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.     

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.     

Risk,Return and Performance of Latin America's Equity Markets, 1975-1995

Abstract

This paper examines the investment performance of Latin American equity markets from 1975 through mid-1995. Latin American equity markets have been among the most volatile in the world over the past twenty years. However, their low correlation with other markets has provided diversification benefits. These markets have low liquidity and are concentrated in a few securities. The currencies of Latin American markets have depreciated dramatically against the U.S. dollar. Nevertheless, the investment performance of these markets has been impressive: Their compound returns in U.S. dollar terms have exceeded those of the U.S. and of emerging markets in other regions of the globe.

Este trabajo examina el desempeño de los mercados accionarios latinoamericanos desde diciembre de 1975 hasta junio de 1995. Estos mercados han tenido una de las volatilidades mas altas del mundo durante los veinte años examinados, sin emhargo sus bajas correlaciones con otros mercados han resultado en beneficios de diversificatión. En cada mercado el valor de la unidad monetaria local ha caido dramáticamente con respecto al dólar de Estados Unidos y también han existido problemas de liquidez. A pesar de ésto, el desempeño de los mercados accionarios en la región ha sido impresionante y sus rendimientos compuestos han superado los de los mercados de Estados Unidos y otras economías emergentes.

Esse trabalho examina o desempenho do investimento no mercado de aç[otilde]es da America Latina entre 1975 até os meados de 1995. Os mercados de aç[otilde]es latino-americanos encontram se entre os mais voláteis do mundo nos últimos 20 anos. Entretanto, a sua baixa correlação com outros mercados apresentou beneficios para a diversificação. Esses mercados apresentam baixa liquidez e são concentrados em umas poucas aç[otilde]es. As moedas dos mercados Latinoamericanos depreciaram dramaticamente contra o dólar americano. Entretanto, o desempenho de investimentos nesses mercados tem sido impressionantes: o retorno composto em dólares americanos excederam os dos Estados Unidos e os dos mercados emergentes em outras partes do mundo.     

Ownership and capital structure in Latin America

This study evaluates the capital-structure determinants of Latin American firms using a comprehensive sample covering seven countries. Firms in the region have debt levels similar to those of U.S. firms, which is puzzling, given that Latin American firms experience relatively lower tax benefits and higher bankruptcy costs. This study argues that ownership-concentrated firms avoid issuing equity because they do not want to share control rights. Latin American firms have high ownership concentration, which creates an ideal setting to study how ownership concentration explains firms' capital structure. Consistent with the control argument, this study finds a positive relation between leverage and ownership concentration, when losing control becomes an issue. Also, the study shows a positive relation between leverage and growth. In addition, the study reports that other determinants that do not proxy for control rights are consistent with previous findings. Firms that are larger, have more tangible assets, and are less profitable are also more leveraged.     

The Impact of the home country on internationalization

We analyze how a firm’s home country influences its internationalization. We propose two complementary types of influence. First, we conceptualize a firm’s international trade as shaped by four drivers: comparative advantage, comparative disadvantage, country-of-origin advantage, and country-of-origin liability. Second, we conceptualize the firm’s foreign direct investment as shaped by four other drivers: institutional learning, competitive learning, institutional escape, and competitive escape. Taken together, these eight drivers help pull together recent theoretical advances on topics such as emerging-market multinationals, investment in tax havens, and cross-border acquisitions of firms in advanced countries. We also highlight other home-country related issues, such as strategic responses and home-host country links, in the spirit of fostering future research on home-country effects that warrant a more nuanced understanding.     

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.     

The interplay between home and host institutions on CBA ownership decision

Cross-border acquisitions (CBAs) are one of the key strategies for internationalization. However, most of what is known about CBA strategies relies on the effects of the host country's environment or the home country's conditions. In this article, we analyze the interplay between these two important factors. We show that companies from less institutionally developed countries are more influenced by poor institutional conditions found in host countries. We analyzed a dataset of 1,390 cross-border acquisitions performed by Latin American firms. The literature on the subject points out that less developed host environments lead to fewer shares of ownership acquired in CBAs. However, we confirmed that the quality of the home country's institutional environment positively moderates the effects of the host environment over ownership choice in the acquisition. This effect is due to companies from less developed environments being able to use their embedded capabilities to better navigate faulty institutional environments abroad.     

Environmental sustainability practices and exports: The interplay of strategy and institutions in Latin America

We integrate institutional economics with stakeholder theory to examine the antecedents and outcomes of Environmental Sustainability Practices (ESP) for small and medium enterprises in Latin America. We find that these firms primarily engage in ESP to succeed in export markets. We also find that this is especially true when firms demonstrate organizational agency by adopting complementary strategies such as obtaining international quality certifications to develop credibility among stakeholders. Lastly, their cause receives a further boost when they are based in institutional environments that are known for strong democratic voice and accountability mechanisms. In elucidating the interplay of strategy and institutions, we suggest the need to better integrate organizational agency into institutional theory and institutional environment into stakeholder theory.     

Needed B2B marketing capabilities: Insights from the USA and emerging Latin America

Firms from all parts of the world are expanding operations globally in a turbulent economic context, requiring the understanding of nontraditional markets. Much attention has been focused on China and India, but researchers have neglected Latin America, a region economically as important as Germany, India, Japan, and South Korea. Latin America, as is true of many developed and emerging markets, has a strong presence of industrial ? or business to business (B2B) ? transactions. The configuration and convergence-divergence of marketing capabilities are relevant for the understanding of the globalization phenomenon. This study aims to examine B2B marketing capabilities of firms in Chile, Mexico and Peru (as Latin American countries), seeking conceptual issues in order to comprehend their business perspectives and contribute to the almost nonexistent body of research in this region. How do the results from Latin America compare with the USA? While the study shows directional convergence between Chile and Peru, there also is interesting divergence between all Latin American countries and the USA. The findings offer a portfolio of marketing topics that we believe are worthy of practitioner and academic consideration. We propose a model of convergence-divergence of B2B marketing capabilities across nations and state propositions for hypothesis testing.     

Differentiation strategies in emerging markets: The case of Latin American agribusinesses

This study furthers the research agenda on Porter's generic strategies by exploring their implementation by firms that suffer from under representation in the literature. It focuses on agribusinesses based in emerging markets that specialize in high value added products. Relying on information collected through interviews, and a survey with 66 agribusinesses based in eight countries of Latin America, it examines the factors that distinguish firms implementing a differentiation strategy (DS). The findings provide interesting insights for scholars and practitioners alike, illustrating the strategic initiatives that DS firms use to ensure they command higher than average prices.     

The Growth and International Expansion of an Emerging Market Retailer in Latin America

ABSTRACT

This study contributes to the literature on international retailing by addressing a gap in the literature regarding how retailers from emerging markets expand internationally. This historical case study analyzes the growth and internationalization process of Chilean retailer Falabella, which is one of the largest retailers in Latin America and has been able to compete with multinationals from developed countries. The research is based on primary and secondary data sources including 33 oral interviews with company managers and family executives, as well as industry data, corporate reports, and trade journals. Drawing on institutional theory, the findings show that belonging to a family conglomerate, engaging in networks, partnerships, and organizational learning, and having an experienced management team helped Falabella gain legitimacy in all international markets.     

Business Environment Index for Developing Countries: The Case of Latin America

This article develops a new business environment index with indicators that are appropriate, broadly available for developing regions, and, most importantly, are not double-edged. We used the index to analyze the business environment in Latin America, and it suggests the main role of basic economic principles, institutional economics approach and historical context. We propose the identification of an interdisciplinary variable as well as interpretation of the index, based on 10 factors divided into three dimensions (economic, institutional, and social). The novelty is in the consideration of past values; it is neither based on popularity votes, and nor does it favor large economies.     

Labor markets in Latin America: a look at the supply-side

This work asks whether there is a supply-side story to be told about labor market outcomes in Latin America. We present stylized facts about the connection between the demographic transition and changes in education (the size and quality of the labor force), with labor supply, inequality, and unemployment. The main conclusion is that the neglected topics of demographics and education improve our understanding of the overall decline in employment, the changing pattern of unemployment, and the rise in wage inequality. By adding them to the well-established demand and institutional factors behind these outcomes, we can obtain a clearer picture about labor markets in Latin America.     

The effect of home country characteristics on the internationalization of EMNEs: The moderating role of knowledge stock

This paper examines the effect of home country characteristics on the internationalization of emerging market multinational enterprises (EMNEs). Drawing on the institution-based view (IBV), we argue that institutional, political, and social characteristics will positively relate to the internationalization of EMNEs. Further, drawing on the knowledge-based view (KBV), we also argue that a firm’s knowledge stock (KS) will positively moderate the aforementioned relationship. Our research setting involves the incorporation of primary data collected from Iranian multinational enterprises (MNEs) operating in the food and beverage industry. The results provide support for the hypotheses that home country characteristics positively impact the international growth of EMNEs but this does not lead to their further expansion. Also, supported was the hypothesis that EMNEs' knowledge stock positively moderates the relationship between home country characteristics and their international growth. These findings not only contribute to the current knowledge about the drivers of EMNE’s internationalization but also stress upon the idiosyncratic role of home country institutions and the impact of knowledge-specific capabilities on the internationalization of EMNEs, their international growth, and expansion.     

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.     

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.     

Internationalizing Business Education in Latin America: Issues and Challenges

This article examines the extent of internationalization of business education in Latin America and identifies the key challenges facing the Latin American business schools. Based on a survey of the business schools that are members of CLADEA (Consejo Latinoamericano de Escuelas de Administracion—Latin American Council of Management Schools), and also from available information from various public sources and the literature, this study finds that most Latin American universities recognize the importance of internationalization of curricula and have undertaken measures to provide a business education that creates a global awareness among students and sensitizes them to differences across countries. The study also identifies the areas that need further attention and resources for widening the extent of internationalization of business education in Latin America and recommends ways to address these challenges.     

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.     

Talent management motives and practices in an emerging market: A comparison between MNEs and local firms

This paper compares the differences in talent management motivations and practices between MNEs and local firms in the emerging market of Turkey. It uses institutional theory and the resource based view of the firm to explain these differences. Examining data from 201 firms the findings show significant differences between the talent management motives of MNEs and local firms, with MNEs having more tactical motivations for their talent management systems. The study also shows significant differences in the talent management practices between MNEs and local firms, with MNEs implementing more robust systems of talent management overall. The findings indicate that the motives for TM and the practices that are pursued by organizations are society-bound. The study of TM motives and practices has to be framed within the context of the institution as this shapes the way in which actors perceive and respond to environmental and organizational stimuli and the extent to which they seek to protect the rules that shape and structure their environments.