Pro-market institutions and outward FDI of emerging market firms: An institutional arbitrage logic

We offer new theory and evidence regarding the effects of pro-market institutions on outward foreign direct investment (FDI) of emerging market firms (EMFs). Drawing on the logic of institutional arbitrage, we integrate the escapism and exploitation mechanisms of EMF internationalization into a unified theoretical context. We propose an inverted U-shaped relationship between host market-supporting institutions (MSI) and the investment scale of an EMF’s FDI project in the country, showing an escape-driven upward slope for low-to-medium MSI levels and an exploitation-driven downward slope for medium-to-high MSI levels. We supplement this main argument with two boundary conditions: the alleviating effect of home market liberalization (HML) and the strengthening effect of home government subsidies (HGS), demonstrating the coexistence and variation of pro- and anti- market institutions in an emerging market. Using information on 1,450 FDI projects conducted by 288 Chinese listed firms in 116 host countries, we obtain supportive evidence for the predicted relationships between the three institutional forces. This study enriches the literatures on institutional arbitrage and pro-market institutions with evidence from EMFs.     

Home country institutional environments and foreign expansion of emerging market firms

We propose that home country institutional environment shapes emerging market firms’ foreign expansion. We argue that better-developed home country institutional environment promotes emerging market firms’ expansion to foreign markets more advanced than the home country, while institutional instability in the home country reduces this propensity. We further hypothesize that the effects of home country institutional environment are contingent on firm-specific government ownership. Data on the foreign expansion of 921 Chinese firms in the period of 1996–2000 provide strong support for the effects of home country's institutional development and institutional instability. We also find that a high degree of government ownership weakens the positive effect of home country's institutional development on emerging market firms’ propensity to expansion to more advanced markets.     

Home country institutions and the internationalization of state owned enterprises: A cross-country analysis

National institutions shape the ability of civil society and minority shareholders to monitor and influence decision-makers in listed state owned enterprises (SOEs), and thereby their strategies of internationalization. We argue that the weaker are such controls, the more likely such decision makers pursue self-serving motives, and thus shy away from international investment. Listed SOEs’ strategies will thus be more similar to those of wholly privately owned enterprises (POEs) when these controls are more effective. Building on Williamson's (2000) hierarchy of institutions, we examine how home country institutions exerting normative, regulatory, and governance-related controls affect the comparative internationalization levels of listed SOEs and POEs. Based on a matched sample of 153 majority state owned and 153 wholly privately owned listed firms from 40 different countries, we confirm that, when home country institutions enable effective control, the internationalization strategies of listed SOEs and POEs converge.     

Transfer of corporate governance practices into weak emerging market environments by foreign institutional investors

We advance the practice transfer theorising of corporate governance (CG) by developing a framework that uncovers how foreign institutional investors (FIIs) improve on CG practices of firms in weak institutional environments. Using hand-collected data for 85 listed Nigerian firms covering the 2011–2016 period, we show that FIIs bypass the weak regulatory environment in emerging markets by transferring good CG standards to host countries. Furthermore, FIIs’ ability to enhance the CG quality of firms in such environments is moderated by their home country’s legal system, with FIIs from countries with strong legal enforcement having an enhanced ability to improve CG practices of firms in weak institutional environments. However, cultural differences between the FIIs’ home and host countries negatively moderate this relationship. Our results are robust to the choice of estimation technique and various sources of endogeneity.     

Host country risk and foreign ownership strategy: Meta-analysis and theory on the moderating role of home country institutions

Empirical evidence for the relationship between host country risk and a firm’s ownership level in its foreign entry strategy is inconclusive. We revisit this relationship by integrating the internalisation logic with an institution-based view to examine the moderating effects of formal and informal institutions in the home country. By meta-analysing 64 empirical studies involving 52,229 ownership decisions on foreign market entry, this study gives support to theoretical arguments that the focal relationship is positively moderated by institutional constraints on policymakers and risk-taking tendencies in the home country but is negatively moderated by the joint effect of these two institutional factors. These findings shed new light on the literature of host country risk and foreign ownership strategy. Besides describing the implications of the findings for theory and practice, we discuss the agenda for future theory development in international business.     

Mapping the impact of home‐ and host‐country institutions on human resource management in emerging market multinational companies: A conceptual framework

While there is a growing literature concerned with multinational companies from emerging markets (EMNCs), it does not contain a robust conception of how institutions shape human resource (HR) practices in such firms. We contribute to filling this gap through developing a framework of how institutions create a range of constraints and opportunities for EMNCs. Specifically, our framework contains three key elements of how MNCs from emerging markets interact with institutions: EMNCs develop approaches that to some extent reflect the perceived strengths and weaknesses of the institutions in the home country (institutional conditioning); the strategies of actors in EMNCs can overcome the weaknesses of the home country by drawing on institutions in other countries (institutional arbitrage); and the actions of EMNCs can reinforce, or create pressures for change in, the institutional context in the countries in which they operate (institutional change/consolidation). By mapping this set of strategies of EMNCs, we contribute to a fuller understanding of the relationship between institutions and HR practices, and we outline how the rise of EMNCs reshapes the global landscape by adding new kinds of firm behavior to capitalist diversity.     

Formal institutions and foreign direct investment

This study examines the impact of formal institutions on foreign direct investment. First, the quality (strength or weakness) of formal institutions in host countries is analyzed. Second, the absolute differences in the quality of formal institutions between the host and home countries are examined. The results show that (1) strong formal institutions in host countries positively influence FDI flows and (2) the larger the institutional distance between the home and host country, the lesser the FDI inflows. © 2009 Wiley Periodicals, Inc.     

Home country institutions,social value orientation,and the internationalization of ventures

We examined how home country formal institutions and the venture’s value orientation influenced the venture’s likelihood of internationalization based on a data set that was adapted from the Global Entrepreneurship Monitor (GEM) data in the year 2009, covering 7668 individual ventures in 25 countries. Better-developed home country formal institutions are found to have a supportive impact on the venture’s likelihood of internationalization. The supportive impact is also found to be weaker for socially oriented ventures than for profit-oriented ventures. The venture’s social value orientation negatively moderates the home country formal institutions–likelihood of internationalization relationship. The negative moderating effects can be explained as follows: Socially oriented ventures in the better-developed home country institutional environment are less likely to develop coping skills against uncertain and risky institutional environments, which are common in their host countries. Besides the theoretical contributions, this paper also highlights the implications for both business researchers and policy makers.     

Coevolution of home country support and internationalization of emerging market firms

This study explores the role of diverse home country support for the internationalization of emerging market firms through a coevolutionary approach. A coevolutionary approach can improve our understanding of the complexities of comprehensive institutional transition in emerging market economies which allows firms to adapt and leverage institutional support for internationalization. Based on institutional theory and the strategic choice perspective, we present a coevolutionary model of mutualism and competition among businesses, government officials and industry players through multidirectional interactions. Our research offers an alternative and nuanced explanation of selective and relevant home country support, the role of independence of firms, support criteria and reinforcement of governance for internationalization of emerging market firms. This study contributes to the literature of home country support for internationalization through an enrichment of the institutional framework and strategic choice with a political perspective.     

Institutional conditions,economic policy uncertainty and foreign institutional investment in China

This paper investigates the influence of host and home country institutional conditions on foreign institutional investment. Utilizing longitudinal and multilevel data on foreign institutional investment in Chinese listed firms between 2004 and 2017, we document that foreign institutional investment decreases with increasing economic policy uncertainty in the host nation. We also find that foreign institutional investors respond more strongly to local economic policy uncertainty when their home nations are closer to China, are culturally and administratively similar to China, operate a smaller domestic stock market, and have weaker minority shareholder protection. The impact of economic policy uncertainty on foreign institutional investment is also stronger when the host nation institution is more developed and open.. Moreover, we reveal the mediating role of stock market volatility on this relationship. Overall, we document that foreign institutional investment is not only shaped by institutional conditions in the host country but also influenced by home country characteristics that define geographical and institutional distance between home and host nations.     

A comparative analysis of the role of national culture on foreign market acquisitions by U.S. firms and firms from emerging countries

Do firms from emerging economies differ from U.S. firms in their foreign market acquisition strategies? A comparison of cross-border acquisitions by firms from the United States and 18 emerging countries shows that (1) firms from both the United States and emerging countries target countries that are culturally closer to their home countries, (2) a strong interaction effect occurs between market potential and cultural distance for emerging country firms as the market potential increases (i.e., at high market potential, firms from emerging economies are willing to overlook cultural distance), (3) no interaction effect occurs between market potential and cultural distance for U.S. firms, and (4) different cultural dimensions affect the market entry strategies of U.S. firms and firms from emerging countries.     

Macro‐institutional conditions in Ghana and the challenges to HRM program development and implementation

Multinational enterprises (MNEs) originating from advanced economies with operations in less developed host countries need to have a good understanding of the macro‐institutional conditions of the host country. Given HRM practices are context‐specific and embedded within the institutional and cultural settings of the host country, an exploratory qualitative study approach was employed to ascertain the host country's institutional dimensions (drivers) likely to undermine HRM program implementation in large local companies and in MNEs. Data were drawn from key stakeholder participants, including HR managers from MNE subsidiaries, domestic firms, and officials from key stakeholder institutions. The evidence points to six (6) dimensions of a less‐developed host country's macro institutions that undermine firms' HRM advancement. These include the regulatory system, education and training arrangement, labor market conditions, cultural barriers, political actors' intrusion, and economic uncertainty. The implications thereof are discussed.     

Migrants and multinational firms: The role of institutional affinity and connectedness in FDI

We examine how, and to what extent, migrants in a host country attract foreign direct investment (FDI) from firms based in their country of origin (CO). Introducing the notion of institutional affinity, we argue that increased institutional affinity and increased connectedness of institutional environments of migrants’ CO and country of residence, make a location attractive to CO firms. Empirical analysis of FDI and migration panel data shows that in addition to the traditional factors influencing FDI patterns, there is a collective migrant effect on FDI, and this effect is statistically significant and economically meaningful for migrants from developing countries.     

Home country uncertainty and the internationalization-performance relationship: Building an uncertainty management capability

We analyze the impact of home country uncertainty on the internationalization-performance relationship of emerging market firms. Building on organizational learning theory and the institutional approach, we argue that internationalization has a positive impact on the performance of emerging market firms, and that this relationship is strengthened for firms based in emerging countries with higher corruption and political risk. The reason is that by being exposed to high levels of home country uncertainty in the form of political risk and corruption, firms develop an uncertainty management capability at home that helps them face the challenges of internationalization better. We also propose that this uncertainty management capability helps emerging market firms perform better outside of their home region. We test our arguments on a sample of 536 firms from Argentina, Brazil, Chile, and Peru.     

Business under adverse home country institutions: The case of international sanctions against Myanmar

We expand the institutional perspective of international business by exploring the range of institutions outside the host country that influence international business. We use a critical case, Myanmar, to explore the dynamics of institutional constraints and the reaction of business to such constraints. Our in-depth case analysis focuses on four industries for the period 1996–2011. On this basis, we develop the concept of ‘low profile strategy’ and propose a conceptual framework of home country pressures influencing multinational enterprises’ international operation, and the variation of their impact across industries and firms. This framework provides a foundation for future work on the extra-territorial effects of institutions in international business.     

Is the cure worse than the disease? The effect of emerging market MNEs on host country corruption

In recent years, there has been an exponential increase in the amount of foreign investment by emerging market multinational enterprises (EMNEs). While it has been debated whether EMNEs strengthen or weaken the institutions in host countries they invest in, the literature has paid limited attention to how EMNE investment impacts corruption in other emerging markets, one of the most significant destinations of EMNEs. Following Hoskisson et al. (2013), we categorize two types of emerging markets as targets of EMNE investment, a) low-income emerging markets and b) middle-income emerging markets, based on their institutional and market development. Building on the theory of firm-specific advantages (FSAs) and the institutional advantage (IA) of EMNEs, we reason that EMNEs enter foreign markets in accordance to where their skills and competencies can be effectively utilized, and this impacts corruption in the host country. We make two key arguments: (1) EMNEs predominantly use their IA in low-income emerging markets, which in the long term increases corruption in the host market, and (2) EMNEs predominantly use their FSAs to gain competitive advantage in middle-income emerging markets, which decreases corruption in the host market. Empirical analysis of Chinese outward FDI from the 2008-2018 period supports our hypotheses. Our research contributes to both the literature on EMNEs and corruption.     

How are institutional capabilities transferred across borders?

We develop the idea that an emerging economy firm can develop institutional capabilities at home that can be transferred to institutionally proximate emerging economies. Drawing upon the organizational capabilities, internationalization process, and institutional work literatures, we define institutional capabilities as heuristics, skills, and routines that facilitate the execution of institutional strategies in host countries. Since institutional capabilities gestate over a long period of time, we narrate a longitudinal case study of a property developer operating at the blurred boundaries between state and private enterprise in two Southeast Asian countries.     

Emerging economies and institutional quality: Assessing the differential effects of institutional distances on ownership strategy

The current study contributes to the institution-based view of internationalization that is contingent upon the home country development. We examine the differential effects of formal and informal institutions on emerging market multinational corporations’ (EMNCs) ownership strategies. Facing a large informal institutional distance that represents diverse cultural beliefs, EMNCs opt for a low ownership position that alleviates legitimacy threat, whereas a large formal institutional distance leads EMNCs to establish dominant ownership control. EMNC home market conditions, including market size and regulatory institutional quality, further explain the differential effects of institutional distances.     

The Investment Development Path and FDI From Developing Countries: The Role of Pro-Market Reforms and Institutional Voids

We study the applicability of the investment development path to multinationals from developing countries and illustrate these arguments by analyzing the evolution of Brazilian outward foreign direct investment. This model argues that as countries develop, their firms will develop sophisticated capabilities and eventually become multinational firms. In the case of emerging countries, two additional factors accelerate this process. One is the push of pro-market reforms, whereby firms upgrade their capabilities to compete in the home country, thus becoming multinationals earlier than expected. The second is the push of institutional voids, whereby firms avoid excessive and misguided regulations of the local institutional environment.     

Home bitter home: How labor protection influences firm offshoring

Drawing on the home country literature, we argue that firms headquartered or located in countries with strong labor protection may face challenges in their domestic operations. These firms are likely to initiate offshoring to enhance operational efficiency. Building on this argument, we also examine the boundary conditions moderating this proposed effect including labor productivity and employee stock ownership. Results based on a sample of information technology firms operating within five developed countries during 1990–2010 provide support for these arguments. These findings suggest that offshoring can be a partial exit strategy for firms to address the institutional challenges in their home country.