Institutional transitions, global mindset, and EMNE internationalization
Introduction
In recent years there has been increasing amounts of research on emerging markets (Hoskisson et al., 2000, Wright et al., 2005). Generally defined as low income, high growth economies that are using market liberalization as their main means of growth – such as Brazil, Russia, India, and China (UNCTAD, 2006) – one point of contention revolves around whether current international business (IB) theory can comfortably accommodate the internationalization paths of Emerging Market Multinationals (EMNEs) (Ramamurti, 2009). Recent theoretical offerings (Gaffney et al., 2013, Kedia et al., 2012, Li, 2007, Li, 2010, Luo and Rui, 2009, Luo and Tung, 2007, Mathews, 2002, Mathews, 2006), for example, suggest that existing theories of the multinational enterprise (MNE), such as Dunning’s (1980) OLI Paradigm, cannot adequately explain the propensity of EMNEs to internationalize earlier than developed country MNEs did at a similarly nascent stage of development.
In particular, it has been theorized that a key driver of accelerated internationalization is the developing country context itself (Peng, Wang, & Jiang, 2008). For example, Peng (2003) persuasively argues that the fundamental and comprehensive changes in the institutional frameworks of emerging markets offers an important context in which to examine the strategic choices made by organizations. More specifically, the shift in the formal (e.g., regulatory environment) and informal institutions (e.g., norms and values) has an impact not only on the nature of organizational transactions (i.e., from relationship based to rule based), but also on the mentality of individuals (Ahlstrom and Bruton, 2010, Bruton et al., 2010, Li, 2010, Kreiser et al., 2010) and firm level strategic orientation (Aulakh and Kotabe, 2008, Luo et al., 2010, Mathews and Zander, 2007) in that society. This shift away from relationship based transactions necessitates the formation of capabilities within EMNEs that are competitive in a more market based operational environment (Peng, 2003). Thus, Peng et al. (2008) suggest that investigations of home country institutional effects on the internationalization process and competitive positioning of EMNEs might be especially valuable.
To date, however, little research has examined underlying processes with respect to how changes in the broader macro institutional environment actually manifest themselves at both the individual and the firm level. Bhagat, Triandis, Baliga, Billing, and Davis (2007) and Levy, Beechler, Taylor, and Boyacillger (2007) focus on global mindset as a necessary condition for organizations to be globally competitive, especially with the rising importance of emerging markets for global competition. Global mindset describes an individual mindset (Kedia and Mukherji, 1999, Story and Barbuto, 2011) or organizational-level strategic orientation (Jeannet, 2000, Kobrin, 1994) focusing on worldwide opportunities and global interdependence. We draw upon this literature and propose linkages between an EMNE’s macro institutional environment and the mindset of individual actors within these firms – mindsets that, when aggregated, help determine and shape a firm’s strategic orientation, or firm level global mindset, that, in turn, directly affects a firm’s internationalization decisions.
More specifically, we attempt to address the following research questions: (1) What role does institutional transition within emerging markets have on the development of global mindset at the individual level and strategic orientation at the organizational level? and (2) How do the macro and micro level manifestations of global mindset influence the propensity of EMNEs to engage in accelerated internationalization?
Answering these questions requires the integration of insight from existing literature streams on EMNE outward FDI, institutions, and global mindset into a framework that uses a dynamic, multi-level approach to explain an important antecedent of EMNE internationalization. Overall, we posit that the fundamental institutional transitions occurring in emerging markets affect the intra-organizational context at both individual and organizational levels, specifically global mindset at the individual level and strategic orientation reflecting a global mindset at the organizational level. It is this strategic orientation which is the most proximal antecedent of the phenomenon of accelerated internationalization that characterizes EMNEs. Furthermore, EMNE internationalization is argued to promote further institutional transition in the home country.
Through this framework we strive to contribute to both the EMNE internationalization and global mindset literatures. First, this paper extends existing EMNE specific internationalization theory by exploring how institutional transition promotes an individual and organizational mindset that helps account for EMNE FDI behavior. Second, it takes a multi-dimensional approach to the interaction of micro and macro level determinants of EMNE internationalization. Third, it takes a multi-level perspective of global mindset as an antecedent of firm decision making. Fourth, it suggests that institutional transition is a macro level determinant of the development of global mindset.
In the coming sections we first discuss EMNEs and the unique circumstances that have shaped their internationalization processes, highlighting recent theoretical explanations within the literature. Then, we briefly review and integrate relevant extant literature on institutional theory and global mindset to arrive at a dynamic, multi-level framework that explores the interrelationships between institutional change and the development of the EMNE mindset that leads to accelerated internationalization. Finally, we discuss implications for EMNE research and suggest future research directions.
Section snippets
EMNE accelerated internationalization
While the vast majority of MNEs are based in developed countries, EMNEs are becoming increasingly relevant as global players (Govindarajan & Gupta, 2001). Globalization has encouraged accelerated internationalization by EMNEs due to institutional reform within the home country, increased competition, and increased opportunity (Peng et al., 2008). EMNE internationalization options include exporting, licensing, alliances, joint ventures, mergers and acquisitions, or setting up wholly owned
Institutional theory and the emerging market context
Institutional theory is of growing importance in international business focused research (Peng, 2003, Peng et al., 2008). It suggests that societal-level institutions shape firm strategy in complex and changing ways (Dacin et al., 2002, Oliver, 1991, Oliver, 1997). In particular, how EMNEs internationalize is inherently shaped by the domestic and international institutional frameworks governing these endeavors (Boisot and Child, 1999, Peng et al., 2008). The institutions of a given society are
The intra-organizational context
Taking a multi-level perspective of global mindset enhances the quality of our understanding of global mindset as an antecedent of accelerated internationalization by incorporating both micro and macro elements of the construct in a coherent framework (Bhagat et al., 2007).
Institutional transitions, global mindset, and EMNE internationalization
While scholars have independently explored the effect of both institutions and home country culture on EMNE outward FDI decisions (Buckley and Casson, 2009, Leung et al., 2005, Morck et al., 2008), and have also examined the need for global mindset as a prerequisite for international success (Kedia and Mukherji, 1999, Levy et al., 2007), it is necessary to explore the relationships among these constructs to gain a fuller understanding of the formation and development of an EMNE’s specific
Discussion
In this paper we have offered a dynamic multi-level conceptual model that examines antecedents of EMNE accelerated internationalization. To achieve this we have integrated extant literatures on EMNE outward FDI, culture, institutional theory, and global mindset to examine how the fundamental transitions occurring in emerging markets at the formal and informal institutional level impacts the intra-organizational context, most notably through the formation of individual global mindset and
Conclusion
Our dynamic multi-level conceptual framework examines the influences of both the home country institutions and intra-organizational mindsets on the development of EMNE outward FDI decision making. The central argument in this article is that the internationalization characteristics of EMNEs can be explained in part by the institutional changes occurring within their home country and the resulting pressures it creates on individuals and organizations to develop global mindset. The development of
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