Institutional quality and internationalization of emerging market firms: Focusing on Chinese SMEs

With growing interest in institutional perspectives on emerging market firms (EMFs), scholars become increasingly interested in probing the role of home country institutions in their internationalization in either “escape” or “fostering” view. We contend that the two mechanisms should be interconnected and viewing them together will stake out promising territory for future research. Dividing the internationalization of Chinese small and medium-sized enterprises (SMEs) into two stages: internationalization decision-making and international development, we theoretically argued and empirically proved that institutional quality is negatively associated with the propensity of SMEs to go overseas but positively associated with their overseas sales growth. These effects were contingent on firm-level characteristics of manager's experience and possession of internationally-recognized certification. Based on stepwise analysis of SMEs at different phases of internationalization, we broaden the application of institutional theories in the context of emerging economies by bridging the dividing arguments of escape-fostering views on how the quality of domestic institutions exerts different impact on EMFs and especially Chinese SMEs in their international venturing at different stages.