6. Cultural Differences Across and Within Countries: Emerging Economies Matter

From an organizational learning standpoint, Ghoshal (1987), Huber (1991), and Zhang et al. (2010) claim that two elements are fundamental for the real occurrence of FDI spillovers: domestic firms’ opportunity to learn from foreign firms and domestic firms’ capacity to learn from foreign firms. The local firms’ opportunity to learn may be enhanced by the variety of FDI country origins because domestic firms are exposed to different systems of technologies, management practices, and cultural values that foreign firms from various origins bring: positive spillover effects will come as a natural consequence. Moreover, the local firms’ capacity to learn from FDI determines the effect of the variety of FDI country origins on the productivity of local firms. If local firms manage to better assimilate the knowledge and techniques brought by foreign firms, such effect will be more intense.

See Chap.​ 7.

The RBV and TCE provide different theoretical lenses to analyze entry strategies. They are based on different assumptions about the nature of economic actors, and therefore point to different conclusions regarding optimal firm behavior (Leiblein 2003). Yet, they complement each other in explaining mode choice and its underlying motives of cost efficiency and value creation. The unit of analysis is the firm in RBV, but the transaction in TCE. With RBV we analyze which mode of entry is most suitable to exploit and augment the existing resource base of the firm. Meyer et al. (2009) framework thus considers operations from a firm-level perspective, while TCE-based models require the isolation of a specific transaction. Joint consideration of multiple activities reflects interdependence and knowledge flows between units of the same firm. Entry modes may be chosen to enhance the knowledge base, for instance, by creating learning opportunities, rather than to optimize each transaction in isolation, an effect missed using transactions as the unit of analysis. A second difference is that Meyer et al. framework focuses on resource augmentation as a distinguishing criterion of entry modes, whereas TCE-based frameworks focus on control. Many TCE-based studies focus on integration vs. contracting out decisions, and emphasize asset specificity, opportunism, and uncertainty. Yet, evidence on the role of uncertainty in the TCE framework is inconclusive (Carter and Hodgson, 2006), while it is controversial whether opportunism is necessary to explain market failure (Kogut and Zander, 1993; Love 1995; Conner and Prahalad, 1996). Knowledge-intensive firms generally attain competitive advantages by combining different types of knowledge held at different levels of the organization (Brown and Duguid, 2001), and “communities of practice” may be essential to facilitate this sharing and combining of knowledge (Kogut and Zander, 1996). Opportunistic imitators cannot easily replicate this combination, so opportunism may be of less concern to businesses than theorists assume (Malhotra, 2003).

From this viewpoint, the problem of coordinating and configuring MNCs is fundamentally solved on the base of comparative differences between countries and between the different possibilities provided by regional environments. Porter (1986, 1990), stressed the relevance of the home base of MNCs in the process of enhancing competitive advantage. Although he pointed out that global firms’ competitiveness originates from their capacity to combine advantages received from their home base with those deriving from situating specific businesses in other nations and those arising from the entire global network (Porter, 1990), his diamond model indicates that the abilities of MNCs are heavily affected by the competitive and institutional conditions of the countries of origin.

There have been few empirical studies examining the effects of social capital developed from managerial networking and social ties on a firm’s activities in emerging economies. Most having concentrated on advanced economies. The exceptions are a few studies using data from Asia (e.g., Park and Luo 2001; 2000; Lee et al. 2001). Peng and Luo’sus (2000) work, which shows that managerial networking relationships and ties with top managers at other firms and government officials help improve organizational performance in China, is the most comprehensive study of the micro–macro link in an emerging economy. This is because it is the only study to examine the ties managers develop not only with top managers of other firms but also with government officials.