European Multinational Enterprises Research Articles

Corruption, formal institutions, and foreign direct investment: The case of OECD countries in Africa

AbstractPurposeCorruption has shown a mixed impact on foreign direct investment (FDI). This study proposed moderating the role of two—foreign aid (international institution) from the home country and democracy (national institution) in the host country—between corruption‐FDI nexus.MethodologyThe framework is analyzed using panel data analysis (2001–2018) of bilateral foreign aid and FDI from 18 European members of the Organization for Economic Cooperation and Development (OECD) to 34 African countries.FindingsThe presents several key findings. First, Africa's level of government corruption harms bilateral FDI from Europe. Second, the OECD's bilateral foreign aid moderates the negative effects of Africa's host‐country corruption on FDI. Third, the level of democracy in the host country also moderates the negative impact of corruption on FDI. Finally, foreign aid strongly moderates the negative effect of corruption on FDI in democratic countries compared to non‐democratic host countries.Research ImplicationsThis study provides the institutional analysis that bilateral foreign aid and democracy as formal institutions affect the European multinational enterprises's decision to invest in Africa.Practical ImplicationsIt presents the policy and managerial implications. First, European MNEs managers avoid investing in Africa, and governments must take strict actions to attract FDI. Second, foreign aid and democracy motivate MNEs to invest in Africa. Finally, the OECD policymaker could formulate rigorous and relevant conditions for foreign aid to Africa to reduce corruption.Originality/ValueThrough the lens of institutional theory and selectorate theory, the novel institutional role of foreign aid and democracy is proposed and tested between the nexus of corruption‐FDI.

Social risk, green market orientation, entrepreneurial orientation, and new product performance among European Multinational Enterprises operating in developing economies

AbstractThe current study sought to assess the mediating role of green market orientation dimensions in the relationship between social risk and new product performance among European Multinational Enterprises (EMNEs). We also assessed the moderating role of entrepreneurial orientation in the relationship between green market orientation and new product performance. The study was based on primary data gathered from 317 EMNEs in Ghana. After various validity and reliability checks, ordinary least squares (OLS) analysis was performed to estimate the various relationships hypothesized in the study. The study finds that social risk has a negative effect on the success of EMNEs' new products. This negative effect is however nullified by the positive mediating effects of strategic green market orientation, tactical green market orientation and internal green market orientation. Entrepreneurial orientation also played a significant moderating effect in the relationship between green market orientation dimensions and EMNEs' new product performance. Based on this, theoretical and managerial contributions were made.

Toward an understanding of the implementation of management innovation in international joint ventures: A multilevel perspective

AbstractImplementing management innovation (MI) is a great challenge for international joint ventures (IJVs), specifically for those between multinational enterprises (MNEs) and local firms. Different multilevel factors have been shown in the international business literature to play a role in MI implementation within IJVs. In this paper, we add to this literature by showing that these factors do not act in isolation and that their interplay must be considered. To this aim, we draw on qualitative data from 35 CEOs and TMT members of five IJVs between European MNEs and Tunisian local firms. Overall, our study reveals that depending on the type of IJV, the multilevel factors playing a role in the implementation of MI are different.

Firms’ characteristics and their international location strategy: Micro-level evidence from European countries

This paper takes micro-level evidence as the basis on which to investigate to what extent firms' heterogeneity is relevant in the internationalization strategy and location choice of European multinational enterprises. We present a model that illustrates how the firm's decision to enter a specific destination to serve all markets globally will depend on the firm attributes related to its efficiency, given the characteristics of the host countries. Our empirical results from a set of multinomial and sequential logistic models confirm that (i) European firms investing in third markets outside Europe are more productive than those that only produce at home and export. For some regions and sectors, they are also more R&D intensive and innovative, and have higher labor skills. In addition, our estimates reveal that (ii) the location choice of their affiliates is mainly defined by differences in productivity and, in some cases, in R&D intensity and innovation.

Local Value Chains in European MNEs

Ghemawat’s work in international business strategy demonstrates that Multinational Enterprises (MNEs) create value both by overcoming and by exploiting the price differences that exist at country borders. This paper evaluates the investment strategies of MNEs with subsidiaries in the 10 Central and Eastern Europe countries (CEEs) that had joined the European Union by 2007 through the lens of this insight. The data show that subsidiaries’ activities vary with the parent MNE’s home location. The CEE subsidiaries of Western European MNEs are more likely to be producing output that can be traded across country borders, particularly when their output differs from the main product of their parent company. The findings suggest Western European MNEs tend to invest in CEE countries to fragment value chains across the region, exploiting factor cost arbitrage opportunity in a semiglobalized world.

EUROPEAN REMIT REGULATION AS THE LATEST DETERMINANT OF CORPORATE RISK MANAGEMENT STRATEGIES IN ENERGY SECTOR

The purpose of the paper is to summarize and present the fundamental trends of the past few decades related to the financial crisis of 2008 and growing integration of European sovereign economies, including the integration of energy markets, that led to development of regulation of relationships and preventing manipulation in such markets. This regulation has become a powerful new determinant for the European multinational enterprises of the energy sector (MNE) when developing their own risk management strategies. Methodology. The analysis is based on the recent studies of the pan-European power exchange company Nord Pool Group, international organization Energy Community and relevant regulations and recommendations of the European Parliament and of the Council and European Union Agency for the Cooperation of Energy Regulators. Results of the analysis showed the growing demand for transparency and stability in the European wholesale energy markets. This demand was reflected in the EU Regulation 1227/2011 on Wholesale Energy Market Integrity and Transparency (REMIT) that was adopted by the European Parliament and the Council of the EU in 2011. While REMIT Regulation, on one hand, provides reliable and equal conditions for MNE, on the other hand, it increases the risk and burden of REMIT compliance obligations for such MNE. The consequences of misconduct can potentially be serious – both high fines and personal liability of MNE employees. Today the European multinational enterprises of the energy sector must develop the respective risk management strategies to ensure effective governance of this type of risks. Practical implications. MNE participants of the EU energy market should develop efficient risk management strategies to comply with REMIT requirements, in addition to existing commitments on the transparency of the Third Package. The REMIT compliance risk management strategies will support MNE market participants in complying with rules and policies, creating a secure structure for employees of such enterprises and promoting fair and equal conditions for trade, trusting the energy market. Furthermore, proper REMIT compliance risk management strategy will help to avoid or minimize the risk of fines and other regulatory sanctions and potential civil lawsuits. It will also help to avoid or minimize the risk of reputation loss, such as negative media reviews or poor customer experience. Value/originality. The conducted analysis provides deep understanding of the main drivers of the European wholesale energy markets regulations that create a compelling determinant for the risk management strategies of multinational enterprises of the energy sector. Ukraine has committed itself to the Energy Community to implement the REMIT Regulation in its regulatory field, which increases the relevance of developing appropriate multinational enterprises risk management strategies within the country.

Mediating role of green marketing orientation in stakeholder risk and new product success relationship among European multinational enterprises in Ghana

PurposeThis study aims to assess the mediating role of green marketing orientation (GMO) dimensions in the relationship between stakeholder risk and new product success among European multinational enterprises (EMNEs) in Ghana.Design/methodology/approachThe study was based on primary data gathered from 302 EMNEs in Ghana. After various validity and reliability checks, structural equation modeling in Amos (v.23) was performed to estimate the various relationships hypothesized in the study.FindingsThe study finds that stakeholder risk had a significant negative effect on the success of EMNEs’ new products. This negative effect is, however, nullified by the positive mediating effects of strategic green marketing orientation, tactical green marketing orientation and internal green marketing orientation.Research limitations/implicationsGMO is highly regarded as context-specific, with unique characteristics. Implying that the interpretation of results from the GMO framework should be on the backdrop of the social, cultural political and economic environment.Practical implicationsStakeholder risk posed a significant challenge to the success of EMNEs, whose operations are monitored not just by domestic stakeholders but also international stakeholders. The actions and inactions of these EMNEs affect the overall image of the mother firm and are, therefore, expected to operate within acceptable norms.Social implicationsThe adoption of GMOs increases the success of new products, as firms receive a social license for their environmentally friendly operations. GMO also helps in solving societal concerns for environmental protection, which is very paramount in this 21st century.Originality/valuePast studies have largely focused on stakeholder pressure; however, this study focuses on the risks associated with those pressures and how these risks influence the success of new products.

De-globalization and Foreign Products’ Evaluations: Evidence from the U.S. – China trade war

From a relative micro perspective, this paper investigates de-globalization socio-political consequences. We argue that customers’ evaluations towards products of Multinational Enterprises (MNEs) will be influenced by dyadic de-globalization events. Specifically, we argue that products from a rivalry country will experience evaluation drops in the host country after dyadic de-globalization events between the rivalry country and the host country, and this negative effect would further spillover to products from countries that are considered to be similar to the rivalry country. Using the U.S. - China trade war as an exogenous shock, we are able to test our hypotheses. By examining the rating behaviors on a leading Chinese E-commerce platform, we found out that products from U.S. MNEs received lower ratings after the trade war. Moreover, this negative effect spilled over to products from European MNEs.

The adoption of circular economy practices in supply chains – An assessment of European Multi-National Enterprises

The European Commission Circular Economy Action Plan aims at fostering a society based on sustainable production and consumption. Within this context, industrial organisations are called to implement a wide set of practices to drive this transition: manufacturing easy-to-repair and sustainable products, adopting solutions aimed at extending product lifetime, and promoting remanufacturing and materials’ recycling. A major contribution is expected from Multi-National Enterprises (MNEs), as these organisations dominate the European economy and coordinate resource-intensive global supply networks.As such, this study assesses the Circular Economy-inspired initiatives promoted by the largest European MNEs. The content of sustainability reports is scrutinised, through a template analysis technique, in order to create a database of Circular Economy practices. Key findings include the degree of implementation, the level of involvement of supply chain partners, and the drivers behind the implementation of such practices. Furthermore, a conceptual framework is proposed, in order to describe the adoption of Circular Economy practices as a supply chain process. A theoretical discussion explores the role of institutional pressures and supply chain integration to shape the transition towards the adoption of Circular Economy practices in global supply chains.

Network embeddedness, headquarters entrepreneurial orientation, and MNE international performance

The aim of this paper is to examine the role played by external and internal network embeddedness in the headquarters entrepreneurial orientation of multinational enterprises (MNEs), and the role of the latter in MNE performance. Drawing on responses from CEOs in a sample of 143 European MNEs, our study offers evidence for the antecedent role of network embeddedness on headquarters entrepreneurial orientation on the one hand, and for the positive impact of headquarters entrepreneurial orientation on international performance on the other. Our findings contribute to the network view of MNEs in the international business and international entrepreneurship literature by disentangling the complex phenomenon of entrepreneurship in MNEs, partly explained by its multiple embeddedness in external and internal networks, and by studying its impact on international performance.

How do technical barriers to trade affect foreign direct investment? Tariff jumping versus regulation haven hypotheses

Trade liberalisation and the EU enlargement over the past two decades has allowed European multinational enterprises (MNEs) to benefit from production fragmentation in Central, East and Southeast Europe (CESEE). Technical Barriers to Trade (TBTs) might induce costs of certification, inspection and compliance at the border that encourage MNEs to undertake foreign direct investment (FDI) in the host market instead of exporting to that market. However, overregulation and stringency of standards that are embedded within these TBTs might discourage FDI in a given market. The former shows the intuition behind ‘tariff jumping’ motives, while the latter is based on the ‘regulation haven hypothesis’. These two opposing hypotheses are tested in this article by analysing the impact of TBTs imposed by both home and host countries on inward FDI stocks in the CESEE host countries during the period 1996–2016. The results hint at ‘tariff jumping’ motives of FDI in these countries. This is more evident for discriminative TBTs imposed by the host economy on which the home country raised Specific Trade Concerns (STC) at the World Trade Organization (WTO).

Running out of steam on emerging markets? The limits of MNE firm-specific advantages in China

PurposeThe purpose of this paper is to explore the extent to which the firm-specific advantages (FSAs) which underlie international expansion have proved resilient for European multinational enterprises (MNEs) operating in a key emerging market – China.Design/methodology/approachThe authors adopt a qualitative, case study approach, using interview data to explore the companies’ FSAs on market entry, how they evolved over time and the strategies adopted to defend them. They undertook 15 in-depth interviews with decision makers in six companies addressing their experience since market entry. To control for sector-level effects, the authors focus on companies in the environmental protection sector.FindingsThe authors found examples of significant erosion of the FSAs among the case study companies, which undermined their position on the host market and their long-term competitiveness. The key sources of erosion were limitations in market access, exclusion from local networks and the emergence and upgrading of local competitors, often firms with whom the MNEs had collaborated in the past.Research limitations/implicationsThe relatively small number of cases (six) limits the generalisability of the findings by the authors. However, the authors are convinced that, given that the case companies are generally large and have long experience in China, the conclusions made are well grounded. In addition, there was the high level of coherence in the reported experiences of the interviewees, providing further support for the findings.Practical implicationsThe experience of these case study companies highlights that MNEs have difficulty retaining their unique FSAs when faced with rapidly evolving local competition in a key emerging market. Key strategies mobilised included focussing on a sub-sector of the market and localising both the company and their supply chains. The difficulties experiencing by these case study companies in retaining their FSAs underline the need for MNEs in emerging markets to avoid complacency and constantly innovate, but they also raise questions about their capacity to extend their international reach in the long term.Originality/valueVery few studies have explored the FSAs of firms and how they evolve over time using a case study-based qualitative approach, especially in emerging markets.

From Arbitrage to Global Innovation: Evolution of Multinational R&D in Emerging Markets

Our inductive study of nine European multinational enterprises (MNEs) and their R&D units in India uncovers a distinct trajectory of overseas R&D evolution in emerging markets. In contrast to the well-established trajectory of foreign R&D evolution that begins by adapting existing MNE products to the local market, this alternative trajectory begins by leveraging cost arbitrage and progresses through three unique configurations towards a global product mandate. Our study also unravels how the R&D units build embeddedness within the MNE network and with the local ecosystem, and how such embeddedness influences the evolution of their R&D mandate. We present a stylized taxonomy of R&D configurations and integrate this into an evolutionary model of emerging market R&D and suggest that research on MNE R&D in emerging markets must shift from focusing on the macro environment to exploring the dynamics of embeddedness. The study also provides useful insights to practitioners on managing R&D in emerging markets.

Divestments of European Multinational Enterprises

Divestments of European Multinational Enterprises

Explaining variability in the investment location choices of MNEs: An exploration of country, industry and firm effects

This paper examines the variation in foreign direct investment (FDI) location decisions of European multinational enterprises (MNEs.) An innovative empirical approach is applied to a new data set which contains over 15,000 individual FDI location decisions in 25 European countries over a 17-year period and combines country-, industry- and firm-level factors. The empirical results show that the responsiveness of FDI location choices to country-level factors is heterogeneous both across sectors and across firms of different characteristics as well as unobserved factors. For example, the results show that the importance of market size increases with investing firm’s size and skill intensity, while proximity between countries, as well as cultural and linguistic ties are more important for smaller firms.

Strategies of legitimation: MNEs and the adoption of CSR in response to host-country institutions

Drawing on institutional theory, this study examines the question of how host country institutions affect corporate social responsibility (CSR) adoption by multinational enterprises (MNEs). I propose that CSR encompasses a set of practices that MNEs draw on to signal legitimacy in different kinds of institutional contexts – contexts that vary in how they shape issue salience and stakeholder power in a given issue field. Building on ideas related to field opacity and the managerial implications of CSR, I study why MNEs adopt two distinct types of CSR policies: standards-based CSR in response to contexts marked by issue salience, and rights-based CSR in response to contexts marked by stakeholder power. To test these hypotheses, I use subsidiary and firm-level data from a sample of 540 Western European MNEs in the issue field of labor rights. Results show that MNEs strategically adopt these CSR policies related to their presence in distinct institutional contexts. The study offers implications for how MNEs manage the legitimacy of their global operations and how CSR, as a form of private governance, can emerge as both a substitute and complement to regulatory institutions.

Translating European Labor Relations Practices to the United States Through Global Framework Agreements? German and Swedish Multinationals Compared

Extensive research has shown that European multinational enterprises (MNEs) have a propensity to avoid collective employee representation when going abroad. This study investigates whether Global Framework Agreements (GFAs) can reverse this pattern by comparing how four European MNEs—two from Germany and two from Sweden—implement GFAs in the United States, a country with weak collective representation rights. The authors find that an MNE’s home country labor relations (LR) system mediates whether GFAs support collective representation in the United States. Sweden’s monistic LR system, in which unions are the dominant organizations legally representing workers, gives unions the power to directly influence the negotiation and implementation of GFAs. By contrast, Germany’s dualistic LR system, in which unions and works councils share worker representation, weakens the influence of unions on implementing the GFA. MNEs’ home country LR systems thus influence how transnational instruments are used to improve collective representation in host countries.

Main drivers for local and global R&D sourcing of European Multinational Enterprises

Based on an original and recent representative sample of 130 large EU-based R&D corporations, this paper empirically investigates the main factors explaining the favourite (national or international) location choice for R&D activities. The main findings suggest that public support to R&D and proximity to other activities of the company influence the decision to locate R&D in the home country. Considerations on the cost of employing researchers become one factor among others only for firms preferring a location outside their home country, in particular in the rest of the world (countries other than the EU or the US).

Multinational enterprises’ global competitiveness through emerging markets strategies and integration in global innovation networks

This research undertaken at the foreign subsidiary level explores how multinational enterprises (MNEs) from advanced nations harness global network-integrated R&D when it is extended to emerging markets. In both developed and developing country contexts, organizations are momentously devising strategies to integrate global innovation networks (GIN). Still a clear understanding of this rapidly emerging phenomenon is lacking. Case studies of 26 R&D Centres located in India and China belonging to 18 European MNEs in high-technology sectors enabled us to explore the underlying process. An integrated framework developed to position various R&D strategies that MNEs pursued in host facilities, enabled us to identify key dimensions. The core argument is that strategies are not static and can evolve in many ways. We are able to identify that this results from the inter-play between – the level of capabilities that have evolved in host R&D facilities, and the extent of integration in the GIN of parent MNE. Further, these strategies are not mutually exclusive and fit on a continuum. A trend towards greater integration in GIN and a deepening of local linkage is apparent, raising important issues regarding its implications. From a policy perspective, curtailing this process can impact the long-term competitiveness of industries and firms. Our research confirms that technology-based innovations now require combining knowledge inputs from multiple fields. Such new and complimentary knowledge/functions are increasingly being sourced from emerging markets. From an MNE perspective, past engagement in emerging markets and their experiences in interacting with host institutions are most critical, specifically linkages with the government and key stakeholders in R&D consortia. This is vital to mobilize host-market-related inputs and specialized technical knowledge/functions.

The impact of MNE cultural diversity on the internationalization-performance relationship: Theory and evidence from European multinational enterprises

Prior work has established the importance of degree of internationalization for understanding the performance of multinational enterprises. Despite all efforts, however, the relationship between degree of internationalization and firm performance (I-P) is still the subject of ongoing debate following inconclusive findings. We suggest that the international business literature has largely overlooked MNE cultural diversity as an essential determinant of the I-P relationship. We argue that the impact of the degree of internationalization on MNE performance is contingent on MNE cultural diversity. The impact of the degree of internationalization on performance is positive for MNEs that operate in culturally similar countries and negative for MNEs that operate in culturally diverse countries. Our study is among the first to examine the impact of MNE cultural diversity on the I-P relationship with a unique panel dataset from European multinationals. The results provide convincing support for our approach to the study of the degree of internationalization and MNE performance.