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Abstracts
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Preet
Aulakh and Ram
Mudambi
Evaluating Foreign Country Environments: Archival vs. Perceptual
Measures
Abstract: Country risk is a central concern for multinational
corporations (MNCs). This risk is measured along many different
dimensions - macroeconomic, political and policy-induced amongst
many others. Objective or archival measures of many of these
dimensions are available from a number of sources. Most of these
archival measures tend to be available at the level of the country
as a whole and often do not disaggregate to either the regional
or industry level. Managers in MNCs are privy to these archival
measures, yet form their own, more subjective (or perceptual)
evaluations of country risk.
In this paper we study the 2 X 2 taxonomy generated by jointly
examining archival and perceptual measures of country risk.
We attempt to characterize elements of this taxonomy, focusing
both on cases where archival and perceptual measures are in
agreement as well as cases where they diverge. We suggest it
not always the case that agreement is based on optimizing behavior
and that divergence is generated by errors. The reverse is also
possible. We test the model using data from a large sample of
US MNCs with worldwide operations.
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Julian
Birkinshaw
Why Do Some Multinational Corporations Relocate Their Corporate
Headquarters Overseas?
Abstract: This paper examines the decision by a multinational
corporation (MNC) to relocate some or all of its corporate headquarters
overseas. Examples include Ericsson moving parts of its HQ operations
to London, and BHP-Billiton creating a split HQ between Sydney
and London. While prior studies have looked at the movement
of business unit HQ overseas, this is the first to systematically
study the relocation of corporate HQ. Using questionnaire and
secondary data on 35 Swedish MNCs, we examine the factors associated
with the internationalisation of corporate HQ (i.e. the movement
of all or part of the HQ overseas). No support is found for
the traditional logic that HQ moves overseas to "follow"
the internationalisation of other intenal activities. Instead,
we argue and find support for the idea that the location of
corporate HQ is increasingly influenced by external entities
such as shareholders, capital markets, customers and competitors.
This paper examines an interesting and increasingly common
phenomenon - the decision by a multinational corporation (MNC)
to relocate some or all of its corporate headquarters overseas.
Examples include Ericsson moving parts of its HQ operations
to London, BHP-Billiton creating a split HQ between Sydney and
London, and Massey Ferguson moving its HQ from Toronto to Buffalo
and renaming itself Varity. Boeing's decision to move its HQ
from Seattle to Chicago, and Philips' move from Eindhoven to
Amsterdam are part of the same trend, though obviously in both
cases the relocation occurred within a single country.
How important is this phenomenon? One could argue that it is
relatively trivial, both because the number of people who move
in such instances is typically small (less than 100 in the case
of Ericsson), and because the number of MNCs that have moved
their HQs abroad is small. However, our argument is that it
is an important phenomenon, and one that is worthy of academic
research, for three reasons. First, while the number of people
in corporate HQ may be small, their importance in terms of defining
the scope, strategic direction and image of the MNC is enormous.
Second, the movement of HQ overseas can be seen as the "final
frontier" of international development in the MNC. Proponents
of evolutionary models of MNC development argue that internationalisation
begins with sales offices opening up abroad, followed by higher
value-added activities such as manufacturing and R&D, and
culminating on the movement of business unit headquarters overseas
(Forsgren, Holm and Johanson, 1995; Hedlund, 1986). In such
cases, the MNC is operating in a heterarchical fashion, but
it still has a home base. However, if the corporate HQ moves
overseas, there are no longer any legal or physical ties to
its old home country, and the MNC becomes essentially home-less.
This has enormous implications for the theory of the MNC, because
it calls into question many accepted concepts such as location-specific
advantage, home base, and country-of-origin effect.
Finally, the phenomenon is important despite its relative rarity
because it is clearly becoming more common. As the data below
will show, the cases of Swedish MNCs moving their HQs overseas
all occurred within the last five years (with one exception),
Our expectation is that this trend will continue to grow. It
is important to try to understand its implications now, so that
both MNCs and host countries can act appropriately.
This paper is to our knowledge the first academic study to
undertake a systematic and theoretically-grounded analysis of
the movement of corporate HQ overseas (though others have looked
at the movement of business unit HQ overseas, Forsgren et al,
1995). It is structured as follows. First, we define carefully
the role and activities of the corporate HQ, and then consider
the arguments that are commonly used to explain why some corporate
HQs move overseas. We then put forward our alternative explanation
for the phenomenon, using ideas drawn from organisation theory.
This then leads to the development of specific hypotheses. The
second half of the paper describes our empirical investigation
in which we examined 35 large Swedish MNCs using a combination
of interview, questionnaire and secondary data. This allows
us to examine the relative predictive power of the research
hypotheses, and thus draw tentative conclusions about the reasons
why some MNCs relocate their corporate HQs overseas.
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Daniel
C. Bello
Governance of Export Channels to Eastern Europe: Impact
of Market Characteristics on Business Performance
Abstract: The former Communist countries of Eastern Europe are
currently engaged in a complex process of transformation towards
a market economy. These transitional economies are considered
by some Western exporters to be among the most promising emergent
markets due to their size and tremendous potential for economic
growth. However, a careful evaluation of export distribution
is crucial because transitional countries present unique challenges
to Western firms attempting to develop these country-markets,
some of which remain very turbulent. The purpose of this research
is to examine key market characteristics and to analyze their
impact on the performance-enhancing qualities of the governance
mechanisms that Western firms and their Eastern European partners
employ to manage their trading relationship.
For a Western exporter to achieve sales, profits, and growth
results in Eastern Europe requires the trading partners to work
together, integrating their operations in a way that effectively
develops the local market for the exporter's product. Such highly
coordinated actions result from unilateral and bilateral governance
that directs and controls marketing activities within the channel
dyad to yield high levels of business performance. However,
since transitional economies are characterized by environmental
uncertainty, high degrees of relationalism may not develop between
exporters and importers, and Western exporters may not feel
confident enough to invest in financial incentives. Our model
summarizes the expected relationships between uncertain market
characteristics, channel governance, and business performance.
Based on a survey of 180 US exporters, the data largely support
the notion that environmental uncertainty associated with markets
in Eastern Europe impacts the way Western exporters and local
importers govern their trading relationship. Consistent with
theory, the findings also suggest that successful market development
in terms of achieving sales, profit, and growth goals is associated
with stronger relational ties between the partners as well as
with greater use of unilateral incentives by the Western exporter.
Thus, the impact of market characteristics on business performance
in the export channel to Eastern Europe is partially mediated
by the bilateral and unilateral governance employed by the trading
parties.
Clearly, market development in transitional economies through
exporting or other modes of entry requires that the Western
and Eastern trading partners integrate their operations so that
marketing functions are fully adapted and optimized to local
market conditions.
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Michael
R. Czinkota &
Masaaki Kotabe
Dumping Allegations as a (Less) Free Trade Tool
Abstract: Antidumping laws can have a profound effect on both
domestic and international marketers and are increasingly used
by nations around the world to regulate competition in domestic
markets. In the United States, the International Trade Commission
(ITC) is a key governmental agency that advises the President
on whether or not to impose antidumping measures on imports
and on the types of measures to impose. Our paper analyzes some
of the key factors affecting the antidumping decisions taken
by the ITC. The data were gathered through a systematic and
comprehensive review of the original case and investigation
ledgers of the Commission for all full case investigations conducted
in the last two decades.
We asked the following three operational questions: 1) whether
ITC decisions are strategic actions or salvage operations, 2)
whether dumping filing companies are corporate bullies or competitive
underdogs, and 3) whether the country of origin of competition
matters. Our principal findings are that large firms can use
the antidumping process to obtain strategic shelter from foreign
competitors even under conditions of growing markets, while
smaller firms in more atomistic industries are likely to gain
such shelter only in instances of market decline. In addition,
current import penetration ratios appear to influence the decision
process, while country of origin of the imports does not seem
to affect the outcome.
Our findings further support the "strategic shelter"
hypothesis. The ITC decision in favor of the filing companies
is positively related to their post-decision stock price change.
In other words, positive decisions increase the stock prices
of the filing U.S. companies. We also find that that stock price
change at the time of filing is negatively related to price
change after the ITC decision. This suggests that if there was
a large price change at the time of filing, then the price change
at the time of the decision tends to be lower. The "net"
price change appears to be a sum of post-filing price change
and post-decision price change. In other words, if the market
(shareholders) is confident that ITC will side with petitioners,
it will cause a high appreciation of share prices immediately;
and that if the market is not so sure about the outcome of the
ITC decision, it may wait until ITC decision to cause share
price appreciation.
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Kate
Gillespie
Smuggling and the Global Firm
Abstract: Webster's dictionary defines an institution as a significant
practice, relationship or organization in a society. While illicit,
smuggling-the illegal importation of otherwise legal products-is
an institution of considerable concern to many global firms
and national policy makers as we enter the 21st century. In
this paper, I explore the recent evolution of smuggling from
project to organized crime, the relationship between global
firms and smugglers, and the tensions that have arisen between
home and host countries over the possible complicity and culpability
of global firms in acts of smuggling.
Twenty years ago, smuggling was prevalent in developing countries
such as Mexico where consumers, tired of years of protected
national industries, regarded smugglers as Robin Hoods who delivered
better and cheaper products to a beleaguered middle class. In
a prior article, my co-author and I established that smuggling
did not disappear in Mexico as a result of trade liberalization.
Liberalization was rarely complete, and smugglers could still
take advantage of not paying taxes other than tariffs. However
as a possible consequence of trade liberalization in the 1980s
and 1990s, smuggling in Mexico shifted from project to organized
crime and took on a more sinister aspect.
Furthermore, by the mid-1990s evidence was surfacing that possible
synergies between organized crime involved in the illicit drug
trade and organized crime involved in the illegal importation
of legal consumer goods were beginning to be exploited. Since
the publication of that article, increasing evidence has surfaced
indicating both the evolution of smuggling into organized crime
and the use of smuggling as a way to launder money for international
drug cartels and possibly terrorist organizations.
The complicity of global firms in the smuggling of their products
is currently under considerable scrutiny. In June 2000, a number
of executives from such companies as Hewlett-Packard, Ford Motor
company, and Whirlpool met with the U.S. Attorney General to
discuss how American products purchased in the United States
and smuggled into Colombia were used to launder drug money.
U.S. firms have denied complicity. Overall the U.S. government
appears sympathetic to American companies, preferring to see
the firms as victims and offering them advice on how to avoid
further entanglements.
However, all national governments have not been so supportive
of global firms. In a case going back to the Iran-U.S. Claims
Tribunal, claimant R. J. Reynolds was counter sued by the Iranian
government in part over the company's alleged support of smuggled
cigarettes into Iran. The counterclaim was dismissed for lack
of evidence. Ironically, 20 years later, decades of cigarette
company internal documents have come to light as a result of
U.S. lawsuits concerning the targeting of children by these
companies. Among these documents is possible evidence of corporate
complicity in smuggling-even predating the Iranian claim. While
cigarette companies did not directly organize the smuggling
of their products, internal correspondence suggests that executives
knew of the smuggling and cooperated with smugglers.
Cigarettes are in fact the ideal smuggled product in an age
of trade liberalization. Relatively expensive in relation to
their size and weight, cigarettes face product-specific retail
taxes in many countries that survive tariff cuts. As such they
still present a lucrative opportunity to smugglers. The revelation
of the possible cooperation of cigarette companies with smuggling
activities has inspired lawsuits against these companies by
national governments as diverse as Canada and Colombia. Actions
to recoup tax revenues, including cases brought by foreign governments
against U.S. firms in U.S. courts, have opened a new and somewhat
contentious issue in host and home country relations.
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Usha
C. V. Haley
Assessing Business Risks in China
Abstract: Conventional methods of assessing business risks
appear inappropriate for China. The Chinese market offers enormous
opportunities and horrendous threats for multinational corporations
(MNCs). Opportunities include staggeringly large potential markets,
especially in strategic sectors such as telecommunications,
with the potential for MNCs to set regulatory standards. Threats
include direct assaults on MNCs' core competencies including
research and development, brand names and reputation, and managerial
expertise. Effective strategizing by MNCs will need to consider
both opportunities and threats in a reasoned light. The first
section of this chapter analyzes historical trends of Foreign
Direct Investment into China. The ensuing section estimates
various risks associated with doing business in China including
market potential, copyright violations, political maneuverings
and corruption. The final section offers some suggestions for
effective assessment of business risks by MNCs operating in
China in the new millennium.
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William
Megginson
The Choice of Private Versus Public Capital Markets: Evidence
From Privatizations
Abstract: Using a sample of 2477 privatizations from 108
countries that raised $1.2 trillion between 1977 and 2000, we
analyze the choice between raising funds in public versus private
capital markets. This choice is influenced by capital market,
political, and firm-specific factors. Share issue privatizations
(sales of shares through public equity markets) are more likely
in less developed capital markets, probably as a way to help
develop capital markets, and for larger and more profitable
state-owned enterprises. In contrast, asset sales (sales to
a small group of investors using private capital markets) are
more likely to occur where governments respect property rights,
and are thus not expected to expropriate the privatized assets.
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Ram
Mudambi and Chris Paul
Domestic Drug Prohibition, The MNE's FDI Decision and Host
Country Institutional Stability
Abstract: The unintended consequences of prohibition on domestic
markets are well documented (Miron and Zwiebel, 1995). The enforcement
of these prohibitions denies the extralegal enterprise access
to property rights and contract enforcement from the state.
Consequently, extralegal enterprises must provide their own
enforcement through the application of coercion and violence
(Lott and Roberts, 1989; Paul and Wilhite, 1994).
Enforcement of prohibition by the domestic government creates
incentives for extralegal enterprises to locate operations in
foreign countries. The advantages accruing to the extralegal
enterprises are organized by Dunning's (1977) eclectic model
that proposes multinational activities are driven by three sets
of advantages: ownership, location and internationalization.
The resulting displacement of the host government's policing
powers by the coercive powers of extralegal enterprises results
in distortions of incentives in the resource and goods markets,
increased corruption and reduced institutional stability; substantially
reducing the size of the productive exchange economy and the
attractiveness of the country for investment by legitimate businesses.
In extreme cases the complete collapse of civil authority occurs
in large portions of the host country.
Finally, the opportunity for politically motivated organizations
to use the proceeds from illegal operations to finance terrorist
and other destabilizing activities is discussed.
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Terutomo
Ozawa
Japan in an Institutional Quagmire: From the MITI to the
METI Era
Abstract: Japan is in the midst of economic stagnation and in
search of a new institutional setup. The "sengo taisei
[postwar system]," once so effective for Japan's phenomenal
catch-up, has long turned not only obsolete but obstructive
to growth in this age of globalization. Japan realizes that
at least it must clean up the present banking mess sooner or
later-in addition to deregulating and opening up more fully
to global business opportunities and capital inflows.
The present push for institutional reform is popularly called
"the third opening of Japan," the first being the
Meiji opening of 1868 and the second the postwar opening of
1945. Like the previous ones, the current round entails adjustments
and adaptations of domestic institutions to the norms of the
outside world. Thus, two layers of institutional setting exist:
one is an "outer" set of global institutions, and
the other an "inner" set of domestic institutions.
The latter reflects local traditions, mores, and politico-economic
factors at home, whereas the former is currently embedded in
the Anglo-American ideology of market capitalism driven by the
Pax Americana. And this difference is the source of tensions
and conflicts-and in part explains a snail's pace of reform
in Japan.
Japan's international business, which has long been one-sidedly
outward-focused, is now increasingly inward-directed, serving
as a catalyst for institutional adaptation.
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Arvind Parkhe
The Impact of Institutional Differences on Effective Cooperation
in Global Strategic Alliances
Abstract: There is thick overlap between institutional
theory and international alliances research. Culturally, nationally,
and organizationally inculcated institutional norms of managers
weaned in different countries may differentially impact their
propensity and capacity to undertake collaborative ventures,
to shape and reshape alliance structures to promote robust cooperation,
and to manage trust-building and other critical aspects on an
ongoing basis. In this presentation, I explore the potential
for institutional theory to deepen our understanding of alliances,
and for the international alliance phenomenon to broaden the
reach of institutional theory.
Deinstitutionalization is "the process by which institutions
weaken and disappear" (Oliver, 1992; Scott, 2001: 182),
to be met by "the arrival of new beliefs and practices"
(Scott, 2001: 184). I argue that such insights from institutional
theory are fungible. For example, they may apply equally to
companies, to subunits of companies, and to international alliances
between companies, all of which may face conflicting pressures
for conformity (Rosenzweig & Singh, 1991) and liability
of foreignness (Miller & Parkhe, 2002; Zaheer & Mosakowski,
1997). Further, if an alliance is highly embedded, then the
learning and innovation generated within the alliance is much
more likely to diffuse beyond the boundaries of the collaboration,
and consequently form the foundation for new institutions in
the field. These "proto-institutions" (Lawrence, Hardy,
& Phillips, 2002) can have important second-order effects
that go beyond the innovations and direct connections established
within the collaborative relationship, and affect not only the
participants, but also other organizations in a field, through
its contribution to the creation of new institutions and changes
in interorganizational networks.
A useful start was made in 1991, when I proposed a multilevel
typology of interfirm diversity (societal culture, national
context, corporate culture, and management processes and organization),
each level representing forces of institutionalization and legitimation.
However, this paper (Parkhe, 1991) did not push far enough to
address the question, How do companies adjust, adapt, and integrate
in the face of institutional diversity in international alliances?
Drawing upon work in institutional theory (Dacin, Goodstein,
& Scott, 2002; Lawrence, Hardy, & Phillips, 2002), liability
of foreignness (Miller & Parkhe, 2002), and alliance integration
(Danis & Parkhe, 2002), I attempt to address this question.
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Ravi Ramamurti
Managing the Risk of Government Reneging inInfrastructureProjects
in Emerging Economies
The ability of governments to make credible promises is essential
for emerging economies to attract foreign investment, especially
in infrastructure-type projects, where heavy-handed regulation
is often inescapable.
This paper considers the economic, business, and political obstacles
to credible government commitment and identifies the potential
remedies for each type of commitment problem. Nevertheless,
despite new safeguards introduced in the 1990s, the risk of
government reneging is still high, and therefore foreign investment
in sectors like infrastructure will not return to the giddying
levels seen in the mid-1990s. The paper concludes with managerial
guidelines on how to minimize the risk of government reneging.
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Andrew
Sobel
State Institutions, Risk, and Lending in Global Capital
Markets
Abstract: This paper examines one component of the expansion
of global capitalism, the lending of capital across national
borders and the affect of national political institutions and
arrangements upon that lending.
Global capital markets expanded rapidly during the latter part
of the twentieth century, prompting discussions about the role
of mobile capital. This contribution makes three key points
to the understanding of globalization, its impacts, its causes,
and its relationship to the nation-state, business and development.
First, globalization is an uneven, bifurcated, phenomenon. Only
a select group access these global capital markets, while many
watch from the sidelines. Second, national political arrangements
help us understand systematic disparities in access to global
capital. National and local public policies, national political
institutions, and other local activities prove instrumental
in affecting access to global capital.
Democracy and regulatory stability matter as they provide information
to international investors about the risk to investments from
local arenas. Third, the data presents a methodological obstacle
in understanding how politics affects access to global capital.
The structure of the data's distribution can hide real relationships
and pervert substantive interpretations if not managed. Without
addressing the statistical concerns presented by the data the
results would at worst be little more than garbage in, garbage
out, and at best misleading.
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Hildy
Teegen
NGOs as Global Institutions: Their Impact on Multinational
Enterprises and Governments
Abstract: Many, if not most, institutions that govern interactions
in society and economies are nationally, or subnationally-based.
Institutions such as legal systems and legislatures defining
regulatory and investment incentive environments provide the
context for exchange relations and thus are considered important
contingent factors for firms considering investment and commerce
activities within a given jurisdiction. It is argued here that
despite institutional prevalence at the national (or subnational)
level, certain global public good/collective good exchanges
do not comport well with a national institution model. Examples
of such globally-relevant exchanges include those concerning
the natural environment and those pertaining to key human rights
considerations such as health care/disease prevention.
These public/collective good global exchanges entail the involvement
of both multinational enterprises (whose allegiance to a given
national jurisdiction is definitionally challenged) and national
governments (who are inherently national-interest players).
These global exchanges encounter (formal) institutional failure
due to the supranational venue of these exchanges, and concerns
regarding institutional legitimacy are furthered by commonly
held incompatibilities between public sector (national governments)
and private sector (multinational enterprise) actors' interests.
In this institutional chasm, the governance and promotion of
effective and efficient exchange relations between and among
these national public sector players and global private sector
players is hampered. It is in this context of formal institutional
failure that "third sector" entities-international
nongovernmental organizations (INGOs)-- have emerged as informal
institutions operating globally to significantly change the
context within which governments and multinational enterprises
interact.
A recent review surrounding the concept of social capital by
Adler and Kwon (2002) is used to theoretically support an empirically
documented surge in activity by INGOs in the global sphere.
I attempt to respond to the call by Leenders and Gabbays (1999)
to link this emerging global social structure (the rise of third
sector instititions-INGOs) to the concept of the social capital
that these INGOs inherently possess and provide as institutions
that bridge and bond public and private sector actors globally.
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