The Dynamics of Institutions, Resources and Capabilities, and form strategies

Abstract

This article is concerned with strategic challenges facing firms in the economy that has experienced a dramatic shift in its institutional environment. As a research setting, this article chose Korea since Korea has experienced significant changes in its institutional context for the last decade. This article suggests that the effectiveness of a firm's strategy depends on how effective the strategy is in building resources and capabilities (R&Cs) that are critically important to its businesses, which are in turn determined by the institutional context. Therefore, the institutional context determines the effectiveness of a particular strategy by specifying the types of R&Cs. This article provides evidence that prior to the late-1980s, most strategies for building general R&Cs, such as government support, financial resources, managerial resources and capabilities to secure those resources, were highly effective. However, strategies for building more industry-specific R&Cs, such as technologies and marketing capabilities, were not so critical. This article also anticipated that due to the changes in the institutional context, strategies for developing the general R&Cs are not so crucial after the mid-1990s whereas strategies for developing the industry-specific R&Cs are. Contrary to what was initially predicted, however, the results of this article showed that strategies both for the general R&Cs and industry-specific R&Cs were effective after the mid-1990s. Some implications of this study are also discussed.