A race to lower standards? Labor standards and location choice of outward FDI from the BRIC countries

Scholars argue that multinational corporations tend to locate their investment in countries with lower labor standards, but empirical results are highly inconsistent. In this paper, we investigate the effect of differential labor standards on the location choice of outward greenfield foreign direct investment (FDI) from Brazil, Russia, India and China (i.e. the BRIC countries). We find robust evidence that while there is a tendency toward the attraction of FDI by lower labor standards in developed countries, such a “race” is absent in FDI directed to developing countries. Location choice is highly path dependent upon previous trading relations between the home and the host country, which hampers the MNCs’ ability to arbitrage. Conversely, capital mobility at the industry level is found to intensify the race to lower standards.     

The role of open innovation in emerging economies: Do companies profit from the scientific knowledge of others?

Our contribution lies in explaining why inter-firm variations in the strategic decision to actively seek and acquire external scientific knowledge impact not only financial performance but also the effects of firms’ own R&D. We further demonstrate that the performance implications of using external knowledge and technologies vary considerably depending on their source (domestic or foreign). Knowledge sourcing from domestic organizations has negligible consequences for financial performance and an adverse effect on firms’ own R&D. By contrast, knowledge acquisition from foreign countries results in superior performance and assists firms in unlocking their innovation potential.     

Institutional change and strategic choice: debating the ‘stage-model’ of strategy in emerging economies

The popular ‘stage-model’ of strategic choice amid institutional change is found unable to account for the diverse strategies in emerging economies, which, this essay argues, is due to the model’s misplaced search for standard strategies which are said to be (1) dictated by linear transition stages and (2) determining the performance of stylized ‘firm types’. Assuming historical inevitability and blind to human agency, the model is at odds with Knight’s notion of uncertainty, with North’s thesis of adaptive efficiency and with Schumpeter’s theorizing on entrepreneurship. Studies on strategy in emerging economies, such as in the case of contemporary China, are in urgent need of an actor-centred, process-oriented and uncertainty-sensitive reorientation. This step, we conclude, may emerge by learning from the ‘practice-turn’ in the social sciences, taking politics seriously, incorporating evolution/complexity insights and enriching the methodology toolkit.     

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

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

What factors determine innovation performance in emerging economies? Evidence from China

Although the literatures on international trade, FDI and R&D have assisted significantly in improving our understanding regarding the determinants of innovation performance, there has been little research concerning the way in which each informs the other. Integrating theoretical developments from all three literatures, we propose and test a multidimensional conceptual framework that allows us to explain more fully what determines innovation performance in emerging economies. Testing the framework against a recently constructed industry-level dataset for China, the empirical analysis indicates that it has significant power in explaining variations in innovation performance. Nevertheless, our findings also show that factors such as international trade, FDI and R&D do not always have positive consequences. Rather, they indicate that their effects are moderated by technological opportunities and the level of foreign presence, implying that previous mixed findings regarding the role of international trade, FDI and R&D may be the result of incomplete theorizing about the factors that moderate the relationship between innovation performance and these factors.     

Internationalization and HRM strategies across subsidiaries in multinational corporations from emerging economies—A conceptual framework

The rapid rise of multinational Corporations (MNCs) from emerging economies has led to greater interest and urgency in developing a better understanding of the deployment and diffusion of managerial strategies from their perspective and without assuming the prevailing Western ethnocentric orthodoxy. This paper develops a conceptual framework of global HR strategies and practices in MNCs from emerging economies across their subsidiaries in both developed and developing markets. Using data from a pilot study of an Indian MNC, it provides insights and guidance into the motives, strategic opportunities and constraints in cross-national transfer of HR policies and practices in a multi-polar world.     

Does outward FDI generate higher productivity for emerging economy MNEs? – Micro-level evidence from Chinese manufacturing firms

This paper investigates whether emerging economy multinational enterprises (EMEs) that undertake outward foreign direct investment (OFDI) become more productive, controlling for the self-selection into the global investment market. Particularly, we focus on the moderating effects of firm heterogeneity on the OFDI-productivity nexus. A theoretical framework incorporating the resource-based views and institutional theory is established and the propensity-score matching and difference-in-difference (DID) approaches are combined to test the framework, utilizing unique data on Chinese manufacturing firms over the sample period 2002–2008. We find that EMEs turn to be generally more productive after they conduct OFDI, but this productivity effect varies depending on the parent firm and investment strategy heterogeneity. Our results suggest that EMEs without state ownership but with stronger absorptive capability gain higher and more sustainable productivity effects and such gains are higher for EMEs investing in OECD than in non-OECD countries. Policy and managerial implications are discussed.     

Does diversification add firm value in emerging economies? Effect of corporate governance

Using 205 Taiwanese firms spanning five years, this research examines how corporate governance factors specific to emerging economies determine the extent of diversification and moderate its performance. The analyses reveal that controlling family ownership is significantly associated with a greater extent of diversification, which impairs firm value. Conversely, domestic bank ownership significantly decreases diversification, which in turn increases diversification performance. These findings present the evidence of controlling family entrenchment through diversification and the significant role domestic banks play in the principal–principal corporate governance framework.     

Does corruption boost or harm firms’ performance in developing and emerging economies? A firm-level study

In the last decade, a growing number of studies have addressed the ongoing debate about whether corruption “sands” or “greases” the wheels of business at the firm level. This study revisits this debate and proposes a comprehensive theoretical framework to test whether corruption harms or boosts firm performance, as well as the extent to which this relationship is mediated by the countries’ institutional settings, the size and strategic behaviour of the firms, and market competition. Based on a sample of 21,250 firms located in 117 emerging and developing countries, and resorting to instrumental variable (IV) estimations, three main results were found: (a) regardless of the proxy used for corruption and firm performance, the former clearly harms the latter; (b) corruption “greases the wheels” of business for African firms but it “sands the wheels” for firms in Latin America, the Caribbean, Eastern Europe, Central Asia, and Southern Asia; and (c) the negative impact of corruption on performance is mitigated for larger and exporting firms.     

Does quality of innovation,culture and governance drive FDI?: Evidence from emerging markets

This study examines how technology, culture and corporate governance drive inward FDI in emerging economies. A study of 22 emerging economies shows that technology is the major attractive factor influencing inward FDI. Further, FDI increases as technology absorption and innovation capacity increase. The greater the quality of country governance, the greater the influence of corporate governance on FDI. Cultural dimensions such as individualism, masculinity and uncertainty avoidance exhibit a weaker influence on inward FDI, while power distance and indulgence have a stronger influence on inward FDI. Our results support the leapfrogging approach of emerging economies towards promoting innovation and enhancing technology adoption to drive FDI. Interaction effect of country governance further highlighted that the better the governance of a country the impact of technology, innovation, corporate governance and culture in attracting inward FDI also increases.     

Does distance matter in foreign direct investment sub-national location choice? Evidence from China

Multinational enterprises (MNEs) make investment decisions according to the distance factors at a sub-national level. This paper made estimates using the gravity model with provincial foreign direct investment (FDI) data from 2000 to 2012 and employed three concepts of distance. Our empirical results indicate that geographic distance and cultural distance have significant negative effects on FDI flow, whereas economic distance has a significant positive effect. It suggests that FDI prefers to locate in regions that are geographically and culturally close but economically distant from the home country, which further implies that FDI in China is dominated by vertical FDI. Our findings suggest that Chinese provincial governments should place emphasis on attracting FDI from culturally close countries and provide institutional support to encourage and promote horizontal FDI.     

International social SMEs in emerging countries: Do governments support their international growth?

Through an empirical research developed based on a sample of five international social SMEs in a Chinese city, this study examines the internationalization of social enterprises. Its purpose is to evaluate the role played by governments in supporting international growth. This is done using behavioural theory dimensions of prevalence, relevance, urgency, accessibility, and radicalness. From our analysis, local government supports the launch of social SMEs but this is limited to their growth stage. Entrepreneurial skills and external networks, thus, become crucial factors in the development of a new international business development model, encouraging further scholarly investigation.     

Do real payments really matter? A re-examination of the compromise effect in hypothetical and binding choice settings

Numerous empirical studies have confirmed the existence of the compromise effect, which stipulates that options positioned between extreme alternatives in a product space are perceived as more attractive, hence becoming more likely to be chosen by consumers. However, literature on the topic frequently addresses the limited realism of prior work due to the artificial designs that were used. In a laboratory-based replication study, we examine the compromise effect across several categories in a more market-like scenario, in which experienced consumers make unforced decisions between real brands. In particular, we investigate whether the compromise effect varies in strength across the choice settings, depending on whether a hypothetical choice setting or a binding setting (in which subjects face buying obligations in terms of real payments for products) has been applied. While our results prove the robustness of the compromise effect for both choice frames, its strength differs significantly. Specifically, the compromise effect is evidently not as strong when real payments are introduced in binding choice settings. In addition, analysis of moderating factors confirms that compromise effects are stronger for categories where subjects are more in agreement about the relative quality of the options.     

Do strategic marketing and social capital really matter in regional clusters? Lessons from an emerging economy of Latin America

This research explores the relationship between geographic proximity and the building of social capital and inter-firm cooperation in strategic marketing. By emphasizing social interactions and the building of social capital, we extend the research on industry clusters beyond traditional economic perspectives and factors motivating cooperation between firms. The empirical study is based on a survey of 90 senior managers from three natural resources-based industries (two non-clustered and one clustered) in Chile. The results show that managers in clustered versus non-clustered industries differ in terms of the perceived value of location, the perceived value of building social capital, their involvement in activities that build social capital, their attitudes toward cooperative marketing, their history of involvement in cooperative marketing activities, and their intentions for engaging in cooperative marketing activities in the future. Trade associations in clustered versus non-clustered industries play different roles in regard to creating social capital. The article concludes by discussing the implications of these findings for researchers, managers and policy makers.     

Current account and relative prices: Are there any cointegration relationships in the presence of structural breaks in emerging economies?

The aim of this study is to examine the long-run relationship between the current account and relative prices, such as terms of trade (TOT) and real exchange rate, for the emerging economies. These variables have been exposed to large fluctuations for more than two decades in all emerging economies; therefore, structural breaks have to be taken into account in all estimations. In this article, various methodological techniques have been used to examine this long-run relationship (with and without the structural breaks). Two important results have emerged, first; when the structural changes are excluded there is a strong evidence for long-run relationship between current account and relative prices. Second; when the structural breaks are included, variables are found to be stationary. Hence, depending on the stability of the variables, the validity of the cointegration relationship has been seriously questioned. This study illustrates that the test results proving non-stationary of the series and the presence of cointegration may be spurious if there is any possibility of instability.     

Do consumer perceptions matter in measuring choice variety and variety seeking?

This research marries scanner panel choice data of consumers in single member households to their survey-based perception data and draws upon behavioral and modeling research to contribute to the variety seeking literature. It presents a new consumer-based measure of choice variety based on inter-product similarity perceptions and illustrates that others-based (i.e., researchers, managers, and retailers) measures of choice variety such as number of brand switches underestimate choice variety. Moreover, incorporating the consumer-based measure instead of others-based measures in latent class models improves their efficiency of classifying households into high versus low variety seeking. The consumer-based measure of choice variety is valid in terms of its positive relationship with consumer's intrinsic or trait-based variety seeking tendency. Theoretical (market structure, consideration set) and managerial implications (targeting of price promotions to reduce spending, product design, cross-price elasticity) of the findings are offered.     

Do financial structures affect exchange rate and stock price interaction? Evidence from emerging markets

We investigated the relationship between stock prices and exchange rates in eleven emerging markets over the period of 1988 to 2014 using cointegration methodology and multivariate granger causality tests. We find that in emerging markets, the inner-financial structure, which reflects the proportion of direct financing and indirect financing, plays an important role in the link between exchange rates and stock prices. For ten out of the eleven emerging markets studied, the financial structure had a significant impact, either through the flow channel or stock channel. The effects of financial-economic structure (FIR) were much smaller.     

Following their predecessors’ journey? A review of EMNE studies and avenues for interdisciplinary inquiry

In this review article we take stock of international business (IB) research on emerging economy multinational enterprises (EMNEs) over the past three decades. Our review covers 690 articles published in 64 high-impact peer-reviewed journals between 1990 and 2021 (inclusive). We first present bibliometric findings on some key patterns of this vast body of scholarly work. We then conduct content analysis to critically assess this literature and provide a multilevel synthesis of the existing knowledge base. To do so we propose a theoretical framework that highlights three dimensions – micro-foundations, organizational characteristics, and institutional environment – by which the distinction between EMNEs and their predecessors, namely multinational enterprises (MNEs) from advanced economies, is investigated. At each level, we seek to understand EMNEs’ convergence with and divergence from their predecessors in terms of their motives, strategies/approaches, and outcomes of internationalization. Through this process we identify opportunities to move EMNE research forward through interdisciplinary inquiry, and we propose several avenues for future research.     

Who is afraid of political risk? Multinational firms and their choice of capital structure

This paper investigates how multinational firms choose the capital structure of their foreign affiliates in response to political risk. We focus on two choice variables, the leverage and the ownership structure of the foreign affiliate, and we distinguish different types of political risk, such as expropriation, unreliable intellectual property rights and confiscatory taxation. In our theoretical analysis we find that, as political risk increases, the ownership share tends to decrease, whereas leverage can both increase or decrease, depending on the type of political risk. Using the Microdatabase Direct Investment of the Deutsche Bundesbank, we find supportive evidence for these different effects.     

Who is afraid of political risk? Multinational firms and their choice of capital structure

This paper investigates how multinational firms choose the capital structure of their foreign affiliates in response to political risk. We focus on two choice variables, the leverage and the ownership structure of the foreign affiliate, and we distinguish different types of political risk, such as expropriation, unreliable intellectual property rights and confiscatory taxation. In our theoretical analysis we find that, as political risk increases, the ownership share tends to decrease, whereas leverage can both increase or decrease, depending on the type of political risk. Using the Microdatabase Direct Investment of the Deutsche Bundesbank, we find supportive evidence for these different effects.