Institutional complexity and the strategic behaviors of SMEs in transitional environments

Purpose The purpose of this paper is to contribute to the literature on institutional complexity by highlighting patterns of strategic behaviors of SMEs in institutional environments undergoing large scale transitions. Design/methodology/approach The paper uses five in-depth case studies of medium-sized enterprises in the Yangtze River Delta region to study their behaviors over the 2000-2012 period during which the institutional landscape in China underwent major changes. Findings The authors find that when institutional complexity is high, i.e., when neither the planned economy nor the market economy logic dominates, the role of organizational filters is more pronounced. In this situation, firm-level characteristics – its revenues and profitability, its competitive position and future prospects – play a dominant role in determining the nature of the strategic decisions and actions the firm undertakes. Research limitations/implications The findings provide a nuanced perspective on strategic behaviors under institutional complexity. The qualitative research design offers rich insights but limited generalizability. Practical implications The findings offer practical insights to SME leaders in terms of exercising caution in undertaking unrelated diversification during periods of transition from planned to market economies. Originality/value The authors apply the concepts of institutional complexity and organizational filters in a context of large scale institutional transitions to study the strategic behaviors of SMEs over a 12 year period.