How entrepreneurs leverage institutional intermediaries in emerging economies to acquire public resources

• Author: Kathleen M. Eisenhardt,Daniel Erian Armanios,Jizhen Li,Charles E. Eesley
• Published date: 01 July 2017
• Date: 01 July 2017
• DOI: http://doi.org/10.1002/smj.2575

Strategic Management Journal

Strat. Mgmt. J.,38: 1373–1390 (2017)

Published online EarlyView 12 October 2016 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2575

Received 12 April 2015;Final revision received25 July 2016

HOW ENTREPRENEURS LEVERAGE INSTITUTIONAL

INTERMEDIARIES IN EMERGING ECONOMIES TO

ACQUIRE PUBLIC RESOURCES

DANIEL ERIAN ARMANIOS,1*CHARLES E. EESLEY,2JIZHEN LI,3*and

KATHLEEN M. EISENHARDT2

1Department of Engineering and Public Policy, Carnegie Mellon University,

Pittsburgh, Pennsylvania, U.S.A.

2Department of Management Science and Engineering, Stanford Technology

Ventures Program, Huang Engineering Center, Stanford University, Stanford,

California, U.S.A.

3Research Center for Technological Innovation, School of Economics and

Management, Tsinghua University, Beijing, China

Research summary: Governments in emerging economies often use institutional intermediaries

to promote entrepreneurship, and bridge the void between ventures and public funding. While

prior literature describes what institutional intermediaries do, it leaves open how intermediaries

support different types of entrepreneurs. By comparing science park and non-science park

rms in Beijing and across China, we distinguish which entrepreneurs benet from certication

versus capability-building through the introduction of two new constructs: skill adequacy and

context relevance. Broadly, our study adds insights at the nexus of emerging economies and

entrepreneurship research, and to the tie formation and institutional intermediaries literatures.

Managerial summary: A key dilemma facing entrepreneursis how to nance their ventures. While

entrepreneursin developed economies can seek VC or angel investment, entrepreneursin emerging

economies often need to pursue potential government funding opportunities. Our study highlights

three strategies for acquiring government funding. Well-connected entrepreneurs can leverage

their political ties to acquire such funding. Less-connected entrepreneurs can leverage science

parks that in emerging markets are designed to help governments to identify promising ventures.

For returnees whose ample experience abroad may not t with local ways of doing business,

gaining science park admission can certify quality and so ease the path to government funding.

For technically skilled local entrepreneurs who lack business skills, science parks can help build

such skills, which then ease the path to government funding. Copyright © 2016 John Wiley &

Sons, Ltd.

INTRODUCTION

Governments in emerging market economies

often use institutional intermediaries to promote

Keywords: institutional intermediaries; institutional voids;

entrepreneurial resource acquisition; emerging economies;

science parks

*Correspondence to: Daniel Erian Armanios and Jizhen Li,

Carnegie Mellon University,Department of Engineering and Pub-

lic Policy, 129 Baker Hall, Pittsburgh, PA 15213, and Tsinghua

University, School of Economics and Management, Mailbox

B60, Weilun Building, Beijing, China 100084. E-mails: darman-

ios@cmu.edu and lijzh@sem.tsinghua.edu.cn

Copyright © 2016 John Wiley & Sons, Ltd.

private-sector entrepreneurship and spur economic

prosperity (Dutt et al., 2016; Mair, Marti, and Ven-

tresca, 2012; McDermott, Corredoira, and Kruse,

2009). By intermediaries, we mean actors who

link two or more parties to bring about activities

that could not readily happen otherwise (Dutt

et al., 2016). Of interest here are institutional inter-

mediaries that link private entrepreneurial rms

with public resources such as business incubators

(Dutt et al., 2016), development organizations

(Mair et al., 2012), and public-private institu-

tions (McDermott et al., 2009). This research has

improved our understanding of how institutional

1374 D. E. Armanios et al.

intermediaries in emerging economies better

integrate the public and private sectors in order to

build supportive commercial infrastructure. Yet,

this research leaves open how institutional inter-

mediaries bridge the gap between entrepreneurs

and the often substantial public resources that

exist in these economies. This is a critical issue

because these economies often lack traditional

sources of early-stage nancing such as venture

capital (George and Prabhu, 2000). Instead, the

government frequently controls many available

resources that entrepreneurs need to succeed (Dinç,

2005). We address this issue by asking: How do

institutional intermediaries support different types

of entrepreneurs in obtaining public resources in

emerging economies?

We propose two attributes that shape which

entrepreneurs are likely to obtain public resources

via intermediaries: skill adequacy and context

relevance. These attributes determine the paths

(certication versus capability-building) by which

institutional intermediaries help entrepreneurs gain

public resources. Our arguments draw on several

research streams. First, research on institutional

voids highlights gaps between sectors in emerging

economies, and the organizations and relationships

that bridge them (Batjargal et al., 2013; Khanna

and Palepu, 2000; Xin and Pearce, 1996). Second,

research on institutional intermediaries emphasizes

two mechanisms by which intermediaries benet

entrepreneurs: certication and capability-building

(Dutt et al., 2016; McEvily and Zaheer, 1999;

Sine, David, and Mitsuhashi, 2007). Network

research on entrepreneurial resource acquisition

highlights how well-connected entrepreneurs link

with resource providers by using direct ties while

other entrepreneurs use behavioral tactics termed

“catalyzing strategies” (Hallen, 2008; Hallen and

Eisenhardt, 2012; Zott and Huy, 2007).

For our primary test, we conduct a unique

and in-depth eld study of 139 science park and

non-science park ventures in Beijing’s Haidian dis-

trict. We rely on an instrumental variable (IV)

approach as well as complementary event history

analysis, qualitative comparative analysis (QCA),

and extensive interviews. We bolster these ndings

with a second study using nationwide archival data

and nd consistent results.

We contribute at the nexus of two signif-

icant phenomena— emerging economies and

entrepreneurship. Our core contribution is iden-

tifying how institutional intermediaries benet

different types of entrepreneurs. While prior work

elaborates what these institutions do (Dutt et al.,

2016; Mair et al., 2012; McDermott et al., 2009),

we focus on which entrepreneurs are helped.

We also introduce new constructs—that is, skill

adequacy and context relevance—that charac-

terize entrepreneurs, and extend prior work on

institutional intermediaries (Hallen, Bingham, and

Cohen, 2016; Sine et al., 2007) by showing how

they exibly offer equinal paths for different types

of entrepreneurs. From a theoretical perspective,

we add insights to tie formation in network theory

by expanding the “catalyzing strategy” concept

(Hallen and Eisenhardt, 2012). Overall, we con-

clude that institutional intermediaries can create

a richly varied “gene” pool of entrepreneurs in a

national economy.

Our article follows a “red- state” approach

(Mitchell and Tsui, 2012)— that is, we use extant

theory to understand more deeply an important

empirical phenomenon. Thus, we rst describe the

empirical context. We then identify relevant theo-

ries and formulate hypotheses. We next outline our

methods and results, and conclude by discussing

our contributions.

EMPIRICAL CONTEXT: CHINESE

SCIENCE PARKS AND

ENTREPRENEURS

Like Chile, South Africa, India, and other coun-

tries, China is an emerging economy. Emerging

economies are ones in which the capital markets,

legal system, labor markets, and other institutions

are transitioning toward economic liberalization

(Eesley, 2016; Hoskisson etal., 2000). In the midst

of such transitions, these economies often still rely

on public resources until private capital markets

mature (Dinç, 2005), connections with government

ofcials until legal systems formalize (Xin and

Pearce, 1996), and institutional intermediaries until

commercial and regulatory institutions can better

facilitate market exchange (Khanna and Palepu,

2000). Further, science parks are part of a growing

phenomenon of institutional intermediaries that

facilitate this transition by linking private-sector

activities to public-sector resources (Dutt et al.,

2016; Gonzalez-Uribe and Leatherbee, 2015;

McDermott et al., 2009).

Like many emerging economies, the Chi-

nese government is a major funding source for

Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 1373–1390 (2017)

DOI: 10.1002/smj