Determinants of International Activities: Are SMEs Different?

In this paper we econometrically investigate the factors determining the choice of a specific internationalisation strategy. We distinguish four strategies, ranging from “serving foreign markets through exports only” up to “exporting and locating abroad several business functions such as distribution, production and R & D”. These strategies are evaluated against the reference category “domestic sales only” (multinomial logit model). The analysis, to a large extent, confirms Dunning’s well-known OLI paradigm. O-advantages turn out to be the main drivers of internationalisation, irrespective of firm size and internationalisation strategy. However, the knowledge-base on which O-advantages of smaller firms rests is more narrow than that of large companies. Whereas the former rely, in relative terms, primarily on capabilities related to incremental innovations, the latter draw to a higher extent on assets enabling them to be competitive in terms of far-reaching innovations. L-advantages (wages, regulatory framework, etc.) primarily are relevant in case of small firms; but even for this size class, O-advantages are dominant.     

An analysis of U.S. small and medium‐sized manufacturers' international business relationships

Notwithstanding the dominant role of the United States in world trade, little is known about the relationships between smaller indigenous manufacturers and their foreign customers and how these differ from domestic market relationships. Using data from a recent study among 201 U.S. small and medium‐sized enterprises (SMEs), the article reveals that (a) these firms tend to put much more emphasis on the domestic side of their business, while the foreign market receives secondary treatment; (b) the atmosphere governing their relational exchanges differs in the two types of markets, being relatively healthier in domestic business; and (c) their domestic business performance levels, although moderate, are significantly higher than those found in foreign markets. © 2004 Wiley Periodicals, Inc.     

The impact of bank holding companies on local market rivalry and performance

The bank holding company movement in banking is, in many respects, the counterpart of the conglomerate movement in the industrial sector. Both are characterized by a substantial amount of merger activity and thus raise questions as to the affect of the acquiring firms on competition. This study uses Tobit analysis and OLS to examine the influence of bank holding companies on rivalry and performance in 154 banking markets (1970–1979). Test results indicate that in markets where bank holding companies are a significant factor rivalry is higher, but so are prices even though profits are not higher, than in markets where bank holding companies are less important. These seemingly conflicting findings may be explained by the finding that significant holding company presence in a market is associated with relatively high noninterest expenses.     

Management practices in U.S. affiliates of foreign-owned firms: Are “they” just like “Us”?

Despite considerable debate about foreign direct investment in the United States, little research has examined the inner workings of U.S. affiliates of foreign-owned firms. This study examines the management practices in 249 U.S. affiliates of foreign-owned firms. Findings show that practices in marketing, human resource management, and manufacturing tend to more closely resemble the practices of local competitors than those of the foreign parent, whereas for practices in financial control the dominant resemblance is to the parent. Furthermore, findings reveal that affiliates are comprised overwhelmingly of Americans, not only at lower levels of the organization but also in key executive positions, although affiliates of Japanese firms stand apart in their greater reliance on expatriates. Foreign affiliates of multinational firms are revealed as differentiated sets of practices, shaped by the interplay of local responsiveness and internal consistency. The findings also make plain that U.S. affiliates of foreign-owned firms are in many ways very much like American firms. © 1995 John Wiley & Sons, Inc.     

Going public: The impact of insiders' holdings on the price of initial public offerings

Many entrepreneurs dream of seeing their company's securities trading in the public marketplace. Although going public has many benefits for a firm's founders and insiders, the process is often confusing and intimidating. One of the questions that investment bankers are asked frequently by insiders is, “What determines the price of a stock in the initial public offering?” This article presents empirical evidence that the stock price in an initial public offering (IPO) is directly related to the percentage of the firm's equity retained by the insiders. In other words, the offering price is relatively high when it appears that the insiders are not “bailing out” when the firm goes public.This research investigates equity ownership structure as a determinant of the pricing of IPOs. The hypothesis to be tested is: IPOs with higher (lower) insider holdings at the time of the offering are priced higher (lower) as a result of lower (higher) required rates of return. Support for the hypothesis is based on agency theory, which postulates that additional risk is created when there is a perceived separation of ownership and control.There are several implications of this research. First, a greater appreciation of the sophistication of the IPO market with regard to the actions of the insiders should be gained. Second, the reader's knowledge of the activity and relative pricing of IPOs during the 1978–1985 time period should be enhanced. Third, insiders should realize that actions regarding their relative equity holdings at the time of the offering have an impact on the price of the offering. Finally, the reader should recognize that even in “hot markets” the actions of insiders at the time of an initial public offering regarding the sale of equity are monitored by the market.     

Dispersion in Analysts’ Earnings Forecasts and Market Efficiency

Recent studies show that firms with higher analysts’ earnings forecasts dispersion subsequently have lower returns than firms with lower forecasts dispersion. This paper evaluates alternative explanations for the dispersion–return relation using a stochastic dominance approach. We aim to discriminate between the hypothesis that some asset pricing models can explain the puzzling negative relation between dispersion and stock returns, and the alternative hypothesis that the dispersion effect is mainly driven by investor irrationality and thus is an evidence of a failure of efficient markets. We find that low dispersion stocks dominate high dispersion stocks by second‐ and third‐order stochastic dominance over the period from 1976 to 2012. Our results imply that any investor who is risk‐averse and prefers positive skewness would unambiguously prefer low dispersion stocks to high dispersion stocks. We conclude that the dispersion effect is more likely evidence of market inefficiency, rather than a result of omitted risk factors.     

Aligning employees through “line of sight”

Aligning employees with the firm's larger strategic goals is critical if organizations hope to manage their human capital effectively and ultimately attain strategic success. An important component of attaining and sustaining this alignment is for employees to have a “line of sight” (LOS) with their organization's strategic objectives. In this article, we illustrate how the translation of calculated firm goals into tangible results requires that employees not only understand the organization's strategy, but also accurately appreciate what actions are aligned with realizing that strategy. Using recent empirical evidence, theoretical insights, and tangible examples of exemplary firm practices, we provide thought-leaders with a comprehensive view of LOS by showing how it can be created, how it can be enhanced or stifled, and how it can be effectively managed. Further, we integrate LOS with current thinking on employee alignment to help managers more effectively benefit from understanding human capital potential.     

International versus domestic entrepreneurship: New venture strategic behavior and industry structure

International entrepreneurship is defined in this study as the development of international new ventures or start-ups that, from their inception, engage in international business, thus viewing their operating domain as international from the initial stages of the firm's operation.One hundred and eighty-eight new venture firms in the computer and communications equipment manufacturing industries are classified according to the percentage of their sales in the international market. Ventures with no sales derived from international activities are considered “domestic” new ventures, and ventures with sales from international activities comprising greater than 5% of total sales are considered “international” new ventures.The strategy and industry structure profiles of international new ventures are significantly different from domestic new ventures. The internationals pursue much broader market-based strategies, seeking a strategy of broad market coverage through developing and controlling numerous distribution channels, serving numerous customers in diverse market segments, and developing high market or product visibility. The internationals also emphasize a more aggressive entry strategy, building on outside financial and production resources to enter numerous geographical markets on a large scale. Securing patent technology is also an important component of their strategy. This suggests that the internationals compete by entering the industry on a large scale, seeking to penetrate multiple markets, with the recognition that external resources are necessary to support such an entry.Whereas both the domestics and the internationals characterize domestic competition as being relatively intense, the international new ventures compete in industries with higher levels of international competition. It is not clear from this research whether the new venture selects an industry with a high degree of international competition and therefore responds with an international orientation or, because the new venture has an international orientation, it perceives or recognizes a higher degree of international competition. Another industry structure difference is the internationals' perceived higher degree of restrictiveness due to government regulation. It is unclear whether this restrictiveness motivates new ventures to seek less-regulated international environments or if it indicates that when competing internationally, the new venture is confronted with increased regulatory requirements.Domestic new ventures are distinguished by their emphasis on a production expansion strategy and customer specialization strategy. The production specialization strategy consists of focusing on limited geographical markets, maintaining excess capacity, and pursuing forward integration. The customer specialization strategy incorporates the production of a specialty product that is purchased infrequently. Thus, for both of the domestic strategies, a consistent “closeness” between the producer and consumer is implied. This may be an important basis underlining the new venture's decision to compete in an exclusive domestic context.This study offers initial support for the notion of international entrepreneurship by its findings that there are significant differences between new venture firms competing domestically and new ventures choosing to also enter international markets.     

Outward FDI and Productivity: Micro‐evidence from Slovenia

This paper uses a rich data set of Slovenian manufacturing firms active in the period 1994–2002 that contains information on outward FDI and exports to different markets in order to test three empirical hypotheses that relate the decision for outward FDI to total factor productivity. First, the evidence supports the hypothesis proposed by Helpman, Melitz and Yeaple (2004) that more productive firms are more likely to invest in a foreign affiliate. Second, the hypothesis proposed by Head and Ries (2003 ) that less productive firms may be encouraged to invest in low‐income countries is rejected by the data. However, the main contribution of the paper is to confirm the third hypothesis that required firm's productivity increases with the number of markets that the firm serves, i.e. there is a positive relationship between the number of a firm's foreign affiliates and its total factor productivity.     

Sluggish giants,sticky cultures,and dynamic capability transformation

Using a theoretical framework derived from contemporary literature this paper investigates whether large and culturally dominant firms can transform their capabilities over time. Strategic capabilities, as articulated in theory, include resource accumulation and resource configuration. To these is added the capability of resource utilization which comes about because of tacit and inimitable intra-firm coordination skills and is a key performance measurement metric. This article evaluates whether large firms in the U.S. telecommunications industry have been able to effect a transformation in their strategic performance over a 16 year period of time: 1975 to 1990. Since the late 1960s and early 1970s many measures have been undertaken to restructure the industry environment, and these culminated in the 1984 divestiture by AT&T of this 22 Bell Operating Companies (BOCs) to seven Regional Holding companies (RHCs). Simultaneously a series of steps opened competition in many markets for not only the RHCs but for the other local operating companies, of which there are approximately 25 large ones, which in many cases are bigger than some of the companies belonging to the RHC fold. The local operating companies have faced a major transformation in their environment in the last 10 years. Once protected monopolies, they now face increasing competition in many market segments, which were once their profit sanctuaries enabling them to cross-subsidize many unprofitable operations. For the larger operating companies once owned by AT&T there was the shock of divestiture and re-birth, providing them an opportunity to engage in entrepreneurially oriented behavior. Thus, the U.S. telecommunications industry provides a useful laboratory within which to analyze performance and capability transformation. Additionally, one of the key issues that the literature is concerned with is the transformation in the performance of existing organizations. This article provides evidence on the key issue of corporate performance transformation for the principal firms that comprise one of the most important industries of contemporary times. It is a transformation that continues at an even faster pace today.The results show that in a dynamic setting size no longer materially influences negative performance. Inertia arguments about the ability of large firms to effect change are not validated in the context of a dynamic U.S. telecommunications industry. With a larger variety and pool of resources available, larger firms can undergo transformation through a process of dynamic learning as effectively as smaller firms. The relative transformation of the erstwhile Bell Operating Companies is a testimony to this assertion. The results have some implications for downsizing. Received wisdom means that less is better and smaller is swifter. Downsizing means dispersal of assets and resources, particularly human resources which embody firm-specific skills and knowledge. Which types of resources are lost in this process is critical to the eventual success of such endeavors. With downsizing, the ability of large firms to transform themselves via internal learning may be lost. Dynamic learning implies information scale economy exploitation, and to the extent that critical mass is reduced through downsizing there is lesser diffusion of information and knowledge. As a qualitatively important part of this human capital mass is reduced, there is less impact of future learning as firm-specific knowledge, which could be combined with emergent information to create new capabilities disappears. In such circumstances whether large firms can transform themselves successfully is a salient issue that ought to be further evaluated.     

Considerations on “Research on non-market actions: A commentary essay”

This commentary is in response to the commentary, “Research on Non-Market Actions: A Commentary Essay” [Wang, C-J. Research on Non-Market Actions: A Commentary Essay. J Bus Res (2008)] on the paper, “First come, first served: How market and non-market actions influence pioneer market share” [Usero B, Fernández Z, First come, first served: How market and non-market actions influence pioneer market share. J Bus Res (2008), doi:10.1016/j.jbusres.2008.07.005]. The commentary responds directly to Wang's [Wang, C-J. Research on Non-Market Actions: A Commentary Essay. J Bus Res (2008)] comments and proposes further lines of research that integrate the competitive dynamic approach with studies of non-market actions.     

A Comparison of Bundling and Sequential Pricing in Competitive Markets: Experimental Evidence

Technological advances enable sellers to identify relationships among offered goods. Sellers can leverage this information through pricing strategies such as bundling and sequential pricing. While these strategies have primarily been studied under monopoly assumptions, the strategies are available to competitive firms as well. This paper reports on a series of laboratory experiments comparing bundling and sequential pricing while varying the underlying relationship between the goods in markets where a fraction of buyers comparison shop. The results indicate that sequential pricing is generally as profitable to the seller; however, there is evidence that sequential pricing may be more harmful to consumers than bundling when the goods have complementary values or the buyer’s values are positively correlated.     

Learning by exporting: Lessons from high-technology SMEs

We investigate the learning by exporting hypothesis by examining the effect of exporting on the subsequent innovation performance of a sample of high-technology SMEs based in the UK. We find evidence of learning by exporting, but the pattern of this effect is complex. Exporting helps high-tech SMEs innovate subsequently, but does not make them more innovation intensive. There is evidence that consistent exposure to export markets helps firms overcome the innovation hurdle, but that there is a positive scale effect of exposure to export markets which allows innovative firms to sell more of their new-to-market products on entering export markets. Service sector firms are able to reap the benefits of exposure to export markets at an earlier (entry) stage of the internationalization process than are manufacturing firms. Innovation-intensive firms exhibit a different pattern of entry to and exit from export markets from low-intensity innovators, and this is reflected in different effects of exporting.     

Quality signaling via strikethrough prices

Why do firms often advertise their current price together with their past price? Although consumers expect high quality products to have high prices, such firms may optimally charge lower prices when faced with low production costs. Thus in markets in which quality is difficult to ascertain and costs often fall over time, for example technology products, high quality firms may face a challenge of signaling their quality through current price alone. In this paper we develop a price signaling model in which uninformed consumers draw inference not only from the current price but also the prior period's price (the “strikethrough price”) if the firm chooses to disclose it. We find that a high quality firm benefits from using strikethrough pricing when the prior probability of high quality is relatively low while the probability of costs falling is relatively high.     

Pricing practices and firms' market power in international cellular markets, an empirical study

Previous studies on international marketing have typically asked the question: “how is the demand characterized across countries?” Such analysis is then used to provide guidelines for firms to enter new markets and/or to allocate marketing resources across countries. To provide such normative guidelines, however, one also needs to analyze the supply-side of the problem, i.e., ask: “what is the likely market power that firms will be able to command in different countries?” Building on the New Empirical Industrial Organization (NEIO) framework, recent research in marketing provides marketers with a variety of models to explore competitive interactions among firms in the context of a single market. The goal of this paper is to extend this literature to a multimarket/multinational context to help international marketers assess the likely market power they face when entering new countries. We illustrate the proposed method on the mobile telecommunications industry, using price and quantity data from 10 countries around the world, estimating firms' market power as a function of a number of country characteristics.The results indicate that, while the simple presence of competition diminishes firms' market power, it does not lead to perfect competition. Interestingly, a higher number of competitors in a country does not seem to have significant incremental effect on market power. In contrast, the country's commitment to a severe antitrust policy has a significant negative effect, while the monopolist's lead-time before competition is allowed has a significant positive effect on market power. These findings, together with a change in price elasticities as a result of competition, suggest that market power in different countries may originate from two sources: (i) collusive pricing among cellular operators and (ii) consumers' switching costs across service providers. For international marketers, the findings imply that the attractiveness of wealthier countries (with usually faster diffusion rates and larger market potential) may be mitigated by higher levels of competition (as a result of developed antitrust regulation and more consumer exposure to competitive marketing practices). From a policy point of view, it suggests that (in contrast to the conventional wisdom) simple deregulation may not be enough to reduce prices to competitive levels. In addition, a severe antitrust policy is crucial to achieve this goal.     

Effects of Foreign Institutional Ownership on Foreign Bank Lending: Some Evidence for Emerging Markets

Despite the large literature on developed countries, little is known about the interactions between corporate governance, foreign ownership, and foreign bank lending in developing countries. Using data from five Latin American countries from 2001 to 2008, we provide one of the first pieces of evidence of how foreign ownership affects the loan cost of borrowers in emerging markets. We find that in terms of foreign bank lending, the cost of debt financing is significantly higher for firms whose largest shareholder is a foreign institutional one. The results support the hypothesis that because of potential agency conflicts between shareholders and creditors, having block institutional shareholders tend to increase the borrowers’ debt burden. There is further evidence supporting this agency conflict hypothesis as we find that the effects of large institutional shareholders on borrowing costs become larger (smaller) when the conflicts are aggravated (mitigated).     

Are the East Asian markets integrated? Evidence from the ICAPM

We test a conditional international asset pricing model with both world market and domestic risk included as independent pricing factors for five East Asian markets, the US and World markets. We model second moments and risk exposures using a bi-diagonal multivariate GARCH(1,1) process. We document that this novel GARCH specification provides a significantly better fit of the return process than a standard diagonal specification. Although exposure to world market risk carries a significant premium across all markets, we find little support for the hypothesis that exposure to residual country risk is rewarded. However, residual country returns are significantly related to exchange rate changes. Hence, we find surprisingly little evidence of market segmentation in East Asia over the period 1985–1998.     

Too close to be similar: Product and price competition in retail gasoline markets

We examine how product and pricing decisions of retail gasoline stations depend on local market demographics and the degree of competitive intensity in the market. We are able to shed light on the observed empirical phenomenon that proximate gasoline stations price very similarly in some markets, but very differently in other markets. Our analysis of product design and price competition between firms integrates two critical dimensions of heterogeneity across consumers: Consumers differ in their locations and in their travel costs, as in models of horizontal differentiation. They also differ in their relative preference or valuations for product quality dimensions, in terms of the offered station services (such as pay-at-pump, number of service bays or other added services), as in models of vertical differentiation. We find that the degree of local competitive intensity and the dispersion in consumer incomes are sufficient to explain variations in the product and pricing choices of competing firms. Closely located retailers who face sufficient income dispersion across consumers in a local market may differentiate on product design and pricing strategies. In contrast, retailers that are farther apart from each other may adopt similar product design and pricing strategies if the market is relatively homogeneous on income. Using empirical survey data on prices and station characteristics gathered across 724 gasoline stations in the St. Louis metropolitan area, and employing a multivariate logit model that predicts the joint probability of stations within a local market differentiating on product design and pricing strategies as a function of market demographics and local competitive intensity, we find strong support for the central implications of the theory.

Agency risk control through reprisal

We study agency risk control by venture capital (VC) firms to highlight the importance of VC reprisal ability. The central thesis of this paper is that a VC firm's due diligence effort as an ex ante screening for agency risk is contingent upon its ex post reprisal ability. Applying to the context of emerging markets, we develop a testable hypothesis and empirically test it using data from Singapore market. It is found that foreign VC firms that are relatively weak in reprisal ability spend more effort in due diligence screening compared to local VC firms.     

Firm size,profitability, and savings in Canada

This paper explores the relationship between firm size, profitability, and corporate savings behavior in Canada. It shows that the long-run propensities to save out of profits are much the same for firms of all sizes, although foreign-owned firms generally retain more of their profits compared to domestic firms. Profitability has also been found to be largely independent of variations in firm size, although large foreign-owned firms generally earn higher profits than large domestic firms. The study also finds no evidence for the superiority of the “dividend effect” over the “retained effect”. It is suggested that the relatively high debt ratio experienced by small domestic firms might be better explained by the demand than the supply side of the markets for new equity.