Future research and implications

The presented model helps to consolidate increasing literature of subsequent internationalization behavior of INVs by displaying the antecedents of pace, pattern, and scope of the international expansion. The propositions presented help to close a research gap by encompassing institutional forces, showing their vital role in the subsequent internationalization stage of INVs. Despite firms’ quick and early internationalization and their overcoming of impediments to internationalization, institutional distance will significantly increase in importance the more an INV ventures out on a global scale. The propositions developed in our study entail several implications to be considered in future research.

2.4.1 Future research

First of all, future research should analyze our first set of propositions outlining the relationship between antecedents and pace, pattern, and scope of the subsequent international expansion of INVs. Given that our model entails multidimensional factors and includes multiple levels, the individual relationships should be empirically analyzed to

Impact of Institutional Distance

Stage of Subsequent International Expansion

early late

low high

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understand complex interactions among factors included. Depending on the international growth stage of an INV, the importance of antecedents might change over time. Thus it could be expected that home country market factors become less important in the later stage of INV internationalization. It has also been argued that INVs follow a rather similar growth pattern in their subsequent internationalization phase than is predicted by the Uppsala internationalization process model (cf. Hashai and Almor, 2004; Sui et al., 2012) and comparative studies could show whether INVs remain distinct from MNEs with regard to growth drivers and patterns in their subsequent stage of internationalization. Future research should analyze additional antecedents not considered in our conceptual model that might also exhibit a negative impact on the international expansion of INVs. Such antecedents may include for example static routines of INVs that prevent a more flexible adaption of internal and external processes necessary for further internationalization (Sapienza et al., 2006).

Furthermore, weak institutions in the home country may also hinder INVs originating from these markets to access sources of financing or an educated labor force to pursue international expansion (Busenitz et al., 2000) and should be considered. In a similar vein, future research could also adopt additional concepts from institutional theory and for example analyze how isomorphic pressures in the home and host country can impact subsequent international expansion of INVs (cf. Meyer and Rowan, 1977).

Second, empirically testing our propositions regarding the impact of institutional distance might set certain challenges for future research. While measurements for antecedents and outcomes are widely available, measuring the institutional distance and contexts is less clear.

Given that the institutional environment is complex and partly abstract, research in the area entails the danger of over-simplification (Bruton et al., 2010). This could be the case if institutional distance is measured using only one or a few items to reflect Scott’s (1995) pillars (Brouthers, 2002; Delios and Beamish, 1999) or is simply relied upon as a proxy of the construct. Other more refined measurements of the institutional environment can provide a

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more holistic view, mostly using measurement items from reports such as the Economic Freedom Index, Global Competitiveness Report, World Competitiveness Yearbook, Euromoney indices, Hofstede values or other country risk ratings (Gaur et al., 2007; He et al., 2013; Gaur and Lu, 2007; Demirbag et al., 2007). However, it is important for researchers to thoroughly consider which items of such reports are best suited to reflect the institutional environment, as this can vary significantly between industries considered.

Third, our model does not include performance implications of the subsequent international expansion process of INVs. The dimensions pace, pattern, and scope represent a strategic set along which managers can design the international expansion strategy, which will ultimately relate to international performance of INVs. It would be particularly interesting to analyze the interaction effects, to understand how the three dimensions should be combined in an INV’s internationalization process in order to successfully internationalize. Thus, it could be argued that a fast pace and wide scope, as well a highly resource-committed pattern might negatively impact firm performance (cf. Coeurderoy and Murray, 2008; Sapienza et al., 2006; Ruigrok et al., 2007), as it can have destabilizing effects on INVs (Chetty and Campbell-Hunt, 2004).

Current IB and IE research could be advanced by understanding how these dimensions should be combined to achieve the most beneficial outcome for a firm. This will provide valuable insights for managers to identify efficient internationalization strategies.

Finally, we argue that IE scholars could make a valuable contribution in analyzing performance implications by expanding our model and considering the institutional environment. Early work on INVs has highlighted the crucial role of the entrepreneur in the internationalization process of new ventures. With regard to the decision-making process, Nummela et al. (2014) show that in maturing INVs, this process is also highly personalized, mainly driven by the founder and other members of the management. In the same vein, Brouthers (2013) has argued that managers make strategic choices based on their subjective perception of institutional distance

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and foreign-market risk. Therefore he argues that instead of considering the actual institutional distance between markets, managers develop internationalization strategies based on their personal perception of institutional distance. He further reasons that performance outcomes of these strategic decisions depend on the actual institutional context rather than the perceived distance. Given that IE scholars have a long tradition of analyzing the entrepreneurs’ role within the firm (Oviatt and McDougall, 2005), they might considerably expand our understanding of whether internationalization decisions based on a correctly estimated institutional distance lead to better performance. Analyzing this “misperception” of institutional distance at the decision maker level might also provide guidelines about how to overcome misperception, particularly with regard to the less feasible pillars (i.e., normative and cultural-cognitive) of the institutional environment, which will ultimately contribute to recent advances of the application of institutional theory and help managers overcome hurdles set by differing institutional contexts.

2.4.2 Practical implications

Our paper contains important implications for entrepreneurs and managers of INVs with regard to subsequent international growth and reducing the negative impacts of institutional distance. First of all, managers need to be aware that the impact of institutional forces will increase in the long run. Although the entrepreneur might not perceive that institutional distance increases risk or presents greater challenges during the initial stages of internationalization, this perception is often related to previous personal international experience. However, as this experience is mostly country specific, the impact of institutional distance will be much stronger during subsequent stages of internationalization, when expanding on a broader scope. In order to reduce this impact, the entrepreneur can expand the management team, hire internationally experienced managers with particular market knowledge, or seek external advice (cf. Nummela et al., 2014). Furthermore, managers need to accumulate experience by expanding internationally to be well aware of the challenges arising

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during the internationalization process, derive best practices, and expand capabilities that can help with future expansion (cf. Prashantham and Young, 2011). Third, the role of networks can play a crucial role in reducing negative influences stemming from differing institutional contexts and can lower information asymmetries (Kiss and Danis, 2008). Risk can be significantly lessened by broadening personal and firm-level networks, by actively participating in industry associations and events, and by hiring employees with large personal networks in the target region. Certain government assistance programs can also be helpful in reducing the negative impact of the institutional environment through credit assistance, export promotion, and bilateral governmental networks. Finally, managers need to take into account that if the international expansion process is mainly triggered by external drivers (i.e., market maturity and industry characteristics), the impact of institutional distance can be highly negative.

Entrepreneurs need to ensure that their firm obtains sufficient firm-level capabilities to internationalize more rapidly and on a broader scope to avoid risky international expansion.