Locus of legitimacy and startup resource acquisition strategies

Abstract

PurposeTheoretically, the paper aims to provide locus of legitimacy as a framework to not only introduce a multidimensional perspective on legitimacy but also expand the understanding about resource acquisition strategies of social enterprises. Empirically, the authors test the theoretical predictions by using cases from South Korea and Taiwan. Practically, the authors intend to assist chief executive officers (CEOs) of social enterprises in their effort to secure valuable resources and provide policy implications so that both South Korea and Taiwan learn from each other.Design/methodology/approachThe authors use case methods to find evidence of the proposed theoretical framework. The initial search for target companies showed that social enterprises in South Korea and Taiwan were ideal samples. In-person, email and phone interviews were conducted on CEOs, and archival data on institutional environments and various aspects of social enterprises were collected. Collected data were analyzed using the locus of legitimacy framework to find out how different emphasis on locus of legitimacy impacted critical decisions of social enterprise, such as human, financial and network resources.FindingsAs predicted in the locus of the legitimacy framework, the analyses confirmed that locus of legitimacy did explain critical decisions of social enterprises in South Korea and Taiwan. First, significant institutional forces existed, shaping social enterprises behavior. For example, Taiwanese Jinu showed that greater emphasis was given to internal legitimacy, while South Korean Sohwa was higher in external locus of legitimacy. Such differences systematically impacted choices made on resource acquisition strategies. Jinu showed a greater similarity to those of for-profit companies, aligning key decisions of resource acquisition strategies to achieve financial viability as a top priority. However, Sohwa, though financial performance was still important, put more emphasis on meeting institutional demands from South Korean Government.Originality/valueThis study is one of early studies that attempts to understand the structure of legitimacy faced by social enterprises. The authors argue that organizations can play a more proactive role in securing legitimacy. The authors believe that locus of legitimacy framework complements the existing understanding about legitimacy in institutional theory. By introducing a multidimensional perspective about legitimacy, the authors add additional explanations about how firms exposed to different institutional forces can have diverse alternatives in resource acquisition strategies.