The Role of Regulation in the Development and Internationalization of Social Firms

Abstract

We seek to understand the drivers of the internationalization of emerging-market social firms. To accomplish this, we conducted a case study analysis of the Mexican multinational Farmacias Similares. The firm created a chain of pharmacies that sold generic medicines to poor consumers and included a low-cost doctor next to the pharmacy to address the lack of widespread medical insurance. It then became a multinational by expanding in Latin America. The analysis of the case reveals three insights. First, innovations addressing development challenges can be separated into two types, social and frugal, depending on whether they solve public-good or low-income problems. Second, changes in industry regulation facilitate the development of social firms and sustainable development within the country. Third, differences in regulations across countries constrain the internationalization of social innovations more than frugal innovations of emerging-market social firms.

1. Introduction

Emerging economies provide a fertile ground for developing innovations that have a high social impact by helping the large proportion of the population with a low income have a better life. These innovations have been studied under a variety of terms, such as innovations for the base of the pyramid [1], frugal innovation [2], or catalytic innovation [3], among others. What these innovations have in common is their focus on addressing the needs of poor consumers in emerging economies who suffer from their country’s underdevelopment [4]. However, these innovations are not confined to the country in which they have been created. Some of these can be taken abroad to serve the needs of poor consumers in other emerging countries, and some of them may be even transferred to advanced economies to serve the desire for lower-cost products there, becoming reverse innovations [5].

The internationalization of these innovations has been done in several ways. One is the imitation of the innovations by other organizations abroad, which take the original social innovations and adapt them to the conditions of the local context [6]. Thus, for example, microfinance, which was developed in Bangladesh, has generated a plethora of imitators throughout the world, including both not-for-profit organizations, new, for-profit firms, and even established financial institutions [7,8]. Another example is the development of social innovations by established multinationals who transfer them across operations using their established network of subsidiaries [1,5]. A third one is the expansion of not-for-profit and multilateral organizations that promote the transfer of social innovations across the world and are not concerned with being able to recover the costs of operation since donors fund them [9,10].

However, less attention has been paid to the internationalization of the organizations that have developed the social innovations [11], with some exceptions [12]. This internationalization of for-profit social organizations from emerging markets is interesting for two reasons. One is that there is limited research on the topic. Another, and a more important one, is that it challenges some of the assumptions of existing models of internationalization; these are reviewed in Rugman [13]. Social, for-profit firms straddle a challenging balance between having to make a profit to continue funding operations and expansions (unlike not-for-profit organizations that rely on donors to cover costs) and providing products that address social needs that suffer from market imperfections (unlike most firms that focus on private needs for which there is a clear market) [11,14]. This balance is challenging, given the large differences between goals and measures of success [15], and has resulted in the criticism of for-profit social enterprises [16].

Hence, to better understand the process by which for-profit social firms internationalize, we carry out a case study analysis. We investigate how the Mexican firm Farmacias Similares evolved its business models over twenty years (1996–2016) and internationalized into five countries. The company evolved from selling medicines to government hospitals, to creating a chain of pharmacies selling generic medicines to poor consumers, to including a low-cost doctor consultancy next to the pharmacy to address the lack of widespread medical insurance and the long queues at state-run hospitals. These social innovations were then taken to other countries in Latin America, but with varied success in their transfer.

The analysis of this case highlights the role that regulations play in the development and internationalization of social firms, and supports three ideas. First, we propose separating innovations that address development challenges into two types, social and frugal, depending on whether they provide solutions to public-good or low-income problems. Second, we explain how changes in industry regulations facilitate the development of social firms within the country. Third, we explain how differences in regulations across countries constrain the internationalization of social innovations more than frugal innovations of emerging-market social firms.

These three ideas contribute to a better understanding of two streams of research: the topic of social organizations and their internationalization, and the theory and models of the multinational.

First, on the topic of social organizations [17], we clarify their types and especially their internationalization processes, which have received limited attention [11]. Separating innovations for the poor into the categories of frugal and social is important because they have been confused in much of the literature, despite having very different drivers. Frugal innovations address the challenge of customers’ low income, while social innovations address the challenge of a lack of provision of public goods by the government. Their development and especially their internationalization differ significantly as a result of the role of regulations. Industry regulations constrain the internationalization of social organizations because of the large differences in the effectiveness of governments and political systems across countries. In contrast, frugal innovations are less influenced by regulations because the driver is the existence of large segments of low-income consumers.

Second, to the theory of the multinational, the study highlights the importance of regulations and their differences across countries as a key determinant of a firm’s ability to internationalize. Much of the work analyzing the challenges of internationalization [18,19] has highlighted differences across cultures, as conducted by Kogut and Singh [20] and reviewed by Tihanyi et al. [21], and institutions, as conducted by Khanna and Palepu in 2010, and reviewed by Doh et al. [22]. Surprisingly, differences in regulations have been little-studied, even though they were acknowledged early on in the literature [23]. One reason may be that most internationalization studies use multi-industry databases of companies, which prevents them from obtaining a fine-grained understanding of the industry’s context. Thus, we highlight the importance of single-industry studies as a source of insights and suggest that future studies can go beyond the general concept of institutions [24] and analyze in more detail the role of industry regulations [25,26,27] on firms’ internationalization. Some of the challenges that companies face across countries attributed to institutions, such as the liability of foreignness [19], could simply be industry regulations. Moreover, the study also helps understand the theory of multinationals better by studying companies that have social objectives and thus face tensions in balancing social and financial goals. This line of research provides a novel contribution to our understanding of differences across companies in their internationalization objectives, as is already happening with studies of state-owned multinationals, such as that described in the review by Cuervo-Cazurra et al. [28]. The study of companies that have social objectives adds a more nuanced understanding of the role that these objectives play in the internalization of companies, contributing to a better analysis of the multinational.

The ideas developed in the paper are also useful for decision makers. We provide a better understanding of an essential difference in the business model of companies that create innovations that address the needs of poor people in emerging economies. For companies focused on frugal innovations and addressing the challenge of low income, the paper highlights the relative ease with which these companies can internationalize and take their products to other countries. At the same time, it questions the ease by which competitors in other countries can imitate the company’s products. In contrast, for companies focused on social innovations that solve the lack of provision of public goods in emerging economies, the paper explains the additional challenge that regulations in other countries can have on their foreign expansion, while limiting competitors’ ability to imitate their business model. For policymakers, the paper shows the importance of analyzing the impact that regulations can have on the development of innovations by the private sector that address the limitations of the public sector. Thus, rather than carving out areas of exclusive activity for the public sector, policymakers may be encouraged to develop sensible regulations that allow foreign, private companies to step in and provide goods and services that have a high social impact in the country, ameliorating the harm of poverty and promoting sustainable development.

2. Theoretical Framework

Emerging markets have become a fruitful area for analyzing how companies can develop innovations that address the needs of poor people there. Although there are poor people in every country, the proportion of people that have very low income and, in some cases, do not have enough to achieve a healthy and productive life is much higher in emerging economies [29]. This segment of the population, popularly known as the base of the pyramid [30], can be a market for multinational companies from advanced economies if the firms create innovations in production and distribution that enable the products to be sold at very low prices while still generating a profit [1,31]. Some examples are the Tata Nano car, the Bharti Airtel telephone service, the wireless computer mouse M215, and BYD lithium-ion batteries, among others [32,33].

These innovations that serve the needs of poor people in emerging economies have generated a plethora of terms. These include: (a) grassroots innovations in developing countries [34]; (b) catalytic innovations provoking transformative change [3]; (c) reverse innovation leveraging frugal insights for more sophisticated applications [35]; and (d) frugal engineering by multinational corporations [2]. To address the diversity of approaches, Zeschky et al. [33] proposed a classification of terms into three types: (a) cost innovation, or cost-reduction efforts, (b) good-enough innovation, or the reduction of functionalities, and (c) frugal innovation, or innovations designed to meet the needs of the lower-income population.

Despite the growth in the literature, as seen in the studies in the special issues edited by Christensen et al. [36] and by Subramaniam et al. [37], there is still scope for analysis. One reason is that some of the innovations that have been presented as addressing the needs of poor people have been criticized as not fulfilling those needs, but rather serving the needs of the middle classes of emerging countries [38]. Even some of the innovations have been critiqued as not helping, but rather harming the poor [39]. Another reason is that the internationalization of the innovations is not a given, despite the potential for helping the poor population of the world, since some of these innovations are presented as being country-specific, such as “Gandhian” and “Jugaad” innovation in India [32,39] and “Shanzai” innovation in China [40].

Surprisingly, for a topic of such importance, there have been few studies that analyze the internationalization of companies whose business model is based on innovations that address the needs of the poor [11]. We do have some examples of frugal innovations that have been applied in a variety of countries, as was, for example, the case of microfinancing that started in Bangladesh [7] and spread globally [41]. We also have cases of innovations created by advanced-economy multinationals in developing countries to address the low income of consumers there that have ended up being sold in advanced economies, and have therefore been termed reverse innovations [5].

However, it is not fully clear whether the companies that create the innovations for the poor can build a profitable organization on a global scale. In many cases, innovations have diffused across countries with the competitors emerging and copying the business model and adapting it to the conditions of the local country, in the traditional diffusion of innovations [6]. Moreover, some of the internationalization efforts of firms that create innovations for poor people have been criticized as not working well in advanced economies [42]. Additionally, many organizations that create business models based on innovations for the poor are structured as not-for-profit organizations. These have the advantage of being able to rely on support from donors to fund both their business model and internationalization. Internationalization is a very costly strategic activity that requires large amounts of information and capital to invest in other countries and operate successfully [19,43], and multinationals tend to have higher levels of debt ratios as a result [44,45].

Thus, analyzing the internalization of for-profit firms with business models that address the needs of poor people in emerging economies can serve as a laboratory for challenging some of the assumptions of existing theoretical models of the multinational, and contribute to a better understanding of internationalization. Hence, we conducted a case study analysis to provide a better understanding of the development of innovations for the poor, and the internationalization of the firms that create these innovations. The use of cases is in line with other studies that have analyzed innovations for the poor, but it goes beyond them because our focus is not on the frugal innovation per se, such as in the cases discussed in Govindarajan & Ramamurti [5] and Prahalad [1], but rather on the firm that creates the innovation.

3. Research Design

We selected the Mexican pharmaceutical multinational Farmacias Similares to analyze the development and internationalization of firms that create innovations for the poor. Farmacias Similares, a privately held Mexican company, started operations in 1997 as a spin-off from Best Laboratories, selling generic medicines in pharmacies located in low-income neighborhoods in Guadalajara, Jalisco. The company was the first to introduce the pharmacy–doctor business model in Mexico. The pharmacy–doctor business model combines a pharmacy with a low-cost medical doctor’s office adjacent to, but physically separated from, it. The doctor provides consultations at very low prices and writes down the prescriptions. Patients can take the prescription to the pharmacy and buy the generic medicines at a low cost. Local competitors imitated this model and sometimes used it to serve high-income consumers. The model was then used by the company in its internationalization, but with a varying degree of success across countries. Appendix A provides some background information on the healthcare industry in Mexico to help understand the context of the firm and its innovations.

To have a complete picture of the firm, we used various data-collection techniques and sources. We first collected all available secondary data from web pages, company reports, and newspapers to create the basis of the case study and understand the company.

We then complemented this with primary sources. We used participant observation and visited fifty pharmacies in Mexico, Peru, and Chile to understand the business model and how it changed across countries. We ran a survey of ten pharmacies during 2011 to understand why consumers chose them. We completed the research in the urban area in Mexico’s Guadalajara, with a sample of 52 respondents, with ages ranging from 16 to 60. We focused our research in the city of Guadalajara because this urban area is an ideal place to carry out market research or test new products or services before targeting the whole national market [46]. Guadalajara is the second-most populous municipality in Mexico, with slightly under five million people within the metropolitan area [47]. In this city, GDP per capita and economic behavior reflect the national average, and social stratification is also very close to the national average. Among the people interviewed, 32% were residents in low-income neighborhoods, 40% lived in middle-income areas, and 28% lived in high-income neighborhoods. The average age of the respondents was 27.8 years, and 69% of the sample were women.

Finally, we conducted in-depth interviews with the founder and managers of the Farmacias Similares. We interviewed Maria del C. Villafaña, Director of Medical Services of Fundación Best on 5 August 2015, in Mexico City; Vicente Monroy, Communication Director of Grupo Por Un País Mejor on 25 September 2017 in Guadalajara; Moises Sanchez, Communication Manager of Grupo Por Un País Mejor on 9 January 2018 over the phone; and Moises Sanchez, Communication Manager of Grupo Por Un País Mejor on 8 February 2018 in Mexico City. Fundación Best and Grupo Por Un País Mejor are the foundation and holding companies that control Farmacias Similares, respectively.

We followed the recommendations of Eisenhardt [48] and Yin [49] for the analysis of case studies. In general terms, both scholars prescribe an in-depth knowledge of the immediate and broader environment, while considering changes in uncontrollable factors. We analyzed our results along their guidelines, and we contrasted those findings with received theories.

We followed four stages to understand the process by which the firm was created and internationalized. Stage 1. Identification of the innovation. We did a literature search on innovations for the poor in emerging economies to better understand the phenomenon, and we identified the pharmacy–doctor business model as a potential candidate to analyze this phenomenon. We then sought secondary information on the company and conducted interviews to understand how the firm came up with the innovation. This became the basis for the case in which we identified the process by which the firm created the social innovation.

Table 1. Main events at Farmacias Similares.

Year	In Mexico	Abroad
1997	Foundation of Farmacias Similares. One pilot pharmacy store
1998	Change in law allows the sale of generics directly to consumers. Two pharmacy stores
1999	Pharmacy store number 100. Two hundred twenty medical doctors
2000	Two million medical consultations annually
2001	Seven million medical consultations annually
2002	Pharmacy store number 500
2003	Pharmacy store number 1000	Guatemala: Farmacias Similares opens
2004	Twenty million medical consultations annually	Argentina: Farmacias Similares opens
2005	Pharmacy store number 2000. Four thousand medical doctors	Chile: Farmacias Similares opens
2006	Thirty million medical consultations annually	Guatemala: 100 pharmacy stores, 40% with medical doctor
2007	Pharmacy store number 3000	Argentina: 45 pharmacy stores, 100% with medical doctor
2008	Six thousand medical doctors	Argentina: Farmacias Similares closes operations
2009	Forty million medical consultations annually	Chile: 100 pharmacy stores, 5% with medical doctor
2010	Fifty million medical consultations annually
2011	Pharmacy store number 4000	Chile: 150 pharmacy stores, 5% with medical doctor
2012	Sixty million medical consultations annually
2013	Eight thousand medical doctors	Guatemala: 87 pharmacy stores, 62% with medical doctor
2014	Pharmacy store number 5000	Peru: Farmacias Similares opens
2015	Nine thousand medical doctors.	Chile: 200 pharmacy stores, 5% with medical doctor
2016	Eighty million medical consultations annually	Peru: 3 pharmacy stores, 33% with medical doctor
2017	Pharmacy store number 6000. Eleven thousand medical doctors	Guatemala: 85 pharmacy stores, 100% with medical doctor; 700 thousand medical consultations annually

Sources: [50,51,52] and personal interview with the author on 8 February 2018.

summarizes the main events of the company.

Stage 2. Identification of the internationalization process. As we studied the firm’s transformation, we identified the diffusion of the innovation in three areas: within the firm, across competitors, and across countries. In this paper, we concentrate on the first and last one. Thus, we analyzed the development and transformation of the business model by studying the evolution of the firm and its subsequent internationalization by analyzing its foreign operations, both the successful and unsuccessful ones.

Stage 3. Identification of the influence of regulations on internationalization. The analysis of the differences between the original innovation and the subsequent implementation in other countries became the basis for the analysis of the challenges posed by regulations. We considered other influences that are commonly discussed in the literature (geographic distance, culture, religion, currency, etc.), and we found many to have the usual effect. However, we identified regulations as an influence that appeared to have a high impact on the development and internationalization of the firm and its innovation and one that had been little discussed. Hence, we analyzed in more detail the influence of regulations and how they affected the firm across countries.

Stage 4. Theoretical development. We ran an interactive process between the empirical findings and the theory to understand the processes and how these contributed to theoretical development. This was aided by the organization of information in chronological order and the analysis of changes in the innovation, firm, competitors, industry regulations, government provision of healthcare, and differences in actions across countries. This interactive process led to the development of the insights we present now.

4. Results

The case analysis reveals three insights into social firms and their internationalization. First, the distinction between frugal and social innovations. Second, the importance of regulations and changes in regulations as a driver of frugal and social innovations. Third, the different impact of regulations on the internationalization of frugal and social innovations.

4.1. Frugal and Social Innovations

4.1.1. Innovations for the Poor by Farmacias Similares

Farmacias Similares was created in 1997 by Victor González Gutierrez. Victor was a member of the family who owned Laboratorios Best. Laboratorios Best was founded in 1953 by Roberto Gonzalez Teran, Victor’s father, and produced generic drugs for state-owned health institutions in Mexico, especially IMSS, ISSSTE, Ferrocarriles Nacionales Mexicanos (National Mexican Railways), Secretaria de Marina (Marine Secretary), and Secretaria de Salud (Health Secretary). The relationship with the government was profitable and stable, but at the cost of having a single client, fierce competition, and low profit margins. Laboratorios Best expanded its production capacity and opened new factories to serve the needs of a growing population and produce a wider variety of medicines. In 1976, Victor became the firm’s CEO, and in 1978 the company received a quality award from IMSS.

In late 1997, a regulatory change altered the business model’s viability. The new regulations allowed the distribution of generic prescription drugs directly to consumers under the name of their active ingredient. The cost differential between a generic drug and a branded one was very large, while the difference in quality was small [53]. At the same time, Laboratorios Best lost the contract with the state-owned sector. Thus, Laboratorios Best tried to sell generic drugs through private pharmacy chains. However, due to a widespread campaign to discredit generic medicines run by pharmaceutical firms, pharmacy chains in Mexico refused to sell its products, depriving Best Laboratories of a distribution channel.

Without a channel to sell its products, Victor opted to create a new pharmaceutical chain that, unlike others, would specialize in the sale of generic prescription drugs and not carry branded drugs. Since generic medicines were little known and, in some cases, viewed with suspicion, the company started a campaign aimed at the poorest segments of society, using a motley and cartoons to communicate the attributes of their products.

Farmacias Similares started with one pilot pharmacy store in 1997. It opened the second one in 1998, once the operational testing of the first pharmacy was successful. By 1999, it had reached 144 outlets. The company’s objective was to serve the needs of poor people. It located the pharmacies in the neighborhoods where the C and D income segments of the population lived, selling generic medicines that were much cheaper than branded ones. Since most poor people lacked access to medical services, as they worked in the informal sector and there was no social security (it was not until 2003 that public insurance covering poor people was offered), the pharmacies were modified to have a doctor next door.

The Farmacias Similares model comprises a small medical clinic and a pharmacy (divided by a thin wall), where clients visit the doctor for a nominal fee (no more than two dollars) and are given a prescription if they need medicine. Patients purchase the low-cost generic drugs they need at the next-door pharmacy if they choose to do so (the prescription is valid in any pharmacy). This medical service is available for over 12 h daily, and in some pharmacies the doctor and pharmacy are 24/7 services. The new model offered an enticing proposal for customers, due to the convenient location of the point of sale, the low-cost medical services, and the lack of requirements for an appointment, along with the availability of generic drugs at affordable prices. In an interview with a state-run medical-service user in the city of Guadalajara, the respondent stated that…”even with an advance appointment, the waiting time for a consultation is about three hours”. The respondent further stated that visiting the doctor with no appointment involved an average wait of more than five hours, despite the average consultation not exceeding ten minutes. Finally, the respondent claimed that “in most cases, four out of five, the drug is not free”.

Doctors who worked in the Farmacias Similares outlets saw this new concept as a useful way to gain experience after graduation. The incentives were significant, as Dr. Villafaña (Medical Services Director at Farmacias Similares) explained in a personal interview: “there are thousands of doctors who are not working with Farmacias Similares. Universities tell us that we have become a source of employment for their graduates or even a second job for doctors working with public medical institutions”. Farmacias Similares provided opportunities for young physicians and extra income to complement meager salaries for those more experienced who worked at IMSS.

4.1.2. Frugal and Social Innovations

Farmacias Similares focused on the needs of the large, underserved population of Mexico by creating a new type of pharmacy that combined the sale of generic medicines with a medical doctor next to it to facilitate diagnosis and prescription. This new business model linked two different types of innovations: frugal and social innovation. Although similar in the sense that they address the needs of poor people in emerging economies, they have different drivers and implications. To clarify their distinction, in

Table 2. Types of innovation by level of positive externalities and customer type.

		Type of Customer
		Middle and high income (lavish innovation)	Low income (frugal innovation)
Level of positive externalities	High (social innovation)	Lavish social innovations	Frugal social innovations
	Low (private innovation)	Lavish private innovations	Frugal private innovations

Source: Authors.

we provide a classification of innovations by level of positive externalities and type of customer. By the level of externalities, we separate between innovations that have high levels of positive externalities, i.e., social innovations, and innovations that have low levels of externalities, i.e., private innovations. By the type of customer, we separate between those that are targeting high-income customers, i.e., lavish innovations, and those that are targeting low-income customers, i.e., frugal innovations.

Frugal innovations are innovations designed to address the low income of poor people in emerging economies. The literature on innovations for the base of the pyramid started by Prahalad [1] has highlighted how companies can be creative in their design and production process to generate new products and services sold at very low prices, but still provide the firm with a profit margin. Some of these innovations can be a simple rethinking of the packaging and distribution, for example, by selling products in smaller quantities (e.g., shampoo sachets, individual pills, smaller bottles, etc.). Others can be more sophisticated, involving the redesigning of the product so that it costs less to produce and operate (e.g., Tata Nano car, the battery-operated Chotukool fridge, etc.). In all cases, innovations are sold to address the needs of poor people who cannot purchase high-cost items. Nevertheless, they tend to pay a poverty premium [54], i.e., the difference between what poor and middle-income households pay for the same goods because of inefficiencies in distribution or inability to purchase in bulk. In the case of Farmacias Similares, the frugal innovation came in the guise of the sale of generic medicines instead of brand name ones. This enabled poor people to access quality medicines instead of having to rely on traditional (and in many cases unreliable) homeopathic medicine or pay the high prices of branded medicines. The company was able to achieve this innovation because it already had experience in producing generic pharmaceuticals. However, it had no experience in distributing those pharmaceuticals as it had only one customer, the Mexican government and its agencies. Thus, in addition to selling generic medicines, the other dimension of the frugal innovation was creating a chain of pharmacies located in the poor neighborhoods, which were underserved by traditional pharmacy chains, and developing a marketing campaign to make generic medicines acceptable. In a move that was unique at the time, the company created a mascot, Dr. Simi, that proved crucial in differentiating the company and building trust with the customers.

In sum, one type of innovation that companies create to address the needs of poor people in emerging economies is frugal innovations, which are focused on creating products and services that can be sold profitably to customers that have very low levels of income. We summarize these ideas in the following propositions:

Proposition 1a.

Frugal innovations are innovations created to address the needs of poor people in emerging economies and thus are designed to be sold at low prices.

Proposition 1b.

Companies that build business models based on frugal innovations focus on serving the needs of low-income consumers and delivering products and services at a low cost.

In contrast, social innovations are innovations created to have high positive externalities in society. The challenge that these innovations face is that goods with positive spillovers may not be profitable enough to be sold by firms. The reason is, as a result of contractual imperfections, companies may be unable to fully capture the benefits from the positive spillovers they create, while they have to incur the costs [55]. In many cases, social goods, or goods and services that have high positive externalities in society, tend to be provided or subsidized by the government, with the logic that private investors will underinvest in the provision of such goods and services [25]. Typical examples of these social goods are education, healthcare, and infrastructure. In these cases, the country benefits from the provision of such goods. More-educated individuals are more productive in their jobs and make better-informed decisions for themselves, their families, and society [56]. Healthier individuals can be more productive in their jobs, are less likely to spread diseases, and require less external care [57]. Furthermore, supportive infrastructure in the form of hard infrastructure (e.g., roads, airports, ports, etc.) [58] and soft infrastructure (e.g., rules, regulations, judicial system, etc.) [59] helps individuals achieve higher levels of productivity, as they can interact and collaborate with others more efficiently and effectively.

Unfortunately, in many emerging countries, governments cannot provide the social goods or the money necessary to fund the provision. The capacity of the state in many emerging countries is very limited [60,61], in part because of the misuse by politicians of state funds and the resulting underinvestment, and, in part, because the low salaries undermine the ability to hire qualified employees. As a result, in emerging economies, international organizations such as the United Nations or the World Bank or not-for-profit organizations and charities tend to subsidize their provision, creating schools and hospitals for the masses and funding them from donations received from philanthropists.

However, the provision of public goods does not have to be limited to governments and not-for-profits. They can be provided by for-profit companies that build a business model that helps address the social needs while enabling the achievement of a profit that sustains the company and the continued provision of the services. In the case of Farmacias Similares, its creation of a pharmacy–doctor model was the social innovation that addressed the lack of medical services for most of the Mexican population. At the same time, since the doctors were located next to the pharmacies and these were in the poorest areas of the cities, the pharmacy–doctor model addressed the underprovision by the government, as well as improved the distribution of healthcare via its location in areas underserved by doctors.

In sum, another type of innovation that companies develop in emerging economies is social innovations, which have a high impact on society via positive externalities and that substitute for the lack of the government provision of public goods. We summarize these ideas in the following propositions:

Proposition 1c.

Social innovations are innovations created to address the underprovision of public goods by the government and thus are designed to have high positive externalities in society.

Proposition 1d.

Companies that build business models based on social innovations focus on serving the needs of consumers who are not served or underserved in the government’s provision of public goods.

4.2. Regulation and the Development of Innovations for the Poor

4.2.1. The Evolution of the Business Model of Farmacias Similares

The innovations created in Farmacias Similares were not only the result of a market opportunity, but also were driven in large measure by the regulatory characteristics of the environment.

The initial spur for the creation of the company was the 1997 change in the regulation of the supply of medicines to the public sector and the loss of the supply contract to state-owned institutions. This loss, and the inability of the firm to convince private pharmacy chains to sell generic medicines, drove the innovation. The innovation was not a cost-reducing strategy or an elimination of functionalities of a product/service. Instead, Farmacias Similares created a new business model. At first, competitors criticized the quality of the generic drugs sold by Farmacias Similares. However, a series of tests carried out by government agencies, universities, and multinational pharmaceutical corporations proved the reliability of generic medicines [62]. Afterwards, the pharmacy–doctor model enjoyed rapid growth among the lower segments of the Mexican market, with an exponential increase in the number of pharmacies from 268 in 2000 to 6564 in 2017 (see

Table 3. Evolution in the number of pharmacies of Farmacias Similares around the world.

Country	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Mexico	1	2	144	278	487	814	1215	1727	2646	2888	3363	3816	3921	3980	4053	4445	4878	5176	5120	5200	6237
With a doctor	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%
Guatemala							1	6	36	100	85	76	76	88	89	94	87	86	86	85	85
With a doctor							100%	50%	45%	40%	45%	45%	49%	49%	54%	55%	62%	96%	96%	96%	100%
Chile									2	6	56	70	105	130	150	175	182	179	211	200	237
With a doctor									0%	0%	5%	5%	5%	5%	5%	5%	5%	5%	5%	5%	5%
Argentina								11	11	45	45	0
With a doctor								100%	100%	100%	100%
Peru																		1	2	3	5
With a doctor																		100%	50%	33%	40%
Total	1	2	144	278	487	814	1216	1744	2695	3039	3549	3962	4102	4198	4292	4714	5147	5442	5419	5488	6564

Source: Authors.

). By then, Farmacias Similares outlets reached five million visitors a month, with each medical consultation at a price of approximately USD 2. Specialists in the sector estimated that by 2020, generic drugs represented more than 90% of the market volume and around 60% of the value [63].

In early 2003, a new regulatory change dramatically impacted the provision of medical services in Mexico. This time, though, legislative action jeopardized the survival of Farmacias Similares. The government launched a new program offering universal healthcare coverage through the so-called Seguro Popular (Popular Insurance), offering medical attention to those Mexican citizens lacking access to the IMSS or ISSSTE services. Seguro Popular coverage grew rapidly, and by 2015, almost 52% of the population was part of the new medical insurance system. As a result, the country’s public health coverage reached over 79% of the population [64].

As Seguro Popular expanded, a new by-product of the pharmacy–doctor model proved to be of great value to most customers: saving time. Even if IMSS, ISSSTE, and Seguro Popular provided free medical services, patients had to endure long lines in crowded facilities, regardless of emergencies or the severity of the illness. Contrary to the widespread idea that time was not important to poor people, low-wage employees started to value the pharmacy–doctor model because it provided a medical service that resulted in evident time savings. Many blue-collar workers in Mexico were paid by the hour rather than a salary; consequently, the time spent waiting had a direct and adverse effect on their earnings. They also faced difficulties in obtaining authorization for a doctor’s appointment. As a result, many of them preferred paying for a quick medical visit rather than losing their entire daily wage by waiting for free public services. According to a survey by Deloitte [65], patients were increasingly willing to use pharmacy–doctor model pharmacy outlets instead of relying on free public services. In 54% of the cases, the main reason for choosing this type of pharmacy was the speed of service. Similarly, other healthcare providers developed proposals with set prices and fast service. The perception of poor-quality public health services (significant delays, lack of specialized equipment, and scarcity of medicine) provided an opportunity to consolidate the new model. In an interview with a state-run medical-service user in Guadalajara, the respondent stated that “even with an appointment in advance, the waiting time for a consultation is about three hours”.

Additionally, customers improved their perception of the quality of generic prescription drugs, which paved the road for a further expansion of Farmacias Similares. The company negotiated collaborations with foreign pharmaceutical firms. For example, Sandoz de Mexico, the division of the Novartis Group for generic drugs, became a supplier for Farmacias Similares [62].

Another regulatory shock happened in 2009, when the mutation of a flu virus, known as H1N1 or swine flu, caused a pandemic in Mexico. Treatment of the H1N1 virus was complicated in Mexico because the population was used to self-medicating and consuming over-the-counter antibiotics. The government had to take radical measures and approved tougher regulations for the pharmaceutical industry. By 2010, the government made doctor prescriptions mandatory for most medicines previously sold over the counter. Consequently, the new legislation sharply reduced the sales in drugstores that did not offer low-cost physician consultations. This event led other competitors to implement the pharmacy–doctor model.

Thus, legal changes, coupled with the perception of time savings associated with the pharmacy–doctor model, fostered the diffusion of the model to competitors and higher-income segments of the population. By 2011, most of the national pharmacy chains (GI, Farmacias Guadalajara, Benavides, del Ahorro, Generix, and supermarkets) had adopted the model in most of their stores in low- and high-income neighborhoods. Even if competition could have affected Farmacias Similares, the population became the main beneficiary. In fact, the sustained growth rate was more evident in wealthier areas. Ever since, pharmaceutical stores in Mexico have offered a fast service (10–15 min as the average waiting time), low-cost medical consultation (less than USD 2.50), and a dedicated physician with their practice attached to the pharmacy. Those pharmaceutical stores offer both brand-name prescription drugs and generic drugs; the first category is offered at the list price, while the second type carries deep discounts.

4.2.2. Regulation and the Development of Social Innovations

The case reveals the importance of regulations, not only for the development of the initial innovation, but also for its refinement and diffusion. The innovation was disruptive [66] because it changed the perception of generic drugs from a negative to a positive one, and it implemented medical clinics in pharmacies for the first time. Even if the pharmacy–doctor model employed existing technologies or solutions, the architecture of the service was entirely new. Such development represented a profound transformation in the dominant logic [66,67] of executives at Best Laboratories. Eventually, it led to the creation of a new model, replacing the traditional way in which (a) laboratories sold medicines to pharmaceutical stores and (b) those stores sold drugs to those customers who (c) had previously obtained a prescription from a doctor.

The development of the model was helped by limited regulations on the self-medication of citizens, who would go to pharmacies and ask for medicines without prescriptions. Thus, the innovations could develop as long as there was no explicit prohibition by regulations against the operation of private firms in the industry. This appeared to be allowed due to the lack of provision of medical services for the majority of the population. The government did not seem to see the need for strong regulations against self-medication, or to explicitly prohibit the development of new pharmacies. This lack of regulation is common among new business models that disrupt industries, as the emergence of the sharing economy and companies such as the car-sharing firms Uber and Lyft and the home-sharing firm Airbnb reflects; their development was facilitated by the lack of a clear regulation prohibiting their services [68].

In sum, the lack of regulations explicitly prohibiting private firms from operating in areas traditionally devoted to government activity facilitates the emergence of social innovations. We summarize these ideas in the following proposition:

Proposition 2a.

Limited regulation or enforcement facilitates the development of new frugal social innovations as private investors are allowed to satisfy the underserved needs of poor people.

There seems to be a difference between the frugal and social dimensions of the innovations in terms of the impact of regulation. Frugal innovations are less likely to be subject to regulation that prohibits them because their area of operation is less subject to regulation. They are designed to address poverty needs [1], and these are less amenable to regulation because there is little logic for the government to prevent firms from serving the poor. Thus, frugal innovations by the private sector are, in many cases, developed to cover a wide range of needs to ensure the financial stability of the model. In the case of Farmacias Similares, the pharmacy–doctor model covered the lack of access to medical care for poor people with no insurance, and also the importance of time for both the poor and the middle classes who did not want to invest hours at a hospital for non-life-threatening illnesses. The pharmacy–doctor model was designed to have a low price to ensure that patients would visit when they needed to see a doctor. The widespread distribution of the pharmacy–doctors locations facilitated the reduction of wait time and the profitability of the business model. A similar situation has emerged with other frugal innovations, such as the battery-operated chotukool fridge. Although initially designed to address the need of rural Indians who lacked access to reliable power, it was later marketed as a convenient portable fridge for middle and upper classes [69]. We summarize these ideas in the following proposition:

Proposition 2b.

Regulation has a limited influence on the development of new frugal innovations, as the innovations can be designed to address multiple unmet needs of poor people.

In contrast, social innovations are more amenable to regulation because their area of operation tends to be the domain of the government. Thus, on some occasions, companies creating social innovations may face challenges in their ability to provide the services as regulations prohibit or limit how they can operate. In the case of Farmacias Similares, this was the opening of Seguro Popular, which challenged the logic of the provision of medical services next to the pharmacy. Hence, when the government invests in the provision of public goods, it may not only provide public goods but, in some cases, do so by excluding private companies from doing the same. This is sometimes done for ideological reasons when politicians view the private sector with suspicion. However, social innovations can be resilient to regulations unless they are completely prohibited. The provision of goods and services by the private sector, substituting the underprovision by the government sector, may not necessarily disappear once the government sector provides the goods and services. Even in areas that have a high positive impact on society, the private sector can provide the social goods and services. The question is not so much about provision, but rather how the social models are redesigned so that they are financially sustainable. In many cases, this is thanks to the regulation and direct subsidies that the government gives private suppliers to incentivize the provision of public goods. This is the case, for example, of educational systems in which private schools provide education after receiving subsidies on a per-student basis (e.g., charters schools in the US).

In sum, regulation played a role in the existence, transformation, and continued evolution of social innovations. We summarize these arguments in the following proposition:

Proposition 2c.

Changes in regulation that expand the development of public goods by the government undermine the provision of social innovations by private firms, but these may continue as a complement to their public provision.

4.3. Regulation and the Internationalization of Social Organizations

The Internationalization of Farmacias Similares and Its Challenges

Farmacias Similares became a multinational in 2003 when it started pharmacies in Guatemala and then continued its expansion in various countries. However, even though the business model seemed ideally designed for similar Latin American countries with large segments of poor consumers with limited access to healthcare [70], the foreign expansions were not always successful. There were a variety of challenges as each market had its particularities. Table 3, presented before, summarizes the data of each of the five countries.

After having achieved explosive growth in Mexico, Farmacias Similares began its international expansion in Guatemala. In 2003, the president of Farmacias Similares, Víctor Gonzalez Torrez, met with the Guatemalan Nobel Peace Prize winner Rigoberta Menchú in Mexico City and made an agreement for the comprehensive health plan “Salud para Todos” (Healthcare for All). Together, they decided to form a society and take Farmacias Similares to Guatemala. Additionally, they had the political support of the president of Guatemala, Alfonso Portillo [71]. The partnership with Mrs. Menchú was a special deference to the Nobel Prize winner since, up to that time and afterward, Farmacias Similares had always used two growth models: franchises or wholly owned pharmacies; only on this occasion did Mr. Gonzalez establish a partnership [72]. Taking advantage of the great popularity that the character and the motley of Dr. Simi had achieved in Mexico, the first pharmacy in Guatemala started in 2003 under the name of “Farmacias del Dr. Simi” (whereas in Mexico it was branded as Farmacias Similares). They replicated the business model of pharmacies selling generic drugs at very low prices with an adjacent doctor’s office that provided consultations at a very low price. In 2004, they grew to 6 pharmacies, in 2005 to 35, and in 2006 to 100. Dr. Simi proved to be an effective marketing tool in Guatemala and its low-income segment. However, its growth and the fact that Nobel Prize winner Rigoberta Menchú was a partner generated adverse reactions in some sectors of Guatemalan society in which Mrs. Menchú’s image was not good. Thus, Mr. Gonzalez bought Mrs. Menchú’s shareholding and became the sole owner [73]. After the rapid growth and departure of Mrs. Menchú, growth stabilized in Guatemala, and the company was unable to continue growing, and even closed some of the pharmacies. By 2016, there were 85 pharmacies, but, given the size of the country (16 million people, which was less than Mexico City’s population), it was considered successful. One unusual challenge they faced in Guatemala was the climate of violence that existed. Executives and doctors had to be escorted when traveling, and opening hours were restricted in certain areas. Additionally, they competed with the use of traditional medicine that was deeply rooted among the poor people. The country had a large indigenous community, which generated a language barrier in some communities. Doctors needed to learn indigenous languages to support some of the communities, as well as to raise awareness about the benefits of modern medicine.

After Guatemala, the company continued its international expansion by entering Argentina. Mr. Gonzalez had always had a special preference for Argentina. Encouraged by his successful startup in Guatemala and observing the success that his brother and commercial rival Mr. Javier Gonzalez Torres had in that country with his pharmaceutical chain Dr. Ahorro, he decided to enter in 2004. At the time of entry, Dr. Ahorro already had 55 pharmacies in place [74]. Farmacias Similares was willing to compete directly with Dr. Ahorro and invest whatever was necessary to unseat their compatriots. Victor Gonzalez declared, “with my brother, I have been estranged since he copied the pharmacy model and created his own chain. Now we want the Argentinian consumers to know the original model and compare which one is better”.

Farmacias Similares opened 11 pharmacies with a doctor in Buenos Aires in 2004, with an initial investment of USD 3 million. However, they claimed to have a much larger budget to invest in Argentina. Farmacias Similares started in Argentina under the name of Dr. Simi Pharmacy. However, before even opening the first stores, problems began. Part of his advertising campaign was blocked by a lawsuit filed by his brother, preventing him from using in his campaign the word “similar,” which was at the core of the advertising campaign. Regulations in this country were more complicated than expected. Protection prevented firms from placing a new pharmacy close to where another existed. Even when Dr. Simi had better prices, it was difficult for the firm to compete, since the best places in each neighborhood were already occupied. In addition to the regulatory problems, he found a strong bureaucracy (very long times to open each store and slow import procedures) and corruption. Despite Argentina being a much larger country (48 million inhabitants) than Guatemala, Dr. Simi’s Pharmacies could only reach 45 pharmacies by 2006 [75]. The pharmacies in Argentina were all wholly owned, since the regulations complicated the franchise model. Another problem it faced in Argentina was that it lacked a broad supply of doctors with a strong vocation for service who would like to accept working for a low salary. Additionally, the lower classes in Argentina seemed to prefer regular, well-known medicine brands instead of generic, foreign brands [73].

The failure of Dr. Simi in Argentina was explained by the inability to adapt their commercial model to the Argentinian market. Argentinian consumers were a bit more sophisticated, and the model of cheap pharmacies that Simi proposed only worked well in times of crisis. When the situation improved a little, customers went to other locales, as explained by one of its clients [76]. Due to all these circumstances, the Farmacias Similares model could not be replicated in Argentina, and since the operation was not profitable, it was closed, and the firm exited Argentina in 2008 [74].

The third country to which the firm expanded was Chile. In 2005, just after opening its first 11 pharmacies in Argentina, Farmacias Similares ventured into Chile, opening its first two pharmacies. Chile was similar in size to Guatemala, with approximately 17 million inhabitants. However, it had challenging conditions, with collusion among competitors to maintain high prices and virtually no generic medicines, that limited the development of Farmacias Similares. The firm continued growing, having 237 pharmacies in 2017. Of the new stores, 75% operated through the franchise system [50].

In Chile, the firm used the name Dr. Simi’s Pharmacies, replicating the model of generic pharmacies at low prices to serve poor people. Unlike in other countries, in most cases, the model in Chile did not include a doctor adjacent to the pharmacy. Chilean clients already had the medical prescription obtained in the public or private health service, or they already knew the medication they needed. The few pharmacies that had a doctor next door (5% of the total) were in highly marginalized neighborhoods or with many immigrants (mostly from Haiti, Bolivia, or Peru).

In Chile, the chain’s growth occurred in the lower-middle class and some upper-middle class areas. Most of the pharmacy stores were franchises. Regulations required that a pharmacist led the pharmacy. A great success of Dr. Simi’s Pharmacies in Chile was showing that drugs were overpriced in Chile, and that there was collusion among local pharmacists [52]; this gave Dr. Simi prestige. Another cause of the rapid expansion in Chile was that Chileans had a culture of prevention. Additionally, just as in Mexico and Guatemala, the figure of Dr. Simi played an important advertising role.

The last country that Farmacias Similares expanded to was Peru. In 2014, with a local partner, they opened two pharmacies in Peru to explore this market. By 2017 there were five, with the Peruvian market in an experimental phase. They used the name “Boticas del Dr. Simi”. Peru offered a good expansion opportunity because almost all of the medicine sold was branded and it was a big and fast-growing market.

In the United States, there was a very large Mexican and Hispanic community, which Mr. Victor Gonzalez wanted to serve. However, after analyzing the Los Angeles community and studying the regulations, he decided that it was a complicated project that was better to postpone. “This project will be left to my successors”, he commented [72].

4.4. Regulation and the Internationalization of Social Firms

The internationalization of firms has received much attention in the literature [13], which has highlighted how the differences in culture and institutions play a prominent role in limiting the ability of multinationals to succeed in host countries [19]. Some of these issues drove the internationalization of Farmacias Similares, but one factor that had a major impact, and that has received limited attention, is differences in regulations across countries. As we mentioned in the introduction, one reason for this lack of attention is that most studies tend to use a multi-industry dataset and thus, at most, control for industry rather than pay attention to particular industry characteristics.

Regulation has been a topic of analysis in some studies of internationalization. It was initially discussed in the argument that similarities among countries in regulation determined the selection of countries as part of the concept of psychic distance [23]. Moreover, this concept was highlighted in recent studies that demonstrated the idea that firms that are exposed to relationships with the government at home because they operate in regulated industries are better adept at entering countries with high government discretion on the economy [77], or that companies with countries with higher political risk are better adept at operating in other countries with high political risk [78]. However, again, these studies include a variety of industries and do not go into detail in the influence of regulation.

This focus on regulation is important because it not only helps to better understand the models of the multinational, but it also provides a better understanding of the internationalization of social organizations. Social innovations have diffused around the world, as is commonly the case of any innovation that gets diffused as competitors imitate the business model of the innovator [6], even across countries [79]. However, the internationalization of the specific firms that create social innovations has received less attention [11]. This is partly because they tend to focus on their home country and rarely internationalize. It is also partly because many of them are not-for-profit organizations, which limits their ability to expand across borders because they do not have the funds or mandate to address the social needs abroad.

In contrast, firms with social innovations have both the incentive and ability to expand across borders because the innovation in the business model developed in the home country can find a ready market in other countries with similar conditions. However, their internationalization, unlike traditional nonsocial firms, is more constrained. The social aspect of the innovation tends to be addressing the particular needs of a segment of the population that is currently not served or underserved by the government because it does not invest in the provision of public goods. Much of this underserving is driven by regulations that limit the ability of the private sector to invest by excluding it from certain activities (e.g., infrastructure until the emergence of private–public partnerships), or that limit the incentives of the private sector from finding innovations to address the problem (e.g., caps on interest rates reduce the financial model of microlending firms). Thus, it requires more creativity on the company’s part to develop a new business model that addresses this underserved market in the home country. This, at the same time, limits the ability to serve customers in other countries, as the underprovision of public goods differs. Hence, we summarize these ideas in the following proposition:

Proposition 3a.

Frugal innovations can be more successfully used in other countries that have similar conditions to the home country in both the level of poverty of citizens and the underprovision of public goods by the government. Social innovations are more difficult to adapt to local conditions than traditional innovations because social innovations are driven by particular conditions of public goods’ underprovision rather than by technological advances.

Regulation appears to have a more significant impact on the ability of firms to transfer innovations when innovation is a higher social component rather than when it has a higher frugal component. The reason is that social innovations are highly dependent on the ability of the company to substitute for the lack of government investments in public goods. As a result, these areas tend to receive closer attention by the government. Even if the government is unable to invest, international organizations, not-for-profit organizations, and those harmed by the lack of investment will pressure it. This was, for example, the case of the regulation of the location of the pharmacies in some of the countries in which Farmacias Similares entered. In contrast, the areas that are subject to frugal innovations are less likely to be highly regulated by the government because they are more dependent on the challenge of the low income of consumers rather than on the underprovision of public goods. Thus, although the government may face pressure to try to remedy extreme poverty, this is likely to be addressed via transfer systems rather than regulation, with the government providing assistance or conditional cash transfers to poor people [80].

In sum, regulatory challenges that limit internationalization are more likely to affect social innovations rather than frugal innovations, because the incentive of the government to regulate the social area is higher than in the frugal area. We summarize these ideas in the following proposition:

Proposition 3b.

Regulation has a higher impact on the internationalization of social than frugal innovations.

5. Discussion

We sought to understand the process of development and internationalization of social firms, studying the case of Farmacias Similares. Although the large literature in international business has analyzed the internationalization of companies [13], there is a limited understanding of the particularities of social companies during internationalization [11] because such organizations are less likely to internationalize, as many are focused on the local market and are not-for-profits. However, some companies have been created with a social mandate, and a few of them have become multinationals, facing particular challenges that the social nature of the business model creates.

The case of the Mexican company Farmacias Similares, which created a new business model by integrating a pharmacy that sells generic medicines with the doctor next door that can serve customers at a low price, served to gain insights on the topic. This case study reveals the importance of regulation in the development of social innovations and on the internationalization of companies with business models based on social innovations. Specifically, the study reveals three insights. First, in the innovations developed to address the needs of poor people, there is an important distinction between frugal innovations that address their low levels of income, and social innovations that address the underprovision of public goods by the government. These two tend to go together in many cases because people in emerging economies suffer from both. However, they are theoretically and empirically different, and their study requires separate analyses.

Second, regulation plays a role in the development and transformation of social innovations by providing the market needs that the social innovation covers. Since social innovations address the lack of provision of public goods, government regulation plays an important role, as a government may decide to exclude private companies from areas even if it is not providing public goods at an adequate level for the country. Social innovations can benefit from the lack of an explicit regulatory exclusion but are subject to challenge in their ability to continue serving the market once new regulations are put in place. In contrast, frugal innovations are less influenced by regulations.

Third, regulation plays a large role in the internationalization of social firms, since regulations can challenge the basis of the business model in other countries. In contrast to traditional innovations, the internalization of social organizations is limited, given that the underlying basis for their business model tends to be constrained to the particularities of customers in certain industries and certain countries.

The ideas presented in this paper contribute to two streams of research. First, to the topic of the internalization of social organizations, the paper explains some of the challenges that these companies have in their ability to transfer the business model to other countries due to the regulation there. The paper provides new insights on the internalization of social firms [11]. Much of the scant research on the internationalization of social organizations has been based on the internalization of not-for-profit organizations [7], with some exceptions [12]. Unlike these cases, social firms will not only enter other countries in which there is a business opportunity, but also exit those countries when the business model does not allow them to achieve the desired profitability. This points out the traditional tension between profits and the achievement of social goals [15], which in the case of for-profit organizations is resolved in favor of profits. The paper also reveals the importance of looking at regulatory conditions in other countries and the role of the government there in the analysis of the internalization of social organizations. Much of the literature focuses on whether there is a social need in other countries [30], and rarely looks at the condition of regulation to understand whether the business model can be transferred and applied to the host economy. We highlight the importance of regulation and the different role it plays in the internalization of frugal and social innovations. Future research can take the insights identified in this paper and test them with a large sample, modifying the arguments to the particularities of their sample.

Second, the paper contributes to a better understanding of international business theory and the internalization process. The contribution is not only the study of a type of company that has been scarcely studied, social companies, but more importantly, the identification of the importance of regulation on internationalization. Although regulation has been discussed as a driver of the internalization of companies [81], most of the studies control for industry and thus do not study the specific impacts of regulation, or merely indicate that differences or similarities are related to the harming of or helping in the internalization of companies. We go beyond the simplistic characterization and explain the particular role that industry regulation plays in internationalization.

The arguments presented contribute to managerial thinking by explaining how regulation affects the development and internationalization of social firms. For managers interested in developing companies that have a social mission, the paper highlights the need to pay attention to regulation and how changes may challenge the business model developed. It also highlights the need to analyze the internationalization of the company not only in terms of market opportunities in other countries, but also in whether specific regulations limit the ability of the company to transfer its social innovations.

Future research can build on the ideas presented and add new insights. First, the arguments are based on a case study designed to identify new theoretical insights. These insights need to be modified and tested with large samples to ensure that they apply to a large number of companies in a variety of countries. Second, the analysis is based on a particular industry that has a high level of social impact. The insights gained from understanding social innovations may need to be adapted to other industries that, even though they might be important to society, may have a lower public good nature. Third, the study is based on the analysis of companies in emerging economies, which offered new growth opportunities for the development of social innovations. The ideas may need to be modified in the analysis of companies in advanced economies in which the government has a higher capacity for providing public goods and consumers have fewer basic needs not covered.

In sum, the paper provides new insights on both social companies and their internationalization. These insights are useful for a better understanding of the internalization of these organizations, given the particular contribution they provide to society when governments are unable to play the role of providers of public goods. We hope that the arguments presented here will spur additional research on the internalization of these important firms.