Reducing the risks of going global

2016 ◽  
Vol 32 (8) ◽  
pp. 1-3
Keyword(s):  
Foreign Market ◽  
Institutional Distance ◽  
Formal Institutions ◽  
Host Countries ◽  
Content Type

Findings When firms consider entering a new foreign market, they also consider the institutional distance between the home and host countries. The differences in culture and in formal institutions compose the institutional distance and affect whether and how firms enter these markets. Greater institutional distance contributes to the liabilities of foreignness the challenges of which must be managed effectively to succeed in the new market.

Impact of host country institutional context on subsidiary performance

2015 ◽  
Vol 53 (1) ◽  
pp. 198-220 ◽  
Author(s):  
Chinmay Pattnaik ◽  
SoonKyoo Choe ◽  
Deeksha Singh
Keyword(s):  
Labor Market ◽  
Host Country ◽  
Institutional Quality ◽  
New Institutional Economics ◽  
Institutional Distance ◽  
Host Countries ◽  
Subsidiary Performance ◽  
Content Type ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of quality of market supporting institutions (institutional quality) in host country and the similarities and differences of institutional quality between the home and host country (institutional distance) on subsidiary performance. Design/methodology/approach – Based on the conceptualization of new institutional economics, the authors divide quality of host country institutions into factor markets; product, capital, labor market and sociopolitical dimensions. The authors examine the impact of the quality these institutional dimensions in host countries and their difference between home and host country on the performance of 318 subsidiaries of 146 Korean listed manufacturing firms operating in 28 host countries from 2001 to 2006. Findings – The empirical results based on 1,129 observations show that institutional distance explains a significant variance in the subsidiary performance. In particular, the difference in quality of institutions in product, capital and labor market has negative impact on subsidiary performance. However, except for quality of regulation in labor market, host country institutional qualities do not significantly explain the variation in subsidiary performance. Originality/value – The evidence suggests that host country institutions matter substantially when considered with their relative similarity and difference with home country institutions. The impact of individual dimensions of institutions varies on subsidiary performance.

The moderating role of subsidiary size on the association between institutional distance and subsidiary’s access to complementary local assets: evidence from Vietnam

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Dut Van Vo ◽  
Yusaf H. Akbar ◽  
Loc Dong Truong
Keyword(s):  
Institutional Theory ◽  
Transition Economies ◽  
Transition Economy ◽  
Institutional Distance ◽  
Moderating Effects ◽  
Host Countries ◽  
Resource Based View ◽  
Content Type ◽  
Moderating Role

Purpose This study aims to investigate the moderating effects of subsidiary size on the association between institutional distance and subsidiary’s access to complementary local assets (ACLA) in a transition economy. Design/methodology/approach The data of 1,027 subsidiaries located in Vietnam were extracted from the survey of General Statistics Office of Vietnam. Hausman’s test shows that random effect model is appropriate to estimate the moderating effects of subsidiary size on the association between the institutional distance and subsidiary’s ACLA. Findings The findings revealed that the greater formal and informal institutional distances between home and host countries, the lower a subsidiary’s ACLA in a transition economy. In addition, larger subsidiaries’ ACLA in a more formal and informal institutional distant country are higher than smaller subsidiaries. Research limitations/implications Multinational enterprise (MNEs) have a continuous need to use their foreign subsidiaries operating in host countries, particularly those with transition economies, to overcome institutional differences to ACLA in a transition economy. In addition, subsidiaries should be invested with greater resources to collaborate with local partners to serve for accessing to complementary local assets in transition economy characterized by an uncertainty institutional environment. Originality/value By integrating the institutional theory and the resource-based view, the study developed a theoretical model about the moderating role of subsidiary size on the association between institutional distance and subsidiary’s ACLA in transition economy. The findings confirmed that simultaneously applying the institutional theory and the resource-based view to investigate location-specific advantages exploitation of subsidiaries is relevant not only in developed economies but also in a transition economies.

Revisiting foreign market entry motivations: the case of Korean commercial banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Young Hoon Jung ◽  
Zhu Zhu ◽  
Huy Will Nguyen
Keyword(s):  
Host Country ◽  
Commercial Banks ◽  
Market Entry ◽  
Foreign Market ◽  
Institutional Distance ◽  
Foreign Market Entry ◽  
Sociocultural Factors ◽  
Power Imbalance ◽  
Content Type ◽  
Profit Potential

PurposeThis study examines what motivates firms to go and remain abroad despite uncertain profit potential. In a departure from probing traditional market-seeking, profit-driven motives, the authors explore how domestically driven, sociocultural motivations may shape the foreign market entry decisions of Korean commercial banks (KCBs). The authors argue that, due to the power imbalance between KCBs and their chaebol clients within the historical and cultural contexts of their relationships, KCBs' foreign market entries may depend more on their clients' presence in these markets than on their profit potential.Design/methodology/approachThe authors focus on the foreign market entries of KCBs and their client firms. Using the data of 8 KCBs and their client firms belonging to the 60 business groups (chaebols) of Korea, the authors analyze 6,577 observations involving the dyadic relationship between a KCB and its client firm in 15 host countries from 2005 to 2014.FindingsThe authors find that the number of clients' subsidiaries operating in foreign markets may increase the likelihood of KCBs entering these markets. Moreover, when KCBs earn more domestic profit from client firms, the potential Korean market in the host country is greater, and the institutional distance between the host country and Korea is smaller.Practical implicationsIn addition to the critical role of a bank-centered financing system in advancing a developing country and its firms, the authors’ findings suggest that firms should pay attention to the local diaspora and the institutional distance between the host and home countries in order to manage power-imbalanced relationships and make them sustainable.Originality/valueThe study contributes to the literature on foreign market entry by demonstrating how the home country's sociocultural factors may worsen the power imbalance, thereby pushing firms to make seemingly irrational decisions to go and stay abroad. That is, KCBs' foreign operations may be a way of seeking relational benefits with client firms, which would serve as a source of long-term domestic market profits. The authors’ findings thus highlight the need to consider how sociocultural factors may also shape firms' decision-making in their international business.

International Strategy and Institutional Environments

2016 ◽  
Vol 23 (2) ◽  
Author(s):  
Michael A. Hitt
Keyword(s):  
Multinational Enterprises ◽  
Design Methodology ◽  
Foreign Market ◽  
Institutional Distance ◽  
International Strategy ◽  
Institutional Environments ◽  
Strategic Decisions ◽  
Formal Institutions ◽  
Institutional Complexity ◽  
International Strategies

Purpose Country institutions have become of heightened importance for firms’ international strategies in recent years. Herein, I review the reasons for the growing importance of institutional environments and examine how they influence the international strategies of multinational enterprises (MNEs). There have been significant changes in the global, economic and competitive landscapes in recent years. These changes are examined. Design/methodology/approach Three critical and interrelated changes in the global competitive landscape are identified. They include (1) more interconnected (interdependent) national economies, (2) a significantly larger number of multinational firms and (3) growing importance of emerging economies (and their MNEs). These changes have increased the importance of countries institutional environments. Country institutions, both formal institutions (codified and explicit rules and standards that shape behavior) and informal institutions (Shared norms that guide cohesive behaviors) are examined. I explain the influences of institutional complexity, institutional distance and geographic regions on firms’ international strategies. Findings Research has shown that both culture (informal institution) and formal institutions are interrelated and affect firms’ strategies. And, while specific institutions such as intellectual property protection (law and enforcement) are important, the collective influence of institutions has a critical influence on firms’ international strategies. And, institutions are multilevel (national, regional and local-municipal). The institutional complexity (combined effects of multiple institutions and their diversity) is carefully considered in executives’ strategic decisions. When firms consider entering a new foreign market, they also consider the institutional distance between the home and host countries. The differences in culture and in formal institutions compose the institutional distance and affect whether and how firms enter these markets. Greater institutional distance contributes to the liabilities of foreignness the challenges of which must be managed effectively to succeed in the new market. And the effects of institutional distance are asymmetric depending on whether the firm’s home country institutions are stronger/more developed or weaker/less developed than the host country institutions. Finally, many firms follow regional international strategies in which they invest in selected regions of the world. Recent research suggests firms enter regions that have attractive institutional profiles and engage in institutional arbitrage across the countries in those regions. Research limitations/implications This essay provides the base for additional research by identifying a number of important research questions on institutions and international strategy. Originality/value This essay highlights the importance of institutions for firms’ strategies. Understanding institutions and their influence contributes to more effective executives’ strategic decisions and more effective national and international policies.

Institutional distance and entry mode choice by Brazilian firms

2014 ◽  
Vol 12 (2) ◽  
pp. 152-175 ◽  
Author(s):  
Gabriel Vouga Chueke ◽  
Felipe Mendes Borini
Keyword(s):  
Cultural Distance ◽  
Mode Choice ◽  
Entry Mode ◽  
Institutional Distance ◽  
Formal Institutions ◽  
Entry Modes ◽  
Firm Level ◽  
Content Type ◽  
Informal Institution ◽  
Establishment Mode

Purpose – The purpose of this paper is to examine the influence of institutional distance, firm and industry characteristics on the establishment mode strategy of Brazilian multinationals – the choice between an acquisition and a greenfield investment. Design/methodology/approach – The authors build upon the recently developed of Institutional Theory an analytical framework, decomposing the institutional distance between formal institutions (economic, financial, political, administrative, demographic, geographic and knowledge distance) and informal institution (cultural distance), and we used control variables related to firm and industry levels. Findings – The results suggest a possible association between entry by acquisition and factors related to the firm-level and formal institution (financial, political and demographic distance). Findings also suggest a strong relationship between greenfield investments and informal institution (cultural distance) and industry-level factors. Praticallimitations – The authors believe that the managers of Brazilian companies should use the variables adopted in this study as criteria to identify the factors that influence entry strategy abroad. Socialimplications – Another possible contribution concerns the scope of the government because results demonstrated the weight that formal institutions place on the entry process into foreign countries. Originality/value – This study contributes to the ongoing academic discussion regarding entry modes in different ways. First, this study contributes, given the novelty of its proposal: no quantitative studies were found to have analyzed establishment mode choice in Brazil. Another contribution is the finding related to the association between entry mode and institutional distance between countries.

Knowledge sufficiency: when institutional distance is insufficient

2014 ◽  
Vol 7 (3) ◽  
pp. 284-302 ◽  
Author(s):  
Willie Hopkins
Keyword(s):  
Risk Factors ◽  
Foreign Market ◽  
Market Risk ◽  
Host Countries ◽  
Content Type ◽  
Potential Host ◽  
Knowledge Component ◽  
The Right ◽  
First Time ◽  
Practical Implications

Purpose – For firms entering a foreign market for the first time, institutional distance can be thought of as being insufficient in the sense that knowledge gap issues associated with large distances are not easily resolved. The purpose of this paper is to explore the concept of knowledge sufficiency and the implications that this concept holds for assuaging these issues. Design/methodology/approach – The concept of knowledge sufficiency is developed into a practical framework. The framework is comprised of the knowledge that firms accumulate about potential host countries. This accumulated knowledge is disaggregated into components that provide the basic structure of the knowledge sufficiency framework and facilitate a systematic assessment of accumulated knowledge. Findings – Accumulated knowledge about foreign market risk factors that exist in potential host countries is disaggregated into three components. The breadth of knowledge component is designed to help answer the question: what do firms know about foreign market risk factors in potential host countries? The depth of knowledge component is designed to help answer the question: how much do firms know about foreign market risk factors in potential host countries. The quality of knowledge component is designed to answer the question: are firms confident in what they know about foreign market risk factors in potential host countries? Research limitations/implications – There is a tendency for strategic decision makers in firms to feel that they have “deep” knowledge of foreign market risk factors when they may actually have only “surface” knowledge of these factors. The result is likely to be an unwarranted lowering of the risk they perceive to exist in potential host countries. Consequently, the host country selected for entry may not be optimal and the mode of entry may be inappropriate. The issue to be resolved is how to ascertain how much knowledge firms actually possess about these foreign market risk factors. Practical implications – Selecting the “right” foreign market and entering that market in the “right” way is unquestionably one of the most important topics in the international literature and has been extensively studied. However, there is no central repository of finding from these studies that will help firms going international for the first time to systematically assess whether their choice of market and entry mode is optimal. Utilization of the knowledge sufficiency framework will significantly improve firms’ chances of entering the “right” foreign markets in the “right” way, which holds practical implications for their initial and long-term performance in these markets. Originality/value – For firms entering a foreign market for the first time, answers to two questions are essential: what foreign market should we enter? How should we enter that foreign market? The extant literature does not provide a framework that allows firms to systematically search for answers to these questions such that, when satisfactorily found, will boost confidence that answers to these two questions are optimized. In addition to filling an important gap in the extant literature, the framework's usefulness as an aid for making internationalization decisions also makes an important contribution to practice.

scholarly journals The impacts of institutional differences in relation to intellectual property rights protection on foreign market direct investment: FDI inflows and modes of foreign market entry

2021 ◽  
Author(s):  
◽  
Xiaoxin Mo
Keyword(s):  
Logistic Regression ◽  
Linear Regression ◽  
Host Country ◽  
Entry Mode ◽  
Foreign Market ◽  
Institutional Distance ◽  
Foreign Market Entry ◽  
Host Countries ◽  
Fdi Inflows ◽  
Ipr Protection

<p>This Master‘s thesis seeks to consider the impacts of institutional distance regarding IPR protection on Foreign direct investment’s (FDI) internationalization strategies. Estimated at approximately US$ 1.8 trillion in 2015 and sitting at its highest level since the global economic and financial crisis in 2008 (UNCTAD, 2016), FDI flows are fast becoming a focal issue of global business. Developing Asia, for example, has emerged as the world’s largest FDI recipient region in the world, which has attracted a wide and public attention. China, in particular, is the largest recipient of FDI among the emerging economies. In 2014, it overtook the US as the most popular destination for multinational enterprises (MNEs). To date, most academic interest has focused on how the institutional environment of the host country affects both the overall volumes of FDI (e.g., Lee & Mansfield, 1996; Smarzynska Javorcik, 2004), and the modes of entry strategy (e.g., McCalman, 2004; Dikova & Witteloostuijn, 2007). However, other areas of research also consider institutional distance, and the magnitudes and asymmetric effects of institutional distance (e.g., Cuervo-Cazurra & Genc, 2011; Phillips, Tracey, & Karra, 2009; Zaheer et al., 2012). In this context, this thesis, uses China as a sample of FDI recipient to seek to understand how the directions of institutional distance affect FDI’s flows and MNEs’ choice of entry mode into the host country. In particular, the research questions being addressed in this study are: (1) How does the bidirectional distance between home and host country regarding IPR protection affect FDI’s inflows to China? and (2) How does this bidirectional distance regarding IPR protection influence MNEs’ choice of entry mode?  Using a quantitative research design, two dependent variables are examined in this study: FDI inflows and entry mode (wholly-owned subsidiaries (WOS) versus joint ventures (JVs)). Using the institutional theory as its theoretical underpinning, this study hypothesizes that IPR distance between home and host countries negatively affects FDI inflows to the host market. It also hypothesizes that IPR distance is positively related to MNEs’ choice of WOS as an entry mode as opposed to JVs. Both hypotheses build on the new notion regarding the directions of institutional distance that MNEs’ strategies and behaviours are divided into positive and negative directions. This consideration of directions of institutional distance differs to that of the general institutional approach, which typically clusters all regulative, normative and cognitive pillars within the institutional distance. However, this research focuses on the single regulative distance of IPR protection. Using the 691 collected observations of FDI flows to China from 2006 to 2012, hypothesis 1 was tested by employing the estimation techniques of panel linear regression. To further assess hypothesis 2, 801 instances of foreign market entry of FDI in China between 2008 and 2012 were analysed by logistic regression.   From the panel linear regression model, the empirical results show that the larger the distance of IPR protection between home and host countries, the fewer the flows of FDI that entered into China. Such results are consistent with previous mainstream literature suggesting that greater institutional distance significantly diminishes the MNEs’ intentions to invest (e.g., Du, 2009; Berry et al., 2010). Moreover, logistic regression for hypothesis 2 reveals that IPR distance appears to be significantly and positively associated with the choice of WOS. This means that the tendency of MNEs from countries with a higher distance of IPR protection to enter China’s market by means of WOS (as opposed to JVs) will decrease. This result is in line with previous studies that note that larger institutional distance is associated with a lower level of equity ownership mode, such as JVs over WOS (e.g., Xu et al., 2004; Xu & Shenkar, 2002; Estrin et al., 2009).   The greatest takeaway from this study is that it advances knowledge about the impact of the directions of IPR distance and provides new opinions on the debate around the asymmetric effect of institutional distance on internationalization decisions. This study also offers practical implications for both firm managers and public policy makers.</p>

scholarly journals Formal institutions and the development of entrepreneurial activity – the contingent role of corruption in emerging economies

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Arezou Harraf ◽  
Hasan Ghura ◽  
Allam Hamdan ◽  
Xiaoqing Li
Keyword(s):  
Emerging Economies ◽  
Corporate Entrepreneurship ◽  
Informal Institutions ◽  
Entrepreneurial Activity ◽  
Future Research ◽  
Formal Institutions ◽  
Business World ◽  
Content Type ◽  
Formal And Informal Institutions ◽  
Control Of Corruption

PurposeThe paper aims to analyse the interplay between formal and informal institutions' and their impact on entrepreneurship rates in emerging economies.Design/methodology/approachThis study expands previous research in examining the moderating effect of control of corruption on the relationship between formal institutions and the development of the entrepreneurial activity. The study utilizes longitudinal analyses of a dataset from 41 emerging economies over 11 years (2006–2016).FindingsFindings provided robust support for the study's hypotheses. The results suggested lower levels of corruption positively moderate the effects of a country's number of procedures and education and training on the rates of entrepreneurial activity, while negatively moderating the effects of firm-level technology absorption on the rates of entrepreneurial activity.Research limitations/implicationsThe study has considered only one particular aspect of high-growth entrepreneurship, which is newly registered firms with limited liability. Although newly registered firms are recognized as one of the critical drivers of entrepreneurial activity. Future research should seek to examine other aspects of growth-oriented entrepreneurship such as activities involving a high level of innovation, corporate entrepreneurship or technology developments.Practical implicationsThis study advanced the existing theories in the field of entrepreneurship and institutional economics as it merged the two theories as a driving framework in the design of the study in the context of emerging economies.Social implicationsThe study tested a theoretical model by expanding the number of emerging economies in the study and found comparable findings that explain factors that may influence the likelihood of individuals entering entrepreneurship.Originality/valueThis article adds to the current literature as it highlights the importance of the interplay of formal and informal institutions in determining their impact on entrepreneurship rates in emerging economies. This is of particular importance to policy-makers, and the business world as the empirical results of this study show the benefits of control of corruption in boosting entrepreneurial rates in these economies, which strive for economic diversification in their developmental endeavours.

Heterogeneous investors and trading platforms competition

2015 ◽  
Vol 16 (3) ◽  
pp. 303-320 ◽  
Author(s):  
Nathalie Oriol ◽  
Alexandra Rufini ◽  
Dominique Torre
Keyword(s):  
Design Methodology ◽  
Network Externalities ◽  
International Competitiveness ◽  
Foreign Market ◽  
International Competition ◽  
European Market ◽  
Financial Instruments ◽  
International Context ◽  
Trade Off ◽  
Content Type

Purpose – The purpose of this paper is to consider competition’s issues between European market firms, such as Euronext, and multilateral trading facilities, following Markets in Financial Instruments Directive’s enforcement. This new domestic competition is adding to the existing international competition among financial centers. While diversification of local trading services can improve the international competitiveness of a financial center, the fragmentation of order flows can harm its attractiveness. Design/methodology/approach – The theoretical setting analyzes the interaction between heterogeneous who experiment network externalities, and heterogeneous local trading services providers (alternative platforms and incumbent) in an international context. The authors compare two forms of organizations of the market: a consolidated market, and a fragmented market with alternative platforms – in both cases, in competition with a foreign universe. Findings – The results of this study point out the importance of the trade-off between diversification and externalities. With alternative platforms entry, enhanced competition decreases fees and redistributes informed investors between the foreign market and the domestic one. The increase of domestic platforms’ number then has more complex effects on externalities (of information and liquidity). When the liquidity externalities are low, the diversification of financial platforms increases the number of investors on domestic centers. When liquidity externalities are not negligible, despite the decrease of fees, this same diversification orientates more informed investors to the foreign center. Originality/value – This model is the first to analyze jointly the internal and international competition of trading platforms with heterogeneous investors.

Corporate sustainability reporting in Japanese multinational enterprises: a threat to local legitimacy or an opportunity lost for corporate sustainability practices?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Masayoshi Ike ◽  
Jerome Denis Donovan ◽  
Cheree Topple ◽  
Eryadi Kordi Masli
Keyword(s):  
Multinational Enterprises ◽  
Corporate Sustainability ◽  
Sustainability Reporting ◽  
Internal Communication ◽  
Structured Interviews ◽  
Host Countries ◽  
Content Type ◽  
The Sustainable Development ◽  
Novel Approach ◽  
Responsible Consumption

Purpose This paper aims to investigate whether Japanese manufacturing multinational enterprises (MNEs) maintain local legitimacy in their host countries through adequate informing of local stakeholders with targeted corporate sustainability (CS) reporting. Design/methodology/approach The paper first identified specific CS activities that were considered important in four Association of Southeast Asian Nations host countries, through semi-structured interviews with 58 participants of 16 Japanese manufacturing MNEs. The degree of establishment of local legitimacy was then measured through the number of references made to these CS activities and other activities specific to the respective host countries in the CS reports of the MNEs across a five-year period. Findings The majority of MNEs in the sample were under-reporting items of specific interest to localhost country stakeholders potentially undermining the MNEs’ image. There were found to be differences on the topics published in CS reports compared to those mentioned in the interviews indicating potential issues with regard to internal communication between the subsidiary and headquarters offices. Originality/value A novel approach is taken to investigate the degree of local legitimacy established by MNEs through comparing the contents of interviews held at subsidiaries with their respective CS reports. This paper highlights the importance of considering MNE subsidiaries when addressing Target 12.6 of the Sustainable Development Goal 12: responsible consumption and production.

Sign in / Sign up

Export Citation Format

Share Document