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

Published on Oct 1, 2016in International Business Review3.64
· DOI :10.1016/j.ibusrev.2016.02.003
Tilo Halaszovich2
Estimated H-index: 2
(University of Bremen),
Sarianna M. Lundan14
Estimated H-index: 14
(University of Bremen)
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Abstract
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 (11)
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References42
Newest
#1Klaus E. Meyer (China Europe International Business School)H-Index: 6
#2Saul Estrin (LSE: London School of Economics and Political Science)H-Index: 43
#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: 23
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#1Meghana Ayyagari (GW: George Washington University)H-Index: 14
#2Asli Demirguc-Kunt (World Bank)H-Index: 94
Last.Vojislav Maksimovic (UMD: University of Maryland, College Park)H-Index: 44
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Cited By11
Newest
#1Piotr Trąpczyński (Poznań University of Economics)H-Index: 5
#2Tilo Halaszovich (JU: Jacobs University Bremen)H-Index: 2
Last.Dorota Piaskowska (UCD: University College Dublin)H-Index: 3
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#1Alfredo Valentino (Libera Università Internazionale degli Studi Sociali Guido Carli)H-Index: 1
#2Matteo Giuliano Caroli (Libera Università Internazionale degli Studi Sociali Guido Carli)H-Index: 6
Last.Ulrike MayrhoferH-Index: 10
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#1Jingxun Li (Yanbian University)H-Index: 1
#2Ruby P. Lee (FSU: Florida State University)H-Index: 21
Last.Lian Zhang (Yanbian University)H-Index: 1
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#1Camila Franco (UFRJ: Federal University of Rio de Janeiro)H-Index: 1
Last.Ronaldo Parente (FIU: Florida International University)H-Index: 14
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