Showing papers on "Multinational corporation published in 1999"

Organizational Legitimacy Under Conditions of Complexity: The Case of the Multinational Enterprise

Abstract: We examine organizational legitimacy in the context of the multinational enterprise (MNE). After discussing three types of complexity (of the legitimating environment, the organization, and the process of legitimation) that MNEs typically face, we explore their effects on MNE legitimacy. In particular, we distinguish between the legitimacy of the MNE as a whole and that of its parts, and we develop propositions that include issues of internal versus external legitimacy and positive and negative legitimacy spillovers.

The internationalization of the firm

Abstract: PART 1: ANTECEDENTS 1. The Foreign Investment Decision Process 2. International Investments and International Trade in the Product Life Cycle 3. The Internationalization of the Firm - Four Swedish Cases 4. The Internationalization Process of the Firm - A Model of Knowledge Development and Increasing Foreign Market Commitments 5. A Theory of International Operations 6. Trade, Location of Economic Activity and the Multinational Enterprise - A Search for an Eclectic Approach, John H. Dunning - International Production and the Multinational Enterprise PART 2: THE INTERNATIONALIZATION PROCESS 7. Internationalization: Evolution of a Concept 8. Foreign Direct Investment by Small and Medium Sized Enterprises: The Theoretical Background 9. Network Relationships and the Internationalisation Process of Small Software Firms 10. The Expansion of Foreign Direct Investments: Discrete Rational Location Choices or a Cultural Learning Process? 11. The Internationalization of Service Firms: A Comparison with the Manufacturing Sector 12. The Process of Internationalization in the Operating Firm PART 3: METHODS OF FOREIGN MARKETING SERVICING 13. Modes of Foreign Entry: A Transaction Cost Analysis and Propositions 14. Differences Among Exporting Firms Based on a Degree of Internationalization 15. Outward Foreign Licensing by Australian Firms 16. Joint Ventures and Global Strategies 17. Interfirm Diversity, Organizational Learning, and Longevity in Global Strategic Alliances PART 4: ORGANIZING THE MULTINATIONAL FIRM 18. Options Thinking and Platform Investments: Investing in Opportunity 19. Organizing for Worldwide Effectiveness: The Transnational Solution 20. New Structures in MNCs Based in Small Countries: A Network Approach 21. Strategic Evolution Within Japanese Manufacturing Plants in Europe: UK Evidence PART 5: THE IMPACT OF CULTURE ON INTERNATIONALIZATION 22. Psychic Distance and Buyer-seller Interaction 23. The Effect of International Culture on the Choice of Entry Mode 24. The Business of International Business is Culture 25. The Psychic Distance Paradox

Multinational Firms and Technology Transfer

Abstract: We construct an oligopoly model in which a multinational firm has a superior technology compared to local firms Workers employed by the multinational acquire knowledge of its superior technology The multinational may pay a wage premium to prevent local firms from hiring its workers and thus gaining access to their knowledge In this setting, the host government has an incentive to attract FDI due to technology transfer to local firms or the wage premium earned by employees of the multinational firm However, when FDI is particularly attractive to the multinational firm, the host government has an incentive to discourage FDI

Can the Gains from International Diversification Be Achieved without Trading Abroad

Abstract: We examine whether portfolios of domestically traded securities can mimic foreign indices so that investment in assets that trade only abroad is not necessary to exhaust the gains from international diversification. We use monthly data from 1976 to 1993 for seven developed and nine emerging markets. Return correlations, mean-variance spanning, and Sharpe ratio test results provide strong evidence that gains beyond those attainable through home-made diversification have become statistically and economically insignificant. Finally, we show that the incremental gains from international diversification beyond home-made diversification portfolios have diminished over time in a way consistent with changes in investment barriers. THE BENEFITS OF INTERNATIONAL DIVERSIFICATION have been emphasized over the past 40 years by financial economists, who have shown that investing in foreign indices reduces the volatility of U.S. market portfolios, with gains attributed to low return correlations between national equity indices.1 Such investment in foreign indices requires holding securities that trade abroad, involving additional costs and potential barriers to international investment. Yet, over the past 20 years, an increasing number of country funds and depository receipts have started trading in the U.S. that, along with shares of multinational corporations, can be used to gain benefits from international diversification. In this paper, we examine whether investors can take advantage of the gains of international diversification by forming a portfolio of securities that trade in the United States, and we find that this * Errunza is from McGill University, Montreal; Hogan is from Barclays Global Investors, San Francisco; and Hung is from National Taiwan University, Taipei. Our special thanks to Ren6 Stulz (the editor) and an anonymous referee for many insightful suggestions. We also thank Warren Bailey, Geert Bekaert, Jin-Chaun Duan, Campbell Harvey, Andrew Karolyi, Ken Kroner, Usha Mittoo, and Michael Rebello, Marcia Roitberg, and Jahangir Sultan for helpful comments. Research assistance from Carlton Osakwe and Yuxing Yan is gratefully acknowledged. The authors thank the Social Sciences and Humanities Research Council of Canada and the Faculty of Management at McGill University for financial support. We are grateful to the capital markets department of the International Finance Corporation for providing the data on emerging markets.

Competing with giants. Survival strategies for local companies in emerging markets.

Abstract: The arrival of a multinational corporation often looks like a death sentence to local companies in an emerging market. After all, how can they compete in the face of the vast financial and technological resources, the seasoned management, and the powerful brands of, say, a Compaq or a Johnson & Johnson? But local companies often have more options than they might think, say the authors. Those options vary, depending on the strength of globalization pressures in an industry and the nature of a company's competitive assets. In the worst case, when globalization pressures are strong and a company has no competitive assets that it can transfer to other countries, it needs to retreat to a locally oriented link within the value chain. But if globalization pressures are weak, the company may be able to defend its market share by leveraging the advantages it enjoys in its home market. Many companies in emerging markets have assets that can work well in other countries. Those that operate in industries where the pressures to globalize are weak may be able to extend their success to a limited number of other markets that are similar to their home base. And those operating in global markets may be able to contend head-on with multinational rivals. By better understanding the relationship between their company's assets and the industry they operate in, executives from emerging markets can gain a clearer picture of the options they really have when multinationals come to stay.

Comparative Economic Organization—Within and Between Countries

Abstract: This paper explores the implications of going beyond transaction cost theory's implicit focus on domestic investors to include multinational actors. As developed herein, the discriminating alignment between the level of hazards (contractual and/or political) and the mode of governance carries over. In the open-economy context, such an alignment reflects the hazards that arise from the nature of the transaction and those that arise from the nature of the political and regulatory environment.

Multinational firms and technology transfer

Abstract: The authors construct an oligopoly model in which a multinational firm has a technology superior to those of local firms in the host country. Workers employed by the multinational acquire knowledge of the superior technology and can spread their knowledge to local firms by switching employers. The multinational chooses to pay a wage premium to prevent local firms from hiring away its workers if the local firms are sufficiently disadvantaged or if there are enough local firms. Diffusion of the superior technology benefits local firms at the expense of workers, whose wages suffer. The host government might have an incentive to attract foreign direct investment even when technology transfer will not result, because of the wage premium local employees of the multinational firm earn. Also, foreign direct investment with technology transfer may reduce the total economic rent the host country earns.

How foreign investment affects host countries

Abstract: Foreign direct investment may promote economic development by helping to improve productivity growth and exports in the multinationals' host countries, the authors conclude, after reviewing the empirical evidence. But the exact relationship between foreign multinational corporations and their host economies seems to vary between industries and countries. Multinational corporations mainly enter industries where barriers to entry and concentration are relatively high, and at first they increase the number of firms in the host country market. In the long run, they may contribute to a more concentrated market, although efficiency may improve, especially if protection does not guarantee an easy life for the multinational affiliate. However, most available evidence has to do with multinationals' entry into host countries' industries rather than with their presence -the dynamic aspects of multinationals' relationship to their competition in host country markets. Most evidence on multinationals' effects has to do with effects in industrial countries, and it is impossible to disregard the risk that the multinationals' entry into developing countries may replace local production and force local firms out of business, rather than force them to become more efficient.

The internationalisation of R&D by multinationals: a trade-off between external and internal proximity

Abstract: Overseas production is frequently seen as a force inducing the decentralization of RD it should, on the contrary, be completed by the implementation of relations of proximity internal to the firm, which they refer to as 'internal proximity.' From this perspective, the multinational firm that manages dispersed R&D units is seen as facing a tension--an organizational trade-off--between external proximity and internal proximity. Copyright 1999 by Oxford University Press.

Adopting a common corporate language: IHRM implications

Abstract: As companies internationalize and expand their operations into more countries, language questions inevitably come to the fore. As a response to operating in many languages and co-ordinating a multinational workforce, companies may adopt a common language for internal communication. However, the challenges associated with such a 'language standardization' and the broader HR considerations have received limited scholarly attention in the extant literature. This article addresses, therefore, the implications of language issues for a range of international HRM activities, including staff selection, training and development, and international assignments. We also explore language policies in the light of HR considerations and the strategic positioning of language-competent staff. The insights gained from various company examples demonstrate that multinationals rely on short-term and long-term HR responses to deal with the language issue. The analysis also reveals the critical role played by expatriates as lang...

Multinational Firms and Technology Transfer

Abstract: The authors construct an oligopoly model in which a multinational firm has a technology superior to those of local firms in the host country. Workers employed by the multinational acquire knowledge of the superior technology and can spread their knowledge to local firms by switching employers. The multinational chooses to pay a wage premium to prevent local firms from hiring away its workers if the local firms are sufficiently disadvantaged or if there are enough local firms. Diffusion of the superior technology benefits local firms at the expense of workers, whose wages suffer. The host government might have an incentive to attract foreign direct investment even when technology transfer will not result, because of the wage premium local employees of the multinational firm earn. Also, foreign direct investment with technology transfer may reduce the total economic rent the host country earns.

Internationalization as a learning process: Singapore MNCs in China

Abstract: Executive Overview To face the challenge of increasing global competition, domestic companies need to leverage their strengths overseas. Newcomers to the international arena may encounter difficulties different from those of established multinational corporations (MNCs). This article examines the internationalization process of fledgling MNCs from an organizational learning perspective. The discussion is supported by an empirical study of 19 Singapore companies and their operations in China, including joint ventures and wholly owned subsidiaries. Internationalization is the transfer of a firm's physical and organizational technologies from one country to another. Companies that learn efficiently from their experience are able to expand overseas faster and with fewer mistakes. Managers who are directly involved in establishing and managing foreign operations are agents of learning on behalf of their companies. In order to fully make use of the experiences gained by their managers, the experiences have to b...

The Determinants and Consequences of Subsidiary Initiative in Multinational Corporations

Abstract: This paper examines corporate entrepreneurship in multinational corporations through a detailed study of initiatives taken by foreign subsidiaries. We develop a theoretical model in which two level...

Telecommunications Reform in Developing Countries

Abstract: Since World War II, developing nations have embarked on two massive changes in telecommunications policy. The first was the wave of nationalization of private companies that took place mostly in the 1950s and 1960s, and the second is the now ongoing process of re-privatization and, to a lesser degree, the introduction of competition. The purpose of this essay is to set forth the problems of contemporary neoliberal policy reform within the historical, economic and political context of these countries to assess the success of reform to date and to suggest future directions for research that might improve the performance of the sector. The existing literature well documents the decline in performance during the nationalization era and the improvements that reform usually brings; however, relatively little is known about the relationship between the details of reform and subsequent performance, or about the institutional factors that contribute to the stability of reform. The main conclusions are: (1) the recent literature on policy reform probably understates the importance of constructing regulatory governance institutions that are not captured by the newly reformed incumbent monopolist; (2) reform in some countries has focused too much on maximizing the revenues from the sale of state-owned enterprises rather than the long-run economic benefits of reform to consumers and society at large; and (3) too little attention has been given to creating an institutional environment, regulatory and legal, that supports a private and, where possible, competitive industry. The paper also argues that small developing countries probably should not allocate scarce educated technical civil servants to regulation, but should either adopt relatively simple "benchmark" systems or, better still, form multinational agencies for regulating prices and service standards.

American Management Consulting Companies in Western Europe, 1920 to 1990: Products, Reputation, and Relationships

Abstract: This article surveys the expansion of American management consulting companies to Western Europe in the twentieth century. It focuses on the way these consultancies built and sustained activities outside their home country. A number of elements facilitated expansion abroad, including the creation of new and distinctive “products,” or approaches to management, and the use of domestic multinational clients as “bridges” to foreign countries. But to be successful in the long run, American consulting companies needed to create relationships with clients in the host country. In this respect, social and, sometimes, political contacts with the local elite, usually established through a few well-connected individuals, proved a crucial advantage.

Multinational Firms: Reconciling Theory and Evidence

Abstract: An important component of Robert Lipsey's work has been his research on multinational firms, and his careful documentation of their behavior in terms of production and intra-firm trade. In this paper, we extend recent theory referred to as the knowledge-capital model', which simultaneously generates motives for both horizontal and vertical multinational production. We use this model to derive predictions about foreign affiliates' pattern of production for local markets versus production for exports as functions of country characteristics such as market sizes, size differences, and relative endowment differences. These predictions are then taken to data on affiliate production and trade. Results confirm several hypotheses. The ratio of production for export sales to production for local sale by affiliates of foreign multinationals depends negatively on market size, investment and trade costs in the host country, and positively on the relative skilled-labor abundance of the parent country (skilled-labor scarcity of the host country).

Ranking world cities: multinational corporations and the global urban hierarchy

Abstract: World-city literature often relies on a priori assumptions rather than quantifiable measures to discern the global urban hierarchy. In search of comparable international indicators, many studies use the corporate headquarters of multinational corporations (MNCs) as primary locational data. Recognizing that MNCs play a dominant role in the global economy, we argue that reliance on headquarters locations alone distorts the contours of the urban hierarchy. The method overstates the importance of urban centers in the developed countries and economies dominated by large corporations; conversely, it underestimates the importance of lower-level circuits of regional communication, transaction centers in developing countries, and cities in less-centralized economies. This bias is not simply a technical matter: it asserts the power of the core economies, while understating the diversity and complexity of global interactions. We propose to include MNC first-level subsidiary locations in a more refined measure of wor...

Operational Flexibility and Market Valuation of Earnings

Abstract: This paper examines the association between the stock returns and accounting earnings of firms that have different levels of operational flexibility. Operational flexibility is a firm’s ability to respond profitably to environmental fluctuations by shifting factors of production within a multinational network of subsidiaries. The geographic breadth and depth of a firm’s multinational network are used as indicators of operational flexibility. We find a significantly greater coefficient relating stock returns and accounting earnings for multinational firms that operate in many countries, but limit their concentration in any one foreign country, than for other multinational firms or domestic firms. This coefficient is significantly smaller for multinational firms whose foreign subsidiaries are highly concentrated in a few countries. When all multinational firms are pooled together, we find their earnings-returns association does not differ from that of domestic firms. Copyright © 1999 John Wiley & Sons, Ltd.

Canadian companies doing business in China : key success factors

Abstract: Theoretical Background and Hypotheses The People's Republic of China (China) has become a very attractive market for multinational companies from around the world. With an average GNP growth rate of 9.9 percent over the last 15 years and 10.2 percent even in the "slowdown" year of 1995 (China Economic Indicators 1996), China's economy has become the world's third largest (Bachman 1994). If the current GNP growth rate of 14.1 percent continues, the Chinese GNP might surpass that of Japan by the turn of the century. This growth rate has produced such an amazing wealth of business opportunities for foreign companies that multinational companies have been seized by 'China fever' (Sender 1993). The investments of Canadian companies in China increased by 700 percent between 1991 and 1995 (Lok 1996). Despite these opportunities, North American companies have not been an unqualified success in China. Between 1991 and 1995, American exports to China increased by only US$ 5.5 billion while American imports from China increased by US$ 26.6 billion (US Department of Commerce 1996), despite the publicized successes of individual companies. Aggregate Canadian sales in China grew at an annual rate of 12.3 percent in 1996 but sales of non-cereal products declined by 36.0 percent (China Economic Indicators 1996) despite an ever increasing number of Canadian companies trying to do business there. North American companies may have much to learn before they can become effective competitors in the Chinese market. American companies do not seem to understand Chinese culture and may not have learned to appreciate or to cope with Chinese business behaviors (Rondinelli 1993). Canadian companies seem to have been overwhelmed with the difficulties imposed by the Chinese business environment and have not learned to present themselves and their products in ways most useful for their Chinese customers (Abramson/Ai 1994). In general, many American and Canadian companies seem to have had difficulties identifying the key success factors for doing business in China. A key success factor is a fundamental requirement that a company has to satisfy in order to stay in business, or to be successful, in a particular business environment (Fry/Killing 1989). Some management researchers have argued that this situation may exist because Western business practices may not be as effective in such an idiosyncratic culture. Companies that apply their usual business practices indiscriminately in China may obtain negative or even dangerous results. Hofstede (1992) has argued that management practices may not be universally applied because culturally defined values will affect their effectiveness in different cultural contexts. Boyacigiller and Adler (1991) have suggested that Western management techniques may specifically not apply to China, because they are based on Western cultural experience, even though both managers and researchers have in some cases assumed universality of application. Companies that have applied home country practices based on Western organizational theories do seem to have suffered a variety of setbacks in China (Ireland 1991). Along these lines, Yue (1993) has stated that Western views should be demonstrated to fit Chinese conditions before their validity can be assumed. The purpose of this research project was to attempt to identify key success factors for Canadian companies doing business in China using a variety of propositions derived from Western management theories. If, however, Western management practices were not universally applicable to conditions in China, then these Chinese conditions should be clearly specified so that only relevant propositions would be examined. Three factors seemed to characterize the Chinese business environment and the problems related to doing business in China today. First, there has been tremendous pressure on foreign companies to invest in China's economy by Chinese business and governmental persons because of the economic investment expectations (De Keijzer 1992) of the central government and the Chinese Communist Party (CCP). …

Multinational companies and wage inequality in the host country : the case of Ireland

Abstract: Multinational Companies and Wage Inequality in the Host Country: The Case of Ireland. — In this paper, the authors analyze the impact of multinational companies on wage inequality in a host country. Based on a model, in which the introduction of new technologies leads to increases in the demand for skilled labour and, therefore, to rising wage inequality, they econometrically study the Irish manufacturing sector between 1979 and 1995. They examine inequality between wages for skilled and unskilled labour within the same manufacturing sector. Their results indicate that there is an inverted-U relationship between wage inequality and multinationals, i.e., with the increasing presence of multinationals, wage inequality first increases, reaches a maximum, and decreases eventually.

Trade, Foreign Direct Investment, and International Technology Transfer: A Survey

Abstract: How much a developing country can take advantage of technology transfer from foreign direct investment depends partly on how well educated and well trained its workforce is, how much it is willing to invest in research and development, and how much protection it offers for intellectual property rights. Saggi surveys the literature on trade and foreign direct investment - especially wholly owned subsidiaries of multinational firms and international joint ventures - as channels for technology transfer. He also discusses licensing and other arm's-length channels of technology transfer. He concludes: - How trade encourages growth depends on whether knowledge spillover is national or international. Spillover is more likely to be national for developing countries than for industrial countries. - Local policy often makes pure foreign direct investment infeasible, so foreign firms choose licensing or joint ventures. The jury is still out on whether licensing or joint ventures lead to more learning by local firms. - Policies designed to attract foreign direct investment are proliferating. Several plant-level studies have failed to find positive spillover from foreign direct investment to firms competing directly with subsidiaries of multinationals. (However, these studies treat foreign direct investment as exogenous and assume spillover to be horizontal - when it may be vertical.) All such studies do find the subsidiaries of multinationals to be more productive than domestic firms, so foreign direct investment does result in host countries using resources more effectively. - Absorptive capacity in the host country is essential for getting significant benefits from foreign direct investment. Without adequate human capital or investments in research and development, spillover fails to materialize. - A country's policy on protection of intellectual property rights affects the type of industry it attracts. Firms for which such rights are crucial (such as pharmaceutical firms) are unlikely to invest directly in countries where such protections are weak, or will not invest in manufacturing and research and development activities. Policy on intellectual property rights also influences whether technology transfer comes through licensing, joint ventures, or the establishment of wholly owned subsidiaries. This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to study microfoundations of international technology diffusion. The study was funded by the Bank's Research Support Budget under the research project Microfoundations of International Technology Diffusion. The author may be contacted at ksaggi@mail.smu.edu.

The Economics of Foreign Direct Investment and Trade with an Application to the U.S. Food Processing Industry

Abstract: This article investigates the determinants of foreign direct investment and its relationship to trade in the U.S. food industry. A multinational corporation maximizes profits by choosing between production at home, which is exported, and production in a host country. This introduces the possibility that foreign affiliate sales can substitute and/or complement exports. The empirical framework consists of a four-equations system with foreign affiliate sales, exports, affiliate employment, and FDI as endogenous variables. The results confirm small substitution between foreign sales and exports, and that the host country's protection policies affect the decision to invest abroad.