The role of institutions in the internationalization process: a systematic literature review of startups and SMEs

Abstract

International entrepreneurship and its underlying technological advancements shaped the environment from which startups could arise. Through liberalization, markets once deemed too complex to penetrate became targets for all firms alike. Thanks to their role in job creation and innovation SMEs and startups are prominent actors of the economy. Their inherent characteristics, such as size and difficulties to access fundings ultimately put them at risk when facing multinational enterprises, especially in the earliest phases of their existence. Seeking competitive advantage from inception is a challenge which institutions help them overcome. Formal and informal institutions, at home or host country-level impact startups’ international success.

Innovation, strategy, and dynamic capabilities are amongst internationalization enablers greatly impacted by institutions. They are cornerstones on which startups can rely. With their support, startups can develop under the challenging conditions and constraints of new markets. Foreign firms, despite their inherent disadvantages succeed to internationalize overcoming barriers, risks, and changing the dynamics of economic growth worldwide.

This research is at the crossroad between international entrepreneurship, startups, and institutions. It aims to define how markets’ institutional characteristics impact the internationalization of startups and SMEs. Due to their distinct perceptible institutional environments, country markets differences between developed and developing economies were chosen as the core of the study. Networking capabilities were quickly identified, analyzed, and expound as a mean to cope with uncertain institutional environments. The systematic literature review conducted offers a comprehensive understanding of the institutional forces at play for startups and SMEs around the world to build on when considering internationalization.

The results of the study highlight the complexity of markets’ institutional environments, and their everchanging and evolving character. Both formal and informal institutions can help and hinder internationalization and will impact firms differently based on their origin and the location they intend to expand to. Infrastructures available, regulations and policies in place on the one hand and networking, cognition, and prior experience on the other should be analyzed and match with country market specificities to optimize startups and SMEs’ global strategies and internationalization process.