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Paper info: Institutional capability in SME internationalisation: empirical cases from China


Institutional capability in SME internationalisation: empirical cases from China


Anna Y. Tian, John Nicholson and Renyong Chi

Place of Publication

The paper was published at the 34th IMP-conference in Marseille, France in 2018.


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This is an empirical research paper based on the data of 20 in-depth interviews with SME aiming for international markets. The paper presents evidence of institutional voids (Tracey & Phillips, 2009) and the process in which SMEs’ attempts to build up relationships with institutional and organisational entities. The focus of the empirical investigation is to suggest SMEs’ institutional capabilities and capital in the process of attempting international markets. Extant literature discussing relationship and networking building of Chinese SMEs has been extensively focused on Guanxi – a culturally grounded notion of social and relational proximity ? and interpersonal relationships (e.g. Barnes et al., 2015, Su et al., 2015). This is mainly because Chinese SMEs have been involved in a rich history of interpersonal relationships, often developed historically to compensate for formal institutional weaknesses or voids. Scholars suggest that efficient markets depend on supportive formal institutions that may provide both formal and informal rules of the game (Boschma, 2005). There is very limited research undertaken to understand non-interpersonal based relationships (Wright et al., 2005). Our study is intended to discover how non-interpersonal based relationships, mainly with institutions and organisations, are created, developed and maintained. We followed a conceptual framework of proximity and distanciation offered by Nicholson et al. (2013) to study how the Chinese SMEs developed institutional capabilities to obtain optimisation of relationship building. The context of this paper is that the Chinese SMEs have to face relationships and network building outside their traditional interpersonal relationships. For example, they have to face legislative changes and reforms launched by the Chinese government, respond to foreign firms that enter their domestic market, as well as contact foreign customers in overseas markets. Traditional interpersonal relationships and networks do not seem to be effective in working in this new context. Therefore, we aim to processually study the relationships that the sampled SMEs built up and how they develop these relational and indeed dynamic capabilities (Teece, 2009) of actor networking with institutions and organisations. The study undertakes a processual approach to understand how the Chinese SMEs reacted to low levels of institutional resources in the business environment. The sampled SMEs were selected in terms of SME definitions in China. The data was collected from manufacturing companies located in the North to South China along the East coast, where SMEs importantly contribute to economy of mainland China. Theoretical sampling was adopted to maximise opportunities to collect data in the chemical and engineering sectors. In this paper, data of 20 cases was collected between January 2008 and August 2016. In all interviews, the respondents shared experience overcoming institutional barriers and difficulties; as well as their engagement with the extant institutional environment. They also explained how they intended to build up relationships with institutional and organisational entities when they try to venture in international markets. Building on ideas develop by Tian et al., (2018), this paper proposes certain patterns of relationship that the sampled SMEs have been going through with local institutions or organisations when aiming international markets. There are five phases suggested in the paper to illustrate how the SMEs built up institutional capabilities in an evolutionary process. Based on the empirical data, the paper is intended to provide theoretical contributions to the current literature in terms of institutional capability and relationship building in an emerging economy.