Overcoming the liability of newness: Entrepreneurial action and the emergence of China's private solar photovoltaic firms

Abstract

This study explores how entrepreneurs introducing a new organizational form can build legitimacy and capabilities to overcome significant liabilities of newness, and how their actions and the institutional structure co-evolve. Our multiple case study design enabled us to explicate specific actions that entrepreneurs founding China's private solar photovoltaic (PV) firms took as they built organizational capabilities and established their legitimacy vis-à-vis resource holders and global markets. We identified three legitimacy-based strategies they used: leveraging their existing sources of legitimacy, aligning their actions with established institutional rules and norms, and enacting the institutional environment to change perceptions of what is legitimate. We also found a stark contrast between the early and late entrants. The early entrants had to build an effective organizational capability and establish their own firm's legitimacy, as well as establish the legitimacy of the private Chinese solar PV firm as a viable organizational form, both domestically and abroad. Later entrants could leverage the legitimacy established by the early entrants, enabling them to more easily and quickly access external resources and become competitive. Our findings also suggest an important role for government in promoting and supporting entrepreneurship that complements well-established approaches. Namely, through its policies and actions, the government can create an environment in which experimentation and exploration is legitimate, thereby making it easier for entrepreneurs, new ventures and new organizational forms to access critical resources and realize their potential.