The emergence of multi-sided platform MNEs: Internalization theory and networks

The rise of the digital economy provides firms across the globe with unique business opportunities. Companies such as Facebook, Alibaba, and Uber are competing in a new multi-sided platform world; the primary focus of these firms, from their inception, is to provide digital infrastructure, information and technology—intangible assets that enable direct interaction or value creation across platforms by linking different user group and complementors, often at the international level. Building on data drawn from multinational multisided Platform corporations (MMPCs) operating in China, we combine insights from internalization theory and network effects in understanding the value creation of such firms. We explore the boundaries of these new “breed” of MNEs in exploiting firm-specific advantages (FSAs) and in creating new knowledge between headquarters and subsidiaries. The findings suggest that internalization theory needs to shift its focus from the ‘boundaries of the firm’ to the ‘boundaries of the local network’. By integrating their internal and external networks of knowledge in adapting their business models in host markets, this new breed of MNEs is more likely than the traditional one to gain a sustainable competitive advantage in the new information age.     

What changes the rules of the game in wholly owned subsidiaries? Determinants of knowledge acquisition from parent firms

We examine key factors affecting the extent of knowledge acquisition from multinational enterprises (MNEs) in their wholly owned subsidiaries (WOSs). As the volume of foreign direct investment (FDI) by MNEs is rapidly growing, empirical studies dealing with knowledge acquisition from parent firms in subsidiaries are in the limelight. However, as far as we know, none has attempted to identify primary mechanisms influencing subsidiary learning by dividing WOSs based on ‘investment mode’ and ‘investment direction’. We believe WOSs are characterized by these two issues and thus this research contributes to current literature by providing a detailed picture of learning mechanisms in subsidiaries. We advance a series of propositions to achieve the research objective by using a sample of WOSs established by MNEs in Korea. By doing this, we reveal that subsidiary learning depends significantly on absorptive capacity in learning organizations, relational capital and parent firms’ behavior. Also, we confirm that factors facilitating knowledge acquisition are influenced by investment mode and investment direction. Based on the results, this study provides some useful implications for MNEs and policy makers in local markets.     

Contraction under minimum wages? Operational and financial advantages of multinational subsidiaries in China

The advantages of multinational enterprises (MNEs) over domestic firms have been widely acknowledged in several streams of literature. However, a more refined analysis on the sources of their advantages is lacking. Exploiting minimum wage hikes in China as an exogenous shock, we theorize that, due to multinational advantages, the employment of multinational subsidiaries may be less affected by minimum wages than that of domestic firms, and that their multinational advantages arise from both operational and financial advantages. Using nation-wide longitudinal firm data from 1998 to 2007 and border discontinuity design (BDD) to estimate the causal effects, we find supportive evidence for our hypotheses. We contribute to the literature on multinational advantages and minimum wages.     

MNE liability of foreignness versus local firm-specific advantages: The case of the Chinese management software industry

The theory of the multinational enterprise (MNE) suggests that the subsidiaries of MNEs possess firm-specific advantages (FSAs) that can overcome their liability of foreignness (LOF). It also suggests that subsidiaries can gradually decrease their LOF over time as they learn more about the host country environment and develop better connections to local business networks. Accordingly, subsidiaries should outperform local firms not only at point of entry but also (and increasingly so) in the long run as LOF decreases. This paper challenges this received wisdom by using case-study methodology to argue that LOF may not decrease over time and, meanwhile, the FSA gap between local firms and subsidiaries may narrow. We focus on two types of FSAs (asset and transaction ownership) and three sources of LOF (complexity, uncertainty, and discrimination) to develop a theoretical framework for analysing the dynamic relationships between LOF and FSAs and show how local firms can outperform foreign subsidiaries over time. We use the case of the Chinese management software industry to illustrate the framework. Our findings have important implications for MNEs competing abroad as well as helping to explain the emergence of strong competition from local firms.     

A closer look at the productivity advantage of foreign affiliates

In analyzing firm productivity in Belgium, this article shows empirically that both scale and efficiency contribute positively to the typical productivity advantage of foreign affiliates. Stochastic production frontier estimation using the translog functional form indicates that foreign subsidiaries exploit economies of scale more fully and benefit from better (transferred) technological capabilities than Belgian national firms (i.e., Belgian owned firms without subsidiaries abroad). Belgian multinational enterprises (MNEs), i.e., Belgian owned firms with at least one subsidiary abroad, resemble foreign‐based MNEs in possessing specific technological advantages. While the increasing globalization has facilitated the realization of scale effects across borders, this article shows that the development of technological capabilities/advantages is still a prerequisite for MNEs to compete successfully abroad.     

Regulating the entry of multinational enterprises: Models and practices

This paper examines the policies adopted by host governments to regulate the entry of multinational enterprises (MNEs). The conflict between host governments and MNEs over the choice of entry strategies is demonstrated. The theoretical underpinnings of host governments’ regulations on MNEs’ entry are provided and the restrictive policies adopted by host governments are assessed. In general, prohibiting an MNE to sign a licensing agreement with its own partially owned subsidiary generates a higher level of national welfare. If the size of the host market is large enough to support several efficient plants, encouraging MNEs to license their technologies to several local firms will also increase national welfare.     

The right tree for the right bird: Location choice decision of Taiwanese firms’ FDI in China and Vietnam

Firms have to invest in foreign markets to maintain their competitive advantage, but a popular location for foreign direct investment (FDI) may not be suitable for everyone. Available literature as to location choice is mainly based on developed countries and large multinational enterprises (MNEs). However, this study investigates the location choice behaviour of firms originating in newly industrialized economies (Taiwanese firms) investing in emerging countries (China and Vietnam). According to the national economic development of China (further divided into South China and East China) and Vietnam, we divide the location into more developed and less developed regions. Through an empirical firm-level data collection and conditional logit analysis, this study found that: (1) firms with stronger ownership advantages prefer to invest in more developed than less developed regions; (2) firms occupying favourable positions in their network prefer to invest in more developed than less developed regions; (3) firms with a high degree of networking prefer to invest in less developed than more developed regions; (4) firms choose to invest in more developed than less developed regions to gain access to a large market; and (5) firms with strong resource-seeking motives prefer to invest in more developed than less developed regions to access their resources.     

Multinational Enterprises’ Entry Mode Strategies in Syria and Jordan: The Impact of Ownership Advantages

This study addresses the issue of ownership advantages affecting multinational enterprises’ (MNEs) entry mode strategies in developing countries. Although a few studies have focused on such effects, very little attention has been devoted to the ownership advantages generated from the institutional environment of MNEs’ home countries. To bridge this gap, this study concentrates on three types of ownership advantages: intangible asset advantages (IAA), advantages of common governance (ACG), and home‐country‐specific advantages (HCSA). Using a sample of 303 foreign affiliates, this study empirically examines the choice of MNEs between a wholly owned subsidiary (WOS) and a joint venture (JV). The data were collected from senior executives of MNEs’ subsidiaries operating in Syria and Jordan. The findings of this study reveal that MNEs’ choice of entry mode strategies is significantly influenced by intangible asset advantages, advantages of common governance, and home‐country‐specific advantages. Hence, senior executives perceiving an increased importance of these assets will opt for a WOS rather than a JV when entering a new market in the Middle East. © 2015 Wiley Periodicals, Inc.     

Multinational family firms’ internationalization depth and breadth following the global financial crisis

This study examines how large family firms react to a macroeconomic shock in terms of their internationalization depth and breadth. Building on new internalization theory and acknowledging the dysfunctional manifestations of bifurcation bias in large family-owned MNEs, we argue that an unexpected shock induces family firms to recombine their family firm-specific resources with their thus far underutilized or unequally treated nonfamily resources. This recombination allows most family firms to economize on bifurcation bias and leverage their resources as firm-specific advantages (FSAs) resulting in an increased depth and breadth of internationalization post shock (while some of them may continue to suffer from bifurcation bias). Testing our theory on a panel dataset incorporating large family-owned (compared to nonfamily-owned) MNEs headquartered in Germany before and after the global financial crisis lends support to our theory. We discuss how our study contributes to new internalization theory, to the broader IB literature on MNEs’ unexpected shock response, and to family firm internationalization research.     

Investment History and Market Orientation Effects in the TFP–FDI Relationship1

This paper examines the robustness of previous stochastic dominance tests that find significant total factor productivity (TFP) heterogeneity between firms that export abroad and multinational enterprises (MNEs). We extend this literature by focusing on how ‘within‐MNE’ heterogeneity affects the extent to which one can identify the TFP threshold in the exporter–MNE TFP relationship. Within‐MNE heterogeneity is established by determining both the number and location of the foreign affiliates established by each MNE. In this way, we separate single‐affiliate MNEs from those with multiple affiliates, as well as analyse the role played by vertical FDI, a topic typically ignored in previous stochastic dominance tests of the Helpman et al. (2004, American Economic Review, 94, 300–16) hypothesis. Our empirical tests employ Japanese firm‐level FDI and TFP data for the period 1975–2000. Using Kolmogorov–Smirnov tests to determine stochastic dominance, we find significant TFP heterogeneity within the MNE group based on investment history and affiliate geographic location. While our results confirm the standard HMY three‐tiered classification to exist for Japanese firms, exporter–MNE ‘between‐group’ TFP heterogeneity is sensitive to the ‘within‐MNE’ investment history heterogeneity. We note that single‐ and two‐affiliate MNEs are statistically more similar to exporting firms than to MNEs with greater foreign affiliate totals. This shows the exporter–MNE TFP threshold to be not as explicit as Helpman et al. (2004, American Economic Review, 94, 300–16) suggest. In fact, our results allow us to identify the MNE‐side width of Girma et al.’s (2005, Economic Letters, 83, 317–24) ‘uncertainty region’ surrounding this threshold. Finally, we also find a strong TFP–market orientation relationship exists where the most productive firms follow complex integration strategies, lesser TFP firms do horizontal FDI, and the least productive MNEs do vertical FDI.     

Competing with multinational enterprises’ entry: Search strategy,environmental complexity,and survival of local firms

This study examines the competitive dynamics between foreign and local firms. We posit that multinational enterprises (MNEs)’s entry in foreign markets significantly reduces the survival rate of local firms in the short term, but that this effect gradually diminishes over time. The proposed conceptual framework is operationalized through the combination of the widely used agent-based model and the economic model of competition. The agent-based model allows us to study the behavior of firms under the context of different markets and the environmental complexity while the competition model determines the competition between firms as well as the entry and exit of firms. Our results obtained from the simulation study reveal that the negative effect of foreign entry is heightened as environmental complexity increases. However, local firms with a broader knowledge search are better able to confront the negative impact of foreign entry over time. We also find that the negative effect of foreign entry on the survival of local firms is weaker for local firms with a strong retrieval capacity.     

The Influence of Firm's Size and International Experience on the Ownership Structure of Italian FDI in Manufacturing

The literature on foreign direct investment (FDI) has analysed the entry mode choice by multinational enterprises (MNEs) from several theoretical viewpoints. Nevertheless, previous studies have mainly focused on the behaviour of large and established MNEs while little attention has been given to small- and medium-sized firms.The paper aims at providing further empirical evidence on the role of firm size and international experience in influencing the ownership structure of FDI. The main hypothesis is that smaller firms, characterised by financial and managerial constraints, as well as firms lacking experience in managing foreign operations, suffer from a condition of adverse asymmetry in information costs, compared to their competitors. Therefore, they are forced to act prudently, minimising risk and thus preferring a less control arrangement of foreign subsidiaries.A binomial logistic model is developed with reference to manufacturing foreign direct investments undertaken by Italian firms in the period 1986–1993.     

Board composition,family ownership,institutional distance and the foreign equity ownership strategies of Turkish MNEs

In much of the developing world, families represent the dominant form of firm ownership. This study investigates how this influences equity ownership strategies when firms venture abroad. Drawing on agency theory and institutional theory, we investigate the direct effect of board composition and family ownership on the equity-based ownership strategies of multinational enterprises (MNEs) in their affiliates, and how institutional distance may moderate this. Examining foreign affiliates of listed Turkish MNEs, we find that a high ratio of independent directors is negatively linked to levels of equity ownership of MNE affiliates. We also find that a high ratio of inside directors on the board is positively associated with the equity stake of MNEs in their affiliates. The significant interaction effect between board composition, family ownership and institutional distance helps explain the unexpectedly weak effects of institutional distance.     

Not all family firms are equal: The moderating effect of family involvement on the political risk exposure of the foreign direct investment portfolio. Preliminary evidence from Spanish multinational enterprises

We investigate the effect of political risk (PR) exposure and family control on the internationalization strategy of multinational enterprises (MNEs) using social capital theory. Our results from a negative binomial cross‐sectional analysis in 2007 of Spanish MNEs show family ownership or the limited presence of family members on the board has no effect on internationalization. However, when the conceptualization of family firms (FFs) includes majority ownership and board presence, we find a direct negative effect on their internationalization scope but a positive moderating effect on the relationship between the exposure to PR and internationalization scope. FFs have some specific advantages suitable to be employed in their corporate political activity allowing them to develop long‐lasting relationships with relevant political actors. By disentangling the effects of family control on internationalization and PR, this article explains how FFs can be simultaneously risk‐willing and risk‐averse.     

The Characteristics and Performance of Affiliates of Small and Medium-Size Multinational Enterprises in an Emerging Market

Little has been reported on the characteristics and performance of affiliates of small and medium-sized multinational enterprises (MNEs) operating in emerging markets. The paper has two research objectives: to assess characteristics of Korean affiliates of small and medium-sized MNEs, and identify the determinants of performance. Seven hypotheses were formulated and tested on a sample of Korean subsidiaries of small and medium-sized MNEs by using a bootstrap method of regression analysis. We found that: affiliates of small and medium-sized MNEs in Korea favored joint ventures with local firms rather than wholly-owned subsidiaries; ownership rate was directly related to the degree of control from the parent firm; and performance was determined significantly by the degree of control exercised by parent firms and their exporting levels. Age, size, and R&D expenditures had no relationship with the performance of affiliates of small and medium-size MNEs in Korea.     

International strategy: From local to global and beyond

To survive and thrive, multinational enterprises (MNEs) have had to adapt to dramatic changes and increasing complexity in the global competitive landscape over the past 50 years. MNEs’ international strategies and the academic research on the various attributes and outcomes of these strategies have evolved accordingly. This work reviews the evolution of international strategy research over the past five decades. In particular, the research on international diversification and the timing and speed of entering international markets is closely examined. In recent years, the influence of formal and informal institutions on international strategy has become a central research topic. Furthermore, MNEs’ strategies often seek to explore and exploit critical capabilities to build advantages in international markets. Finally, emerging research themes, such as institutional complexity, business sustainability, emerging economy firms and international new ventures are highlighted.     

The Impact of Corporate Social Performance on a Firm’s Multinationality

Using panel data of 4,244 company years, we examine whether and how corporate social performance (CSP) affects a firm’s capacity to achieve profitable sales in foreign markets. Based on our extension of instrumental stakeholder theory into the international arena, we hypothesized a U-shaped relationship between CSP and multinationality. Results supported our contention that multinational enterprises (MNEs) need to be substantially committed to social performance objectives if they are to recoup the cost of their CSP investments, and improve their capacity to compete in foreign markets. MNEs engaged in intermediate levels of CSP achieve lower levels of multinationality than firms operating at either anchor of the social performance continuum. In addition, this study demonstrates that CSP moderates a well-established relationship in international business literature – the relationship between R&D investment and a firm’s multinationality. Implications for research and practice are discussed.     

Actualization of growth potential in international joint ventures: The moderating effects of localization strategies

We employ the growth options perspective to examine how multinational corporations’ localization strategies facilitate the actualization of growth potential preserved in international joint ventures (IJVs). This study uses a data of Korean IJVs; it accounts for the endogeneity associated with a firm’s decision to exercise growth options through a two-stage model. We find that the enlarged IJVs, via conversion to majority ownership under reduced host market demand uncertainty, performed better. We also find that the realized growth potential are larger for IJVs that have more local business ties with other firms, or that hire more local employees. This study contributes to the growth options literature by examining the strategies that enable firms to exploit evolved exogenous uncertainty, and thus actualize upside growth potential.     

Exploring reverse knowledge transfer and asset augmentation strategy by developed country MNEs: Case study evidence from the Indian pharmaceutical industry

Using an in-depth qualitative longitudinal case study approach, we examine strategic asset and knowledge augmentation strategies of an advanced economy multinational enterprise (MNE). Our study is unique as it is contextualized in the knowledge-intensive pharmaceutical industry within the changing institutional landscape in India. And, in contrast to previous studies, it focuses on RKT from a newly acquired subsidiary where the protocol for knowledge transfer and relationship between MNE headquarters (HQ) and subsidiary does not exist. We contribute to the evolving literature on reverse knowledge transfer (RKT) which assumes that MNEs extract knowledge from their existing subsidiaries to strengthen their competitive advantages. We also reveal that MNEs design an architecture, that is reflected in the mechanism, governance structure, and timing, for efficient transfer and effective absorption of the knowledge and assets acquired. We introduce a novel concept of ‘reverse asset augmentation’ (RAA) to capture the MNE’s behavior of strategic asset seeking from emerging economies. RAA is parallel to and entwined with RKT conceptualization as knowledge is embedded within certain physical assets, other assets, such as brand name/image, may not embody knowledge. Thematic and processual analysis of interview data, collected in three phases, suggests that RAA complements RKT and that both concepts together capture the unconventional strategies of advanced economy MNEs acquiring emerging economy MNEs in search of strategic assets and knowledge.     

Is there an advantage of emergingness? A politico-regulatory perspective

The source(s) of competitive advantage of emerging-economy multinational enterprises (MNEs) remains a puzzle in international strategy scholarship, with some arguing that such firms are at a disadvantage compared to developed-economy rivals. Drawing on the concept of institutional advantage and using a sample of 233 foreign subsidiaries operating in 25 emerging economies over the period of 2000–2017, we find that foreign subsidiaries of emerging-economy MNEs are more adept than foreign subsidiaries of developed-economy MNEs at deploying their fixed asset management capabilities in emerging-economy host countries, especially when host-country politico-regulatory institutions are underdeveloped. Likewise, we find that subsidiaries of emerging-economy MNEs are more adept at deploying their tax planning capabilities when host-country politico-regulatory institutions become increasingly volatile. We discuss how these findings contribute to scholarly thought regarding the performance of emerging-economy MNEs.