The moderating role of local embeddedness on the performance of foreign and domestic firms in emerging markets

Published on Oct 1, 2016in International Business Review3.639
· DOI :10.1016/j.ibusrev.2016.02.003
Tilo Halaszovich3
Estimated H-index: 3
(University of Bremen),
Sarianna M. Lundan15
Estimated H-index: 15
(University of Bremen)
This paper examines the impact of the firm’s degree of local embeddedness on its performance in emerging markets using the World Bank’s Enterprise Survey Manufacturing Sector Module data on 15,715 firms covering 78 emerging markets. We use the degree of localization of sourcing and sales to measure the degree of embeddedness in the host country market. We argue that since embeddedness brings the firm into closer interaction with local firms and institutions, the costs of embeddedness should be lower for local firms than for MNE subsidiaries, since local firms can be assumed to be better able to decipher local institutions. We find that both dimensions are subject to a reversed U-shaped function. That is, by extending the degree of local sales and local sourcing up to a certain percentage, a firm can realize positive performance growth by becoming more embedded into the emerging market, but beyond this point, the performance impact is negative. We also find that foreign firms involved in local sales seem to lose part of their ability to exploit their ownership advantages as compared to foreign firms that export their production.
  • References (42)
  • Citations (12)
📖 Papers frequently viewed together
2 Citations
2 Authors (Du Jian, Zhou Chao)
78% of Scinapse members use related papers. After signing in, all features are FREE.
#1Izzudin BusnainaH-Index: 1
#2T Woodall (NTU: Nottingham Trent University)H-Index: 6
The aim of this paper is to investigate, in one emerging Arab economy (Libya), the strategic and tactical choices of MNE (multinational enterprise) domestic appliance brands and, also, the attitudes of local consumers toward those choices. Various choice characteristics are investigated – including marketing mix standardization/adaptation – and, also, country-of-origin brand (COB). To establish extant organizational choices, local representatives of four established brands were interviewed and s...
6 CitationsSource
#1John Anderson (College of Business Administration)H-Index: 6
#2Dylan Sutherland (Durham University)H-Index: 16
Last. Sean Severe (Drake University)H-Index: 2
view all 3 authors...
We use event study methodologies to analyze trends in home and host country patent applications of Chinese MNEs that acquire strategic asset-rich developed market businesses. Our results show the domestic market patents of Chinese MNEs rise significantly in the wake of such acquisitions, while those of the acquired target do not significantly change. These results hold for different ownership classes. In light of current theoretical debates, we discuss the possible motivations for such acquisiti...
25 CitationsSource
#1Hong Zhu (PKU: Peking University)H-Index: 8
#2Gongming Qian (CUHK: The Chinese University of Hong Kong)H-Index: 17
Prior research suggests that high-tech firms tend to encounter market transaction uncertainties in countries with weak property rights protection (PRP) and that transaction costs will increase significantly with such uncertainties. Basing our study on high-tech firms that have recently been increasingly acquiring targets in these countries, we explain this puzzling phenomenon. In particular, we investigate whether and how high-tech firms can gain value from acquiring targets in host countries wi...
8 CitationsSource
#1Rafael A. Corredoira (UMD: University of Maryland, College Park)H-Index: 10
#2Gerald A. McDermott (USC: University of South Carolina)H-Index: 13
How do multinational corporation (MNC) subsidiaries and local institutions help or hinder emerging market suppliers to upgrade their capabilities? Drawing on insights from economic sociology and comparative capitalism, we posit that in these contexts of scarce resources and inferior technologies upgrading depends on the ways in which organizational and institutional networks enable firms to integrate imported advanced knowledge with local applied knowledge. Using a combination of field work and ...
32 CitationsSource
#1Leonidas G. Barbopoulos (St And: University of St Andrews)H-Index: 4
#2Andrew MarshallH-Index: 20
Last. Patrick McColganH-Index: 11
view all 4 authors...
We investigate the shareholder wealth effects of 306 foreign direct investment (FDI) announcements by UK firms in seventy-five emerging markets (EM). Our results show that acquirers enjoy highly significant gains during the announcement period of FDI. Perhaps surprisingly, the highest gains are accrued to acquirers investing in countries with high political risk and high corruption ratings. The type of asset acquired has also a significant effect on the gains of acquirers’ shareholders, with the...
24 CitationsSource
46 CitationsSource
#1Klaus E. Meyer (China Europe International Business School)H-Index: 6
#2Saul Estrin (LSE: London School of Economics and Political Science)H-Index: 45
The integration-responsiveness (IR) framework is a leading analytical tool of global strategy but it is less valuable in explaining the heterogeneity of strategic choice for subsidiaries within an MNE. We propose an IRE framework of subsidiary strategy that complements the IR framework for the subsidiary level with a third dimension—selling to local versus export markets (E). Resource-based considerations suggest that subsidiary strategies must fit the resources both the parent MNE and the local...
21 CitationsSource
#1Gongming Qian (CUHK: The Chinese University of Hong Kong)H-Index: 17
#2Lee Li (York University)H-Index: 12
Last. Alan M. Rugman (University of Reading)H-Index: 58
view all 3 authors...
The costs of inter- and intra-regional diversification have been widely discussed in the existing international business literature, but the findings are mixed. Explanations for the mixed findings have important managerial implications, because business managers have to estimate accurately the costs of doing business within and across regions before they make their internationalization decisions. To explain the existing mixed findings, this study differentiates between liabilities of foreignness...
70 CitationsSource
#1Anthony Goerzen (Queen's University)H-Index: 12
#2Christian Geisler Asmussen (CBS: Copenhagen Business School)H-Index: 15
Last. Bo Bernhard Nielsen (CBS: Copenhagen Business School)H-Index: 25
view all 3 authors...
We combine the concept of location derived by economic geographers with theories of the multinational enterprise (MNE) and the liability of foreignness developed by international business scholars, to examine the factors that propel MNEs toward, or away from, “global cities”. We argue that three distinctive characteristics of global cities – global interconnectedness, cosmopolitanism, and abundance of advanced producer services – help MNEs overcome the costs of doing business abroad, and we iden...
105 CitationsSource
#1Meghana Ayyagari (GW: George Washington University)H-Index: 16
#2Asli Demirguc-Kunt (World Bank)H-Index: 96
Last. Vojislav Maksimovic (UMD: University of Maryland, College Park)H-Index: 42
view all 3 authors...
We investigate the firm characteristics associated with innovation in over 19,000 firms across 47 developing economies. While existing finance literature on innovation is limited to large public firms in developed markets such as the United States, our database includes public and private firms, and small and medium-sized enterprises. We define innovation broadly to include introduction of new products and technologies, knowledge transfers, and new production processes. We find that access to ex...
184 CitationsSource
Cited By12
#1Wei YangH-Index: 2
#2Klaus E. MeyerH-Index: 41
Last. Klaus E. Meyer (UWO: University of Western Ontario)H-Index: 9
view all 2 authors...
When foreign and local firms compete, they face competitors acting quite differently from themselves. Specifically, their ability to engage in timely and frequent actions is influenced by, respectively, the Liability of Foreignness (LoF) and the Liability of Localness (LoL). We explore how the trade-off between LoF and LoL influences the aggressiveness of competitive actions firms take in emerging markets. Specifically, we argue that LoF results in weaker government ties that inhibit the aggress...
#1Fabienne Fortanier (De Nederlandsche Bank)H-Index: 6
#1Fabienne Fortanier (De Nederlandsche Bank)
Last. Niccolò Pisani (UvA: University of Amsterdam)H-Index: 5
view all 4 authors...
The growing interest in global value chains (GVCs) has been paired with a greater appreciation of the need for better measurement methods, as reflected by recent initiatives from academia and leading international organizations. This research note focuses on one method to measure GVCs that has been recommended in recent scholarly work, namely input–output models, but goes beyond the industry level of analysis by introducing intra-industry firm heterogeneity. Our illustrative application to multi...
1 CitationsSource
#1Yunshi Mao (SYSU: Sun Yat-sen University)
#2Ornicha Norkaew (SYSU: Sun Yat-sen University)
Last. Yangchun Liu (SYSU: Sun Yat-sen University)
view all 3 authors...
ABSTRACTThis paper empirically investigates how parent management control and firm-specific advantages (FSAs) influence subsidiary performance in Thailand. We find that parent management control ha...
#1Piotr Trąpczyński (Poznań University of Economics)H-Index: 6
#2Tilo Halaszovich (JU: Jacobs University Bremen)H-Index: 3
Last. Dorota Piaskowska (UCD: University College Dublin)H-Index: 3
view all 3 authors...
Abstract Prior research has viewed institutional distance as a critical factor in decisions about ownership level in foreign affiliates. Research has also long highlighted the relevance of distance perceptions in internationalization decisions. Yet, so far, little attention has been devoted to how decision makers perceive institutional differences across countries and how these perceptions may affect ownership level decisions. We build on international business, institutional, and upper echelons...
#1Roger Schweizer (University of Gothenburg)H-Index: 5
#2Katarina Lagerström (Uppsala University)H-Index: 2
Last. Johan Jakobsson (University of Gothenburg)H-Index: 1
view all 3 authors...
In India, it has become imperative for multinational corporations (MNCs) to succeed in the value segment. Based on a longitudinal case study of Volvo Bus and understanding the introduction of a value product as a subsidiary initiative, we take an internal perspective highlighting the interaction between the headquarters and the local subsidiary. We find that recurring resistance of the corporate immune system—as a political intervention or lack of resources and support—is a major hindrance for t...
This paper tests the premise that brand growth can come from targeting the poorest consumers at the bottom of the economic pyramid (BOP). This study is the first that uses quantitative marketplace data covering BOP consumer purchase records. The study uses newly available panel data from Egypt covering 15 months and 35 categories of frequently bought consumer goods. Brand penetration rates for socio-demographic tiers are established to explore brand purchasing. The metrics are: penetration, the ...
#1Yanjie BianH-Index: 22
#2Juan Xie (Xi'an Jiaotong University)
Last. Mingsong Hao (Xi'an Jiaotong University)H-Index: 1
view all 4 authors...
The purpose of this study is to examine the impact of corporate social capital and local embeddedness on perceived business performance of Chinese enterprises operating overseas, whose recent growth resulted from the Belt and Road Initiative.,This study reports the results of a sample of 83 Shaanxi outward foreign direct investment (FDI) firms operating in Africa, Asia, Australia, Europe and North America. In-depth interviews with a few sampled firms are used to develop the survey questionnaire ...
#1Arpita Agnihotri (Northland College)H-Index: 3
#2Saurabh Bhattacharya (Newcastle University)H-Index: 4
AbstractEmerging markets suffer from institutional voids, and in such resource deficient economies, corporate social responsibility is given scant attention. However, when firms from emerging markets globalize, international stakeholders become suspicious about firms’ products, services, and business practices. Grounded in the liability of emergingness and legitimacy theory and using a sample of 134 manufacturing firms from one emerging market, India, this study explores how firms’ international...
1 CitationsSource
#1Constantina Kottaridi (UniPi: University of Piraeus)H-Index: 7
#2Dimitris GiakoulasH-Index: 1
Last. Dimitris Manolopoulos (OPA: Athens University of Economics and Business)H-Index: 9
view all 3 authors...
In this paper, we extend the conceptualisation of escapism Foreign Direct Investment (FDI) holding for emerging economies to developed economies that face specific institutional failures, such as weak or incomplete regulations, along with high taxation. We combine this literature with the recent development of Dunning’s eclectic paradigm, which includes institutional aspects regarding location factors. We argue that in developed economies with problematic regulations and high taxation, sound ins...
1 CitationsSource
#1Tilo Halaszovich (JU: Jacobs University Bremen)H-Index: 3
#2Aseem Kinra (CBS: Copenhagen Business School)H-Index: 3
Abstract With almost 30 per cent of the global foreign direct investment (FDI) inflows channeled to Asia the region is world leading in attracting FDI. Yet, on a sub-regional level South Asia is the weakest region among all Asian sub-regions. This gives raise to the question what separates South Asian countries from their more successful East and South East neighbouring countries. The general question why certain countries manage to attract FDI while others fail has been frequently addressed in ...