Institutional embeddedness and the strategic leeway of actors: the case of the German therapeutical biotech industry

Abstract

This article aims at examining the strategic leeway of firms pursuing business strategies incompatible with the dominant institutional environment in a given market economy. In order to evaluate this question, we focus on the therapeutic biotech industry and draw a German–British comparison. Proponents of the varieties-of-capitalism (VoC) approach assume that German firms underperform in this industrial sector in comparison to British firms due to the institutional framework in which German firms operate; this framework is assumed to provide them with hardly any strategic latitude. The VoC approach is challenged by two alternative perspectives, in both of which it is believed that firms can have a high level of strategic leeway; in the first approach this is possible due to institutional heterogeneity within national market economies; and in the second approach, the above can be seen as the result of economic internationalization. Our empirical findings show that British firms are indeed more competitive in the therapeutical biotech industry, but only to a limited extent. German firms perform better than projected by the VoC approach because they operate in an institutionally heterogeneous environment and due to the impact of internationalization. Thus, we argue for the integration of these three perspectives in one explanatory approach.