The Internationalization of SMES in Emerging Economies: Institional Embeddedness and Absorptive Capacities
Abstract
We examine the importance of institutional embeddedness and dynamic capabilities in the internationalization strategies of small and medium-sized enterprises (SMEs) in emerging economies. We focus on two types of SMEs - incumbent SMEs and entrepreneurial start-ups. We argue that incumbent SMEs can increase their internationalization capabilities by using their embedded networks with local governments and business groups. Entrepreneurial start-ups in emerging economies may develop new capabilities by learning from foreign firms and business groups. Therefore, entrepreneurial start-ups identify, create, and exploit new opportunities continuously in foreign markets. This work contributes to our knowledge of how incumbent SMEs and entrepreneurial ventures in emerging markets build knowledge and capabilities to enter and compete successfully in international markets.References
Amsden, A. & Hikino, T. (1994). Project execution capability, organizational know-how and conflomerate corporate growth in late industrialization. Industrial and Corporate Change, 3, 111-148.
Aulakh, P.S., Kotabe, M., & Teegen, H. (2000). Export strategies and performance of firms from emerging economies: evidence from Brazil, Chile, and Mexico. Academy of Management Journal, 43(3), 342-361.
Autio, E., Sapienza, H.J., & Almeida, J.G. (2000). Effects of age at entry, knowledge intensity, and imitability of international growth. Academy of Management Journal, 5, 909-924.
Autio, E., Yli-Renko, H., & Salonen, A. (1997). International growth of young technology-based firms: a resource-based network model. Journal of Enterprising Culture, 5(1), 57-73.
Bartlett, W. (2001). SME development policies in different stages of transition. MOCT-MOST, 11,197-204.
Barkema, H.G., Shenkar, O., Vermeulen, F., & Bell, J.H.J. (1997). Working aboard, working with others: how firms learn to operate international joint ventures. Academy of Management Journal, 40, 426-442.
Baum, J. A,C, 1996. Organizational ecology. In S. R. Clegg, C. Hardy, & W. Nord (Eds.), Handbook of Organizational Studies (pp.77-114), London: Sage.
Baum, J.A.C. & Oliver, C. (1991). Institutional linkages and organizational mortality. Administrative Science Quarterly, 36, 187-218.
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99-120.
Beckman, C.M. & Haunschild, P.R. (2002). Network learning: the effects of partners' heterogeneity of experience on corporate acquisitions. Administrative Science Quarterly, 47(1), 92-124.
Bettis, R.A. & Hitt, M.A. (1995). The new competitive landscape. Strategic Management Journal, 76(special issue), 7-19.
Boddewyn, J.J. & Brewer, T. (1994). International-business political behavior: New theoretical directions. Academy of Management Review, 19, 119-144.
Boisot, M. & Child, J. (1996). From fiefs to clans and network capitalism: explaining China's emerging economic order. Administrative Science Quarterly, 41, 600-628.
Brezinski, H. & Fritsch, M. (1995). The economic impact of new firms in PostSocialist Countries: Bottom-up transformation in Eastern Europe, Cheltenham: Edward Elgar,.
Carroll, G.R. & Hannan, M.T. (1989). Density delay in the evolution of organizational population: a model and five empirical tests. Administrative Science Quarterly, 34, 411-430.
Cantwell, J. (1992). The theory of technological competence and its application to international production. In D. McFeteridge (Ed.), Foreign Investment, Technology and Economic Growth (pp.33-67). Calgary: University of Calgary Press.
Chang, S.J. & Choi, U. (1988). Strategy, structure and performance of Korean business groups: a transactions cost approach. Journal of Industrial Economics, 37(2), 141-158.
Chang, S.J. & Hong, J. (2000). Economic performance of group-affiliated companies in Korea: intragroup resource sharing and internal business transactions. Academy of Management Journal, 43, 429-448.
Cohen, W. & Levinthal, D. (1990). Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly, 35, 128-152.
Coleman, J.S. (1990). Foundations of social theory. Cambridge, MA: Harvard University Press.
Dunning, J.H. (1988). The eclectic paradigm of international production: a restatement and some possible extensions. Journal of International Business Studies, 19, 1-31.
Dunning, J.H. (1993). Multinational enterprises and the global economy. Wokingham, England: Addison-Wesley.
Eden, L. & Miller, S. (2004). Distant matters: Liability of foreignness, institutional distance and ownership strategy. In M. Hitt & J. Cheng (Eds.), Advances in International Management (vol. 16, pp. 187-221). New York: Elsevier.
Etemad, H., Wright, R.W., & Dana, L.P. (2001). Symbiotic international business networks: collaboration between small and large firms. Thunderbird International Business Review, 43(4), 481-499.
Filatotcheve, I., Hoskisson, R.E., Buck, T., & Wright, M. (1996). Corporate restructurings in Russian privatizations: Implications for US investors. California Management Review, 38(2), 87-105.
Freeman, J., Carroll, G.R., & Hannan, MT. (1983). The liability of newness: age dependence in organizational death rates. American Sociological Review, 48, 692-710.
Frost, T.S., Birkinshaw, J., & Ensign, P. (2002). Centers of excellence in multinational corporations. Strategic Management Journal 23, 997-1018.
Galaskiewicz, J. & Burt, R.S. (1991). Intel-organization contagion in corporate philanthropy. Administrative Science Quarterly, 36(1), 88-105.
Gersick, C.J.G. & Hackman, J.R. (1990). Habitual routines in task-performing groups. Organizational Behavior and Human Decision Processes, 47, 65-97.
Granovetter, M. (1985). Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 97, 481-510.
Grant, R.M. (1996). Prospering in dynamically-competitive environments: organizational capability as knowledge creation. Organization Science, 7, 375-387.
Guillen, M.F. (2000). Business groups in emerging economies: a resource-based view. Academy of Management Journal, 43(3), 362-380.
Guillen, M.F. (2002). Structural inertial, imitation, and foreign expansion: South Korean firms and business groups in China, 1987-95. Academy of Management Journal, 45(3), 509-525.
Hall, R. (1992). The strategic analysis of intangible resources. Strategic Management Journal, 13, 144-153.
Hannan, M.T. & Freeman, J. (1989). Organizational ecology. Cambridge, MA: Harvard University Press.
Haunschild, P.R. (1993). Interorganizational imitation: the impact of interlocks on corporate acquisition activity. Administrative Science Quarterly, 38, 564-592.
Haunschild, P.R. & Beckman, C.M. (1998). When do interlocks matter?: alternative sources of information and interlock influence. Administrative Science Quarterly, 43, 815-844.
Haveman, H.A. (1993). Follow the leader: mimetic isomorphism and entry into new markets. Administrative Science Quarterly, 38, 593-627.
Henisz, W.J. (2003). The power of the Buckley and Casson thesis: The ability to manage institutional idiosyncrasies. Journal of International Business Studies, 34, 173-184.
Henisz, W.J. & Macher, J.T. (2004). Firmand country-level trade-offs and contingencies in the evaluation of foreign investment: the semiconductor industry, 1994-2002. Organization Science, 15(5), 537-554.
Hitt, M.A., Ahlstrom, D., Dacin, M.T., Levitas, E, & Svobodina, L. (2004). The institutional effects on strategic alliance partner selection in transition economies: China versus Russia. Organization Science, 15, 173-185.
Hitt, M.A., Li, H., & Worthington, WJ. (2005). Emerging markets as learning laboratories: Learning behaviors of local firms and foreign entrants in different institutional contexts. Management and Organization Review, 1, 353-380.
Hitt, M.A., Bierman, L., Uhlenbruck, K., & Shimizu, K. (in press). The importance of resources for the internationalization of professional service firms: The good, the bad and the ugly. Academy of Management Journal.
Hitt, M.A., Dacin, M.T., Levitas, E., Arregle, J., & Borza, A. (2000). Partner Selection in Emerging and Developed Market Contexts: Resource-Based and Organizational Learning Perspectives. Academy of Management Journal, 43(3), 449-467.
Hitt, M.A., Hoskisson, R.E., & Kim, H. (1997). International diversification: effects of innovation and firm performance in product-diversification firms. Academy of Management Journal, 40(4), 767-798.
Hitt, M.A., Ireland, R.D., & Hoskisson, R.E. (2000). Strategic management: competitiveness and globalization (4th ed.). Cincinnati: South-Westem Publishing.
Hitt, M.A., Tyler, B.B., Hardee, C., & Park, D. (1995). Understanding strategic intent in the global marketplace. Academy of Management Executive, 9(2), 12-18.
Hymer, S. (1976). The international operations of national firms: a study of foreign direct investment. Cambridge, MA: MIT press.
Hoskisson, R.E. & Hitt, M.A. (1990). Antecedents and performance outcomes of diversification: a review and critique of theoretical perspectives. Journal of Management, 16(2), 461-509.
Hoskisson, R., Eden, L., Lau, C.M., & Wright, M. (2000). Strategy in emerging economies. Academy of Management Journal, 43, 249-267.
Ireland, R.D., Hitt, M.A., & Sirmon, D.G. (2003). Strategic entrepreneurship: The construct and its dimensions. Journal of Management, 29, 963-989.
Johanson, J. & Vahlne, J. (1977). The intemationalization process of the firm: a model of knowledge development on increasing foreign commitments. Journal of International Business Studies, 8: 23-32.
Kale, P., Singh, H., & Perlmutter, H. (2000). Learning and protection of proprietary assets in strategic alliances: building relational capital, Strategic Management Journal, 21(3), 217.
Kane, A.A., Argote, L., & Levine, J.M. (2005). Knowledge transfer between groups via personnel rotation: effects of social identity and knowledge quality. Organizational behavior and human decision processes, 96, 56-71.
Keister, L.A. (1998). Engineering growth: business group structure and firm performance in China's transition economy. American Journal of Sociology, 104(2), 404-440.
Khanna, T. & Palepu, K. (1997). Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4), 41-51.
Khanna, T. & Palepu, K. (1999). The right way to restructure conglomerates in emerging markets. Harvard Business Review, 77(4): 125-134.
Khanna, T. & Palepu, K. (2000a). The future of business groups in emerging markets: long-run evidence from Chile. Academy of Management Journal, 43, 268-285.
Khanna, T. & Palepu, K. (2000b). Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. Journal of Finance, 55, 867-891.
Khanna, T. & Rivkin, J.W. (2001). Estimating the performance effects of business groups in emerging markets. Strategic Management Journal, 22, 45-74.
Lado, A.A., Boyd, N.G., & Hanlon, S.C. (1997). Competition, cooperation, and the search for economic rents: a syncretic model. Academy of Management Review, 22(1), 110-141.
Lane, P.J. & Lubatkin, M. (1998). Relative absorptive capacity and interorganizational learning. Strategic Management Journal, 19, 461-477.
Leff, N. (1978). Industrial organization and entrepreneurship in the developing countries: The economic group. Economic development and Cultural Change, 26, 661-675.
Lei, D., Hitt, M.A., & Bettis, R. (1996). Dynamic core competences through meta-learning and strategic context. Journal of Management, 22, 549-570.
Leonard-Barton, D. (1995). Wellsprings of knowledge: Building and sustaining the sources of innovation. Boston: Harvard Business School Press.
Leone, R.A. (1986). Who profits: Winners, losers and government regulations. New York: Basic Books.
Levitt, B. & March, J.G. (1988). Organizational learning. In W.R. Scott & J. Blake (Eds.), Annual Review of Sociology (vol. 14, pp. 319-340). Palo Alto, CA: Annual Reviews.
Li, H. & Atuahene-Gima, K. (2001). Product innovation strategy and the performance of new technology ventures in China. Academy of Management Journal, 44 (6): 1123-1134.
Li, H., Holmes, M., & Hitt, M.A. (2005). Why multinational corporations established their R&D facilities in emerging markets? Evidence from China. Department of Management, Texas A&M University. Working paper.
London, T. & Hart, S.L. (2004). Reinventing strategies for emerging markets: Beyond the transnational model. Journal of International Business Studies, 35, 350-370.
Luo, Y. & Peng, M.W. (1999). Learning to compete in a transition economy: experience, environment, and performance. Journal of International Business Studies, 30(2), 269-295.
Mahmood, I.P. & Mitchell, W. (2004). Two faces: effects of business groups on innovation in emerging economies. Management Science, 50(10), 1348-1365.
Meyer, K.E. (2004). Perspectives on multinational enterprises in emerging economies. Journal of International Business Studies, 35, 259-276.
Miner, A. S. & Haunschild, P.R. (1995). Population level learning. In L.L. Cummings & B.M. Staw (Eds.), Research in organizational behavior, vol. 17: 115-166. Greenwich, CT: JAI Press.
Mundial, B. 2001. World development report 2002: building institutions for markets. Nova lorque: Oxford University Press.
Nee, V. (1992). Organizational dynamics of market transition: hybrid forms, property rights, and mixed economy in China. Administrative Science Quarterly, 57(1), 1-27
Nee, V. & Yong, F.W. (1990). Institutional change and economic growth in China: The view from the villages. Journal of Asian Studies, 49, 3-25.
Nahapiet, J. & Ghoshal, S. (1998). Social Capital, Intellectual Capital, and the OrganizationalAdvantage. Academy of Management Review, 25(2), 242-266.
North, D.C. (1990). Institutions, institutional change, and economic performance. Cambridge and New York: Cambridge University Press.
Organization for Economic Co-operation and Development (OECD). (1997). Globalisation and small and medium enterprises. Paris: OECD.
Organization for Economic Co-operation and Development (OECD). 2002. Small and medium enterprise outlook. Paris: OECD.
Oliver, C. (1991). Strategic responses to institutional processes. Academy of Management Review, 16, 145-179.
Oliver, C. (1992). The antecedents of disinstitutionalization. Organization Studies, 13,563-588.
Oliver, C. (1996). The institutional embeddedness of economic activity. In J. Baum & J. Dutton (Eds.) Advances in Strategic Management, vol. 13: 163-189. Greenwich, CT: JAI Press.
Oliver, C. (1997). Sustainable competitive advantage: combining institutional and resource-based views. Strategic Management Journal, 75,679-713.
Oviatt, B.M. & McDougall, P.P. (1995). Global start-ups: entrepreneurs on a worldwide stage. Academy of Management Executive, 9(2), 30-43.
Oviatt, B.M. & McDougall, P.P. (1997). Challenges for intemationalization process theory: the case of international new ventures. Management International Review, 57(2), 85-99.
Palmer, D., Jennings, P., & Zhou, X. (1993). Late adoption of the multidivisional form by large U.S. corporations: Institutional, political, and economic accounts. Administrative Science Quarterly, 38, 100-131.
Park, S.H. & Luo, Y. (2001). Guanxi and organizational dynamics: organizational networking in Chinese firms. Strategic Management Journal, 22, 455-477.
Perrow, H. (1961). Organizational prestige. Some functions and dysfunctions. American Journal of Sociology, 66, 335-341.
Pfeffer, J. & Salancik, G.R. (1978). The external control of organizations: a resource dependence perspective. New York: Harper & Row.
Peng, M.W. (2001). How entrepreneurs create wealth in transition economies. Academy of Management Executives, 15(1), 95-108.
Peng, M.W. (2003). Institutional Transitions and Strategic Choices. Academy of Management Review, 28(2), 275-297.
Peng, M.W. & Heath, P.S. (1996). The growth of the firm in planned economies in transition: institutions, organizations, and strategic choice. Academy of Management Review, 21(2), 492-528.
Peng, M.W. Lee, S-H., & Wang, D.Y.L. (2005). What determines the scope of the firm over time: A focus on institutional relatedness. Academy of Management Review, 30(3), 622-633.
Peng, M.W. & Luo, Y. (2000). Managerial ties and firm performance in a transition economy: the nature of a micro-macro link. Academy of Management Journal, 43(3), 486-501.
Podolny, J.M. (1993). A status-based model of market competition. American Journal of Sociology, 98(4), 829-872.
Podolny, J.M. (1994). Market uncertainty and the social character of economic exchange. Administrative Science Quarterly, 39, 458-483.
Powell, W. & DiMaggio, P. (Eds.) (1991). The new institutionalism in organizational analysis. Chicago: University of Chicago Press.
Raff, D.M. (2000). Superstores and the evolution of firm capabilities in American bookselling. Strategic Management Journal, 21, 1043-1060.
Rodriguez, P., Uhlenbruck, K., & Eden, L. (2005). Government corruption and the entry strategies of multinationals. Academy of Management Review, 30(2), 383-396.
Scott, W. R. (1995). Institutions and Organizations. Thousand Oaks, CA: Sage.
Shan, W.G., Walker, G., & Kogut, B. (1994). Interfirm cooperation and startup innovation in the biotechnology industry, Strategic Management Journal, 15, 387-394.
Shane, S. & Venkataraman, S. (2000). The promise of entrepreneurship as a field of research. Academy of Management Review, 25, 217-226.
Shrader, R.C., Oviatt, B.M., & McDougall, P.P. (2000). How new ventures exploit trade-offs among international risk factors: lessons for the accelerated internationalization of the 21st century. Academy of Management Journal, 43(6), 1227-1247.
Sirmon, D.G., Hitt, M.A., & Ireland, R.D. (in press). Managing firm resources in dynamic environments to create value: looking inside the black box. Academy of Management Review.
Spencer, J.W. & Gomez, C. (2004). The relationship among national institutional structures, economic factors, and domestic entrepreneurial activity: a multicountry study. Journal of Business Research 57: 1098-1107.
Spender, J.C. (1996). Making knowledge the basis of a dynamic theory of the firm. Strategic Management Journal, 17, 45-62.
Spicer, A., McDermott, G., & Kogut, B. (2000). Entrepreneurship and privatization in Central Europe: The tenuous balance between destruction and creation. Academy of Management Review, 25, 630-649.
Tan, J. (2002). Culture, nation, and entrepreneurial strategic orientations: implications for an emerging economy. Entrepreneurship: Theory & Practice, 26(4), 95-111.
Teece, D. (1996). Finn organization, industrial structure, and technological innovation. Journal of Economic Behavior & Organization, 31, 193-224.
Uhlenbruck, K., Meyer, K., & Hitt, M.A. (2003). Organizational transformation in transition economies: resource-based and organizational learning perspectives. Journal of Management Studies, 40, 257-282.
United Nations Conference on Trade and Development (UNCTAD). (2004). World investment report.
Uzzi, B. (1996). The sources and consequences of embeddedness for the economic performance of organizations: the network effect. American Sociological Review, 61, 674-698.
Uzzi, B. (1997). Social Structure and competition in interfirm networks: The paradox of embeddedness. AdministrativeScience Quarterly, 42, 35- 67.
Vernon. R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics, 80: 190-207.
Walder, A.G. (1991). Local bargaining relationships and urban industrial finance. In K. lieberthal & D. M. Lampton (Eds.), Bureaucracy and Policymaking in post-Mao China(pp. 308-333). Berkeley, CA: University of California Press.
White, S. (2000). Competition, capabilities, and the make, buy or ally decisions of Chinese state-owned firms. Academy of Management Journal, 43, 324-341.
Williamson, O.E. (2000). The new institutional economics: taking stock, looking ahead. Journal of Economic Literature, 38(3), 595-613.
Wright, M., Filatotcheve, I, Hoskisson, R.E., & Peng, M. W. (2005). Strategy research in emerging economies: challenging the conventional wisdom. Journal of Management Studies, 42: 1-33
Yli-Renko, H., Autio, E., & Tontti, V. (2002). Social capital, knowledge, and the international growth of technological-based new firms. International Business Review, 11, 279-304.
Zaheer, S. (1995). Overcoming the liability of foreignness. Academy of Management Journal, 38, 341-363.
Zaheer, S., Albert, S., & Zaheer, A. (1999). Time scales and organizational theory. Academy of Management Review, 24(4), 725-741.
Zahra, S.A. & George, G. (2002a). Absorptive capacity: a review, reconceptualization, and extension. Academy of Management Review, 27(2), 185-203.
Zahra, S.A. & George, G. (2002b). International entrepreneurship: the current status of the field and future research agenda. In M.A. Hitt, R.D. Ireland, S.M. Camp, & D.L. Sexton (Eds.), Strategic entrepreneurship: Creating a new integrated mindset (pp. 255-288). Oxford, UK: Blackwell.
Zahra, S.A., Ireland, R.D., Gutierrez, I., & Hitt, M.A., (2000). Privatization and entrepreneurial transformation: emerging issues and a future research agenda. Academy of Management Review, 25(3), 509-524.
Zahra, S.A., Ireland, R.D., & Hitt, M.A. (2000). International expansion by new venture firms: International diversify, mode of market entry, technological learning, and performance. Academy of Management Journal, 43, 925-950.
