The impact of managerial networking intensity and market-based strategies on firm growth during institutional upheaval: A study of small and medium-sized enterprises in a transition economy

Varying institutional environments provide the foundation for a great deal of international business research, yet relatively little empirical work has examined the determinants of small and medium-sized enterprise (SME) growth during institutional upheaval, although the importance of SME development for economic transition and growth is widely acknowledged. Our paper addresses this gap in the literature by examining how the competitive strategies of SMEs evolve during institutional transitions, and assessing the implications for firm growth. Using data collected from 135 SMEs in 1993, and 200 SMEs in 2001, we find that managerial networking intensity (i.e., developing and maintaining relationships that may be used for business purposes) declines markedly over time, whereas the importance of market-based strategies increases. Managerial networking intensity is strongly associated with firm growth early in the institutional transition process, but not later. Market-based strategies are not associated with firm growth in either time period. Drawing on convergent insights from multiple theoretical perspectives, we argue that changes in strategy are concurrently driven by socially constructed norms that legitimize new ways of competing and delegitimize old ones, and by knowledge acquisition and learning, which provide managers with a more diverse set of tools with which to exercise their strategic choices.