Abstract

This paper explores the relationship between micro-level innovation performance, changes in institutional frameworks and the mediating role of strategy embeddedness in latecomer firms. Based on longitudinal field evidence of 13 firms from the forestry, pulp and paper industries in Brazil (1950-2009), the results suggest that variability in the firms’ innovation performance, proxied as capability levels, across changing institutional frameworks was mediated by degrees of strategy embeddedness. Specifically, the following applied to firms that pursued proactive strategy embeddedness: (i) their innovation performance was significantly higher over time than firms that pursued active and/or reactive strategy embeddedness; (ii) they faced whatever discontinuities with progressively higher levels of innovation performance than firms that pursued an active and/or reactive strategy embeddedness; (iii) they sought to shape their institutional frameworks to overcome hurdles inherent to their latecomer condition and negotiate their transitions into world-leading technological and commercial positions. Although macro- and meso-level institutional frameworks are necessary for industrial growth, innovation and competitiveness, these achievements largely depend on the nature and dynamics of firms’ own strategic choices and related innovation efforts. Policymaking should therefore involve coordinated efforts between government and firms. Based on a novel theoretical framework and rich empirical assessment, this paper contributes to advancing our understanding of factors affecting the innovation performance of latecomer firms, especially in natural-resource processing industries.