Research summary: When war occurs in a country, some foreign multinational enterprises (MNEs) stay on, while others flee. We argue that MNE responses to external threats depend on the firm's ...vulnerability, which we decompose into exposure (proximity to threat), at-risk resources (potential for loss), and resilience (capacity for coping). We test the independent and interactive effects of these dimensions using a geo-referenced sample of 1,162 MNE subsidiaries in 20 war-afflicted countries between 1987 and 2006. We find that highly valuable resources can become liabilities when exposed to harm, and the best way to cope with external threats may be to exit. Our findings extend the resource-based view and real options theory by demonstrating the bounded value of resources and options in the face of environmental contingencies. Managerial summary: A recent survey of multinational enterprise (MNE) executives revealed that 30 percent of the respondents believed that their firms were exposed to collateral damage from war, with more than 90 percent expecting risks to rise. Yet, 25 percent of the executives indicated that their firms had no continuity plan. Our study of MNEs in war-afflicted countries highlights the costs of not having a response strategy in place. We find that, in war zones, otherwise highly valuable locations and resources can become sources of vulnerability that prompt early withdrawal from a host country. Our work further highlights the value of real options thinking—where structural solutions such as building redundancy into a portfolio of options may exist in advance of problems—for navigating hostile environments.
The resource-based view (RBV) has evolved into a preeminent theory of strategic management. It is widely used by international business (IB) scholars since there is considerable synergy in core ...research questions pursued by IB and strategy researchers. However, in research on multinational enterprise (MNE) behavior, the use of RBV remains limited relative to other influential perspectives, such as the eclectic paradigm, the Uppsala model, and institutional theory. This is not surprising since the RBV was developed to explain performance differentials between country-centric firms with dominant product businesses rather than large MNEs with an expansive product-geographic scope. We describe how these limitations arise from the wider range of outcomes and explanatory variables, multiple levels of analysis, and the spatial, economic, and institutional barriers that are relevant to MNEs. We discuss the application of RBV to MNE research by the first author and other IB scholars. We then provide directions on how future research could use RBV more fruitfully to examine MNE performance and sources of competitive advantage in several areas. These include diversified corporations, subsidiary agglomeration, emerging market MNE internationalization, subsidiary autonomy, international joint ventures and alliances, and corporate social responsibility. Drawing upon teaching case examples from the first author’s work, we also point to the effectiveness of RBV in teaching with business cases, given its focus on firm performance (strategy).
This study focuses on the role of geography in foreign subsidiary survival in host countries afflicted by political conflict. We argue that survival is a function of exposure to conflicts, and ...depends on the characteristics of place (the conflict zone) and space (geographic concentration and dispersion of other home-country firms). The roles of place and space are explored using street-level analysis of geographic information systems data for 670 Japanese multinational enterprises (MNE) subsidiaries in 25 conflict-afflicted host countries over 1987—2006. Through dynamic modeling of conflict zones as stretchable and shrinkable places relative to subsidiary locations, we develop a means of characterizing a foreign subsidiary's exposure to multiple threats in its geographic domain. Our results show that greater exposure to geographically defined threats, in both a static and a dynamic sense, reduces the likelihood of MNE survival. The findings indicate, moreover, that both concentration and dispersion with other firms affect survival; however, the effects depend on where the firm is spatially located (whether the firm is in a conflict zone) and with whom (home-country peers or sister subsidiaries).
We examine the timing and mode of firm exits from host-country conflict zones. We argue that timing and mode are interdependent decisions where decision ordering matters, and show that a firm’s ...prioritizing of either exit timing or mode is dependent on the relative salience of two behavioral stimuli: (1) the firm’s own experience (i.e., its performance shortfall), and (2) the experience of peer firms (i.e., their exits). Using instrumental variables modeling on a sample of 101 Japanese MNE exits from 11 conflict-afflicted countries between 1991 and 2005, we demonstrate that, when mode is prioritized over timing, partial exits tend to occur earlier and whole exits later. However, when timing is prioritized over mode, the decision choices reverse: earlier exits tend to be whole and later exits partial. The outcome of one decision therefore affects that of the other in a unique and predictable manner, such that the
ordering
of the decisions both produces and precludes strategic choices. Our findings, based on a multidecision problem that has traditionally been treated as a single decision (i.e., foreign exit), delineate expanded boundary conditions for satisficing, as well as reconcile optimizing and satisficing behaviors.
We develop a conceptual model of the career horizon problem of CEOs approaching retirement and discuss its implications on firm risk taking, specifically in engagement in international acquisitions. ...Based on prospect theory and agency theory, we emphasize the legacy conservation and wealth preservation concerns of CEOs and investigate how their holdings of in-the-money unexercised options and firm equity accentuate or mitigate the career horizon problem. The model is tested in the context of international acquisitions with a sample of 293 U.S. firms over a five-year period (1995-1999). We find that a longer CEO career horizon is associated with a higher likelihood of international acquisitions. We also find that CEOs nearing retirement with high levels of in-the-money unexercised options and equity holdings are less likely to engage in international acquisitions than CEOs with low levels of in-the-money options and equity holdings. The study raises important considerations about the implications of CEOs' equity and in-the-money option holdings on firm risk taking at various stages of their career horizon.
While extant theory suggests that the pervasiveness of host market government corruption should influence the equity ownership decisions of foreign-investing multinational enterprises (MNEs), ...empirical research has produced inconclusive results. We leverage insights from transaction cost economics to advance an uncertainty-oriented framework which can be used to explain the impact of host market government corruption on the equity-based entry strategies of MNEs. We disaggregate government corruption into two distinct components (grand corruption and petty corruption). We propose that grand and petty corruption precipitate different types of uncertainty (environmental and behavioral) which motivate MNEs to vary their equity-based foreign entry strategies (entry mode and partnering). Hypotheses pertaining to the entry strategies of MNEs under conditions of more pervasive grand and petty corruption are developed and tested with a sample of 643 Japanese investments in 30 countries between 2004 and 2007. We find that the main effect of grand corruption and the interaction between grand and petty corruption significantly impact a MNE’s entry mode. Further, while more pervasive grand corruption increases the likelihood that a MNE will engage in a joint venture investment with a host country partner, we find that an increase in petty corruption heightens a MNE’s preference to invest with a home country partner.
Extant research has found that more pronounced levels of corruption in foreign host emerging markets increase the likelihood that subsidiaries established by multinational enterprises (MNEs) from ...developed countries will exit. We synthesize insights from the organizational perspective of corruption and the integration-responsiveness paradigm to propose that integration-oriented strategies will weaken the positive relationship between corruption and the likelihood of exit at high levels of host market corruption. We develop and test hypotheses pertaining to the main effect of corruption on the likelihood of subsidiary exit, as well as the moderating impacts of a firm’s equity ownership strategy and its expatriate staffing strategy upon this relationship. We theorize that uncertainty operates as the mechanism that underpins the corruption-market exit relationship, and that an MNE’s strategic choices with respect to its subsidiary investments contribute to reducing this uncertainty. We find that an increase in the foreign-investing MNE’s equity ownership share negatively moderates the positive relationship between corruption and the likelihood that foreign subsidiaries established by developed market MNEs will exit host emerging markets when corruption is high. However, the marginal effects results do not support the expatriate staffing strategy hypothesis. Our work provides guidance to developed country MNEs that seek insights with respect to the utility of strategies that might be implemented in host emerging markets characterized by more pronounced levels of corruption.
Over the past 50 years, cooperative forms of governance such as equity joint ventures and other strategic alliances have received tremendous attention in international business and management ...research. This article traces the history of this research over these past five decades with particular emphasis on the critical role that (Columbia) Journal of World Business has played in disseminating scholarly and managerial expertise on the successful management of cross-border, inter-firm collaboration. We highlight the evolution of interest in different contexts, phenomena, theories, and methodologies, along with the factors that have driven interest in these topics. Several suggestions for future research are also provided.
International business research is only beginning to develop theory and evidence highlighting the importance of supranational regional institutions to explain firm internationalization. In this ...context, we offer new theory and evidence regarding the effect of a region's "institutional complexity" on foreign direct investment decisions by multinational enterprises (MNEs). We define a region's institutional complexity using two components, regional institutional diversity and number of countries. We explore the unique relationships of both components with MNEs' decisions to internationalize into countries within the region. Drawing on semiglobalization and regionalization research and institutional theory, we posit an inverted U-shaped relationship between a region's institutional diversity and MNE internationalization: extremely low or high regional institutional diversity has negative effects on internationalization, but moderate diversity has a positive effect on internationalization. Larger numbers of countries within the region reduces MNE internationalization in a linear fashion. We find support for these predicted relationships in multilevel analyses of 698 Japanese MNEs operating in 49 countries within 9 regions. Regional institutional complexity is both a challenge and an opportunity for MNEs seeking advantages through the aggregation and arbitrage of individual country factors.
This study investigates the widely overlooked phenomenon of multinational enterprise (MNE) location avoidance, utilizing a multi-method research design and data on 131 foreign investment locations. ...It complements economic-choice-based location research by adding contextual dimensions at the country level that matter to managers personally, and affect decisions at the firm level. We provide a connection between international business research, the behavioral stream in economic geography, and the microfoundations stream in the strategic management literature. The results suggest that, in addition to traditional location choice criteria (including investment potential, internationalization strategy, and various geographic and psychic distances), foreign location decisions in MNEs are influenced by how troublesome it is for managers to travel to or live in certain places. An 11-item measure composed of travel inconveniences shows a significant negative moderating effect on the relationship between foreign direct investment potential and investment intensity. The effect is stronger for non-resource-seeking industries. We call this phenomenon the "hassle factor".
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