Abstract
The influence of the external environment on firm success is undervalued in the strategic management literature due to the prevailing research interest in internal factors. Closely related, the interaction of a market economy’s institutions with firms is studied in the political economic literature, suggesting that the institutional framework influences firms by supporting or limiting different types of business. A qualitative study was carried out among German biometrics firms to study the influence of external institutional factors on firm success, focusing on international, quasi-governmental security policy, national security policy, sectoral technology policy, industry-specific legal and technical rules, inter-organisational relationships, patterns of firm financing and privacy concerns. The results show that external, institutional factors exert significant influence on firm success, whereas internal factors have limited explanatory power. The impact differs depending on the market segment, as well as in terms of their supporting or limiting effect on firm success, the strength of impact and the instruments with which influence is exerted. Firms selling to the public sector are influenced more by the institutional framework than firms selling to the private sector. In contrast to studies in other sectors, the institutional framework does not support the growth of the biometrics industry as the positive impact of international security policy, industry-specific rules and trustful inter-organisational relationships do not compensate the limiting effect of sectoral policy, patterns of firm financing and privacy concerns. International quasi-governmental security policy stimulates institutional convergence of different economies; however, overall institutional stability is preserved as the influence is industry-specific and governments have flexibility in implementing international regulations into national policy. Contrary to previous studies, firms receive less support through sectoral technology policy in the coordinated framework than comparable firms in a liberal framework. Firms strategically react with internationalisation, penetration of new customer segments and extension of inter-organisational relationships.