SUMMARY ARTICLES
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their effects.
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,ARTICLE 1 – International strategy: From local to global
and beyond
Michael A. Hitt, Dan Li, and Kai Xu
Introduction
Internationalization has had profound effects on the development of multinational enterprises (MNEs), as well
as on a global economy now based increasingly on an interdependent set of financial markets and national
economies. Researchers reflected attitudes that have changed over time, which resulted in MNEs revising their
strategies over time to achieve higher financial and social performance. Much differences compared to now
and 50 years ago:
- Today advances in communications and transportation have not only facilitated the acceleration of
MNEs’ expansion but also spurred more intense competition and economic growth;
- Today new ventures and born-globals have become new players in the global economy;
- Today, the emphasis on customer needs and the increased competition in current landscape have
required MNEs to increasingly localize most of their products and seek strategically important
resources in host countries.
In these 50 years, the environment has changed from having MNEs primarily from developed countries, to
global markets in which MNEs from emerging economies represent an increasingly powerful force. To survive
and succeed, MNEs must contribute and respond to these dramatic changes and the increasing complexity of
international business environment.
International strategy: Diversification and speed
Two initial and important areas of research for international strategy:
1. Antecedents of international diversification (expansion) and implications thereof;
2. How to enter foreign markets.
Advancements in international diversification research (point 1)
Two perspectives are relevant and employed;
1. Risk diversification (costs of risks) a portfolio investment in multiple host countries of varying
economic cycles and market conditions can benefit firms with more stable earnings than maintaining
a focus on domestic markets. MNEs can manage their risk exposure and market demand by
proactively reconfiguring their portfolios of foreign subsidiaries through investment and/or
divestment;
2. Real options (benefits of risks) considers international diversification to offer the flexibility of
managing value chain activities across subsidiaries exposed to different levels of uncertainties. MNEs
of greater international diversification can shift their operations across national boundaries in
response to changes in environmental risks and opportunities.
MNEs with higher international diversification are less likely to divest their subsidiaries from host countries
experiencing economic crisis.
Positive relationship between international diversification on firm performance:
1. International diversification brought value to MNEs even after controlling for the endogeneity of
international diversification decisions;
2. Taking advantage of the firm’s critical resources;
3. Market relatedness (cultural, political and economic) between the MNE parent and its subsidiaries
produced higher subsidiary performance.
Negative, curvilinear or no relationship between international diversification on firm performance:
1. The effect eventually levels off and becomes negative;
2. Product diversification moderated these relationships related product diversification strengthened
the positive relationship between international diversification and firm performance, whereas
unrelated product diversification weakened the relationship;
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, 3. Inverted U-shape relationship and moderation by institutional distance;
4. Inverted U-shape relationship between a firms’ international diversification of production operations
and financial performance
S-shaped relationship between international diversification and performance:
1. Importance of considering contingencies when examining the performance implications of firms’
international diversification;
2. Additional research to consolidate the fragmented findings on various contingencies ranging from
firm specific features to temporal variance.
In addition to its effect on financial performance, international diversification can provide benefits in the form
of knowledge transfer and innovation:
1. International diversification enhanced MNEs innovation;
2. Enriched technological learning (breadth, depth, and speed), which in turn had positive effects on
financial performance;
3. U-shaped relationship between the institutional diversity of a firm’s foreign markets and its product
innovation success;
4. MNEs initial innovative capabilities contributed to international diversification which in turn benefited
their future innovation performance in terms of number of patents and technological impact;
5. Family firms enjoyed more positive benefits from international diversification in the form of
technological innovation than do non-family firms.
The influence of international diversification on firm-level outcomes is affected by how it is implemented
how to enter a particular market and the timing of such entry.
Shifting focus from entry mode to entry timing/speed (point 2)
Entry mode represents one of the most critical decisions for MNEs expanding overseas due to its implications
for organizational control, resource commitments and investment risk exposure. And, entry decisions entail
the timing and speed of entering particular foreign markets.
Two closely related but distinct issues of timing/speed:
1. The time lag between the founding of a firm and its initial international expansion;
2. The speed of a firm’s subsequent international expansion.
The depth of international activities can accelerate internationalization in the short run but, in the long run, it
imposes constraints in on rapid international expansion. However, more diverse international activities have
the opposite effects on international speed.
Firm, industry, and country attributes can influence entry timing:
1. Firms in less dominant home market positions equipped with sufficient resources entered foreign
markets more quickly than firms in the more dominant positions;
2. Large firm size, high level of internationalization and scope economies, non-equity modes,
competitors’ behaviour, and low levels of country risk encouraged early entries;
3. Firm experience, size and business group association can influence the timing of cross-border mergers
and acquisitions
4. Firms sharing the same language were able to internationalize faster than others;
5. Alliances can increase the speed of international expansion for firms with low levels of
internationalization;
6. Firms in technology=intensive industries were more likely to engage in early internationalization than
firms in other industries.
Foreign market entries that were too fast were often detrimental to the firm’s general performance, however,
speed benefited the international performance of firms. The benefits of speed are also conditional upon firm
attributes such as strong brand equity, marketing know-how and financial slack. Additionally, the effects of
speed depend on the type of performance examined.
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, Conclusion: the timing and speed of market entry can influence the effectiveness of that entry and/or the
mode of entry used. The success of an entry is also affected by the institutions (formal and informal) in the
country entered.
Cultural and formal institutional environments
The economic and political interdependencies have only increased in the last 30 years with the development of
the network economy, highly sophisticated information technologies and the transformation and growing
influence of emerging economies. Liabilities of foreignness arise from MNEs’ operation in foreign
environments creating risks and enhancing costs.
Institutions
Institutions are multi-level they emanate from multiple centres of power and thus they are polycentric.
Also, understanding institutional environments is challenging as there are multiple institutions: formal and
informal. Formal institutions exist at national, regional and municipal level. Informal institutions (culture) also
can be multi-level sub-cultures.
Institutions and their effects are complex when a company locates a foreign subsidiary in a particular
country, that subsidiary must deal with the constraints of the national, provincial and municipal formal
institutions as well as understand the national culture and regional sub-culture (informal).
A confluence or configuration of institutions affect firm decisions and actions.
The effects of the home/host country institutional environment on MNEs’ strategies, such as which countries/
markets to enter and the mode of entry:
1. Specific types of country institutional environments offered better opportunities for certain activities
and ownership advantages R&D in Germany because of technological advantages and more
advanced regulatory regime for property protection;
2. The institutional arbitrage/exploration for local institutional advantages has served as an important
motivation for internationalization as MNEs must conform to the institutional environment
prevailing in the host country, government officials’ must attend to making their institutions attractive
for inward FDI;
3. Host institutional environment affects particularly entry modes chosen restrictiveness of host
country’s regulatory/normative domain positively related to MNEs choice of venture over wholly
owned subsidiary;
4. MNE can benefit from the spill-over effect by partnering with local firms to achieve legitimacy and for
local partners to serve as bridges to access local resources.
A country’s institutional environment also influences firms’ choice of a competitive strategy, stakeholder
management and subsidiary performance. In countries with strong legal systems and/or low levels of
corruption, politically connected firms underperformed unconnected ones. Yet, in countries with weak legal
systems and/or high levels of corruption, politically connected firms outperformed unconnected ones.
Policy specific corruption eroded trust in government efforts to regulate firms’ conduct, thus increasing the
signalling value of private certifications and heightening the likelihood of certification as well. Widespread
corruption however, in the general environment, could extend distrust to private certification systems, which
reduced the credibility and signalling value of those certifications.
Each foreign subsidiary must maintain legitimacy under two distinct sets of isomorphic pressures (“institutional
duality”):
1. From the host country;
2. From the MNE parent.
Strategic business units using wholly-owned entry-modes demonstrated high levels of internal (parent)
isomorphism while the units using exporting, joint ventures, or licensing agreements demonstrated more
external isomorphism. Alternatively, the units using multiple or mixed entry-modes demonstrated low levels of
isomorphic pressures from either side because they can maintain a balance by using multiple means to enter
markets.
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