Showing papers in "Global Strategy Journal in 2018"

Family firms in the global economy: Toward a deeper understanding of internationalization determinants, processes, and outcomes

Abstract: Research on the internationalization of family firms has flourished in recent years, yet the mechanisms through which family involvement shapes the determinants, processes, and outcomes of internationalization remain little understood and largely undertheorized. We contribute to research at the intersection of international business and family business by examining the roles of different sources of family firm heterogeneity and the context in shaping the determinants, processes, and outcomes of business internationalization. Drawing on this analysis, we summarize the articles published in this special issue and set out an agenda for further research aimed at advancing a more fine-grained and contextualized understanding of internationalization in family firms.

How does family involvement affect a firm's internationalization? An investigation of Indian family firms

Abstract: Research Summary: We investigate whether and how family ownership and management influence firms' internationalization strategies in an emerging economy in which family firms are dominant. Anchoring on the willingness and ability framework and drawing on the socioemotional wealth perspective and agency theory, we theorize how the heterogeneity among family firms in their ownership structures, concentration, and family involvement in management shapes the firms' internationalization strategies. We also theorize how certain contingencies, such as the presence of foreign institutional ownership and family management, moderate the relationship between family ownership and internationalization strategy. We test our predictions by using a proprietary, longitudinal panel dataset of 303 leading family firms from India and find support for most of our theoretical predictions.Managerial Summary: Internationalization has emerged as a dominant strategy for firms in a globally interconnected world. We observe that ownership structure and management have significant bearing on internationalization strategies of family firms, as family owners and managers are more averse to internationalization. Family firms' aversion to internationalize is more pronounced when families can exercise greater control on firms' actions through the combined effect of higher family ownership (primarily through strategic control) and family's participation in management (through strategic, administrative, and operational control). However, certain contingencies, such as the higher ownership of foreign institutions and presence of professional managers, help business families improve their understanding of international markets, reduce the fear of the unknown, and better appreciate the benefits of internationalization, thereby aiding greater internationalization of family firms.

Family firm internationalization: heritage assets and the impact of bifurcation bias

Abstract: Research summary We develop a new conceptual framework to uncover governance-related determinants of family firms’ internationalization, building upon internalization theory. We assess how family firm governance features determine internationalization patterns on two key dimensions: location choice and operating mode. We focus on family governance characteristics that might drive sub-optimal internationalization patterns, and on removing such sub-optimality. We conclude that bifurcation bias, defined as the de facto differential treatment of family or heritage assets versus non-family assets, represents a critical family-firm specific barrier to achieving efficiency in international operations. In the short run, the key difference in international governance is between bifurcation-biased family MNEs and all other types of MNEs. In the longer run, inefficient, bifurcation biased decision making will make place for comparatively more efficient governance. Managerial summary Family firms are susceptible to bifurcation bias – a default preferential treatment of family members and resource bundles that hold positive emotional meaning to the family, i.e., heritage assets. Such preferential treatment contrasts with that afforded to professional, non-family managers and other resources, with which the founding family does not entertain a positive emotional connection. If left unremedied, bifurcation bias will lead to poor decisions in family-owned multinationals that undertake international expansion, in terms of the choices of which markets to enter and how to enter these. These types of dysfunctional decisions will lead to a decline in competitiveness as compared to non-family multinationals. Family firms should therefore identify and actively prevent bifurcation bias, by implementing the specific safeguarding strategies suggested in this study.

The pursuit of international opportunities in family firms: Generational differences and the role of knowledge-based resources

Abstract: Research Summary: We argue that willingness (attitude toward risk, return, and socioemotional wealth), ability (extent of control), and resource availability influence the internationalization of family firms. We hypothesize that the internationalization of family firms led by founding and later generation family members differs from the internationalization of nonfamily firms and from each other and that knowledge-based resources moderate the relationship. Longitudinal analysis of 4,925 firm-year observations of S&P 1500 manufacturing firms from 2002 to 2008 shows that compared to nonfamily firms, family firms run by founding (later generation) family members internationalize less (more). Knowledge resources increase (decrease) the internationalization of founder-led (later generation) family firms. Overall, how family ownership influences firm behavior is likely to vary as much by its type as its amount.Managerial Summary: We explore the internationalization of family firms based on a sample of S&P 1500 manufacturing firms from 2002 to 2008. Compared to nonfamily firms, family firms run by founding family members internationalize less, and family firms run by later generation members internationalize more. However, as knowledge resources increase, the internationalization of founder-led family firms increases, whereas the internationalization of firms led by later generation family members decreases. Therefore, our findings suggest that knowledge resources can facilitate or hamper international expansion in family firms, depending on the generation of family control. These findings underscore the role of goals, governance, and resources as important drivers of differences in internationalization between family and nonfamily firms, as well as of variations in internationalization among family firms.

Business models in global competition

Abstract: Research Summary: Multinational enterprises create and capture value through appropriate business models that fit both distinctive capabilities and dynamic markets. The key elements of a global business model include propositions for adding customer value and capturing a share of that value, methods to control, deploy, and utilize critical resources, and integrated processes that deliver value to target global customers. These factors explain the diversity in business models, with international competition in geographically dispersed markets further fortifying this diversity and complexity. This article demonstrates ways forward in theorizing about business models, applying these models in the global context, discussing capabilities and strategies necessary for value generation from a global business model, and relating the choice of model to the strategic context of the modern multinational firm. Managerial Summary: MNEs seek value in the global marketplace through distinctive business models, as is the case in other markets. Global markets add layers of complication, as the MNE needs both a global umbrella business model and a local business model for each product and international host market. Because the global business environment is highly dynamic and each host market offers unique contextual characteristics, simple and fixed business models are not feasible. This article offers insights into how aspects of the business model and the multinational firm must be adapted to locational characteristics.

How do emerging multinationals configure political connections across institutional contexts

Abstract: Forming informal ties with political agents is viewed as a viable strategy for multinational enterprises seeking to enter emerging countries. Less is known about the conditions under which political connection is most helpful for firms dealing with cross-border institutional distance. We discuss the distinctive mechanisms through which emerging multinationals may benefit from both home and host political connections. Based on the strategy tripod perspective, we postulate that the importance of different types of connections depends on the overall configurations of a firm’s resources and industry characteristics, and these may change with institutional distance. Our analysis of a sample of Chinese high-tech manufacturing firms yields new insights into political connections, institutional distance and the strategy tripod perspective.

Political ties and firm performance: The effects of proself and prosocial engagement and institutional development

Abstract: Research Summary: We examine the value of political ties on firm performance in an emerging economy. Using social exchange theory, we posit that political connections propel firms to engage more in proself and prosocial activities, which mediate the relationship between political ties and firm performance. The institutional environment moderates the dual mediations such that as the institutional environment improves, the mediation effect through proself engagement weakens, whereas the mediation effect through prosocial engagement strengthens. We found support for these propositions by analyzing two samples of firms in China: A surveyed sample of 363 small- and medium-sized firms and data from 2,780 publicly listed firms from 1999 to 2014. Our findings shed light on the strategic value of political ties, coinciding with the development of institutional environments.

Corporate political connections in global strategy

Abstract: Research Summary: The role of corporate political connections (CPC) in global strategy has been examined in a variety of institutional contexts and analyzed from different theoretical perspectives. This literature, along with the articles in this special issue, demonstrate the importance of contextualization in understanding the motivations, processes, and outcomes of firms developing and utilizing CPC in global strategy. We argue that context‐specific aspects of CPC, such as the political system in which the firm is operating, need to be incorporated more systematically to advance theory development globally. Future studies on CPC can advance this agenda through cross‐country comparative research, deeper engagement with political science literature, linking CPC with other nonmarket strategies, and configurational analysis of the multidimensional context of CPC. Managerial Summary: Multinational companies not only compete in a market environment, they engage with political actors in both their home and host societies. This special issue brings together research that explores how companies use their corporate political connections (CPC) to achieve firm objectives. Each study takes a different approach to studying the phenomenon, informed by the national context of their empirical data. Together, these studies highlight the importance of CPC around the world. However, the variation in research approaches also highlights that the “how and why” of companies' development and utilization of CPC vary across cultures and political systems. In consequence, the development of managerial recommendations always needs to carefully consider the pertinent political context of the available empirical evidence.

When are emerging market multinationals more risk taking

Abstract: It is recognized that many emerging market multinationals (EM MNEs) are risk-taking or radical when undertaking outbound FDI. Risk-taking, however, is profoundly endogenous and therefore it is misl...

Flexibility as firm value driver: Evidence from offshore outsourcing

Abstract: Research Summary The paper tests real options theory prediction that uncertainty and flexibility are key value drivers for offshore outsourcing moderated by switching costs. Examining firm-specific and market data for outsourcing cases by U.S. firms, we find that the impact of market and environmental uncertainty and flexibility on outsourcing value is net positive and that it is greater for offshore than for domestic outsourcing. Outsourcing benefits are related to flexibility arising from growth options and moderated by switching costs underlying outsourcing activities, including loss of innovative capability and economic, institutional and cross-country cultural differences. Managerial Summary In the popular business literature, the “foot-loose” nature of outsourcing strategy characterized by an outsourcing firm's flexibility as well as the ability in finding appropriate suppliers on a global basis has often been touted as an important means of dealing with market uncertainty. However, the academic literature has not offered direct empirical support for the inherent value of such outsourcing strategy. Our study shows that firms tend to perform better financially when they have such outsourcing flexibility under uncertain market and environmental conditions, although this relationship may be somewhat weakened by potential loss of innovative capability and cultural and other differences in dealing with foreign suppliers.

International and product diversification – which strategy suits family managers?

Abstract: This paper explores the impact of family and professional managers on performance and how this relationship is affected by international and product diversification. Using a dataset of 262 German firms from 2000 to 2009, we find that an increasing proportion of family managers on the management board is associated with higher performance. This relationship is negatively moderated by higher levels of international diversification but reinforced by increased product diversification due to differences in the human and social capital between family and professional managers. Firms with a significant presence of family members on the top management team (TMT) face a choice of either adopting a corporate strategy that runs counter to “global-focusing” or adjusting the balance of family and professional managers in the TMT. Managerial summary Deciding the extent of family involvement on the executive team is a key strategic decision. While our research supports the general proposition that family managers will enhance performance we show they don't have the same positive impact in all situations. More precisely, we show that family managers are more suited to lead diversification than internationalization. If a family firm wants to go international it therefore is sensible to increase the proportion of professional managers on the executive team. Diversifying into new product markets, however, does not require outside expertise commonly associated with professional managers.

Performance and business relatedness as drivers of exit decision: A study of MNCs from an emerging country

Abstract: Research summary This study examines the exit behavior of emerging market MNCs in the context of the parent company (PC)–foreign affiliate (FA) relationship. Specifically, we consider business relatedness as a moderating variable and examine its impact on the relationship between a FA's international performance and its exit decision from a foreign market. Our results, based on data collected from multiple informants in 180 Chinese firms, indicate that product relatedness and intangible resources relatedness have a different moderating impact on the FA performance-FA exit decision relationship. Implications of these findings along with the limitations of the study are discussed. Managerial summary Although the research on international entry and expansion is particularly important, an aspect which has been largely ignored in the literature is the exit behavior of firms. This study examines whether the extent to which a foreign subsidiary is similar to its parent's core business may influence the firm's exit decision. The findings indicate that managers are more likely to exit a poorly-performing FA if there is a high (versus low) level of product relatedness between the FA and its PC's core business. The results also suggest that intangible resources relatedness exerts a different contingent effect on the FA performance-FA exit relationship from product relatedness.

How to achieve benefits from diversity in international alliances: Mechanisms and cultural intelligence

Abstract: Research Summary Despite interest in alliance management in the global strategy field, we have only limited insights into how firms can manage diversity-related conflicts in international alliances. By referring to the conflict literature, our study introduces task discourse as a crucial mechanism allowing task conflict resolution. We further describe conflict resolution via socializing practices, including social events, joint workshops, and interorganizational teams. Socializing practices and discourse take advantage of cultural intelligence, empowering managers to interact efficiently in intercultural settings. Data on 148 international alliances in the photonics and biotechnology industries reveal that managerial cultural intelligence improves task discourse, thus enhancing performance, especially in young alliances. Socializing practices, however, decrease performance with increasing cultural distance and without sufficient levels of managerial cultural intelligence. Managerial Summary International alliances face a dilemma. Cross-national differences offer valuable complementarities, but they can also spark a negative spiral of dysfunctional conflict. Our study shows that task discourse is an important mechanism for achieving advantages from the different perspectives offered by international alliances. Interestingly, our results further reveal that socializing practices including interorganizational teams, social events, and joint workshops do not per se have beneficial effects for international alliances. Putting people together who are unable to perform in intercultural settings is damaging to alliance performance. Our study indicates the specific conditions under which socializing practices have negative and positive effects and, thus, provokes a discussion about the appropriate application of these practices.

Network information and cross‐border M&A activities

Abstract: Research Summary How information about social networks affects firms’ global expansion is an important but rarely investigated question. We argue that different sources of network information will affect a firm's investment activities in the global market, but their relative importance may vary. Moreover, the influence of network information can be bounded by the global trade network. The results from a sample of cross-border merger and acquisition (M&A) activities conducted by U.S. publicly listed firms reveal that although M&A experience of both interlocking and joint venture partners affects the focal firm's global expansion, the effect of interlocking partners is more influential than joint venture partners. Meanwhile, when mutual trade dependence between countries is high, the positive effect of network information from board interlocks diminishes. Managerial Summary Firms are hesitant to engage in cross-border M&As, because it is difficult for them to get information about local business practices and environmental idiosyncrasies. This study shows that firms can deal with this challenge by accessing relevant information from the M&A experience of interlocking partners and joint venture partners. The information generated from the M&A experience of interlocking partners is even more valuable and important than that of joint venture partners in shaping firms’ cross-border M&A decisions. Moreover, the M&A experience of interlocking partners and joint venture partners is particularly valuable for firms contemplating M&A activities in a country with relatively fewer buyer-seller exchange networks with their home country.

The boundaries of the firm in global strategy

Abstract: We briefly review the evolution in the analysis of the boundaries of the firm in global strategy. We explain how initial studies that argued that firm boundaries were driven by the minimization of transaction costs were later complemented by analyses that proposed that firm boundaries were driven by the development and use of resources to maximize value creation and capture. Studies of global strategy combine these two approaches and introduce the influence of location, both the home and the host countries, as a third influence on boundary decisions. We encourage future studies to focus more deeply on the complexity, dynamics, and mechanisms of three themes: the consideration of all boundary options, the consideration of all operations of the multinational, and the simultaneous consideration of the characteristics of all the locations where the multinational operates. These suggestions help better connect the three drivers of firm boundaries: transactions, resources, and locations.

Boundary spanners and intra‐MNC knowledge sharing: The roles of controlled motivation and immediate organizational context

Abstract: Research summary We examine the conditions under which boundary spanners positively contribute to intra-MNC knowledge sharing. Specifically, we argue that the knowledge sharing behavior of boundary spanners should not be taken for granted, as it is affected by the individual's motivation to share knowledge and contingent upon the immediate organizational context in which the individual is located. An analysis of data covering 482 individuals located in different business units of a Danish MNC confirms our arguments. Managerial summary Boundary spanners are employees who act as knowledge intermediaries between many individuals from within and outside their organisations. They are well connected internally and externally, and share knowledge across MNC units to a greater extent than non-boundary spanners. However, their contribution to knowledge sharing should not be taken for granted as it depends on their motivation and their immediate context.

Co-parenting through subsidiaries: A model of value creation in the multinational firm

Abstract: Research summary We analyze a novel way to configure and manage multinational networks and propose a model of "co-parenting", characterized by the sharing of parenting roles and distribution of responsibilities between two units. We develop our argument around the notion of the springboard subsidiary, an operating subsidiary which assumes headquarters’ functions since it shares greater institutional closeness with both the headquarters’ country as well as with the host region. Based upon qualitative data, our inductive model revolves around three stages: establishment, consolidation and maturity, each of which reflects distinct roles and loci of decision making among the three actors involved: headquarters, springboard subsidiary and local subsidiary. Overall, our study sheds distinct light on when and how headquarters add value by matching parenting to context. Managerial summary In expanding across regions, multinational firms often face a situation where neither the local unit nor the corporate headquarters possesses the competencies to be at the competitive forefront. This article analyses a model of interregional expansion of multinational firms by using springboard subsidiaries, these being operating subsidiaries that can serve as a bridge between headquarters and local subsidiaries since they share institutional and business ties with both. We develop a model in which some parenting functions ---coordination, control and knowledge creation---are distributed between headquarters and the springboard subsidiary along an accumulative process of capabilities. By demonstrating how a springboard subsidiary can help to align control to context, the model offers a tool for strategic analysis that helps avoid potential value destruction by headquarters.

Natural resource endowment and firm performance: The moderating role of institutional endowment

Abstract: Research summary Does institutional endowment moderate the relationship between natural resources abundance and firm performance? Drawing from institution-based theories (IBT), we examine the interactive effects of institutional endowment (as indicated by natural resources governance) on firm performance. We use 2013 data of 492 firms from 27 African countries, and multilevel techniques to find significant interactions of institutional endowment. We discuss the theoretical and practical implications of these findings for management and organization scholarship. Managerial summary The purpose of this study is to examine the extent to which firm performance differs across countries in Africa as a function of institutional factors given natural resources abundance. We find that firm sales is higher in countries with strong institutions, strong enabling environments, and strong safeguards and quality controls when natural resource abundance is high. When natural resources abundance is low, firm sales and net profits are higher in countries with strong reporting practices, profit margin is higher in countries with strong safeguards and quality controls.