Institutional distances, resources and entry strategies

2017 ◽  
Vol 12 (1) ◽  
pp. 58-78 ◽  
Author(s):  
Wiboon Kittilaksanawong
Keyword(s):  
Host Country ◽  
Foreign Firms ◽  
Financial Resources ◽  
Organizational Slack ◽  
Foreign Direct Investments ◽  
Firm Resources ◽  
Firm Level ◽  
Content Type ◽  
Entry Strategies ◽  
Marketing Resources

Purpose The purpose of this paper is to examine the effect of institutional distances (IDs) on the choices of host country and the entry strategies, taking into account various firm resources. Design/methodology/approach Institutions are quantified in terms of regulatory, normative, and cognitive aspects. Firm resources include technological and marketing resources, organizational slack, and internally generated and externally raised financial resources. The research context is foreign direct investments of Taiwanese listed firms in the electronics and computer industry from the year 2000 to 2007, which include 732 companies investing in 3,691 projects in 41 countries. Findings The tacitness of technological resources inhibits their transfer to distant countries. Marketing resources are more transferable to distant countries in terms of explicit regulative institutions. Organizational slack may weaken motives of firms in entering distant countries. Internally generated financial resources encourage risky investments in distant countries in terms of regulative institutions. Externally raised financial resources, due to their providers, restrict firms to finance risky projects in distant countries. High-control entry strategies are preferred to minimize appropriation risks regardless of funding sources. Involving local partners through a shared ownership provides institutional knowledge for foreign firms to mobilize local legitimacy in host countries. Firm resources directly and indirectly determine entry strategies through perceived IDs. Originality/value This study bridges the effect of firm-level resources and country-level institutions on the choices of host country and the entry strategies. It is among the first to quantify institutions in terms of their regulatory, normative, and cognitive aspects.

A social-psychological perspective of host country societal acceptance of foreign firms

2017 ◽  
Vol 13 (4) ◽  
pp. 297-318 ◽  
Author(s):  
Yang Yu ◽  
Valerie J. Lindsay
Keyword(s):  
Host Country ◽  
Social Acceptance ◽  
Psychological Theory ◽  
Well Being ◽  
Foreign Firms ◽  
Future Research ◽  
Social Acceptability ◽  
Social Psychological ◽  
Firm Level ◽  
Content Type

Purpose The purpose of the study is to explain why some foreign firms are accepted in a host country, while others are not. Design/methodology/approach The paper is conceptual. It first articulates the meaning of firm acceptability in the eyes of host country societies, which remains ambiguous in the current literature. Second, using a social psychological theory, the paper explores the firm-level attributes that can shape the societal judgment of firms’ acceptability. Findings The paper suggests that foreign firms’ acceptability pertains to the perception to which they can contribute to the host country’s economic development and societal well-being. The judgment of this is carried out by emphasizing three types of organizational cues, which indicate firms’ capacity to contribute. Research limitations/implications This conceptual paper contributes to the understanding of firms’ social acceptance in a host country by explicating the meaning of social acceptability and exploring the evaluation mechanism local actors adopt to judge foreign firms. The paper would benefit from empirical investigation by future research. Originality/value The meaning of social acceptability of foreign firms remains largely implicit in the literature; likewise, the evaluative mechanism of the firms’ acceptability is little researched. The paper addresses these two issues by undertaking a critical theory stance. It builds on a social psychology theory, multinational corporation (MNC) literature and economic nationalism, thus demonstrating a multidisciplinary approach.

Market distance and insider-ownership strategies: a resource-dependence perspective

2019 ◽  
Vol 57 (11) ◽  
pp. 2958-2977
Author(s):  
Wen-Ting Lin
Keyword(s):  
Corporate Governance ◽  
Host Country ◽  
Resource Dependence ◽  
International Market ◽  
Resource Dependence Theory ◽  
Business Group ◽  
Foreign Direct Investments ◽  
Content Type ◽  
Market Distance ◽  
Managerial Level

Purpose Ownership issues are an important feature of corporate governance when firms focus on global expansion in multiple and diverse regions. Drawing on resource dependence theory (RDT), the purpose of this paper is to address the phenomenon regarding the extent to which international market distance affects equity stakes in group-affiliated firms held by business group headquarters. Design/methodology/approach This study uses longitudinal data on foreign direct investments by 106 business groups (BGs), including 561 group-affiliated firms, from Taiwan over a five-year period from 2006 to 2010. Findings The results show that the equity stakes of the BG headquarters in the group-affiliated firms in foreign markets were positively associated with the geographic distance between the country of the BG headquarters and the host country of the foreign group-affiliated firms, the cultural distance between the country of the BG headquarters and the host country of the foreign group-affiliated firms and institutional distance between the country of the BG headquarters and the host country of the foreign group-affiliated firms. Research limitations/implications Most studies of corporate governance and international business are based on a transaction cost economics approach, a resource-based perspective and agency and institutional theories. In contrast, this study, by using RDT, provides an alternative explanation regarding the factors that affect the equity stakes of parent firms in group-affiliated firms. Practical implications This study presents two basic pieces of advice for consideration. First, at the managerial level, group-affiliated firms should develop their own resources and capabilities in order to become more autonomous in pursuing advantageous international activities that the parent firms may not foresee. Second, and again at the managerial level, business group headquarters should adopt a strategy to balance the dependency relationship between group-affiliated firms and business group headquarters. Originality/value This study provides the most finely grained analysis, to date, regarding how international market distance affects business group headquarters from newly industrialized economies in terms of diverse equity stakes in foreign affiliates, the unique attributes of BGs and international market distances’ relationship with both the operations and the expansion opportunities of BGs.

Corporate strategic responses to foreign entry: insights from prospect theory

2014 ◽  
Vol 22 (3) ◽  
pp. 294-323 ◽  
Author(s):  
Thomas Hutzschenreuter ◽  
Ingo Kleindienst ◽  
Florian Groene ◽  
Alain Verbeke
Keyword(s):  
Prospect Theory ◽  
Business Strategy ◽  
Foreign Firms ◽  
Geographic Diversification ◽  
Import Penetration ◽  
Strategic Responses ◽  
Firm Level ◽  
Corporate Response ◽  
Content Type ◽  
Foreign Entry

Purpose – The purpose of this paper is to address how firms adapt their product and geographic diversification as a response to foreign rivals penetrating their domestic market by adopting a behavioral perspective to understand firm-level strategic responses to foreign entry. Design/methodology/approach – The study proposes that strategic responses to foreign entry selected by domestic incumbents have both a framing component and a related, strategic choice component, with the latter including changes in product and geographic market diversification (though other more business strategy-related responses are also possible, e.g. in product pricing and marketing). This study tests a set of hypotheses building on panel data of large US firms. Findings – The study finds, in accordance with our predictions, that domestic incumbents reduce their product and geographic diversification when facing an increase in import penetration. However, when increased market penetration by foreign firms takes the form of FDI rather than imports, the corporate response appears to be an increase in product and geographic diversification, again in line with our predictions. Originality/value – The study develops a new conceptual framework that is grounded in prospect theory, but builds on recent insights from mainstream international strategic management studies (Bowen and Wiersema, 2005; Wiersema and Bowen, 2008).

Organizational slack, experience, and acquisition behavior across varying economic environments

2014 ◽  
Vol 52 (5) ◽  
pp. 967-982 ◽  
Author(s):  
Todd Alessandri ◽  
Daniele Cerrato ◽  
Donatella Depperu
Keyword(s):  
Design Methodology ◽  
Behavioral Theory ◽  
Economic Conditions ◽  
Financial Resources ◽  
Organizational Slack ◽  
Economic Downturn ◽  
Content Type ◽  
Cross Border ◽  
Threat Rigidity ◽  
Using Data

Purpose – The purpose of this paper is to examine the effects of the organizational slack and acquisition experience on acquisition behavior across varying environmental conditions. Drawing from behavioral theory and the threat-rigidity hypothesis, the paper explores firm acquisition behavior, in terms of type of acquisitions, before and during the recent economic downturn. Design/methodology/approach – Using data on 385 acquisitions in Italy in the period 2007-2010, the paper tests hypotheses on how organizational slack and acquisition experience influence the likelihood of cross-border and diversifying acquisitions relative to domestic, non-diversifying acquisitions prior to and during the economic downturn. Findings – Results suggest that the availability of financial resources and acquisition experience both have an important influence on acquisition behavior. Firms with greater slack and acquisition experience were more likely to make diversifying and/or cross-border acquisitions, compared to domestic non-diversifying acquisitions, particularly during an economic downturn, than firms with lower levels of slack and acquisition experience. Originality/value – The paper extends behavioral theory and threat-rigidity hypothesis, highlighting their applicability to acquisition behavior across varying economic conditions. Slack resources and acquisition experience appear to be particularly salient during challenging economic times.

Does FDI crowd out domestic firms? Micro-level evidence from the Republic of Korea

2018 ◽  
Vol 22 (4) ◽  
pp. 405-416
Author(s):  
Hyelin Choi
Keyword(s):  
Foreign Investment ◽  
Small Firms ◽  
Advanced Technology ◽  
Foreign Firms ◽  
Crowding Out ◽  
Firm Level ◽  
Content Type ◽  
Domestic Firms ◽  
Crowd Out ◽  
The Impact

PurposeThe purpose of this paper is to investigate the impact of the foreign investment on the exit and sales of the domestic firms. Furthermore, it studies whether domestic firms undergo different influences by foreign firms according to the size of domestic firms.Design/methodology/approachKorean firm-level data for the period of 2006 through 2013 provided by Statistics Korea are used to study the impact of the foreign investment on the exit and sales of the domestic firms.FindingsThe result shows that foreign firms crowd out small firms from the market and take their shares in the domestic market. On the other hand, larger firms rather enjoy positive spillover effect from foreign firms, reducing its exit probability and increasing sales. It may be that large firms have enough competitiveness and ability to learn and apply the advanced technology of the foreign firms.Practical implicationsDespite the strong belief on the positive impacts of the foreign firms such as knowledge spillovers or job creation, there might be crowding-out or market-stealing effect from the presence of foreign firms. If the latter effect is larger than positive effect, the incentives provided by host country government to the multinational firms cannot be justified. In this regard, the question addressed in this paper is very important.Originality/valueWhile most of previous papers have focused on the impacts of the foreign firms on productivity of the domestic firms, this paper deals with their impacts on the exit and sales of the domestic firms in order to examine more direct crowding-out and market-stealing effect of foreign firms.

The emergence of China, Inc.: behind and beyond the trade war

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shaomin Li ◽  
Matthew Farrell
Keyword(s):  
Party Leader ◽  
Foreign Firms ◽  
Chinese Firms ◽  
Firm Level ◽  
Content Type ◽  
Business Units ◽  
Country Level ◽  
Government Documents ◽  
Trade War ◽  
New Perspective

PurposeAnswering the call to study important issues in the real world (Buckley et al., 2017; Delios, 2017; Phan, 2019), and motivated by the trade war between the US and China, the authors look beyond it to examine the more fundamental issues behind it. From a political economy perspective, the authors examine the interplay of government, society and firms in China to identify new phenomena that may impact business with, and research on, China.Design/methodology/approachA multi-case qualitative method is used to present and analyze evidence and develop our arguments. Specifically, we use scholarly sources, anecdotal evidence, reports, statistics and government documents and policies to support our arguments.FindingsAfter four decades of economic reform, the Chinese Communist Party (CCP) controls every aspect of the society. Living, working and doing business are not a right but a privilege granted by the party. To a great degree, state-owned firms are business units/subsidiaries, and private/foreign firms are franchisees of the party, with the party leader being the CEO of China, Inc. The interplay between China and other countries is essentially a competition between a huge corporation and other states.Practical implicationsAt the firm level, our study suggests that for MNCs dealing with Chinese firms, they need to know that Chinese firms are units of China, Inc. Practitioners should take into account the long-term strategic goals of the CCP as well as business considerations when dealing with Chinese partners or competitors.Social implicationsAt the country level, our study shows that other countries dealing with China must be aware that they are dealing with a huge corporation.Originality/valueThat the CCP runs China as a corporation is a new perspective that will help the international community reexamine global competition.

FDI and incumbent R&D behavior: evidence from Indian manufacturing sector

2017 ◽  
Vol 44 (3) ◽  
pp. 380-399 ◽  
Author(s):  
Qayoom Khachoo ◽  
Ruchi Sharma
Keyword(s):  
Manufacturing Sector ◽  
Empirical Studies ◽  
Foreign Firms ◽  
Firm Level ◽  
Data Set ◽  
Content Type ◽  
Domestic Firms ◽  
Indian Manufacturing Sector ◽  
The Impact ◽  
Two Step Estimation

Purpose The study is an attempt to analyze the impact of foreign direct investment (FDI) on research and development (R&D) behavior of incumbent firms’, both domestic and foreign, operating in Indian manufacturing sector. FDI inflows into the host country escalates the level of competition compelling domestic as well as existing foreign firms to adjust their spending on R&D. The purpose of this paper is to propose that response of domestic and existing foreign firms to the FDI entry vary, with domestic firms increasing their spending on R&D whereas foreign firms reducing it. Design/methodology/approach Using a rich firm level data set from Indian manufacturing for the period 2000-2012, the study utilizes Heckman’s two- step estimation strategy to estimate the impact of FDI entry on R&D behavior of incumbents. Findings FDI entry significantly increases the tendency of domestic and foreign firms to invest in R&D; however, the impact on R&D intensity for both domestic and foreign firms appears to be minimal. Originality/value The study contributes to the existing literature on two fronts. One, unlike other studies, it examines the impact of FDI entry not only on R&D behavior of domestic firms but also on the R&D behavior of existing foreign firms. Second, it addresses the problem of selection bias that has been largely ignored by majority of empirical studies on R&D.

scholarly journals On MNC-Host Government Relations: How Finnish Firms Respond to National and Regional Policies in ASEAN

2017 ◽  
Vol 34 (2) ◽  
pp. 54-76 ◽  
Author(s):  
Erja Kettunen
Keyword(s):  
Host Country ◽  
Financial Crises ◽  
International Political Economy ◽  
Trade Agreement ◽  
Southeast Asian ◽  
Foreign Firms ◽  
Foreign Direct Investments ◽  
Regional Production ◽  
Host Government ◽  
The Impact

Combining literature from international political economy, international business, and institutional approaches to business studies, this article discusses foreign firms' relationship with the public sector in Southeast Asia. It focuses on the perceptions of the firms on host country policies toward foreign direct investments (FDI) and the impact of global financial crises and regional economic integration on the firms' strategies. The multinational company (MNC)-host government relationship is seen as a cooperative and continual bargaining within a specific institutional framework. Based on interviews with managers of subsidiaries originating from Finland, it is found that the regulatory environment of Association of Southeast Asian Nations (ASEAN) countries varies from easy to difficult with regard to policies, bureaucracy and protectionism. These pose institutional constraints for the firms, with additional economic constraints caused by global financial crises. Contrary to expectations, the ASEAN free trade agreement does not figure in the firms' investment strategies. This is explained by three findings: most of the firms serve the domestic host country market; the firms operate global rather than ASEAN-wide regional production chains; the firms represent industries that are not typical in Southeast Asian regional production networks.

How do foreign direct investors group by their investments in Turkey and Germany?

2016 ◽  
Vol 11 (3) ◽  
pp. 288-315 ◽  
Author(s):  
Nurhan Aydin ◽  
Gulsah Kulali
Keyword(s):  
Cultural Values ◽  
Financial Risk ◽  
Field Research ◽  
Data Availability ◽  
Foreign Direct Investments ◽  
Firm Level ◽  
Developed Country ◽  
Content Type ◽  
Main Cluster ◽  
Source Countries

Purpose – The purpose of this paper is to classify the source countries of inward foreign direct investments (FDIs) to Turkey and to Germany as individual samples of developing and developed economies, to produce practical information to target company managers and owners that they can use for having much more investments or getting more bargaining power with the existing or potential investors. Design/methodology/approach – Cluster analysis methodology with Ward’s (1963) technique is used to create significant groups out of FDI source countries. Findings – The results show that foreign direct investors – labeled by their country of origin – investing in Turkey are grouped into two main clusters. First main cluster of Turkey has three sub-clusters. Investors investing in Germany are also grouped into two main clusters. First main cluster of Germany has two sub-clusters. Of all seven clustering criteria, four of them were prominent in grouping, which are: having a high equity ownership in the investment, investing in companies with high market capitalization, investing in companies with high/low financial risk and high/low financial performance, and investing in young companies. Furthermore, investors from same origin behave differently in Turkey and Germany. They adjust their attitude toward risk when the host country changes. Lastly, source countries in the sample that have a minimum distance in between, are the ones sharing similar cultural values. Research limitations/implications – The limitations of the study are the small number of observation with complete and standard company data needed, especially in Turkey, and the compelled shortness of time period for the empirical analysis. Some suggestions were offered for future researches to contribute to the topic by using bigger samples; by making variations in country, time, or industry; by relating country factors to social/entrepreneurial factors; and by supporting the research with qualitative techniques. Originality/value – This paper constitutes a contribution to the empirical field research in Turkey, an emerging country with very limited firm-level financial and ownership data, compared to Germany, a developed country with relatively more data availability.

Ways to win: strategic choices, institutions and performance in sub-Saharan Africa

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Young Hoon An ◽  
Soonkyoo Choe ◽  
Jihoon Kang
Keyword(s):  
Firm Performance ◽  
Host Country ◽  
Institutional Development ◽  
Sub Saharan Africa ◽  
Foreign Firms ◽  
Strategic Choices ◽  
African Countries ◽  
Corporate Political Activity ◽  
Content Type ◽  
And Performance

Purpose The purpose of this study is to analyse the effects of market-based and nonmarket-based strategies on firm performance in African countries. This study also investigates host country institutions' effect on the relationship between firm strategies and performance in these countries. Design/methodology/approach Data of 1,276 firms in five African countries were obtained from two different sources: The World Bank Enterprise Database and The Global Competitiveness Report. Two-stage least squares regression was applied. Findings Both market-based strategies and corporate political activity (CPA)improve firm performance in the African countries included in the analysis. Institutional development also has a direct positive impact on firm performance. However, the effect of CPA weakens as the host country shifts towards more efficient, market-oriented institutions. Furthermore, the results show that local African firms benefit more from institutional development than foreign firms. Originality/value The paper confirms and extends our understanding of the dynamic fit between institutions and strategy by highlighting the moderating role of institutional development on CPA and market-based strategies in enhancing firm performance.

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