A Contextualized Transactive Memory System View on How Founding Teams Respond to Surprises: Evidence from China

• Date: 01 September 2013
• Author: Yiyuan Mai,Yanfeng Zheng
• Published date: 01 September 2013
• DOI: http://doi.org/10.1002/sej.1157

A CONTEXTUALIZED TRANSACTIVE MEMORY

SYSTEM VIEW ON HOW FOUNDING TEAMS

RESPOND TO SURPRISES: EVIDENCE FROM CHINA

YANFENG ZHENG1* and YIYUAN MAI2

1School of Business, Faculty of Business and Economics, The University of Hong

Kong, Hong Kong, China

2School of Management, Huazhong University of Science and Technology,

Wuhan, Hubei Province, China

Entrepreneurs in emerging economies face not only more opportunities but also heightened

levels of uncertainties than their peers in developed economies. They, therefore, frequently

encounter surprising events arising from rapid and chaotic environmental changes. Extant

research, however, provides only sketchy accounts regarding how founding teams respond to

surprises. In this study, we propose that founding teams’ transactive memory systems (TMS)

situated in the unique contextual conditions prevalent in most emerging economies will affect

their perceptions regarding how to bridge the knowledge gaps arising from surprises. We test

our hypotheses with survey data collected from 137 start-ups in China. Our results suggest that

in emerging economies where market supporting institutions aredeficient, founding teams with

strong TMSs are less inclined to acquire external knowledge but are more prone to improvise

in response to surprises than founding teams with weak TMSs. Negative surprises seem to

strengthen the above relationships. We conclude by discussing the theoretical and practical

implications of this study. Copyright © 2013 Strategic Management Society.

INTRODUCTION

Emerging economies are characterized by fast-

growing markets and high velocity of cultural, insti-

tutional, legal, and political changes (Bruton,

Ahlstrom, and Obloj, 2008; Hoskisson et al., 2000;

Wright et al., 2005; Xu and Meyers, 2013). On the

one hand, the major emerging economies such as

Brazil, Russia, India, and China (BRIC countries)

are experiencing unprecedented economic growth

and, hence, open up spaces for new business ven-

tures. On the other hand, most emerging econo-

mies are also characterized by inadequate market

institutions, weak legal enforcement, and a lack of

professional services that are conducive to develop-

ing robust economies. For example, corruption

is prevalent in emerging economies. According to

the Corruption Perception Index (Transparency

International, 2012), BRIC countries are perceived

to have much higher levels of corruption (Brazil, 73;

Russia, 143; India, 95; China, 75) than major devel-

oped economies such as Japan, the U.K., and the

U.S.

Therefore, entrepreneurs in emerging economies

face many more business opportunities as well as

heightened levels of environmental uncertainties.

Such juxtaposition of business opportunities and

environmental uncertainties often materializes into

unexpected events or surprises that entrepreneurs

have to deal with (Ahlstrom and Bruton, 2010).

Although surprises frequently occur in entrepreneur-

ial processes and the response to surprises is critical

for new ventures, how founders respond to surprises

Keywords: surprise; transactive memory system; knowledge

acquisition; improvisation; Chinese start-ups

*Correspondence to: Yanfeng Zheng, School of Business,

Faculty of Business and Economics, The University of Hong

Kong, Hong Kong, China. E-mail: yzheng@business.hku.hk

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Strategic Entrepreneurship Journal

Strat. Entrepreneurship J., 7: 197–213 (2013)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1157

Copyright © 2013 Strategic Management Society

has rarely been researched, let alone through empiri-

cal studies in emerging economies. In fact, a cursory

search among the leading entrepreneurship or man-

agement journals produces few studies with surprise

in their titles or abstracts (Bechky and Okhuysen,

2011). Given the ubiquity and importance of sur-

prises, the lack of studies on how founders respond

to surprises constitutes a critical research gap in the

entrepreneurship literature, particularly in emerging

economy contexts.

Several strands of research may inform research

on surprises in entrepreneurship. The literature on

improvisation highlights the importance of surprises

and proposes improvisation as a common response to

surprises in entrepreneurial contexts (Baker and

Nelson, 2005; Gong and Terlaak, 2010). However,

this literature seems to treat improvisation as the

only response to surprises. In fact, surprises create

windows of opportunity for learning. Improvisation

could be only one of the possible responses to sur-

prises (Miner, Bassoff, and Moorman, 2001;

Zellmer-Bruhn, 2003). The learning from failure lit-

erature examines how individuals, groups, and orga-

nizations infer valuable lessons from failures

(Cannon and Edmondson, 2001; Madsen and Desai,

2010). Nonetheless, surprises could present either

opportunities or threats and are, therefore, conceptu-

ally different from failure as a negative outcome

(Gong, 2007; Ucbasaran, Westhead, and Wright,

2009). Another related stream of work is the found-

ing team composition literature that focuses pri-

marily on the team composition variables such as

demographic diversity and their impact on new

venture behaviors and performance (Ruef, Aldrich,

and Carter, 2003; Steffens, Terjesen, and Davidsson,

2011). Despite its volume, this body of work pro-

duces mixed conclusions regarding the empirical link

between demographic diversity variables and new

venture performance. One plausible explanation is

that the cognitive mechanisms underlying those

diversity variables may offer more powerful infer-

ences (Chowdhury, 2005; Zheng, 2012). Finally,

scholars have forcefully argued that entrepreneurship

researchers need to consider contextual factors care-

fully when they theorize entrepreneurial phenomena.

Insights drawn from general social-psychological

theories ought to be modified and contextualized to

make connections to reality (Welter, 2011; Zahra and

Wright, 2011). Therefore, we integrate the various

literatures to determine how founding teams in

emerging economies respond to surprises and why

they respond to surprises in certain ways.

Our point of departure is that a new venture is

considered as the site of knowledge discovery, inte-

gration, and application (Kogut and Zander, 1992).

Surprises alert founding teams to discrepancies in

their knowledge discovery and integration processes.

Founding teams need to create knowledge or acquire

necessary knowledge from external sources to

address the discrepancies. Team cognition studies

have come to recognize the importance of trans-

active memory system (TMS), a team-level cogni-

tive structure that influences how team members

encode, store, retrieve, and communicate informa-

tion and knowledge (Wegner, 1987; Lewis, 2003).

A TMS as a team-level cognitive structure is also

contextualized by specific task environments or

macro-level environments, such as cultural systems

(Brandon and Hollingshead, 2004; Nisbett et al.,

2001). In emerging economy contexts, the lack of

market-supporting institutions, such as consulting

firms and professional workers, will have a profound

impact on the founding team’s perception with

regard to how and where to seek knowledge. We,

therefore, take a contextualized TMS perspective to

investigate how founding teams in emerging econo-

mies respond to surprises, as well as why they

behave in certain ways.

Our study makes a few contributions. First, it con-

tributes to the literature on entrepreneurship in

emerging economies. Studies in this domain have so

far been dominated by studies that primarily adopted

institutional theory and transaction-based theories

(Wright et al., 2005). Although meaningful, studies

adopting macro- or meso-level theoretical perspec-

tives have limited explanatory power when it comes

to micro-level entrepreneurial phenomena and

behaviors such as surprises and response to sur-

prises. Our study, therefore, offers a complementary

social-cognitive perspective to the existing literature

(Bruton et al., 2008) and echoes the call to investi-

gate the microfoundations of entrepreneurship

research (Zahra and Wright, 2011). Second, our

study contributes to the entrepreneurial learning lit-

erature. Although this literature has made consider-

able progress regarding the general learning benefits

of cognitive mechanisms, such as the mediating

effect of founding team TMS (Zheng, 2012), our

contextualized TMS perspective probes into more

specific learning behaviors and, therefore, holds the

promise to offer a novel angle to investigate how

exactly start-ups engage in micro-level learning pro-

cesses (Bingham, 2009; Zahra and Wright, 2011).

Third, our study also makes a contribution to the

198 Y. Zheng and Y. Mai

Copyright © 2013 Strategic Management Society Strat. Entrepreneurship J.,7: 197–213 (2013)

DOI: 10.1002/sej