Abstract:Extending the literature on social capital development in the community, this article examines the impact of diverse social interactions (in the community and the workplace) on the development of social trust in the workplace, and investigates whether their effects differ in individualistic and collectivistic cultures. Using survey data collected in Canada and China, the authors find that the diversity of one’s social interactions in the community is positively associated with one’s social trust in the workplace, and this relationship is not significantly different between the two cultures. Diversity of one’s social interactions in the workplace is also positively associated with one’s social trust in the workplace, though only in collectivistic cultures.
Abstract:We explore how the establishment of an industry pioneer through foreign seeding of industry knowledge can subsequently catalyze the growth of a developing country’s industry by involuntarily propagating the knowledge to subsequent entrants. As industry knowledge has tacit elements, we focus on mechanisms that enable experienced workers from the pioneer to seed the knowledge to new entrants. We examine the relationship between entrants’ characteristics and the mechanisms exploited to access the industry knowledge, and the impact of the mechanisms exploited on firm performance. Empirical findings from two historical episodes in the Bangladesh garment industry suggest that industry knowledge seeding was essential for the initial establishment and subsequent expansion of the industry. Our paper highlights the role of experienced workers’ mobility in building new firm capabilities and provides novel insights into industrialization in developing economies.
Abstract:This study examines the endogenous relation between corporate social responsibility (CSR) and tax avoidance by focusing on a common strategy of corporate tax avoidance, i.e., establishing entities in offshore tax havens. Using hand-collected data on a sample of U.S. firms, we find that firms’ CSR ratings increase substantially in the two years after they first open tax haven affiliates. We provide evidence by using the controlled foreign corporations (CFC) look-through rule enacted by Congress in 2006 that facilitates offshore profit shifting. We find that firms that are affected by the CFC legislation increase their CSR practices in response. Overall, our results are consistent with the risk management theory, which argues that firms hedge against the potential negative consequences of aggressive tax avoidance practices through an increase in positive CSR activities.
Abstract:We show how the initial subnational entry location of foreign multinational enterprises (MNEs) in China influences their subsequent within-country location choices and expansion speed. We distinguish between MNEs that establish their first subsidiary in co-ethnic cores—dense agglomerations of other firms from the same country of origin—and MNEs that locate their first subsidiary in the periphery, i.e., outside of these co-ethnic cores. To identify co-ethnic cores in China, we employ a geo-visualization methodology, which draws the boundaries of cores organically and dynamically over time. We contrast our findings with the prevailing approach of using static administrative boundaries for identifying agglomerations. Our results provide evidence of path dependency, in that (a) entry through subnational locations with strong co-ethnic communities is followed by expansion into other locations where co-ethnic communities are present, and that (b) entry through co-ethnic communities accelerates the pace at which MNEs establish additional subsidiaries in China. We also find that co-ethnic community effects continue to influence within-country MNE activities over time, despite a host of economic, institutional, and investment developments.
Abstract:This research examines region-bound headquarters disaggregation in multinational enterprises (MNEs). We link the formation of regional management centers—both dedicated regional headquarters (RHQs) and regional management mandates (RMMs) granted to operating subsidiaries—to the complexity argument underlying organizational information processing theory. We demonstrate how different dimensions of complexity associated with the number and dispersion of an MNE’s subsidiary network in a focal region affect whether, and in which form region-bound headquarters disaggregation takes place. Additionally, we consider boundary conditions affecting RMC formation based on within-region experience, global MNE footprint, and between-region effects. Empirically, we utilize a large global dataset of Japanese MNE foreign investment for the period from 1992 to 2014, which allows us to perform longitudinal event history analyses.
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:When war occurs in a country, some foreign MNEs stay on, while others flee. We argue that MNE responses to external threats depend on the firm’s vulnerability, which we decompose into exposure (proximity to threat), at-risk resources (potential for loss), and resilience (capacity for coping). We test the independent and interactive effects of these dimensions using a geo-referenced sample of 1,162 MNE subsidiaries in 20 war-afflicted countries over 1987–2006. We find that highly valuable resources can become liabilities when exposed to harm, and the best way to cope with external threats may be to exit. Our findings extend the resource based view and real options theory by demonstrating the bounded value of resources and options in the face of environmental contingencies.
Abstract:Prior research into the effects of cultural differences between MNE home and host countries on expatriate staffing decisions in foreign subsidiaries has produced a large number of conflicting findings. We address some of these conflicting findings and aim to advance theory in two ways. First, we draw on transaction cost economics to explain why and how the effects of cultural distance on the proportion of expatriate parent-country nationals form a curvilinear instead of a linear relationship, as commonly proposed. Second, we integrate the values-based cultural distance concept with the norms-based tightness-looseness concept. This allows us to simultaneously account for cultural differences between countries and location-bound normative cultural effects within countries, which cannot be overcome solely through expatriate learning and adaptation. Using a large global dataset of Japanese MNEs, we find support for a convex relationship between cultural distance and the proportion of expatriate parent-country nationals. We also find a moderating (steepening) effect of tightness-looseness on this relationship. The results reconcile some of the tensions between the subjectivists' values-based approach, which positions culture in the shared cognitions realm, and the structuralists' approach, which places culture in a normative situational environment.
Abstract:Global organizations are inherently complex. The spatial dispersion of activities results in organizational subunits becoming embedded in local host-country contexts that differ from their parents’ home country contexts. These subunits are also embedded in their parents’ corporate networks, causing them to differ from their locally embedded peers. The dual embeddedness and associated complexities create complex and often implicit boundaries. In addition, the contextual and operational diversity that affects the boundaries in global organizations are continually changing. Hence managing and coordinating across different inter- and intra-organizational boundaries has emerged as an important capability for the success of global organizations. So far, we have a limited understanding of the factors that affect the complexity and effectiveness of the boundary spanning function. In this article, we focus on clarifying these key issues and propose a model for effective boundary spanning in global organizations.
Abstract:This study contributes to the literature on global boundary spanning by taking a learning perspective that positions the boundary spanner as an active change agent. Grounded in a practice-based theory of knowledge, it considers boundary spanning as the negotiation of knowledge and relationships across fields of practice. We argue that global boundary spanning is a long-term commitment to help internal members become aware of foreign knowledge practices, see these practices as valuable, and adopt them internally. We frame the activities of the boundary spanner within a scaffolding framework that theorizes boundary spanning as a combination of ability, persistent willingness, and opportunity. Here scaffolding refers to the cognitive, relational, and material supports enacted by boundary spanners that facilitate organization members’ engagement in practices that allow for the awareness, capacity building, and commitment to adoption of foreign practices. We draw on interviews from international returnee managers employed in large Korean financial firms.
Abstract:India will soon be the world’s most populous country. Today, it boasts a sophisticated service sector with a highly trained, English-speaking workforce. What is less well known, is that India has also developed a large number of supplier firms in the manufacturing sector, many of which are capable of integrating into the most advanced supply chains in the world. However, India’s undoubted challenges have ensured that it is so far largely untapped by foreign multinational enterprises. Many executives still dismiss India due to insufficient scale in their target customer segments, which is needed to support more complex value-adding activities. By so doing, they perhaps miss the biggest opportunity of the coming decades. Those foreign firms that have entered India have mainly adopted one of two distinctive strategies. Some, like Unilever, have focused inward and developed capabilities for making money through low cost, locally embedded processes and products. Others, like IBM, have primarily used India as an offshore source for low cost skilled-service labor to complement global operations. Our research suggests that combining these two approaches offers the key to unlocking India’s enormous economic potential. By interweaving these two strategies, multinationals can create what we call a mutually reinforcing Make-In-India Helix that generates superior returns locally and globally. Creating the Helix involves simultaneously taking advantage of local sourcing, manufacturing, and marketing activities in conjunction with local adaptation of global products to generate mutually reinforcing advantages. The Helix enables firms to achieve local/global product-portfolio ambidexterity for reaching successfully across all of India’s income segments, while at the same time developing a springboard for global exports. The result is the necessary localization required to achieve scope and scale advantages in India, while leveraging these advantages in form of cost-effective solutions for global markets.
Abstract:Extending the literature on institutional voids, we introduce theory from law that highlights the ability of firms to choose the laws and enforcement mechanisms that govern their international joint ventures (IJVs). Specifically, firms may overcome institutional voids by borrowing institutions via binding international commercial arbitration (BICA) rather than relying on host-market institutions. Leveraging an institution-based view, we develop a theoretical framework to articulate the conditions under which IJV partners may choose BICA as opposed to domestic courts to overcome institutional voids in host markets.
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 examines how the decision to enter African markets relates to the exit probability of MNE subsidiaries. Using a longitudinal, paired-sample design of Japanese foreign subsidiaries operating in Africa and OECD countries, we find that entry to Africa increases the hazard rate of subsidiaries, but that subsidiaries entering with more diverse investment purposes and greater market-seeking orientation have a better survival likelihood. Consistent with the institutional-based theory of corporate diversification, our findings introduce purpose diversity and market-seeking orientation as potential mechanisms to mitigate the hazards of institutional voids/instability. Also, by looking at the phenomenon of within-subsidiary diversity (of purposes) and its interaction with institutional conditions, we advance the notion of subsidiary scope and its implications.
Abstract:In multinational enterprises (MNEs), regional management centres (RMCs) most frequently take the form of either dedicated regional headquarters (RHQs) or regional management mandates (RMMs) assigned to operating subsidiaries. We identify a series of critical differences in characteristics and performance between RHQs and RMMs, using a longitudinal sample of 855 Japanese RMCs across 41 countries. We also investigate parent-level differences between MNEs with distinct RMC configurations. We propose a structural complement to regional strategy extensions of the integration-responsiveness framework, and provide an important large sample baseline, aiding new theoretical and empirical research into MNE regional management strategy and structure.
Abstract:We show that sovereign debt impairments can have a significant impact on financial markets and real economies through a credit ratings channel. Specifically, we find that firms reduce their investment and reliance on credit markets due to a rising cost of debt capital following a sovereign rating downgrade. We identify these effects by exploiting exogenous variation on corporate ratings due to rating agencies' sovereign ceiling policies that require firms' ratings to remain at or below the sovereign rating of their country of domicile.
Abstract:Strategy scholars increasingly conduct research in non-traditional contexts. Such efforts often require the assistance of third-party intermediaries who understand local culture, norms, and language. This reliance on intermediation in primary or secondary data collection can elicit agency breakdowns that call into question the reliability, analyzability, and interpretability of responses. Herein, we investigate the causes and consequences of intermediary bias in the form of faked data and we offer Response Pattern Analysis as a statistical solution for identifying and removing such problematic data. By explicating the effect, illustrating how we detected it, and performing a controlled field experiment in a developing country to test the effectiveness of our methodological solution, we encourage researchers to continue to seek data and build theory from unique and understudied settings.
Abstract:Most U.S. movies are not distributed simultaneously to all of their foreign markets and many do not recoup the costs of market entry. In theory, sequential entry allows distributors to learn about their movies' quality from performance in successive markets. I find empirical evidence consistent with recent trade models of learning about export profitability: a one-standard-deviation increase in the update to expected box-office revenues from the previous round is associated with an increase in the probability of entry to a given market of approximately 20%. This effect is robust to controls for other potential determinants of entry, including extended gravity, seasonality of demand, and competition from local and imported pictures.
Abstract:We elaborate theories of indigenous innovation by explaining how internationalization choices help emerging market firms transition from dependence on external knowledge to self-reliance on internal knowledge. Using a 1998–2007 census dataset of Chinese manufacturing firms, we theorize and test the moderation effect of foreign equity and export orientation on the relationship between knowledge and indigenous innovation. We show that foreign equity dis-incentivizes, while export orientation incentivizes, investments in internal knowledge. We contribute by showing that internationalization choices may radically change indigenous innovation outcomes by shifting the locus of problem solving outside or inside the firm. Our study corroborates the negative direct and indirect effects of external knowledge on indigenous innovation at the firm level previously suggested by China-centric scholars but also shows how two types of internationalization choices may gradually relieve firm-level dependence on imported technology. We bridge the gap between Western research and Chinese thought and practice by introducing a do-it-yourself (DIY) explanation of how firms may implement China’s indigenous innovation (zizhu chuangxin) policy.
Abstract:For sustainability, research in operations and supply chain management historically emphasized the development of environmental rather than social capabilities. However, factory disasters in Bangladesh, an emerging market and the second largest clothing exporter in the world, revealed enormous challenges in the implementation of social sustainability in complex global supply chains. Against the backdrop of a building collapse in Bangladesh's clothing industry, this research uses multiple case studies from two time periods to explore the skills, practices, relationships and processes – collectively termed “social management capabilities” (SMCs) – that help buyers and suppliers respond to stakeholder pressures; address regulatory gaps; and improve social performance. The study not only captures the perspectives of both multinational buyers and their emerging market suppliers, but also provides supplementary evidence from other key stakeholders, such as NGOs and unions. Our findings show that, in the absence of intense stakeholder pressure, buyers can lay the foundation for improved social performance by using their own auditors and collaborating with suppliers rather than using third-party auditors. However, in the face of acute attention from customers, NGOs and media, we observed that consultative buyer-consortium audits emerged, and shared third-party audits offered other advantages such as increased transparency and improvements in worker education and training. Finally, we present research propositions derived from our empirical study to guide future research on implementing social sustainability in emerging markets.
Abstract:International business research is only beginning to develop theory and evidence highlighting the importance of supranational regional institutions to explain firm internationalization. In this context, we offer new theory and evidence regarding the effect of a region’s “institutional complexity” on FDI decisions by multinational enterprises (MNEs). We define a region’s institutional complexity using two components, regional institutional diversity and number of countries. We explore the unique relationships of both components with MNEs’ decisions to internationalize into countries within the region. Drawing on semiglobalization and regionalization research and institutional theory, we posit an inverted U-shaped relationship between a region’s institutional diversity and MNE internationalization: extremely low or high regional institutional diversity has negative effects on internationalization, but moderate diversity has a positive effect on internationalization. Larger numbers of countries within the region reduces MNE internationalization in a linear fashion. We find support for these predicted relationships in multi-level analyses of 698 Japanese MNEs operating in 49 countries within nine regions. Regional institutional complexity is both a challenge and an opportunity for MNEs seeking advantages through the aggregation and arbitrage of individual country factors.
Abstract:This paper examines individuals’ engagement in entrepreneurship in emerging economies. We conceive of such engagement as encompassing opportunity discovery, evaluation, and exploitation. We investigate the influence of individuals’ household income and level of education on their engagement in entrepreneurship, as well as the interaction effects between these individual-level factors and country-level regulatory, cognitive, and normative institutions. We test our hypotheses on a multi-source dataset from 22 emerging economies using a multilevel analysis technique. Our results indicate that the direct effect of individuals’ household income on their engagement in entrepreneurship is persistent, regardless of institutional conditions; but the influence of education level varies contingent upon various institutional conditions.
Abstract:We study the global competition among private equity (PE) buyout firms. Using a detailed database of PE firm characteristics, we investigate how PE firm heterogeneity across strategy and performance affects the volume of global acquisitions. A one-standard-deviation increase in a firm's average internal rate of return is associated with an approximate doubling of the number of deals in any given country. We also find that transaction costs associated with geographic, cultural, and administrative distance matter to different degrees across PE firms, and that these differences are related to the strategic profiles of the firms.
Abstract:Background and Aims. Screening and brief intervention (SBI) is a public health intervention that has been shown to be effective in reducing heavy alcohol consumption. The aim of this study is to estimate the cost-effectiveness of implementing universal alcohol SBI in primary care in Canada. Design. We developed a microsimulation model of alcohol consumption and its effects on 18 alcohol-related causes of death. Setting. The model simulates a Canadian population. Participants. The model simulates individuals and their alcohol consumption on a continuous scale starting from age 17 years to death. Interventions. The reference case assumes no SBI in Canada. The base case assumes screening was conducted using the Alcohol Use Disorders Identification Test (AUDIT) at a threshold score of 8. Additional analyses included evaluating SBI using the AUDIT at threshold scores between 4 and 8 or the Derived Alcohol Use Disorders Identification Test (AUDIT-C) at threshold scores between 3 and 7. Measurements. The model estimates the direct health-care costs, life years gained and quality-adjusted life years (QALY) gained, which are then used to estimate the incremental cost-effectiveness ratio (ICER) of SBI versus no SBI. Findings. SBI with AUDIT (at a threshold score of 8) had an ICER of $8729/QALY. Our results suggest that using AUDIT thresholds between 8 and 4, inclusive, would be cost-effective for the whole population, as well as for men and women individually. Our results suggest that the AUDIT-C would be cost-effective at thresholds of 7 to 3, inclusive, for men, women and the whole population. Conclusions. In Canada, screening and brief intervention via Alcohol Use Disorders Identification Test (AUDIT) and Derived Alcohol Use Disorders Identification Test (AUDIT-C) to reduce heavy alcohol consumption appears to be cost-effective for men and women at Alcohol Use Disorders Identification Test (AUDIT) thresholds of 8 and lower and at Derived Alcohol Use Disorders Identification Test (AUDIT-C) thresholds of 7 and lower.
Abstract:Drawing on internalization theory and economic geography research, we examine how the spatial structure of MNE subsidiaries in supranational regions affects subsidiary location choices. Our analysis of foreign production investments by Japanese manufacturing firms from 1971-2006 supports our theoretical predictions: firms were more likely to establish new production subsidiaries in countries geographically more proximate to existing production subsidiaries, but not to trading subsidiaries, in the same region. The proximity effect diminished for production subsidiaries engaged in accessing natural resources or R&D. Performance of production subsidiaries was also stronger for those closer to other production subsidiaries in the same region.