Greenfield Entry Strategy of Multinational Enterprises in the Emerging Markets: Influences of Institutional Distance and International Trade Freedom

This article addresses greenfield entry strategy of multinational enterprises in emerging markets by analyzing the influences of formal and informal institutional distance as well as international trade freedom. The empirical analysis is based on a sample of 263 greenfield market entries in manufacturing sector undertaken by Finnish firms during 1990–2013. The study results revealed that high formal and informal institutional distances led to the preference of greenfield JVs. The study also found that high level of international trade freedom moderates the influences of formal and informal institutional distances on greenfield entry strategy.     

The impact of formal and informal institutional distances on MNE corporate social performance

Can host country selection affect the corporate social performance (CSP) of multinational enterprises (MNEs)? Using institutional distance as our theoretical lens, we propose and empirically examine the notion that greater institutional diversity can have disparate influences on the social performance of different types of MNEs. We conceptualize each MNE as a unique portfolio of locations and use that “footprint” to examine the impact of formal and informal institutional distances on CSP. We hypothesize and find (1) a moderating influence of greater formal institutional distance in the MNE portfolio that slows the rate of increased benefits associated with greater international scope; and (2) a direct influence of greater informal institutional distance that lowers the overall levels of CSP independent of the international scope of the MNE. Managerial implications for international location selection are discussed.     

Acquisition Entry Strategy of Nordic Multinational Enterprises in China: An Analysis of Key Determinants

ABSTRACT

This article addresses the key determinants of acquisition entry strategy (i.e., the choice between full versus partial acquisition) of Nordic multinational enterprises (MNEs) in China. Although general establishment and entry mode strategies have been a highly researched area in international business studies, acquisitions as a specific entry strategy and its different aspects have been scarcely researched. Therefore, the current study aims to fill the gap in literature by analyzing determinants of acquisition entry strategy based on three important theoretical bases: transaction cost economics, resource-based view, and institutional theory. Our study is one of the first to analyze acquisition entry strategy of MNEs from all four Nordic economies (Denmark, Finland, Norway, and Sweden) in China during 1987 through 2012, and this unique empirical context adds further value to the study findings. The empirical results show that high target country experience, high cultural distance, high level of product diversification, and subsidiary location in institutionally developed and open cities of China were positively associated with choice of full acquisitions by Nordic MNEs. On the other hand, high industry research and development intensity and timing of acquisition led to the choice of partial acquisitions by the investing Nordic MNEs.     

Does foreign direct investment promote institutional development in Africa?

Foreign direct investment (FDI) inflows into Africa have increased since the turn of the millennium, mainly due to FDI growth into African countries by multinational enterprises (MNEs) from developing economies. While African governments view this growth as a positive development for the continent, many governments in the West have raised concerns regarding the institutional impact of investments from developing economies. This paper examines the impact of FDI flows on institutional quality in African countries by distinguishing investments from developed versus developing economies. Previous empirical studies have found a significant relationship between FDI flows and institutional quality in African countries but regard the relationship as MNEs rewarding African countries for adopting institutional reforms. However, little attention has been paid to the reverse causality, i.e. that FDI can cause an institutional change in African countries. Using bilateral greenfield FDI flows between 56 countries during 2003?2015, we find no significant FDI effect from developed and developing economies on institutional quality in host countries. However, aggregate FDI flows from developed and developing economies have a significant positive effect on host country institutional quality but differ concerning the impact's timing. In contrast, we find no significant effect of FDI flows from China on host country institutional quality. Our results are robust to alternative measures of institutional quality.     

Acquisitions Entry Strategies in Africa: The Role of Institutions,Target‐Specific Experience,and Host‐Country Capabilities—The Case Acquisitions of Finnish Multinationals in Africa

Acquisition is an important entry strategy for multinational enterprises (MNEs) seeking to gain faster entry into new and emerging markets and remain competitive in the global marketplace. MNEs utilize partial‐, staged‐, and full‐acquisition strategies when entering into foreign markets. This research analyzes how and why firms opt for these acquisition strategies in the context of Africa. The study applies institutional theory and explores constructs derived from the Uppsala internationalization process model. Using a case study of five Finnish acquisitions in Africa (Egypt, Morocco, Kenya, and South Africa), it was found that Finnish MNEs opt for partial acquisition rather than staged and full acquisition in the context of acquisitions made prior to late 1990s without earnout arrangements. Finnish MNEs opt for the choice of staged acquisition rather than partial and full acquisition in the contexts of mild regulatory framework in host countries and when the acquired firm business requires extensive improvements and the target host market structure is fragmented. Finnish MNEs opt for the choice of full acquisition rather than partial and staged acquisition in three contexts specifically: (1) when the acquiring Finnish MNE possesses host‐country capability, target‐specific experience, and ensures the retention of top management personnel of the acquired target; (2) when the size of the acquired target is relatively very small compared to the acquiring MNE; and (3) when the nature of the acquired firm business is well developed and the target host‐market structure is consolidating. © 2016 Wiley Periodicals, Inc.     

Editorial

This article examines the moderating effect of institutional distance on the relation between personal experiences of chief executive officers (CEOs) and entry mode choice. Hypotheses are tested with data on 156 foreign direct investments made by west-European multinational enterprises in 10 central and eastern European economies in the 1992–2002 period of transition. Two demographic features are examined: CEOs’ age and international experience. The results provide support for the theory that the impact of CEOs’ experiences on the entry mode choice is conditional on the institutional distance between home and host countries.     

Geographic Distance as a Moderator of Curvilinear Relationship Between Cultural Distance and Shared Ownership

This study tests geographic distance as a moderator of the curvilinear relationship between cultural distance and a firm's preference for shared ownership entry mode. The sample consisted of US foreign direct investments in 60 countries spread over 18 years. Results showed that an inverted U‐shaped relationship between cultural distance and preference for shared ownership is stronger for firms separated by high geographic distance. While full equity ownership is most likely when both cultural and geographic distances are either low or high, shared ownership is most likely when the cultural distance is high (low) but the geographic distance is low (high). Copyright © 2012 ASAC. Published by John Wiley & Sons, Ltd.     

Cultural distance,political risk,or governance quality? Towards a more accurate conceptualization and measurement of external uncertainty in foreign entry mode research

It is well accepted that multinational enterprises (MNEs) prefer equity joint ventures (JVs) over wholly owned subsidiaries (WOSs) in foreign countries where the formal and informal external environment is highly uncertain. Many entry mode studies have modeled the external uncertainty faced by MNEs in foreign countries as the cultural distance to these countries (thus focusing on the informal environment), or as their political risk level (thus focusing on the formal environment). We argue that both approaches are suboptimal because (1) cultural distance not only reflects the external uncertainty associated with WOSs but also the internal uncertainty associated with JVs, and (2) political risk covers only one aspect of the formal external environment. We contend that the governance quality of foreign countries is a better proxy for external uncertainty. The lower this quality, we hypothesize, the higher the likelihood that MNEs will choose JVs over WOSs. An analysis of 231 entries by Dutch MNEs into 48 countries offers support for this hypothesis. We also find that cultural distance has no impact on entry mode choice and that political risk has the weakest impact of all aspects of governance quality.     

Differentiated effects of formal and informal institutional distance between countries on the environmental performance of multinational enterprises

This research examines the influence of environmental institutional distance between home and host countries on the standardization of environmental performance among multinational enterprises using ordinary least-squares (OLS) regression techniques and a sample of 128 multinationals from high-polluting industries. The paper examines the environmental institutional distance of countries using the concepts of formal and informal institutional distances. The results show that whereas a high formal environmental distance between home and host countries leads multinational enterprises to achieve a different level of environmental performance according to each country's legal requirements, a high informal environmental distance encourages these firms to unify their environmental performance independently of the countries in which their units are based. The study also discusses the implications for academia, managers, and policy makers.     

Change dynamics in institutional discontinuities: Do formal or informal institutions change first? Lessons from rule changes in professional American baseball

Abstract

Extant research presents a conflicting picture of change dynamics during institutional discontinuities. Some studies propose or depict formal rules as changing first. Others argue that norms need to change before formal rules can be revisited, let alone change. An examination of the literature suggests a contingency theory. In mature organisational fields with institutionalised informal rules, norms need to be questioned and changed before any change in formal rules can take place. On the other hand, in emergent organisational fields – where no particular rules of the game have been institutionalised ? change in higher-level institutions begins with a change in formal rules. The article also presents two historical cases of major institutional change in professional American baseball that illustrate the theory proposed.     

Legitimizing the apprenticeship practice in a distant environment: Institutional entrepreneurship through inter-organizational networks

This paper asks how Multinational Enterprises (MNEs) engage in institutional entrepreneurship to successfully transfer the organizational practice of apprenticeship-based training from Continental Europe to the distant host environment of the United States. In our case study, we highlight the important role of inter-organizational networks to coordinate engagement with the cognitive, normative, and regulative pillars of host country institutions. This networked form of institutional entrepreneurship involves the formation of inter-organizational networks for the purpose of bringing about institutional change collaboratively. In the process of transferring apprenticeship, a particular vision of workforce training was created, support gathered, and institutional change was sustained locally around the issue of training. We argue further that networked institutional entrepreneurship is a useful strategic tool to overcome the particular kind of institutional distance between the institutional settings of more coordinated market economies (CMEs) and more liberal market-oriented economies (LMEs). We contribute to existing knowledge by showing how practice transfer is shaped by particular kinds of institutional distance, and highlighting the role of inter-organizational networks as a way of governing collective agency associated with institutional entrepreneurship and the emergence of new local proto-institutions.     

The role of MNEs’ internationalization patterns in their regional integration of FDI locations

Multinational enterprises (MNEs) use the regional aggregation and integration of their foreign direct investments as an important part of their internationalization. Internationalization decisions are integrated at the region level; however, little work has focused on explaining the extent of this regional integration. We develop theoretical arguments and test new hypotheses about MNEs’ general international experience and international geographic scope (i.e., institutional diversity and international dispersion) as predictors of their extent of regional integration. The results from a sample of Japanese MNEs validate these different effects, suggesting these MNE level variables are important for regional influences on their internationalization decisions. The results further our understanding of how MNEs organize their internationalization and strategic geographic foci.     

Does religion influence location choice in the hotel industry?

Relying on data from the Spanish hotel industry, this paper analyzes the role of informal institutional factors (IIF) in location choice. Earlier studies mostly use an aggregate level of cultural differences as informal institutional factors. We, however, go deeper into this concept and study the impact of two distinct but interrelated informal institutional factors, religion and language, on the location decisions of hotel chains. We resolve the overlapping problem between these two highly correlated IIF by means of a ‘layer’ measurement in Confirmatory Factor Analysis. Our results show that the higher the informal institutional differences (IID), the lower the presence of the hotels in the foreign country. While physical distance plays a key moderating role, formal institutional differences (FID) did not show any effect. We contribute by unravelling the role of language and religion in location choice in the internationalization process of service firms. Moreover, we test the moderating role of formal institutions in these decisions, thus combining the impact of formal and informal institutions on location choices in service firms.     

Cross-border acquisition in services: Comparing ownership choice of developed and emerging economy MNEs in India

Despite rapid increase in cross-border acquisitions (CBAs), prior research has not examined ownership choice of foreign MNEs investing in the services sector in emerging economies. Drawing on multiple strands of literature, we posit acquirer's ownership choice (partial versus full acquisition) to be influenced by type of service offering (soft versus hard), institutional distance between acquirer and target nation, and acquirer's country-of-origin (emerging versus developed economy). Empirical analysis of 385 CBAs undertaken in India over an 11-year period provides evidence that services, in particular soft services, and high institutional distance increases the likelihood of full acquisition by emerging economy acquirers. However, acquirers from developed economies show preference for partial acquisition under similar circumstances.     

Board composition,family ownership,institutional distance and the foreign equity ownership strategies of Turkish MNEs

In much of the developing world, families represent the dominant form of firm ownership. This study investigates how this influences equity ownership strategies when firms venture abroad. Drawing on agency theory and institutional theory, we investigate the direct effect of board composition and family ownership on the equity-based ownership strategies of multinational enterprises (MNEs) in their affiliates, and how institutional distance may moderate this. Examining foreign affiliates of listed Turkish MNEs, we find that a high ratio of independent directors is negatively linked to levels of equity ownership of MNE affiliates. We also find that a high ratio of inside directors on the board is positively associated with the equity stake of MNEs in their affiliates. The significant interaction effect between board composition, family ownership and institutional distance helps explain the unexpectedly weak effects of institutional distance.     

Institutional distance and the quality of the headquarters–subsidiary relationship: The moderating role of the institutionalization of headquarters’ practices in subsidiaries

Through the lens of the institutional theory, we developed and empirically tested a contingency theoretical framework that examines the effects of formal and informal institutional distances on the quality of the headquarters–subsidiary relationship, and how such effects are contextualized by internal institutionalization of headquarters’ practices in subsidiaries of Chinese multinational enterprises (MNEs). Data were collected from both the headquarters of 297 Chinese MNEs and their respective subsidiaries. The results show that regulative and cultural distances are positively associated with the quality of the headquarters–subsidiary relationship, and that these positive relationships are stronger when subsidiaries institutionalize headquarters’ practices to a higher degree. Theoretical and practical implications are highlighted in the paper.     

Morphing: The Linkage of Inward Private Equity and Outward Ventures

Private equity is impacting the global economy and competitive landscape of multinational enterprises (MNEs) worldwide. In this pioneering study, we find an important new pattern for global interfirm connections: an inward private equity investment is inductive for emerging MNEs to conduct an outward venture. This inward‐outward linkage implies that emerging MNEs are more likely to undergo a series of organizational changes after receiving private equity investments. These changes include restructuring their boards of directors, rebuilding their top management teams, reconfiguring their corporate resources, reframing the industry structure, and altering competitive dynamics. These organizational changes induce emerging MNEs to modify their strategies such as speeding up the internationalization process, locating additional outward ventures in advanced economies, and choosing more complex entry modes, particularly cross‐border mergers and acquisitions (M&As). We describe this type of evolving internationalization of emerging MNEs as a “morphing” process with in‐depth case studies on emerging Chinese MNEs including Lenovo, Zoomlion, Geely, Alibaba.com, Huawei, NVC Lighting, and BYD. © 2014 Wiley Periodicals, Inc.     

Performance of foreign subsidiaries: Does psychic distance matter?

Psychic distance paradox emerged from studies that found a positive effect of psychic distance on subsidiary performance. Recently, it was argued that international experience influences the relationship between psychic distance and performance. We propose that the effect of market-specific knowledge, rather than general international experience, should be examined because it negates the effect of psychic distance. We study 208 foreign direct investments made by west-European MNEs in the CEE (Central and Eastern European) region between 1996 and 2002 and find that positive relationship between psychic distance and subsidiary performance is observed only in the absence of market-specific knowledge. Psychic distance has no effect on subsidiary performance when the MNEs have CEE investment experience or have established the subsidiary with a local partner.     

National distances,international experience,and venture capital investment performance

This study examines how the performance of cross-border venture capital investments is affected by national institutional and cultural distances between the environments of venture capitalists (VCs) and investee ventures. We propose that institutional and cultural distances will decrease VCs' effectiveness in conducting venture capital activities and negatively affect investment performance in terms of exit success, and obtain supportive evidence while controlling for geographic distance. We further analyze how VCs can use their international experience to mitigate the negative consequences of national distances. We find that while broad international experience in diverse countries attenuates the deleterious effects of institutional distance in a significant way, it does not have a similar impact in attenuating the negative effects of cultural distance.     

Informal payments by patients for health services: prevalence and determinants

ABSTRACT

The aim of this paper is to explain the prevalence of informal payments in the health services sector in Southern Europe using the lens of institutional theory. To evaluate whether informal payments prevail due to formal institutional failures which lead to an asymmetry between the laws and regulations (formal institutions) and the unwritten rules (informal institutions), an analysis is undertaken of 2013 Eurobarometer survey data on the propensity to make informal payments by patients in Southern Europe. A strong association is found between the extent to which formal and informal institutions are unaligned, and the prevalence of informal payments, and such payments are found to be more likely when there is a lack of modernisation of governance coupled with a low range and reach of health services provision, lower health outcomes and systems focus on curative rather than preventative health services. The theoretical and policy implications are then explored.