Dutch MNE Foreign Expansion Into Developed and Developing Economies Christopher Williams, Candace Martinez, Elwin Gastelaars, Lars Galesloot and Dante Van De Kerke
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Document generated on 09/30/2021 8:33 p.m. Management international International Management Gestiòn Internacional Dutch MNE Foreign Expansion into Developed and Developing Economies Christopher Williams, Candace Martinez, Elwin Gastelaars, Lars Galesloot and Dante van de Kerke Les stratégies de localisation des firmes multinationales : vers de Article abstract nouvelles approches pratiques et théoriques ? We investigate the differences in entry mode strategy for MNEs from a highly Location strategies of multinational firms: towards new practices developed country (The Netherlands) when expanding abroad into locations in and theories? developed and developing economies. Our analysis is based on 544 foreign Las estrategias de localización de las firmas multinacionales: ¿hacia expansion decisions by MNEs listed on the Amsterdam Exchange Index (AEX) nuevos enfoques prácticos y teóricos? over the five-year period 2004-2008 inclusive. We find that when expanding Volume 16, Number 1, Fall 2011 into other developed countries, cultural distance plays a key role in MNE location strategy; institutional quality of the location is not relevant. When expanding into less developed economies, however, cultural distance becomes URI: https://id.erudit.org/iderudit/1006916ar irrelevant and the effects of institutional quality become stronger. DOI: https://doi.org/10.7202/1006916ar See table of contents Publisher(s) HEC Montréal Université Paris Dauphine ISSN 1206-1697 (print) 1918-9222 (digital) Explore this journal Cite this article Williams, C., Martinez, C., Gastelaars, E., Galesloot, L. & van de Kerke, D. (2011). Dutch MNE Foreign Expansion into Developed and Developing Economies. Management international / International Management / Gestiòn Internacional, 16(1), 31–44. https://doi.org/10.7202/1006916ar Tous droits réservés © Management international / International Management This document is protected by copyright law. 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Its mission is to promote and disseminate research. https://www.erudit.org/en/ Dutch MNE Foreign Expansion into Developed and Developing Economies CHRISTOPHER WILLIAMS CANDACE MARTINEZ ELWIN GASTELAARS Richard Ivey School of Business John Cook School of Business Amsterdam Business School University of Western Ontario Saint Louis University University of Amsterdam LARS GALESLOOT DANTE VAN DE KERKE Amsterdam Business School Amsterdam Business School University of Amsterdam University of Amsterdam Résumé AbstRAct Resumen Notre recherche étudie les différences We investigate the differences in entry Investigamos las diferencias de la estrate- dans le mode d’entrée à l’international mode strategy for MNEs from a highly gia del modo de entrada para las empre- de multinationales en provenance d’un developed country (The Netherlands) sas multinacionales (MNE) cuando éstas pays industrialisé qui internationalisent when expanding abroad into locations in entran desde un país altamente desarrollado leurs activités dans des pays industriali- developed and developing economies. Our (Países Bajos) a otras economías desa- sés et moins industrialisés. Notre analyse analysis is based on 544 foreign expansion rrolladas o en vías de desarrollo. Nuestro se base sur 544 décisions d’expansion à decisions by MNEs listed on the Amster- análisis se basa en las 544 decisiones de l’international d’entreprises néerlandai- dam Exchange Index (AEX) over the five- expansión tomadas por las MNEs neer- ses listées au Amsterdam Exchange Index year period 2004-2008 inclusive. We find landesas que se encuentran en la Bolsa de (AEX) au cours de la période 2004 à 2008 that when expanding into other developed Ámsterdam (Amsterdam Exchange Index ó inclusivement. Les décisions d’expansion countries, cultural distance plays a key role AEX) durante los cinco años comprendidos internationale sont liées à 66 pays. Nos in MNE location strategy; institutional de 2004 a 2008 inclusive. Los resultados résultats indiquent que lorsque ces firmes quality of the location is not relevant. del estudio indican que al expandir a otros pénètrent de nouveaux marchés situés dans When expanding into less developed econ- países desarrollados la distancia cultural des pays industrialisés, la distance cultu- omies, however, cultural distance becomes asume un papel crucial en la estrategia relle s’avère un élément déterminant sur la irrelevant and the effects of institutional de localidad de las MNEs mientras que la stratégie adoptée. Lorsque ces multinatio- quality become stronger. calidad de las instituciones no juega un rol nales pénètrent des marchés de pays moins relevante. Sin embargo, al expandir a las industrialisés, la qualité des institutions est Keywords: national culture, institutional sociedades en vías de desarrollo, la distan- le principal élément affectant le choix du quality, entry mode, foreign location strategy. cia cultural se convierte en irrelevante y los mode d’entrée. Notre recherche contribue efectos de la calidad de las instituciones se à notre compréhension du mode d’entrée esfuerzan. des firmes multinationales en démontrant l’effet de la distance culturelle et de la qua- Palabras claves: cultura nacional, calidad lité des institutions lorsque des firmes de de instituciones, modo de entrada, estrate- pays industrialisés internationalisent leurs gia internacional de localidad. activités dans différentes parties du monde. Mots clés : culture nationale, qualité des institutions, mode d’entrée, stratégie de localisation à l’international. onsiderable research has been conducted on the deter- are shaped by national cultures, and this influences patterns Cminants of foreign entry mode by multinational enter- of behaviour and decision making (Erramilli, 1996). On prises (MNEs) (Brouthers and Hennart, 2007). However, the other hand, scholars of institutional theory (IT) have findings have often been inconsistent and even contradic- argued that entrants adjust their governance mode choice to tory (Slangen and Hennart, 2007; Tihanyi, Griffith and the specific transaction costs in different locations (Meyer, Russell, 2005). One of the main tensions within this field 2001). is whether national cultural factors (Erramilli, 1996; Kogut Scholars have also recently highlighted the possibility and Singh, 1988) or institutional dimensions of countries of differences in international strategy according to the level (Brouthers, 2002; Delios and Beamish, 1999) matter most of economic development of the host country. Developing to foreign location strategy. Culture and country risk are the economies have held a growing importance in the world two most common sources of external uncertainty facing economy (Hoskisson, Eden, Lau and Wright, 2000) and the MNE (Brouthers and Hennart, 2007; Hitt, Franklin and MNE investment in developing countries has increased. Zhu, 2006). On the one hand, cultural factors are deemed to Despite this, the growing interdependence between coun- be important because the beliefs and attitudes of managers tries has not resulted in universal cultures (Leung, Bhagat, 32 Management international / International Management / Gestión Internacional, 16 (1) Buchan, Erez and Gibson, 2005). Furthermore, develop- variables determine international strategy across locations ing countries represent volatile institutional environments in developed vs. developing countries. Cultural distance and (Meyer, 2001) as the formal ‘rules of the game’ are modi- institutional quality are sources of uncertainty that impact fied to support a new market economy (Dikova and van decisions relating to the control of new operations in for- Witteloostuijn, 2007). Given the heterogeneity within these eign locations. Our contribution is to show how the degree countries, applying theoretical approaches born out of of development and industrialization of the location influ- scholarly study of international strategy in developed coun- ences how the MNE views the relevance of these sources tries becomes challenging (Wright et al., 2005). of uncertainty. Secondly, we contribute to the debate on whether internal or external sources of uncertainty mat- To contribute to our understanding of international ter most when considering cultural distance during inter- strategy across locations in both developed and devel- national strategy formulation (Shenkar, 2001). Our study oping countries, we study both the effects of culture and suggests that resolving this debate can be achieved by con- institutions on new foreign expansion investments made by sidering the role that the economic development of a loca- MNEs. Given recent trends in globalization, technological tion plays in amplifying the relevance of cultural distance. development, the growth of the knowledge-based economy, and the emergence of new countries as sources of supply and demand (Archibugi and Iammarino, 2002; Audretsch and Thurik, 2001), we believe it is necessary to reassess Theoretical background well-established arguments using insights from recent for- Entry modes can be classified in two broad categories: eign expansion decisions in both developed and developing full-control and shared-control. Full-control modes imply countries (Wright