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).

Job satisfaction in the global MNE: does distance matter?

2019 ◽  
Vol 26 (3) ◽  
pp. 337-362
Author(s):  
Gwyneth Edwards ◽  
Abdulrahman Chikhouni ◽  
Rick Molz
Keyword(s):  
Job Satisfaction ◽  
Organizational Behavior ◽  
Business Strategy ◽  
Negative Impact ◽  
Multinational Enterprise ◽  
Past Research ◽  
Institutional Distance ◽  
High Tech ◽  
Firm Level ◽  
Content Type

Purpose The purpose of this paper is to investigate how the relative institutional distance of the subsidiary from the multinational enterprise (MNE) headquarters influences job satisfaction in the subsidiary. The authors argue that job satisfaction in the MNE subsidiary will be influenced by the institutional distance between the firm’s home (headquarter) and host (subsidiary) countries, such that the greater the institutional distance, the less satisfied the subsidiary employees. The authors also argue that the degree of function interdependence (global vs local roles) will moderate this relationship, such that high interdependence will result in lower job satisfaction as distance increases. Design/methodology/approach Using data from a global high-tech Canadian MNE, consisting of over 15,000 employees located in 19 subsidiaries, the research undertakes an empirical investigation that identifies if and how job satisfaction varies between countries and tests the influence of subsidiary-level institutional distance from the headquarters on subsidiary-level job satisfaction, using a multilevel model. Findings The results demonstrate that subsidiary distance from the headquarters has a complex effect on subsidiary-level job satisfaction; in some distances, no effect is found, while in others, either some or all job satisfaction facets are affected (depending on the distance and facet) in both positive and negative ways. Unlike much of the past research on distance, which has treated distance as a barrier to be overcome or reduce (Stahl et al., 2016), the paper’s finding demonstrate that “negative” distance operates independently (and at varying strengths and significance) than “positive” distance, due to underlying mechanisms. Research limitations/implications There is a real opportunity to push ahead on linking international business strategy research with organizational theory and organizational behavior research. To do so, it requires not only a positive organizational scholarship approach (Stahl et al., 2016) but also methods that will allow researchers to study the influence of distance on mechanisms and processes, as opposed to stand-alone variables. The authors therefore suggest that future work in this area pursue qualitative methods as called for by Chapman et al. (2008). Practical implications Findings are surprising, in that results vary across job facets and distances. Practitioners need to therefore focus on the mechanisms that influence job satisfaction, not just differences and their potential negative impact. Originality/value The firm-level study provides a rich perspective on the complex way in which country-level differences influence subsidiary-level job satisfaction.

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.

Effects of unexpected financial slack on SMEs’ diversification and growth: evidence from China

2018 ◽  
Vol 9 (4) ◽  
pp. 500-518
Author(s):  
Xing Liu ◽  
Zhanming Jin
Keyword(s):  
Growth Performance ◽  
Cognitive Biases ◽  
Curvilinear Relationship ◽  
Geographic Diversification ◽  
Firm Level ◽  
Content Type ◽  
Financial Slack ◽  
Regulatory Policies ◽  
Managerial Behaviors ◽  
Industry Diversification

Purpose The purpose of this study is to investigate the relationship between unexpected financial slack and small- and medium-sized enterprises’ (SMEs) diversification and growth performance. Design/methodology/approach Using the phenomenon of IPO over-financed in China as the empirical context, the authors constructed a firm-level measure of unexpected financial slack based on over-financed capital resources and extended the nascent inquiry on unexpected slack. Findings The authors proposed and tested that, with unexpected slack obtained from IPO over-financed, SMEs did not engage in diversification until slack was extraordinarily high (a curvilinear relationship). And in such cases, SMEs preferred geographic diversification rather than industry diversification. Moreover, SMEs were able to sustain growth performance both in the short term and in the long term. Practical implications This study had important implications for regulators and managers. The findings of this study suggested that proper regulations on usage of over-financed capital helped SMEs’ sustain their growth performance. Regulatory policies could curb managers from cognitive biases to behave more prudently and deploy the resources more consciously. However, with sufficient resources, managers should also consider more explorative growth drivers such as diversification. Originality/value This study joined the efforts of extending the antecedents of slack formation from internal managerial behaviors to external uncertain factors. As the first study to explore the role of unexpected slack at firm level, the results of this study shed more light on the effects of unexpected slack resources.

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.

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.

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.

Strategic responses of MNCs in emerging markets: addressing institutional voids associated with informal institutions

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anne H. Koch
Keyword(s):  
Emerging Markets ◽  
Multinational Corporations ◽  
Business Strategy ◽  
Informal Institutions ◽  
Social Needs ◽  
Institutional Voids ◽  
Strategic Responses ◽  
Critical Perspective ◽  
Content Type ◽  
Social Innovations

Purpose The purpose of this paper is to address the question how multinational corporations (MNCs) can respond to different domains of formal voids associated with informal institutions in emergent markets. Design/methodology/approach The author advances the institution-based view of international business strategy by developing a framework and six propositions. The theoretical distinction of informal institutions as an additional aspect when disrupting formal institutional voids are instrumental in developing a refined understanding of how MNCs can respond to institutional voids. Findings By emphasizing the notion of informal institutions that are associated with formal institutional voids, the author moves away from a unidimensional toward a multidimensional view of substituting formal voids. The presented response variety includes a variety of substitutes. Research limitations/implications Further research can apply qualitative research to further examine where, when and why social innovations can be used efficiently to address institutional weaknesses or absences. The author suggests further research opportunities in the implication section. Social implications Constituting substitutive formal institutions with complementary informal institutions can help strategic managers navigate business activities in emerging markets. Institutional weaknesses can be used as opportunities to create legitimacy and serve social needs. To help facilitate such impacts public policies need to be developed accordingly. Originality/value The paper provides a new and critical perspective on how MNCs can use institutional voids as opportunities. The author’s key contribution is to highlight specific substitutive actions from MNCs to institutional voids when different cultural-cognitive and normative circumstances apply in emerging markets.

Corruption and earnings management in developed and emerging countries

2018 ◽  
Vol 18 (1) ◽  
pp. 35-51 ◽  
Author(s):  
Isabel Costa Lourenço ◽  
Alex Rathke ◽  
Verônica Santana ◽  
Manuel Castelo Branco
Keyword(s):  
Earnings Management ◽  
Positive Association ◽  
Developed Countries ◽  
Emerging Countries ◽  
Foreign Firms ◽  
American Depositary Receipts ◽  
Firm Level ◽  
Content Type ◽  
Developed Economies ◽  
Depositary Receipts

Purpose The purpose of this study is to examine whether firms from countries presenting higher levels of corruption are more likely to have higher levels of earnings management than their counterparts from countries with lower levels of corruption. It also explicitly examines how this relationship compares between emerging and developed economies. Design/methodology/approach Using multiple regression analysis, this study tests the hypothesis of positive association between the countries’ level of corruption and the level of earnings management using a sample of foreign firms with American Depositary Receipts in the US market. Findings Findings indicate that higher corruption perception is related to higher incentives for firms to manipulate earnings in the case of emerging countries. Such results are not identified in developed countries where the level of minority investors’ protection is higher. Findings also indicate that in developed countries earnings management is negatively related to investor protection, which is not the case for emerging countries. Originality value As far as the authors are aware, this study is the first to examine the effects of corruption on earnings management on the basis of accounting firm-level data.

Coronavirus pandemic and economic lockdown; study of strategic initiatives and tactical responses of firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Som Sekhar Bhattacharyya ◽  
Shreyash Thakre
Keyword(s):  
Theoretical Perspective ◽  
Working Capital ◽  
Strategic Responses ◽  
Short Term ◽  
Firm Level ◽  
Content Type ◽  
Strategic Initiatives ◽  
Research Findings ◽  
The Impact

Purpose The coronavirus pandemic (COVID-19) and the associated economic lockdown provided a jolt to businesses around the world and the global economy. Amid the ongoing uncertainty, circumstances varied across business sectors and regions, but the common goal for business organizations was to respond effectively, devising strategies to survive the turmoil and accelerate recovery. The narrative in India was no different from the rest of the world. Due to the novelty of the event, literature regarding its impact on the strategic management of firms was scarce. Thus, this paper aims to attempt to ascertain the crisis impact on firms and subsequently unravel the tactical short-term and long-term strategic responses initiated by Indian firms. Design/methodology/approach The authors carried out an empirical investigation to comprehend the strategic foresight adopted by Indian firms. Following a structured literature review, the authors conducted semi-structured open-ended interviews with 28 business experts who were involved in drafting strategic responses for their respective firms. Subsequently, the authors performed a thematic content analysis of the expert interview responses to document firm-level strategic responses to the COVID-19 crisis and associated economic lockdown. The authors further searched reputed media articles to supplement and triangulate the primary research findings with management perspectives. Findings The authors identified that managers had adopted a dual approach responding to the disruption. Companies simultaneously focused on surviving the crisis in the short-term by reconfiguring existing resources and initiated long-term recovery by mobilizing efforts for a redesigned business model. The research findings indicated that companies had adapted to the dynamic chaotic crisis environment to fulfill the changed consumer expectations. Remote working was widely implemented, supply networks were adjusted, operations were managed with minimal resources, working capital was closely monitored and the product-portfolio was revamped to reap benefits in an essentials-only world. The impact of several strategic firm responses was determined through this study on the revenue, profitability, operational costs and regulatory adherence of the companies along with the ability to meet stakeholder expectations. The study suggested that companies encouraged innovative solutions and highlighted the importance of collaborative inter-organizational practices. Research limitations/implications The study contributed to an inter-theoretical perspective on firm strategic initiatives to confront a global crisis. Resource-based view, dynamic capabilities perspective and industrial-organizational theory-based perspectives, were applied. This facilitated an extensive analysis of the entire business ecosystem to identify various paths to accelerated recovery during and post COVID-19 world. Practical implications The research findings would aid managers in drafting a comprehensive response strategy during and post COVID-19 world. This study results would help managers in addressing multiple concerns such as the sustainability of operations in the short-term through working capital management, the fulfillment of changing consumer needs through sustained innovation and business model alterations to ensure long term growth. The study enabled managers to prioritize necessary actions, ascertain the impact of strategic initiatives and build sustainable competitive advantage for long-term growth. Originality/value The novel coronavirus pandemic and the associated economic lockdown impacted firm strategies and this was one of the very first empirical studies regarding how firm-level short-term tactics and long-term strategies were getting reshaped. Traditionally, companies were prepared to handle localized disruptions but a crisis of such epic global proportions jeopardized most business. This study provided an extensive review of the short-term tactical and long-term strategic response perspectives adopted by Indian firms to absorb the impact of this unique crisis and expected recovery with renewed strength. This was one of the first research articles to provide an inter-theoretical perspective on the ongoing global pandemic. This integrated view of the possible impacts of firm-level strategic initiatives provided a detailed knowledge repository to design the crisis response capability of firms.

Sign in / Sign up

Export Citation Format

Share Document