The impact of strategic resource seeking and market seeking strategies on foreign entry modes under institutional pressures (original) (raw)
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Multinational corporations (MNCs) are subject to the various dimensions of the external institutional environments. Institutional theory suggests that MNCs need to conform to the prevailing rules, norms and procedures of the locations where they operate in order to survive and grow. This means that MNCs need to develop the best possible configuration of strategy-structure for their worldwide operations. Previous research has noted that in these conditions firms may simply seek to follow a referent other. However, MNCs' specific strategy for a focal foreign operation is likely to determine the entry mode for each host country. In certain circumstances it may be whether MNCs are pursuing a market-seeking strategy or a strategic resource seeking strategy that shapes the entry mode in face of the prevailing institutional pressures. We contribute to the understanding of entry modes into foreign markets as a reflection of a strategic choice that is bound by institutional constraints.
Manuscript type: Research paper. Research aims: This study aims to investigate the impact of institutional distance between home and host countries on the choice of multinational enterprise’s (MNE) entry mode into Vietnam. Design/Methodology/Approach: Transaction cost theory is applied to develop the hypotheses. The data of 82 MNE subsidiaries located in Vietnam were extracted from the World Bank Enterprise Survey. Probit regression is applied to estimate the impact of the institutional distance between home and host countries on the choice of the MNE’s entry mode. Research findings: The empirical results support the hypotheses, revealing that MNEs are more likely to enter Vietnam via acquisition investment rather than greenfield investment. This happens when both the formal and informal institutional distance between Vietnam and the home countries is large. Findings also suggest that the institutional distance between a host country with a transition economy and the home countries is an important element to take into account when MNEs decide to invest in a transition economy that contains high level uncertainties. Theoretical contributions/Originality: The adoption of the transaction cost theory enables this study to conceptualise the framework which is used to empirically test the effect of the institutional distance between Vietnam and home countries on the MNEs’ entry mode decision. This study shows that the transaction cost approach offers insights into how the institutional distance between the host and home countries affect the choice of the MNEs’ entry mode into a transition economy. This study contributes to international business literature by developing theoretical arguments about the role of the national institutional dissimilarities on the choice of the MNEs’ entry mode in a transition economy. Practioner/Policy implications: The implication drawn from this study is that MNEs investing through acquired subsidiaries are less burdened by environmental uncertainties since acquired subsidiaries offer more familarity with the formal institutions. This can help the MNEs to establish a close relationship with the local partners and the government. This also increases the MNEs’ cross-cultural communication and knowledge thereby, enhancing the investment. Research limitations/Implications: Further research should consider more parent firm characteristics so that implications for the MNEs’ entry strategy are developed. Given the role of the different managers at the different levels, future study should capture the perception of these managers who are based at the headquarters so as to further examine the effect of institutional distance. Keywords: Formal Institutional Distance, Informal Institutional Distance, Entry Mode, MNE, Subsidiary, Transition Economy JEL Classification: F23, M16.
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This article discusses how institutional competitiveness and multinationals are mutually enriching concepts. Multinationals transfer capital, technology, and knowledge into new settings. They allow subsidiaries access to new markets, new resources, and new processes. Potentially, therefore, institutional competitiveness can be increased by the presence of multinational corporations (MNCs) and their subsidiaries. However, this depends on the type of multinational and the type of institutional context. By differentiating two types of MNC in terms of shortterm and long-term orientations to investment, and two types of host institutional setting in terms of strength of institutional complementarities and interconnectedness, we develop a typology of four types of interaction between MNCs and institutional settings. We then analyze how each type influences institutional competitiveness. We conclude that these outcomes, while structurally shaped, are still dependent on how actors (individuals, firms, collective organizations, and governments) strategize to develop institutional frameworks in the context of highly competitive global markets.
Institutional Determinants of Multinational Corporations' Entry Mode Choice in Turkey
2012
There are a wide range of factors that affect multinational corporations (MNCs) when they decide how to enter into a new market. In this study, the factors that shape MNCs’ entry mode decisions are investigated in institutional economics framework. Two different theories on institutions, namely Institutional Theory and New Institutional Economics, are utilized. Using 2293 entries into Turkey, we found that investment freedom, intellectual property rights protection and corruption have significant effects on the entry mode choice of MNCs in the institutional economics context. Besides, real GDP, real capital investment, and knowledge intensity of the sector are other factors that shape MNCs’ entry mode decision.
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This article is about Emerging Market Firms (EMFs) acquiring firms in advanced economies. We claim that EMFs adopt a different entry behavior from that of Advanced Market Firms (AMFs). Namely, as a first hypothesis we claim that, AMFs undertake a partial (rather than a complete) acquisition when they wish to avoid the dispersion of the bundle of information and knowledge residing in the target company, while EMFs are more likely to prefer a greater degree of ownership and control as they lack the needed experience to deal with the relevant complexity and to manage partnerships. Furthermore, we claim that EMFs experience a higher propensity to control the local partner the higher the institutional distance with the host country, since they enjoy a better institutional environment when they invest in advanced countries and, hence, they are less likely to need a local partner. To test our hypothesis, we developed an econometric analysis applied to foreign acquisitions in Italy along th...
Strategic Management Journal, 1994
This article presents a framework for the analysis of how MNCs' strategies interact with states' industrial strategies. It first shows how national institutional arrangements can systematically contribute to state strategic capabilities that form a basis of competitive advantage. It then examines conditions under which these arrangements and capabilities affect, or fail to affect, the international strategies and organization structures of home firms, incoming foreign direct investors, and home firms' international customers, collaborators and competitors. ' Chandler's (1962) thesis held that for firms, structure follows strategy. It is now well accepted that although firm structure constrains strategy, it also em odies critical resources structure, as well (Bower and Doz, 1979; Burgelman, 1983; Bartlett and Ghoshal, 1989). We argue here that governments enjoy relatively less flexibility than do management groups to alter organizational structure.
Exploring the Staging Patterns of MNC Entry to New Markets: The Resource Leverage Approach
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This study aims at providing explanations for how MNCs (multinational companies) proceed with their manipulation of resources and competencies in the entry process to a foreign market. To an increasing extent, such processes perform as a staging process of resource leverage. This study identifies three stages, using the multiple case study incorporating grounded theory: the initial stage, the adaptive intensification stage, and the advantage persistence stage. In the initial stage, an MNC’s entry decision tends to be based on the resource replication mode of resource leverage; the resource exploitation mode of resource leverage is used mainly in the adaptive intensification stage, and the resource exploration mode is used in the advantage persistence stage. This study suggests that these resource leverage modes incorporating their microfoundations can be viewed as a set of potential measurements for examining MNCs' dynamic capabilities in the entry process to a new host market.
Institutions, resources, and entry strategies in emerging economies
Strategic Management …, 2009
We investigate the impact of market-supporting institutions on business strategies by analyzing the entry strategies of foreign investors entering emerging economies. We apply and advance the institution-based view of strategy by integrating it with resource-based considerations. In particular, we show how resource-seeking strategies are pursued using different entry modes in different institutional contexts. Alternative modes of entrygreenfield, acquisition, and joint venture (JV)-allow firms to overcome different kinds of market inefficiencies related to both characteristics of the resources and to the institutional context. In a weaker institutional framework, JVs are used to access many resources, but in a stronger institutional framework, JVs become less important while acquisitions can play a more important role in accessing resources that are intangible and organizationally embedded. Combining survey and archival data from four emerging economies, India, Vietnam, South Africa, and Egypt, we provide empirical support for our hypotheses.
INSTITUTIONS AND MULTINATIONAL ENTRY STRATEGY
2007
Abstract This paper examines the impact of contract enforceability and liability of foreignness on a multinational firm'entry strategy. For this purpose, we develop a novel incomplete-contracting theory of the international joint venture (IJV) in which a multinational firm and its domestic partner both can ex post take costly actions to improve their share of total rents. Our model allows us to determine the optimal IJV ownership structure and to analyze the impact of contract enforceability and liability of foreignness thereon.