Host Country's Level Research Articles

Manufacturing reshoring and sustainable development goals: A home versus host country perspective

AbstractAfter decades of offshoring their manufacturing activities, an increasing number of companies are revising their location strategies and implementing reshoring decisions, including backshoring (relocation in the home country) and nearshoring (relocation in the home region) alternatives. It has been recognized that reshoring strategies are consistent with the sustainable production approach, since they allow companies to produce goods in a manner that is socially beneficial, economically viable, and environmentally less harmful over the whole life cycle of those goods. Additionally, there are early indications that reshoring can also promote and support sustainable consumption approaches. Consequently, reshoring has a wide range of impacts in both the home and the host countries, also in terms of the Sustainable Development Goals (SDGs). However, this topic has received little attention in the extant reshoring literature. This paper seeks to contribute to the discussion by adopting a two‐step approach. Initially, we analyze the very few contributions available on this topic; then, we identify and discuss which of the 17 SDGs are impacted by reshoring decisions at both the home and the host country level. It emerges that reshoring decisions have several and differentiated impacts in terms of SDGs. In general, these impacts are positive for home countries and negative for host ones. For this reason, a trade‐off emerges when a single relocation decision is taken and implemented. Based on this evidence, implications for scholars, managers and policy makers are presented and discussed.

The octopus that shrank: A historical analysis of how multinationals address policy and contractual uncertainty in a global value chain

AbstractResearch SummaryWe analyze how the evolution of the broad institutional environment influences the vertical integration strategy of a multinational corporation (MNC) leading a global value chain (GVC). We develop a history‐to‐theory study based on the evolution of the banana GVC between 1899 and 1991. We argue that when a MNC's bargaining power vis‐à‐vis the host government is strong, it will choose a governance structure that addresses contractual uncertainty. When the MNC's bargaining power declines because of changes in the institutional environment, it will prioritize a governance structure that protects its assets. We analyze the evolution of MNC's bargaining power as a result of the interaction of three levels of the institutional environment: global, home country, and host country.Managerial SummaryOur study examines vertical integration decisions in a global value chain (GVC) throughout its historical evolution. Using historical sources, we show that when MNC managers perceive their bargaining power to be sufficient to protect them from hostile government actions in host countries, their main concern is that of governing their activities as efficiently as possible by amongst others vertically integrating asset‐specific transactions. When their bargaining power declines, MNCs become more concerned with shielding their assets and rents from expropriations by host‐country governments, thus retreating from vertical integration. We illustrate that the bargaining power of MNCs changes as events at the global, home, and host country levels unfold. For example, MNCs' bargaining power declines in periods featuring economic nationalism, such as the 1960s–1970s.

Corruption distance discourages bilateral FDI … Unless you’re high: The moderating effect of direction

This study investigates the impact of corruption, corruption distance, and corruption direction on bilateral foreign direct investment (FDI) outflows using reporting OECD Global North and Global South countries. We first posit that corruption and the absolute difference in corruption levels across a pair of countries are negatively related to a host country's level of FDI. Then we investigate the moderating effect of direction when investing in a more corrupt host country. A PPML gravity model for a panel of 5733 different North and South country pairs over the years 1998–2018 indicates both the presence of corruption and a high corruption distance between country pairs has negative effects on FDI outflows, but investing in the direction of a more corrupt host country has a positive moderating effect. Our results contribute to expand and complement the theories on corruption in FDI.

Foreign earnings repatriation: the effect of exchange rate volatility and the risk of expropriation

PurposeThis study aims to investigate the impact of exchange rate volatility and the risk of expropriation on the decision to repatriate foreign earnings.Design/methodology/approachThe current study uses secondary data for foreign subsidiaries of US multinational corporations (MNCs) in 40 countries from 2004 to 2016. We use the dynamic panel difference generalised method of moments (GMM) to estimate the dynamic earnings repatriation model.FindingsThe findings show that foreign subsidiaries of US MNCs in countries with volatile exchange rates tend to repatriate more earnings to the parent company. The findings also reveal that a greater risk of expropriation in the host country leads to the higher repatriation of foreign earnings to the parent company. The findings support the notion that MNCs use the earnings repatriation policy as a means of mitigating risks arising in the host country.Practical implicationsPractical implications for modern managers include shedding light on how financial managers can use earnings repatriation policy to mitigate exchange rate risk and the risk of expropriation in the host country. The findings also contain policy implications at the host country level that how exchange rate volatility and risk of expropriation can reduce foreign investment in the host country.Originality/valueThis study adds to the earnings repatriation literature by analysing the direct effect of exchange rate volatility on earnings repatriation decisions, as opposed to the impact of the exchange rate itself, as suggested by previous research. Hence, the findings broaden our understanding of the direct influence of exchange rate volatility on the decision to repatriate foreign earnings. The present study also examines the role of the risk of expropriation in determining earnings repatriation policy, which has received little attention in prior empirical studies.

From structural to transition effects: Institutional dynamism as a deterrent to long-term investments by MNEs

The effect of institutional change on foreign direct investment is often conceptualized through the lens of an improving or deteriorating level of institutional quality that alters transaction costs. However, in the context of comprehensive government intervention in the past decades, this perspective ignores the potential uncertainties and costs associated with the process of institutional change. We propose that institutional change causes structural changes in transaction costs as well as accompanying transition effects due to uncertainty and learning costs. The extent of such transition effects is linked to the process characteristics of institutional change, e.g., institutional dynamism. In this paper, we examine the effects of institutional dynamism on foreign direct investment in long-term capital commitments and hypothesize a negative relationship between institutional dynamism and FDI, and a moderating effect of institutional dynamism on the relationship between institutional quality and FDI. Using investment data by US MNEs aggregated on the host country level, we find support for our hypotheses with some qualifications. We derive implications for the middle-income trap discussion as well as the ongoing fast-paced transition towards a sustainable global economy that is bound to shift attention from differences in the level of institutional quality towards differences in transition processes.

Labor market situation of refugees in Europe: The role of individual and contextual factors

The paper sheds light on the patterns of labor market integration of refugees in Western countries, who arrived primarily during the 2015–2016 mass refugee migration. Its major focus lies on the role of individual and contextual factors responsible for refugees' success in the labor market. At the host country level, the extent of permeability along the ethnic lines and the welcome of reception—both on the part of the majority population and the part of the established minorities—constitute further essential moderators of refugees' labor market success. This comprehensive literature overview draws on the flourishing body of research in Europe and beyond and discusses commonalities and differences across refugee origins and destinations while paying particular attention to the time trends and meaningful heterogeneities along with refugees' socio-demographic characteristics. We conclude by identifying major avenues for future research.

Strategic-Asset-Seeking FDI and Firm Innovation: An Instituional Perspective Highlighting IPRs

A burgeoning stream of inquiry has drawn attention to the reverse spillover effect of outward foreign direct investment (OFDI) on performances of emerging market firms (EMFs) in home countries. However, we know little regarding how institutional conditions across host and home countries alter such an effect and thus have an incomplete picture of this relationship. In this study, we integrate insights from the reverse spillover perspective and the institution-based view to examine the influence of an important but underexplored type of OFDI—strategic-asset-seeking (SAS) OFDI—on firm innovation performance. We highlight intellectual property right (IPR) protections as institutions and distinguish them at different levels across environments—both at the host-country level and the home-subnational level—as boundary conditions of the reverse spillover effect. Using a sample of Chinese publicly listed firms, we find that home-subnational IPR protection strengthens the reverse spillover effect of OFDI and innovation performance, whereas host-country IPR protection weakens the effect. In addition, we show that an EMF’s R&D subsidies amplify such contrasting moderating effects, further enhancing the distinct mechanisms underlying IPR regimes between home and host countries.

Archetypes of Driver Combinations Leading to Foreign Market Exit: An Investigation into European Grocery Retailing

Existing research into retailers’ foreign market exits has uncovered a number of drivers that lead multinational retailers to divest from certain countries. While scholars have investigated these drivers in isolation from one another, combinations of drivers that affect divestment decisions simultaneously remain under-researched despite scholars having indicated their importance and having called for a detailed, more holistic analysis. In this study, using a case study approach and qualitative content analysis of a wide variety of publicly available contemporary documents from different perspectives and experts, we investigate the drivers leading to all 32 country exits of the 50 largest grocery retailers in Europe in the 5-year period between 2014 and 2018. In line with previous research, the study shows the most frequent exit drivers are a low performance of the subsidiary, a low performance of the parent company, and a strategic refocus of the parent company. However, we demonstrate that for most exits, combinations of multiple interrelated drivers at the subsidiary level, the host-country level, and the parent level have a joint influence on retailers’ decisions to exit foreign markets. We also show that exits often include both failure-related drivers and strategy-related drivers. Furthermore, using the configurational approach, we identify exemplary combinations of market exit drivers that occur frequently and propose five archetypes of such combinations that suffice to explain all market exits in the dataset. For future research, we propose extending our typology through the application of a similar approach to different contexts and to use quantitative research based on the qualitative findings to generate more generalizable results.

International diversification, legitimacy, and corporate social performance of extractive industry multinationals

AbstractResearch SummaryThis article examines how different international diversification strategies impact the legitimacy challenges multinationals face and the way they manage their corporate and social responsibilities. Analyzing these questions in a sample of companies in extractive industries, we find that those who pursue resource‐seeking investments that involve locating extraction operations overseas respond with the largest improvement in their corporate‐level social performance (CSP). Those pursuing efficiency‐seeking by establishing processing subsidiaries abroad increase their CSP less, with the smallest increase for those pursuing market‐seeking through marketing and sales operations overseas. For each type of activity established overseas, the increase in CSP becomes greater the more developed the company's home country and the larger its international footprint, but is not dependent on the host country's level of development. These findings suggest that, in today's globalized world, the legitimacy challenges that result from subsidiaries' activities increasingly need to be managed at a global, corporate level.Managerial SummaryThis article investigates the relationships between different international diversification strategies, the different legitimacy challenges they create, and corporate‐level social performance (CSP) responses. For multinationals operating in the extractive industries, we find important legitimacy spillovers from different types of subsidiary activities on the corporation, but these also vary, leading it to respond with differential increases in global CSP. These increases are greatest for resource‐seeking diversification, involving the location of extractive activities abroad, moderate for efficiency‐seeking diversification, involving the location of processing activities and least for market‐seeking diversification, involving the location of marketing and sales activities. For each type of subsidiary activity, we also find that the increases in CSP are larger the more developed the company's home country and the larger its international footprint, but are not dependent on the host country's level of development. We show how these results extend existing theory and draw implications for management practice.

Climate risk and private participation projects in infrastructure

PurposeThe purpose of this paper is to investigate the impact of climate risk on the success vs failure of foreign direct investments (FDIs) in private participation infrastructure (PPI) projects. The authors also consider the extent to which project-level characteristics mitigate such risks.Design/methodology/approachThe authors study a sample from the World Bank covering 18,846 projects in 111 countries from 2004 to 2013. The authors apply logistic regressions to determine the impact of climate risk and mitigating project characteristics on project failure.FindingsThe authors find that higher levels of climate risk at the host country level are associated with higher risk of project failure. The authors also find that the disadvantage of higher climate risk is weakened by two project-level characteristics, namely, the inclusion of host government ownership in the project consortium and the size of the project.Originality/valueThe research contributes to the current debate about the impact of climate risks on international business ventures. The authors demonstrate that climate risk is a locational disadvantage for FDI in PPI projects. The authors establish that the “fittest” projects in locations characterized by higher climate risk tend to be those that involve host government participation in their ownership structure as well as those of larger sizes.

No calm after the storm—diaspora influence on bilateral emergency aid flows

AbstractThis study analyzes how migrants affect their host country's foreign policy toward their home country by measuring their influence on bilateral emergency aid. I develop the argument that besides political lobbying and the targeting of aid by the donor country, migrants affect emergency aid by providing a linkage between the countries and increasing the salience of a disaster abroad. The empirical analysis shows that the location and size of a country's diaspora is an important predictor of emergency aid flows after natural disasters. Interaction effects provide support for the linkage argument: while the diaspora effect does not increase with the host country's level of democracy, it is strongest with the least severe and most distant disasters.

Developing international social capital: The role of communities of practice and clustering

One criteria regarding where to invest in foreign markets is linked to the international social capital (ISC) that exists on the place, which enables the access to local knowledge and other location-specific advantages. There are alternative ways to create and make use of that ISC that are still unexplored by International Business literature. In this paper, we study the geographic communities of practice (CoP) that are formed by FDI firms from the same country-of-origin (the so-called country-of-origin clusters). For that purpose, the paper adopts a qualitative methodological approach through an inductive case study of expatriates from 13 Spanish subsidiaries co-located in China. Our findings suggest that there are particular mechanisms based on the informal connections and repeated interactions facilitated by a common language and non-competitive relationships that create an ISC in the CoP. Moreover, our analysis shows there is a heterogeneity in the way these mechanisms are developed and used by the member firms, and this is due to organizational and individual factors, as well as leadership dynamics. Our work contributes to Internationalization and Network theories by identifying unexplored mechanisms through which the ISC is developed at the host country level. Besides, it helps identifying competences (i.e. clustering competences) that help expatriate managers to be successful in their international assignments.

The effect of franchisor characteristics and host country features on the foreign entry mode. Lessons from the Spanish franchise system lessons from the Spanish franchise system

Franchisors have many options when seeking to expand their business into foreign countries. Specifically, they can enter new markets via one of four different ways: 1) direct franchising; 2) master franchisor; 3) equity joint venture; 4) direct investments. This paper aims to analyse the factors that determine this entry mode decision. To achieve this goal, transaction cost theory is used to explain the entry mode choice phenomenon, by using a franchisor and host country level perspective. Additionally, a quantitative approach was applied to a sample of 43 Spanish chains operating 2,532 outlets across 62 foreign nations. The results show that foreign entry mode choice is driven by franchisor characteristics such as international experience, brand awareness, and industry type (product versus service), in conjunction with host country features including geographical distance, uncertainty avoidance, masculinity, political stability, economic development, unemployment rate and efficiency of contract enforcement.

Exploring Motivations for Studying Abroad: A Case Study of Taiwan

This study examined the factors that motivate international students from the decision to study to the choice of a country in which to study abroad. A survey was conducted with 555 international students undertaking university-level education in Taiwan. A principal component factor analysis was used to identify the underlying dimensions of push and pull forces: two push and six pull motivation factors. Among these, desire to international travel and experience and tourism attractions were regarded as the most important push and pull motivation factors, respectively. Although educationrelated motivation at both individual and host country levels remains the fundamental reason to study abroad, tourism-related motivation seems to play an even more important role in the study abroad decision-making process. Motivations for studying abroad vary across nationalities and levels of study, indicating that international students are not a homogeneous market. Major implications are four fold: exploring the potential cooperation between the higher education and tourism sectors; posting its unique and specific tourism attributes on the official websites of both governments and higher education institutions; customizing the positioning strategies on the basis of international student market segment by nationality and level of study; and forming strategic alliances between local and foreign universities.

National Innovation Systems & Investment Mode Choices - Evidence from Indian Firms

In this paper, we develop a contextual model of host country determinants to explain the impact of National Innovation Systems (NIS) variables on FDI-based entry mode choices of emerging market firms (EMFs). Particularly, we consider the effects of three NIS variables at the host country level - the volume of foreign capital inflow, the technological capability of the country and the availability of human talent – in explaining an EMF’s choice of FDI-based market entry modes. We test our hypotheses on a sample of 5865 Indian FDI-based entries between 2007 and 2014. We find that Indian firms emphasize WOS entry modes when entering host countries with high levels of inward capital flows and high market potential. The R&D investments made by the host country and the availability of human (R&D) talent in the host country also influences the choice of WOS entry modes over JVs. We discuss the implications of our findings and describe avenues for future research towards the end of the paper.

Export intensity of foreign subsidiaries of multinational enterprises: The role of trade finance availability

We examine the relationship between the role of trade finance availability and the export intensity of foreign subsidiaries of multinational enterprises (MNEs). In developing our hypotheses, we draw upon insights derived from “new” internalisation theory (international business literature) and international trade finance (international economics literature). We empirically test these hypotheses using survey data compiled from subsidiary managers in six ASEAN countries, supplemented with host-country level data. We conceptualise, empirically test, and establish that the subsidiary-level capability in combining and utilising internal and external debts is an important subsidiary-specific advantage to support export intensity. We find that subsidiaries employ intra-firm loans from MNE internal capital markets and, to some extent, bank loans from external financial institutions to boost their export intensity. Subsidiaries may have concerns about foreign exchange risks, but the use of appropriate foreign exchange risk management is positively associated with export intensity. We discuss the implications of our findings for theory and practice.

BANKING ON MULTINATIONALS: THE DETERMINANTS OF CROSS-BORDER CREDITS TO CENTRAL AND EASTERN EUROPE, 1990-2015

Taking into account the rising dependence of Central and Eastern Europe on multinational banks’ credits, the main purpose of the article is to identify and examine the determinants of cross-border credits through a methodology based on “push” and “pull” factors. The author presents the results of a regression analysis on the determinants of cross-border credits provided by multinational banks from EU-15 to Central and Eastern Europe over the period of 1990-2015 by using the statistical data compiled and published by the Bank for International Settlements. The obtained results suggest that global as well as home and host country level determinants influence cross-border credits but to a different extent. According to our results, higher stability and predictability of global economic environment contribute to higher cross-border credit growth. The results of the host country determinants analysis indicate that more effective and profitable economies receive more credits from multinational banks. We also find that multinational banks provide more credits to countries with small markets, low inflation rate, high external debt burden, high capital account deficit, fixed exchange rate regime, and developed institutional environment. Regarding home level determinants, we find the existence of a negative correlation between home country economic cycle and the amount of cross-border credits received by the host country, which can be explained by low economic growth in continental Europe over the period under consideration that stimulated European banks to expand lending on foreign markets with higher profit opportunities. Thus, cross-border credits appear to have been countercyclical to growth in home countries and procyclical to growth in host countries. Finally, it is found that host country level determinants play the most important role in explaining changes in cross-border credits on host countries in Central and Eastern Europe during 1990-2015 period, which means that host countries have a control over their own destinies and the amount of received credits depends on their economic and political performance. Value/originality. The results of the research make it possible to provide a better understanding of the determinants of cross-border credits and practical importance of multinational banks’ lending as an important source of external finance for the catching-up process and a major component in the ongoing process of financial deepening in Central and Eastern Europe, and clarify whether these determinants differ in periods of financial stability and crisis.

Why sponsors should worry about corruption as a mega sport event syndrome

ABSTRACTResearch question: Today, corruption is considered to be a mega sport event syndrome. This research paper assesses whether and how perceived corruption of event-governing bodies (and at the host country level) reduces a host population’s attitude toward event sponsorship. The paper also assesses whether the perception of corporate social responsibility (CSR) activities of event-organizing bodies can weaken the negative effects. The authors build upon associative network theory, attribution theory, and the CSR literature to derive a theoretical framework of how perceived corruption influences attitude toward event sponsorship.Research methods: Three empirical studies and one follow-up study were conducted to test the hypotheses. In total, a convenience sample of 876 Brazilian residents was surveyed, referring to the 2014 Fédération Internationale de Football Association (FIFA) World Cup and the 2016 Olympic Games as the sponsored mega sport events. The authors used regression-based (moderated) mediation analyses to test their hypotheses.Results and findings: Perceived corruption of the event-governing body has a negative impact on the host population’s attitude toward event sponsorship. Attitudes toward both the event-governing body and the event mediate this effect. Perceived CSR activities implemented by the body (here FIFA and the International Olympic Committee respectively) can reduce (or even eliminate) the negative indirect effect of perceived corruption on attitude toward event sponsorship, but only if individuals attribute philanthropic (vs. profit-driven) motives for CSR.Implications: Attitude toward event sponsorship in the host population is negatively affected by perceived corruption (be it on the organizational level of the event-governing body or on the host country level). Stakeholders are thus encouraged to reduce corruption and implement philanthropic CSR to weaken (and possibly eliminate) negative spillover effects on sponsors.

Outward FDI from the USA and host country financial transparency

Extant research has focused on the role of host country corruption as either an attractant or deterrent to foreign investment. These studies generally contend that corruption acts more like a ‘grabbing hand’ than as a ‘helping hand’. However, it is plausible that a significant component of foreign investment may be attracted to locales that offer opaque financial environments. Specifically, we hypothesize that money laundering opportunities may encourage illicit capital flows into certain jurisdictions. Using the USA as the ‘source’ country, we investigate the effect of corruption and money laundering opportunities on Foreign Direct Investment (FDI) flows. The empirical findings indicate that corruption deters foreign investment, while money laundering opportunities attract it. We also show that the effect of money laundering and corruption vary based on the host country's level of development. Our findings bolster the contention that FDI into certain host countries is motivated by a facilitation of illicit capital flows.

Market-based incentives in developing countries: geographical dispersion, antecedents and implications of the Clean Development Mechanism

The implementation of the Clean Development Mechanism (CDM) provides a flexible market-based incentive for addressing environmental risk in developing countries. While there has been a significant amount of ex-ante anecdotal and qualitative research regarding the CDM, there has been little ex-post, quantitative analysis of its antecedents based on a levelized comparison across developing countries. This article provides a quantitative analysis of CDM dispersion worldwide and investigates the relationship between the CDM and the overall host country governance, economic and social environment. Using multivariate regression analysis on a levelized basis, we find the Human Development Index to be a strong determinant of the CDM. This suggests the importance of non-economic factors and the need to tailor market-based instruments to the host country's level of social development. One-size-fits-all approach to reducing emissions in developing countries will not be effective to all countries.