The impact of MNE cultural diversity on the internationalization-performance relationship: Theory and evidence from European multinational enterprises

Prior work has established the importance of degree of internationalization for understanding the performance of multinational enterprises. Despite all efforts, however, the relationship between degree of internationalization and firm performance (I-P) is still the subject of ongoing debate following inconclusive findings. We suggest that the international business literature has largely overlooked MNE cultural diversity as an essential determinant of the I-P relationship. We argue that the impact of the degree of internationalization on MNE performance is contingent on MNE cultural diversity. The impact of the degree of internationalization on performance is positive for MNEs that operate in culturally similar countries and negative for MNEs that operate in culturally diverse countries. Our study is among the first to examine the impact of MNE cultural diversity on the I-P relationship with a unique panel dataset from European multinationals. The results provide convincing support for our approach to the study of the degree of internationalization and MNE performance.     

Intangibles Trade and MNEs: Supply-Chain Trade in R&D Services and Innovative Subsidiaries

This paper contributes to the literature on vertical specialization in R&D (or ‘R&D fragmentation’) and trade in intermediate services by examining the role of multinational enterprises (MNE) activities associated with bilateral foreign direct investment (FDI). Prior work in production networks (or global value chains [GVCs]) and R&D fragmentation suggests a complementarity relationship between FDI in R&D and technological knowledge flows. The paper examines this proposition empirically for R&D services trade by extending the gravity framework of supply-chain trade for intermediate services with bilateral MNE operations as economic mass variables. The results are partially consistent with the hypothesized complementarity. The econometric strategy accounts for zero trade observations. The latter addresses possible selection and consistency issues of traditional gravity trade specifications, and allows exploring extensive vs. intensive margin of trade. Understanding the role of MNEs in these transactions may be useful for policies aimed at increasing participation and upgrading in MNE-driven GVCs.     

Trade Effects of the European Union's Service Directive: Contrasting ex ante Estimates with Empirical Evidence

One of the top priorities to improve the European Union's growth performance is the creation of a single market for services. The directive on services adopted by the Parliament and the Council by the end of 2006 aims at removing barriers to the free movement of service providers on the internal market. Previous studies quantified ex ante sizable effects of implementing the directive in its original form. This paper is a first attempt to evaluate ex post the trade effects induced by a directive – which excludes the country‐of‐origin principle – by performing a difference‐in‐difference‐(in‐differences) estimator on a sample of EU‐ and non‐EU countries in the period 2004 to 10. We account for non‐tariff trade barriers and the endogeneity of regional trade agreements and find that the service directive adds to a reallocation of business services trade within the EU. Accounting for the trade effect of past deregulations, the EU directive fosters a deeper integration of the new member states into the European service value‐added‐chain and promotes business service exports from third countries towards the EU significantly more than trade of country pairs in the control group. The reorientation of the EU‐15 towards the new members is in turn associated with less intense intra‐EU‐10 businesses, while business trade between EU‐15 members is not significantly affected.     

Intermediary Products: FDI Strategies,Imports, Exports,and Trade Balances in Developed Economies

Has the relationship between the dominant investment motives of multinational enterprises (MNEs) and national trade balances, imports, and exports changed over time? A 1996 study hypothesized and found that the MNE market versus resource seeking investment motives in developed countries (DCs) resulted in different aggregate impacts on national trade balances, imports, and exports. In this study, we ask whether the increased use of intermediary products, a major change in the way MNEs conduct business, affect the previously found patterns. Because firm‐level data on intermediary products is not widely available across countries, we indirectly test their impact, hypothesizing that the rise in use of intermediary products has changed MNE investment motives in DCs, resulting in stronger relationships between foreign direct investment (FDI) and imports/exports in high‐FDI DCs but weaker links between FDI and national trade balances. Implications and future research directions are discussed. © 2015 Wiley Periodicals, Inc.     

How Industry Dynamics Influence the Internationalization–Performance Relationship: Evidence From Technology‐Intensive Firms

The relationship between internationalization and performance has been the topic of a significant number of research studies, which report a mixed pattern of findings. However, the incorporation of global industry characteristics in the testing of this relationship has not been a facet of these studies. This article investigates the impact of intrafirm trade and differential market growth of the industry on the relationship between internationalization and performance. It focuses on technology‐intensive industries using a sample of 795 firms drawn from five countries. Findings indicate that internationalization has a positive relationship (which is quadratic in nature) with performance. Intrafirm trade and differential growth rates were found to interact with the relationship between internationalization and performance, thereby indicating the benefits of internationalization to be contingent on global industry characteristics. © 2012 Wiley Periodicals, Inc.     

Investment History and Market Orientation Effects in the TFP–FDI Relationship1

This paper examines the robustness of previous stochastic dominance tests that find significant total factor productivity (TFP) heterogeneity between firms that export abroad and multinational enterprises (MNEs). We extend this literature by focusing on how ‘within‐MNE’ heterogeneity affects the extent to which one can identify the TFP threshold in the exporter–MNE TFP relationship. Within‐MNE heterogeneity is established by determining both the number and location of the foreign affiliates established by each MNE. In this way, we separate single‐affiliate MNEs from those with multiple affiliates, as well as analyse the role played by vertical FDI, a topic typically ignored in previous stochastic dominance tests of the Helpman et al. (2004, American Economic Review, 94, 300–16) hypothesis. Our empirical tests employ Japanese firm‐level FDI and TFP data for the period 1975–2000. Using Kolmogorov–Smirnov tests to determine stochastic dominance, we find significant TFP heterogeneity within the MNE group based on investment history and affiliate geographic location. While our results confirm the standard HMY three‐tiered classification to exist for Japanese firms, exporter–MNE ‘between‐group’ TFP heterogeneity is sensitive to the ‘within‐MNE’ investment history heterogeneity. We note that single‐ and two‐affiliate MNEs are statistically more similar to exporting firms than to MNEs with greater foreign affiliate totals. This shows the exporter–MNE TFP threshold to be not as explicit as Helpman et al. (2004, American Economic Review, 94, 300–16) suggest. In fact, our results allow us to identify the MNE‐side width of Girma et al.’s (2005, Economic Letters, 83, 317–24) ‘uncertainty region’ surrounding this threshold. Finally, we also find a strong TFP–market orientation relationship exists where the most productive firms follow complex integration strategies, lesser TFP firms do horizontal FDI, and the least productive MNEs do vertical FDI.     

Granting preferential market access in services sequentially versus jointly with goods

Despite the cost and resource‐effectiveness of joint trade negotiations and complementarities between goods and services‐trade flows, more than 12% of the 132 WTO‐notified services‐trade agreements (STAs) in force until August 2015 were entered into effect sequentially to goods‐trade accords. This stylised fact motivates our study of the determinants of joint versus sequential negotiation/accession of goods and services accords, a subject hitherto unexplored in the growing literature on the determinants of STA membership. Our results suggest larger marginal effects of fundamental economic, geographic, institutional, doing business and services regulatory factors on the propensity of joint negotiation/accession compared to STA formation alone. Moreover, cultural‐distance variables are only found to affect the likelihood of joint preferential liberalisation of goods and services trade, without influencing STA‐only membership.     

Understanding the international mobility of Chinese temporary workers

Using unique panel data on the temporary movement of Chinese workers to 191 economies during 1992–2015, I investigate the patterns and determinants of labour mobility in the services trade. I estimate a gravity model of labour mobility in two categories, namely overseas labour services and overseas contracted projects. I find that distance (proxy for migration costs) and income are not the most important determinants of the latter. For overseas contracted projects, the dispatch of workers is not driven by their pure economic aims but by the Chinese government's policies and strategies such as its overseas project promotion policy. Furthermore, I employ the difference‐in‐differences estimation method to investigate the impact of this policy upon labour mobility. The results show that the policy of promoting overseas contracted projects has causal and positive effects on labour mobility in construction‐related sectors.     

Firm Resources and Host‐Country Factors Impacting Internationalization of Knowledge‐Intensive Service Firms

In the era of the global economy, knowledge‐based services are becoming important sectors of the service industry. Services offered by a university are knowledge‐based services. Universities are in the service business, and they play a key role in creating and disseminating knowledge through teaching, research, and related services that cross domestic borders. The current research focuses on the internationalization of US MBA programs. The internationalization of US MBA programs refers to the delivery of knowledge‐based services beyond the domestic borders. The main objective of our research is to examine the effect of an organization's (e.g., a US business school) resources and a host country's attractiveness on the internationalization of knowledge‐based services offered by a firm (a US business school). Using data gathered from MBA programs of US colleges and universities, theÊstudy findings show that internationalization is influenced by human capital, prestige and reputation, management's willingness, and foreign market attractiveness. The results of this study offer practical insights for US business school leaders. © 2014 Wiley Periodicals, Inc.     

Development and validation of a firm-level vertical and horizontal internationalization metric

The lack of valid and reliable measures of firm-level vertical and horizontal internationalization is impeding the development and testing of hypothesized relationships between these respective dimensions of internationalization and a range of important MNE characteristics, actions, and effects. Through a series of qualitative and quantitative studies using data collected from senior MNE executives (total N?=?3,146), we develop and validate a scale to measure both vertical and horizontal firm-level internationalization. Subscales for each type of internationalization prove to be unidimensional, reliable, temporally stable, and to have predictive, cross-cultural, cross-sectoral, and discriminant validity.     

Migration and servicification: Do immigrant employees spur firm exports of services?

Services play an increasingly important role in production, employment and international trade but are subject to substantially higher trade costs relative to manufactured goods. Knowledge of how these trade costs can be mitigated is important for facilitating trade of services. In this paper, we analyse the role of immigrant employees as facilitators of firm exports of services, a role that remains largely unexamined. We bridge the gap in existing research by drawing on new data for nearly 30,000 Swedish firms during the period 1998–2007 within a heterogeneous firm framework. The results have important policy implications. As the multilateral approach to facilitating trade is challenged and more countries are imposing measures to restrict the cross‐country mobility of people, policymakers may need to find new ways to promote exports of services. Our results indicate that immigrant employees spur firms' export of services activities: hiring one additional foreign‐born worker can increase services exports by approximately 2.5 per cent, on average, with a stronger effect found for skilled and newly arrived immigrants. Therefore, policymakers could leverage the findings of this study to implement initiatives that utilise high‐skilled immigrants to promote services exports.     

Digitalization,internationalization, and firm performance: A resource-orchestration perspective on new OLI advantages

Digital forces and digital global connection weaken traditional ownership, location and internalization (OLI) advantages and intensify new OLI advantages (open resources, linkages and integration). However, by building on the resource-orchestration theory, we raise the question of how digitalization (utilization and orchestration of digital resources) and internationalization (firm-level outward internationalization and country-level inward internationalization) affect firm performance. We introduce the degree of outward internationalization and home-country inward foreign direct investment (FDI) inflows as moderators in achieving firm performance as a result of digitalization. Using a panel dataset of 571 U.S. manufacturing firms, we find a curvilinear relationship between digitalization and performance. The top quartile of digitalization efforts is rewarded by significant profitability. Moreover, high levels of outward internationalization and high net-FDI inflows increase the performance gains attributable to high levels of digitalization. Overall, the resource-orchestration theory complements new OLI advantages in explaining firm performance in the digital world.     

Intra‐stakeholder alliances in plant‐closing decisions: A stakeholder theory approach

This article discusses plant‐closing decisions by multinational enterprises (MNEs) applying a stakeholder theory approach. In particular, we focus on the emergence of “intra‐stakeholder alliances,” that is, alliances among the various stakeholder groups of a specific corporation. We analyze the emergence of stakeholder alliances in reaction to MNEs' decisions to terminate production locally and discuss their influence on the outcomes of such decisions. Our research is inspired by two exceptional case studies of two multinational breweries that announced their decisions to close niche breweries in small towns in Italy and Belgium. In both cases, the initial decision was ultimately reversed through the actions of intra‐stakeholder alliances. We combine insights from stakeholder theory and the social movement literature to analyze the action and influence of intra‐stakeholder alliances in seven cases of plant‐closing decisions. We conclude by formulating four general propositions that can provide guidance to MNE management in plant‐closing decisions. Our findings extend managerial stakeholder theory, show how this approach can improve strategic management analysis, emphasize the importance of the relationships among (local) stakeholders in the (global) value‐creation process, and shed light on the collective action and influence of intra‐stakeholder alliances.     

Do WTO+ commitments in services trade agreements reflect a quest for optimal regulatory convergence? Evidence from Asia

Literature examining WTO + commitments in services trade agreements (STA s) has not considered the role of services regulation. We bridge this gap using a sample of 15 South/South‐East Asian countries, given the burgeoning trend of Asian economies towards services preferentialism and the largely WTO + nature of their preferential services commitments. Our empirical findings suggest that Asian trading dyads with regulatory frameworks that are more similar and more trade restrictive tend to undertake higher levels of WTO + commitments in their STA s. There is also evidence in our results, including by modes of supply, for WTO + commitments in Asian STA s being driven by goods trade complementarities, alluding to supply chain dynamics in the region. Such results support the hypothesis that the heightened “servicification” of production generates a demand to lower services input costs arising from regulatory incidence and heterogeneity.     

Which regions matter for MNEs? The role of regional and firm level differences

This paper explores the impact of regional and firm level heterogeneity on MNE performance from an operational perspective. We find that the underlying economic growth of a region and the MNE’s overall product diversity significantly impact returns from downstream operations in specific regions. Based on a 10 year panel dataset of 1249 US based MNEs, results show that the incremental impact of the degree and speed of operations within a given region, is greater for regions exhibiting faster economic growth than for slower growing ones. For slower growing regions only, product diversity of the MNE becomes important and negatively moderates the link between operations and performance. Previous literature has shown that MNEs largely follow a regional strategy and has ignored the role of inter-regional differences, and how firm level characteristics interact with region specific ones. Once inter-regional heterogeneity is introduced, a more complex picture of the internationalization performance link emerges than has been addressed previously, with significant implications for the theory and practise of internationalization.     

Explaining Intra‐Africa Internationalization

There is a paucity of literature on intra‐African trade on the continent despite clear indications that the phenomenon is on the increase on the African continent. This review focuses on some of the key issues and outcomes that have been raised in this recent book. The book provides an eclectic bag of theories to explain the phenomenon, but these theories can have a better explanatory power if situated within an Africapitalism context. Also, strategic, political, and digital considerations in internationalization on the African continent are espoused in Part 2 of the book. The final part of the book presents cases from different sectors in multiple countries to buttress the point that intra‐African trade and the emergence of African multinationals is on the rise. The editors have mapped out the nature of intra‐African internationalization but clearly note that the attempt is not exhaustive. Consequently, it represents a starting point for scholars to interrogate the issues that have been espoused in this book.     

What Would Normalisation of Economic Relations Between Mashrek Countries,Turkey and Israel Imply?

This article examines the potential for economic cooperation among Mashrek countries, Turkey and Israel in the fields of trade in goods and services both separately and across‐field. It first describes the macroeconomic features of the region and then estimates the overall potential for inter‐industry trade in goods by estimating gravity equations for each country separately and the potential for intra‐industry trade using Grubel‐Lloyd indices. The article also examines the potential for trade in specific services, namely information and computer technology, transport, financial and health services.     

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.     

The effect of border barriers to services trade on goods trade

This paper has two objectives (a) to introduce border policy-induced barriers (PIBs) to services trade and (b) analyse the impact of border PIBs in services sectors on goods trade. The World Input-Output Database covering 43 countries is used over the period 2000–14. A three-stage analysis is employed. The measures of bilateral services trade barriers calculated in each services sector in the first stage are decomposed into its cultural/geographic and policy-induced parts in the second stage. Border PIBs to services trade are used in the structural gravity estimations of bilateral goods trade in the final stage. The results demonstrate significant and robust adverse effects of barriers to services trade on goods trade. When the level of development is taken into consideration, there are marked differences in the impact of these barriers on goods trade.