The differences in sub‐national institutions within large and complex emerging economies have been increasingly noted. Drawing on social network theory and the institution‐based view, we argue that two network structural attributes of domestic firms – centrality and structural holes – have distinctive values in different sub‐national regions where institutional contexts differ widely. In addition, these sub‐national institutional contingencies influence the attractiveness of different network attributes to foreign entrants seeking international joint venture (IJV) partners. Specifically, in regions where the degree of marketization is high, centrally positioned domestic firms are more likely to be selected by foreign entrants as IJV partners. In regions where the degree of marketization is low, domestic broker firms are more attractive IJV partners. Results from the electrical and information technology industries in 18 provinces in China largely support our hypotheses.
While voluminous research has focused on the impact of host country institutions on foreign entrants, the rise of outward internationalization of firms from emerging economies is challenging this research stream. Limited work has been done to investigate a crucial question: How do home country institutions influence firms from emerging economies to engage in outward internationalization? Inspired by North's insights on institutional open access, we develop an institution-based framework highlighting intra-country (sub-national) regional differences within a large emerging economy. Specifically, we argue that greater institutional open access in a particular region of a home country-in the areas of legal environment openness and financial market openness-leads to greater outward internationalization of local firms headquartered in that region. Further, tenure of that region's governor moderates such relationships in different ways. Our multilevel analysis with 5,239 observations (company-years) finds that institutional open access is indeed behind some Chinese firms' outward internationalization.
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