Disentangling resource and mode escalation in the context of emerging markets. Evidence from a sample of manufacturing SMEs

Our research paints a comprehensive picture of manufacturing SMEs' internationalization strategies in EMs that examines two types of escalation of commitment: the first (between modes) occurs through riskier modes of operation, as typically described by the stagebased internationalization theory; the second (within modes) results in the escalation of resource commitment within the initial mode of operation. In line with stage-based internationalization theory, we posit that market-specific experiential knowledge and performance obtained after initial market entry are associated with SMEs' decisions to escalate (reduce) their commitment in EMs. Our distinctive contribution to the literature lays in our assertion that unlike psychic distance, the obstacles created by insufficient institutional development in EMs i.e., institutional voids (IVs) are more difficult to overcome by foreign SMEs over time. IVs create uncertainties and risks for foreign SMEs, which likely hinder them from increasing their local market commitment. Our research follows previous contributions made by Meyer et al. (2009) and Santangelo and Meyer (2011) on the impact of IVs on MNE strategies, and shows that IVs have a negative direct effect on SMEs' mode escalation but not on resource escalation. Resource escalation is significantly affected by the interaction of market performance and IVs while mode escalation is significantly affected by the interaction of market experience and IVs. In sum, this paper extends the stage-based (Uppsala) model with insights from institutional theory (North, 1995) and aims for a more context-specific explanation of SMEs' escalation of commitment (resource and/or mode) in EMs.