Through the Looking‐Glass: The Impact of Regional Institutional Logics and Knowledge Pool Characteristics on Opportunity Recognition and Market Entry

• Author: Jeffrey G. York,Andrew C. Corbett,Siddharth Vedula
• Date: 01 November 2019
• Published date: 01 November 2019
• DOI: http://doi.org/10.1111/joms.12400

Through the Looking-Glass: The Impact of

Regional Institutional Logics and Knowledge Pool

Characteristics on Opportunity Recognition and

Market Entry

Siddharth Vedula, Jeffrey G.York and Andrew C. Corbett

Babson College; Unive rsity of Colorado-Bould er; Babson College

ABST RACT This study inves tigates how regional variations i n institutions and knowledge pools

impact new fi rm entry into emerging industr y sectors. Using the cleantech industr y sector as a

research context, we hy pothesize and find that suppo rtive regional institutional logics – sha red

meaning system s in a community that confer legitima cy upon particular goals a nd practices

– generate cognitive sc hemas (mental model s) that faci litate opportunity recogn ition and

increase new f irm entry rates. Drawing f rom research on socially situated cog nition, we

demonstrate that support ive institutional logics have a gre ater impact on new firm entry when

a regional knowledge p ool is larger, but a reduced impact on new firm entry when t he knowl-

edge pool is more specia lized. These findin gs integrate previously disti nct perspectives from

institutiona l theory and knowledge economics, while contr ibuting to research on how new

industry sect ors emerge.

Keywo rds: cleantech, inst itutional logics, opportun ity recog nition, new firm entry, regiona l

knowledge p ool

‘Like a pane of glass fr aming and subtly distor ting our vision,

mental models determine what we see.’ – Peter Senge (1990)

Why, where, and when entrepreneurs enter an emerging industry are some of the en-

during questions in organizational studies, and the curiosity about these questions spans

multiple research disciplines. Industrial economists have long recognized that new firm

entry rates are tightly linked to knowledge creation within geographic regions (Acs et

al., 2009; Agarwal et al, 2007; Audretsch and Keilbach, 2007). In a parallel stream of

research, institutional theorists have focused on how non-market forces (such as gov-

ernment regulations, community social norms, and social movement activism) influence

Journal of Man agement Studi es 56:7 November 2019

doi :10.1111/j oms .1240 0

Address for re prints: Sidd harth Vedula, Bab son College, 231 Forest Street, Babson Pa rk, MA (svedula @

babson.edu).

© 2018 John Wiley & Sons Ltd and S ociety for the Adv ancement of Management Stud ies

Through the Looking-Glass 1415

© 2018 John Wiley & Sons Lt d and Society for the Adva ncement of Management Stud ies

entrepreneurial entry (Hiatt et al., 2009; Lee et al., 2017; Meek et al., 2010; Pacheco

et al., 2014; Sine and Lee, 2009; York and Lenox, 2014). Each of these research streams

has generated important insights, yet there has been little cross-pollination between these

theoretical perspectives.

This lack of integration has inhibited our understanding of how knowledge and cul-

ture intermingle during industry emergence. Economic theories that focus on the re-

lationship between regional knowledge pools and entrepreneurial activity specify how

opportunities may emerge from technological advances, but say little about the socio-

cultural context where entrepreneurship occurs (Acs et al., 2009; Agarwal et al., 2007;

Audretsch and Keilbach, 2007). In contrast, institutional theories of new firm entry take

the existence of opportunities as a given, and focus on how social structures can shape

individual motivations to engage in entrepreneurial action (Bruton et al., 2010; Tolbert

et al., 2011). As such, each approach yields a valuable but incomplete understanding

of the drivers of new firm entry into emerging industries. This shortcoming becomes

particularly acute for value-laden, knowledge-based industries such as bioengineering

and clean technology, that are both reliant on advances in scientific innovation and be-

holden to normative, cultural beliefs (Hughes, 2005). We agree with Wry and colleagues

that ‘fully embracing the duality of culture and practice, institutional theorists might

find productive intersections with cognate literatures’ (Wry et al., 2011, p. 460), such as

knowledge economics. Further, we argue that scholars from the knowledge economics

perspective could benefit from an enhanced understanding of how sociocultural factors

shape the emergence of industries.

We theorize about how regional sociocultural environments interact with knowledge

pools to influence entry into emerging sectors. Drawing on institutional theory, we argue

that supportive institutional logics – shared meaning systems that confer legitimacy

upon particular goals and practices (Thornton et al., 2012) – directly influence regional

firm entry rates. Regional logics generate cognitive schemas, knowledge structures that

allow individuals to store mental representations of the regularities that exist in their

social context (Cheng and Holyoak, 1985; Senge, 1990; Thornton et al., 2012). We

theorize that such cognitive schemas enhance potential entrepreneurs’ opportunity rec-

ognition patterns by focusing attention to specific socially legitimate problem domains

(Baron, 2006; Gaglio and Katz, 2001; Ocasio, 2011). Next, we examine how two char-

acteristics of the regional knowledge pool – its size and specialization – moderate the

impacts of regional institutional logics on new firm entry. We draw upon research on

situated attention and schema activation (Baldwin, 1992; Mitchell et al., 2011; Ocasio,

2011; Thornton et al., 2012) to specify the conditions under which cognitive schemas

influence opportunity recognition and new firm entry (Drover et al., 2018; Wood and

Williams, 2014).

We test our model in the emerging US cleantech industry sector. Our model ex-

plores the impacts of regional proenvironmental logics, a shared community attribu-

tion of high intrinsic value to the natural environment (Lee and Lounsbury, 2015,

p. 850), and regional cleantech knowledge pool characteristics. Using panel data

on new firm entry into the US cleantech sector from 1999 to 2010, we find that

1416 S. Vedula et al.

© 2018 John Wiley & Sons Lt d and Society for the Adva ncement of Management Stud ies

proenvironmental logics have a greater impact on new firm entry when the cleantech

knowledge pool in a region is larger. However, these logics have a reduced impact on

new firm entry when the knowledge pool in a region is more focused on a specific

cleantech subsector.

Our theory and findings expand the understanding of new firm entry into emerging

industry sectors in three ways. First, we theoretically integrate predictions from socio-

logical institutional theory and knowledge economics to show the interactive influence

of regional variation in both sociocultural and knowledge-based drivers of new fir m

entry. Second, we contribute to the study of institutional logics by showing that logics

may shape entrepreneurial opportunity recognition processes at a regional level. We

thus utilize the logics perspective to augment individual-level theories of entrepre-

neurial action, emphasizing that opportunity recognition is dependent upon socially

situated cognitive processes and an ability to interpret incongruent cognitive signals

(Drover et al., 2018; McMullen and Shepherd, 2006; Mitchell et al., 2011; Wry and

York, 2017). Our findings suggest that institutional logics can act at multiple levels to

influence industry sector emergence (Lee et al., 2017; York et al., 2016a), but also that

the influence of logics may be dependent upon the underlying size and type of oppor-

tunities fostered by regional knowledge creation activities. Third, our work suggests

that the study of knowledge economics may be incomplete without acknowledging

the role of broader social forces. Focusing our attention on how regional variations in

ideologies and practices shape venture creation could enhance our understanding of

when, where, and why entrepreneurs create new firms.

RESEARCH CONTEXT

The cleantech industry sector encompasses an a rray of technologies that seeks to address

environmental degrad ation. Cleantech includes renewable energy (e.g., solar, wind, geo-

thermal), recycling, waste reduction, green buildi ng, water savings, energy ef ficiency,

transportat ion, and agriculture ( Petkova et al., 2014). Cleantech fi rst emerged in 2000

and grew rapidly over the following decade (Caprotti, 2012). By 2010, the global market

for cleantech was estimated to be worth approxim ately $500 billion (Marcus et a l., 2013;

MEC Intelligence A nalysis, 2012).

Because of the environmental values inherent in cleantech, the sociocultural context

has been an important factor in its growth (Caprotti, 2012; Hughes, 2005). For exam-

ple, the discourse around cleantech has typically depicted it as a market-driven, para-

digmatic revolution, providing technological ‘fixes’ to climate change (Caprotti, 2012).

Firms in this sector typically embrace a hybrid organizational identity, combining both

environmental welfare and commercial goals (Wry and Zhao, 2018), and regional ide-

ologies that prioritize ecological conservation are particularly salient to founders (Meek

et al., 2010; York and Lenox, 2014). Our interviews with cleantech entrepreneurs re-

vealed that they paid attention to regional culture. For example, one founder of a

renewable energy firm discussed how his upbringing in a region with strong ecological

leanings impacted his ‘internal prototype’ of entrepreneurial opportunity: