Showing papers in "Global Strategy Journal in 2011"

Reverse innovation, emerging markets, and global strategy

Abstract: ‘Reverse innovation’ refers to the case where an innovation is adopted first in poor (emerging) economies before ‘trickling up’ to rich countries. Although examples of reverse innovation are still rare, it raises interesting theoretical questions, such as what kinds of innovation emerging economies are likely to spawn, why such innovations might diffuse to rich countries, what competitive advantages local and foreign firms enjoy in this process, and how it affects the global strategy and organization of established MNEs. Research on reverse innovation can enrich and extend mainstream theories of innovation, internationalization, MNE management, and FDI spillovers.

Physical attraction and the geography of knowledge sourcing in multinational enterprises

Abstract: In this article, we develop the concept of the degree of physical attraction exerted by the dominant firms in a local industry on other actors that increases the ease of local knowledge search for ‘insiders’ with stronger connections to others. Conversely, the physical attraction of dominant firms on other actors raises the difficulty of local knowledge search for ‘outsiders’ with weaker connections to others. Our theory has important implications for knowledge spillovers. As local industry concentration rises, the likelihood of local knowledge spillovers to outsiders falls, even with a high local knowledge stock. Further, in contrast to the strategic deterrence thesis which posits that technology leaders are deterred from entering clusters for fear of knowledge outflows, our theory implies that with high industrial concentration, it is technology laggards that are deterred, since they do not have the wherewithal to establish the local connections needed to access knowledge inflows. Using a large patent database associated with the U.K.-based subsidiaries of non-U.K. MNEs, we find strong support for our theory.

A theoretical assessment of the empirical literature on the impact of multinationality on performance

Abstract: I assess the theoretical basis for the existence of a relationship between the size of a firm's foreign footprint (its multinationality) and its performance. I argue that multinationality results from a firm's choice between coordinating internally the stages of its value chain and letting them be organized on the market and hence that there are no reasons to expect net gains from an increase or a decrease in multinationality, the only profitability impact coming from a firm having made the wrong choice and being over- or under-integrated compared to the optimum. I then show that the way the literature has operationalized multinationality does not match the theoretical arguments it has advanced. I conclude that a reassessment of the literature is overdue and point to some new directions.

The relationship between international diversification and firm performance: Why it remains a puzzle

Abstract: Despite a wealth of empirical research, whether and how international diversification impacts firm performance remains one of the major unresolved research questions in the fields of strategy and international business. We propose that the lack of consensus about the nature of the international diversification–firm performance relationship results from a failure to fully grasp this complex phenomenon. Using data on trade flows of U.S. companies and their foreign subsidiaries, we provide a more focused and comprehensive perspective on the activities that define the geographic scope of U.S. companies that we hope will motivate a conceptualization of international diversification that encompasses the full range of activities that determine the geographic scope of a firm.

Global strategy and the collaboration of MNEs, NGOs, and governments for the provisioning of collective goods in emerging markets

Abstract: The global business environment is increasingly characterized by dynamic collaborations among public as well as private for-profit and not-for-profit actors for the provision in emerging markets of such local public goods as health, education, transportation, and utilities whose supply has received scant attention in international business research. Drawing from, and expanding on, transaction-cost economics and institutional theory, we analyze the choice of collaborative arrangements among the three parties for the local supply of these public goods—here, called a ‘collective goods’ via contracting, alliance, internationalization or assistance—the latter a governance mode hitherto overlooked in transaction-cost economics but essential in dealing with collective goods and nonmarket actors. We discuss the implications of these arrangements for multinational enterprise nonmarket strategies within the realm of global strategy.

A dynamic perspective on subsidiary autonomy

Abstract: Prior investigations treated subsidiary autonomy more or less as a static concept, but the headquarters-subsidiary relationship is likely to evolve and result in changing power positions over time. This article examines the static and dynamic impacts of external/internal embeddedness on the autonomy of overseas R&D subsidiaries. Based on data from 73 overseas R&D subsidiaries of German firms, we show that a dynamic perspective indeed produces counterintuitive results, namely that high internal embeddedness in the past may help laboratories gain higher levels of autonomy in the future, whereas high external embeddedness may lead to lower levels of autonomy in the future. Our results indicate that building trust and linking up with headquarters are important strategies for subsidiaries wishing to be granted autonomy in the future.

Internationalization revisited: the big step hypothesis

Abstract: We refine internationalization theory by hypothesizing that international expansion is a discontinuous process characterized by an initial ‘big step.’ Firms have to build an infrastructure (e.g., architecture, management systems, and mind-set) to support international operations the first time they venture abroad, and subsequent international operations are able to leverage this infrastructure. Thus, we hypothesize that the internationalization process is characterized by: (1) firms taking a long period to make their first international investment; and (2) firms taking shorter but constant periods for subsequent investments. We examine the international expansion activities of 176 Danish firms and find support for these arguments.

Sense of place: From location resources to MNE locational capital

Abstract: Location is commonly perceived as a source of generic resources to all firms in a given place and, therefore, not something that leads to firm-specific advantage. We challenge this view and suggest that multinational enterprises (MNEs) differ in their location capability, which enables them to create locational capital from generic location resources. Location capability is expressed in an MNE's ‘sense of place’—its recognition of the potential in a location and the actions it takes to create value from this potential. We outline the engagement, transformation and appropriation processes through which this happens and their implications for MNEs following multidomestic and global strategies. Thus, we advance an action-based view of firms driven by their sense of place to change the very nature of location resources.

The geographic scope of the MNC and its alliance portfolio: Resolving the paradox of distance

Abstract: Some research suggests that knowledge transfer and performance suffer when entities are distant from each other, while other work emphasizes that distance is beneficial by allowing firms to access novel and diverse knowledge. We resolve this paradox by focusing on the differing roles of MNC subsidiaries and headquarters vis-a-vis its alliances: distance between technology alliance partners and subsidiaries hurts MNC performance, but MNCs benefit when such partners are located afar from headquarters. We find support for these ideas in a longitudinal sample (2002 to 2006) of 126 Fortune 500 firms. Our work broadens the concept of the geographic scope of the firm, and suggests that MNCs gain by searching globally but collaborating locally.

Business transformation in heterogeneous environments: The impact of market development and firm strength on retrenchment and growth reconfiguration

Abstract: Asset reconfiguration by both growth and divestiture underlies business transformation, but reconfiguration remains poorly understood in countries with limited market infrastructure. We argue that more developed infrastructure facilitates resource reconfiguration, assisting weak firms’ attempts to retrench and strong firms’ attempts to grow; in turn, market development shapes the impact of reconfiguration by enhancing the benefits of adding assets and limiting the benefits of divestitures. We examine reconfiguration activity by 1,256 firms based in eight South East Asian economies—Hong Kong, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand—from 1990 to 1999. The study contributes to theories of business dynamics in varied settings of market-based socioeconomic development. Copyright © 2011 Strategic Management Society.

How global strategies emerge: an attention perspective

Abstract: Most prior research in the field of global strategy focuses on what choices executives make to build the competitive advantage of a firm, from setting up activities in different locations to coordinating the linkages between them. In this article, we shift the emphasis to how global strategies emerge in a firm by studying the processes through which top executive attention is channeled and structured. Building on the attention-based view of the firm, we develop hypotheses linking aspects of the firm's operating environment and its internal organization to its international attention—the time and effort HQ executives invest in activities, communications, and discussions aimed at improving their understanding of the global marketplace. Using primary data collected from 134 firms across a large spectrum of industries, we test and find support for our arguments.

How tight an embrace? Choosing the optimal degree of partner interaction in alliances based on risk, technology characteristics, and agreement provisions

Abstract: This study examines a key question one asks when negotiating an alliance: ‘how tight or loose a relationship do we wish to have with our partner?’ Interaction with one's partner is necessary in order to coordinate operations, effectively transfer tacit knowledge, monitor for opportunism, maximize joint synergistic value, and make sure that an appropriate share of the net benefit created by the alliance is appropriated by the technology provider. However, too tight an ‘embrace’ or too high a degree of interaction between the allies can increase coordination costs and increase the chance of unintended technology leakage. The sample, comprising 95 international alliances involving technology transfers, is grouped into four clusters with rising levels of interaction between allies. The optimal degree of interaction between the partners is explained by variables drawn from (1) technology characteristics and future technology policy, (2) coordination costs and risks, (3) agreement provisions, and (4) firm and sector characteristics that existed during the negotiation of the alliance. Using a proportional odds model, variables in the ‘coordination costs and risks’ and ‘agreement provisions’ categories found the most support in the results.

The strategic assembly of global firms: A microstructural analysis of local learning and global adaptation

Abstract: Strategic assembly—the comprehensive and coordinated use of internal development, mergers, acquisitions, joint ventures, and alliances—is a novel approach to the construction and management of global firms. This article describes the role and characteristics of strategic assembly in the construction and management of the global multibusiness firm, an emerging form of global organization. We present a study of Group Renault and its relationship with two key players in the lucrative and emerging market for autos in Turkey, emphasizing the coevolutionary processes through which local players enter and dominate a local market and the global parent, utilizing local learning and organization, adapts to the global environment. We conclude with a call to action for research on the relationship between the strategic logic of global assemblers and the strategies of the firms at multiple levels of analysis.

Permeability to inter‐ and intrafirm knowledge flows: the role of coordination and hierarchy in MNEs

Abstract: Multinational enterprises (MNEs) actively participate in both inter- and intrafirm knowledge flows. But what distinguishes intrafirm knowledge flows from those across firms? Are they essentially the same with ‘more of it’ going on intrafirm, or is there a fundamental qualitative difference between the two? This research sheds light on this issue by empirically comparing the evolution of intra– and interfirm knowledge flows using patent citations. Specifically, I study the integration of greenfield and acquired subsidiaries in the external and internal contexts of the firm over time. Not only is the development of intrafirm knowledge flows affected by the greater coordination within the firm, the existence of hierarchy enables asymmetric knowledge flows within the firm. Consequently intrafirm knowledge flows in contrast to interfirm flows, can be one-sided and not conditioned by reciprocity. In terms of practical implications, these results reveal that acquired subsidiaries become less connected with external knowledge over time, indicating that they achieve greater internal integration at the expense of their external integration. The evolution of greenfield units does not reveal such an internal-external trade-off. This study suggests major differences between the mechanisms of intra- and interfirm knowledge flows, and highlights the role of coordination and hierarchy as key determinants of intrafirm knowledge flows, MNE strategies, and innovation.

Bringing corporate governance to international joint ventures

Abstract: Large gaps appear to exist between the evolving corporate governance practices of organizations and those of international joint ventures (IJVs). Some of these gaps might well be appropriate given some of the unique features of IJVs, while others might require new consideration and attention by organizations engaged in alliances. The expansive literatures on corporate governance and IJVs have developed separately from one another, and there are important opportunities to combine them. We argue that a need exists for a new generation of IJV governance research that considers IJVs' boards of directors as well as other dimensions of governance. We highlight some research opportunities that are illustrative for the research agenda that we are calling for that builds bridges between the literatures on corporate governance and IJVs.

Social responsibility, global strategy, and the multinational enterprise: global monitory democracy and the meaning of place and space

Abstract: Drawing on scholarship in a wide range of disciplines, this article examines how and where social responsibility can be accommodated within existing global strategy theory. It queries how the evolving global sociopolitical geography fundamentally alters key areas of research and what this may imply about the long-term veracity of our theories. It is argued that the same forces that have fostered the revolution in information technology are changing the fundamental meaning of place and space and with it the ability of new monitory forces to arise that put pressure on conventional modes of governance and control, particularly with respect to global institutions and multinational enterprises.

The problem of control and the role of home–host ties in explaining multinationals' foreign operations, competitiveness, and performance

Abstract: The existing multinational enterprise (MNE) literature has focused on capabilities and value creation challenges, including related to cultural and other distance To better understand heterogeneity in the foreign country performance of MNEs, however, we need to go beyond the global strategy challenges of capabilities and coordination Specifically, we need to explore MNEs' value capture challenges abroad and attend to control as a chronic dilemma that is inadequately addressed by internalization In operating in foreign host countries, MNEs are chronically exposed to two types of largely uninsurable discretion: sovereign discretion of host governments and delegated discretion of host country employees, partners, suppliers, and such The problem in the first case relates to power; and in the second it relates to information Power and information are the sine qua non of effective control Control is a prerequisite for anticipated value capture, which influences the extent of MNEs' capability transfer, input localization, and output adaptation in a given host country Transfer, localization, and adpatation are the essence of host country value creation, which influences competitiveness and performance there Accordingly, beyond differences in MNE capabilities, heterogeneity in access to credible power and reliable information in a focal host country predicts heterogeneity in MNEs' competitiveness and relative performance there This is why and how heterogeneity in macro-level home–host ties (HHTs) explains durable performance differences among foreign MNEs operating in a focal host country In terms of global strategy research and practice, this turns the spotlight on macro-level HHTs, nonmarket strategy, and, eventually, focused internationalization It also argues for more microfoundations research on the limits and actual control benefits of internalization

Interorganizational governance and global strategy

Abstract: A wide range of interorganizational relationshipsfalls on the global market to multinational hierarchyspectrum, ranging from supplier relationships (Dyerand Chu, 2000) to multinational business groups(Colpan, Hikino, and Lincoln, 2010; Granovetter,1994). Concurrently, as firms increasingly deepenand widen their cross-border value chains, the struc-ture and content of their foreign location portfoliosbecome more critical to their global competitivepositions (Dunning, 1998). In pursuing foreigndirect investment (FDI) and establishing managerialcontrol across borders, multinational enterprise(MNE) managers have become progressively moreable to slice global value chain activities into finerpieces and allocate them across multiple locations.Global strategy studies these competitive cross-national dynamics and how ‘a firm’s competitiveposition in one national market is significantlyaffected by its competitive position in other nationalmarkets’ (Ghoshal, 1987: 425). Thus, decisions onthe location (where) and degree/form of control(how) (Buckley and Ghauri, 2004) are criticalsources of competitive advantage in managingMNEs. When firms decide to go international forvarious strategic objectives, they might choose tohave full managerial control and acquire a firm ordevelop a new wholly owned subsidiary, but alterna-tively they might engage in different degrees ofcooperation with other firms (Kogut and Singh,1988). Generally, firms get involved in interorgani-zational relationships abroad to minimize firm costs,create discriminating alignment between hostcountry uncertainties and firm control, and learnfrom its partners. The two articles that I discuss hereexplore interesting questions within interorganiza-tional networks.Contractor, Woodley, and Piepenbrink’s (2011)article distinguishes among three cross-nationalinterorganizational relationships: licensing agree-ments, non-equity relational contracting (e.g.,supply chain relationships), and equity joint ven-tures. Reuer