Strategic Management Society-SMS 34 th Annual International conference. Madrid, 20-23 September 2014 1 Non-market Strategies of Small Firms In Indonesia The South Sulawesi Case Study Abdullah Sanusi, Bella Butler, Fay Rola-Rubzen Curtin University, Western Australia Abstract This paper examines how small firms implement non-market strategies in an emerging economy such as Indonesia. Non-market strategies include political actions of business players, lobbying, philanthropy and business owners turning into politicians themselves. The research aims to identify the forms of business players behind the implementation of the non-market strategy. In-depth case studies were carried out in eight small-firms in the region of South Sulawesi, Indonesia. Based on 14 semi-structured interviews, our finding shows that small firms implement political activities in response to institutional changes. We contribute to the knowledge of the non-market environment in Indonesia, the role of different forms of cooperation and the implications for dealing with stakeholders in today’s business environment in Indonesia. Key words: Emerging market, Indonesia, Institutional environment, Non-market strategy, Political strategy, South Sulawesi. Introduction While it is commonly recognised that non-market strategies differ in various institutional conditions (Doh, Lawton, & Rajwani, 2012), they were mostly studied in Western stable economies (Li et al., 2012; Peng, 2003; Wright, Filatotchev, Hoskisson, & Peng, 2005; Yuanqiong et al., 2007) with large companies as an object of most studies (Bengtson et al., 2009; Gao, 2006; Peng, 2003). Scholars pointed that non-market actions should be distinguished in different environments (Shaffer & Hillman, 2000), particularly, in emergent markets. The later were defined as ‘low-income, rapid growth countries using economic liberalization as their primary engine of growth’ (Hoskisson, Eden, Lau, and Wright (2000, p. 249). Our study is responding to the call for new methods to examine the phenomena of non-market strategies in diverse contexts of emerging markets (Wright et al., 2005). In emerging markets with ongoing institutional changes (Peng, 2003; Yuanqiong, Zhilong, & Yun, 2007) businesses are engaged in non-market strategies (Aggarwal, 2001; Baron, 1995; Faccio, 2006; Fisman, 2001) to deal uncertainty and instability and manage the institutional and societal environment (Baron, 1995). Non-market strategies, for example, building political connections, play a positive role for financial and non-financial performance of businesses (Zhou, 2013; Faccio, 2006; Fisman, 2001; Deng, Tian, Li, and Abrar, 2012). Political activities of firms are based on building political connections (Bengtson, Pahlberg, & Pourmand, 2009; Hadjikhani, Thilenius, & Pourmand, 2009) and informal relationships with local authorities is seen as the main option for the firms (Peng & Heath, 1996). The firms’ size plays an important role in the choice of the degree of interaction between the firm and political actors (Hillman, Keim, & Schuler, 2004; Lux, Crook, & Woehr, 2011). Unlike its larger counterparts, small firms are more vulnerable (Peng & Luo, 2000), which forced them to rely on intermediaries or act collectively when approaching political environment (Bennett & Ramsden, 2007; Cook & Barry, 1995; Wilts & Meyer, 2005). Small firms have been widely acknowledged as an important engine of national economies, particularly in developing countries (Bruton, Ahlstrom, & Obloj, 2008; Che Senik, Scott-Ladd, Entrekin, & Adham, 2011; Hill, 2001; Mourougane, 2012; Nichter & Goldmark, 2009; Turner, 2007). Small firms provide employment opportunities for many people and well known for its adaptability. Adaptation is achieved because small firms service local markets and do not rely on the support of formal financial institutions. (Berry, Rodriguez, & Sandee, 2001).