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 Choice of Governance Modes of International Franchise Firms — Development of an Integrative Model

This paper examines the evolution of the international franchise research with special focus on the governance modes of the international franchise firm and develops a new model for the franchisor's choice of the international governance modes. International governance modes in franchising refer to wholly-owned subsidiaries, joint venture franchising, area development franchising and master franchising. Although many studies on the governance modes of the international franchise firm have been published in the last two decades, no prior study develops an integrative framework that investigates the determinants of the international governance modes by combining organizational economics and strategic management perspectives. Specifically, this study explains the governance modes of the international franchise firm by applying transaction cost theory, agency theory, resource-based and organizational capabilities theory and property rights theory.     

It’s all about culture! Institutional context and ownership concentration across Europe

It is widely recognised that the formal institutional context affects firm ownership concentration. However, the impact of the informal institutional context has received less research attention. Drawing from institutional theory, we tested our hypothesis that both the formal and informal (cultural) institutional contexts simultaneously influence firm ownership concentration. Based on a firm-level database of the largest 600 listed companies in 19 European countries for the period 2009–2015, we found that both formal and informal institutional contexts, considered independently from each other, affect the level of firm ownership concentration. However, when these institutional contexts are considered together, the significance of the formal institutional context's effect on ownership concentration disappears while the informal (cultural) institutional context remains significant. Specifically, our findings indicate that high power distance, collectivism, uncertainty avoidance, restraint, and short-term orientation favour firm ownership concentration. Overall, our findings demonstrate that the diversity in European cultures explains firms' different levels of ownership concentration across European firms, signalling that the European Union's efforts towards a common regulatory frame may not necessarily lead to a convergence of European firms' ownership structures and, consequently, of corporate governance practices.     

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.     

Shifts in modes of governance and sustainable development in the Brazilian oil sector

This article discusses shifts in modes of governance in the Brazilian oil sector over a 60-year period. On the basis of Driessen et al.'s (2012) framework, we discuss the impact of these shifts on sustainable development. Our results suggest that changes in modes of governance were driven by regulation and mostly associated with shifts in both actors and institutional features but that the underlying rationale of prioritising economic outcomes remained unaffected. The results also confirm that a central governance structure remained in place over time and co-existed in different modes of governance. Petrobras was the backbone of this structure and instrumental in empowering and disempowering non-state actors. This article stresses that a mode of governance furthering sustainable development should promote interactions of large numbers of actors and may require active participation of Petrobras to encourage rationales that support improvements in social and environmental domains.     

Inter-firm co-ordination: international versus domestic buyer–seller relationships

The use of transaction cost analysis (TCA) to study the choice of governance mode in foreign countries has been a source of considerable research. Empirical tests of the TCA predictions within a single governance mode are, however, limited. Building on transaction costs arguments, and related work in international marketing literature, we examine the association between asset specificity and inter-firm co-ordination in domestic and international buyer–seller relationships. The extant literature is extended by also comparing the impact of environmental uncertainty on inter-firm co-ordination across domestic and international relationships. Empirical findings from a survey of 164 industrial buyers demonstrate that there is a positive association between asset specificity and inter-firm co-ordination, and further that this association is stronger in international relationships than in domestic business-to-business trade. Furthermore, the results indicate that environmental uncertainty is stronger related to inter-firm co-ordination in international buyer–seller relationships compared to domestic buyer–seller relationships.     

Contextual influences on international subsidiaries' product technology strategy

We seek to test a broad range of factors that influence the technology sourcing decision of international subsidiaries in acquiring product technology from outside the firm (i.e., outsourcing) versus internal development. A regression model, used to analyze data from 187 international subsidiaries in six industries and with parents based in 14 countries, identifies the environmental, strategic, configurational, and resource endowment factors that influence the technology sourcing decision. Specifically, the level of product dynamism in the subsidiary's industry and the distance between the subsidiary's primary marketing and R&D operations are associated with a greater reliance on outsourcing. A differentiation goal, a low-cost goal, along with the level of the subsidiary's human and financial resources are associated with a greater reliance on internal development.     

Drivers and Outcomes of Long‐term Orientation in Cooperative Relationships

We argue in this paper that a buyer may deliberately develop long‐term orientation as a governance mechanism to deal with risks arising from exchange hazards, and to reduce the opportunistic behaviour of a supplier. While the exchange hazards of asset specificity pose a safeguarding problem, those of market uncertainty pose an adaptation problem. We test our model on a sample of 221 procurement partnerships. Our results show that satisfactory prior history of a supplier, asset specificity of the buyer and market uncertainty are all positively related to a buyer's long‐term orientation towards a supplier. Consistent with the idea that asset specificity and market uncertainty pose different governance problems, we find that satisfactory prior history reduces the positive relationship between asset specificity and a buyer's long‐term orientation, but enhances the positive relationship between market uncertainty and a buyer's long‐term orientation. We also find that a buyer's long‐term orientation fully mediates the relationship between satisfactory prior history and a supplier's opportunistic behaviour. Finally, implications on the theory and the practices of relationship governance are discussed.     

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.     

Internalization and internationalization under competing real options

The theories of internalization and internationalization provide general factors of international market entry but are not precise about its timing. The theory of real options may complement these approaches as it centers the impact of uncertainty on the timing and dimensioning of investment. A panel study of 5379 German entries to 22 countries suggests that, under the moderating influence of competition, the economic uncertainty in a host country has a U-shaped influence on the moment of entry. The results further reveal that uncertainty has a negative effect on the amount of capital at entry. Uncertainty shows no impact on the share in capital at entry, which challenges the view of international joint ventures as real options.     

International corporate social responsibility and post-entry performance of developing market INVs: The moderating role of corporate governance mechanisms

Building on the stakeholder, agency, and resource dependence theories; this paper investigates the role of international corporate social responsibility (CSR) for the post-entry performance of developing market international new ventures (INVs) in the presence of corporate governance mechanisms to overcome their agency and environmental problems. We test and validate the conceptual model using survey data collected from 110 INVs operating in the developing market of Pakistan. Our results show that international CSR promotes the post-entry performance of developing market INVs. Further, we found that this association is moderated by corporate governance mechanisms of ownership, board independence, and returnee board members. Specifically, the relationship between international CSR and post-entry performance is weaker when ownership is concentrated but stronger when outsider and returnee board members are present in developing market INVs. The findings of this study have important theoretical and practical implications for INVs' social strategies and international performance contingent upon corporate governance.     

Entry and access to competencies abroad: Emerging market firms versus advanced market firms

This article examines the acquisition behavior of multinational companies from emerging markets (EMNCs) compared to multinational companies from advanced markets (AMNCs). Specifically, we relate the governance mode (i.e. the degree of commitment) to exogenous and endogenous uncertainty. As a result of endogenous uncertainty due to their liability of origin, EMNCs are likely to acquire less control, which is exacerbated by exogenous uncertainty when acquiring targets in high-tech sectors. Furthermore, EMNCs experience a higher propensity to control the local partner the higher the institutional distance with the host country, since they enjoy a better institutional environment when they invest in advanced countries and, hence, they are less likely to need a local partner. To test our hypotheses, we develop an econometric analysis applied to foreign acquisitions in Italy between 2001 and 2010 and we study the degree of control of AMNCs as compared to EMNCs. Our results confirm that EMNCs acquire less control than AMNCs, especially in high-tech industries, while institutional distance in trade and investment freedom effectively increase the probability to undertake full acquisition for EMNCs as opposed to AMNCs.     

From primacy to purpose commitment: How emerging profit-with-purpose corporations open new corporate governance avenues

This paper aims at contributing to corporate governance theory by developing a model of governance that takes into account a recent legal innovation: the introduction of purpose-driven legal business forms in the corporate law of several countries. Current debates in such theory oppose models that grant “primacy” (i.e., ultimate control rights) to different constituencies. The resulting uncertainty proves problematic in the face of new, urgent social and environmental stakes that are difficult to represent in traditional governance bodies. Newly adopted profit-with-purpose corporate forms' introduction of a “purpose” in corporate contracts renews these debates. We show that through the “purpose commitment” model it enables, the distribution of control rights in the governance system is decoupled from the objectives assigned to the corporation. This new approach renews the formal role of management, and corporations’ accountability to society. We explore the theoretical, practical, and political consequences of this new model.     

Twice as Smart? The Importance of Managers’ Formative‐Years’ International Experience for their International Orientation and Foreign Acquisition Decisions

This study examined how top management team's (TMT) international orientation influences perceptions of environmental uncertainty and how these perceptions impact international strategic decisions, in particular regarding ownership stakes taken in foreign acquisitions. We highlighted the need for the concept of TMT international orientation to encompass executives’ formative‐years’ international experiences along with their international career experiences and nationalities. Empirical tests based on a sample of 2122 international acquisitions completed by 561 UK firms over the period 1999–2008 showed that TMT international orientation positively moderated the negative impact of cultural differences and host country risk on acquisition ownership stakes. The results underscored the importance of considering decision‐makers’ attributes due to their experiences at a young age, beyond their demographic characteristics or professional experience, in the context of international strategic choices. We also discussed some implications of one of the possible consequences of executives’ formative international experience, namely biculturalism, for international business.     

The Transfer of ‘International Best Practice’ in a Brazilian MNC: A Consideration of the Convergence and Contingency Perspectives

This study examines the transfer of a Brazilian MNC's HR model to its subsidiaries in the UK, Canada, Switzerland and Norway. It enquires where the model was sourced from, to what extent it bore a distinct Brazilian complexion, and whether it was adapted to meet the strictures of host institutional constraints and traditions. The paper uses these questions to address an important theoretical debate in the international business literature; that is, whether the pattern of diffusion of management practices within MNCs will lead to a convergence of practices across companies and countries à la the convergence perspective, or whether this is unlikely given the variety of social and political constraints limiting such a process as suggested by the contingency perspective. We find that the MNC imposed a unitary (US-sourced) model of HR ‘best practice’ on all of its subsidiaries. Thus our empirical findings support the convergence thesis. However, we argue that these outcomes are largely explained by relations of power and economic dependence; specifically, the co-existence of dominant-country (US) practices and a dominant sectoral firm operating in economically dependent regions. Where similar circumstances are replicated one might foresee convergence within sectors across countries, but otherwise pluralism and eclecticism between sectors and across countries might be the predominant pattern along the lines envisaged in the conceptualization of “converging divergences”.     

The configurational effects of board monitoring and the institutional environment on CEO compensation: a country-level fuzzy-set analysis

This study examines the causal complexity of how the effectiveness of board monitoring influences CEO compensation around the world. Previous research drawing from the managerial power theory and ‘increased career risks’ perspective offer alternative arguments for how low and high levels of effective monitoring by boards of directors influence CEO compensation. Adopting a configurational approach using fuzzy-set qualitative comparative analysis, we explore the idea that there are multiple causal paths leading to high levels of CEO compensation, such that theoretical logic from both theories may be relevant contingent upon the institutional environment in which the relationship is embedded. Our findings in a sample of 38 countries suggest that high CEO compensation is an outcome of both the presence and absence of effective board monitoring depending upon how it combines with minority investor protections and the cultural dimensions of power distance, uncertainty avoidance, and individualism, as well as the overall stock market value. Specifically, in countries with high levels of effective board monitoring, high CEO compensation will be more likely when the country’s culture is high in uncertainty avoidance, low in power distance and when there are strong protections for minority investors. Whereas in countries with low levels of effective board monitoring, high CEO compensation will be more likely when power distance is high and uncertainty avoidance is low and when there are weak protections for minority investors. Our country-level study highlights the theoretical strengths of employing a configurational approach to explore the complex interrelationships of governance mechanisms and the contexts in which they manifest.     

Putting the “psychic” Back in Psychic Distance: Awareness,Perceptions, and Understanding as Dimensions of Psychic Distance

Unlike the IB literature whose emphasis within the term ‘psychic distance’ has been more on “distance” and less on “psychic,” our starting point is all “psychic” and no “distance,” assuming distance is defined as the difference between two countries. We propose that psychic distance be centered on the firm's managers and explain how their cognitive limitations, perceptions, heuristics, and experiences interact with a foreign environment to influence their decision making. We replace the conventional definition of distance with the cognitive dimensions of managerial awareness, perceptions, and understanding. Awareness captures the manager's consciousness of foreign context elements relevant to the firm's decision, perception is the manager's interpretation of the extent of these relevant environmental elements, and a manager's understanding captures the relationships among these context elements and the firm's decision. We argue that a multidimensional psychic distance construct is necessary as many of distance's problems are due to the illusion it promises of capturing a manager's perception of a complex foreign environment in a single number. Our approach eliminates distance's problems of symmetry and linearity. It also eliminates the constraint that distance is only associated with negative outcomes. After explaining the theoretical value of awareness, perception, and understanding by developing propositions predicting context traps, we present our operationalization of psychic distance.     

The Influence of Stakeholders on the Environmental Strategy of Service Firms: The Moderating Effects of Complexity,Uncertainty and Munificence*

Drawing on the resource‐based view of the firm, we examine how complexity, uncertainty and munificence in the general business environment moderate the association between a firm's stakeholder integration capability and its environmental strategy. Our data were drawn from 134 ski resorts in 12 countries in western Europe and North America. Our study finds that (1) an organizational capability of stakeholder integration is associated with a service firm's adoption of a proactive environmental strategy; (2) an uncertain business environment has a direct positive influence and a complex business environment has a direct negative influence on a firm's environmental strategy; and (3) complexity has a negative moderating influence on the relationship between a firm's stakeholder integration capability and its environmental strategy.     

The contribution of foreign subsidiaries to host country national competitiveness

In this article, we develop a conceptual model of national competitiveness, focusing on the influence of foreign subsidiaries on the competitiveness of their host countries. Essentially, we view foreign subsidiaries as potential sources of resources important to a nation in developing and maintaining its international competitiveness. We argue that there is a set of subsidiary characteristics that enables a foreign subsidiary to contribute to the national competitiveness of its host country. These characteristics include the strategic role of the subsidiary, the level of technology employed in the subsidiary's processes, the type of training provided by the parent company, and the degree to which the subsidiary is part of an interdependent network of international subunits of the firm. National policy implications are discussed.     

Cognitive biases in the perceptions of country distance

One IB research stream on country distance supports that distance is influenced by the observers' perceptions, which reflect their unique experiences, as working abroad and cultural background. This study on distance perception is different but complements previous research, as we focus on certain systemic biases in perception that are inherent in fundamental human thinking processes when judging similarity. We build on cognitive psychology research, which shows these biases stem from mental shortcuts and heuristics, which people are prone to take in certain circumstances. We test our theory by conducting three experiments. First, we examine a different source of country distance asymmetry due to the fact that one of the countries in a pair is more salient. Second, we propose that context affects country similarity in that distance depends not only on the characteristics of the two countries being compared, but also other countries under consideration. Third, we challenge the notion that perceptions of country similarity and dissimilarity are exact opposites. We argue that ‘distance’ between two countries is a function of the number and salience of characteristics that two countries have in common, or similarity, and those features that are in one country but not in the other, or dissimilarity.