Greenfield or M&A? An institutional and learning perspective on the establishment mode choice of Chinese outward investments

We develop and test a model of Chinese greenfield investments using institutional and learning theories. Both the host country institutional context and the firm's international characteristics affect the establishment mode. Using 152 Chinese emerging market multinationals (EMNEs) with 401 subsidiaries distributed in 26 countries from 2003 to 2013, we build a database of 284 pairs of host country/Chinese firms to test two hypotheses. We find that, first, governance environment affects the establishment mode: greenfield investments are preferred over acquisitions in relation-based host markets, and M&As are preferred in rule-based countries. Second, the depth of Chinese EMNEs' international experience (i.e. the amount of previous investments in the same host market) moderates the effect of the governance environment on the establishment mode. Firms with greater international depth use more M&As in relation-based markets and more greenfield investments in rule-based markets, suggesting that previous investments in the same host country provide a type of learning that reduces acquisition uncertainty in the former case and increases the self-confidence of Chinese EMNEs in the latter.     

The international training of expatriates in Western subsidiaries of emerging multinational enterprises: A knowledge-based perspective

There is a considerable gap in academic theoretical literature about the international training of expatriates in multinational enterprises (MNEs). While the majority of research has focused on developed (Western) multinationals operating in developing countries, very limited research has been conducted on emerging multinational enterprises (EMNEs) operating in developed countries and the expatriates who work in them. In this study, we explore the international training of expatriates in Indian MNEs from the information technology industry operating in Australia to examine how they provide training to their expatriate staff who are sent on international assignments. We collected qualitative data in the form of multiple case studies via interviews with senior executives based in the Australian subsidiaries. Our findings reveal that Indian IT MNEs provide a variety of centralised training programmes for their managerial and technical expatriates and use training as a key instrument to leverage and transfer home country knowledge to their Australian subsidiaries. We also found that each stakeholder involved in the training process plays a distinct role in the knowledge transfer process, which allows Indian EMNEs to integrate the training with their people-centred business model to deliver IT services in host countries.     

How can MNEs benefit from internationalizing their R&D across countries with both weak and strong IPR protection?

Although MNEs internationalize their R&D not only in developed countries but also in emerging economies that typically feature weak protection of intellectual property rights (IPR), it remains unclear how this strategic decision affects their productivity performance. This limitation has resulted in a rather incomplete understanding of why some MNEs become more productive through R&D internationalization while others do not. This study develops a new explanation, suggesting that R&D internationalization does not affect the productivity of all MNEs equally because of differences in the idiosyncratic way in which MNEs geographically distribute their R&D units across weak and strong IPR protection countries. In advancing this explanation, the study challenges the view that weak IPR protection is disadvantageous for MNEs by showing that (and specifying how) it: 1) increases the efficacy of MNEs' internal R&D, 2) strengthens the advantages of accessing globally dispersed knowledge, and (3) improves MNEs' ability to exploit cross-country differences in IPR protection. The study enhances understanding of the complex role of IPR protection, shifts scholarly attention from the degree of R&D internationalization to how MNEs should internationalize their R&D, and clarifies how the IPR context of their location choices matters.     

Cross-border acquisition performance of emerging market multinational enterprises: The moderating role of state-ownership and acquisition experience

This paper draws on the resource-based view and organizational learning theory to analyse the moderating role played by state ownership and acquisition experience in the performance of emerging market multinational enterprises (EMNEs). We contribute to the evolving literature on state-owned EMNEs by identifying various post cross-border acquisition (CBA) strategies, which have an impact on the performance of such firms that differs for the one they have on privately owned EMNEs. We test our hypotheses by performing a panel regression analysis on a large firm-level dataset spanning 43 emerging markets over the 2006–2015 period. Overall, our findings point at an inverted U-shape relationship between diversification through CBAs and firm performance. More specifically, this concave relationship is greater when the diversification occurs in developed countries, as opposed to emerging ones. Furthermore, there is evidence that state-ownership and EMNE acquisition experience moderate these relationships both in domestic and foreign markets, albeit with different intensities.     

R&D internationalization,product diversification and international performance for emerging market enterprises: An empirical study on Chinese enterprises

One motivation behind R&D internationalization for emerging market multinationals (EM MNEs) is to expand international markets. This paper analyzes whether the R&D internationalization of EM MNEs contributes to an improvement in international performance measured by foreign sales as a percentage of total sales (FSTS). Using panel data on China's listed companies, this paper introduces more scientific and normative indicators for measuring R&D internationalization in terms of geographic distribution (breadth) and overseas investment (depth). The results reveal an inverted U-shape relationship between R&D internationalization and international performance that is initially positive and eventually becomes negative. Product diversification has a significant moderating effect on the relationship between R&D internationalization breadth and international performance.     

Towards a re-conceptualization of firm internationalization: Heterogeneous process,subsidiary roles and knowledge flow

This paper proposes a re-conceptualization of firm internationalization to understand and predict the rapid global expansion of firms since the 1990s, especially those from emerging markets. First, based on a review of existing literature, we re-conceptualize firm internationalization as a heterogeneous process of strategic development of subsidiaries in overseas countries or regions. This re-conceptualization captures the pluralistic character of the process of firm internationalization.Second, we delineate peculiar roles played by subsidiaries in pursuit of multinational enterprise (MNE) headquarters' internationalization strategies. We argue that the HQ's heterogeneous strategies toward overseas subsidiary development define the corresponding roles of subsidiaries, which in turn shape the knowledge-flow patterns within the MNEs. Finally, we link firms' internationalization strategies with different subsidiary roles to generate hypotheses concerning the effect of such links on subsidiary performance. We argue that the proper alignment of HQ's internationalization strategies with subsidiary roles will lead to success of the overseas subsidiaries; by contrast, a mismatch will lead to subsidiary failure. The paper thus contributes to the field of firm internationalization by linking its new conceptualization with the literature on subsidiary roles and knowledge flows in MNEs.     

OFDI performance of EMNEs: A review and recommendations for future research

Outward foreign direct investment (OFDI) by emerging economy multinational enterprises (EMNEs) is an increasingly significant global economic phenomenon. A growing and extensive body of research has examined the OFDI performance outcomes of EMNEs. Our systematic review seeks to capture the diverse theoretical lenses adopted and advanced in this stream of research, synthesize empirical findings, identify methodological challenges, and recommend directions for future research. Following a comprehensive and rigorous literature review, we identified 175 relevant studies published from 2001 to 2020. Our review suggests that a wide range of theories across disciplinary boundaries have been applied, and in some cases extended, to understand the performance outcomes of the OFDI of EMNEs. Empirically, previous studies have focused on different performance dimensions when assessing the OFDI outcomes of EMNEs, and investigated antecedents and contingencies across micro, meso, and macro levels. Based on our review findings, we propose a number of future research directions to move this research stream forward.     

Heterogenous internationalization processes of emerging economy MNEs: A review and research agenda

The internationalization of emerging economy MNEs (EEMNEs) is a major topic in international business (IB) research. IB scholars testing the applicability of existing internationalization theories to EEMNEs, or developing new EEMNE theories, have failed to explain that the heterogeneity in EEMNE internationalization is due to their being based in different countries, being active in different industries, and having different resource endowments. With these differences investigated mostly in isolation, the research to date has been fragmented. We take a more holistic view. Our paper synthesizes the literature to show that heterogeneity in EEMNE internationalization processes are due to the interaction between country, industry, and firm and this allows us to explain the “where,” “how,” “when,” and “how much” of it. We use a top-down approach, that is, how macro-level and industry factors impact firm-level ones. We disentangle studies on home-country, industry, and firm-level antecedents to internationalization, which yields rich insights. We develop an integrative framework that identifies the antecedents of EEMNE internationalization and their interrelationships. We then use the framework to review and summarize past research, outlining gaps and contradictions, and most importantly, we present crucial findings. Finally, we propose research questions that we believe will advance the EEMNE internationalization field.     

An Effectual–Causal View of Managerial Decisions in the Internationalization of Indian MNEs

We use effectuation theory to understand the internationalization of emerging market multinational enterprises (EMNEs), specifically answering the questions of: (a) how managerial decision logic differs across EMNEs that face disadvantages vs. those that do not, and (b) what managerial decision logic helps EMNEs to mitigate disadvantages. We employ a case research approach to analyze decision events across eight firms that internationalized from India between 1990 and 2015. We find that EMNEs are attuned to welcoming and leveraging surprises in order to transform challenging markets into opportunities; form cautious partnerships with self-selecting stakeholders, and; balance all-or-nothing opportunities with losses they can afford. Furthermore, while EMNEs adopt relatively balanced effectual-causal actions to mitigate the liability of multinationality (LoM), they are more effectual than causal in mitigating the liabilities of foreignness (LoF) and liabilities of origin (LoR).     

Psychic distance and ownership in acquisitions: Direction matters

Recent research has begun to explore the impact of country-of-origin and direction on internationalization decisions in response to controversy over the use of symmetrical and absolute values of distance. In this paper we contribute to this stream of research by studying the moderating influence of direction on the distance–ownership relationship as it relates to cross-border acquisitions. We ground our arguments in transaction cost economics and supplement this lens using institutional theory to contextualize the home-host country relationship through moderating effects. Through our study of 25,440 full and partial acquisitions (9577 MNEs, 25 countries, 15 years), we demonstrate that the distance–ownership relationship is moderated by direction. We further find that acquisition ownership decisions made by emerging country MNEs differ significantly from those made by developed country MNEs. Our findings demonstrate that future research on the impact of distance should consider the differences between MNEs from emerging versus developed economies, in addition to host country characteristics.     

Intra- and inter-regional diversification,subsidiary value chain activities and expatriate utilization

Although it is well established in the current staffing literature that why and how multinational enterprises (MNEs) allocate more or fewer expatriates in some subsidiaries than others, little is known about why and how some MNEs utilize more or fewer expatriates than other MNEs. This paper builds on regionalization theory to argue that intra- and inter-regional diversification has to do with the overall use of expatriates in MNEs. An empirical investigation of Korean MNEs demonstrates that the degree of intra- and inter-regional diversification has significant impacts on the level of expatriate utilization by MNEs. The results also reveal an interesting moderating influence of subsidiary value chain activities. MNEs tend to vigorously adjust their use of expatriates in downstream subsidiaries depending on the degree of intra- and inter-regional diversification. However, they do not adjust their use of expatriates in manufacturing subsidiaries upon the degree of international diversification. Overall, this study extends our understanding of how MNEs manage a geographically dispersed organization in a semi-globalized world.     

Entrepreneurship,globalization, and public policy

This paper examines the impact of governmental policies in influencing the path of internationalization of small- and medium-sized enterprises (SMEs). It focuses on the role of institutions mandated to assist internationalization, as exemplified by Canada's Export Development Corporation (EDC). We illustrate and examine critically the role that governments typically play in assisting and influencing the international expansion of domestic firms. We argue that the activities of agencies such as EDC — mainly in financing and in insuring against the risks inherent in export activities — may actually be counterproductive to the long-term interests of many SMEs by skewing managers' decisions toward direct exporting, rather than toward indirect exporting by entering the value chain of already-established multinational enterprises (MNEs). A consequence may be to divert the constrained resources of entrepreneurial firms away from their greatest comparative advantage — innovation — toward managing direct entry into international markets in which they are at a comparative disadvantage relative to larger established MNEs. Highly innovative SMEs might be better off by leaving the internationalization of their innovations to MNEs and sharing some of the international direct exporting profits with them instead. The implications are relevant for governmental policies toward internationalizing SMEs not just in Canada but in open, market-oriented economies everywhere.     

International Diversification,Business Group Affiliation and Firm Performance: Empirical Evidence from India*

We investigate the impact of business group affiliation on the relationship between international diversification and firm performance for emerging economy firms. We develop the theoretical arguments based on an integration of the literature on international diversification with the institutional theory perspective. We argue for a U‐shaped relationship between international diversification and firm performance, and suggest that a firm's affiliation to a business group moderates the relationship between international diversification and firm performance. Based on a sample of Indian firms, we find that firm performance is positively related to the degree of internationalization, while business group affiliation reduces the positive effect of internationalization on firm performance.     

Host-country Headquarters of U.S. Firms in China: An Empirical Study

Recent studies show that large multinational enterprises (MNEs) adopt an organizational unit, called host-country headquarters (HCHQ), in key foreign countries (Ma and Delios, 2010; Ma, Delios and Lau, 2013). In this study, we examine the factors that are associated with the establishment of an HCHQ by US firms in China. We hypothesize that an HCHQ is associated with both firm-specific factors and host country-specific factors. We find that an HCHQ is associated with the firm's scope diversification and degree of internationalization, and the strategic importance of foreign host country and subsidiary diversification in that host country. The findings are based on archival data of U.S. Fortune 500 firms. The findings add to the understanding of an important organizational structure of large U.S. firms in China, and possibly to MNE structures more widely in key foreign countries.     

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.     

Emerging global contenders: The South African experience

The global strategies of three major South African MNEs are examined with a view to understanding the applicability of existing theories to developing country firms and their emergence as global industry leaders.Emerging market MNEs are motivated by both defensive and offensive considerations. At the same time, home market domination allows potential contenders to develop competitive firm-specific advantages that are non-location based.We propose that successful emerging market MNEs start to build their global positions on the back of asset exploitation, but soon follow with asset seeking behavior. When country specific advantages are less important, contenders can accelerate their development of non-location based FSAs rapidly. Finally, leadership and domestic dominance may be more important than country specific advantages in explaining the success of emerging market MNEs.     

The multinationalization of developing country MNEs: The case of multilatinas

I study the multinationalization — the decision to establish foreign direct investment (FDI) — of developing country firms, in particular Latin American ones or “Multilatinas”. Despite a long exporting tradition, many firms in Latin America have only recently become multinational enterprises (MNEs). The analysis of case studies reveals three insights. First, Multilatinas take a long time to become MNEs, reflecting the additional challenges and need for sophisticated advantages for establishing FDI. Second, Multilatinas are induced to become MNEs after changes in the home country that follow structural reform induce them to upgrade their competitiveness to international levels. As a result, they can overcome the difficulties of establishing FDI and become MNEs. Third, Multilatinas follow four strategies in their selection of the country where to establish FDI first depending on the interplay between difficulties and advantages of operating abroad. These three arguments build on and link the notion of advantages of internationalization put forward by the eclectic paradigm of international production and the idea of difficulties in internationalization presented by the incremental internationalization model. The strategies are explained by the balancing of the ease of overcoming difficulties and the advantages derived from foreign operations.     

Entry modes and national systems of innovation

Multinational enterprises (MNEs) have contributed to the productive and technological upgrading of many host economies, whereas discussion about entry modes and developmental effects is far from being concluded. We explore the relative importance of national systems of innovation in various forms of firm internationalization. We hypothesize that, adopting a dynamic perspective, institutional stability and the consolidation of R&;D capacities reinforce entrepreneurship and become key driver mechanisms to improve the attraction of foreign entries. The empirical analysis is built upon a sample of countries with dissimilar levels of development using longitudinal data for the period 1998–2004. The findings confirm that the relative technological advance of host countries differ for cross-border mergers and acquisitions (M&;A) compared to other entry modes, taking into account the diversity of the developing world, the potential of emerging economies and the need to investigate new drivers for the attraction of FDI.     

Are multinational enterprises from the emerging economies global or regional?

While there is ample statistical evidence that the top 500 multinational enterprises (MNEs) are predominantly home-region-bound or bi-regional, the operations of MNEs from the emerging economies have not been comprehensively analyzed. This constitutes a vital gap since firms from emerging economies have been making prominent acquisitions in recent years, and these economies are expected to post impressive growth despite the global economic slowdown. MNE managers cannot ignore such opportunities and threats. This study analyzes the operations of MNEs from four leading emerging economies – Brazil, Russia, India and China (BRIC). Since aggregated FDI data often lack transparency due to off-shore tax havens, we supplement that analysis by examining 1430 mergers and acquisitions undertaken by MNEs from BRIC economies during 2000–2007. We also develop insights into their dispersion pattern across five industry sectors in six geographical regions.