Local institution contingencies for the effects of local market orientation on foreign SMEs’ performances: Evidence from an emerging market

Authors: Tsai-Ju Liao, Sheng-Hung Yu, I-Chien Liu & Tai-Ying Chiou

Journal: Corporate Management Review. June. 2019, 39(1): 1-47.

Keywords: Local market orientation; legal institutions; financial institutions; agglomeration economic institutions; performance.

Abstract:
Foreign small- and medium-size enterprises (SMEs) often adopt local market-oriented strategies to capture emerging market opportunities, but such strategies do not guarantee success. This study provides a multi-institutional framework for understanding how local institutions influence the effect of local market orientation on the performance of foreign SMEs. Analyzing a sample of 6147 Taiwanese manufacturing firms investing in China, this study finds that well-established legal and financial institutions have a positive moderating effect on the relationship between local market orientation and foreign SME performance. Furthermore, we disentangle agglomeration economic institutions by distinguishing between specialized and diversified agglomeration economies and show the positive moderating effects. This study contributes to both academia and industry by testing how foreign SMEs characterized by constrained resources rely on local institutions to overcome liabilities of foreignness.