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The focus of this study, in contrast to research that explores the strategic choice by small to medium-sized enterprises (SMEs) to form strategic alliances, is a characterization of the institutional attributes that enable alliance formation. This enabled state is defined as “institutional readiness,” which is the capacity of the institutional environment to support the formation of SME-based strategic alliances. Utilizing institutional theory as a lens, this study sets forth a theoretical framework for institutional readiness and tests the framework using a survey of 2,054 SMEs from eight countries. Though it has been speculated for some time that institutional forces might have an important effect on firm behavior, to date, in contrast to the current research, there has been little research exploring these effects that is based upon multiple country settings and large samples of SMEs. Additionally, in contrast to the present study, few studies have been designed to rigorously test a broad set of institutional factors and in so doing provide a clear conceptualization of the interplay of institutional and firm attributes in the formation of interfirm alliances. The findings of this study suggest that in the case of SME-based alliance formation, institutions do matter and in some cases, in unexpected and surprising ways.