Internationalization research has been informed by a very diverse range of theoretical perspectives, including international trade, foreign direct investment, and internationalization theories of the firm, which have respectively emphasized the role of a country’s trading patterns, market imperfections leading to internalization of transactions in multinational corporations, and microeconomic explanations of international trade (see Table 2 for an overview of theories). A notion of the external institutional environment as a dominating factor guiding a foreign market entry decision was not largely adopted in the field of international business (IB) until organization theory acquired a bigger niche in its theory development (Buckley and Lessard 2005).
Table 2. Theories of international trade, foreign direct investment, and firm internationalization
Theory Key propositions Credited authors
International trade theories
Classical trade theories Countries gain from international trade when devoting resources to the production of goods and services in which they have absolute or competitive advantage
Smith 1776; Ricardo 1817
Factor proportion theory Trade is caused by the fact that countries have different relative factor endowments. Countries specialize in the production of goods and services that utilize their most abundant resources.
Hecksher and Ohlin 1933
Product life-cycle theory (for international trade)
A trade cycle starts where a product is produced by a parent firm (MNE), then by its foreign subsidiaries, and finally anywhere in the world where costs are the lowest.
Vernon 1966;
Wells 1968, 1969
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Foreign direct investment theories
Market imperfections theory Firms constantly look for market opportunities. Their decision to invest abroad is explained as a strategy of capitalization on certain capabilities that the competitors in foreign countries do not possess. The capabilities or advantages of firms are explained by market imperfections for products and factors of production.
Hymer 1970
International production theory The propensity of a firm to internationalize depends on the specific attractions of its home country compared with resource implications and advantages of locating in another country, i.e. actions of a foreign government may affect a decision to internationalize.
Dunning 1980
Internalization theory Firms aim to develop their own internal markets whenever transactions can be made at lower cost within the firm. Internalization resembles a form of vertical integration bringing new operations and activities that used to be carried out by intermediate markets under the ownership and governance of the firm.
Buckley 1982, 1988;
Buckley and Casson 1976, 1985
Firm internationalization theories
Uppsala model The process of internationalization is founded on an evolutionary and sequential build-up of foreign commitments over time.
Johanson and Vahlne 1977
Helsinki model The process of internationalization occurs first through developing firm’s international competence at the domestic market (inward internationalization) and then foreign market entry.
Luostarinen 1979, Welch and Luostarinen 1988 Innovation-related stage theories The process of internationalization consists of a
sequence of discrete stages. Stable periods take place between the stages, when a firm consolidates and generates appropriate resource base to respond to environmental conditions which allow it to proceed to the next stage. Network theory Firms are enabled to internationalize through business
networks that offer a variety of knowledge sets, capabilities, and resources that a firm would not be able to obtain or develop on its own.
Etemad et al. 2001;
Etemad 2004
International new venture theory International new ventures internationalize rapidly and intensively across culturally and geographically distant locations. In addition to firm level specific factors, the theory focuses on an individual entrepreneur, whose personal abilities and knowledge help a firm to succeed in foreign markets. entrepreneurial firms is caused by three main developments: the evolutionary socio-economic and political developments, technological innovations, and rapid growth of emerging economies.
Etemad 2013
The adoption of the so-called “institution-based view” (Peng 2008), meaning dependence of the internationalization strategy of a firm and performance on the external institutional environment, was to a large extend triggered by a rapid growth in emerging market economies and an increased focus of multinational corporations (MNCs) on the opportunities to penetrate these markets. Thus, an institution-based view was adopted in the international business domain as the third leg of a strategy tripod (Peng et al. 2009), in addition to RBV and IBV, for developing MNCs’ entry strategies for entering emerging markets.
The institution-based view provides a context for the research in emerging economies (Kogut 2003), where application of the existing theories often requires major adjustments (Redding 2005; Teegen et al. 2004). Thus, adoption of the institutional theoretical lens provides researchers with an opportunity to answer such important questions in IB as, what drives a firm’s internationalization strategy in emerging economies and how could the effect of the institutional discontinuances be utilized in order to benefit the firm in its growth aspirations.
The institution-based view also proved to be helpful in entrepreneurship research, where it enabled researchers to explain the success of particular ventures by influences other than organizational or resource-related (Bruton et al. 2010). The main reason for the increased interest in the institutional perspective in entrepreneurship is dissatisfaction with the existing theories that underestimate the existence of the social context in the formation of an entrepreneurial action (Barley and Tolbert 1997). Formal and informal institutional frameworks developed in society provide a basis for legitimate entrepreneurial behavior, and thus can help to predict the required institutional conditions to stimulate the entrepreneurial intention and further the growth aspirations of the new ventures (Bruton and Ahlstrom 2003; Bruton et al. 2010). As a result, an ability to understand the impact provided by the country-level institutional environment for entrepreneurship on the formation and growth of new ventures is twofold. On one hand, it enables policy-makers to design the conducive policy structures supporting economic growth. On the other hand, it provides knowledge for the entrepreneurs on how to utilize the influence of the institutional frameworks in order to benefit the firm’s growth.
Recent studies in international entrepreneurship strongly emphasize the importance of the research on institutional differences across emerging economies and their impact on the firm-specific variables, such as resources, capabilities, internationalization strategies, and realized performance (Kiss et al. 2012). Small and medium-sized firms that often lack resources in emerging economies face particularly big challenges related to the influence of home macro-economic conditions, underdeveloped regulations, taxation policies, and, in some cases, unfavorable societal attitudes towards the phenomenon of entrepreneurship (Smallbone and Welter 2012; Manev and Manolova 2010). Research on the institutional environment for entrepreneurship in emerging economies could be broadly divided into two streams: (1) studies focused on domestic entrepreneurship and comparisons of the domestic entrepreneurial environments across
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countries (corresponds to Type B, Thematic area “Cross-country research” in Jones et al. 2011), and (2) studies focused on the phenomenon of entrepreneurial internationalization and its comparisons across countries (Type A, Thematic area
“Internationalization” and Type C, Thematic area “Comparative Entrepreneurial Internationalization” respectively, in Jones et al. 2011) (see Table 4 for more details).
According to Kiss et al. (2012), only about 40% of the studies in the field of International Entrepreneurship in Emerging Economies (IEEE) belong to Type A (Jones et al. 2011) and the remaining 60% are focused on the comparative Types B and C.
Although no clear estimation following this classification exists for the research focused on the institutional theory application in IEEE, the author of the dissertation evaluates the domestic entrepreneurship-based stream (Type B) as dominating the international one (Types A and C). This proportion remains particularly true in the case of Russia, where studies of the institutional environment for entrepreneurship in the domestic context significantly outnumber those of entrepreneurial internationalization, and only a few comparative internationalization studies, which are all linked to the formation of strategic alliances and joint ventures, exist, to the author’s knowledge (Li et al. 2012;
Young, Ahlstrom, Bruton et al. 2011; Hitt et al. 2004). Presenting the research gap that this dissertation aims to fill, the next chapter will tackle these issues in more detail.