Shih-Fen Chen is a professor emeritus of General Management specializing in Global Strategy at the Ivey Business School. He earned his BBA from National Cheng Kung University, an MBA from Michigan State University, and a PhD from the University of Illinois at Urbana-Champaign.
Chen teaches EMBA, MBA and undergraduate courses in Global Strategy. He also conducts case teaching/writing workshops for Ivey's Asian Management Institute. Prior to joining the school, he was on the faculty of Brandeis University and Kansas State University, and taught executive development courses in Taiwan and the US. He held several managerial and executive positions in business over a period of eight years before returning to school to pursue a PhD.
Chen's main research focuses on the institutional role of branding in facilitating inter-firm cooperation. He has developed a model that can predict the optimal allocation of branding rights between two or more specialist firms working together to serve consumers, particularly when the parties involved are located in different countries. His other research interests include cross-border acquisitions, international joint ventures, and offshore outsourcing.
Chen has published his work in the Journal of International Business Studies, Strategic Management Journal, Journal of Retailing, International Journal of Research in Marketing, and Journal of Business Research. He has translated two books from English into Chinese. His comments and opinions have appeared in BBC, Boston Globe, Business Week, Financial Times, Globe and Mail, New York Times, Newsweek, USA Today, Wall Street Journal, Washington Post, plus many local media and blogs around the world.
Abstract: Equity joint ventures (EJVs) are a popular governance mode of inter-firm cooperation that has attracted substantial research attention. The literature, however, still lacks a precise rule for the parents to follow in splitting the equity shares of an EJV, although share distribution is critical to almost all aspects of the co-ownership relationship. In this study, we fill this literature gap by taking the Bayesian approach to draw a pricing-error rule on share distribution in EJVs. More specifically, we contend that equity participation by two firms in an EJV allows profit sharing to correct for the errors that they might commit in pricing their inputs to the EJV. For profit sharing to fully nullify such pricing errors, the shares of an EJV must be split between the parent firms in a percentage combination that matches the relative sizes of their pricing errors. Because pricing errors are observable only afterward, share distribution in EJVs resembles a Bayesian process, in which the partners keep updating their estimates on pricing errors to adjust share distribution to a percentage combination that could best nullify their pricing errors. Thus, the eventual outcome of share adjustment is EJV buyout, in that the partner whose pricing errors remain substantial buys out the shares of the other whose pricing errors have become tolerable.
Abstract: Whether firms with more alliance experience perform better than those with less and whether the alliance strategy interacts with diversification strategy to shape firm performance are two critical but underexplored questions. To address these queries, this study develops a three-level sigmoid framework built upon a marginal analysis that contrasts alliance benefits and alliance costs, and considers the moderation of diversification that often closely works with the alliance in shaping firm performance. Empirical results obtained from firms in two alliance-populated industries support first that the alliance experience-performance relationship is S-shaped in that the linkage is negative to alliance novices, positive to alliance experts, and negative again to alliance overusers and second, that the shape of this sigmoid curve varies systematically between high- and low-diversified firms.
Abstract: While entertainment activities in private business settings (i.e., business entertainment) are widely seen all over the world, issues about their prevalence have remained unresolved in the literature. This study takes an institutional approach to elucidate (1) the governance role of business entertainment in economic exchanges, (2) the mechanism through which business entertainment plays this role, and (3) the conditions under which business entertainment plays a greater role to facilitate economic exchanges. Our starting point is that economic transactions are governed through a combination of market rules, legal restraints, and social norms. We argue that business entertainment plays a governance role by boosting the power of social norms to regulate the behaviors of economic actors. As such, business entertainment should be more prevalent under the conditions where social fabrics are dense but market and legal infrastructures are underdeveloped. This governance approach provides a common ground to accommodate the positive versus negative views on business entertainment advocated by two camps of researchers in management, economics, and sociology. It also offers useful guidelines for policymakers to regulate, and for executives to manage, this prevalent but often misunderstood business practice.
Abstract: This study takes an inductive approach in analyzing the roles played by the state, the market, and the social sector in indigenous entrepreneurship development. Data collected from six high-technology companies in China and Taiwan serve to broaden our prior knowledge on how the three institutions work collectively in nourishing indigenous firms at three stages of entrepreneurship development. At the start-up stage, the state influences a firm’s entrepreneurial motivation by creating contexts, providing necessary financial resources, and setting up policy hurdles. At the growth stage, the social sector facilitates technology transfer to indigenous firms and protects them from lawsuits filed by multinational corporations. At the mature stage, the market allows multinational corporations to either enhance or destroy the technological capabilities of local firms. These findings provide strong theoretical and policy implications.
Abstract: In this study, I propose a general transaction-cost-economics (TCE) model of international business institutions, in which cross-border transactions can be conducted at multiple market levels (e.g., output, asset, and equity) and the buyer-seller relationship can go both ways (A sells to B vs. B sells to A). This general model bridges two major gaps in the literature. First, while market failure is the driving force behind the rise of multinational enterprises, most researchers focus on the failure of a single market without exploring the presence of substitute markets for conducting cross-border transactions. Second, previous studies often starts their analysis with a bilateral setup that consists of a multinational enterprise and an indigenous firm (e.g., licensing), but concludes with a unilateral decision made by the multinational enterprise to circumvent the indigenous firm (i.e., direct investment). By filling up the two literature gaps, this general TCE model integrates under a single umbrella all institutional modes available to firms for governing international business (e.g., licensing, outsourcing, acquisitions, joint ventures, et cetera). Built on a multi-market framework, the analysis indicates that the choice of the optimal international business institution is tantamount to the selection of the most efficient market to conduct cross-border transactions. Drawing on a bilateral setup, it also recognizes the power of reciprocity in solving the problem of market failure. This distinct approach has pointed out several directions for future researchers to advance international business studies, particularly after my transaction-level analysis has been expanded to consider institutional contexts and firm capabilities.
Abstract: Branding and transaction cost economics represent two research streams that rarely cross paths in the literature. In this study, I explore the transaction cost implication of private branding, a practice whereby products supplied by unaffiliated manufacturers are sold under private brands owned by retailers. The main thesis is that private branding can pre-empt a special case of asset specificity called brand specificity, where retailers also invest in the marketing of an outsourced product, but subsequent reputation effects (positive or negative) are specific to the manufacturer who brands the product. Retailers, thus, will not be fully motivated to optimize their investment in product marketing unless they take over the branding right. With potential barriers to private branding being controlled, data obtained from a national chain reveal that the retailer deploys its marketing resources according to the branding status of a product, implying that private branding can deflect the transaction cost of solving the problem of brand specificity. The results offer new theoretical insights into branding and transaction cost analysis. This efficiency-based approach to private branding also provides useful guidelines for practitioners to craft a branding strategy that facilitates the cooperation between manufacturers and retailers.
Abstract: This study takes a transaction cost approach to explore the coincidence of private branding with offshore outsourcing-two retail trends that have attracted substantial attention but never been analyzed concurrently. Retailers now play an increased role in marketing a product to shoppers, although their marketing efforts are usually specific to the supplier who brands the product. This is called ibrand specificityi, a special case of asset specificity that drives up the cost of conducting the manufacturer-retailer transaction, especially when the parties are located in different nations. With the right to brand a product being shifted from manufacturers to retailers, private branding can eliminate this problem of brand specificity that inflicts a transaction cost penalty on offshore outsourcing, which is why the two seemingly unrelated retail trends coexist. Data obtained from a national chain reveal that the retailer is more likely to brand a product that needs its marketing efforts, but less motivated to outsource the product offshore before putting a private brand on it. These results establish a transaction cost link between private branding and offshore outsourcing, from which important theoretical and practical implications can be drawn.
Abstract: Multinationals can start up greenfield entities or acquire existing firms to enter foreign nations. Regardless of the choice of greenfield investments vs. acquisitions, they can control full equity (i.e., wholly owned subsidiaries) or share ownership with local partners (i.e., joint ventures). Depending on the stake taken in the targets, therefore, international acquisitions can be classified into two major categories-full or partial-although this distinction is missing in most previous studies. In this paper, I propose that the motives for acquisitions (vs. greenfield investments) are specific to whether entries are made through full or partial ownership, in that full acquisitions are driven mostly by capability procurements, whereas partial acquisitions are motivated by other strategic considerations. By splitting a sample of Japanese investments in the US into two subregimes, the study has found that the decision of joint ventures vs. wholly owned subsidiaries dictates the determinants that shape the choice between greenfield and acquisitive entries. There is also evidence that Japanese investors self-select the decision of full or partial ownership to justify the strategy that they have chosen to enter the US. These findings offer new insights into the role of ownership structures in shaping the choice of entry strategies.
Abstract: Internalization theory suggests that multinational enterprises set up subsidiaries to exploit technology advantages abroad when licensing is too difficult to arrange with indigenous firms. This direct investment vs licensing trade-off, which is built on a business-to-business transaction, does not recognize the linkages with the final products market as a component of transaction cost analysis. By adopting a unilateral perspective on international technology transfer, neither does it consider the possible role of complementary assets (e.g., manufacturing capabilities) held by potential business partners in foreign countries. After taking into account the presence of such assets in indigenous firms, this article extends internalization theory by positioning the technology transfer transaction in the broader context of the entire value chain, including especially the manufacturingmarketing linkages with the final products market. More specifically, it demonstrates that conventional internalization theory neglects various alternative market governance mechanisms not captured by a licensing agreement. The analysis shows that the choice of an optimal governance structure is determined by the complementarity of strategic assets controlled by the economic actors involved, and by the linkages among the technology-manufacture interaction in two intermediate input markets, and the subsequent sales function in the final products market.
Abstract: Focusing on a subset of international joint ventures formed through partial acquisitions of existing firms (vs. those started through split ownership of new entities), this study proposes a hostage theory to explain why foreign investors take over partial equity of an existing local firm and thereby enter a joint-venture relationship with its current owner. The starting point is that investors making acquisitions abroad must incur a cost to inspect the targets and enforce the contracts. Partial acquisitions can create a hostage effect that facilitates ex ante screening of targets and ex post enforcement of contracts. Accordingly, foreign investors will be more likely to take a partial stake in existing local firms when acquisitions are costlier to negotiate and contract, and will be more inclined to make full acquisitions when they are better equipped to execute them. Empirical findings obtained from a sample of Japanese acquisitions in the United States support the theory.
Abstract: Multinational enterprises (MNEs) can either start up new ventures or acquire existing firms to enter foreign markets. Although many reputable brands have changed hands in international acquisitions, no previous studies have systematically verified the proposition that MNEs choose acquisitions over startups to overcome reputation barriers abroad. In this study, we hypothesize that the choice of acquisitions vs. startups also depends on investors' prior advertising outlays as well as the reputation barriers they face in the foreign industry entered. We compile a vector of variables that distinguish between firm-specific advertising investments and industry-specific reputation barriers to analyze Japanese manufacturers' entry strategies into the US. Our results show that Japanese investors facing higher reputation barriers in the target industry are more inclined to acquire existing firms, whereas those spending more on advertising prior to an entry are more likely to start up new ventures.
Abstract: This study analyzes how market barriers and firm capabilities affect multinationals' choice of joint ventures versus wholly-owned subsidiaries abroad. In the study, a vector of variables is complied that distinguish between industry-specific barriers and firm-specific capabilities to analyze Japanese investors' ownership decisions in the US. The results in general support the hypothesis that Japanese investors facing high market barriers in the target industry are more likely to choose joint ventures, while those possessing strong competitive capabilities are more likely to set up wholly-owned subsidiaries. Specifically, marketing variables are more influential than technological factors in determining the choice of partial versus full ownership.
Abstract: When implementing a price reduction, retailers tend to favor one practice over the other. Yet how different implementations of a price promotion influence consumers' perceptions and purchase intentions has been insufficiently studied. In this study, we framed a price reduction in percentage versus dollar terms on either a high-price or a low-price product. For the high-price product, our subjects indicated that a price reduction framed in dollar terms seemed more significant than the same price reduction framed in percentage terms, and the opposite was true for the low-price product. We also offered the same savings in either coupon or discount promotions and found that coupon promotions were evaluated more favorably and were more effective in changing subjects' purchase intentions. These results provide implications for when retailers should stress the absolute versus the relative magnitude of discounts to advertise price promotions.
