The Legitimacy of Clustered Firms: A Dynamic Perspective

Abstract

A country’s competitive advantage is often characterized on a specific industry in which firms are drastically inclined to clustering together. The previous literature has limited discussion on how the clustered firms through constantly renovate their own abilities and by complying with the institutional legitimacy to gain recognition and support among the other members of the cluster so that they can gain access to cluster’s resources to create and maintain its competitive advantage. Although there are researches focusing on how industrial structure help clustered firms to generate competitive advantages, some empirical studies show that in a fast-changing environment, firms usually fail to adapt to sudden policy or technological changes. Thus, based on dynamic absorption capacity and institutional legitimacy, this study seeks to explore how the clustered firms absorb, learn, integrate and exploit new abilities continuously, as well as develop and utilize external knowledge and capabilities to adapt to rapid environmental changes. In addition, emerging economies have attracted an increasing amount of attention because of rapidly expanding economies and rapid-growth markets provide tremendous business opportunities, especially the China which affects many countries’ economies in the word. The results of this study express that the dynamic absorptive capabilities have positive effect on a clustered firm’s performance, but if a clustered firm always conform to institutional legitimacy which will result in performance dilemma, which is different from other previous research.