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«Industrial policy and the creation of new industries: evidence from Brazil’s bioethanol industry Santiago Mingo*,y and Tarun Khanna** Downloaded ...»

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Industrial policy and new industries 25 of 32 has had an effect on the performance of surviving bioethanol producers. However, we have no reason to believe that Pro-alcohol plants have benefited more than other types of plants from this continued government intervention.

As a robustness check, instead of averaging the yearly operational performance of a plant over the period covered by the data (1999–2005) to perform our analyses, we used each yearly observation separately and add year dummies as control variables— the number of observations increases to 810. In all these additional analyses, results are very similar to the ones discussed above and the interpretation is the same. It is interesting to note that the year dummies are controlling for anything affecting all the plants in a similar way during a specific year. Therefore, these dummies help to control for the impact of continued government intervention that has had a similar Downloaded from http://icc.oxfordjournals.org/ at Harvard Library on July 10, 2014 effect on all units during a specific year.

6. Conclusion Industrial policy programs are frequently used by governments to stimulate economic activity in particular sectors of the economy. This study focuses on how these policy programs affect the creation and evolution of an industry and the long-term performance of firms. Based on an historical analysis of the Brazilian bioethanol industry and a data set with detailed information about the history of bioethanol producers, we show that there are systematic differences in operational performance depending on the origins and ownership history of the sugar–ethanol units. The statistical analyses are complemented with fieldwork performed by the authors. The results show that industrial policy units that survived the aftermath of Pro-alcohol ended up being more productive than pre-industrial policy survivors.

This work represents a contribution to research on the interactions between management and public policy (Mahoney et al., 2009). Our study analyzes two important aspects related to public policy—entrepreneurial ability and organizational imprinting—separately. Environments at the time of founding not only can affect a company directly, but also indirectly by attracting entrepreneurs of different characteristics and abilities. As far as we know, this is the first study that theoretically distinguishes between these two effects in an industrial policy setting. More specifically, the study highlights the importance of industrial policy entrepreneurs. This cohort of entrepreneurs, by creating multiple companies during a relatively short period of time, can introduce long-lasting changes to the structure of an industry and the characteristics of its companies. In other words, these entrepreneurs can have significant implications for the future evolution of the industry. Lastly, we contribute to the literature on acquisitions by discussing an atypical context—industrial policy— where they can play a crucial role in the evolution of an industry.

S. Mingo and T. Khanna 26 of 32 Many implications for both businessmen and policy makers emerge from this study. Managers and entrepreneurs should not underestimate the effects associated with industrial policy programs. Implementing the right strategy can allow their companies to take advantage of the opportunities generated by industrial policy programs and deal with the threats associated with them. For example, successful entrepreneurs should be aware that numerous opportunities to grow through acquisitions could be available during the post-industrial policy period. On the other hand, less successful entrepreneurs that entered during the period of subsidies should keep in mind that their companies could have trouble later on, thus a well thought-out exit strategy is crucial.

This work improves our understanding of how government policies can affect the Downloaded from http://icc.oxfordjournals.org/ at Harvard Library on July 10, 2014 development and evolution of industries and their firms. However, this study has several limitations that need to be addressed in future research. The external validity of our analyses is one concern. Although we are aware that our results might not be generalizable to all industries and countries, the bioethanol program in Brazil still offers a nice opportunity to assess the effect of these programs on firm performance.

Also, by focusing on only one industrial policy program, we were able to go deeper in terms of describing and understanding the phenomena. Future studies should focus on other industries and country settings. One of the most important limitations of this work is our inability to test directly the mechanisms that are part of our theoretical arguments. We try to address this limitation by providing insights from our fieldwork and knowledge about the history of the industry and the Pro-alcohol program in particular. Finally, we acknowledge that, even though Pro-alcohol ended more than two decades ago, some forms of government intervention that have continued to exist in the industry could be affecting the accuracy of some of our analyses. Our results should be interpreted with caution.

This study has improved our understanding of how industrial policy programs can (i) ignite the development of new industries that can have significant economic and social impact, and (ii) affect the long-term performance of firms founded during the period of policies. Future research should explore how industrial policy programs can affect the long-term competitiveness of the industry as a whole.

Acknowledgements We would like to thank Juan Alcacer, Ayfer Ali, Bruno Cassiman, Alvaro CuervoCazurra, Luis Dau, Lee Fleming, Witold Henisz, David Ketchen, Ayesha Khalid Khan, Richard Lai, Christopher Marquis, Gerald McDermott, and Ramana Nanda for their feedback; and seminar participants at the Harvard Business School, the Consortium on Competitiveness and Cooperation (CCC), the Academy of Management Annual Meeting, and the Strategic Management Society Conference.

We are especially grateful to Diana Huidobro and Francisco Morales for their Industrial policy and new industries 27 of 32 research assistance. Finally, we would like to thank the editors and reviewers for their helpful advice. Errors and omissions remain ours.

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