Is foreign investment for outperformers or underperformers? Evidence from Japanese machinery firms

Drawing on performance feedback theory, this study examines the relationship between corporate performance and subsequent foreign investment decisions. It is argued that a firm's performance relative to its aspiration levels influences its propensity to engage in foreign investment as well as its choice of investment location. We propose that an improvement in performance relative to aspiration levels of performance reduces the propensity for international investment and that the deterrent impact of country distance on foreign entry is contingent on relative performance. Consistent with the theory, an analysis of investments in foreign manufacturing facilities made by 206 Japanese machinery firms between 1986 and 2002 shows that foreign investment propensity is overall negatively related to prior firm performance relative to aspiration levels. The likelihood of foreign investment decreases when firm performance exceeds historical and social aspirations. The probability of foreign entry does not significantly increase as performance falls below aspirations, however is still greater than when performance exceeds aspirations. In addition, outperforming and underperforming firms were more likely to enter host countries with larger geographic and institutional distances from Japan, implying extended search efforts and/or greater risk-taking behavior

Organizational performance feedback effects and international expansion

Drawing on performance feedback theory to develop the Uppsala internationalization model, we argue that organizational performance relative to managerial aspirations influences firms’ foreign expansion propensity as well as the type of country location. Our statistical analysis of foreign entries by Japanese machinery firms between 1976 and 2002 finds that firms performing closer to aspirations were more likely to enter foreign countries than those that under- or out-performed. Underperforming firms were also more likely to enter countries with greater cultural and geographic proximity to those in which they had already invested. Our findings contribute to international business research by identifying organizational performance conditions under which firms tend to adopt an incremental approach to foreign expansion, or else a comparatively radical one of selecting more distant or unfamiliar countries

Managing Responsibly in Tough Economic Times: Strategic and Tactical CSR During the 2008-2009 Global Recession

In constrained economic times, organizations can either withdraw their socially responsible activities or maintain - even expand - them to meet heightened stakeholder needs. The 2008-2009 global recession offers a natural experiment through which to understand corporate social responsibility (CSR) in a tight economy. In this paper, we suggest that tactical, rather than strategic, forms of CSR will more likely be withdrawn. Tactical CSR comprises transactional activi

Parent Firm Corporate Social Responsibility and Overseas Subsidiary Performance: A Signaling Perspective

This study examines how the performance impact of parent firm CSR on overseas subsidiaries may vary according to the task, the institutional, and the informational aspects of the signaling environment facing host country stakeholders. We argue that subsidiary primary activity, host country media freedom, and localized information concerning the parent firm influence host country stakeholders’ informational needs and the patterns of information dissemination and acquisition, thereby moderating the performance-enhancing effect of parent firm CSR. Our analysis of Japanese overseas investments from 2002-2014 largely supports our hypotheses and illustrates the significance of environmental contingencies in cross-border CSR signaling

National income inequality, society, and multinational enterprises

This chapter calls for understanding the perspective of multinational enterprises (MNEs) on international differences in income inequality. The authors set a research agenda on how national differences in income inequality influence MNE expansion strategies. Applying a transaction cost framework, both negative and positive economic outcomes of income inequality, from the MNE's perspective, are identified. Low levels of income inequality may deter foreign investment, as MNEs prefer countries where they incur lower levels of transaction costs arising from interactions with various market and non-market actors. However, the positive effect of income inequality on location attractiveness will likely diminish at higher levels of inequality when benefits are increasingly offset by additional monitoring, bargaining and security costs owing to instability and conflict. The chapter further explores the implications for level of MNE equity applied in the choice of entry mode under different levels of income inequality

The impact of vicarious experience on foreign location strategy

MNEs can learn from the foreign investment experiences of other firms when evaluating their own foreign entry strategies. We argue that other firms' experiences reduce investment barriers arising from formal and informal institutional environments in host countries that are dissimilar from an MNE's home country, thereby encouraging new entry. Our empirical analysis of foreign entries by Japanese public manufacturing firms over more than a thirty-year period indicates that the prior experiences of other firms in a host country mitigate the negative effect of formal and informal institutional distance on entry decisions: as other firms' experiences in a host country increase, a firm is less deterred by greater institutional distance from entering the country. We also find that the distance-mitigating effect of other firms' experiences in different industries is less significant when a larger body of same-industry firm experience exists in a country, implying a substitution effect between different types of vicarious experience

National Income Inequality and International Business Expansion

We examine the extent to which host country income inequality influences multinational enterprises’ (MNE) expansion strategy for foreign production investment, depending on their specific strategic objectives. Applying a transaction cost framework, we predict that national income inequality has an inverted U-shaped relationship with foreign production investment. As inequality increases, MNEs accrue lower transaction costs arising from interactions with various local actors, leading to higher probability of investment. As income inequality increases further, its effect on location attractiveness will become negative, as its attraction effect is increasingly offset by additional monitoring, bargaining, and security costs owing to the more fractious nature of high inequality societies. In addition, we suggest that the impact of income inequality is contingent on investment objectives: The inverted U-shaped relationship is stronger for efficiency-seeking investment but weaker for market-seeking and competence-enhancing investments. We find substantial support for our hypotheses through an analysis of 27 years (1986-2012) of data on Japanese MNEs’ overseas production entries

Multinational firm knowledge, use of expatriates and foreign subsidiary performance

This study examines the relationship between a multinational firm's technological and marketing knowledge, its expatriate staffing practices, and the performance of its foreign subsidiaries. Expatriates are conceptualized as playing a key role in facilitating the transfer and redeployment of a parent firm's knowledge to its subsidiary. Our analysis of 3,848 Japanese subsidiaries indicates that the expatriate ratio: (1) positively moderates the effect of a parent's technological knowledge on subsidiary performance in the short term, and (2) negatively moderates the impact of the parent firm's marketing knowledge on subsidiary performance in the medium term, but not in the short term. We also find that expatriates' influence on knowledge transfer disappears over the long term, illustrating the temporal nature of knowledge transfer

Corruption and Private Participation Projects in Central and Eastern Europe

This paper investigates the role of host-country corruption in private participation projects in emerging markets. Privatization activities, especially in infrastructure development, were traditionally inaccessible to multinational enterprises, but they are nowadays encouraged in many countries. Prior literature on corruption finds two contradictory (“grease” and “sand”) results when examining the consequences of corruption on investments. Drawing on a sample of 1185 projects from 1997 to 2013 in 18 Central and Eastern European Countries, our results show that higher levels of host-country corruption are associated with greater probabilities of failure. Our results also show that including local investors in the ownership structure of the project weakens the negative effect of corruption by reducing the liability of foreignness. In contrast, being a publicly traded project has no moderating effect in the effect of corruption in this region. Therefore, our results highlight that not all common strategies to deal with corruption are equally effective in this region