This chapter summarizes what we know about business environment and investment climate that influence firms’ performance and capacity to survive. It portrays one feature of the relationship between firms and governments based on published academic research that explains low income and productivity heterogeneity across and within developing countries, referring to new institutional theory. It explores firms’ internal and external factors that affect directly and indirectly the profitability of technology adoption as key to productivity and the ability to adapt to turbulent contexts, placing special emphasis on management practices, business conditions, and public goods seen as “institutions.” To motivate the discussion on the role of the management practices and quality of public goods on investment and innovation decisions, the document uses Mexican data on productivity published by the World Bank and novel empirical evidence obtained from the 2024 IPADE Business Expectations Surveys made to founders, business owners and CEOs with around 1400 responses that represent firms with different sizes, sectors, and geographical locations in Mexico.