Location capabilities, institutional distance, and start-up survival

Abstract

Research summary

Location considerations play a key role in shaping venture performance. Using data from the largest accelerator in the world, we examine the effects of institutional distance and location capabilities on international start-ups' survival rates. We find that international start-ups' survival is shaped by whether it internationalizes to a country with stronger or weaker institutions than those in its home country. Further, the interaction between the directionality of institutional distance and location capabilities is important such that ventures that develop location capabilities in contexts of positive institutional distance experience greater survival rates. Through this study, we make an important theoretical contribution at the intersection of institutional and resource based theory by developing more granular knowledge about institutional dynamics across home and host countries.

Managerial summary

Internationalizing into emerging countries poses immense challenges to start-ups. This study explores the factors that shape the survival rates of 268 start-ups that have internationalized in the context of a business-accelerator program. We find that their ability to survive is shaped by the difference between home and host-country institutions, in addition to start-up's location capabilities to engage with local resources in the host country. Developing location capabilities in the host country does not directly lead to increased survival rates. The value of developing location capabilities is affected by whether the venture is operating in a country with stronger or weaker institutions than those in start-ups' home country; ventures that develop location capabilities in contexts of positive institutional distance experience greater survival rates.