An incentive based model of international entrepreneurship in emerging and transition economies

We argue that the domestic institutionalattributes i.e., the degree of specificity, stability, predictability, and enforceability ofproperty rights and contracting institutions drive the

An incentive-based model of international

entrepreneurship in emerging and transition economies

Vi Dung Ngo1&Frank Janssen2&Marine Falize2

# Springer Science+Business Media New York 2016

Abstract The importance of firms from emerging and transition economies (ETES) isrising in the global economy But what factors drive firms from ETES to internation-alize? Prior frameworks do not allow us to fully answer this question In this paper, wepresent a model that conceptually links the institutional environment, the firm’sresource investment, and internationalization We argue that the domestic institutionalattributes (i.e., the degree of specificity, stability, predictability, and enforceability) ofproperty rights and contracting institutions drive the firm’s perceived risk and uncer-tainty, and therefore its resource investment and ability in pursuing internationalstrategic behaviors Focusing on private firms in ETES whose property rights andcontracting institutions are still lacking, we name our model an incentive-based model

of international entrepreneurship from emerging and transition economies (IEEE).Keywords Institutions.Resourceinvestment.Internationalization.Transition.EmergingJel classification F2 F5 F6

Introduction

The firms from emerging and transition economies (ETES) are increasingly exploringand exploiting opportunities in international markets (Bruton et al.2008; Wright et al

2005) through common internationalization strategies such as exporting (Aulakh et al

2000) or foreign direct investment (Yamakawa et al 2008) This entrepreneurialDOI 10.1007/s10843-016-0165-0

phenomenon has been strongly investigated by scholars in international business (e.g.,Meyer and Peng2005; Meyer et al.2009) and entrepreneurship (Yamakawa et al.2008;Peiris et al.2012) during the last two decades However, recent and comprehensivereviews of international entrepreneurship (IE) at large or in the context of emerging andtransition economies, such as the works of Jones et al (2011), Kiss et al (2012), andPeiris et al (2012), show that the three branches of IE (i.e., entrepreneurial internation-alization—type A; international comparisons of entrepreneurship—type B; and com-parative entrepreneurial internationalization—type C) still suffer from many gapsrelated to theory, context, and methodology.

ETES are economies whose governments adopt the free-market system and favorpolicies of economic liberalization but whose formal market-supporting institutions arelacking or weak (Hoskisson et al.2000; Peng2003) Institutions are therefore the mostimportant elements that characterize the transitional nature of ETES (McMillan1995,

2007; Peng2003), compared with other environmental constraints, i.e., technology andmarket (North1990) There is a growing consensus that institutions matter to interna-tional entrepreneurship in emerging and transition economies (IEEE) For instance,Yamakawa et al (2008) argue that the three dimensions of institutions (i.e., regulative,normative, and cognitive) can be drivers of the internationalization of firms from ETES.Aulakh et al (2000) show that firms in ETES should adapt their export strategies inorder to enhance their export performance in emerging and developed markets.Nevertheless, the institution-based view (IBV) in international business is still consid-ered too broad and too encompassing because it lacks strong measures of institutions(Peng et al.2009) Meanwhile, the questions of how different institutions influence theinternational development of firms from ETES (Kiss et al.2012) is still neglected byprior IE and IEEE studies

In this paper, we aim to fill this gap by proposing a model that clarifies the impact ofinstitutional environment on the firm’s resource investment and internationalization

We also provide operational measures of four attributes of two major elements of theformal economic institutional environment, i.e., property rights and contractinginstitutions

Based on the insights of institutional theories developed in new institutional nomics and international entrepreneurship literature, we argue that the different attri-butes of the formal economic institutional environment (i.e., the degree of specificity,stability, predictability, and enforceability of property rights and contracting institu-tions) significantly influence the IEEE because they configure the entrepreneur’sperception or mental constructs (Duncan1972; North 1990) or schema (Kiss et al

eco-2012) of domestic institutional risk and uncertainty and, therefore, their internationalabilities and strategies Figure1graphically outlines our model

This paper is organized in four parts First, we show that resource investment is amajor concern of the resource-based view (RBV) of internationalization By contextu-alizing the ETES, we also clarify the most important attributes of their institutionalenvironment and hypothesize the impact of these institutional attributes on the firm’sinternationalization through resource investment mechanisms In the third part, wediscuss the contribution and application of our model In order to demonstrate itsapplicability and validity, we provide some empirical evidence on a sample ofexporting firms from an emerging and transition economy namely Vietnam In the lastpart, we conclude

The incentive-based model

Resource investment and international entrepreneurship

RBV has become a widely used approach in understanding the firm’s tion process and has made a significant contribution to the IE domain (Peiris et al

internationaliza-2012) The RBV insists on the firm-specific resource attributes that enable firm tointernationalize In this section, we provide an exhaustive and operational definition ofresource investment and make assumptions about the conditions in which this strategicbehavior can prove its role in the international behavior

In the present work, we adopt Barney’s (1991,2001a, p 54) definition that useresources and capabilities as interchangeable concepts meaning Ball [tangible andintangible] assets … controlled by a firm that enable the firm to conceive of andimplement strategies that improve its efficiency and effectiveness^ and including Ball ofthe financial, physical, human, and organizational assets used by a firm to develop,manufacture, and deliver products or services to its customers^ (Barney1995, p 50).The RBV argues that because resources and capabilities enable the firm to conceiveand implement competitive strategies, the firm’s heterogeneity in resources and capa-bilities should therefore be sources of its sustained competitive advantage

Besides, the extent to which competitors are unable to duplicate the firm’s itive strategy depends on certain resource’s attributes that the firm possesses such asvaluable, rare, imperfectly imitable, and not substitutable (Barney1991,2001a) But,where do such resources and capabilities come from? Why can certain firms own orcontrol valuable, rare, imperfectly imitable, and not substitutable resources and capa-bilities while others do not? The RBV argues that this mainly results from the firm’sresource investment Ethiraj et al (2005) argue that capabilities can be either (i)Btheresults of tacit accumulation of experience embedded in routines and learning by doing

compet-… or (ii) Bthe results of deliberate investments in organizational structure and systems

to make constant improvements in those routines and practices.^ In other words, the

first capability building mechanism isBsemiautomatic accumulation of experience^while the second isBdeliberate investments in knowledge articulation and codificationactivities^ (Zollo and Winter2002) Barney (1986b) argues that firms can sell and buyrequired resources to implement international strategies through strategic factormarkets Dierickx and Cool (1989) argue, however, that certain resources and capabil-ities are non-tradable, and that firms should internally build or accumulate theseresources and capabilities.

Resource investment can therefore be defined as the firm’s deliberate and consistentpolicies and procedures of assets (i.e., both tangible and intangible assets) creationthrough different methods (i.e., acquisition and/or accumulation) by choosing anappropriate path of expenditures (e.g., time, money, cognitive efforts, etc.) that enablesthe firm to formulate and implement competitive strategies in order to improve itsperformance in domestic and/or foreign markets over a period of time

The exploration and exploitation of international opportunities require firms to make

at least five strategic choices related to location decisions, entry modes, ization speed, internationalization scale (e.g., the ratio of international sales/total sales),and internationalization scope (e.g., the number of countries in which a firm interna-tionalize) In principle, more distant international markets, higher commitment entrymodes (e.g., foreign direct investment as compared with export), rapid internationali-zation, higher internationalization intensity, and higher market diversification requiremore resources and capabilities (i.e., both in terms of quantity and quality) that in turnrequire more sophisticated (i.e., more risky and uncertain) resource investment methods(Coeurderoy and Murray2008; Johanson and Vahlne 1977; Leonidou2004; Meyer

international-et al.2009)

Contributions conceptually grounded in the RBV of the firm argue that the dance of specialized resources is needed for international entrepreneurial activities (e.g.,George2005) Thus, at least a certain minimum of resource endowment would beprerequisite for the internationalization of the firm Such resources may include tradesecrets, embedded technological knowledge, managerial marketing and productionskills, which are valuable and difficult to imitate (Dollinger 1995) and provide thesustainable competitive advantage needed for internationalization (Loane and Bell

abun-2006) Firm from ETES, in comparison with their counterparts in developed economies(DE), may face constraints arising from their intrinsic deficiencies in resources andcapabilities such as relevant and sufficient knowledge in doing international businessactivities (Volchek et al.2013) Such constraints make internationalization a dauntingchallenge to most of them (McDougall and Oviatt 1996) Resource investment istherefore critical for firms from emerging and transition economies

Proposition 1 Firms from ETES are more likely to internationalize when they invest inresources for export-related activities

In responding to many criticisms on the RBV (e.g., Priem and Butler2001a, b),Barney (2001a, pp 52–53) recognizes that Bthe value of a firm’s resource must beunderstood in the specific market context within which a firm is operating,^ and thatthe RBV often neglects the issues of external environment This is consistent with theempirical evidences provided by Ahuja and Katila (2004) who from evolutionaryperspective demonstrate that the resource heterogeneity often results from the firms’responding to external stimuli (in the form of problems or opportunities) in their

idiosyncratic situation Recent studies in entrepreneurship also called to contextualizethe entrepreneurial phenomenon (Welter2011; Welter and Smallbone2011) In the nextsection, we will clarify how the domestic institutional environment influences IEEEthrough the resource investment mechanism.

Institutions and strategic behaviors

According to the literature, when firms internationalize, they may face many difficultiesthat can arise from four sources (Zaheer (1995): (i) the costs associated with spatialdistance; (ii) the firm-specific costs based on a firm’s unfamiliarity with a localenvironment; (iii) the costs resulting from the host country environment; and (iv) thecosts from the home country environment

Prior studies have not paid sufficient attention to these fourth costs, especially forfirms that operate in ETES Institutions are the most crucial element that characterizesthe transitional nature of ETES’ domestic environment (McMillan1995,2007; Peng

2003) Thus, although we recognize the important effects of other external elements(i.e., technology and market) on IEEE, our attention in the current work is devoted tothe domestic institutional environment of ETES The role of the institutional environ-ment for IE and IEEE is increasingly recognized by scholars in IE (e.g., Shirokova andMcDougall-Covin2012; Volchek et al.2013; Li2013; Etemad2014), but the question

of how domestic institutions influence the development of the firm’s resources andcapability for international purposes is still unanswered (Kiss et al.2012; Peiris et al

2012) As a consequence, this requires to perform a detailed and systematic tion on institutions, their components, their changes, and their potential effects on thefirm’s strategic behaviors

investiga-Institutions are defined asBthe rules of the game in a society or, more formally, arethe humanly devised constraints that shape the human interaction^ and they can beeither formal—such as rules that human beings devise—and informal—such as con-ventions and codes of behaviors (North1990, pp 3–4) Institutions can be classifiedinto two levels: institutional environment that is defined asBthe set of fundamentalpolitical, social and legal ground rules that establishes the basis for production,exchange and distribution^; and institutional arrangement or institutions of governancethat is defined asBan arrangement between economic units that govern the ways inwhich these units can cooperate and/or compete^ (Davis and North1971, pp 6–7) Theinstitutional environment strongly influences the institutional arrangement because theformerBis about the rules of the game^ while the latter Bis about the [play of the] gameitself^ and Bthe rules have a great impact on how the game is played^ (Pejovich1990,

p 3; Williamson1998, p 75)

The institutional environment and institutional arrangement consist of both formaland informal constraints At the institutional environment level, there are for examplesanctions, taboos, customs, traditions, and codes of conducts (informal institutionalenvironment) or laws of contract and property (formal institutional environment)(North1991) At the institutional arrangement level, there are written (formal institu-tional arrangement) and unwritten contracts (informal institutional arrangement) be-tween transaction parties As mentioned above, ETES are often in situation of lawless-ness (Williamson2005) because their formal market-supporting institutions are often

lacking or weak (Hoskisson et al.2000), especially in their early phase of transition(Peng2003).

In this context, among the two levels of institutions—i.e., institutional ment and institutional arrangement—and among the two groups of institutions—i.e., formal and informal institutions—we choose to focus this study in the formaldimension of institutional environment In addition, among elements of the institu-tional environment, property and contractual rights are central because they deter-mine incentive structure and the transaction costs of an economy (North1990) Ourattention is therefore devoted to those two key elements of the formal economicinstitutional environment

environ-The property rights or rights of ownership of an asset (both tangible and intangibleassets) can be defined asBrelations among men that arise from the existence of scaregoods and pertain to their use^ (Pejovich1990, p 27) In a market-based economy, thestructure of property rights is mainly based on private property rights that contain fourelements of use, benefits, modification, and transfer rights (Furubotn and Richter1991,

p 6; Pejovich1990, p 28) The property rights institutions areBthe rules and tions protecting citizens against the power of the government and elites^ (Acemogluand Johnson 2005, p 955), as well as the expropriation or appropriation of othercitizens—e.g., leakage and hold-ups by commerce with rivals, suppliers, and customers(Klein 1996; Williamson 1991) The contracts are Bmeans by which people seek,identify, and negotiate opportunities for exchange^ (Pejovich 1990, p 30) Thecontracting institutions areBthe rules and regulations governing contracting betweenordinary citizens, for example, between a creditor and a debtor or a supplier and itscustomers^ (Acemoglu and Johnson2005, p 955) In a market-based economy, theeconomic actors are free to seek, identify, negotiate, and contract with partners forexchange The rules and regulations related to property rights and contractual rights can

regula-be defined as any legal and administrative rules created, applied, and enforced by stateinstitutions (i.e., legislative, executive, and judiciary) at local, national, and interna-tional level (Kitching2006; Shleifer2005)

The most important role of institutions is Bto reduce uncertainty by establishing astable (but not necessarily efficient) structure to human interaction^ (North1990, p 6)

In all economies, institutions are however changing because of several sources, eitherexternal or internal or both (North 1990; Pejovich 1990) The institutional changecreates in turn institutional uncertainty that can be defined as the economic actors’perceived inability to predict institutions (i.e., their state, their effect, and their requiredresponse) in an accurate manner (Milliken1987)

In the context of ETES, the institutional change mainly means the transition fromnon- or less-market-supporting institutions to the more-supporting ones (McMillan

1995,2007), i.e., from non- or less-supporting private property rights and free tual rights institutions to the more-supporting ones (Besley1995; Johnson et al.2002b;McMillan and Woodruff 1999) And this transitional nature not only causes theproblem of institutional uncertainty (i.e., unstable institutional infrastructures andunpredictable institutional changes) but also incentive problems because economicactors often have not yet the full rights of ownership and the freedom of contract indoing business in international markets Their economic interests are often inefficientlyand ineffectively protected from both public and private expropriation risks As aconsequence, the firms can be reluctant to invest in their resources and capabilities,

contrac-necessary to internationalization This incentive problem of investment was verysummarized by Johnson et al (2002b):

BSecure property rights [and contractual rights] are necessary … and also cient for investment … The issue is not whether entrepreneurs have enoughresources, but rather whether they want to invest their retained earning [and otherresources] or instead consume these earnings [and other resources], perhapsoutside the country… [Thus] certain market-supporting institutions will workonly after other institutions have been built^ (Johnson et al.2002b, p 1336).But how institutions (i.e., property rights and contracting institutions) influence thefirm’s investment behavior, by what ways or mechanism, and to what extent? Theexisting literature often describes institutions either by (i) type of activities in doingbusiness such as starting business, hiring and firing workers, enforcing contracts,getting credit, and closing a business (e.g., Djankov et al.2002, 2003; World Bank

suffi-2004) or by (ii) societal sectors such as economic, political, judicial, and social (e.g.,Acemoglu and Johnson 2005; The Heritage Foundation 2006–2012; World Bank

2002)

While these approaches could be useful to make a comparative analysis of differentinstitutional frameworks at the macro level, it could however be inappropriate toevaluate the impact of these institutional frameworks on the firm’s behaviors becausethe direction and the extent to which institutions matter depend on how individuals (i.e.,the firm’s managers or entrepreneurs) perceive and interpret their institutional reality(Liesch et al.2011; Volchek et al.2013)

By assuming that entrepreneurs in ETES are rational actors in pursuing theiropportunities abroad, we need to clarify some key institutional attributes thatscholars can use to capture the extent to which entrepreneurs use their mentalconstructs (Duncan1972; North1990) or schema (Kiss et al.2012) relative to theirdomestic institutional environment to conduct their strategic behaviors Based onthe insights of prior studies (e.g., Acemoglu and Johnson 2005; Besley 1995;Brunetti and Weder 1998; Djankov et al 2002, 2003; Knack and Keefer 1995;Malesky and Taussig 2009; Svensson 1998; Teisberg 1993), there are four keyinstitutional attributes that emerge: specificity, stability, predictability, and enforce-ability We do not mean that the institutional attributes identified in the current workare theBtrue^ ones that individuals use to build their subjective model about theirdomestic institutional environment However, such conceptual instruments arenecessary for scholars to unbundle the way by which the institutional reality enters

in the individual’s decision making process The nature, existing measurements,and implication related to risk and uncertainty of these institutional attributes for thefirm’s internationalization are discussed in detail below

Specificity

The institutional specificity is the extent to which the private property rights ofownership and the freedom of contract are recognized or defined by prevailing rulesand regulations (Acemoglu and Johnson 2005; Besley 1995; Djankov et al 2002;Furubotn and Richter1991; Kitching2006; Shleifer2005) This institutional attribute

determines the de jure incentive of economic actors because it formally structures theextent to which they can do with their assets Surprisingly, for a few exceptions such asBesley (1995, pp 914, 933–936), in prior studies, scholars often worry about whetherproperty rights are efficiently and effectively enforced but neglect to verify to whatextent property and contractual rights are recognized or assigned by prevailing legalsystem of different countries (Acemoglu and Johnson2005) The fact is that in manyETES private property rights are recognized but not as the dominant property rights andindividuals only have limited rights of ownership of an asset such as land (Besley

1995) In this context, asking entrepreneurs about what property and contractual rightsthey hold and therefore what they can do to create, appropriate, and sustain value fromtheir resources is very different from asking them how well these rights are enforced orprotected (Foss and Foss2005) By contrast, the measurement of contractual rights’specificity is more developed

For instance, the works of Djankov et al (2002) and World Bank (2004) providecertain good measures of the freedom of contractual rights through a proxy ofbarriers and complexities (e.g., the number of official procedures, official time, andofficial costs) that the firm confront in various activities (e.g., starting a business,hiring and firing worker, getting credit, closing a business, etc.): the higher thebarriers the firm confront in these activities, the lower its degree of freedom ofcontractual rights

Stability and predictability

The institutional stability is the extent to which the rules and regulations concerningproperty rights and contracting institutions changed in the past (Acemoglu andJohnson 2005; Besley 1995; Djankov et al 2002; Furubotn and Richter 1991;Jeong2002; Kitching2006; Shleifer2005; Teisberg1993); whereas, the institution-

al predictability is the extent to which the future change of rules and regulationsconcerning property rights and contracting institutions can be predicted (Acemogluand Johnson2005) As North (1990, p 6) argued, the major role of institutions is toreduce uncertainty by establishing a relative stable framework of institutions thatfacilitates exchanges between economics actors If entrepreneurs perceive that thisframework is not relatively stable or its changes cannot be predicted, it will beextremely difficult for them to estimate the costs and benefits of their transactionswith other parties, and as a consequence, they can neglect, delay or only invest insmaller and shorter projects (Jeong2002; Teisberg1993) The institutional predict-ability differs from institutional stability because the former relates to the firm’sconcern about the future state of rules and regulations while the latter relates to thefirm’s experience about the state of rules and regulations in the past However, thesetwo institutional attributes are also interrelated because the firm’s past experienceshould influence its perception of the future to a certain extent Surprisingly, themeasurement of institutional stability and predictability is still underdeveloped:prior studies often insist on the stability/instability of political institutions ratherthan economic institutions, i.e., property rights and contracting institutions (e.g.,Brunetti and Weder1998; Feng2001; Svensson1998) and only contain a limitednumber of measurements of institutional predictability (e.g., Acemoglu and Johnson

2005, p 992)

The institutional enforceability is the extent to which the private property rights ofownership and the freedom of contract are efficiently and effectively protected orguaranteed by regulatory authorities/agencies through formal enforcement mecha-nisms—i.e., courts and other institutions of state (Acemoglu and Johnson 2005;Djankov et al.2003; Williamson1991)

In fact, the enforcement mechanisms of property and contracting rights can either beformal—i.e., by public ordering such as courts and other institutions of state—orinformal—i.e., by private ordering such as immediate or third parties and affiliates to

a transactions, or reputation-based mechanisms (Klerman 2007; McMillan andWoodruff 2000; Williamson 1994, p 174) Our attention here is devoted to formalenforcement mechanisms that are related to the ability of public ordering to protectcitizens’ assets against the risk of expropriation (Acemoglu and Johnson 2005;Djankov et al.2003; Williamson1991) As mentioned above, the institutional enforce-ability is the most investigated attribute by prior studies because it determines the defacto incentive structure of economies (North1994, p 360) The existing measures ofthis indicator relative to property rights are Bconstraint on executive,^ Bprotectionagainst expropriation^ by government, and Bprivate property right protection^; whilethe ones relative to contracting institutions areBlegal formalism,^ Benforcing contract^(procedures, time, cost), orBresolving insolvency,^ etc (Acemoglu and Johnson2005;Djankov et al.2003; Gwartney et al.2012; Knack and Keefer1995; World Bank2004)

In our model, we argue that because of its transitional nature, the domestic tional environment of ETES can be an important source of risk and uncertainty as itinfluences the costs of exploiting, transferring and protecting the firm’s assets.Uncertainty refers toBthe decision situations where there is unknowable future andsometimes to situations where this future is knowable but not calculable,^ while riskrefers toBdecisions where the consequences of actions are subject to know probabilitydistribution^ (Liesch et al.2011, p 854) Risk and uncertainty are therefore distinctconstructs but, are often treated as synonyms in strategic management and entrepre-neurship (Liesch et al.2011) Risk and uncertainty play a central role in explaining thefirm’s internationalization In international business literature, risk and uncertainty aretreated as constraining factors of internationalization because they influence the firm’sinternationalization costs that can be lowered over time by the firm’s internationalknowledge and experience (Johanson and Vahlne1977) Meanwhile, in IE literature,risk and uncertainty are considered triggering factors of exploration and exploitation ofinternational opportunities because risk tolerance is often considered a major charac-teristic of international entrepreneurs (McDougall and Oviatt2000) These two per-spectives are argued to be too simplistic because they do not investigate the contextunder which risk and uncertainty operate (Liesch et al.2011)

institu-By assuming that entrepreneurs in ETES deliberately recognize risk and uncertainty

in their domestic institutional environment, instead of risk and uncertainty ignorance(Sarasvathy2001; Liesch et al.2011), we can expect that the higher the entrepreneur’sperception of specificity, stability, predictability, and enforceability of the rules andregulations concerning private property rights and contractual rights is, the more likelytheir perception of risk and uncertainty will be lower and their resource investmentincentive will be higher There is some empirical evidence about the impact of

institutional attributes on the firm’s resource investment and international behavior Forinstance, Johnson et al (2002b) argue that when the firms perceive property rights asless secured, they are reluctant to use their profit (i.e., their retained earnings) toreinvest The works of Teisberg (1993) and Jeong (2002) clearly show that theregulatory uncertainty significantly influences the firm’s investment timing: firms will

be reluctant to invest or only invest in smaller and shorter project if policy andregulation are difficult to predict Finally, some works like the ones of Djankov et al.(2003) and Acemoglu and Johnson (2005) successfully demonstrate that the enforce-ability of property rights and contracting institutions matter for the firm’s investment.Based on these theoretical and empirical evidences, we therefore propose that:Proposition 2 The higher the level of specificity, stability, predictability and enforce-ability of institutions in a country, the more likely firms will be to invest in resources forexport related activities

In addition, as the Brules of the game,^ institutions (i.e., property rights andcontracting institutions) also define the character of competition in an industry Forexample, in many developing countries, due to state-owned enterprises bias (Nguyen

et al.2012), small firms cannot grow their business because they cannot use their assets

as collateral to secure access to credit (World Bank2002) and start-ups cannot enterbusiness because they have not enough required resources (e.g., money, time, infor-mation) to deal with high costs of entry (Djankov et al.2002) As a consequence, theindustry structure in these economies is undiversified and is lacking of mid-sized firms(McMillan2007) Peng (2003, p 283) argues that the structure of competitive forces ofETES often involves three types of organizational forms: (i) incumbent firms (primarilybusiness groups, state-owned enterprises, and privatized firms), (ii) entrepreneurialstart-ups, and (iii) foreign entrants These competitive forces pursue different compet-itive strategies because they confront different institutional pressures (i.e., regulative,normative and cognitive pressures) in different phases of transition

However, Peng’s (2003) dynamic model does not provide theoretical instruments tounderstand how does such diversified structure of competitive forces (incumbents,entrepreneurial start-ups, and foreign entrants) emerge, and what are the effectiveformal rules and regulations that are lacking in early phase of transition We argue thatthe four institutional attributes above can be used to predict the industrial structure anddegree of competition of ETES because higher level of institutional specific stability,predictability and enforceability mean lower level of barriers and costs to enter fordomestic private start-ups We therefore propose that:

Proposition 3 The higher the level of specificity, stability, predictability, and ability of institutions in a country, the more likely the competitive structure of theindustry will be diversified and the degree of competition will be higher

enforce-Finally, as the industry-based view (IO) argues, the industry as the firm’s nearest orimmediate environment should have a certain impact on its strategic choices (Porter

1980) More precisely, the industry’s competitive characteristics (i.e., structure andintensity) are expected to have influences on the firm’s resource investment andinternational behaviors For instance, Matluck (1983, p 187) clearly demonstrates thatthe firm’s business investment is not only a function of current and past changes insales, the cost of capital, and the level of capital stock as neoclassical economics

propose but also a function of the firm’s business strategy Battempting to put theirresources in areas where competitors will not be able to imitable them.^ In other words,the firm’s competitive environment provides insightful explanations about the firm’sinternationalization behavior because they directly reflect the firm’s expectation aboutits strategic position vis-à-vis its competitors in the domestic market We thereforepropose that:

Proposition 4 Firms in ETES that operate in industries that have a more diversifiedstructure of competitive forces and a stronger degree of competition will be more likely

to invest in resources for export-related activities

Discussion

In the above sections, we outline the main features of an incentive-based model on thefirm’s resource investment and international behaviors by integrating the institutionaland industrial context of ETES into our analyses

In the next paragraphs, we first position our model by briefly discussing both thedifferences and complements of our model with other models rooted in other theoreticalschools We next move to detail some methodological issues concerning the measure-ment of institutional attributes We then show how our incentive-based model can bemore broadly applied through briefly suggesting an empirical illustration

Positioning the incentive-based model

Our incentive-based model1mainly builds on the IBV of internationalization However,our model differs from other institution-based models and from models rooted in othertheoretical schools (i.e., the IO, the RBV, and the transaction costs economics (TCE))

by two distinct points First, it insists on the institutional attributes rather than otherstrategic attributes as antecedents of the firm’s risk and uncertainty Second, it integratesrather than disentangle the impact of the firm’s external (i.e., institutional environmentand industry) conditions on its international behavior through a unique mechanism ofresource investment

Our model differs from other institution-based models in strategic management,

IE and IEEE In strategic management for instance, Foss and Foss (2005) and Kimand Mahoney (2002) successfully demonstrates that the implicit assumption ofsecured property rights in the RBV is inaccurate, and that a firm’s ability to create,appropriate, and sustain value from its resources depends on property rights that thefirm holds However, these institution-based models that are embedded in propertyrights economics only prove Bproperty rights matter^ without identifying Bhowproperty rights strategically matter.^ For their part, Oliver’s (1997) and

1 Barney ( 2001b , p 643) argues that Bpositioning an argument relative to the received literature is, perhaps, the most difficult part of writing a theoretical essay Not only does positioning help define and limit an argument ’s contribution, it also goes a long way in determining the structure of that argument and the issue that it will and will not address ^