Knowledge that Transforms

This paper examines the regional effect of MNEs' foreign subsidiary localization. We hypothesize that the number of subsequent foreign subsidiaries in a country is in part determined by a firm's prior foreign subsidiary activity at the regional level. We test our hypotheses using data on 1076 Japanese MNEs that created 3466 foreign subsidiaries (1837 wholly owned FDIs and 1629 joint ventures) over the period 1996–2001. We use a multilevel negative binomial approach with three levels of analysis: localization decisions in a country (49 countries), in a region (six regions) and at the headquarters level. In this way, we test the regional effects controlling for country and corporate dimensions. We also run separate models to differentiate wholly owned and joint venture localization decisions. Our results strongly support the semi-globalization perspective in that the regional-level effects are significant and different from the country-level effects for all foreign subsidiaries, for wholly owned subsidiaries and for jointly owned subsidiaries. Japanese MNEs adopt a regional perspective that complements their decisions at the country and firm levels. They seek regional agglomeration benefits and make arbitrage decisions between countries in the same region.

This paper reviews the progress of the research agenda initiated by The Future of the Multinational Enterprise (1976). Focusing initially on the problem of explaining the existence of the multinational enterprise, the agenda soon broadened to encompass the analysis of alternative modes of foreign market entry, the role of international joint ventures, the impact of innovation on corporate growth, and the role of culture in international business. The core philosophy – based on the Coasian nature of the firm and on rational action modelling – has remained constant, while the widening range of applications has encouraged synthesis with theories developed in other fields of research. Success in answering any one question invariably generates new questions, which must in turn be answered through a further extension of the theory, and this dynamic continues to drive the development of the theory today. Internalisation theory has retained its validity and its vitality over the past 30 years, and is currently being extended into new fields of international business research.

The primary objective of this study is to examine the value implications of cross-border acquisitions of emerging-market multinationals (EMMs). We examine 433 mergers and acquisitions announcements associated with 58 EMMs during the sample period 1991–2004. The mergers and acquisitions announcements data come from the Thomson SDC Platinum database. We employ event study methodology to explore the impact of the announcements on the value of acquiring firms. The results show that, on average, cross-border expansions of EMMs through acquisitions do not create value, but point to value destruction for more than half of the transactions analyzed. To explore the factors influencing the direction and magnitude of market reaction, we analyze a cross-sectional sample of firms. While we find that target size, ownership structure of the target (private vs public), and structure of the bidder (diversified vs non-diversified) positively affect the bidder value, high-tech nature of the bidder and pursuit of targets in related industries negatively affect the bidder value. Our empirical findings provide some support for the positive impact of the stake pursued in the target firm and cultural distance, but not for the international experience and enhanced corporate governance.

The paper presents a simple general equilibrium model that formalizes internationalization in the eclectic paradigm based on a reconfiguration of concepts taken from the new classical economics literature. The model enables us to address simultaneously the role of ownership, location and internalization advantages, and their interaction, in the emergence of the multinational enterprise (MNE) through a set of mathematical inequalities. Our model offers a bridge between the detached perceptions of the MNE often held by international trade economists and international business scholars, and makes specific aspects of the eclectic paradigm empirically testable.

This research investigates hypotheses about differences between Chinese and American managers in the configuration of trusting relationships within their professional networks. Consistent with hypotheses about Chinese familial collectivism, an egocentric network survey found that affect- and cognition-based trust were more intertwined for Chinese than for American managers. In addition, the effect of economic exchange on affect-based trust was more positive for Chinese than for Americans, whereas the effect of friendship was more positive for Americans than for Chinese. Finally, the extent to which a given relationship was highly embedded in ties to third parties increased cognition-based trust for Chinese but not for Americans. Implications for cultural research and international business practices are discussed.

This note provides an explanation for the presumably counterintuitive, negative correlations between values and practices reported by the Global Leadership and Organizational Behavior Effectiveness project. We argue that such results are compatible with basic microeconomic insights concerning diminishing marginal utility. This explanation implies that values surveys, as they are, generally elicit marginal preferences rather than underlying values. Therefore they are a problematic instrument for the measurement of cultures, and need to be improved so as to discriminate between the importance attached to an objective in general and that attached to it given current levels of satiation.

Despite the prominence of the competitive strategy perspective, it remains unclear whether foreign firms entering China can still adopt a differentiation or low-cost position to achieve superior performance, given the unique market and institutional environments in China. Alternatively, should foreign firms follow conventional wisdom and actively build managerial ties with government officials and business community to enhance their performance? This study develops and tests an interactive perspective that highlights the moderating effects of managerial ties on competitive position–performance relationships. The results indicate that though both differentiation and low-cost positions foster foreign firm profitability, the benefit of a differentiation position is conditional on political and business ties in different directions: political ties impede and business ties strengthen the positive effect of a differentiation position on foreign firms' profitability. Moreover, foreign firms benefit from their use of business ties, but their profitability suffers when they rely increasingly on the heavy use of political ties.

The globalization of brands is an evolutionary process that is determined by environmental and firm-level factors, including a brand's position in the firm's global brand architecture. A framework is developed incorporating aspects of environmental uncertainty, mimetic behavior, and experiential learning as they relate to the globalization of brands. Global brand architecture is introduced as an important strategic consideration of a brand's position and stage of internationalization. The hypotheses are tested within the context of the global automotive industry, employing an event history analysis with time-varying covariates. The results reveal complex effects with respect to the role of market attractiveness, experiential learning, and mimetic behavior in globalization patterns. Overall, this study suggests that firms can accelerate the process of creating global brands if they enter the three major continents in the early stages of international expansion.

Because of the strategic importance of organizational learning in a global economy, the knowledge that repatriates acquire during international assignments is a valuable resource. Few multinational enterprises, however, actively harvest this knowledge, and little quantitative empirical research on this topic exists to date. We propose an original model and propositions that delineate the facilitative and inhibiting factors affecting repatriate knowledge transfer to work units. We conclude with suggestions for future research and practical implications.