This article explores EMNEs' innovation capability building in emerging markets. The paper provides a longitudinal account of how the Brazilian cosmetics firm Natura transitioned from scant to ample innovation resources and processes. Building on the institution-based view and the resource-based view, we explain how EMNEs' innovation capability building is anchored in open innovation and collaborative nonmarket strategies. The paper reveals a unique pattern of innovation capability building based on a combination of local and global open innovation processes and harnessing the country characteristics over time. It is shown how combining open innovation and collaborative nonmarket strategies can help mitigate weak formal and informal institutions in emerging markets. The study offers an integrated framework explaining innovation capability building and the effects on the institutional setting.
We examine international joint ventures in the telecommunications industry in Brazil, where pyramidal groups are ubiquitous. We explain how corporate governance differences between pyramidal groups versus widely held freestanding firms can lead to joint venture failures. Our empirical results show that joint ventures between pyramidal group-member firms and partners from countries where pyramids are rare have significantly elevated failure rates, while joint ventures with partners from countries where pyramidal groups are ubiquitous are more likely to succeed. Further, we provide clinical examples illustrating the mechanisms driving divergent partnership performance.
This article deals with the performance implications of the governance mode (captive offshoring versus outsourcing) selected when companies offshore service activities, which is still quite controversial in the literature. After accounting for endogeneity issues, we investigate the relationship between governance and performances (both in terms of cost saving and service quality) on a sample of 132 initiatives from the 2009 Offshoring Research Network survey. Our results show that the alignment of the governance choice with an extended transaction cost economics approach leads to better performances. However, the impact of a possible misalignment: (1) is asymmetric, as only the failure to undertake a captive mode negatively affects performance; and (2) negatively affects service quality more than cost saving.
This study examines how national competitiveness, measured as productivity per worker, is fostered within an economy using a sample of 90 developed and developing economies. We build upon Porter's popular Diamond Model, but extend it by adding the quality of public governance and extent of multinational enterprise penetration as two additional elements. Our study shows that not all four elements of the original Diamond Model are required for an economy to be competitive. Instead, we find that there are four distinct paths to high levels of national competitiveness. Context for intense rivalry among firms appears in all four paths. Results also suggest that public governance quality is key to national competitiveness. The extent of multinational enterprise penetration, however, is not.
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.
How do multinational enterprises (MNEs) transfer knowledge over space between clusters and between other locations? To explore this question, we construct a typology of four MNE knowledge strategies (replicating, scouting, connecting, and integrating) and examine the spatial, industrial, and leadership conditions of each. By examining 49 headquarter-subsidiary linkages between Canada and China through detailed interviews, we find that replicating strategies occur in cluster-to-non-cluster contexts or industries with a knowledge gap between the two countries, whereas scouting strategies are typical in non-cluster-to-cluster investments. Connecting and integrating strategies are focused on cluster-to-cluster contexts. We also find that while connecting occurs in fields where knowledge is locally bounded, integrating dominates where this is not the case. Finally, scouting and integrating strategies are associated with home nationals as subsidiary leaders.
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.
Senior managers of multinational enterprises often examine when and how to engage, or not to engage, with host governments. We argue that senior managers are likely to choose to evade engagement with a host government when they perceive high host country political risk, not only through public political risk ratings, but also via their home and host government relations. We show that this choice can require senior managers to lead active adaptation through four strategies: low visibility, enabling the MNE to operate under the radar of host governments; rapid compliance, entailing high speed actions to obey the rules; reconfiguration, involving rearranging the MNE’s structure and processes for competitiveness; and anticipation, implying the prediction of public policy and analysis of interest groups to anticipate responses.
Our research finds that exporting by young firms are enabled to a greater extent (than established firms) when they use Internet technologies and tap into mobile talent (such as cross-national entrepreneurs and leaders with international experience), which helps to overcome key constraints in tapping into international markets. We also found that young firms overcome home-country institutional and infrastructure deficiencies in emerging economies, specifically, by receiving efficient government services and strategically locating in well-resourced centers such as capital cities, which helps them more in exporting as compared to established firms. Our findings help to explain the modern phenomenon of “born global” firms, who have broken away from the traditional path of focusing first on domestic markets and then engaging in incremental international expansion.
We investigate the rapid internationalization of many multinationals from emerging economies through acquisition in advanced economies. We conceptualize these acquisitions as an act and form of entrepreneurship, aimed to overcome the ‘liability of emergingness’ incurred by these firms and to serve as a mechanism for competitive catch-up through opportunity seeking and capability transformation. Our explanation emphasizes (1) the unique asymmetries (and not necessarily advantages) distinguishing emerging multinationals from advanced economy multinationals due to their historical and institutional differences, as well as (2) a search for advantage creation when firms possess mainly ordinary resources. The argument shifts the central focus from advantage to asymmetries as the starting point for internationalization and, additionally, highlights the role of learning agility rather than ability as a potential ‘asset of emergingness.’
We explore the emergence of rising power firms from the peripheries of GVCs. An increasing number of major brand-holding companies from traditionally industrialized economies have been acquired by suppliers from newly industrialized economies due to some fundamental changes. First, the emergence of a market for brands makes brands more volatile. Second, continuous outsourcing and hollowing-out of the lead firm's asset base has reduced their ability to control the GVC. Through a longitudinal case study analysis, by adopting an attention-based view, we investigate the behavior of the traditional lead firms. Lead firms were not only myopic to the activities of their suppliers, but their focus on downstream activities created increasing opportunity spaces upstream for rising power firms while weakening the defense capacity of brands.
Hofstede's framework, which is based on survey data collected in the late 1960s and early 1970s, dominates quantitative culture research in international strategic management. However, as countries develop economically, modernization theory predicts shifts in cultural values, which likely affect countries' scores on Hofstede's work-related values dimensions, in turn raising doubt about the continued relevance of this framework for global strategy researchers and practitioners. We examine how country scores on Hofstede's dimensions have developed over time by replicating Hofstede's dimensions for two birth cohorts using data from the World Values Survey. Results indicate that, on average, contemporary societies score higher on Individualism and Indulgence versus Restraint, and they score lower on Power Distance than do past societies. We find that cultural change is absolute rather than relative, meaning that countries' scores on the Hofstede dimensions relative to the scores of other countries have not changed very much. As a consequence, cultural differences between country pairs (i.e., cultural distances) are generally stable. We discuss the implications of our findings for global strategy research.
Little is known about when do latecomer firms undertake IOI. This study uses a national survey data set of manufacturing firms in China, examining how the characteristics of firms and their surrounding environment affect their degrees of international openness in innovation. Heckman's two-step model is used to test the hypotheses, supplemented with robustness checks. Demand side factors appear to be more significant drivers of IOI in latecomer firms than the pursuit of technology leadership. Market expansion-oriented innovation strategy, international orientation, previous collaboration experiences, and technology intensity of the industry are found to be associated with a high degree of IOI; firms with stronger R&D capacity tend to be less open to international collaboration. Managerial and policy implications are discussed.
A key finding is that ZGH does not understand complexity only as a risk that should be coped with, managed and controlled—following the western idea of risk management—but also as an opportunity for learning. While the importance of knowledge management and organizational learning is often emphasized as a means to achieve competitive advantage, it is seldom as easily managed in practice. Building on insights from ZGH we illustrate that to enable knowledge development and mutual learning, top-management from the acquiring firm needs to emphasize learning and trust the acquired firm rather than controlling it. It is equally important that the acquired firm trust the intentions of the new owner and reflect on the interest in learning—not least to improve and remain valuable.
We examine whether and how for-eign environmental standards influence global sourcingdecisions. Taking a question-driven approach, we finda negative association between the stringency of acountry's environmental standards and its share in USimports for 82 manufacturing industries across 77 coun-tries between 2006 and 2016. This pollution haveneffect holds not only for sourcing from owned foreignoperations (offshore integration), but also for sourcingfrom unrelated third parties abroad (offshore out-sourcing), and is stronger in industries with high toxicemissions and low technological intensity. Theseresults are robust across alternative measures of envi-ronmental stringency and to using the Kyoto Agree-ment as an instrumental variable. These findings shednew light on how firms use global sourcing, and espe-cially offshore outsourcing, to arbitrage across institu-tional environments.
Oh,Chang Hoon; Daniel Shapiro, Shuna Shu Ham Ho, Jiyoung Shin
We argue that mines located near environmentally sensitive water sources are subject to nonmarket risks arising from the potential collective actions of local stakeholders and their allies. Stakeholder mobilization can impose material costs on a mine in the form of delays, regulatory hurdles, and closure. We find that stock markets recognize these nonmarket risks and apply a discount on announcements by mining companies whose mines are located near environmentally sensitive water sources, particularly rivers. However, we also find that investor reaction is stronger in countries with strong institutions that support collective action. Thus, nonmarket risk management is important even in countries that are typically characterized by low political and institutional risks. We discuss the degree to which these results can be generalized beyond mining.
We ask whether, along with ethical issues, bribing affects the behavior and performance of firms in A frica and L atin A merica. Our statistical analysis shows that bribe payments do not reduce the short‐term performance of firms, but frustrate investments in fixed assets, which is the foundation of firms' long‐term growth. It is like seeking a job via nepotism or education. Nepotism makes it likely to find a job in the short term. However, the solid skills generated by education raise the odds of finding better jobs in the future. We rule out some common explanations for the trade‐off between bribing and investment (e.g., bribes drain resources to invest or that less efficient firms bribe and do not invest). Our analysis suggests that firms with short‐term orientations are more likely to bribe and firms with long‐term orientation are more likely to invest .
Multinational firms face challenges in host countries where corruption is common, due to concerns that they will need to engage in corrupt acts in order to survive. Some respond by simply not operating in these countries, while others fall into the trap of engaging in illicit activities. We consider an alternative perspective: that firms may use deeper positive engagement with the host country to reduce pressures to engage in corruption, by building their popular acceptance and strengthening their bargaining power. Although we find that this “engagement” approach was first used by developing country firms, developed country firms have also begun using this strategy. The logic underlying this approach can help managers succeed abroad while reducing the need to get their hands dirty in the process.
We establish prior diversification experience as a key determinant of the relationship between growth of product and international diversification. Prior diversification experience allows firms to overcome short-run constraints on simultaneous diversification growth imposed by the difficulty to transfer tacit knowledge, ambiguous competencies, and limited absorptive capacity. Studying U.S. and European firms, we find a positive relationship between growth in product and international scope for firms with high and a negative one for those with little prior diversification experience. Further, we find that product diversification experience has greater impact than international diversification experience.
Firms reliant on supply chains to manufacture their goods risk reputational harm if the working conditions in those factories are revealed to be dangerous, illegal, or otherwise problematic. While firms are increasingly relying on private‐sector “social auditors” to assess factory conditions, little has been known about the accuracy of those assessments. We analyzed nearly 17,000 code‐of‐conduct audits conducted at nearly 6,000 suppliers around the world. We found that audits yield fewer violations when the audit team has been at that particular supplier before, when audit teams are less experienced or less trained, when audit teams are all male, and when the audits were paid for by the supplier instead of by the buyer. We describe implications for firms relying on social auditors and for auditing firms .
Firms are increasingly tackling social issues across the world. Nonprofit organizations (NPOs) are often identified as natural channels for facilitating such engagement, but we have no systematic evidence to confirm this. We tackle this question by outlining the conditions under which allocating company aid for disaster relief and recovery through NPOs results in greater donations than when the firms disburse its aid directly to victims. We analyze all major natural disasters that affected the world between 2003 and 2015 and observe that firms would have donated more through an NPO (directly) in countries with low (high) institutional development where they lacked (had) local operations. Yet, firms frequently chose the channel that yielded lower donations.
