liability of excessive loan-acquiring capability was an
endogenous cause of the decline of global market leaders. The fact that the
value of the turning point was lower than the mean suggests that the adverse
effect of loan-acquiring capability on global market leadership might be
positively moderated by other managerial capabilities, especially those related
to resource utilization. Indeed managerial capability to utilize resources
productively to achieve synergy was found to serve as a positive moderator.
Managerial capability at the firm level does not work in vacuum, but in a
complex business environment at the institu-tional level (Ahlstrom, Levitas,
Hitt, Dacin, & Zhu, 2014). The effect of managerial capability on global
market leadership is very likely to be influenced by institutions that govern
transactions in the marketplace. According to IBV, market institutions play an
important role in influencing managerial behavior and firm performance
(North, 1990; Williamson, 1985). Research on market institutions has focused
on positive effects of business-friendly market institutions on firm
performance, neglecting the possible liabilities of market institutions.
Business-friendly market institu-tions reduce uncertainty in business
transactions by lowering costs for business transactions and enhancing a
firm’s productivity (Alesina, Ardagna, Nicoletti, & Schiantarelli, 2005;
Ciccone & Papaioannou, 2007; Klapper, Lewin, & Quesada Delgado, 2009;
Peng, Sun, Pinkham, & Chen, 2009). Consequently, most govern-ments
around the world compete with each other to provide more investor-friendly
institutional frameworks (Henisz, 2002; Koka, Prescott, & Madhavan, 1999;
O’Higgins, 2002; Ostergard, 2000; Peng, 2006).
Business-friendly market institutions are not always conducive to firm
performance. In fact, the behavior of these institutions may
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dx.doi.org/10.1016/j.jwb.2014.01.003
interact with managerial capability in undermining global market leadership.
If managerial capability to acquire a loan has reached an excessive level and
generated a negative effect on global market leadership, it is very likely that
the more business-friendly market institutions are detrimental to a firm’s
global market leadership. Managers of debt-ridden firms find it easy to
borrow funds under business-friendly market institutions that ease access
credit restrictions for them (Djankov, McLiesh, & Shleifer, 2007; Haselmann,
Pistor, & Vig, 2010). These institutions make it easy for managers to engage
in overinvestment and inefficient deployment of resources (Haselmann et al.,
2010; Stulz, 2001). Evidence has supported the argument. The liability of
market institutions was therefore an exogenous cause of the decline of global
market leaders.
The paper is organized as follows. In the next section, we integrate CBV
and IBV in a multilevel framework to form the paper’s theoretical base and
develop hypotheses about the impact on global market leadership of
managerial capability and market institutions. In Section 3, we describe data,
variables and methods used in empirical testing. In Section 4, we interpret the
regression results. In the final section, we discuss theoretical contributions,
managerial implications, and limitations of the study and conclude the paper.
2. Theoretical analyses and hypotheses
CBV and IBV each focused on a different level of analysis: CBV at the
firm level and IBV at the institution level. To capture the cross-level
interactions, we integrate CBV and IBV in a multilevel framework to form
the theoretical base of the paper. The integrated multilevel framework states
that global market leadership is determined by managerial capability at the
firm level as well as, directly and/or indirectly, business environment at the
institution level. As is in the case of most multilevel frameworks, theoretical
propositions about cross-level interac-tions are expected to impact variables at
the higher level (institution) than on variables at the lower level (firm) (Hitt et
al., 2007).
2.1. Managerial capability and global market leadership
Managerial capability has been the focus of CBV that was developed in
response to criticism of theoretical limitations of RBV. A major drawback is,
as Kraaijenbrink et al. (2010, p. 358) pointed out, that the all-inclusive
definitions of resources ‘‘do not sufficiently acknowledge the distinction
between those resources that are inputs to the firm and the capability that
enables the firm to select, deploy, and organize such inputs’’. To overcome
the drawback, CBV tried to distinguish between actual resources and the
capability (or processes) to manage them (Helfat et al., 2007; Kraaijenbrink et
al., 2010; Sirmon & Hitt, 2009; Sirmon, Hitt, Ireland, & Gilbert, 2011; Teece,
2007).
We propose a model of CBV that clearly distinguishes between actual
resources and managerial capability to invest and deploy them. Actual
resources are defined as inputs available to a firm, including staff (human
resources) and assets (nonhuman resources). Assets can be divided into those
owned (equity) and those borrowed (loan). Accordingly, managerial
capability can be classified into (1) Managerial capability to acquire staff,
equity and loan resources to generate sales revenue based on marginal sale
productivity of respective resources as determined by available technology,
and (2) Managerial capability to utilize all resources to achieve synergistic
sale productivity gains. The model of CBV can be expressed mathematically
in Eq. (1).
g ¼g þg S þg e þg l þg u þ 2
i jt 0 1 i jt 2 i jt 3 i jt 4 i jt i jt (1)
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The model suggests that a change in global market leadership (gijt), which
is represented by the share of a firm in the sale revenue of an industry, is
determined by staff-acquiring capability (Sijt), equity-acquiring capability
(eijt), loan-acquiring capability (lijt) and resource-utilizing capability (uijt).
Here i indicates firm; j indicates industry; and t indicates year. 2 indicates the
error term. g0 indicates the intercept. g1, g2, g3 and g4 represent the slopes
of the respective capability variables.
Following RBV, CBV took managerial capability as valuable, rare,
inimitable, and non-substitutable (VRIN) resource. CVB has overlooked the
possible undesirable side of managerial capability (Arend, 2004). Sirmon et
al. (2010) intended to address the problem by distinguishing between
capability strength and weakness. They assumed a linear relationship between
managerial capability and competitive advantage, and considered strength-
ening of managerial capability as desirable. Development of managerial
capability above the parity level was a strength and development of
managerial capability below the parity level was a weakness. Although they
acknowledged a curvilinear effect on competitive advantage of both
capability strength and capability weakness, they considered the curvilinear
effect as part of the overall linear path of capability development. As Sirmon
et al. (2010, p. 1390) stated: ‘‘In total then, as increasing capability strengths
lead to greater competitive advantage, increasing capability weaknesses are
expected to contribute to competitive disadvantage.’’ We disagree with this
argument. We contend that managerial capability does not necessarily have a
linear relation-ship with competitive advantage. Excessive development of
managerial capability can become a weakness because it may lead to
dysfunctions (allocating resources to non-core competency building activities)
in business operations.
We posit that staff represents human resources with creative ideas. An
increase in human resources indicates an increase in creative ideas that can
serve as sources of innovation, entre-preneurship and extraordinary sales
growth (Afuah, 2002; Becker
& Gerhart, 1996; McMullen & Shepherd, 2006; Roberts, 1999). Managerial
capability to acquire staff is expected to strengthen global market leadership.
Similarly, the effort managers make to utilize all actual resources to achieve
synergy involves innovations that maximize sales revenue with a given
amount of resources. These are achieved without additional increase in
resources. These can serve as a cost-efficient source of sustained competitive
advantage (Holcomb, Holmes, & Connelly, 2009; Sirmon, Gove, & Hitt,
2008; Sirmon et al., 2011). Therefore, resource-utilizing capability is
expected to help strengthen global market leadership (Cooley & Quadrini,
2001; Hopenhayn, 1992).
Hypothesis 1. Staff-acquiring capability is likely to be positively related to
strengthening of global market leadership.
Hypothesis 2. Resource-utilizing capability is likely to be positive-ly related
to strengthening of global market leadership.
A similar prediction can be made for equity-acquiring capability.
Shareholders’ equity consists of two components. The first is the fund that
was originally invested in a firm by shareholders, along with any additional
investment made thereafter by shareholders. The second comes from retained
earnings that a firm is able to accumulate over time through its operations. An
increase in managerial capability to acquire equity indicates an increase in the
ability of a firm to finance business activities through internally generated
financial resources (Cooley & Quadrini, 2001; Rahaman, 2011). Sales growth
fueled by financial resources generated internally is more sustainable than
that fueled by external debts. In addition, an increase in managerial capability
to acquire equity serves to attract investors. As Rahaman (2011, p. 710)
noted, ‘‘internal funds may not simply
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3
be a direct source of financing but may also provide signals about future
prospects to the extent that past performance provides information about
future opportunities’’. Therefore, equity-acquiring capability helps strengthen
global market leadership.
Hypothesis 3. Equity-acquiring capability is likely to be positively related to
strengthening of global market leadership.
Controversy arises over the effect of managerial capability to acquire
loans to generate sales revenue. Under competition pressure, on the one hand,
a firm needs to finance business expansion by loans because of limited equity
resources (Raha-man, 2011). In addition, according to agency theory, debt
may serve as a warning mechanism for curbing the overinvestment tendency
of managers (Jensen, 1986; Stulz, 2001). On the other hand, an increase in
loans indicates an increase in future interest payment, which exposes a firm to
financial risks. Financial risks subsequently deter investors from making
further investment (Lang et al., 1996). Moreover, managers may ignore the
warning signals that current debt level is supposed to provide and continue to
borrow to finance excessive investment projects in order to advance their own
short-term benefits (e.g., stock options, bonuses) at the expense of their firm’s
long-term interests (Stulz, 2001).
A major problem in the debate is that both sides assume a linear
relationship between borrowing and firm performance. We posit that the
relationship between managerial capability to acquire loans and global market
leadership is not linear, but inverted U-shaped. In other words, moderate loan-
acquiring capability strengthens global market leadership, but excessive loan-
acquiring capability weakens global market leadership. The relationship
between loan-acquiring capability and global market leadership is likely to be
influenced by resource-utilizing capability. The more productive use of actual
resources strength-ens the positive effect of moderate loan-acquiring
capability on global market leadership and attenuates the negative effect of
excessive loan-acquiring capability on global market leadership (Rahaman,
2011).
Hypothesis 4. The relationship between loan-acquiring capability and global
market leadership is likely to be inverted U-shaped.
Hypothesis 5. Resource-utilizing capability is likely to positively moderate
the effect of loan-acquiring capability on global market leadership in both the
upward and downward segments of the inverted U-shaped curve.
2.2. Market institutions and global market leadership
Market institutions are constraints that influence a firm’s operation
(Ahlstrom et al., 2014; North, 1990, p. 3). According to IBV, market
institutions set the rules of games in business transactions. They influence
managerial decision-making by signaling what business transactions are legal,
acceptable and ethical (Williamson, 1985). Relationship with market
institutions can be either formal, as expressed in business-related laws,
regulations and rules, or informal as expressed in norms, cultures, and ethics
that govern business transactions. Violations of formal market institutional
relationships are likely to be noted by the media and governmental agencies,
senior managers convicted and punished, while violations of informal market
institutional relationship are subject to moral blames, losses of business
contracts, and even exclusion from business circles and social networks. IBV
research has focused on formal market institutional relationships. Little
attention has been dedicated to understanding informal market relationships in
the emerging markets (Peng et al., 2009; Peng, 2003; Tarun & Palepu, 2005,
2010). We limit our
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discussion to formal market institutional relationships unless noted otherwise
because informal relationships are difficult to ascertain.
We contend that IBV suffered from two shortcomings. IBV argued almost
exclusively for the positive role of business-friendliness of market institutions
in reducing transaction costs and facilitating business operation (Clougherty,
2005; Dacin, Goodstein, & Scott, 2002; McMillan, 2007; Scott, 2008;
Williamson, 1985). In particular, business-friendly market institutions were
said to ‘‘form part of the financial market infrastructure’’ and ‘‘play a role in
easing access to credit’’ for a firm’s managers (Djankov et al., 2007;
Haselmann et al., 2010; World Bank, 2012, p. 21). Recent financial crises in
mature market countries cast doubt on the argument. Moreover, it neglected
recent developments in CBV by failing to discuss the impact of market
institutions on the performance effect of managerial capability. To address the
shortcomings, we propose that business-friendly market institu-tions may
become a liability to firms by adversely influencing the relationship between
managerial capability and global market leadership. ‘‘Easing access to
credit’’ may encourage, for instance, managers of debt-ridden firms to engage
in dysfunctional business practices, including excessive borrowing and
overinvestment in non-core competency activities. These practices undermine
global market leadership. In formulating hypotheses, we focus on the
distinction between the bright and ‘‘dark’’ sides of business-friendly market
institutions, and the interaction between busi-ness-friendly market institutions
and managerial capability in affecting global market leadership.
We posit that the overall direct effect of business-friendly market
institutions on global market leadership is expected to be positive as IBV
suggested: firms operating under more business-friendly market institutions
are faced with less uncertainty and lower transaction costs than firms
operating under less business-friendly market institutions (Williamson, 1985).
Similarly, busi-ness-friendly market institutions help strengthen global market
leadership indirectly through positively moderating the relation-ship between
managerial capability and global market leadership. In particular, business-
friendly market institutions provide trans-parent labor market information
which helps a firm recruit talented staff it needs to create value (Tarun &
Palepu, 2010). Moreover, business-friendly market institutions facilitate flows
of resources between different parts of the value chain in a firm, transactions
between a firm and its suppliers and customers, innovation and knowledge
sharing in value creation processes, and therefore productive use of resources
to achieve synergy (Alesina et al., 2005; Klapper et al., 2009).
Hypothesis 6. Business-friendly market institutions are likely to be positively
related to strengthening of global market leadership.
Hypothesis 7. Business-friendly market institutions are likely to strengthen
the effect of staff-acquiring capability on global market leadership.
Hypothesis 8. Business-friendly market institutions are likely to strengthen
the effect of resource-utilizing capability on global market leadership.
The effect of business-friendly market institutions on the relationship
between the two categories of asset-acquiring capability and global market
leadership is complex. Business-friendly market institutions encourage
managers to expand business and develop capability to finance business
expansion. As constraints to securing external loans are reduced, managers
tend to develop their acumen to acquire loans rather than engage in activities
to acquire equity to finance business expansion (Demirguc-Kunt &
Maksimovic, 1998; Djankov
Please cite this article in press as: Tian, X., & Slocum, J. W. The decline of global market leaders. Journal of World Business (2014), http://
dx.doi.org/10.1016/j.jwb.2014.01.003
et al., 2007; Haselmann et al., 2010; Rahaman, 2011). Therefore, it is
expected that business-friendly market institutions have little impact on the
relationship between equity-acquiring capability and global market
leadership, but a significant impact on the relationship between loan-
acquiring capability and global market leadership.
The relationship between loan-acquiring capability and global market
leadership is likely to take the form of an inverted U-shape. The impact of
business-friendly market institutions on the relationship between loan-
acquiring capability and global market leadership can be decomposed into
two segments along the inverted U-shaped curve. Moderate loan-acquiring
capability is expected to positively affect global market leadership. The
positive effect is likely to be strengthened by business-friendly market
institutions that make it easy for firms with a low level of debt to get credit
(Demirguc-Kunt & Maksimovic, 1998; Haselmann et al., 2010). Excessive
loan-acquiring capability is expected to expose firms to high financial risks,
deter future investment, and thus negatively affect global market leadership.
The negative effect is likely to be amplified under business-friendly market
institutions that make it easy for firms with heavy debt burden to get
additional loan (Djankov et al., 2007; Stulz, 2001).
Hypothesis 9. Business-friendly market institutions are likely to have little
effect on the relationship between equity-acquiring capability and global
market leadership.
Hypothesis 10. Business-friendly market institutions are likely to strengthen
the positive effect of moderate loan-acquiring capabil-ity on global market
leadership.
Hypothesis 11. Business-friendly market institutions are likely to amplify the
negative effect of excessive loan-acquiring capability on global market
leadership.
Finally, when market institutions are business-friendly, man-agers tend to
engage in risky overinvestment and inefficiently use the firm’s resources
(Stulz, 2001; Haselmann et al., 2010). As the effect of loan-acquiring
capability on is dependent on resource-utilizing capability, business-friendly
market institutions that facilitate overinvestment and inefficient use of
resources are expected to weaken the positive impact of resource-utilizing
capability on the relationship between loan-acquiring capability and global
market leadership.
Hypothesis 12. Business-friendly market institutions are likely to weaken the
positive role resource-utilizing capability plays in moderating the relationship
between loan-acquiring capability and global market leadership in both the
upward and downward segments of the inverted U-shaped curve.
3. Variables and methods
3.1. Firm-level variables
We constructed firm-level variables based on a dataset of Fortune Global
500 market leader companies located in 28 industries and 34 countries from
1996 to 2011. It included the total value of sales revenue, the total number of
staff, the total value of shareholders’ equity, and the total value of assets for
each firm in each year over the entire period. We subtracted the total value of
shareholders’ equity from the total value of assets to produce the total value
of loans. We deflated the total value of sales revenue, the total value of equity
and the total value of loans using the 2000 constant price indexes compiled by
the UNCTAD. After
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deleting cases with missing or inadequate data, we obtained an unbalanced
panel dataset with 7880 observations.
3.1.1. Global market leadership
Global market leadership was measured by the market share of firm i in the
sales revenue of industry j in year t. An increase in market share indicates
strengthening of global market leadership whereas a decrease in market share
implies a decline of global market leadership.
3.1.2. Managerial capability
Since managerial capability recognizes the importance of managers’
strategic decisions to build, integrate and configure organizational resources
and competencies to achieve high performance, we constructed a measure of
managerial capability using the function expressed in Eq. (2).
G ¼u S1E 2L3
b b b (2)
i jt i jt i jt i jt i jt
Here i represented firm, j represented industry, and t represented year. G
represented total value of sales revenue, S represented total number of staff, E
represented total value of shareholder’s equity, and L represented total value
of loans. b1, b2 and b3 represented unobservable marginal sales productivity
of staff, equity and loan, respectively. These were constants deter-mined by
b b b
available technology. S ijt2 , E ijt2 and L ijt3 represented managerial
capability to acquire staff, equity and loan to generate sales revenue based on
marginal productivity of staff, equity and loan as determined by available
technology in firm i, industry j and year t, respectively. uijt represented
resource-utilizing capability, i.e., managerial capability to utilize staff, equity
and loan resources to achieve sales productivity gains in firm i, industry j and
year t.
Taking the natural logarithm of Eq. (2) produced Eq. (3).
LgGi jt ¼ a þ b1LgSi jt þ b2LgEi jt þ b3LgLi jt þ 2 i jt (3)
The constant a and the error term 2ijt represented resource-utilizing
capability (uijt), which was calculated using Eq. (4).
u ¼ LgG s e l
i jt i jt i jt i jt i jt (4)
where sijt represented staff-acquiring capability (b1LgSijt); eijt represented
equity-acquiring capability (b2LgEijt); and lijt repre-sented loan-acquiring
capability (b1LgLijt). We ran a regression on Eq. (3) to obtain b1, b2 and b3,
and then calculated the value of the four categories of managerial capability
accordingly. In addition, we introduced (1) a quadratic term of loan-acquiring
capability to capture the possible nonlinear relationship between loan-
acquiring capability and global market leadership, and (2) interactions
between resource-utilizing capability and the two (linear and quadratic) terms
of loan-acquiring capability to capture the moderating effect of resource-
utilizing capability on the relationship between loan-acquiring capability and
global market leadership.
In constructing the variables of managerial capability, we followed
Sirmon and Hitt (2009) and used a two stage least square (2SLS) to address
the problem of endogeneity. In particular, an increase in assets may be a result
of an increase in sales revenue. The instrumental variables used in the 2SLS
should not be related to the performance variable predicted in the second
stage, but should be related to the endogenous variable predicted in the first
stage. We found the reversed leverage ratio meeting these criteria (i.e., the
ratio of equity to loan). Our argument is that some variation in assets is due to
the funds available to a firm, which should show up in reversed leverage ratio
– a measure of financial slack. The instrumental variable was included in the
first-stage regression, but was not included in the second-stage regression.
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3.2. Country-level variables
3.2.1. Market institution
We used the Ease of Doing Business Index to measure business-friendly
market institutions. The index was compiled by the World Bank to measure
‘‘business regulation and the protection of property rights’’ in different countries
(World Bank, 2011, p. 110). It covered regulations that directly affect business in
9 areas: starting a business, dealing with construction permits, registering
property, getting credit, protecting investors, paying taxes, trading across borders,
enforcing contracts and closing a business. Countries are ranked according to the
average score of regulations in the 9 areas. Higher rankings indicated better and
usually simpler regulations on business, or more business-friendly market
institutions. To keep consistency in interpretation, we normalized the index with
a larger value representing more business-friendly market institutions. The
dataset covered a period of five years from
2006 to 2010. We used the average index of the five years, and named the variable
market institution.
3.2.2. Labor protection
The Ease of Doing Business Index did not include regulations on labor
protection, which was considered as an important part of institutional
environment (World Bank, 2012). To address the problem, we found a cross-
country index of bargaining power of union compiled by the World Bank
from 1999 to 2011. The index measured the statutory protection and power of
union as the average of the following seven dimensions: (1) whether or not
employees have the right to unionize; (2) whether or not employees have the
right to collective bargaining; (3) whether or not employees have the legal
duty to bargain with unions; (4) whether collective contracts are extended to
third parties by law;
(5) whether the law allows closing shops; (6) whether workers or unions, or
both have the right to appoint members to the Boards of Directors; and (7)
whether workers’ councils are mandated by law. We used the average index,
named labor protection, as a control variable.
3.3. Estimation approach
Firms were nested within countries. It was therefore necessary to use the
hierarchical linear modeling (HLM) techniques developed by Bryk and
Raudenbush (1992) to deal with the challenge in examining nested data. A
detailed explanation of application of the HLM techniques to management
research was provided by Hofmann (1997). HLM techniques help overcome
the biases and errors in conventional estimation approaches, such as ordinary
linear square, that treat variables at different levels as if they were at one
single level. The HLM techniques allow for simultaneously estimating within
and between group (country here) variance and thereby minimize estimation
biases and errors. At the same time, the HLM techniques allow for
investigating the influence of country-level variables on firm-level variables
while maintaining the appropriate level of analysis (Hofmann, 1997).
Before running the HLM regressions, we needed to address the problem
of endogeneity. We assumed that measures of managerial capability may be
influenced by global market leadership. Since the 2SLS method was used in
calculating measures of managerial capability, the endogeneity problem was
expected to be attenuat-ed. Indeed, the Hausman test rejected the likelihood of
endogene-ity. Moreover, we ran the one-way analysis of variance (ANOVA)
to verify whether the HLM is appropriate for analysis of the dataset. The
intra-class correlation (ICC) was 0.25, indicating that country-level factors
accounted for 25% of the variance in global market leadership at the firm
level. The Chi-square tests suggested that there was significant between-
country variance (p00 = 0.003,
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Table 1
Mean, standard deviations and correlations.a

Variable Mean s.d. 1 2 3 4 5 6 7

** ** ** **
1. Global market leadership 0.06 0.05 0.28 0.13 0.01 0.31 0.31 0.01
2. Staff-acquiring capability 1.71 0.17 0.32** 0.31** 0.09** 0.01 0.18** 0.01
3. Equity-acquiring capability 1.55 0.20 0.16** 0.38 **
0.42** 0.01 0.06 0.01
4. Loan-acquring capability 1.08 0.16 0.01 0.11** 0.51** 0.01 0.04 0.01
5. Resource-utilizing capability 5.45 0.49 0.36** 0.01 0.01 0.01 0.21** 0.01
6. Market institutions 39.77 41.30 0.39** 0.16** 0.09 0.05 0.18** 0.04
7. Labor protection 0.44 0.15 0.01 0.01 0.01 0.01 0.01 0.07
a
Values below the diagonal result from the individual-level analyses whereas values above the diagonal result from group-level analyses. N = 34 countries comprising 7880 firm observations.

*<0.05.
**
<0.03.

df = 33, x2 = 1099, p < .001). This justified for the use of the HLM. The
correlation and descriptive statistics of the focal variables are reported in
Table 1.
4. Results
We followed standard HLM procedures to run the random-coefficient
regression model. The intercept-as-outcome model and the slope-as-outcome
model were used to estimate the effect of managerial capability on global
market leadership in level-1 analysis. The direct and indirect effect of market
institutions on global market leadership was used in level-2 analysis. We
grand-mean-centered level-1 variables.3 The HLM results are reported in
Table 2.
4.1. Baseline model estimation
Column 1 in Table 2 contains the results of the baseline regression model
without interactions of loan-acquiring capability with resource-utilizing
capability. In level-1 analysis, staff-acquiring capability (g = .06, p < .03),
equity-acquiring capability (g = .04, p < .03), and resource-utilizing
capability (g = .03, p < .03) all contributed to strengthening of global market
leadership. The results supported hypotheses 1, 2 and 3. Specifically, for a 1%
increase in staff-acquiring capability, equity-acquiring capability and
resource-utilizing capability, the market share of a firm increased on average
by 0.017, 0.01, and 0.027%, respectively.
The slope-as-outcome model of level-2 analysis produced estimates of
indirect effects of business-friendly market institu-tions on global market
leadership through cross-level interactions. To illustrate the cross-level
interactions clearly, we plotted the association between the four categories of
managerial capability and global market leadership in Fig. 2. The data in this
figure compares three contexts of business-friendliness of market institutions:
mean, high (one standard deviation above mean), and low (one standard
deviation below mean). Hypotheses 7 and 8 propose that business-friendly
market institutions help strengthen the positive effect of staff-acquiring
capability and resource-utilizing capability on global market leadership,
respectively. The hypotheses were supported by the positive coefficients of
cross-level interactions of business-friendly market institution with staff-
acquiring capability (g = .0005, p < .03) and with resource-utilizing
capability (g = .0003, p < .03) in predicting global market leadership. As
shown clearly in Fig. 2a and b, the regression line was steeper when market
institutions were more business-friendly than when market institutions were
less business-friendly. Hypothesis 9 states that business-friendly market
institutions have little effect on the relationship between equity-acquiring
capability and global market leadership. This hypothesis was supported by the
non-significant coefficient of cross-level interaction between business-
friendly market institu-tions and equity-acquiring capability (g = .00003, p >
.10). As shown in Fig. 2c, the shape of the regression line remained the same
regardless of the level of business-friendliness of market institutions.

Hypothesis 4 states that loan-acquiring capability has an inverted U-

shaped relationship with global market leadership. This was supported by the
positive and statistically significant coefficient of the linear term of loan-
0.056
acquiring capability (g = 50,
p < .03) and the negative and statistically significant coefficient of
the quadratic term of loan-acquiring capability (g = .06, p < .03). We plotted
the inverted U-shaped relationship in Fig. 1. It is clear that loan-acquiring
0.034
capability contributed to strengthening of global market leadership to a
Market leadership

certain point, and negatively affected global market leadership afterwards.

The turning point was an estimated value of 1.06. This means that loan-
acquiring capability would undermine global market leadership after it had
reached 1.06. 0.012

In the intercept-as-outcome model of level-2 analysis, busi-ness-friendly

market institutions (g = .0003, p < .03) were a significant predictor of global
market leadership. Business-friendly market institutions on average -0.010
contributed directly to strength-ening of global market leadership. We found
that firms based in countries with more business-friendly market institutions
tended to have a larger market share in an industry than firms based in
countries with less business-friendly market institutions. This result supported
-0.032
Hypothesis 6. 0.62 0.90 1.19 1.48

Loan-acquiring capability

3 Fig. 1. Inverted U-shaped Relationship between loan-acquiring capability and global market
We also tried to group-mean-centered level-1 variables, which produced similar results.
leadership.

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Table 2
Results of hierarchical linear modeling for effects on global market leadership of managerial capability and market institutions.a

Variables 1 2
b c
g e gb ec
Level-1 variables
Intercept 0.05** 0.0053 0.05** 0.0051
Staff-acquiring-capability 0.06** 0.0115 0.06** 0.0122
Equity-acquiring capability 0.04** 0.0138 0.04** 0.0143
Loan-acquiring capability 0.50** 0.1163 0.18 0.2000
Resource-acquiring capability 0.03** 0.0077 0.03 0.0273
2 ** **
Loan-acquiring capability 0.25 0.0568 0.22** 0.0459
Resource-utilizing capability loan-acquiring capability2 0.05** 0.0227
Resource-utilizing capability loan-acquiring capability 0.03 0.0115
Level-2 variables
Market institution 0.0003** 0.0001 0.0002** 0.00006
Labor protection 0.02 0.0500 0.02 0.0400
Cross-level interactions
Market institution staff-acquiring capability
M arket
0.0005**
0.00003
0.0002
0.0003
0.0005**
0.00005
0.0002
0.0003

institution equity-acquiring capability ** **

Market institution loan-acquiring capability 0.005 ** 0.0020 0.013 ** 0.0036

Market institution resource-utilizing capability2
0.0003 **
0.0001 0.0002 **
0.00009
Market institution loan-acquiring capability 0.002 0.0009 0.004 ** 0.001
Market institution resource-utilizing capability loan-acquiring capability2 0.0009** 0.0004
Market institution resource-utilizing capability loan-acquiring capability 0.0005 0.0002
a
n = 7880.
b
g indicates regression coefficient. c e
indicates standard errors.
*p < .05.
**
p < .03.

Hypotheses 10 and 11 propose that business-friendly market institutions positive coefficient of the cross-level interaction between business-friendly
help strengthen the positive effect of moderate loan-acquiring capability on market institutions and the linear term of loan-acquiring capability in
global market leadership, but amplify the negative effect of excessive loan- predicting global market leadership (g = .005, p < .03) and the negative
acquiring capability on global market leadership. The hypotheses were coefficient of the cross-level interaction between business-friendly market
supported by the institutions and

a b
0.109 0.238
leadership

Market leadership

0.077 0.169

0.045 0.100
Market

Friendliness of market institutions = High

Friendliness of market institutions = High
Friendliness of market institutions = Mean Frien dliness of market institutions = Mean
0.012 Friendlines s of market institutions = Low 0.031 Friendliness of market institutions = Low

-0.020 -0.038
0.90 1.30 1.70 2.10 4.21 5.86 7.51 9.16
Staff - acquiring capability Resource-utilizing capability

c d Friendliness of market institutions = High

0.090 0. 071 Friendliness of market institutions = Mean
Friendliness of market institutions = Low
Market leadership

0.064 0. 037
leadership

0.037 0. 002
Friendliness of market institutions = High
Market

Friendliness of market institutions = Mean

0.011 Friendliness of market institutions = Low

-0.032

-0.015 -0.066
0.42 0.90 1.39 1.87 0.62 0.90 1.19 1.48
Equity - acquiring capability Loan-acquiring capability

Fig. 2. Impact of business-friendly market institutions on the relationship between managerial capability and global market leadership.

Please cite this article in press as: Tian, X., & Slocum, J. W. The decline of global market leaders. Journal of World Business (2014), http://
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8 X. Tian, J.W. Slocum / Journal of World Business xxx (2014) xxx–xxx
the quadratic term of loan-acquiring capability in predicting global market
leadership (g = .002, p < .03). As shown in Fig. 2d, the upward regression
line before the turning point was steeper when market institutions were more
business-friendly than when market institutions were less business-friendly.
This indicated that business-friendly market institutions strengthened the
positive effect of moderate loan-acquiring capability on global market
leadership. The downward regression line after the turning point was also
steeper when market institutions were more business-friendly than when
market institutions were less business-friendly. This indicated that business-
friendly market institutions amplified the negative effect of excessive loan-
acquiring capability on global market leadership.
4.2. Augmented model estimation
Column 2 of Table 2 contains the results of regressions in which
interactions between resource-utilizing capability and loan-acquiring
capability were introduced. In level-1 analysis, the coefficient of the
interaction between resource-utilizing capability and the linear term of loan-
acquiring capability was positive and statistically significant (g = .05, p <
.03). The coefficient of the interaction between resource-utilizing capability
and the quadrat-ic term of loan-acquiring capability was also significant (g =
.03, p < .03). These results supported Hypothesis 5. Resource-utilizing
capability positively moderates the effect of loan-acquiring capability on
global market leadership in both the upward and downward segments of the
inverted U-shaped curve. Fig. 3 shows the association between loan-acquiring
capability and global market leadership is contingent on three levels of
resource-utilizing capability: mean, high (one standard deviation above
mean), and low (one standard deviation below mean). An inspection of the
data reveals that the turning point on the inverted U-shaped curve was
reached when resource-utilizing capability was high rather than when
resource-utilizing capability was low. Resource-utilizing slowed down the
process in which loan-acquiring capability turned into a liability. Moreover,
the upward regression line before the turning point was steeper when
resource-utilizing capability was high than when resource-utilizing capability
was low. Resource-utilizing capability helped strengthen the positive effect of
moderate loan-acquiring capability on global market leadership. Furthermore,
the downward regression line after the turning point was flatter when
resource-utilizing capability was high than when resource-utilizing capability
was low. Resource-utilizing capability helped weaken the negative effect of
excessive loan-acquiring capability on global market leadership.
The slope-as-outcome model of level-2 analysis estimated the effect of
business-friendly market institutions on the interactions
0.092
Resource- utilizing capability = High
Resource- utilizing capability = Mean
Resource- utilizing capability = Low
0.058
Market leadership
0.024
-0.010
-0.044
0.62 0.90 1.19 1.48
Loan- acquiring capability
Fig. 3. Interaction of resource-utilizing capability and loan-acquiring capability in predicting
global market leadership.
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dx.doi.org/10.1016/j.jwb.2014.01.003
between resource-utilizing capability and loan-acquiring capabil-ity in
predicting global market leadership. Hypothesis 12 proposed that business-
friendly market institutions weaken the positive moderating effect of
resource-utilizing capability on the relation-ship between loan-acquiring
capability and global market leader-ship in both the upward and downward
segments of the inverted U-shaped curve. The hypothesis was supported by
the two negative coefficients of the cross-level interactions: one coefficient (g
= .0009, p < .03) represented the effect of business-friendly market
institutions at level 2 on the level-1 interaction of resource-utilizing capability
with the linear term of loan-acquiring capability in predicting global market
leadership, while the other coefficient (g = .0005, p < .03) represented the
effect of business-friendly market institutions at level 2 on the level-1
interaction of resource-utilizing capability with the quadratic term of loan-
acquiring capability in predicting global market leadership. Finally, the
coefficient of the level 2 control variable, labor protection, was not
significantly different from zero in all regressions. The result indicates that
labor protection institutions had neither direct nor indirect effect on global
market leadership.
5. Discussion
In search for causes of the decline of global market leaders, we critically
drew on both CBV and IBV and integrated them in a multilevel framework.
Based on the integrated multilevel frame-work, we developed hypotheses
about the impact on global market leadership of managerial capability and
market institutions. We tested them against the data of Fortune 500 global
market leader companies from 1996 to 2011. The study sheds new insight into
the interactive forces that undermined global market leaders at both the firm
and institution levels. Our results have important implications for both
management theory and management practice.
5.1. Theoretical contributions
Understanding the relationship between managerial capability and
competitive advantage is at the heart of CBV. Unfortunately, CBV literature
has been based on an explicit or implicit linearity assumption: the more a firm
possesses managerial capabilities, the greater competitive advantage the firm
will enjoy. Capability development was considered to be conducive to
increasing a firm’s competitive advantage. Our paper suggests that the
linearity assumption is questionable. Excessive development of managerial
capabilities may lead to loss of competitive advantage as indicated by decline
of global market leadership. Managerial capability to acquire loans to finance
business expansion was found to have an inverted U-shaped relationship with
global market leadership. We identified the liability of excessive loan-
acquiring capability as an endogenous cause of the decline of global market
leaders.
We presented data on the interactions between resource-utilizing
capability and loan-acquiring capability that affect global market leadership.
Specifically, resource-utilizing capability posi-tively moderated the
relationship between loan-acquiring capa-bility and global market leadership
in both the upwards and downwards segments of the inverted U-shaped curve.
Capability interactions, especially the important role resource-utilizing
capability play in the interactions, should become a focus of capability-based
research (Black & Boal, 1994; Carmeli & Tishler, 2004; Stieglitz & Heine,
2007).
Our analysis suggests that the effect of managerial capability on global
market leadership is affected by institutions that govern business transactions
in the marketplace. Contrary to the literature, business-friendly market
institutions were found to adversely affect firm operation and performance.
Specifically, they
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Table 3
Development of managerial capability in Lehman Brothers Holdings.

Year Workforce-acquiring capability Equity-acquiring capability Loan-acquiring capability Resource-utilizing capability

a a a
Value Contribution to Value Contribution to Value Contribution to Valuea Contribution to
sale growthb (%) sale growthb (%) sale growthb (%) sale growthb (%)
1996 1.40 15 1.43 15 1.24 13 5.50 57
1997 1.42 15 1.47 15 1.26 13 5.42 57
1998 1.43 15 1.51 15 1.27 13 5.56 57
1999 1.43 14 1.58 16 1.31 13 5.55 56
2000 1.47 14 1.61 16 1.33 13 5.78 57
2001 1.49 15 1.63 16 1.34 13 5.61 56
2002 1.48 15 1.64 17 1.35 14 5.29 54
2003 1.52 16 1.70 18 1.36 14 5.13 53
2004 1.55 16 1.69 17 1.35 14 5.14 53
2005 1.58 16 1.69 17 1.35 13 5.43 54
2006 1.60 16 1.67 17 1.35 14 5.24 53
2007 1.61 16 1.67 17 1.37 14 5.31 53
a
Mean value of individual categories of managerial capability are calculated using the estimation framework introduced in the paper.
b
Relative contribution to sale growth of a category of managerial capability is the sum of the mean value of all categories of managerial capability divided by the mean value of the respective
category of managerial capability.

amplified the negative effect of excessive loan-acquiring capability on global
market leadership, and weakened the positive role resource-utilizing
capability played in moderating the relationship between loan-acquiring
capability and global market leadership. The paper illustrates the undesirable
side of business-friendly market institutions, and identifies the liability of
business-friendly market institutions as an exogenous cause of the decline of
global market leaders. Theoretical research on institutions needs to further
explore the conditions in which business-friendly market institutions may
become a liability.
In a sense, business-friendly market institutions may very well mean
preferred access to financial and other institutional networks that in turn may
lower the cost of critical inputs. This is illustrated by the preferred network
position in a keiretsu in Japan, core position holding for a venture capital firm
in the U.S., and close ties to commercial or insurance operations in Germany.
The study suggests that the development of institution-related capabilities can
become liabilities. However, it is crucial to distinguish between distinctive
and generic capabilities. Distinctive capabilities are those that are more
unique or specific to the firm’s strategy, including different types of skills and
talents vital to the business. Generic or non-distinctive capabilities are those
that support the daily operations of business, including staff recruitment, legal
compliance, accounting, and other functions.4
5.2. Managerial implications
Firms have been advised to develop managerial capability in order to gain
and sustain global market leadership (Adner & Helfat, 2003; Helfat et al.,
2007; Sirmon & Hitt, 2009; Teece, 2007). The paper provided an important
qualification to this argument. Managers need to understand the possible
nonlinearity between capability building and global market leadership. We
found that loan-acquiring capability had an inverted U-shaped relationship
with global market leadership. Although firms need to build managerial
capability to acquire loans to finance business expansion, they should make
sure not to develop this into a liability. Under business-friendly market
institutions, firms should be particularly cautious of massive build-up of loan-
acquiring capability that undermines global market leadership. Business-
friendly institutions may very well afford access to financial resources and
other institutional networks that may in turn lower the cost of critical inputs if
managers use these to increase the effectiveness of their firm. To fund generic
projects or the
acquisitions of non-distinctive resources does not lead to global market
leadership.
Lehman Brothers Holdings, which was on the Fortune Global 500 list
until 2007, may serve as a case to illustrate this point. Based in the United
States where market institutions are among the most business-friendly in the
world, the company experienced massive build-up of loan-acquiring
capability over years. Based on our data shown in Table 3, Lehman’s loan-
acquiring capability was 1.24 in 1996, already higher than the turning point of
1.06. Loan-acquiring capability continued to growth until it reached 1.37 in
2007, unprecedented in history. The accumulated negative effect of loan-
acquiring capability eventually resulted in collapse of the company in 2008.
Lehman Brothers Holdings was not a rare case. According to the data of
Fortune Global 500 global market leaders companies, a number of U.S.-based
market leader companies in the financial sector developed a loan-acquiring
capability above the turning point of 1.06 and ran into high risks during the
global financial crisis. Without the bailout plan of the U.S. government, many
of them would have collapsed.
We found that resource-utilizing capability not only strength-ened the
positive effect of moderate loan-acquiring capability on global market
leadership, but also weakened the negative effect of excessive loan-acquiring
capability on global market leadership. This indicates that if firms have
developed strong resource-utilizing capability, they can not only benefit more
from moderate increase in loan-acquiring capability but also suffer less from
excessive development of loan-acquiring capability. Apart from the positive
moderating effect, resource-utilizing capability was found to contribute
directly to strengthening of global market leadership. In the case of Lehman
Brothers Holdings, the massive build-up of excessive loan-acquiring
capability was accompanied by a decline, rather than an increase, in resource-
utilizing capability in terms of both absolute value and relative contribution to
sale growth. From 1996 to 2007, the absolute value of resource-utilizing
capability declined from 5.50 to 5.31 while the relative contribution of
resource-utilizing capability to sale growth declined from 57% to 53%.
Evidence indicated that what matters is not only the parity level of capability
development, but also the level of capability development compared to the
past. Resource-utilizing capability plays a vital role in sustaining a firm’s
competitive advantage. The failure to develop resource-utilizing capability
arguably contributed to collapse of the company in 2008. To stay a market
leader, therefore, a firm should make great effort to develop resource-utilizing
capability.

Managers need to refrain from excessively developing their capability to

4
We thank a reviewer for making this point. acquire loans. They should rely primarily on their

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capabilities to acquire internally generated financial resources, to acquire
human resources with creative ideas and, most impor-tantly, utilize all
resources productively to achieve synergy to strengthen their firm’s global
market leadership. The paper provided a practical approach to measuring
managerial capability, which can help managers make informed decision on
how to improve capability building in the firm they manage. In fact,
interested researchers can use the approach to examine develop-ment of
managerial capability in major rival companies in an industry in a
comparative perspective, which is expected to further facilitate managerial
decision-making.
5.3. Limitations and directions for future research
The paper has several limitations that need to be tackled by future
researchers. To begin with, the four categories of managerial capability
examined in the paper were illustrative of the complex capabilities that firms
need to build up in market competition. Staff-acquiring capability may be, for
instance, decomposed into capability to acquire skilled staff and capability to
acquire unskilled staff; equity-acquiring capability may be decomposed into
capability to acquire domestic assets and capability to acquire overseas assets;
and loan-acquiring capability may be decomposed into capability to acquire
transactional loans and capability to acquire relational loans (O’Brien &
David, 2009; Tian, 2007). Similarly, resource-utilizing capability can be
decomposed into capability to bundle resources, capability to deploy
resources, capability to leverage resources, and so on so forth (Sirmon et al.,
2011; also see Holcomb et al., 2009; Sirmon & Hitt, 2009; Sirmon et al.,
2008). When data become available, effort should be made to decompose the
four major categories of managerial capability to examine their effect on
global market leadership in greater detail.
A second limitation is related to the exclusive focus on loan-acquiring
capability as an endogenous liability that undermined global market
leadership. In fact, there might be many other related factors, such as business
strategy (Lei & Slocum, 2013), product life cycle, that adversely affect global
market leadership. Staff-acquiring capability, equity-acquiring capability and
re-source-utilizing capability all contributed to strengthening of global market
leadership. Conversely, a failure to develop these managerial capabilities is
likely to lead to a decline in global market leadership. Effort needs to be made
to investigate how global market leadership may be weakened by a failure to
develop these managerial capabilities. Global market leadership may be
weakened by, for instance, a failure to develop managerial capability to
acquire foreign staff and utilize them productively in internationalization
processes, a failure to develop managerial capability to restructure asset to
improve productive use of resources, a failure to develop managerial
capability to achieve synergy in resource utilization following mergers and
acquisitions, a failure to develop managerial capability to organize human
resources in the organization, and CEO turnovers (Joyce & Slocum, 2012).
Sirmon et al. (2010) have made progress in examining how insufficient
development of managerial capability, as compared to rivals, may affect
competitive advantage. Future research may draw on their research as well as
findings of the present paper to further move in this direction.
A third limitation is related to the exclusive focus on market institutions
as an exogenous liability that weakened global market leadership. Although
generating some adverse impact, in fact, business-friendly market institutions
were found to help strength-en global market leadership directly through
facilitating business transactions, and indirectly through moderating the
positive effect of staff-acquiring, equity-acquiring, and resource-utilizing
capa-bilities on global market leadership. The paper produced evidence of the
positive role of business-friendly market institutions in
Please cite this article in press as: Tian, X., & Slocum, J. W. The decline of global market leaders. Journal of World Business (2014), http://
dx.doi.org/10.1016/j.jwb.2014.01.003
strengthening global market leadership, but did not explore it further. 5 In
addition, the paper did not discuss the role informal market institutions may
play in influencing global market leadership (Peng, 2003). Furthermore, the
business environment in which firms operate comprises many factors other
than market institutions, including such demographic factors as the size and
composition of population, such geographic factors as access to the sea and
distance to global market centers, and such endowment factors as reserves in
petrol, minerals and other natural resources. These factors may either
positively or negatively affect firms’ effort to strengthen global market
leadership, which was not discussed in the paper. Future research may fill the
gap.
In addition, although the paper found evidence of a negative effect of
business-friendly market institutions on global market leadership, we did not
discuss implications of the finding for public policy due to space constraint.
Suffice it to say that the global financial crisis and European debt crisis were
closely related to flaws in the banking system in mature market countries,
indicating the dire need for improvement in market institutions. In particular,
as the paper suggested, institutional arrangements should be in place to
restrain debt-ridden firms from easy access to credit and ensure borrowers
efficiently utilize resources. Market institutions should be friendly enough to
encourage firms to make sound investment, and hostile enough to deter them
from engaging in extravagant business expansion. Future research may move
in this direction to discuss improvement in market institutions.
6. Conclusion
Critically drawing on CBV and IBV and integrating them in a multilevel
framework, the paper suggests that excessive loan-acquiring capability
negatively affects global market leadership and the negative effect is
amplified under business-friendly market institutions. In addition, business-
friendly market institutions weaken the positive role resource-utilizing
capability plays in moderating the relationship between loan-acquiring
capability and global market leadership. The paper thus provides a capability-
and institution-based explanation for the decline of global market leaders, and
thereby improves both CBV and IBV. The paper helps managers understand
the nonlinear relationship between mana-gerial capability and global market
leadership, and provides managers with a practical approach to identifying
problems in capability building. The paper reveals cross-level interaction of
the dark side of market institutions and the dark side of managerial capability,
and sheds light on how to overcome flaws in current market institutions.
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