Institutional Advantage

• Published date: 01 February 2014
• DOI: http://doi.org/10.1111/j.2042-5805.2013.01072.x
• Date: 01 February 2014

COMMENTARY

INSTITUTIONAL ADVANTAGE

XAVIER MARTIN*

School of Economics and Management, Department of Organization and

Strategy and CentER, Tilburg University, Tilburg, The Netherlands

Is theresuch a thing as institutional advantage—and what does it mean for the study of corporate

competitive advantage? In this article, I develop the concept of institutional competitive

advantage, as distinct from plain competitive advantage and from comparative institutional

advantage. I first identify and synthesize insights from strategy and institutional theories. I then

arrive at a definition of institutional advantage and develop theory about its predictors,

emphasizing a firm’s interaction with institutions over its life cycle. This analysis highlights

foreign direct investment and multinational enterprise as prime venues for insights into institu-

tional advantage froma strategic perspective. Copyright © 2014 Strategic Management Society.

INTRODUCTION

Strategy researchers have increasingly come to rec-

ognize that institutions matter, and they are integrat-

ing this fact in their studies. But what scope of

institutions are we talking about, what is their rela-

tionship with firm strategy, and how does this matter

to what strategy research is about—understanding

the distinctive behavior and differential performance

of firms? In this article, I examine these themes to

develop the concept of institutional advantage as it

pertains to firm strategy. In so doing, I aim to syn-

thesize portions of the literatures on institutions,

strategic management, and international business

that jointly address the forms and potential conse-

quences of firm-environment interaction.

To accomplish this, I first examine definitions of

competitive advantage in strategic management and

economics and relate them to uses of the concept in

international business. I then review relevantstreams

of theorizing about institutions. On this basis, I

propose a definition of institutional advantage that

accounts for the (partly) institution-enabled sourcing

of competitive advantage. I then discuss corporate

and environmental characteristics and processes that

jointly explain the connection between institutions,

distinctive strategy, and competitive advantage. This

analysis highlights international expansion and the

resulting multinational enterprise (MNE) as venues

for understanding competitive advantage and its

relation with institutions—which are worthy, in the

end, of a specific refinement of the definition of

institutional competitive advantage. This study

builds on research that has examined the junctures

between strategy and institutional theory or between

international business and institutions, and it com-

pletes these efforts by synthesizing the concepts of

competitive advantage, firm-institution interaction,

and corporate (international) expansion.

COMPETITIVE ADVANTAGE

Although a concept of competitive advantage is

central to leading theories both in strategy (Barney,

Keywords: competitive advantage; institutions; foreign direct

investment; multinational corporations; international strategy

*Correspondence to: Xavier Martin, School of Economics

and Management, Department of Organization and Strategy,

Tilburg University, P.O. Box 90153, 5000 LE Tilburg, The

Netherlands. E-mail: x.martin@tilburguniversity.edu

Global Strategy Journal

Global Strat. J., 4: 55–69 (2014)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1111/j.2042-5805.2013.01072.x

Copyright © 2014 Strategic Management Society