Innovation-based diversification strategies and the survival of emerging economy village-owned enterprises (VOEs) in the COVID-19 recession

Abstract

PurposeThe global recession caused by the COVID-19 pandemic has led to the closure of thousands of village-owned enterprises (VOEs), which are community-managed enterprises that operate in the hostile rural areas in emerging economies. Thus, considering that a Schumpeterian view of economic downturn sees recessions as times where old products/services decline while new products/services emerge, this paper aims to explore the specific innovation-based diversification strategies that matter for the survival of emerging economy VOEs in recession periods to develop new theoretical insights.Design/methodology/approachThe study is based on multiple-case studies of 13 leading VOEs operating in the rural areas of Java Island in Indonesia, an emerging economy. The data was analysed using within-case and cross-case analyses.FindingsOverall, a number of major novel findings have emerged from the analysis, based on which the authors developed several new propositions. First, from the perspectives of both new product and new service diversification, “unrelated diversification” is the primary resilience strategy that seems to be associated with the survival of VOEs in the COVID-19 recession, over and above “related diversification”. Second, from an industrial sector diversification perspective, the most dominant resilient strategy for surviving the recession is “unrelated diversification into tertiary sectors (service sector)”, over and above diversification into the primary sector (agriculture, fisheries and mining) and secondary sector (manufacturing and construction).Originality/valueThe authors contribute to the literature on entrepreneurship in emerging economies by identifying the resilience diversification strategies that matter for the survival of VOEs in recession.