Internationalization of SMEs from emerging markets: An institutional escape perspective

Abstract

Conceptualized as an escape response to the misalignment between firm needs and home country institutions, institutional escapism appears to be ignored in the research on emerging market firms (EMFs) and particularly small medium-sized enterprises (SMEs). As an integral part of institutional theory, however, the escape view could be especially applicable to study the internationalization of SMEs from emerging markets. To fill the research gap, we develop a theoretical framework of institutional escapism with institutional arbitrage as a functioning mechanism. Based on an empirical analysis of 319 private SMEs in China, we find that SMEs tend to escape to a host country with institutions different from their home country and choose an entry mode of low-resource commitment, revealing a solid institutional arbitrage logic by partially escaping from domestic market. We also demonstrate that such choice of location and entry mode does not change with economic development of a host country. By explicitly showing that escape orientation and arbitrage logic are not necessarily independent or as separate as they were treated in the literature, our integrating approach provides a relatively fuller picture of the internationalization of EMFs and especially Chinese SMEs.