Institutional leverage capability: creating and using institutional advantages for internationalization

Abstract

Plain language summary: Home country institutions, for instance chambers of commerce and educational systems, can support firms' efforts to expand into foreign markets. However, only some firms utilize this support and become successful in international markets. We propose that these firms have a particular ability to leverage institutions; they have institutional leverage capability. More precisely, we explain that firms need to be aware of the institutional support, access it, decide to adopt it, and adapt their resources to fully exploit the institutions available in their home countries. We recommend that firms design organizational structures and processes to leverage institutions for internationalization. We illustrate our suggestions with the example of the German 'hidden champions,' medium-sized firms that are global market leaders, and how they leverage institutions to internationalize. Technical summary: We develop the notion of a firm's institutional leverage capability in order to explain heterogeneity among firms with respect to their ability to turn a location's generally available institutional benefits into firm-specific institutional competitive advantages. Institutional leverage capability represents a higher-order construct formed by the four components of awareness, access, adoption and adaption of institutional benefits. It is of particular strategic relevance in institutional contexts that provide high levels of support to firms. Firms can use institutional competitive advantages, which they generate by leveraging their home country's institutions, for the purpose of internationalization. We illustrate our argument using the example of several mid-sized German companies that have leveraged home-country institutional benefits and attained leading positions in international markets.