ABSTRACT: The study aims to explore the influence of institutional theory in the development and operationalization of small and medium enterprises (SMEs) in Bangladesh. The study employed a qualitative case study method to attain the research objective. Data has been collected through semi-structured interviews from ten respondents. The study finds that various dimensions play a pivotal role in shaping the trajectory of these enterprises. Isomorphism, operating through coercive, memetic, and normative mechanisms, further underscores the complex interplay of institutional forces. Coercive isomorphism introduces challenges such as financial stringency, complex loan structures, non-banking support, and mandatory restrictions. Memetic isomorphism, rooted in community support, cultural development, and tradition, shapes the identity of SMEs, influencing their operational choices. Normative isomorphism drives struggle for industry recognition, financial independence from bank loans, and collaborative efforts within the SME ecosystem. Institutional norms, emanating from the broader institutional environment, intricately shape the behaviors and decisions of SMEs. This comprehensive analysis sheds light on the nuanced dynamics that SMEs encounter in their developmental journey in Bangladesh. Recognizing and adapting to these institutional nuances will empower SMEs to navigate challenges and leverage opportunities, fostering a more robust and sustainable entrepreneurial ecosystem in the country. The concept of legitimacy, spanning financial, loan, government support, operational, and certification aspects, emerges as a cornerstone for SMEs to establish credibility and acceptance. Understanding and navigating this multifaceted legitimacy landscape are critical for SMEs to secure the necessary resources for growth.
Keywords: Institutional Theory, SMEs in Bangladesh, Development and Operationalization, Qualitative Research.