“Where to” micromultinationals? A tribute to Professor Pavlos Dimitratos

This reflection serves as a tribute to Professor Pavlos Dimitratos by providing a state-of-the-art understanding of micromultinationals (mMNEs), an important term initially coined by Pavlos and his colleagues (2003) in their European Management Journal article “Micromultinationals: New Types of Firms for the Global Competitive Landscape” to capture the rising phenomenon of international small- and medium-sized enterprises (SMEs) with advanced modes of entry. Whilst underexplored, such firms have critical research, managerial, and policymaking implications for their increasing population and significant value-added activities in home and host economies relative to exporting firms. Based on a short analysis of existing mMNE studies, we appeal for more scholarly attention to their evolution, behavioural characteristics, and consequences, particularly in the area of SME internationalisation. We suggest several promising future directions to investigate this intriguing type of entrepreneurial firms and, using a Scottish context, show how they are appealing to policymakers.     

International governance mode choice: Evidence from Brazilian franchisors

The purpose of this article is to test a novel, integrative theory of governance mode selection in the context of international franchising from Brazil. Given the Brazilian emerging market context, we added and tested another variable in the model relating to environmental distance between the home (Brazil) and host countries. To test the theory, we employed two logistic regression models and representative data from the Brazilian Franchising Association in addition to the World Bank's Doing Business index, and the CEPII (Centre d'études prospectives et d'informations internationales). Findings show that three factors influence Brazilian franchisors' choices regarding international governance modes: the environmental uncertainty of the host countries, their behavioral uncertainty, and the franchisors' financial capacity. However, the environmental distance does not influence internationalization strategies of Brazilian firms. Emerging markets firms' governance modes of entry can be adequately explained with the existing model despite contextual differences.     

The role of reference groups in international investment decisions by firms from emerging economies

Investments in China by firms from emerging economies were studied to determine how various reference groups affect their foreign market entry behavior. Imitation was shown to be an important factor, but the mechanism seems to vary depending on the institutional environments in the host and the home market. Firms from emerging economies seem to rely on copying the entry decisions of peers from their home country, especially in locations where the risk of government meddling is greatest. The example of firms from developed economies was found to be less influential.     

Multinational enterprises' Entry Mode Strategies and Uncertainty: A Review and Extension

The issue of uncertainty has been one of the most important topics in the research on multinational enterprises' foreign market entry modes. This paper provides a conceptual review of the literature on the role of uncertainty in entry‐mode strategies. It is found that transaction cost theory has focused primarily on entry modes as a way of minimizing behavioural uncertainty, while research using the more recent real options approach has distinguished between endogenous and exogenous types of uncertainty and provided evidence that managing uncertainty through appropriate entry modes may lead to competitive advantage. By synthesizing the relevant literature, this paper provides some new perspectives and avenues for future research on uncertainty and entry‐mode choices by considering the impact of firm learning, prior experience and host market attractiveness.     

The Impact of Vicarious Experience on Foreign Location Strategy

MNEs can learn from the foreign investment experiences of other firms when evaluating their own foreign entry strategies. We argue that other firms' experiences reduce investment barriers arising from formal and informal institutional environments in host countries that are dissimilar from an MNE's home country, thereby encouraging new entry. Our empirical analysis of foreign entries by Japanese public manufacturing firms over more than a thirty-year period indicates that the prior experiences of other firms in a host country mitigate the negative effect of formal and informal institutional distance on entry decisions: as other firms' experiences in a host country increase, a firm is less deterred by greater institutional distance from entering the country. We also find that the distance-mitigating effect of other firms' experiences in different industries is less significant when a larger body of same-industry firm experience exists in a country, implying a substitution effect between different types of vicarious experience.     

The micro-foundations of the returnee liability: The interpersonal challenges of returnee entrepreneurs in Kenya

Although it is known that returnee entrepreneurs can contribute to technological and economic upgrading in their home countries, there is also evidence of a returnee liability where returnee entrepreneurs perform worse than locals. Apart from mismatches between home and host country institutional environments, this liability is argued to stem from interpersonal factors like cultural difficulties and the diminished social capital of returnees at home. Using interviews exploring the experiences of twenty Nairobi-based technology-enabled returnee entrepreneurs, we theorize the micro-foundations of the returnee liability: mismatched expectations, cultural tension and mutual suspicion. Returnees who sent remittances while abroad expect locals to support their return and entrepreneurial vision, but locals expect continued financial support. Returnees who had become more individualistic while fending for themselves in Western economies experience tension with the collectivism of locals, even while they seek to readjust to their home culture. The suspicion of returnees about unethical local business practices and frustration about locals’' apparent inability to value proposed innovations further complicate the ability of returnees to access local knowledge and networks. We discuss how the community support addresses these micro-foundations of the returnee liability and thus help developing countries better benefit from the knowledge and innovations of their returnees.     

制造商技术开放策略问题研究

在高新科技领域，制造商往往需要面对技术优势与需求优势的选择问题，技术策略（开放/封闭）逐渐成为选择的关键。在产品需求理论的框架内，研究了制造商的技术策略问题，通过构建制造商技术策略模型，分析产品的网络外部性、规模经济效应以及新制造商对于制造商不同技术策略下最优利润的影响，进而得出制造商的技术策略、新制造商的市场进入策略及相应的市场结果。最后，文章进行了拓展，分别研究了存在多个新制造商和市场进入成本两种情况下各方策略及市场结果的变化。研究发现：（1）制造商数量对于潜在市场总需求的影响系数越大，制造商越倾向于选择技术开放策略；（2）适中的网络外部性强度和规模经济效应强度有利于制造商选择技术开放策略；（3）当新制造商数量增加时，制造商技术策略的变化方向由其初始技术策略所决定；（4）市场进入成本不会影响制造商的技术策略，却会改变技术开放策略下新制造商的市场进入策略，进而使得市场结果发生分化；（5）专利授权费会激励制造商选择技术开放策略。     

RELATIVE FACTOR ENDOWMENTS AND INTERNATIONAL PORTFOLIO CHOICE

We present a model of international portfolio choice based on cross‐country differences in relative factor abundance. Countries have varying degrees of similarity in their factor endowment ratios, and are subject to aggregate productivity shocks. Risk‐averse consumers can insure against these shocks by investing their wealth at home and abroad. In a many‐good setup, the change in factor prices after a positive shock in a particular country provides insurance to countries that have dissimilar factor endowment ratios, but is bad news for countries with similar factor endowment ratios, since their incomes will worsen. Therefore countries with similar relative factor endowments have a stronger incentive to invest in one another for insurance purposes than countries with dissimilar endowments. The importance of this effect depends on the size of countries. Empirical evidence linking bilateral international equity investment positions to a proxy for relative factor endowments supports our theory: the similarity of host and source countries in their relative capital–labor ratios has a positive effect on the source country’s investment position in the host country. The effect of similarity is enhanced by the size of host countries.     

Internationalization of small and medium sized enterprises in the Baltic Sea Region

We integrate internationalization process theory with industrial network theory to explain SME entry in emerging markets. We show that entry modes are complemented by entry nodes and entry processes. We develop a Five/Five Stages Model to consider the dynamic interaction between these factors. We undertook a survey of 116 SMEs in Southern Sweden trading with the Baltic States, Poland and Russia, as complemented by a case study of ten SMEs trading with Poland and an analysis of trade statistics of SMEs in Southern Sweden.We find that relationships are critical for entry as most firms rely on direct relationships with customers or dyads. The involvement of subsidiaries is uncommon, suggesting a low degree of FDI. Meanwhile, triads or indirect relationships through distributors or agents are more important. This low cost entry node creates a paradox in that the insufficient learning it provides about local markets obstructs further internationalization. By relating entries to the global internationalization process, we find that most SMEs trade with few countries in the region, indicating a low degree of regional internationalization.     

Between a rock and a hard place: Internal- and external institutional fit of MNE subsidiary political strategy in contexts of institutional upheaval

We investigate how subsidiaries' political capabilities in emerging markets are not just shaped by their home- or host country institutions, but by both simultaneously - presenting a dilemma for subsidiaries of multinational enterprises (MNEs) in host countries. Subsidiaries need to develop CPA that simultaneously “fit” parent company requirements and “external fit” requirements in relation to the host environment. Achieving this dual fit is particularly difficult in volatile host contexts, where the value of political capabilities changes rapidly. Subsidiaries face a dilemma because the easily transferable capabilities – that draw on parent resources – lose value due to their decreasing “external fit” with the host country's volatile institutional environment. Conversely, the most valuable relational political capabilities lack “internal fit,” as they may not be legitimate in the home environment. To understand how firms deal with this dilemma, we develop a typology of political capabilities that takes into account their transferability/stickiness and their dynamic institutional contingency in the host country. Our study shows that MNEs - even from institutionally very different economies - can successfully transfer political capabilities to develop effective CPA in a volatile political environment. Yet, as political risk becomes discontinuous, this strategy may reach its limits.     

Ownership Strategy and Foreign Affiliate Performance in Multinational Family Business Groups: A Double-edged Sword

We argue that ownership strategies can be a double edged sword for multinational family business groups from emerging economies and the performance of their affiliates located abroad. We test an integrated framework based on internalization and agency theory on a longitudinal dataset of multinational family business groups from Taiwan. We find evidence for the contingent impact of cultural differences and family management on the association between ownership strategy and affiliate performance. While direct ownership is seen as offering more control over the affiliate, we show that this comes at a performance cost for affiliates in culturally different host countries and affiliates under family management. Indirect ownership seems to be one way to positively influence affiliate performance in culturally distant countries, but seems not to be contingent on family management utilization.     

International adjustment of Brazilian expatriates in the United States of America

The adjustment of expatriates to host countries has been identified as a determinant of their success in international assignments. The literature on expatriates is largely based on cases of expatriates from developed economies; however, given the current global market scenario, companies from developing countries are also assigning expatriates to international assignments. The purpose of this study was to understand the international adjustment of Brazilian expatriates working for Brazilian multinational subsidiaries in the United States of America (USA). The study used an exploratory approach of in-depth interviews with open-ended questions conducted with 11 Brazilian expatriates working for 11 different Brazilian multinationals in the USA. The contributions of this study are twofold: (1) exploration of the adjustment perspectives of expatriates of Brazilian multinational companies, and (2) exploration of the effects of variables from the USA context, as host country, on the international adjustment of expatriates. Findings show that Brazilian expatriates perceived that rules and laws of the USA had a great effect on their international adjustment, while cross-cultural differences influenced leadership styles and interpersonal relationship.     

Is there a trend towards global value chain specialization? — An examination of cross border sales of US foreign affiliates

In this study we discuss and empirically test the assertion that over the last two decades multinational enterprises' (MNEs') configuration of value-adding activities has shifted from a sparse and simple (host–home) international division of labor among the foreign affiliates to a more specialized and ‘advanced’ global value chain configuration in which MNEs locate fine-sliced parts of the value chain at the most efficient locations. Using data on trade flows of U.S. affiliates in 56 host countries between 1983 and 2003 we find some indications of a trend in the direction of global value chain specialization. In particular among US affiliates in developing countries the proportion of host–host, intra-firm trade has increased significantly during the observed period of time. Conversely, the proportion of host–home and inter-firm trade has diminished. We interpret this as indicating both value chain disaggregation (vertical specialization) and MNEs' systematic exploitation of factor cost differentials across countries. We also find that the absolute levels of all types of trade flows have increased. Hence, it is the relative, and not the absolute, changes in the trade flow patterns of US affiliates that gives credibility to the global value chain assertion.     

Equilibrium Bias of Technology

This paper presents three sets of results about equilibrium bias of technology. First, I show that when the menu of technological possibilities only allows for factor‐augmenting technologies, the increase in the supply of a factor induces technological change relatively biased toward that factor—meaning that the induced technological change increases the relative marginal product of the factor becoming more abundant. Moreover, this induced bias can be strong enough to make the relative marginal product of a factor increasing in response to an increase in its supply, thus leading to an upward‐sloping relative demand curve. I also show that these results about relative bias do not generalize when more general menus of technological possibilities are considered. Second, I prove that under mild assumptions, the increase in the supply of a factor induces technological change that is absolutely biased toward that factor—meaning that it increases its marginal product at given factor proportions. The third and most important result in the paper establishes the possibility of and conditions for strong absolute equilibrium bias—whereby the price (marginal product) of a factor increases in response to an increase in its supply. I prove that, under some regularity conditions, there will be strong absolute equilibrium bias if and only if the aggregate production function of the economy fails to be jointly concave in factors and technology. This type of failure of joint concavity is possible in economies where equilibrium factor demands and technologies result from the decisions of different agents.     

Investment attributes and learning from failure in foreign direct investments

This study examines the learning effect of multinational enterprises' (MNEs) failure experience in foreign direct investment (FDI). We also examine the contingent effects of two key investment attributes: cultural distance between the host countries and the MNE's home country and entry mode. Using a longitudinal dataset of Korean foreign direct investments during 1990–2011, we find that an MNE's prior FDI failure experience is negatively related to the failure likelihood of a focal subsequent FD, indicating a learning effect of FDI failure experience. Our results show that this learning effect weakens, as the cultural distance between the host countries of prior failed FDIs and South Korea, or the joint venture percentage among prior failed investments increases; however, those interaction effects become insignificant when a focal subsequent FDI is in a culturally different country, or a JV. This study enriches the literature on learning from failure and research on experiential learning in FDI by demonstrating the boundary conditions of the learning effect of the FDI failure experience of MNEs.     

Racing to the bottom or seeking legitimacy? National environmental performance and the location strategies of Chinese MNEs

This paper studies the extent to which the international location patterns of Chinese MNEs privilege economies with environmentally sustainable practices. We develop a theoretical framework confronting the traditional race-to-the-bottom arguments with the Chinese MNEs' need to gain legitimacy abroad and signal their global citizenship. We also examine a set of conditioning factors pertaining to the heterogeneity of both host countries and firms, to explore potential sources of ethical pluralism in Chinese MNEs' location strategies. Empirically, we study 948 greenfield investments in manufacturing undertaken by Chinese companies in 82 countries over the 2013–2019 period. Our results suggest that Chinese MNEs may feed a downward spiral by favouring locations with fragile ecosystem vitality, that is, a weak sustainable use of natural resources with the consequent erosion of environmental quality. This result is driven by Chinese FDI in developing countries and locations with fragile institutional setting. Furthermore, the attracting force of a degraded environmental situation holds especially for Chinese MNEs operating in most polluting sectors and with private ownership.     

Unfavorable Market Conditions,Institutional and Financial Development,and Exits of Foreign Subsidiaries

In this paper, we examine how market conditions in host countries affect the entry and exit decisions of multinational corporations' foreign subsidiaries. Taking the real options perspective, we expect that smaller investments will be associated with more flexible entries and exits. We also predict that better-established host countries with greater institutional and financial development will facilitate the exits of foreign subsidiaries with smaller investments under unfavorable market conditions. We run a Cox proportional hazard rate model with a dataset of Korean foreign direct investments, and find that when market conditions become more unfavorable, foreign subsidiaries making smaller investments that were endogenously chosen under the influence of market demand uncertainty are more likely to engage in earlier exits than subsidiaries making larger investments. We also find that strong institutional and financial development positively moderates small subsidiaries' exits under conditions of unfavorably resolved uncertainty.     

Institutional distance and the international market entry mode: A meta-analysis

With increasing interest in the internationalization of multinational enterprises, recent studies have focused on the differences between institutions in home and host countries and how they affect the strategic entry decisions of multinational enterprises, particularly the equity-based entry mode. However, the conclusions regarding institutional distance and the equity-based market entry mode are contradictory. This relationship is theoretically unclear and empirically inconsistent. To help resolve these contradictory findings, we conduct meta-analytic research on the relationship between institutional distance and equity-based entry mode. We investigate several moderators that may affect this relationship. These moderators can be divided into three types: measurement factors, such as indices, data sources, and calculation methods; contextual factors, such as industry, time of study, and country characteristics; and theoretical orientation. We offer theoretical insights and recommendations to improve the validity and reliability of research on institutional distance, equity-based entry mode, and ideas for future research.     

Upgrading local operations for global arbitrage

This study shows that upgrading sales operations in host countries towards production allows MNCs to perform global arbitrage in their networks of foreign subsidiaries and thereby contributes to a strategy of reaping the benefits of multinationality. We predict and find that operation upgrades follow opportunities of improving resource flows in the subsidiary network to exploit the advantages of host countries in tax rates, investment incentives, and technological knowledge across borders. Performance effects on the level of the MNC network give evidence of these benefits from global arbitrage.     

Revisiting the relationship between ownership and control in international business operations: Lessons from transition economies

This article develops a conceptual model linking two interrelated dimensions of foreign business operations in transition economies: resources committed to the entry in terms of ownership, and resources committed to control the operations. The model outlines four types of foreign operations in transition economies: 1) arm's length contractor (low degree of foreign ownership and low level of foreign control over the operations); 2) hands-on contractor (low ownership and high control); 3) brand protector (high ownership and control); and 4) market share maximizer (high ownership and low control). These types are illustrated with examples of companies in four sectors of the Russian economy: metals, textiles, oil products, and beverages.We contribute to the literature on ownership and control in foreign operations, and their linkage to resource commitment at different stages of operations. In particular, we explicate situations characteristic of transition economies where ownership and control are not positively correlated. Moreover, we illustrate that the (financial) resources committed at the entry stage do not necessarily correlate with the managerial resources committed to the operations. For example, contractual collaborations in transition economies typically require few financial resources but more managerial resource commitment than in more developed market economies. On the other hand, operations with major commitment in the form of foreign equity investment may be managed autonomously by a local manager or a minority shareholder.