Institutional support, hazards, and internationalization of emerging market firms

• Author: Deeksha Singh,N. Nuruzzaman,Ajai S. Gaur
• Date: 01 May 2020
• DOI: http://doi.org/10.1002/gsj.1365
• Published date: 01 May 2020

RESEARCH ARTICLE

Institutional support, hazards, and

internationalization of emerging market firms

N. Nuruzzaman

1

| Deeksha Singh

2

| Ajai S. Gaur

1

Department of Management and Global Business, Rutgers Business School - Newark and New Brunswick, Newark, New

Jersey

2

School of Business, Rutgers University, Camden, New Jersey

Correspondence

Ajai S. Gaur, Department of Management

and Global Business Rutgers Business

School - Newark and New Brunswick,

1 Washington Park, Newark, NJ 07102.

Email: ajai@business.rutgers.edu

Abstract

Research Summary: We utilize the institution-based

view to study the effect of home institutions on the interna-

tionalization of emerging economy firms. We argue that

institutional support and institutional hazards co-exist and

can influence firm internationalization simultaneously.

However, institutional support has a stronger effect on

internationalization than institutional hazards. Further, we

argue that when the institutional environment is supportive

of the internationalization effort, state ownership provides

proximity to institutional resources and thus amplifies the

relationship between institutional support and firm interna-

tionalization. However, when the institutional environment

is perilous to business activities, state ownership increases

dependency on the institutional environment and con-

strains the escape from the domestic market. Results based

on the World Bank Enterprises Survey of 9,337

manufacturing firms from 81 emerging economies largely

support our arguments.

Managerial Summary: Home country institutions have

different components, some of which can support while

others can hinder the internationalization of emerging

economy firms. Our study helps managers to identify dif-

ferent types of home-based institutional supports that can

help international expansion and home-based institutional

hazards that firms can avoid by diversifying their sales

geographically. The findings suggest that leveraging

Received: 6 April 2017 Revised: 10 September 2019 Accepted: 11 September 2019

DOI: 10.1002/gsj.1365

Global Strategy Journal. 2020;10:361–385. wileyonlinelibrary.com/journal/gsj © 2019 Strategic Management Society 361

institutional support at home country has a stronger effect

on internationalization than escaping institutional hazards

because institutional supports can complement other

home-based advantages that emerging economy firms

have. Furthermore, state ownership can increase a firm's

proximity to institutional resources, providing firms

greater access to institutional support for international

expansion.

KEYWORDS

emerging economy multinationals, home-country institution, institution-

based view, internationalization

1|INTRODUCTION

It is widely acknowledged that the external institutional environment in which firms are embedded

shapes firms' strategic responses. In the international business (IB) domain, scholars have examined

how home and host market institutions affect the internationalization strategy of multinational enter-

prises (MNEs) (Cuervo-Cazurra, 2012; Cuervo-Cazurra & Genc, 2008; Cuervo-Cazurra, Luo,

Ramamurti, & Ang, 2018; Cuervo-Cazurra & Ramamurti, 2014; Deng, 2009). With respect to the

host market institutions, scholars have examined how the institutional differences between the home

and host markets as well as institutional development of the host markets affect different strategic

choices such as the location of investment, entry mode, and performance consequences of interna-

tional expansion (please see Cuervo-Cazurra, Gaur, & Singh, 2019 for a review). In recent years, the

focus has shifted to understand how the home institutional environment acts as a push for firms from

emerging economies to expand abroad (Barnard & Luiz, 2018; Fathallah, Branzei, & Schaan, 2018;

Gaur, Ma, & Ding, 2018; Luo & Tung, 2007; Witt & Lewin, 2007). This shift in focus to the home

country institutional environment is important in the context of emerging economies, as some of

them have undergone significant institutional reforms while others remain underdeveloped (Cuervo-

Cazurra et al., 2018).

There are two competing theoretical frameworks to examine the effect of home market institu-

tions on firm internationalization—institutional leverage and institutional escapism. The institutional

leverage framework suggests that home institutions act as a source of competitive advantage emerg-

ing economy firms (Cuervo-Cazurra & Genc, 2008; Landau, Karna, Richter, & Uhlenbruck, 2016;

Yan, Zhu, Fan, & Kalfadellis, 2018). According to this view, firms strategically leverage institutional

support in the home country and turn it into their strategic advantages. For example, firms may

exploit proximity to political actors in the home country to get access to key resources that can help

in their international expansion. The institutional escapism framework views international expansion

as an escape response to avoid the institutional hazards at home (Cui & Xu, 2019; Gaur et al., 2018;

Wang & Ma, 2018). In the case of emerging economies, firms face different types of hazards that

constrain their ability to grow (Estrin, Meyer, & Pelletier, 2018). For example, there is a heightened

level of competition from the informal sector. Informal firms do not have to follow the same rules

and regulations as formal firms and collude with public officials to engage in unfair competition

362 NURUZZAMAN ET AL.