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Introduction
The international strategy literature has increasingly focussed on the effects of pro-market reforms on the strategy and performance of developing country firms (e.g. Banalieva and Sarathy, 2010; Bhagwati, 2004; Guillen, 2001; Henisz et al. , 2005; Khanna and Palepu, 2000; Khoury et al. , 2014; Kumaraswamy et al. , 2012). Among other elements, this literature has studied how reforms affect company internationalization, efficiency, technology, business group dynamics, and performance (e.g. Amann and Nixson, 1999; Appiah-Adu, 1999; Chari and Banalieva, 2014; del Sol and Kogan, 2007; Katrak, 2002). These works have greatly increased our understanding of the relationship between reforms and firm performance. What is lacking is a more general understanding of how firms may better cope and thrive in the face of institutional changes through their strategic decisions.
The purpose of this paper is to study how the international strategic choices that firms make can enhance or detract from the potential benefits of institutional changes in their home market. The paper combines the POST Model of Economic Geography (Beugelsdijk et al. , 2010; Dau, 2013; see also Buckley and Ghauri, 2004; Coe et al. , 2007; Dohse et al. , 2012; McCann and Mudambi, 2005) with Learning Theory from International Business (Barkema and Drogendijk, 2007; Chang, 1995; Eriksson et al. , 1997, 2000a, b) to study how as firms increase their access to international knowledge spillovers and their absorptive capacity (Cohen and Levinthal, 1990; Zahra and George, 2002), they increase their responsiveness to institutional changes and processes in their home market. Although prior work has combined the POST Model with Learning Theory to study the moderating effects of internationalization, internationalization direction, and internationalization timing on the effect of reforms on firm profitability (Dau, 2013); this paper builds on that work by delving deeper and further teasing out the POST Model as it relates to Learning Theory, and by studying the impact of five new moderating relationships on the effect of reforms on firm profitability. First, the paper provides a general proposition for how learning can affect the responsiveness of firms to institutional changes. Then, it analyzes the particular case of how the effect of pro-market reforms on firm performance may be boosted by several international strategic decisions that increase access to diverse types...