Methodological issues in International Business Studies: The case of foreign establishment mode decisions by multinational firms

doi:10.1016/0969-5931(94)00031-G

International Business Review

Volume 4, Issue 1, March 1995, Pages 55-73

https://doi.org/10.1016/0969-5931(94)00031-G Get rights and content

Abstract

Two distinct forces may mask or weaken the significance of key independent variables in studies involving the foreign establishment mode decisions by multinational corporations (MNCs): (1) the ‘mild’ multicollinearity between key independent variables, and (2) the effect of multiple factors ‘pulling’ the dependent variable in opposite directions (multidimensionality). We demonstrate the validity of these contentions using Japanese foreign direct investment data over the 1969–1991 period, and suggest that conventional logit regression analysis be supplemented with exploratory factor analysis in foreign establishment mode studies, to better understand the forces that influence the MNCs foreign establishment mode decision.

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Equity-based entry modes of emerging country multinationals: Lessons from Turkey
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Based on a sample of 522 foreign affiliates of Turkish multinational enterprises (MNEs) with varying levels of Turkish equity ownership, this study provides an empirical analysis of the determinants of equity-based entry mode strategies in host country markets. A number of hypotheses are developed to examine the impact of institutional, transaction specific and firm level variables on Turkish MNEs’ choice of equity ownership mode in their foreign affiliates. The results reveal that institutional variables are important in explaining the equity composition of foreign affiliates of Turkish MNEs. Particularly important in determining equity ownership mode were found to be political constraints, linguistic distance, knowledge infrastructure and the extent of parent diversity. Results concerning the influences of the size of the affiliate are contrary to expectations and contradict the findings of previous research. No support was found for the impact of cultural distance on the equity ownership mode of Turkish MNEs in their foreign affiliates. Apart from political constraints, equity ownership choice and its underlying determinants do not vary between emerging and developed host country markets.
Institutional and transaction cost influences on MNEs' ownership strategies of their affiliates: Evidence from an emerging market
2007, Journal of World Business
This paper examines the impact of institutional, and transaction cost specific variables on MNEs’ choice of equity ownership in their foreign affiliates. We consider the determinants of the choice of foreign investors between full ownership (setting up a wholly owned greenfield subsidiary or engaging in a full acquisition) and sharing ownership with a local firm (establishing a greenfield joint venture or making a partial acquisition). Drawing on both transaction cost and institutional theories, a number of hypotheses are developed. Based on a dataset of 6838 foreign affiliates in Turkey, the empirical analysis reveals that institutional variables are important in explaining the equity composition of foreign affiliates. Particularly important in determining equity ownership were found to be political risk, cultural distance, linguistic distance, agglomeration, location and the size of the affiliate. A distinguishing feature of the paper is that we examine the marginal effects of the independent variables in explaining ownership patterns of MNEs.
Hofstede, Schwartz, or managerial perceptions? The effects of different cultural distance measures on establishment mode choices by multinational enterprises
2006, International Business Review
In recent years, scholars have become increasingly critical of Kogut and Singh's [(1988). The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19(3), 411–432] cultural distance index and of Hofstede's [(1980). Culture's consequences: International differences in work-related values. Beverly Hills: Sage Publications] underlying national culture framework. We therefore examine and compare the effects of five cultural distance measures on the choice by multinational enterprises (MNEs) between expanding abroad through greenfield or acquisition. Two of these measures are based on Hofstede (1980), another two on Schwartz [(1994). Beyond individualism/collectivism: New cultural dimensions of values. In U. Kim, H. C. Triandis, C. Kagitcibasi, S. C. Choi, & G. Yoon (Eds.), Individualism and collectivism: Theory, methods, and applications (pp. 85–119). Thousand Oaks: Sage Publications; (1999). A theory of cultural values and some implications for work. Applied Psychology: An International Review, 48(1), 12–47], and one on managerial perceptions. Analyzing a sample of foreign expansions by Dutch MNEs and controlling for other factors, we find that high scores on all cultural distance measures significantly increase the likelihood that MNEs choose greenfields, and that the explanatory power of the Hofstede and Schwartz-based measures is comparable, while that of the perceptual one is somewhat lower. We conclude that it may thus be premature to dismiss Hofstede's work as outdated or as inaccurately reflecting national cultures, and to consider Schwartz's framework to be superior.
The influence of plant characteristics on the entry mode choice of overseas firms
2005, Journal of Operations Management
One of the most important strategic decisions a manufacturing firm makes while expanding overseas is making the choice between setting up greenfield operations or acquiring a local firm. Using a knowledge-based framework, I propose that the ability to transfer knowledge and competencies across national boundaries is much easier in plants characterized by physical capital investment. Hence, during overseas entry, manufacturing firms are likely to use greenfield operations. On the other hand, in plants characterized by human capital investment, the difficulty in transferring knowledge and the need to learn and adapt to host nation requirements will make a local acquisition the preferred mode of entry by manufacturing firms. Using 682 entry decisions made by manufacturing firms during entry into the U.S., I investigate this notion while controlling for size of the industry, research intensity of the industry, degree of unionization, cultural distance, and the value of investment. Study findings indicate that in plants characterized by human capital intensity, the preferred entry mode is acquisitions over greenfield operations. However, foreign entrants with physical capital-intensive plants prefer greenfield operations over acquisitions.
Form of investment by Nordic firms in world markets
2003, Journal of Business Research
Citation Excerpt :
Further analysis is needed. Related to methodological issues, further investigation is needed to better understand whether the effect of multiple factors “pulls” the dependent variable in opposite directions (multidimensionality), as was found in the study by Padmanabhan and Cho (1995). This may be one explanation for the insignificance of the coefficients associated with INTEXP and TCEXP in this and several other studies.
The goal of this study is to analyze the forms of entry of Nordic firms in world markets, and to analyze how different characteristics related to the investing firm (parent), the target industry, and the host (target country), are related to the decision regarding entry form. A second goal is to analyze the similarities and differences in form of entry among firms from different Nordic countries. This is the first large sample study focusing on form of entry behavior by firms from various Nordic countries. Of the 11 variables related to investing firm, industry, and target country reviewed in the study, nine are significantly related to the form of the investment. Furthermore, the results indicate both similarities and differences in the behaviors of firms from various Nordic origins.
An analysis of motives for western FDI in Turkey
1998, International Business Review
The factors which motivate Western MNEs to engage in FDI in Turkey by means of both wholly-owned subsidiaries and joint ventures are investigated for a sample of 98 firms. The highest ranked motives for FDI in Turkey are principally concerned with gaining a presence in new markets and enabling faster market entry. A parsimonious set of motives for the sample studied is provided by means of factor analysis. Hypotheses are tested on the relationship between the relative importance of motives and a number of characteristics of the sample. The relative importance of the motives is found not to vary with ownership pattern (wholly-owned subsidiary or joint venture), to vary to a moderate extent with the country of origin of the investment and the mode of entry (acquisition or greenfield), and to vary most with size of the investment and industry of the investment.

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PaperMethodological issues in International Business Studies: The case of foreign establishment mode decisions by multinational firms

Abstract

The Journal of Economic Behavior and Organization

The Future of Multinational Enterprise

Multinational Enterprise and Economic Analysis

Entry of Foreign Multinationals into US Manufacturing Industries

Acquisition versus New Venture: The Choice of Foreign Establishment Mode

Japanese Acquisition and Ownership Strategies in the European Community: An Empirical Investigation

The Journal of Multinational Financial Management

Global Strategic Management

Bargaining Power of the Multinationals and Host Governments

Journal of International Business Studies

A Theory of Multinational Enterprise

The Transaction Costs Theory of Joint Ventures: An Empirical Study of Japanese Subsidiaries in the United States

Management Science

Greenfield vs. Acquisition: The Strategy of Japanese Investors in the United States

Paper
Methodological issues in International Business Studies: The case of foreign establishment mode decisions by multinational firms