Does National Context Affect Target Firm Employees’ Trust in Acquisitions?

• In this study, we test the assumption that the way target firm employees respond to a takeover is contingent on their national origin.
• The antecedents of target firm member trust in the acquiring firm management were examined in a cross-national sample of German and Singaporean employees using a policy-capturing design.
• Five factors hypothesized to affect target firm member trust after a takeover were found to be significant influences on employees?? trust judgments in a decision-making simulation: (i) combining firms?? collaboration history, (ii) mode of takeover, (iii) whether it was a domestic or cross-border acquisition, (iv) degree of autonomy removal, and (v) attractiveness of the acquiring firm??s human resource policies and reward system. Further analyses suggest that the relative importance of these factors in predicting target firm employees?? reactions to a takeover varies depending on their national origin.
• We conclude that companies engaged in cross-border acquisitions need to consider contingencies in the cultural and institutional contexts in which the acquired firms are embedded and adapt their approaches for integrating them accordingly.

     

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.

     

Diverse Institutional Environments and Product Innovation of Emerging Market Firms

• This study unbundled institutional environment into two distinct aspects: institutional distance (the degree of dissimilarity between the institutional environment of a firm’s home country and an economy into which it expands) and institutional diversity (the variety of all the institutional environments to which a firm is exposed), and related them to product innovation performance of emerging market firms.
• Data on 917 Chinese manufacturing firms in multiple industries over 3 years was analyzed.
• The results show a positive relationship between institutional distance and product innovation success. An inverted U-shaped relationship was found between the institutional diversity of a firm’s foreign markets and its product innovation success.

     

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.

     

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.

     

The Impact of Cultural Distance on Bilateral Arm��s Length Exports

• Prior studies have argued and regularly found that cultural distance is negatively related to bilateral export flows, which are the sum of arm??s length and intra-firm exports. However, these macro-level studies overlook the firm-level insights that arm??s length exports are a substitute for arm??s length affiliate sales, and that firms?? choices between these substitutes are influenced by cultural distance.
• Moreover, intra-firm exports are a complement to arm??s length affiliate sales and hence likely to respond in the same way to cultural distance as such sales. The inclusion of intra-firm exports in export flows has thus obscured the effect of cultural distance on aggregate arm??s length exports.
• We overcome these conceptual and methodological deficiencies by examining how cultural distance influences aggregate arm??s length exports, while simultaneously considering its impact on aggregate arm??s length affiliate sales. Drawing on several strands of firm-level international business (IB) research, we argue that while arm??s length affiliate sales are likely to decline with cultural distance, this is not necessarily the case with arm??s length exports, which may in fact increase with cultural distance.
• Analyzing a panel dataset of US foreign affiliate sales and US exports to unaffiliated parties, we find that cultural distance negatively affects arm??s length affiliate sales but positively affects arm??s length exports. Our study thus shows that the explicit consideration of firm-level entry mode choices helps us better understand and explain macro-level IB activity.

     

Born-Globals and Culturally Proximate Markets

• In this paper we focus on the differences between born-globals and older firms. We compare whether cultural proximity is important for born-globals and older firms and whether international or technological knowledge drives their internationalisation. In addition, we compare whether born-globals and older firms are proactive or reactive in their choice of culturally proximate markets.
• Our research suggests that born-globals tend to internationalise rapidly into markets ready to adopt their technology. This is driven by the need to establish a revenue stream (cash flow) as quickly as possible. These born-globals usually seek larger advanced economies, which are often culturally similar (proximate) and offer economies of scale; reducing risk for inexperienced firms. Indeed, born-global firms are more willing than older firms to move from culturally proximate to culturally non-proximate markets very quickly.
• Utilising an abductive approach based on case studies, our findings show that born-globals use their technological knowledge and networks and are proactive when they enter culturally non-proximate markets. Born-globals must assess a new market for its ability to provide a revenue stream very soon after entry. If the culturally proximate market does not offer this, then they will leverage technological knowledge and networks to move rapidly into nearby non-proximate markets where they perceive better opportunities for building a customer base or new funding alternatives to sustain the firm in their early foreign market forays.
• Our research significantly extends theory in highlighting that born-globals rely more on technological experience and display proactive behaviour more than older firms which can draw on previous international experience.

     

How Firm Performance Affects Internationalization

• Only a few studies have investigated whether a firm’s performance has an effect on its internationalization. These studies, focusing on actual firm performance, have suggested a resource-based argument and generally found non-significant results.
• In this paper, we argue that relative firm performance is critical in determining a firm’s internationalization because it influences a firm’s attitude toward risk-taking. We apply prospect theory to predict this relationship.
• Using time-series, cross-sectional analysis of 701 Japanese firms from 1993 to 1998, we uncovered an inverted-U shaped relationship between a firm’s relative performance and its degree of internationalization using its historical performance target. As compared to the industry target, relative performance showed a positive impact on a firm’s internationalization.

     

Management Compensation Systems in MNCs and Domestic Firms

• This is a study of the relationship between institutional settings and managerial compensation systems, based on extensive cross-national survey evidence.
• We compare differences in practices between Multinational Corporations (MNCs) and domestic firms across a range of capitalist archetypes.
• We find that MNCs are more likely to promote compensation systems that incentivise managers in line with organisational performance compared to domestic firms. Our findings also reveal persistent diversity reflecting firm type and institutional setting. We find that the gap between MNCs and domestic firms in terms of the usage of incentive-related compensation is less pronounced in Liberal Market Economies than in other settings. This suggests that it is a combination of being an MNC and the specific home locale that moulds approaches to managerial compensation. This reflects considerable hybridisation of practices within and between settings.

     

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.

     

The Impact of National Economic Culture and Country-Level Institutional Environment on Corporate Governance Practices

• We posit that national cultural practices influence the institutional environment, which in turn has an influence on corporate governance practices. We empirically evaluate these relationships using structural equation modeling.
• We utilize measures of national culture from Culture, Leadership, and Organizations: The Globe study of 62 Societies. For the institutional environment, we employ the World Bank Worldwide Governance Indicators. Consistent with theory, we find a strong relationship between these constructs. We further find that the institutional environment mediates the relationship between national culture and corporate governance practices. Corporate governance practices include measures of board accountability, financial disclosure and internal controls, shareholder rights, executive compensation, takeover defenses and ownership base, and corporate accountability and are available from Governance Metrics International.
• As both culture and institutions are linked to corporate governance practices, efforts to change corporate governance practices around the world are best informed by an appreciation of cultural as well as institutional factors.

     

In at the Deep End of Firm Internationalization

• The purpose of this research is to examine the consequences of top management team (TMT) internationalization: why and under what conditions can TMT nationality diversity be beneficial?
• On the basis of the upper echelons theory from the strategic leadership literature, the relationship between the TMT nationality diversity and firm performance in the strategic context of firm internationalization is investigated in moderated multiple regressions models (MMR) for a sample of Dutch, Swiss, and UK companies.
• The study findings suggest that the TMT nationality diversity becomes advantageous only in firms with high degree of internationalization. Companies have to be strongly committed to foreign markets so that the benefits of the TMT nationality diversity can materialize.
• The arising managerial implication is that the TMT nationality diversity can be a powerful tool in building a firm’s competitive advantage, provided that companies are strongly exposed to the international environment. The study also provides corroborative evidence that the search for moderating and mediating variables in the TMT demography research represents a step in the right direction.

     

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.

     

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.

     

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.

     

International Diversification

• International diversification can have both benefits and costs. In this paper, we argue that a firm??s level of international diversification depends not only upon firm-specific characteristics such as its size and the industry to which it belongs, but also upon its ownership structure and the ability of its management to carry out an international strategy.
• We test our hypotheses using a panel of Italian firms. Our findings show that a high level of family ownership has a negative effect on international diversification, but that an inactive market for corporate control negates this. We found too that when the board of a family-owned firm has a higher proportion of independent directors, international diversification is greater. We also found that similar to the family-ownership effect, a high level of state ownership results in less international diversification. Overall our results confirm that corporate governance variables affect international diversification.

     

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.

     

Understanding Organizational Practice Adoption at the Thai Subsidiary Corporation

• This study examines how, to what extent, and with what effect the indigenous cultural concept of kreng jai influences the Thai subsidiary assimilation of organizational practices transferred and mandated by its European-headquartered parent.
• Adopting qualitative methodological procedures we combined data sourced from interviews, observation and company information to explore empirically the continuing role and relevance of kreng jai on the adoption and use of three strategic organizational practices: E-communication, performance appraisal and empowerment.
• Our findings showed that the unique feelings and attitudes which characterize kreng jai variously complemented, reinforced, elaborated and contradicted the behaviors predicted by the traditional comparative etic dimensions of culture when applied to the Thai workplace environment.
• MNEs seeking to develop their operations in Asia can therefore benefit from an appropriately nuanced understanding of the influence of unique indigenous cultural norms and values to help manage effectively the often competing institutional pressures to which their subsidiaries are exposed. Failure to address adequately the subtle but pervasive facets of indigenous management constructs such as kreng jai may hold hidden but potentially critical dangers for the MNE developing its business across cultural borders.

     

The Industry-focused International Strategy

• Many firms facing low-cost international competition can reposition into niches. This study examines one such niche: industry-focused international firms, defined as companies that produce, sell, and expand internationally within one industry. Analysis of the global pharmaceutical industry finds a group comprising of about 20 % of the firms that pursue this strategy. This strategy is distributed internationally, but not uniformly.
• It is relatively more prevalent among firms based in emerging countries compared to industrialized nations. These firms invest in R&D in order to create deep specialized expertise that they exploit internationally.

     

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.