Showing papers in "Journal of International Business Studies in 1998"
TL;DR: In this paper, the authors trace the changing world economic scenario for international business over the past two decades, and then examine its implications for the location of foreign direct investment and multinational enterprise activity, concluding that many of the explanations of the 1970s and early 1980s need to be modified as firm-specific assets have become mobile across natural boundaries.
Abstract: This article first traces the changing world economic scenario for international business over the past two decades, and then goes on to examine its implications for the location of foreign direct investment and multinational enterprise activity. It suggests that many of the explanations of the 1970s and early 1980s need to be modified as firm-specific assets have become mobile across natural boundaries. A final section of the article examines the dynamic interface between the value-added activities of multinational enterprises in different locations.
1,980 citations
TL;DR: In this paper, the authors examined a sample of 52 cross-border acquisitions that took place between 1987 and 1992, and found a positive association between national cultural distance and cross border acquisition performance by providing access to the target's and the acquirer's diverse set of routines and repertoires embedded in national culture.
Abstract: Previous theoretical research has argued that national cultural distance hinders cross-border acquisition performance by increasing the costs of integration This article tests the alternative hypothesis that national cultural distance enhances cross-border acquisition performance by providing access to the target's and/or the acquirer's diverse set of routines and repertoires embedded in national culture Using a multi-dimensional measure of national cultural distance and controlling for other effects, we examine a sample of 52 cross-border acquisitions that took place between 1987 and 1992, and find a positive association between national cultural distance and cross-border acquisition performance
1,036 citations
TL;DR: The main focus of the Hymer-Kindleberger theory (Hymer, 1976; Kindleberger, 1969) and the product cycle theory (Vernon 1966) was exporting versus FDI as mentioned in this paper.
Abstract: Empirical studies of FDI have become much more ambitious in scope over the last 30 years. In the 1960s, the main focus of the Hymer-Kindleberger theory (Hymer, 1976; Kindleberger, 1969) and the product cycle theory (Vernon 1966) was exporting versus FDI. In the 1970s the internalisation approach identified licensing, franchising and subcontracting as other strategic options. The resurgence of mergers and acquisitions in the 1980s — often as a ‘quick fix’ route to globalisation — highlighted the choice between greenfield ventures and acquisitions. At the same time, the growing participation of US firms in IJVs drew attention to the role of cooperative arrangements.
885 citations
TL;DR: This paper found that cultural distance between the home base of the investor and the target country (or perhaps political risk) exerts a powerful influence on ownership of subsidiaries, but cultural characteristics of the home-base do not.
Abstract: This paper tests the proposition that national origin affects the strategies of multinational enterprises by looking at the determinants of the choice they make between entering the United States through partially versus wholly owned subsidiaries. We pool entries into the United States made by firms based in two countries, Japan and Finland, which differ both in their cultural characteristics and in their cultural distance to the United States. After carefully controlling for the known firm and industry-level determinants of subsidiary ownership strategies, we find that cultural distance between the home base of the investor and the target country (or perhaps political risk) exerts a powerful influence on ownership of subsidiaries, but cultural characteristics of the home base do not.
568 citations
TL;DR: In this paper, the authors show that network linkage is an important determinant of location choice in foreign direct investment (FDI), and they further separate external linkages into strategic and relational linkages, and find that small firms are more sensitive to relational links than large firms in their choice of FDI location.
Abstract: This paper shows that network linkage is an important determinant of location choice in foreign direct investment (FDI). Network linkages are divided into internal (intra-firm) and external (inter-firm) linkages. External linkages are further separated into strategic and relational linkages. We found that Taiwanese firms are keen on making external linkages, but are indifferent to, or incapable of, making internal linkages through FDI. Strategic linkages motivate Taiwanese FDI in the United States, while relational linkages facilitate Taiwanese FDI in Southeast Asia and China. Small firms are more sensitive to relational linkages than large firms in their choice of FDI location.
561 citations
TL;DR: In this article, the authors developed culture-specific propositions for four categories of compensation practices based on status, performance, social benefits and programs, and employee ownership plans to determine the extent to which Hofstede's four dimensions of culture are associated with specific compensation practices.
Abstract: With operations spread worldwide, firms that find themselves competing in a global marketplace are looking at the implications of the admonition, “When in Rome.…” This raises the question: “Do cultures of countries have an impact on the generally accepted methods of managing human resources?” The answer to this question is the focus of this article. By developing culture-specific propositions for four categories of compensation practices based on status, performance, social benefits and programs, and employee ownership plans, we seek to determine the extent to which Hofstede's four dimensions of culture are associated with specific compensation practices. Support is found for most of the propositions. The implications of the finding for the management of human resources by multinational firms are discussed.
487 citations
TL;DR: In this article, the authors combine concepts from transaction costs theory, agency theory, corporate knowledge and organizational capability theories to answer the question of what determines the optimum choice of organizational mode.
Abstract: In the new management landscape, where interfirm collaborations are common, international companies today have fully owned operations and equity joint ventures, as well as non-equity alliances, which in the service sector include franchising and management service agreements. What determines the optimum choice of organizational mode? The new syncretic theory developed in this paper combines concepts from transaction costs theory, agency theory, corporate knowledge and organizational capability theories to answer this question. The paper then tests these concepts to explain the incidence of these modes in the international hotel business, using canonical discriminant analysis, as well as logistical regression using a generalized LOGIT model. The choice of “entry mode” is shown to be determined by both country or environmental variables, as well as firm-specific variables.
484 citations
TL;DR: The appearance of a major work of survey and synthesis, which goes into successive editions (Caves, 1996) is a clear sign that a subject has reached maturity as mentioned in this paper, and so the question naturally arises as to whether stagnation has set in to international business research.
Abstract: The appearance of a major work of survey and synthesis, which goes into successive editions (Caves, 1996), is a clear sign that a subject has reached maturity. Maturity can sometimes indicate stagnation, however, and so the question naturally arises as to whether stagnation has set in to international business research. Caves’ second edition is an encyclopaedic work, but it is very much like the first edition in its general structure. Only the details have been modified in the light of recent research.
476 citations
TL;DR: This paper found support for two hypotheses about cultural differences in conflict style and the cultural values that account for these differences: Chinese managers rely more on an avoiding style because of their relatively high value on conformity and tradition.
Abstract: A problem in joint ventures between U.S. and Asian firms is that cultural differences impede the smooth resolution of conflicts between managers. In a survey of young managers in the U.S., China, Philippines, and India we find support for two hypotheses about cultural differences in conflict style and the cultural values that account for these differences: Chinese managers rely more on an avoiding style because of their relatively high value on conformity and tradition. U.S. managers rely more on a competing style because of their relatively high value on individual achievement.
440 citations
TL;DR: In this paper, the authors show that multinational firms may increase their systematic risk owing to an increase in the standard deviation of cash flows from internationalization, which offsets the lower correlation associated with diversification.
Abstract: Previous literature suggests that multinational firms decrease their systematic risk owing to the diversification benefit of having cash flows in different countries. It is posited in this article that multinational firms may increase their systematic risk owing to an increase in the standard deviation of cash flows from internationalization, which offsets the lower correlation associated with diversification. Evidence of a significant positive relationship between the level of systematic risk in a firm and the degree of that firm's internationalization is presented. This analysis is consistent with observed practitioner usage of higher discount rates in evaluating international projects.
362 citations
TL;DR: In this paper, the authors identify four distinct forms of JVs based on the JV partners' nationality and equity affiliation, and demonstrate that the conventionally assumed form of JV represented only 30 percent of the total.
Abstract: The international joint venture (JV) literature has focused on two parent JVs formed between one foreign and one local firm. Yet, other types of JVs exist. This paper identifies four distinct forms of JVs based on the JV partners' nationality and equity affiliation. These are: (i) JVs that are formed between affiliated home-country based firms; (ii) JVs that are formed between unaffiliated home-country based firmsl; (iii) JVs that are formed between home-country based and local firms; and (iv) JVs that are formed between home-country and third-country based firms. Our analysis of 737 Japanese JVs in Asia demonstrates that the conventionally assumed form of JV represented only 30 percent of the total. Further, each of the four JV forms significantly differed in terms of incidence, performance, and survival likelihood.
TL;DR: In this article, a conceptual framework that links international joint venture context (cultural similarity, relative power, and relationship age) and partners' conflict resolution strategies to satisfaction is presented. But the authors focus on the mediation effect of conflict resolution behavior on the linkage from context to satisfaction.
Abstract: The paper presents a conceptual framework that links international joint venture context (cultural similarity, relative power, and relationship age) and partners' conflict resolution strategies to satisfaction. Special attention is paid to the mediation effect of conflict resolution behavior on the linkage from context to satisfaction. The framework is assessed empirically using a sample of U.S. and Chinese joint venture managers in China.
TL;DR: This article examined the implications of differences in strategy and industry structure for firms' economic exposures to foreign exchange rate movements and found that 13 to 17 percent of U.S. manufacturing firms are exposed to currency movements.
Abstract: This study examines the implications of differences in strategy and industry structure for firms' economic exposures to foreign exchange rate movements. In contrast with previous research using a single currency proxy, this study estimates firms' exposures using a multiple currency model. The empirical evidence from U.S. manufacturing firms indicates that 13 to 17 percent of firms are exposed to foreign exchange rate movements. Results from cross-sectional analyses reveal that foreign direct investment reduces economic exposure to foreign exchange rate movements.
TL;DR: In this article, the authors analyze the interactions between international environmental policy and multinational corporate strategy and build a new conceptual framework to analyze the type of corporate strategy developed in the presence of both national an international environmental regulations.
Abstract: This paper analyzes the interactions between international environmental policy and multinational corporate strategy. The main contribution is building a new conceptual framework to analyze the type of corporate strategy developed in the presence of both national an international environmental regulations. This framework distinguishes between firm-level compliance with environmental obligations and the development of resource-based green capabilities. It also classifies major environmental regulations and incorporates a discussion of public policy.
TL;DR: In this article, the role of export intermediaries as an organizational form connecting domestic manufacturers and foreign buyers is identified as an important missing link in existing research, and a new research agenda drawing on the transaction cost and resource-based perspectives is advanced.
Abstract: Building on Leonidou and Katsikeas' (1996) recent review of the export development literature, we identify an important missing link in existing research: the role of export intermediaries as an organizational form connecting domestic manufacturers and foreign buyers. In response, a new research agenda drawing on the transaction cost and resource-based perspectives is advanced. This agenda focuses on why export intermediaries are selected by manufacturers in their channel choice decisions, and why some intermediaries outperform others. The paper closes with discussions of research, practice, and public policy implications.
TL;DR: This article reviewed and integrated representative literature on the exceptionally broad topic of multinational enterprises (MNEs) and public policy towards them and made projections ahead to the relevance of this literature for the year 2020, which is the target date set by the 18 members of the Asia-Pacific Economic Cooperation Forum (APEC) for the realisation of full trade and foreign direct investment (FDI) liberalisation.
Abstract: In this chapter we attempt to review and integrate representative literature on the exceptionally broad topic of multinational enterprises (MNEs) and public policy towards them. To help us in this difficult task we build upon the insights offered by Richard Caves (1982) in Chapter 10 (on ‘public policy’) in his critically acclaimed advanced textbook, Multinational Enterprise and Economic Analysis. This book was first published in 1982 and substantially revised in a second edition in 1996. Our specific task is to consider the literature on MNEs and public policy as it has emerged since 1970 and make projections ahead to the relevance of this literature for the year 2020, which is the target date set by the 18 members of the Asia-Pacific Economic Cooperation Forum (APEC) for the realisation of full trade and foreign direct investment (FDI) liberalisation. Such liberalisation has already been implemented in the European Union (15 member states), and it will further expand as new countries are accepted as EU members in the 21st century.
TL;DR: In this paper, the authors developed three theoretical perspectives of multinational enterprises' response to currency changes: flexibility optimism, premised on information and sunk cost advantages, takes a macro efficiency perspective and predicts sizable responses; flexibility pessimism, based on inertia and internal opportunism, predicts sticky responses; and flexibility realism predicts positive, but relatively modest, responses.
Abstract: Do multinational enterprises operate flexibly, i.e., do they shift production in response to currency changes? Three theoretical perspectives are developed. Flexibility optimism, premised on information and sunk cost advantages, takes a macro efficiency perspective and predicts sizable responses. Flexibility pessimism, premised on inertia and internal opportunism, takes an organizational perspective and predicts sticky responses. Flexibility realism, premised on the view that to be flexible in the current period multinational enterprises need to have planned and invested accordingly in previous periods, predicts positive, but relatively modest, responses. Empirical analysis spanning the period 1977-1993 finds that multinational enterprises systematically exploit currency shifts, but even in the face of large exchange rate changes, their operational responses are relatively modest. The results appear most consistent with flexibility realism, and this hypothesis is selected over the alternatives considered.
TL;DR: In this paper, the authors draw on two contrasting perspectives from organization theory (structural instability and structural inertia) to trace both the destabilizing and stabilizing forces in IJVs and argue that a complete understanding of an IJV's dynamic evolution requires consideration of both forces.
Abstract: Previous research suggests that international joint ventures (IJVs) are inherently unstable and fragile. This view has failed, however, to explain why many IJVs have an extended longevity and stability. This paper draws on two contrasting perspectives from organization theory (structural instability and structural inertia) to trace both the destabilizing and stabilizing forces in IJVs, and argues that a complete understanding of an IJV's dynamic evolution requires consideration of both forces.
TL;DR: In this paper, a longitudinal analysis of industry-wide, firm-specific data on FDI timing and foreign venture performance in China reveals that timing has a significant influence on overall, as well as on individual, aspects of venture performance.
Abstract: This study examines the multivariate and univariate performance effects of timing of FDI in an emerging economy at the business unit level. A longitudinal analysis of industry-wide, firm-specific data on FDI timing and foreign venture performance in China reveals that timing has a significant influence on overall, as well as on individual, aspects of venture performance. It is observed that early entrants outperform late movers in terms of local market expansion and asset turnover, whereas late movers are superior to early entrants with regard to risk reduction and accounting return during the initial period of international expansion. Factor analysis confirms that the importance of timing in affecting FDI decisions is as significant as that of internalization, ownership, or location factors.
TL;DR: In this paper, the authors analyzed the impact of political risk on investors' required return and the multinational corporation's cost of capital on foreign direct investment using the basic diversifiable-nondiversifiable dichotomy of portfolio theory.
Abstract: This note analyzes the impact of political risk on investors' required return and the multinational corporation's cost of capital on foreign direct investment using the basic diversifiable-nondiversifiable dichotomy of portfolio theory. Whether or not a particular political risk affects the value of a multinational corporation through its cost of capital depends on whether the risk is related to investors' relevant market portfolios. We provide a numerical example that illustrates the potential impact of political risk on required return.
TL;DR: This article examined U.S. banks' patterns of foreign operations, including their levels of banking services and choice of organizational forms in host countries, and found that the lack of support in rapidly growing markets of Asia and Latin America raises serious theoretical concerns, and presents fresh research opportunities into the global banking industry.
Abstract: Combining foreign direct investment theory with data on 32 countries from the Federal Reserve Board, we examined U.S. banks' patterns of foreign operations, including their levels of banking services and choice of organizational forms in host countries. Results generally supported predictions, but only in developed countries. The lack of support in rapidly growing markets of Asia and Latin America raises serious theoretical concerns, and presents fresh research opportunities into the global banking industry.
TL;DR: In this article, the authors investigated whether multinational insurers achieve economies of scale and concluded that the benefits of extensive foreign acquisitions by insurers are questionable, and that the most internationally diverse insurers suffer diseconomies.
Abstract: This study investigates whether multinational insurers achieve economies of scale. Using a time-series, cross-sectional design, it analyzes the relationship between expenses and output of multinational insurers. The study finds that multinational insurers achieve economies of scale only up to a point, and rather than benefitting from scale, the most internationally diverse insurers suffer diseconomies. The conclusion is that the benefits of extensive foreign acquisitions by insurers are questionable.
TL;DR: In this article, the authors provide a summary of economic research on multinationals and developing countries, and the gaps can be grouped into four categories: the impact of the widespread change in development strategies on multinational companies, the net impact of foreign direct investment on host countries, the causes of declining tensions between developing countries and foreign investors, and links between our economic knowledge and the decisions that face private and government managers.
Abstract: In Multinational Enterprise and Economic Analysis Caves provides a summary of economic research on multinationals and developing countries. Yet, for policy makers major questions remain unanswered. The gaps can be grouped into four categories: the impact of the widespread change in development strategies on multinationals, the net impact of foreign direct investment on host countries, the causes of declining tensions between developing countries and foreign investors, and links between our economic knowledge and the decisions that face private and government managers.
TL;DR: In this article, the authors reflect on the general problems and specific opportunities faced by contemporary research on multinational enterprise, including controlling properly for the firm's opportunities when testing the effectiveness of its policy choices; avoiding biases that result from studying surviving business units and ignoring those that disappeared; and mobilizing longitudinal data and exploiting the many census-based data sets now coming available.
Abstract: This paper reflects on the general problems and specific opportunities faced by contemporary research on multinational enterprise. The general problems include controlling properly for the firm’s opportunities when testing the effectiveness of its policy choices; avoiding biases that result from studying surviving business units and ignoring those that disappeared; and mobilizing longitudinal data and exploiting the many census-based data sets now coming available.
TL;DR: In this article, a conceptual model of multinational investment strategy is developed and empirically tested using data from a survey of multinational enterprises operating in the West Midlands region of the United Kingdom.
Abstract: The location of investment by multinational enterprises has been investigated from many perspectives. It has been suggested that investment may be motivated by experience of a particular location represented by tenure of operations. In contrast, portfolio considerations suggest that increased investment in a given location increases risk exposure. In this paper, the question of whether a multinational with a longer duration of operations at a particular location is more likely to invest further is addressed after taking portfolio risk into account. A conceptual model of multinational investment strategy is developed and empirically tested using data from a survey of multinational enterprises operating in the West Midlands region of the United Kingdom. Two innovative non-parametric tests for duration dependence are applied. After normalising for portfolio considerations, it is found that multinational investment is significantly duration dependent, i.e., firms with a longer tenure of operations are significantly more likely to invest in any given period. This finding has important implications for the strategy of inward investment agencies. In particular, an investment agency is short-sighted if it seeks to attract new investors if that is at the expense of neglecting multinationals with current operations in its jurisdiction.
TL;DR: In this paper, the influence tactics of senior U.S. executives in negotiating international business alliances were examined and the strategy literature on alliances and behavioral literature on negotiations were incorporated into a behavioral model of alliance negotiations.
Abstract: This study examines the influence tactics of senior U.S. executives in negotiating international business alliances. The strategy literature on alliances and the behavioral literature on negotiations were incorporated into a behavioral model of alliance negotiations. Constructs identified from transaction cost, power dependence and game theories were integrated and linked to hypotheses describing negotiators' influence tactics in alliance negotiations. In examining eighty-three alliance negotiations, negotiator trust, perception of a partner firm's alternatives, conflict frame, time horizon, and cultural distance were found to affect negotiators' tactics.
TL;DR: In this paper, the authors present a model of cross-cultural negotiations which describes how the affect negotiators experience during negotiations influences the character of the negotiation process and its outcomes, and the ways in which negotiators can break out of destructive negative spirals by engaging in motivated rather than substantive information processing.
Abstract: This paper presents a model of cross-cultural negotiations which describes how the affect negotiators experience during negotiations influences the character of the negotiation process and its outcomes. Three categories of determinants of negotiator affect are proposed: Individual differences, cross-cultural differences, and contextual factors. The ways in which negotiator affect influences information processing during negotiations are then described. It is suggested that the influence of affect, through substantive information processing, may lead to either positive or negative spirals in negotiations, influencing the ability of negotiators to reach an integrative solution. Finally, the ways in which negotiators can break out of destructive negative spirals by engaging in motivated rather than substantive information processing are discussed.
TL;DR: In this article, the location of all manufacturing establishments in the United States held by the U.S. and by foreign firms was compared, and it was found that foreign firms favor states with low unionization rates, low wage rates, and right to work legislation.
Abstract: There are arguments to support and contradict the proposition that foreign-owned and U.S.-owned establishments exhibit similar location patterns within the United States. This paper addresses these conflicting views by comparing the location of all manufacturing establishments in the United States held by the U.S. and by foreign firms. The empirical evidence indicates that the location patterns of foreign-owned and U.S.-owned establishments differ. Moreover, the most influential factor in explaining the location pattern difference is that foreign-owned establishments, compared to U.S.-owned establishments, favor coastal states. I also find evidence to suggest that foreign firms favor states with low unionization rates, low wage rates, and right to work legislation. These results are consistent with arguments that foreign establishments differ from their domestic counterparts and value location attributes differently.
TL;DR: This article examined the role of firm technology investment, in concert with managerial incentives alignment, to explain the relative market value compared to the accounting value for a multinational firm and found that greater multinationality corresponds to a higher valuation of the firm if technology investment is high, and the impact is even greater if managerial incentive alignment is high as well.
Abstract: This paper examines the role of firm technology investment, in concert with managerial incentives alignment, to explain the relative market value compared to the accounting value for a multinational firm. The results are consistent with internalization theory in that greater multinationality corresponds to a higher valuation of the firm if technology investment is high, and the impact is even greater if managerial incentives alignment is high as well. However, greater multinationality alone does not correlate to a significantly greater value, which differs from the tenets of imperfect capital markets theory.