Institutional Transitions and Strategic Choices

Abstract

How do organizations make strategic choices during the time of fundamental institutional transitions such as those sweeping numerous emerging economies? To answer this question, a two-phase model of institutional transitions is developed in this article. I focus on the longitudinal process to move from a relationship-based, personalized transaction structure calling for a network-centered strategy to a rule-based. Impersonal exchange regime suggesting a market-centered strategy. I then identify the points of inflection; predict strategic choices for incumbent, entrepreneurial, and foreign firms; and delineate their performance implications. How do organizations make strategic choices during the time of fundamental and comprehensive institutional transitions? In three decades of research since the publication of Child's (1972) seminal paper, researchers have produced an impressive body of knowledge on how strategic choices are made (Child, 1997; Oliver, 1991). However, most of their studies focus on strategic choices in relatively stable institutional environments. Even when scholars study how organizations respond to institutional transitions, they typically concentrate on changes in one industry while the overall institutional framework of the country remains mostly unchanged. Such industry-specific changes, however, pale in comparison with the massive institutional transitions taking place in many emerging economies. Unfortunately, little is known about how organizations make strategic