The Multiple Dimensions of Institutional Complexity in International Business Research: Volume 15

International business (IB) emerged in the 1950s and 1960s when cross-border business was expanding rapidly. This expansion came to an abrupt halt in the 1970s, when global economic growth stagnated and a series of crises and challenges raised for IB scholars the same question confronting us today: whether the contemporary crises marked a temporary interruption to the increasing global economic integration of the post-World War II era or a major turning point toward a more fragmented world. Reflecting back on how the IB field responded to this earlier era of disruption can provide some useful guidance for IB scholars today, especially in terms of the value of detailed sector-specific case studies, closer interaction with researchers in the social sciences, and a renewed focus on MNCs as actors engaged in shaping the multiple environments in which they operate.

Strategic analysis in a global setting involves competition in industries that extend across national boundaries and among firms with different national home bases that may tap into strategic resources in more than one location. Such analysis involves multiple levels: the global order, the global industry, individual countries, the firm (and its ecosystems), and specific activities within the firm. The international business (IB) field, during these three decades, has developed useful analytical frameworks for each of these levels, but integrating them across these levels has often been a challenge. The key integrating concept is value: how is value created, captured, and delivered. As the IB environment becomes more volatile and unpredictable, the importance of identifying and integrating useful frameworks for conducting global strategic analysis is even greater.

Economic nationalism and the COVID-19 pandemic have led many to question the future of globalization. Given the fragility of the second wave, this chapter asks whether globalization is cyclical, sustainable only under the most propitious economic or political conditions or whether technological developments, especially the digital revolution, have changed the underlying structure of production in ways that markedly increase the cost of renationalization. Global production networks (GPNs) are discussed as an example of structural change, the emergence of a networked world economy that is both more extensive and intensive than in the past. The chapter concludes that the international economic environment will be unstable, as attempts to restore national independence and disaggregate GPNs run up against the reality of mutual dependence. While we are unlikely to return to independent national markets, the future shape of globalization is uncertain.

While international business research has provided insights into the cross-border strategies and operations of firms in the manufacturing sector, understanding about service sector internationalization is less developed. This is especially important in light of the recent, rapid rise of digital businesses that now dominate the global economy. Understanding firms that operate using digital platforms requires a clear understanding of network effects, especially in terms of internationalization. Both the nature and the level (local, national, regional, or global) of the relevant network effects play roles in multinational enterprises’ incentives for internationalizing, their foreign entry choices (particularly with respect to sequencing), and the political interactions between businesses and the environments in which they operate.

International business (IB) as a discipline has given limited attention to contemporary grand challenges of inequality, global warming, aging populations, endemic health crises, and de-globalization, in all of which multinationals are either central to the problem or may offer some solutions. A historical perspective makes clear the reason for this neglect. IB theory and implicit assumptions were shaped during the discipline’s formative period during the 1960s and the 1970s. This has left it excessively focused on the growth of manufacturing multinationals, and with naïve assumptions about the linear and benevolent progress of globalization. This mental toolkit is ill-equipped to understand the present. Engaging deeply with history can also enhance the contextual intelligence of IB. Academy of International Business’s founders barely questioned the positive impact of multinationals, yet historical evidence points to many negative outcomes, and to globalization driving inequality. Understanding how implicit assumptions and biases arose is the first step to re-set IB with research questions and methodologies relevant to a turbulent and de-globalized age.

This chapter reviews the key obstacles to understanding the effects of populism on international business (IB) by focusing on one particular and well-studied facet of IB, firm market entry strategies. While populism has already had and potentially can have future serious repercussions for macroeconomic stability, talent sourcing, and value chain integration, a much more immediate effect of the current strain of anti-globalization populism can be to alter the incentives that a multinational enterprise (MNE) faces in its internationalization approaches and in the decision on where to invest. In practical terms, populist political environments may lead to outright restrictions on some modes of entry but are more likely to incentivize firms top utilize “safer” modes of market entry, which includes outright delays in foreign investment. The constrained space that populism may offer for entry modes may also ratchet up transaction costs to a point that firms will need to re-think their internationalization – not necessarily the strategy, but the planned location for foreign direct investment. In this sense, populists may get what they want, with a reduction of foreign business, and hence foreign influence, within their borders.

This chapter sheds light on how the internationalization of state-owned enterprises (SOEs) is jointly influenced by the ownership involvement of the state and other relational investors and by the home country’s institutional setting. It integrates international business literature and insights from the theory of corporate governance into a varieties of capitalism framework. Taking a configurational perspective, the interdependencies that link the SOE internationalization to the joint effects of particular combinations of actors and institutions are analyzed. As a result, it is argued that only a few home country–SOE governance configurations favor the expansion of SOEs abroad: (i) a configuration in which the state is a dominant owner capable of aligning the interests of any other private shareholder and the government is embedded in a proactive institutional context, so as to effectively orchestrate the internationalization process, (ii) a configuration in which, assuming the home country institutions markedly deficient in supporting interventions, relational co-owners are involved in SOE ownership and governance and have commitment, influential power, and competencies to equip the company with an effective strategy and competitive advantages to be exploited abroad. In all other configurations, the international performance of SOEs is worse, being undermined by institutional contexts that favor an inward-looking approach of the state and government, and/or by principal–principal agency problems.

The purpose of this study is to examine how business group (BG) affiliation influences the export propensity of new ventures (NVs). To help address the inconsistency of past research on the value of BG affiliation for firms seeking to expand their business abroad, the authors provide a contingency perspective by exploring how organizational characteristics and BG characteristics condition the value of BG affiliation. The authors analyze the impact of BG affiliation on the export propensity of NVs, including the factors that condition this impact, by using a sample of 2,874 European NVs. The primary contribution of this study is to determine the impact of BG affiliation on the export propensity of NVs, including the moderating effects of firm size on the BG affiliation–export propensity relationship. The findings show that the export propensity of NVs affiliated with BGs is significantly higher than for stand-alone NVs. However, the findings demonstrate that the impact of BG affiliation on export propensity depends on the network characteristics of the BG in terms of the geographical dispersion of network ties. Consequently, the findings suggest that BG affiliation provides advantages for NV exporting only if it provides access to international inter-firm networks thus acting as a compensatory mechanism for liability of outsidership and liability of newness in foreign markets. In such cases, BG affiliation is a major resource capital that equipoises the somewhat limited financial resource provision for NV internationalization.

In this chapter, the authors study how external knowledge contributes to the innovation results of firms in transition economies. Specifically, the authors distinguish between product and process innovations and identify the geographical origin of external knowledge – from the home country or from abroad. Theoretically, the authors discuss the innovation systems of transition economies and the effects of foreign and national external knowledge on product and process innovations in these under-researched contexts. Using a sample of firms from 19 countries from wave V of the Business Environment and Enterprise Surveys, the authors find that foreign and national external knowledge both contribute to the achievement of product and process innovations. However, the two types of external knowledge exert different effects depending on the innovation outcome analyzed. Firms in transition countries that incorporate foreign external knowledge are more likely to achieve product innovations than those that acquire national external knowledge. In contrast, both types of knowledge are equally useful for achieving process innovations.

This study examines the contingent impact of corporate anti-corruption policies on multinational enterprises’ foreign investment strategy. The authors propose that the differences in foreign investment motives will moderate the assumed deterrent effect of anti-corruption policies. Our analysis of overseas production investments by Japanese firms (2011–2017) supports some of the hypotheses. The authors find that the deterrent effect of anti-corruption policies may be diminished when a new subsidiary has an efficiency-seeking purpose. Conversely, the deterrent effect is more prominent when a new subsidiary has a competence-creating purpose. These results not only contribute to the research on control of corruption in international business, but also have implications for research on corporate self-regulation more generally.

This study examines the effect of host government interference with foreign investors’ assets on foreign direct investment (FDI) inflow. The author hypothesizes that the relationship between host government interference and FDI inflow takes the form of an inverted U shape. The author tests this hypothesis using data from the International Centre for Settlement of Investment Disputes between 1996 and 2017. The results support the above hypothesis. While host government interference with the assets of a few foreign investors may not deter FDI inflow, frequent interferences, which result in an increasing number of host state–foreign investor disputes, reduces FDI inflow in a host country. The analysis also shows that when faced with an increasing host country uncertainty, investors adopt a wait and see strategy. However, how long investors wait depends on the economic situation of the host country. For high-income countries, investors wait until approximately 10 disputes before reducing investments level in a host country, while for low-income countries, this waiting period is a mere two disputes. The findings of this study suggest that countries seeking to attract more FDI should not interfere with the activities of foreign investors, however, if they do, disputes should be settled at home, not in international arbitration courts, because doing so frequently may poison the host environment and deter other foreign investors from investing in the host country.

The purpose of the study is to develop an understanding of the interplay between multinational enterprises (MNEs) and informal institutions on a firm–industry level. “Interplay” here means how responses to institutions develop in a particular context and how this development is interrelated with stakeholders’ reactions and activities. To study this interplay between MNEs and informal institutions, the authors draw on literature on institutional complexity, as well as on a co-evolutionary perspective. Two case vignettes are presented on MNEs’ post-entry strategies and behaviors in their new host markets, with a view to understanding how and under what conditions informal institutions in the host market may compel MNEs to alter their initial strategies and behaviors in the market and, on the other hand, how and under what conditions MNEs’ strategies and behaviors may act as catalysts of change in these informal institutions.

Going back into previously exited markets is a significant management risk. But, how are re-entry risks managed? By adding strategic reference point (SRP) rationales to the risk management literature, this chapter examines re-entry after initial entry and divestment on a sample of 654 multinational enterprise (MNE) re-entrants. The authors move away from narrow risk management lenses according to which risks happen in isolation and theorize that MNEs simultaneously manage international risk by exploiting the trade-offs among external and internal sources of risk. The authors explain that, for re-entrants, exit may become the SRP for evaluating future strategic choices. The results suggest that re-entrants tend to manage re-entry risk by choosing partner-based modes that enable them to maintain strategic flexibility at re-entry. Surprisingly perhaps, market-specific experience acquired during the initial market foray does not provide strategic flexibility, in that highly experienced firms still experience risk trade-offs.

The author examines key factors which affect intangible asset holdings of foreign subsidiaries of multinational enterprises (MNEs). The author developes the hypotheses by drawing upon the pecking order theory in the finance literature and the institution theory. The author theorizes that MNE foreign subsidiaries combine and utilize their cash holdings (finance-based firm-specific advantages [FSAs]) with host country economic freedom (host country-specific advantages [CSAs]) in their holdings of intangible assets which are internally created and/or purchased. The author empirically tests the hypotheses using a new original dataset of European subsidiaries of US MNEs. The author finds that cash holdings and host country economic freedom share a significant and positive relationship with intangible asset holdings. The author discusses the implications of the findings for theory and practice.

This chapter examines how small- and medium-sized enterprises (SMEs) can deal with institutional challenges in the Chinese market. The authors use institutional theory to characterize the political and cultural context in China. The empirical study is based on interviews conducted with managers of the industrial SME Mixel Agitators at the French headquarters and the Chinese subsidiary, and with experts on Franco–Chinese relationships. The findings show that foreign SMEs can address institutional challenges by investing time and resources in their local subsidiaries, learning about how to operate in the Chinese market, and recruiting local managers with guanxi networks. The study contributes to a better understanding of how Western SMEs can succeed in the Chinese context.

The implemented European Union Services Directive aimed at creating a unified European market for trade in services. However, the implementation of the institutions was not fully successful as to the characteristics of international services caused challenges in the ratification of the Directive. Research on international services is facing similar challenges based on the fragmented, inconclusive, and at times even contradictory findings of international services literature with regard to service characteristics. Thus, each academic field of international business, economic geography, and service management has tried to identify international service characteristics, but no unified characterization is found. The challenges in defining the different types of services, difference in the levels of analysis, and various impacts of policies and institutional environments on the service, cause these differences. The authors see the need for a unified framework that combines the different literatures and considers the policy implications. The authors develop a framework consisting of four components of international service characteristics, that is, the connectivity of service actors to the environment, the configuration of service activities within organizational set-ups, the dyadic collaborative interaction between service actors, and the created value by the services. The authors specifically consider policy and institutions as well as a vast variety of literature streams to support the arguments.

This chapter describes how micro-locational factors affect international alliance formation. The authors focus specifically on the role of global cities, which are studied from a distance perspective. The authors argue that distances must be apprehended not at the country level but at the city level. The chapter is an attempt to provide a better understanding of the complex, multilevel factors that interact when firms select an alliance partner in a particular location. The authors take an explorative methodological approach through a configurational analysis of international alliances made by American companies in 2015. The main contribution is the proposition of a typology of micro-locational characteristics to help understand international alliance formation at a city level.

A number of prominent European multinational mobile telephony companies (MNMTCs) have their origins in state-owned monopolies that successfully undertook radical transformation in the late 1980s to late 1990s. Not only did they face liberalization of their domestic markets but they also moved from fixed-line telephony to mobile telephony prior to rapid expanded overseas. This study focuses on Telenor whose operations currently span the Nordic region and Southeast Asia. Like other MNMTCs, Telenor currently faces another period of radical change as global digital services providers are set to ride on the connectivity MNMTCs supply thereby reducing them to “dumb-pipes.” This study indicates that Telenor has abandoned radical transformation for “modernization” of its extant operations. For an understanding of why this second radical change is proving arduous for MNMTCs, the authors argue that there is a need to take into consideration institutional change.

Artificial intelligence (AI) has quickly become a technology that serves public, commercial, and research purposes. By all expectations, AI will increasingly have a significant impact on the operations of international business. On December 13, 2019, the World Intellectual Property Organization (WIPO) invited member states and other multilateral institutions to contribute to the generation of guidelines that seek to regulate the application of AI within the intellectual property system. In this chapter, the authors discuss the possible effects of the upcoming WIPO regulation on international business.

Through a systematic review of the literature, this study analyzes the empirical literature on the adoption of environmental sustainability strategies in order to identify (i) the main conceptual aspects by which environmental sustainability strategies can be conceived of, (ii) the main determinants of the adoption of such strategies, (iii) the expected impacts on the company’s international performance, as well as (iv) the mechanisms that mediate the effect of environmental sustainability strategies on international performance. This study thereby offers propositions about the relationships between environmental sustainability strategies, their determinants (both in relation to the institutional environment and to the company’s domain), and their performance implications.

This chapter analyzes the indirect effects of environmental management system (EMS) implementation and its certification and relates these to international governance in the context of new public environmental management. Building on a comprehensive quantitative dataset, it assesses the effects of ISO 14001 and EMAS (Eco-Management and Auditing Scheme) certification as well as temporal experience with EMS implementation on organizational activities outside the scope of EMS, while taking into account embeddedness and interaction effects. The analysis reveals heterogeneous effects, with limited evidence of embeddedness and interaction effects. As well, no influences of national business systems can be identified. Implications for the role of national governments in implementing sustainability strategies, even beyond environmental management, and aspects of standard flexibility in the process of governing firms to implementing such strategies in an international context are discussed.

A radical set of social and structural shifts in the last years has transformed the world, bringing a confusing order that few have been able to predict. Common sense information and myths about Millennials’ generation define them as being very homogeneous and different from other generations, which would be already a complex dimension to analyze. However, the complexity increases according to some studies that suggest that other generations have a flawed perception of Millennials. Based on this, the purpose of this chapter is to assess the self-image Millennials regarding consumption behavior and compare it with how they are perceived by other generations, namely, Boomers and Generation Xers. Identifying and understanding the differences could assist in improving the ability to market to them. To conduct this study, a survey was developed to collect data from each group of interest located in the same institutional setting to avoid institutional distance. The constructs included were Technology Savviness, Social Responsibility, Environmental Concern, Status Consumption, and Brand Loyalty. The final sample consisted of 342 participants where 182 were Millennials (53.8%) and the remaining 160 were either Baby Boomers or Generation Xers (42.8%). The current results support the idea of differences between self and other perception, although not in every dimension. The results show that Millennials and older generations have different perceptions regarding Millennial technology savviness, social responsibility, status consumption, and brand loyalty. Environmental concern was the only dimension where the self-opinion of Millennials did not differ from the other generations. Current findings are pertinent because differences in Millennial’s behaviors are important for companies addressing international markets. These results challenge research conducted in other cultural landscapes and call for the need to validate the typical pattern, which lays over the idea that there are significant differences among Millennials’ self-perception and perception of others about them. Because this information provides useful knowledge for brands to become more effective, it is crucial for managers of companies conducting business in a global context to be acquainted with it. This will promote the possibilities to create and maintain close relationships with the Millennials, taking into account the institutional setting in which they grew up. Finally, this study emphasizes the importance of environmental concerns in the current world, which may have the power to unite different generations for a single global cause, thus sorting out some of the confusion.

This study examines the diffusion process of corporate sustainability (CS) in the global automotive industry. It discusses the different roles played by the automakers, as the industry’s focal firms, in diffusing CS strategies throughout their respective supply networks. Studies have explained this phenomenon as being the result of the higher levels of stakeholder exposure faced by focal firms, which generate higher levels of supplier sustainability risk. In this context, the authors examine the effects of three network-related firm characteristics – resource dominance, resource substitutability, and network centrality – in determining the effectiveness of a firm in diffusing CS in its network. For that purpose, we present a theoretical framework from which we derive a set of hypotheses and test them on a sample of the global automotive supply network containing 10,726 firms linked by 45,044 inter-firm relationships. The results lend significant support to the argument that these network-related firm attributes are crucial mechanisms to the process of diffusion of CS strategies in a supply network, thus contributing to extant literatures in strategic management, international business, and sustainable supply chain management.