Institutional Leverage Capability: Creating and Using Institutional Advantages for Internationalization

Abstract

Plain language summary<br />\ud <br />\ud Home country institutions, for instance chambers of commerce and educational systems, can support firms' efforts to expand into foreign markets. However, only some firms utilize this support and become successful in international markets. We propose that these firms have a particular ability to leverage institutions; they have institutional leverage capability. More precisely, we explain that firms need to be aware of the institutional support, access it, decide to adopt it, and adapt their resources to fully exploit the institutions available in their home countries. We recommend that firms design organizational structures and processes to leverage institutions for internationalization. We illustrate our suggestions with the example of the German ‘hidden champions,’ medium-sized firms that are global market leaders, and how they leverage institutions to internationalize.<br />\ud <br />\ud <br />\ud Technical summary<br />\ud <br />\ud We develop the notion of a firm's institutional leverage capability in order to explain heterogeneity among firms with respect to their ability to turn a location's generally available institutional benefits into firm-specific institutional competitive advantages. Institutional leverage capability represents a higher-order construct formed by the four components of awareness, access, adoption and adaption of institutional benefits. It is of particular strategic relevance in institutional contexts that provide high levels of support to firms. Firms can use institutional competitive advantages, which they generate by leveraging their home country's institutions, for the purpose of internationalization. We illustrate our argument using the example of several mid-sized German companies that have leveraged home-country institutional benefits and attained leading positions in international markets. Copyright © 2016 Strategic Management Society

Institutional Complementarity and Substitution as an Internationalization Strategy: The Emergence of an African Multinational Giant

“…Landau et al . (: 52) term this ability as institutional leverage capability (ILC), which they say explains the heterogeneity among firms with respect to their ability to exploit these domestic institutional benefits and leverage them into firm‐specific competitive advantages. They, however, rely on German cases to demonstrate favorable home country institutions (such as the dual education system) that are more noticeably and traditionally advantageous.…”

“…In this way, we both complement and extend the work of Landau et al . () into emerging markets. Like them, we contribute by integrating two strands of the international business literature— namely the capabilities‐based and institutional theories or strategy around the location and firm‐level ownership competitive advantages (Landau et al ., : 63).…”

“…Ahmadjian : 25) concludes that ‘institutions are not only a force to be resisted or adapted to, but are also…sources of competitive advantage…When it comes to market entry and competing successfully across multiple markets, where an MNE is coming from is as important as where it is going.’ Landau et al . (: 51–52) argue that the international success of firms partially results from both the existence of home country institutional benefits and the capacity of firms to integrate them effectively into their own resource bases in what they term institutional leverage capability (ILC). They explain the heterogeneity among firms with respect to their ability to exploit location‐based institutional advantages and leverage them into FSAs of a competitive nature.…”

“…This adds a new layer of understanding to our existing knowledge base of EMNEs and seeks to explain their decisions in a more dynamic manner, taking into consideration not only host country institutions but institutions in their home countries, too, and relates this to the phases of their internationalization experience. We show that institutions should not only be thought of as constraining economic activity, but also being a source of comparative and competitive advantage (Landau et al ., ; Martin, ).…”

Location and the Global Advantage of Firms

“…Landau, Karna, Richter, and Uhlebruck (, this issue) bring in a more balanced perspective on how the distinctive institutional frames across host and home countries matter for entering firms. They offer the construct of institutional leverage capability, which refers to a firm's capacity to recognize and work around the institutional differences found in distinct locations.…”