Host Country Institutions Research Articles

Judicial institutions of property rights protection and foreign direct investment inflows

Despite a growing consensus that host country institutions affect the spatial distribution of foreign direct investment, there is a debate about which institutions drive this relationship. This study contributes to this debate by examining the relationship between foreign direct investment net inflows and three judicial institutions of property rights protection: judicial contract enforcement, judicial independence, and judicial impartiality. I evaluate this relationship by applying the system-GMM estimation approach to a sample of 150 countries covering the period 2000–16. I find robust evidence of positive relationships between FDI net inflows and both judicial independence and judicial impartiality. On the other hand, judicial contract enforcement appears to be weakly related to FDI net inflows. The results are robust to alternative specifications and estimation methods, including the instrumental variables approach. While the findings of this study reinforce the notion that host country institutions matter for foreign direct investment, they, more importantly, underscore the merits of unbundling institutions to understand their impact on multinational firm activity.

Information Asymmetry and Host Country Institutions in Cross-Border Acquisitions.

Mergers and acquisitions (M&As) are often dubbed as a market for lemons because of the extent of information asymmetry embedded in M&A transactions. A country’s institutional environment influences the quality and overall reliability of formal disclosures, thereby altering the extent of information asymmetry affiliated with an M&A transaction. We argue that the caliber of the host country's institutions—formal market-supporting institutions and the informal cultural institution of uncertainty avoidance—affects the public arbitration phase of M&A transactions, i.e., the phase in which firms attempt to resolve issues related to information asymmetry. We test our hypotheses using a sample of 3376 foreign acquisitions completed by U.S. firms between 2006 and 2016. Our results indicate that formal institutions lower arbitration duration. But, while high uncertainty avoidance lowers duration as expected for countries with low market-supporting institutions, it more strongly raises the duration for countries with high market-supporting institutions.

Multinational enterprises and strategic actions in emerging economy contexts: From conformity to institutional entrepreneurship

AbstractThis research explores the broader set of strategic actions of multinational enterprises (MNEs) in emerging markets in response to institutional forces. We re‐examine the effect of MNEs on changing institutions in host countries and conceptualize a theoretical model of institutionalization and institutional change initiated by MNEs in emerging economy contexts. In our two‐stage approach, we build on an inductive study to explore MNEs' strategic actions and their institutional settings. We then conduct repertory grid analysis to analyze face‐to‐face interviews with mid‐level and senior managers of subsidiaries of eight major MNEs. We identify distinctive categories of strategic action taken by MNEs to respond to facets of their institutional environment, depending on the restrictiveness/openness of their institutional environment, and their self‐perceived organizational strength.

Navigating the Web of Informal Institutions When Investing in a Strange Land: Chinese Multinational Enterprises in Australia

Multinational enterprises (MNEs) need to understand and handle various informal institutions in host countries to survive and succeed. How MNEs effectively manage informal institutional characteristics of host countries is an important question for both practitioners and scholars. This paper addresses this important but neglected topic based on an in-depth longitudinal qualitative study. It identifies some key informal institutions in Australia, examines how such institutional distinctiveness shapes the behaviour of Chinese expatriates and MNEs and how they handle such informal institutional differences between China and Australia. Our findings challenge some taken-for-granted assumptions regarding informal institutions in the literature and demonstrate that informal institutions of host countries significantly shape the behaviour of expatriates and firm-level strategies of MNEs.

The Impact of Home and Host Country Institutions on the Exit of Chinese Foreign Subsidiaries

Purpose - This study aims to examine the impact of host country institutions on the exit of foreign subsidiaries, and tries to figure out how the home country institutions moderate the relationship between host country institutions and subsidiary exit. Design/Methodology/Approach - The sample of this study includes 7,098 foreign subunits established by 2,401 Chinese listed manufacturing firms in 121 countries. This study used Logit Regression to measure the effect of home and host country institutions on the exit of foreign subsidiaries. Findings - The results show that when entering countries with better institutional profile than China, the host country institutions negatively affect the exit of Chinese foreign subsidiaries and home country institutions have positive moderating effect. While, when entering countries with worse institutional profile than China, the host country institutions positively affect the exit of Chinese foreign subsidiaries and home country institutions have no moderating effect. Research Implications - This study makes a new attempt to empirically examines the moderating effect of home country institutions on foreign subsidiary’s exit decision while being subject to the host country institutions, which helps fill the gap in this area. Moreover, this study offers a certain understanding of the impact of both home and host country institutions on the survival of foreign subsidiaries in host countries, which may be helpful for future policy development and firms’ internationalization strategy development.

Home-country institutions and corporate social responsibility of emerging economy multinational enterprises: The belt and road initiative as an example

This paper examines the impact of home country institutions on corporate social responsibility (CSR) of multinational enterprises from emerging markets (EM-MNEs). Taking the Belt and Road Initiative (BRI) as an example and using a sample with 2052 firm-year observations from China over the period 2008–2018, we find that the BRI exerts a positive and significant effect on overall CSR of Chinese MNEs involved in the BRI and the positive effect is stronger for Chinese state-owned MNEs. In addition, only two dimensions of CSR (Employee Relations and Products) are improved significantly under the pressure of BRI. Finally, we examine the interactive effect of home- and host- country institutions on Chinese MNEs’ CSR and find the positive impact of the BRI on MNEs’ CSR performance is stronger in host countries with a higher level of CSR related institutional pressure. These results provide practical suggestions for the Chinese government and MNEs to further improve CSR under the BRI, and enrich our understanding of the interactive effect between home- and host-country institutions on enhancing Chinese MNEs’ reputation and promoting regional cooperation with countries along the BRI.

Mobilizing diaspora during crisis: Ukrainian diaspora in Canada and the intergenerational sweet spot

ABSTRACT Canada’s Ukrainian diaspora occupy an enviable, if not rare, ‘intergenerational sweet spot’. This sweet spot endows them with a high degree of positionality within Canada, enabling both long and short-term support for Ukraine since the crisis began in 2014. In examining Ukrainian diaspora positionality in the Canadian context, we find there are varied strategies that help offset hardship at the community and household level while addressing the long-term fragility of the country. While new migrants and temporary workers are actively remitting back home, older generation diaspora members compensate for smaller remittance volumes by lobbying and by influencing the state apparatus through various forms of political and social activism. This has the effect of shifting the costs borne by individuals to the host state and is consistent with our insights on principal-agent relations between states and diaspora. Although Ukraine’s macroeconomic performance will remain fragile for the foreseeable future, we identify four complementary forms of diaspora engagement in times of crisis, namely the mobilization of aid, political activism and volunteering, remittances and other financial flows, and delegating responsibilities to host-country institutions.

Doomed to fail? Why some land-based investment projects fail

In recent years, an increased interest in farmland globally has led to the emergence of many land-based investment projects. Although most projects enter the production stage, a significant number also ends in failure. This paper asks why land-based investment projects fail. This is a crucial question as failed investment projects are unlikely to have any positive impacts on the host regions. I develop a conceptual framework to understand the determinants of failure and then use project-level data to empirically test these potential determinants drawing on survival analysis. I find that failure occurs globally but is concentrated on the African continent, with some countries exhibiting a particularly high risk of project failure. In addition, larger projects, projects growing agrofuels, and projects targeting land formerly used by smallholders or pastoralists are more likely to fail. In contrast, projects that involve domestic investors or take place in countries with better infrastructure are less likely to fail. The findings on the impact of host-country institutions on project failure are ambiguous and highlight the need for more localized institutional variables to better understand the role of institutions for project failure.

Host-Country Institutions and Emerging Market Multinational Enterprises’ CSR Performance

Grounded in the institutional knowledge perspective, this study explores the mechanisms through which and the conditions under which exposure to high-quality host-country institutional environments can affect emerging market multinational firms’ corporate social responsibility (CSR) performance. In doing so, we propose a three- stage institutional knowledge learning process model, namely institutional knowledge acquisition, assimilation and exploitation. We argue that high quality of host-country institutions will enable the institutional knowledge acquisition process, but may hinder assimilation process, thus exhibiting an inverted U-shape relationship between the quality of host-country institutions and CSR performance of emerging market multinational enterprises. Moreover, we propose that institutional knowledge base of emerging market firms can positively moderate this curvilinear relationship by facilitating the institutional knowledge acquisition, assimilation, and exploitation process. The results of analyzing a longitudinal dataset of listed Chinese firms from 2009 to 2017 support our key arguments.

First Mover Survival in International Entry Strategy: An Organizational Legitimacy Perspective

When entering a foreign market, multinational enterprises (MNEs) from the same home country do not necessarily face identical levels of institutional constraints. Taking a legitimacy perspective, we argue that first movers may confront more liabilities of foreignness and outsidership. Their pioneering efforts to build up external legitimacy can change the host country institutions, and lessen the institutional pressures for followers. Later access, therefore, may have survival advantages compared to first entry. To mitigate these entry timing disadvantages, first movers can form international joint ventures (IJVs) with local firms to quickly acquire external legitimacy from the outset. The downside to this strategy, however, is that efforts to gain external legitimacy in the host country context may undermine internal legitimacy in the internal environment of the MNE. To balance these two types of legitimacy, we suggest that the first mover needs to maintain relatively strong ownership control over the alliance. Meanwhile, although MNEs can also influence the relative allocation of control over an IJV by influencing staffing of subsidiary general managers (GMs), we argue that the nonownership control such as using a parent-country national to manage the subsidiary does not necessarily serve as a substitute for ownership control. In local partner dominated IJVs, this GM staffing strategy may further decrease the first movers’ survival rate. Drawing on Japanese longitudinal data from 1991 to 2013, our analysis provides empirical evidence to support the argument.

Institutionally Derived Strategic Influence of MNE Subsidiaries

What role do host country institutions play for the strategic influence of subsidiaries in multina-tional enterprises (MNEs)? Through an inductive study of ten headquarters-subsidiary dyads across three MNEs, this paper identifies enablers of subsidiary influence in proposed strategies from headquarters, i.e., headquarter strategic initiatives. These enablers reside either in institutions themselves or in interfaces with the MNE. Furthermore, I show how these enablers may be lever-aged by subsidiaries to either avoid or become involved in headquarter strategic initiatives. This is done through distinct tactics that target different organizational rationales related to the complex relationship between MNEs, subsidiaries and local institutions. The study contributes to the litera-ture on global strategy and headquarters-subsidiary relationships by delineating the role of local institutions, as filtered through subsidiaries, in global strategy.

The Effect of Subnational Institutions on Foreign Firm Performance: Insights from Emerging Economies

While prior studies have acknowledged the influence of host country institutions in foreign firm behaviors and performance, few investigations have included the roles of subnational institutions. As a matter of the striking institutional difference between emerging economy countries and developed countries, it is important to fully understand the impact of heterogeneous institutional environments of subnational regions in emerging economies on foreign firm performance, which would help foreign firm make a more suitable secondary choice decision of investment destinations at the subnational regional level. At the subnational regions level of emerging economies, we verify the respective and interactive effects of subnational formal and informal institutions (i.e., legal effectiveness and social trust) on foreign firm performance, and further identify the contingent factor (i.e., foreign firm’s institutional experience) that moderates these relationships based on the analysis of multiple secondary databases from China. The results show that, first, both legal effectiveness and social trust at subnational level positively affect foreign firm performance respectively. Second, legal effectiveness and social trust at subnational level have complementary effect in promoting the performance of foreign firms. Third, foreign firm’s institutional experience in target region of emerging economies host country strengthens the positive impact of subnational legal effectiveness on performance, but weakens the positive impact of subnational social trust on performance.

Challenges in the Transnational Business Education

Management of learning and teaching in a transnational business education program can be a true challenge for institutions in both home and host countries, especially with leadership and governance. In this article, we seek to define challenges in engaging business students in a transnational education program operating in Singapore and Australia. From the interviews with students and staff, we identified feedback, communication, and transferability as important factors promoting engagement among students in the transnational program. We highlight learning strategies to support ongoing engagement among students in a transnational business education program. The findings suggest that contextualizing the local and international issues is crucial in the management of a transnational business education program if students are to develop global competencies.

A South-South perspective on emerging economy companies and institutional coevolution: An empirical study of Chinese multinationals in Africa

In this paper, we show how international tenders act as defining moments in building asymmetric coevolution-based mechanisms between Chinese multinational enterprises and local institutions in developing African countries. We used a case study methodology to explore how three Chinese multinationals – Citic, Sinopec, and Chinalco – developed non-market relations with the institutions of three African countries, namely, Algeria, Gabon and the Republic of Guinea, both during and after the submission of international tenders, to win strategic contracts and securely embed the company in question within the target host country. We found that Chinese companies not only submit tenders, but also develop multiple kinds of alliances in order to influence local institutions over the long term, transplant new business practices and standards, and expand in an unparalleled way, with host-country institutions and Chinese MNEs acting as partners in the new ecosystem. Based on our findings, we propose a model which highlights the specific mechanisms through which successful coevolution processes emerge and prosper between Chinese multinationals and developing country institutions. This study contributes to the international management literature by extending the field of institutional theory to co-evolutionism in international business.

Location matters: Valuing firm‐specific nonmarket risk in the global mining industry

AbstractResearch summaryUsing collective action and social movement theory, we investigate the potential incentives and ability of stakeholders to engage in collective action that can increase firm‐specific nonmarket risk of mining companies. We argue that proximity to the nearest environmentally sensitive water source increases the probability that local stakeholders will take collective actions that impose material costs on the focal mine. We hypothesize that stock markets recognize this nonmarket risk and apply a discount on announcements related to mines located near such areas, and that these risks are moderated by the type of mineral, the nature of the water source, and the strength of host country institutions. Using a unique data set and an event study method, we find support for most of our arguments.Managerial summaryWe argue that mines located near environmentally sensitive water sources are subject to nonmarket risks arising from the potential collective actions of local stakeholders and their allies. Stakeholder mobilization can impose material costs on a mine in the form of delays, regulatory hurdles, and closure. We find that stock markets recognize these nonmarket risks and apply a discount on announcements by mining companies whose mines are located near environmentally sensitive water sources, particularly rivers. However, we also find that investor reaction is stronger in countries with strong institutions that support collective action. Thus, nonmarket risk management is important even in countries that are typically characterized by low political and institutional risks. We discuss the degree to which these results can be generalized beyond mining.

Strategic Asset Seeking and Innovation Performance: The Role of Innovation Capabilities and Host Country Institutions

Peering through the lenses of the strategic intent perspective and strategic fit paradigm, in this study, we seek to examine the contingent conditions under which emerging market multinational enterprises (EMNEs) with strategic asset seeking (SAS) intent can achieve improved innovation performance. We developed a contingency model of how the relationship between SAS intent and innovation performance is contingent on the moderating effects of firms’ innovation capability and institutional quality in the host country, as well as on the synergistic interaction of independent moderating effects from these two factors. We combined survey data from 320 Chinese MNEs with archival data to test our hypotheses. Our results show that SAS intent can lead to positive innovation performance when (a) the investing firm has developed high levels of innovation capability, and (b) synergistic interactions exist between institutional quality and firms’ innovation capability regarding their moderating effect on the SAS intent-innovation performance link.

Between a rock and a hard place: Internal- and external institutional fit of MNE subsidiary political strategy in contexts of institutional upheaval

Abstract We investigate how subsidiaries' political capabilities in emerging markets are not just shaped by their home- or host country institutions, but by both simultaneously - presenting a dilemma for subsidiaries of multinational enterprises (MNEs) in host countries. Subsidiaries need to develop CPA that simultaneously “fit” parent company requirements and “external fit” requirements in relation to the host environment. Achieving this dual fit is particularly difficult in volatile host contexts, where the value of political capabilities changes rapidly. Subsidiaries face a dilemma because the easily transferable capabilities – that draw on parent resources – lose value due to their decreasing “external fit” with the host country's volatile institutional environment. Conversely, the most valuable relational political capabilities lack “internal fit,” as they may not be legitimate in the home environment. To understand how firms deal with this dilemma, we develop a typology of political capabilities that takes into account their transferability/stickiness and their dynamic institutional contingency in the host country. Our study shows that MNEs - even from institutionally very different economies - can successfully transfer political capabilities to develop effective CPA in a volatile political environment. Yet, as political risk becomes discontinuous, this strategy may reach its limits.

Employee Relations at Asian Subsidiaries in Hungary

Asian foreign direct investment is substantial in Hungary in regional comparison. Multinationals from China, India, Japan, and Korea are important investors in the Hungarian economy. The main aim of this article is to describe how home and host country institutions and business and management culture influence the operation of the companies in question, first of all in the various areas of human resource management. In the analysis, we rely mainly on the Varieties-of-Capitalism approach, given its emphasis on the organizational and related cultural differences that result in different types of capitalisms in the world economy. The article is based on company interviews conducted with the representatives of seven Asian subsidiaries in Hungary (1–10 interviews per company) that are operational in the automotive and/or electronics industry. Our conclusion is that management and labor relations in these companies evolve under the influence and through the interaction of related home and host country business culture, thus they contain elements of both. However, we found the clear dominance of host country impacts, which has become more pronounced over time.

The Role of Host Country Factors and Institutional Framework for FDI Spillovers in Ethiopia: Evidence from Manufacturing Industry

This study is aimed at assessing the role of host country factors and institutions in mediating the intra-industry productivity spillovers in the manufacturing industry. In this study, we use firm-level survey data on large and medium scale manufacturing industries collected by the Central Statistics Authority (CSA) of Ethiopia. Panel data econometrics with fixed effects estimation technique is used as a method of analysis. After addressing all the estimation issues, we estimate the baseline model containing only the interaction terms as an explanatory variable and the extended model incorporating observable and unobservable control variables. The observable control variables, industry fixed effects and firm fixed effects are included in the model after checking their respective significance. We incorporate these variables in our estimation to be more confident in isolating the spillovers effect of FDI on productivity of domestic firms.The estimation result revealed that the intra-industry spillovers effect of FDI on productivity of domestic firms is positive except through the labor mobility channel which will not be reversed even in one year. In contrast, the estimation result suggests that the degree of openness, human capital stock and financial sector efficiency positively and significantly mediates the productivity effect from FDI. Concerning the control variables included in the model, capital intensity and age positively and significantly affects domestic firms’ productivity. Keywords: FDI Spillovers, Panel Data Econometrics, Fixed Effects Estimation DOI : 10.7176/JESD/10-17-06 Publication date :September 30 th 2019

Impacts of perceived country image, institution image and self-image on students’ intention to study abroad: a study in Hanoi, Vietnam

ABSTRACT This study examined high school students’ evaluations of a country image, institution image and self-image with regards to their intention to attend a foreign university. Using data gathered from students in Hanoi (n = 403), this study found that the students have more positive perceptions of the host country, the host institution and their desired self-image if they choose to study abroad as compared to those of their home country (Vietnam). In addition, the perceived image of the host country and host institution can generate a significant impact on the formation of the students’ desired self-image. However, the most important antecedent of the students’ intention is the discrepancy between the perceived image of the host country and the perceived image of the home country. Based on these findings, implications for foreign institutions and home institutions in recruiting and retaining students are discussed.