Institutional distance and ownership in foreign acquisitions

In this study, we take a balanced view on cross-border distances and argue that there are both costs and benefits when multinational companies (MNCs) operate in distant environments. When conducting cross border acquisitions (CBAs), MNCs attempt to minimize the costs while also maximizing the benefits offered by institutionally distant host countries. MNCs do so by sharing the equity ownership with the local partners who help MNCs navigate the local environment and derive location-specific advantages. We also propose that the effect of institutional distance is directional such that firms are more likely to opt for shared ownership when the target is located in a country with less developed institutions than in a country with more developed institutions. Further, firm-specific and context-specific factors impact the costs and benefits of operating in distant countries and condition the relationship between institutional distance and the likelihood of a firm opting for shared ownership in CBAs. We test our arguments on a sample of 37,588 CBAs involving 52 home and 54 host countries over 17 years (1996–2013).     

Antecedents and Outcomes of Political Tie Intensity: Institutional and Strategic Fit Perspectives

Although international nonmarket strategy research has highlighted the importance of political ties, it is still unclear why some foreign subsidiaries are more politically active than others and what conditions may render political practices beneficial in a host country. We argue that foreign subsidiary political tie intensity—the extent to which senior managers provide time and resources in informally dealing with government officials for nonmarket purposes—will be influenced by political institutions in their parent's home country, especially when the MNE parent attempts to protect foreign subsidiary resources. Additionally, we assert that fit between a parent's home country political institutions and foreign subsidiary political tie intensity will positively affect subsidiary performance. We employ primary data collected from 181 foreign subsidiaries in the Philippines and find support for our hypotheses. This study advances international nonmarket strategy research by highlighting how an MNE's home country political institutions shape subsidiary political networking and strategic performance outcomes in host country environments.     

Subsidiary Entrepreneurship and Entrepreneurial Opportunity: An Institutional Perspective

A subsidiary's ability to identify opportunities in the host country and to subsequently exploit these opportunities could create competitive advantages for the Multinational Corporation. While research on subsidiary entrepreneurship has focused primarily on subsidiary-specific resources and capabilities, as well as environmental factors, the type of opportunities that the subsidiaries may find in the host environment has been underexplored. Drawing on the subsidiary entrepreneurship literature, institutional perspectives, and entrepreneurship research, this paper suggests that subsidiaries embedded in institutional contexts that are different from those of their home country have unique advantages that enable the identification of entrepreneurial opportunities. Accordingly, a theoretical framework is proposed, based on contingency perspectives on the different views of entrepreneurial opportunities in relation to business processes in the host country's institutional environment, vis-a-vis uncertainty levels and legitimacy requirements. In addition, appropriate strategic approaches are suggested, through which subsidiaries can exploit these entrepreneurial opportunities.     

Top Management Team Internationalization and Firm-level Internationalization: The Moderating Effects of Home-region Institutional Diversity and Firm Global Focus

The factors that determine firms' levels of internationalization remain a focal area of international business research. Within this research stream, studies building on the upper echelons theory have investigated the influence of the demographic characteristics of the top management team (TMT) on firms' international expansion. However, the literature to date has overlooked the TMT's overall degree of internationalization as a key driver of firm-level internationalization. In our paper, we argue that by having self-selected into careers abroad, foreign TMT members by definition have a higher cognitive tolerance of foreignness than domestic TMT members do. We theorize that foreign TMT members' higher cognitive tolerance for foreignness enhances the overall TMT's level of international attention and international trust, thereby facilitating strategic decisions that favor firm-level internationalization. Additionally, we propose two key contingencies that attenuate this relationship: the institutional diversity of the firm's home region and the firm's global focus. Analysis of Fortune Global 500 firms supports the hypothesized relationship between TMT internationalization and firm-level internationalization, as well as the two moderation effects.     

Institutional antecedents of subsidiary external embeddedness: Coping with regulatory competitive constraints

We investigate institutional antecedents to subsidiary external embeddedness and relate regulation constraining competition in local service sectors to subsidiary embeddedness with local partners in complementary sectors. Combining research on business networks with arguments derived from transaction cost economics, we argue that subsidiary external embeddedness depends on the extent of transaction costs originating from small numbers bargaining, which regulatory competitive constraints in local service sectors are a source of. Based on this logic, we suggest that low and high levels of regulatory competitive constraints are associated with greater subsidiary external embeddedness. We also suggest that this U-shaped relationship is more pronounced for subsidiaries that are centers of excellence within the multinational enterprise because these subsidiaries heavily depend on the local context as a source of their competitive advantage over their sister subsidiaries.     

Managerial Risk‐taking in International Acquisitions in the Brewery Industry: Institutional and Ownership Influences Compared

This paper deals with the role that institutional differences play in managerial risk‐taking when firms engage in international acquisitions. It is assumed that multinational corporations (MNCs) have different interests and capabilities when dealing with international acquisition, which in the authors’ view are significantly shaped by specific home country institutional influences. This study concerns the question of how different forms of ownership – concentrated (e.g. family and bank based) and dispersed (stock market based) – influence risk‐taking and managerial decision‐making in large international acquisitions. Comparing a total of 12 large acquisitions of four leading MNCs in the global brewery industry, the paper shows that mutually reinforcing influences of country of origin (coordinated vs liberal market economies) and ownership (family ownership vs stock market ownership) lead to different risk profiles and managerial risk‐taking with regard to international acquisitions.     

Managing “forced” technology transfer in emerging markets: The case of China

This paper explores how foreign multinational corporations (MNCs) manage risks associated with “forced” technology transfer (“FTT”) policies in emerging markets. Although MNCs are increasingly exposed to appropriability risks from these policies, how they respond is relatively understudied in international business (IB) research. We explore this topic based upon a survey and interviews with Western MNCs doing business in China, as well as a discussion about the recent US-China trade war. We find that, as traditional IB theory would predict, internally-oriented strategies (e.g., internalization, maintenance of informal intellectual property (IP), and control of technological centrality and sophistication) are often used to respond to FTT policies; however, the risks from such policies can sometimes be more efficiently managed by externally-oriented strategies (e.g., non-market activities and reliance on formal IP). We discuss how the co-evolution of MNCs' risk management strategies alongside changing value chains, IP institutions, and conditions determining the leverage of FTT policies appear to contribute to this phenomenon. We argue that IB research should more prominently recognize the role of externally-oriented strategies, not only internally-oriented ones, in managing the complex IP-related institutional challenges present in emerging markets today.     

Managing corporate community responsibility in multinational corporations: Resolving institutional duality

Addressing calls to explore how subsidiaries of MNCs operating in different institutional contexts resolve institutional duality, this paper brings together dual theoretical explanations from legitimacy and neo-institutional theory, to examine how decision-making for corporate community responsibility (CCR) occurs across ten subsidiaries operating in Sri Lanka. Using qualitative data, it shows that while subsidiaries’ implementation of local CCR conform to that of their parents at an aggregate level, those subsidiaries encountering higher levels of institutional conflict in the host-country, are sanctioned by their parent companies to de-couple their local CCR projects. These findings raise interesting questions about the dynamism in subsidiary responses to resolving institutional duality relevant for future scholarly research.     

Developing subsidiary contribution to the MNC—Subsidiary entrepreneurship and strategy creativity

Despite its theoretical and managerial significance, subsidiary entrepreneurship and its effects on subsidiary contribution remain underexplored in the literature. We propose that subsidiary entrepreneurship encourages more creative strategic responses to escalating environmental change. We explore the direct and mediating effects of subsidiary entrepreneurship on subsidiary contribution to the MNC, particularly subsidiary strategy creativity. We use structural equation modelling to test our propositions on data generated from surveying the population of Irish subsidiaries of foreign MNCs, and find strong support for our theoretical predictions. The managerial implications of subsidiary entrepreneurship in generating creative strategy, prompting strategic initiatives and improving performance are discussed.     

Institutions and the Diversity and Prevalence of Multinationals’ Knowledge‐Augmenting Subsidiaries

Multinational corporations (MNCs) increasingly seek to gain access to, and exploit, locationally specific sources of advanced knowledge and technological capabilities, creating a need to explain (1) the diversity among these facilities and (2) how institutions influence MNCs’ abilities to invest in different subsidiary types. Extending debates on firms’ knowledge‐augmenting activities, the authors integrate institutions into their analytical framework to a greater extent than previous work has done. Moreover, existing contributions provide typologies of R&D subsidiaries. In contrast, the authors focus on a particular subset of subsidiaries, knowledge‐augmenting ones, and put forward a theory to explain their variety and their prevalence, enabling them to identify previously neglected subsidiary types that have important managerial and policy implications. By downplaying the diversity of these subsidiaries, existing work has not been able to capture the full range of managerial challenges as well as the costs and benefits of different subsidiary types to host countries. The authors, therefore, problematize firms’ abilities to gain access to foreign knowledge‐generating assets, highlight the importance of institutional environments, provide policy recommendations and identify areas for future research.     

中国企业对外直接投资的决定因素:基于制度视角的经验分析

本文结合中国经济转型时期的制度环境,对传统的国际折衷理论加以拓展,归纳出在中国经济转型的制度环境下,与企业对外直接投资决策密切相关的一系列特殊的制度因素,在此基础上建立一个中国企业对外直接投资决策的理论分析框架.然后以2006-2007年中国企业对外直接投资的微观数据为样本,对中国企业的对外直接投资的决策进行了多因素回归分析.实证结果表明,政府政策扶植、海外关系资源及自身融资能力对企业对外直接投资的动机和能力有重要影响.分类型研究表明,上述三种制度因素对贸易型、生产型、资源型和研发型对外直接投资的影响程度各有不同.     

Unravelling Learning within Multinational Corporations*

This article explores the impact of institutional variation on the extent to which subsidiary firms learn from multinational corporations. Learning is conceptualized here as consisting of two aspects: knowledge flow and reinforcement of or change in routines to incorporate the behaviourist assumptions of learning into the international business field. The research is based on in‐depth case studies that systematically compare the ways in which parent company knowledge diffuses to Polish, Turkish, Italian and German subsidiary firms in the chemical industry. The findings show that even though firms face the same global pressure to integrate and pursue the same international strategy, their learning outcomes are not the same. There is heterogeneous learning as a result of differences in the institutional context of home countries. Where institutional structures are not favourable to learning, the proactive or reactive orientation of actors to identifying future needs and modifying existing schemata – which highlight the importance of human agency – is significant in explaining learning.     

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.     

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.     

Subnational Location Capital: The Role of Subnational Institutional Actors and Socio‐spatial Factors on Firm Location

Firms do not simply locate, but rather seek to accrue location‐based advantages such as knowledge, market insidership and resource utilization. Adopting the lens of social capital, this paper explores how subnational institutional actors facilitate location capital for firms. Using qualitative case study analysis of six multinational companies (MNCs), we highlight the important role of subnational institutional actors in fostering three dimensions of subnational location capital – structural, relational and cognitive. We show that subnational location capital, defined as the economic and social assets accessible through relationships within a subnational location, enable firms to derive advantages via subnational engagement. These findings contribute to the growing literature on the dynamic interaction of firms with subnational location, particularly the nuanced role of subnational institutional actors with MNCs.     

Getting the seal of approval: Pathways to subsidiary initiative acceptance

Multinational corporations (MNCs) are proactive, entrepreneurial, and decentralized organizations. They seek to incorporate and leverage knowledge from their foreign subsidiaries. Initiatives in which subsidiaries pursue new business opportunities are one way that subsidiaries contribute to MNCs' knowledge stocks, but prior research suggests that few subsidiary initiatives secure headquarters approval. We argue that the extent to which initiatives are accepted by the headquarters of an MNC depends on a range of relational and contextual conditions that configure in complex ways. Using a neoconfigurational approach, we identify five equifinal configurations associated with the acceptance of subsidiary initiatives. We advance theory of subsidiary management by uncovering how subsidiary activities gain traction within the MNC.     

Gender diversity management in foreign subsidiaries: A comparative study in Germany and Japan

Gender (in)equality varies strongly across countries. However, research has not sufficiently addressed how subsidiaries of multinational companies respond to differences in gender equality between home and host countries. Based on interviews with 34 managers, our study explores how subsidiaries experience gender-related challenges in their home and host countries, what kinds of practices they implement to increase gender equality, and which role the headquarters play in the implementation of these practices. We do so by examining the cases of German subsidiaries in Japan and Japanese subsidiaries in Germany, two countries that differ greatly in gender equality. Building on our analysis, we systematically compare how subsidiaries respond to the institutional pressures from their home and host countries and develop a theoretical model that illustrates how gender diversity management in a subsidiary is contingent on the interaction of (1) global integration pressure from the headquarters and (2) the level of gender equality in the home country relative to the host country, linked via different types of collaboration and practice transfer from the headquarters. Theoretical and practical implications of our findings are discussed.     

Does Syndication With Local Venture Capitalists Moderate the Effects of Geographical and Institutional Distance?

Venture capitalists (VCs) face additional risks and costs when they invest in firms located in geographically remote countries or in countries whose institutions differ substantially from those in their home countries. Our study considers foreign VCs ' prospect of overcoming these investment obstacles as a rationale for syndicating with local VCs from the investment countries. Through such syndication, foreign VCs may obtain easier access to investment opportunities, improve the risk allocation and face lower information costs. Using a novel dataset of worldwide deals, we draw a diametrically opposed picture for the two kinds of distance: our results lend support to the conjecture that the obstacles of great institutional distance cannot be overcome with the help of a local VC, whereas those of great geographical distance can.     

Green Purchasing by MNC Subsidiaries: The Role of Local Tailoring in the Presence of Institutional Duality

To examine the essential determinants of green purchasing by multinational corporations’ (MNC) subsidiaries, this study takes institutional theory as a foundation and focuses on the institutional duality associated with localization and globalization. Specifically, we develop a model to explain subsidiaries’ green purchasing and empirically test the model with data from 141 purchasing managers and senior purchasing staff members from subsidiaries in 39 countries. Our results suggest that pressures from headquarters and the local environment do not affect subsidiaries’ green purchasing directly; rather, they exert indirect influences through local tailoring. This study contributes to extant literature by revealing the significance of local tailoring in an MNC context. In addition, our findings offer several implications for practice by providing a roadmap for disseminating green purchasing across the subsidiaries of an MNC, as well as highlighting the importance of both clear communication about the benefits of green purchasing and internal audits.     

Institutional and Resource‐based Explanations for Subsidiary Performance

Addressing calls to integrate insights from institutional theory and the resource‐based view, we bring together dual theoretical explanations from institutional theory and the resource‐based view to examine the effectiveness of transfer of practice and human capital development as two routes to subsidiary performance. Our study of Hong Kong firms with subsidiaries in Mainland China shows that both routes positively affect subsidiary performance. However, our data show that our sampled firms struggled to successfully transfer practices from their parents. We attribute an explanation for this to the characteristics of practices as organizational capabilities in which transfer is made harder by the difficulty in replicating such capabilities. Consequently, developing subsidiary human capital is an important ally to practice transfer as a means to achieve superior subsidiary performance. Our results raise interesting questions about practice transfer and the resource‐based view relevant to future scholarly research.