A Fork in the Upgrading Road: The Contrasting Ideologies and Business Models of the Nicaraguan Cheese Industry's Industrial Transformation

Political economists have long emphasized the role of industrial transformations as drivers of development in the Global South. While such upgrading usually increases the value-added and profitability for employers, there is evident variation in its consequences for other firm stakeholders, most notably workers and suppliers. In weakly regulated and impoverished environments, how can we explain this variation? Drawing on the case of the Nicaraguan cheese industry, this paper addresses this question. During the 1990s, successive Liberal governments wholeheartedly reformed the Nicaraguan dairy sector, liberalizing trade and deregulating the market. This new context spawned an industry of middle-sized, rural cheese processors, capable of transforming the copious raw milk produced in the north-central region of the country. Yet, despite their shared location and environment, the industry’s new processors adopted two contrasting business models with varying outcomes for stakeholders: “unequal distribution” and “mutual gains.” Building on detailed qualitative comparisons, I trace this divergence to the firms’ institutional imprinting, a result of the distinct ideologies of their original "cultural entrepreneurs." That is, I show how these cultural entrepreneurs created long-lasting business models consistent with their values, beliefs, norms and symbolic formulations, and conducive to contrasting labor conditions and supplier arrangements. Revealing this mechanism of business model creation broadens our understanding of the processes leading to industrial transformations, and allows us to uncover a new source of variation in the extent to which upgrading leads to sustainable development outcomes in a globalized economy.