The Critical Role of the Institution‐Led Market in the Technological Catch‐Up of Emerging Market Enterprises: Evidence from Chinese Enterprises

Abstract

Innovation scholars have, in the past, applied the concept of ‘windows of opportunity’ to study latecomer firms’ catch‐up. Previous research treats this concept as three separate aspects, i.e., technological, institutional and market. The role of government was seen as being concerned only with institutional windows of opportunity. However, governments in emerging markets exert influence not only through traditional means of institutional support but, also, via market‐driven mechanisms. The former refers to state procurement, resource provision, legislation, and administrative control, whereas the latter is concerned with demand creation, resource allocation, and the regulation of market orders. This multifaceted nature of government in promoting economic growth, guiding technological development, and influencing enterprise behavior remains under‐researched. Yet, it plays a crucial role in the catch‐up of emerging market enterprises. Therefore, based on innovation studies literature and an institution‐based view of international business, the present research proposes a new construct, termed the institution‐led market, with the aim to encapsulate the complex role of government in the catch‐up of emerging market enterprises. The institution‐led market is defined as a unique type of market that is well‐timed and strategically created by the government and supported by institutional policies and resources. A large database of 259 Chinese firms in 37 industries was created and analyzed using a hierarchical logistic model to empirically test the relationship between the institution‐led market and technological catch‐up of emerging market enterprises. We demonstrate that the institution‐led market positively affects the catch‐up of emerging market enterprises; furthermore, it significantly moderates the effect of technological discontinuity on the catch‐up. Finally, the theoretical contributions and managerial implications of the present research are discussed.