The primary focus of the following attempt to synthesize IT and DCT is on the interplay between IT and DCT and their integrative explanatory role in international performance. At general level, a cyclical link between Institutional factors and DCs is suggested in postulates 1A and 1B and further relevant details on the possible link between IT and DCT in postulate 2 that are all assumed as a argumentatively developed truths, rather than hypotheses to be tested, (Nyberg &
Ployhart 2013) in order to utilize some of them as a ground to the following hypotheses in the Chapter 4 of the dissertation.
Institutions and firms co-exist and co-evolve (Cantwell, Dunning, & Lundan 2009), which is also valid for firms’ DCs (Augier & Teece 2008). Institutions (and their enforcement mechanisms) set the ‘rules of the game’, which firms must
follow (Dunning & Lundan 2010), including in their pursuit of capability building and leveraging. Hence, institutional factors define a frame in which firms may enjoy pursing their own objectives through DCs that they develop and exploit. In turn, though institutions often are pervasive entities, they are enacted and constructed by individuals and organizations. Hence, enterprises with strong DCs not only adapt to institutional and business environment, but also play an important role in shaping them i.e., alternating their frame, through innovation and collaboration with other enterprises, entities, and institutions (Teece 2007).
This argument is also acknowledged by Durand (2012, p. 298) in his discussion of institutions in relation to firms:
“(Firms and other organizations) fashion and embody institutions, are bounded and emancipated by institutions, work to maintain and erode institutions, perform institutional functions and convey institutional logics.”
While DCs explain how firms differentiate, institutional factors explain semi-flexible boundaries of differentiator actions and subsequently how and why firms homogenize. Thus, DCs and institutional factors feed each other and simultaneously explain firm behavior via two contrasting forces -one pushing toward equilibrium, and the other pushing away from it. Institutional factors impose what DCs are desired and conducive to performance within a given institutional environment. Nevertheless, capabilities and activities of firms may in turn change institutions and their perception toward manifested capabilities (Kondra & Hinings 1998). Thus, DCs and institutional factors constantly and cyclically shape each other, meaning that both institutions and DCs must be incorporated into each other’s analysis to arrive a fuller understanding of the other.
The common argument that institutions influences the way in which firms are structured and managed is applied (Meyer and Rowan 1977) to DCs realm within the contexts of both home and host institutions (Choi et al. in press; Nguyen, Le,
& Bryant 2013). Institutions constitute notable share of contexts in which an entity, explores, develops, manages, and leverages its resources and capabilities.
In fact, Teece (2009) acknowledged that differences in local product markets, local factor markets, and institutions play an important role in shaping competitive capabilities. They are a key driving force underpinning the content and pattern of the exploration and exploitation of resources and capabilities (Dunning & Lundan 2010) and reducing uncertainty that could surround capability development activities (Beckert 1999). For example, both the creation
and effective use of firm R&D fundamentally depends on institutional infrastructure (Dunning & Lundan 2010).
Institutions may have constraining or jeopardizing influence on DCs.
Development, deployment, and utilization of DCs may be hampered in closed economies (Teece 2007) with weak or restrictive institutions. Sensing, seizing, and reconfiguring activities, given their unorthodox and innovative nature, can be perceived as deviations from norms in contexts where social institutions pose greater monitoring and sanctioning constraints (Taras, Kirkman, & Steel 2010).
Thus, firms cannot be able to freely practice entrepreneurial activities in some institutional settings. Likewise, countries with “extractive” or weak institutions, even if they do not impose restrictions, face higher volatility that hampers firms’
capabilities and performance (Acemoglu et al. 2003).
Conversely, institutions can play a facilitating role to DCs by providing structure and coordinated setting, in which development, configuration, and utilization of DCs are supported. For instance, American pharmaceutical firms are more innovative than their Japanese counterparts, due to higher institutional conduciveness to drug innovations in US compared to Japan (Peng et al. 2009).
Likewise, reformative institutional change in Korea allowed local firms to develop and leverage superior innovative capabilities partially via increased possibility in R&D investments (Choi et al. in press). Thus, it could be safely argued that firms in different institutional frameworks develop different capabilities shaped by their institutional frame (Whitley 2003).
Postulate 1A: Institutions define the frame and provide semi-flexible structures in which dynamic capabilities are developed, deployed, and exploited.
On the other side of the coin, institutions are not omnipotent, impervious, and adamant forces. The influence of DCs, given their entrepreneurial and formative nature (Teece 2007), often extends beyond the operant entities of these capabilities to business ecosystems including institutions. In fact, DCs’ operant influence on intangible assets, resources, and capabilities enables them to be distinctive and exceptional and to alternate, erode, and/or re-create otherwise perseverant institutional frameworks (Durand 2012). A nascent research stream on institutional entrepreneurship, referring to deploying the resources to create, empower, and alternate institutions, is emerging to address the changing view on institutions and entrepreneurs (Greenwood & Suddaby 2006), including in international arena (Szyliowicz & Galvin 2010).
An initial role of DCs in influencing institutional factors could be co-opting and shaping values and criteria. Nevertheless, more ample impact of DCs is revealed
in erosion and (re)formation of institutions (Durand 2012; Greenwood & Suddaby 2006). For instance, DCs are found to play a pivotal role in breaking socio-institutional inertia (Pihkala et al. 2007). Likewise, in uncertain or unfavorable institutional situations, entrepreneurial firms’ DCs enable them to be creatively destructive (destroying established taken-for-granted rules and re-establishing new ones) to create stable and favorable institutional fields (Beckert 1999) by envisioning alternative modes of getting things done. Thus, DCs are not only influential to the self, but also play a role in shaping institutions as entities exogenous to the self.
Postulate 1B: Dynamic capabilities enable agents to change institutions (formation, maintenance, alternation, erosion, reformation) in the long run.
Moving toward more specific arguments about the relationship between institutions and DCs and focusing on host institutions, it is viable to argue that the part of their impact may not be immediately visible to foreign firms expanding into them. It takes time for internationalizing firms to embed in and relate themselves to a host setting. However, in these contexts, institutions reveal their primary impact on contingent bases. Contextual institutional conditions influence which resources and capabilities provide competitive advantage (Peng and Meyer 2005). Thus, DCs, though important, are only part of the key success factors for succeeding in doing business in various institutional settings and their impact can also be contingent upon host institutions.
Host institutions may reveal their contingent impact on international performance in various ways. Institutional distance, for instance, plays an important role in long-term performance of multinational firms (Chao & Kumar 2010). Likewise, proxies such as rule of law, political stability and freedom, and intellectual property rights (Meyer & Peng 2005) that predict institutional development may play a definitive role in determining what DCs are conducive to international performance in what countries. For instance, TeliaSonera’s failure in Uzbekistan could largely be attributed to Uzbekistan’s institutional failures that has driven the firm to bribe local officials (Ewing 2013), despite the firm’s probable capabilities that make it largest mobile operator in Nordic countries. Furthermore, beyond formal factors, informal factors such as socio-cognitive and cultural forces also play a key role in which firms may successfully maneuver in host contexts (Taras et al. 2010). Consequently, institutional factors are likely to have alterative effects on the effectiveness of DCs in various host contexts.
Postulate 2: Host institutional factors moderate the relationship between dynamic capabilities and international performance.