Ownership types, institutions, and the internationalization of emerging economy new ventures: evidence from Africa

This study examines the internationalization of emerging economy new ventures. We argue that different types of owners provide different benefits (e.g., resources) that help fuel emerging economy new ventures’ internationalization, and further, that these benefits depend on institutional conditions in the new ventures’ home countries. Examining these arguments in a sample of African new ventures, we find that state ownership and foreign ownership relate positively to emerging economy new ventures’ internationalization. Further, we find evidence that, while the effect of state ownership is contingent on the quality of the home countries’ formal institutions, the effect of foreign ownership is contingent on the fractionalization (i.e., variance and divisions) of the home countries’ informal institutions. Therefore, the results shed light on how fractionalization and formal institutions might condition the effects of ownership on new ventures’ internationalization strategies in emerging economies. Plain English Summary Internationalization can be critical to the scale-up strategies of new ventures and can contribute to the economic development of emerging markets. Various owners provide different types of resources and other benefits that can support such internationalization, but the legal environment and other societal conditions in the new ventures’ home countries might shape the nature and importance of these benefits. We examine these arguments by studying the internationalization of new ventures located in 34 African countries, using surveys collected from 2006 to 2016. The results reveal that although both state owners and foreign owners can help new ventures internationalize, the benefits of state ownership decline as the country’s legal environment becomes more developed, and the benefits of foreign ownership decline in countries where there is greater ethnic, religious, and linguistic division. Therefore, for scholars, our research suggests that the various factors that shape emerging economy new ventures’ internationalization might be interdependent. Similarly, the results suggest that practitioners and policymakers should consider conditions in the overall environment when considering the potential benefits of different forms of ownership.