Knowledge that Transforms

What happens when multinational enterprises (MNEs) face competition in their own home market from imports or through foreign direct investment (FDI)? We provide a differentiated assessment of the influence of these two types of foreign competition on the product and geographic scope of MNEs. We apply the awareness–motivation–capability framework to international business (IB), hypothesizing that an increase or decrease in scope depends on the motivation and ability of an incumbent firm to respond to an incursion into its home market, and on the objectives and commitment of the firm that is entering that market. We assessed the scope changes of 407 large US firms between 1987 and 2003, and found that increasing imports led to scope reduction, while increasing FDI had the opposite effect. Our analysis of 95 large German firms for the same period led to similar, but somewhat less consistent, results.

While there is a vast amount of research on firms’ choice of ownership form when entering a foreign market, little attention has been paid to changes in ownership forms of operation abroad after initial entry. Using transaction cost economics and institutional theory we identify a number of factors that may help to explain the likelihood of foreign firms’ converting their joint venture with a local firm into a wholly owned subsidiary. We formulate a number of hypotheses and test them against data collected through a questionnaire survey of managers representing foreign subsidiaries in the People's Republic of China (PRC) that are run either as international joint ventures (IJVs) or as wholly owned foreign subsidiaries (WFOEs) that have recently been converted from IJVs into a WFOE. The paper contributes to research by showing that transaction-cost-based thinking is useful for explaining not only the initial choice of ownership mode when entering a new market, but also the potential subsequent changes of this ownership mode. By combining transaction cost theory with arguments from institutional theory, the study identifies a number of factors that contribute to explaining post-entry changes of foreign firms’ ownership forms in the PRC, and provides empirical evidence of this phenomenon.

Licensing can be considered an initial trial of a foreign market before a firm fully commits to it through other investment modes. The length of trial has great importance, because licensing duration represents part of the licensing agreement. When it is too short, the firm may not acquire the necessary experience and knowledge of the foreign market, but if it is too long, the firm misses optimal expansion timing. Arguing that licensing can be considered as a European-style real option with a fixed holding period, we develop and test a model of the determinants of licensing duration in foreign markets. Empirical results based on a sample of firms in various countries show that uncertainty and threat of competitive pre-emption in the foreign market are related to shorter duration of the technology licensing agreements. We also find that irreversibility of the impending investment moderates the relationships between uncertainty and duration. Specifically, market and technology uncertainties in the foreign market induce shorter contracts under low levels of irreversibility.

Local firms may attract productivity spillovers from foreign investors, yet these vary with local firms' awareness, capability and motivation to react to foreign entry. In consequence, spillovers vary across countries at different levels of economic development. We apply competitive dynamics theory to analyze these contextual moderators of spillovers, and test hypotheses thus derived in a meta-analysis of the empirical literature on spillovers. Our analysis suggests a curvilinear relationship between spillovers and the host country's level of development in terms of income, institutional framework and human capital.

Family businesses (FBs) are said to treat their employees with unusual consideration to form a cohesive internal “community”. They are also claimed to develop deeper, more extensive “connections” or relationships with outside stakeholders. Both behaviors may increase the viability of a business intended to support an owning family and its later generations. Such social linkages, we believe, may compensate for the lack of capital, product and labor institutional infrastructures in dynamic emerging economies. This survey study of a most challenging emerging-market sector, namely Korean high-technology businesses, argues three major points. (1) Relationships of community and connection will be more common in FBs than in non-FBs. (2) These relationships will enhance performance in emerging-market high-technology sectors, which, because of their competitive, complex, and ever-changing nature, rely on significant expert knowledge and social capital within and outside the organizational community. (3) The performance of FBs will benefit more from these community and connection relationships than the performance of non-FBs, because in these personally intimate settings employees and external partners will be especially likely to return the generosity of a visibly active owning family, or to penalize its selfishness. Significant empirical support was found for most of these hypotheses.

This paper investigates the extent to which different human resource management (HRM) practices work better in different countries. We also try to open the black box between HRM and multinational enterprise (MNE) subsidiary performance by considering mechanisms through which HRM practices affect MNE subsidiary performance. The study utilizes a unique data set consisting of subsidiaries of 241 MNEs operating in Russia, USA, and Finland. In the partial least-square analysis used to examine our hypotheses, we demonstrate that different HRM practices are preferable in different countries, and that motivation and ability are important mediating variables in the HRM–MNE subsidiary performance relationship.

We question previous research assuming that privatizing firm performance generally benefits from decreasing state ownership and the passage of time, both of which purportedly align principal–agent incentives promoting organizational decision-making that increases shareholder value. When state ownership shifts from majority and controlling to minority and non-controlling, the performance impact may be positive in the short run, particularly where there is instability in the local investment policy environment. Consistent with this proposition, we develop and test hypotheses derived from a minority and non-controlling or “residual” state ownership framework, grounded in credible privatization and institutional theory. We propose that: (1) residual state ownership positively affects shareholder returns after strategic decisions by privatizing firms because it signals state support for managerial initiatives; (2) the passage of time since initial privatization negatively affects shareholder returns after strategic decisions by privatizing firms because initial undertakings in support of the privatizing firm are reversed; and (3) home-country investment policy stability moderates these two effects – greater stability obviates the need for residual state ownership, and slows policy reversals over time. We find empirical support for our residual state ownership framework in event study analyses of cumulative abnormal returns (“CARs”) associated with 196 major investments announced from 1986 to 2001 by 15 privatizing telecoms from around the world. CARs are positive at 5–25% state ownership levels but turn negative at higher state ownership levels. CARs turn sharply negative within 1–2 years from initial privatization dates. Increasing policy stability diminishes positive ownership and negative time effects on CARs. Results confirm the potential supporting role that residual state ownership can play in enhancing strategic decision-making and financial performance by privatizing firms, particularly where there is instability in the home-country investment policy environment.

This paper proposes a multidimensional index of regional and global orientation that can be used in confirmatory studies with econometric methodologies. Unlike extant measures, the index is objectively scaled, and controls for home country orientation and market size differences. The index is shown to be consistent with models of internationalization that incorporate different assumptions about investment choice and global competition. Preliminary results show that large multinationals follow home region oriented internationalization paths, although much of the regional effect reported by previous studies in fact reflects strong home country biases.

A recent Offshoring Research Network (ORN) global survey of offshoring shows that since 2004 management concerns about operational issues on achieving the benefits of offshoring have increased significantly. In this paper we examine inter-task interdependence, a key operational determinant of inter-site interaction and communications in offshoring. We analyze existing theories of interdependence to examine the extent to which they provide guidance for understanding the interaction and communication requirements between work segments that are offshored and distributed across the globe. Using a series of mini-cases on globally distributed work (GDW), we show how the traditional typology of interdependence developed in the 1960s and 1970s is no longer adequate for understanding and managing task interdependencies in GDW. We propose three concepts to address this problem: integration interdependence, “hand-offs”, and information “stickiness”. We then show how our revised typology of interdependence enables a better understanding of the interactions and communication requirements between sites. Using this revised theory we propose guidelines for work design, and examine their implications for practical offshoring and work-distribution decisions. Implications for theory and practice for MNEs engaged in offshore relationships are discussed.

This paper contributes rare primary empirical evidence to one of the major research questions in the social sciences today, namely, the linkage between national cultures and institutional structures of national business systems. Drawing on the work of Redding, we explore the thinking, or “rationale”, of senior executives of leading German and Japanese firms about the ideal structure of the economy. We find considerable variation in rationale across the two countries and in comparison with the shape of the business system of the United States. Our study has implications for our understanding of the meaning of economic activity in different countries and of the evolutionary trajectories of national business systems.