A transaction cost analysis of staffing decisions in international operations

This paper analyzes staffing decisions in foreign subsidiaries from the perspective of transaction cost theory. We focus on the ex post transaction costs of the employment relation. Specifically, we look at the monitoring, bonding, maladaptation, and bargaining costs of conducting activities in specific subsidiaries in a foreign country. We hypothesize that the transaction costs of using expatriates are lower than those generated by local employees, especially in the higher managerial echelons of foreign subsidiaries, but also that costs can be reduced as individuals become more experienced. We also conjecture that ex post transaction costs are influenced by cultural differences between the host and the home countries, and by characteristics of the companies and their subsidiaries. The framework is empirically corroborated by survey data on a sample of 145 Norwegian MNCs.     

Hedging Foreign Exchange Exposure: Risk Reduction from Transaction and Translation Hedging

Using a sample of Swedish firms we investigate the risk reducing effect of foreign exchange exposure hedging. Further, we investigate risk reduction from using different hedging instruments, and particular interest is directed towards the impact of transaction exposure hedges and translation exposure hedges respectively. We find that firms' foreign exchange exposure is increasing with the level of inherent exposure, measured as the difference between revenues and costs denominated in foreign currency, and that it is decreasing with firm size. We find a significant reduction in foreign exchange exposure from the use of financial hedges. The evidence suggests that the usage of foreign denominated debt as well as currency derivatives reduce firms' foreign exchange exposure. Further, we find that transaction exposure hedges significantly reduce exposure, and that translation exposure hedges also reduce exposure. A possible explanation for the latter is that translation exposure approximates the exposed value of future cash flows from operations in foreign subsidiaries (i.e. economic exposure). If so, by hedging translation exposure, economic exposure is reduced.     

ECONOMIC SANCTIONS: FAILED FOREIGN POLICY TOOL AND A COST TO AMERICAN BUSINESS

In recent years the US government has increased its use of economic sanctions in order to punish countries, organisations and individuals. This form of foreign policy has become an increasing burden on US business and adversely affects US competitiveness and perceived reliability in the global marketplace. In addition, economic sanctions are generally ineffective in producing the desired changes and often harm the people they were intended to help. This paper argues that economic sanctions are an increasing menace to US business, represent an ineffective tool of foreign policy, and do not meet generally accepted ethical standards.     

International performance appraisal practices and approaches of South Korean MNEs in China

International performance appraisal of multinational enterprises (MNEs) in foreign subsidiaries has received inadequate research attention. The current study investigates the international performance appraisal practices, including procedures and methods, criteria and feedback, of South Korean MNEs in China and the extent to which these practices are localized or/and ethnocentric. Results of analyzing the in-depth interviews with local and expatriate managers show South Korean MNEs tend to adopt an ethnocentric approach to managing performance appraisals for expatriates and an integrative approach for host country-nationals by transferring their home appraisal practices to their Chinese subsidiaries. These approaches can be attributed to relative strength effects, i.e. the relative economic strengths and contextual differences between China and South Korea. This study adds to the knowledge base of how MNEs manage performance appraisals in their foreign subsidiaries.     

集团企业间关联交易的风险及防范措施浅析

随着市场经济的快速发展和进步,我国的经济实力不断增强,很多以集团公司为主要发展和经营形式的公司制企业应运而生。为适应市场竞争环境,集团企业下设若干子公司配合集团企业的经营活动,集团间关联交易频繁。集团间关联交易可以提高企业的资源配置效率、降低交易成本,对企业的发展产生一定的积极影响。论文主要针对集团企业间交易的灵活性和可操作性以及交易定价、资金拆借、税务筹划等方面进行深入分析,并在分析的基础上阐述集团企业间关联交易风险的防范措施,使关联交易不仅能够满足企业长期发展战略的需要,又尽可能地避免关联交易所带来的不利影响。     

Indigenous management

Much of the existing literature on the co-ordination and control of HRM in MNEs is written from the perspective of the 'view from above' that often ignores or plays down the politics and changing nature of the relationships between the centre and its subsidiaries. In this paper, we take a 'view from below' in exploring the politics of change in CASHCO, a well-known US MNE. The case study documents the motivation and ability of a UK subsidiary of CASHCO to respond positively to the centralized control of HRM through the near-constant transfer of US 'best practice' over a period of two decades. During this time, the UK subsidiary transformed itself from a loss-making, resource-dependent manufacturer to one that is a world leader in its particular field. In doing so, it had much less incentive to follow the lead of its less successful US headquarters and responded accordingly to ethnocentric control from the US through a range of political strategems. We conclude, first, that different strategies of HRM control used by corporate headquarters of MNEs will work effectively only when the assumptions underlying these strategies reflect the history, context and power base of particular subsidiaries. Second, we conclude that the effectiveness of control strategies will be influenced significantly by the incentive and ability of subsidiary managers to comply with centralized control. Finally, the case has some practical lessons for US managers who seek to transfer best practice to overseas subsidiaries, especially in the form of radical programmes of corporate culture change.     

Corruption,regulation, and growth: an empirical study of the United States

This paper investigates whether the costs of corruption are conditional on the extent of government intervention in the economy. We use data on corruption convictions and economic growth between 1975 and 2007 across the US states to test this hypothesis. Although no state approaches the level of government intervention found in many developing countries, we still find evidence for the “weak” form of the grease-the-wheels hypothesis. While corruption is never good for growth, its harmful effects are smaller in states with more regulation.     

Foreign location decisions by US transnational firms: An empirical study

The paper aims at identifying the variables that are significant in determining the choice of host countries for manufacturing subsidiaries of US transnational firms. The approach that is taken is to relate variables that on the basis on a priori theoretical reasoning influence foreign location decisions, with (a) total market penetration by US firms and (b) the choice these firms make between exporting to their foreign markets and on site manufacturing. Location decisions are viewed as emerging from the interaction of characteristics typical to the industry of the transnational firm and factors specific to potential host countries. Particular attention is devoted to finding out whether locational choices and market shares are interdependent. The sample of observations under investigation consists of the activities of US majority-owned subsidiaries, classified in fourteen industry groupings and operating twenty countries. Sub-samples of countries are also studied. It is found that for the European countries, in particular EEC members, market penetration is dependent on local manufacturing.     

A Communication‐Based Theory of the Choice Between Greenfield and Acquisition Entry

This paper develops a communication‐based theory of the choice by multinational enterprises (MNEs) between greenfield and acquisition entry. It argues that MNE parents communicate with their subsidiaries for reasons of knowledge exchange, coordination, monitoring, and socialization. The expected communication costs arising from these activities are argued to increase with the verbal communication barriers existing between a prospective subsidiary and its parent, but this increase is argued to be larger for acquisitions because they require more extensive parent–subsidiary communication than greenfields. I therefore hypothesize that verbal communication barriers have positive effects on the likelihood that MNEs choose greenfield over acquisition entry. I also hypothesize that these effects are weaker for prospective subsidiaries that will have more autonomy or local co‐owners. An analysis of 231 entries by Dutch MNEs into 48 countries lends substantial support to these hypotheses, indicating that geographic and linguistic barriers to verbal communication play important roles in MNEs' establishment mode decisions.     

Modeling the performance of US direct investment in Japan: Some empirical estimates

Foreign firms' direct investments in Japan increased from about $930 million in 1984 to $2.2 billion in 1987, and are still increasing at a rapid rate. Most of these investments come from the United States and Europe. In this paper a short-run model for the performance of a foreign parent firm's subsidiary in Japan is presented. The model is based on theories presented by Hymer, Caves, Buckley and Casson, among others, and consists of two equations: one for profitability and the other for growth. Duality is used to relate a parent firm's activities to its subsidiary firm's profitability. The model is estimated using data for US firms' subsidiaries in the Japanese chemical industry. We find that for jointly owned subsidiaries (joint ventures), imports from US parent firms and the R&D spending by both US and Japanese parent firms are major determinants of profitability and growth. US firms' fully owned subsidiaries, however, exhibit considerably different profit and growth behavior than their jointly owned counterparts. Because of the small sample sizes used, it is not possible to ascertain the sources of the observed differences.     

Building a Strong Foothold in an Emerging Market: A Link Between Resource Commitment and Environment Conditions*

ABSTRACT This study examines how MNEs align resource commitment with environmental conditions (challenges and opportunities) when they invest in a foreign emerging market. MNEs often face a dilemma in allocating resources to this environment: without this commitment, they cannot build a strong competitive foothold; yet with over‐commitment, there is excessive economic exposure. Our analysis of MNEs in a major emerging market suggests that resource commitment is an inverse function of market uncertainty and this inverse link is stronger for less strategically proactive MNEs. Resource commitment is also an increasing function of market opportunities and this function is stronger for firms emphasizing demand‐side (as opposed to cost‐side) gains. In addition, in a highly volatile industry, resource commitment is negatively associated with cultural distance, but in a relatively stable industry, it is positively associated with cultural distance. And finally, as foreign subsidiaries become older, the influence of cultural distance on resource commitment is weakened.     

政府收入的确认与计量研究

政府从事交换交易与非交换交易两种类型的交易。在非交换交易中,收入的获得并不一定直接发生相应的耗费或支付相应的代价,许多收入和费用并不配比。非交换收入是政府收入的主要来源,其确认与计量是政府会计体系中最具特色的部分。本文试图从引起收入基础交易的本质及收入的来源来界定政府收入的确认标准与计量属性。     

Foreign direct investment and global sourcing choices of firms in the US

This paper investigates factors affecting the global sourcing choices of firms in the US: (1) US investment abroad; (2) foreign direct investment in the US; (3) wage–productivity ratio; and (4) transaction cost. I found that there is a statistically significant association between the country of sourcing choices and foreign direct investment. Both the wage–productivity ratios and transaction costs are not statistically significant at the conventional significance level, but their regression coefficients show proper signs. The paper also examines the patterns of foreign direct investment among countries and compares transaction costs by income group. Copyright © 2000 John Wiley & Sons, Ltd.     

Capital control and exchange rate volatility

The study offers one conceptual and theoretical framework for evaluating the economic effects of a trading tax on foreign exchange transactions. Taxes and the price stickiness mechanism are taken into account in the model. When prices are flexible, full monetary neutrality can be obtained even in the short-term. Intuitively, taxes on foreign exchange transactions discourage speculation by rising currency trading costs, and, thus, increase the stability of the exchange rate. Finally, the results show that not only the exchange rate but consumption, investment and employment will become less volatile by imposing trading taxes on foreign exchange transactions.     

A Blessing and a Curse: Institutional Embeddedness of Longstanding MNE Subsidiaries in Emerging Markets

This article examines the institutional strategies of multinational enterprises (MNEs) operating in an emerging market, drawing attention to how longstanding foreign subsidiaries proactively negotiate their involvement with socio-political actors. We build on institutional logics to explain how MNE subsidiaries develop sustained political, cultural, and cognitive embeddedness. Using an inductive, interpretive study of four century-old Dutch MNE subsidiaries with a colonial legacy in Indonesia, we examine these three dimensions of the institutional environment, finding that local employees embedded in both the MNE and the host country sets of logics ‒ rather than expatriate managers ‒ most effectively facilitated sustained institutional embeddedness. Our findings also suggest that embedding practices in host institutional contexts and developing structures that align with host institutional expectations provided a platform for the unfolding of institutional strategies by local employees. However, MNE subsidiaries face contrasting logics between home and host country institutions, placing significant strains on MNEs’ ability to enact change.     

A Perfect Impasse? Cuba's Move Towards the Market and the United States' Move Towards Cuba

This article first analyses the internal economic trajectory of the Cuban economic reforms and evaluates their effectiveness in delivering the extensive and intensive development needed to correct Cuba's structural and economic imbalances. It concludes that without the lifting of the US economic sanctions success will at best be only partial, with serious implications for long‐term stability. The article then evaluates the reasons for the US economic sanctions against Cuba and argues that while the embargo policy might have failed to topple the Cuban communist regime, it has served other, largely unacknowledged, purposes that are important in explaining why the policy has persisted. The article concludes by suggesting that the US is not likely to jettison the sanctions regime while Cuba's single‐party, state‐led economic system remains. At the same time, Cuba is not likely to jettison its single‐party system while the sanctions remain.     

Institutional quality and corporate financing decisions around the world

We investigate the influence of the recent comprehensive institutional quality dimensions of Karolyi (2015), such as market capacity, operational efficiency, foreign accessibility, corporate transparency, legal protection, and political stability, on financing decisions of firms across 56 countries between 2000 and 2015. We find that stronger institutional quality or lower fundamental risks in a country ease firms' access to long-term debt, and equity financing. We attribute our results to institutional environments influencing financing decisions by shaping the severity of market frictions, such as agency conflicts and information asymmetry, and transaction costs. As a result, we conclude that any improvement in a country's institutional environment will boost firms' access to long-term financing, and thus longer-term investments that promote countries' economic growth will be more feasible. Our findings are robust to potential endogeneity issues.     

THE MAKE-BUY DECISION AND MANAGING MARKETS: THE CASE OF MANAGEMENT BUY-OUTS

This paper attempts to develop the issue of the internalization of transactions (the make-buy decision). Butler and Carney (1983) have developed the concept of managing markets where under certain conditions transactions will not be internalized. This paper, as well as attempting to complete this picture, also draws attention to a largely ignored aspect of organization theory - the issue of when a transaction which is already internalized will be externalized. In examining the sale of subsidiaries by parent companies an attempt is made to draw the boundaries of Williamson's divisionalized form of organization. The necessary and sufficient conditions for sale to the management are developed in the theoretical discussion, followed in the second section by empirical evidence from a survey of management buy-outs.     

The Debt/Equity Swap in Latin America– In Whose Interest?

This paper presents the basic analytics of a debt/equity swap and illustrates the concept with a detailed example of American Express Bank's swap transactions that began in 1986 and have resulted in construction of seven hotels in Mexico during the course of the swap agreement. The economics of the swap are presented from the lending bank's view, from the foreign direct investor's view, and from the borrowing country's view. It is concluded that: swaps offer net benefits to the borrower country when additional investment is generated (from the swap transaction itself and/or from encouraging further investment as a result of the swap policy); they offer net benefits to the lender when future loan servicing prospects are poor and viable investment opportunities exist; and they offer net benefits to the direct investor when the cost of financing the investment through the swap is less than for alternative financing sources.
The analytical framework presented here allows the bank lender to formally compare alternatives of holding impaired LDC loans on its books, selling the loans in the secondary market, trading the loans for loans from another country, and swapping the loans for equity investments in the borrowing country. It similarly allows the government policymaker to compare the relevant economic costs and benefits of swaps, so that better swap policies can be developed.     

The transfer of HRM policies and practices to a transitional business system: the case of performance management practices in the US and Japanese MNEs operating in Vietnam

This paper focuses on employee performance management (PM) to explore how multinational enterprises (MNEs) localise their human resources within their subsidiaries in a developing country. It uses qualitative research methods to examine four US and four Japanese MNEs operating in Vietnam. The paper identifies both home and host country effects as significant factors in the transfer of MNEs' PM policies and practices. The US firms emphasised financial and non-financial measurements and utilised a wide range of PM management tools and techniques. These techniques, despite being unfamiliar in Vietnam and possibly considered incompatible with Vietnamese culture, were transferred successfully to the Vietnamese subsidiaries. The Japanese firms' PM approach was characterised by a more informal form of regular performance review, within a strictly top-down process and which suffered from accusations of bias and lack of transparency by Vietnamese respondents. This paper argues that the transitional period in Vietnam from a centrally planned economy to a market-oriented one has made the national business system more receptive to new and seemingly contrasting practices. It provides no evidence to support the argument that transfer of practices is more likely, where the cultures of the countries involved are relatively similar.