Institutional Change and Capability Building : Some Remarks on the Institution-Based View of Strategy

The strategy literature has seen the emergence of a new strategic approach. The so-called institution-based view examines how the institutional environment may influence the strategic behaviour of firms. The main objective of this perspective paper is to examine the theoretical foundations of the institution-based view and to discuss one specific aspect: the relationship between institutional change and capability building. Seeking inspiration in the analysis of resources and competences and in the economic literature of institutions, this paper proposes a simple model which relates institutional change and the formatting of organisational competences. The model is then illustrated by the internationalisation path of the Indian pharmaceutical industry. Specifically, the paper explores the idea that the building of capabilities in the manufacturing of drugs made possible by an institutional change in the 1970s contributed to the internationalisation of Indian companies in the 2000s