Host Country Institutions Research Articles

The Influence of South Korea’s OFDI under the Effects of Multinational Enterprises’ Investment Motivations and Host Country Institutions

Purpose - This study aims to analyze the influence of South Korea’s outward foreign direct investment(OFDI) under the effect of both multinational enterprises’ (MNEs) investment motivation and host country institutions. Some suggestions are put forward with regard to South Korean MNEs participating in and integrating into the fierce and changeable world of international market competition.
 Design/methodology - The basic hypotheses are that MNEs’ investment motivations and the host country’s superior institutions both boost South Korea’s OFDI in those host countries. South Korea’s OFDI is divided into investment choice stage and investment scale stage. A Heckman two-stage selection model is established for empirical analysis, using the panel data of South Korea’s OFDI and related variables, from 2002 to 2019.
 Findings - (1) The influence on the investment scale of South Korea’s OFDI is more regular and noteworthy than the influence on investment choice. (2) In the investment scale stage, there are obvious motivations to seek markets, labor force and superior technology, but not natural resources. (3) In the investment scale stage, the South Korea’s OFDI is more obviously attracted by the host country’s superior political institutions, economic institutions and legal institutions, but not cultural institutions.
 Originality/value - The choices of variables and uses of model expand the theoretical basis and empirical method of OFDI research. The results of the empirical study also provide some reference for the transnational investment of South Korean MNEs and the investment policy formulation of the South Korean government.

Institutional determinants of IJV partner choice in Europe: a host-country, a home-country or a third-country partner?

PurposeThis study aims to examine the international joint venture (IJV) partnership strategy in Europe from an institutional perspective. A firm operating in a foreign country via an IJV can partner with a local firm from the host country, a firm from the same home country or a firm from a third country. This study takes the first step in examining the determinants of these partner choices.Design/methodology/approachThis study tests hypotheses based on a data set of 637 IJVs in Europe.FindingsForeign firms are less likely to operate in a partnership with a firm from the home country or from a third country (compared to operate in a partnership with a local firm) when the host country institutions are weaker or institutional distance is larger. Also, foreign firms’ disinclination to operate in a partnership with a firm from the home/third country when the host country institutions are weaker or institutional distance is larger will diminish with greater host-country experience.Practical implicationsThis study provides important insights for firms for evaluating partner choice and potential collaborations in the European region with heterogenous institutions.Originality/valueThe partner choice among the above three forms has been neglected in the literature. This study first conceptualized that the institutional profile of the host country and institutional distance between the host country and the home country can determine the partner choice.

시장지원제도가 국내 외식기업의 해외시장 진입유형 선택에 미치는 영향

The purpose of this research is to verify the determinants of Korean food service firms’ choice of foreign market entry mode by applying the institution theory. It analyzed how intellectual property rights protection, trade freedom, and investment freedom, which are critical market-supporting institutions for foreign food service firms, affect the choice of entry mode. The results of the ordinal logistic regression analysis by dividing the entry mode into transaction mode, alliance mode, and investment mode according to the level of control and resource commitment are as follows. First, the weaker the host country's institution to protect intellectual property rights, the more foreign companies choose entry mode with a higher level of control and resource commitment. It is interpreted that if intellectual property rights, which are important for food service firms, are not properly protected, foreign companies choose an entry mode with higher control in spite of investment burden. Second, the stricter the trade freedom institution is implemented, the higher the level of control and resource commitment is preferred. Since the taste and price of food matter a lot in the restaurant industry, the possibility of bringing in food ingredients and procurement costs are very critical in order to implement the same taste and price as in Korea in a foreign country. Therefore, if free trade is guaranteed, they would try to secure taste and price competitiveness by taking out essential ingredients directly from Korea. The reason why the transaction is internalized is that Korean food ingredients are not actively traded in overseas markets, so it is not only difficult to obtain locally, but also very expensive. Third, the hypothesis for the investment freedom institution is not statistically adopted, which is inferred to be because the headquarters' control is secured to a considerable extent even in master franchise contracts due to the nature of the food service industry. This study is of great significance in that it empirically identified that when Korean food service companies enter overseas markets, they change their entry strategies according to the market-supporting institutions of host countries.

Outward foreign direct investment by emerging market multinationals: The directionality of institutional distance

We investigate how emerging market multinationals (EMNEs) choose locations for foreign direct investment (FDI) and how they determine the scale of FDI in host countries where formal institutions are more developed or less than their home country. Integrating internalization theory with the directionality logic of institutional distance, we develop theoretical arguments of cost-effectiveness related to FDI location and FDI scale in two institutional directions: host countries with more developed institutions than the home country and those with less developed institutions. We hypothesize that an EMNE’s likelihood of investing in the positive (negative) direction decreases (increases) with the increase in home–host institutional distance, but the investment scale increases (decreases) with increasing institutional distance. The FDI location choice varies among EMNEs with different levels of intangible assets, but the FDI scale does not. Our analyses of 3,297 EMNEs’ outward FDI in 100 host countries between 2004 and 2019 provide supportive evidence. This study extends internalization theory using EMNE-specific evidence of directional distance between home- and host-country institutions.

Conditioning China’s Influence: Intentionality, Intermediaries, and Institutions

ABSTRACT According to popular accounts, China’s international influence is increasing with its growing material capabilities. However, researchers repeatedly demonstrate gaps between China’s power and its influence. Building on earlier research, we propose an inclusive approach to conceptualizing China’s influence abroad. Our approach conditions China’s net influence on three dimensions. First, intentionality distinguishes between intentional influence-seeking and influence that accrues unintentionally via influence externalities. Second, a systematic treatment of Chinese intermediaries–the diverse set of substate actors operating overseas–is needed in order to expand the study of Chinese influence beyond state-level behavior. Finally, domestic institutions in host countries are essential conduits for conditioning how the behavior of Chinese actors, as well as group and individual reactions within host countries, are aggregated up to the policy level.

A Blessing and a Curse: Institutional Embeddedness of Longstanding MNE Subsidiaries in Emerging Markets

AbstractThis article examines the institutional strategies of multinational enterprises (MNEs) operating in an emerging market, drawing attention to how longstanding foreign subsidiaries proactively negotiate their involvement with socio‐political actors. We build on institutional logics to explain how MNE subsidiaries develop sustained political, cultural, and cognitive embeddedness. Using an inductive, interpretive study of four century‐old Dutch MNE subsidiaries with a colonial legacy in Indonesia, we examine these three dimensions of the institutional environment, finding that local employees embedded in both the MNE and the host country sets of logics ‒ rather than expatriate managers ‒ most effectively facilitated sustained institutional embeddedness. Our findings also suggest that embedding practices in host institutional contexts and developing structures that align with host institutional expectations provided a platform for the unfolding of institutional strategies by local employees. However, MNE subsidiaries face contrasting logics between home and host country institutions, placing significant strains on MNEs’ ability to enact change.

Give me your rested, your wealthy, your educated few? A critical discussion of the current literature on immigrant self-employment

PurposeThe finding that immigrants are more likely to self-employ than natives has been consistently shown by different researchers. At the same time, many call for the prioritization of high-skilled immigration as they believe low-skilled entrepreneurs are not particularly innovative or high-growth-oriented. The purpose of this study is to critically review and synthesize the current literature on immigrant self-employment, paying particular attention to low-skilled immigrant entrepreneurship and the popular policy recommendation that high-skilled immigrants should be prioritized.Design/methodology/approachThe authors survey the existing literature on immigrant self-employment and discuss recurring data issues, how those issues have or have not been addressed, as well as how these data issues impact the validity of policy recommendations that favor high-skilled immigrants and disfavor low-skilled immigrants. In particular, the authors examine how length of stay in the host country and host country institutions impact immigrant self-employment, especially low-skilled immigrant self-employment. The authors also point out unintended consequences of low-skilled immigration.FindingsThe authors find data issues significantly impact the potential justifications behind calls to favor high-skilled immigrants. In particular, many researchers underestimate the positive impacts of low-skilled immigrant self-employment by not accounting for institutions and length of stay in the host country. The authors conclude with policy recommendations that prioritize high-skilled immigration should be re-examined in light of recurring omitted variable biases within previous studies and evidence of a number of positive unintended consequences associated with low-skilled migration.Originality/valueThe authors review current literature and discuss how important confounding variables, like the number of years an immigrant entrepreneur has lived in a host country and the institutions of a host country, make common policy recommendations suggesting prioritization of high-skilled immigration problematic. The authors also discuss potential solutions to these data issues, ways these issues have been solved already, and possible ways forward. Finally, after considering the literature, the authors offer our own set of policy recommendations.

Operations Decisions and the Influence of Host-Country Institutions: A Study under the Paraguayan “Maquila Regime”

This study analyzes how formal institutions shape the firm’s decisions while exploring two polar cases of Brazilian textile-apparel firms that expanded their operations to Paraguay under the “Maquila regime.” It is guided by the institution-based view of international business. Different aspects of the institutional environment were analyzed to explain how the uncertainty can hamper firms from making quick operations decisions. Mechanisms of control and compliance imposed by institutions can negatively impact product-related decisions and innovation. Our research unveils the role of formal institutions in shaping operations decisions, helping to bridge the research gap about interactions between institutions and firm-level strategies.

Closing the institutional gap: Protecting Technology in Foreign Direct Investment

What is the relationship of foreign direct investment with a state's investment protection regime? It has commonly been viewed that foreign investors can seek outside institutional guarantees when investing in countries with relatively weak institutions for property protection, but for technological components of foreign direct investment, this option is in fact quite limited. How then do multinational corporations protect their property in host countries, especially in terms of technological assets? I argue that foreign direct investment can affect how domestic institutions for property protection develop in its countries of destination, thereby contributing to better rule of law in such countries. Instead of avoiding host country institutions, MNCs employ strategies to engage with both the host and home governments, and achieve better property protection through domestic institutions. Using a combination of cross-country data on technological investment activity, interviews of business executives, and host country case studies, I show that FDI leads to improvements in intellectual property institutions in host countries, and demonstrate the mechanisms through which MNCs influence the legal environment in host countries.

Immigrant Entrepreneurship: The Joint Effect of Host and Home country Institutions

In this paper, we examine the joint effect of immigrant entrepreneurs’ human capital, their home country’s entrepreneurial culture and their host country’s sub-national institutional environment on their entrepreneurial success. Using a comprehensive dataset constructed from multiple sources for 2012 to 2017, we show that the effect of human capital on immigrant entrepreneurship is dependent on their institutional environment. We find that entrepreneurial culture at origin is highly significant and positively associated with the likelihood of starting an incorporated business across migrants. Mandatory E-Verify reporting has a positive and significant effect on immigrants’ decision to run an incorporated businesses but discourages immigrants from running unincorporated businesses. In showing persistent and lasting impact of institutional mind-maps from immigrants’ home environments, we provide a more nuanced understanding on the effect of human capital than that depicted in the prior entrepreneurial research. The results of this study inform immigration policy on how to augment the contributions of immigrant entrepreneurs and enhance the positive spillovers coming from innovation and business creation.

MNE post‐entry institutional strategies in emerging markets: An organizational field position perspective

AbstractIn this paper, we leverage the concept of organizational field, currently under‐explored in international business literature, to understand how multinational enterprises (MNEs) from developed markets (DMs) strategically manage their institutional context in emerging markets (EMs). To develop theoretical arguments, we focus on institutional strategies and theorize how and to what extent MNEs in central, peripheral, and intermediate field positions engage with host country institutions in EMs. Using an international business perspective, organizational theory, and illustrations from EMs, we develop a dynamic view of field positions to identify how MNEs' intermediate repositioning trajectories in between the field's center and the periphery, driven by environmental and corporate factors, lead to the associated changes in the form and scope of institutional strategies deployed in EMs. In doing so, we offer testable propositions for future research.

Unbundling the effects of host-country institutions on foreign subsidiary survival: A case for subsidiary heterogeneity

This study seeks to advance a fine-grained understanding of the relationship between host-country institutions and foreign subsidiary survival by unbundling institutions into contracting and property rights institutions as well as engaging subsidiary-level heterogeneity. We argue that the adverse effects of weak contracting institutions are stronger for market-seeking subsidiaries. In contrast, we contend that weak property rights institutions are more detrimental to the survival of resource-seeking subsidiaries. Data from a longitudinal, paired-sample design of Japanese foreign subsidiaries operating across 46 countries provide support for these arguments. The results underscore the need to better understand institutional diversity as well as subsidiary heterogeneity.

Movement from emerging economies to small island states: motivations of Nigerian educational tourists in North Cyprus

Although core countries, in particular the UK, USA, Canada, and Australia, have been the most popular destinations for educational tourism, a substantial number of educational tourists have recently been travelling to other European, Asian, and African countries. There has been significant research into student mobility from developing countries to core countries, but research on student mobility between developing countries—in particular the movement from emerging economies to small island states—is scarce. North Cyprus has recently become a thriving international educational tourism destination. This study explores the factors affecting educational tourists’ decision-making, with a specific focus on Nigerian students, about whom very little is known regarding their decision to study abroad and their choices of host country and host university. Data from a qualitative study carried out in the small island state of North Cyprus is used to examine the factors that push Nigerian educational tourists away from their home country to seek tertiary education opportunities elsewhere as well as the factors affecting their host country and host institution choices. Three main themes emerged from the data analysis, namely: Studying Overseas, Country Choice, and Host Institution. The results of this study are useful for policymakers in small island states, who wish to establish or improve an educational tourism industry, as well as for university decision-makers who wish to increase their institutions’ success at attracting foreign students.

Understanding the unwritten rules of the game: Government work experience and salary premiums in foreign MNC subsidiaries

Understanding government institutions in a host country is crucial for MNC subsidiaries. This is challenging, as host-country institutions not only relate to formal institutions, such as laws and regulations, but also to informal institutions, like traditions and beliefs. We study the hiring of employees with government work experience as a channel through which foreign MNC subsidiaries can better understand host-country institutions. Government work represents a context in which employees have opportunities to accumulate knowledge about how formal and informal institutions shape government procedures, and to develop political connections. Drawing from strategic human capital theory, we hypothesize that foreign MNC subsidiaries pay these employees salary premiums vis-a-vis domestic firms because they expect them to offer unique value. We find support for this hypothesis using data for 9,698 former government employees in Denmark. Salary premiums increase with government saliency in the industry and with seniority in the government. Our results shed light on how certain types of human capital can create value for foreign MNC subsidiaries and inform career choices of government officials. They suggest that future research should explore other types of host-country work experiences that could create value for foreign MNC subsidiaries when they are hiring.

Immigration and crime: The role of self-selection and institutions

Contrary to popular perception, empirical evidence suggests that immigrants do not necessarily commit more crimes than natives, in spite of having lower legitimate earning opportunities. To make sense of this, we propose a novel theoretical framework based on a predator/prey model of crime, where endogenous migration decisions and career choices (between licit and illicit activities) are jointly determined. In this setting, we show that the involvement of migrants in crime crucially depends on self-selection into migration, as well as on productivity and institutional quality in the host economy. In particular, immigrants may display a lower crime rate than natives even if they are less productive on the honest labor market – and this result can still hold if career choices are revised after migration. We also find that stricter immigration policies could induce an adverse selection of migrants, and eventually attract more foreign-born criminals. Finally, a dynamic extension of our model can account for the higher crime rates of second-generation immigrants, and highlights the critical role of immigration and assimilation for the long-run evolution of crime and institutions in host countries.

A co-evolution perspective of EMNE internationalization and institutions: An integrative framework of 5Cs

While significant progress has been made on the contextual role of institutions, scholarly research on the dynamic process of emerging economy multinational enterprises’ (EMNEs) international activities interacting with home country and host country institutions still seems to be in its infancy. Therefore, in order to move the current academic debate forward, we examine the intersection between the internationalization of EMNEs and their institutional environments by undertaking a critical review of the existing literature, given that institutional forces not only shape organizational behavior but also affect EMNEs’ internationalization strategies and organizational outcomes. We propose an integrative framework of 5Cs (context, capability, change, concomitance and configuration) underlying the co-evolution of EMNEs’ internationalization and institutions, and position all the papers included in this Special Issue within this framework in order to point towards a number of directions for future scholarship.

Ways to win: strategic choices, institutions and performance in sub-Saharan Africa

PurposeThe purpose of this study is to analyse the effects of market-based and nonmarket-based strategies on firm performance in African countries. This study also investigates host country institutions' effect on the relationship between firm strategies and performance in these countries.Design/methodology/approachData of 1,276 firms in five African countries were obtained from two different sources: The World Bank Enterprise Database and The Global Competitiveness Report. Two-stage least squares regression was applied.FindingsBoth market-based strategies and corporate political activity (CPA)improve firm performance in the African countries included in the analysis. Institutional development also has a direct positive impact on firm performance. However, the effect of CPA weakens as the host country shifts towards more efficient, market-oriented institutions. Furthermore, the results show that local African firms benefit more from institutional development than foreign firms.Originality/valueThe paper confirms and extends our understanding of the dynamic fit between institutions and strategy by highlighting the moderating role of institutional development on CPA and market-based strategies in enhancing firm performance.

Too Old to Forget: The Dynamics of Political Trust among Immigrants

Scholars have argued that immigrants’ trust in institutions is the result of the exposure to host-country institutions but also shaped by past experiences in the country of origin. These experiences create a “home-country point of reference,” a political/institutional memory that becomes the relevant comparison for any political/institutional interaction in the host country. We develop further this concept and unpack its key determinants—the age at migration and the historical conditions of the home country at the specific time of migration. Only those immigrants who were too old to forget the historical and contextual features of the country-of-origin institutions at the time of migration will rely on this comparison when interacting with institutions in the host country. Across time, there is both a continuous positive/negative accumulation of trust for the host-country institutions among those with less/more democratic points of reference. We examine immigrants’ political trust using survey evidence from Israel.

Immigration and Crime: The Role of Self-Selection and Institutions

Contrary to popular perception, empirical evidence suggests that immigrants do not necessarily commit more crimes than natives, in spite of having lower legitimate earning opportunities. To make sense of this, we propose a novel theoretical framework based on a predator/prey model of crime, where endogenous migration decisions and career choices (between licit and illicit activities) are jointly determined. In this setting, we show that the involvement of migrants in crime crucially depends on self-selection into migration, as well as on productivity and institutional quality in the host economy. In particular, immigrants may display a lower crime rate than natives even if they are less productive on the honest labor market – and this result can still hold if career choices are revised after migration. We also find that stricter immigration policies could induce an adverse selection of migrants, and eventually attract more foreign-born criminals. Finally, a dynamic extension of our model can account for the higher crime rates of second-generation immigrants, and highlights the critical role of immigration and assimilation for the long-run evolution of crime and institutions in host countries.

Institutional determinants of bilateral foreign direct investment flows

The paper analyses the influence of institutional development level on bilateral foreign direct investment (FDI) flows. The theory suggests that more developed institutions in both home and host countries should increase FDI flows between countries. At the same time existing empirical research often have controversial results.