Multinational Performance and the Geography of FDI

• The literature on multinationality and firm performance has generally disregarded the role of geography. However, the location of FDI assumes particular importance in terms of the link between multinationality at the firm level. The purpose of this paper is to consider the multinationality-performance relationship within the context of greater emphasis on the importance of location, but also emphasising the importance of the location decision.
• This paper draws on firm-level data covering over 16,000 multinationals from 46 countries over the period of 1997–2007 and allows for different effects upon the performance of the multinational firm depending on the level of development of the host economy.
• In our results, we find a clear positive relation between multinationality and firm performance. However, investment in developing countries is associated with larger effects on performance than in the case of investment in developed countries. We also find that the return to investing in developing countries is U-shaped.
• This indicates that multinationals are likely to face losses in the early stage of their investment in developing countries before the positive returns are realized. Overall, our results suggest that the net gains for multinationals from greater geographical diversification have not yet been fully explored. Geographical diversification into developing countries may be an important source of competitive advantages that deserves more serious consideration from business leaders and academics alike.

     

Emotions and foreign direct investment: A theoretical and empirical exploration

Abstract

Emotions are largely absent in economic models. Possibly for this reason, many theories fail to explain the actual decisions made by managers.

Therefore, we integrate emotions with regular microeconomic theory. We focus on FDI decisions, and include both economic and emotional variables in our analysis of the firm’s decision-making process.

In our theoretical analysis, emotions are included in a utility maximization model that considers not only the utility of the firm but also the utility of the individual decision-maker.

In our empirical analysis, the presence of emotions in FDI decision-making is tested using a sample of Dutch enterprises that considered an investment in Central or Eastern Europe between 1990 and 2000.

     

The Variation in Indian Inward FDI Patterns

• This study examines the variation in Indian inward FDI patterns, considering the impact of economic development and geographic location on the variation from both FDI home and host country perspectives.
• Employing a panel dataset at the aggregate country-level, the study is conducted using the generalised least squares (GLS) model.
• The findings suggest that Indian FDI patterns vary over time in line with Indian economic and structural transformations. The patterns also differ between the home country groups in line with their economic development and geographic location relative to India. The desirable patterns of Indian inward FDI are determined not only the development levels of both host and home countries but also the host country’s factor endowment pattern.
• It is important for the Indian government to formulate selective targeting FDI policies to maximise economic impact of inward FDI by attracting more desirable efficiency-seeking FDI for higher economic growth.

     

The Impact of Psychic Distance on Chinese Outward Foreign Direct Investments

• The aim of this paper is to investigate the value of the well-known construct of psychic distance, developed to explain the internationalization path of firms from developed countries, for the internationalization of Chinese firms.
• Our research question is: Does psychic distance and its individual stimuli (differences in language, religion, culture, economic development, political systems, education, and geographic distance) explain Chinese investments abroad?
• We test hypotheses on the relation between psychic distance and its stimuli and Chinese outward direct investments with OLS regression analyses.
• We find that Chinese OFDI indeed is influenced by an aggregate construct of psychic distance and by certain psychic distance stimuli, but not by all; in particular, similarities or differences with regard to language and culture, the level of industrialization and the level of democracy relate to Chinese firms’ internationalization.
• Our findings suggest that psychic distance and its stimuli cannot be ignored as explanatory factors for Chinese outward FDI but that the explanatory value of these constructs depends on the context of the phenomenon under study.
• We conclude that it is important to understand how the home country context influences managerial perceptions and thereby patterns of international expansion from different regions.

     

Isomorphic Pressures, Peripheral Product Attributes and Emerging Market Firm Export Performance

• Drawing upon the neo-institutional theory of mimetic isomorphism and the concept of the extended product, we identify and empirically evaluate two potential product strategies that emerging market firms (EMFs) may use to improve their export performance while also addressing the financial, managerial expertise, and international experience limitations that they frequently face.
• Hierarchical regression is used to test our proposed peripheral product adaptation strategies on a unique dataset of 106 Chinese and Romanian exporters.
• We find that EMFs that change either of two visible peripheral product attributes (the brand name or the packaging) to conform to local market norms, on average, are more satisfied with their export performance than those that pursue other strategies. Our results also suggest that changing the brand name to conform to local market norms has more than twice the impact on EMF performance than does changing the packaging.
• Consistent with the tenets of neo-institutional theory, EMFs managers may be able to improve their firms’ export performance by changing the peripheral attributes of their products to conform to local market norms.

     

Global Transfer and Indian Management

• The goal of this paper is to contribute to a better understanding of Indian management and to challenge more generally ahistorical and essentialist notions of indigenous management perspectives.
• Drawing selectively on postcolonial theory, we suggest that a historical hybridity perspective serves as a crucial heuristic device to understand the nature of Indian management and its globalization related transition.
• Discussing the example of the local mismatch and transfer outcome related to a global transfer initiative in a German subsidiary in India, we illustrate the analytical value of a historical hybridity perspective.
• Our paper concludes that the postcolonial notions of ‘hybridity’ or ‘inbetweenness’, are crucial to understand the nature of management in India and in emerging markets more generally as they move us beyond reductionist Eastern vs. Western or indigenous vs. global dichotomies.

     

The Quality of Domestic Legal Institutions and Export Performance

• Does the quality of domestic legal institutions matter for export performance? How does differential access to protections and privileges offered by informal institutions moderate the relationship between the quality of formal legal institutions and export performance? To answer these questions, we develop a theoretical framework drawing on insights from trade theory and institutional theory.
• We propose that higher-quality legal systems in an exporter’s location are associated with higher export performance, particularly when trade partners face higher levels of external and internal uncertainty. We further propose that firms that have less access to local informal institutions to reduce transaction costs and opportunism benefit more from better-developed legal institutions.
• Using information for more than 198,000 firms and legal quality information for 120 cities in China, we find strong support for our predictions. We discuss our contributions to the literature on institutions and export.

     

Practicing what We Preach

• With the increasing globalisation of knowledge and management education, it is important that we build on our scanty understanding of trends and levels of geographic diversification in editorial board membership of management journals.
• Our study examines geographic diversity in editorial boards in Management over a 20-year period. It uses secondary data from 57 journals covering approximately 16,000 editorial board members.
• We found that the geographic diversity of editorial boards (EBs) has increased in the last 20 years, but it is still low for most management journals. Further, two factors partly predict the geographic diversity of EBs of management journals: the editor’s country of residence and the field of research.
• Continued active management by editors, professional associations and individual academics alike is necessary to ensure that our editorial boards properly reflect the diverse management community.

     

Technological Knowledge Intensity and Entry Mode Diversity

• This paper expands the entry mode literature by referring to multiple modes exerted simultaneously in different value chain activities within and across host markets, rather than to a single entry mode at the host market level. We apply competing theoretical perspectives—internalization theory and knowledge transfer efficiency considerations on the one hand, and organizational learning theory on the other—to argue that firms’ technological knowledge intensity affect their entry mode diversity across value chain activities, across host markets, and at the overall corporate level.
• Analyzing a unique dataset we show that high technological knowledge intensity is strongly associated with high entry mode diversity across value chain activities and at the corporate level, but only weakly associated with greater entry mode diversity across geographic host markets.

     

Market Orientation, Embeddedness and the Autonomy and Performance of Multinational Subsidiaries in an Emerging Economy

• This paper develops a conceptual framework for market orientation, embeddedness, autonomy and performance of multinational subsidiaries in an emerging economy.
• We argue that internal and external embeddedness has different performance implications for export- and local market-oriented multinational subsidiaries.
• Our results, based on a sample of 233 multinational subsidiaries from China, indicate that while external embeddedness has a positive impact on specialized resources of both types of subsidiary, such resources only positively affect the performance of local market-oriented subsidiaries. By contrast, internal embeddedness has a negative impact on specialized resources of both types of subsidiary.
• Managerial and policy implications are discussed.

     

The Effects of Legal, Normative, and Cultural-Cognitive Institutions on Innovation in Technology Alliances

• Adopting an institutional lens, this paper examines the interaction between different levels of legal, normative and cultural-cognitive institutions on the level of innovation associated with the choice of alliance governance mechanism as equity or contractual.
• Using patent data, this paper undertakes multilevel modelling of 314 technology alliance portfolios located in Europe, North America and the Asia-Pacific region.
• Key findings indicate normative and cultural-cognitive institutions do affect the performance outcomes of alliances. Equity alliances provide supporting mechanisms that quell fears about organizational risk in alliances under conditions of uncertainty avoidance as the dominant cultural-cognitive frame, and hence contribute to better innovation performance. Contractual alliances are associated with higher levels of innovation under normative contexts that value collectivism rather than individualism.
• Contrary to expectation, the results do not support the literature of a fit between equity alliances and weak intellectual property rights protection on innovation. However, the presence of highly formalized legal processes for enforcing contracts is associated with higher levels of innovation from alliances.

     

Foreign Direct Investment vs. Foreign Portfolio Investment

• We examine the effect of a country??s governance environment on the foreign investment it attracts. We classify countries based on the dominant mode of governance into three types: (1) rule-based (strong public rule of law), (2) relation-based (weak rule of law and strong informal networks), and (3) family-based (absence of both public rules and informal networks).
• We then examine how different governance types affect foreign investment patterns among 45 countries. Our main argument is that the choice of investment??direct or portfolio??is influenced by the type of property protection associated with different governance modes.
• We find that rule-based countries attract the lowest amount of FDI relative to the total amount of foreign investment, and they have the largest stock market size relative to their economies.
• Our study contributes to the foreign investment literature by bringing the governance environment into the equation and more successfully explaining why some countries have relatively large foreign direct investment ratios and relatively small foreign portfolio investment ratios.

     

Subsidiary Interdependencies and International Human Resource Management Practices in German MNCs

• Using the resource-based view, this paper links the degree of interdependence that exists between subsidiaries of multinational corporations (MNCs) to the use of various International Human Resource Management (IHRM) practices.
• We assume that in many MNCs this interdependence has increased the need for cross-border coordination.
• We analyze to what extent MNCs use IHRM practices in order to enhance their coordination capability across national borders.
• We present a framework that addresses these effects and empirically test it using data from a questionnaire survey among 142 majority-owned overseas subsidiaries of German MNCs.
• The findings show that the degree of interdependence is related to the level of international experience of staff employed in subsidiaries, the use of third-country nationals, the provision of training, the use of cross-cultural management teams, and the choice of employee evaluation and reward methods.
• We conclude by discussing the implications of our findings for IHRM practitioners and scholars as well as the limitations of our study.

     

How International Firms Conduct Societal Marketing in Emerging Markets

• This study tests the relationship between activities of societal marketing and firms’ CSR legitimacy in terms of corporate social responsibility (CSR). It also examines the effects of the CSR legitimacy on firm performances in marketing. In addition, the study considers the relative importance of different activities of societal marketing.
• Based on data from a large sample of firms operating in both southern and northern China, this study compares the relative importance of three dimensions of societal marketing activities which influence a firm’s CSR legitimacy.
• Different from research findings from developed economies, our data show that the social dimension of societal marketing activities is the most effective when it comes to influencing a firm’s CSR image in an emerging economy. This image, in turn, has a positive effect on its marketing performances.
• This study suggests that, in an emerging economy such as China, firms that pay more attention to the social dimension of societal marketing are likely to be more effective in terms of building CSR legitimacy and achieving good performances.

     

The Role of Social Values, Accounting Values and Institutions in Determining Accounting Conservatism

• The extant literature on cross cultural differences in conservatism finds that a mix of institutional and economic variables influences differences in the level of conservatism across countries. Using the modified Gray model Doupnik and Tsakumis (J Acc Lit 3(1): 1–20, 2004) we examine whether societal values are a neglected explanatory factor for differences in levels of accounting conservatism across countries.
• Both unconditional and conditional conservatism are measured. Social values are measured using both a composite value for conservatism Hope et al. (J Acc Public Policy 27(5): 353–357, 2008) and individual values from Hofstede and Hofstede in Cultures and organizations: Software of the mind (2nd ed., New York, McGraw-Hill, 2005). A test sample of 89,481 firm-years from 1989 to 2006, compressed to 341 (or 342) country-year observations from 22 countries provides the data for OLS regressions.
• We find that after controlling for previously documented legal and financial institutional variables, both conditional and unconditional accounting conservatism are greater in countries with more conservative societal and accounting values. The Hofstede value of femininity (the importance of caring for others) is also significant for both measures of conservatism.
• These findings provide a more complete model for further testing of accounting conservatism and other topics using societal values. They also provide support for the modified Gray model using archival data. Finally, while both dimensions of conservatism matter and while they share some common explanators, both have unique additional influencing factors in culture and institutions.

     

Political Institutional Change, Obsolescing Legitimacy, and Multinational Corporations

• This paper studies the practice of integration of influential host country actors to a multinational corporation as a strategy to decrease problems of legitimacy to the foreign firm before the host country??s society.
• By developing the concept of obsolescing legitimacy, we argue that this strategy provides legitimacy to the foreign firm only in the absence of institutional changes at the macro-political level in the host country. Once these changes take place, an alliance by the multinational to an elite or a political system no longer ruling the host country will become a liability and will generate problems of legitimacy for the multinational.
• We illustrate our argument with the case of the US multinational United Fruit Company in Central America.

     

Family Management and Internationalization: The Impact on Firm Performance and Innovation

• Researchers in international business have long been interested in understanding the impact of internationalization on firm performance and innovation. However, because international diversification offers both advantages and agency problems, prior studies of this research stream offer mixed results.
• Based on a sample of Taiwan’s publicly listed firms during the period of 2000–2009, this study contributes to this research stream by examining the impact of family management on firm performance and innovation implications of internationalization.
• This study finds that family management positively moderates the relation between internationalization and performance/innovation. These findings suggest that family management helps mitigate the agency problems associated with internationalization so that family firms experience positive benefits from internationalization in terms of innovation and performance.

     

Mao Meets the Market

• This study sought to examine the relative impact of several competing sources of values and ideologies—Chinese Traditional Values, Capitalist Values, Socialist Ideology and Deng Xiaoping’s Philosophy—on Chinese businesspersons. In contrast to previous research that has focused almost exclusively on cultural influences, this research was aimed at also understanding political influences.
• Questionnaire data from 487 respondents drawn from two cities and three industrial sectors was analyzed by means of structural equation modeling.
• Positive and significant relationships were revealed between Socialist Ideology and both Chinese Traditional Values and Deng’s Philosophy. While a negative and significant relationship was shown between Socialist Ideology and Capitalist Values, Capitalist Values were positively and significantly related to Deng’s Philosophy.
• Chinese businesspersons live with some apparent contradictions between espoused values and the realities of economic life. The paper explores how they are reconciled and examines their implications for various stakeholders.

     

Effective Persuasion of International Business Sales Letters

• Language usage has attracted increasing research attention in international business studies. Yet scarce research has been done on the use of language in sales letters across cultures.
• Our paper, using a combined etic-emic approach aims to compare Chinese and New Zealand managers’ reflective accounts of persuasive strategies and the function of sales letters used in these two countries. In particular, we seek to contribute to an improved in-depth cross-cultural understanding through an investigation using emic sources of language and persuasion.
• Our findings indicate that language and persuasion play a significant role in sales letters, the Chinese managers focusing more on building qing (positive affect) with the reader whereas the NZ managers sought a more immediate reaction to their sales pitch and informal engagement with the reader.
• Furthermore, also based on the insights gained reflectively and reflexively from our discussion, these differences were closely related to persuasion strategies which are also important parameters influencing cross-cultural adaptations.

     

National Culture and International Differences in the Cost of Equity Capital

• Prior literature suggests that national culture influences many facets of business operations including corporate governance, capital structure, managerial compensation, foreign direct investment behavior and accounting systems.
• Extending this line of literature, we examine whether key aspects of national culture are also related to international differences in the cost of equity capital.
• In a cross-country sample of 32 countries during 1992–2006, we find that the cost of equity capital tends to be higher in more individualistic and less uncertainty avoiding societies consistent with their greater risk-taking orientation.
• This finding contributes to the international business and financial literature by identifying national culture as an important institutional variable influencing firms’ cost of equity capital around the world.