This study unbundled institutional environment into two distinct aspects: institutional distance (the degree of dissimilarity between the institutional environment of a firm’s home country and an economy into which it expands) and institutional diversity (the variety of all the institutional environments to which a firm is exposed), and related them to product innovation performance of emerging market firms.
Data on 917 Chinese manufacturing firms in multiple industries over 3 years was analyzed.
The results show a positive relationship between institutional distance and product innovation success. An inverted U-shaped relationship was found between the institutional diversity of a firm’s foreign markets and its product innovation success.