Innovating across boundaries: A portfolio perspective on innovation partnerships of multinational corporations

This paper examines how and under what conditions alliance portfolio diversity influences a firm's innovative performance, with special attention being given to potential performance differences between multinational corporations (MNCs) and domestic firms. Analyses of data from 1045 German firms, among which 598 MNCs, revealed an inverted U-shaped relationship between alliance portfolio diversity and MNCs’ innovative performance. Findings also indicate MNCs to be better positioned than their domestic counterparts with regards to translating alliance portfolio diversity into superior innovative performance. Importantly though, this only holds for MNCs equipped with strong internal R&D capabilities and, to some extent, high human capital.     

The effect of foreign partner network embeddedness on international joint venture failure: Evidence from European firms’ investments in emerging economies

Access to trusted information about potential local partners is a critical factor for international joint venture (IJV) stability and success in emerging economies. We build on social network theory and examine how foreign investors can benefit from their alliance networks in accessing reliable information on the availability, resources, and behavior of potential local IJV partners. More specifically, we examine positional embeddedness in networks and network density and how these factors help foreign firms mitigate behavioral uncertainty in IJVs and thus reduce the likelihood of failure. We use data on 349 IJVs formed by 132 European firms in emerging economies during the 1995–1997 period and event history analysis to test our hypotheses. Our findings indicate that having an alliance network is a necessary but insufficient condition to mitigate behavioral uncertainty of local partners. We find that only densely tied networks offer benefits of reliable information on potential local partners that ensure the longevity of IJVs and that a central position in an alliance network translates into lower IJV failure.     

Ambidexterity in MNC knowledge sourcing in emerging economies: A microfoundational perspective

Innovation performance of multinational corporations (MNCs) derives from access to and utilization of a combination of explorative and exploitative knowledge across heterogeneous settings. These settings increasingly encompass flagship industries in emerging economies. There is limited research, however, that scrutinizes the processes of knowledge sourcing within such dynamic host environments, taking into account MNCs’ differing location capabilities. We draw on the concept of ambidexterity – the combination of exploration and exploitation – and the microfoundations approach to study eleven MNCs in the Bulgarian software development industry by focusing on their local R&D projects. We extend the explanatory capacity of ambidexterity at the micro level and clarify the relationship between exploration and exploitation by identifying four types of ambidexterity: global knowledge differentiator, global-local knowledge integrator, emerging local-global integrator, and local knowledge integrator. Our typology is underpinned by three specific dimensions of R&D capabilities: technical know-how, scope of expertise, and market potential.     

Corporate name change: Investigating South African multinational corporations' postacquisition performance

It has long been argued a multinational corporation (MNC) needs to be able to leverage the firm‐specific advantages to overcome the liability of foreignness in the host markets so the MNC can enjoy the benefit of internationalization while competing with the indigenous firms in the host market. However, emerging‐market MNCs, which have the nontraditional ownership advantages, such as flexibility and cost‐advantage, may require different international strategies to realize the anticipated profit in their cross‐border acquisitions. This article takes an organizational identity approach to study how the foreign identity of South African MNCs constitutes the source of liability and negatively impacts their postacquisition performance. We find South African MNCs that adopted a corporate name change for their acquired subsidiaries experienced worse postacquisition return on asset than the South African MNCs who did not do so. On the other hand, facing a large economic distance, South African MNCs that facilitate the acquired subsidiary corporate name change enjoy better postacquisition performance.     

How does stock market liberalization influence corporate innovation? Evidence from Stock Connect scheme in China

Using China's Stock Connect program as a quasi-natural experiment, we assess the impact of stock market liberalization on corporate innovation. The baseline result based on a difference-in-differences (DID) estimation suggests that allowing foreign investors to buy domestic stocks has a beneficial effect on Chinese firms' innovative outputs. Specifically, eligible firms affected by the Stock Connect scheme generate more and higher quality patents than other unaffected firms subsequently. Furthermore, we explore potential channels that may explain this beneficial effect in terms of improving corporate governance, reducing information asymmetry, and mitigating financial constraints. In addition, the effect is more pronounced for firms in high-tech industries. However, we find that the influence of stock market liberalization is insignificant in state-owned firms. Besides, the findings are generally robust to different measures of innovation and different methods of estimation. Overall, this paper provides new insights into understanding the positive effect of stock market liberalization in emerging market economies.     

Foreign direct investment and productivity spillovers in Irish manufacturing industry: evidence from plant level panel data

It is often argued that foreign firms may enhance the productivity of indigenous firms in an economy, through forward or backward linkages. Such externality effects typically are called “productivity spillovers”. In terms of foreign direct investment (FDI), Ireland is one of the most globalized economies in the world, having pursued a strategy of promoting investment by foreign companies for over 40 years. This article examines possible productivity spillovers from foreign‐owned firms to indigenous firms in the Irish manufacturing sector, using plant‐level data on all manufacturing firms for the period 1991–1998. Despite Irish policy commitment to building linkages between foreign and domestic firms, we find only weak evidence of spillovers and this evidence is sensitive to the definition and measurement of foreign presence.     

The impact of FDI on the performance and entrepreneurship of domestic firms

This paper examines how foreign direct investments influence the performance and entrepreneurship of domestic firms, a crucial question for economies driven by incursion of exogenous factors and especially transition economies. The intent is to investigate the way foreign direct investments shape the capabilities of domestic firms; hence, for this purpose, we take Macedonia, a Southeast European economy, as a case study. We find that (i) foreign ownership has helped restructure and enhance the productivity of domestic firms, (ii) FDI has positive influence in reinforcing the creation of new firms, and (iii) in line with the established literature, a foreign investment is likely to influence the job seeker to get employed rather to start their own business. Overall, the results confirm the influence of foreign firms in assisting entrepreneurial activity. The impact of foreign investment is, in general, positive and tends to influence the restructuring process of domestic enterprises.     

Firm-Level Determinants of Political CSR in Emerging Economies: Evidence from India

Multinational companies (MNCs) frequently adopt corporate social responsibility (CSR) activities that are aimed at providing ‘public goods’ and influencing the government in policymaking. Such political CSR (PCSR) activities have been determined to increase MNCs’ socio-political legitimacy and to be useful in building relationships with the state and other key external stakeholders. Although research on MNCs’ PCSR within the context of emerging economies is gaining momentum, only a limited number of studies have examined the firm-level variables that affect the extent to which MNCs’ subsidiaries in emerging economies pursue PCSR. Using insights from resource dependence theory, institutional theory, and the social capital literature, we argue that MNCs’ subsidiaries that are critically dependent on local resources, have greater ties to managers of related businesses and to policymakers, and that those that are interdependent on the MNCs’ headquarters and other foreign subsidiaries, are more likely to be involved in PCSR. We obtain support for our hypotheses using a sample of 105 subsidiaries of foreign firms that operate in India. Our findings enhance our understanding of the factors that determine MNCs’ political CSR in emerging economies.     

New Competence Creation in Multinational Company Subunits: The Role of International Knowledge

It has been demonstrated that more creative innovative activities of subunits of multinational companies (MNCs) rely upon the munificence of local knowledge in the host country. Here, we argue that the strength of international business network connections of a host location influences the potential accessibility of international knowledge and hence tends to widen the domain of new knowledge search that can be successfully undertaken by an MNC subunit. This in turn increases the likelihood of an MNC subunit building new areas of competencies, that is, in fields of competencies which are relatively new to the MNC. Specifically, we suggest that the relevant international business network connections are those involving local actors in the MNC subunit's relevant industry. Moreover, geographical proximity between MNC subunits and their parent company has an inverse U‐shaped relationship with new competence creation by subunits. Using a balanced panel data set on innovative activities conducted abroad by 194 of the world's largest industrial firms from 1975 to 1995, we find support for our expectations.     

Frequency of international expansion through high control market expansion modes and interlocked directorships

This study investigates director interlock as a mechanism by which an MNC learns and adopts high control market expansion modes that other MNCs use. Using data on greenfields and acquisitions by S&P 500 firms in the period 2003–2010, we find a significant relationship between the use of high control market expansion modes by interlocked MNCs and the frequency of international expansion of a focal MNC through such modes in unrelated industries, with the relationship stronger for the depth of interlocked director experience. The findings contribute to the literatures around the frequency of international expansion and microfoundations of international strategy.     

Trade and Market Liberalisation in Eastern Europe

SUMMARY

The question of why multinational companies (MNCs) choose to locate in one region rather than another has been an important topic in IB research for many years, but has recently received even more attention. This paper presents the results of an econometric investigation of the locational determinants of Italian firms in Central and Eastern Europe. Italian firms have been very active investors in the CEE countries. Our results broadly confirm the findings of previous studies, but we also find that both trade liberalisation and market liberalisation are important influences upon the location decision. If the CEE governments wish to attract further (Italian) foreign investment, then further liberalisation of their domestic economies should be a policy priority.     

The tradeoff between firm size and diversity in the pursuit of technological progress

Conclusion Our analysis lends support to both sides of the debate concerning the optimal firm size for achieving technical advance. It provides a basis for why industries composed of many small firms will tend to exhibit greater diversity in the approaches to innovation pursued, and why greater diversity will contribute to more rapid technological change. It also provides a basis for why industries populated by larger firms will achieve a more rapid rate of technical advance on the approaches to innovation that are pursued. These arguments together suggest that a tradeoff exists between the appropriability advantage of large size and the advantages of diversity that accrue from numerous small firms. Our analysis has been more appreciative than rigorous and, indeed, often explicity speculative. While we attempted to raise important questions, our framework requires more structuring before we can be confident about any of our conclusions. Even in its inchoate form, however, our analysis demonstrates that much needs to be done before the current debate about firm size can seriously inform policy. If we accept the plausibility of our basic framework, it focuses attention on a range of issues and questions. The fundamental premise of our analysis is that firm capabilities and perceptions differ within industries. This premise is not, however, widely reflected in analyses of industry behavior and performance, which typically take some representative firm as their starting point. Indeed, the analytic utility of our particular premise deserves scrutiny. Are differences in firm capabilities and perceptions as critical to explaining the industry patterns in innovative activity and performance as we suggest? Do these differences persist? Is our abstract characterization of these differences and their effects on innovative activity up to the task of providing a basis for policy?These intraindustry differences in capabilities and perceptions underpin the hypothesized relationship in our framework between the number of firms within an industry and the number of distinct technological activities pursued by the industry as a whole. Surely this hypothesis should be tested. To establish the relationship between numbers of firms and technological diversity, we also made two important assumptions, which themselves should be examined. First, we assumed that firms independently decide upon which approaches to innovation to pursue.This assumption precludes the clustering of firms around innovative activities due to imitation, a phenomenon highlighted by Nelson (1981) and Scott (1991). To the degree that innovative activities yield relatively fast, public results, the assumption may be suspect. While our evidence indirectly suggests that such clustering may not be critical for explaining innovative activity in a wide range of industries, more research would be helpful. Second, we assumed that the number of approaches to innovation pursued by firms is independent of their size, implying large and small firms will tend to pursue the same number of approaches. This assumption probably does not apply to the smallest firms within an industry, particularly to the extent that such firms are often not full line manufacturing firms. Does it apply, however, to the medium to large firms that account for the preponderance of R&D and economic activity inthe manufacturing sector? While our evidence again provides indirect support for this claim, more empirical and theoretical research is indicated.We also made other claims and assumptions that deserve further attention. For example, we argued that greater technological diversity stimulates technical advance and provides gross increments to social welfare. Assuming it exists, the mechanism linking diversity and technical advance has never been examined empirically and is not obvious. Our assumption that expected firm growth due to innovation is increamental played an important role in permitting usto hypothesize an appropriability advantage of large size. Again, both the assumption and its alleged effect on innovative activity are worth examining. Finally, we also need to test whether the relationship between R&D and firm size within industries depends upon appropriability conditions, particularly upon the extent to which firms can sell their innovations or grow rapidly due to innovation. In conclusion, this litany of reasonable but unsubstantiated assumptions and arguments should make clear that this paper is only a modest beginning of a daunting research agenda.

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Multinational enterprise strategy,foreign direct investment and economic development: the case of the Hungarian banking industry

This paper examines foreign direct investment (FDI) in the Hungarian economy in the period of post-Communist transition since 1989. Hungary took a quite aggressive approach in welcoming foreign investment during this period and as a result had the highest per capita FDI in the region as of 2001. We discuss the impact of FDI in terms of strategic intent, i.e., market serving and resource seeking FDI. The effect of these two kinds of FDI is contrasted by examining the impact of resource seeking FDI in manufacturing sectors and market serving FDI in service industries. In the case of transition economies, we argue that due to the strategic intent, resource seeking FDI can imply a short-term impact on economic development whereas market serving FDI strategically implies a long-term presence with increased benefits for the economic development of a transition economy. Our focus is that of market serving FDI in the Hungarian banking sector, which has brought improved service and products to multinational and Hungarian firms. This has been accompanied by the introduction of innovative financial products to the Hungarian consumer, in particular consumer credit including mortgage financing. However, the latter remains an underserved segment with much growth potential. For public policy in Hungary and other transition economies, we conclude that policymakers should consider the strategic intent of FDI in order to maximize its benefits in their economies.     

Technological opportunism and firm performance: Moderating contexts

Technological opportunism is a sense-and-respond capability of firms with respect to new technologies. This research examines the effect of technological opportunism on firm performance from the dynamic capabilities' perspective, and how such an effect depends on relevant firm and/or market contingencies. Analyzing data from a variety of Taiwanese manufacturing industries, the authors find that technological opportunism has a positive effect on firm performance. The technological opportunism–firm performance link is negatively moderated by market orientation and network externality, and positively moderated by technological turbulence. These results confirm the underlying theme of the dynamic capabilities approach to technological changes and contextual (environmental and organizational) relevance. The finding that technological opportunism and market orientation fail to produce any synergistic impact implies that technological opportunism is a more influential source of a firm's competitive advantage.     

Industrial clusters,entrepreneurial culture and the social environment: The effects on FDI distribution

Using balance sheet data from a sample of 3498 foreign firms in the manufacturing industry we analyse the distribution of foreign direct investments (FDI) in Italy at a very detailed geographical level, i.e. the provincial level, a region which comprises an urban area and the limited geographical area surrounding it. In this paper, we test the impact that agglomeration economies, entrepreneurial culture and social capital have on the distribution of foreign investments. While the findings regarding the social variables are mixed, the important role played by agglomeration economies is confirmed. Our analysis shows that investments by multinationals are attracted by those areas that combine industrial cluster characteristics with an agglomeration of foreign firms and that have a high level of entrepreneurial culture. The role that this last variable plays is fundamental and suggests the idea that multinational corporations (MNCs) invest in regions with entrepreneurial resources.     

Performance of professional service firms from emerging markets: Role of innovative services and firm capabilities

Professional service firms (PSF) from emerging markets face a financial dilemma: PSFs tend to utilize high-wage labor, yet their emerging market status makes foreign clients cautious regarding quality and less willing to pay high prices. To allay these concerns, PSFs may be able to develop attractive, highly innovative services, but as the resource-based view (RBV) notes, this requires emerging market firms to possess critical capabilities to support such a competitive advantage. Relying on services theory, we propose that entrepreneurial orientation (EO) of management and expert human capital (HC) are critical capabilities, enabling a PSF to develop and market innovative services profitably. In testing our model on 201 Indian PSFs, we find a mediating role for innovativeness whereby EO and HC drive service innovation which, in turn, accounts for financial performance. Further, we find EO positively moderates the innovative service–performance relationship as proactive, risk-tolerant managers improve foreign marketing. Insights for theory and practice are provided that enable PSFs to overcome the constraints and challenges of their emerging market origin.     

Investing for strategic resources and its rationale: The case of outward FDI from Chinese companies

As more Chinese companies become engaged in foreign direct investment (FDI), particularly in industrial countries, a crucially important issue must be addressed: what is the motivation of Chinese outward FDI, and what is its rationale? Based on a detailed analysis of both primary and secondary data sources, this article argues that when investing in advanced economies, Chinese multinational corporations (MNCs) are motivated primarily by the quest for strategic resources and capabilities, and that the underlying rationale for such asset-seeking FDI is strategic needs. The examination of this premise will hopefully prompt business practitioners to think about this important issue in new and innovative ways, thereby identifying an appropriate policy and strategic response.     

Stock liquidity during COVID-19 crisis: A cross-country analysis of developed and emerging economies,and economic policy uncertainty

We investigate the impact of the COVID-19 on firms' stock liquidity across six developed and emerging economies. Unlike prior literature, we further compare the effects of the pandemic between developed and emerging economies, high and low economic policy uncertainty (EPU), and large and small firms. Our results document the significant negative impact of infection cases and deaths on firms' stock liquidity across the sample countries, and the similar effect of their interaction term. We find that the impact is more pronounced in the developed economies, high EPU and small firms, compared to emerging economies, low EPU and large firms, respectively.     

Big data dreams: A framework for corporate strategy

The phenomenon of big data—large, diverse, complex, and/or longitudinal data sets—is having a stark influence on organizational strategy making. An increase in levels of data and technological capabilities is redefining innovation, competition, and productivity. This article contributes to both practical strategic application and academic research in the strategic management domain by presenting a framework that identifies how big data improves functional capabilities within organizations, shapes entirely new industries, and is a key component of innovative and disruptive strategies used by learning organizations to diversify and break down barriers of traditionally defined industries. This framework provides an appropriate basis for internal corporate strategy discussions that surround big data investments by explaining how firms create value through various approaches. In addition, we offer guidance for how firms might derive their own big data approach through the merits of aligning data strategy aspirations with data strategy authenticity.     

How do ownership control position and national culture influence conflict resolution strategies in international joint ventures?

In this study, we investigate the relationship between ownership control position, national culture, and selection of conflict resolution strategies (CRS) of multinational corporations (MNCs) in their attempts to solve conflicts with local partners in international joint ventures (IJVs). The empirical evidence is based on a survey of 89 Nordic MNCs. The results show that MNCs select their CRS depending on their national culture and their ownership control position in IJVs. In addition, interesting results were found related to the interaction effects on the choice of CRS of national culture and ownership control position as well as of the trust between partners and national culture.