Institutional support, hazards, and internationalization of emerging market firms

Abstract

AbstractResearch SummaryWe utilize the institution‐based view to study the effect of home institutions on the internationalization of emerging economy firms. We argue that institutional support and institutional hazards co‐exist and can influence firm internationalization simultaneously. However, institutional support has a stronger effect on internationalization than institutional hazards. Further, we argue that when the institutional environment is supportive of the internationalization effort, state ownership provides proximity to institutional resources and thus amplifies the relationship between institutional support and firm internationalization. However, when the institutional environment is perilous to business activities, state ownership increases dependency on the institutional environment and constrains the escape from the domestic market. Results based on the World Bank Enterprises Survey of 9,337 manufacturing firms from 81 emerging economies largely support our arguments.Managerial SummaryHome country institutions have different components, some of which can support while others can hinder the internationalization of emerging economy firms. Our study helps managers to identify different types of home‐based institutional supports that can help international expansion and home‐based institutional hazards that firms can avoid by diversifying their sales geographically. The findings suggest that leveraging institutional support at home country has a stronger effect on internationalization than escaping institutional hazards because institutional supports can complement other home‐based advantages that emerging economy firms have. Furthermore, state ownership can increase a firm's proximity to institutional resources, providing firms greater access to institutional support for international expansion.