Philosophy of Science and Meta-Knowledge in International Business and Management 9781781907139, 9781781907122

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PHILOSOPHY OF SCIENCE AND META-KNOWLEDGE IN INTERNATIONAL BUSINESS AND MANAGEMENT

ADVANCES IN INTERNATIONAL MANAGEMENT Series Editors: (Volume 22) Joseph L. C. Cheng and Michael A. Hitt (Volume 23) Timothy M. Devinney, Torben Pedersen and Laszlo Tihanyi Recent Volumes: Volume 12:

Edited by J. L. C. Cheng and R. B. Peterson

Volume 13:

Edited by J. L. C. Cheng and R. B. Peterson

Volume 14:

Edited by M. A. Hitt and J. L. C. Cheng

Volume 15:

Edited by J. L. C. Cheng and M. A. Hitt

Volume 16:

Edited by M. A. Hitt and J. L. C. Cheng

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Edited by Thomas Roehl and Allan Bird

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Edited by D. L. Shapiro, M. A. Von Glinow and J. L. C. Cheng

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Edited by M. Javidan, R. M. Steers and M. A. Hitt

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Edited by Jose´ Antonio Rosa and Madhu Viswanathan

Volume 21:

Edited by John J. Lawler and Gregory S. Hundley

Volume 22:

Edited by Joseph L. C. Cheng, Elizabeth Maitland and Stephen Nicholas

Volume 23:

Edited by Timothy M. Devinney, Torben Pedersen and Laszlo Tihanyi

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Edited by Christian Geisler Asmussen, Torben Pedersen, Timothy M. Devinney and Laszlo Tihanyi

Volume 25:

Edited by Laszlo Tihanyi, Timothy M. Devinney and Torben Pedersen

ADVANCES IN INTERNATIONAL MANAGEMENT VOLUME 26

PHILOSOPHY OF SCIENCE AND META-KNOWLEDGE IN INTERNATIONAL BUSINESS AND MANAGEMENT EDITED BY

TIMOTHY M. DEVINNEY University of Technology, Sydney, Australia

TORBEN PEDERSEN Copenhagen Business School, Denmark

LASZLO TIHANYI Texas A&M University, USA

United Kingdom – North America – Japan India – Malaysia – China

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2013 Copyright r 2013 Emerald Group Publishing Limited Reprints and permission service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78190-712-2 ISSN: 1571-5027 (Series)

ISOQAR certified Management System, awarded to Emerald for adherence to Environmental standard ISO 14001:2004. Certificate Number 1985 ISO 14001

CONTENTS LIST OF CONTRIBUTORS

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EDITORS’ BIOGRAPHIES

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EDITORS’ INTRODUCTION

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PART I INTRODUCTION TO PART I: BOOZ & CO./ STRATEGY+BUSINESS EMINENT SCHOLAR IN INTERNATIONAL MANAGEMENT 2012 Timothy M. Devinney

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FROM THE AMERICAN CHALLENGE TO THE DRAGONS AT YOUR DOOR: FORTY YEARS OF WORK ON THE THEORY OF THE MULTINATIONAL ENTERPRISE Jean-Franc- ois Hennart

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INTERNALIZATION THEORY AS THE GENERAL THEORY OF INTERNATIONAL STRATEGIC MANAGEMENT: JEAN-FRANC- OIS HENNART’S CONTRIBUTIONS Alain Verbeke and Jenny Hillemann

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JEAN-FRANC- OIS HENNART: TYPES OF RESEARCH, QUALITIES AND CONTRIBUTIONS Arjen H. L. Slangen

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CONTENTS

PART II INTRODUCTION TO PART II: DO WE DO SCIENCE? PHILOSOPHY AND KNOWLEDGE IN INTERNATIONAL BUSINESS AND MANAGEMENT Timothy M. Devinney, Torben Pedersen and Laszlo Tihanyi

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PHILOSOPHY OF SCIENCE INHERITED PHILOSOPHY OF SCIENCE? ECONOMICS AND INTERNATIONAL BUSINESS RESEARCH Asmund Rygh

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THE ROAD TO RELEVANCE Yair Aharoni

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WHY BASELINE MODELLING IS BETTER THAN NULL-HYPOTHESIS TESTING: EXAMPLES FROM INTERNATIONAL BUSINESS RESEARCH Andreas Schwab and William H. Starbuck

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ONTOLOGY AND IB: RE-IMAGINING THE MULTINATIONAL Brent Burmester

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THE PHILOSOPHY OF TURNING POINTS: A CASE OF DE-INTERNATIONALIZATION Romeo V. Turcan

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META-KNOWLEDGE DO WE REALLY UNDERSTAND A RESEARCH TOPIC? FINDING ANSWERS THROUGH METAANALYSES Timothy M. Devinney and Ryan W. Tang

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Contents

META-ANALYTIC RESEARCH IN INTERNATIONAL BUSINESS AND INTERNATIONAL MANAGEMENT Peter J. Buckley, Timothy M. Devinney and Ryan W. Tang INTERNATIONAL BUSINESS RESEARCH: UNDERSTANDING PAST PATHS TO DESIGN FUTURE RESEARCH DIRECTIONS Manuel Portugal Ferreira, Nuno Rosa Reis, Martinho Isnard Ribeiro de Almeida and Fernando Ribeiro Serra

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PROGRESS, MATURITY OR EXHAUSTION? SOURCES AND MODES OF THEORIZING ON THE INTERNATIONAL STRATEGY – PERFORMANCE RELATIONSHIP (1990–2011) Xavier Martin and Koen van den Oever

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WHAT DO WE KNOW ABOUT THE SUCCESS AND FAILURE OF INTERNATIONAL JOINT VENTURES? IN SEARCH OF RELEVANCE AND HOLISM Michael Nippa and Schon Beechler

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WHAT DO WE KNOW ABOUT GOING GLOBAL EARLY? LIABILITIES OF FOREIGNNESS AND EARLY INTERNATIONALIZING FIRMS Lydia Bals, Heather Berry, Evi Hartmann and Gordian Raettich

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INTERNATIONAL TECHNOLOGY TRANSFER AND ITS IMPLICATIONS TO DOMINANT DESIGN THEORY Olavi Uusitalo

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WHAT DO WE KNOW ABOUT POST-MERGER INTEGRATION FOLLOWING INTERNATIONAL ACQUISITIONS? Christina O¨berg and Shlomo Yedidia Tarba

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AUTHORS’ BIOGRAPHIES

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LIST OF CONTRIBUTORS Yair Aharoni

Faculty of Management, Tel Aviv University, Israel

Martinho Isnard Ribeiro de Almeida

FEA – Universidade de Sa˜o Paulo, Brazil

Lydia Bals

Department of Strategic Management & Globalization, Copenhagen Business School, Denmark

Schon Beechler

Leadership and Organizational Behavior, INSEAD, France

Heather Berry

George Washington School of Business, George Washington University, United States

Peter J. Buckley

Centre for International Business, University of Leeds Leeds, United Kingdom

Brent Burmester

Department of Management and International Business, University of Auckland Business School, New Zealand

Timothy M. Devinney

UTS Business School, University of Technology Sydney, Australia

Manuel Portugal Ferreira

Universidade Nove de Julho, Brazil & FEA – Universidade de Sa˜o Paulo, Brazil

Evi Hartmann

University of Erlangen-Nuremberg, Germany

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LIST OF CONTRIBUTORS

Jean-Franc- ois Hennart

Department of Business Management, University of Pavia; Queens University Management School; Singapore Management University; Center for Research in Business and Economics, Tilburg University

Jenny Hillemann

Department of Management and Strategy, Solvay Business School, University of Brussels, Belgium

Xavier Martin

Department of Organization & Strategy, Center for Innovation Research and Center, School of Economics and Management, Tilburg University, The Netherlands

Michael Nippa

Faculty of Business Administration, Technische Universita¨t Bergakademie Freiberg, Germany

Christina O¨berg

Lund University, Sweden/University of Exeter, United Kingdom

Torben Pedersen

Copenhagen Business School, Copenhagen, Denmark

Gordian Raettich

University of Erlangen-Nuremberg, Germany

Nuno Rosa Reis

Polytechnic Institute of Leiria, Portugal

Asmund Rygh

Department of Strategy and Logistics, BI Norwegian School of Business, Oslo, Norway

Andreas Schwab

College of Business, Iowa State University, United States

Fernando Ribeiro Serra

Universidade Nove de Julho, Brazil

Arjen H. L. Slangen

Department of Strategic Management & Entrepreneurship, Rotterdam School of Management, Erasmus University Rotterdam, Rotterdam

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List of Contributors

William H. Starbuck

University of Oregon, United States

Ryan W. Tang

UTS Business School, University of Technology Sydney, Australia

Shlomo Yedidia Tarba

Management School, The University of Sheffield, United Kingdom

Laszlo Tihanyi

Texas A&M University, College Station, Texas, United States

Romeo V. Turcan

Department of Business and Management, Aalborg University, Aalborg, Denmark

Olavi Uusitalo

Industrial Management, Tampere University of Technology, Finland

Koen van den Oever

Department of Organization & Strategy and Center, School of Economics and Management, Tilburg University, The Netherlands

Alain Verbeke

Haskayne School of Business, University of Calgary, Canada; Solvay Business School, University of Brussels, Belgium

EDITORS’ BIOGRAPHIES Timothy M. Devinney is a Professor of Strategy at the University of Technology, Sydney. He has published seven books and more than 80 articles in leading journals, including Academy of Management Review, Strategic Management Journal, Organization Science, Journal of Management, Journal of International Business Studies, Journal of Business, Journal of Business Ethics, MIT Sloan Management Review and California Management Review. In 2008 he was the first recipient in management of an Alexander von Humboldt Research Award and was Rockefeller Foundation Bellagio Fellow. He is a Fellow of the Academy of International Business, an International Fellow under the auspices of the AIM Initiative in the UK and a Fellow of ANZAM (Australia New Zealand Academy of Management). He served as Chair of the International Management Division of the Academy of Management. He is Co-Editor of Academy of Management Perspectives and the head of the International Business & Management Network of SSRN. He is on the editorial board of more than 10 of the leading international journals. Torben Pedersen is a Professor of International Business at the Copenhagen Business School’s Department of Strategic Management and Globalization. He has published over 100 articles and books concerning the managerial and strategic aspects of globalization. His research has appeared in prominent journals such as Academy of Management Journal, Strategic Management Journal, Organization Science, Journal of Management, Journal of International Business Studies, Journal of Management Studies and Journal of Corporate Finance. His research interests are located at the interface between strategy, institutional economics and international business and with a strong interest in areas like knowledge management, offshoring/outsourcing and reconfiguration of the value chain, subsidiary entrepreneurship and management of the differentiated MNC. He served as Vice-President of the Academy of International Business and is a Fellow of the Academy of International Business. He is Co-Editor of Global Strategy Journal and serves on numerous editorial boards. Laszlo Tihanyi is the B. Marie Oth Professor in Business Administration in the Mays Business School at Texas A&M University, United States. He xiii

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received a PhD in Strategic Management from Indiana University and a Doctorate in Business Economics from Corvinus University of Budapest in his native Hungary. He is also an honorary Professor at Corvinus University. His main research areas are internationalization, corporate governance in multinational firms and organizational adaptation in emerging economies. His current research interests include the involvement of board of directors in foreign direct investment, the institutional environment of internationalization decisions and the effects of social movements on multinational firms. His papers have been published in the Academy of Management Journal, Academy of Management Review, Strategic Management Journal, Organization Science, Journal of International Business Studies and others. He served as an Associate Editor of the Journal of Management Studies. He is currently on the editorial boards of the Academy of Management Journal, Journal of International Business Studies, Journal of Management Studies and Business Horizons.

EDITORS’ INTRODUCTION We are pleased to present our fourth volume as co-editors of the Advances in International Management series. We took over the series in 2009 with the goal of publishing collections of cohesive papers that focus on influential theories and areas of research in international business and management. We wanted to provide a forum for scholars in the field to discuss novel ideas and present thought-provoking findings on a variety of topics. By acknowledging that authors have many outlets to publish their work, we wanted to enhance the reputation of this series by collecting exceptional theoretical analyses and empirical studies from leading and emerging experts of the field. We feel that the series continues to develop its niche as an essential outlet for groundbreaking ideas and to complement other publication formats in the field, such as journals, books and conference proceedings. The main section of the present volume follows on from our first volume in 2010, where we opened a debate on the past, present and future of international business and management. Here we ask the question of what it is that we know by taking a philosophy of science perspective with respect to the disciplines of international business and international management. The chapters cover a review of meta-analytic work in international business and international management, along with a series of surveys that discuss key issues and concepts in the field. A truly international group of experts present their work and perspectives.

OVERVIEW OF VOLUME 26 The first part of Volume 26 is dedicated to our annual feature from a leading scholar. The 2012 Recipient of the Booz & Co./Strategy + Business Eminent Scholar in International Management Award was Professor JeanFranc- ois Hennart of Tilburg University. Professor Hennart was honoured by this Award by the International Management Division of the Academy of Management at its annual conference in Boston, Massachusetts. His xv

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acceptance speech discusses the role of his work on transaction cost economics on international business and organizational structure. The speech is followed by the commentaries of Alain Verbeke and Jenny Hillemann of the University of Calgary and Arjen Slangen of Tilburg University. The second part of Volume 26 includes 13 chapters on two topics related to the theme of the volume. The first five chapters address international business and international management issues from a philosophical and philosophy of science perspective. They are, to a great extent, introspective papers. The second set of eight papers look more at the ‘‘what we know’’ about key topics in the field. The papers in this volume were selected via a process whereby we presented an open call for papers, conducted a formal first round of reviews based upon abstracts, and culled the final set of papers after a full day workshop held at the Cass Business School in London in late 2012. The majority of these papers went through two or three rounds of revisions before their final acceptance. We were impressed by the quality of submitted papers and the professionalism of authors who responded to our comments quickly and fully with their revisions. We believe the result is a comprehensive collection of insightful contributions to our understanding of areas of international business and management. In closing, we would like to thank all the Emerald editorial team for their support. We are especially grateful for the help of Martyn Lawrence, our Publisher. We also thank Alex Pitsis for her editorial assistance in completing the volume on time. Timothy M. Devinney, Sydney Torben Pedersen, Copenhagen Laszlo Tihanyi, College Station Series Editors

PART I

INTRODUCTION TO PART I: BOOZ & CO./STRATEGY+ BUSINESS EMINENT SCHOLAR IN INTERNATIONAL MANAGEMENT 2012 Timothy M. Devinney The Booz & Co./strategy+business Eminent Scholar in International Management is an annual award given by the International Management Division of the Academy of Management and Sponsored by Booz & Co./ strategy+business. The 2012 awardee was Professor Jean-Franc- ois Hennart, Professor of International Management at Tilburg University in The Netherlands. Professor Hennart was recognized for his contribution to the field of international business and management based upon his longstanding and well-respected work addressing the structure and role of multinational corporations. Professor Hennart is most recognizable for his work on integrating transaction cost economics thinking into international business research. However, this award is given not for his introducing an existing theory to the international business arena. As is well outlined by the commentaries to his article, Professor Hennart has been instrumental in developing a more robust and parsimonious conceptualization of transaction costs that allows us to understand multinational enterprise (MNE) Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 3–4 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026005

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organizational structure more completely and with less complexity than arises when one simply bolts traditional thinking onto a new context. In addition to his work on the structure of the MNE, Professor Hennart has been instrumental in the areas of Japanese management practices (particularly with respect to joint ventures), culture, financial transactions and the relationship between multinationality and performance. Professor Hennart has degrees from the Universities of Paris and Lille in France and received his MA and PhD degrees from the University of Maryland in the United States. The majority of his academic career was in the United States where he worked for the United Nations, Florida International University, the University of Pennsylvania (Wharton) and the University of Illinois (Champaign-Urbana). Since 1998 he has been at Tilburg University. Professor Hennart has published more than 40 journal articles, 40 book chapters and one book, A Theory of the Multinational Enterprise (1982, University of Michigan). His work is unique in its deliberativeness. While there are scholars who publish more articles, he stands out for having one of the largest SSI citation impact factors amongst scholars in International Business. In addition, one of Professor Hennart’s most impressive characteristics is his influence on, and commitment to, junior scholars. He has supervised 14 PhD students and been on 15 other doctoral committees. The names of these students are recognizable to all of us as his students and those he has mentored have had, and are having, a major influence on our field. His involvement in faculty and doctoral student mentoring is something I have observed personally over the years and his positive influence is a role model to all. Professor Hennart is a Fellow of the Academy of International Business and the European International Business Academy. In 1998 he received an honorary doctorate from the University of Vaasa in Finland. Following Professor Hennart’s paper, we have two cogent commentaries. Professors Alain Verbeke and Jenny Hillemann of The University of Calgary and Vrije Universiteit Brussels provide an outline of Professor Hennart’s intellectual contribution to thinking about the MNE and model of entry. Professor Arjen Slagen of Tilburg University provides a more personal perspective on Professor Hennart’s influence on him as a former PhD student. He also provides a broad perspective of the seven areas in which Professor Hennart has had profound influence. As these scholars note, Professor Hennart’s is a role model for us in his singular determination to come to a fuller and more parsimonious understanding of one of the critical phenomenon to IB/IM scholars.

FROM THE AMERICAN CHALLENGE TO THE DRAGONS AT YOUR DOOR: FORTY YEARS OF WORK ON THE THEORY OF THE MULTINATIONAL ENTERPRISE Jean-Franc- ois Hennart ABSTRACT In this chapter I would like to recall how I got started on my research on the multinational enterprise (MNE) and outline how my thinking on this important economic institution has evolved through the years.1

HOW I BECAME INTERESTED IN THE THEORY OF THE MULTINATIONAL ENTERPRISE My mother taught English. My father was the director of the Ecole Supe´rieure de Journalisme in Lille, France. Many of the faculty members and students were from abroad. When I was growing up there were often guests from other countries at our dinner table. My two brothers, four sisters and

Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 5–34 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026006

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I were each allowed to ask one question of them. I had an excellent formal education. I went to St. Joseph, a college run by Jesuits, spent a year as an exchange student at a Catholic high school in Falls Church, Virginia, and then studied economics simultaneously at the Catholic University of Lille and IESEG. So I took an interest in all things foreign at an early age, and as I grew up, I was given the tools I would need to learn more. I applied to graduate schools in the United States and I was fortunate to receive a scholarship and an assistantship at the University of Maryland. This was at the end of the 1960s and military service was still compulsory. By the time I finished the coursework associated with earning a PhD in Economics, my deferment had run its course, so I returned to France and was inducted into the air force. In a year’s time I was back at the University of Maryland searching for a thesis topic. Some years before, Servan-Schreiber’s Defi Americain (1967) had come out. It outlined how the superior managerial techniques used by American MNEs had allowed them to buy out less than efficient French family firms and turn them into profitable subsidiaries. Some of those subsidiaries were manufacturing in France goods and services developed in the United States, putting French firms out of business. In general, France found itself in a position of technological backwardness. Was it my return to France that brought forward in my mind the debate that had surrounded the book when it had been released some years earlier? All I can say is that I remember being very interested by the book, and intrigued by the questions it raised about the raison d’eˆtre of MNEs and about their net impact on host countries. In the end I decided to write my dissertation on this topic. I started to look at what economics had to say about firms, and in particular MNEs. I no longer had any financial support from the university, but I was fortunate enough to get a job as a staff economist working for Maryland Department of Economic and Community Development. I spent most evenings and weekends in the university library, looking for answers to two preliminary questions: (1) Why do firms exist? (2) What motivates them to expand, and in particular, to expand across national borders? Over and over I returned to three literatures that had sought to address that question: industrial organization economics, Vernon’s (1971) work on the MNE and international trade theory. Industrial organization economics was concerned with vertical and horizontal integration. At the time, however, vertical integration was explained by somewhat arcane models of ‘variable proportions’ and ‘successive monopoly’. Horizontal integration had been addressed by some empirical studies of multi-plant operations (e.g. Scherer, Beckenstein, Kaufer,

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Murphy, & Bougeon-Massen, 1975). Neither research stream was particularly enlightening. Vernon had attempted to explain MNEs with a product cycle model (Vernon, 1966). According to that model, new consumer products were first introduced in the United States because it was the country with the world’s highest per capita income. As income rose in other countries, these products would first be exported from the United States, but with further growth in foreign demand it became more economic to locate production there. This, according to Vernon, explained why US MNEs invested abroad (Vernon, 1971). But the product cycle model suffers from limitations. For instance, it applies to labour-saving consumer products, but not to other types of innovations, such as material-saving process innovations. Its main weakness is that while it explains where production will take place, it does not predict by whom: the model does not tell us whether, when production shifts to an overseas location, it will be undertaken by a foreign affiliate of the innovating firm or by a local firm (Hennart, 1982). The explanation given for the existence of MNEs by international trade theory was, frankly, disappointing. International trade theorists only considered the financial consequences of the MNE’s foreign expansion. Unable to deal with the phenomenon of firms expanding across borders, since their theories assumed perfect immobility of factors of production, they had focused on how the financing needs of MNEs affected a country’s balance of payments. Their dependent variable was the net sum of these financial flows at a country level, that is foreign direct investment (FDI) flows.2 They saw such flows as portfolio investment that sought control, and explained both types of flow, portfolio and direct, by international differences in rates of return. Hymer dealt what one would have thought was a mortal blow to such an explanation. In his 1960 thesis (Hymer, 1960) – which he was unable to publish in the form of articles in the main economic journals of the time, but which nonetheless circulated as a University Microfilm reprint before its eventual publication in book form in 1976 – he pointed out that a significant part of the financing of the foreign affiliates of US firms was obtained from local sources, not from their US parents. This was surprising if the reason why US firms invested abroad was to arbitrage between low interest rates at home and high ones abroad. Also surprising was the fact that flows of US portfolio and direct investment often moved in opposite directions. Hymer also asked why, if indeed FDI was motivated by a desire to exploit international differences in rates of return, it was undertaken by industrial firms and not by banks and financial intermediaries, and why it was

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concentrated in a few sectors such as oil, motor vehicles, business machinery and tyres. These facts led Hymer to argue that the expansion of firms abroad which led to FDI flows should not be seen under the lens of international trade theory, but under that of industrial economics. Hymer argued that FDI flows resulted from attempts by home-grown monopolists to safeguard their monopoly profits when a fall in international trade barriers threatened to expose them to the competition of foreign rivals. Faced with such a threat, their response was to try to eliminate this potential competition by taking over or merging with foreign rivals, or by pre-empting their emergence by establishing greenfield plants in foreign countries. The foreign expansion of domestic firms should therefore be seen as an attempt to reduce competition in final product markets in industries with high barriers to entry. Because MNEs reduced competition and thwarted the emergence and growth of national firms, host countries should severely restrict their entry. Hymer’s theory of the MNE was popularized by Kindleberger (1969) and further refined by Caves (1971). Hymer’s views had a tremendous impact, especially in countries that hosted large numbers of US MNEs, such as Canada and Latin America. Dependencia authors (e.g. Sunkel, 1971) saw US MNEs as exploiting developing countries. There were, therefore, attempts at the United Nations and at the OECD to find ways to transfer the technological and marketing capabilities of developed country firms without involving MNEs; that is without equity links. These non-equity means were called ‘new forms of investment’ (Chesnais, Oman, Pelzman, & Rama, 1989).3 After spending nearly two years investigating these three theoretical strands, I concluded they were not helpful. I would have to come up with a theory of my own.

MY 1982 PHD THESIS: A THEORY OF MULTINATIONAL ENTERPRISE In 1974, I began to see the relevance of the emerging literature in property rights (e.g. Alchian & Demsetz, 1972; Cheung, 1969; Coase, 1937; Furubotn & Pejovich, 1974; McManus, 1972) and agency theory (e.g. Jensen & Meckling, 1976) and started to develop a theory of the firm that could help explain the MNE. I realized that MNEs arose from a comparison made by firm decision-makers between the relative efficiency of organizing

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interdependencies in markets and in firms, and, hence, that a study of market failure could only give half of the picture. One also had to understand how firms organized interdependencies, and when this mode of organization failed. I read widely about corporate management, strategy and organization (e.g. Brooke & Remmers, 1970; Chandler, 1961; Channon, 1973; Granick, 1972; Stopford & Wells, 1972), topics not covered in my economics coursework. Williamson’s (1975) book confirmed my intuition, but my version of transaction cost theory was by then, and has remained, somewhat different from that of Williamson, and especially from his narrower 1985 version (Williamson, 1985). More on this later. Shortly after my PhD defense, I accepted an offer to work for the United Nations. My assignment was to teach economic development at the Ecole Nationale d’Administration in Niamey, Niger. At the same time, encouraged by my dissertation adviser, the late Mancur Olson, I sent my thesis manuscript to Basic Books. Basic Books was not interested. I then tried the University of Chicago Press. That time the manuscript was sent for review. Meanwhile I got a letter from Peter Buckley asking me if I knew about a book he had written with Mark Casson, The Future of the Multinational Enterprise (1976). I replied I was unaware of it. My stay in Africa was very stimulating, but I concluded that a career with the UN was not for me. I accepted a position with a non-profit research foundation in Paris. It was then, a full year after receiving my manuscript, that the reviewer for the University of Chicago Press decided to reject it with the deliciously ambiguous recommendation that it should be sent ‘to a lesser publisher, if any can be found’. I immediately sent a revised manuscript acknowledging Buckley and Casson’s (1976) book to the University of Michigan Press, which, after favourable reviews, accepted it, and published it in 1982 as A Theory of Multinational Enterprise. In the meantime I had accepted a position of Associate Professor of International Business at Florida International University, thereby taking my first steps in the field of International Business (IB), which, up to then, I had no idea existed. By then the so-called internalization theory of the MNE introduced by Buckley and Casson had been further developed by Alan Rugman (1981) and some of its elements incorporated by Dunning into his OLI theory (Dunning, 1977). So what is distinctive about my Theory of Multinational Enterprise (1982) and how does it relate to internalization theory (Buckley & Casson, 1976; Rugman 1981; Rugman & Verbeke, 1990), Williamson’s version of transaction cost theory (Williamson, 1975, 1985) and Dunning’s OLI theory (Dunning, 1988, 2000; Dunning & Lundan, 2008)?

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Internalization Theory There are, in my view, four major differences between the transaction cost based approach developed in A Theory of Multinational Enterprise and internalization theory. First, in my 1982 book I clearly distinguish between pecuniary and non-pecuniary externalities. The externalities caused by international competition in final product markets are pecuniary externalities. Their internalization by MNEs transfers monopoly profits from local monopolists or consumers to MNEs. For instance, competition between licensees reduces the rents that patent owners can obtain from the exploitation of their invention in foreign countries. Exploiting an invention through a network of MNE affiliates makes it easier to internalize the externality because an MNE can control the exports of its subsidiaries and by so doing can price discriminate. Such internalization of pecuniary externalities yields no net welfare gain: by expanding abroad the MNE simply transfers rents from others to itself, a zero-sum game. In contrast, the internalization of externalities caused by transaction costs results in higher overall utility (is Pareto optimal) because it reduces the costs of exchange. In my 1982 book I argued that the bulk of the externalities internalized by MNEs are non-pecuniary externalities, although in some cases MNEs also internalize pecuniary ones. Hence MNEs are by and large efficient institutions. Buckley and Casson (1976) do not make the same distinction between the two types of externalities. For example, they list five reasons why firms are likely to internalize market transactions: (1) lack of future markets; (2) opportunity for discriminatory pricing; (3) small number bargaining stalemates; (4) information asymmetry; and (5) governmentimposed distortions (Buckley & Casson, 1976, pp. 37–39). Cases (2) and (5) provide MNEs an opportunity to internalize pecuniary externalities. In cases (1), (3) and (4), on the other hand, it pays for MNEs to internalize non-pecuniary externalities. The fact that these different cases are lumped together in Buckley and Casson’s book seems to suggest that they did not then fully grasp the difference between these two types of externality and did not see its importance. In my (Hennart, 1977) thesis and (Hennart, 1982) book I argued that the reason firms are able to organize some interdependencies more efficiently than markets is because they use a method of organization that is fundamentally different from that used by the price system. The price system organizes interdependencies through the exchange of outputs at market prices. Prices inform interdependent parties and reward them. I argued that

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hierarchy, which is the organizational method mostly (but not exclusively) used by firms, organizes interdependencies by controlling the behaviour of interacting parties. Guidance is provided by managerial directives. Buckley and Casson (1976), as well as Rugman (1981), took a totally different view of why firms can sometimes be more efficient than markets. For them, the potential advantage of firms over markets is that they are able to set up internal markets. In fact the subtitle of Rugman’s (1981) book is The Economics of Internal Markets. As I argued at length in Hennart (1986), only a small proportion of the tasks internally undertaken by firms are organized through what could be seen as internal markets; most tasks are performed under some kind of employment contract. Since the essence of the employment contract is the direction of behaviour by the employer,4 it is correct to say that firms replace coordination through output at market prices by coordination through direction of behaviour. The relative efficiency of firms over markets does not therefore come from their setting a more efficient internal market but instead from using a totally different organizational method based on behaviour control and information centralization. A third difference between my theory and internalization theory, as well as Williamson’s version of transaction cost theory, is that I do not assume that market failure is a necessary condition for the emergence of firms, including MNEs. For MNEs to replace markets, the benefits they derive from organizing transactions internally must be higher than the costs incurred in doing so. Firms do not organize many potential interdependencies because this would cost more than the potential gains. In my book I illustrated this with the case of the international transfer of UK know-how during the British industrial revolution. Throughout the first 80 years of the nineteenth century, British firms enjoyed a clear technological lead over the rest of the world that might be compared to that enjoyed by US firms after the Second World War. The British had much to gain from exploiting their inventions abroad. This could not be efficiently done through licensing because the market for intellectual property was even less efficient than today. Given high transaction costs in that market, one would have expected to see British firms exploiting their knowledge through direct investments abroad, as US firms did after 1945. Yet this did not happen. Very few UK MNEs emerged during that period.5 Instead, skilled British workers and entrepreneurs left the United Kingdom to start firms abroad (Cockerill in Belgium and Brown – the first half of Brown-Boveri – in Switzerland are two famous examples). The likely reasons for this were poor communications and the lack of effective techniques to exert managerial control over

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employees in distant locations. This made the costs of setting up and operating foreign subsidiaries higher than the potential profits from exploiting the innovations in this manner (Hennart, 1982, pp. 122–130). The basic unit of analysis in my book is not the firm but the transaction, which later I call the interdependency.6 A firm needs to deal with many types of interdependencies. Some involve the procurement of raw materials, some the setting up of distribution, some the acquisition of knowledge and some its exploitation. A firm seldom organizes all such interdependencies internally. The size of an MNE (its footprint) expands whenever one of these interdependencies is internalized internally and contracts when the firm decides to instead use the market. In Hennart (1982) I argued that a transaction will be internalized, that is it will be organized within a firm, when two conditions are met: (1) the interdependency is more efficiently organized within the firm than on markets; and (2) the benefits of organizing the interdependency within the firm are greater than the costs of doing so. A firm will internalize the market for the goods and services it wants to sell whenever that market is missing or inefficient. Likewise, the firm will internalize the market for goods and services it wants to acquire under the same conditions. This means that the organization by an MNE of many types of international interdependencies can result in foreign expansions. Table 1 lists some of the main interdependencies that give rise to MNEs and

Table 1.

MNEs Arise from the Hierarchical Organization of Interdependencies.

Interdependency Intangibles

Market Exploiting

Selling

Out-licensing Out-franchising In-licensing In-franchising Contracts

Buying

Contracts

Distribution

Leveraging Acquiring

Financial capital

Exploiting

OEM Distribution contracts Lending

Acquiring

Borrowing

Acquiring Raw materials and parts

Hierarchy Horizontal investment Asset-seeking acquisitions and greenfield investments Processing and assembling subsidiaries Extractive and part-making subsidiaries Manufacturing investments Distributive investments Equity investments and capital ventures Free-standing firms

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shows that MNEs arise both to sell and acquire goods and services, including what some IB scholars would call advantages. This is in contrast to the view prevalent in the IB literature that a firm must possess firm-specific advantages to expand abroad.

Transaction Cost Theory It is sometimes argued that Buckley and Casson’s (1976) book is the first transaction cost theory of the MNE. While the book is path breaking in many ways, it is not grounded in transaction cost theory, at least of the Williamsonian kind. While Buckley and Casson’s cite Coase’s (1937) article in a footnote, they do not cite Williamson. As I have argued above, their theory of why firms can be more efficient than markets is based on the idea that firms replace market prices by internal ones. This is not inspired by Williamson, but instead by the interwar debate on the use of a system of shadow prices for central planning (Lange, 1936). My 1977 thesis and 1982 book are the first systematic application of transaction cost theory to the MNE.7 Williamson’s later writings have primarily focused on asset specificity as the main reason markets fail. In my book I take a much broader approach. While I explain backward and forward vertical integration by MNEs in terms of asset specificity, I see horizontal integration, that is integration from knowhow creation into the foreign production of goods and services incorporating the know-how, as caused by high measurement costs that give rise to information asymmetry. Markets for intellectual property often fail due to limitations in the patent system and government limitations on licensing contracts (Hennart, 1982, pp. 104–112). These imperfections in the market for intellectual property lead to information asymmetry between the parties, which, given opportunism, makes the market transfer of innovations difficult. In that case firms can sometimes be the solution. They can transfer knowledge more efficiently because, given proper organizational structures, their employees have no incentives to cheat each other and because they can be selected and trained to be homophilous (Hennart, 1982, pp. 101), that is they can be chosen to have the same background and speak the same language, an argument which was later used by Kogut and Zander (1993). This is in contrast to the argument that MNEs integrate into the manufacture of goods and services using their knowledge (bypass the market for intellectual property) because of asset specificity. Some have argued that licensing will be used when asset specificity is low and integration when it is

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high. As any type of new product and process know-how is likely to be specific because it is to some extent unique, it is hard to argue that licensed knowledge is less specific than knowledge transferred internally. Likewise, the exploitation of reputation by MNE employees rather than by independent franchisees, which accounts for the international expansion of many service MNEs, is better explained by the difficulty of preventing free riding on quality through franchising contracts than by asset specificity (Hennart, 1982, pp. 89–93).

Dunning’s OLI My contention that firms expand abroad to organize interdependencies, and hence to both exploit and acquire advantages (Table 1) is in contrast with Dunning’s OLI theory (Dunning, 1988; Dunning & Lundan, 2008). Dunning argues that there are three necessary and sufficient conditions for firms to create value added overseas (i.e. to become MNEs): they must have ownership advantages, location advantages and internalization advantages.8 Firms must first have ownership advantages, which Dunning initially described as property rights and intangible asset advantages, for example new product and process technologies and strong brand names (Dunning, 1988). Dunning noted that the possession of such advantages is not a sufficient condition for owning value-adding operations abroad because the innovating firm could exploit ownership advantages by integrating into production at home and exporting the products made with that process. This would result in exports, not foreign production. According to him, it must therefore be more efficient to locate production abroad. This occurs when foreign countries have location advantages that make it more efficient to locate production there as opposed to at home. For Dunning, these location advantages are resources that are specific to a particular location, but available to all firms located there, such as a country’s endowment of natural resources, factors of production, customers and institutions (Dunning & Lundan, 2008, p. 96). Just because a firm has an ownership advantage and the exploitation of this advantage requires it to locate production in a foreign country still does not guarantee that it will become an MNE, as this advantage might be licensed to a local firm. A third condition is therefore that the innovator finds it more efficient to exploit the advantage internally rather than through renting or selling it to a local firm: there must also be an internalization advantage.

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While this view is widely shared in the IB field, it is too narrow and potentially misleading. Table 1 shows that there are many cases where a firm sets up value-adding operations abroad without having advantages. This becomes obvious when one looks at asset-seeking investments, such as the acquisition of a foreign firm to obtain its patents or trademarks, in which case, by definition, the investment is not motivated by the exploitation of an advantage, but by its acquisition. But the case of vertical investments also shows that MNEs often invest abroad without having any advantages. For example, a steel firm does not typically invest into iron ore mining because it wants to exploit its expertise in iron ore mining, but instead because it fears being held up by its arm’s length iron ore suppliers (Franz, Sternberg, & Strongman, 1986). Later, to address the fact that ownership advantages do not seem necessary for vertical investments, Dunning added to intangible-based ownership advantages (asset advantages or Oa), a new category of ownership advantages, which he called transactional advantages (or Ot advantages). Transactional advantages are those ‘which arise specifically from the multinationality of a company’ (Dunning, 1981, p. 27). This means that the factors that predict whether a firm will internalize a transaction are, in addition to its possession of intangibles to exploit, its internalizing skills. But the only way we know a firm has such skills is because it has successfully internalized. This is tautological. The way Dunning dealt with asset-seeking investments is similarly tautological. To explain why a firm without ownership advantages invests abroad, he added a new type of Ot advantage, which he defined as the ‘competencies of the managers to identify, evaluate, and harness resources and capabilities from throughout the world’ (Dunning, 2000, p. 168). These competencies can only be defined ex post by the fact that the firm has made asset-seeking investments. The problem can easily be fixed without recourse to tautologies if one moves the level of analysis from the firm to the interdependency. Some interdependencies, including those involving some types of intangibles, are more efficiently organized internally than through the market. We can predict which ones will be internalized and which ones will be handled through market sale or contract by looking at their characteristics. Tacit knowledge, for example is likely to be hard to transact on the market. It is more likely, therefore, to be exchanged within firms. If it is difficult for its owner to sell it in the market, it is ipso facto difficult for a potential acquirer to purchase it on the market as well. Hence my transaction cost approach, in contrast to Dunning’s OLI approach, considers both parties to the

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exchange. This makes it possible to explain many types of foreign direct investment that do not fit well within OLI theory, or only fit by recourse to tautology. But while the analysis so far predicts when an interdependency will be organized within a firm, it does not tells us who, the buyer or the seller, is likely to initiate internalization. This requires a bundling model, which I outline in the next section.9

FURTHER DEVELOPMENTS: JOINT VENTURES AND THE BUNDLING MODEL In the early 1980s strategy scholars began to pay more attention to strategic alliances and other forms of co-operation, including equity joint ventures. Equity joint ventures were not new to international business because many host countries had regulations forcing MNEs wishing to enter the country to joint venture with local firms. The discussion among IB scholars had, however, centred on the conditions under which MNEs could use their bargaining power to avoid such regulations and enter with wholly owned affiliates. While some authors had pointed out the potential benefits of joint ventures (e.g. Beamish & Banks, 1987; Stopford & Wells, 1972), the assumption by most was that MNEs always preferred more equity to less equity, and would only joint venture if forced to do so (e.g. Fagre & Wells, 1982). Joint ventures were assumed to be a necessary evil. The strategy literature, on the other hand, had started to highlight the benefits to firms of entering strategic alliances, and in particular equity joint ventures (e.g. Harrigan, 1985). Yet if one presented Harrigan’s list of the benefits of equity joint ventures to MBAs and asked them which form of cooperation could yield these benefits, half of them might answer licensing and the other half joint ventures. It was clear the literature had not clearly laid out which conditions were necessary and sufficient for equity joint ventures to be a first best governance mode. My starting point in trying to identify these necessary and sufficient conditions came from an intuition that there might be similarities between equity joint ventures and sharecropping. Both are arrangements that involve the bundling of complementary inputs (land and labour in case of sharecropping), and which incorporate a solution to the difficulty of measuring ex ante the contributions of input providers. That solution is to avoid having to measure them by rewarding contributors ex post (rather than ex ante) from the profits generated by their co-operation. Generalizing from

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this example, I argued that there were two basic types of equity joint ventures. I called scale joint ventures equity joint ventures where the inputs bundled were similar, and link joint ventures those where they were dissimilar. To present my argument, I used a 2  2 matrix (Table 2) to describe the exchange of two types of knowledge held by two firms. If the knowledge held by firm A was easier to transact than that held by firm B, for example because A’s knowledge was well protected by intellectual property rights while B’s was not, then B, with the harder-to-transact knowledge, would access A’s knowledge by taking a license from A and would get paid for combining both types of knowledge through the profits of the business (B would hold the equity). If, on the other hand, the knowledge held by B was easier to transact than that held by A, then A would take a license from B and would get paid ex post from the profits derived from bundling B’s knowledge with its own (A would take the equity). It would be advantageous for A and B to form a link joint venture whenever the knowledge they contributed was equally difficult to transact. Then an arrangement where one party holds the equity and obtains the complementary knowledge through a licensing contract would not be possible given the high cost of ascertaining whether the licensed knowledge was worth the cost and of assuring its effective transfer. It then made sense to provide equity incentives to both A and B. So equity joint ventures are the first best solution whenever the transfer of inputs contributed by both parties involves high transaction costs, while contracts such as licensing are a first best way to bundle complementary inputs when the exchange of only one input incurs high transaction costs (Hennart, 1988).10 As I argue in that article, this is not the whole story. There are two alternatives to equity joint ventures, (1) greenfield entries and (2) acquisitions. In equity joint ventures the services of assets are bundled. The greenfield solution (which I called replication) consists in bundling the inputs necessary to produce assets. One can also bundle the firms where

Table 2.

A Model of Link Joint Ventures. Firm A

Firm B

Marketable know-how Non-marketable know-how

Source: Adapted from Hennart (1988).

Marketable know-how

Non-marketable know-how

Indeterminate A licenses B

B licenses A A and B joint venture

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assets are embedded: this is the acquisition solution.11 Therefore there are two additional conditions for making an equity joint venture the preferred arrangement: both (1) replication and (2) acquisition must be less efficient than joint ventures. I argue that replication is more expensive than forming a joint venture if the resources are public goods, that is if their creation involves high fixed costs but they can be shared at low marginal cost. In that case it is cheaper to access them than to duplicate them. The acquisition solution is more expensive than the joint venture one when the market for firms is closed or inefficient, and when the assets desired are a small part of all the assets held by the firm and are untangled with those other assets, making them indigestible.12 Then accessing the services of assets in a joint venture is cheaper than owning them through an acquisition. My theory of joint ventures shows that equity joint ventures are not a type of hybrid, halfway between market and hierarchy, as Williamson (1991; 1996) and others (e.g. Boerner & Macher, 2002; Gulati & Singh, 1998; Kreps, 1990; Oxley, 1997) have written.13 Williamson (1996, p. 51) has argued that governance forms vary in terms of hierarchical intensity and that joint ventures are halfway along that continuum. For him firms are used when asset specificity is high, markets when it is low and joint ventures when at intermediate levels. For me (Hennart, 1993) hybrids are something else. They are institutions that subject agents to behaviour and price constraints simultaneously. Franchising is a hybrid because in franchising franchisees are subject to both price constraints because they are paid through the profits of the outlet, and to behaviour constraints stipulated in the franchise contract. This is not the case for equity joint ventures. Individuals working for a joint venture, be they employees of the joint venture or employees of the parents sent to work in the joint venture, are subject to the same behaviour constraints as employees working for a wholly owned affiliate. Hence joint ventures, along with other profit-sharing institutions such as partnerships, are not hybrids, but a type of firm. Because equity joint ventures are not hybrids corresponding to intermediate levels of asset specificity and uncertainty, I believe that it is incorrect to model the choice between wholly owned affiliates and equity joint ventures as depending on the level of asset specificity (generally but erroneously proxied by R&D intensity), as has been done in some studies, for example Erramilli and Rao (1993) and Brouthers, Brouthers, and Werner (2003). Instead the choice depends on the level of transaction costs incurred in the exchange of both assets contributed to the venture, and on the expected levels of potential problems with joint ventures (Brouthers & Hennart, 2007; Hennart, 1991).

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The theory developed in my 1988 article makes it possible to identify the specific benefits of equity joint ventures. Compared to long-term contracts, equity joint ventures reduce the costs of evaluating and measuring ex ante the inputs contributed by the parties. Hence they are efficient whenever these inputs are hard to measure ex ante. A joint venture agreement also makes it easier to make changes to the specific contribution of the parties, since in joint ventures parties only commit to best effort, not to the performance of a specific task, as would be the case under a contract. Hence changes to the specific contribution of one or both of the parties that would require contract renegotiation can be accommodated within an existing joint venture agreement. My theory also makes it possible to exactly pinpoint the specific costs of equity joint ventures. Much of the literature on this topic fails to identify which costs are specific to equity joint ventures, as opposed to incurred by any type of transaction between two parties who seek to maximize their individual profits. The theory makes it possible to show how the specific costs of equity joint ventures are directly linked to their benefits (Hennart & Zeng, 2005). First, in contrast to the replication or the acquisition solution to the bundling problem, equity joint ventures provide access to inputs without actually having to own them (Zeng & Hennart, 2002). For example, in the Siecor equity joint venture, Siemens is able to access Corning’s glass fibre know-how without having to duplicate it. Access without ownership may, however, make parties increasingly dependent on one another (Mowery, Oxley, & Silverman, 1996). If that dependence becomes asymmetric, one party can hold up the other. Another problem that may afflict joint ventures is free riding. I have shown that joint ventures solve the problem of having to define and measure ex ante the contribution of partners by having them rewarded ex post from the profits of the venture. Their obligation is thus only one of best efforts. This gives joint venture partners an opportunity to contribute less than promised, that is to free ride. Spillovers are a third potential problem. Rewarding parties out of the ex post outcome of the venture makes sense whenever the inputs to be bundled are difficult to measure. This means that often they have weak property rights. Inputs with weak property rights are easy to misappropriate. One party may appropriate the contribution of the other for its own private benefit outside the venture – this is the spillover problem. Goal conflict poses another problem. The problem arises because joint venture partners, who are rewarded from the outcome of the venture, are given the right to co-manage it. Co-owners may have different goals. In Hennart and Zeng (2005) we show how these problems (holdup, free-riding, spillovers

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and goal conflicts) can be alleviated by the right choice of partners and the right design, for example the right scope. In Hennart (2006) I demonstrate that it is these structural aspects that are often the main determinants of performance, and not process issues, as argued by some (e.g. Das & Teng, 2002; Zajac & Olsen, 1993). Hence one does not need to understand the detailed processes by which joint venture evolve – a complex and time consuming task – to predict the likely outcome.

International Modes of Entry The logic I used to explain equity joint ventures can also be applied to international modes of entry. I considered in my 1988 article the bundling of two types of knowledge. Foreign market entry typically involves the bundling of imported resources, such as new product or processes and new business models, and local ones, like access to customers, raw materials, local labour, land, utilities, local permits, etc. One can therefore model the optimum mode of entry as a function of the relative costs incurred by the foreign entrant and local owner of resources in accessing each other’s resources in order to bundle them (Hennart, 2009). Assume, for the sake of simplicity, that two parties do the bundling, an MNE bringing a new product to the foreign market and a single local owner of complementary resources (Table 3). The optimal arrangement will maximize the profits from bundling these two types of resources. In such bundling the performance of the party who is paid from the profits of the venture (who takes the equity) does not have to be monitored. For example, if the MNE takes title to the profits of the bundle, there is no reason for the local owner of complementary resources to attempt to monitor the MNE’s performance. Any shirking or cheating on the part of the MNE will reduce its profits. The MNE, on the other hand, will have to carefully evaluate the contribution of the local owner of complementary resources, since the latter, being paid ex ante, will benefit from undersupplying or over-pricing its deliveries. As I have shown above, the optimal solution gives title to the profits (gives equity) to the party whose performance is the most difficult to measure. This minimizes the combined costs of bundling the inputs and maximizes the profits from bundling them. This means that the MNE will take title to the profits if the costs of transferring knowledge to owners of complementary resources are higher than those of transferring local complementary resources to the MNE (cell 3 of Table 3). On the other hand, if the costs of transferring local resources to the MNE are higher than those incurred by the local owner of

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complementary resources to access the MNE’s knowledge (either through market purchase or through reverse engineering), then the local owner will get title to the profits (cell 2). When the costs that each party incurs accessing the resources of the other are both high, an equity joint venture is the optimal solution (cell 4) (Hennart, 2009). Contrast this with what one sees in the market entry literature. Most authors assume that the only relevant elements of Table 3 are the columns. They argue that low transaction costs in intangibles will lead the MNE to license its innovations to the local firm, while high transaction costs will persuade it to vertically integrate into manufacturing in the foreign country, with its choice between a wholly owned affiliate or a joint venture solely depending on its appetite for risk and desire for control (see, e.g. Ahmed, Mohamad, Tan, & Johnson, 2002; Padmanabhan & Cho, 1996; SanchezPeinado & Pla-Barber, 2006; Wei, Liu, & Liu, 2005). The implicit assumption made by the market entry literature is that local complementary resources are always available on perfectly efficient markets so there is no need to provide incentives to their owners to assure their supply. That assumption of efficient market for local complementary resources is, in fact, explicit in OLI theory. In the latest version of the OLI model, Dunning and Lundan (2008, p. 96) note that while ownership advantages are proprietary to a firm, location advantages are ‘specific to a particular location y but available to all firms’. As I show below, going along with this assumption has made it difficult for many IB scholars to properly

Table 3.

Optimal Assignment of Residual Rights in Foreign Market Entry. Knowledge Assets Held by the MNE Column 1: Easy to transact

Complementary assets held by local owners

Row 1: Easy to transact

1. Indeterminate

Row 2: Difficult to transact

2. Local firm is sole residual claimant=wholly owned operation of local firm

Source: Hennart (2009).

Column 2: Difficult to transact 3. MNE is sole residual claimant=wholly owned affiliate of the MNE 4. Joint venture between MNE and local firm

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evaluate the prospects of MNEs based in emerging markets, that is the emerging market multinationals (EMMs).

Emerging Market Multinationals The rapid increase in foreign investments by firms based in emerging markets, such as Brazil, Russia, India and China is increasingly attracting the attention of IB scholars. Some of these investments have been directed to other emerging countries, but a significant amount has been invested in advanced countries, the United States, Japan and several European countries (Ramamurti & Singh, 2009; Rui & Yip, 2008). For IB scholars steeped in OLI theory such investments are an anomaly, given that the OLI model predicts that firms will make foreign direct investments abroad to exploit their ownership advantages, which, as we have seen, consist of advanced technology and strong brands. Yet there is near unanimity among IB scholars that emerging market firms do not have strong ownership advantages (Bonaglia, Goldstein, & Mathews, 2002, 2007; Ramamurti, 2009; Rugman, 2009). Rugman and Li (2007) and Lessard and Lucea (2009) note that some emerging market firms have ventured abroad based on the location advantages of their home country, for instance oil and gas in Russia, minerals in Brazil and cheap labour in India and China. Based on OLI theory, they argue that these advantages cannot provide a long-term basis for multinational expansion because they are available to all firms. For Mathews (2002), this shows that the OLI model must be replaced by one that describes how emerging market firms venture abroad to acquire external resources. He offers his LLL model (2006) as a substitute to OLI, but fails to explain how emerging market firms can afford to acquire intangibles overseas while at the same time competing with the subsidiaries of intangible-rich advanced country MNEs in their home market. In a recent article (Hennart, 2012), I show that this puzzle arises from the assumption of OLI theory that the complementary local resources (the location advantages) that are often controlled by local firms in emerging markets are available to MNEs on an equal basis. I show that this is rarely the case. In fact there is considerable evidence that many of the emerging market firms that are investing abroad have amassed profits from their control of the complementary local resources needed to exploit intangibles in their home market. Table 3 depicts the situation in the home market of an emerging country, for example China. EMMs are in cell 2: they control resources which foreign entrants, that is advanced country MNEs, find difficult to access

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because their market acquisition would incur high transaction costs. Hence Chinese EMMs will take the equity, fully if the intangibles (knowledge assets and brand names) they need to complete the bundle can be acquired at low transaction costs (cell 2) or partly in a China-based equity joint venture with an MNE if this is not the case (cell 4). Intangibles can be obtained at low transaction costs if the inputs necessary to create them through internal effort are available on efficient markets, and if the market for the firms in which the intangibles are embedded is efficient. If the inputs and the firms are located overseas, EMMS will establish greenfield R&D centres in advanced countries and will take over R&D-intensive advanced country firms. I argue that EMMs can finance these catch-up investments through the profits they obtain from bundling resources in their home market. Their control of location advantages often give them monopoly power, and a strong bargaining power vis-a´-vis advanced country MNEs. Only by assuming that location advantages are always freely available to all comers, including advanced country MNEs, can one conclude as does Mathews (2006), that EMMs are ‘resource-poor’ or that they are at a ‘comparative disadvantage’ (Luo & Tung, 2007). In fact, many EMMs are not resource-poor, and are not at a comparative disadvantage vis-a´-vis the advanced country MNEs that compete with them in their home market through wholly owned affiliates (cell 3) or in joint venture with them (cell 4). There are even reasons to believe that those EMMs who benefit from a large home market, and who have managed to control access to local consumers and to obtain a superior knowledge of their needs and preferences, may be in a stronger position than advanced country MNEs. Technological knowledge, the main ownership advantage possessed by MNEs, is becoming increasingly accessible on efficient markets for technology, experts and management services (Zeng & Williamson, 2007). The market for high-technology firms in most advanced countries is efficient. Slow growth in Europe, the United States and Japan is persuading some of these high-tech firms that selling themselves to EMMs is an attractive proposition. On the other hand, the only efficient way for advanced country MNEs to access local consumers is often to acquire the local firms which have privileged access to them. This is made increasingly difficult by policies of emerging markets governments that restrict such acquisitions.

PERFORMANCE Transaction cost theory has been used primarily to predict the scope of firms – that is the range of activities firms will undertake internally, the

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functions they will perform, the products they will supply and the geographical locations where they will be active. As I have shown, a firm’s vertical, horizontal and conglomerate expansions, when they cross national boundaries, give rise to MNEs. Although strategy scholars have also been interested in the scope of firms, they have focused on product scope. More so than IB scholars, strategy scholars have also sought to identify ways in which firms can garner super-normal profits. Hence while transaction cost theory has traditionally studied the antecedents of scope, strategy has been concerned with the antecedents of performance.

Multinationality and Performance There is however one very prolific research stream in IB that has addressed the antecedents of performance. Many studies, based on diverse samples of US, European and Japanese firms, have attempted to show a link between a firm’s multinationality (its international footprint) and its profitability. To date the results have been inconclusive. Some authors have found a linearly positive relationship between multinationality and performance, some a linearly negative one and some no relationship at all. More recent studies have tried non-linear specifications, with some finding a U-shaped relationship, and some an inverted U-shaped one. Recently there have been attempts to fit sigmoid specifications (Bae, Park, & Wang, 2008; Contractor, Kundu, & Hsu, 2003). Three main theoretical arguments have been used in that literature to hypothesize a link between multinationality and performance. The first is that a bigger foreign footprint allows firms to get more value from their intangibles because they can better amortize the fixed costs of their R&D investments. According to the second, having international foreign operations makes it possible to obtain better access to resources, including knowledge. The third holds that firms that operate in multiple foreign locations have greater bargaining power and more opportunities to avoid taxes. While there are many problems with this literature at the conceptual (Verbeke, Li, & Goerzen, 2009), empirical (Hennart, 2011; Verbeke & Brugman, 2009) and methodological levels (Cardinal, Miller, & Palich, 2011; Verbeke & Brugman, 2009), perhaps the most basic is that its main theoretical arguments, which I have listed above, ignore the fact that the MNE is only one of many possible ways to organize international interdependencies. For instance, integration into foreign manufacturing is only one way to exploit R&D investments. Such investments can also be

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exploited through licensing or management contracts, which do not result in a foreign footprint. One does not need to have foreign affiliates to tap foreign resources: they often can be had on international markets (again leaving no foreign footprint). A firm will compare the net benefits of both options and decide accordingly, what has been called the ‘make-or-buy’ decision. Transaction cost theory tells us that a firm’s footprint is therefore the result of a large number of make-or-buy decisions. At any point in time, a firm’s footprint should be optimal, and hence no increase or decrease in that footprint can increase its profit. In fact, any deviation from that footprint should lower performance. In the absence of other factors that cause firms to systematically deviate from the optimum, there should be no relationship between multinationality and performance (Hennart, 2007, 2011). A relationship between a firm’s foreign footprint and its performance could emerge, however, there are factors that cause a firm to systematically deviate from its optimal footprint. Think of managers of Chinese stateowned firms. They may decide to have the firms they manage invest abroad because responding to the government call for internationalization furthers their own careers. This may result in foreign investments that do not make economic sense and lower the firm’s profits. If private firms were less likely to adopt such behaviour, then a regression of multinationality on performance across the population of Chinese firms would uncover a negative relationship between multinationality and performance. Such a relationship might disappear if one controlled for state ownership. Consider, on the other hand, that founders of family firms often reserve management positions for family members, and that family members are more parochial on average than professional managers. Then family firms would have a smaller foreign footprint than their non-family peers, and a regression of firms that included both family and non-family firms would uncover a positive relationship between multinationality and performance. My view is that future research should investigate first whether there are systematic differences between comparable firms in the size of their international footprint, and whether these are related to specific firm characteristics, for example their governance. One could then investigate whether deviations from the optimal footprint are associated with lower performance.

The Source of Super-Normal Profits If a larger foreign footprint is not a sure source of high profitability, then what is? Proponents of the resource-based view (RBV) have argued that a

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firm can earn super-normal profits (attain sustainable competitive advantage) if they own resources that are valuable, rare, inimitable and nonsubstitutable (Barney, 1991). I have argued (Hennart, 1994c), along with others, that because the firm must acquire most of the resources it needs, the only way it can earn super-normal profits is to acquire resources at a price below the present value of the future rent stream they will generate. If the size of this future rent stream is widely known, then the price of the resource will approximate its present value, and there will be no opportunity for super-normal profits. If it is not known, then its acquirers are placing a bet on its size. Some will gain, some will lose, but basically it is all down to luck. It might very well be that the overall return on making such bets is negative. There is not much space here for strategy. This analysis ignores the fact that profits may arise from the combination of factors, from their bundling. Early versions of the RBV stressed that the only resources that could generate super-normal profits for the firm were those that were permanently tied to it. Later authors stressed that relationships could also be sources of value (e.g. Dyer, 1996). In a 1994 article in the Journal of Management Studies (Hennart, 1994c), I made the point that it is not ownership of resources that is a potential source of super-normal profits, but the ability to combine them in such a way that the resources are worth more in their present combination than in any other alternative one. For example, a firm will earn super-normal profit from its use of research personnel if its R&D manager, through its superior hiring and management of team members, make researchers eager to continue their present employment in the firm even though they generate more value than what they are paid in salary. As long as things do not change, the researchers may ignore outside offers for more money and may decide not to leave the firm and start competing businesses. In other words, even common, imitable and substitutable resources can generate super-normal profits for the firm if they are bundled in a particularly productive way. It is not internal or external resources that create value for the firm, but the way they are bundled. To make that point, I used three examples, Singer Sewing Machines, McDonalds and Toyota. Singer Sewing Machines used a salaried sales force at a time when all its competitors used independent agents. This allowed Singer to better serve its clients and it quickly obtained a near monopoly in sewing machines. McDonalds externalized the operation of fast food outlets by devising and enforcing an effective franchise model and became the dominant fast food seller in the United States, bypassing White Castle and its then dominant square hamburgers. Toyota devised better employment contracts than its US competitors, thus obtaining from its workers greater effort and better quality. It also successfully delegated more of the design of

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parts to subcontractors, allowing it to cut down the time needed to design new models. All of these strategies did not involve rare, inimitable and nonsubstitutable resources. The workers Toyota hired in Kentucky were farmers with no automobile industry experience. Toyota did not use special, difficult to imitate machines to assemble its cars. Competitors could easily obtain copies of McDonald’s franchising contracts. While I find this account of how value is created much more persuasive than one based on resources (if owning resources led to wealth, Zaire would be richer than Switzerland), my theory of why firms can earn super-normal profits suffers from the same weakness as resource-based theories, including dynamic capabilities (Teece, Pisano, & Schuen, 1997): it identifies superior strategies ex post, a task infinitely easier than predicting them ex ante.

CONCLUSION I started my research on MNEs when the United States was the clear world leader, militarily, economically and morally. When scholars thought of MNEs, their mental images were GE, P&G, Ford and GM. For a while Japanese firms were seen as taking over the world. Today we are being warned of Chinese Dragons at our door (Zeng & Williamson, 2007). While the context has dramatically changed, there is not much that I would change to the basic theory outlined in my Theory of Multinational Enterprise. Over the years I have completed and extended the model and found it to be a useful tool to explain many IB phenomena that have been ignored or misunderstood by the IB field. I have added financial capital to the list of the international interdependencies that are potentially internalized by firms, showing that some peculiar types of MNEs, for example free-standing firms (Wilkins and Schroeter, 1998) and capital ventures, can be explained by the presence of high transaction costs in interdependencies involving financial capital (Hennart, 1994a, 1994b, 1998). I have also looked at the international investments of trading firms (Hennart & Kryda, 1998), another type of MNEs, which, like free-standing firms, has received very little attention in the IB literature. I have also used the bundling model to explain the choice between greenfield and acquisition entry (Hennart, 2009; Slangen & Hennart, 2008). One difference between these two modes of entry is in the markets used to bundle the resources. Greenfield entry is chosen when the market for the inputs necessary to create the required assets is efficient, while acquisition is preferred when some of the necessary assets are embedded in firms but their services cannot be bought on efficient markets. The model shows that

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brownfields are a special type of acquisitions where the needed assets are only a small part of the acquired assets (Hennart, 2009). I have also analysed some of the contracts used in international business, and in particular countertrade. Countertrade is a generic term used to describe trade agreements under which a sale is made contingent on a reciprocal purchase. Barter is only one of these agreements; most of them involve parallel goods-for-money trades. Some international marketing scholars see such agreements as motivated by a buyer’s lack of foreign exchange (e.g. Akhter, 1994). Transaction cost theory suggests that they can also be seen as reciprocal commitments (Hennart, 1989b). Reciprocal commitments are useful to enforce market transactions in the presence of high transaction costs (Williamson, 1985). One possibility, therefore, is that countertrade is undertaken when governments prevent parties to use equity when thus is the mode of governance they would normally choose to organize their interdependence. Forced to use contracts instead, parties try to reinforce them by stipulating reciprocal commitments. This suggests that countertrade is likely to be undertaken by countries that restrict incoming foreign direct investment rather than by those with hard currency shortages, a hypothesis that receives empirical support (Hennart & Anderson, 1993). Lastly, the model behind my theory of the MNE has other implications that have not been fully exploited. It posits that the organizational methods used by the market and those used by the firm differ in fundamental ways, and that each method (exchange of outputs vs. central direction of behaviour) has its respective advantages and drawbacks. Transaction cost theorists have shown that markets fail in specific contexts, for example when they are thin and when goods and services are difficult to measure. One would also expect to see firms (and MNEs) succeed and fail in predictable circumstances. What precisely these circumstances are is the other half of a comprehensive theory of the choice between the firm and the market. Much more research is needed to better understand the inherent limitations of the hierarchical mode of organization. A better understanding of these inherent limitations would give us a more realistic view of the strengths and weaknesses of MNEs.

NOTES 1. I thank Sondra Grace of Gracefully Put for editing this manuscript. 2. FDI flows only measure the net funding that foreign affiliates receive from their parents. Because a variable, but sometimes important part of the funding of such affiliates is sourced locally, and because the contribution of labour is not included,

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FDI flows and stocks tend to systematically underestimate the activity of foreign affiliates in developed countries. Hence FDI flows and stocks are a biased measure of MNE activity (Beugelsdijk, Hennart, Slangen, & Smeets, 2010). 3. This literature totally disregarded the important point made by the transaction cost theory of the MNE that equity links could lead to more efficient technology transfer. See Hennart (1989a). 4. The employment contract is a contract where agents agree to ‘do as told’ (Masten, 1988). 5. The end of the period saw the emergence of international trading firms, international banks and free-standing firms (Jones, 1996, 1998, 2000). 6. I use the term interdependency to dispel the notion that firms can only internalize transactions previously organized by markets. 7. The first mention by Williamson that transaction cost theory can explain the MNE is in his 1985 book (Williamson, 1985). 8. This is why Dunning’s model is called the OLI model. It is also called the eclectic paradigm because it merges internalization and location theories. 9. This does not mean that there are no firm-level variables in my model. A transaction is internalized whenever: (1) organizing it through an employment contract is more efficient than organizing it through the market and (2) the benefits are higher than the costs. Whether this is the case depends on the characteristics of the transaction, but if one assumes that firms differ in their ability to organize transactions internally, then it also depends on firm characteristics. 10. I submitted the manuscript to the Journal of International Business Studies where it was rejected for ‘being nothing new’. With more than 1,600 Google citations to date, it is now my most cited work. The article also explains the necessary and sufficient conditions for scale equity joint ventures. 11. The case of joint ventures made me understand that to bundle resources one can use: (a) the market for inputs to produce assets, (b) the market for the service of assets, (c) the market for the assets themselves and (d) the market for the firms in which the assets are embedded. 12. Hennart and Reddy (1997) find support for the fact that Japanese firms prefer joint venturing with US firms over acquiring them when the desired assets held by these US firms are tangled with non-desired assets and hence hard to digest. 13. Oxley (1997, p. 390) calls equity joint ventures ‘the classic form of hybrid organization’.

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INTERNALIZATION THEORY AS THE GENERAL THEORY OF INTERNATIONAL STRATEGIC MANAGEMENT: JEAN-FRANC- OIS HENNART’S CONTRIBUTIONS Alain Verbeke and Jenny Hillemann ABSTRACT We discuss Professor Jean-Franc- ois Hennart’s key contributions to international strategic management theory, with a special focus on his integrative, 2009 Journal of International Business Studies article, ‘Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets’. In Hennart’s (2009) model, complementary assets co-determine the MNE’s initial entry mode choice and the subsequent evolution of the MNE foreign operations’ governance. Hennart (2009) describes this perspective on MNE governance as one based on asset bundling. We focus on the paper’s conceptual insights and discuss how Hennart’s model of foreign market entry informs managerial practice in the realm of international strategy.

Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 35–52 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026007

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INTRODUCTION In international strategic management research, two competing views coexist on how to determine foreign entry mode choice. Some scholars (Anderson & Gatignon, 1986; Johanson & Vahlne, 1977, 1990) have argued that multinational enterprises (MNEs) choose an entry mode based on ‘their need for control and tolerance for risk (y), with the latter a function of their degree of familiarity with the host country’ (Hennart, 2009, p. 1432). In contrast to such a ‘unilateral’ approach, contemporary, mainstream ‘OLI’1 and internalization theory scholars would argue that, when entering a foreign market, an MNE is required to bundle two sets of resources, namely (proprietary) non-location-bound firm-specific advantages (FSAs) such as innovation capabilities relative to other firms, and largely exogenous, country-specific advantages (CSAs) of host nations. CSAs can include natural resources, the local demand for the MNE’s products, favourable government regulation, etc. (Dunning, 1988; Dunning & Lundan, 2008; Hennart, 2009; Rugman & Collinson, 2006; Rugman & Verbeke, 1990; Verbeke, 2009). The configuration and relative strength of host environment CSAs influence a firm’s decision on how to serve foreign markets, e.g. through exporting or local production. CSAs also co-determine which host countries will be the recipients of particular MNE products or production facilities. However, relatively little attention has been paid to the ways in which firms can access such CSAs and how such accessibility affects the firm’s initial entry mode choice and subsequent operations. A critical point in this context is that CSAs can be owned by third parties, in which case the optimal entry mode choice ‘must be one that maximizes the welfare of those owners as well as that of the MNE’ (Hennart, 2009, p. 1433; see also Chen, 2005; Hennart, 1988, 1989, 2000; Yeung & Mirus, 1989). Teece (1986) has even argued that local asset owners might end up capturing all profits of the MNE’s operations, subsequent to the MNE’s withdrawal from the host market. Hennart (2009) has pursued further this line of inquiry as the basis for his model on optimal MNE entry mode choice. Hennart’s (2009) model has the following characteristics: 1. Unlike most prior studies, his model takes into account licensing, equity joint ventures (EJVs) and wholly owned subsidiaries (WOS) simultaneously. 2. Within WOS as entry mode, his model further allows explaining the choice among greenfield, brownfield and acquisition investments.

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3. After the initial entry into a foreign market, the model predicts a plausible, subsequent evolution of the MNE foreign operations’ governance. Hennart’s (2009) model aims to predict MNE entry mode choices when entering a host country. Prior research often excluded one of the three ‘generic’ entry mode alternatives and focused, e.g. on the choice between a WOS (internalization with full hierarchical control) and an EJV (internalization, with only partial control), but without considering licensing (external market contracts) as a strategic alternative. Importantly, Hennart (2009) argues that the international strategic management literature has focused for too long on the MNE as the sole ‘decision maker’ in entry mode choices. Such MNE-centric approach ignores the critical role of third parties who own CSAs in the form of ‘local assets’. In the present paper, these local assets include, for the sake of simplicity, higher order combinations of intangible resources, i.e. capabilities. In this context, Hennart criticizes prior studies for disregarding ‘the transactional characteristics of CSAs that may influence whether and how they can be accessed by MNEs’ (2009, p. 1434). In contrast, Hennart’s (2009) model shows that the level of transaction costs involved in accessing complementary local assets influences the MNE’s entry mode choice. The adoption of ill-conceived, MNE-centric approaches in prior studies likely explains (at least partially) the inconsistent empirical support for hypotheses on optimal entry mode choices (Brouthers & Hennart, 2007). In this paper, we identify the contributions to international strategic management theory of Hennart’s (2009) Journal of International Business Studies (JIBS) article, ‘Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets’. We focus especially on how Hennart’s conceptual insights inform managerial practice in the realm of international strategy.

MNE-CENTRIC THEORIES When expanding internationally, the MNE makes a simultaneous decision to enter a particular foreign market and to utilize a particular entry mode (Barkema & Vermeulen, 1998; Hennart, 2009; Hennart & Park, 1993). The choice of entry mode refers, inter alia, to the percentage of ownership sought in the foreign venture. If the MNE opts for a WOS (100% ownership), it

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must further choose among a greenfield investment, a brownfield investment or the acquisition of an existing business. Early studies on entry mode choice focused on a wide variety of reasons as to why MNEs could opt for a specific entry vehicle in particular circumstances (e.g. Vernon & Wells, 1976). Various scholars used internalization theory to explain the choice between licensing (i.e. external markets; 0% MNE ownership of foreign operations) and direct investment (i.e. internal organization; partial or full MNE ownership of foreign operations) (Buckley & Casson, 1976; Rugman, 1981). In his own early work, Hennart (1982) concentrated on the desirable degree of ownership, which determines the choice between WOS and EJVs. Internalization theory assumes that the desired degree of ownership will depend on the firmspecific assets to be safeguarded from misappropriation. Thus, MNEs that transfer abroad unique knowledge vulnerable to theft or imitation typically prefer to enter the host country utilizing wholly owned operations (Delios & Beamish, 1999). The assessment of internalization benefits formed the intellectual cornerstone for much subsequent empirical research on MNE entry mode choices, and was further enriched with the Williamsonian version of transaction cost economics (TCE). Williamsonian TCE focuses on the importance of asset specificity and contractual safeguards against opportunism, but was initially devoid of substantive, international strategy related content (Williamson, 1975, 1985). Studies on MNE expansion (Teece, 1986), international EJVs (Beamish & Banks, 1987; Hennart, 1988; Kogut, 1988) and entry mode selection in general (Anderson & Gatignon, 1986; Kogut & Singh, 1988), combined insights from Williamsonian TCE with the work of mainstream internalization theory scholars (Delios & Beamish, 1999). However, for a long time, scholars modeled entry mode choices largely from a ‘unilateral’ MNE perspective. They defined entry mode choices based on specific MNE characteristics (see Anderson & Gatignon’s (1986) framework) and managerial tradeoffs made inside the MNE, e.g. regarding preferred levels of resource commitments, preferences for control, desired risk and return levels, and needs for international rationalization (see Brouthers, 1995; Padmanabhan & Cho, 1996). In addition, research on the evolution of MNE host country operations was mainly informed by the MNE’s challenges, without much consideration for local, third parties owning the requisite complementary assets for the MNE to be successful abroad. Here, Hennart (2009) criticizes the Uppsala internationalization model of Johanson and Vahlne (1977, 1990) for its exclusive focus on experience-driven factors as explanatory variables for

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entry mode choice evolution (see also Barkema & Vermeulen, 1998; Padmanabhan & Cho, 1999; Vermeulen & Barkema, 2001). In contrast, Dunning’s (1988) OLI or eclectic paradigm did consider local complementary assets, since in this model, MNEs will shift from exporting to establishing international operations when the optimal exploitation of the MNE’s ownership advantages (or FSAs) requires complementary assets that cannot be acquired in the home country, but must be accessed abroad. In this context, Hennart argues that a firm’s choice between exporting and international expansion depends on ‘the quality and quantity of these hostcountry assets, called location advantages by Dunning (1988), and CSAs by Rugman and Verbeke (1990)’ (2009, p. 1434). Unfortunately, the transactional characteristics and accessibility of those complementary local assets were not fully considered in extant conceptual frameworks such as Dunning’s. In contrast, Hennart (2009) carefully reflects on the transaction costs associated with accessing those complementary assets, and the impact thereof on MNE entry mode choice and subsequent operations in the host country.

THE ASSET BUNDLING APPROACH The opposite of an MNE-centric approach is an analytical lens that addresses the transactional characteristics of complementary assets in the host country and their potential for bundling with the MNE’s FSAs. These complementary assets co-determine the MNE’s initial entry mode choice and its subsequent evolution. Hennart (2009) describes this view as the asset bundling approach. Various prior empirical studies had actually demonstrated the influence of complementary assets on entry mode choice when internationalizing in the context of resource-based industries (see Delios & Beamish, 1999; GomesCasseres, 1989; Hennart, 1991). In 1988, Hennart established a theory of EJVs building upon ‘the interaction between at least two owners of complementary assets’, an approach he extended in other contributions (2009, p. 1435, see also Hennart, 1988, 2000). Almost at the same time, Teece (1986) provided ‘the foundations of a more complete theory of the role of complementary local assets in foreign market entry’ (Hennart, 2009, p. 1435). The main contribution of Hennart’s (2009) article is his analysis underlying a 2  2 matrix that represents the various possible combinations of an MNE’s resources and a local owner’s complementary assets, see Table 1. A combination of both, in the form of asset bundling, is necessary to

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develop successfully value-adding activities in a particular host country. In Table 1, extant knowledge is the key FSA the MNE seeks to exploit and various local assets constitute the key CSAs to be accessed as complementary resources. The axes in Table 1 then determine ‘the transaction costs that are incurred in selling knowledge and complementary local assets in the markets for the services of assets, in the market for assets, and in the market for firms owning the assets’ (Hennart, 2009, p. 1437). The three markets provide the MNE with various options to exploit its extant knowledge and to access requisite CSAs. First, the MNE could make its own knowledge accessible in the market for asset services, by licensing this knowledge to a host country manufacturer, who will then engage himself in local production. Second, the MNE could purchase complementary local resources in the market for assets (e.g. in the labour market or the market for natural resources) and bundle these with its own FSAs, in order to enhance goods and services produced abroad. Here, the MNE could of course itself simply sell its own knowledge assets to an attractive bidder in the host country. Third, the MNE could offer itself or parts of itself for sale, or acquire (or merge with) foreign companies, in which case it would be active in the market for firms. Earlier contributions (e.g. Anderson & Gatignon, 1986; Dunning, 1988; Rugman, 1981) focused largely on ‘the absolute level of transaction costs affecting the knowledge services of MNEs’ in the context of alternative entry modes, as reflected in the columns of Table 1 (Hennart, 2009, p. 1439). However, Hennart’s asset bundling model illustrates that the entry mode choice is determined not only by the costs to the MNE of accessing the requisite locally complementary assets, but also by the costs to the local owner of complementary assets, in the context of the asset bundling process. Table 1.

Operating Mode Selection as a Function of External Market Efficiency. MNE FSAs

Complementary assets/capabilities held by third party

Efficient market Inefficient market

Efficient market

Inefficient market

1. Contractual agreements (CA) 2. Wholly owned third-party subsidiaries (WOTPS)

3. MNE wholly owned subsidiaries (WOS) 4. Strategic partnerships (SP)

Source: Grøgaard & Verbeke (2012), inspired by Hennart (2009).

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IMPLICATIONS FOR INTERNATIONAL STRATEGIC MANAGEMENT Hennart’s (2009) JIBS paper has reinforced the point that two elements are important in international strategic management decisions. First, governance costs ‘associated with utilizing the external market should always be compared with internal organizational costs, for multiple transactions in multiple markets simultaneously’ (Grøgaard & Verbeke, 2012, p. 8). Second, governance choices are determined by both the MNE (and the characteristics of its proprietary knowledge base), and by various other partners who hold valuable assets. International strategy scholars should therefore refrain from adopting an MNE-centric approach (Chen, 2010; Hennart, 2009). From a managerial perspective, MNEs should thus adopt a broader view than suggested by the conventional entry mode choice literature. MNEs ‘should select a host country based on the overall relative efficiency of multiple relevant markets’ (Grøgaard & Verbeke, 2012, p. 11). Thus, entry mode choice is ultimately affected by a set of possibilities to acquire various locally owned or controlled complementary assets in the market for asset services, the market for assets, and the market for firms. Furthermore, MNEs should evaluate ‘the relative efficiency of transacting such assets y in multiple markets, within each potential host country’ (Grøgaard & Verbeke, 2012, p. 12). In host countries where the MNE can exploit extant FSAs without much effort to adapt, this amounts to a reduced need for local complementary assets and hence minimal linking investments (Grøgaard & Verbeke, 2012; Verbeke, 2013). MNEs with strong, easily transferable FSAs and low requirements to engage in linking investments for effective FSA exploitation in particular foreign markets have conventionally been expected to prefer exporting over establishing local operations, since the latter are typically associated with higher governance costs (Dunning, 1988). When these firms do engage in foreign direct investment (FDI) – e.g. because of trade barriers or transportation costs – they often require only generic, host country complementary assets (e.g. competitive distribution channels to reach eager consumers) and do not require extensive adaptation to augment the firm’s extant FSAs. Hennart (2009) and Teece (1986) have argued that if the MNE needs primarily simple, complementary assets in a particular foreign country, this will increase the probability of requisite assets being accessible in an efficient

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fashion in asset markets. In this situation, the absence of barriers to access such local complementary assets will support the likelihood of success of the MNE’s host country activities. However, the question still remains, irrespective of easy access to coveted CSAs, how much the MNE’s FSAs will need to be adapted. This is important especially for market-seeking MNEs that are confronted with the ‘[p]ressures for FSA adaptation to suit host country needs through linking investments’ (Grøgaard & Verbeke, 2012, p. 12). Such firms prefer host countries that require lower linking investments because in those countries the original (home-country-like) value of transferred FSAs can be kept comparatively high.

MNE CONTROL OVER FOREIGN OPERATIONS When firms internationalize, the fundamental decision to ‘make or buy’ provides the setting for the optimal future governance of the MNE’s international activities. Entry modes are typically classified as equity versus contractual modes. More specifically, the MNE engaging in a direct investment (equity mode) and seeking full or joint ownership, versus signing a licensing agreement (contractual mode), represents a key strategic choice. As noted above, the MNE’s entry mode choice represents a joint optimization challenge that depends on both the MNE’s FSAs and the complementary assets held by local parties, ‘rather than on the absolute efficiency of the market for either’ (Grøgaard & Verbeke, 2012, p. 18). Complementary assets may be needed in a wide range of value chain activities and may thus have to be sourced in a variety of external markets. According to Hennart (2009) and Chen (2010), each individual complementary asset must be considered on all three market levels, namely the market for asset services, the market for assets and the market for firms, before the MNE can come to a final determination on the relative efficiency of internalization vis-a`-vis the use of external markets. One managerial implication is that a foreign entry may consist of a mix of entry modes, each determined by the characteristics of specific MNE FSAs and requisite local complementary assets that will be bundled together (Benito, Petersen, & Welch, 2009). Paradoxically, with an increasing level of firm-specific knowledge, especially covering ‘technological, marketing or administrative (governancerelated) knowledge’, governance costs may rise when establishing foreign operations, because it may become more difficult to protect the MNE from knowledge dissipation (Gatignon & Anderson, 1988; Hennart, 1991;

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Verbeke, 2009, p. 14; Williamson, 1985). Firm-specific knowledge determines the MNE’s asset specificity when engaging in contracting with local asset holders abroad. For example, ‘[i]f the MNE reveals too much detail about FSA characteristics to third parties, in particular its tacit component’ (Erramilli & Rao, 1993; Grøgaard & Verbeke, 2012, p. 13; Slangen & Hennart, 2007; Williamson, 1985), potential partner firms might try to appropriate the returns to the MNE’s knowledge and take advantage of the MNE’s dependency in the local market ‘through shirking, free-riding, or technology dissemination’ (Brouthers, 2002, p. 205; Gatignon & Anderson, 1988; Hennart, 1991; Williamson, 1985). In order to protect FSAs and reduce the risk of unreliable partner behaviour, the MNE will have a preference to keep control over its valuable assets by choosing a more hierarchical entry mode or making the contracting partner a co-owner (Gatignon & Anderson, 1988; Hennart, 1991; Makino & Neupert, 2000). Grossman and Hart (1986) suggest that the entry mode choice is reflected in the degree of control over FSAs that need safeguarding against unintended transfers. Control is an important parameter because it allows the MNE to be the final decision-maker on the venture’s operations and management (Anderson & Gatignon, 1986). In order to protect the MNE’s FSAs and to guarantee non-dissipation of knowledge, contractual agreements may require intense negotiation efforts and can be associated with high implementation risks. Due to these high costs and potential hazards, MNEs may decide to expand through equity modes to minimize market inefficiencies when transferring their FSAs to the host country, as shown on the righthand side of Table 1 (Hennart, 2009). However, difficulties of transacting the MNE’s FSAs in the host country are not the only determinant of an equity-based entry mode choice. Access to local complementary assets, and the related linking investments allowing joint usage with the MNE’s FSAs play an important role too. In general terms, MNEs with FSAs that are difficult to transact in the host country, but needing only easily accessible complementary assets, are predicted to enter the host country through full ownership modes, as shown in cell 3 of Table 1. In this case, the sale of the MNE’s knowledge is associated with high transaction costs, but if the MNE can access requisite complementary assets in efficient host country markets, the best choice to bundle these assets with the MNE’s FSAs is through purchasing them directly – e.g. by using labour contracts, or through acquiring local firms in which these assets are embedded – as discussed in the next section (Hennart, 2009). The MNE can then enter the host country with a WOS. Easily accessible and absorbable

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local complementary assets across the value chain eliminate the need for strategic partnerships. In sharp contrast to the case above, there may be an efficient market for knowledge, but inefficient markets for local complementary assets. In that case, local owners should hold the equity in the host country operation, and access the MNE’s knowledge base through licensing (or through contracting the MNE’s employees), as illustrated in cell 2 of Table 1 (Hennart, 2009). If both the MNE’s FSAs and the local firm’s complementary assets are difficult to transact because they are both ‘costly to access on the market for assets and asset services, or on that for firms owning the assets’, then joint ownership should be the preferred choice, as suggested by cell 4 in Table 1 (Hennart, 2009, p. 1440). In this case, both the MNE and the local firm become residual claimants and hence overcome the inefficiencies on the market for the MNE’s knowledge and the market for local complementary assets. The two partners’ rewards for their contributions will depend on the results of the joint hierarchy (Hennart, 2009). Hennart (2009) credibly argues, in contrast to the conventional Williamsonian view, that the choice between a WOS and joint ownership (a) is not equivalent to the choice between an intermediate-level and a full-level hierarchy, since both modes reflect hierarchical control, and (b) is unrelated to the level of asset specificity of the MNE’s knowledge base, since both modes are associated with high asset specificity of the MNE’s knowledge base. Joint ownership is the best choice when neither party has a more efficient alternative available to acquire the other party’s idiosyncratic assets (Hennart, 2009). To recapitulate, the choice in favour of an equity-based entry mode depends not only on the characteristics of the MNE’s FSAs, but also on those of the complementary assets held by local owners. As explained above, MNEs with stand-alone FSAs that are easily replicable bear the risk of unwanted knowledge dissemination when transacting these in the host country. Entering contractual agreements for stand-alone knowledge can be associated with bounded rationality problems, increase the risk of knowledge dissipation, and therefore reduce the efficiency of external contracting. In order to avoid such market problems, MNEs will typically enter the host country through equity-based modes; i.e. a WOS or an EJV with a local firm, depending upon the characteristics of the assets held by the local firm and needed by the MNE. However, when the MNE enters a host country with mature (codified) technology, then contractual agreements, especially licensing, may represent

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a more attractive entry mode choice (Hennart, 2010). Here, negotiation and implementation costs associated with contractual agreements can be reduced, turning this entry mode into an attractive alternative, as shown by the left-hand side of Table 1. Exploiting mature technology in host countries makes contractual agreements more appealing than WOS because such contracts minimize internal managerial costs without necessarily reducing the benefits accruing to the MNE (Grøgaard & Verbeke, 2012). An alternative to licensing is to recombine the resources held by both partners in a novel way. Recombining the MNE’s ‘old technology’ with local complementary assets could create synergies and build the foundation for new competitive advantage, as suggested by cell 1 of Table 1. For example, contract manufacturing (whereby the MNE keeps ownership of the products) to achieve cost efficiencies could be the best entry mode choice for two reasons. First, the MNE’s governance costs can be minimized through efficient market transactions. Second, through recombining FSAs with assets held by external partners, both partners can achieve synergies. Opportunities for knowledge recombination should always be considered when evaluating the various entry mode choice alternatives.

ACQUISITIONS AS A FOREIGN ENTRY MODE Importantly, in cell 3 in Table 1, the MNE can enter the host country through greenfield investment or an acquisition. Both types of equity-based operations have mode specific costs and benefits. Whether the MNE will select a greenfield investment or an acquisition will depend ‘on how efficient the markets for assets and asset services are relative to those for firms’ (Hennart, 2009, p. 1441). In general terms, the greenfield option is typically more efficient for market-seeking MNEs with strong FSAs as these firms require control over sensitive knowledge transfers and over the knowledge deployment process in the host country (Slangen & Hennart, 2007). By choosing a wholly owned, greenfield investment as the preferred entry mode, MNEs opt for ‘greater control over the FSA transfers as well as their usage and integration in the local operation’ (Grøgaard & Verbeke, 2012, p. 14; Hennart & Park, 1993). But greenfield investments are associated with long set-up times and high upfront managerial costs. In addition, greenfield investments may not always be feasible; e.g. when local distribution channels are closed completely to foreign entrants, and controlled fully by local asset owners. In that case, a full acquisition may provide a viable alternative.

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Especially if local complementary assets embedded in the acquired firm are easily absorbable, MNEs may choose acquisitions as the preferred entry mode (Hennart & Reddy, 1997), despite the fact that acquisitions often involve high integration efforts that may have a negative impact on effective FSA transfer and the profitable deployment of these FSAs. For example, when acquiring a local firm with a strong corporate culture and related routines, the MNE may face strong resistance to change that may reduce the likelihood of successful FSA transfer and exploitation. An additional downside of acquisition-based operations, is the simultaneous acquisition of desired and at least some non-desired assets. According to Hennart (2009), acquisitions represent the most efficient option when: (1) requisite complementary assets are embedded in a local firm and cannot be acquired efficiently on an open market for assets or for asset services; (2) the market for firms is efficient; and (3) the managerial costs associated with the firm’s acquisition and isolating/accessing the desired assets, are low. In contrast, when the MNE enters a host country with efficient markets for assets and asset services, it will be able to access requisite complementary local assets on those markets and will therefore opt for a greenfield investment. If neither market is efficient, and requisite complementary assets are ‘embedded’ in local firms, the question arises as to the efficiency of the market for firms. In the case of an efficient market for firms, access to the assets can be obtained through full or partial acquisition of the local owner or through establishing a greenfield joint venture with the asset owner. Asset embeddedness in local firms ‘increases the cost of acquiring resources in the market for asset services or in that for assets relative to that of acquiring firms or joint-venturing with them’ (Hennart, 2009, p. 1442). Acquisitions are often strongly regulated by government and may be restricted as the result of structural barriers, such as family-based corporate control or imposed public-private equity partnerships. Here, the market for firms becomes more efficient when shares are listed on the stock market and shareholding is dispersed. However, the choice to acquire a firm is not only dependent upon its embedded assets and a reasonably efficient market for firms, but also on the managerial costs associated with integrating the local firm in the MNE and subsequently accessing its assets. Those costs depend on two factors: (1) ‘the degree to which the acquired assets match those of the acquirer, which itself depends on their modularity’ and (2) ‘the incentive losses that come from having the acquirer appropriate the residual claims held by the owners of the target firm’ (Hennart, 2009, p. 1443).

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Modularity defines the degree of difficulty of isolating the requisite complementary assets that are embedded inside the local firm, from the remaining assets also acquired by the MNE (and with the latter potentially disposable if justified from an economics perspective). Hennart (2009) concludes that, everything else constant, acquisitions will be favoured over EJVs when the acquired assets are modular and the incentive losses following acquisition are minimal. Moreover, acquisitions are still preferable to EJVs and greenfield investments, even if the requisite complementary assets represent only a small share of the total assets acquired, provided that those assets are modular. In that case, the acquirer can separate the needed from the unneeded assets and restructure the acquisition according to his needs, without impairing the value of the retained assets. This type of acquisition is sometimes named ‘brownfield’, based on its resemblance to greenfield investments (Meyer & Estrin, 2001). However, when acquired assets are not modular and therefore requisite assets are tied to unwanted ones, this will increase integration costs. MNEs will then prefer either greenfield investments if assets and asset services can be obtained in non-embedded forms, or EJVs if assets and asset services are only available in embedded forms (Hennart, 2009). An additional advantage of JVs is the shared ownership of equity. EJVs can be more efficient than other entry mode choices when embedded assets of the local firm are difficult to reproduce through a greenfield investment and, at the same time, a full acquisition would bear the risk of decreasing motivation of the management or workforce of the acquired firm. Hennart (2009) concludes that, everything else constant, the managerial costs of acquisitions will depend on the degree of difficulty of the postacquisition integration, which in turn will vary with the MNE’s capacity to engage in asset bundling. ‘The greater the required degree of integration, the greater the management costs of implementing it, and the more attractive EJVs, both greenfield joint ventures and partial acquisitions, relative to full acquisitions’ (Hennart, 2009, p. 1445; see also Verbeke, 2010).

INTERNATIONAL ENTRY MODE CHOICE AND NATIONAL COMPETITIVENESS Non-location-bound FSAs are a precondition for international expansion (Verbeke, 2013). Porter’s (1990) work on the competitive advantage of

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nations stimulated a debate on the linkages between FSAs and CSAs. Porter’s ‘single diamond’ model argued that home country location advantages are the key source of FSAs, and determine international competitiveness. Hence, only in the case of a strong domestic ‘diamond’, encompassing factor conditions, demand conditions, related and supporting firms, and strong rivalry, can domestic companies be expected to develop the non-location-bound FSAs needed to expand abroad. In contrast, with a ‘double diamond’ or ‘multiple diamond’ model (Moon, Rugman, & Verbeke, 1998), firms also ‘absorb’ location advantages from other markets than the home market as the basis for augmenting their own FSAs. In this case, two or more nations play an influential role in the FSA development process. Liberalization of trade and investment barriers (e.g. the European Union or NAFTA) has increased ‘the possibility of freely accessing and drawing upon the resources present in a host country diamond’ that are necessary to operate in that foreign market (Verbeke, 2009, p. 110). There is a clear linkage between the double diamond framework and Hennart’s (2009) work on asset bundling. While Porter ignores the relevance of host country CSAs, Hennart (2009) and Verbeke (2013) characterize these CSAs as indispensable parameters in international expansion. Whether CSAs are described as location advantages, as in Verbeke (2013) or as complementary local assets (Hennart, 2009) matters little. The point is that the relative strengths of those CSAs and their accessibility determine a host country’s attractiveness and ultimately affect the MNE’s decision on whether to expand to this host country and if so, how to serve this market. As discussed above, an entry mode choice decision is a complex strategic challenge involving a ‘process of linking existing knowledge bundles with new knowledge in host countries and regions’ (Verbeke, 2009, p. 112). Here, the recombination of the MNE’s FSAs with the requisite complementary assets of local owners is crucial to the MNE’s overall success in the host country. To conclude, Hennart’s (2009) asset bundling model reinforces the managerial relevance of the double diamond framework and reemphasizes the importance of location advantages for MNE strategy. From a managerial perspective, location advantages can be conceptualized as sets of complementary assets needed by the MNE, but accessible only in specific countries and possibly owned by parties operating in imperfect markets (e.g. governments, firms, individuals). Here, it is critical to understand that location advantages only constitute ‘real’ advantages if accessible by the MNE through one or more properly functioning markets, thereby allowing asset bundling to occur.

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CONCLUSION Hennart’s (2009) JIBS article represents a fundamental scholarly contribution to the international strategic management field. It has transformed internalization theory into the one general theory of international strategic management (Grøgaard & Verbeke, 2012). Together with five other luminaries – Peter Buckley, Marc Casson, John Dunning, Alan Rugman and David Teece – Jean-Franc- ois Hennart can be considered one of the ‘Big Six’ founders of the modern theory of the MNE. His scholarly work is both intellectually brilliant and managerially relevant, and irrespective of present (high) citation counts, is likely to influence the brightest international strategy scholars of the next generation. The present paper is meant to honor Hennart’s lifetime scholarly achievements, but we expect he will continue to pursue substantive scholarly innovation. Guided by Albert Szent-Gyorgyi’s principle that ‘discovery consists of seeing what everybody has seen and thinking what nobody has thought’, Hennart will likely continue to surprise the international strategy field with his sharp mind and profound insights, building upon empirical information observable and accessible by all, but best understood by him alone.

NOTE 1. OLI refers to the three sets of ‘advantages’ held by multinational enterprises (MNEs), and identified by John Dunning as instrumental to foreign direct investment (FDI), namely ownership (O), location (L) and internalization (I) advantages. The joint analysis of these three types of advantages constitutes the heart of Dunning’s ‘eclectic paradigm’, aimed to facilitate description and analysis of MNE foreign expansion strategies.

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Hennart, J.-F. (2010). Transaction cost theory and international business. Journal of Retailing, 86, 257–269. Hennart, J.-F., & Park, Y.-R. (1993). Greenfield vs. acquisition: The strategy of Japanese investors in the United States. Management Science, 39, 1054–1070. Hennart, J.-F., & Reddy, S. (1997). The choice between mergers/acquisitions and joint ventures: The case of Japanese investors in the United States. Strategic Management Journal, 18, 1–12. Johanson, J., & Vahlne, J. (1977). The internationalization process of the firm: A model of knowledge development and increasing market commitments. Journal of International Business Studies, 8, 23–32. Johanson, J., & Vahlne, J. (1990). The mechanism of internationalization. International Marketing Review, 7, 11–24. Kogut, B. (1988). Joint ventures: Theoretical and empirical perspectives. Strategic Management Journal, 9, 319–332. Kogut, B., & Singh, H. (1988). The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19, 411–432. Makino, S., & Neupert, K. (2000). National culture, transaction costs, and the choice between joint venture and wholly owned subsidiary. Journal of International Business Studies, 31, 705–713. Meyer, K. E., & Estrin, S. (2001). Brownfield entry in emerging markets. Journal of International Business Studies, 32, 575–584. Moon, H. C., Rugman, A., & Verbeke, A. (1998). A generalized double diamond approach to the global competitiveness of Korea and Singapore. International Business Review, 7, 135–150. Padmanabhan, P., & Cho, K. (1996). Ownership strategy for a foreign affiliate: An empirical investigation of Japanese firms. Management International Review, 36, 45–65. Padmanabhan, P., & Cho, K. (1999). Decision specific experience in foreign ownership and establishment strategies: Evidence from Japanese firms. Journal of International Business Studies, 30, 24–44. Porter, M. (1990). The competitive advantage of nations. New York, NY: Macmillian. Rugman, A. (1981). Inside the multinationals: The economics of internal markets. New York, NY: Columbia University Press. Rugman, A., & Collinson, S. (2006). International business (4th ed.). Harlow, UK: Prentice Hall. Rugman, A., & Verbeke, A. (1990). Global corporate strategy and trade policy. London, UK: Routledge. Slangen, A. H. L., & Hennart, J.-F. (2007). Greenfield or acquisition entry: A review of the empirical foreign establishment mode literature. Journal of International Management, 13, 404–429. Teece, D. (1986). Profiting from technological innovation: Implications for integration, collaboration, and public policy. Research Policy, 15, 285–305. Verbeke, A. (2009). International business strategy. Cambridge, UK: Cambridge University Press. Verbeke, A. (2010). International acquisition success: Social community and dominant logic dimensions. Journal of International Business Studies, 41, 38–46. Verbeke, A. (2013). International business strategy (2nd ed.). Cambridge, UK: Cambridge University Press.

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Vermeulen, F., & Barkema, H. (2001). Learning through acquisitions. Academy of Management Journal, 44, 457–476. Vernon, R., & Wells, L. T. (1976). Manager in the international economy. Englewood Cliffs, NJ: Prentice Hall. Williamson, O. E. (1975). Markets and hierarchies: Analysis and antitrust implications. New York, NY: Free Press. Williamson, O. E. (1985). The economic institutions of capitalism. New York, NY: Free Press. Yeung, B., & Mirus, R. (1989). On the mode of international expansion: The role of agency costs in an expanded framework. Unpublished manuscript.

JEAN-FRANC- OIS HENNART: TYPES OF RESEARCH, QUALITIES AND CONTRIBUTIONS Arjen H. L. Slangen ABSTRACT In this chapter I will elaborate on Professor Jean-Franc- ois Hennart’s impressive career in honour of him receiving the 2012 Booz & Co./ Strategy+Business Eminent Scholar in International Management award. I will first present a sevenfold typology of his publications, classifying them into (1) conceptual studies on why multinational enterprises (MNEs) exist and use specific entry modes, (2) industryfocused case studies, (3) statistical studies of foreign entries, (4) review studies of entry mode choice, (5) country-level studies of international business activity, (6) conceptual studies scrutinizing multinationalityperformance research, and (7) studies of emerging-market MNEs. I will then point out some of his qualities that in my view have contributed to his scholarly success. I will also describe the main academic and practical contributions of his work, and finish with a short conclusion.

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INTRODUCTION Professor Jean-Franc- ois Hennart is consistently ranked among the most published and most cited scholars in International Management (IM), making him one of the key contributors to this increasingly important research field (Canabal & White, 2008; Lu, 2003; Peng & Zhou, 2006). As one of his co-authors and former PhD students, I feel privileged to be given the opportunity to elaborate on his scholarly career in honor of him receiving the Booz & Co./Strategy+Business Eminent Scholar in IM award at the Academy of Management conference in 2012. In an attempt to shed some additional light on this impressive career, I will present a typology of Hennart’s academic research over the past 30 years, discuss some of his qualities that in my view have contributed to his scholarly success, and describe the main contributions of his work to the field of IM and to managerial practice. I will finish with a short conclusion.

A TYPOLOGY OF HENNART’S RESEARCH The Oxford English Dictionary defines a typology as ‘a classification according to general type, especially in archaeology, psychology, or the social sciences’. In this section, I will develop such a classification of Hennart’s main academic publications, proposing that these publications can be classified into seven general types. These types are: (1) conceptual studies on why multinational enterprises (MNEs) exist and use specific entry modes, (2) industry-focused case studies, (3) statistical studies of foreign entries, (4) review studies of entry mode choice, (5) country-level studies of international business (IB) activity, (6) conceptual studies scrutinizing multinationality-performance (M-P) research, and (7) studies of emergingmarket MNEs. Each of these types will be briefly reviewed below.

Conceptual Studies on MNE Existence and Entry Mode Usage The first group of publications consists of conceptual studies in which Hennart developed and later extended his well-known transaction cost theory of the conditions under which firms become MNEs and use specific entry modes such as equity joint ventures (JVs). The foundation for this group of studies was his 1977 PhD thesis entitled A Theory of Multinational Enterprise (published in 1982), which develops the novel idea

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that firms choose to own foreign operations and thereby become MNEs if the costs of organizing specific types of profit-generating international interdependencies – such as those involving intangible assets, raw materials, distribution, and financial capital – within the firm are lower than the costs of organizing these interdependencies through arm’s length market transactions (Hennart, 1982). Hennart (1988a) extends this idea in A Transaction Costs Theory of Equity Joint Ventures, which argues that such jointly owned ventures arise if there are large differences in minimum efficient scale between the interdependent value chain stages (in the case of scale JVs) or if firms have complementary proprietary assets whose markets simultaneously fail (in the case of link JVs). By now this publication has received almost 1,700 citations in Google Scholar, making it Hennart’s most cited paper and showing the big impact it has had on IM research on JVs. Another important conceptual insight Hennart generated is that while MNEs arise if the costs of organizing interdependencies within the firm are lower than those of organizing them through market transactions, this does not mean that MNEs exclusively rely on hierarchy and that markets exclusively rely on prices. Instead he proposes that most international interdependencies, both those organized within firms and those organized through markets, are coordinated through a mix of hierarchy and price incentives and are hence located in the ‘swollen middle’ of the hierarchyprice continuum, with internalized interdependencies often leaning more towards the left end of the swollen middle and market-based interdependencies leaning more towards its right end (Hennart, 1993). In recent years Hennart has further extended his thinking about MNEs’ raison d’eˆtre and their entry mode choices by developing a comprehensive model that is the first in its kind to consider the transactional characteristics of both MNE and complementary local assets. This so-called bundling model conceptualizes foreign market entry as the optimal assignment of equity between MNEs and the owners of complementary local assets. By looking at the relative efficiency of the different markets in which MNE and complementary local assets are traded, and at how these two types of assets match, the model predicts whether equity will be held by MNEs or by local firms or will be shared between them, and whether MNEs will enter through greenfields, brownfields or acquisitions (Hennart, 2009). Industry-focused Case Studies The second group of publications consists of case studies of the aluminum and tin industries (Hennart 1986, 1988b). These studies were conducted to

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test some of the main predictions of transaction cost theory and gain new insights to further enrich the theory. A key insight generated by the studies was that, consistent with transaction cost theory, interdependencies within the aluminum industry were organized differently than some of those within the tin industry. Hennart observed that refining bauxite into alumina requires investments that tend to be specific to the type of bauxite used, implying that only a small number of bauxite mines can supply an alumina refinery. To avoid the high transaction costs associated with such small numbers exchange, the interdependence between bauxite mines and alumina refineries is typically internalized; i.e. organized within vertically integrated firms owning both mines and refineries. By contrast, smelters of alluvial tin concentrates typically do not have to make investments in assets with high specificity, making the market for such concentrates relatively efficient. Consequently, smelters of alluvial tin concentrates and firms mining such concentrates are generally separate entities that organize their interdependence through spots markets and long-term contracts.1 This empirical insight has been used as an illustrative example of the explanatory power of transaction cost theory in several studies (e.g. Aubert, Rivard, & Patry, 2004; Hennart, 2011; Shelanski & Klein, 1995), and has even found its way into leading IB textbooks (e.g. Peng & Meyer, 2011).

Statistical Studies of Foreign Entries The third and largest stream of publications is composed of statistical studies of foreign entries. Most of these studies examined entry mode choices, notably the determinants of such choices (e.g. Chen & Hennart, 2002; Hennart, 1991; Hennart & Reddy, 1997; Slangen & Hennart, 2008a) and their ex post consequences for subsidiaries’ performance (Hennart, Kim, & Zeng, 1998; Hennart & Zeng, 2002; Slangen & Hennart, 2008b). These studies often tested predictions derived from transaction cost theory, with some of them also considering complementary and competing theories. Hennart and Park (1993), for instance, considered not only transaction costrelated determinants of MNEs’ choices between greenfield and acquisition entry but also determinants derived from mergers & acquisitions theory, capital market imperfections theory, and the theory of the growth of the firm. Likewise, Hennart and Park (1994) also considered strategic factors in their study of the odds that MNEs engage in manufacturing activities abroad. Instead of considering theories complementary to transaction cost theory, Hennart and Larimo (1998) considered a competing theory – national

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character theory – and explored whether either that theory or transaction cost theory explains MNEs’ entry mode choices. They found that the cultural distance between home and host countries rather than the cultural position of home countries determines whether MNEs enter through JVs or through wholly owned subsidiaries (WOSs), leading them to argue in favor of the explanatory power of transaction cost theory. Besides often testing predictions derived from transaction cost theory, the studies belonging to the third group often also analysed samples of Japanese entries into the US (e.g. Chen & Hennart, 2002; Hennart, 1991; Hennart & Park, 1993, 1994; Hennart & Reddy, 1997; Hennart et al., 1998; Hennart & Zeng, 2002). An advantage of this approach of incorporating only one home and one host country is that it facilitates the collection of comparable archival data on MNE parents and host industries, and hence enables a rich analysis of the effects of parent and local industry characteristics (Hennart & Park, 1993). Another advantage is that these effects cannot suffer from confounding influences of hard-to-measure home and host-country characteristics such as various types of host-country acquisition barriers. A caveat with this research design is that the relatively narrow sample may yield findings that are not generalizable to Japanese entries into other countries or to non-Japanese entries into the United States (Slangen & Hennart, 2007).

Review Studies of Entry Mode Choices Besides conducting many statistical studies of entry mode choice, Hennart also performed several qualitative reviews of such studies, notably of those examining the choice between greenfields and acquisitions (Slangen & Hennart, 2007) and of those exploring the choice between contractual arrangements, equity JVs and WOSs (Brouthers & Hennart, 2007). Both these review studies extensively discuss the main theoretical perspectives used and empirical findings obtained by the literature, identify limitations of this literature, and offer a wide variety of conceptual and methodological suggestions to guide future entry mode research.

Country-level Studies of IB Activity Although most of Hennart’s work focuses on individual international expansions, some of it has analysed aggregate levels of IB activity.

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This latter work consists of country-level studies on countertrade (Hennart, 1989, 1990; Hennart & Anderson, 1993), arm’s length exports (Slangen, Beugelsdijk, & Hennart, 2011), and ways of measuring MNE subsidiary activity (Beugelsdijk, Hennart, Slangen, & Smeets, 2010). Countertrade refers to transactions in which a seller provides a buyer with products and promises in return to purchase products from the buyer. It includes both barter and several types of reciprocal money-for-products transactions such as buy-backs, and has been argued to form a substantial and growing share of total world trade (Marin & Schnitzer, 1995). Hennart developed a novel explanation for the existence of countertrade by arguing and showing that such trade is often a reasonable way to minimize transaction costs if it is impossible to internalize interdependencies between buyers and sellers through foreign direct investment (FDI). Focusing on another specific part of total trade, Slangen et al. (2011) showed that trade with unaffiliated parties, i.e. total trade minus intrafirm trade, may very well increase rather than decrease with the cultural distance between the trading nations, since this distance increases the relative attractiveness of serving unaffiliated foreign customers through exports from home rather than through foreign subsidiaries. Beugelsdijk et al. (2010), finally, showed that the common practice of measuring the total amount of MNE subsidiary activity in countries by their inward FDI stocks is flawed, since such stocks misrepresent MNE subsidiary activity to a country-specific degree and are hence a biased measure of that activity.

Conceptual Studies Scrutinizing M-P Research The sixth group of publications consists of studies that critically evaluate the large body of research on how a firm’s multinationality affects its performance, what has been called M-P research (Hennart, 2007, 2011). In these studies Hennart uses transaction cost reasoning to question the main theoretical rationales for the existence of a systematic relation between FDI-driven multinationality and firm performance. One often-used rationale as to why this relation should be positive – either at all multinationality levels (in the case of a linear positive relation) or at some levels (in the case of a U-shaped, inverted U-shaped, or sigmoid relation) – is that greater FDI-driven multinationality allows firms to realize greater scale economies in their intangible assets and hence higher profits. However, according to Hennart, this rationale ignores firms’ alternative

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option of exploiting their intangible assets abroad through market-based contractual arrangements like licensing and franchising. Unlike FDI, such arrangements do not increase a firm’s multinationality, yet there is no a priori reason to expect them to generate systematically lower profits, since managers generally can be expected to make rational (i.e. profitmaximizing) choices between market-based arrangements and FDI. Hennart uses similar arguments to dismiss the other main rationales that have been put forward to predict a positive effect of multinationality on performance.

Studies of Emerging-market MNEs In contrast to the six established bodies of research described above, Hennart’s seventh and final research stream is an emerging one that aptly focuses on emerging-market MNEs. This stream has recently materialized in the form of a first conceptual publication (Hennart, 2012), which argues that Dunning’s OLI paradigm (Dunning, 1980; Dunning & Lundan, 2008) is illsuited for explaining FDI by emerging-market MNEs. The reason, Hennart argues, is that the paradigm assumes that location advantages are country characteristics that are freely available to all locally operating firm seven though, especially in emerging markets, some of these advantages are actually owned by domestic firms deriving monopolistic gains from them. This subset of emerging-market firms can use their monopoly power to obtain complementary strategic assets in developed countries, allowing them to successfully compete with developed-country MNEs in their own market and later internationally.

HENNART’S ACADEMIC QUALITIES As one of Hennart’s co-authors and former PhD students, I have been in the fortunate position to closely work with him for several years. In this section I will describe my resulting perception of his qualities that have been conducive to his academic success. First, Hennart is a strong analytical thinker, as shown for example by his relatively many conceptual publications. This trait has enabled him to develop a rigorous comparative cost logic and to consistently apply that logic to many international interdependencies (from those involving various intangible assets to those involving financial capital or countertrade) and research topics (from entry mode choice to M-P

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research and emerging-market MNEs). Together with his critical stance towards existing studies, his strong analytical skills have also enabled him to pinpoint limitations in extant theories and empirical practices. His dissatisfaction with existing theories can for instance be observed in his work on why MNEs, JVs and countertrade exist and his critical analyses of M-P research and OLI-based research on emerging-market MNEs. His discontent with specific empirical practices becomes evident in some his entry mode work and his study as to why FDI stocks are a biased measure of MNE subsidiary activity. By subtly pointing out these limitations, he has been able to demonstrate the necessity and superiority of his alternative theoretical and empirical approaches. Second, Hennart is very inquisitive, both academically and otherwise. His almost insatiable academic curiosity has led him to address ‘big questions’ such as why MNEs exist and what explains their performance and that of their subsidiaries (Buckley, 2002; Peng, 2004). Hennart is also very curious when it comes to life outside academia. During our time at Tilburg University, for instance, he regularly bombarded me with questions about the Dutch culture and language in order to maximize his understanding of Dutch society in general and of his rural residential community in particular. As another PhD student neatly put it in the preface of his dissertation, ‘Jean-Franc- ois is the most curious person I have ever met. He is curious, whether it is about transaction cost theory or about the finer workings of my parents’ vegetable garden’ (Eapen, 2007, p. i). Third, although Hennart is consistently ranked among the most published IM scholars, his main aim is to have impactful rather than numerous publications. This aim, in combination with his great perseverance and a strong belief in his own ideas, has enabled him to make a real difference to the field of IM. For instance, his 1991 paper on the transaction cost determinants of the choice between JVs and WOSs was the second most cited IM article published in the 1990s (Peng & Zhou, 2006) and the fourth most cited entry mode article published over 1980–2006 (Canabal & White, 2008). Moreover, ten of his publications have received more than 200 citations in Google Scholar by now, with five of them receiving more than 500. According to Peng and Zhou, Hennart belongs to a small subset of eight authors ‘who excel in both volume and influence of their research’ (2006, p. 490). Finally, Hennart is a gifted writer and skillful speaker, enabling him to communicate his ideas clearly and convincingly. He also regularly makes use of analogies to support his point and maximize its convincingness. While he uses such figures of speech mostly in oral explanations, he sometimes also

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uses them in his publications, as can be seen from his research note on alliance research, where he states the following: I disagree with Zajac and Olsen (1993) that one needs a theory of how changes [within alliances] take place to predict whether they take place. In many instances the medical profession is unable to describe the process by which a particular drug affects the body, but yet can predict its effects. Similarly, as I will argue below, we do not need detailed accounts of human interactions and of their consequences to predict what will happen to alliances. Often a good analysis of their initial structure suffices (Hennart, 2006, p. 1623, emphasis in original).

HENNART’S CONTRIBUTIONS It should be clear from the above sections, as well as from Verbeke and Hillemann’s (2013) chapter earlier in this volume, that Hennart has made various important contributions to the field of IM, most prominently by greatly enhancing our understanding of MNEs’ raison d’eˆtre and their mode choices for their subsidiaries. However, perhaps equally important, his work is also of significant value to managerial practice as it sheds light on how managers can realize successful international expansion. This especially holds true for his third research stream consisting of statistical studies of foreign market entry, as several of these studies identified how entry mode and other factors influence ex post subsidiary performance (Hennart et al., 1998; Hennart & Zeng, 2002; Slangen & Hennart, 2008b). Moreover, other studies belonging to this third stream identified, among others, how transaction cost-based factors influence ex ante entry mode choices (Chen & Hennart, 2002; Hennart, 1991; Hennart & Park, 1993; Hennart & Reddy, 1997). The findings from these studies also have managerial relevance, since entry mode choices in line with transaction cost theory have been shown to result in superior performance (e.g. Brouthers, 2002; Nickerson & Silverman, 2003).

CONCLUSION Jean-Franc- ois Hennart has long been and still is one of the world’s leading IM scholars. His research can be classified into seven groups of studies, most of which use a transaction cost perspective. Owing to his distinct academic qualities, these studies have resulted in several groundbreaking contributions to the research field and managerial practice of IM. He therefore well

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deserves the 2012 Booz & Co./Strategy+Business Eminent Scholar in IM award. I congratulate him with this memorable award and look forward to his next inspiring contributions to the IM field.

NOTES 1. Note that this is not the case for lode concentrates generating tin. Like bauxite refining, smelting lode concentrates requires ore-specific investments, leading smelters of such concentrates and firms mining them to be vertically integrated (Hennart, 1988b).

ACKNOWLEDGEMENTS I thank Jean-Franc- ois Hennart for his valuable feedback on an earlier draft.

REFERENCES Aubert, B. A., Rivard, S., & Patry, M. (2004). A transaction cost model of IT outsourcing. Information & Management, 41, 921–932. Beugelsdijk, S., Hennart, J.-F., Slangen, A. H. L., & Smeets, R. (2010). How and why FDI stocks are a biased measure of MNE affiliate activity. Journal of International Business Studies, 41, 1444–1459. Brouthers, K. D. (2002). Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 33, 203–221. Brouthers, K. D., & Hennart, J.-F. (2007). Boundaries of the firm: Insights from international entry mode research. Journal of Management, 33, 395–425. Buckley, P. J. (2002). Is the international business research agenda running out of steam? Journal of International Business Studies, 33, 365–373. Canabal, A., & White, G. O., III. (2008). Entry mode research: Past and future. International Business Review, 17, 267–284. Chen, S.-F., & Hennart, J.-F. (2002). Japanese investors’ choice of joint ventures versus whollyowned subsidiaries in the US: The role of market barriers and firm capabilities. Journal of International Business Studies, 33, 1–18. Dunning, J. H. (1980). Toward an eclectic theory of international production: Some empirical tests. Journal of International Business Studies, 11, 9–31. Dunning, J. H., & Lundan, S. (2008). Multinational enterprises and the global economy. Cheltenham, UK: Edward Elgar. Eapen, A. (2007). Essays on international market entry: Strategic alliance governance and product segment entry. Unpublished PhD dissertation, Tilburg University, the Netherlands. Hennart, J.-F. (1982). A theory of multinational enterprise. Ann Arbor, MI: University of Michigan Press.

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Hennart, J.-F. (1986). Internalization in practice: Early foreign direct investments in Malaysian tin mining. Journal of International Business Studies, 17, 131–143. Hennart, J.-F. (1988a). A transaction costs theory of equity joint ventures. Strategic Management Journal, 9, 361–374. Hennart, J.-F. (1988b). Upstream vertical integration in the aluminum and tin industries. Journal of Economic Behavior and Organization, 9, 281–299. Hennart, J.-F. (1989). The transaction-cost rationale for countertrade. Journal of Law, Economics, and Organization, 5, 127–153. Hennart, J.-F. (1990). Some empirical dimensions of countertrade. Journal of International Business Studies, 21, 243–270. Hennart, J.-F. (1991). The transaction costs theory of joint ventures: An empirical study of Japanese subsidiaries in the United States. Management Science, 37, 483–497. Hennart, J.-F. (1993). Explaining the swollen middle: Why most transactions are a mix of ‘market’ and ‘hierarchy’. Organization Science, 4, 529–547. Hennart, J.-F. (2006). Alliance research: Less is more. Journal of Management Studies, 43, 1621–1628. Hennart, J.-F. (2007). The theoretical rationale for a multinationality-performance relationship. Management International Review, 47, 423–452. Hennart, J.-F. (2009). Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets. Journal of International Business Studies, 40, 1432–1454. Hennart, J.-F. (2011). A theoretical assessment of the empirical literature on the impact of multinationality on performance. Global Strategy Journal, 1, 135–151. Hennart, J.-F. (2012). Emerging market multinationals and the theory of the multinational enterprise. Global Strategy Journal, 2, 168–187. Hennart, J.-F., & Anderson, E. (1993). Countertrade and the minimization of transaction costs: An empirical examination. Journal of Law, Economics, and Organization, 9, 290–313. Hennart, J.-F., Kim, D.-J., & Zeng, M. (1998). The impact of joint venture status on the longevity of Japanese stakes in U.S. manufacturing affiliates. Organization Science, 9, 382–395. Hennart, J.-F., & Larimo, J. (1998). The impact of culture on the strategy of multinational enterprises: Does national origin affect ownership decisions. Journal of International Business Studies, 29, 515–538. Hennart, J.-F., & Park, Y.-R. (1993). Greenfield vs. acquisition: The strategy of Japanese investors in the United States. Management Science, 39, 1054–1070. Hennart, J.-F., & Park, Y.-R. (1994). Location, governance, and strategic determinants of Japanese manufacturing investment in the United States. Strategic Management Journal, 15, 419–436. Hennart, J.-F., & Reddy, S. (1997). The choice between mergers/acquisitions and joint ventures: The case of Japanese investors in the United States. Strategic Management Journal, 18, 1–12. Hennart, J.-F., & Zeng, M. (2002). Cross-cultural differences and joint venture longevity. Journal of International Business Studies, 33, 699–716. Lu, J. W. (2003). The evolving contributions in international strategic management research. Journal of International Management, 9, 193–213. Marin, D., & Schnitzer, M. (1995). Tying trade flows: A theory of countertrade with evidence. American Economic Review, 85, 1047–1064.

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Nickerson, J. A., & Silverman, B. S. (2003). Why firms want to organize efficiently and what keeps them from doing so: Inappropriate governance, performance, and adaptation in a deregulated industry. Administrative Science Quarterly, 48, 433–465. Peng, M. W. (2004). Identifying the big question in international business research. Journal of International Business Studies, 35, 99–108. Peng, M. W., & Meyer, K. E. (2011). International Business. London, UK: Cengage Learning. Peng, M. W., & Zhou, J. Q. (2006). Most cited articles and authors in global strategy research. Journal of International Management, 12, 490–508. Shelanski, H. A., & Klein, P. G. (1995). Empirical research in transaction cost economics: A review and assessment. Journal of Law, Economics, & Organization, 11, 335–361. Slangen, A. H. L., Beugelsdijk, S., & Hennart, J.-F. (2011). The impact of cultural distance on bilateral arm’s length exports: An international business perspective. Management International Review, 51, 875–896. Slangen, A. H. L., & Hennart, J.-F. (2007). Greenfield or acquisition entry: A review of the empirical foreign establishment mode literature. Journal of International Management, 13, 403–429. Slangen, A. H. L., & Hennart, J.-F. (2008a). Do multinationals really prefer to enter culturally distant countries through greenfields rather than through acquisitions? The role of parent experience and subsidiary autonomy. Journal of International Business Studies, 39, 472–490. Slangen, A. H. L., & Hennart, J.-F. (2008b). Do foreign greenfields outperform foreign acquisitions or vice versa? An institutional perspective. Journal of Management Studies, 45, 1301–1328. Verbeke, A., & Hillemann, J. (2013). Internalization theory as the general theory of international strategic management: Jean-Francois Hennart’s contributions. In Devinney, T. M., Pedersen, T., & Tihanyi, L. (Eds.) Advances in International Management, 26, 35-52.

PART II

INTRODUCTION TO PART II: DO WE DO SCIENCE? PHILOSOPHY AND KNOWLEDGE IN INTERNATIONAL BUSINESS AND MANAGEMENT Timothy M. Devinney, Torben Pedersen and Laszlo Tihanyi It has been more than half a century since John Dunning (1958) published the seminal work that is generally attributed with launching international business (IB) as a field.1 The origins of IB in international trade and industrial organization theory are well understood, as are the early years of the field and the scholars critical to the development of early IB theory (Buckley, 2009; Cantwell & Narula, 2003; Devinney, 2004). The exact origins of the field of international management (IM) is less certain, with a host of scholars from sociology, political science, psychology and other related social science disciplines being responsible for what we today generally hold to be the corpus of IM concepts and thinking. While IB arose from a core of scholarship – mainly in economics – IM formed more like a solar system pulling in research that arose primarily within difference academic spheres of influence.

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Although we can look back and ex post facto determine the path by which the field we see today is what it is, it is interesting to attempt to discover what a simple parsimonious and purposeful definition of our field would be. For example, there is no clear public definition of our field given by the Academy of International Business, the premier academic grouping in the world for IB/IM scholars (it assumes that anyone dealing with AIB knows what IB is). It is also revealing that when scanning the dozens of IB/IM textbooks published over the years we find little more than either tautological definitions of the field – e.g., international business is the study of business in the international context – or no definition at all – essentially explaining IB/IM as the activities and phenomena that might be encompassed by IB/IM thinking but not what is distinctive or scientifically important about them. This does not mean, of course, that there is not a latent, if loosely characterized, definition of our field that we as IB/IM scholars recognize and would generally agree upon. From our perspective, there is little doubt that we, as a community of scholars, do meet Longino’s (1990, p. 71) definition of a science as product of inquiry involving ‘critical discussion amongst a plurality of individuals about a commonly accessible phenomenon’. But what is that ‘commonly accessible phenomenon’ – or as Buckley and Casson (176: 31) characterize it plurally, ‘the phenomena that require explanation’ – that binds us together as scholars? For our purposes rather than belabour the point of that definition, we argue that two separate definitions are needed to emphasize the distinctiveness of the two areas of scholarship seen in IB and IM. We define the field of IB as ‘the study of the multinational enterprise (MNE) and the environment in which it operates’. The field of IM can be thought about as being encompassing the study of ‘the influence, actions and outcomes of, and relating to, the actors in the IB arena’. Both of these definitions are abstract but operational and allow for an accounting for nearly all the areas in which actors operate across cultures and nation states – it spans the domain of the phenomena of interest to us. At the same time they highlight important characteristics that define the leading work in the areas of IB and IM. First, IB is primarily a macro level field. Its dominant ‘dependent variables’ are outcomes, such as location choice, organizational form, entry mode type, performance and industry structure. Second, IM is more micro in orientation and also more closely aligned with functional disciplines – human resource management, marketing, finance, operations, etc. – and the tasks underlying them. Its dominant dependent variables are the composition, efficiency and structure of

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components of the management functions and tasks underlying these. Third, IB and IM are integrally linked in that the study of the MNE cannot be done without some recourse to the value chain structure of the enterprise while IM cannot exist without understanding the MNE context in which the functions and tasks are executed. These definitions are important for this volume for two reasons. Firstly, one cannot ask questions about ‘what we know’ until one has a coherent and agreed upon definition of what it is that we are seeking to know. In other words to have an epistemological understanding of what it is that we want to know, we must have an understanding of the ontological framework of what we believe makes up the foundation of what we want to know. Otherwise what appears to be knowledge amounts to little more than disparate pieces of information that, while interesting, do not address deeper and more meaningful scientific questions. Secondly, science is not random but purposeful. The pursuit of science – if that is, indeed, what we are doing as IB/IM scholars – requires testing, and testing requires structure to distinguish between real and false signals of truth or truth-like assertions. As noted by Longino (1990, p. 74): From a logical point of view, if scientific knowledge were to be understood as the simple sum of finished products of individual activity, then not only would there be no way to block or mitigate the influence of subjective preference but scientific knowledge itself would be a potpourri of merrily inconsistent theories. Only if the products of inquiry are understood to be formed by the kind of critical discussion that is possible among a plurality of individuals about a commonly accessible phenomenon, can we see how they count as knowledge rather than opinion.

THE DISTINCTIVENESS OF IB/IM SCHOLARSHIP If we look to the uniqueness of IB/IM scholarship and ask where it stands separate from standard and traditional management and business research we really have only two differentiating, but exceedingly important, factors that justify discussing IB/IM as a separate research paradigm (See, e.g., Devinney, Pedersen, & Tihanyi, 2010). First, IB/IM scholarship examines firms and management functions in an environment of extreme complexity. The underlying determinants of decisions – be they macro level IB decisions or micro level IM decisions – are greater in number, greater in their variance and more complex in the functional forms that lead to the final decisions made by the focal decision maker. The potential universe of decisions made in an IB/IM context is

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more complex and varied as well. Firms operating with multiple subsidiaries in different countries and selling products in different cultures will face more difficult and varied choices but will also have more strategic and operational options to choose from when ultimately deciding what to do – which markets to serve, in what form, with which products, produced in potentially different ways. As noted by Devinney, Midgley, and Venaik (2003) almost all traditional theories of markets and firms in IB assume (mostly implicitly) a neo-classical equilibrium structure (e.g., competitive or monopolistic). However, a more appropriate equilibrium structure for IB scholarship is one of ‘contestability’, which allows for very different structures to operate simultaneously supported and reinforced by the heterogeneity of the environment in which the MNEs operate and the endogeneity of their strategic choices. Second, IB/IM scholarship studies phenomena in an environment where the reality of that environment varies. In other words, the cultural context in which we examine IB/IM phenomena is one that is embedded, implying that an understanding of that context depends very much on the viewpoint taken by the observer. This is not a post-modernist perspective arguing for a socially constructed reality but one of philosophical relativism, implying that one needs to understand the correct perspectives to understand whether or not the models applied are appropriate but that being able to do so with any degree of certainty is nearly impossible. However, without taking this factor into account creates errors in measurement that potentially lead to false conclusions. Note that this is not a superficial call for ‘multi-method’ research but represents a more demanding requirement that researchers condition their results on the methodology that is applied to the domain in which it is conducted and then structure a broader research programme that varies methods and domains systematically so that their impact on the operative dependent variables can be accounted for. Both of these points are critical to understanding the scientific nature of IB/IM scholarship. Ultimately our theories are explanations (and predictions) of our dependent variables based upon mixtures of endogenous and exogenous factors in some functional relationship. Given that the distinctiveness of IB/IM resides in the complexity/heterogeneity of the dependent variables of interest – e.g., the modes and forms of entry – as well as the complexity/heterogeneity of the mixture and form of independent variables that drive those outcomes, creates unique challenges from both theoretical and methodological perspectives.

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DO WE MEET THE MINIMUM STANDARDS OF SCIENCE? There is little doubt that IB/IM scholarship has added considerably to the knowledge base of the management sciences. Many key concepts in management have their origins in IB/IM scholarship – specific advantages (firm, location, ownership, etc.), the liability of foreignness, institutional voids, etc. – or owe it to IB/IM scholars for broadening and deepening the scope of related scholarship that were originally not discussed as specific IB/ IM issues but became core concepts in IB/IM – e.g., comparative governance, joint ventures and alliances, non-market strategies and stakeholders, transaction costs and market failure, and so on. The field, through its many publication outlets is responsible for making cross-border multi-country research studies more of a norm rather than an exception in many areas of management (e.g., Kirkman & Law, 2005). Indeed, as we look at many of the chapters published in this volume – in particular the chapters by Nippa and Beechler on joint ventures, Bals, Berry, Hartman and Raettich on born global firms, and Uusitalo on technology transfer – we see the extent to which IB/IM-based scholarship has impacted upon primary research in inter-firm networks, entrepreneurship and innovation. However, just studying a set of phenomena does not imply that a field of study meets the basic precepts of science. Nor does the application of what appear to be, on the surface, scientific or science-like methodologies, imply that the actions are themselves worthy of being called a science. The criteria of science – sometimes called the ‘demarcation’ problem – are more demanding (see, e.g., Chalmers 1999). Specifically we can focus on eight specific criteria. First, science offers explanations. It is guided by laws, or more correctly for the social sciences, law-like proposition that the majority or plurality of scholars in the field accept (or at least do not reject outright) because of a belief in their potential universality or utility. Second, science is objective. The underlying models are measurable/quantifiable to the degree that they allow for examination. In other words, we accept the degree to which what we measure is valid from the standpoint of our understanding of a phenomenon. Third, science is testable. It can be compared to the ‘natural’ world and the veracity of its claims justified. Fourth, science makes predictions. In other words, science argues that a relationship between concepts exists in specific forms that are acceptable as hypotheses. For example, statements such as ‘if A occurs then X occurs with some

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probability’ exist. Fifth, science makes risky predictions. This is an area of immense debate, as it is well understood that falsification is not a necessary condition for science, particularly social science (see, e.g., Kincaid, 1996). Another, more general, way of expressing this is that every good scientific theory contains a prohibition: it denies that certain things happen and hence that denial – should it be shown to false – represents very strong evidence against the proposed theory. Sixth, science grows/progresses. It predicts results that do not necessarily exist with current ‘measurement’ technologies. Seventh, science is replicable. For constructs to have meaning and validity they must be useful and be shown to provide consistency in their predictive and explanatory validity. Eighth, science is tentative. Scientists give up on theories that are disconfirmed by the weight of evidence. If we put IB/IM research up against these criteria we have little problem with the first four. Any mixture of the existing dominant theories in IB provides us with testable predictions that are based on models that both explain and argue for specific ‘law-like’ forms. For example, Buckley and Casson’s (1976) theory of the multinational enterprise predicts that markets will be internalized within firms when specific market failures exist and when the costs of such internalization are low. They then outline the specific conditions under which this will be more likely to occur. Internalization process theory (Johanson & Vahlne, 1977) predicts that managers with less international experience will be more risk averse and that risk aversion will show up in a tendency to internationalize first to culturally closer markets where the risks are perceived to be lower. Where we see difficulties arising is in the degree to which our theories provide ‘risky predictions’ and the degree to which we can argue that our theories have made broad predictions that span the extent of the explanatory domain in which they arose. We can see this in two areas that highlight significant weaknesses in our field. First, of the major theories that we use it is difficult to find a single one that does not put forward arguments for ‘non’ events – in other words, those things that the theory says will never, ever happen in combination with another factor (or perhaps only happen by accident with some low probability that can be ignored statistically).2 Good theory compartmentalizes reality into those factors that arise in relationship to other factors and those that do not. Unfortunately, our theories invariably attempt to be too inclusive and hence make no risky predictions. For example, one of the major criticisms of cross-cultural research, such as the Globe project, is that while it correlates hosts of measures with specific phenomena, it is difficult

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at times to find a situation where culture does not matter. For example, Javidan, Dorfman, Sully de Luque & House (2006, p. 72) note: Should we also expect that leadership processes, like management practices, are similarly influenced by culture? The answer is yes; substantial empirical evidence indicates that leader attributes, behavior, status, and influence vary considerably as a result of culturally unique forces in the countries or regions in which the leaders function. But, as the colloquial saying goes ‘the devil is in the details,’ and current cross-cultural theory is inadequate to clarify and expand on the diverse cultural universals and cultural specifics elucidated in cross-cultural research.

We find many other potential areas where existing IB/IM theory is called into question. For example, if we examine the early life cycle theory (Vernon, 1966) or internationalization process theory, one position that could easily be taken (and was certainly proposed early on by these theories’ proponents) is that these theories imply that firms would/could only internationalize via a process that includes an evolution through stages. According to this logic ‘born global’ firms should not exist and emerging market MNEs should not be able to establish themselves within culturally distant develop markets without first having grown via regional and stagewise expansion through markets closer to home. Hence, one extreme position is that given that we have an overwhelming amount of evidence to the contrary (i.e., the research on born global firms such as Bals et al. in this volume (‘What Do We Know about Going Global Early?’) and work on emerging market MNEs), these theories are by scientific precepts invalid and should be abandoned for more meaningful and predictive alternatives. Yet this is not what we have done. The early internationalization process research remains within the top 1% of cited IB scholarship and still serves as the basis of a very significant amount of scholarship despite the fact that we know that as a holistic theory it is wrong. This issue also arises in a host of other theories and frameworks – hence one should not necessarily see this as an isolated instance. For example, the OLI paradigm is lacking in its ability to address the rise of e-business and alliance capitalism. Dunning’s (1995) attempt to expand the eclectic paradigm was essentially ineffective despite the fact that the eclectic paradigm was designed quite specifically not as a distinct theory but more as an agglomeration of theoretical ideas. A similar attempt was made to update internationalization process theory, also without much success (see, Johanson & Vahlne, 2009). Such issues have led many – including Aharoni in this volume (‘The Road to Relevance’) – to argue for ‘contingency theories’. Such theories condition relationships not with a ceterus paribus assumption but with an ‘it depends

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on something’ (dependere ab) assumption. The ‘something’ on which the prediction depends is only weakly understood and in many cases amounts to little more than a control of convenience, as in the case of context, industry, market, country, culture or some other factor where the mechanics of the dependence is unknown and simply thrown into the analysis because it is ‘accepted practice’ – i.e. ‘I used all the usual control variables’. While we are currently seeing a resurgence of contingency theories (and a significant upswing in studies of mediation and moderation), our view is that contingency logic is, in most cases, little more than kicking the theoretical can down the road. Finding our theories less than predictive we seek additional validity by adding in ancillary hypotheses that are meaningless as they are meant to increase the inclusive nature of the theory without any substantive logical reason for the additional inclusion.3 Although this is a natural evolutionary phenomenon in science – see Rygh’s chapter in this volume (‘Inherited Philosophy of Science? Economics and International Business Research’) for a nice discussion of research paradigms in IB (Kuhn, 1970; Lakatos, 1970) – simply bolting components onto what you believe is the hard core of the science can also blind scholars to the inconvenient truth that the paradigm itself should be abandoned and a new paradigm established. Another area where we see significant issues arising is in replication. As noted in this volume by Buckley, Devinney and Tang (‘Meta-Analytic Research in International Business and International Management’), we have far less accumulated empirical evidence in our field than one would believe at first glance. When we examine the IB/IM literature via a survey of meta analyses we see such significant methodological variation that our ability to make definitive statements about measured constructs is exceedingly limited. Indeed, we find almost no studies outside the arena of cross-cultural studies where there is consistency in the measurement of key constructs. For example, in one of the only group of studies ever to attempt to test4 the global integration-local responsiveness (GI-LR) framework of Bartlett and Ghoshal (1989), Devinney, Venaik and Midgley not only showed that the fundamental structure of the GI-LR framework did not work logically – it was underspecified and hence could not make any structured and empirically testable predictions – (Devinney, Midgley, & Venaik, 2000) but that it was impossible to replicate prior researchers’ empirical definitions of the key GI and LR constructs. When they replicated all of the empirical studies done to date in one single study they found that there was no convergence of the measures used by the various researchers (Venaik, Midgley, & Devinney, 2004); indeed, the measures

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examined actually diverged and did so because there wasn’t any consistency in the basic definition, the level of analysis or even the general directionality of the construct (e.g., some researchers viewed GI-LR as ‘pressures’ while others viewed them as ‘organizational orientation decisions’). Again, despite this rather damning evidence, the GI-LR framework remains one of the most utilized in IB/IM and continues to be heavily cited and used as the basis of empirical and theoretical IB/IM scholarship. We find it in nearly every IB/IM textbook and hence teach it to our students as if it were a justified true belief; i.e., proven knowledge (Ichikawa & Steup, 2012). A final area where we see issues arising in our theorizing are in the degree to which we are able to predict ‘out of sample’ or out of the current domain of what we examine; in other words, to what extent can we predict things will or should arise that currently do not exist. For example, physicists have had to postulate the existence of dark energy and dark matter to account for the gap in the measured amount of matter in existence. The Higgs boson was postulated and then confirmed as a necessary component of the Standard Theory of particle physics. In IB/IM we do have some similar tales but with less precise requirements of a Higgs boson. Work on the liability of foreignness created a dilemma for IB researchers in that it implied that MNEs were at a disadvantage relative to local firms, who did not have to manage as much complexity and were potentially better adapted to the local market. This led to a search for compensating advantages to the liability of foreignness – most notably now linked into our theories of knowledge-based advantage (see, e.g., Asmussen, Pedersen, Devinney, & Tihanyi, 2011). We can read this discussion in two ways. On the one hand, it is clear that IB/IM scholarship meets many of the basic requirements of science. On the other hand we see a worrying set of issues lurking close to the surface. Although we have theories that make predictions, too few of our theories make risky predictions. In addition, the lack of consistency in both theory and methodology create circumstances where we find it difficult to accumulate findings and engage in successful replication.5 Together these factors make us less tentative in our scientific criticism and create circumstances where we are less likely to abandon old and potentially dead or terminally ill theories.

MAKING IB/IM MORE SCIENTIFIC Given the prior discussion the most obvious question to ask is ‘what can we do that would materially improve our science?’ Although the list of potential

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suggestions of what we might want to do is endless, we argue for three primary ways in which we can think about improving the quality and impact of our research and scholarship in the pursuit of an understanding of those phenomena that reflect the important conundrums to our community. First, we need to know what we know with a greater degree of certainty. This might sound like an easily doable exercise but it is anything but simple. We took on the role as editors of the Advances in International Management precisely because we believe it is important to begin addressing this question and have, in the first three volumes, begun the process. Volume 23 concentrated on taking an inventory of where we have been and where we might go. Volumes 24 and 25 began the task of looking at key constructs and areas of importance to our scholarship – Volume 24 looking at the liability of foreignness and Volume 25 examining institutional theory. Future volumes will continue this. The current volume follows on from Volume 23 in asking the bigger question of ‘is what we are doing and how we are doing it’ taking us in the right direction as scholars and scientists? The growth in the number and quality of meta analytic research reviewed by Buckley, Devinney and Tang in this volume reveals that we are starting to ask the right questions about the aggregate value of our knowledge and are being more rigorous in questioning the aggregate value of what we know. However, we need to go further. If we compare what we do in management and IB/IM with initiatives such as the Cochrane Collaboration (http://www.cochrane.org/) in medicine we see that we have a long journey ahead of us. Just hoping that knowledge aggregation will arise organically is not a prescription for success. We need to do more and manage the process collectively. Firstly, To achieve this critically communicating what we know is important to knowing what we know. In other words, we need a true baseline for our science. Schwab and Starbuck’s chapter in this volume (‘Why Baseline Modeling Is Better than Null-Hypothesis Testing’) argues for this at the individual study level, while our point is that we need this at the level of our entire discipline. Even a field as ‘scientific’ as Physics has basic divisions as to the degree to which a ‘truth’ is out there. For example, a recent survey of physicists revealed that there was no strong consensus as to the basis of quantum mechanics (Schlosshauer, Kofler, & Zeilinger, 2013). Secondly, we need to do this periodically to bring into question both the extent and value of our knowledge. If we accept the premise that IB/IM scholarship is not a singular disciplinary endeavour but represents a plurality of scholars addressing overlapping sets of research paradigms bound by common phenomena then it is important that we stand back and

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periodically ask the larger question of whether the paradigms themselves are worthy of more work or new paradigms needs to be established. In this sense, much of our normal science amounts to the exploitation of what we think we know, rather than the exploration of what it is that we do not know. Second, we need a more systematic overarching design to our science. This brings up a related issue as to the extent to which IB/IM needs more of a ‘big science’ approach if it is going to address the most important questions. For example, in our definition of IB the MNE and its environment are at the core, yet unlike many of the more effective management or social sciences we lack the comprehensive data to be able to study what we need to study. So while we profess to be the science of the MNE, we do not possess a single overarching and readily usable database on the activities and performance of MNEs. Most empirical work on the MNE relies on samples of convenience that are not only not obviously comparable (at least we do not know if they are) but are generally databases that are generated for some purpose other than the investigation of the questions of importance to the scholar doing the analysis. It is notable to compare what we do to what is done in Finance or developments in population ecology. The availability of micro level trading data, corporate filings and Compustat data has transformed finance as a scientific discipline. More questions could be asked and more questions could be answered solely because it was possible to quickly put them to the test. In addition, the value of any specific construct could be easily and readily tested via replication and alternatives assessed. Although these datasets are not the only available to Finance scholars, they ensure that the core of the discipline is well understood by all, particularly methodologically. In organizational ecology the basic theoretical questions could be addressed because scholars had readily acceptable toolkits and a consistent theoretical basis on which to formulate hypotheses. Although these were utilised on different populations, the nature of the methodological approaches allowed for an easier aggregation of knowledge across studies.6 The importance of this last point can be seen in that most researchers assume that when they are subjecting their hypotheses to some statistical analysis that they are ‘testing’ the hypothesis. However, this is not the case at all in our field. Every empirical test of a hypothesis is a joint test of the hypothesis conditional on the method and the data. One can abstract away from this by coming up with a singular set of data on which the science is based (i.e., the domain of the science) and test all hypotheses within that domain (e.g., the researcher essentially spans the universe – as might be

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the case when studying stock trading). However, we do not have this luxury – meaning that every single one of our studies (with very few exceptions) amounts to a single study of a result conditional on a method and data source. This implies that it is very difficult for us to learn anything from a single study, as that study is really only a sample of 1 for which there are repeated measures within the sample. Hence, those, like Aharoni (in this volume), who call for a more contingency-based approach are correct in arguing that we must account for this, but potentially incorrect in that the value of contingency-based research is only seen when it is aggregated with other studies using different domains. Hence, if we are to follow this logic we need to think more like a ‘big science’, where the individual studies are part of a large systematic research design aimed at addressing an important problem for the benefit of the collective group of scholars. At present, our approach is much more organic and random, with the hope that something might arise from the plurality of scholars working semi-independently.7 Hence, if IB/IM is to advance as a science, we need to think about working more effectively together; where each of our individual projects is part of a larger systematic design to solve the key questions of interest to the majority of scholars. Finally, we need to take a severe testing approach to what we do. Deborah Mayo (1991, 1996) introduced the idea of severe tests to the philosophy of science but her logic has yet to be applied to, or even be understood by, management scholars. The idea of a critical test harkens back to an earlier statement we made that asked, what do our theories say will never occur? Mayo argues that a severe/critical test (T) is one where a result (e) is very unlikely to have occurred if the theory (h) is false. Note that this is different from saying that another test result (e) is very likely to occur if h is true. Hence, for Mayo a critical or severe test is one that focuses not on what a theory says should be true but what the falsity of a theory says is untrue. This is very different from our traditional testing logic or even how we frame hypotheses in our research. Normally we make statements like ‘T0: if h=true then e’ assuming that if ‘T1: h=false then not e’ is the alternative. We then go off and test whether T0 fits the data. But Mayo’s logic does not assume that ‘not e’ = e’ but that ‘not e’ = ‘not e’. It concentrates on saying that if my theory is wrong then e must not occur because e is so critical to my theory that it only occurs when my theory is correct.8 It does not matter whether T0 is correct, as T0 is not the right test to determine the validity of the theory. Hence the operative test is singular, ‘T2: e exists if h=true’. If one removed all error in the testing, then the failure to find e is confirmation that h=true. Mayo’s logic is not, however, identical to our

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earlier statement. Hence, hers is not the only critical test we can develop. For example consider an exclusionary test ‘T3: e1 exists if h=false’. If our theory says e1 never occurs then finding e1 implies our theory cannot be right (assuming no error). The difference between T2 and T3 is that T2 looks for the existence of unique components of the theory (and hence is more likely to be useful in induction), while T3 requires the researcher to know what a theory bars. However, in both cases the tests look to isolate those components of the theory that are best at testing the holistic validity of what the theory purports to be true. What this implies for us is that we need to concentrate not on what our theories include but what our theories or the alternative theories exclude. Presently, 99.9% of our empirical papers estimate sets of hypotheses about specific dependent-independent variable relationships, assuming that it some percentage of those hypotheses are ‘confirmed’ that the theory possesses validity. However, such tests do not represent effective theory testing at all since: (a) the important test is not confirmation but disconfirmation; (b) the hypotheses are not independent and hence represent not N hypotheses but 1 hypothesis containing N components all of which are critical to the validity of the theory (and hence the failure of one requires a rethinking of the theory); and (c) they fail the severity test of Mayo in the sense that none of our hypothesized constructs contain exclusionary or critical components that render them informationally valuable to the science. The above three points do not represent a complete accounting of the things we need to do as scholars of IB/IM to improve the validity of our discipline as a science. No doubt others would argue for more and different actions. Some would even argue that the precepts of science should not apply to management. Our point in this chapter is to introduce V26 of Advances in International Management as a beginning of a journey we believe is important and to draw a line in the scientific sand as to the minimum standards of our discipline. If we are to increase the impact of what we know – because it is more explanatory and more predictive – we need to set high minimum standards for what we would consider a ‘true science of the international’.

A SMALL BEGINNING We have split this volume of Advances in International Management into two compartments. One compartment can be thought about as the beginning of an inventory of the ‘what we think we know’ – what we

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characterize as ‘Meta Knowledge’. Part I, which presents articles from Booz & Co./Strategy+Business Eminent Scholar award, can also be considered part of this section of the volume as it presents a very cogent overview of both transaction cost economics as applied in IB/IM and research on entry mode choice. The second area we concentrate on is ‘Philosophy of Science’ in IB/IM. We chose this topic both because of its critical importance to what we believe are the foundational building blocks of our scholarship and the fact that it has been, to date, neglected by scholars in IB/IM. Scanning the journals in management, strategy, organizational behaviour, marketing, law, economics and so on reveals literally dozens of articles in that have questioned the philosophical foundations and scientific justifications for these areas of management. However, we were unable to find a single article in the IB/IM realm. Together this mixture of articles is aimed at addressing the ontological and epistemological issues of importance to our field. However, they are necessarily incomplete and represent just a beginning of what we hope is a valuable and enriching discussion for our field. The ‘Philosophy of Science’ portion of the volume contains five chapters. The first, by Asmund Rygh (‘Inherited Philosophy of Science? Economics and International Business Research’) is an overview of the philosophical traditions from economics as they apply to IB. He provides an exceeding compelling discussion of the scientific realist tradition that IB scholars have inherited and the important role that Lakatos’s notion of scientific research programmes can play in our advancement as a science. In the second chapter, we have strong criticism of the neoclassical economic tradition in IB/IM from one of the most eminent scholars in the field. In ‘The Road to Relevance,’ Yair Aharoni follows up on the discussion he outlined in his 2010 Advances in International Management paper (Aharoni, 2010) by calling for a contingency-based approach to theory and modelling in IB/IM. His logic follows from his lifelong criticism of the unrealistic nature of the assumptions underlying traditional IB/IM models and the need to more effectively model the complexity and distinctive components of the IB/IM domain – e.g., the varieties of political systems, business-government and NGOs relations, industry and ownership, the degree of reliance on ethical behaviour (corruption) and the institutional environment and social norms. In the third chapter, Andreas Schwab and William Starbuck (‘Why Baseline Modeling Is Better than Null-Hypothesis Testing’) provide a series of examples and logical propositions for why deductive null-hypothesis testing is not the most relevant tool in our scientific toolkit. Schwab and

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Starbuck’s thesis is perfectly in line with our argument made earlier about the need to have more critical or severe tests and they put particular emphasis on the role of using baseline models for inductive testing: This approach builds on the fundamental philosophy of science arguments of inductive logic as proposed by Bacon (1620) and Chamberlin (1897), who proposed the investigation of multiple opposing hypotheses. Such an approach replaces the idea of a test that conclusively rejects a hypothesis, with the idea that continuing analysis and refinement of hypotheses leads toward more likely hypotheses. Instead of judging hypotheses to be important or unimportant, true or false, iterative comparisons search for hypotheses that are better on some of many dimensions – likely, useful, effective, accurate, terse, and general.

The final two chapters in this section are fundamentally ontological. Brent Burmeister (‘Ontology and IB: Re-imagining the Multinational’) asks about the meaning and existence of two critical concepts in IB/IM, the MNE and ‘foreigness’. Burmeister’s chapter is important in that ‘[c]hallenging the reality of the entities IB sets at the center of its academic mission is one way in which stagnation can be averted’. For him, it is important that we not only ask what we know but what we know about and why that is important. Romeo Turcan (‘The Philosophy of Turning Points: A Case of De-Internationalization’) bring in the concept of turning points as an alternative to another key concept in IB/IM, internationalization process. He argues that our concentration on the forward process of internationalization – i.e. that firms relentlessly become more global with time – ignores two important facets important to IB/IM. First, when one discusses a dynamic process it is the key ‘turning points’ that are critical to understanding outcomes and choices. Hence, we need to understand how to recognize and analyze them. Second, our single-minded concentration on internationalization ignores a key fact of reality, that firms also ‘de-internationalize’ with great frequency. As Turcan notes, understanding de-internationalization is not just looking at the opposite of internationalization. They are potentially two distinct constructs and as a part of the larger IB/IM picture need to be considered as a relevant ontological component of our science. The ‘Meta-Knowledge’ section includes eight chapters plus the three chapters already discussed in the ‘Introduction to Part I’ of this volume. The first two chapters discuss meta-analytic methods and meta-analysis in IB/IM. Timothy Devinney and Ryan Tang (‘Do We Really Understand a Research Topic?’) open the section with a general ‘how to’ overview of what makes for a good meta-analytic study. The goal of that chapter is to provide IB/IM researchers and doctoral students with a guidebook for what makes a good meta-analytic review and why meta-analysis is superior to the

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systematic review approach more traditional in the field. The second chapter is a complement to this introduction. In ‘Meta-Analytic Research in International Business and International Management’, Peter Buckley, Timothy Devinney and Ryan Tang, provide not just an overview of the extant meta-analytic studies in IB/IM but how these studies stack up against the norms set in their first article. Overall, they reveal that our accumulated empirical knowledge is considerably below what we might expect of the field after half a century. Although they find that the quality of meta-analytic research is increasing, as is the volume of such studies, our field is not operating in as systematic fashion as one would hope if there was clarity in the key issues in the field. Hence, our ability to compare and contrast findings, as well as our ability to distinguish between what we know, and what we do not, is limited. The next two chapters in the section look at the IB/IM field via application of bibliometric methods. Manuel Portugal Ferreira, Nuno Rosa Reis, Martinho Isnard Ribeiro de Almeida and Fernando Ribeiro Serra (‘International Business Research: Understanding Past Paths to Design Future Research Directions’), examine the extant research in IB by examining all the articles published in International Business Review, Journal of International Business Studies and Management International Review. The find that ‘while the roots of IB may be on economics, trade theory and macro environmental dimensions of home and host countries y the focus has gradually been shifting to firms and firms’ strategies and performance’. Worryingly, they find a tendency towards an increasing concentration on the most cited works in the reference set. They argue that this may not be signally a coalescence of the field around accepted concepts but rather ‘may be the authors’ tendency to present common and well-accepted references that do not puzzle reviewers and augment the chances of publication. We may thus argue that the ‘‘obligation’’ to cite these seminal works can be a barrier to truly path breaking advances on IB research’. Xavier Martin and Koen van den Oever (‘Progress, Maturity or Exhaustion?’) examine the extant research on the internationalizationperformance relationship. Their chapter is unique in that they look at the manner in which scholars use theories and whether or not they contribute to the development of those theories. In other words, they examine the number of theories being used and whether they simply apply a theory, possibly extend a theory, or to narrow it by specifying its boundaries. Their chapter provides a very useful categorization of exactly what the role of theory is in a study, how theories are combined and what ways a theory can be enhanced. In addition, they provide a methodological approach that is complementary

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to the prior two chapters in terms of addressing how we examine a field’s development. Within the context of the internationalization-performance relationship, they see both progress and potential exhaustion. On the progress side they see significant methodological improvement and theory addition and theory pruning over time. On the more negative side they see a tendency to simply bolt together outside theories and add contingencies onto traditional theoretical models. The last four contributions are more traditional ‘what do we know?’ about a topic chapters. Hence, they represent that beginning of an inventory that we discussed earlier. Each chapter needs to read separately to see its value, as it is contingent on the specific topic discussed. In ‘What Do We Know about the Success and Failure of International Joint Ventures?’ Michael Nippa and Schon Beechler provide something of a damning indictment about the state of knowledge and scholarship in the field. The value of their thesis is in the fact that they reveal that even when we know what to do as scholars we seem to be quite happy to not follow the correct path. They go back through the history of international joint venture research and show that most all of the issues that had been outlined as concerns by the seminal researchers in the field have been dutifully ignored in subsequent research, even as those that follow in the footsteps of these scholars continue to cite them! Lydia Bals, Heather Berry, Evi Hartmann and Gordian Raettich (‘What Do We Know about Going Global Early?’) address a topic that has been discussed several times in this chapter, internationalization process, liabilities of foreignness and born global firms. This chapter is also important from a methodological perspective in that it applies the Cochrane Collaboration approach to systematic reviews that has been so successful in the medical field. They argue that the internationalization process approach needs to account for the entrepreneurial capabilities and experiences of managers to account for the inconsistency between the traditional approach and the obvious finding that many small firms can just through the barrier of foreignness. The last two chapters focus on more IM topics. Olavi Uusitalo (‘International Technology Transfer and Its Implications to Dominant Design Theory’) and Christina O¨berg and Shlomo Yedidia Tarba (‘What Do We Know about Post-Merger Integration Following International Acquisitions?’) both use inductive case study approaches to look at important IM topics. Uusitalo’s chapter is important for this volume in that he examines the role of IB/IM concepts on scholars outside the IB/IM realm and does so using a historic methodological approach. O¨berg and

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Tarba examine nature of specific tasks and functions and provide us with a lens on the detail that influences post merger integration and performance.

CONCLUSION Our goal with this volume of Advances in International Management is to begin a more substantive discussion about our field’s scientific meaning and relevance and to outline a set of actions that we, as IB/IM scholars, can undertake to make our field better. We do this by, hopefully, beginning a long neglected philosophical discussion about our field. Next to this we also have provided a forum – a mini Cochrane Collaboration if you will – where we can begin the process of presenting accumulated knowledge in IB/IM. All together we believe strongly as editors and IB/IM scholars that we need to constantly question the ‘what we study?’ (the ontology) and the ‘what we think we know about what we study?’ (the epistemology) if we are to advance as a meaningful and interesting social science. In one of the classics of Philosophy of Science, Davis (1971) asked the question ‘what makes a study interesting?’ He concluded that ‘interesting’ social science is research that which: (a) counters the ‘taken for granted’ aspects of science and/or (b) provides a negation of what is taken for reasonable and realistic in science. What is ‘uninteresting’ is work that: (a) confirms the obvious (or the accepted), (b) addresses issues that are essentially irrelevant (in other words things that do not materially matter), (c) attempts to counter all of the science (e.g., in attacking all its assumptions and meanings) and (d) attacks straw men assumptions. If there is one theme that is seen throughout this volume it is that all of the authors are calling for us to be interesting rather than uninteresting. In this sense, we will improve both the scientific and practical value we deliver in that we will be consistently seeking to find and push out the frontier of IB/IM knowledge.

NOTES 1. Some authors date the establishment of the field to Hymer’s dissertation, completed in 1960 but not published until 1976 (Hymer 1976). 2. It is very important here to distinguish between ‘something’ that a theory says cannot happen and whether or not we can measure that ‘something’ or show its absence empirically. Scholars sometimes confuse the measurement of a theoretical construct with the theoretical construct proposed when the relationship may either be very loosely measured with error or impossible to measure by definition.

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3. The Duhem-Quine thesis argues that underdetermination implies that our tests of theories are incomplete and such a logic is invariably used to support contingency type approaches. However, Laudin (1990) argues quite effectively that researchers use Duhem-Quine as a crutch without ever coming up with a substantive logic for why that underdetermination is meaningful for the specific theory and tests being conducted. He is quite critical of the more sociological tradition in philosophy of science as being too ready to accept that underdetermination is important in all cases, when the burden of proof should reside on the scientist to prove that it is material to the outcomes being investigated. 4. The important word here is ‘test’. Many studies ‘use’ the GI-LR structure assuming its validity and then either manipulate the data until a theoretically appropriate dimensional GI-LR structure is revealed or wring their hands when it does not seem to work to the extent that one expects. 5. There is a fallacious belief that because journals do not publish replication studies that replication is undervalued. However, what journals do not publish and what advisors of doctoral students do not encourage is nested replication. Nested replication occurs when part of a new study encompasses the validation of a prior study. Nested replication is common in areas such as medicine and psychology and the example of Venaik et al. (2004) was actually a nested replication study (as indeed is other work published by these authors). Traditional nested replication should be a natural start of our work in that before moving onto a new set of hypothesis we need to establish the base case of the validity of prior studies as step one (see, Schwab & Starbuck, this volume). 6. Kincaid (1996) makes a very cogent argument for why organizational ecology represents an excellent model for what science should be in the social science arena, particularly in its ability to make ‘‘well confirmed functional explanations’’ for the phenomenon under investigation. 7. A cynic might argue that this is hardly going to be the case, as the scholars are not working independently and are attempting to publish work that looks nearly identical because it is being produced by similarly trained individuals attempting to publish their work in all the same outlets. 8. It must be made clear that uniqueness here is not ‘novelty’. It is the context of test that matters so e may not be novel (it may be common to other theories) but its existence is critical to mine in the sense that it just does not arise when my theory is in existence.

REFERENCES Aharoni, Y. (2010). Behavioral elements in foreign direct investment. In T. M. Devinney, T Pedersen & L. Tihanyi (Eds.), The past, present and future of international business and international management. Advances in international management (Vol. 23, pp. 73–112). Bingley, UK: Emerald Group Publishing Ltd. Asmussen, C. G., Pedersen, T, Devinney, T. M., & Tihanyi, L. (Eds.). (2011). Dynamics of globalization: Location-specific advantages or liability of foreignness? Advances in International Management (Vol. 24). Bingley, UK: Emerald Group Publishing Ltd. Bartlett, C. A., & Ghoshal, S. (1989). Managing across borders: The transnational solution. Boston, MA: Harvard Business School Press.

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Buckley, P. J. (2009). Business history and international business. Business History, 51, 307–333. Buckley, P. J., & Casson, M. C. (1976). The future of the multinational enterprise. Basingstoke, UK: Palgrave. Cantwell, J., & Narula, R. (Eds.). (2003). International business and the eclectic paradigm: Developing the OLI framework. London, UK: Routledge. Chalmers, A. F. (1999). What’s this thing called science? (3rd ed). Brisbane, QL: University of Queensland Press. Davis, M. (1971). That’s interesting! Towards a phenomenology of sociology and a sociology of phenomenology. Philosophy of the Social Sciences, 1, 309–344. Devinney, T. M. (2004). The eclectic paradigm: The developmental years as a mirror on the evolution of the field of international business. In J. L. C Cheng & M. A. Hitt (Eds.), Managing multinationals in a knowledge economy: Economics, culture and human resources. Advances in International Management (Vol. 15, pp. 29–42). Bingley, UK: Emerald Group Publishing Ltd. Devinney, T. M., Midgley, D. F., & Venaik, S. (2000). The optimal performance of the global firm: Formalizing and extending the integration-responsiveness framework. Organization Science, 11, 674–695. Devinney, T. M., Midgley, D. F., & Venaik, S. (2003). Managerial beliefs, market contestability and dominant strategic orientation in the eclectic paradigm. In J. Cantwell & R. Narula (Eds.), International business and the eclectic paradigm: Developing the OLI framework (pp. 152–173). London, UK: Routledge. Devinney, T. M., Pedersen, T, & Tihanyi, L. (Eds.). (2010). The past, present and future of international business and international management. Advances in international management (Vol. 23). Bingley, UK: Emerald Group Publishing Ltd. Dunning, J. H. (1958). American investment in British manufacturing industry. London, UK: Allen & Unwin. Dunning, J. H. (1995). Reappraising the eclectic paradigm in an age of alliance capitalism. Journal of International Business Studies, 3, 461–491. Hymer, S. (1976). The international operations of national firms: A study of direct foreign investment. Cambridge, MA. MIT Press. Ichikawa, J. J., & Steup, M. (2012). The analysis of knowledge. In: Zalta, E.N. (Ed.), The Stanford encyclopedia of philosophy (Winter 2012 ed.), http://plato.stanford.edu/ archives/win2012/entries/knowledge-analysis/. Accessed 15 February 2013. Javidan, M., Dorfman, P. W., Sully de Luque, M., & House, R. J. (2006). In the eye of the beholder: Cross cultural lessons in leadership from project GLOBE. Academy of Management Perspectives, 20, 67–90. Johanson, J., & Vahlne, J.-F. (1977). The internationalization process of the firm: A model of knowledge development and increasing foreign market commitment. Journal of International Business Studies, 8, 12–24. Johanson, J., & Vahlne, J.-F. (2009). The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40, 1411–1431. Kincaid, H. (1996). Philosophical foundations of the social sciences: Analyzing controversies in social research. Cambridge, UK: Cambridge University Press. Kirkman, B. L., & Law, K. (2005). International management research in AMJ: Our past, present, and future. Academy of Management Journal, 48, 377–386.

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Kuhn, T. (1970). The structure of scientific revolutions ((2nd ed). Chicago, IL: University of Chicago Press. Lakatos, I. (1970). Falsificiation and the methodology of scientific research programmes. In I. Lakatos & A. Musgrave (Eds.), Criticism and the growth of knowledge (pp. 91–196). Cambridge, UK: Cambridge University Press. Laudin, L. (1990). Demystifying underdetermination. In C. W. Savage (Ed.), Scientific Theories, Minnesota studies in the philosophy of science (Volume 14, pp. 267–297). Minneapolis, MN: University of Minnesota Press. Longino, H. (1990). Science as social knowledge: Values and objectivity in scientific inquiry. Princeton, NJ: Princeton University Press. Mayo, D. G. (1991). Novel evidence and severe tests. Philosophy of Science, 58, 523–552. Mayo, D. G. (1996). Error and the growth of experimental knowledge. Chicago, IL: University of Chicago Press. Schlosshauer, M., Kofler, J., & Zeilinger, A. (2013). A snapshot of foundational attitudes toward quantum mechanics. Published online at: http://arxiv.org/abs/1301.1069. Accessed 15 February 2013. Venaik, S., Midgley, D. F., & Devinney, T. M. (2004). A new perspective on the integrationresponsiveness pressures confronting multinational firms. Management International Review, 44, 15–48. Vernon, R. (1966). International investment and international trade in the product life cycle. Quarterly Journal of Economics, 80, 190–207.

PHILOSOPHY OF SCIENCE

INHERITED PHILOSOPHY OF SCIENCE? ECONOMICS AND INTERNATIONAL BUSINESS RESEARCH Asmund Rygh ABSTRACT International business (IB) research is traditionally heavily reliant on economics. In this chapter, we review selected debates in the philosophy of science of economics and consider their relevance for economics-based IB research, given important characteristics of IB such as phenomenonorientedness, concern with data and facts and limited use of formal mathematical models and unrealistic assumptions in the analysis. We argue that, like in the case of mainstream economics, Lakatos’ concept of scientific research programmes (SRPs) is more useful for understanding the philosophy of science of economics-based IB than Popper’s falsificationism. Following this, we discuss characteristics of two possible IB SRPs, internalization theory and Dunning’s Ownership-LocationInternalization paradigm. Finally, we discuss the approach to modelling in IB, finding it to reflect a relative commitment to scientific realism.

Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 91–125 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026010

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INTRODUCTION International business (IB) research has largely relied on existing theories such as transaction cost economics (TCE) and institutional theory (Doz, 2011) to the extent of being ‘an appendage of economics, psychology, sociology and related management disciplines’ (Devinney, Pedersen, & Tihanyi, 2010, p. 35). Of these ancestor disciplines, economics has traditionally dominated IB thought, particularly when it comes to firm behaviour (Toyne & Nigh, 1997a, p. 177), and for Buckley, IB is simply ‘a branch of applied economics’ (Buckley, 1996, p. 8). The foundations of IB include the works of economists such as Buckley and Casson (1976), Hennart (1982), Hymer (1976 [1960]), McManus (1972), Rugman (1981), Caves (1996) and Dunning (1980). A question, then, is whether the philosophy of science of IB is simply inherited from economics, or whether there is something about the IB context and application of economics that makes it distinct from a philosophy of science point of view. Adapting Sullivan’s (1998) metaphor, what is the relative importance of the ‘genes’ and the distinct ‘environment’ of IB? In contrast to the little attention to such issues in IB (Toyne & Nigh, 1997b),1 extensive philosophy of science debates have taken place in economics over the last decades, concerning inter alia the applicability of the ideas of Popper, Kuhn and Lakatos to economics, the philosophical implications of (mathematical) modelling, as well as scientific realism and critical realism. The basic premise of this chapter is that given the important role of economics in much of the IB scholarship, studying the philosophy of science of economics may aid IB scholars in better understanding the philosophy of science issues surrounding their own work. In Toyne’s (1997, p. 630) words: To the extent that we [as IB scholars] are dependent on the ontological and epistemological assumptions, paradigms, theories and constructs of the social sciences and the business disciplines, we must be sensitive to the philosophy of science debate that is occurring in these fields, and to the implications that this debate has for our work.

As Toyne’s remarks suggest, an important part of our task is to investigate more closely how economics is used in IB research, and what are the philosophy of science implications of this usage. Some of the characteristics of the IB breed of economics that spring to mind are the following. First, it is often noted that IB is traditionally an empirically driven or phenomenon-oriented field, while much economics research has been criticized for a perceived lack of connection with the real world. IB has also been related to important policy issues. Sometimes, distinct IB

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contributions have arisen from omissions in economics, such as a lack of a proper theory of the multinational enterprise (MNE) (Devinney et al., 2010). IB also generally involves less use of formal mathematical modelling, and of the idealizing and unrealistic assumptions often associated with economics. To foreshadow an argument to be developed and qualified below, an IB scholar would less likely subscribe to economist Milton Friedman’s (2008 [1953]) view that the only way to judge a theory is by looking at whether it gives correct predictions or not, and that descriptively false assumptions are, if anything, a virtue of a theory. Though IB theory certainly also makes important simplifications (Hashai, Asmussen, Benito, & Petersen, 2010), attention to data and context has always been an important ingredient in IB research (Buckley & Casson, 2003). This may have implications for the philosophy of science of IB. First, one may ask whether the greater empirical focus of IB implies a greater weight on falsificationism, i.e. the idea that science is characterized by developing theories that are empirically refutable (Popper, 1959), or a greater emphasis on scientific realism. On the other hand, given IB’s reliance on economics, one may ask to what extent IB economics is distinct from the economics scientific research programme (SRP) in Lakatos’ (1970) terms, i.e. whether IB is simply part of the protective belt of auxiliary hypotheses around the hard core of assumptions on maximization and equilibrium in the economics SRP. One might also enquire about the status of the dominant analytical framework for IB, Dunning’s eclectic paradigm (Dunning & Lundan, 2008), as an IB SRP. These are among the questions that will be discussed in this chapter. Our method is essentially indirect. We start in the next section with a brief and inevitably simplified description of the philosophy of science of economics. Since we largely attempt to infer IB’s philosophy of science from its practice, we must also consider how actual economics practice reflects official economics methodology. Only by doing so can we try to ensure that we are in fact comparing apples to apples, rather than to idealized apples. Based on the insights from this discussion, we turn in the following section to the main contribution of this chapter, which is an analysis of the distinct characteristics of IB economics and its ‘revealed’ philosophy of science. Much previous discussion related to the philosophy of science of IB has concerned what exactly is the domain of IB research (Toyne & Nigh, 1998; Toyne & Nigh, 1997b). Here, we partly bypass this challenging issue by restricting our scope to a specific set of IB studies: We focus on the research descending most directly from economics and related to MNEs and international production, i.e. that relating to the internalization school and

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TCE, as well as the economics-based paradigm of Dunning (representative works include Buckley & Casson, 1976; Dunning, 1980, 1988; Dunning & Lundan, 2008; Gatignon & Anderson, 1988; Hennart, 1982, 2000; Rugman, 1981). We will not focus on the Uppsala internationalization school (Johanson & Vahlne, 1977) and more or less closely related work (Aharoni, 1966, 2010; Aharoni, Tihanyi, & Connelly, 2011; Buckley, Devinney, & Louviere, 2007; Perlmutter, 1969); some references to these streams will however be made as we go along.2 Nevertheless, we remain firmly within some attempted definitions of the core issues of IB, such as Hennart’s (2010, p. 257) according to which ‘IB scholars study the governance of interdependencies between individuals located in different countries, and hence separated by geographic, institutional and cultural distance’. In a final concluding section, we summarize and discuss our findings and suggest some directions for further work. While our limited scope implies that we can only give a partial view on the philosophy of science of IB, it is an important view given the central role of economics and rationality-based perspectives in IB. The interest of such an analysis is further heightened by proposals that the economic principle of maximization be a unifying assumption for a general IB theory (Casson, 1997). There is indeed a divide in IB research between rationalist theory/ economics scholars lamenting a loss of parsimony by moving from a ‘positivistic’ to a ‘multidisciplinary’ approach on the one hand (Buckley & Casson, 2003, p. 222) and those that object to the dominance of rationalitybased research in IB or at least wish to see it complemented by insights from ‘behavioural’ theories and a greater focus on managerial decision-making on the other hand (Aharoni, 2010; Brouthers & Hennart, 2007).

A BRIEF TOUR OF THE PHILOSOPHY OF ECONOMICS A Brief Exposition of Economics Most economics textbooks start with some version of Lionel Robbins’ definition of economics as ‘the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses’ (2008 [1932], p. 75). While the main object of study is obviously markets of various types, it is often argued that economics is above all a distinct method based on a set of core principles that can be applied to a wide range

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of issues (Casson, 1997). Thus, for example, for Becker (1978, p. 5) the heart of the economic approach is ‘[t]he combined assumptions of maximizing behaviour, market equilibrium and stable preferences, used relentlessly and unflinchingly’.3 As is well known, formal mathematical modelling and quantitative statistical (econometric) analysis also play a key role in most economic research. Exaggerating somewhat, the philosophical self-image of economics is that of a ‘genuine science’ based on deduction and developing refutable implications (Lazear, 2000, p. 99). Indeed, the ideal for economics is traditionally the physical sciences, with core concepts such as equilibrium borrowed from physics. This image is, of course, too simple. Though economics has been relatively slow to pick up on philosophy of science debates in natural sciences (Beed, 1991), an extensive literature has explored issues of philosophy of science in economics. Economics in fact has a long methodological tradition going back at least to the 19th century (Blaug, 1980). Until about the 1960s, the scattered discussions of economic methodology were, however, largely centred on the views of certain prominent economists (Backhouse, 2012). One view that has remained influential is that of Milton Friedman, whose essay, The Methodology of Positive Economics (2008 [1953]), has been argued to capture many economists’ intuition about their field. Friedman famously argued that the only4 way to test economic theories is to compare their predictions with reality and that unrealistic assumptions are, if anything, a virtue of a theory. The following passage from the essay is probably one of the most quoted or paraphrased in economic methodology (2008 [1953], p. 218): Truly important and significant hypotheses will be found to have ‘‘assumptions’’ that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense).

For Friedman, it is important to distinguish the assumptions of a theory from the phenomena that the theory is intended to explain. Though the assumptions may also be compared with reality, it is the comparison of the predictions with reality that matters. Friedman famously gives the example of predicting the shots made by an expert billiard player, proposing that excellent predictions would be yielded by the hypothesis that the billiard player made his shots as if he knew the complicated mathematical formulas that would give the optimum directions of travel; could estimate accurately by eye the angles etc., describing the location of the balls; could make lightning calculations from the formulas; and could then make the balls travel in the direction indicated by the formulas (2008 [1953], p. 222; emphasis in original).

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By analogy, Friedman hypothesizes that firms behave as if they were rationally seeking to maximize expected returns, having full knowledge of all necessary data (i.e. that they perfectly know all the relevant cost and demand functions, are able to calculate marginal revenue and cost, and choose actions equating these). Of course, this is not a realistic description of business managers any more than the preceding was of billiard players. For Friedman, however, the point is that a model with these unrealistic assumptions may nevertheless give good predictions, and predictions are what matter for judging a theory. Not all economists agreed with Friedman. One objection is that one does not only want theories to predict, but also to explain (Blaug, 1980). In any case, Friedman’s view provides a useful frame of reference for the following discussion. For one thing, it lends itself to a variety of interpretations. The focus on empirical predictions has been interpreted both in terms of verificationism and falsificationism, and the issue of realisticness of assumptions is closely related to modelling and to the issue of scientific realism versus instrumentalism (Hanisch, 2003). On the other hand, the prominent role given to maximization can be linked to the question of paradigmatic features (in Kuhn’s sense) and SRPs (in Lakatos’ sense) in economics. We explore these issues below.

Popper, Kuhn and Lakatos and the Rise of the Economic Methodology Field It was not until the 1970s that economic methodology emerged as a distinct field. The following decades witnessed lively debates on the role of falsification in economics, and on whether economics could be understood in terms of Lakatos’ SRPs (Backhouse, 2012).5 As is well known, Popper (1959) replaced the principle of verifiability of the logical positivists with the principle of falsifiability as the demarcation criterion for science,6 arguing there can be no logic of proof, only one of disproof. Thus, for a theory to qualify as science, it must be made clear what observations would refute the theory. In particular, Popper criticized the use of ‘immunizing strategies’, i.e. ad hoc modifications to a theory in order to accommodate contradictory empirical evidence. Popper’s views have resonated strongly with economists. However, it has been argued that despite official rhetoric, falsificationism is little practiced (Blaug, 1980; McCloskey, 1983). Blaug (1984, p. 375) argues that ‘the central weakness of modern economics is in fact the reluctance to produce theories which yield unambiguously refutable implications’. Now,

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few economists believe that economic theory does not need to be tested empirically. Certainly, ‘[t]here is a great amount of empirical activity in economics, the facts do matter, but they matter in a much more subtle and complex way than falsificationism allows’ (Hands, 1993, p. 68). Indeed, falsificationism demands more than simply showing the theory to be consistent with evidence. As Hands (1993, p. 62) puts it, the falsificationist ‘proposes a bold conjecture’ which is then ‘severely tested by comparing its least likely consequences with the relevant empirical data’. Blaug (1984, p. 376) goes as far as arguing that ‘economists spend much of their time showing that the real world bears out their predictions, thus replacing falsificationism, which is difficult, with confirmation, which is easy’. Through a series of ‘case studies’, Blaug (1980) argues persuasively that falsificationism does not have top priority in economic research. A prime example of this is the theoretical general equilibrium analysis programme, concerned in particular with the conditions for the existence of equilibrium. It hardly needs to be argued that falsificationism is not the main driving force behind this research. Next, taking an example from international trade theory, Blaug shows how the apparent refutation of the Hecksher–Ohlin theorem (HOT) by Leontief’s (1953) finding that US trade patterns (i.e., exporting labourintensive goods and importing capital-intensive goods) were the opposite of what the theory would predict (the Leontief paradox) led few trade economists to abandon the theory.7 For these economists, ‘the factual accuracy of the HOT was a minor question because it was regarded anyway as only the first approximation to the real-world conditions of different taxes, tariffs, transport costs, economies of scale, demand conditions, factor mobilities and imperfections of competition’ (1980, p. 211). Economists continued refining the theory, addressing puzzles raised by the Leontief paradox such as what a factor is and the implications of including multiple factors. Finally, discussing Becker’s work on the economics of the family (an often cited example of ‘economic imperialism’), Blaug (1980) starts by commending Becker’s announcement of a falsificationist approach by among others assuming stable preferences: The rationale being, of course, that if preferences were allowed to change, they could always be invoked in an ad hoc manner to explain deviations from the theory’s predictions. On the other hand, Blaug argues that these studies are, in practice, essentially concerned with verification, taking a real-life feature previously not studied by economists and showing that it can be explained by the economic approach. What these studies do not do is predict novel facts that the theory

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was not originally designed to explain. Neither is the economic approach explicitly tested vis-a`-vis alternative theories taken, e.g. from sociology or anthropology. Popper indeed noted that when testing one theory, we usually have an alternative ‘up our sleeves’, and ‘the falsifying experiment is usually a crucial experiment designed to decide between the two’ (Popper, 1959, p. 87). Such tests are rarely found in economics.8 If falsificationism is not widely practised, there may be good reasons for this. Falsification is problematic even in principle following the Duhem– Quine thesis (Quine, 1953) that one can never conclusively falsify a single hypothesis, since it is always tested in conjunction with various auxiliary hypotheses (including hypotheses on observation), and we cannot know which hypothesis is responsible for the empirical disconfirmation. Strong auxiliary hypotheses are, of course, an important part of economics (Blaug, 1980; Hands, 1993); some of these are even infalsifiable (e.g. eventually diminishing returns). Furthermore, mathematical modelling often requires a number of assumptions to ensure tractability, such as constant returns to scale. Any one of these hypotheses may be the culprit in the case of empirical refutation. On the other hand, failing to find empirical support for an economic theory will lead few economists to question the basic assumptions of individual maximization and equilibrium. Indeed, as noted by Casson (1997, p. 185), ‘[t]he assumption of optimization is essentially immune to refutation. By itself it implies nothing. It is only when combined with assumptions about preferences and constraints that it yields predictions’. This is clearly at odds with falsificationism: ‘immunizing any part of scientific theory would be in conflict with Popper’s falsificationist method of bold conjecture and severe test’ (Hands, 1993, p. 67). This suggests that economics is better understood in terms of the work of Kuhn and Lakatos than that of Popper.9 Kuhn (1962) showed that Popper’s account of science did not reflect actual scientific practice: Scientists do not readily cast away theories following apparent disconfirmations, and fortunately so. Instead, Kuhn described normal science taking place within paradigms, consisting of ‘the general theoretical assumptions and laws and techniques for their application that the members of a particular scientific community adopt’ (Chalmers, 1999, p. 108). Working within a paradigm allows scientists to refine their theories and methods, conduct experiments, etc., while taking their foundations as given. However, a paradigm will inevitably encounter anomalies it cannot explain. When these become serious enough, the paradigm will face a crisis, in particular if there is a new competing paradigm that can account for the anomalies. At some point, the change to a new and essentially incompatible paradigm takes place via a

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scientific revolution. Kuhn argues, however, that this change cannot be made on strictly objective grounds and will to some extent involve a ‘leap of faith’ for two main reasons (Okasha, 2002). First, there is incommensurability related to the lack of a common theoretical language or framework with which to compare competing paradigms. Second, the idea of theoryladenness of data implies that data are inevitably ‘contaminated’ by theory, and that there are therefore no theory-independent data that could be used to decide between the theories.10 Coats (1969, p. 292) argues that despite some heterodoxy, ‘economics has been dominated throughout its history by a single paradigm – the theory of economic equilibrium via the market mechanism’. Nevertheless, Coats (1969) argues that the Keynesian revolution was a paradigm shift. John Maynard Keynes departed from the principle of methodological individualism, as the consumption function was not derived from individual maximizing behaviour (Blaug, 1984). Keynes also allowed for persistent disequilibrium in the labour market (or more precisely an ‘underemployment equilibrium’; which did not fit with the idea that markets would always work to ensure equilibrium). The question raised by Kuhn’s work was whether one could really speak about scientific progress at all. Lakatos’ (1970) answer to the dual limitations of Popper’s falsificationism and Kuhn’s relativism (Chalmers, 1999) was to suggest that SRPs rather than individual theories are the appropriate units of appraisal for scientific progress; and that some parts of an SRP are more fundamental than others. According to Lakatos, SRPs consist on the one hand of a hard core of unquestioned fundamental metaphysical assumptions; and on the other hand a protective belt of more peripheral assumptions that may be allowed to be falsified. The SRP thus provides systematic guidelines (which are missing in falsificationism) for which hypotheses should be modified following empirical disconfirmation. Finally, Lakatos described positive and negative heuristics relating to the ‘do’s’ and ‘don’ts’ in terms of how research should be conducted within the SRP. The negative heuristic is primarily about protecting the hard core by making all adjustments in the protective belt. In contrast, the positive heuristic provides a forward-looking component and ‘[c]onsists of a partially articulated set of suggestions or hints on how to change, develop the ‘‘refutable variants’’ of the research programme, how to modify, sophisticate, the ‘‘refutable’’ protective belt’ (Lakatos, 1970, p. 135). One important characteristic of the positive heuristic is that it can also anticipate what kinds of refutations will be met during the development of the programme; and indeed it ‘forges ahead with almost complete disregard

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of ‘‘refutations’’’; while it is the ‘verifications’ that ‘provide the contact point with reality’ (1970, p. 137). It is not surprising that economic methodologists picked up on Lakatos’ ideas. Indeed, Lakatos specifically referred to economics and argued that strict falsificationism would imply throwing out all budding social science theories, without necessarily having good alternatives; programmes need time for development in order to achieve their potential, before being fully confronted with the data (Chalmers, 1999). Thus, following criticism that general equilibrium analysis (GEA) is unfalsifiable, Weintraub (1985) recast it as an SRP involving six hard core propositions: ‘HCl, There exist economic agents; HC2, Agents have preferences over outcomes; HC3, Agents independently optimize subject to constraints; HC4, Choices are made in interrelated markets; HC5, Agents have full relevant knowledge, and; HC6, Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states’ (1985, p. 109).11 The protective belt on its hand consists of GEA’s actual theories, auxiliary hypotheses, empirical methods etc., in practice covering most of applied microeconomics (Hands, 1993, p. 67). Similarly, Latsis formulated four hard core assumptions of the neoclassical theory of the firm SRP: (i) profit maximization, (ii) perfect knowledge, (iii) independence of decisions and (iv) perfect markets (Latsis, 1972, p. 209). Importantly, any question about the realism of such hard core assumptions fails to recognize their role in the methodology of the SRP (Blaug, 1980). On the other hand, questions relating to the protective belt are perfectly legitimate, i.e. those relating to the realism of auxiliary assumptions that determine the applicability of the theory, such as homogenous products, ‘large’ numbers of firms, and free entry and exit (Latsis, 1972; Blaug, 1980). What then about the important question of scientific progress in Lakatos’ setup, and how does economics perform on this account? For Lakatos, an SRP is progressive when it is able to remain coherent and at the same time is able to predict ‘novel facts’ that competing programmes cannot. On the other hand, ‘if and when the programme ceases to anticipate novel facts, its hard core might have to be abandoned’ (Lakatos, 1970, p. 134). Not surprisingly, economists have disagreed on whether specific economic SRPs such as the general equilibrium programme are progressive or degenerating (Toruno, 1988).12 Writing in 1991, Caldwell found ‘reason to doubt that there exist many examples of progressive research programmes in economics’ (Caldwell, 1991, p. 100). While the details of such assessments might also be interesting for IB scholars (Toruno, 1988), we must here be content with one simple example. Considering the Keynesian revolution in an SRP

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framework, Blaug (1984) notes that it appeared progressive in the 1930s when it led to confirmed predictions that were surprising in terms of the prevailing framework at the time, in particular the role of government spending in moving the economy out of a recession through multiplier effects. On the other hand, the Keynesian programme appeared to be degenerating in the 1970s when it could not account for stagflation (Caldwell, 1991); it was then superseded by an alternative SRP based on the idea of rational expectations.13 In general, the application of the SRP concept has been hampered by the fact that the idea of ‘novel facts’ is somewhat unclear (Chalmers, 1999).

Recent Debates: Models and Scientific Realism In contemporary debates, Popper, Kuhn and Lakatos have faded into the background and new philosophical issues have been taken up (Backhouse, 2012; Hodge, 2008; Lawson, 1997), of which we will focus on the issue of modelling and its relationship with scientific realism. These issues link back to Friedman’s view above and are an appropriate way to end our brief tour of the philosophy of science of economics. Critics often question whether much economics research has anything to do with reality at all (Ma¨ki, 2012). Indeed, economists are somewhat self-conscious about this as illustrated by the following quote from Klamer and Colander (1990, p. 19; cited in Røgeberg & Nordberg, 2005) ‘Of course this assumption is absurd,’ a well-known economist noted during a recent seminar, ‘but hey, isn’t all we do absurd and utterly unrealistic?’ People laughed, and he continued solving the model.

One could ask whether scientific realism is even relevant for the social sciences. According to standard definitions from a natural science context, scientific realism ‘holds that the physical world exists independently of human thought and perception.’ (Okasha, 2002, p. 58). That is, under the standard definition of scientific realism the item under study is not dependent on human minds for its existence, which obviously does not fit for, e.g., money, central banks and firms. To accommodate such phenomena, Ma¨ki (2012) proposes a minimal scientific realism, where one important change is replacing the criterion of mind-independency with science-independency. Now, how can social reality be independent of economics, given that economic theories clearly affect both practice (Black– Scholes formula) and ideology? Or, consider the claim that economics and

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business students act more self-interestedly (Hellmich, 2012).14 Here, Ma¨ki (2012, p. 21) argues that economics may well change the beliefs and motives of actors, but is not directly constitutive of these practices, and that in this sense it does not directly affect economic reality.15 The question of realism (or better: realisticness) of assumptions continues to provide food for debate for economists and their critics (Ma¨ki, 2012). According to the instrumentalist view, some types of theoretical entities can be regarded as ‘convenient fictions’ (Okasha, 2002) that may allow good predictions to be made (we recognize Friedman’s ideas here). In contrast, realists maintain that scientists should also aim to discover ‘truths’ and explain phenomena (Hausman, 2008). Not all methodologists accept a direct link between realism in assumptions and scientific realism, however. For example, Ma¨ki (2012) sees unrealistic assumptions as perfectly compatible with (a suitable version of) scientific realism; indeed, ‘unrealistic assumptions can even be the very means for striving for the truth’ (Morgan & Knuuttila, 2012, p. 53). Thus, ‘when an economist makes unrealistic assumptions [y] she is deliberately employing strategic falsehoods in order to attain some epistemic and pragmatic gains. This is the point of idealization’ (Ma¨ki, 2012, p. 10). Unrealistic assumptions are often linked to (mathematical) models, and some insights on the relationship of these models to realism can be gained by considering different approaches to modelling. Morgan and Knuuttila (2012) discuss two different views of models as idealizations or constructions/fictions. Idealization is ‘typically portrayed as a process that starts with the complicated world with the aim of simplifying it and isolating a small part of it for model representation’ (2012, p. 51). In this view, models are used to abstract ‘causally relevant capacities or factors of the real world for the purpose of working out deductively what effects those few isolated capacities or factors have in particular model (i.e., controlled) environments’ (2012, p. 52), and is essentially about capturing ‘only those core causal factors, capacities or essentials of a causal mechanism that bring about a certain target phenomenon’ (2012, p. 53). Walliser (2002) describes modelling in terms of reasoning on a sub-system represented in a simplified manner, isolating what the researcher believes to be the most salient aspects. The subsystem is isolated from its environment by assuming that the environment stays constant or by neglecting it altogether. One function of false idealizing assumptions is then to ‘help implement theoretical isolations in a controlled manner’ (Ma¨ki, 2012, p. 13); an analogy is often made with the physical controls of laboratory experiments (Morgan & Knuuttila, 2012). Important here is also the idea that by a process of de-idealization, as science progresses, one can reintroduce omitted elements, bringing the

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model closer to the real world. In fact, much economics work consists of introducing additional complications that have been disregarded in earlier, more simplified models. Thus, reversing idealizations can be conceptualized as moving towards greater realism. In practice, however, de-idealization may be difficult for many reasons (Morgan & Knuuttila, 2012). For example, some idealizations may have been motivated by mathematical tractability. Re-introducing excluded factors may also re-introduce causal complexity in terms of non-separable causal relations that were previously assumed away. The upshot of these and several other similar issues is that it is not straightforward to move towards more realistic models through de-idealization. An alternative to the view that models abstract, isolate or idealize essential factors or mechanisms is that they are rather ‘like pure constructions or fictional entities that nevertheless license different kinds of inferences’ (Morgan & Knuuttila, 2012, p. 61). In this view, models are used mainly to facilitate communication of arguments (Walliser, 2002), and are more like caricatures designed to illuminate some feature of the situation (Gibbard & Varian, 1978) or fictions which ‘can give us some understanding of real economic mechanisms, even though they are not interpreted as representations of real target systems’ (Morgan & Knuuttila, 2012, p. 62). Morgan and Knuuttila cite Machlup’s (1967, p. 9) claim that the neoclassical firm in traditional price theory is just a ‘theoretical link’ which should not be confused with any real firm, as well as Lucas’ (1980, p. 697) argument that [o]ne of the functions of theoretical economics is to provide fully articulated, artificial economic systems that can serve as laboratories in which policies that would be prohibitively expensive to experiment with in actual economies can be tested out at much lower cost [y] A ‘‘theory’’ is not a collection of assertions about the behavior of the actual economy but rather an explicit set of instructions for building a parallel or analogue system – a mechanical, imitation economy.

This fictional account of modelling contrasts with the realist account of among others Ma¨ki (Morgan & Knuuttila, 2012). A limiting case of fictional models that have been labelled ‘absurd’ models (Røgeberg, 2004; Røgeberg & Nordberg, 2005) helps make the point that models do not in all cases make claims to scientific realism. For example, in ‘rational addiction’ models (Becker & Murphy, 1988), individuals are portrayed as rationally implementing an increasing consumption path of drugs. As interpreted by Røgeberg and Nordberg (2005), such models are not meant to be about anything real at all. Rather, given limited human cognitive abilities they are ‘a way to bundle facts and hypotheses in a form that exploits folk

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psychology’. As long as this is understood, Røgeberg and Nordberg see a useful function for such models; problems only arise when one draws inappropriate welfare or political implications (e.g. that one should not worry about drug addiction because the individuals are simply implementing their utility-maximizing path of drug consumption over time). Thus, caricatural models do not only idealize, but add new features (Morgan & Knuuttila, 2012), amounting to advanced story-telling or even rhetoric (McCloskey, 1983).

ECONOMICS AND INTERNATIONAL BUSINESS RESEARCH (How) Is the Philosophy of Science of Economics Relevant for IB? Our brief tour of the philosophy of science of economics raises several issues for economics-based IB research. First, we have seen that given essentially infalsifiable methodological assumptions, Lakatos and Kuhn seem to be more relevant for understanding economics research than Popper’s falsificationism in which any component of the theory is, in principle, in jeopardy.16 A question is to what extent the same is true for IB research descending from economics. There are some possible reasons why IB economists might be more committed to falsificationism than their colleagues in mainstream economics. Consider first the claim of Hennart (1997) that IB has had a strong policy focus. For example, the MNE posed important policy questions which were not answered by the trade theory existing at the time, and which necessitated the development of new theory (Hennart, 1997, p. 648). Convincing cases have been made for the importance of such ‘big questions’ for IB research (Buckley, 2002). Or consider the statement relating to the neoclassical standard assumptions in economics that ‘IB scholars were better able to devise new theories because they were less reluctant to break these assumptions’ (Hennart, 1997, p. 649). This suggests a greater willingness of IB economists to modify even the hard core. Another important characteristic of IB research is the focus on firm-level heterogeneity rather than the minimalistic conceptions of the firm in general equilibrium models (Markusen, 2001).17 IB does not have general and purely theoretical programmes such as the theoretical general equilibrium analysis program of mainstream economics that are continually refined, with little concern for empirical testing. Even the more abstract frameworks

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and models such as Buckley and Hashai (2004, p. 44) aim to ‘compare the predictions of a synthesized model with reality’. Compared to mainstream economics, there is also relatively little use of mathematical modelling in IB. To be sure, early internalization works such as Buckley and Casson (1976), Rugman (1981) and Hennart (1982) all contain mathematical models, as do a number of later studies (Asmussen, Benito, & Petersen, 2009; Buckley & Casson, 1981). But these models are (usually) limited to specific arguments rather than being a focus in the analysis. Apparently IB scholars in general are more reluctant to leave out important factors of the main analysis to facilitate tractability of models. Hennart (1997, p. 650) notes that ‘[t]he need to tackle real problems has [y] privileged relevance at the expense of elegance’. We now consider whether these traits mean that the conclusions regarding economics must be modified when considering economics-based IB research.

Falsificationism and SRPs in Economics-based IB The first economics-based IB contributions were largely motivated by empirical facts that did not fit into existing theoretical frameworks. According to Hennart, ‘The concern of IB scholars with facts and data has often exposed the inadequacies of existing theories’ (1997, p. 645). Thus, Hymer (1976 [1960]) started with asking why a distinction is made between direct investment (involving control) and portfolio investment (not involving control), when this distinction was not reflected in the prevailing theory of foreign direct investment (FDI) which asserted that FDI, like portfolio investments, was driven by differences in interest rates between countries. Hymer went on to identify a number of problems with the interest-rate theory, summarizing its implausibility as follows: ‘if the investment is motivated by interest rates, it should move to some countries and all industries, and not, as is in fact the case, to some industries and to all countries’ (1976 [1960], p. 20). According to Hymer, the main shortcoming of the interest-rate theory was that it did not explain why a firm chooses to retain control over the investment object. As is well known, he went on to provide two explanations in terms of removing competition and appropriating the returns from firm-specific advantages, the latter establishing the idea that firm-specific advantages are a necessary condition for FDI to overcome liabilities of foreignness. Similarly, in their retrospective on The Future of the Multinational Enterprise (Buckley & Casson, 1976), Buckley and Casson (2003, p. 220) saw it as ‘distinguished by its strongly positivistic

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stance’, beginning by ‘summarizing the stylized facts revealed by the published statistics’. Hennart (1982) followed much of the same approach, describing stylized facts about FDI and pointing out the failures of various alternative theories to account for these facts. Hennart (1982, pp. 26, 27) then presented ‘a general model of the choice between firms and markets as organizational modes’ which could account ‘for the industrial, geographical and historical patterns of FDI and for the ownership policies of multinational firms’. The question here, however, is not whether there has been empirical testing and whether the theories have been broadly corroborated, but whether economics-based IB scholars have gone the additional lengths required by falsificationism, and in particular whether they have been willing to subject all parts of a theory, including core assumptions, to potential falsification. The next question is, then, whether such stricter tests have been performed as IB theory has matured. Indeed, it has been noted that with the arrival of ambitious theories such as transaction cost economics (TCE) and the resource-based view, theory testing and predictive approaches have become more of a focus in IB from the 1980s onwards (Benito, Petersen & Welch, 2012). Buckley’s (1988) discussion of empirical testing of the internalization theory (IT) of the MNE about a decade after The Future sheds some light on this. According to him, two general axioms underlying IT are that (1) firms choose the least cost location for each activity they perform and (2) firms grow by internalizing markets up to the point where the benefits of further internalization are outweighed by the costs. Buckley refers to this general statement as ‘tautologous’, admitting that the general theory of the MNE cannot be tested directly. However, ‘restricting the theory [y] by limiting the general propositions gives rise to a number of special theories that have empirical content and can be tested’ (1988, p. 182). Linking up to Williamson’s (1975) TCE, Buckley cites IB work showing that, as expected, ‘the incidence of transaction costs is particularly high in vertically integrated industries, knowledge-intensive industries, quality assurance-dependent products and communication-intensive industries’ (ibid).18 Buckley also provides some suggestions as to what would refute IT. We here mention three: (1) a pattern of FDI contrary to the theory,s predictions, (2) perfect diversification and risk avoidance, and (3) market entry behaviour at variance with predictions. Against (1), Buckley notes that ‘data shows that by industry and nationality there is conformity to the theory’s predictions at the most general level’. (1988, p. 186). Against (2), he states that ‘we observe a concentration of foreign direct investment in

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advanced market economies where risk/return patterns exhibit close correlation one with another’ (ibid.). Finally, discussing (3), he cites a theoretical model in Buckley and Casson (1981) predicting that ‘in an expanding market where two or more different modes of market servicing are used, foreign direct investment will never precede licensing, licensing will never precede exporting and foreign direct investment will never precede exporting’. Recognizing that there may be many ways that foreign market servicing can evolve, however, he adds that ‘tests must be formulated in a more rigorous way against data that are hard to obtain’ (1988, p. 187). Again, however, these might not be strong enough tests of the theory from a falsificationist’s perspective. One way of testing a theory is directing it towards new questions that it was not originally developed to explain. Thus, IT and TCE19 have been applied to the questions of full or partial ownership in FDI (Anderson & Gatignon, 1986), greenfield investments versus acquisitions (Hennart & Park, 1993), strategic alliances (Chen & Chen, 2003), internal governance of MNEs (Buckley & Strange, 2011; Tomassen et al., 2012), and de-internationalization (Benito & Welch, 1997). One particularly important application of TCE/IT has been in entry mode research; this research has certainly not been slowed down by somewhat mixed results (Brouthers & Hennart, 2007).20 IB researchers are not deterred by anomalies that apparently cast doubt on the TCE explanation. For example, while most of the predictions based on TCE are borne out empirically, Gatignon and Anderson (1988, pp. 309, 323) do not find support for the core idea in TCE (Williamson, 1975, 1979) that in particular the interaction between uncertainty and asset specificity promotes control through ownership. Despite this, they emphasize the overall support for the TCE perspective.21 In fact, a lacking interaction effect is also found in other TCE-based studies, e.g. in marketing (see John & Reve, 2010), and while TCE has allegedly received extensive empirical support, it is notable that few studies have even tested this crucial interaction effect predicted by Williamson’s theory either in entry mode research (Brouthers & Hennart, 2007) or more generally (Macher & Richman, 2008). Somewhat ironically, the celebrated article of Kogut and Zander (1993) who posit an alternative explanation to TCE and IT for the MNE illustrates these issues well. Kogut and Zander argue that the assumption of opportunism is superfluous to explain the existence of MNEs; MNEs are essentially social communities and ‘repositories of knowledge’, and MNEs are explained by the fact that tacit and less codifiable information is more easily transferred within such social communities, meaning it will be associated with control through ownership. Their argument leads to many

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of the same predictions as TCE-based arguments, and indeed, it is unclear how their empirical analysis can effectively separate between the two explanations: Less codifiable information might be exactly the information that is most difficult to protect through market-related arrangements (e.g. patents) or licensing, increasing the risk of opportunistic behaviour (Gatignon & Anderson, 1988). Essentially, Kogut and Zander’s (1993) empirical analysis can support both the TCE story and the repositories of knowledge story.22 On one account, however, IB does appear to perform better according to Popper’s standards. Like most economics research, IB studies often fail to provide satisfactory tests to discriminate against competing approaches, and though IB as a field is multidisciplinary, individual contributions are rarely so (Doz, 2011). Nevertheless, exceptions exist. For example, Buckley et al. (2007) find that the economics-based approach performs well in specifying the choice set of foreign investment projects to be considered, but that the final choice within this set is more difficult to explain with this approach. Hashai et al. (2010) test organizational learning theory (e.g. Cohen & Levinthal, 1990) versus internalization theory (along with Kogut and Zander’s (1993) theory) in explaining the diversity of foreign entry modes by MNEs. Hashai et al. (2010) in their analysis find support for the organizational learning perspective, rather than the TCE one. Overall, however, the example of IT/TCE-based IB research seems to us to suggest that like in the case of economics, Lakatos’ ideas are more applicable than those of Popper. While Buckley (1988) does not use Lakatos’ terms, the fact that the axioms are essentially irrefutable might justify an interpretation of IT in terms of an SRP. This is what Swaminathan (2007) lays out in the only previous attempt of which we are aware to identify Lakatosian IB SRPs. Specifically, Swaminathan (2007) argues that IT is a progressive (the word he uses is ‘thriving’) theoretical SRP in IB, while the ‘structural contingency theory’ SRP is a degenerate one (he uses the word ‘declining’). What kind of SRP, then, is IT? Interestingly, Swaminathan argues the hard core of IT is transaction cost economics (TCE) (Williamson, 1975). Several comments can be made about this suggestion. First, it is interesting that this hard core makes no explicit reference to the international dimension (as is the case for Buckley’s (1988) axioms for IT). Indeed, the main interest of many internalization scholars has been the growth of the firm in general, not only qua MNE (e.g. Buckley & Casson, 1976). For example Hennart (1982, pp. 60, 61) considers the theory as ‘perfectly general’, not distinguishing between ‘expansion of the firm within or across national boundaries’. In a Lakatosian interpretation, this means that any reference to the international

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dimension belongs in the protective belt, and thus is secondary and not essential to the theory. Some of the challenges for IB in developing a distinct identity might be related to the fact that according to one of its most influential perspectives, IT, international expansion is simply seen as a special case of a firm’s expansion. There is thus no link, e.g., to the view of Grosse and Behrman (1992) that accounting for the effects of country borders and thus government policies is an important part of IB, and the view of Boddewyn that ‘[w]ithout political boundaries, there would be no international business’ (1997, p. 56). Second, specifying TCE as the hard core of IT raises some interesting issues related to the definition of SRPs. In fact, it has been argued elsewhere that TCE (Williamson, 1975, 1979) is itself an SRP. Specifically, Knudsen (1993) argues that the hard core of TCE consists of the assumptions of bounded rationality and opportunism, along with the assumption that governance structures are chosen to economize on transaction costs, while the protective belt includes the characteristics of transactions such as uncertainty and asset specificity influencing economic organization. Some IT scholars might object to Swaminathan’s (2007) view of the relationship between IT and TCE. For example, outlining the contributions of IB research to TCE, Hennart (2010) has argued that TCE is incomplete in the sense that it focuses too much on asset specificity for explaining the choice between internalization and licensing. Hennart argues that since licensing also would be expected to involve transaction-specific investments, information asymmetry is a more compelling explanation for internalization. Still, according to Knudsen’s (1993) interpretation, the contribution of IT, since it does not reject TCE’s hard core assumptions, still takes place in the protective belt. Whatever one’s view of the above issue, Swaminathan’s (2007) suggestion also raises the question of whether there are essentially SRPs at different levels, and, indeed, if we might go even further to explore the relationship of IT to economics. Now, IT/TCE is clearly distinct from the neoclassical economics SRP in the sense that it rejects core assumptions of neoclassical economic theory of the firm (Knudsen, 1993). Specifically, TCE makes two important modifications to the neoclassical assumptions (Williamson, 1975).23 First, bounded rationality represents a weakening of the rationality assumption, whereby actors are ‘intendedly rational’ (Simon, 1961) but lack the ability to identify all possible contingencies, assign a probability to them, and process them for decision-making.24 The opportunism postulate on its hand states that economic agents cannot be trusted to honour all agreements, thus departing from neoclassical economics where it is

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implicitly assumed that all ‘contracts’ are kept or enforced. But what if both TCE and neoclassical economics are themselves part of the protective belt of a more general ‘economic approach’ whose hard core consists of the minimal assumptions of maximization and equilibrium. Indeed, TCE has been cited as an example of economics modifying itself in response to criticism while retaining core assumptions (Buckley & Casson, 1993). In Fig. 1 we suggest such a nested view of SRPs where the hard core of the ‘economic approach’ is the assumptions of maximization and equilibrium (Buckley & Casson, 1993), while the derived SRPs of neoclassical economics and TCE respectively combine this assumption with different sets of auxiliary assumptions to form their own hard cores. By deriving progressively more fundamental assumptions, we find nested SRPs appearing as Russian Matryoshka dolls. A discussion of economics-based IB research would not be complete without considering the OLI (Ownership-Location-Internalization) paradigm developed by John Dunning over several decades (e.g. Dunning, 1980, 1988, 2000; Dunning & Lundan, 2008). Through this paradigm, Dunning attempted to pull together the different insights from the MNE literature into a coherent framework, positing three conditions for an FDI to take place. First, there must be ownership advantages (O), firm-specific advantages that can compensate for the higher costs of operating abroad than at home. Second, there must be location advantages (L) in the host

NEOCLASSICAL ECONOMICS

TCE Maximization & equilibrium

Perfect information

Bounded rationality

INTERNALIZATION

Fig. 1.

Nested Scientific Research Programmes in Economics.

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country in question, providing an advantage of production there relative to production in the MNE’s home country. Third, there must be internalization advantages (I) of keeping production within the firm’s boundaries, rather than relying on market transactions. It is obvious that given its generality, the OLI paradigm is difficult to falsify (Pedersen, 2003), and indeed ‘the OLI paradigm is not, and does not purport to be, a specific and testable theory of the MNE’ (Dunning & Lundan, 2008, p. 120). As Dunning and his associates point out, though the OLI paradigm itself is not testable, it offers a framework within which operationally testable theories can be developed. The OLI has been interpreted previously both in terms of a ‘theory’, a ‘framework’ and a ‘paradigm’ proper (Eden, 2003). We here investigate whether it can be given an interpretation in terms of ambitions to be an IB SRP. It might seem too ‘obvious’ to label the work as a Kuhnian ‘paradigm’ or normal science for IB scholars, though Dunning (2000) himself hints at this. It is worth noting, however, that the main ‘tenets’ of the paradigm in terms of the O, L and I-advantages are indeed meant to constitute fundamental assumptions for IB research (they also include a specific reference to the international dimension, which, as we have seen above, is missing in IT). Indeed, although not using these terms, Dunning (2000, p. 169) appears to have a distinction between a hard core and a protective belt of the OLI in mind: The question at issue, then, is whether the changing character and boundaries of the O specific advantages of firms [see discussion below] can be satisfactorily incorporated into the eclectic paradigm, as it was first put forward. We would argue that as long as they do not undermine the basic tenets of the paradigm, and are not mutually inconsistent, they could be, although most certainly, they do require some modification to existing subparadigms and theories.

Here, Dunning in effect proposes that modifications can be made in the ‘protective belt’ of the OLI paradigm, where we find the actual operational theories. Can we also assess the OLI in terms of Lakatos’ criteria for scientific progress? This would essentially involve showing the success of the theories in the protective belt, but building on the core OLI assumptions, in increasing empirical content over time. Though originally intended to explain international production, the OLI has later been extended to cover also other types of activities such as cooperative ventures that do not involve ownership (Pedersen, 2003). On the other hand, one might worry that the OLI framework might risk losing its coherence or internal consistency to the extent that it must be modified to accommodate these new phenomena. This is illustrated by the fact that the OLI has itself evolved over time: Indeed,

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five different versions or ‘marks’ of the paradigm have been identified (Eden & Dai, 2010; Narula, 2010), which have grown in complexity, even leading some researchers using the OLI to prefer the earlier, simpler versions (Narula, 2010). Thus, Pedersen (2003, p. 20) notes: The positive side of the change [from considering only international production to covering all value creating activities] is that the eclectic paradigm adds generality when other entry modes than FDI are taken into consideration. The downside is that OLI is assumed to explain just about anything by merely adding an extended set of variables. It seems reasonable to pose the question whether it explains all or nothing.

While some of the changes in the OLI reflect changes in the world economy, others have arisen as a response to critics. One particularly notable criticism has come from internalization scholars arguing the O-component is superfluous. Buckley (1988, p. 182) argues that ‘if internalization is interpreted dynamically, the inclusion of ownership advantages is double counting’. The argument is that internalizing provides the firm with an advantage (i.e. an owner-specific advantage). Dunning and Lundan (2008, pp. 102, 103) accept that from a dynamic perspective, the OLI components may be interdependent, but argue that it is still conceptually useful to consider them separately. In fact, Dunning (2000, pp. 167, 168) argues that the increasing interdependence of the different components of the paradigm is a strength rather than a weakness: ‘the value of the eclectic paradigm has increased relative to the sum of its parts, with the contribution of each becoming increasingly interdependent of each other’. Other authors objected that some firms might go abroad precisely in order to obtain certain firmspecific advantages or assets (Mathews, 2002): This was later also acknowledged in the OLI, though Dunning maintained the importance of the assets that the firm possessed prior to internalization (Eden & Dai, 2010). Whether these and other modifications imply that there are in fact several OLI SRPs can be discussed. We would here, however, like to point out one final interesting characteristic of the OLI, which is its apparent ability to include many different research streams. Specifically, as its hard core assumptions are essentially stated as conditions (Boddewyn & Iyer, 1999) rather than as behavioural assumptions like in earlier reconstructions of SRPs in economics (Foss, 1994; Knudsen, 1993), it can accommodate SRPs based, for example, on perfect rationality (neoclassical economics), bounded rationality (TCE) and rules-based ‘procedural’ rationality (evolutionary economics) (Knudsen, 1993). Indeed, one might argue that the existence of such a framework in IB itself distinguishes it from ‘representative’ economics research (that being said, it should be pointed out that even

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mainstream economics work on MNEs acknowledges the OLI as a ‘building block’ for their analytical approach; see Barba Navaretti & Venables, 2004, p. 24).

Modelling and Scientific Realism in IB Research We now ask whether the generally greater focus of IB on descriptive realism implies a greater commitment to scientific realism. One could pursue two lines of argument. First, it could be argued that the sparser use of mathematical modelling and unrealistic assumptions itself reflects a reluctance to sacrifice empirical detail in order to construct a tractable mathematical model. However, as we saw in the discussion of economics, the relationship between descriptive realism and scientific realism is not straightforward, and in any case IB works rarely motivate why mathematical modelling was not used. On the other hand, a view of models as idealizations is argued by some to be more closely linked to realism than one of models as pure constructions or ‘fictions’. Our approach here will therefore be to briefly discuss which of these two views of modelling appears to be predominant when IB scholars actually use mathematical models. Of course, such an analysis should only be regarded as suggestive, as it will largely rely on the language used by the authors. For example, Buckley and Casson’s (1976, pp. 62–65) model of ‘the growth of the research-intensive firm’ is simply one in which their verbal analysis of ‘the aggressive phase of the research-intensive firm is summarised’ (1976, p. 58). Rugman (1981, p. 53) does announce a more ambitious agenda by presenting different models or ‘methods of determination of the optimal modality’ of servicing a given market, seeking to ‘provide as much information as possible so that a definitive model may emerge later from these pioneering efforts at formalizing the cost conditions affecting each modality’. As the field has matured, mathematical modelling has not diffused widely. However, of the two main categories of models discussed above, the ‘idealizing’ view of models seems to predominate. For example, Buckley and Casson (2001) repeatedly motivate modelling choices with reference to ‘for simplicity’ and the like. Similarly, Asmussen (2007, p. 93) notes that ‘[w]hile a formal model of the [integration-responsiveness] framework can never replace the rich system description of the existing models, it can single out aspects of that system and show its mechanisms in a more operational way’. Thus, to the extent that the stated ‘idealized’ approach to models can be used as a proxy, we conclude that IB scholars do appear to lean towards scientific realism.

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CONCLUDING REMARKS This chapter has drawn upon the extensive efforts of philosophers of science in economics to try and give tentative suggestions on the philosophy of science of economics-based IB research. In the spirit of economic analysis, we have made strong simplifications. We have restricted the focus of the analysis to suit our specific purposes; limiting our discussion to the economics-based IB programme (IT and the OLI paradigm), we have ‘assumed’ away among others the important but elusive question of the boundaries of IB (Toyne & Nigh, 1997a). Nevertheless, through this limited analysis we have arrived at a number of tentative conclusions. First, although there is generally a stronger empirical focus in IB, it appears that like its ancestor, economics-based IB research is better understood in terms of Lakatos’ SRPs than Popper’s falsificationism. Considering the nature of IB SRPs in turn gives some interesting results. First, we have pointed out that existing interpretations of the hard core of IT do not contain an explicit reference to the international context, and that the theory can essentially be traced back to a more general economics paradigm, via modified subprogrammes such as transaction cost economics. On the other hand, discussing the currently ‘dominant analytical framework’ (Dunning, 2000, p. 163), namely Dunning’s OLI paradigm, we identified some features which justify an interpretation in terms of ambitions to be an IB SRP, such as a hard core consisting of core tenets (and also making explicit reference to the international context), and the suggestion that the paradigm can accommodate essentially most international features through an appropriate modification of the protective belt in terms of the specific theories accommodated within the paradigm. Another characteristic feature of the OLI paradigm is the openness to incorporate sub-SRPs based on different behavioural assumptions such as perfect rationality (neoclassical economics), bounded rationality (TCE) and rules-based ‘procedural’ rationality (evolutionary economics) (Knudsen, 1993). Finally, exploring the link between (mathematical) models, unrealistic assumptions and scientific realism, we have suggested that the approach to models of IB scholars in most cases implicitly reflects a commitment to scientific realism. As for much economic analysis, a challenge is now to broaden our perspective and consider what the analysis has not captured. There are also other issues in the philosophy of science of economics that might be of interest for IB scholars besides those we have treated here. One such issue is the importance of quantitative statistical analysis in economics, and in IB. While we have here focused on a relatively narrow set of economics-based studies,

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quantitative statistical analysis predominates in IB work more generally (Doz, 2011). Further work might, for example, consider the idea that qualitative analysis is ‘ideal’ for falsificationism (Welch, Piekkari, Plakoyiannaki & Paavilainen-Ma¨ntyma¨ki, 2010). Another important question we have neglected here is the debate on positive versus normative economics, i.e. whether it is possible to have a ‘value-free’ economics (Blaug, 1980). Another topic that we have not treated, but which may become increasingly important in the philosophy of economics, is the implications of behavioural economics (Angner & Loewenstein, 2012), which has theorized and described a number of departures from standard assumptions on behaviour. One strand of research has demonstrated the importance of social preferences in terms of altruism and reciprocal behaviour (e.g. Rabin, 1993). A second strand describes how actual decisions under uncertainty deviate from those prescribed by subjective expected utility theory. For example, rank-dependent utility implies that the attention given to an outcome depends not only on the probability of the outcome, but also on how favourable the outcome is compared to other outcomes (Diecidue & Wakker, 2001), while prospect theory holds that agents are loss averse as compared to risk averse (Kahneman & Tversky, 1979). Mainstream economics has long resisted the inclusion of such features in economic analysis, arguing that this would dilute the distinct strength of economics based on ‘rationality’. One may ask whether incorporating behavioural features strikes economics as its ‘Lakatosian core’ of rationality, and whether behavioural economics is in this sense a new economics SRP. We limit ourselves to pointing out that ‘maximization’ may be a more fungible concept than appears at first sight. Though relaxing assumptions on rationality, transaction cost economics still assumes ‘intended rationality’ and in particular a sufficient foresight of potential transaction cost issues leading to the design of efficient governance structures (Williamson, 1995). Similarly, incorporating behavioural features does not necessarily imply ‘irrationality’: The usefulness, in general, of the various heuristics as described above becomes more plausible when we allow that both mind and time are scarce resources in decision situations, cf. the idea of ‘maximization subject to constraints’. The debates presented here may also be useful in considering the future agenda of IB. For example, they may be useful for thinking about such issues as increasing the descriptive realism of IB research. Descriptive realism can be extended in various ways. One is greater realism in terms of the phenomena one seeks to explain. For example, some authors (Asmussen et al., 2009; Benito, Petersen & Welch, 2009) have called for recognition of the fact that actual foreign operation modes are more complex than most

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research assumes, and that the focus on specific mutually exclusive modes ‘stands in contrast to the variety of combined entry modes that can be observed in real-world firms’ (Hashai et al., 2010, p. 660). Extending existing theory (in particular IT) to these relatively overlooked aspects can also be seen as a way of further testing the theory. Other authors have called for greater realism in the assumptions regarding the explanatory factors. For example, Brouthers and Hennart (2007, p. 419) argue that the current focus on rational models of mode choice needs to be supplemented with more realistic [strategic decision making] perspectives that take into account the actions, beliefs, and attitudes of the managers who actually make these decisions and those external factors that influence managerial choices.

As noted above, Friedman (2008 [1953]) argued that we should be concerned with the accuracy of predictions rather than greater descriptive realism in assumptions. However, incorporating so-called ‘behavioural features’ has often led to improved predictions (Holden, 2012). Perhaps behavioural economics will in the years to come be one factor promoting the integration of the rational economics-based tradition and the ‘behavioural’ tradition in IB.25 So far, the dialogue between these streams has been relatively limited. However, some authors argue that the developments in behavioural economics may also affect the future application of economics to IB (Aharoni et al., 2011); FDI studies utilizing these insights have already started to appear (Pinheiro-Alves, 2011). Although the aim of this chapter has mainly been to investigate the philosophy of science implications of IB economics research practice, we would like to end on a more normative note. While there are limitations in principle to the practice of falsificationism, it is clear that IB researchers could in many cases do more to really put theories to the test. We have already mentioned the failure of many TCE-based studies to test the crucial interaction effect between uncertainty and asset specificity predicted by Williamson (1975, 1979) (and the failure of those that do so to problematize a lacking effect), but other examples could also be given. On the other hand, one welcome development in this respect is an increasing number of studies that attempt to combine different theoretical perspectives (e.g. evolutionary economics and TCE, both of which can be seen as SRPs in their own right). In these cases researchers may need to think about how they are setting these perspectives up against other or using them in a complementary manner. Interestingly, concepts from philosophy of science may also be helpful here; for example, identifying Lakatosian hard core assumptions of the different perspectives one attempts to combine could indicate whether

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there are inconsistencies in combining the theories (e.g. in terms of behavioural assumptions), and what are the implications of this.26

NOTES 1. Certainly, several IB authors have noted a positivistic focus in much IB research (Birkinshaw, Brannen, & Tung, 2011). Some IB scholars describe themselves mainly as economists (Boddewyn, 1997). Overall, the issue of a distinct IB ontology and epistemology appears so far to have proven elusive (Sullivan, 1998; Toyne & Nigh, 1997b). 2. It is perhaps also worth pointing out that we do not consider here the standard general equilibrium economics approach to MNEs, though this literature is also increasingly concerned with firm heterogeneity (e.g., Helpman, 2006; Helpman, Melitz, & Yeaple, 2004). The prospect for a (re)integration of the mainstream economics approach to the MNE with IB economics would be an interesting issue for future work. 3. It is worth emphasizing that rationality is a more fundamental assumption than the self-interest assumption commonly associated with economics (Angner & Loewenstein, 2012). Rationality in economics is understood instrumentally as how individuals’ actions promote their goals (Torsvik, 2005), or put differently, rationality is expressed in ‘the maximisation assumption’ that ‘[f]or all decision makers there is something they maximize’ (Boland, 1981, p. 1034). 4. ‘Mainly’ would be more accurate, as Friedman’s essay has more nuances than we can provide here. Entire essays could be (and, indeed, have been) written about possible interpretations (Mayer, 1993). 5. Few economists have, however, embraced the total relativism of scholars like Feyerabend (1975). 6. A naive version of falsificationism would seem to suggest that a single empirical refutation of a theory means scientists should abandon it. Of course, this is inappropriate inter alia because many implications, not least in the social sciences, are stochastic; a theory must be repeatedly refuted before it can be said to be falsified (Blaug, 1984). 7. The HOT states that a country will export those goods whose production is intensive in the country’s relatively abundant production factor, and import those goods whose production is intensive in the country’s relatively scarce factor. This is a clear empirical implication that may be refuted. 8. Even explicit tests of competing economic theories are rare. For one honourable exception, see Markusen and Maskus (2003), who explicitly attempt to discriminate between alternative economic theories of foreign direct investment. 9. It is here interesting to note another, less well-known part of Popper’s work, namely the method of situational analysis that he designed specifically for the social sciences (Hands, 1985). Here, Popper suggested that the postulate of rationality (the rationality principle) should always be maintained, and one should attempt to find explanations for social behaviour in terms of the ‘situation’ in the situation in which the agents find themselves (the concept of situation also includes the actors’ goals). When facing empirical refutation, the assumption should always be that the situation

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has not been specified correctly. This is clearly analogous to the maximization assumption, and indeed, Popper referred to this as the economic method. We will not here dwell on the issue of whether there is an inconsistency in Popper’s work in this respect (see Hands, 1985). 10. Of course, both these ideas are exaggerated (Chalmers, 1999). It is, however, notable that some of the data of economics depends on the eye of the beholder (Hands (1993) gives the example of ‘involuntary unemployment’). 11. This and the following example are only given to provide a flavour of how economic methodologists have applied Lakatos’ ideas. Indeed, economists have suggested a variety of different SRPs with different hard cores (Caldwell, 1991). 12. It would lead us too far to discuss the scientific progress of general equilibrium theory as an SRP here; it is nevertheless interesting to note that the purely theoretical GE programme seems to have been more or less abandoned by economists, following disappointing results (Katzner, 2010; Kirman, 1989). 13. Keynesian and post-Keynesian SRPs still co-exist with the neoclassical perspective, and are cited as examples of competing SRPs (e.g. Toruno, 1988). 14. Cf. also the argument by Ghoshal and Moran (1996) that the opportunism postulate of transaction cost economics (TCE) negatively affects behaviour and that TCE therefore is ‘bad for practice’. 15. In addition, some theories cannot have such an effect; for example, assuming that people are perfectly rational does not make them so. 16. As pointed out in a footnote above, however, Popper suggested a specific methodology for the social sciences (situational analysis) that was very much in line with the economic approach. 17. This does not mean that equilibrium does not play an important background role, e.g., in internalization analysis. The following explicit statement is illustrative: ‘Our model can thus contribute to explain and predict the equilibrium size of firms across industries, between countries and through time’ (Hennart 1982, p. 60). 18. Of course, as Buckley also points out, these works have not actually measured the transaction costs of hierarchical versus market modes. Some work attempting to measure such costs has emerged recently (Tomassen, Benito, & Lunnan, 2012). 19. For the moment, we lump together IT- and TCE-based works, though these were to some extent developed independently (Buckley & Casson, 1976; McManus, 1972; Williamson, 1975) and there are some important differences between these streams. According to Hennart (2007, p. 4), the core similarities between internalization theory (in two variants of Buckley & Casson (1976) and Hennart (1982) respectively) and TCE are: ‘(i) all three theories look at the MNE as one of many potential institutions set up to organize international interdependencies; (ii) they all assume that human agents are opportunistic and boundedly rational; (iii) they all argue that agents choose institutions that maximize the gains that can be derived from the transaction, and that the rents obtained when organizing the transaction by a given institution depend on the specific characteristics of the transaction’. Some differences relate to the role of asset specificity defined as relation-specific investments as opposed to information asymmetry (see, e.g., Brouthers & Hennart, 2007, p. 401). 20. Though we cannot enter into details here, the differences between TCE and internalization theory may be of some importance for understanding these results (Brouthers & Hennart, 2007). 21. More generally, this points to an interesting issue regarding articles that state a set of different predictions on the basis, e.g., of TCE: If some hypotheses are

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supported and others not, to what extent can one say that the theory is really supported? Can one really speak in terms of some ‘average’ support for the theory? 22. Cf. also Brouthers and Hennart (2007) who find Kogut and Zander’s (1993) results consistent with an alternative asymmetric information hypothesis. 23. It does, however, retain the view of the firm as maximizing as a unitary actor. This contrasts with corporate governance theories allowing for the fact that firm decisions may not reflect profit maximization, but rather the motives of managers. Hennart (1982) recognizes this and makes an argument for why transaction cost minimizing choices are nevertheless reasonable to assume. Our guess is that an emerging literature linking corporate governance and IB (Strange & Jackson, 2008), implicitly questioning the two axioms of Buckley (1988), will provide useful insights in the time to come. Besides this, it is worth pointing out that internalization and TCE are mainly concerned with comparative efficiency between institutional arrangements; however, as noted among others by Tomassen and Benito (2009), within a given governance structure there may still be significant differences in the actual governance costs incurred. The internalization decision thus arguably only tells part of the story about ‘maximization’. 24. Again, it is useful to think in terms of maximization under constraints. In this case, the constraints include limited resources in terms of cognitive capacity, time for making decisions, etc. 25. Though as Angner and Loewenstein (2012) point out, the relationship between older work such as that of Simon (1961) and the behavioural theory of the firm and modern behavioural economics is not straightforward. 26. The author has discussed this latter idea in some more detail elsewhere (Rygh, 2013).

ACKNOWLEDGEMENTS We thank the Editors Timothy M. Devinney and Torben Pedersen and participants at the Advances in International Management Workshop, Cass Business School, London, 6 December 2012 for helpful inputs. This chapter owes much to illuminating discussions with Gabriel R. G. Benito on the relationship between economics and international business. He has also provided very helpful comments on the chapter itself. Discussions with and comments from Alexander Schjøll also helped shape some of the arguments here. Finally, Trude Gunnes provided helpful comments.

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Rygh, A. (2013). A quasi-Lakatosian view on theory use and theoretical contribution in management research. BI Norwegian Business School, Oslo. Røgeberg, O. (2004). Taking absurd theories seriously: Economics and the case of rational addiction theories. Philosophy of Science, 71, 263–285. Røgeberg, O., & Nordberg, M. (2005). A defence of absurd theories in economics. Journal of Economic Methodology, 12, 543–562. Simon, H. A. (1961). Administrative behavior (2nd ed.). New York, NY: Macmillan. Strange, R., & Jackson, G. (Eds.). (2008). Corporate governance and international business: Strategy, performance and institutional change. Basingstoke, UK: Palgrave Macmillan. Sullivan, D. (1998). The ontology of international business: A comment on international business: An emerging vision. Journal of International Business Studies, 29, 877–885. Swaminathan, A. (2007). Theoretical research programs in international business. In G. R. G., Benito & H. R. Greve (Eds.), Progress in international business research, (Vol. 1, pp. 27–32). Tomassen, S., & Benito, G. R. G. (2009). The costs of governance in international companies. International Business Review, 18, 292–304. Tomassen, S., Benito, G. R. G., & Lunnan, R. (2012). Governance costs in foreign direct investments: A MNC headquarters challenge. Journal of International Management, 18, 233–246. Torsvik, G. (2005). Rasjonell handling i økonomisk analyse. RØST: Økonomisk teori og politisk praksis, 1, 62–68. Toruno, M. C. (1988). Appraisals and rational reconstructions of general competitive equilibrium theory. Journal of Economic Issues, 22, 127–155. Toyne, B. (1997). Chair’s comments. In B. Toyne & D. W. Nigh (Eds.), International business: An emerging vision (pp. 628–631). Columbia, SC: University of South Carolina Press. Toyne, B., & Nigh, D. W. (1998). A more expansive view of international business. Journal of International Business Studies, 29, 863–875. Toyne, B., & Nigh, D. W. (1997a). Foundations of an emerging paradigm. In B. Toyne & D. W. Nigh (Eds.), International business: An emerging vision (pp. 3–26). Columbia, SC: University of South Carolina Press. Toyne, B., & Nigh, D. W. (Eds.). (1997b). International business: An emerging vision. Columbia, SC: University of South Carolina Press. Walliser, B. (2002). Les mode`les economiques. In P. Nouvel (Ed.), Enqueˆte sur le concept de mode`le (pp. 147–160). Paris, France: Paris Presses Universitaires de France. Weintraub, E. R. (1985). Appraising general equilibrium analysis. Economics and Philosophy, 1, 23–37. Welch, C., Piekkari, R., Plakoyiannaki, E., & Paavilainen-Ma¨ntyma¨ki, E. (2010). Theorising from case studies: Towards a pluralist future for international business research. Journal of International Business Studies, 42, 740–762. Williamson, O. E. (1975). Markets and hierarchies: Analysis and antitrust implications. New York, NY: Free Press. Williamson, O. E. (1979). Transaction-cost economics: The governance of contractual relations. Journal of Law & Economics, 22, 233–261. Williamson, O. E. (1995). Hierarchies, markets and power in the economy: An economic perspective. Industrial and Corporate Change, 4, 21–49.

THE ROAD TO RELEVANCE Yair Aharoni ABSTRACT International business theory leans heavily on neoclassical economics, ignoring its unrealistic assumptions and the many changes in the environment. The chapter calls for a revision of the theory to a contingency theory. The major contingent elements analysed are the political system, business – government and NGOs relations, industries, regimes, ownership patterns, the degree of reliance on ethical behaviour, the institutional environment and social norms.

INTRODUCTION The theory of international business (IB) attempted to explain the existence of foreign direct investment (FDI) rather than international trade and its determinants. As a derivative of this issue, the theory had to suggest the rationale and sources of advantage that explain the emergence and the success of the multinational enterprises (MNEs). More recently, the theory focused on globalization and its driving influences. At an early stage of its development, IB scholars investigated the relations of the nation-state and the MNEs and the degree of power each of these actors has. In the years that followed, IB scholars ignored these issues. Instead, they constructed theories based on the assumptions of neoclassical economics. Post-Keynesian economists do

Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 127–169 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026011

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show ‘concern for history, uncertainty, distributional issues, and the importance of political and economic institutions in determining the level of activity in an economy’ (Arestis, Dunn & Sawyer, 1999). Political economists identified varieties of capitalism (Hall & Soskice, 2001). They argue that markets do not exit separately from social context (e.g. Whitley, 1999). ‘Depending on the institutional context in which they operate firms develop different patterns of capabilities and performance profiles’ (Quack & Morgan, 2000, p. 5). IB theory, however, still leans towards neoclassical explanations. IB scholars often recognize only a tiny portion of the issues involved and assume that nothing else is important. Indeed, it is not easy to grasp the complex and multi-faceted nature of many policy issues. Yet for IB theory to be relevant as a guide to policy makers and to managers it must take into consideration complex legal, political, social, cultural and ethical issues. There are several reasons why theories based on the assumptions of neoclassical economic models are woefully irrelevant in mapping the real world. First, unlike exact sciences, IB theories are far from being universal. Rather, they reflect a certain reality. When this reality changes, the theory must be adapted. In a changing world, theories that may have been a good reflection of reality become obsolete. In rural France, the assertion of the physiocrats that the source of all value was land and therefore agriculture is understandable. Adam Smith, who published his Wealth of Nations when manufacturing became important, saw labour as the source of value and heralded the virtues of the division of labour. For Marx, too, labour was the only source of value. He portrayed labour as unique since what is traded is not the labourer but the capacity to work. Since labour is the only source of value, capitalism is perceived as based on exploitation of the workers. These workers become alienated. The product life cycle was a hypothesis that reflected the world of the 1960s but may be much less relevant to the world of the 21st century. The Uppsala explanation did not anticipate the emergence of born globals. Multinationals do not choose only between markets and hierarchies – they cooperate in various forms of strategic alliances. The rise of the emerging economies has ‘pushed institution-based view to the cutting edge of strategy research’ (Peng, Wang, & Jiang, 2008, p. 923). When core assumptions shift sufficiently, the theory consequently requires its revision or replacement. Second, neoclassical economics portrays a world of a multitude of individual agents: profit maximizing atomistic firms that produce a homogeneous product and individual consumers, each of which does not have any power to influence the system. Markets allow frictionless allocation mechanisms and are driven by rational agents with perfect information.

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The firm is treated as a black box for transforming inputs into outputs according to the laws of technology. As Harold Demsetz observed, it is a ‘mistake to confuse the firm of [neoclassical] economic theory with its realworld namesake’ (1983, p. 377). In the real world today, most economic activity is carried out among very large corporations that enjoy significant economic power. They develop brands, compete in oligopolistic markets and are managed by professional managers, not by owners (Chandler, 1977). In some countries a few families use pyramidal structures, cross shareholdings and super-voting rights to control large swaths of the economy. Often, these families also possess much political power and intimidate the government bureaucracy and the legislators. In most countries, ownership and control are separated and a voluminous literature on agency costs proposed different means to reduce opportunism. Design of various incentive schemes is supposed to make the managers work to maximize the profits for the shareholders rather than in their own interests. Much of this research ignores other stakeholders (Freeman, 1984, 2004). It also errs in overlooking the possibility that managers may be motivated by a desire for power or by lofty ideals of invigorating growth, developing new product, making an impact or serving their country. Third, neoclassical economics assumes that markets are efficient, and continuously adjust to return to equilibrium. Yet, Ackerloff, Spence, Stiglitz and others assert that markets are almost always incomplete and/or information or risk markets are imperfect and asymmetric. Markets will not work well whenever externalities exist – and these externalities are pervasive. The reason that the invisible hand often seems invisible is that it is often not there (Stiglitz, 2006). Market failures are expected to be corrected by regulations, so much more government intervention is recommended. Even if we ignore issues of social justice or market failure, markets cannot operate unless governments enforce contracts and property rights. These governments must levy taxes to finance their operations – and taxes may distort efficient decisions. Thomas Jefferson observed: ‘[g]overnment big enough to supply everything you need is big enough to take everything you have’. Indeed, there are fundamental differences as to the size of government and the functions it should deliver. Yet a system cannot operate without any government that enacts and enforces the rules of the game. The enforcement cannot be achieved if politicians and civil servants are guided only by greed. Maximization of return on investment may be achieved by acquiring a knife and robbing old ladies – crime is highly remunerative.1 Indeed according to Stigler (Stigler, 1974, p. 59): ‘[t]he professional criminal y will reckon the present value of the expected returns

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and costs of the criminal activity and compare their difference with the net returns from other criminal activities and from legitimate activities. y The costs of injuries to a professional athlete are comparable to the costs to the offender of apprehension, defense, and conviction’. It might be said that individuals will not rob because of the fear of being caught, convicted, sentenced and punished. Yet if other individuals including judges, policepersons and politicians rationally make sure the benefits of their activities outweigh these costs, they will take bribes to ignore crime or change the laws. As long as the costs to the criminal of paying the bribe are lower than the costs of paying a fine or going to jail, there is a high incentive to pay the bribe. Such a social order would increase uncertainty to levels that would jeopardize economic growth. In the real world, nations differ in the degree of corruption.2 Tax evasion may be very common in some countries; bribes are openly demanded in certain societies. The degree of law enforcement is also very different. Certainly it is difficult to exchange goods and services without a minimum security and law enforcement. Yet, most economic and IB theories seem to assume that somehow once persons become part of the public sector they would be motivated not by greed but by some other lofty motivators. To be sure, Stigler (1971) coined the term capture. Interest groups and other political participants will convince the regulators to use the coercive powers of government to shape laws and regulations in a way that is beneficial to them. According to public choice theory, regulators are captured by vested interests: individuals or firms with high stake in the outcome of the regulatory decisions. These persons would concentrate energies and resources to tilt the outcomes to policies that are favourable to them. The rest of the population have only a tiny stake in these outcomes and can be expected to ignore these issues. Such an imbalance means the special interests would achieve regulatory capture. Business firms may have a strong incentive to capture any institution that may have power over them, be they institutions from the media, academia and popular culture to shape public opinion in order to benefit from governmental policies. Hanson and Yosifon coined such a situation ‘deep capture’. They (2003–4, p. 341) ‘suspect that one major reason for the success of neoclassical economics and disposition-driven theories of law is not simply that they are good for business, but also that they serve to protect us all from the disquieting possibilities that many of our basic systems are both harmful and rigged’. Regulators may be captured even though they are perfectly honest. To mitigate the effects of capture the regulatory agency must be shielded from outside influence and increase its transparency. Often, the best prescription

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is said to be avoidance of regulations, relying on the market and on a design of incentives. Fortunately, human behaviour cannot be explained – at least not always – by Bentham’s rules. Human beings are social animals, taking care of their family and serving their nation. They often try to gain power. They are guided or constrained by social norms and ethical rules – not only by greed. When these norms are not adhered to a scandal erupts and enforcers intervene. To be relevant, IB theory must avoid a blind reliance on the basic assumptions of classical economics. Instead it should borrow ideas and concepts from behavioural sciences – political science, sociology, psychology and other disciplines. It should integrate and mould them into a contingency theory that would be able to not just predict behaviour but also prescribe rules of actions on governance, for international agreements and for codes of conduct of MNEs. The chapter has a number of sections. I first explore the extant theory of FDI and the MNE including the relevance of this theory to the relatively new phenomenon of MNEs originating from emerging economies. Next, I analyse the different faces of the MNEs, showing they have become a dominant force not only in technology generation and economic well-being but also in shaping national and international politics. I then discuss the various ideas on the role of government and its relation to MNEs. Also discussed are differences among industries in this interaction. The next section highlights some additional variables important to make IB theory relevant – mainly changing social norms. Based on the discussion of existing theories and their deficiencies I suggest a contingency theory of international business in general and the role of MNEs in particular – and enumerate the different contingent variables to be included in such a theory.

The Extant Foreign Direct Investment Theory The phenomenon of MNEs has been an enigma for classical economists. There was no satisfactory explanation for its existence. Why do some firms erect plants in foreign countries? Why do other firms not do so? Indeed, international economic textbooks have chosen for many years to ignore the phenomenon of FDIs and MNEs and concentrated on international trade. A few economists attempted to explain international production through a Heckscher–Ohlin–inspired lens as an international movement of physical capital in search of higher returns. Mundell (1957), for example, predicted

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that FDI is mainly driven by international differences in rates of return. His focus, however, was on sectors rather than firms. While most international economists ignored FDIs, there were a few exceptions. John Dunning studied the American Investment in British Manufacturing Industry (1958). In the 1960s, Raymond Vernon directed the Multinational Enterprise Project at Harvard Business School that assembled data on U.S.-based multinationals. Because his major concern was the relations of governments and MNEs, Vernon defined a firm as being multinational if it was listed in Fortune 500 and had subsidiaries in at least six countries. UNCTAD (and following it most scholars today) adopted a definition of operating in more than one country and no size restrictions. This definition more than doubled the number of firms considered MNEs (UN, 1973). Vernon’s doctoral candidates looked at these organizations in terms of finance, organization, production, marketing, and business– government relations. His own interest was in the relations between these firms and the nation-state. The titles of the books he wrote provide a kind of synopsis of his study of these relations: Sovereignty at Bay (1971); Storm over the Multinationals (1977); Beyond Globalism (1989); and, In the Hurricane’s Eye (1998), with its subtitled warning ‘[t]he troubled prospects of multinational enterprises’. In this last book, he drew a picture of a world in both commercial and political conflict. A fairly small number of large MNEs were generating about half the world’s industrial output and half of its foreign trade. Vernon felt that the ‘relatively benign climate’ in which the MNEs had been operating over the past 10 years faced a spell of ‘rough weather’. Unfortunately, other IB scholars were blinded by the seductive nature of the neoclassical economics. They were sure free market is the best of all economic systems – under which meritocracy prevails while privilege or power does not have any role. The collapse of the Soviet empire was seen by many as a decisive victory of free-market principles over planned economies and a living proof that unfettered market allocates resources efficiently and the state or any other despotic authority does not have any role. Kenichi Ohmae (1995) declared the nation-state was finished. Thomas Friedman (2003) argued that the world is flat and governments lost power because globalization had to don the golden straitjacket of market discipline. Francis Fukuyama (1992) even declared the end of history with the triumph of democratic capitalism. Almost all governments deregulated and privatized – encouraged by the World Bank and the IMF. They seem to have been sure a market economy will attract inward FDI and will bring growth, prosperity and welfare to all. Very few foresaw the severe world financial crisis of 2008. This crisis raised doubts as to the benefits of a

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free-market and even the U.S. government felt it had to intervene and save General Motors, AIG, and other firms perceived as ‘too big to fail’. Still, many economists continue to believe in efficient markets and rational expectations. In the 1950s and 1960s, MNEs were assumed to be mainly based in the United States. Dunning studied the impact of these firms on the U.K. economy. Vernon collected data on 187 U.S.-based giant MNEs. In the mid1970s Larry Franko published his research on the European multinationals (Franko, 1974, 1976), which were shown to be different, in many respects, to the U.S.-based MNEs. Later, the attention of researchers turned on Japanese multinationals (Yoshino, 1976; Yoshihara, 1977, 1979). All of these firms were giants and were based in developed economies. Since they owned subsidiaries in different locations, these MNEs could shift technology and resources among locations. Their mobility clearly increased their bargaining position – eroding national sovereignty. Hymer, in his doctoral thesis (1960 – published 1976), was the first to offer a theory explaining why a firm produces abroad rather than exporting. His explanation assumed these firms have some monopolistic advantage that allows them to overcome the additional costs of foreign operations and compete successfully against domestic firms – what has become known as the ‘liability of foreignness’. The major source of that advantage was the monopolistic power achieved by access to superior technology. The superiority could be sustained because patents and trade secrets created effective barriers to entry to potential competitors. Since his seminal work, firmspecific advantages (FSAs), or ownership advantages, became a corner stone in IB theory. Firms are portrayed as a collection of assets. MNEs possess higher-than-average levels of certain assets, e.g. marketing skills, development of products, patents, and managerial structures. The application of these assets to production at different locations does not diminish their effectiveness. Helpman (1984) called these assets ‘headquarter services’. They are modelled by a single index of firm productivity. Helpman, Melitz and Yeaple (2004) show that low-productivity firms produce only for the domestic market while the most productive firms pay the higher fixed costs of engaging in FDI, and medium-productivity firms choose to pay the fixed costs of exporting. Their paper also predicts that industries with greater firm heterogeneity will have relatively more firms engaged in FDI. Hymer was a Marxist – and his theory portrayed MNEs as evil monopolists that take advantage of their economic power and create barriers to entry. ‘[H]is beliefs that large MNEs were all powerful, that

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capitalist states in developing nations were weak and unable to learn, that small firms had no chance to compete, and that a socialist state would be able to solve the problems of capitalism led Hymer to make some predictions and prescriptions that have since proved unsupportable’ (Dunning & Pitellis, 2008, p. 175). His thesis advisor, Charles Kindleberger (1969), softened much of Hymer’s criticism. He and others also postulated access to capital as a source of advantage. Caves (1971) proposed brands as another source of monopolistic advantage. Since the mid-1970s IB theory relied heavily – even exclusively – on classical economics. Later it leaned also on transaction cost theory to explain the existence and the operations of MNEs. Economic studies tended to emphasize positive results such as job creation, economic growth, technology transfer, generation of tax revenues and education of managers. The motivations for FDI – market seeking, resource seeking, efficiency seeking and strategic asset seeking – were all beneficial. Corruption-breeding MNEs, stifling domestic entrepreneurship, avoiding taxes by the use of tax havens and transfer price mechanisms and assuming stateless quality were largely ignored. In the only conference discussing the Janus side of MNEs, Eden and Lenway (2001, p. 392) asserted: ‘most MNE research by IB scholars, we submit, has implicitly adopted a pro-MNE stance’. The first chapter in this issue by Yadong Luo, argues that a new cooperative model should replace the traditional conflictual model of MNE-host government relations. He proposed four constructs that can be used to analyse these cooperative relations: complementarity, personal relations, political accommodation, and organizational credibility. He tested his hypotheses on 131 cases in China (see, also, Luo, 2004). Dunning (1977) is the first statement of the OLI paradigm, later refined and extended in many papers.3 He identified three potential sources of advantage that may explain a firm’s decision to become MNE. Ownership advantages following Hymer explain why some firms, but not others, are MNEs: these firms possess firm-specific advantages (FSAs) that allow them to overcome the costs of operating in a foreign country. Location advantages focus on the question of where an MNE chooses to locate. Finally, internalization advantages explain why certain activities are carried out within firms and others through arms length transactions. These explanations follow the 1937 paper by Ronald Coase who argued that the optimal degree of internalization reflects a balance between the transactions costs of using the market and the organizational costs of running a firm. This theory was applied to FDI by many economists, e.g. Ethier (1986), Antras and Helpman (2004) and Buckley and Casson (1976, 1985). A related

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approach is an analysis of transaction costs (e.g. Hennart, 1982). Until very recently, most academic work on MNEs analysed the greenfield mode of FDI. Yet according to UNCTAD cross-border mergers and acquisitions (M&As) accounted for over 80% of worldwide FDI in the 1990s. Again, the belief in the primacy of the market over all other forms of social organizations meant among other things that MNEs were portrayed at least implicitly as benign organizations that do not possess or at least do not use any monopolistic power nor do they get FSAs, e.g., by taking advantage of regulatory differences among countries. For the ardent believer, the theory is always right. In the last few decades MNEs from emerging economies grew in numbers and increased their market share. These new MNEs do not enjoy FSAs such as strong brands or cutting-edge technologies. IB scholars responded by proposing how the theory should be adapted. Thus, Hennart (2012) argues that the OLI paradigm suffers from the basic flaw of assuming that location advantages (or country-specific advantages – CSAs) are freely available to all firms. His model posits that local firms can enjoy specific location advantages not available to other firms. To Mathews, MNEs based in China ‘help to expose the weaknesses and limits of traditional accounts of MNEs and of existing theories and frameworks of international business’ (Mathews, 2006, p. 8). He proposed the linkage, leverage, learning (LLL) framework, in which the Dragon’s international expansion is seen as a search for external resources that can be explained in terms of resource LLL (Mathews, 2002a, 2002b). Other researchers claim these new MNEs do enjoy FSAs that are somewhat different from those possessed by established developed countries’ MNEs (For a summary see, e.g., Cuervo-Cazurra, 2012; Ramamurti, 2009; Ramamurti, 2012). On the other hand, Rugman and Li (2007) forcefully argue that ‘basic theory suggests that MNEs succeed when they develop knowledge-based capabilities, often called firm-specific advantages (FSAs). In China’s case its large MNEs have few such knowledge-based FSAs. Instead, they are building scale economies based on China’s CSAs in relatively cheap labour and natural resources. However, there need to be more than economies of scale in the case of China’s MNEs, as such scale advantages reflect a country factor available to all firms, rather than being an FSA’ (Rugman & Li, 2007, p. 333). Rugman (2009, p. 53) predicts ‘when will China generate its own world-class MNEs? The answer is – not for 10 or 20 years’. In other words, OLI theory must be universally right and the success of firms from China is impossible. Yet the success of these MNEs may be a result of political aid – not economic reasoning.

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The Many Faces of the MNEs In a competitive market system, firms are assumed to be dependent only on the market. The only way they can react to the environment is through internal efficiency and the production of useful goods and services to consumers. MNEs clearly do not operate in a neoclassical competitive world. Instead, they are usually large firms enjoying a dominant position in a sector of the economy. Managers in these firms have discretion in the choice of strategies, product lines, organizational forms and policies – including lobbying and other political activities in national, regional and international institutions.4 Being a complex organization, they consist of ‘a set of interdependent parts which together make up a whole in that each contributes something and receives something from the whole, which in turn is interdependent with some large environment’ (Thompson, 1967, p. 6). The managers of the MNE attempt to generate valuable resources and capabilities that cannot be easily imitated by its rivals. Since many resources are obtained from other resource providers, the MNE engages in a variety of actions to manage this resource dependence (Pfeffer & Salancik, 1978). These resources include political ties, thus ‘performance benefits accrue to firms that create linkages with the political environment’ (Hillman, Withers & Collins, 2009, p. 1413). MNEs coordinate economic transactions among a number of different enterprises operating in different countries within a single firm structure. The MNE, by definition, operates in several national jurisdictions and in value chains that cross national borders. MNEs were becoming steadily more salient feature in the global economy. Their number has jumped from 7,300 in 1970 (UN, 1973) to 40,000 in 1995, 79,000 in 2007 and 103,786 with 892,114 foreign affiliates in 2010.5 In 2011, the MNEs recorded by UNCTAD employed 69,065,000 persons in their foreign affiliates. The annual sales of these foreign affiliates were U.S.$27.877 trillion with value added of $7.183 trillions – almost 11% of world GDP. Their exports were $7,358 billions – 32% of world exports of goods and non-factor services. Even without counting exports by the home country, these MNEs account for a significant part of world exports – much of it within the MNE’s network. The corresponding figures for 1990 were $5,102B in sales, $1,018B in value added, and $1,498B in exports and for 2005–2007, $20,656B in sales, $4,949B in value added and $4,003B in exports (UNCTAD, 2012, p. 24; table 1.8). MNEs production worldwide generated an estimated U.S.$16 trillion in value added in 2010, accounting for about a quarter of global GDP. Earlier UNCTAD figures show that MNEs account for around

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two-thirds of world trade (UNCTAD, 1996) and around half of that takes place within the same multinational (UNCTAD, 1999). Outward investment flows from developing and transition economies are also gaining in importance, driven by faster economic growth and investment liberalization in these countries. In fact, in 2012 inflows of FDIs from MNES based in developing countries were larger than those of MNEs based in developing countries.6 Certainly even the smallest of the approximately 104,000 MNEs was much larger than the neoclassical atomistic firm and was able to dominate a certain segment of the market in which it operated. Given its size, the MNE is powerful. Given its mobility among nations, it could negotiate with governments, playing one against the other, gain preferential conditions and receive significant investment grants, tax holidays and other sorts of subsidies and concessions. Even without government consent, the MNE can avoid taxes by using tax havens. Given the volume of intra-firms exports, the creation of the WTO has benefited these MNEs. The managers of MNEs are expected to maximize profits for their owners. They can maximize profits by regulatory arbitrage (Kogut, 1985). Three researchers from the Swiss Federal Institute of Technology in Zurich concluded that 737 MNEs control 80% of the value of all MNEs, while 147 of them (which the researchers call ‘a tightly-knit core of financial institutions’ or ‘super-entity’) control 40% (Vitali, Glattfelder & Battiston, 2011). To be sure, MNEs do contribute to the host nation employment, management knowledge, technological expertise and tax revenues. According to the UNCTAD (1999), FDI can complement local development efforts by (a) increasing financial resources for development; (b) boosting export competitiveness; (c) generating employment and strengthening the skills base; (d) protecting the environment and social responsibility; and (e) enhancing technological capabilities (transfer, diffusion and generation of technology). Precisely because of the benefits they create, MNEs enjoy strong bargaining power vis-a`-vis national governments. They can also avoid national, regional and international laws and regulations and tilt these regulations to enhance benefits for the MNEs. In many cases, they are monopolies. They are also a dominant force in politics and in shaping public policy (Kolko, 1969). The foreign policy of the United States was interpreted as a response to the expansionary drive of the U.S.-based MNEs (Magdoff, 1969). As the environment changes, once valuable political ties may become a liability, as Sun, Mellahi, and Thun (2010) document in the case of Volkswagen in China. Political strategy is more important when the industry is regulated. A regulator may license new entrants, change the rate structure or change the license terms. Choudhury,

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Geraghty, and Khanna (2012) documented how MNE can influence political outcome by actively involving ‘periphery’ actors. In the 1970s, developing countries were very concerned about the power of the MNEs and the erosion of sovereignty of the nation-state. They were able to pass a resolution in the United Nations General Assembly declaring the establishment of a new economic order. Among other things, it called for the ‘regulation and supervision of the activities of transnational corporations by taking measure in the national economies y on the basis of the full sovereignty of those countries’ (UN General Assembly, 1974). The practical implications of this declaration were negligible (Ougaard, 2010). Structural theorists of development focused on the unequal international trade relations and what they saw as the negative consequences for development of FDIs (Cardoso & Faletto, 1979; Evans, 1979). In many developing economies the MNEs were perceived as a part of imperialistic powers that exploits consumers as portrayed by Rosa Luxemburg and Lenin – and, therefore, a candidate for nationalization. The United Nations also initiated an investigation – resulting in a seminal report (UN, 1973) – on the creation of what is now known as UNCTAD. Barnet and Mu¨ller (1974) were quite apprehensive about the political impact of the MNEs on both home and host countries raising many contentious issues. In the early-1970s, a spate of books promoted the thesis that the MNEs were taking over the traditional prerogatives and functions of national governments (e.g. Sampson, 1973).7 Managers of large MNEs claimed they were prisoners of their past and even the most puny government might nationalize their subsidiaries leaving them little redress. Indeed, the dominant theory of MNE–state relations was the obsolescing bargain model (Vernon, 1971, 1977; Moran, 1985). Since the mid-1970s these issues were put on the backburner. So were issues such as money laundering, corruption, tax evasion, and the use of tax or pollution havens. As to the obsolescing bargain model, it has been adapted to include constraints created by membership in international organizations (Ramamurti, 2001) and sequence of bargaining involving late comers, as in the case of Canadian auto industry (Eden & Molot, 2002). The period after the collapse of the Berlin Wall was a golden era for the believers in free markets – and for the large and powerful MNEs that could pick and choose investment locations among competing governments. IB scholars saw the activity of the MNEs to be ‘concentrated mainly in knowledge-intensive industries characterized by high levels of research and development (R&D) expenditure and advertising expenditure, and by the employment of skilled labor’ (Buckley & Casson, 2009, p. 1563) – activities that were a blessing to the economy, invigorating it to a higher plateau

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of growth. The political power of the MNEs, as well as their political actions, was rarely discussed (for an exception, see Boddewyn, 1988; Boddewyn & Brewer, 1994; Stopford & Strange, 1991). By the 1990s, most governments, the World Bank, the IMF and certainly IB scholars were also staunch supporters of globalization and free trade (Bhagwati, 2004), while others expressed reservations (Robertson, 1992; Rodrik, 1997). In the meantime the MNEs grew in number, in size, and in their share of the world business activities. MNEs steadily became more salient feature in the world economy and significant political actors. In many cases, they swept off the local competing firms and developed monopoly positions. Their monopoly rents were channelled out of the country and economic inequality increased. Business commercial interests are articulated and furthered in political processes through lobbying and other corporate political activities. These activities consist of ‘a concerted pattern of actions taken in the nonmarket environment to create value by improving overall performance’ (Baron, 1997, p. 146). In other words, MNEs can use their FSAs to get more benefits through a political process and increase their profits. It is also possible that governments create FSAs through subsidies, thus allowing the creation of home-based MNEs. Indeed, in 1967, Jean Jacques Servan-Schrieber warned that U.S.-owned multinational firms would overtake the less competitive European firms. His solution was creation of European-based MNEs. More recently, several governments actively sought to create home-based MNEs that will bring many benefits to the home country. China is, of course, a wellknown example of this strategy. In many of these cases, ownership advantages were not firm specific but government created. Unfortunately, IB scholars, who recognized only the economic benefits of MNEs, ignored all these issues. Issues of power and influence, so-called dependencia, or national as well as international regulation of MNEs were left for the political scientists (e.g. Keohane & Van Doorn Ooms, 1975; Keohane & Nye, 1977) and to neo-Marxists or anarchists. Shaffer (1995) reviewed the earlier scholarly work on corporate attempts to shape government policy in ways favourable to the firm. More recent scholarly work on corporate political activity (CPA) were reviewed by Hillman, Keim, and Schuler (2004). In the protest literature MNEs are portrayed as utilizing their power to tilt outcomes to their benefit – in particular in weakened or corrupt states. In so doing they are said to use illegitimate means (Pilger, 2003, pp. 17–47; Hertz, 2001). The MNE is conceptualized as a stateless entity, oriented ‘purely to their own bottom lines – without regard to any national or local interest’ (Korten 1995, p. 127). Business firms are assumed to deploy what Fuchs (2007) termed

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‘discursive power’ – the power to be able to define norms and values that serve a particular interest as if it is a general norm and value. MNEs are interested in orchestrating governmental support of different sorts, including restrictions on possible competitors, subsidies and protection, as well as upgrading the infrastructure. To be sure, IB scholars did recognize that MNEs could shift resources among different nation-states. They certainly understood that MNEs, being mobile actors, are able to escape national jurisdictions and can play one government against the other. Yet following Hayek’s (1973, pp. 17–39) preference of spontaneous order over designed order, issues such as the political power or unethical behaviour of MNEs as well as noneconomic aspects of FDI were swept under the carpet. Relying on economic advice, governments – motivated by the desire to create employment, transfer technologies and contribute to economic growth – raced to get MNEs to invest in their territory, looking to benefit from their superior technology, marketing abilities and management excellence. Oxelheim and Ghauri (2008, p. 358) claim that this race consists of last minute efforts and tailor-made packages designed by governments and their agencies to temporarily improve their country’s otherwise inferior profile. This race is nontransparent. Most nation-states created investment promotion agencies to encourage FDI (Wells & Wint, 1990; UNCTAD, 2001): Ministers and even presidents or prime ministers travel to headquarters of large MNEs to urge their managers to invest. Governments also negotiated bilateral investment treaties. Large countries – e.g. the United States or Brazil – used a combination of incentives and import restrictions.8 Other countries may have to offer more subsidies to encourage MNEs to enter. MNE may not formally invite formal bids from government on concessions before they erect a plant, but governments certainly know of such intentions and offer concessions hoping to gain employment and other economic benefits.9 In its 2012 World Investment Report, UNCTAD proposed an Investment Policy Framework for Sustainable Development. It offers a set of core principles to guide national and international officials making investment policy. Jensen (2008) argued that MNEs are influenced by considerations of political stability in their entry decisions and political institutions can provide credible commitments to economic policies. Subsidies and tax holidays are sure ways to increase profit, so managers learn to become political, playing in the political field at least as much as in marketing or the strategy of the business. Clearly, spending resources on politics may yield a very high return on investment – reducing taxes, creating less stringent environmental and other regulations, ignoring child labour, getting subsidies, protection against foreign rivals and much more. Another possible yield is free movement of goods, services and capital across borders.

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The international political situation is of strategic importance to MNE managers and they have become an important player in this field. Other players are national governments, but also international institutions (Bu¨the & Milner, 2008) as well as NGOs. Clearly, ‘Foreign direct investment (FDI) decisions always involve the emergence of a political bargaining relationship between a multinational enterprise (MNE) and a host government’ (Skipari & Pajunen, 2010, p. 620). All in all, the MNE is a crucial actor in any economy. Its activities aggregate into overall levels of economic performance. Its ability to innovate is essential for economic growth. Its operations are important to many stakeholders and diverse interest groups – suppliers, employees, consumers, governments and many more. Only a narrow yardstick of profits cannot measure the operations of such an institution. Many call for a regime whereby MNEs would be obligated to diverse constituencies. To date, some attempts were made for self-regulation through guidelines (OECD, 2008). Yet it is not clear how the MNE should balance its commitments to parties that are in conflict. Furthermore, the rights of different parties may shift over time (Devinney, 2011). Yet MNEs are too important and too powerful to be responsible only to shareholders and for maximization of profits. Mantere, Pajunen and Lamberg (2009) demonstrate that ‘if ethics and a localized context of action, which are two inherent aspects of Corporate Political Activities (CPA), are excluded from the theory and practice of political strategizing, in a worst-case scenario the nature of CPA may turn sociopathic – a phenomenon well known on the level of individuals but often ignored on the level of collective’. They argue that ‘in the worst case, if CPA researchers encourage firms to perceive CPA solely from the point of view of short-term profit maximization and/or from the point of view of a specific cultural and institutional perspective, it may turn against the overall development of society and viable business environment’. They thus call for including an ethical dimension to CPA and warn against looking at these activities solely from the point of view of short-term profit maximization. The behaviour of MNEs to date seems to indicate that self-regulation may not be the solution. Instead, a set of enforceable rules of conduct is necessary. This issue leads us to look at MNEs relations with both home and host governments, NGOs and international organizations.

Government–MNE Interactions and Interdependence To date, very little research is conducted on finding the right balance between the market and government (and the third sector – non-governmental

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non-profit organizations), the extent to which this balance differs from time to time and place to place, and the underlying reasons for the change in the balance. The different organs of government promulgate, implement and enforce the law. The state enjoys a monopoly on the power to coerce. Yet there is also very little objective and concrete data on the optimal size of government or on the specific roles it should play using this monopoly power. Further, despite much evidence, it is implicitly assumed that government officials and regulators will work for the public interest rather than maximizing their own benefits – either because they are honest or because of the incentive system designed for their remuneration. If most individuals are honest, perhaps classical economic assumptions on human motivations are wrong and different assumptions are badly needed. On the other hand, it is not realistic to assume that business executives from Enron to Worldcom to Parmalat to Barclays and UBS are motivated only by greed, while government officials and politicians are motivated only by the lofty desire to serve the nation. Further, given that the institutional contents in which the MNE is embedded is different in different countries and also evolve – e.g. with changing technologies – should we assume a worldwide lust for greed? Important as this issue is, it is not a necessary part of IB theory. What is important is to recognize the saliency of the interactions of MNEs and governments as well as a diverse set of nongovernmental activist groups. Clearly, the interactions are different depending on the effectiveness of the institutions. In an extreme case, an institution’s inefficiency and inconsistency may increase the level of uncertainty and will cause MNEs to avoid FDI. In all cases, the rules and regulations dictate the boundaries of tolerated behaviour (North, 1990). Since economic activities are organized differently in different market economies, differences may be predicted in the operations of different subsidiaries of the MNE (Kostova, Roth, & Dacin, 2008). Furthermore, rules and regulations are different in different lines of business and, therefore, industry is a major contingency variable. A related issue is the management of state-owned enterprises (SOEs) and ownership – be it family, investors, pension funds or the state – is also a major contingency variable. Several observations are due. First, the state can, and does, hurt or help any business firm. It can also share risks or even absorb them. Conversely, a firm would try to utilize the state to increase its profitability by seeking direct subsidies, tax holidays, protection against rivals and so on. Therefore, large firms (and industry associations) lobby government in order to get these benefits. A firm can also gain first mover advantages by acquiring, sustaining, and exploiting firm-specific political resources

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(Frynas, Mellahi, & Pigman, 2006). MNEs would use political resources to advocate an international regime from which they could benefit. Thus, studies of the creation of the GATS clearly show that much of the push to get this agreement was the result of a major lobbying effort of American Express Company, Citicorp and the U.S. Council of Service Industries.10 The European Commission has been working closely with business lobbies, such as the European Services Forum. The reason no agreement was reached during the Doha round on agriculture is also to a large extent the result of lobbying efforts of farmers in the developed economies. Nations agreed on different international regimes for different industries and lobbying by powerful interest groups influenced these agreements. Thus, ships can anchor in any port but airlines are not allowed to land unless their home government negotiated such rights in a bilateral agreement (Aharoni, 2004). One result of this regime is that the airline industry cannot consolidate globally. An airline does not acquire foreign airlines because of the risk of losing landing rights. To cater to the demand for global service, airlines were forced to design various types of strategic alliances such as code sharing. Clearly the reasons for these differences among industries have very little to do with economics. They all stem from political considerations. Thus, Zacher and Sutton (1996) explored the interests that have sustained the regulatory regimes for shipping, air transport, telecommunications, and postal services. Naomi Klein (2007) contends that free market policies were rushed through when citizens experienced a major shock from disasters, upheavals or invasion. These citizens wanted the situation corrected. Unscrupulous actors seized the opportunity, and sometimes intentionally created the opportunity, to rush through and implement policies that go far beyond a legitimate response to disaster. Second, in the world of the 21st century, national sovereignty ceased to be the exclusive form of public power. Even the most powerful nation-states are enmeshed in complex structures of overlapping forces and relations due to the widening, deepening, speeding up and intensity of global interconnections. As a result of globalization, some of the most fundamental processes that determine the nature of life are now beyond the reach of even the most powerful nation-state – whose power is now checked and limited. (Held, McGrew, Goldblatt, & Perraton, 1999; Eden & Molot, 2002). The MNEs are, of course, a major force pushing for seamless globalization and enjoying an ability to be shielded from national control. MNEs fragment their value chains and redistribute work on a global basis to find the best mix of cost and expertise. Services may be outsourced to a different firm or

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off-shored to a subsidiary within the network of the MNE. Both cases affect employment in the developed nation. Giddens (1991, p. 64) defines globalization ‘as the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa’. The MNEs are of course a major force pushing for seamless globalization. Others are the World Bank and the IMF, both of which impose macroeconomic policies such as Structural Adjustment Programmes (SAPs) and the more recent Poverty Reduction Strategy Papers (PRSP), required for debt relief and, increasingly, for development assistance. Also important are enforceable trade agreements (administered by the WTO). There are also numerous multilateral agreements on human rights, environmental protection, women’s rights, children’s rights and so on. There are also 851 international investment agreements (UNCTAD, 2012) and a number of regional organizations such as the European Union. Yet, ‘pure’ globalization has been true mainly only for financial movements. No country of the world allows free movement of foreign citizens; the labour market is not global. Many developed countries limit free movements of different services. The GATS is based on national commitments. In the case of health services, many developed countries restricted their commitments; the United States as well as Japan consented on only one of four types of services. Thirty-nine countries, including Canada and Brazil, did not commit at all. One result is that in health services international trade is in an embryonic stage – miniscule compared to finance or business services, even though medical tourism grows 30% per annum and developed countries can enjoy significant potential savings on health insurance premiums. Developed countries also refrained from commitments to fields deemed important for cultural reasons, such as movies. Note that most trade barriers in services are embedded in domestic, not international, regulations. Third, MNEs also have to deal with the activities of activists, such as environmental activist groups, human rights organizations, community groups, and social movements in general. These groups advocate the interests of the civil society in local, national and global contexts. Antiglobalists are worried about climate change and environmental degradation issues. They warn against the perceived power of the MNEs. In almost all cases, MNEs were compared in size to nations – erroneously comparing sales rather than value added with GDP. Thus, Karliner (1997) writes: For example, the combined revenues of just General Motors and Ford – the two largest automobile corporations in the world – exceed the combined Gross Domestic Product

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(GDP) for all of sub-Saharan Africa. The combined sales of Mitsubishi, Mitsui, ITOCHU, Sumitomo, Marubeni, and Nissho Iwai, Japan’s top six Sogo Sosha or trading companies, are nearly equivalent to the combined GDP of all of South America. Overall, fifty-one of the largest one hundred economies in the world are corporations. The revenues of the top 500 corporations in the U.S. equal about 60 percent of the country’s GDP. Transnational corporations hold ninety percent of all technology and product patents worldwide, and are involved in 70 percent of world trade. More than thirty percent of this trade is ‘‘intra-firm’’; in other words, it occurs between units of the same corporation’.

The protesters claim that interests of governments are often intimately intertwined with those of the MNEs that they charter. They portray MNEs as corruption breeding, brazen exploiters of resources bringing misery and hardships to the public. As they see it, MNEs assume an ever more stateless quality, and are less and less accountable to any government anywhere. These corporations, together with their home and host governments, are reorganizing the world economic structures – and thus the balance of political power – through a series of intergovernmental trade and investment accords. These treaties serve as the framework within which globalization is evolving, allowing international corporate investment and trade to flourish across the Earth. These international trade and investment agreements allow corporations to circumvent the power and authority of national governments. MNEs are also accused of the so-called ’race to the bottom’. The Financial Times Lexington column defines the term: ‘the situation in which companies and countries try to compete with each other by cutting wages and living standards for workers and the production of goods is moved to the place where the wages are lowest and the workers have the fewest rights’. The term is often used pejoratively: in the absence of beneficial legislation environmental safeguards regulations on workers’ rights or on trade and standards, MNEs will move from country to country searching for cheaper resources with less environmental regulations until they devastate the economies of the entire world in their quest for lower costs. Believers in this theory preach for replacing free trade by ‘fair trade’, defined by the authors of The Ethical Consumer as ‘products purchased under equitable trading agreements, involving cooperative rather than competitive trading principles, ensuring a fair price and fair working conditions for producers and suppliers’ (Harrison, Newholm, & Shaw, 2005). Political scientists tend to agree. For example, ‘the most important shift in power has been the historic expansion of exit options for capital in financial markets relative to national capital controls, national banking regulations and national investment strategies, and the sheer volume of privately held capital relative to national reserves. Exit options for

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corporations making direct investments have also expanded, but less so. Nonetheless, the balance of power has shifted in favor of capital vis-a`-vis both national governments and national labor movements’ (Goldblatt, Held, McGrew, & Perraton, 1997, p. 74). As a result, the autonomy of democratically elected governments is increasingly constrained by unelected and unrepresentative economic power. Also important are new transnational social movements contesting the terms of globalization, such as the environmental movement or the women’s rights movement. As an example, Skipari and Pajunen (2010) analyse a case study of a conflict between a Finnish multinational forest industry company and Latin American environmental activist groups concerning the company’s pulp mill investment in Uruguay. Argenti (2004) discusses the relationship between an NGO and Starbucks. Fourth, many are oblivious to the evidence that there are many kinds of free markets, depending on the role played by governments and international institutions. Governments may cooperate with the business sector. Conversely, the business–government relations are in some cases adversarial. Political scientists recognize liberal and social types of corporatism depending on whether capital or labour is the dominant interest group (Katzenstein, 1985, p. 104f).11 Political economists group developed countries as liberal market economies as opposed to coordinated market economies (Hall & Soskice, 2001). The first group relies more on markets. It tends to have a short-term view on business success, high levels of income inequality but also more radical innovations. Interactions between business and government are not institutionalized. Powerful trade unions and trade associations characterize the second group. These associations exchange information, monitor behaviour and sanction defections. Financing is supplied by financial institutions and less through the capital market. The close ties between these financial institutions and the business firms allow a longer-term view on performance of the firms. In some cases, the network of the firms is industry based. In others it is group based, as in the case of the Japanese keiretsu. Hall and Soskice (2001) hypothesized that a best fit for either liberal or coordinated market economy will perform better than countries whose institutions are mixed. Campbell and Pedersen (2007) claimed Denmark is hybrid and still successful. Indeed, this parsimonious analysis is an important recognition of possible national differences in business–government relations but does not capture the significant diversity across countries. IB scholars should indeed pay close attention to differences in institutions. Listing fields of economics as well as areas of industrial standards,

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environmental protection or workers’ rights and documenting the degree of governmental involvement may be very helpful. Furthermore, countries differ in the degree of participation of business in norm setting and norm development process. There are also major differences in the extent and spread of regulations. Thus, the French dirigisme system is based on the belief that the state should define what is best for the nation. These differences may or may not have ramifications to the behaviour of MNEs outside their home country. A fascinating issue is whether the MNE behaves according to norms of the home country or is influenced by norms and institutions of host countries. Kolk and Pinske (2007) explore the international dimensions of corporate political activities, focusing on climate change. They show these activities being implemented differently in different countries. U.S. and Australian firms focus more on voluntary programmes than European and Japanese firms. They found the MNEs tried to influence home-country not host-country governments. Another issue is the degree to which the behaviour evolves in response to challenges of new technologies and other forces. Unfortunately, IB theory ‘gives little attention to the origins and evolution of the various policy regimes governing international business operations, the connections among such regimes, or the role of business in shaping them’ (Preston & Windsor, 1997 [1992], p. xiv). This lacuna is a major impediment in the road to relevance of IB theory. Fifth, governments are expected to work for an elusive concept – the national interest. Thus, they use different rates of taxes for different activities. They also grant differential concessions to different industries, hoping to ensure employment for their citizens. They regulate differently different activities and different industries. It is important to understand the origins and the reasons for these differences among industries. Consider, for example, the case of the airplane industry. The two largest global firms – Boeing and Airbus – are locked in a long-running trade dispute. Each has complained to the WTO that its archrival is receiving state aid. Indeed in May 2011 a WTO panel ruled on a U.S. complaint that European governments provided Airbus with $18 billion in subsidies, though not all were found to be illegal under international rules. In 2012, the WTO ruled that Boeing received $5.3 billion in illegal government subsidies over a quarter-century. Certainly the market for airplanes is not exactly a free one. More generally, an FSA may be the ability to gain subsidies or import protection. In other words, ownership advantages may be government created. Most governments control exports and inward FDIs of sensitive equipment, software and technology as a means to promote its national security interests, cultural considerations and foreign policy objectives.

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These controls appear to be a rising tide of national resistance to foreign acquisitions of domestic firms. Thus, the Australian Foreign Investment Review Board rejected a takeover of the Australian Securities Exchange by the Singapore Stock Exchange; The Canadian Government rejected the takeover of Potash Corporation of Saskatchewan (Potash Corp) by Australian mining giant BHP Billiton (BHP). This ‘decision represented only the second time in Canada’s history of foreign investment review legislation (Investment Canada Act or ICA) that a foreign investment outside the cultural sector has been rejected’ (Walker, 2012). The U.S. security review process has been used to avoid Chinese foreign investments in energy, telecom and oil. In 2005, CNOOC attempted an unsolicited bid for Unocal, one of America’s largest oil companies; U.S. politicians thought it was a thinly disguised takeover of an American company and a part of a wider Chinese plot to control the world’s oil supplies. Indeed, China is acutely concerned about the security of its oil supplies. China tries to achieve three oil-related objectives – adequacy, reasonable price, reliability – and each is linked to FDI in oil (Alon & Cherp, 2012). The U.S. House of Representatives voted 398 to 15 for a non-binding resolution against the purchase. Six months later politicians were up in arms again when DP World, a company owned by Dubai’s government that has ports in almost 30 countries, tried to add six American ones to its portfolio. DP World backed down. China too introduced a law imposing national-security reviews on all foreign investment. It added economic security and social stability to the list of ‘security’ concerns. Industry standards are also enacted as a means to segregate foreign firms. Most countries take for granted that their natural resources belong to all citizens of the state and that a private firm should pay royalties to the nation for exploiting its natural resources – be it oil, gas, copper, iron or diamonds. Any cursory survey of the history of oil corporations (e.g. Yergin, 1991) would show that these firms, even when they were privately owned, were asked to achieve political goals. Private firms, for their part, often coerced governments to help them in avoiding nationalizations or to topple a regime that was considered unfriendly. The corporate involvement in coups, such as Mussadiq in Iran or Allende in Chile, is well known.12 A more recent example is Putin’s war for control of Russia’s vast oil reserves, in particular the acquisition by state-controlled entities of Mikhail Khodorkovsky’s oil firm, Yukos (Sixsmith, 2010). Note that the firm was not nationalized. Khodorkovsky remains in a penal camp in far Eastern Siberia because of the alleged evasion of $27 billion in taxes. His previous company is now controlled by Rosneft, enabling Putin’s political machine to control the vast

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majority of Russia’s oil and gas reserves. Again, the story of oil, in particular, and energy, in general, is not one of a free unfettered market. Rather it is a story of power, military considerations and security needs. Private firms are behemoths with significant political clout and often have joint ventures with the state-owned firms. Michael Klare (2002) claims that resources – water, timber, minerals and especially oil – will be the main cause of strife in the post–Cold War era as the world population grows and resources become depleted. The world’s 10 biggest oil-and-gas firms, measured by reserves, are all state-owned. Ensuring that trade is fair is said to be harder when some companies enjoy the support, overt or covert, of a national government. In short, natural resources firms are very different than manufacturing or hightech firms. Governments want to control natural resources irrespective of the ownership. For that reason many countries irrespective of their ideological proclivities establish state-owned firms to control natural resources and in particular oil – e.g. state-owned oil firms were established in Saudi Arabia but also in Italy, China, Norway and France. At the same time large oil firms such as British Petroleum are not immune of government direction. In the United States, according to Stigler (1971), ‘that political juggernaut, the petroleum industry, is an immense consumer of political benefits’. Finally, some IB scholars continue to associate MNEs with manufacturing or mining firms when, in fact, over two-thirds of the FDI stock in the world is in service industries. The manufacturing bias existed even among business historians, as Wilkins (2001, p. 11) noted: ‘the early research y placed too much emphasis on the history of manufacturing multinationals; there was an important history of service-sector multinationals that needed to be explored (and was often inadequately reflected in the statistical data on foreign direct investments)’. Moreover, theories developed based on observations of manufacturing MNEs may not be valid when service firms are analysed (Aharoni, 1993, 1997). Again, theory should make sure that industry is one of the contingent variables. Another is ownership.

State-Owned MNEs In the decade after the fall of the Berlin Wall, there was a strong belief in the superiority of private ownership and a wave of privatizations. Most researchers who studied the impact of privatization would agree that what has been important has been the degree of competition the firm faced – not

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the ownership. A private monopoly was at least as bad if not worse than publicly owned one (Aharoni, 1991, 2000). Yet one ramification of the deeply rooted ideological belief in the supremacy of unfettered markets as the most efficient means of resources allocation has been the strong belief that SOEs can never be efficient. Instead, SOEs are portrayed as plagued by cronyism and corruption and as great sources of jobs and patronage. Ian Bremmer, an analyst of political risk, argues that ‘state capitalism’ differs from free-market capitalism in that politics rather than profit is the main driver of decision-making. In free-market capitalism, he argues, the state ‘enables’ wealth generation by enforcing contracts, ensuring that the economic game is played fairly and limiting the influence of moral bads such as greed to avoid market failures. In contrast, the economy in state-capitalist regimes is dominated by the state agenda. To be sure, Bremmer (2010) includes not only SOEs but also privately owned national champions. These corporations are supported by the state to develop a ‘commanding position’. One example, according to Bremmer, is the Brazilian mining concern Vale, which was coerced by its government to advance the state objective of stimulating the economy. The question of ownership is extremely important for IB theory. After all, a growing number of MNEs are state-owned. These firms are perceived as a political tool and their operations caused concern about the future of the free trade system, particularly in the United States. The Economist (21 January 2012) claims, ‘there is striking evidence that state-owned companies are not only less innovative but also less productive than their private competitors. y Yet there is little chance that state companies will be reformed soon. They provide comfortable berths for leading politicians and their children and hangers-on. Institutions that are nominally owned by the people have been taken over by ruling elites – the Communist Party in China, the security high command in Russia and the royal families in the Arab world’. But ‘the state’ is not a person, not even a single organization. The various elected and appointed public officials often perceive the public interest differently. The managers of SOEs find themselves contending with conflicting instructions without a clear set of trade-offs. This problem is further aggravated in countries governed by political coalitions dependent on ambiguity for its survival. Optimum governance of SOEs has to consider the problems of multiple goals together with that of multiple principals who attempt to prescribe goals (Aharoni, 1982). If SOEs have multiple goals then someone has to decide on the trade-off among these goals: e.g. how much more employment for less profit. In

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reality, of course, different persons (and institutions) have different views on these tradeoffs. Since government is not a monolith, dealing with it involves negotiating with different government ministries, individuals or agencies each with a different perspective on any issue. Each may instruct SOEs to achieve different goals. Managers of SOEs are faced with a problem of goal ambiguity. They have to juggle, not really knowing how they are expected to make tradeoffs between commercial goals and a variety of externally imposed social or political objectives. In this situation, they may simply take care of their own interests. Since they want to be autonomous, they buy their discretion by acquiring political support. The desire to maximize political support also causes the managers to increase – perhaps unnecessarily – capital investments. Thus, SOE’s managers may lose political support if electricity shortages occur much more than if they invested in greater than needed capacity (Aharoni, 1986). After many years of research on SOEs, I am convinced that these firms can be as efficient and even innovative as investor-owned firms if rigid rules are used on defining the rules of the game (Aharoni & Ascher, 1998) and if a transparent system will be installed to elect the best available directors and managers rather than nominating them because of their political allegiance. Most large firms in the 21st century are managed and directed by professional managers, not by owners. Professional managers attempt to achieve the best possible results, whether they manage an investor-owned firm or a state-owned one. In other words, ownership is not as important as often assumed. What is important is the way managers and directors are screened, elected and evaluated. These managers do not necessarily need the crutch of state support. In fact, they often finance the government. In many cases, they are the experts in their area of operations and in this role advise the government on policy issues (Noreng, 1981). Feigenbaum (1985) argues that the French government’s lack of actual control over French public enterprises in the oil industry is an example of this. According to him, the linkage of the state to society by elite recruitment, socialization, and career paths closes all but a limited number of policy options, with a resultant weakening of a dedication to public goals. There are many examples of efficient and innovative SOEs, e.g. Singapore’s sovereign-wealth fund, Temasek or Brazil’s EMBRAER. Israel enacted a law to shield the nationalized banks from political interference or patronage.13 Norway also protected its sovereign-wealth fund and state oil company from political interference. These examples and others demonstrate that markets operate within institutions or ‘the humanly devised constraints that structure human interactions’ (North, 1990, p. 3). Richard

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Scott (2007) noted that formal and informal institutions govern human and firm behaviour. The formal institutions include laws, regulations and rules – what Scott terms the regulatory pillar. Two additional pillars are informal institutions. One is normative – the norms or values and beliefs of the players. The other is cognitive – the taken for granted values and beliefs that guide behaviour. Hotho and Pedersen (2012), in a comprehensive review of institutional theory and its relations to IB theory, enumerate three distinct institutional approaches: new institutional economics, based on North (1990, 1991); sociology based neo-institutional perspectives; and national business systems – which attempts to explain differences among national economic systems – the so-called varieties of capitalism (Hall & Soskice, 2001). These three approaches ‘address and explain fundamentally different facets of social life’ (Hotho and Pedersen (2012)). Further, institutional frameworks and the informal social norms are dynamic and are changing. One example of a major change is the transformation of economic policies in New Zealand or Sweden (Evans, Grimes, Wilkinson, & Teece, 1996; Schwartz, 1994). Again, IB theory, as all other social sciences, is not universal. It has to adapt to a changing world.

Theory Should Adapt to a Changing World The environment within which business firms operate is very different than the world at the time of Adam Smith or Ricardo, or even the 1970s. Until 1820 all parts of the world were poor. The growth since then has been confined to a few countries that enjoyed five waves of technological revolution. Most business was conducted within national borders. Capital markets were regulated; exchange rates were pegged. The world after World War II was divided into developed, communist and third-world – underdeveloped – countries. The developed world was assumed to be divided into liberal and coordinated market economies (Whitley, 1999; Hall & Soskice, 2001; Crouch, 2005). A more recent and longitude study ‘found some but not complete support for the [varieties of capitalism] approach. y In particular, in addition to the [coordinated market economies] and the [liberal market economies] clusters, we could delineate a cluster of state-dominated economies, a cluster of economies that resemble the pure [liberal market economies] and a cluster consisting of heterogeneous hybrid economies such as Japan and the central European economies. y The clustering of institutions indicates that the [liberal market economies]–[coordinated market economies] distinction is meaningful, albeit only for a limited

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number of economies and not as an exclusive dichotomy’ (Schneider & Paunescu, 2012). Thelen (2012) analysed a new policy of social solidarity. Ja¨ger (2013) looked at the effect of business centrality on support for the Euro in France and Germany. For MNEs, environment includes also supra-national organizations such as the IMF and the WTO, as well as issue-specific NGOs (Argenti, 2004; Devinney, 2011; Doh & Teegan, 2002, 2003; Teegan, Doh, & Vachan, 2004). By 1998 the inequality in per capita income between the United States and Africa was 20 to 1. The main reason for the huge differences in income levels was the ability to benefit from the unrelenting pace of rapid technological change and to some extent the differences in economic regimes. There have been also major differences in environmental protection, labour rights, geopolitical instability, conflicts, terrorism, catastrophes and wars as well as in culture, the notion of time, and social norms. One may assume that the environment in which IB is carried out will change further because of new technologies and as a result of new international agreements that will change the regime. In a changing and complex interdependent world, extant IB theory suffers from deep flaws. It must adapt to changing environments. It seems that IB scholars find it somewhat easier to accept that technology has changed and will change more. Certainly, the world of information technology today allows much more efficient global operations and mitigates the cost of operating in a foreign country. Available transportation today is much faster and much cheaper than at the time before the steam engine and even at the time of the railroads. It is perhaps more difficult to accept that egregious errors can be made if we do not recognize the many differences as well as changes in social norms that were codified in laws and regulations. These legal rules and the existing institutions are different in different nations and also change with time. Slaves were considered a chattel and a cherished part of private property.14 Workers were expected to work long hours and child labour was an acceptable norm.15 Slavery and child labor are two of many examples. Other extreme examples are the legitimacy of trade in blood or in human organs or allowing a corporation to buy life insurance for its employees and collect the proceeds. Other, perhaps less extreme, examples are the rights to unionize, the assumptions about supply of education, including vocational training, health services by government, the degree of enforcement of intellectual property rights and the degree of control governments should have on natural resources or on the trade in arms and security-related items as well as on regulation of the financial system. As a result the size of government and the degree of its control on various economic activities vary

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dramatically across countries. There are also extreme differences in the way different individuals and different nations rely on incentives to individuals or assume allegiance to the community and solidarity and informal norms of mutual responsibility. For Sandel (2012) the most fateful change in the last three decades was the expansion of market values into spheres of life where they don’t belong. He is against using incentives and markets instead of moral judgments. He provides some fascinating examples of the market failing to do a better job than social norms or civic values. He argues that economic thinking, applied outside of its traditional realms, corrodes and displaces human values. We are in thrall to markets and use them to answer questions that markets aren’t meant to answer. Several decades before the French economist Francois Perroux (1962, quoted in Albert, 1991, p. 106) noted: For any capitalist society to function smoothly there must be certain social factors which are free of the profit motive, or at least of the quest for maximum profits. When monetary gain becomes uppermost in the minds of civil servants, soldiers, judges, priests, artists or scientists, the result is social dislocation and a real threat to any form of economic organization. The highest values, the noblest human assets – honor, joy, affection, and mutual respect – must not be given a price tag; to do so is to undermine the foundations of the social grouping. There is always a more or less durable framework of pre-existing moral values within which a capitalist economy operates, values, which may be quite alien to capitalism itself. But as the economy expands, its very success threatens this framework; capitalist values replace all others in the public esteem, and the preference for comfort and material well-being begins to erode the traditional institutions and mental patterns which are the basis of the social order. In a word, capitalism corrupts and corrodes. It uses up society’s vital life-blood, yet is unable to replenish it.

Adam Smith would have agreed. He wrote that the invisible hand ‘destroys the possibility of a decent human existence. It destroys community, the environment, and human values generally unless government takes pains to prevent this outcome, as must be assured in every improved and civilized society’. Indeed, the business classes have regularly called for state intervention to protect them from unfettered market forces. The predilection of unfettered markets and the belief that markets can operate without governmental direction is proven false. Yet IB theory practically ignored government in general and business–government relations in particular. Finance scholars, led by Eugene Fama, preached the virtues of the market, proclaiming the market as efficient. However, the belief in the superiority of the unfettered market came to a shuddering halt as the 2008 financial crisis engulfed much of the developed world. The more recent revelations about the behaviour of some

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20 major financial institutions whose managers colluded to manipulate the Libor rate caused alarm. U.S. Assistant Attorney General Lanny Breuer described one participant’s, behaviour, UBS, as ‘simply astonishing’. He added ‘make no mistake, for UBS traders the manipulation of Libor was about getting rich’ (http://www.bbc.co.uk/news/business-20767984). The World Socialist web site argued: ‘the Libor scandal has laid bare the rampant criminality in the operations of the world’s major banks and exposed the fact that the so-called ‘‘free market’’ is rigged by the most powerful banks and corporations for their own profit’ (http://www.wsws.org/en/articles/2012/12/ 20/libo-d20.html). Indeed, the assumptions of honest behaviour based on moral beliefs may in some cases be tenuous. Ironically, many believers in free markets complain that the lack of leadership by governments is the reason for the continued problems of the Euro. Clearly, however, business activities to influence the policies or processes of governments should be restricted by regulations based on the ethical dimension since self-regulation may fail to achieve socially desired results. There are dramatic differences across nations regarding ethical behaviour as well as the degree their citizens rely on trust, loyalty and authority relations. Members of the diamond exchange move millions of dollars without any legal documentation, based on a trust in other members of the clan. British gentleman behaved according to prescribed norms, including service of the country, with very little personal pecuniary gain. He was driven by innate sense of good conduct or a fear of social reprobation. Recent developments in Britain suggest that ‘gentlemanly’ pattern of self-control has changed. Amoral calculating players cannot be relied upon any more to implement selfregulatory arrangements. As a result, various pressures for reform replaced self-regulation by intensification of financial regulations and auditing rules. Ethical behaviour may reduce the probability of moral hazard. Rules of conduct regarding tax havens, transfer pricing, corporate governance, votes by institutional investors or prevention of environmental hazards are all changing, as are rules on transparency of operations. Some differences in behaviour are discussed in IB as a part of an analysis of the consequences of culture. The issue, however, is more complex. IB theory is about how firms behave and how managers of firms decide. These managers are constantly looking for a strategy that will achieve sustainable competitive advantage. The firm learns and it is operating within an environment, including a political and institutional regime. Managers try to reduce regulatory uncertainty often by pursuing a political strategy. To analyse the global environment, researchers must be able to conceive or imagine a regime, a strategy or a way of thinking that is different than the status quo and of the rules of the game to which one is

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accustomed in one’s own country. They should take into account all the variables that may impinge on the situation. In other words, one should adopt a contingency theory that will take into account both internal operations and the different environmental variables that impinge on management decisions. The discussion above identified several contingent variables – the political system, business–government and NGO relations, industries, regimes, ownership patterns, the degree of reliance on ethical behaviour, the institutional environment and social norms.

CONCLUSION A Call for a Contingency Comprehensive Theory The founding fathers of management science believed they have discovered universal rules that should guide management to organize the firm and to do a better job in managing it. Three decades later, after the groundbreaking studies conducted between 1924 and 1932 at Western Electric Company’s Hawthorne Works in Chicago, it became acceptable to discuss group behaviour and human relations. The studies were originally designed as illumination studies to determine the relationship between lighting and productivity. The unexpected results led to a new interpretation of group behaviour, and became the basis for the school of human relations. Joan Woodward (1958) argued that technologies directly determine organizational attributes such as span of control, centralization of authority, and the formalization of rules and procedures. Since the 1960s it became accepted that the optimal way to lead a corporation to organize it or to make decisions is contingent upon both internal and environmental factors. To be relevant, IB theory should also recognize the necessity of contingent factors and incorporate them into the framework of the theory. Many of these factors were discussed above. As a minimum, the following seems crucial factors: first and foremost IB researchers should return to studies of the role of government and business–government and NGO interaction and the role of power. In these studies it is crucial to take into consideration the impact of changing and varied social norms, the international rules of the game, the different institutions and political factors. Also, studies should be carried out of intersection of markets and national interest, e.g. military and military-related trade, cultural sensitive areas, movement of human beings and global agreements on labour rights and protection of intellectual

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property rights. It is also important to specify differences among industries, types of capitalism, regimes, ownership patterns and social norms. The attempts to explain the existence of the MNE and the way it behaves should take into account several issues apart from that of their political power or ability to lobby to confer benefits for themselves. First, uncertainty should be taken into account – and should not simply be equated to risk. Second, distribution as well as ethical issues must be reckoned with. Third, attention must be paid to history. Most important is the role of economic and political institutions in the determination of the way the world economy operates. Hopefully IB scholars would be able to propose rules of conduct to be enforced on each and every MNE to guard against unethical or socially undesirable conduct, avoiding the sole reliance on greed and shortterm profits. An important issue left for future researchers is the role of the MNE’s home country. It may be hypothesized that the behavioural norms of an MNE differ according to the norms of its home country. Indeed, a majority of MNEs recorded by UNCTAD operate in only one foreign location. Another possible hypothesis is if the MNE home is in a small country and its subsidiary is in a large country such as the United States, the firm may adopt the rules of the game of the foreign country. It may be further hypothesized that the more MNEs expand their activities to a larger number of foreign locations, the more likely they are to embrace recombinant strategies that blend elements of different societal legacies. Quack (2012) tested such a hypothesis in an analysis of U.S. and European law firms. In this sense, these MNEs become truly stateless. The size of the home country is an important contingent variable for another reason. When one large MNE accounts for a significant part of the GNP, that MNE by definition has a great political power. The Saudi oil company is one example. Another is Nokia in Finland. Clearly a better policy is to encourage diversified number of smaller MNEs, thus reducing the impact of possible reduction of sales of the one dominant firm on the economy as a whole. This aspect is, of course, relevant mainly in small countries. The MNE is crucial for economic growth and for innovation. Mantere et al. (2009) believe that the political activities of corporations should include an ethical dimension. They call on researchers to discourage firms from perceiving corporate political activities ‘solely from the point of view of short-term profit maximization and/or from the point of view of a specific cultural and institutional perspective’. History seems to point out that a better way than self-regulation is enforceable rules of conduct. Here lies a major opportunity for innovative scholarship that will point out how to

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design a regulatory system that will minimize the dark side of the MNE. Such a system will hopefully prevent the recurrence of major financial scandals. Perhaps a possible solution lies in a design of a performance evaluation system that is based on ethical and social considerations in addition to narrowly defined economic measures. Clearly, interests of MNEs and governments as well as regional and international institutions are intertwined, and should be an important aspect of IB theory. Hopefully, studies of this sort would make IB theory relevant for policy makers. Unfortunately, many of us are unable or unwilling to accept that our models are significantly flawed as predictors of events in the real world. It is much more convenient to assume, following Milton Friedman, that a theory cannot be judged by its assumptions. Rather, ‘the more significant the theory, the more unrealistic the assumptions’ (Friedman, 1953, p. 8). Indeed, most economists believe their theories are best in explaining any phenomenon. As Becker claims, ‘a useful theory of criminal behavior can dispense with special theories of anomie, psychological inadequacies, or inheritance of special traits and simply extend the economist’s usual analysis of choice’ (Becker, 1968, p. 169). Yet, the world is complex. Therefore, if we want to be relevant we should recognize this complexity and the diversity of national systems. We should study all of the ramifications rather than make too many simplifying assumptions. Such studies will create important opportunities for IB scholars to be relevant for both managers of MNEs and policy makers in national, regional and global institutions.

NOTES 1. For an estimate of crime’s toll on society, see Anderson (2011). 2. Transparency International attempts to mobilize people against corruption and impunity. It publishes annually a Corruption Perceptions Index that ranks countries and territories according to their perceived levels of public sector corruption. It is an aggregate indicator that combines different sources of information about corruption, making it possible to compare countries. In 2011, the vast majority of the 183 countries and territories assessed score below 5 on a scale of 0 (highly corrupt) to 10 (very clean). New Zealand, Denmark and Finland top the list, while North Korea and Somalia are at the bottom. 3. For a description of the evolution of OLI, see Narula (2010). 4. The most comprehensive resource for U.S. federal campaign contributions, lobbying data and analysis available anywhere is the web site opensecrets.org. 5. Numbers are according to UNCTAD’s definition. In the 1970s only 678 MNEs spread their operations in 10 or more countries. Headquarter of these firms was in the United States or in Western Europe.

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6. http://unctad-worldinvestmentforum.org/assets/2012-forum-docs/WIF-WLISIssues-Note-11-Apr.pdf 7. The degree of involvement of ITT in the coup against Salvatore Allende was investigated in the Church Committee report. The Church report (18 December 1975) of the 94th congress describes a series of extensive covert activities initiated and mounted by the CIA – and strongly demanded by ITT – to affect the course of Chilean politics. See also Sigmund (1974). 8. Clyde V. Prestowitz Jr., a senior trade official in the Reagan administration told TheNew York Times: ‘‘The United States has a long history of demanding that companies build here if they want to sell here, because it jump-starts industries’’. Indeed, more than 40 percent of cars built in the United States are made by Japanese and other foreign MNEs – employing about 95,000 people directly and hundreds of thousands more among parts suppliers. TheNew York Times explained: ‘‘The United States gained these jobs through a combination of public and Congressional pressure on Japan, ‘voluntary’ quotas on car exports from Japan and incentives like tax breaks that encouraged Japanese automakers to build factories in America’’. In addition, the United States imposed a 25 percent tax on imported pickup trucks. Mr. Alexander, the Governor of Tennessee, went to Japan to pitch Nissan on building a plant in his state. He said, ‘‘President Carter had told all the U.S. governors to go to Japan and persuade the Japanese to make in the U.S. what they sell in the U.S’’. Brazil used the same strategy in 2011. Brazil’s president, Dilma Rousseff, traveled to Asia to sell a package of subsidies and the threat of continued high tariffs on imports. The federal government promised Foxconn tax breaks, subsidized loans and special access through customs and lower tariffs for imported parts if it started assembling Apple products in Brazil. (New York Times, August 4, 2012). 9. As one example, Globes, an Israeli economic daily, reported on May 28, 2012 that Intel Corporation has rejected the Israeli government’s offer of a NIS 1 billion grant, to expand its Kiryat Gat fab and build a new fab in Beit She’an, and will build the next-generation 14-nanometre technology fab in Leixlip, Ireland. The decision was made even as Israel’s Ministry of Finance and Ministry of Industry, Trade and Labour were embroiled in a brawl whether to meet Intel’s demands for a grant in full. According to Globes, Intel requested $600 million government grant, as part of a $4.8 billion investment to upgrade its fab in Kiryat Gat. The Ministry of Industry’s Investment Promotion Center offered a NIS 1 billion grant, of which NIS 300 million must be used to expand the fab in Kiryat Gat, and NIS 700 million used to open a new fab in Beit She’an. ‘‘Intel, raised eyebrows over the Israeli government’s low offer, but outwardly stayed silent about the government’s attitude toward the company.’’ The Minister of Finance started secret negotiations with the company. An Israeli government source said today that the Irish successfully tempted Intel with tax breaks, rather than grants. ‘‘In contrast to our offers, which were monetary grants, the Irish offered tax breaks up to the amount of the grant. This means that Ireland is not investing capital in the company, but is offsetting it each year. Since in this case we’re talking about a fab upgrade rather than construction of a new fab which requires investment in infrastructures, the arrangement was convenient for the company,’’ he said. Sources close the company explicitly said in the past that Intel acted like any other business, and handled its affairs on the basis of economic feasibility and value of opportunities made available to it. Meanwhile, Intel executives y have been in talks with [Minister of Finance] Steinitz over a future

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investment of $5-10 billion to build the next-generation 10-nanometre technology fab in Israel. Sources familiar with the issue say y that Israel will have to make a more attractive and competitive offer than offers of other countries, in order to benefit from such a large investment, which will create tens of thousands of jobs directly and indirectly. See, www.globes-online.com, May 28, 2012. 10. ‘Without the enormous pressure generated by the American financial services sector, particularly companies like American Express and Citicorp, there would have been no services agreement and therefore perhaps no Uruguay Round and no WTO’. David Hartridge, Director, WTO Services Division quoted by Beder (2006). See also globalwatch/org; opensecrets.org. 11. Katzenstein identifies three dominant forms of contemporary capitalism: liberalism (the United States and Britain), statism (Japan and France) and corporatism (smaller European states, Germany to some extent). This book looks at the small corporatist states: Sweden, Norway, Denmark, the Netherlands, Belgium, Austria and Switzerland. 12. op cit. footnote 7. The state department published the Hinchey report on September 18, 2000 on the CIA actions in Chile during the period from 1963 to 1973. 13. The major Israeli banks manipulated the price of their shares. The scheme collapsed in 1983 and the banks were left holding huge blocks of their own shares. The government felt it had no choice but to step in and to own controlling positions in the major banks. The Bank Shares under Arrangement Law adopted an innovative structure. It created for each bank a ‘public committee’ and a ‘share committee’. The chair of the ‘public committee’ is a judge, appointed by the Minister of Justice after consultation with the president of the Supreme Court. Four more members were appointed by the government and who must include an academic and a businessperson, chosen by the Minister of Finance with agreement of the governor of the Bank of Israel. Members must meet a variety competence and independence requirements. The committee is charged with drawing up a list of candidates to serve as directors. Anyone who feels his or her qualifications should be considered is encouraged to send curriculum vitae to the consideration of the committee. The ‘share committee’ members are appointed by the public committee and must meet standards of competence and independence. The share committee votes the shares for the state and is expected to exercise its own discretion. The only exception is that it is directed to vote against any proposal that directly or indirectly weaken the rights attached to the government shares or the ability to sell those shares. It nominates directors from the list of candidates prepared by the public committee, and then votes for them at the annual meeting. A director may not serve on more than one bank board. The process of nomination ensures independent directors from both the political branch and from the banks. A person cannot serve on more than one share committee. This structure is designed to insulate the day-to-day management of the banks from political interference by giving share-voting decisions to the share committee. It creates firewalls with multiple agents, thus ensuring that attempts to breach the firewalls will trigger public debate. 14. Slavery in the United States was a part of a powerful social system that allowed a profitable economic system for both plantation owners in the South and for textile mills in the North (that could rely on cheap cotton supply). Many individuals had a vested interest in the maintenance of this profitable system and its institutions. They could easily justify the system claiming that an African freed slave could not function and would be resold as a slave. In fact, freeing slaves was illegal in

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many states. Further, many intellectuals claimed slaves are happy in being slaves. Thomas Jefferson, President of the United States, a great statesman who declared that ‘all men are created equal’, owned many slaves and assumed that slaves were property. In March 1857, the United States Supreme Court, led by Chief Justice Roger B. Taney, decided on the case of Dred Scott v. Sanford. Dred Scott, a slave who had lived in the free state of Illinois and the free territory of Wisconsin before moving back to the slave state of Missouri, had appealed to the Supreme Court in hopes of being granted his freedom. The court ruled that all blacks – slaves as well as free – were not and could never become citizens of the United States. Since Scott was black, he was not a citizen and, therefore, had no right to sue. The framers of the Constitution, Taney wrote, believed that blacks ‘had no rights which the white man was bound to respect; and that the Negro might justly and lawfully be reduced to slavery for his benefit. He was bought and sold and treated as an ordinary article of merchandise and traffic, whenever profit could be made by it’. Indeed, slavery was a very profitable economic system and the market for slaves was expected to be unfettered. These statements, of course, are not acceptable today. Social norms have changed significantly and even the President of the United States is black. 15. The term ‘child labour’ is often defined as work that deprives children of their childhood, their potential and their dignity, and that is harmful to physical and mental development, morally dangerous and interferes with their schooling. In its most extreme forms, child labour involves all forms of slavery or practices similar to slavery, offering of a child for prostitution or for illicit activities as well as exposure to work that to serious hazards and illnesses or work that is likely to harm the health, safety or morals of children (Article 3 of ILO Convention No. 182). Several efforts were made in the United States to pass a national child labour law. The U.S. Congress passed two laws, in 1918 and 1922, but the Supreme Court declared both unconstitutional. In 1924, Congress proposed a constitutional amendment prohibiting child labour, but the states did not ratify it. Then, in 1938, Congress passed the Fair Labour Standards Act. It fixed minimum ages of 16 for work during school hours, 14 for certain jobs after school, and 18 for dangerous work. In the United States between 1880 and 1930, the occupation rate of children age 10–15 fell by over 75%. According to Moehling (1999), ‘minimum age limits had relatively little effect on the occupation choices of children at the turn of the century y these restrictions contributed little to the long run decline in child labour’ (see also Basu & Van, 1998). In England, before 1830 children worked 16 hour days under atrocious condition, and even three-year-old children worked. The Factory Acts limited child labour. Children aged 9–16 were allowed to work 18 hours a day and those younger than 9 were not allowed to work. In 1856, the law permitted child labour past age 9 for 60 hours per week, night or day. In 1901, the permissible child labour age was raised to 12. Before 1833 children as young as 3 years old were put to work. In 1989, world leaders decided that children needed a special convention just for them because people under 18 years old often need special care and protection that adults do not. The Convention on the Rights of the Child is the first legally binding international instrument to incorporate the full range of human rights – civil, cultural, economic, political and social rights. In 2010, The Hague Global Child Labour Conference agreed on guidelines to attain the goal of eliminating the worst forms of child labour by 2016. This goal has been agreed upon by the International Labour Office (ILO) constituency of 183 member States and workers’ and employers’ organizations. It was endorsed by the ILO Governing Body in November 2006. The Hague conference

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declared, ‘governments have the primary responsibility for enforcing the right to education for all children, and the elimination of the worst forms of child labour’. In fact, child labor is still common in many parts of the world. Estimates for child labour vary. It ranges between 250 and 304 million if children aged 5–17 involved in any economic activity are counted. If light occasional work is excluded, the ILO estimates there were 153 million child labourers aged 5–14 worldwide. One hundred and fifteen million of these children are exposed to its worst forms. The proportion of child labourers varies greatly among countries and even regions inside those countries. Africa has the highest percentage of children aged 5–17 employed as child labour (32% of the workforce) and a total of over 65 million. Asia, with its larger population, has the largest number of children employed as child labor at about 114 million (22% of the workforce). Latin America and the Caribbean region has lower overall population density, but at 14 million child labourers has high incidence of child labour – 17% compared to 1% in US, Canada, Europe and other wealthy nations. In the mid 19th century, however, the percent of child labor in England was similar to that of Africa today.

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WHY BASELINE MODELLING IS BETTER THAN NULL-HYPOTHESIS TESTING: EXAMPLES FROM INTERNATIONAL BUSINESS RESEARCH Andreas Schwab and William H. Starbuck ABSTRACT This chapter reports on a rapidly growing trend in data analysis – analytic comparisons between baseline models and explanatory models. Baseline models estimate values for the dependent variable in the absence of hypothesized causal effects. Thus, the baseline models discussed in this chapter differ from the baseline models commonly used in sequential regression analyses. Baseline modelling entails iteration: (1) Researchers develop baseline models to capture key patterns in the empirical data that are independent of the hypothesized effects. (2) They compare these patterns with the patterns implied by their explanatory models. (3) They use the derived insights to improve their explanatory models. (4) They iterate by comparing their improved explanatory models with modified baseline models. Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 171–195 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026012

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The chapter draws on methodological literature in economics, applied psychology, and the philosophy of science to point out fundamental features of baseline modelling. Examples come from research in international business and management, emerging market economies and developing countries. Baseline modelling offers substantial advantages for theory development. Although analytic comparisons with baseline models originated in some research fields as early as the 1960s, they have not been widely discussed or applied in international management. Baseline modelling takes a more inductive and iterative approach to modelling and theory development. Because baseline modelling holds substantial potential, internationalmanagement scholars should explore its opportunities for advancing scientific progress.

INTRODUCTION This chapter describes the methodology of baseline modelling and its advantages for the analysis of empirical data and theory development. Baseline modelling is a rather new methodology that has begun to spread rapidly. In the social sciences, empirical studies that applied baseline modelling first appeared around 1960, the earliest users being economists and political scientists. Usage remained infrequent until the latter part of the 1990s, and then began to grow at exponential rates. Fig. 1 compares three fields of studies in terms of the numbers of papers that involved some form of baseline modelling. Studies of emerging market economies have been the most frequent users, followed by studies of developing countries. So far, few studies in international management have used baseline modelling. Baseline modelling has received increasing attention throughout the social and biological sciences. In various research fields, baseline modelling began to grow more popular as early as 1980 and as late as 2000. In many research fields, baseline modelling shifted into exponential growth during the 2000s. Bioecologists played an important early role in exploring the usefulness of baseline modelling. Although baseline modelling remains far from being a dominant methodology, it is occurring often enough to deserve discussion in all methodology training. It appears that international-management researchers have made much less use of baseline modelling than have researchers in other fields. Thus,

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2000 Developing countries

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Numbers of studies that used baseline modelling (3-year moving averages).

one goal of this chapter is to bring this methodology to the attention of researchers in international business and management. The chapter suggests reasons for the methodology’s growing popularity and describes its use in other fields. While research that has used baseline modelling mainly discusses what specific models the researchers considered and what inferences they drew, it often does not state the philosophies that such thinking embodies. However, baseline modelling raises more general methodological issues related to the nature of scientific inquiries and how researchers develop theories. Among the scholars who have discussed these more general implications, the economist George C. Archibald has expressed especially relevant ideas. Most of these ideas are discussed in the discussion section of this chapter, but the next section describes how Archibald’s ideas evolved from model testing to model comparison. Then the ensuing sections outline how baseline models facilitate model comparison and describe the types of baseline models that researchers have used in studies of international management, developing countries and emerging market economies. The chapter concludes by

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outlining the potential of baseline modelling for enabling more fruitful inductive approaches to theory development – approaches that international management researchers should consider for future studies.

WHY ARCHIBALD LOST FAITH IN POPPER’S IDEAS Baseline modelling is a product of many social and biological scientists who have struggled with the meaning and validity of their work over the last half century. One of these was a Scottish economist, George Christopher Archibald (1926–1996), whose mental voyage profoundly changed his beliefs about scientific knowledge and research achievements (Lipsey, 1996). In the early 1960s, Archibald subscribed to the ideas of Karl Popper (1959), who had argued that a proposition is not scientifically meaningful unless it is empirically falsifiable. Thus, for a theoretical statement to be ‘scientific’, researchers must be able, at least in principle, to find evidence that the statement is false. If there is no possible way to find or produce such evidence, the statement does not deserve to be classified as ‘scientific’. Popper’s ideas about falsification induced Archibald to challenge the theories about perfect competition and monopolistic competition on the ground that proponents of these theories refuse to accept discrepancies between theory and observation as evidence that the theories are wrong. He (1961, pp. 4, 5) argued, ‘If we accept the new methodology, and propose to judge a hypothesis by the correspondence of its predictions with facts, and if one (or more) of its predictions does not correspond, can we say anything but the hypothesis is refuted (Popper, 1959, p. 33)?’ However, Archibald continued to wrestle with the usefulness of Popper’s ideas, and he gradually came to see Popper’s ideas as an unrealistic basis for scientific progress (Archibald, 1967). For example, he perceived that some statements in economic theories are worthy of empirical investigation even though researchers have no way to prove these statements are false. In addition, he recognized that empirical studies make somewhat ambiguous tests of theories because they entail measurement errors and sampling errors. The measured values of variables are never exactly the same as the abstract theoretical concepts they are supposed to represent, which creates the possibility that a theoretical statement may be true but measurement errors make it appear false, or vice versa. When the available data are samples as opposed to complete populations, observed events may differ from those not observed. Past events may differ from future events. Furthermore, theories have many dimensions, such as their elegance,

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parsimony, generality, usefulness for prediction, or time horizon. As a result, a theory may perform excellently on dimensions A and B, but poorly on dimensions C and D, whereas an alternative theory may perform excellently on dimensions A and C, but poorly on dimensions B and D. In 1967, Archibald published a seminal article ‘Refutation or comparison?’ that presents his insights about the limitations and opportunities of empirical investigations. Archibald’s reformulation has two central properties: First, in place of Popper’s sharply dichotomous classification of theoretical statements as true or false, Archibald characterized truth probabilistically. A theoretical statement has a probability of being true. Second, instead of theoretical statements being testable, Archibald characterized them as comparable. One theoretical statement can be compared with another in terms of the probabilities that they are true. He (1967, p. 293) said, ‘I suggest y that we call a statement – or hypothesis – scientific if we may, at least in principle, compare its probable truth or falsity with that of another statement by appeal to observation (reference to facts)’.

BASELINE MODELLING This notion that researchers should compare theories instead of testing them is Archibald’s signal insight, and he was an early and thoughtful advocate. However, Archibald is by no means the originator of comparing theories and his article has not been widely cited. Other social scientists were having similar thoughts about methodology during the 1960s. Economists and political scientists began comparing their explanatory theories with baseline models several years before Archibald’s article appeared in print (Ando & Modigliani, 1963; Arrow, Chenery, Minhas, & Solow, 1961; Boness, 1964; Deutsch, 1960; Savage & Deutsch, 1960). In 1968 and 1969, a debate among agricultural economists ended with mutual agreement that comparing theories is more useful than testing null hypotheses (Johnson, 1968, 1969; Lianos, 1969; Wise & Yotopoulos, 1968; Yotopoulos & Wise, 1969a, 1969b). Recent users of baseline modelling say little about their reasons for adopting this methodology; presumably they are adopting it because they have seen it in published work and they found it informative. Early users, on the other hand, justified their use of this methodology. They usually explained that they found comparisons with baseline models to offer more challenge for their explanatory theories than did tests of null hypotheses and that comparisons with their specific baseline models offered better guidance for future research and theory development.

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Baseline Models Baseline modelling entails comparisons between an explanatory model and a baseline model. However, ‘baseline model’ has been a developing concept with fuzzy boundaries. The character of baseline models has changed a bit over time as researchers have developed more sophistication and as baseline modelling has migrated to different fields of research. Consequently, researchers have used the term ‘baseline model’ in diverse ways, and researchers have used other terms – especially ‘naive model’ and ‘null model’ – to denote the entities that other researchers have called baseline models. Although the term ‘baseline model’ implies comparison with an alternative that is more complex than a no-effect hypothesis, the terms ‘naive model’ and ‘null model’ better indicate the kinds of models that researchers have used as baselines so far. Some of the baseline models have described studied phenomena as inertial. The models say that current situations are very likely to continue unchanged, or that current trends are very likely to persist, or that people’s behaviour adheres to stable traditions and norms. Other baseline models have described studied phenomena as utterly random. They say that resources or activities have frequency distributions that exhibit statistical independence or that situations change randomly over time. The researchers have explained that they used such baseline models because they wanted to find out whether their explanatory models actually said something that requires real understanding of causal processes. Biologists, who have standardized on the label ‘null model’, have engaged in lively debate about the degree to which a null model should take account of the properties of observed data (Gotelli & Graves, 1996). The idea that a baseline model should not describe causal processes in detail has appeared in many subfields throughout the biological and social sciences. This idea may have spread widely because behavioural studies of decision making and perceptual biases made most researchers conscious of their humanity – their attributional biases, their propensities to search for confirmatory data, their blind spots generated by their hypotheses and theories, and their retrospective sensemaking (Beach, 1966; Calhoun & Starbuck, 2003; Erev & Barron, 2005; Hansen, 1980; Kahneman & Tversky, 1973; Lichtenstein, Fischhoff, & Phillips, 1982; Phillips, Hays, & Edwards,1966; Slovic, 1991). Use of a non-causal baseline model is a way for researchers to demonstrate to themselves as well as others that they are trying to guard against self-deception and hubris. Two other factors may also have contributed to the spreading popularity of simple baseline models that do not describe causal processes in detail.

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First, the accumulating body of research findings has reinforced awareness that inertia is pervasive. For example, during the 1960s, four teams of economists undertook to produce models that could make short-range forecasts about the US economy; the availability of computers and very large budgets allowed these economists to build models of great complexity. Later, Elliott (1973) compared these complex computer-simulation models with two naive models. Three of the simulation models turned out about as accurate as the naive model that said no change would occur over the next 3 months. The fourth and most accurate simulation model predicted about as accurately as the naive model that said the trend over the last 3 months will continue through the next 3 months. Second, most researchers have studied statistics, which presents many examples of random events and stochastic processes, so researchers have become aware that random events can mimic causal events. For example, bioecologists plunged into a major methodological debate during the 1980s, after Connor and Simberloff (1983, 1986) argued that conventional nullhypothesis tests have no value because interactions within ecological communities make simple no-effect null hypotheses very unrealistic. They proposed that bioecologists should replace null hypotheses with non-causal ‘null models’ that generated random distributions for studied variables. Connor and Simberloff (1983) showed that such a ‘null model’ could accurately describe the numbers of species pairs on each of the Galapagos Islands, a topic that had roused debate among bioecologists for decades. Advancements in computer software enable researchers to simulate the effects of different types of inertia and random processes with increasing ease. This development, however, has also encouraged researchers to use more complex baseline models. Later sections of this chapter discuss the pros and cons of making baseline models more complex, and possibly incorporating explicit causation into baseline models. However, it is clear that the originators of baseline modelling intentionally restricted explicit causation to their explanatory models, which they compared with noncausal baseline models.

When a Baseline Model Is not a Baseline Model It is important for researchers to understand that baseline modelling, as this chapter uses this term, is quite different from labelling the first calculation in a sequence of regression calculations as a ‘baseline model’. Many studies in international business and management make a series of increasingly

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complex regression calculations, which they call models, and they frequently apply the label ‘baseline model’ to the first calculation in such a sequence. Some of these ‘baseline models’ include only independent variables that the researchers describe as ‘control variables’; others include both ‘control variables’ and other variables. Researchers have every right to use the label baseline model as they wish, but these ‘baseline models’ differ from those discussed in this chapter. The ‘baseline models’ in these regression sequences differ in five significant ways from the baseline models discussed in this chapter. First, researchers often do not explain why they categorize specific variables as ‘control variables’ and include them in a baseline model. Although researchers probably select control variables based on prior research and characteristics of the empirical setting, explanations for such selections are scarce. Second, researchers leave unclear whether the baseline variables have causal effects on dependent variables, but it often appears that some control variables have rather direct causal effects. Third, researchers do not explain how the baseline variables interact with each other to constitute a coherent model. Fourth, each calculation in a sequence recalculates the coefficients of the baseline variables, so the baseline model changes with each calculation. Fifth, the comparisons between models on these calculation sequences are limited to binary statements about statistical significance. In the kind of baseline modelling that this chapter discusses, a baseline model offers a single coherent explanation for the dependent variable(s). Each variable fits into the baseline model, and there are usually very few variables. The baseline model proposes an explanation for how the dependent variables might behave in the absence of explicit causation. The baseline model is stable; it does not change when researchers change their explanatory theory. Comparisons between baseline models and explanatory models should not be binary; they should be multi-dimensional and more continuous than discrete. There is also a more general issue of whether a regression analysis generates a theoretical model. Regression calculations can be very useful tools for inductive analyses. However, regression coefficients are subject to corrupting influences, such as collinearity among the independent variables and the effects of outliers. When researchers ignore such sources of corruption, regression coefficients are unreliable indicators of the importance of independent variables, and the significance levels associated with coefficient estimates are unreliable or irrelevant criteria for decisions about what variables and relationships to include in theories. Statistical significance is often a poor or deceptive indicator of theoretical or practical

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importance (Schwab, Abrahamson, Starbuck, & Fidler, 2011; Starbuck, 2006, p.137). Probably the most important issue is conceptual coherence. Lists of statistically significant variables that emerge from series of regression calculations often lack an overall conceptual framework that warrants calling them a theory. The next section describes some common baseline models and provides illustrative examples of their applications. Schwab and Starbuck (2012) introduced a general framework that classified different types of baseline models, and this chapter extends these types. The next section highlights six types of baseline models that seem likely to prove useful in studies of international business and management. Researchers have used four of these types in international business and management studies. A literature search produced no examples of international business and management research applying the other two types of baseline models, but they offer promise. Although these six examples represent very simple models, various researchers have used them for revealing comparisons with their explanatory theories.

SIX USEFUL TYPES OF BASELINE MODELS Equal-Weight Factors During the 1950s and 1960s, applied psychologists discovered that multiple regression analyses are likely to yield unreliable predictions for employee selection and college admissions (Starbuck, 2006, pp. 53–55, 131–136). Before 1950, the tradition had been to evaluate applicants for jobs or for college admission by checking off their characteristics on lists. These lists had not resulted from careful studies; they were rooted in the feelings, experiences and prejudices of human resources or admissions personnel. Evaluators counted the numbers of positive checkmarks to measure applicants’ suitability. The counting process generally gave every item on a list equal weight. Starting in the 1950s, psychometricians began to use squared-error regression to assign weights to items (Perloff, 1951). They reasoned that regression would assign higher weights to more important items and would assign low weights to redundant or uninformative items. It appeared that statistical theory said regression weights would minimize prediction errors. However, the ensuing two decades of experience produced evidence that the use of regression weights made predictions less accurate. Prediction scores

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computed with regression-derived weights correlated less highly with students’ or employees’ actual performances than had scores generated by equally weighted a priori items (Boyce, 1955; Lawshe & Schucker, 1959; Wesman & Bennett, 1959). During the 1970s, psychometricians used computer simulation to investigate reasons for this surprising phenomenon. Their studies assumed an ideal situation – perfect normal distributions and independent variables with no measurement errors. They represented the idea of equally weighted a priori items pffiffiffiffi by saying the standardized value of a dependent variable equals 1= K times the sum of the standardized values of K independent variables. They assumed that all of the independent variables related positively to the dependent variable. The psychometricians discovered that sampling errors cause regression calculations to produce incorrect estimates, so the results of regressions generate unreliable predictions unless samples are quite large. Indeed, with small samples, researchers could make more accurate predictions if they would gather no data and make no regression calculations. The psychometricians also found that even when regressions are based on large samples, predictions based on regressions are only modestly more reliable than predictions based on equal weights (Claudy, 1972; Dorans & Drasgow, 1978; Einhorn & Hogarth, 1975; Schmidt, 1971). One implication of these studies is that researchers can use equally weighted independent variables as a baseline model for any explanatory model that is intended to be applicable to future data. This baseline model assumes a standardized dependent variable (StdY) and standardized independent variables (StdX); it says: pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi StdY ¼ ðStdX1 þ StdX2 þ StdX3 þ . . . þ StdXn Þ= VarSum where VarSum is the variance of the sum of the standardized independent variables. If the independent variables are uncorrelated, VarSum equals the number of independent variables. This correction assures that the total variance on the right-hand side equals 1. Such a baseline model has some substantive content, so it is not purely non-causal. First, researchers choose variables to include in their regressions, so the baseline model incorporates whatever insights induce researchers to use specific independent variables. Second, researchers have to define the independent variables so that all of the regression coefficients in the baseline model have the same signs as they do in the explanatory model(s). The baseline model will be more accurate if the independent variables are uncorrelated.

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Comparisons between baseline models that use equally weighted independent variables and explanatory regressions yield clues about the functional form of causal effects and the potential impact of sampling errors. Hypothetically, sampling errors should be more problematic with smaller samples, and the errors should cause less distortion with large samples. Of course, a regression calculation with any model will give coefficients that fit the sample data more closely than this baseline model, for a regression calculation is defined to minimize the sum of squared errors. However, the fitted data do not provide a relevant comparison for theorizing about future research. The important comparison is how accurately the baseline model and the explanatory model each predict values of the dependent variable when using new data that were not included in the regression analyses to determine the factor weights for the proposed independent variables. Although this type of baseline modelling had significant influence on methodology in applied psychology, international business and management scholars seem to have not used such baseline models.

Log-linear Changes of Scale International business and management studies frequently investigate causal effects across different countries and different organizations engaged in international business. So how should scholars compare large countries with small ones, or small organizations with large ones? How does a small country or organization change when it grows larger? As a baseline model, many researchers have used the assumption that inputs and outputs relate proportionately: if the inputs double, the outputs should double approximately. One frequently used representation of this idea is the Cobb–Douglas production function: Q ¼ ALa C ð1aÞ Where Q is the total output (or consumption) of an economy or organization, L is the labour (or employment) input, C is the capital input, and A and a are constants. A is usually interpreted as an indicator of technological effectiveness. Logarithmic transformations produce a convenient linear function: log Q ¼ log A þ a log L þ ð1  aÞ log C

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The Cobb-Douglas function has a long history and many theoretical and empirical analyses have used it. In recent years, some researchers have started to treat the Cobb-Douglas function as a baseline model to compare with less simple formulations. They have used it for analyses of both crosssectional one-time data and changes over time. Comparisons tend to ask whether observed phenomena depart from logarithmic linearity, either by depending on other factors than capital, labour, and technology, or by exhibiting curvilinearity. The transcendental-logarithmic model adds curvature by assuming: log Q ¼ b1 log L þ b2 log C þ b3 ðlog LÞ2 þ b4 ðlog CÞ2 þ b5 log L  log C þ Error For example, Triebs and Kumbhakar (2012) used Cobb–Douglas functions as baselines in their study of the effects of management on production efficiency. Their study used data about management practices in 3,140 medium-sized firms from half a dozen countries. They fitted data to transcendental-logarithmic models in order to assess the degrees to which actual productivities deviate from Cobb–Douglas functions. They inferred that management practices generally exert more influence on the productivity of labour than on the productivities of technology or capital. However, they pointed out that this finding might reflect their measures of management practices. They also discovered variations in the effects of management in different countries. Statistical Independence The concept of statistical independence among variables assumes that the values of one variable do not correlate with the values of another variable. Tables 1 and 2 show portions of the tables reported by Schmidt and Vandenborre (1970) in their analysis of favoured-nation biases for trade among 14 nations and regions. The cells on the major diagonals are empty because countries do not export to or import from themselves. Schmidt and Vandenborre (1970, pp. 8, 9) explained: [Table 2] develops a set of expected data from assumptions of complete indifference among the trading partners and thus allows one to measure the plus or minus differences between these base values and the actual amounts of transactions in each direction for every pair of countries or regions. The method removes gross size effects by taking into account the actual volumes of trade as registered by every country (exports as well as imports) and locates departures from the null-model which could then be examined in a

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Table 1.

Portion of Observed Flows of Grain in 1965. Exports From Eastern Europe

Imports To Eastern Europe To the USSR To the United States To EFTA To Africa

Table 2.

From the USSR

From the United States

From EFTA

1010

416

60

95

3616 318

From Africa

1 305

509 8

Portion of Schmidt and Vandenborre’s Baseline Model That Assumes Statistically Independent Flows of Grain. Exports From Eastern Europe

Imports To Eastern Europe To the USSR To the United States To EFTA To Africa

1 12 129 7

From the USSR

From the United States

From EFTA

From Africa

108

860 43

32 1 13

33 1 13 151

22 496 25

3943 200

8

subsequent investigation. The causes for the departures from the null-model could be prices, transportation costs, formally established preference policies, etc. The nopreference assumption is made without regard for reality, insofar as expected data deviate from the actual data will a system of preferences be revealed.

The Chi-square statistic is a familiar metric for evaluating the differences between two tables such as Tables 1 and 2. The tables might show the observed data (e.g., Table 1), a baseline model (e.g. Table 2) or an explanatory model. Schmidt and Vandenborre (1970) did not propose an explanatory model, but they did use their baseline model to spot deviations from statistical independence that matched to trade agreements, cultural similarities and price differentials. Thomsen and Pedersen (1996) investigated national differences in large firm ownership across six European countries. A visual evaluation of the

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Table 3.

Britain Denmark France Germany Netherlands Sweden

Ownership of the 100 Largest Companies in Six Nations. Dispersed

Dominant

Family

Foreign

Cooperative

State

61 10 16 9 23 4

11 9 28 30 16 31

6 30 15 26 7 18

18 23 16 22 34 14

1 17 3 3 13 12

3 11 22 10 7 21

data in Table 3 convinced them that substantial differences exist, so they investigated whether these differences reflect nationality, industry composition or firm size. They used a variety of calculations that included comparing observed frequencies with expected frequencies in baseline models that assumed statistical independence. They inferred that there are nationspecific differences in large-firm ownership between the six countries.

No-Change and No-Change-in-Trend Many baseline models for longitudinal theories start by capturing assumptions about period-to-period changes. A majority of social processes, practices and norms change rather slowly. They exhibit inertia in both their magnitudes and their rates of change. This allows simple baseline models that assume values of the dependent variable will not change over time to fit most time-series data very well. For instance, Ozsoz, Rengifo and Salvatore (2010) investigated the effects of interventions into foreign currency markets by the central banks of Croatia, Czech Republic and Slovakia. They compared their explanatory model with what they labelled a ‘naive’ model. This naive baseline model assumed the banks’ interventions had no effects. Table 4 compares their explanatory model with their naive model for the events in Slovakia. Comparison between the models basically removes the ‘no action’ events from consideration, and draws attention to the three instances in which the explanatory model predicted correct actions. Coe¨n and Desfleurs (2004) compared a similar ‘naive’ baseline model with the accuracy of earnings forecasts between 1990 and 2000 by financial analysts in Hong Kong, Korea, Indonesia, Malaysia, Singapore, Taiwan, Thailand, and the Philippines. Their naive model said that earnings next

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Table 4.

Interventions by Slovakia’s Central Bank, 1998–2006.

Intervention

Total events Correct predictions % Correct % Incorrect

Explanatory Model

Naive Model

Sell

No action

Buy

Sell

No action

Buy

6 2 33 67

80 80 100 0

11 1 9 91

6 0 0 100

80 80 100 0

11 0 0 100

year would be the same as earnings this year. Coe¨n and Desfleurs decided that analysts have learned little from their errors during a period of financial crisis, have not been improving the accuracy of forecasts in general and have been particularly poor at forecasting turning points. Lee, Trimi and Kim (2013) used a no-change baseline model when they investigated the impact of cultural differences on technology adoption. Based on Hofstede’s cultural dimensions, they hypothesized that people in individualistic cultures seek out information sources for their adoption decisions, whereas people in collectivist cultures rely more on the evaluations of like-minded individuals who have adopted the innovation. They compared these expectations with actual mobile phone adoption in the United States and Korea and with a baseline model that said adoptions are the same year after year. A slightly more complicated baseline model for time series assumes that variables continue to change at constant rates. Arora and Smyth (1990), for example, compared economic forecasts made by the International Monetary Fund (IMF) with a naive baseline model that said economies would change next year by the same percentage that they changed this year. The data consisted of nine time series for each of five international regions: Africa, Asia, Europe, the Middle East, and the Western Hemisphere. Comparison of IMF’s forecasts with the baseline model convinced the researchers that errors in IMF’s forecasts are not systematic. By one measure, the baseline model produced more accurate forecasts in 27 out of 45 instances, and by another measure, the baseline model produced more accurate forecasts in 42 out of 80 instances. Although Arora and Smyth found that these differences were not statistically significant, they inferred that their ‘no-change-in-trend’ baseline model would have been more accurate than the actual forecasts. In general, no-change baseline models help researchers to evaluate the inertial tendencies associated with their dependent variable and focus their

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investigation of proposed causal effects on period-to-period changes, either absolute changes or percentages. Alternatively, researchers could limit their investigation to effects on period-to-period change model by redefining their dependent variables as period-to-period changes. The explicit estimation of inertial tendencies using baseline models, however, provides potentially valuable information for the interpretation of observed effects – and this may be one of the reasons why researchers have tended not to limit their dependent variables to measuring only period-to-period changes. When baseline models capture that trends do not change, researchers are enabled to identify and evaluate accelerations or decelerations in rates of change.

Random Walks Our literature search has found no examples of baseline models that explicitly simulated random-walk processes in studies of developing countries, emerging markets or international business. Some researchers, such as Lee et al. (2013) introduced earlier, described their no-change model or their no-change-in-trend models as ‘random walks’ because random-walk processes can be one of many factors contributing to inertial tendencies. The focus in this section, however, is rather on baseline models that explicitly simulate random walk effects and try to predict more complex change trajectories over time or difference between alternative empirical settings. In other fields of management research, the value of random-walk baseline models has been well established. In research into the population ecology of organizations, for example, Levinthal (1991, p. 401) compared random walks with data about the growth and survival of business firms. He started from a model in which organizational wealth changes according to a random walk, and he surmised: This paper shows that such a process generates the familiar pattern of negative duration dependence that has been observed in nearly all empirical analyses of age dependence in organizational mortality. The process is also consistent with the presence of an initial honeymoon period and a liability of adolescence (Fichman and Levinthal, 1988, 1991) in which the risk of death for an individual organization is initially quite low and increases with time, reaching a peak at a point referred to as adolescence, and then subsequently declines. This more complex pattern of organizational mortality has been observed at an aggregate level in several empirical studies (Singh, Tucker and House, 1986; King and Wicker, 1988; Bru¨derl and Schu¨ssler, 1990). In the model developed here, there is no direct relationship between age and mortality. The negative relationship between age and

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mortality rates is due to the fact that older, surviving organizations tend to be organizations that have been successful, and this prior success buffers them from subsequent selection pressures. y The basic random-walk model demonstrates the importance of heterogeneity that emerges stochastically over time. Levinthal (1991, p. 401).

Levinthal saw random walks as baseline models that challenge contemporary explanatory models and expose issues for exploration. He pointed out that the ability of a random-walk model to generate data very similar to the observed data does not prove that subtler and interesting processes are occurring. It does, however, draw attention to the possibility that random events can mimic causal processes. Random-walk baseline models have also been very successfully applied in organizational studies of labour markets. Zuckerman, Kim, Ukanwa, and Rittman (2003), for example, investigated the effects of identity building and type casting on the repeated collaboration patterns and careers in the Hollywood movie industry. For their investigation, they had to develop baseline models to capture differences between the number of movies produced in a specific genre (e.g. drama, comedy, action) in order to estimate the corresponding random probability of working on a future film project in the same genre. Corresponding baseline model comparisons represented an important part of their very meticulous empirical investigation that identified complex and contingent type casting patterns. Clearly, organizational survival and labour market processes are phenomena also of interest to international business and management scholars. In addition, similar random-walk processes may be highly relevant for the investigation of other phenomena. Advancements in available computer technology have also created new opportunities to estimate and simulate random-walk processes. Consequently, random-walk baseline models deserve more attention in future studies. Markov Chains Some researchers make more complex assumptions by creating baseline models or explanatory models that are Markov chains. In the Markov chain framework, each possible state of a stochastic variable defines a distinct probability distribution for the next state of the variable. The states can have complex definitions that take account not only of variables’ current values but also their past values. Thus, a researcher might use a simpler Markov chain as a baseline model to compare with a more complex Markov chain as an explanatory model.

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Liu, Wang, and Wei (2009) used a Markov chain as a baseline model in their study of the effects of foreign direct investment on Chinese manufacturing. They used Markov chains because previous research revealed undesirable properties of least-squares estimates. As a first step, they estimated the parameters of industry-specific Cobb–Douglas production functions on the assumption that these parameters change following specified Markov chain processes. Then, Liu et al. used these industryspecific production functions as baseline models to analyze the data in search of effects attributable to horizontal, forward, and backward linkages between the Chinese firms and foreign firms. They inferred that the effects of foreign direct investment differ by regions and the kinds of foreign and Chinese firms. Again, available computer technology has created new opportunities to simulate and model such potentially relevant stochastic processes. Related baseline modelling applications promise more comprehensive empirical investigations that may be of interest to international-management scholars.

DISCUSSION A small, but increasing, number of international-management researchers are using baseline modelling. They are experimenting with a range of models, but the opportunities are vast for developing new approaches and the potential benefits may be large.

Stronger Tests for Deductive Theories Most of the international-management researchers who have used the term ‘baseline model’ did not engage in the kind of baseline modelling that this chapter discusses. Instead, they have developed baseline models as the first stage in a sequence of regression analyses. Most often, they then used dichotomized decision rules based on null-hypothesis statistical significance tests to add variables to the regression calculations. Null hypotheses propose no effect of a causal variable or treatment in an experiment of field data. Methodologists have long argued that null hypotheses are highly unlikely to be true, as most treatments or causal variables have some effects. Consequently, null-hypothesis tests set very low thresholds for evaluating hypotheses and they have high likelihoods of false inferences.

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Baseline modelling asks researchers to pose stronger challenges to their explanatory theories than do null hypotheses. From a hypothesis-testing perspective, such baseline modelling ‘raises the bar’ and promises more meaningful analyses. Methodological tradition says that baseline models should not incorporate causal processes that researchers see as meaningful explanations for their dependent variables. However, researchers, especially bioecologists, have debated the degrees to which baseline models should take into account properties of studied contexts.

Inductive Iterative Model Development In a debate among sociologists about the value of baseline models, Turner and Hanneman (1984, pp. 283–288) argued against the use of baseline models only for simple one-shot dichotomous comparisons with proposed explanatory models. Instead, researchers can use models for much broader and more detailed comparisons of the data patterns implied by both the baseline models and the causal models. Such comparisons promise a much deeper understanding not only of the theoretical constructs and their causal relationships, but also of the specific empirical contexts. Researchers can then revise or propose alternative causal models and alternative baseline models.

Multi-Dimensional Comparisons and Parsimonious Theorizing Comparisons that involve multiple evaluation dimensions promise a deeper understanding that supports theory development. Archibald highlighted the usefulness of multi-dimensional comparisons between models. He (1967, p. 295) remarked: ‘when we compare theories with observation, we commonly find more than one criterion. Thus, we may ask which better accounts for, e.g., total variance, or for turning points, or for amplitude of fluctuations. Once again, we should not be surprised if the theory which does better by some criteria does worse by others’. Comparison across multiple dimensions and multiple baseline models implies new challenges for the interpretation of observed empirical patterns because it is unusual for one theory to prove superior on all dimensions. In particular, strong baseline models can demonstrate the power of very simple assumptions. Comparisons with very simple baseline models then challenge researchers to demonstrate that complicated explanatory theories perform sufficiently better to justify their complexity.

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Contemporary social research norms have been placing low value on theoretical parsimony. The use of null-hypothesis significance tests and the ease of collecting larger samples have induced researchers to add more and more variables to their explanatory models. Journal reviewers frequently propose that researchers should add more variables or interactions. One result has been models that fit the data too closely. When researchers add more independent variables, regression calculations climb and descend Ockham’s hill, an effect named for William Ockham, a 14th century advocate of parsimonious theorizing (Schwab et al., 2011). Although a model that includes too few independent variables fails to capture important variation and it makes inaccurate inferences about the population, additional variables have diminishing returns. A model that includes too many independent variables is likely to describe random noise or idiosyncratic properties of a studied context that do not generalize. Gauch (2006) found that the models that give the most accurate generalizations are quite parsimonious. Earlier, this chapter introduced two empirical studies that illustrate how researchers can use simple baseline models to challenge more complex causal explanations. Elliott’s (1973) study discovered that ‘no-change’ and ‘no-change-in-trend’ baseline models performed as well as the far more sophisticated economic models developed independently by several think tanks. Levinthal (1991) showed how simple random walk processes lead to firm survival patterns that are very similar to those explained by the theories of population ecology. In both cases, these studies changed the directions of future research by showing that complex causal explanations are not better than simple non-causal explanations.

A Fundamentally Different Methodological Paradigm Using baseline models for multi-dimensional model comparison and iterative model development has implications for the nature of scientific inquiry because it implies a fundamental departure from our current research paradigm based on deductive falsification of hypotheses. In his Logic of Scientific Discovery, Popper (1959) argued that true science is based on falsification and not on verification. In contrast, Archibald and others have advocated a more inductive approach to identify best-fit hypotheses through an iterative process of empirical comparison and refinement of alternative models and hypotheses. This approach builds on

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the fundamental philosophy of science arguments of inductive logic as proposed by Bacon (1620) and Chamberlin (1897), who recommended the investigation of multiple opposing hypotheses. Such an approach replaces the idea of a test that conclusively rejects a hypothesis, with the idea that continuing analysis and refinement of hypotheses lead towards more likely hypotheses. Instead of judging hypotheses to be important or unimportant, true or false, iterative comparisons search for hypotheses that are better on some of many dimensions – likely, useful, effective, accurate, terse and general. Archibald (1967, pp. 295, 296) envisioned: y we compare rival theories by reference to such criteria as scope, generality, elegance, etc.: we ask, e.g. If one is ‘above more things’ than another or carries excess baggage in the form of unnecessary elements, or connects more satisfactorily with other parts of our theoretical structures. We should not be surprised if a theory which is superior on some counts is inferior on others! The case of vector-dominance is the rare and lucky one in which one theory at last wins all down the line, so that we may reject its rival without waiting for the refutation that never occurs. The new paradigm is accepted, not because it passes tests which refuted the old, but because it does strikingly better on a number of crucial comparisons.

It will thus be seen that comparisons are frequently indecisive, not merely because each comparison is itself indecisive, being a probabilistic rather than deterministic, but because the complexity of theory and observation give rise to multiple criteria for comparison. Thus, when we say that one theory is ‘doing better’ than a rival, we refer specifically to that set of (individually indecisive) comparisons that has already been carried out. It is this complexity of comparisons, rather than pig-headedness, that accounts for the well-known circumstances that we frequently disagree over theories even after a good deal of relevant empirical work has been done.

CONCLUSION Baseline modelling if implemented as an iterative and multi-dimensional process of model comparison, model improvement and theory development addresses fundamental methodological issues of scientific enquiry. These ideas also resonate with arguments for more systematic inductive reasoning based on the notions (a) that similar approaches have proven very useful in other fields of science, such as atomic physics, molecular chemistry, and chemistry (Platt, 1964), and (b) that researchers should focus on detecting

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useful regularities in observed phenomena instead of simplistic nullhypothesis tests (Starbuck, 2006; Nord & Connell, 2011). The examples of baseline modelling in the international business and management literature did not explicitly describe how researchers engaged in iterative model comparison and model development. The absence of such description, however, may be deceptive, as research reports are always incomplete and as authors may have tried to increase their odds for publication by emphasizing their conformity to the hypothesis testing paradigm. An iterative and multi-dimensional process of model comparison seems to be the most promising form of baseline modelling to support theory development.

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ONTOLOGY AND IB: RE-IMAGINING THE MULTINATIONAL Brent Burmester ABSTRACT Setting the multinational enterprise (MNE) apart on the basis of a weakly specified idea of foreignness may impede progress in international business (IB). The discipline lacks a paradigm to assimilate the idea of foreignness as an incident of internationality, a global condition describing the political context within which the MNE functions and which confers uniqueness on that institution. However, a plausible reimagining of the MNE is possible and useful, and here a candidate for such an ontological shift is proffered. Rather than a firm struggling in one or more foreign contexts, the MNE is reconstructed as a foreigner contending with the responsibilities of a firm. The proposed re-imagining of the MNE is experimentally substituted for the received ontology in different IB research contexts. It transpires that this ontological revision maintains intelligibility in those contexts while usefully exposing new directions in which to pursue knowledge. In consequence of re-imagining the MNE, that institution may be situated more precisely amid the international system’s primal constituents, and links may be more

Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 197–218 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026013

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effectively established with other bodies of research addressing the functioning of the international political economic system.

INTRODUCTION ‘It is true of everything’, writes Masahiko Itaki, ‘that the first steps are both the most important and the most difficult’ (Itaki, 1991, p. 445). Itaki’s point is that international business (IB) theories are only as good as the concepts and constructs they address. In the study of IB one concept stands out as fundamental: the multinational enterprise (MNE). The case for theorizing about the MNE rests on how it is defined as a subject of inquiry: it is understood to be a firm, but so unlike the common-or-garden variety firm that it must be accorded its own paradigms, taxonomies, and theories. Regarded as something out of the ordinary, certainly something more than ordinary, it is essential to unambiguously identify the analytically distinctiveness of the MNE, the attribute that sets it apart and renders inadequate the theoretical apparatus used to comprehend the standard firm. It may be that the received imagining struggles to support IB’s expanding disciplinary horizons. In IB the MNE is, in essence, the foreign direct investing firm. Little is made of the treatment of MNEs as micro-economically distinctive entities by deploying a word, that is foreign, which rings hollow when used in discourse concerning micro-economic phenomena. While a growing and important sub-literature in IB attends to foreignness in terms of its attendant costs, this does not constitute, nor is it intended to be, an elucidation of what it means for a firm to be recognized as a foreigner in a definitively international context. In short, setting the MNE apart on the basis of a weakly specified idea of foreignness has serious implications for IB. The discipline lacks a paradigm that can assimilate the idea of foreignness as an incident of internationality, a condition describing the political, legal and economic order within which the MNE functions and which confers on it what uniqueness it might possess. At face value, IB would seem to be an area of scholarship inspired and informed by two distinct, but equally important parent fields: that concerned with business and that concerned with internationality. Closer scrutiny of the IB literature, however, reveals that reliance on the social sciences dedicated to business phenomena eclipses the interest shown in research into the world’s political structuration. This is nowhere more evident than in the ontological substrate of IB, which is largely that of

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micro-economics and management. Inevitably, IB understands that the world is compartmentalized into nation-states, but its ontology is inherited from academic specializations uninterested in that state of nature as a dependent variable. Consequently, IB approaches the world as set of cells separating transactors and the substance of their transactions. To novitiates, IB makes a point of emphasizing that no two cells are alike, and then, quite literally, gets down to business. This chapter argues that the entrenched idea of the MNE as a firm coping with the incidents of foreignness is a misdirection: the firm-goes-foreign characterization is backwards. Rather, the MNE is first a foreigner – or alien – contending with the secondary status of firm and its attendant responsibilities. To see the MNE take this shape, one must first verify how it is singularly unlike other firms. The MNE’s ability to be the firm it is – asserting control over plants, value-adding activities or otherwise-productive assets – wholly depends on the recognition and protection of privileges accorded to foreigners within the contemporary international system. To make the point more plainly, MNEs are not different because of their size, their ubiquity, the cultural complexity they face, the distances they span or the challenges of working in a world of many currencies. They are not different because they integrate vertically or horizontally. They are not different because they undertake intra-firm trade. They are not different because they must manage within a world of multiple sovereignties, nor are they different because of their facility for political strategy. They are different because they are aliens in business. To encompass this idea, the principles on which the foreigner’s privileges are defined, and the way those privileges are defended, extended, used and abused must be addressed. Those privileges, and whatever obligations attend them, are a product of the normative system governing relations between interdependent, but sovereign, nation-states. They are not simply a matter of individual states deciding for themselves what freedoms they will extend to foreigners on their soil, but a product of agreed standards of treatment within international society constructed, more or less, according to liberal ideals. In that society the MNE is tenuously positioned, a foreigner on a quite different level, and later in the chapter the foreignness of the MNE within its host states is shown to give rise to this higher order foreignness amongst the plurality of states. The re-imagining of the MNE presented here is not intended to be schismatic. It shifts the conceptualization of the MNE away from an economically empty reference to ‘foreign’ direct investment, where foreign is not much more than a synonym for ‘riskier’, and situates the MNE more

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precisely and correctly within the international system, and in relation to that system’s primal constituents for whom ‘foreignness’ has theoretical, historical, legal and practical resonance. The MNE thus becomes an economic institution that is politically distinct from the majority of firms. The remainder of this chapter elaborates on why an ontological shift is called for, how the proffered re-imagining is formulated and how IB might be refreshed by its deployment.

The Received Ontology David Lilienthal’s first affixation of ‘multinational’ to the trans-border direct investor in 1960 is well known (Fieldhouse, 1986). What is often overlooked in the retelling of this familiar tale is that a substantial quantity of scholarly literature attended to the as-yet untitled MNE prior to that time (Buckley, 2011). Thinking about the challenges facing, and presented by, what were then thought of as national corporations abroad, or sometimes foreign corporations, was by no means confined to economics, however. Indeed, legal scholars were very quick to identify early MNEs (as we would recognize them today) as something out of the ordinary, both legally and politically (cf. Young, 1906). In these early works there is a clear appreciation of the MNE’s indeterminate political status as a feature setting it apart and requiring close attention from theorists and policymakers. As Buckley’s review makes plain, however, economists did not, perhaps could not, attend to this facet of the MNE, and their subsequent treatment of the institution obscures what is arguably its defining quality. As a result IB has underplayed the inherent foreignness of the MNE. Caves (2012), for example, one of the most influential industrial organization economists in IB, regards the MNE as a multi-plant firm, whose plants happen to situate in more than one country. The plants are subject to common control from the apex of the firm’s hierarchy, but that control might be acquired and exercised in more than one way. This view portrays the MNE as an entity presenting little more than a novelty to industrial organization. There might be a few additional costs to factor into plant location decisions, but the MNE is otherwise rather unremarkable when viewed so perfunctorily. Nevertheless, this understanding of the MNE continues to inform a great deal of research relating to the MNE and FDI, especially that in the economics tradition. The most dominant conceptualization of the MNE in IB must be that of John Dunning. While Dunning’s articulation of his Eclectic Paradigm,

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which encapsulates the conditions under which the MNE exists, continued to evolve throughout the later years of his life, but despite this his view of the MNE itself remained remarkably constant. Thus, in 1980, the multinational was an enterprise engaging in international production financed by foreign direct investment (Dunning, 1980, p. 9), and this statement remained unchanged in 1988 (Dunning, 1988, p. 13). When Dunning published his award-wining challenge to IB to give greater attention to the locational determinants of FDI, it was clear, despite the lack of an explicit definition, that his understanding of the MNE had not been altered in the course of a further decade (Dunning, 1998). Fast-forward another 10 years, and the MNE is ‘y an enterprise that engages in foreign direct investment, and owns, or in some way controls, value-added activities in more than one country’. He notes that this definition enjoys broad acceptance both academically, and within international organizations collating data on the phenomenon (Dunning & Lundan, 2008, p. 3). The constancy evident in Dunning’s idea of the MNE reflects no wilful rigidity in his thinking. Few could boast his level of familiarity with the evolving research programme of IB. Had the fundamental idea of the MNE changed at any point in the last three decades, his writing would not ignore such a shift. Thus, in an article he co-authored, published posthumously in 2010, he acknowledges ‘y the changing character of the MNE from a multi-plant, multi-activity firm to a network of cross-border value-creating activitiesy’ (Cantwell, Dunning, & Lundan, 2009). However, this changed configuration of the MNE’s activities remained consistent with the definition he espoused for decades.

A Revised Ontology Kuhn (2012) maintains that challenges to a discipline’s ontological foundations are a sign of its intellectual health, but on that count it is not clear that IB is terribly robust. Not that the discipline lacks for critical introspection: over the course of the last two decades, JIBS alone has carried at least a dozen meta-theoretically inclined articles (see, e.g. Buckley, Devinney, & Tang, this volume). Their motivating concern might be summed up as ‘Where is IB going?’ This question promotes extrapolation from current trends in business strategy and theorizing in related disciplines (cf. Sullivan & Daniels, 2008). Rather than looking to indistinct destinations, it is argued here that the discipline might find new vigour by returning to a point of departure. The theoretical progress, and ultimately the

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contribution, of IB depend on the way the MNE is imagined; so revisiting the idea of the MNE is no retrograde step. A credible re-imagining could generate new questions and theories, and build linkages with other fields of inquiry, yet should not engender obsolescence in the extant research corpus. In the previous section the MNE is presented as a firm comprised of distinct and separable parts, all of which are subject to common control. As any firm might be understood in this way, by making distinctions between its parts on functional-, spatial-, or performance-based criteria, what is definitively important is the basis upon which the parts of the MNE are separated. It appears the MNE’s parts, unlike those of a purely domestic enterprise, may be separated and distinguished by their installation in different countries. But all firms have parts in places. All firms make location decisions. Here, and not for the first time, arises the objection that there is nothing really to the MNE (cf. Sundaram & Black, 1992). This allegation, that they are firms like any other, not qualifying for theoretical attention, has a dispiriting effect on IB, not least because it is not easy to shake free of the suspicion that it might be true. What has not yet been explored is whether it might be to the advantage of IB if it is true. After all, the MNE is just a firm, but in precisely the same way that the World Bank is just a bank or Barack Obama just a President. In these cases, it is what else these actors are that sets them apart, more particularly the way that otherness presents challenges to an established order and exposes unregulated social space. Analogously, it is what else the MNE is, besides a firm, that grants it an ontological distinctiveness, and what else it is derives from the way power is distributed, rules are made, and resources allocated at the highest reaches of global society.

The Borderlands There are currently somewhere in the region of 200 nation-states co-existing without the supervening of any higher authority, and, somehow, accommodating the intrusions of various international non-state actors, the MNE included. Each of the states possesses a border, and thus occupies a particular geographic space. These borders construct a particular inter-territorial order that the MNE strains and sustains. How that happens to be the case, and what it might mean, is something IB addresses only tangentially, usually during extremely partial (in both senses of the word) analyses of globalization. The MNE as a firm, like all firms, must accept this social fact.

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However, while the internationality of the world’s political economy is true for all firms, its consequences for the MNE are very different to those for the non-MNE. Not that borders have gone unexplored in IB. Problematically, the borders in question are those of the firm, not the nation-state. As Dunning (1998, 2008), Kogut and Zander (1993) and Buckley, Devinney, and Louviere (2007) observe, a preponderance of theorizing about the MNE centres on the boundaries of the firm. This work typically addresses the question of the extent of the firm, in terms of the activities undertaken by it rather than some other firm. The analytical framework deployed is that of transaction cost economics, whose devotees are collectively known as the internalization school. Although Buckley (2002) contends that the heyday of internalization theorizing is past, its dominance in IB is oft noted and occasionally lamented. Dunning (1998), for example, expresses his discontent with an imbalance in the IB research corpus in favour of the internalization advantage, and in neglect of location advantages and ownership advantages. Indeed, the chief contributors to the internalization school deny the very necessity of ownership advantages as an antecedent condition to FDI. Ontologically, the limitation of the internalization approach to the MNE is that it contributes a great deal to our understanding of why the firm’s boundaries transect the interface of different industries. The boundaries of MNEs may be intersected by the borders of the state as a by-product of the internalization process, but it is not obvious that this transforms that process in a qualitative sense. The decision calculus may involve more variables, but the nature of the decision remains fundamentally unchanged. The non-MNE, and the MNE, internalizes exchange relationships across distance and time, culture and class, industry and ideology. What’s one more boundary, give or take? How does it matter that the MNE, through FDI, internalizes an exchange-relationship across a national boundary, but the non-MNE does not? A thought experiment brings the relative ontological significance of firm and national borders into starker focus. Consider a multi-plant firm situated in a country beset by civil war. At some point in its history this firm made an internalization decision, weighing up the relative costs and benefits of market and hierarchy. Now, a truce is negotiated, and, with the assistance of the United Nations, the country is formally divided in two sovereign states. The firm’s controlling unit is situated in one of these new states, and its subsidiary in the other. Remaining entirely passive throughout this process, the firm has become an MNE: apart from a political border transecting the

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boundary of the firm, it is unchanged. That is, it is unchanged in economic terms. Politically, however, something is very different: the subsidiary unit, by virtue of the extraterritorial location of its governing agency, has acquired the status of foreigner. In this example, decisions made by the firm as to its hierarchical limits play only an incidental role in the transformation of that firm from non-MNE to MNE. What, then, is the true significance of foreign direct investment?

The Liability of Foreignness In IB, foreignness has evolved as a topic of keen interest. Brannen (2004) goes so far as to claim that the IB academy knows a lot about foreignness. However, the context in which foreignness is typically used suggests that rather less might be known of it than is popularly imagined. In the study of the MNE, ‘foreignness’ is deemed interesting because of its attendant liabilities. The MNE understands acts, actors, artefacts (and affiliates) encountered within host states as foreign, because they are difficult to explain and predict and because their import is undefined. They cause discomfort, which for an economic institution manifests as increased costs. Consequently, ‘foreignness’ has become shorthand for a set of costs not shared by firms operating at home (cf. Zaheer & Mosakowski, 1998). However, the challenge faced by all firms is to find explanations for, to better predict, and to discriminate between significant and trivial phenomena in their environments. Most MNE efforts to attenuate the liabilities of foreignness (LoF) can therefore be construed as a special case of a general problem. But, just as vegetarianism is not iron-deficiency, foreignness is not reducible to a bundle of liabilities. Looking the foreigner as firm should yield a more complete picture of the MNE. The foreign directing firm is free from LoF in only one nation-state, its home state. Everywhere else that parent unit is perceived as foreign, insofar as its very existence – its corporate franchise – is conceded as an act of sovereignty by a foreign power (Henderson, 1918). Yet every company is a ‘foreign’ corporation in this sense: foreignness does not become strategically and politically relevant until the company carries its activities into the territory of a state other than that in which it ‘comes to life’. When this practice emerged in earnest in the late 19th century,1 a corporation had no legal existence beyond the operating reach of the law by virtue of which it existed. Outside their home states firms acted through agents, which gave courts in ‘host’ countries a serious problem to contend with: could a

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contract struck with a local person, ostensibly acting as the agent of a foreign corporation, bind anyone but the agent himself? How could the law attach liability to an entity whose existence domestic law did not countenance? Pragmatism won out, and courts in the United Kingdom and in Continental Europe construed incorporation in their territories where there was sufficient evidence of a business presence (Young, 1906). Thus the seeds were sewn for the eventual extension of the right of incorporation in the host to foreign corporate subsidiaries. This did not, however, alter the intrinsic foreignness of the entities granted that right. A crucial aspect of foreignness not given sufficient attention in IB is that it is an assigned characteristic: an attribute conferred upon an act, actor or artefact by another. Foreignness is what Searle (1995) describes as an observer-relative feature, a description of how the thing in question stands in relation to its audience. Contrarily, IB prefers to approach foreignness from the opposite direction, contending with it a product of a firm’s immersion in a social context that it characterizes as foreign. This tendency begins with Hymer (1976 [1960], pp. 34–35) who notes that national firms have information advantages over foreigners, who must incur additional costs to compensate for their ignorance. When foreignness is attributed to locations, foreign direct investment creates foreign affiliates, that is affiliates in places foreign to their parent. This reading of the import of foreignness has been extremely influential in IB, particularly in theorizing about the internationalization process, where the idea of psychic distance attends to the liabilities of inexperience in a given national setting (cf. Johanson & Vahlne, 2009). Hymer, however, appreciates that the MNE is itself a stranger. He alludes to discrimination by government, by consumers and by suppliers, and warns that the disadvantages stemming from this discrimination were ‘more permanent’ than those arising from an information deficit. This aspect of foreignness is been ignored in the LoF literature, indeed Eden and Miller (2004) have more recently separated the liabilities into three varieties of hazard: unfamiliarity, relational and discriminatory. They ascribe these liabilities to institutional distance between home and host, and attend to the need for MNEs to increase their local responsiveness in proportion to that distance. Very recently, work by two pioneering internationalization researchers has drawn very close to the sense of foreignness by which the MNE is defined here in the form of a liability of outsidership (Johanson & Vahlne, 2009). However, paradigmatically constrained by the need to demystify the MNE as a firm, rather than as a foreigner, the community from which the MNE is excluded in this research is the business network.

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Foreignness in the LoF tradition is contingent on the standard ontological perspective of the MNE in which FDI constructs a firm divisible into discrete nation-specific parts. One of those parts is unique in that it alone is ‘at home’, while the rest experience foreignness as a function of their geophysical situation. Thus, the foreignness experienced by any part not at home is determined by where home happens to be. However, it is possible to approach foreignness as an absolute or invariant quality, and then the MNE itself is transformed.

Foreignness and Internationality IB appends foreignness to an entity resolved amid the turbulence of microeconomic transactions. Conversely, the foreignness that properly defines the MNE is found at the other end of the institutional scale, embedded in international social relations. IB may have inherited the micro-economist’s professional disinterest in the international per se, but a few scholars, notably Kobrin (2001), apply international relations (IR) concepts in their work. More often in IB the international ‘meta-environment’ (Zaheer, 1995) describes a set containing states, intergovernmental organizations and international non-governmental organizations (NGOs), that, as individual actors, can be shown to act in a very immediate way on MNEs, but whose collective influence remains indistinct. This is evident, for example, in Cantwell et al. (2009) where the MNE is analysed in a co-evolutionary perspective. Here the configuration of MNE activities is understood as both a cause and a consequence of broader institutional change. The MNE’s environment is primarily addressed in terms of intra-national changes conditioned by periodic pulses of institutional innovation at the global level. The isolation of these particular global changes is described as selfexplanatory, because they influence cross-border business activity. That is, they deliver such blunt force trauma to MNEs that they are impossible to ignore. While it is essential for IB scholars to look ‘up’ to processes at the interstate level, the MNE imagined as a firm creates an obstacle to more complete integration of IB, IR and associated branches of the sciences and humanities interested in internationality. It is not difficult to make an account of the MNE from within the principle schools of thought in IR. Thus, to the Realist student of IR, the MNE is a weapon of state, to the Liberal, an autonomous guarantor of peace and prosperity and to the Radical, a key mechanism by which the transnational capitalist elite intensifies and perpetuates its dominion over

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non-capitalist classes worldwide. One need only refer to Gilpin (1976), Jarvis (2005) or Nicholson (2002) for more thorough treatments of these depictions. Problematically, in portraying the MNE in light of these different theoretical schools, IR scholars defer to IB or economics in defining the object they seek to illuminate. The net result is the MNE, as we know it, only lit from an unflattering angle. Foreignness is an artefact of the way the human universe is politically ordered. Cole makes the case that exclusion, and the creation of foreigners, paradoxically is essential to the modern liberal world order. The world, as we find it, is thus one of nested memberships, some far more important to their members than others, that in nation-states particularly. ‘Liberalism is a world of walls’, writes Walzer (1984), both within and between national societies. The modern international political system operates through each nation setting itself up as ‘us’ in opposition to multiple ‘thems’ (Taylor, 1995). Wherever ‘we’ happen to be, foreigners abound in every direction. However, while each state may establish the terms on which membership in the nation may be granted, none are free from extra-territorial constraints on the terms they set (Benhabib, 2004). In Perpetual peace, a hugely influential work of political philosophy, Kant (1795) argued that, in the absence of immediate peril, hospitality towards the foreigner is a charitable act. Strangers entail risk, indeed they may mean their host harm through conquest and colonization. Consequently, Kant did not posit an absolute right to hospitality – what he dubbed the cosmopolitan right – for foreign visitors, but one conditional on the visitor being at mortal risk. This principle underlies the way foreigners, MNEs included, continue to be treated. Much ink has been spilled over the centuries as to how our proclivity for social insularity might be reconciled with a more fundamental ethical duty to one another as fellow humans (Muthu, 2000), and while this debate cannot be canvassed in depth here, those arguments continue to echo in policy circles at the national level and beyond. In its guise as a foreigner, the particular national origin of the MNE is not strictly relevant. Foreignness conceived of in this way is not about where the MNE is understood to rightly assert membership, but where it is understood not to have that right. The point of the citizens/outsiders boundary is to constitute and exclude outsiders – but from what? Not necessarily from the territorial boundaries of the liberal state; it is not important to the liberal state that outsiders are excluded from its geographical space (of course many are excluded in this way, but the point is whether this can be justified on liberal grounds). Rather, what is crucial is that outsiders are excluded from participation in certain activities. If the citizen is entitled to participate in the most valued activities of

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the community, then the non-citizen must be excluded from those activities. They are outsiders in this vital sense: they are permitted to enter the private realm of the state, but are excluded from the public realm; they can be subjects of the law, but not sovereigns over it (Cole, 2000, p. 9).

Using Cole’s terminology the MNE may be characterized as subject, but not citizen, duty bound to adhere to the rule of the host sovereign, but not entitled – or if legally entitled, not necessarily tolerated – to fully participate in the public life of the host nation. Walzer (1984) stresses that liberalism creates a market sphere within society that, at its strongest, excludes no one. In the market then, the MNE is at its most liberated, but, even in democracies, the freedom to buy and sell does not translate into entitlement within what the political sphere of society. Thus, MNE engagement in the internal political life of their hosts and international political processes is fraught with risk, but, as a foreigner, occupying a position of uncertain privilege, the opportunities may be too good to pass up.

The Reliability of Foreignness What is it to be a foreigner? As explained above, foreignness is a political attribution and consequence of a particular international order. It creates liabilities, yes, but also advantages that might fairly be described as rare, valuable, inimitable and non-substitutable. Honig (2001) writes that classical political discourse understands foreignness as a corrupting element to the established order, to be secured against either by exclusion or some form of containment. That underlies all else that the foreigner is, but there is more. Sometimes the figure of the foreigner serves as a device that allows regimes to import from outside (and then, often, to export back to outside) some specific and much needed, but potentially dangerous virtue, talent, perspective, practice, gift or quality that they cannot provide for themselves (or that they cannot admit they have) (Honig, 2001, p. 3).

In that last parenthetical aside, there is an idea not entertained in IB: that the MNE might not possess something unavailable to its host, but instead be prepared to exploit its possession of an asset or capability that rivals within the host dare not. Perhaps that might be a preparedness, secured by foreignness, to leverage market power within the non-market domain. Honig (2001) identifies a promise of re-making, rebuilding and invigorating in the foreigner. Foreigners are frequently associated with the resurgence of states in classic political literature. The foreigner may bring about a rescue,

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resolve a crisis or put right a wrong, but once that is done – once some desired equilibrium is restored – the foreigner itself constitutes a threat to the community by virtue of the mechanisms of salvation brought with it. These themes are wholly familiar to the IB scholar. The MNE as engine of development, provider of infrastructure, employer, exporter, stimulator of competition, paragon of efficiency and vector of technology transfer: all are images in the mould of re-maker that Honig describes. But in the same way, the fears of lost national autonomy, monopolization, home-state manipulation and cultural imperialism reflect the foreigner as eventual threat. Intriguingly, there exists a recurrent theme in liberal discourse of the foreigner as taker, in the sense of ‘demanding or, better yet, simply enacting the redistribution of those powers, rights, and privileges that define a community and order it hierarchically’ (Honig, 2001, p. 8). She goes on to say: ‘carried by the agencies of foreignness, this revalued ‘‘taking’’ stretches the boundaries of citizenship and seems to imply or call for a rethinking of democracy as also a cosmopolitan and not just a nation-centered set of solidarities, practices, and institutions’. This could be written with the MNE in mind. Within the host state, the MNE is typically active in seeking the enlargement of its freedom to transfer resources across national frontiers, and to increase its right to own and exert control over property. This often involves challenging existing laws and institutions, and the consequent reshaping of the regulatory landscape may have significant repercussions throughout host society, generating unlooked for opportunities outside the community of foreign investors, indeed outside the market sphere altogether. Furthermore, MNEs have long sought to promote the creation of international norms guaranteeing their rights to property and freedom of movement, and much of this activity takes place in international, rather than national, space. In both realms, in order to gain political traction, the MNE must appeal to liberal ideals with respect to the entitlements of the foreigner. It is critical to reiterate that the foreigner discussed in this context is the foreigner abroad. Foreigners at home, in their place, are of little interest to states. A useful distinction here is the legal separation of alien and foreigner: the alien is the foreigner where it should not be, which is more properly the status of the MNE (Berry, 2009). However, this distinction, while perfectly clear in the case of natural persons, seems confounded in the case of a firm, because MNE subsidiary enterprises are corporate citizens of their hosts. Subsidiary incorporation shrouds the MNE’s foreign origins, creating for the controlling entity a fictional absence from the host. Incorporation does not scrub foreignness away; however, it is not the corporate equivalent of

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naturalization. Local incorporation does not prevent courts from pushing back the corporate veil in search of the accountable foreigner, as may be seen in India’s pursuit of damages from Union Carbide, subsequent to the Bhopal disaster (Muchlinski, 2010), and in a number of cases in which courts have laid a subsidiary’s tax liability at the door of MNE parent companies.2 If judicial branches are prepared, albeit rarely, to look beyond legal fiction to reality of strategic control, then the other branches of government, market participants and the general public are no less inclined to do likewise.3 Again, however, alien status is not necessarily an evil: ‘the positive side of alienation is that it marks a gap in legitimation, a space that is held open for future refoundings, augmentations, and amendment’ (Honig, 2001, p. 31). This legitimation gap has been noticed in IB: it is, however, construed as a liability (Kostova & Zaheer, 1999). The idea that the attribution of foreignness is itself a form of legitimation, and the insight that what is not legitimate is not (necessarily) illegitimate, is not facilitated by such an approach. Benhabib (2004) describes foreigners and aliens as those to whom (full) citizenship is denied, because they fail to meet the requisite identity criteria, because they belong to another commonwealth, or because they choose to remain outsiders. The MNE can be all this at once. If foreigners are second-class citizens, they should not be confused with other groups suffering that unhappy distinction, such as women, labour or conquered indigenous peoples. The status of the foreigner ‘y is governed by mutual treaties among sovereign entities, as would be the case with official representatives of a state power upon the territory of the other their rights and claims exist in that murky space defined by respect for human rights on the one hand and by international customary law on the other’ (Benhabib, 2004, pp. 46–47).

Extending Foreignness: From National Community to Community of Nations As already mentioned, the MNE is not merely foreign in its various host nations. Society is not confined within states; there exists an international community, a community of nation-states, with its own rules of membership. The MNE is active within, but foreign to, that community also. While IR theorists of the Realist school chafe at the notion that anything other than a nation-state has any meaningful role in the anarchic world of IR, Liberal theorists are pluralists. They accept that non-state actors, such

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as MNEs, have a measure of international autonomy and are influential in maintaining international order. However, said influence is normally regarded as a function of the economic interdependence MNEs engender between nations, and by dint of MNEs expressing their preference at the state level so that these might be carried into the international norm-making arena (Jarvis, 2005). Thus, the impact of MNEs on the international order is a side-effect of their rent-seeking, a side effect of them being firms, rather than stemming from their active political engagement in international affairs. MNEs, while not invisible, are simply [a] technical functional linkage, essentially understood as apolitical, anationalistic actors who operate as self-interested rational economic entities, but whose actions give rise to technical linkages which then require coordination, governance, institutionalization, and standardization (Jarvis, 2005, p. 207).

However, as Polachek, Seiglie, and Xiang (2007) observe, internationally active firms are more than unwitting engines of interdependency. They are also strategic actors who push for decision-making power to be lifted up and out of the ambit of nation-states, with their narrow territorial jealousies, into the less contestable and technocratic realm of international organizations, for example to the institutions of the EU. Indeed, in the last three decades, MNEs may be seen organizing to create mechanisms to promote international governance, in Europe, with the European Roundtable of Industrialists; in the OECD, with the Business and Industry Advisory Committee; and in the United Nations with the promotion of the Global Compact. Liberalism, then, offers the image of the MNEs as a participant in global governance alongside states. This is articulated clearly in an essay called ‘Power Shift’ published in Foreign Affairs in 1997. The end of the Cold War has brought no mere adjustment among states but a novel redistribution of power among states, markets and civil society. National governments are not simply losing autonomy in a globalizing economy. They are sharing powers – including political, social and security roles at the core of sovereignty – with businesses, with international organizations and with a multitude of citizens groups, known as NGOs. The steady concentration of power in the hands of states that began in 1648 with the Peace of Westphalia is over, at least for a while (Mathews, 1997, p. 50).

The idea of the MNE growing in autonomy and stature as globalization advances is now commonplace. However, IB scholars set the MNE up as the equal of the nation-state many years before the word ‘globalization’ was coined. It is implicit in obsolescing bargaining theory, given its initial impetus by Vernon (1968). In this work, MNEs are addressed theoretically

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within a bilateral monopoly framework as the contracting equal of the nation-state. At about that time, not coincidentally, a fierce debate raged in the international community over the binding nature of MNE–host entry bargains. If such contracts were found binding on host states, the MNE would be elevated to status of treaty partner, the same international contracting status as sovereign states (Schwebel, 1963). In the 1960s and early 1970s, the idea was anathema to the developing nations, yet in the 1990s these same nations signed bilateral investment treaties in their hundreds, almost all granting foreign investors the right to bring their hosts to international dispute resolution for breaches thereto (Elkins, Guzman, & Simmons, 2006). Here, once more, the MNE is a foreigner – not within the state, but amongst the states. In the international community the MNE cannot be granted full citizenship, but it cannot be wholly excluded. Exploring the way in which it negotiates the limits of its inclusion presents an exciting way in which to develop a more complete understanding of the MNE.

Advantages of Re-Imagining Having proposed a new imagining of the MNE, it remains to clarify what gains might be made from substituting it for the received ontology. As stated in the introduction, there imagining is not intended to invalidate or undermine extant research, but to show how it might be reintegrated within a larger and more coherent theoretical literature on internationality. The international realm is theoretically contested by a variety of mutually referential disciplines, including sociology, geography, politics, political economy and law, and each has something to say about the status of foreigner. As the foreigner, the MNE is granted negotiable privileges consistent with that status, including its rights to property and contract, and entitlement to give voice to its political preferences. It is always operating under the threat of exclusion from its host states where it is afforded a circumscribed form of citizenship, and the international community where it is still very much an interloper. At both levels it is denied full membership, but just as this excludes the MNE from certain forms of participation in the community, so too is it exempted from the full gamut of obligations consequent to membership. Adopting the view that the MNE is a firm made possible by the sovereign extension of privilege to foreigners is likely to shift IB’s centre of gravity

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closer to lines of research already significantly informed by political and legal theories. These include the research strands on MNE political strategy (cf. Holtbrugge & Berg, 2004; Keillor, Boller, & Ferrell, 1997; Wan & Hillman, 2006) and MNE–host relations (cf. Behrman & Grosse (1990); Moon & Lado, 2000; Moran, 1985). Indeed, these are specializations that can apply the re-imagining of the MNE with relatively little adaptation to existing ontologies, theories and methods. Even in these areas, however, there remains a need to attend to structures and processes beyond the national level. The imperative to see and explore the MNE as a foreigner in the international context is not met by examining the interaction of MNEs and particular intergovernmental organizations, but necessitates taking the broadest view, wherein the international social system itself is understood as the context in which the MNE strives to gain political credibility. A special mention must be made of the LoF research tradition. Clearly, this is an area of research that is ‘on to something’. However, the new imagining presented here suggests that LoF theorizing must discriminate more exactingly between the liabilities that come of inexperience, distance and nationality, and those that are a genuine function of foreignness. It needs also to augment its detailed treatment of the downside of foreignness with a closer examination of how foreignness may play to the advantage of a firm beyond its home shores. Hymer’s early insight that MNEs are different, because they are foreign, gave rise to the concept of the ownership advantage. If being foreign is not entirely a bad thing, it might count as an advantage in itself, however. Indeed, an astute MNE might even make a proprietary advantage of it, if its host nation grants it the opportunity. To explore this possibility, LoF researchers will profit from ideas circulating in the politically informed research literatures alluded to above, and from research into MNE ethics and legitimation (cf. Kostova & Zaheer, 1999). The re-imagining thus serves as a means to forge closer connections within disparate research traditions within IB, as well as between IB and other international disciplines. The re-imagined MNE may provoke the most radical new insights in areas of research that do not closely attend to the political character of the MNE. Take, for example, internationalization theory. For present purposes, internationalization may be described the transformative process whereby a firm becomes an MNE. If the MNE is a foreigner, however, its transformation from the status of citizen is effected by migration. This offers an unexpected view of the MNE as a migrant and internationalization as the migration of a business enterprise. This jars, because in business and economics the language of migration is kept exclusively for the international movement of labour, never capital. Understood as the foreign direct investing

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firm, the MNE is production capital in motion, but as foreigner-in-business the international flow of capital becomes background to the MNE, a device by which it organizes its business affairs rather than its distinguishing feature. Beck (2000) explains, in a world of sovereign nation-states, migration between states is undesirable, while mobility, movement of individuals within the confines of the state, is extolled. Migration creates strangers, or foreigners, and there is no solidarity with strangers. Mobility has no such pejorative connotation, so, in IB, FDI is an instantiation of capital mobility, and the MNE, even when engaged in production relocation, exhibits only mobility: it does not migrate. But, as a foreigner, it must. Now, the very considerable literature on the law, ethics, politics, sociology and geography of international migration presents itself to IB. It is, by no means, relevant in its entirety: the MNE is only a notional migrant, and analogies can only be stretched so far. Nevertheless, the threat of nationalism, for example, is as real to the MNE as foreigner/migrant as it is to the natural person. It is contended that there will be value to the internationalization research in considering the value in assuming the role of foreigner when addressing the question of mode and location choice, and in the concepts, theories and principles deployed in the study of the politics and governance of migration.

CONCLUSION As the foreign direct investing firm, the MNE has served as a cornerstone of IB, and will continue to do so. There is, however, growing concern that IB needs to turn new corners if it is to remain vigorous and relevant. Returning to the very idea of the MNE and searching for aspects of its nature not recognized for their defining quality might serve as the basis on which to enlarge the scope of IB research. A reconceptualization of the MNE grounded in its political dissimilarity to non-MNEs does not invalidate extant research on the MNE as a micro-economically distinct entity. Indeed, the opportunities created to bridge the existing corpus of IB scholarship to disciplines concerned with the exploration of international space will depend on the specialized knowledge of the MNE-as-firm that remains unique to IB, for it is vital to develop the concept of the MNE as the foreigner-in-business. Buckley’s (2002) concern that IB has ‘run out of steam’ captures the dysfunction that may be due to having no alternative concept of the discipline’s focal unit. It may be read as a concession that IB has almost exhausted its exploration of MNEs as firms armed with monopolistic advantages, controlling assets in strange lands. The implication is that

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adhering to this concept of the MNE foreshortens the lifespan of the discipline. However, Buckley and Ghauri’s (2004) proposal, that exploration of globalization is the way forward for IB, opens the door to the reimagining offered here. Globalization may entail a fundamental change in the world’s political economic structuration (Guillen, 2001; Robinson, 2001). Understanding the role the MNE plays, at both national and international levels, in promoting globalization or any form of evolutionary change on that scale, depends on the realization that its existence is contingent on privileges accorded foreigners, and that foreignness itself is a construct dependent on the existing inter-territorial order. A committed exploration of globalization cannot proceed without the intellectual resources available in areas beyond IB and economics, but bridging to these disciplines requires something shared. Although MNEs qua firms are not always interesting beyond the borders of IB, foreigners (in business) more immediate attach to extant questions and theories in geography, sociology, law and politics. The re-imagined MNE is perhaps just what is needed to propel IB forward and outward into new intellectual space. It is, however, not easy to break free of a concept so deeply entrenched within a discipline as the MNE is within IB. Nevertheless, there are clear indications that some form of revolution, however modest, is called for in order to ensure IB continues to create valued knowledge. Challenging the reality of the entities IB sets at the centre of its academic mission is one way in which stagnation can be averted. The re-imagined MNE described in this chapter might not stimulate that revolution, but it serves as a reminder that scrutinizing even the most familiar piece of intellectual apparatus through a borrowed lens can reveal something startling, something unexpected, even something foreign.

NOTES 1. We may ignore the various chartered companies of merchant adventurers that helped build and consolidate empires in the 16th century, simply because they were, for the most part, not carrying activities into foreign sovereign territories, at least as far as they, and the governments of which they were an extension, were concerned. 2. In Argentina, a local company called Compafila Swift declared bankruptcy, but a court held that its parent company, Deltec, based in the Bahamas, should pay Swift’s creditors [S.A. Frigorifica Compafila Swift de la Plata, Fallos de la Corte Suprema de Justicia de la Nacio´n 257 (1973)]. In the United States, taxation of an MNE’s foreign income first occurred in 1924, pursuant to the unitary business principle (cf. Stuart & Williams, 1983). More recently, a Californian court held

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Container Corporation liable for income tax based on the proportion of its worldwide activities situated in California, rather than the declared income of its Californian subsidiary. This decision was upheld in the US Supreme Court [Container Corp. of America v. Franchise Tax Board 103 S. Ct. 2933 (1983)]. 3. Noteworthy here is the idea, mooted soon after the Bhopal disaster occurred, that a host nation might secure adequate compensation for MNE-induced disasters by the ‘local’ subsidiary taking its ‘foreign’ parent to court to sue for damages. The only plausible way in which this might occur is if the host government and/or creditors of the subsidiary were to wrest control of it from the parent by appointment of a receiver. This is all one needs by way of assurance that the independent corporate personality and host citizenship of MNE subsidiaries, as entertained in law, need not detain any inquiry into the inherent foreignness of those subsidiaries as a political reality.

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THE PHILOSOPHY OF TURNING POINTS: A CASE OF DE-INTERNATIONALIZATION Romeo V. Turcan ABSTRACT This chapter introduces and discusses the concept of turning points from the ontological, epistemological and methodological perspectives, applying it to the de-internationalization phenomenon to exemplify its deployment. As a concept that adds to the variance and complexity of the international business and management field, the turning point is seen as a valuable unit of analysis within the research field. It is expected that this chapter will encourage a dynamic scholarly conversation about the concept of turning point and how it can aid international business researchers in the development of a generalizable international business and management theory.

They said, ‘You have a blue guitar, You do not play things as they are’. The man replied, ‘Things as they are Are changed upon the blue guitar’. Wallace Stevens (1937)

Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 219–235 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026014

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INTRODUCTION In the early period of the evolution of the field of international business (IB) research the choice of an international market and of the mode of entry into that market were identified as the frontier issues in the cross-border activity of the firm (Wind & Perlmutter, 1977). Recent advances in IB research broaden the scope of this frontier by addressing the issues of mode combinations (Benito, Petersen, & Welch, 2009; Petersen & Welch, 2002) and mode change (Pedersen, Petersen, & Benito, 2002). Acknowledging the substantial progress made by IB scholars in the domain of international entry mode, Brouthers and Hennart (2007, p. 413) ask ‘y where to go from here’; that is, what issues still need to be explored and what theories will help gain further understanding. A consensus is emerging that current IB theories do not provide adequate explanation of how firms operate in foreign markets despite the decades of research in IB (Benito et al., 2009; Buckley, Devinney, & Louviere, 2007; Devinney, Pedersen, & Tihanyi, 2010). A number of opportunities have been identified to address the abovenamed critical aspects and, in the end, contribute to the advancement of the IB field. For example, Buckley et al. (2007) posit that a greater appreciation of the scope of the domain of dependent and independent variables is needed in order to develop a generalizable IB theory. Devinney et al. (2010) suggest viewing the variance and the complexity of the IB phenomenon, as well as the complex structure of IB models as the critical aspects that make the IB phenomenon distinctive. Furthermore, in order to move the IB field forward, more innovation in theory-building and in new construct development are needed, as well as more creative and innovative research methodologies and methods that would allow the IB researchers to investigate the IB phenomenon beyond the traditional models and boundaries (Buckley et al., 2007; Devinney et al., 2010). One area of IB research that undeniably adds to the variance and complexity of the IB field and that, regrettably, has received little consideration from IB scholars is de-internationalization. It is the central thesis of this chapter that in order to stimulate and advance the research on de-internationalization, it is critical for IB researchers to understand the concept of turning points, which, according to Abbott (2001, p. 249), are ‘y more consequential than trajectories because they give rise to changes in overall direction or regime, and do so in determining fashion’. The aim of this chapter is to introduce and discuss the concept of turning point and apply it to the de-internationalization phenomenon. To set the scene, the chapter will first provide a brief review of the de-internationalization

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phenomenon. The concept of turning point will next be introduced and discussed from ontological, epistemological and methodological perspectives, linking it to the de-internationalization phenomenon. The chapter will conclude with implications for the IB field. It is expected that this chapter will encourage a dynamic scholarly conversation on the adoption of the concept of turning point in the IB research with the view to further the progress of the IB field.

DE-INTERNATIONALIZATION EMERGING Welch and Luostarinen (1988, p. 37) introduced the notion of deinternationalization in maintaining that ‘once a company has embarked on the process [of internationalization], there is no inevitability about its continuance’. Calof and Beamish (1995, p. 116) embedded the same notion (though termed de-investment) into their definition of cross-border activity, which they defined as ‘the process of adapting firms’ operations (strategy, structure, resources, etc.) to international environments’. These authors view de-internationalization as a process whereby a firm deliberately chooses to reduce its degree of international exposure. Benito and Welch (1997) made the first attempt to conceptualize de-internationalization, grounding their definition in the research streams of a multinational enterprise. Benito and Welch (1997) argue that commitment to internationalization inhibits or decreases the probability of de-internationalization and define de-internationalization as ‘any voluntary or forced actions that reduce a company’s engagement in or exposure to current crossborder activities’ (emphasis added) (p. 9). To explain the process of deinternationalization in small firms, Turcan (2003) put forward a conceptual framework of the de-internationalization of a small firm that is based on three constructs: (i) commitment of entrepreneurs, which is influenced by project, psychological, social and structural factors; (ii) change in dyadic networks, which is triggered by a critical event, and depends on the actions and intentions of dyadic partners; and (iii) time, which is socially constructed and experienced in the present by entrepreneurs by relating themselves to codes and memories (past), and congruencies and horizons (future). Compared to internationalization, de-internationalization appears to be one of those areas that, while important, is either not convenient, or is perhaps undesirable, to research. And the literature supports this assertion. To date, the research on de-internationalization has been sparse (for exceptions, see, e.g. Crick, 2004; Matthyssens & Pauwels, 2000; Mellahi,

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2003; Pauwels & Matthyssens, 1999; Reiljan, 2004; Turcan, 2006; Turner & Gardiner, 2007) due to the seemingly negative and undesirable features associated with this phenomenon (Benito & Welch, 1997); that is, because human nature has a tendency to suppress the admission of failure (Clarke & Gall, 1987). But it may also be a practical concern regarding the difficulty in getting longitudinal data (Benito, 1997), or in researching perceived failures. For example, the construct reduction, as emphasized in Benito and Welch’s (1997) definition, implies a negative and undesirable feature associated with de-internationalization that, more often than not, is seen as a failure, as opposed to the internationalization efforts of the firm, which are seen as growth. This leads to the perception of de-internationalization as being undesirable. However, by de-internationalizing, firms may be correcting an error previously made; for example, having internationalized too quickly or having gone to too many markets, a step which has turned out to be unmanageable. In this context, Casson (1986) views de-internationalization as an error-correction mechanism.1 Moreover, when a firm changes the foreign market servicing mode and/or withdraws from a foreign market and focuses on serving the local market only, its engagement in and exposure to the current cross-border activities might actually increase. Few attempts have been undertaken to explain and understand the phenomenon of de-internationalization and eventually integrate it into the cross-border activity of a firm. While Benito and Welch (1997) place deinternationalization in the broader context of a firm’s international activities, asking whether, over time, the driving forces of internationalization operate in reverse, thus perpetuating a withdrawal process, Turcan (2003) suggests viewing the process of the cross-border activity of a firm as a cause–effect relationship between internationalization and de-internationalization. In addition, the existence of different internationalization pathways and trajectories (Bell, McNaughton, Young, & Crick, 2003; Kutschker & Baurle, 1997), and of time-spans to foreign-market entry (McNaughton, 2000; Oesterle, 1997), have been acknowledged and explored in an attempt to provide a holistic view of the cross-border activity of a firm that incorporates de-internationalization. These attempts (with the exception of Benito & Welch, 1997 and Turcan, 2003), however, just scan the phenomenon of deinternationalization, and, oftentimes, mention it as an endnote. Despite all the above attempts, the extant research on de-internationalization is still emerging: it remains somehow scarce and needs more empirical data, new conceptualization and theorizing, and new methodologies. In this chapter I argue that one of the factors that stifles the research on de-internationalization is the pathway- or trajectory-based approach to the

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cross-border conceptualization. Such an approach provides rather limited scope for theorizing about de-internationalization since trajectories are inertial, withstanding a ‘large amount of minor variation without any appreciable change in overall direction or regime’ (Abbot, 2001, p. 248). In other words, trajectories do not allow researchers to explore and understand relatively abrupt and divisionary moments such as de-internationalization. To account for such discontinuousness and unpredictable departures from the past (Van de Ven & Poole, 1995), as de-internationalization is, IB researchers should delve into the concept of transitions that could be seen as radical shifts – turning points – redirecting the paths (Abbot, 2001).

THE CONCEPT OF A TURNING POINT The concept of a turning point is conceptualized both quantitatively and qualitatively from the life-course or life-cycle perspectives to explore (processes of) change; for example, in the criminological literature (Carlsson, 2011), healthcare literature (Teruya & Hser, 2010), individual and familial development (Hareven & Masaoka, 1988; Rutter, 1996), organizational studies literature (Bullis & Bach, 1989), political science literature (Penkower, 2004; Wimmer & Feinstein, 2010) and applied economics literature (Krolzig & Toro, 2005; Yamada, Honda, & Tokutsu, 2007). In these literatures, a turning point is viewed as a road-mark along a life-course (e.g. Hareven & Masaoka, 1988) and is defined as ‘y a particular event, experience, or awareness that results in changes in the direction of a pathway or persistent trajectory over the long-term’ (Teruya & Hser, 2010, p. 189). In the IB literature, however, research employing the concept of turning point to explore the process of the cross-border activity of a firm is scarce; virtually non-existent. Exceptions include Petersen, Pedersen, and Lyles (2008), who employ the concept of turning point to explain the knowledge gap in the internationalizing firm, or Turcan (2006), who employs the concept of turning point to explore the process of de-internationalization in small high-technology firms. The lack of sustained research on both de-internationalization and turning point concepts in IB research makes the task of conceptualizing de-internationalization as a turning point more challenging, but nonetheless attainable. A number of challenges could be singled out in this endeavour; for example, related to finding a viable ontology in the world of turning points, the epistemological origins of turning points, as well as the methodology appropriate to collect, analyse and interpret data related to turning points.

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Ontological Level At the ontological level, the question is whether turning points (e.g. deinternationalization) exist. According to Abbott (2001, p. 247), ‘a process has turning points because it has regular sub-processes between which we switch only rarely’, and these rare switches Abbott calls turning points. Indeed, from the IB perspective, de-internationalization could be viewed as that rare switch (between various internationalization trajectories) that decision-makers may pursue. The issue, however, is whether decision-makers believe that such rare switches do exist. A number of project, psychological, social and organizational factors (Ross & Staw, 1993) that might be associated with the internationalization process of the firm in fact contribute to the denial of the existence of such switches as de-internationalization. In his research on exploring de-internationalization in small high-technology firms, Turcan (2006) found, that, in their narratives, managers and policy makers were often questioning whether de-internationalization exists and/or were denying that the firms in question actually had de-internationalized. The perception of de-internationalization as a business failure (Benito & Welch, 1997; Casson, 1986) contributes to such a state of denial. One way to resolve such an existential dilemma could be to view de-internationalization as an error-correction mechanism (Casson, 1986) rather than a failure. This reality implies, however, that internationalization is an error, perhaps a failure that de-internationalization may correct. In other words, conceptualizing de-internationalization as an error-correction mechanism implies contemplating that internationalization was a failure and admitting it. We are back where we started; due to various project, psychological, social and organizational factors, decision-makers would be reluctant to admit that internationalization was an error and/or failure, thus denying the existence of the rare switch, in this case that of de-internationalization. One may argue that this is not so much an ontological dilemma; it could be rather a divide or a gap between the way practitioners and IB researchers understand and perceive the reality of turning points.

Epistemological Level At the epistemological level, temporality plays a central role in shaping our knowledge about turning points (e.g. de-internationalization); it may eventually contribute to the solution of such ontological dilemmas as discussed above. According to Abbott (2001, p. 245), turning point, as a

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concept, ‘y inherently refers to two points in time’, implying that turning points are processes with duration in time. This is not sufficient basis, however, for a turning point to exist; there should be a passage of sufficient time between the two points, making sure that the direction of the course (trajectory) has been changed either in direction or in nature. In light of the above, de-internationalization could be viewed as an event between two points in time, as an effect where a firm may totally or partly de-internationalize (Benito & Welch, 1997) by re-focusing on the home market, optimizing the number of foreign markets, changing the entry modes and/or reducing operations by focusing on earlier versions of the product, providing services, divesting a brand or re-organizing (Fig. 1). As regards de-internationalization modes (as a switch between two points), a firm may decide to de-invest, de-franchise or de-export. De-investment can be achieved through franchising, contracting-out, selling-out, leverage buyout, spin-off or asset-swap. From franchising a firm may switch to exporting, and from exporting to inward-activities, importing, licensing-in or R&D contracting. De-internationalization

Partial Withdrawal

Total Withdrawal

Ceasing trading

Mode package combination

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Franchising

Exporting

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Focus on earlier version of product Change business model Terminate foreign linkage Cocoon

LBO Spinning-Off Asset-Swapping

Fig. 1. De-Internationalization Modes. Source: Turcan (2011a).

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It is also important to distinguish between de-internationalization of ownership and de-internationalization of control (Casson, 1986). Likewise it is pivotal to consider what Benito et al. (2009) call mode package and mode package change. For example, Benito et al. (2009, p. 1461) use the word ‘deemphasize’ when discussing changes from a joint venture to licensing and exporting. These authors also advance the concept of mode dynamics to emphasize that the modes ‘evolve in response to foreign market involvement and developments over time, displaying the characteristics of evolutionary dynamics’ (Benito et al., 2009, p. 1464). The temporality of the turning point further suggests that we can only define a turning point a posteriori, rather than a priori. The arrival and establishment of a new trajectory, according to Abbott (2001), define the turning point itself; in other words, the beginning and the end of the turning point can be defined only after the whole turning point has passed. Such hindsight character of turning points suggests that the analysis of turning points ‘y makes sense only after the fact, when a new trajectory or system state is clearly established’ (Abbott, 2001, p. 250). Applying this a posteriori principle of a turning point to deinternationalization would mean that we could study de-internationalization only in hindsight; for example, after a new international business or growth strategy is clearly established. Such a posteriori conceptualization of turning points should also allow for negative outcomes to occur, such as failures, bankruptcies and ceasing trading. The concept of uncertainty further contributes to the definition of turning points. Abbott (2001) suggests relaxing the assumptions about the nature of trajectories on either side of the turning point by assigning to one or the other a degree of uncertainty (or randomness). Abbott (2001) distinguishes between focal turning point and randomizing turning point: the former is becoming when an event moves from uncertainty (or a relatively random trajectory) to a trajectory that is certain (yet could be risky) and directional; the latter is becoming when an event moves from certainty (or a stable trajectory) to a trajectory that is uncertain (or random). Generalizing de-internationalization as a focal turning point and a randomizing turning point would allow IB researchers to explore the process of de-internationalization in young, emerging firms and established firms, respectively. This argument is based on the assumption that a young, emerging firm attempts to move from an uncertain decision-making setting towards a risk decision-making setting, whereas an established firm moves from a relatively stable and directional trajectory to a new, uncertain trajectory.2 .

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I further introduce what Abbott (2001, p. 252) calls the irrevocability aspect of turning point, hence the concept of a point of no return. The concept of a point of no return is viewed as being part of the cutting point family of codes and plays an important role in the process of theory development since it indicates ‘y where the difference occurs which has differential effects’ (Glaser, 1978, p. 76). From the de-internationalization perspective, the concept of a point of no return may explain various change options decision-makers might pursue when the attainment of a firm’s international objectives and international growth strategy is or becomes uncertain. The concept of a point of no return (Fig. 2) distinguishes between two types of points of no return: real and false.3 A real point of no return4 refers

Agility

Safety net Error of omission

Real point of no return

Cease trading

False point of no return

Entrapment (time)

Fig. 2. Concept of Point of No Return. Notes: The right downturned line depicts the inverted relationship between agility and entrapment that emerge as the two major behavioural constructs that discriminate between success and failure. This inverted relationship builds on Benito and Welch’s (1997) postulate that, with the passage of time, the probability of withdrawal from international operations declines as the commitment to these operations increases. Agility is defined as flexible decisionmaking and a flexible cost-base structure that allow decision-makers to scale up and, more importantly, to scale down according to the activity level that the firm is experiencing (Turcan, 2008). Entrapment refers to situations where people become bound to a suboptimal line of activity through the passage of time itself (Becker, 1960). Source: Derived from Turcan (2006).

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to the point in the life of the firm beyond which the transition to a new viable organizational gestalt, which consists of mutually supportive organizational system elements combined with appropriate resources and behavioural patterns (Slevin & Covin, 1997), becomes uncertain. A false point of no return refers to an illusory point of no return that is the result of a process of illusion and self-deception. Shaded areas on both sides of the real point of no return represent the entrapment situations decision-makers find themselves in. The shaded area on the right side of the real point of no return refers to an error of omission (Casson, 1986); that is, when companies should have deinternationalized earlier but failed to do so. The error of omission in this case is the difference between the real and false points of no return. If decision-makers are not flexible enough, get entrapped in a failing course of action and as a result orient their decision-making by a false point of no return (lying beyond the real one), then any of their decisions to deinternationalize will not be successful and will lead to failure. The shaded area on the left side of the real point of no return refers to a safety net where firms have a reasonable chance to successfully turn around. In the context of cross-border activity of the firm, de-internationalization may then refer to the firm’s capacity to reduce tensions in the organizational gestalt before or at the real point of no return. If decision-makers eventually do recognize that the existing organizational gestalt is less than optimal, and decide to stop committing further organizational resources, the question then becomes at what point too little is still not too late.

Methodological Level The choice of research methodology and methods is pivotal in order to be able to fully appreciate the richness of data on turning points. Clearly such choice is driven by specific research questions, and thus it is not our aim here to discuss the variety of choices available to researchers in investigating turning points. However, defining de-internationalization as a turning point, we will employ a number of facets of de-internationalization to discuss related methodological challenges. For example, de-internationalization is perceived as something negative and undesirable, as an error or a failure. De-internationalization, having a hindsight character, can be analysed only after the fact. It might not be so much a challenge to locate a company that de-internationalized, but it is rather a larger challenge to negotiate access to decision-makers or

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what Buckley et al. (2007, p. 1087) call ‘the domain of the management decision-maker’, as human nature has a tendency to suppress admission of (perceived) failure. It is also a challenge to conduct longitudinal studies given the high mortality rate that to a certain degree is associated with de-internationalization, as well as given the a posteriori nature of deinternationalization. Sampling bias is also an issue since, for example, the extant IB research tends to focus primarily on positive business growth and does not study firms that ceased to trade, or chose to withdraw from their international activity along the way, thus focusing on obtainable rather than on important data. Building on the above facets of de-internationalization, several challenges of discovering and studying de-internationalization as a turning point are identified. One challenge is about sampling and sampling criteria. A typology of de-internationalization (at the level of theory driven sampling) could be employed by researchers to deal with a challenge that relates to carrying out theory driven sampling in a proper manner (Turcan, 2011a). From a theory-building perspective, the typology of de-internationalization could be also seen as a framework that makes it possible to predict the state of a system between two points without knowing how it was produced, a situation termed by Dubin (1978) as the precision paradox. As part of the sampling selection strategy, the typology of de-internationalization could make sure that turning points are transparently observable in the selected cases, thus ensuring the researchers investigate and observe the same phenomenon across all cases. In addition to the above theory driven sampling, IB researchers should also develop further sampling criteria in order to mitigate the effects of attribution errors on data collected when studying (perceived) negative turning points, such as de-internationalization. According to Lovallo and Kahneman (2003), the typical pattern of such attribution errors is for people to take credit for positive outcomes and to attribute negative outcomes to external factors, no matter what their true cause. At the time of data collection, it becomes critical to mitigate the likelihood of decision-makers misattributing the cause of the events that led to de-internationalization. To minimize the effect of such attribution errors, the research study could be confined to a homogeneous empirical context. For example, one sampling strategy could be to control for the effect of the external environment (e.g., legislation, market size, market structure across industries and countries, effect of time) on selected cases. The other strategy could be to minimize the potential effect of resource bias, controlling for the size of the firm. Data triangulation also helps minimize the attribution errors by

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corroborating the data collected from decision-makers via the data collected from their stakeholders and other sources, including unobtrusive data (Webb, Campbell, Schwartz, & Sechrest, 2000). As to the data collection and data analysis tool, I would like to draw IB researchers’ attention to a method that allows capturing the nature of turning points (in this case of de-internationalization phenomenon). Critical incident technique (CIT) is defined as ‘a qualitative interview procedure that facilitates the investigation of significant occurrences (events, incidents, processes or issues) identified by the respondent, the way they are managed, and the outcomes in terms of perceived effects’ (Chell, 1998, p. 56).5 CIT has its origins in the research undertaken by Flanagan (1954). Flanagan defined an incident as any observable human activity that is sufficiently complete in itself to permit inferences and predictions to be made about the person performing the act. To be critical, Flanagan argues that an incident or an event must occur in a situation where the purpose or intent of the act seems fairly clear to the observer and where its consequences are sufficiently definite to leave little doubt concerning its effects. Edvardsson (1992) further suggests that for an incident or an event to be critical, the requirement is that it deviates significantly, either positively or negatively, from what is normal or expected. From the point of view of CIT method, a turning point could be seen as a critical event or a critical incident in the life of the firm. For example, generalized as a focal turning point, de-internationalization could be treated within CIT as a critical event or incident that leads to a relatively fixed and directional trajectory; if generalized as a randomizing turning point, deinternationalization would be looked at as a critical event or incident that moves a firm from a stable and directional trajectory towards an uncertain (random) trajectory.

IMPLICATIONS AND CONCLUSION In this chapter I introduced and discussed the concept of turning point from the ontological, epistemological and methodological perspectives, applying it to the de-internationalization phenomenon to exemplify its deployment. I strongly believe the concept of turning point could be applied as a valuable unit of analysis to other IB areas as well. It is not the scope of this chapter to cover them all, however, several pointers are considered below. Questioning the way IB researchers have restricted the domain of independent and dependent variables and pointing to the adverse effect such

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restrictions have had on the development of the IB theory, Buckley et al. (2007) differentiate between considered and actual internationalization decisions. Buckley et al. (2007) demonstrate in a structured experimentation that decision-makers follow fairly rational rules when they consider internationalizing, but when it comes to making actual internationalization decision, their behaviour appears less aligned to traditional IB models. To enhance our understanding of the complex decision-making underlying internationalization, I suggest designing into such structured experimentation methods the concept of turning point, aiming to explain differences in the decision-making process between considered and actual choices. Further in-depth understanding of such decision-making processes employing the structured experimentation method could be achieved by designing in the concept of point of no return. In this situation, inter alia, the concept of point of no return aims to capture the captive state of the decision-making underlying internationalization. For example, by making fixed decisions (e.g., on the acquisition target or target market), decisionmakers exclude future opportunities by definition, becoming captive to their own decisions. Such decisions become irreversible; in other words they pass the real point of no return with no options to change the course of action. The logic of the captive state suggests that it lies between the consider set and actual set of choices; although this should be empirically tested. As discussed earlier, turning points may be conceptualized as processes with duration in time between two points, generating radical changes that redirect the path or trajectory. Van de Ven and Poole (1995, p. 522) refer to such mode of change as constructive, arguing that it ‘y generates unprecedented, novel forms that, in retrospect, often are discontinuous and unpredictable departures from the past’. Following Van de Ven and Poole (1995), IB researchers may theorize the process of the constructive mode of change as a teleological process or dialectical process. According to Van de Ven and Poole (1995), dialectical process is based on conflict, dialectical materialism, pluralism and collective action assumptions, whereby dialectical conflict between antithesis and synthesis changes the status quo, for better or for worse. Teleological process relies on goal setting, planning, functionalism, social construction and symbolic interaction assumptions, being unable to specify the trajectory a firm will follow. Theorizing about the process of the turning point as a teleological process or as a dialectical process, IB researchers may enquire for example which transitions are routine and incremental, and which transitions are indeed turning points. By introducing and discussing the concept of turning point herein, I do hope this chapter will encourage a dynamic scholarly conversation about the

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concept of turning point and how it can aid IB researchers in the development of a generalizable IB theory.

NOTES 1. Casson (1986) distinguishes between error of omission and error of commission: it is an error of omission when companies should have de-internationalized earlier but failed to do so, and it is an error of commission when a company should not have de-internationalized earlier but did so. 2. A risk decision-making setting is similar to the rolling of a traditional die, which is balanced and fair; hence it is possible to calculate the probability of the outcomes. An uncertain decision-making setting resembles rolling a die with an infinite number of sides, without knowing whether the die is balanced and fair. Under these circumstances, it is impossible to calculate the probability of the outcomes. 3. For a full discussion on the emergence of the concept of point of no return as a middle-range theory to explain the process of de-internationalization please refer to Turcan (2006). 4. Use of the term here is analogous to its use in aviation, where the real point of no return is a point midway in the flight of an aircraft beyond which it would not have the fuel to return to its airport of origin. The implications of this are, for example, that if the target airport cannot receive it, the decision must be made to either return to the starting airport, or fly to other airports that are within range, while still not being sure whether the other airports can receive the aircraft. 5. For review of CIT, please refer to Flanagan (1954) and Chell (1998). Examples that employ CIT could be found in organizational studies (Butler, 1991; Edvardsson, 1992), entrepreneurial studies (Chell & Pittaway, 1998; Kaulio, 2003; Turcan, 2008), international business studies (Turcan, 2012) and international entrepreneurship studies (Turcan, 2011b).

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META-KNOWLEDGE

DO WE REALLY UNDERSTAND A RESEARCH TOPIC? FINDING ANSWERS THROUGH METAANALYSES Timothy M. Devinney and Ryan W. Tang ABSTRACT Meta-analysis is one of a number of scientific approaches for accumulating knowledge in a research domain. It provides a quantitative synthesis of a literature using various statistical instruments. This chapter introduces the main points underlying meta-analytic methodology by discussing its merits when compared to a conventional literature review and covers the fundamental approaches used when conducting a meta-analysis. Criticism of meta-analysis is briefly discussed in the context of the major issues facing meta-analysis in international business.

INTRODUCTION This chapter reviews the approaches underlying the preparation and conduct of a meta-analysis. Meta-analysis can be defined as a quantitative review that synthesizes the results of relevant but independent studies

Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 239–262 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026015

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(Glass, 1976). The implication of this definition is twofold. First, metaanalysis integrates a group of literature and attempts to resolve conflicts in the literature covered by related theories (Cooper, Hedges, & Valentine, 2009). Second, meta-analysis involves all methods and techniques of quantitative research synthesis (Lipsey & Wilson, 2001) to facilitate the seeking of an empirical relationships for theory construction (Hunter & Schmidt, 2004). The purpose of this chapter is to outline the methods rather than explain the details of meta-analytic procedures, which are elaborated elsewhere (e.g. Cooper et al., 2009; Hedges & Olkin, 1985; Hunter & Schmidt, 2004; Lipsey & Wilson, 2001; Rosenthal, 1991). Meta-analytic procedures vary among meta-methodologies. For instance, as an important effect size metric, the correlation coefficient is widely applied and discussed, but there is little consensus as to how one synthesizes this effect size. For example, because the distribution of correlation coefficients tends to be more skewed as the averaged correlation moves away from zero, Hedges and Olkin (1985) advocate transforming the correlation coefficient to Fisher’s z as a means of obtaining a normalized and variance-stabilized effect size. Alternatively, Hunter and Schmidt (1990) do not view such a transformation as necessary, because the use of Fisher’s z may lead to positively biased results. Despite their importance, this chapter does not attempt to judge such methodological debates. Instead it aims to provide a roadmap for those wanting to apply meta-analytic procedures. The core of this chapter encompasses discussions of why meta-analysis is important for accumulating knowledge in a research domain, how to conduct a meta-analysis, what are the major concerns in each meta-analytic stage and what the limitations of meta-analysis are.

THE RATIONALE OF META-ANALYSIS The goal of academic research is to accumulate knowledge and, ultimately, develop theories that can explain and predict phenomena of importance (Card, 2012). In attempting to advance scientific knowledge, researchers either systematically build their studies on top of a foundation of previous research or introduce a paradigm different from the prior one. Both ways imply that the prerequisite for advancing scientific knowledge is to understand prior studies thoroughly regarding the variability of results across various studies and the relationships among the variables of interest. However, this prerequisite does not arise naturally due to two barriers. The

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first comes from the finite cognitive ability of researchers, who are not able to follow, retain and organize all of the empirical findings. This is a particularly relevant factor as the development of information technologies has led to an increased number of studies in most research domains. The growing volume of literature makes it difficult for researchers to be upto-date in all but a relatively narrow area. The other barrier arises from the growing variation in methods, measures and/or samples underlying the examination of a research topic. This variation complicates the process of separating significant discrepancies from expected sampling fluctuations and the judging the sources of the disparate and conflicting results. The traditional way to overcome these barriers is to integrate research results by systemically reviewing them. There are two broad types of approach. One is a qualitative literature review (i.e. narrative subjective review). The other is a quantitative literature review (i.e. meta-analytic review). Both approaches are useful at overcoming the first barrier, but only the latter can address the second set of concerns properly. Although simpler to conduct, qualitative literature reviews have inherent methodological limitations. First, narrative reviews are not able to handle a large, and increasing, number of studies being published in many areas. In contrast, quantitative methodologies can synthesize a very large number of studies. For example Taras, Steel, and Kirkman (2012) meta-analyse 451 empirical studies on cultural indices over 49 countries and regions. This may be an impossible task for any conventional narrative review and will ultimately lead to the narrative reviewer’s authors having to make extremely subjective decisions about which studies they consider worthy of inclusion in review (or which studies they emphasize more). The subjectively pooled studies may represent the reviewers’ perspective of a research topic, but may not reflect the actual status of that topic. In addition to issues with the volume of research being examined, conflicting conclusions also challenge the reliability of narrative literature reviews. If narrative reviewers subjectively interpret contradictory results, the previous studies are weighted and summarized subjectively without any way of being able to determine the direction and magnitude of that bias. The conclusions of the narrative review may mislead other researchers who rely on it to construct theories. Furthermore, it is difficult for the narrative reviewers to integrate all artefacts (e.g. the country where the research was conducted, the publication source, etc.) that may distort study findings. Finally, moderating effects among variables are seldom available in traditional literature reviews, while moderators are important to reveal the relationships between variables.

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In contrast, meta-analysis ‘integrates results from existing studies to reveal patterns of relatively invariant underlying relationships and causalities, the establishment of which will constitute general principles and cumulative knowledge’ (Hunter & Schmidt, 2004, p. 16). It can more properly address problems of narrative review by revealing the simplified patterns of relationships found in studies on a research topic. It can correct for the distortional influences of sampling error, measurement error and other artefacts that cause the illusion of inconsistent or contradictory findings in the previous literature. Meta-analysis has been criticized as not directly advancing theory (Guzzo, Jackson, & Katzell, 1986); however, more and more researchers disagree with that argument. As a technique or method of conducting research, meta-analysis is similar to any software package that does not generate theoretical conclusions without interpretation from scholars. Metaanalytic reviews provide ‘empirical building blocks for theory’ (Hunter & Schmidt, 2004, p. 22). These building blocks include the empirical relationships across previous studies and their variables, the relative significant conclusions about a research topic, the evolving directions of a theory and the sources of variance in the empirical studies. In addition to these components, a well-organized meta-analysis can also lead to the construction of new theories. By comparing results across various studies statistically and by answering questions that have never been discussed in any of the individual studies, a meta-analysis may reveal new knowledge that cannot be inferred from any single study. For example van Essen, Heugens, Otten, and van Oosterhout (2012) extend the understanding of compensation in contracting theory with the supplement of institution-based view by metaanalysing the firm performance–executive compensation relationship. Those authors integrated the primary findings of contracting theory and the external data for institutional variables into multi-level models that enhance statistical significance via a large sample size (i.e., cumulatively more than 600,000). Additionally, meta-analysis embraces scientific procedures to summarize and integrate research findings (Lipsey & Wilson, 2001). As a structured research method, meta-analysis involves the justification of research questions, the criterion of determining the study population and the literature retrieval strategies, the systematic coding scheme to identify variables and the statistical estimation and/or econometric models to draw cogent conclusions. Among these meta-analytic steps, the retrieval criteria ensure previous literature is being included objectively. The systemic coding allows precision in examining the relationships across research findings and

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study features (e.g. the characteristics of primary samples and the research design of primary studies). Also, the effect size from all studies is estimated and pooled statistically to produce synthesized effect estimates and gain statistical power. With proper econometric models, these estimates can uncover meaningful influences and relationships on which individual studies are consistent or contradictory. In particular, a good meta-analytic review documents and presents each research step for public scrutiny, thus helping other researchers to test its conclusions via replication. Apart from the advantages mentioned above, meta-analysis can be applied to all research topics in any domain. After Glass’ (1976) seminal work on meta-analysis, this type of literature review has been widely accepted in many research areas, such as psychology and medicine. In psychology, the application of meta-analyses almost completely substitutes for subjective narrative reviews, as findings and conclusions provided by meta-analyses are thought to be, de facto, superior. In medicine, more than a million studies have been published per year. In these disciplines, meta-analysis is the only way to effectively and meaningfully summarize the hundreds of studies conducted on a research topic (Hunter & Schmidt, 2004). Meta-analysis brings significant advantages and opportunities to research in finance, economics, sociology, marketing and management. For example Kirca and Yaprak (2010) found that 414 and 104 meta-analytic reviews were published in the top 25 management and marketing journals, respectively, from 1980 to 2009. In the same period 24 meta-analyses relating to international business (IB) and management were published. Meta-analysis can be employed by anyone who is considering a literature review on a research topic. The degree of quantitative knowledge and statistical skills required for a basic meta-analysis is not overly rigorous. Nevertheless, this does not mean an analysis of a group of studies is an easy task. In fact, meta-analyses can vary considerably in complexity. Fortunately, no matter how sophisticated a meta-analytic procedure could be, the statistical basics do not change, because ‘keeping at least the basic meta-analytic procedures used descriptive, simple, and clear is a positive virtue’ of meta-analysis (Rosenthal, 1995, p. 183). In the next section we outline the basic processes involved in a meta-analysis.

THE STATISTICAL REVIEW OF A LITERATURE Although a variety of procedures have been developed to meet various research objectives (e.g. Hunter & Schmidt, 2004), a typical meta-analysis

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process involves five stages: research specification, literature retrieval, dataset construction, data analysis and analysis report.

Research Specification A well-formulated research question is as crucial for a meta-analytic study as any other form of research. It helps meta-analysts draw conclusions with replicable conviction. The research questions reflect the objective that the meta-analysis is expected to study, the conceptual framework that the metaanalyst is interested in and the domain in which conclusions can be drawn. Before starting, the competent meta-analyst will also consider whether the topic is applicable to meta-analysis, as meta-analysis requires a reasonable number of empirical studies that report quantitative findings to generate statistical validity. Meta-analysis also requires that previous studies provide comparable findings. If studies cannot be meaningfully compared, meta-analysis will, by definition, not be able to produce meaningful conclusions. In other words, the findings must relate to an identical conceptual framework or deal with the same conceptual relationships. It is usually not appropriate to include studies of discrepant topics in one meta-analysis. Otherwise, the analysis may encounter the problem of comparing apples with oranges (Sharpe, 1997). However, whether potential studies are ‘comparable’ varies based upon the topic and the scholars involved. While one researcher may hold a narrow view about a topic, another scholar may be inclined to have a broader vision and want to include more studies. In addition to an identical conceptual domain, the primary findings should be able to fit into similar statistical forms. In meta-analytic views, some statistics are convertible (e.g., t-statistics to correlation r), but not all statistic measures can be meaningfully converted into a singular form (e.g., t-statistics to odds ratio o) (Lipsey & Wilson, 2001). Different measures cannot be synthesized into a single estimate in a meta-analysis. Also, the quantity of primary studies about a specified research question should be large enough to achieve a minimum level of statistical power. Thus, a pilot literature search may help meta-analysts to understand the research status of a topic and decide whether it is amenable for further study via meta-analytic techniques. Once the pilot search provides evidence that a topic is a potential area for future analysis, the meta-analyst needs to determine the specific research questions the analysis is meant to answer. A well-specified research question states the objective of meta-analysis, the key group of independent variables

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and the major dependent variables. First, the to-be-analysed questions should have already been addressed in the individual studies, as metaanalysis finds new insights only by integrating existing findings. Although this does not mean meta-analysis cannot respond to new theoretical queries, it is a method that can only draw new conclusions based on extant studies. Next, the conceptual framework needs to be defined so as to avoid two potential problems during the meta-analytic process: (1) the extant literature does not use identical terms (i.e. glossary and jargon) for the same concept and (2) the same term represents different concepts or is operationalized in different ways. A precise definition of research topic ensures consistent variables included in the meta-analytic study. Furthermore, the conceptual constructs analysed are fundamental to the research domain being examined. For a research topic that is studied across different academic disciplines, the boundary of research topic has to be explicit and clear. Finally, the specification of a research topic contains three facets. First, there are always differences between conceptual and operational specifications of the research topic. For example a meta-analytic review on compensation has to specify the ‘conceptual compensation’ with operational measures such as income, salary and the gains from stock options. The meta-analyst also needs to decide whether all the operational measures (i.e. a broad conceptual specification) should be included in the study. This decision may influence the literature search in the next stage. The second specification is to figure out what the meta-analytic study aims to reveal: a description of an event, a causal explanation of an event or a relationship between events. This goal impacts the selection of effect size in the third stage. The final specification is to illustrate the level of analysis, for example an individual unit (e.g. person or company), a group of individuals (e.g. employees in a company or companies in an industry/country) or the interrelationships across units and groups. The level may determine the establishment of analytic models in the fourth stage.

Literature Retrieval The operational specification of the preceding stage determines the key terms (i.e. the descriptors of the meta-analytic topic) for searching primary studies to be synthesized in the meta-analysis. The reliability and soundness of a meta-analytic review rely heavily on the extent to which the search for relevant studies is exhaustive and representative. The lack of bias is the most fundamental feature of meta-analysis. If searching only the most influential

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journals of a research domain, the meta-analysts may confront the skewed publications that, for example, selectively publish only studies with lower p-values and larger effect sizes. On the other hand, searching widely can waste an extraordinary amount of time in examining and rejecting many positive but false hits. A good search process neither ignores important data sources nor attempts to encompass too much literature that can overly complicate the meta-analysis to no good purpose. Three strategies may keep appropriate literature retrieval. Combination of Key Terms Having identified the initial key terms, the meta-analysts may use ‘AND’, ‘OR’ or blank spaces to structure logically the key terms and their synonyms. For example, when meta-analysing the influence of cultural diversification on work team, Stahl, Maznevski, Voigt, and Jonsen (2010) applied two conjunctions to combine key terms of ‘team’, ‘group’, ‘culture’, ‘diversity’, ‘multicultural’, ‘international’ and ‘multinational’. Although some scholars suggest simple combinations for literature searching (e.g., Becker, 2009), diverse and general combinations are more efficient than oversimplified ones that may result in a narrow set of literature. Without adequate knowledge of the previous literature, metaanalysts are unlikely to obtain a representative and unbiased collection of studies. By ruling out relevant studies at the early stage, some aspects of a research topic may be left out. Early exclusion may also produce inadequate literature for certain meta-analytic instruments (e.g., type of effect size). Data Sources Four categories of sources can supply adequate primary studies for metaanalysis. The main source is electronic databases such as EBSCO, Elsevier, ProQuest, etc. The key advantage of electronic databases is the wide coverage of literature, while different electronic databases may vary in the availability of journals and publication years. Another benefit of electronic databases is ‘automatic’ searching with the combination of key terms. However, due to the discrepant rules of search engines, the hits (i.e., returns) may vary dramatically; results from one electronic database may be omitted by another. Thus, the second source of potential literature is journals in a research domain, which concentrate on some specific topics and facilitate convenient search for a specific research topic. The third type of literature source is the reference sections of articles regarding particular research topics. The benefit of utilizing reference sections is straightforward: the authors of an article tend to cite the relevant literature related to a research

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topic. The references cited by authors of the relevant articles may be worth initial inclusion in the meta-analytic review and can be used as a variant of ‘snowball’ sampling. Finally, meta-analytic studies may suffer from publication bias if the focus is on published literature only. Thus, experienced meta-analysts will also source unpublished studies, which are today retrievable from electronic sources (e.g., SSRN, 2012) via mailing list servers (e.g., the Academy of International Business), and through conference websites. Retrieval Approaches There are two fundamental approaches to article retrieval. One is automatic search, which corresponds to electronic data sources. Another is manual search for browsing journals, searching in reference sections and contacting authors to seek unpublished documents. As a single approach is inadequate to cover an entire literature, multiple approaches are widely used. Multiple electronic databases can return more comprehensive bibliography for a research topic than any single database. The manual approach can supplement the searching results of electronic sources. After searching in these data sources, meta-analysts are advised to browse all studies and documents in the bibliography to confirm the results of the retrieval. This does not mean the reading of every article but involves the collection of the essential information from eligible studies. The essential information may include, from most to least important: conclusion and results, statistical model and data, sampling and the reference list. Browsing is sometimes ignored by meta-analysts who may think the detailed analysis would substitute for this step. However, an extensive exposure to the extant literature can help meta-analysts grasp the major issues about a research topic and subsequently choose the most appropriate meta-analytic instruments (e.g., effect size and analytic model). Dataset Preparation This stage aims to collect two types of data: effect size and study descriptor. Effect Size An effect size depicts ‘the degree to which the phenomenon is present in the population, or the degree to which the null hypothesis is false’ (Cohen, 1988, pp. 9–10). At the heart of a meta-analysis, the effect size encodes primary findings of the eligible studies for analysing. Normally, the primary studies provide one or all of the three types of results, which can be reconfigured

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to compute effect sizes of interest. The three corresponding effect sizes are: correlation (e.g., Pearson correlation r, partial correlation rxy,z), standardized mean difference (i.e., Hedges’ g, Cohen’s d and Glass’s gGlass) and odds ratio (i.e., j or o)1. They can be obtained either from inferential statistics, descriptive data, probability levels of significance test or descriptive statistics (Card, 2012). The research questions specified in the Research Specification stage will suggest which effect size metric should be selected to describe an event, reveal causality and/or uncover a relationship. For example, if a meta-analytic study attempts to review the relationships among a set of variables, the effect sizes about correlation will be selected. In addition to the research target, four considerations drive the selection of effect size. First, the effect sizes from separate studies should measure the same phenomena. In other words, the effect size cannot vary from one research design to another. The second concern is that the effect size should be interpretable or meaningful. The third consideration relates to the computation of effect size. In other words, the selected effect size should be able to be calculated from information provided by the studies included in the analysis. The last is that the statistical properties (e.g., sampling distribution) of the selected effect size should be known. Otherwise, no statistically meaningful findings can be found. Furthermore, the three types of major effect sizes can be cross-computed from one type to another under certain circumstances (see Lipsey & Wilson, 2001, pp. 198–202). In particular, if meta-analysts browsed all the potential studies in the preceding stage, it would not be a problem for them to select an effect size that has the most availability in the literature. Study Descriptor The common interest of meta-analyses is to investigate what characteristics of the studies matter to the study results. Four categories of study descriptors are widely considered: the essential characteristics of studies (e.g., years of publication), the research methods, the context of the research (e.g., the country in which the raw data were collected) and the attributes of reporting (e.g., published or not-published). Inclusion Criteria Once the effect size is chosen, meta-analysts can employ inclusion criteria to build a reservoir of eligible studies by screening the documents in the bibliography generated in the Literature Retrieval stage. The literature reservoir is the sample population for the meta-analysis. An abundant reservoir is drawn from well-defined inclusion criterion that explicitly states

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which studies are eligible and because of what features. The explicit criteria should encompass eligible studies and avoid irrelevant sampling of studies. They define the general population for analysis and ensure the study is not biased. In particular, meta-analyses need to report what and why a group of studies is included. Inclusion criteria may vary, but four common items are always included: (1) key terms (e.g., terms indicating the research topic and/or objectives), (2) empirical studies in a specific domain (i.e., the boundary of research), (3) effect size metric (i.e., the object for synthesizing) and (4) independence for avoiding conclusion bias resulted from dependent studies. Coding the Literature Coding the literature in a meta-analysis is similar to the data collection process in other empirical studies, but with three challenges for meta-analysts as they attempt to code study effect sizes into meta-analytic applicable data. The first concern is the use of a single measure measuring multiple constructs. For instance, the book value of annual profit is an accounting index of firm performance as well as an indicator of firm size. In this circumstance, meta-analysts need to re-examine the research topic and its conceptual context. After comparing the conceptual and practical contexts, the meta-analyst must decide to put the measures into the appropriate theoretical construct. The second challenge is a single construct measured in multiple ways. For example, firm size is often represented by employment, asset, sales, etc. There are three essential ways to confront this challenge. One is to code the effect sizes only when they relate to one or several measures (i.e., particular operationalization) of the construct of interest. Specifically, meta-analysts compute and report the mean effect size separately for each measure. For example, employment, asset and sales are separately coded as different dimensions of firm size. Then, the factors that impact the three dimensions of firm size are examined separately, although the dimensions are interdependent. Alternatively, measures of all dimensions are coded in a relatively undifferentiated form. In other words, the primary results are included in a global construct. In the current example, employment, asset and sales are all coded in a single construct of firm size. Between these two extreme approaches, an intermediate method is to categorize the primary measures into one or several sets of dimensions. Study effect sizes that fall into those dimensions would be coded, but others, if any, would be ignored. Thus, asset and sales may be coded as ‘dollar-valued firm size’ with all the others being excluded.

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The third issue arises when some studies may provide results based on one or more subsamples. This requires the researcher to distinguish subsample characteristics from study results. Three issues bear on the coding strategy of subsample effect sizes. One is whether the variable that differentiates effect sizes at subsample levels represents a construct of the meta-analytic topic specified in the beginning stage. The second one is whether the subsamples categorized in a study (or several studies) are widely used by other studies and can supply sufficient effect sizes for meaningful metaanalyses. The final concern is whether the subsamples in different categories are independent. A typical example of this issue is seen with country-based samples. If a study reports comparisons between Western and Eastern European countries as well as between developed and developing European countries, the results in the study cannot be independent because both subsamples are not mutually exclusive. In addition to study effect size, meta-analysis also includes study characteristics coded as study descriptors. This coding task is easier than coding study effect sizes and can be depicted as the coders ‘interviewing’ the candidate studies by a coding protocol (Lipsey & Wilson, 2001). Some study characteristics are related to the study results of interest (i.e., effect sizes) and can become moderator variables (i.e., variables correlated with the magnitude of effect sizes). But what descriptors should be included into the meta-analytic dataset depends on the trade-off between the broad range of study characteristics and limitation of published information. On the one hand, meta-analysis needs the descriptive information and moderators to provide insights into the study results. On the other hand, not every study feature is widely reported in all studies. For example, some studies do not mention the time when data were collected. Hence, it would be a waste of time to code study descriptors that are rarely reported, insignificantly variant or irrelevant to the research topic. To code the study effect sizes and descriptors scientifically, meta-analysis needs a protocol to instruct the coding and maintain consistency during the coding process. A coding protocol consists of a coding form and a coding manual. The former collects information from primary studies like a questionnaire in a survey or interview. The coding form normally has two sections for study descriptors and study effect sizes, respectively. The coding manual provides detailed explanations of each item in the coding form. A good example of coding protocol is provided by Hunter and Schmidt (2004, pp. 479–492). With the coding protocol, the coding process is conducted by two or more independent coders. Multiple coders may, to some extent, avoid potential coding bias and mistakes resulting from a single coder. When more than two

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independent coders are involved in coding the same set of literature, metaanalysts can discover and correct possible errors by assessing the inter-rater reliability (IRR). Major indices of IRR (e.g., agreement rate and Cohen’s Kappa) are discussed in Orwin and Vevea (2009). Correction and Adjustment After the coding procedure, meta-analysts will obtain a set of raw data, which is imperfect for analysis and may need correction and adjustment. Some researchers believe the correction is not necessary and may influence the meta-analytic findings as the correction process may complicate the meta-analytic process by adding an extra step and the synthetic results have already been reported in primary studies (e.g., Glass, 1976). However, the effect sizes collected from primary studies may not present conceptual or theoretical constructs but the measures of the constructs. The measures cannot be perfect because of a combination of four reasons: (1) a variety of sources that may contain unreliable measures, (2) invalid measures, (3) imperfect ways of managing variables in the primary studies and (4) biased samples in the primary studies (Hunter & Schmidt, 2004). There are two categories of corrections. The first category aims to produce desirable statistical properties (e.g., the transformation of correlation r to Fisher’s z) or alleviate some known biases (e.g., the adjustment of Hedges’ g for small sample size2). Another category of corrections (i.e., artefact corrections) attempts to provide more accurate estimates and reduce variability among effect sizes by correcting for methodological features that may attenuate effect sizes. There are four major artefact corrections. The first is about reliability – that is the repeatability of a measure – and may impact the magnitude of the effect size. The high reliability of measures of two variables demonstrates that the association between these variables can be unbiasedly estimated by the actual population effect size. The reliability is indexed as internal consistency (e.g., Cronbach’s a (1951)), inter-rater agreement (e.g., Cohen’s k (1960)) or test–retest reliability. The second correction is for the validity of measures, which represents the consistency between a measure and the construct it measures. The common index of validity is the validity coefficient, which is the disattenuated correlation between the measure and the intended construct. The third type of correction aims to adjust for the artificial dichotomization of a variable that is naturally continuous but artificially dichotomized. For example, annual sales are dichotomized as ‘large’ and ‘small’ by a cutoff value meant to represent large and the small firm sizes. The final correction addresses the sampling imperfections in the

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primary studies. For example, when investigating the factors that impact executive compensation, it might be the case that the globalization of a company is strongly related to executives’ overseas experience, because a globalized company is more likely to hire a management team with intensive international experience. Thus, if a primary study samples only the executives from multinational companies, the correlation between compensation and overseas background will be attenuated and has to be corrected. Whether, and for which artefact, meta-analysts need to correct has to be considered from both conceptual and empirical perspectives. First, the corrections have to be in accordance with the research topic specified in the beginning stage. Also, the primary studies obtained in preceding steps should be able to be corrected in a unified conceptual framework. In other words, the corrections should be functional or mathematically available in the primary studies. In addition to correction, the extreme values of effect size (i.e. outliers) also require adjustment. The purpose of a meta-analysis is to summarize the quantitative findings of a set of literature reasonably, while the outliers may distort the statistics and hence influence the conclusions drawn. Outliers are traditionally identified by means of graphs (e.g., schematic plot), residuals and homogeneity statistics (Hedges & Olkin, 1985). Recently developed methods take sample size into consideration and account for the variance across primary studies (Huffcutt & Arthur Jr., 1995). Two ways are available for handling outliers. If meta-analysts find that extreme values do not represent study findings, the outliers should be eliminated. Otherwise, they can recode the extreme values to either more moderate dimensions or other conceptual clusters. Data Analysis After creating the meta-analytic dataset, meta-analysts can start their data analyses by combining effect size, computing the distribution of effect sizes and examining homogeneity and moderators. Meta-analysts will also take into account missing data, publication bias and additional data in this stage. Combining Effect Size Under optimal circumstances, effect sizes are statistically independent, and each effect size represents one conceptual construct. However, in most cases, some effect sizes from the same study share dependences due to being from

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the same sample. Normally, meta-analysts can separate the effect sizes in each study in accordance with the constructs that they represent. For example a primary study on multinational companies’ entry mode choice always investigates firm size, international experience, cultural distance and other determinants. Each of these factors can provide a single effect size and form an individual construct. The statistic distribution of an effect size is typically analysed for the corresponding construct. On the other hand, different effect sizes within a primary study may represent the same construct in the meta-analysis (e.g., revenue growth and profit increase for the construct of performance). The effect sizes regarding the two measurement operationalizations cannot be included into the same meta-analysis at the same time. The multiple effect sizes have to be handled through one of the following approaches. First, the average value of these effect sizes can be synthesized into the meta-analysis as a single effect size. Second, the meta-analysts can include one of the effect sizes to represent the construct, but exclude others to maintain the dependence. The selection criterion can either be the measurement quality (e.g., the most commonly used effect size) or the theoretical concept (e.g., meaningful interpretation). The final approach is to put different effect sizes into separate constructs (e.g., substituting performance by revenue performance and profit performance). A potential problem in the former two approaches is the ignorance of meaningful information that may influence meta-analytic results, while the last approach may increase the complexity of the analysis and lead to ambiguous conclusions (e.g., revenue and profit are always correlated). Alternatively, the dependences of any effect sizes need to be modelled statistically in order to allow multiple effect sizes in one construct. This modelling method requires meta-analysts to know or estimate the covariance between dependent effect sizes (Gleser & Olkin, 2009). Distribution of Effect Sizes One of the major purposes of a meta-analysis is to understand the distributions of effect sizes by computing the mean effect size and the confidence intervals around it. Mean effect size can be computed using two forms of weights: the estimated variance of the observed effect size and the sample size of individual study (Card, 2012). The rationale of mean effect size is straightforward: the point estimate of effect size given by a small sample is not as precise as that provided by a large sample. Thus, when aggregating results across studies, the ‘better’ effect sizes should be given more weight than others.

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Homogeneity of Effect Size The homogeneity reveals whether the observed effect size estimates the same population effect size. In a homogeneous distribution the essential reason that an individual effect size differs from the population mean is the sampling error. The Q-test is the major approach to analyse homogeneity. The Q-statistic is distributed w2 with k1 degree of freedom (k is the number of effect sizes). A significant Q-statistic rejects the null hypothesis of homogeneity, which indicates a heterogeneous distribution, that is, the variability of the effect sizes is likely to be greater than that caused by sampling errors. The evaluation of homogenous or heterogeneous distributions of effect sizes determines whether analysing moderators is necessary. The Q-test of homogeneity also hints at the approaches used for the moderator analysis. Generally speaking, a non-significant Q-statistic is more likely to favour a fixed effects model (except the meta-analyses with small sample sizes), while a significant Q-statistic may suggest a random effects model (Lipsey & Wilson, 2001). Another index of homogeneity is the ‘75% rule’ (Hunter & Schmidt, 2004). It divides the variability of the observed effect size into two parts: the study sampling error and the cross study differences. If 75% or more of the observed variance results from sampling error, the distribution of the observed effect size is considered homogeneous. Otherwise, it is considered heterogeneous. The Q-statistic only shows whether the effect size is distributed homogeneously or heterogeneously. Higgins, Thompson, Deeks, and Altman (2003) developed the I2 index to measure the magnitude (degree) of heterogeneity. I2 provides a percentage of the variability among effect sizes that exists between the studies relative to the total variability. Moderator Analysis Moderator analysis aims to identify study features (e.g., publication information, research design, context, etc.) that are related to study effect sizes. It uncovers the association between effect sizes, which may vary at different levels of a moderator (Card, 2012). In meta-analysis, the potential moderators can be categorical (e.g., countries where the primary research was conducted), as well as continuous (e.g., publishing or finishing years of studies). Three categories of models can be used to analyse moderators: fixed-effects models, random-effects models and mixed-effects models. Fixed-effects models assume the heterogeneity of effect sizes arises from systematic sources (i.e., the population effect size is same across studies),

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while random-effects models assume the variance of the heterogeneous distribution consists of both cross-study components and sampling errors (i.e., each study has its own study-specific effect sizes). Mixed-effects models assume that the heterogeneous distribution is attributed to systematic difference, sampling errors and an unmeasured or unmeasurable random component (Lipsey & Wilson, 2001).

Further Concerns Besides homogeneity and moderators, three other issues of concern are important in meta-analytic studies: missing data, publication bias and additional data (i.e., data from non-primary-study sources). Missing data are inevitable in meta-analytic datasets and cannot be thoroughly alleviated by meta-analytic procedures. However, two strategies for accounting for missing data are available: contacting authors of studies with missing data and employing statistical methods to ‘remedy’ missing data (Pigott, 2009). The former is simple, but it is generally hard to get enough responses from authors. The latter is more controllable for metaanalysts, who encounter three major types of missing data: missing effect sizes, missing study descriptors and missing studies (i.e., publication bias). Three methods are commonly used to address the missing effect sizes and missing study descriptors. They are listwise deletion (i.e., deleting the cases with missing values of a particular variable), pairwise analysis (i.e., estimating parameters by available data) and imputation (i.e., single regression or multiple regression; simply put, predicting the missing values through a regression model). More details for imputing missing data are discussed in meta-analytic literature such as Pigott (2009). Publication bias implies that the published literature might not represent all the relevant studies on a research topic and hence the effect sizes estimated may not be illustrative of the distribution of the population effect size (Hunter & Schmidt, 2004). Another implication of publication bias is the ‘file drawer problem’. This problem implies that a meta-analytic conclusion is drawn from literature in a single ‘file drawer’. Using studies in another ‘file drawer’ may lead to different results. Sutton (2009) summarizes two methods to identify publication bias: the funnel plot (i.e., a scatter plot depicting a measure of sample size against that of effect size) and the statistical tests (i.e., non-parametric correlation test and linear regression tests). There are also two methods to evaluate the influence of publication bias: ‘fail safe N’ (i.e., calculating the number of unpublished studies by integrating the z-statistic corresponding to each study) and ‘trim and fill’

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(i.e., computing the number of studies that need to be trimmed off for obtaining a symmetric distribution of funnel plots). Additional data may not concern meta-analysts who draw conclusions only from the extant literature, but others may still need additional data to supplement the meta-analytic dataset for the purpose of investigating questions that have not been examined in the previous literature. A combination of data from primary studies and other sources can give meta-analysts opportunities to advance knowledge regarding particular research questions. The additional sources can be any public databases or media, by which the meta-analysts can acquire data regarding relevant other factors (e.g., GDP or cultural distance when the samples are country based). However, whether it is necessary, or even possible, to include additional data depends on the research topic specified at the beginning stage and the overall research design of a meta-analysis. Not all meta-analytic topics can benefit from multiple data sources. For example, a meta-analytic study that aims to reveal relationships among a set of variables may not be able to utilize data from additional sources because the primary correlations are extracted from previous studies and the additional data cannot add explanation power.

Analysis Report The last stage of a meta-analysis is to report what the meta-analysts did, what they found, what it means and whether the initial research question has been answered or resolved. Although formats of meta-analytic reports may vary across academic disciplines, five regular sections are shared in various meta-analytic reviews, which include: title, introduction, method, results and discussion (Card, 2012; Clarke, 2009; Rosenthal, 1995). In addition to the relatively standard format, tables and figures can also benefit the meta-analytic reviews to illustrate findings. Like most empirical papers, the title of the meta-analytic review is a concise statement that explicitly and accurately describes the meta-analysis. The ‘Introduction’ specifies the goals, questions and variables and briefly introduces the principal findings. The method section generally discusses how the literature synthesized in the meta-analysis is searched and retrieved in accordance with what inclusion (and/or exclusion) criteria. This section also introduces how effect sizes are coded and what moderators are chosen. Furthermore, the statistical methods used in the meta-analysis are described in this section. Meta-analysts are

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advised to justify the rationale of choosing these methods. If the methods are not standard or commonly used, the meta-analysts are also required to explain them in detail. In the section of results, descriptive data of study effect sizes and study descriptors are provided before presenting the results. The homogeneity analysis is also presented in this section, together with significance tests, confidence intervals and the results of moderator analysis. After this, the discussion section explicates the findings and implications in the metaanalysis. Meta-analysts may also attempt to develop the findings into generalizable conclusions in this section. Finally, the implications and/or limitations of the meta-analysis are reported to direct further research. In presenting meta-analytic results, meta-analysts can employ tables and figures to make the reports more effective. Borman and Grigg (2009) suggest that tables can help the meta-analytic review display summary as well as original data. Figures such as forest plots, stem-and-leaf plots and funnel plots can improve the reporting effects, as they provide visualized information that may be difficult for narratives to explain. The foregoing discussion may be basic and intuitive when the recent metaanalytic literature presents very complex procedures and analyses. However, a meta-analytic report has to be simple and clear, as it is intended to simplify and synthesize findings.

LIMITATIONS AND CRITIQUES ON META-ANALYSIS As a statistical means of reviewing primary studies, meta-analysis has inherent advantages as well as limitations. Researchers cannot expect every primary study to answer broad domain research questions unequivocally, nor can they expect every study to be conducted impeccably. Hence, metaanalysis treats each study as a quasi-independent estimate of a key component of a research stream. However, meta-analysis is the same as any other empirical research and is subject to its own limitations and criticisms. The first limitation is seen in the primary function of a meta-analysis. Although meta-analysts provide evidence extracted and integrated from a number of primary studies, the meta-analytic results cannot lead to the same confidence in inference provided by primary studies that conduct research by random sampling (Cooper, 2009). Thus, meta-analysts are not able to

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test relations such as causality as they are solely dependent on the metaanalytic dataset. However, meta-analytic evidence may provide support (or rejection) of the generalizability of primary evidence over various facets and contribute future directions to a research topic. Second, meta-analysis is post hoc research by nature, as it synthesizes existing findings in previous research. A meta-analytic study is not able to test a hypothesis that has been examined in a primary study. If a metaanalyst wants to test a priori hypothesis regarding new variables rather moderators (e.g., study descriptors), additional data sources are required. Meta-analysis is also criticized for its mixture of prior findings, quality of data sources and a too great of a reliance on statistical methodology. The most orthodox critique is the ‘apples and oranges’ problem, which says that meta-analysis mixes studies about ‘apples’ with those investigating ‘oranges’ and, therefore, is not able to obtain meaningful results. This could be a critical problem if a researcher attempted to synthesize literature on a broad topic. However, ‘apples and oranges’ will not be problematic for meta-analysts if they apply one of the following four approaches. First, ‘coding apples as apples and oranges as oranges’ suggests examining different research questions and effect sizes in separate categories for elaborating similarity as well as disparity. Another way to address the problem is to apply multivariate and multi-level techniques to distinguish different effects among a set of variables. Rosenthal and DiMatteo (2001) suggest broadening the research topic from apples or oranges to fruit. In contrast, the last method is to exclude studies of either apples or oranges and concentrate on one narrow research topic only. Meta-analysis is always bedevilled by the quality of primary studies. The poor quality of primary studies may impede meta-analytic findings and lead to biased conclusions, particularly when poorly designed studies lead to similar conclusions. This problem is also known as the ‘garbage in, garbage out’ problem. This is a common challenge that all empirical research encounters and can only be avoided or alleviated by appropriate methods. One method is to employ strict inclusion criteria, which may cause the metaanalysis to suffer from a the limited amount of available and relevant literature. The other is to use an index of research quality as moderators (i.e., study descriptors) (e.g., Greenland, 1994). The last common critique on meta-analysis is the lack of the qualitative finesse that narrative subjective reviews possess. Narrative reviews are able to draw creative and nuanced conclusions from extant literature and can sometimes correctly exclude large swathes of confirmatory literature based upon logical deduction. However, this argument is the same debate

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regarding qualitative and quantitative research. Both methodologies make their contribution to the development of academic research.

DISCUSSION This chapter reviewed the fundamentals of meta-analysis by discussing its rationale, process and limitations. Its goal is not to suggest that metaanalysis should address all concerns discussed in the preceding sections but that, within limits, it is an important method for assessing the state of the art and knowledge in a field. This chapter instead aims to outline some general considerations that need to be emphasized by scholars conducting meta-analyses. These considerations guide researchers and point out the caveats associated with a meta-analytic approach to knowledge aggregation. In addition, the general procedures are sometimes not amenable to examining particular research questions in specific domains. Thus, some meta-analysts develop idiosyncratic procedures (Hunter & Schmidt, 2004) or use multiple methods to address their unique research purposes (e.g. van Essen et al., 2012), although these are not elaborated in this chapter. Also, this chapter does not go into detail as to the methodology of metaanalysis. Hence, readers are advised to find more information about the selection of effect size metric (i.e., r, d, o, etc.) and the decisions regarding models (i.e., fixed-, random- or mixed-effects models) in the technical metaanalytic literature. In addition, we do not address the role of Bayesian inference in metaanalysis. However, such approaches are important for meta-analytic methodology for two reasons. First, the variance component in a randomeffects model is estimated by a single known value in classical analysis. However, this single estimated component may not adequately convey the uncertainty of the estimated component of variance. In contrast, Bayesian inference computes the likely value of the variance component directly. Second, a Bayesian approach can take into account the researchers’ subjective considerations with respect to specific studies. Readers interested in this method are referred to Louis and Zelterman (1994) and Hedges (1998). Furthermore, as most meta-analytic methods are originally derived from other disciplines (e.g., psychology, education and medicine), the IB domain needs to develop meta-analytic procedures that can accommodate the unique features of IB research. In the psychological, educational and

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medical disciplines, experimental or quasi-experimental approaches are typically employed in empirical studies. Their results and findings are generally more standardized than the results that we see in empirical IB research, which is conducted in a variety of ways utilizing a combination of primary and secondary data. Thus, the current common meta-analytic procedures need be updated to fit the characteristics of IB studies. Finally, meta-analysis is neither a substitute for primary research nor a replacement of qualitative literature review. What meta-analysis does is increase precision, reliability and generalization of extant studies on a research topic. Researchers are better to treat a meta-analysis as a good opportunity to find answers of questions in their research areas than as a substitute for critical experiments that can lead to direct falsification.

NOTES 1. In disciplines such as medicine and psychology, effect sizes such as 2  2 results and risk ratio are also chosen. 2. The standardized mean difference suffers from a slight upward bias, if it is based on a small sample size (Hunter & Schmidt, 2004).

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Stahl, G. K., Maznevski, M. L., Voigt, A., & Jonsen, K. (2010). Unraveling the effects of cultural diversity in teams: A meta-analysis of research on multicultural work groups. Journal of International Business Studies, 41, 690–709. Sutton, A. J. (2009). Publication bias. In H. M. Cooper, L. V. Hedges & J. C. Valentine (Eds.), The handbook of research synthesis and meta-analysis (2nd ed., pp. 435–452). New York, NY: Russell Sage Foundation. Taras, V., Steel, P., & Kirkman, B. L. (2012). Improving national cultural indices using a longitudinal meta-analysis of Hofstede’s dimensions. Journal of World Business, 47, 329–341. van Essen, M., Heugens, P. P., Otten, J., & van Oosterhout, J. H. (2012). An institution-based view of executive compensation: A multilevel meta-analytic test. Journal of International Business Studies, 43, 396–423.

META-ANALYTIC RESEARCH IN INTERNATIONAL BUSINESS AND INTERNATIONAL MANAGEMENT Peter J. Buckley, Timothy M. Devinney and Ryan W. Tang ABSTRACT Over the past decade, international business and international management researchers have utilized meta-analytic approaches to synthesizing findings in the extant literature. This chapter reviews the studies published in the top five international business and management journals from 2004 to 2012. The review investigates major problems in the published meta-analyses by evaluating their overall analyses as well as the approaches utilized. The findings of this review reveal differences among the journals and improvements in the approaches applied in recent years. The chapter ends by discussing why and how international business and management researchers need to focus more on methodological fundamentals in their applications of meta-analysis.

Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 263–297 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026016

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INTRODUCTION Meta-analysis is a statistical analysis of extant studies on a research topic (Glass, 1976). It refers to a technique of reviewing a literature by quasistandardized procedures for generating scientific conclusions (Hunter & Schmidt, 2004). With a strong tradition of meta-analytic studies in education (e.g., Glass, 1976) and psychology (e.g., Schmidt & Hunter, 1977), researchers in other disciplines have been critical to the increasing number of meta-analyses being published. According to the ISI Web of Science (retrieved 5 October 2012), the number of meta-analytic articles published in management rose from 28 in the 1980s to 220 in the 1990s. After 2000, ISI Web of Science recorded an astounding 744 meta-analytic articles published in management journals. However, as will be discussed in this chapter, metaanalytic methodological applications have not been well developed in international business (IB) and international management (IM), both in terms of their quantity or quality. Inherently, IB/IM research is multidisciplinary in scope and interdisciplinary in terms of its content and method (Thomas, Cuervo-Cazurra, & Brannen, 2011). The complex nature of this research requires IB/IM researchers to apply rigorous and systematic ways to understand clearly where we are, what we know, in what way we can improve on what we know and what we do, and in which direction we should go as a social science discipline. These ‘w’s call for an optimal way to synthesize the past achievements in the IB/IM research domain. In the more than half a century since IB/IM arose as a distinctive discipline, the volume, complexity and orientation of research in the domain have expanded dramatically. Across these studies we see variation in terms of the samples used, methods applied, theoretical models and constructs tested. This varied literature consistently creates a demand for reviews that integrate, synthesize and identify the central issues in the extant literature as it evolves. Literature reviews have been widely applied by IB/IM researchers as exemplified by qualitative reviews (e.g., Brouthers & Hennart, 2007) as well as quantitative syntheses (i.e., meta-analyses such as Stahl, Maznevski, Voigt, & Jonsen, 2010), with the narrative and objective review being more common. For example, the literature on the entry mode choice of multinational companies (MNCs) has been reviewed by more qualitative studies (e.g., Brouthers & Hennart, 2007; Canabal & White III, 2008; Malhotra, Agarwal & Ulgado, 2003; Slangen & Hennart, 2007) than metaanalytic ones (i.e., Morschett, Schramm-Klein & Swoboda, 2010; Zhao,

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Luo & Suh, 2004). Although narrative syntheses provide valuable insights into IB/IM theories, the meta-analytic reviews go one step further by statistically integrating knowledge and methodically examining the findings of primary studies. Furthermore, unlike narrative reviews, meta-analyses are capable of testing generalizations by investigating moderating effects across studies. This increases the reliability of the reviewed literature and provides guidance on the future direction of IB/IM research more clearly (Cooper, Hedges, & Valentine, 2009). Furthermore, meta-analysis is a crucial approach to resolving the problem of insufficient power (i.e., sample size) in many primary empirical studies (Lipsey & Wilson, 2001). It combines a set of independent primary studies that bear on the same research topic into a simple pattern of results by correcting distorted primary findings arising from artefacts that may lead to conflicting conclusions (Hunter & Schmidt, 2004). This is particularly important in the case of IB/IM research, where samples are rarely purposeful and based on the availability of data from different countries at different points in time. Thus, meta-analysis can benefit IB/IM researchers by specifying the moderator variables, such as which countries were examined, and future topics or sample domains, such as which types of countries need to be examined in the future. In addition, meta-analytic reviews complement the narrative literature reviews and the primary studies by integrating extant research with a particular focus or goal. Meta-analytic techniques can also be powerful tools to improve IB/IM research by highlighting where construct and model validity is weak (Farley & Lehmann, 2001). Hence, IB/IM is not just an area where meta-analytic approaches can add great value, but meta-analytic approaches are arguably critical to filling in the contextual moderators that are the hallmark of IB/IM scholarship. This chapter aims to (1) review meta-analyses in IB/IM discipline, (2) outline major issues for evaluating meta-analyses and (3) examine methodological issues in the extant IB/IM meta-analyses. To achieve these goals, the next section takes an overview of meta-analytic studies in the IB/IM discipline.

META-ANALYSIS IN IB/IM RESEARCH Meta-analysis arose as a reliable means of summarizing and integrating social science studies in the 1970s. Since that time, meta-analysis has developed as a tool, helping researchers in many disciplines (e.g., clinical research), and served as an important complement to other approaches to

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reviewing a literature review (Bohlin, 2012). The importance of metaanalysis in specific disciplines is seen in Bausell, Li, Gau, and Soeken (1995), who examined meta-analyses published between 1980 and 1993 in two academic domains (i.e., social science and health science). Over this 13-year period, the number of meta-analyses grew at a 14.7% annual rate, with 40 studies published in 1980 and 251 in 1992. Six years after that study, Lee, Bausell, and Berman (2001) showed that this rate of growth had increased to 17% per year between 1993 and 2000. Inspired by these findings, Kirca and Yaprak (2010) searched the meta-analytic literature published between 1980 and 2009 in marketing, management and IB disciplines in the top 25 journals of the three disciplines. The authors found 104 meta-analyses in marketing and 414 in management, but only 24 in IB/IM. At the time they argued that IB/IM researchers seemed not to favour meta-analytic methodologies. Following similar principles of the previous studies, this chapter searched the extant meta-analytic papers published in top IB/IM journals from 2000 through October 2012. Specifically, this study defines IB/IM journals in accordance with the Journal Quality List by subject areas (Harzing, 2012) and ranks the candidate journals by the total cites and the impact factor from ISI Journal Citation Reports (ISI, 2012). Based on these criteria, the top five IB/IM journals are Journal of International Business Studies (JIBS), Journal of World Business (JWB), Journal of International Management (JIM), International Business Review (IBR) and Management International Review (MIR). In the databases that contain these journals (i.e., Science Direct, ProQuest), this study conducted a computerized search by retrieving titles and abstracts containing the keyword ‘meta’. Among the initial results, this chapter retains meta-analysis (e.g., meta-analytic review and metaanalytic test), but excludes articles regarding meta-factor, meta-construct and articles referring to but not conducting meta-analysis. In particular, we exclude studies using the title ‘meta-analytic review’ that failed to meet the strict definition of statistical meta-analysis (i.e., Takahashi, Ishikawa, & Kanai, 2012). This process resulted in a list of 15 meta-analyses (see the appendix). The list might not exhaustively include all IB/IM meta-analyses, but it can be viewed as representative of the current meta-analytic studies in leading IB/IM journals to a great extent. These journal papers build a preliminary basis for evaluating the current status of meta-analytic techniques and reviewing common practices in IB/IM discipline as well. Fig. 1 depicts the amount and proportion of meta-analyses published in each journal. It shows JIBS published the most meta-analysis studies in the past decade. Fig. 2 illustrates the number of published meta-analyses in

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Fig. 1.

Fig. 2.

Meta-Analyses Published by IB/IM Journals.

IB/IM Meta-Analyses Published by Year.

every year since 20041 and the proportion of meta-analyses to all articles in the five journals in the corresponding years. As illustrated by Fig. 2, the findings from the top five IB/IM journals suggest that the publication of meta-analytic articles has increased dramatically in three of last four years, despite the fact that over a longer period meta-analytic methods are still rarely applied. Even in the year when the largest number of meta-analysis papers appear (e.g., 2012), they

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amounted to only 1.26% of the total number of studies published in the top five IB/IM journals. Interestingly, Fig. 2 also shows that the proportion of meta-analytic articles in IB/IM journals maintained a pattern of constantly low quantity and proportion in most years, climbing above 1% only in 2009, 2010 and 2012. However, the retrieval results also disclose problems in IB/IM metaanalyses. For example, IB/IM meta-analysts tend to select similar research topics. Specifically, four meta-analyses investigated spillover, corruption, leadership, and financial analyst’s predictions, respectively, while eleven others are related to three topics only: culture, firm performance and entry strategy. Culture attracted six meta-analyses, as did firm performance. Meta-analyses concerning the MNC’s market entry decision are relatively less than those about the preceding two topics but were still significant in accounting for four of the studies. There are two meta-analytic studies that each accounted for the three topics simultaneously (i.e., Magnusson, Baack, Zdravkovic, Staub, & Amine, 2008; Tihanyi, Griffith, & Russell, 2005). The sections that follow outline the findings of the meta-analytic studies to date in IB/IM.

Culture The effect of cultural factors is not only a prevalent IB/IM research topic but also a crucial meta-construct in IB/IM research per se, reflecting as it does the international environment in which MNCs reside. Tihanyi et al. (2005) and Magnusson et al. (2008) examined how culture influenced the MNC’s entry mode choice and performance. These two studies found similar results – the effects of cultural factors on entry mode and performance are not statistically significant, but MNC’s home country, industry sector, time and operationalization of cultural difference/distance significantly moderated the effective relationship. For example, the patterns of US-based and Europe-based MNCs’ entry strategies showed a substantial relationship with cultural factors, while MNCs from other countries or regions did not. At a more micro level, Fischer and Mansell (2009) and Stahl et al. (2010) applied meta-analytic methods to synthesize the research on cross-culture work teams by integrating the findings about cultural effects in the MNC’s working environment. The former found cultural factors impacted different types of commitment and the latter suggested that a variety of cultural effects across contexts and research designs.

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In contrast to the preceding four meta-analyses, Steel and Taras (2010) considered the culture as the consequence (or dependent variable). They found both micro features (i.e., age, gender, education and socio-economic status) and macro characteristics (i.e., wealth and freedom) might determine an individual’s cultural values. Analytically, Steel and Taras (2010) meta-analysed the mean differences of cultural scores (i.e., survey results on cultural values) and the moderating effects of variables such as age, gender, wealth and freedom. The authors examined hypotheses by regressions with the mean differences as the dependent variables and the moderators as independent variables. However, the results demonstrate only how the factors (i.e., age, gender, etc.) relate to deviations in the scores of previous surveys on cultural values. Regarding cultural values, Taras, Steel, and Kirkman (2012) did not investigate the determinants of cultural values, but applied meta-analytic techniques to review the predominant cultural framework (i.e., Hofstede’s cultural value dimensions) in the IB/IM discipline. That meta-analytic study validated Hofstede’s cultural values and found a trend implying that Hofstede’s scores have been declining in relevance, due, they argue, to cultural change, and transmission gradually made current cultural values different to those calibrated in past decades.

Multinational Performance MNC performance has been investigated in relationship to other variables. Besides Tihanyi et al. (2005) and Magnusson et al. (2008), who examined the relationship between performance and cultural values, Bausch and Krist (2007) and Yang and Driffield (2012) integrated findings about the relationship between an MNC’s globalization and its performance via testing various moderator effects. Among the moderators, MNC’s country of origin is seen as a significant factor influencing the globalizationperformance relationship. Likewise, van Essen, Heugens, Otten, and van Oosterhout (2012) examined the relationship between MNC performance and executive compensation. These authors found a moderately positive but considerately significant relationship between MNC performance and compensation, although this relationship varied dramatically across countries, arguably due to the different institutional structures operating in those countries. Reus and Rottig (2009) analysed factors that may determine an MNC’s performance in different host countries and found unique features of MNCs in China, with a significant negative effect of

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hierarchical control on partner conflict seen in the China samples when compared to the non-China samples.

Entry Mode Tihanyi et al. (2005) and Magnusson et al. (2008) analysed how entry mode choice was impacted by cultural factors, while Zhao et al. (2004) and Morschett et al. (2010) studied the determination of entry strategies. Zhao et al. (2004) conducted a meta-analysis based on transaction cost theory that helps the study construct six dimensions of determinants (e.g., cultural distance, country risk, international experience and advertising intensity). Morschett et al. (2010) was not constrained by a single theoretical paradigm and examined 13 external determinants of entry mode choice (e.g., cultural distance, country risk, market growth and volatility of demand). However, they did not include internal factors (e.g., international experience and advertising intensity) and thus any generalization of the results is limited. Obviously, a strategic decision related to international entry is impacted by its experience (e.g., Delios & Beamish, 1999) and constrained by its marketing ability (e.g., Dikova & van Witteloostuijn, 2007).

Remaining Studies Except for the preceding topics, the three remaining meta-analytic studies selected different research focuses. Garcı´ a-Meca and Sa´nchezBallesta (2006) found significant moderator effects of country, measurement, and time by synthesizing studies on factors that influence the accuracy of financial analysts’ forecasts. Meyer and Sinani (2009) statistically reviewed the literature regarding positive spillovers of foreign direct investment. The authors revealed a curvilinear relationship between spillovers and the development levels of host countries. Judge, McNatt, and Xu (2011) integrated previous research on causes as well as effects of national corruption. The results suggest the political/legal effects had the strongest relationship with corruption. The 15 meta-analytic studies published in the top 5 IB/IM journals in the 21st century reveal a limited overview and synthesis of the domain to date. Nevertheless, these studies are a significant improvement in the application of meta-analytic approaches compared to earlier work. For instance, the first published meta-analysis in our review (i.e., Zhao et al., 2004)

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aggregated data from only 38 primary studies, whereas Steel and Taras (2010) integrated data from 508 primary studies and Taras et al. (2012) summarized findings from 451 primary studies. Furthermore, in more recent years, IB/IM meta-analysts have applied more deliberative and sophisticated methods to model the data compiled from more sizeable literatures. For example, Fischer and Mansell (2009) and van Essen et al. (2012) applied multivariate modelling techniques to synthesize the findings, while the studies published in the early years of the last decade (e.g., Garcı´ a-Meca & Sa´nchez-Ballesta, 2006) employed only very basic statistical approaches (e.g., distribution and relationship) for disclosing patterns of integrated data. The preceding examples hopefully underscore the fact that metaanalytic methods are gradually being applied to answer more complex questions and explain more deep-seated phenomena requiring more sophisticated and nuanced approaches. Yet, one must acknowledge that larger sample sizes and/or more complicated modelling do not pari passu lead to a better meta-analytic study. In particular, as mentioned previously and discussed subsequently, meta-analyses in IB/IM still have considerable space in which to make progress. Furthermore, IB/IM researchers need to harken back to the criteria for conducting a valid meta-analysis if these studies are going to be useful in truly synthesizing and integrating what we do and do not know. The next section provides nonstatistical guidelines for assessing metaanalytic studies in efforts to outline the evaluation of meta-analytic studies. These guidelines are synthesized from major methodological literature with considerable references to widely applied and commonly accepted practices published in major journals. Since the statistical details regarding the calibrations (e.g., formula, calculation, critical value, etc.) are not in the scope of this chapter, IB/IM researchers are referred to meta-analytic literature – such as Cooper et al. (2009), Hunter and Schmidt (2004), Lipsey and Wilson (2001), Rosenthal (1991) and Hedges and Olkin (1985) – for more detailed general discussion.

REVIEW OF META-ANALYTIC STUDIES ON INTERNATIONAL BUSINESS Users of meta-analysis are confronted with a number of process issues when conducting a meta-analytic study. Procedures of different meta-analyses may vary, but a meta-analytic study normally has five sections: research

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specification, literature retrieval, dataset preparation, data analysis and results report (Devinney & Tang, this volume). Each section has its major queries and essential options, which are summarized in Table 1. Using this structure we review the 15 IB/IM meta-analyses published since 2000 by evaluating their alignment with the major queries in the five sections. This evaluation focuses on published information only. The absence of essential items may be due to either the meta-analysts not considering the items or the published study not including them despite the fact that they were conducted. Also, this chapter does not purposely rank these studies in terms of their quality. It instead attempts to examine the status of meta-analysis in IB/IM using these studies as illustrative examples. In addition, several of the articles report more than one meta-analysis. For instance, Fischer and Mansell (2009) meta-analysed more than one relationships by different metrics of effect size. In that case, all the descriptive information pertains to the article rather than to the individual analyses.

Research Specification Similar to any empirical study, meta-analysis requires clearly defined variables that can represent the questions that the study will answer, the phenomena the study will explain or/and the research topic that the study will address. The variables should be able to reflect the theoretical and conceptual frameworks that underlie the arguments of the meta-analytic study. Also, the research topic should be stated explicitly to validate the variables defined in the study. All of the 15 IB/IM meta-analyses addressed the 4 aspects: explicitly stated research topic, the explanation of concept in the theoretical and/or practical context, well-defined variable, and the applicability of the research question to meta-analysis. For example, Taras et al. (2012) meta-analysed national cultural indices within Hofstede’s framework (e.g., Hofstede, 1980; Hofstede, Hofstede, & Minkov, 2010) by focusing on the four culture dimensions (i.e., power distance, individualism, masculinity and uncertainty avoidance) that had been investigated for three decades and where the work appeared in around 100 journals. However, 2 of the 15 meta-analyses did not set up the theoretical and practical contexts (i.e. Garcı´ a-Meca & Sa´nchez-Ballesta, 2006; Yang & Driffield, 2012). The theoretical and practical context that serves as the basis of the meta-analysis has to be verified in order to establish meaningful research questions and build connections between concepts (i.e., variables)

Statistical information Homogeneity analysis Moderator analysis Missing data Publication bias Additional data Results Included studies

Correction Outliers

Coding procedure

Key terms and combinations Other retrieval strategies Effect size metric Inclusion criteria

Definition of research questions Data sources

Major Query

Essential Options and Items

E-mail listservers; directly contacting authors; browse of potential literature (e.g., reviews and eligible studies); non-English publications; Correlation; mean; (log) odds ratio; multiple Research topic; empirical studies; independence; statistics for effect size; other specifications (e.g., time period) Coding protocol (operational measures to effect size, study descriptors); reliability (single/ multiple coders) Transformation; alleviation; unreliability; validity; dichotomization;- range Identifier (means of graphs, residuals, homogeneity statistics, sample-adjusted meta-analytic deviancy); handle (trim, recode) Mean and standard deviation of effect size; confidence intervals; others Q-test; 75%-rule or similar Fixed-, random- and mixed-effects models Contacting original authors; likewise deletion; pairwise analysis; regression Identifier (funnel plot, statistical test); evaluation (fail-safe N, trim and fill) Definition and proxy of external variable; external sources Statements about findings, generality, and limitations; illustrating by figures, graphs, and tables Reference list of included studies

Stated research topic; well-defined variables; applicable to meta-analysis; theoretical and practical context Single/multiple database; specific journal(s); reference section of other article; authors; a combination of the sources Key terms representing research topic; combinations of key terms

Compiled according to Devinney and Tang (this volume).

Report

Data Analysis

Dataset preparation

Research specification Literature retrieval

Section

Table 1. Major Issues in Meta-Analytic Studies.

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and concrete events (i.e., the proxies or operationalizations of the variables). Nevertheless, Garcı´ a-Meca and Sa´nchez-Ballesta (2006) failed to embed their meta-analysis into a context that demonstrates the rationale for searching effect sizes (i.e., six categories of correlation coefficients) and moderators (e.g., measurements of variables), although they briefly mentioned the importance of their research and reviewed extant literature related to variables of interest. Yang and Driffield (2012) applied an attractive effect size metric (i.e., estimate of coefficient in a linear model) that may disclose causality. However, these authors did not verify the logic for choosing account- and market-based firm performance and controlling firm characteristics and business cycle effects. They also fail to mention how they define the degree of multinationality, which is a notable exclusion given that their research was aimed at examining the multinationality– performance relationship.

Literature Retrieval The first concern regarding literature retrieval is the sources of primary studies. As the availability of studies varies across databases, a well-conducted meta-analysis often searches potential studies in multiple databases for broader and more complementary literature. Other important sources include journals that concentrate on a certain area, references cited by articles reviewing previous literature, and researchers who are expert in a related research field. Multiple-source searching is always prior to single one, because any one or two sources may not provide comprehensive and exhaustive primary studies. An unrepresentative literature pool resulting from limited sources may bias the conclusions of a meta-analysis (Devinney & Tang, this volume). The studies examined were quite limited in terms of their breadth and depth of literature examined. Only three articles (i.e., Stahl et al., 2010; Steel & Taras, 2010; van Essen et al., 2012) took into account multiple databases, major journals and published reviews simultaneously. Of the 12 remaining meta-analyses, 5 took advantage of two data sources (i.e., multiple databases and major journals, or both journals and published reviews in a research area), while four drew from only one of the three major data sources (i.e., multiple databases, specific journals or published reviews). Three meta-analyses searched potential extant literature only in one single individual database but not multiple databases (i.e., Judge et al., 2011; Reus & Rottig, 2009; Yang & Driffield, 2012).

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Similar to data sources, key terms and their combinations (e.g., AND, OR) are important for literature retrieval. The implication of this importance is threefold. First, a good meta-analysis reports what key terms are utilized. Second, the terms precisely represent the research topic of interest. Third, the terms and their combinations are related to the inclusion of primary studies. In IB/IM meta-analyses, both pieces of information are reported simultaneously in only one study (i.e., Stahl et al., 2010). Key terms but not combinations are provided in four other meta-analyses, while the remaining 10 IB/IM meta-analyses did not mention what key terms were searched in the data sources. Authors of the 10 articles might have employed some keywords in literature searching, but the fact that they did not disclose the key terms used makes it difficult for readers to know how the eligible primary studies were retrieved. In particular, other researchers who want to examine those meta-analytic studies will not be able to replicate them. In addition, other strategies for searching previous studies are employed by many authors of meta-analyses because of the complementarity of common searching approaches. For example, e-mail listservers and contacting authors are ways for collecting unpublished studies from potential researchers. Browsing candidate literature selected in the previous steps may find missing studies in eligible bibliography. In addition, although the majority of academic research is published or written in English, nonEnglish studies may also investigate research topics of meta-analyst’s interest. These strategies were applied in meta-analytic studies published by one journal more frequently than the other. Specifically, in the JIBS-published meta-analyses all were comprehensive in concentrating on the authors of publication. On the other hand, they never mentioned e-mail listservers, and all the top five IB/IM journals published meta-analytic articles that browsed potentially selected literature. Furthermore, no extant IB/IM meta-analysis collected data from non-English studies. This leaves the IB/IM metaanalyses a potential bias in primary data collection, particularly in the case of examining unpublished but potentially relevant doctoral theses.

Dataset Preparation Meta-analysis requires a common effect size (i.e., effect size metric, effect size estimation) to represent the quantitative findings that can be standardized across studies for meaningful and numerical analyses. Three types of effect size metrics are commonly used: standardized mean difference

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(i.e., Hedges’ g, Cohen’s d, and Glass’ gGlass), correlation (e.g., Pearson correlation r, partial correlation rxy,z) and odds ratio (i.e., u or o) (Devinney & Tang, this volume). Judgement on the selection of effect size metric is linked to the research questions specified initially. In other words, a good meta-analysis selects the effect size metric that can demonstrate the essential concept of research topic (i.e., the phenomenon, association or causality). The 15 IB/IM meta-analyses applied typical effect size metrics (i.e., mean, correlation and odds ratio) as well as some uncommon ones (e.g., t-statistic in Meyer & Sinani, 2009). These effect size metrics were generally well-justified for answering the research questions. However, inclusion criteria were not explicitly disclosed in all IB/IM meta-analyses. Four studies did not explain what criteria they used to screen potential literature. Inclusion criteria are important because they define the eligible studies for meta-analysis and explain what the meta-analysis is about. The criteria are also important for other researchers who may want to replicate the meta-analysis and understand the analysing scope. Coding procedure was more frequently explained by IB/IM meta-analysts than inclusion criteria, because the procedure collects data from eligible studies according to coding protocol that illustrates the definition and scope of effect size and moderator. This coding information helps users of the meta-analysis understand what data are included as well as excluded (Devinney & Tang, this volume). An entire protocol may be too long to be enclosed in a journal article, but a brief introduction on how the metaanalyst codes the variables (i.e., what measurements or operationalizations represent a variable) is helpful for understanding the results, as well as assessing quality, of the meta-analysis. In addition, multiple-coder coding is an important feature of a good meta-analysis because it reduces the bias associated with a single coder. The reliability (e.g., agreement rate and Cohen’s j) of coders for the same literature pool is a crucial value to evaluate a meta-analytic study. In IB/IM meta-analyses, authors of 12 of the meta-analyses gave coding information and half of these articles employed multiple coders to collect data from primary studies. In particular, the method of multiple coding was applied more often in studies published after 2009. Specifically, six of the seven multi-coded meta-analyses were published after 2009, but only one before 2009. It seems to suggest that the reliability of data collection has gradually improved in recent IB/IM meta-analyses. Furthermore, correction of artefacts aims to adjust the imperfect raw data collected in primary studies for desirable statistic power (e.g., from correlation r to Fisher’s z) and accurate estimation (e.g., correcting artificial dichotomization by the numbers and proportions). Only five meta-analyses

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published after 2009 corrected for effect sizes, while none did so before. In particular, the meta-analyses published in JIBS are more likely to correct for effect sizes (i.e., three out of six did this). In addition, the published meta-analytic studies in the top five IB/IM journals indicate that most IB/IM meta-analysts were not aware of the outliers in their datasets. Those values potentially result in a skewed distribution of effect size and potentially bias meta-analytic findings. However, only one IB/IM meta-analysis discussed outliers. There might be three reasons for the majority of authors not doing so. First, their metaanalytic datasets did not have any outliers. Nevertheless, a perfect rawdataset hardly exists. Despite having a perfect dataset it is still practical to let readers know there are no outliers. Second, the outliers had been trimmed or recoded, but not mentioned in the articles. The adjustment of original datasets by trimming or recoding is important information for other researchers to judge and evaluate the data collection process, and therefore should be disclosed. Lastly, some IB/IM meta-analysts might think it was not necessary to take outliers into account. In fact, the distribution of an original dataset is always skewed by extreme values, but the typical purpose of meta-analysis is to summarize the overall findings in a research domain (Lipsey & Wilson, 2001).

Data Analysis The 15 IB/IM meta-analyses described effect sizes by the mean, standard deviation and confidence intervals. These statistics can demonstrate the distribution of effect size, but only mean effect size was presented in every article. Standard deviations were available in 10 meta-analytic studies. Confidence intervals were only provided by four meta-analyses. In contrast to the authors who did not provide these essential statistics, some metaanalysts computed extra statistical data to facilitate their discussions. For example, Fischer and Mansell (2009) and Steel and Taras (2010) provide the correlation matrices of effect sizes and moderators to infer the relationships of interest. An important item of meta-analytic data analysis is homogeneity analysis. It provides evidence of the variability of studies by computing the probability that the variance of effect size is only due to sampling error. This is crucial for meta-analysts to figure out whether significant moderator effects exist in effect sizes (Devinney & Tang, this volume). However, only eight IB/IM meta-analyses present this item. Most of them (i.e., five out of eight) were published in JIBS, with only 1 IB/IM meta-analysis not

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presenting homogeneity analysis (i.e., Tihanyi et al., 2005). In contrast, this crucial analysis did not appear in any of the meta-analytic studies published in JWB and JIM. Although homogeneity analysis was absent in some of the 15 IB/IM metaanalyses, moderator analyses were provided by all but 1 IB/IM metaanalysis (i.e., Tihanyi et al., 2005). As a follow-up step to the homogeneity analysis, moderator analysis gives insights into the discrepancy between primary studies by finding whether features of the primary studies (e.g., year of publication, research design and sample range), contextual factors (e.g., national economic status and institutional environment) or other substantive differences account for variations in effect sizes. Thus, the six metaanalyses that conducted moderator analysis without homogeneity analysis may confuse readers on how the studies justified the need to examine moderating effects. In addition, missing data are always inevitable in a meta-analytic dataset. It is impossible that all the eligible primary studies provided perfect data and these data were arranged in a form that the meta-analysts expected. In 6 of the 15 IB/IM meta-analyses, information on missing data was not reported. One reason for the absence of this key piece of information might be that there was no missing data. However, similar to the information on outliers, it is always practical to inform readers explicitly whether or not missing data exist. If there were missing data, the way of handling them is important for users of the meta-analysis to judge and assess the research and its results. Likewise, publication availability bias is another issue that was not widely recognized. Only four articles among the 15 IB/IM meta-analyses identified and handled the problem of publication bias. Although moderator analysis can explain how publication features moderate effect sizes, the extent to which the distribution of available studies differ from the population distribution can only be disclosed by meta-analytic approaches regarding publication bias, such as ‘fail safe N’ (Rosenthal, 1979). If there is a big difference between the distributions of available literature and the population, the representativeness or generalizability of meta-analytic findings will be weakened. Lastly, additional data (i.e., external data that are not collected from meta-analysis included literature) are gradually being incorporated by IB/IM meta-analysts. Before 2009, no additional data were used in the published IB/IM meta-analyses; however, 5 of the 10 meta-analyses published after 2009 took advantage of additional data in their moderator analyses. The authors of these meta-analyses employed additional data to investigate research questions that were not addressed by extant studies, for example, Taras et al. (2012) and van Essen et al. (2012).

Meta-Analytic Research in International Business and International Management 279

With additional data, both meta-analytic studies not only analysed previous findings but also expanded their analyses to reach conclusions that a single primary study may be able to achieve. In Taras et al. (2012), additional data were collected from public databases (e.g., the World Bank and the United Nations) and provided extra evidence on how national cultural values evolved over the decades. Likewise, when integrating the institution-based view into the meta-analysis of contracting-theory-based literature, van Essen et al. (2012) collected external data on institutional variables that were not available in the examined literature. Their metaanalytic findings extended the previous understanding on firm performance–executive compensation relationship from a theoretical framework to another paradigm.

Analytic Report Major results of meta-analytic studies are presented by stating major findings, generality and limitations of the meta-analysis. If the statements are facilitated by figures, graphs and tables, the meta-analytic report can be more efficient and effective. Another critical item for meta-analyst’s reporting is the included studies. Users of meta-analysis need to know which primary studies led to final conclusions. If inappropriate primary studies are included, the meta-analysis based on them may not present to valid or generalizable findings. In particular, the reference list of included studies is evidence of the validity of the inclusion criteria. In the top 5 IB/IM journals, all meta-analyses reported findings, generality of conclusions, and included studies by illustrating them in tables, while only 8 of 15 applied figures and graphs. Among the eight studies, seven were published after 2009. Furthermore, three among the 15 meta-analyses did not explicitly report the methodological limitations of their meta-analytic procedures (i.e., Magnusson et al., 2008; van Essen et al., 2012; Yang & Driffield, 2012). The preceding discussion is summarized in Table 2. It is not intended to form an exclusive checklist for calibrating all facets of these IB/IM metaanalyses, because this review evaluates the meta-analytic methodologies used rather than the specifics of the IB/IM implications. In addition, both the IB/IM discipline and meta-analytic methodologies are still developing. Progress may update the criteria for judgement. Finally, the procedures underlying meta-analyses vary. This chapter is not able to cover all the details of all types of meta-analyses, but only capable of highlighting the important and general issues.

Stated research topic Theoretical and practical context Well-defined variable Applicable to meta-analysis Section 2: Literature Multiple databases retrieval Search in specific journals Published reviews Key terms Combination of key terms E-mail listserver Contacting author Selected literature Non-English works Section 3: Dataset Appropriate effect size metric preparation Inclusion criteria Coding information Multiple coders Correcting for effect size Identifying & handling outliers Section 4: Data Mean of effect sizes analysis Standard deviation/variance Confidence intervals Other statistics Homogeneity analysis Moderator analysis Missing data Publication availability bias Additional data Section 5: MetaFindings analytic report Generality Limitation Figures/Graphs Tables Included studies Count of Ys

Section 1: Research specification

Research topic

Meta-Analytic Study

Y

Y Y

Y Y Y Y Y 17

Y Y 18

Y Y

Y Y Y

Y Y Y

Y Y

Y Y

Y

Y

Y

Y Y Y Y

Y Y 20

Y Y Y

Y Y Y Y

Y Y Y

Y Y Y

Y Y Y Y

The effect of cultural The factors that influence the distance on entry accuracy of mode choice, financial international analysts’ diversification, predictions and performance Y Y Y

Y Y

Y Y

Ownership-based entry mode choice

Garcı´ a-Meca & Sa´nchez-Ballesta (2006)

Magnusson et al. (2008)

Y Y 20

Y Y Y

Y

Y Y Y Y

Y

Y

Y

Y

Y Y Y Y

Y Y Y 17

Y Y

Y Y

Y

Y Y Y

Y

Y Y Y

The effects of The relationship cultural between differences on internationalization MNE’s entry and firm strategy & performance performance Y Y Y Y

Bausch & Krist (2007)

Y Y (a.r.) 23

Y Y Y Y

Y Y Y Y

Y

Y Y Y Y Y

Y

Y Y

Y Y

Y Y

Employee’s commitment across cultures

Fischer & Mansell (2009)

Review of Meta-Analyses Published in the Top-Five IB/IM Journals.

Zhao et al. (2004) Tihanyi et al. (2005)

Table 2. Reus & Rottig (2009)

Y Y Y Y Y Y Y 23

Y Y Y Y

Y Y

Y

Y Y Y

Y Y

Y Y

Y Y

Y Y Y Y Y Y 21

Y Y Y

Y Y Y

Y

Y Y Y

Y

Y Y

Y Y

The local spillovers The determinants of FDI of IJV’s performance

Meyer & Sinani (2009)

Morschett et al. (2010)

Steel & Taras (2010)

Judge et al. (2011)

Y Y Y Y Y Y 27

Y Y Y Y Y Y 18

Y

Y Y

Y Y

Y Y Y Y

Y Y Y

Y Y Y Y Y

Y

Y Y

Y Y Y Y Y Y Y Y Y

Y Y

Y Y

Y Y Y Y Y Y Y (a.r.) 24

Y Y

Y

Y Y

Y

Y Y

Y

Y

Y Y Y Y Y

Y Y

Y Y 19

Y Y Y

Y Y

Y

Y

Y Y Y Y Y

Y

Y Y

Y Y

The antecedents and The factors shaping The cultural diversity The external effects of national culture, the in work teams antecedents of corruption explanation of entry mode choice cultural variation, and the relationship between individual and national cultural values

Stahl et al. (2010)

Note: Y, Yes; a.r., available upon request from the meta-analysts.

Stated research topic Theoretical and practical context Well-defined variable Applicable to meta-analysis Section 2: Literature Multiple databases retrieval Search in specific journals Published reviews Key terms Combination of key terms E-mail listserver Contacting author Selected literature Non-English works Section 3: Dataset Appropriate effect size metric preparation Inclusion criteria Coding information Multiple coders Correcting for effect size Identifying & handling outliers Section 4: Data Mean of effect sizes analysis Standard deviation/variance Confidence intervals Other statistics Homogeneity analysis Moderator analysis Missing data Publication availability bias Additional data Section 5: MetaFindings analytic report Generality Limitation Figures/Graphs Tables Included studies Count of Ys

Section 1: Research specification

Research topic

Meta-Analytic Study

Y Y 24

Y Y Y

Y Y Y

Y Y

Y Y Y

Y

Y Y

Y Y Y Y Y Y

Y Y Y Y Y Y Y 20

Y

Y

Y Y Y Y

Y

Y Y Y Y

Y Y

Y Y Y 13

Y Y

Y

Y

Y Y

Y

Y Y

Y

The relationship between multinationality and performance

The national cultural indices

The relationship between firm performance and executive compensation

Y Y

Yang & Driffield (2012)

Taras et al. (2012)

van Essen et al. (2012)

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FINDINGS Understanding the past achievements is crucial for IB/IM researchers to develop our discipline (Buckley, 2002). Meta-analysis is one of the best ways to summarize previous studies and search empirical generalizations. The soundness of summary and generalization depends on the fitness to which meta-analytic approaches are applied. Negligence of any critical issue may result in crucial implications for the quality of meta-analysis. From this perspective, this chapter comprehensively reviews meta-analytic approaches as well as practices in the IB/IM discipline. The findings suggest that: (1) meta-analytic methodology quality varied among IB/IM journals, as some publications paid more attention on meta-analytic issues than the others; and, (2) IB/IM researchers have been aware of more meta-analytic techniques for accumulating and synthesizing previous literature to generate new knowledge, since the quality of published meta-analyses has improved after 2009, particularly regarding dataset preparation. However, some methodological issues still need improvement. In the 15 IB/IM meta-analyses, all studies published in JIM took into account specific journals and published literature review when retrieving potential literature. The two articles in JIM also provided standard deviation (or variance) when describing effect sizes and presented the meta-analytic results by figures and graphs. Likewise, more meta-analytic studies published in JIBS contacted specific authors, investigated outliers and conducted homogeneity analysis than those published in other IB/IM journals. However, no meta-analysis in JIM disclosed major information such as key terms, combination of key terms, correction of effect size, outliers, confidence intervals, homogeneity analysis and publication bias, while meta-analytic studies in JIBS seldom left out these. Meta-analyses published in the three other IB/IM journals also show outstanding points, for example, multiple coders utilized by meta-analytic studies in JWB, confidence intervals provided in MIR and missing data uncovered in IBR. Yet, meta-analyses in JIBS and JIM are overall better than the average, as they addressed 22 and 21 meta-analytic issues respectively (Table 3). Furthermore, this review of the 15 IB/IM meta-analyses suggests considerable room for IB/IM meta-analysts to improve, although the period after 2009 witnessed big improvements in meta-analytic methodology (Table 4). Specifically, IB/IM meta-analyses published after 2009 employed approaches that were never used before 2009 for collecting data (e.g., published literature review and e-mail listservers), but fewer metaanalysts took the advantages multiple databases after 2009. In addition,

Section 3: Dataset preparation

Section 2: Literature retrieval

Section 1: Research specification

Table 3.

Stated research topic Theoretical and practical context Well-defined variable Applicable to meta-analysis Multiple databases Search in specific journals Published reviews Key terms Combination of key terms E-mail listserver Contacting author Selected literature Non-English works Appropriate effect size metric Inclusion criteria Coding information Multiple coders 13% 33% 33% 0%

2 5 5 0

47%

40% 33% 7%

6 5 1

7

53% 60%

8 9

73% 80%

100%

15

11 12

100%

15

100%

87%

13

15

100%

Ratio

15

Count

Total (15)

4

4 5

6

0 5 1 0

4 4 1

3 4

6

6

6

6

Count

67%

67% 83%

100%

0% 83% 17% 0%

67% 67% 17%

50% 67%

100%

100%

100%

100%

Ratio

JIBS (6)

2

2 2

2

0 0 1 0

0 1 0

1 1

2

2

2

2

Count

100%

100% 100%

100%

0% 0% 50% 0%

0% 50% 0%

50% 50%

100%

100%

100%

100%

Ratio

JWB (2)

1

2 1

2

1 0 1 0

2 0 0

1 2

2

2

2

2

Count

50%

100% 50%

100%

50% 0% 50% 0%

100% 0% 0%

50% 100%

100%

100%

100%

100%

Ratio

JIM (2)

0

2 2

2

0 0 1 0

0 0 0

2 1

2

2

1

2

Count

0%

100% 100%

100%

0% 0% 50% 0%

0% 0% 0%

100% 50%

100%

100%

50%

100%

Ratio

IBR (2)

0

1 2

3

1 0 1 0

0 0 0

1 1

3

3

2

3

Count

0%

33% 67%

100%

33% 0% 33% 0%

0% 0% 0%

33% 33%

100%

100%

67%

100%

Ratio

MIR (3)

Summary of Major Issues in Meta-Analyses Published in the Top-Five IB/IM Journals.

Meta-Analytic Research in International Business and International Management 283

Correcting for effect size Identifying & handling outliers Section 4: Data Mean of effect analysis sizes Standard deviation / variance Confidence intervals Other statistics Homogeneity analysis Moderator analysis Missing data Publication availability bias Additional data Section 5: MetaFindings analytic report Generality Limitation Figures/Graphs Tables Included studies Average per meta-analytic study

33% 7% 100% 67% 27% 33% 53% 93% 60% 27% 33% 100% 100% 80% 53% 100% 100% –

1 15 10 4 5 8 14 9 4 5 15 15 12 8 15 15 20.27

Ratio

5

Count

Total (15)

3 6 6 5 2 6 6 22.00

4 1

5

3 5

0

5

6

1

3

Count

50% 100% 100% 83% 33% 100% 100% –

67% 17%

83%

50% 83%

0%

83%

100%

17%

50%

Ratio

JIBS (6)

1 2 2 2 1 2 2 19.50

1 0

2

0 0

1

0

2

0

1

Count

50% 100% 100% 100% 50% 100% 100% –

50% 0%

100%

0% 0%

50%

0%

100%

0%

50%

Ratio

JWB (2)

Table 3. (Continued )

1 2 2 2 2 2 2 21.00

1 0

2

1 0

0

2

2

0

0

Count

50% 100% 100% 100% 100% 100% 100% –

50% 0%

100%

50% 0%

0%

100%

100%

0%

0%

Ratio

JIM (2)

0 2 2 1 1 2 2 18.50

2 1

2

0 1

1

1

2

0

0

Count

0% 100% 100% 50% 50% 100% 100% –

100% 50%

100%

0% 50%

50%

50%

100%

0%

0%

Ratio

IBR (2)

0 3 3 2 2 3 3 18.00

1 2

3

1 2

2

2

3

0

1

Count

0% 100% 100% 67% 67% 100% 100% –

33% 67%

100%

33% 67%

67%

67%

100%

0%

33%

Ratio

MIR (3)

284 PETER J. BUCKLEY ET AL.

Section 4: Data analysis

Section 3: Dataset preparation

Section 2: Literature retrieval

Section 1: Research specification

Stated research topic Theoretical and practical context Well-defined variable Applicable to meta-analysis Multiple databases Search in specific journals Published reviews Key terms Combination of key terms E-mail listserver Contacting author Selected literature Non-English works Appropriate effect size metric Inclusion criteria Coding information Multiple coders Correcting for effect size Identifying & handling outliers Mean of effect sizes 73% 80% 47% 33% 7%

11 12 7 5 1 100%

100% 100% 53% 60% 40% 33% 7% 13% 33% 33% 0% 100%

15 15 8 9 6 5 1 2 5 5 0 15

15

100% 87%

Ratio

15 13

Count

Total (15)

5

3 4 1 0 0

5 5 4 4 0 0 0 0 2 2 0 5

5 4

Count

100%

60% 80% 20% 0% 0%

100% 100% 80% 80% 0% 0% 0% 0% 40% 40% 0% 100%

100% 80%

Ratio

2004–2008 (5)

10

8 8 6 5 1

10 10 4 5 6 5 1 2 3 3 0 10

10 9

Count

100%

80% 80% 60% 50% 10%

100% 100% 40% 50% 60% 50% 10% 20% 30% 30% 0% 100%

100% 90%

Ratio

2009–2012 (10)

Table 4. Summary of Major Issues Across Two Time Periods.

–

Improved No change Improved Improved Improved

– – Worsen Worsen Improved Improved Improved Improved Worsen Worsen No change –

– Improved

Changes between Periods

Meta-Analytic Research in International Business and International Management 285

Section 5: Meta-analytic report

Standard deviation/ variance Confidence intervals Other statistics Homogeneity analysis Moderator analysis Missing data Publication availability bias Additional data Findings Generality Limitation Figures/graphs Tables Included studies

67% 27% 33% 53% 93% 60% 27% 33% 100% 100% 80% 53% 100% 100%

4 5 8 14 9 4 5 15 15 12 8 15 15

Ratio

10

Count

Total (15)

2 2 3 4 2 2 0 5 5 4 1 5 5

3

Count

40% 40% 60% 80% 40% 40% 0% 100% 100% 80% 20% 100% 100%

60%

Ratio

2004–2008 (5)

Table 4. (Continued )

2 3 5 10 7 2 5 10 10 8 7 10 10

7

Count

20% 30% 50% 100% 70% 20% 50% 100% 100% 80% 70% 100% 100%

70%

Ratio

2009–2012 (10)

Worsen Worsen Worsen Improved Improved Worsen Improved – – No change Improved – –

Improved

Changes between Periods

286 PETER J. BUCKLEY ET AL.

Meta-Analytic Research in International Business and International Management 287

some methodological limitations still arose after 2009. For example, homogeneity analysis and publication bias are not as well accounted for as need be. A simply defined ‘correct’ or ‘perfect’ way might not exist for conducting and reporting a meta-analysis, but some approaches are superior to others. IB/IM meta-analysts need to account for these to provide more consistent and comprehensive analyses. In addition, there is variation in the simplicity versus complexity as well as in the clarity versus confusedness among metaanalytic procedures. But underlying this diversity of methods is a coherent set of fundamentals that this chapter has discussed and with which we hope to stimulate IB/IM researchers into conducting more and more effective meta-analyses in the future.

NOTE 1. No meta-analyses were published between 2000 and 2003 in the top five journals. Before 2000, there was only one published meta-analysis: Peterson and Jolibert (1995).

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Dikova, D., & van Witteloostuijn, A. (2007). Foreign direct investment mode choice: Entry and establishment modes in transition economies. Journal of International Business Studies, 38, 1013–1033. Farley, J. U., & Lehmann, D. R. (2001). The important role of meta-analysis in international research in marketing. International Marketing Review, 18, 70–79. Fischer, R., & Mansell, A. (2009). Commitment across cultures: A meta-analytical approach. Journal of International Business Studies, 40, 1339–1358. Garcı´ a-Meca, E., & Sa´nchez-Ballesta, J. P. (2006). Influences on financial analyst forecast errors: A meta-analysis. International Business Review, 15, 29–52. Glass, G. V. (1976). Primary, secondary, and meta-analysis of research. Educational Researcher, 5, 3–8. Harzing, A.-W. (2012). Journal quality list, 2012. Retrieved from http://www.harzing.com/jql.htm Hedges, L. V., & Olkin, I. (1985). Statistical methods for meta-analysis. Orlando, FL: Academic Press. Hofstede, G. H. (1980). Cultures consequences: International differences in work-related values. Beverly Hills, CA: Sage. Hofstede, G. H., Hofstede, G. J., & Minkov, M. (2010). Cultures and organizations: Software of the mind: intercultural cooperation and its importance for survival (3rd ed.). New York, NY: McGraw-Hill. Hunter, J. E., & Schmidt, F. L. (1990). Methods of meta-analysis: correcting error and bias in research findings. Newbury Park, CA: Sage. Hunter, J. E., & Schmidt, F. L. (2004). Methods of meta-analysis: Correcting error and bias in research findings. Beverly Hills, CA: Sage. ISI (2012). Journal citation reports. Thomson Reuters, 2012. Retrieved from http:// admin-apps.webofknowledge.com.ezproxy.lib.uts.edu.au/JCR/JCR?SID=U1j22FJ1D56 cj4CcJlb&locale=en_US Judge, W. Q., McNatt, D. B., & Xu, W. (2011). The antecedents and effects of national corruption: A meta-analysis. Journal of World Business, 46, 93–103. Kirca, A. H., & Yaprak, A. (2010). The use of meta-analysis in international business research: Its current status and suggestions for better practice. International Business Review, 19, 306–314. Kulik, J. A., Cohen, P. A., & Ebeling, B. J. (1980). Effectiveness of programmed instruction in higher education: A meta-analysis of findings. Educational Evaluation and Policy Analysis, 2, 51–64. Kulik, J. A., Kulik, C.-L. C., & Cohen, P. A. (1980). Effectiveness of computer-based college teaching: A meta-analysis of findings. Review of Educational Research, 50, 525–544. Lau, J., Antman, E. M., Jimenez-Silva, J., Kupelnick, B., Mosteller, F., & Chalmers, T. C. (1992). Cumulative meta-analysis of therapeutic trials for myocardial infarction. New England Journal of Medicine, 327, 248–254. Lee, W.-L., Bausell, R. B., & Berman, B. M. (2001). The growth of health-related meta-analyses published from 1980 to 2000. Evaluation and the Health Professions, 24, 327–335. Lipsey, M. W., & Wilson, D. B. (2001). Practical meta-Analysis. Thousand Oaks, CA: Sage. Magnusson, P., Baack, D. W., Zdravkovic, S., Staub, K. M., & Amine, L. S. (2008). Metaanalysis of cultural differences: Another slice at the apple. International Business Review, 17, 520–532. Malhotra, N. K., Agarwal, J., & Ulgado, F. M. (2003). Internationalization and entry modes: A multi-theoretical framework and research propositions. Journal of International Marketing, 11, 1–31.

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Meyer, K. E., & Sinani, E. (2009). When and where does foreign direct investment generate positive spillovers? A meta-analysis. Journal of International Business Studies, 40, 1075–1094. Morschett, D., Schramm-Klein., H., & Swoboda, B. (2010). Decades of research on market entry modes: What do we really know about external antecedents of entry mode choice? Journal of International Management, 16, 60–77. Peterson, R. A., & Jolibert, A. J. P. (1995). A meta-analysis of country-of-origin effects. Journal of International Business Studies, 26, 883–900. Reus, T. H., & Rottig, D. (2009). Meta-analyses of international joint venture performance determinants: Evidence for theory, methodological artifacts and the unique context of China. Management International Review, 49, 607–640. Rosenthal, R. (1979). The file drawer problem and tolerance for null results. Psychological Bulletin, 86, 638–641. Rosenthal, R. (1984). Meta-analytic procedures for social research. Beverly Hills, CA: Sage. Rosenthal, R. (1991). Meta-analytic procedures for social research (Rev. ed.). Newbury Park, CA: Sage. Schmidt, F. L., & Hunter, J. E. (1977). Development of a general solution to the problem of validity generalization. Journal of Applied Psychology, 62, 529–540. Slangen, A., & Hennart, J.-F. (2007). Greenfield or acquisition entry: A review of the empirical foreign establishment mode literature. Journal of International Management, 13, 403–429. Stahl, G. K., Maznevski, M. L., Voigt, A., & Jonsen, K. (2010). Unraveling the effects of cultural diversity in teams: A meta-analysis of research on multicultural work groups. Journal of International Business Studies, 41, 690–709. Stanley, T. D., & Jarrell, S. B. (1989). Meta-regression analysis: A quantitative method of literature surveys. Journal of Economic Surveys, 3, 161–170. Steel, P., & Taras, V. (2010). Culture as a consequence: A multi-level multivariate meta-analysis of the effects of individual and country characteristics on work-related cultural values. Journal of International Management, 16, 211–233. Takahashi, K., Ishikawa, J., & Kanai, T. (2012). Qualitative and quantitative studies of leadership in multinational settings: Meta-analytic and cross-cultural reviews. Journal of World Business, 1–9. In press. Taras, V., Steel, P., & Kirkman, B. L. (2012). Improving national cultural indices using a longitudinal meta-analysis of Hofstedes dimensions. Journal of World Business, 47, 329–341. Thomas, D. C., Cuervo-Cazurra, A., & Brannen, M. Y. (Eds.). (2011). Journal of International Business Studies, (42, pp. 1073–1078). Thompson, S. G., & Sharp, S. J. (1999). Explaining heterogeneity in meta-analysis: A comparison of methods. Statistics in Medicine, 18, 2693–2708. Tihanyi, L., Griffith, D. A., & Russell, C. J. (2005). The effect of cultural distance on entry mode choice, international diversification, and MNE performance: A meta-analysis. Journal of International Business Studies, 36, 270–283. van Essen, M., Heugens, P. P., Otten, J., & van Oosterhout, J. H. (2012). An institution-based view of executive compensation: A multilevel meta-analytic test. Journal of International Business Studies, 43, 396–423. Yang, Y., & Driffield, N. (2012). Multinationality-performance relationship. Management International Review, 52, 23–47. Zhao, H., Luo, Y., & Suh, T. (2004). Transaction cost determinants and ownership-based entry mode choice: A meta-analytical review. Journal of International Business Studies, 35, 524–544.

IBR

Garcı´ a-Meca & Sa´nchezBallesta (2006) Bausch & Krist, 2007

JIBS

Fischer & Mansell (2009) Meyer & Sinani (2009)

MIR

JIBS

Reus & Rottig (2009)

Stahl et al. (2010)

JIBS

IBR

Magnusson et al. (2008)

MIR

JIBS

JIBS

Tihanyi et al. (2005)

Journal

Zhao et al. (2004)

Reference

Panel A

The cultural diversity in work teams

The determinants of IJV’s performance

Ownership-based entry mode choice The effect of cultural distance on entry mode choice, international diversification, and MNE performance The factors that influence the accuracy of financial analysts’ predictions the relationship between internationalization and firm performance The effects of cultural differences on MNE’s entry strategy and performance Employee’s commitment across cultures The local spillovers of FDI

Research Topic

Databases

Commitment and cultural theory Competitive Dynamics Theory (awarenessmotivationcapability framework) The Agency Theory, the behavioural perspective Similarity-attraction, social identify & categorization, informationprocessing

Internalization; Learning; RBV; Eclectic Internationalization; transaction cost theory

n.r.

n.r.

No

Relevant books and research journals ABI/INFORM, Business Source Premier, EconLit, PsychInfo, Science Direct, and the Social Science Citation Index

No

n.r.

ABI/Inform

No

n.r.

EconLit

No

No

No

No

No

No

Restriction

n.r.

n.r.

JAR, JAE, TAR, JBR, JB, FA, AQS, IBR, JFE SMJ, AMJ, JIBS, JBV, MIR, IBR

JIBS, MIR, AMJ, SMJ AMJ, ASQ, JIBS, JM, JMS, MIR, MS, SMJ

Journal searched

Literature Retrieval

PsycINFO

ABI/Inform; Business Source Premier

Business Source Premier; EconLit; ABI/Inform

ScienceDirect; EJS Ebsco; SSRN; ABI Inform

ABI/Inform; JSTOR

Transaction Cost Theory ABI/Inform

Theoretical paradigm

Research Specification

‘Team’, ‘group’; ‘culture’, ‘diversity’; ‘multicultural’, ‘international’, ‘multinational’

‘Organizational commitment’ ‘spillovers from technology transfer’, ‘productivity FDI spillovers’ n.r.

n.r.

n.r.

n.r.

n.r.

n.r.

Key terms

APPENDIX: META-ANALYSES IN TOP 5 IB JOURNALS BETWEEN 2004 AND 2012

290 PETER J. BUCKLEY ET AL.

JWB

JIBS

JWB

MIR

Judge et al. (2011)

Taras et al. (2012)

Yang & Driffield (2012)

JIM

Steel & Taras (2010)

van Essen et al. (2012)

JIM

Morschett et al. (2010)

The relationship between multinationality and performance

The national cultural indices

The factors shaping culture, the explanation of cultural variation, and the relationship between individual and national cultural values The antecedents and effects of national corruption The relationship between firm performance and executive compensation

The external antecedents of entry mode choice

n.r.

Hofstede’s dimensions

Institutional choice perspective Institutional Based View

Learning perspective of organizational capabilities; Transaction Cost Theory Ecological Inference; Divergence & Convergence Theory; Hofstede’s paradigm No

All relevant in 1980– 2006

EBSCO; PsycINFO; ERIC; ProQuest; and ProQuest Digital Dissertations;

All major electronic databases n.r.

Almost 100 journals of 1980–2010 n.r.

No

No

No No

n.r.

25 journals ABI/INFORM Global, EconLit, Google Scholar, JSTOR, SSRN, and ISI Web of Knowledge

ABI/Inform

No

JIBS, JIM, IBR, JBR, MIR

Business Source Premier

n.r.

‘corruption’; ‘many countries’ ‘compensation’, ‘incentives’, ‘pay’, ‘remuneration’, ‘salary’, ‘stock option’ n.r.

n.r.

n.r.

Meta-Analytic Research in International Business and International Management 291

MIR

JIBS

Reus & Rottig (2009)

Stahl et al. (2010)

AND, OR

n.r.

n.r.

n.r.

JIBS

JIBS

n.r.

IBR

n.r.

MIR

Meyer & Sinani (2009)

Magnusson et al. (2008) Fischer & Mansell (2009)

n.r.

n.r.

JIBS

IBR

Tihanyi et al. (2005) Garcı´ a-Meca & Sa´nchezBallesta (2006) Bausch & Krist, 2007

Terms Combination

n.r.

Journal

Zhao et al. (2004) JIBS

Reference

Panel A

Bibliographies, conference proceedings, Internet searches; including unpublished studies; consulting other researchers;

reference part search of selected literature; searching on the home pages of researchers Reference part of selected articles Consulting published metaanalyses and reviews about the research topic; contacting 25 researchers for unpublished data Internet; review papers; including unpublished studies Listserves of AIB and AOB; relevant books and articles

Communicating with researchers Including unpublished studies

Consulting other researchers

Other efforts

Literature Retrieval

Correlation r (pointbiserial and productmoment correlation)

Correlation r

t-statistics

Percent of maximum possible score (POMP mean); correlation r

Correlation r

correlation r

Correlation r

Correlation r

Partial correlation

Effect size metric

n.r.

Two coders; Cohen’s k n.r.

n.r.

n.r.

n.r. Correlation matrices or t-statistics; independence; variables of interest; the operationalizations of constructs; the same constructs defined in another study Statistical information; Two coders; independence Cohen’s j

Empirical; particular estimations

Correlations about variables n.r. of interest; sample size Two coders; the Non-experimental studies; percentage commitment among agreement working team; after 1990

n.r.

Empirical; statistical information; independence

Ownership-based entry mode; firm level; variables of transaction cost theory; 1986–2002 n.r.

Coding reliability

Dataset Preparation Criteria for inclusion

Appendix (Continued)

By reliabilities, error variance, and correlation between perfectly measured variable By sampling (point-biserial), reliability (selfreported data), and Fisher’s z

n.r.

Fisher’s z

n.r.

n.r.

n.r.

n.r.

n.r.

Correcting for effect size

n.r.

n.r.

10 times larger than the mean

n.r.

n.r.

n.r.

n.r.

n.r.

n.r.

Identification of outliers

JIBS

JWB

MIR

van Essen et al. (2012)

Taras et al. (2012)

Yang & Driffield (2012)

n.r.

n.r.

n.r.

n.r.

n.r.

JIM

JWB

n.r.

JIM

Judge et al. (2011)

Morschett et al. (2010) Steel & Taras (2010)

Correlation r

Regression coefficient (log odds ratio) Standardized Cohen’s d (mean)

Pearson correlations; Reviews and meta-analyses; partial correlation reference part search coefficients (forward-tracing) of selected articles; contacting authors; including unpublished Standardized Cohen’s d Reference parts of selected (mean) studies; citation checking by Google Scholar; mailing list-serves of AIB and AOM; unpublished papers; contacting authors n.r. Estimate of linear coefficient

Major books and reviews; reference part of selected studies; mailing list servers of the AIB and AOM; including unpublished studies n.r.

Published reviews

n.r.

Commensurability; instruments based on Hofstede; empirical support for convergent validity

Conceptualized corruption; national level; multiple countries; empirical studies; direct relationship n.r.

Overseas value-added process (i.e.; no export) Hofstede’s model with original data; codable data; commensurability with Hofstede’s instruments

n.r.

n.r.

n.r.

n.r.

n.r.

n.r.

Fisher’s z

Two coders; subsample; Cohen’s k

Multiple coders; test-retest reliability

n.r.

n.r.

n.r.

By the mean reliability;

n.r.

(productmoment) n.r.

Two coders; interrater reliability

Double coded; inconsistencies resolved by comparison

n.r.

JIBS

IBR

Tihanyi et al. (2005)

Garcı´ a-Meca & Sa´nchez-Ballesta (2006) Bausch & Krist (2007)

IBR

JIBS

MIR

JIBS

Reus & Rottig (2009)

Stahl et al. (2010)

JIBS

Meyer & Sinani (2009)

Magnusson et al. (2008) Fischer & Mansell (2009)

JIBS

Zhao et al. (2004)

MIR

Journal

Reference

Panel B

Sample size, mean, confidence interval, range, variance

Sample size weighted mean; variances; chi-square

Mean, standard deviation, correlation matrix

Sample size weighted; intercorrelation and rankorder correlation

Sample size weighted mean; standard error; z-value; p-value; % of variance; Sample size weighted mean; variances Sample size weighted mean; variances; confidence intervals Sample size weighted mean; confidence & credibility intervals; z-statistics; average residual variance Sample size weighted mean

Basic statistical information

Q statistics

75% rule; Q statistics

Heterogeneity test

Q statistics

Category analysis

Meta-analytic regression

Category analysis; three-level hierarchical linear modelling

Category analysis

Category analysis

75% rule

n.r.

Category analysis

n.r.

Category analyses

Moderator analysis

Q statistics

n.r.

Q statistics

Homogeneity Test

Data Analysis

Appendix (Continued)

# of primary studies (n)

108

66

66

164 (means) and 37 (correlations)

74

41

38

Fail-safe N

File-drawer analysis; calculation of fail-safe N(x) n.r.

66

38

n.r.

n.r.

Publication availability bias

n.r. Missing standard deviation is handled by the means; if missing country data, take region n.r. Missing data of a year replaced by the nearest year n.r. Missing reliability handled by an artefact distribution method Eliminating the Fail-safe N missing categories

Contacting authors

If other statistics are available, then transfer n.r.

n.r.

n.r.

Missing data

Other Information

294 PETER J. BUCKLEY ET AL.

JIM

JIM

JWB

JIBS

JWB MIR

Morschett et al. (2010)

Steel & Taras (2010)

Judge et al. (2011)

van Essen et al. (2012)

Taras et al. (2012) Yang & Driffield (2012)

Mean Mean, standard deviation, sample size

Inverse variance weighted mean, standard error

Sample size weighted mean; confidence and credibility intervals

Sample size weighted mean, standard deviation, correlation matrix

Variance and sample-size weighted mean

Category analysis

Q statistics; I index Hierarchical linear model, weighted least squares-based regression n.r. Category analysis n.r. Meta-analytic regression

n.r.

n.r.

Q statistics; forest plot

Sub-sample comparison by Zstatistics Sub-sample comparison on vote counting scale Hierarchical linear model

n.r. n.r.

n.r.

Missing GDP data were assumed by that prior to publication Contacting author; missing reliability replaced by estimate of National Academy of Science Contacting author

n.r. Regressing t-ratio of each estimate

n.r.

n.r.

n.r.

n.r.

451 67

332

42

508

72

Meta-Analytic Research in International Business and International Management 295

JIBS

MIR JIBS

JIM

Meyer & Sinani (2009)

Reus & Rottig (2009) Stahl et al. (2010)

Morschett et al. (2010)

50,974

26,927 10,632

69,849 44,424 (means) and 10,533 (correlations) 121

7,792

MIR

IBR JIBS

Bausch & Krist (2007)

Magnusson et al. (2008) Fischer & Mansell (2009)

9,135 1,245,098

JIBS IBR

Tihanyi et al. (2005) Garcı´ a-Meca & Sa´nchezBallesta (2006)

24,111

Cumulative sample Size (N)

JIBS

Journal

Zhao et al. (2004)

Reference

Panel B

156

165 135

n.r.

36 n.r.

146

n.r. 59

106

# of effect sizes (k)

14

5 7

1

5 3

6

6 7

5

# of variables from literature

2

7 6

8

3 10

5

n.r. 3

5

From literature

n.r.

n.r. n.r.

7

n.r. 8

n.r.

n.r. n.r.

n.r.

Additional sources

Number of moderators

Other Information

Appendix (Continued)

Stanley & Jarrell (1989); Lau et al. (1992); Thompson & Sharp (1999) Hunter & Schmidt (2004) Hunter & Schmidt (1990); Hedges & Olkin (1985); Lipsey & Wilson (2001), Rosenthal (1984) Cooper & Hedges (1994); Lipsey & Wilson (2001); Kulik, Cohen & Ebeling (1980); Kulik, Kulik & Cohen (1980)

Hunter & Schmidt (1990); Hedges & Olkin (1985) Hunter & Schmidt (1990) Lipsey & Wilson (2001); Rosenthal (1991); Hunter & Schmidt (1990) Hunter & Schmidt (1990); Rosenthal (1979) Hunter & Schmidt (1990) Lipsey & Wilson (2001); Hedges & Olkin (1985)

Key references of meta-analytic procedure

14

8 34

4

No 8

7

5 No

No

Number of hypotheses

296 PETER J. BUCKLEY ET AL.

JWB MIR

Taras et al. (2012) Yang & Driffield (2012)

2,115 3,170 659,810 (r) & 4,107,639 (partial r) 225,177 906,480 914 370

36 511 592 (r) & 2415 (partial-r) 4 1

8 3 2 1 11

4 17 53

22 n.r.

3 n.r. 11

Hunter & Schmidt (2004) Card & Krueger (1995)

Hunter & Schmidt (1990) Hunter & Schmidt (2004) Lipsey & Wilson (2001); Hedges & Olkin (1985) No No

9 8 propositions 4

Journals in IB are defined by Journal Qualtity List (47th ed.) (Harzing, 2012). The rank is made according to Total Cites and Impact Factor of Journal Citation Reports (Web of Knowledge, 2011). The above listed are published between 2000 and 2012; only one before 1995 by Peterson & Jolibert in JIBS; no meta-analyses were published between 2000 and 2003. ‘n.r.’ means not reported. AIB – The Academy of International Business; AOM – the International Management Division of the Academy of Management; JIBS – the Journal of International Business Studies; MIR – Management International Review; AMJ – Academy of Management Journal; SMJ – Strategic Management Journal; ASQ – Administrative Science Quarterly; AOS – Accounting, Organization and Society; JM – Journal of Management; FA – Finance and Accounting; JB – Journal of Business; JMS – Journal of Management Studies; MS – Management Science; JAR – Journal of Accounting Research; JAE – Journal of Accounting and Economics; TAR – The Accounting Review; JBR – Journal of Business Research; IBR – International Business Review; JFE – Journal of Financial Economics; JBV – Journal of Business Venturing. n is the number of studies (i.e., the sample size of a meta-analysis). k is the number of effect sizes, which may or may not equal n. When using correlation r, for instance, if a study reports 2 r’s regarding interested variables, the n will be smaller than k. N is the number of cumulative samples size, which is the total amount of sample sizes in the primary studies included in a meta-analysis.

JIM JWB JIBS

Steel & Taras (2010) Judge et al. (2011) van Essen et al. (2012)

Meta-Analytic Research in International Business and International Management 297

INTERNATIONAL BUSINESS RESEARCH: UNDERSTANDING PAST PATHS TO DESIGN FUTURE RESEARCH DIRECTIONS Manuel Portugal Ferreira, Nuno Rosa Reis, Martinho Isnard Ribeiro de Almeida and Fernando Ribeiro Serra ABSTRACT In this chapter we examine the extant research in international business (IB) by conducting a bibliometric study of the articles published in three leading IB journals – International Business Review, Journal of International Business Studies and Management International Review, over their entire track record of publication available in the ISI – Institute for Scientific Information. In longitudinal analyses of citation data we ascertain the most relevant works of the IB field. We also identify intellectual interconnectedness in co-citation networks of the research published in each journal. A second-tier analysis delves into publication patterns of those articles that are not at the top citation listings. Our results permit us better understand and depict the extant IB research and, to some extent, its evolution thus far. Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 299–330 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026017

299

300

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INTRODUCTION As disciplines evolve to maturity scholars often have the need to make some sense of what the extant research has found, the theories employed, methods used and results found. This quest entails a literature review to ascertain the state of the art of the knowledge – what is known on the one hand, and what is still unknown, on the other. In some instances the body of research is so large that attempting at a broad review, even if to point out research paths, seems daunting and nearly impossible. Nonetheless, using bibliometric techniques we may endeavour in examining large bodies of knowledge in a systematic and objective manner to ascertain, for instance, what is more relevant and what are the current trends, or what is less relevant and outfashioned. It is worth pointing out that seldom these bibliometric studies replace the need for in-depth content analysis or extensive reading, rather they offer a broad systematization of the extant knowledge (White & McCain, 1998), eventually delving into a couple of issues – for instance, the authorship or institutional patterns, the research themes or the theories used – from which the reader may infer trends and identify untapped gaps. International business (IB) is a multidisciplinary field entailing diverse theories and encompassing different subject areas such as the internationalization process, the impact of culture on managerial decision-making, multinational enterprises (MNEs), organizational and structural issues regarding firms’ operations and headquarters – subsidiary relations concerning such matters as control, autonomy, mandates and knowledge transfer (Chabowski, Hult, Kiyak, & Mena, 2010). All these phenomena have been studied by scholars who bring in disparate disciplinary and conceptual contributions from sociology and economics, most notably, and also from organization theory, organization behavior, finance and entrepreneurship. IB, both as a field of research and as a discipline, is thus rich in its domain of study (Boddewyn, 1999). Trying to ascertain the evolution and the current state of the field has led IB scholars to review extant research to rank institutions (Trevin˜o, Mixon Jr., Funk, & Inkpen, 2010) and journals (DuBois & Reeb, 2000), assess the influence of scholars and specific works (Ferreira, 2011; Ferreira, Serra, & Almeida, 2012), construct a cognitive map of the discipline (Chandra & Newburry, 1997) and discern the structure of the social network of an entire journal (Chabowski et al., 2010; Liesch, Hakanson, McGaughey, Middleton, & Cretchley, 2011). Other scholars used some form of bibliometric method to map the state of the art and future directions of the discipline (Oesterle & Wolf, 2011) or of a specific topic (Di Stefano,

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Peteraf, & Verona, 2010), the influence of other disciplines on a field (Samiee & Chabowski, 2011) or the impact of a theory on a discipline (Peng, 2001). These reviews are important to sum up the extant published research, make sense of what is already known and draw insights into future research avenues. We conduct a bibliometric study (see Ramos-Rodrigues & Ruiz-Navarro, 2004) to examine the extant IB research. In this chapter our goal is fourfold: first, we seek to understand the extant research primarily by identifying the most cited works – we assume that citation frequency is a reasonable proxy for the influence that a given work has exerted on the discipline. Second, we seek to identify interconnectedness among scholars and mostly subjects and theories by examining co-citation networks, from which we may complement the analysis and identify themes and the ties binding them. Third, we extend the standard analyses by including a second-tier analyses where instead of observing only the top cited references we examine the ‘second-tier’ cited works. Fourth, by performing a bibliometric study on three leading journals for IB research (Chan, Fung, & Leung, 2006) – International Business Review (IBR), Journal of International Business Studies (JIBS) and Management International Review (MIR) – we arguably capture the leading research and are better able to assess the intellectual structure of IB research. With this study we complement existing research that permits us a better understanding of the IB field. This chapter is organized in four main sections. First, we review the literature on bibliometric studies. Second, we present and explain the methods used, including the procedures and sample. The third section presents the main results, especially focused on citation and co-citation data of the works published in the three journals. We organize our citation and co-citation analyses around the journals, the editorships, and we complement with a rather novel procedure of examining second-tier (or not so cited) research. We conclude with a broad discussion that aims at understanding the extant published research and fermenting new ideas and paths for future research.

LITERATURE REVIEW As a field of research progresses scholars occasionally undertake the task of assessing what is already known through some form of review piece, metaanalysis or bibliometric study (Liesch et al., 2011; Oesterle & Wolf, 2011). Bibliometric techniques have been used to review and analyse several areas

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of knowledge at least in part because these techniques are particularly helpful in dealing with large volumes of published research that hinder the use of more traditional methods of content analysis (Bo¨rner, Chen, & Boyack, 2003). For instance, Ramos-Rodriguez and Ruiz-Navarro (2004) have assessed the intellectual structure of the strategic management field using the articles published in the Strategic Management Journal. Peng (2001) reviewed IB research to figure out how has the resource-based view been used on IB research, how have IB scholars contributed to the development of the theory itself and how may it evolve in the future. Di Stefano et al. (2010) used citations of articles published in ISI Web of Knowledge indexed journals to portray the current state of the art and future directions of dynamic capability-related research. Durisin, Calabretta, and Parmeggiani (2010) conducted a citation analysis of articles published in the Journal of Product Innovation Management to assess the intellectual structure of product innovation research. Samiee and Chabowski (2011) delved into the knowledge structure of international marketing and assessed the influence of other disciplines on international marketing, applying bibliometric techniques such as exploratory factor analysis, hierarchical cluster analysis and metric multidimensional scaling to articles from 34 journals. Hence, bibliometric studies have been published in several areas of management studies. IB scholars have also used bibliometric studies to make sense of the extant research. For example Chandy and Williams (1994) performed a citation analysis of JIBS to assess the most influential disciplines and authors of IB. Liesch et al. (2011) also examined JIBS to identify the core thematic trends in IB research, while Oesterle and Wolf (2011) used the articles published in MIR to infer the qualitative and quantitative developments in IB/IM research. Other scholars have constructed rankings of IB journals (DuBois & Reeb, 2000) and of IB institutions (Lahiri & Kumar, 2012; Trevin˜o et al., 2010), and examined the impact of an author (Ferreira, 2011; Ferreira, Pinto, Gaspar, & Serra, 2011) or a work (Ferreira et al., 2012) using citation analyses. Chabowski et al. (2010) used bibliometric techniques to delve into the social network’s structure of JIBS. Chan et al. (2006) analysed productivity and updated the ranking of academic institutions of IB research. Pillania and Fetscherin (2009) analysed the state of research on multinationals and emerging markets, using ISI Web of Knowledge Social Sciences databases. Perez-Batres, Pisani, and Doh (2010) used bibliometric data and regression models to assess the degree of globalization of IB journals. Ferreira (2011) analysed the impact of a specific work by Bartlett and Ghoshal on IB research, using citation data.

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There have been also other attempts at understanding the intellectual structure of IB as a field of study. Chandra and Newburry (1997), for instance, constructed a cognitive map of the IB field using a content analysis. They categorized the extant research into eight great areas and graphically represented their findings; however, their approach was largely based on subjective criteria and lacking of methodological procedures. In fact, using bibliometric techniques to decipher the intellectual structure of a field is a common procedure (Ramos-Rodriguez & Ruiz-Navarro, 2004; Rehn & Kronman, 2006). Bibliometric techniques may also be used to understand the use of a specific theory in a field of knowledge (Martins, Serra, Leite, Ferreira, & Li, 2010) or the research focus of an area (Ferreira, Santos, Serra, & Reis, 2010), or even to rank universities (Chan et al., 2006).

METHOD We conducted a bibliometric study in three leading IB journals to delve into the intellectual structure of research in the IB field. Using articles published is especially important since these articles had to undergo a process of peer review which grants them a status of certified knowledge (Callon, Courtial, & Penan, 1993). Nonetheless, it is worth pointing that bibliometric studies may resort to other types of documents such as books, theses and dissertations, news in the media, reports and so forth. Moreover, using the premier journals may benefit from these journals’ influence over the path of the research being carried out. Arguably, leading journals attract the interest of the leading scholars and are thus likely to publish leading research. We used the two main types of bibliometric analyses: citations and co-citations. Citation analysis permits us to identify the most influential works in a field of knowledge by examining the frequency with which others cite a given work. Using citation data relies on the assumption that an author cites other works because those are important for his own research, even if the citation may have several roles: to build upon an argument, idea or theory, to criticize or to complement a perspective. Hence, citations are a proxy of the importance, or influence, of a work, since the more important a work is in a field of knowledge the more often it is cited (Ramos-Rodrigues & Ruiz-Navarro, 2004; Tahai & Meyer, 1999). Co-citation analysis complements citation data and provides an overview of the links between the references used (Callon et al., 1993) in a work.

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Co-citation analysis looks into the references used in the articles and identifies which articles and how frequently they are cited together (Hofer, Smejkal, Bilgin, & Wuehrer, 2010; Rokaya, Atlam, Fuketa, Dorji, & Aoe, 2008). That is, when a paper Z cited both articles X and Y we assume X and Y have some degree of relatedness or content proximity (RamosRodriguez & Ruiz-Navarro, 2004; White & McCain, 1998). Thus, cocitation data may be taken as a measure of content proximity of the works involved and is also helpful in portraying how different works interrelate (Ferreira, 2011; Pilkington & Liston-Heyes, 1999; Ramos-Rodriguez & Ruiz-Navarro, 2004; White & Griffith, 1981; White & McCain, 1998). Thus, co-citation networks reveal the works that are used together and the strength of the ties between the articles (i.e. the frequency of cocitations).We used the software Ucinet that permits us a dynamic analysis whereby pairs of articles may be drawn in a co-citation network showing the relative strength of the ties binding works and in comparison to all other works in the network – thus, in reading the co-citation networks, the more central works and pairs are placed at the centre of the web while relatively less influential works are placed in the periphery.

Procedure Our bibliometric analysis relied on the articles published in three leading IB journals: International Business Review (IBR), Journal of International Business Studies (JIBS) and Management International Review (MIR) (Chan et al., 2006). Searching in ISI Web of Knowledge (see www.isiknowledge. com) for the works (including articles, proceeding papers and reviews, but excluding editorial notes, book reviews and other materials) published in these three journals until 2010, we identified the works, and using the software Bibexcel we retrieved the relevant metadata (title, author, date, journal, author-supplied keywords and references used in the article). Bibexcel permitted us to organize the data and (1) ascertain the number of articles published each year and for each journal; (2) identify the authorship of each article; (3) count the citation frequency of each article and detect all co-citations; and (4) create a co-citation matrix, that we can use to draw the co-citations network using Ucinet. It is worth noting that the ISI Web of Knowledge database is not exhaustive in reporting the content of all journals. In fact, there are periods for which there were no data available: there was a 17 years gap in the coverage of MIR (1991–2007); therefore, we could only retrieve metadata

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from 1966 to 1990 and from 2008 to 2010. Moreover, ISI includes the records for IBR only since 2005. JIBS, on the other hand, had complete coverage from 1976 to 2010.

Data and Sample Our search on ISI Web of Knowledge database identified a total sample of 2,426 documents published in the three journals: JIBS (1,278 articles), MIR (904) and IBR (244). The analyses were done individually for each journal. Although we might argue that a joint analysis would render us a broader picture, we would also fail to capture possible variations among journals. Fig. 1 depicts the number of publications per journal per year. There is a substantial increase in the number of works published from 2004 onwards, which is due to two main effects: first, IBR is only available after 2005, as noted, and second, we see a visible increase in the number of publications in JIBS, that published 16 articles in 1976 and 81 in 2010. Moreover, ISI does not comprise the publications in MIR during the period 1991–2008, which may explain some variations in the figure.

Fig. 1.

Number of Publications. Source: Data collected from ISI Web of Knowledge. Computations by the authors.

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RESULTS In this section we present the results of the citation and co-citation analyses for each journal and period. We present the results for each journal separately.

JIBS: Journal of International Business Studies The 1,278 articles published in JIBS used a total of 37,634 references. Overall, the five most cited works were Hofstede (1980) with 282 citations, Kogut and Singh (1988) with 162 citations, Johanson and Vahlne (1977) with 148 citations, Buckley and Casson (1976) 133 citations and Caves (1982) 120 citations (see also Table 4). To do a longitudinal analysis we adopted the procedure of splitting the sample in periods that matched the editors’ mandates in each journal (see Table 1). Hence, for instance, for JIBS we set six periods: William Dymsza (1976–1984), David Ricks (1985–1992), Paul Beamish (1993–1997), Thomas Brewer (1998–2002), Arie Lewin (2003–2007) and Lorraine Eden (2008–2010). We lagged the period for each editorship by 1 year since often some articles accepted by an editor are published in the subsequent editorial mandate (see also Liesch et al., 2011). Longitudinal analyses permit us to capture possible variations in citation frequency, which we employ as a proxy for the increasing or decreasing influence of a certain work (or theory or phenomena) during the period. Using the mandates of the editors further permits us to observe potential shifts in attention that may either signal idiosyncratic editorial influence or simply the evolution of the discipline. In the first period, 1976–1984, the most cited works were Aharoni (1966), Stopford and Wells (1972), Knickerbocker (1973) and Vernon (1966, 1971). However, these five references were used relatively scarcely: for instance, Aharoni (1966) was cited in only 5.7% of the 245 articles published in the period. During Ricks editorship, from 1985 to 1992, the most cited works were Hofstede (1980), Caves (1982), Buckley and Casson (1976), Stopford and Wells (1972) and Porter (1980). It is interesting to note that during this period, the most cited works captured a larger number of citations – for instance, 16.2% of the 216 articles published cited Hofstede (1980). Under Paul Beamish, from 1993 to 1997, the most cited works included Hofstede (1980), Caves (1982), Kogut and Singh (1988), Johanson and Vahlne (1977) and Buckley and Casson (1976). In this period, Hofstede (1980) was cited by over 27% of the articles published in the period, and all top five were cited

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by over 10%. The remaining three editorships – Brewer, Lewin and Eden – see at the top citations’ list the works by Hofstede (1980), Kogut and Singh (1988) and Johanson and Vahlne (1977). For each journal we also draw the co-citation network to observe the connections between works. We identified in JIBS 436 pairs of works (i.e. 436 combinations of any two works that were cited together at least once). Fig. 2 depicts the 30 most cited pairs of works, taking the entire period from 1976 to 2010. In reading the figures notice that the width of the link between two works represents the strength of the connection, such that the thicker the line, the stronger the connection. A stronger tie reflects a more often cited pair of works. The tie is stronger between the following pairs: Hofstede (1980)–Kogut and Singh (1988), with 110 citations, followed by Johanson and Vahlne (1977)–Kogut and Singh (1988) and Gatignon and Anderson (1988)–Kogut and Singh (1988). Moreover, the works towards the centre of the network – in more central positions – are more influential than those placed at the periphery. Towards the centre of the network we see essentially works on culture, cultural distance, the internationalization process and the MNE.

MIR: Management International Review A similar analysis was made for MIR. Examining MIR, we identified 904 articles published in the periods available (1966–1990 and 2008–2010) that jointly used 19,805 references. Overall the five most cited works were Buckley and Casson (1976) and Hofstede (1980) – 32 citations – Johanson and Vahlne (1977) – 27 citations – while Haire, Ghiselli, and Porter (1966) and Cyert and March (1963) had 25 citations. We also divided the sample into three periods to match MIR’s editorships: Louis Perridon (1966–1979), Klaus Macharzina (1980–1990) and Michael-Jo¨rg Oesterle and Joachim Wolf (2008–2010) (see Table 2). During the first period (1966–1979) the most cited works in the 517 articles published were Haire et al. (1966) – 17 citations – and March and Simon (1958), Cyert and March (1963) and Woodward (1965). During Macharzina editorship (1980–1990), the most cited were Aharoni (1966), Buckley and Casson (1976), Knickerbocker (1973), Stopford and Wells (1972) and Haire et al. (1966). In the third period, with Oesterle and Wolf (2008–2010) the most cited works were Hofstede (1980), Johanson and Vahlne (1977), Buckley and Casson (1976), Kogut and Singh (1988) and Bartlett and Ghoshal (1989). Looking at citation data we also see a

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Table 1. Most Cited inJIBS per Period. Dymsza: 1976–1984 (n=245)

Ricks: 1985–1992

Beamish: 1993–1997

(n=216)

(n=183)

NC

%

Reference

NC

%

Reference

NC

%

Reference

14 14 10

5.7 5.7 4.1

Aharoni (1966) Stopford and Wells (1972) Knickerbocker (1973)

35 34 23

16.2 15.7 10.6

Hofstede (1980) Buckley and Casson (1976) Caves (1982)

50 32 28

27.3 17.5 15.3

Hofstede (1980) Caves (1982) Kogut and Singh (1988)

10 10 8

4.1 4.1 3.3

Vernon (1971) Vernon (1966) Caves (1971)

22 19 18

10.2 8.8 8.3

Stopford and Wells (1972) Porter(1980) Prahalad & Doz (1987)

26 24 23

14.2 13.1 12.6

Johanson and Vahlne (1977) Buckley and Casson (1976) Stopford and Wells (1972)

8

3.3

18

8.3

Hennart (1982)

19

10.4

Kogut (1988)

7

2.9

Buckley and Casson (1976) Thompson (1967)

17

7.9

Rugman (1981)

19

10.4

7

2.9

Giddy and Dufey (1975)

17

7.9

Vernon (1966)

19

10.4

Agarwal and Ramaswami (1992) Dunning (1980)

7 6

2.9 2.4

16 15

7.4 6.9

Williamson (1975) Dunning (1981)

18 18

9.8 9.8

6 6

2.4 2.4

15 14

6.9 6.5

18 18

9.8 9.8

2.4

14

6.5

Porter (1986) Johanson and Vahlne (1977) Aharoni (1966)

Williamson (1975) Gatignon and Anderson (1988) Dunning (1993) Porter (1990)

6

Hymer (1976) Johanson and Vahlne (1977) Root (1968) Simpson and Kujawa (1974) Solnik (1974)

18

9.8

Prahalad and Doz (1987)

6

2.4

Kobrin (1979)

13

6.0

Porter (1985)

17

9.3

Dunning (1988)

6

2.4

Sharpe (1964)

12

5.6

Williamson (1985)

17

9.3

6 6 6

2.4 2.4 2.4

Perlmutter (1969) Hofstede (1980) Shapiro (1975)

12 12 11

5.6 5.6 5.1

Knickerbocker (1973) Cyert and March (1963) Hymer (1976)

16 16 15

8.7 8.7 8.2

Anderson and Gatignon (1986) Hennart (1988) Hymer (1976) Hill, Hwang, and Kim (1990)

6 5

2.4 2.0

Williamson (1975) Cohn (1973)

11 11

5.1 5.1

Thompson (1967) Nunnally (1978)

15 15

8.2 8.2

Bartlett and Ghoshal (1989) Nunnally (1978)

5 5

2.0 2.0

Grauer (1976) Caves (1971)

11 11

5.1 5.1

15 14

8.2 7.7

Kim and Hwang (1992) Ronen and Shenkar (1985)

5

2.0

Siegel (1956)

10

4.6

Davidson (1982) Edstro¨m and Galbraith (1977) Mendenhall and Oddou (1985)

14

7.7

Parkhe (1993)

5 5

2.0 2.0

Hood (1979) Bilkey (1977)

10 10

4.6 4.6

Teece (1986) Adler (1983)

14 14

7.7 7.7

Geringer and Hebert (1991) Gomes-Casseres (1990)

5

2.0

Rogalski (1977)

10

4.6

Dunning (1988)

14

7.7

Williamson (1985)

5 5

2.0 2.0

Bilkey (1978) Grubel (1971)

10 10

4.6 4.6

13 13

7.1 7.1

Ghoshal (1987) Killing (1983)

5

2.0

Solnik (1974)

10

4.6

Kogut (1985) Lawrence and Lorsch (1967) Levitt (1983)

13

7.1

Geringer and Hebert (1989)

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NC

%

52 40 28

24.5 18.9 13.2

24 21 21

11.3 9.9 9.9

21

9.9

19

Brewer: 1998–2002

Lewin: 2003–2007

Eden: 2008–2010

(n=212)

(n=268)

(n=158)

Reference

NC

%

Reference

NC

%

Reference

Hofstede (1980) Kogut and Singh (1988) Hofstede (1991)

94 51 50

35.6 19.3 18.9

45 34 28

28.5 21.5 17.7

Johanson and Vahlne (1977) Barney (1991) Caves (1982)

38 33 31

14.4 12.5 11.7

Hofstede (1980) Kogut and Singh (1988) Johanson and Vahlne (1977) Bartlett and Ghoshal (1989) Buckley and Casson (1976) Caves (1982)

23 21 20

14.6 13.3 12.7

28

10.6

12.0

27

10.2

Cohen and Levinthal (1990) Kogut and Zander (1993)

19

9.0

Gatignon and Anderson (1988) Caves (1971)

Hofstede (1980) Kogut and Singh (1988) Johanson and Vahlne (1977) Zaheer (1995) Barney (1991) House, Hanges, Javidan, Dorfman, and Gupta (2004) Kogut and Zander (1993)

17

10.8

Buckley and Casson (1976)

19

9.0

Dunning (1993)

26

9.8

17

10.8

18 17

8.5 8.0

Bartlett and Ghoshal (1989) Buckley and Casson (1976)

26 25

9.8 9.5

Barkema, Bell and Pennings (1996) Zaheer (1995) Podsakoff and Organ (1986)

17 17

10.8 10.8

Podsakoff, Mackenzie, Lee and Podsakoff (2003) Fornell and Larcker (1981) North (1990)

16 15

7.5 7.1

Williamson (1985) Kogut and Zander (1993)

24 24

9.1 9.1

Barney (1991) Shenkar (2001)

16 15

10.1 9.5

Cohen and Levinthal (1990) Hymer (1976)

15

7.1

24

9.1

9.5

Dunning (1993)

6.6

23

8.7

DiMaggio and Powell (1983) North (1990)

15

14

Anderson and Gatignon (1986) Inkpen and Beamish (1997)

15

9.5

14

6.6

Dunning (1988)

22

8.3

15

9.5

14 13 13

6.6 6.1 6.1

Kogut and Zander (1992) Yan and Gray (1994) Tse, Pan and Au (1997)

21 21 20

8.0 8.0 7.6

14 14 14

8.9 8.9 8.9

13 13

6.1 6.1

Coase (1937) Porter (1990)

20 19

7.6 7.2

Barkema and Vermeulen (1998) Hymer (1976) Johanson and Vahlne (1990) Johanson and Wiedersheim-Paul (1975) Pfeffer and Salancik (1978) Scott (1995)

Barkema, Bell, and Pennings (1996) Shenkar (2001)

13 13

8.2 8.2

13 12

6.1 5.7

Erramilli and Rao (1993) Beamish (1993)

19 19

7.2 7.2

Porter (1990) Granovetter (1985)

13 13

8.2 8.2

12

5.7

Chang (1995)

19

7.2

12

7.6

12 12

5.7 5.7

Vernon (1966) Williamson (1975)

19 19

7.2 7.2

12 12

7.6 7.6

11 11

5.2 5.2

DiMaggio and Powell (1983) Kim and Hwang (1992)

19 19

7.2 7.2

La Porta, Lopez-deSilanes, Shleifer, and Vishny (1998) Luo and Peng (1999) Hitt, Hoskisson and Kim (1997) Vernon (1966) Dunning (1993)

12 11

7.6 7.0

11

5.2

Hennart (1991)

19

7.2

Oviatt and Mcdougall (1994)

11

7.0

11

5.2

Ronen and Shenkar (1985)

18

6.8

Rugman and Verbeke (2004)

11

7.0

NC – Number of citations. Source: Data collected from ISI Web of Knowledge. Authors’ computations.

Hennart (1982) DiMaggio and Powell (1983) La Porta, Lopez-deSilanes, Shleifer, and Vishny (1998) Heckman(1979) Podsakoff and Organ (1986) Scott (1995) Rugman and Verbeke (2004) Anderson and Gatignon (1986) Kogut (1991) Jensen and Meckling (1976) Peng (2003) Hoskisson, Eden, Lau, and Wright (2000) Anderson and Gerbing (1988) Porter (1990)

310

Fig. 2.

MANUEL PORTUGAL FERREIRA ET AL.

Co-Citation Network for JIBS. Source: Data retrieved from ISI Web of knowledge with Bibexcel. Drawn with Ucinet.

significant increase in the use of the main references, such that the most cited in the first period was cited by 3.3% of the articles while in the third period it was cited by nearly 25% of the articles. Fig. 3 depicts the co-citation map for MIR. In the most central positions in the network are the following pairs of works: Hofstede (1980) – Kogut and Singh (1988), with 16 co-citations, followed by Hofstede (1980) – Anderson and Gatignon (1986), with 13 co-citations, Anderson and Gatignon (1986) – Kogut and Singh (1988) and Hofstede (1980) – Johanson and Vahlne (1977). The farther from the centre of the network the smaller its impact, as measured by its co-citation frequency. IBR: International Business Review Analysing IBR we retrieved 244 articles that cited a total of 16,203 references. Given the yet short track record of IBR available in ISI Web of Knowledge we do not perform a longitudinal analysis and identify only one editor: Pervez Ghauri (2005–2010). Table 3, with citation frequencies, reveals that Hofstede’s (1980) work was the most cited (66 articles, or 27%

17 17

15

12 9 9

9 9

9

8

8

7

7

7

3

4 5 6

7 8

9

10

11

12

13

14

NC

1 2

Rank

1.4

1.4

1.4

1.5

1.5

1.7

1.7 1.7

2.3 1.7 1.7

2.9

3.3 3.3

Aharoni (1966)

McGregor (1960) Katz and Kahn (1966) Farmer and Richman (1965) Stopford and Wells (1972) Lawrence and Lorsch (1969) Burns and Stalker (1961) Maslow (1954)

Haire et al. (1966) March and Simon (1958) Cyert and March (1963) Woodward (1965) McClelland (1961) Likert (1961)

Reference

5

5

5

5

6

6

6 6

8 8 7

9

14 12

NC

1.7

1.7

1.7

1.7

2.1

2.1

2.1 2.1

2.8 2.8 2.4

3.1

4.9 4.2

%

Negandhi and Prasad (1971)

Modigliani and Miller (1958)

Johanson and Vahlne (1977)

England (1975)

Rugman (1981)

Casson (1979)

Franko (1976) Vernon (1966)

Stopford and Wells (1972) Haire et al. (1966) Hofstede (1980)

Knickerbocker (1973)

Aharoni (1966) Buckley and Casson (1976)

Reference

(n=286)

(n=517)

%

Macharzina: 1980–1990

Perridon: 1966–1979

12

12

12

12

12

12

14 12

16 16 14

18

25 22

NC

Table 2. Most Cited in MIR, per Period.

11.9

11.9

11.9

11.9

11.9

11.9

13.9 11.9

15.8 15.8 13.9

17.8

24.8 21.8

%

Hitt, Hoskisson, and Kim (1997) Hoskisson, Eden, Lau, and Wright (2000)

Lu and Beamish (2004)

Kostova (1999)

Zaheer (1995)

Vernon (1966)

Kogut and Singh (1988) Bartlett and Ghoshal (1989) Anderson and Gatignon (1986) Dunning (1993) North (1990)

Buckley and Casson (1976)

Hofstede (1980) Johanson and Vahlne (1977)

Reference

(n=101)

Oesterle and Wolf: 2008–2010

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6 5 5

5

4

4 4 4

4 4 4 4 4 4 4

16 17 18

19

20

21 22 23

24 25 26 27 28 29 30

0.8 0.8 0.8 0.8 0.8 0.8 0.8

0.8 0.8 0.8

0.8

1.0

1.2 1.0 1.0

1.2

Argyris (1970) Penrose (1959) Barrett and Bass (1970) Fayol (1949) Argyris (1964) Hall (1959) Vroom (1964) Stedry (1960) Chandler (1962) Negandhi and Prasad (1971)

Hulin (1968)

Roberts (1970)

Harbison and Myers (1959) Fayerweather (1969) Dill (1958) Thompson (1967)

Reference

4 4 4 4 4 4 4

4 4 4

4

5

5 5 5

5

NC

1.4 1.4 1.4 1.4 1.4 1.4 1.4

1.4 1.4 1.4

1.4

1.7

1.7 1.7 1.7

1.7

%

Tesar (1975) Hood and Young (1979) Terpstra (1987) Makin (1978) Mintzberg (1978) Harbison and Meyers (1959) Levy and Sarnat (1970)

Wiedersheim-Paul, Olson, and Welch (1978) Stonehill et al. (1975) Davidson (1982) Markowitz (1952)

Green and Cunningham (1975)

Grubel (1968) March and Simon (1958) Shenkar and Ronen (1987)

Dunning (1981)

Reference

(n=286)

(n=517)

%

Macharzina: 1980–1990

Perridon: 1966–1979

Notes: NC – Number of citations. Source: Data collected from ISI Web of Knowledge. Authors computations.

6

NC

15

Rank

Table 2. (Continued )

10 10 9 9 9 9 9

10 10 10

10

10

11 11 11

11

NC

9.9 9.9 8.9 8.9 8.9 8.9 8.9

9.9 9.9 9.9

9.9

9.9

10.9 10.9 10.9

10.9

%

Caves (1996) Zhao (2004) Kogut and Zander (1992) Yiu and Makino (2002) Podsakoff and Organ (1986) Eisenhardt (1989) Barkema, Bell, and Pennings (1996)

Johanson and Vahlne (1990) Barney (1991) Erramilli and Rao (1993)

Gatignon & Anderson (1988) Rugman and Verbeke (2004) Contractor, Kundu, and Hsu (2003) Barkema and Vermeulen (1998) Cohen and Levinthal (1990)

Williamson (1985)

Reference

(n=101)

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313

Fig. 3. Co-Citation Network for MIR. Note: Includes articles published between 1966–1990 and 2008–2010. Source: Data retrieved from ISI Web of knowledge with Bibexcel. Drawn with Ucinet.

of the total), followed by Johanson and Vahlne (1977), Kogut and Singh (1988), Buckley and Casson (1976), Cohen and Levinthal (1990) and Johanson and Vahlne (1990). For the co-citation analysis of IBR we identified 379 co-citation pairs in a total of 16,203 references. Fig. 4 depicts the 30 most co-cited articles, showing the relative positioning of each work and the strength of the ties binding them. At the centre of the network are the most co-cited references: Hofstede (1980)–Kogut and Singh (1988), Johanson and Vahlne (1977)–Johanson and Vahlne (1990) and Johanson and Vahlne (1977)–Johanson and Wiedersheim-Paul (1975). Clearly these works involve studying the internationalization process of firms. At the periphery we identify a variety of phenomena and theories, such as the transaction costs (Gatignon & Anderson, 1988; Williamson, 1985), learning (Cohen & Levinthal, 1990), international entrepreneurship (Oviatt & McDougall, 1994), resource-based view (Barkema & Vermeulen, 1997; Bartlett & Ghoshal, 1989; Barney, 1991), among others.

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Table 3.

Most Cited in IBR.

Ghauri (2005–2010) n=244 Rank 1 2 3 4 5 5 6 6 6 7 8 9 9 9 10 11 11 11 12 13 13 13 13 13 14 14 14 14 15 15

Number of Citations

%

Reference

66 59 39 33 27 27 25 25 25 23 22 21 21 21 20 19 19 19 18 17 17 17 17 17 16 16 16 16 15 15

27.0 24.2 16.0 13.5 11.1 11.1 10.2 10.2 10.2 9.4 9.0 8.6 8.6 8.6 8.2 7.8 7.8 7.8 7.4 7.0 7.0 7.0 7.0 7.0 6.6 6.6 6.6 6.6 6.1 6.1

Hofstede (1980) Johanson and Vahlne (1977) Kogut and Singh (1988) Buckley and Casson (1976) Cohen and Levinthal (1990) Johanson and Vahlne (1990) Johanson and Wiedersheim-Paul (1975) Eisenhardt (1989) Dunning (1993) Kogut and Zander (1993) Barney (1991) Brouthers (2002) Anderson and Gatignon (1986) Dunning (1988) Shenkar (2001) Williamson (1985) Gatignon and Anderson (1988) Oviatt and McDougall (1994) Buckley and Ghauri (2004) Barkema and Vermeulen (1997) Buckley and Casson (1998) Erramilli and Rao (1993) Gupta and Govindarajan (2000) Bartlett and Ghoshal (1989) Dunning (1998) Bilkey and Tesar (1977) Vernon (1966) Zahra, Ireland, and Hitt (2000) Kim and Hwang (1992) Hymer (1976)

Note: 244 Articles included and examined. Source: Data retrieved from ISI Web of Knowledge.

All Journals Table 4 summarizes the most cited works per journal. We keep separate analysis per journal to avoid biasing the outcome due to the different track records of publications in each journal. Despite the differences across journals, we identify a clear trend: a few works are among the most cited in

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Fig. 4.

315

Co-Citation Network for IBR. Source: Data retrieved from ISI Web of knowledge with Bibexcel. Drawn with Ucinet.

all three journals. Specifically, the most used works were Hofstede (1980), Johanson and Vahlne (1977), Kogut and Singh (1988) and Buckley and Casson (1976). Moving away from the most cited we also observe substantial differences across the remaining table for each journal – which drives the ‘secondtier analysis’ below. For instance, it is noteworthy that the works by Williamson, on the transaction costs, do not make it to the top list in MIR and, in fact, there is a clear under-representation of transaction cost theory (TCT) pieces that seem to be stronger in the research published in JIBS. On the other hand, institutional theory seems more present in MIR than either JIBS or IBR. IBR seems to have a stronger European emphasis in the citation pattern of European scholars and in two areas of research: internationalization and learning.

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Table 4. Most Cited Works per Journal. JIBS

MIR Reference

N

282

Hofstede (1980)

32

162

32

77 77

Kogut and Singh (1988) Johanson and Vahlne (1977) Buckley and Casson (1976) Caves (1982) Bartlett and Ghoshal (1989) Stopford and Wells (1972) Barney (1991) Hymer (1976)

76 74

N

Reference

IBR N

Reference

Buckley and Casson (1976) Hofstede (1980)

66

Hofstede (1980)

59

Johanson and Vahlne (1977)

39

Kogut and Singh (1988)

25

Johanson and Vahlne (1977) Cyert and March (1963)

33

Buckley and Casson (1976)

25 25

Haire et al. (1966) March and Simon (1958)

27 27

Cohen and Levinthal (1990) Johanson and Vahlne (1990)

24

Aharoni (1966)

25

Dunning (1993)

22 20

Stopford and Wells (1972) Vernon (1966)

25 25

Vernon (1966) Williamson (1975)

17 16

23 22

71

Dunning (1993)

16

70

14

21

Anderson and Gatignon (1986) Brouthers (2002)

14 12

Dunning (1988) Shenkar (2001)

12

Knickerbocker (1973) Hitt, Hoskisson, and Kim (1997) Hoskisson et al. (2000)

21 20

68

Gatignon and Anderson (1988) Dunning (1988) Kogut and Zander (1993) Porter (1990)

Kogut and Singh (1988) Anderson and Gatignon (1986) Bartlett and Ghoshal (1989) Dunning (1993)

Eisenhardt (1989) Johanson and WiedersheimPaul (1975) Kogut and Zander (1993) Barney (1991)

19

66

Caves (1971)

12

Kostova (1999)

19

65 64

Williamson (1985) Anderson and Gatignon (1986) Hennart (1982)

12 12

Lu and Beamish (2004) North (1990)

19 18

Gatignon and Anderson (1988) Oviatt and McDougall (1994) Williamson (1985) Buckley and Ghauri (2004)

12

Zaheer (1995)

17

Prahalad and Doz (1987) Cohen and Levinthal (1990) Hofstede (1991)

11

Burns and Stalker (1961)

17

Barkema and Vermeulen (1997) Bartlett and Ghoshal (1989)

11

Caves (1971)

17

Buckley and Casson (1998)

11

Contractor, Kundu, and Hsu (2003)

17

Erramilli and Rao (1993)

148 133 120 88 82

68 68

62 62 60 60

27

21

N – Number of articles citing. Source: Authors computations based on data collected from ISI Web of Knowledge using Bibexcel.

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Fig. 5.

317

Second-Tier Co-Citation Network for JIBS. Source: Data retrieved from ISI Web of knowledge with Bibexcel. Drawn with Ucinet.

A Second-Tier Analysis Our prior analyses were complemented with a ‘second-tier’ analysis for each of the three journals (Figs. 5–7). In essence, the objective with this analysis is to understand what is happening beyond the first layer of those most cited works. In this study we selected the second layer of cited works – that is, while we used the 30 most cited works in the prior analysis, we now use the subsequent 20 works in the citation list (works 31 to 50). At the core of the co-citation network map for JIBS, we find Johanson and Wiedersheim-Paul (1975) and Johanson and Vahlne (1990) – that deal incremental internationalization of the Uppsala School as a gradual process – Davidson (1980) – on firms’ international experience and the host country characteristics as determinants of FDI location decisions – and Cyert and March (1963) – on the behavioral theory of the firm. This group of works is closely tied to internationalization process and link well with the works on the right side of the figure on trade and economics

318

Fig. 6.

MANUEL PORTUGAL FERREIRA ET AL.

Second-Tier Co-Citation Network for MIR. Source: Data retrieved from ISI Web of knowledge with Bibexcel. Drawn with Ucinet.

(Knickerbocker, 1973), national culture and the OLI framework (Agarwal & Ramaswami, 1992; Dunning, 1980). On the left side of the network we see a more eclectic group of works dealing with methodological issues (Fornell & Larcker, 1981; Nunnally, 1978; Podsakoff & Organ, 1986) and institutional theory (Granoveter, 1985; North, 1990). Observing MIR, there is a remarkable change in the co-citation network. In essence, we now observe two clearly distinct clusters, one (on the right) on a tie to organizational phenomena and new management trends with a social sciences lens (Likert, 1961; McClelland, 1961; Thompson, 1967). The other cluster (on the left) is more strongly tied to transaction cost theory applied to entry-mode choice (Erramili & Rao, 1993; Zhao, Lu, & Suh, 2004), and connecting to strategy-based explanations of the internationalization of firms and learning (Barkema & Vermeulen, 1998; Kim & Hwang, 1992). The second-tier analysis for IBR reveals two main clusters. On the right a cluster of works dominated by transaction costs and costs of going abroad (Agarwal & Ramaswami, 1992; O’Grady & Lane, 1996). The other group almost exclusively comprises works that deal with resource-, knowledge-, capability-based explanation of firms international decisions (Grant, 1996; Gupta & Govindarajan, 1991; Wernerfelt, 1984).

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Fig. 7.

319

Second-Tier Co-Citation Network for IBR. Source: Data retrieved from ISI Web of knowledge with Bibexcel. Drawn with Ucinet.

DISCUSSION AND CONCLUDING REMARKS As a discipline IB has evolved substantially over the past four decades through the combination of scholars who brought in their disciplinary perspectives to study firms that sought to internationalize – MNEs – and countries. It is perhaps this multidisciplinarity that we encounter in our analysis of JIBS and MIR in early years: large variety of phenomena and perspectives that led us to identify a small number of citations to the most cited papers (in JIBS during Dymsza’s editorship (1976–1984) the most cited was Aharoni (1966) with only 5.7%, and in MIR, during Perridon (1966–1979) the most cited was Haire et al. (1966) with just 3.3% of the papers citing it). As the discipline evolved, the focus of IB research has shifted from the initial emphasis on more macro aspects, home and host country differences that could account for why MNEs exist and gradually incorporated firm-specific aspects and increasingly targeted at better understanding firms’ actions and activity. Thus, it may not be surprising that some scholars describe the movement of IB research towards strategy,

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culture, knowledge and performance (Liesch et al., 2011). Chabowski et al. (2010) also noted the shift from concerns with competitiveness and foreign direct investment to the recent focus on knowledge, resource advantage, transaction costs and international production. We present a bibliometric analysis of IB articles across three journals and several editorships over more than four decades to understand how research, and the discipline, has evolved. Using citation and co-citation techniques permitted us to assess how journals varied regarding the research emphasis, but mostly our analyses identify the most often cited works and using co-citation maps we capture a broad idea on how the theories, perspectives and phenomena are related. Using citation data is appropriate because when writing their papers, scholars cite other works that are important to their own work, and thus works that are more often cited are likely to be more influential in a given discipline (Tahai & Meyer, 1999). Exploiting the techniques we also delve into those works that are not at the very top of citation listings and conduct a second-tier analysis to identify what is beyond the primary interests of IB scholars. We are thus more able to understand the intellectual structure that supports extant IB research, and also better equipped to identify research gaps. We identify some differences across journals. Analysing Table 4, for instance, we find a common set of articles that are cited in the three journals (e.g. Buckley & Casson, 1976; Hofstede, 1980; Johanson & Vahlne, 1977; Kogut & Singh, 1988) but there are several noteworthy differences. On one hand, the articles published in MIR put a greater emphasis on economybased approaches (e.g. Cyert & March, 1963; March & Simon, 1958; Vernon, 1966), whereas IBR and JIBS publish more articles with firm-level approaches (e.g. Barney, 1991; Bartlett & Ghoshal, 1989; Kogut & Zander, 1993). A brief reading of the aim and scope of each journal, made available on their respective webpages, does not reveal that editorial guidelines are responsible for the differences. Perhaps an explanation relies on the national origins of the authors such that European scholars may tend to research issues and theories that vary from those emphasized by US scholars. In fact, arguably each journal captures specific audiences, albeit they are international. Nonetheless these differences, it seems evident that conceptually the recent theoretical emphasis is on the RBV and its variants (knowledge- and capabilities-based approaches) and the TCT, with some focus also on aspects such as learning and knowledge development, foreign entry modes, cultural effects and national culture, internationalization and the MNE. These issues are somewhat consistent with the research clusters identified in Chabowski et al. (2010). However, it is also worth noting that Chabowski

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et al. (2010) did not find a cluster on ‘strategy’ and we indeed note that such cluster is far more obvious in our second-tier analysis that overcomes the limitation of using only the most cited works – given that we extend the analysis to less cited works. Our results support several other analyses worth delving into. First, we noted the high number of citations to Hofstede’s (1980) work on culture and other studies on cultural issues and differences (e.g. Kogut & Singh, 1988). In fact, the most cited work in both JIBS and IBR is Hofstede (1980) and it is the second most cited in MIR. In fact, in JIBS, during the past five editorships of Ricks, Beamish, Brewer, Lewin and Eden, Hofstede’s work was systematically the most cited. Albeit perhaps controversial, this seems evident that culture is foundational to IB research, as was also reported in Ferreira, Li, Guisinger, and Serra (2009) and Ferreira, Serra, and Reis (2011). An alternative explanation is that citations to Hofstede (1980) do not truly reflect that the papers are on culture or a cultural orientation of the research being carried out but rather its use to position the manuscript within IB. In fact, firms’ internationalization is driven by a variety of firmspecific and locational advantages and limitations, which is unlikely to signify that IB research must deal with cultural differences and rather must deal with an array of institutional dimensions that impact on the entry mode choices, location choices and so forth. Moreover, while Hofstede (1980) is by far the cultural taxonomy more employed, we fail to find other work on culture in the top cited such as the GLOBE project (e.g. House et al., 2004) or Schwartz (1994) work on values. Finally, even when examining only the recent years there is a clear predominance of Hofstede’s model over alternatives. On a future research perspective, there may be other less visible cultural attributes worth exploring and even not so novel to better understand (such as corruption). In this respect, the upsurge of studies on emerging and transition economies and emerging multinationals may bring in significant insights as one of the barriers firms must transverse is embodied in cultural differences. Therefore, alternatives or extensions to existing cultural models and taxonomies may be useful on both a theoretical standpoint and a managerial standpoint. Another frequent line of research has been the internationalization process. A key marker for the Uppsala school is the work by Johanson and Vahlne (1977) that retains, alongside others (Johanson & Vahlne, 1990; Johanson & Wiedersheim-Paul, 1975), a central position in the co-citation networks. In fact, also on central positions in the co-citation networks are Hofstede (1980) and Kogut and Singh (1988) and this proximate association is not surprising given that Kogut and Singh’s (1988) cultural distance index

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uses Hofstede’s (1980) scores and, on the other hand, culture is a key dimension firms have to master when evolving in the entry-mode choice. Culture is one of the dimensions of psychic distance that influences how and to which locations firms internationalize. We might arguably point out that some references gain a status of compulsory citation that could explain a large number of citations to these works, rather than the prima facie observation that IB research retains a large focus on the Uppsala evolutionary internationalization ideas. It is also interesting to observe the presence of Porter’s (1990) work on countries’ competitive advantage among the most cited in JIBS (Table 4). However, scholars seem to be pursuing alternative frameworks explaining locational advantages (e.g. Agarwal & Ramaswami, 1992; Dunning, 1980), as the relative frequency of citations to Porter (1990) has been decreasing (see also Table 1). The rather prescriptive and conceptual approach of the diamond model may have hindered its more widespread use, even though there have been some studies using it partially and even extending it to a double diamond framework (Rugman & D’Cruz, 1993). Therefore, it may be interesting to delve on the issue of locations’ competitive advantage, especially on the wake of the political, economic and financial changes of recent years. Our analyses (see Figs. 2–5 and Table 4) show that research on the institutional environment has not become a core issue in IB research as of yet. Examining the most cited work, only in MIR do we see publications by North (1990) and Kostova (1999) making it to the top. This evidence may look surprising given the interest on transition and emerging markets and the growing body of research that is originated in these countries. It might be that top-tier research is rather western biased or some barrier (language eventually) exists to hinder such scholars to publish in these journals. At least in some instances it may be the lack of empirical data on less developed countries hindering research but it may also be the outcome of an insufficient understanding of how much the institutional environment matters. As more multinationals seek for example the growing markets of Latin America, perhaps there is value in examining a wide array of institutional pressures, both external and internal to the firm. Observing the theories employed, it is notorious that the theory that is overall more used in IB research is the TCT. Works by Williamson (1975, 1985), Hennart (1982, 1988), Anderson and Gatignon (1986), Gatignon and Anderson (1988) and Rugman (1981) are among the most cited by papers using and developing the theory. The ties binding TCT-related works are stronger to research on foreign entry modes (shown by, for instance, the

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proximity to Johanson & Vahlne, 1977). Also strong is the tie to culture (shown by the proximity to Hofstede, 1980) in the rationale that firms face and incur in transaction costs when entering distant countries and cultural differences are used as a proxy for the hazards and uncertainties involved. Moreover, TCT and the internalization theory have been noted as a core pillar of a theory of the MNE (Buckley & Casson, 1976). This theoretical emphasis, however, is changing gradually as the resource-based view has been capturing the attention of IB scholars (Peng, 2001) in seeking to examine inside the firm, rather than the country or the transaction, for those factors (or resources) that warrant a competitive advantage (see Tables 1 and 2). A basic tenant in IB studies is that firms that internationalize must hold some form of competitive advantage over host country firms that surpass the hazards of being foreign – usually referred to as the liability of foreignness (Hymer, 1976). Several studies have acclaimed the notable increase in RBV-related research and our study confirms a trend towards a recent increase in citations to RBV (Barney, 1991; Penrose, 1959; Wernerfelt, 1984), knowledge and capabilities (see Peng, 2001). Albeit many studies refer to a resource-, knowledge-, capability-based view, the empirical measurement of those resources and capabilities that provide an advantage in internationalizing warrants additional research. For instance, future studies may delve not only on the types of resources held, but also on developing valid and generally accepted measures of resources and capabilities that are lacking. The lack of these measurements leads us to question how much of the prior research we identify is really RBV-related. An additional quest may entail assessing the value, rarity, imitability of the resources at the firm and location level. Currently, focusing on location arguably a majority of the studies only assume that entering unfamiliar geographies there is some learning and firms augment their pool of resources (Ferreira, 2008). We know considerably less on what firms really learn and what is needed to transfer internally inside the multinational those resources acquired locally. When we analyse the relative use of the most cited works over time we conclude that there is an increasing tendency to use the most common references. It is possible to identify a common set of more often cited works across the three journals. A possible explanation is that scholars use somewhat classical and seminal works to illustrate their knowledge of the field but it is also reasonable to hypothesize that in other instances the use of those works is rather cosmetic as scholars seek to position their work as international. Yet an alternative explanation for the increasing concentration on the most cited references (see Tables 1 and 2 and note the percentage

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of citations to the top cited works’ evolution) may be the authors’ tendency to present common and well-accepted references that do not puzzle reviewers and augment the chances of publication. We may thus argue that the ‘obligation’ to cite these seminal works can be a barrier to truly pathbreaking advances on IB research. In fact, the 2003 JIBS decade award winners, Bruce Kogut and Udo Zander – ‘Knowledge of the firm and the evolutionary theory of the multinational corporation’ – reported the difficulties faced, with reviewers questioning their path-breaking ideas (Kogut & Zander, 2003). Perhaps that is the usual Kuhnian evolution of scientific thought but we should probably claim for some open mindedness from reviewers and editors alike in taking on novel thoughts. The ‘publish or perish’ dilemma may also explain the tendency to use the most common references. As more scholars enter the academia the scientific production and number of outlets grow exponentially. This may hinder scholars’ ability to accurately review the state of the art of a given field of knowledge. On the other hand, scholars may also focus their attention on ‘hot subjects’ to maximize their chances of publishing, which may result in a de´ja` vu feeling upon using the same approaches and references. Therefore, along with the open mindedness from the reviewers and editors, IB would also benefit from new and daring ideas and approaches from authors.

Limitations This chapter has some limitations. First, a limitation concerns the sample selected. We used the articles published only in leading IB journals thus not including a large number of journals that also publish IB-related research. While we are confident that our sample portrays a truthful image of the extant IB research, we also acknowledge that is commonly accepted that JIBS, MIR and IBR are leading journals and regarded as the benchmark for current IB research. Notwithstanding, future studies may expand the sample to include both other IB journals and management/business journals such as the Strategic Management Journal, the journals of the Academy of Management and several others. The method employed is not free of criticisms. Bibliometric techniques allow us to analyse a large volume of publications but it is not amenable at understanding the context, or content, in which citations are used (Ferreira, 2011; Ramos-Rodrigue´z & Ruiz-Navarro, 2004). That is, we do not do a content analysis of the articles and we cannot specify why and in what condition a certain citation is made. Authors may cite a work to criticize it, build on the arguments and expand, demonstrate knowledge of the field or

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simply to cite their own works. Not being able to discern the underlying motives for the citations hinders the richness of our analyses. Future studies may complement large-scale bibliometric techniques with in-depth content analyses to overcome this shortcoming. Moreover, a content analysis permits additional analyses, for example, examining what were the actual contributions that theories (e.g. RBV, TCT, institutional) made to the discipline, and also how the insights and findings in one paper are used by those that cite it. We present a bibliometric analysis of the research published in leading IB journals over an extended period of time, to delve into the trends and evolution of the IB field, the most cited works and the intellectual ties binding words and presumably scholars. While bibliometric studies are not novel in management/business studies, we contribute to comprehend how the discipline evolved. While the roots of IB may be on economics, trade theory and macro environmental dimensions of home and host countries (see also Liesch et al., 2011) the focus has gradually been shifting to firms and firms’ strategies and performance. As the world remains in constant flux so will evolve the demands of scholars with novel challenges emerging and older ones reviving. Perhaps the future will be again more determined by external factors and perhaps dimensions of public policy and political risk, but it is likely that a focus towards the MNE and the management and organization of its operations will continue. IB research will certainly have to deal with new problems, new organizational forms and new environmental conditions that will push the discipline to evolve into incorporating yet other theories and perhaps develop its own conceptualizations. The continuous demand to explain new realities such as the disruptions that came in the wake of the September 11 terrorist attacks, the governance issues financial institutions and banks face, or the more recent financial crisis in Europe and the United States pressures scholars to seek explanations and assist firms in their operations. The outcome may be, at least to some extent, the partial dismissal of current, or traditional, theories and will probably change the intellectual structure that supports IB research. As the discipline evolves so does the intellectual structure binding scholars, schools, theories and phenomena.

ACKNOWLEDGEMENTS We thank the research assistance of Dora Ferreira and the financial support of the Polytechnic Institute of Leiria, Portugal. We also would like to thank

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the editors Timothy M. Devinney and Torben Pedersen and the participants at the Advances in International Management Workshop for their insights and suggestions

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PROGRESS, MATURITY OR EXHAUSTION? SOURCES AND MODES OF THEORIZING ON THE INTERNATIONAL STRATEGY – PERFORMANCE RELATIONSHIP (1990–2011) Xavier Martin and Koen van den Oever ABSTRACT We examine patterns and changes in the use of various theoretical perspectives, and in the approach to testing individual or combinations of theories, within the field of international strategy that constitutes one of the major areas of international business (IB) research. We conduct a systematic bibliometric analysis of 22 years’ worth of empirical papers. We generate tabular evidence and introduce the use of network graphing methodology to report and analyse the co-occurrence of theories. We find a changing distribution of theoretical perspectives, indicative of a recentring of the field around strategic and organizational perspectives. This is accompanied by use of more complex approaches to testing contingencies of the sort likely to result from these theory combinations,

Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 331–361 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026018

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especially across firm, interfirm and institutional levels of analysis. We thus generate and discuss critically a quantitative and graphical overview of the progress of international strategy research. This creates unique and comprehensive insights into the development of theory and empirics in IB. We draw lessons for academics and report practical recommendations for the conduct of research. Overall, our study sheds new light on the disciplinary nature of IB research and its interplay with related fields and disciplines. It explicates patterns of theory accretion alongside patterns of theory testing and refinement. It provides a comprehensive map of the field of IB strategy as it evolved since 1990 and illuminates its future.

INTRODUCTION Perhaps the most basic, and yet the most challenging, issue for international strategy research – and thus for one of the main branches of international business (IB) research – is to conceptually and empirically link the choice of strategy with performance outcomes (Caves, 1998; Martin, 2013). This article examines IB literature since 1990 to chart the development in bases and modes of theorizing in this area. We use content analysis and descriptive bibliometric techniques to document and explain the change in the type of theorizing as the field is growing and (hopefully) getting more careful about the boundaries of its theories. In so doing, we make several contributions. First, we document the changing prevalence of various theoretical perspectives. Second, we demonstrate how perspectives have been used in combination with each other, with specific patterns of commission and omission. Third, we discuss to what extent this can be interpreted as evidence of progress, maturity or perhaps exhaustion. This paper thus contributes to an important debate about the future of a key area of IB (Martin, 2013; Shaver, 2013).

Concepts Little consensus exists among scholars regarding the strategy concept; nevertheless, its essence can be stated as ‘the dynamics of the firm’s relation with its environment for which the necessary actions are taken to achieve its goals and/or to increase performance by means of the rational use of resources’ (Ronda-Pupo & Guerras-Martin, 2012, p. 182). In this paper,

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strategy refers to choices pertaining to the rate, scope (including degree of diversification) and means (especially entry modes) of international expansion and operations, and to the means of coordinating the multinational corporation (MNC). Performance pertains to various dimensions of financial, commercial and technological outcomes, which may be measured at various levels (MNC, subsidiary, even industry and country); this diversity of constructs is necessary for development in theory, though it is also a potential source of incoherence in empirical research (Martin, 2013). When referring to a ‘theoretical perspective’, or ‘theory’ in short, we mean a coherent set of concepts and assumptions that has achieved sufficient paradigmatic recognition to have both theoretical weight and meaning as a commonly understood perspective (Martin, 2013). We track theories as authors identify them. In using ‘theory’ in short, we acknowledge that there may be debate among scholars as to whether or not a given perspective should be labelled a theory, a view or via some other means; we also recognize that, in any instance, citing even the most accepted ‘theory’ does not substitute for explicating specific causal mechanisms from which one develops precise and refutable predictions (Thomas, Cuervo-Cazurra & Brannen, 2011). Likewise, we do not aim to definitively classify theories within broader disciplinary perspectives, since such assignments are often ambiguous in such a cross-disciplinary domain as IB; we offer some general conclusions in this respect where assignment is straightforward (e.g. transaction cost economics is part of economics), and the reader may find below enough information to draw their own further conclusions. We do, however, categorize all papers based on the manner in which they use theories and contribute to their development. Our categorization builds on two dimensions: (1) the number of theories being used in a given paper and (2) whether the point is to apply and possibly extend a theory, or to narrow it by specifying its boundaries. Regarding (1), the number of theories used differentiates primarily between single-theory contributions and contributions that work with more than one theory (we coded more than two theories where relevant). Regarding (2), we distinguish between analyses that aim to apply one or more theory to extend their reach, i.e. theory applications, and analyses that specify a theory’s boundary, i.e. theory pruning. Altogether, we identify the following categories of uses of theory:  Among single-theory contributions  Single-theory addition: This includes papers that centre on demonstrating the explanatory power of a single theory, and aim to provide

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thorough and original tests of the theory’s predictions. An example is Hennart’s (1991) application of transaction cost economics to joint venture vs. wholly owned entry, using firm-level rather than industrylevel predictors.  Single-theory pruning: This involves setting boundaries within a theory by ascertaining its core assumptions. For instance, Cuypers & Martin (2010) honed in on the internal logic of real options theory to demonstrate that it applies in one uncertainty condition (exogenous uncertainty) but not inherently in another (endogenous uncertainty).  Among multiple-theory contributions  Theoretical integration: This includes papers that bring two or more theoretical perspectives to bear independently on a given phenomenon. An example is Brouthers’ (2002) juxtaposition of transaction cost and institutional theories on the study of mode of entry choice and performance.  Acid test: This involves contrasting two theories in terms of their predictions (and assumptions) so that a test can be conducted that differentiates sharply among them and supports one over the other (Leavitt, Mitchell & Peterson, 2010).  Theoretical synthesis: This involves harnessing one theory to specify the boundaries of another (and sometimes vice versa). For instance Martin & Salomon (2002, 2003a) synthesize knowledge-based and internalization theories about the effect of tacitness on entry mode, and then add another layer of synthesis by postulating that these effects also depend on firms’ knowledge transfer capacities. In turn, synthesis may take one of three forms, which are not mutually exclusive (Boyd, Haynes, Hitt, Bergh & Ketchen, 2012):1  Sample splitting involves dividing the sample into two or more subsamples, based on one theory, and testing for effects associated with another theory with a view to establishing whether the latter effects differ across subsamples.  Moderation involves a variable associated with one theory interacting with a variable associated with another theory.  Mediation involves one theory’s variable operating through another theory’s variable. This categorization allows us to document and reflect on the propensity for international strategy and business researchers to refine and combine

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perspectives. It thus contributes to a comprehensive overview of the foundations and use of theory in this IB area.

Methodology We use Boyd et al.’s (2012) review on the use of contingency hypotheses in strategic management research as a template for the design of this study, using the most relevant portions of it (given the page constraint here) and augmenting it with a co-occurrence network analysis and methodological discussion to generate greater insight into the specific issues associated with the study of the performance effects of (international) strategy. Since our goal is to assess theorizing and related methodology in international strategy research, we examine a longitudinal set of publications from the most representative IB journal. Specifically, we examine articles published in the Journal of International Business Studies (JIBS) between 1990 and 2011, i.e. a 22-year period that we split into two equal 11-year periods in some analyses to detect trends. We focus on JIBS since it is the most prestigious journal in the domain of IB (with a three-year impact factor of 3.557 in 2011), is associated with the largest dedicated scholarly association in this area (the Academy of International Business) and published the largest number of articles on the topic under investigation here. Given the journal’s scale and prestige, we take articles within it to contain high-quality theoretical and empirical rigor in IB research, and to be representative of international strategy research. Our unit of analysis is the individual article. Starting with an initial pool of 1,249 articles that were published between 1990 and 2011, we initially identified all quantitative papers for further analysis. Excluding purely theoretical papers, editorials, book reviews and qualitative papers left us with a sample of 763 quantitative articles. Since we wanted to study the papers that address the relationship between strategy and performance, we then excluded articles which only focused on performance or strategy (but not on both) or that discussed neither performance nor strategy. We used the following keywords to assess whether an article should be considered as an international strategy article: strategy, mode, internationalization, control, ownership, export, contract, franchis, licens, turnkey, management, joint venture, greenfield, acquisition and subsidiary. If one of these keywords was identified as a variable in the study, we retained the article in the sample at this stage. This left us with a sample of 392 articles. Thereafter, we assessed with the following keywords (based on Hult et al., 2008)

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whether these articles treated one or more dimensions of performance as a variable in their study:  Financial: sales, return, profit, earnings, stock price, stock market price, growth, Tobin (for Tobin’s q);  Operational: market share, efficiency, new product, innovat, quality, productivity, satisfaction, retention, value-added, cycle time, patent, lead time, overtime, market power, stability;  Overall: reputation, survival, achievement, performance, goal fulfillment, spillover effect. This left us with a sample of 188 articles that included both strategy and performance as dependent or independent variables. We then excluded articles that used a methodology that does not support the range of methodologies in our categorization (e.g. studies with simple mean comparison tests). This left us with a sample of 160 articles. One coder examined all articles. A second coder examined a random subset, establishing strong inter-coder reliability, which we deem sufficient since all articles were electronically searchable. To accurately compare the papers, we excluded from the sample articles that discussed only the impact of performance on strategy rather than the effect of strategy on performance (though the remaining articles may have considered the possibility of reverse causation). This led us to exclude six articles from the sample.2 Finally, we excluded nine articles that were not comparable with the other articles in the sample for various reasons; these articles dealt with marketing topics, focused on country-of-origin effects rather than strategy, or measured strategy at a level different from the firm and were incommensurable with the rest of the sample. Our final sample contains 145 articles that studied the effect of international strategy on performance. Our content analysis is organized as follows. First, we report descriptive statistics and trends in the study of the strategy–performance relationship. Second, we report on the different theories used in these articles, using network inference. Third, we report on the manner in which theories get refined or combined, using the categorization of theoretical work described above. Fourth, we discuss how this work can inform thinking about the prospects for IB. Fifth, we provide recommendations for the conduct of future research.

Descriptive Statistics Our sample includes articles that study the impact of strategy on performance. Fig. 1 depicts the absolute number of those articles published

Progress, Maturity or Exhaustion? Sources and Modes of Theorizing

Fig. 1.

Fig. 2.

337

Absolute Number of Articles Relating Strategy to Performance, Per Year.

Proportion of Articles That Relate Strategy to Performance, Per Year.

in JIBS each year. The average for the whole period is 6.59 strategyperformance articles per year, with a rising, if uneven, trend since 1993. Of course, this trend may simply be due to the fact that JIBS published more articles in recent volumes. Thus, Fig. 2 depicts the relative number of strategy-performance articles, that is the number of strategy-performance articles divided by the total number of articles published in JIBS during that year. On average, 11.6% of the articles in JIBS studied the effect of strategy on performance, although that proportion goes up to 19.0% when considering only empirical articles. Furthermore, we once more find an upward trend, again with peaks and troughs. Overall, these figures show that the study of the link between strategy and performance has become, and remains, one of the main themes in IB research in the last two decades.

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THEORETICAL PERSPECTIVES Overview and Theoretical Perspective-Level Trends We then classified the sample articles based on their theoretical framing. For this purpose, we used the theoretical labels as reported by authors, except that we combined labels that are unambiguously synonymous, such as the ‘Uppsala model’ and ‘internationalization’ (see the title of the retrospective paper by Johanson & Vahlne (2009)). Most articles explicitly mentioned which theory they used. In other cases, the theories used were coded by reading the introduction, theory and hypothesis development sections of the papers (see also Boyd et al., 2012). The appendix reports the keywords used for this purpose and two examples of papers using each theory. Table 1 shows the number of times each theory is used per year. The theoretical perspectives are listed alphabetically at this stage. Since one paper can use multiple theories, the total number of theories used exceeds the number of papers examined. The years 1991 and 1992 are excluded since no strategy-performance paper appeared in these volumes (see Fig. 1). Table 2 reports the counts and frequencies of the theories for two equal time windows, 1990–2000 and 2001–2011, and for the whole study period (‘Total’). We used equal windows for ease of interpretation. In this table, perspectives are listed based on their frequency of use over the total study period. Looking at Tables 1 and 2 allows us to determine that some theories rose or declined in their popularity. Contingency theory was especially popular in the first period (1990–2000), and lost some of its relative popularity in the second period (2001–2011). It was the most commonly used theory in the first period (used by 16% of papers), and the sixth most common in the second period (6% of the papers); although with the overall number of papers increasing, contingency theory still featured in more papers in the second period (12) than in the first period (10). Another notable drop, and if anything more remarkable given its IB specificity and the role it played in the development of the field, is in the use of the Dunning’s (1973) OLI framework. This was used in 9% of the articles in the first period, but hardly appears in the second period (1%). The absolute number of OLI papers also dropped sharply, from six to one. Conversely, two perspectives rose sharply in popularity between the two periods: institutional theory and organizational learning. Institutional theory was used in 5% of the articles in 1990–2000 but 15% of the articles in 2001– 2011, when it became the most popular theory in studies of the strategy– performance relationships. This is all the more remarkable as institutional

Total

Number of Uses of Each Theory, Per Year.

1

5

1

1

1

1 1

6

1

2

2 1

10

1

2

1 1

1

4

13

1

1 1 3

1

3

1

1 1

9

1

2

1

1 1

1 1 1

6

1

1 1

1 2

8

1

1 1

1

2

2

6

1

1

1

1 1 1

15

1

1 1 3

1 1

3 2

2

12

1 2 1 1 1

4

1

1

20

1

1 3

1

4 4 3 2 1

4

1 1

1

1

11

1 2 1 2 1

1 1 1

1

9

2

1

1

1

2 1 1

16

1

1 2 2

3

1 1 3 1

1

26

1 1

1 1 4

2 1

1 1 5 1 1 2 3

1

42

2 1

1 5

4

2 7 4 1 6 4

5

30

2 1 4

1 1

3 3

1 5 7 2

15

2

2

2 1 1

1 3 1

1

1

263

14 4 22 18 33 16 11 23 13 7 18 5 1 7 14 34 4 15 4

1990 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total

Agency Behavioural decision Contingency 1 Industrial organization Institutional Internalization Internationalization Knowledge-based Network OLI Organizational learning Population ecology Product life cycle Real options Resource dependency Resource-based Social exchange Transaction costs Upper echelon

Theoretical Perspective

Table 1.

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1990–2000

4 3 10 6 3 3 3 6 1 6 2 0 0 1 3 7 1 5 0

Theoretical Perspectives

Agency Behavioural decision Contingency Industrial organization Institutional Internalization Internationalization Knowledge-based Network OLI Organizational learning Population ecology Product life cycle Real options Resource dependency Resource-based Social exchange Transaction cost Upper echelon

10 1 12 12 30 13 8 17 12 1 16 5 1 6 11 27 3 11 4

2001–2011

Counts

14 4 22 18 33 16 11 23 13 7 18 5 1 7 14 34 4 16 4

Total 0.06 0.05 0.16 0.09 0.05 0.05 0.05 0.09 0.02 0.09 0.03 0 0 0.02 0.05 0.11 0.02 0.08 0

0.05 0.01 0.06 0.06 0.15 0.07 0.04 0.09 0.06 0.01 0.08 0.03 0.01 0.03 0.06 0.14 0.02 0.06 0.02

2001–2011

Frequencies 1990–2000

Unweighted

0.05 0.02 0.08 0.07 0.13 0.06 0.04 0.09 0.05 0.03 0.07 0.02 0 0.03 0.05 0.13 0.02 0.06 0.02

Total 1.33 1.17 8.5 2.5 1.33 1.17 2 2.33 1 5 0.67 0 0 1 1.33 3.17 0.5 2 0

1990–2000 6.5 0.33 5.78 6.45 15.7 6.58 5.25 8.58 5.5 0.5 10.25 2.58 1 4.75 4.86 13.53 2.33 6.16 2.33

2001–2011

Counts

7.83 1.5 14.28 8.95 17.03 7.75 7.25 10.91 6.5 5.5 10.92 2.58 1 5.75 6.19 16.7 2.83 8.16 2.33

Total 0.04 0.03 0.24 0.07 0.04 0.03 0.06 0.07 0.03 0.14 0.02 0 0 0.03 0.04 0.09 0.01 0.06 0

0.06 0 0.05 0.06 0.14 0.06 0.05 0.08 0.05 0 0.09 0.02 0.01 0.04 0.04 0.12 0.02 0.06 0.02

2001–2011

Frequencies 1990–2000

Weighted

Table 2. Counts and Frequencies of Theories Used Per Time Period.

0.05 0.01 0.1 0.06 0.12 0.05 0.05 0.08 0.05 0.04 0.08 0.02 0.01 0.04 0.04 0.12 0.02 0.06 0.02

Total

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theory, at least as espoused by sociologists, is not inherently a theory geared at explaining firm performance (Martin, 2013). Organizational learning was used in 3% of the articles in 1990–2000 and in 8% of the articles in 2001– 2011. This rise is all the more noteworthy as it occurred primarily during the last five years of this study (2007–2011) and at a time when this perspective would be considered relatively mature in related management fields. Furthermore, the other main theories have been quite stable in terms of their popularity with scholars. The resource-based view and the knowledge-based view remained popular theories to explain the relationship between multinational strategy and performance. Industrial organization also remains a somewhat popular theory to explain this relationship. The perspectives that appeared or grew in the later period but remained relatively marginal include real options, social exchange, population ecology and upper echelon theory. Vernon’s (1966) classic product life cycle model, another IB-grown idea, appeared only once in our sample. In summary, these relatively marginal theories were used in 9% of the articles in 1990–2000 and 12% of the articles in 2001–2011, reflecting growth in the number of such theories used rather than a breakthrough in the presence of any specific new theory. Although some less common theories appeared or exhibited jumps in frequency during the second time period (e.g., population ecology and network research respectively), it is also worthwhile noting that no theory used in the first period disappeared altogether during the second period. This shows that theories tend to accrue rather than being weeded out in this research area, a pattern that makes the discussion of theory pruning all the more relevant (see below). The above patterns are based on incrementing the count of a theory by 1 each time it occurs in a paper. An alternative approach is to weigh each occurrence inversely to the number of theories, i.e. if N theories are used in a paper, each receives a weight of 1/N for that paper. As can be seen in the ‘Weighted’ columns of Table 2, this alternative does not change the results for most theories substantially, though a few points can be noted. First, OLI was comparatively more likely to be used on its own, as befits its comprehensive, multi-level scope (Martin, Swaminathan & Tihanyi, 2007; Peterson, Arregle & Martin, 2012). Another theory that often stands alone is real options, which makes sense since its focus is on risk and the variability of returns rather than their absolute levels (Cuypers & Martin, 2006a, 2006b, 2007). Conversely, contingency theory was more frequently used alongside other theories. Still, overall, our conclusions so far about which theories are core or more marginal, and which saw their use rise and decline, are confirmed by these weighted analyses.

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Co-Occurrence Networks To draw further insights into the intellectual structure of the research topic, we sought to group theories into coherent sets. For this purpose, we conduct an inductive network analysis. In so doing we build on the fact that the majority of the papers in our sample make use of more than one theory (56% in the first period and 59% in the second period) and that all frequently used theories are used alongside one or more other theory in some papers. That makes it possible to identify the propensity of pairs of theories to appear jointly in papers. We thus calculated the adjacency matrices for the two periods (1990–2000 and 2001–2011) as well as for the entire sample. Each adjacency matrix reports the number of times two theories are used together in one paper. In this analysis, the theories are the nodes and the links between the theories are the papers where the co-occurrence is found. For instance, if a paper used population ecology and contingency theory to explain the link between strategy and performance, we increment the link between population ecology and contingency theory by one unit. Tie strength thus increases when two theories appear more frequently in the same paper.3 Figs. 3–5 show the outcome, with the size of each node denoting how many co-occurrence links (weighted as just described) it has in aggregate with other nodes (theories). The larger the node, the more frequently it is linked with other theories overall. The thickness of the links denotes how

Fig. 3.

Co-Occurrence Network for 1990–2000.

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Fig. 4.

Co-Occurrence Network for 2001–2011.

Fig. 5.

Co-Occurrence Network for 1990–2011.

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many papers link two particular theories with each other, i.e. the tie strength. In addition, the layout of the networks is not random. We used metric multi-dimensional scaling so that theories cluster around each other when they have strong ties. We then used stress minimization to optimize the layout. For instance, in the figures the resource-based view and the knowledge-based view appear very close to each other, representing graphically the fact that they are the most often used together in one paper. The more distant the nodes (theories) are from each other, the less they are used together in one paper, e.g. in Fig. 4, upper echelon theory was used once each with organizational learning, network literature and the resource-based view, so it lies on the periphery of the network graph. Finally, a theory that appeared only on its own in all papers – i.e. that cooccurred with no other theory – is represented as an isolate. Not surprisingly, isolates are relatively scarce (e.g. product life cycle) or nascent (network theory before 2000) theories. Moreover, we calculated the closeness centrality of each node. This measures the aggregate closeness to all other nodes in the network (Freeman, 1979). Nodes with high closeness centrality can be regarded as being part of the core of the network (Ronda-Pupo & Guerras-Martin, 2012). Conversely, nodes with low closeness centrality occupy a peripheral position (Ronda-Pupo & Guerras-Martin, 2012). Following Ronda-Pupo and Guerras-Martin (2012), we stratified the nodes in the network into three segments: periphery (shown in black and circle-shaped), semi-periphery (grey and rectangle-shaped) and core (white and diamond-shaped). Last, we calculated the density of the network for each period. This refers to the completeness of the network (actual number of ties divided by maximum number of ties) and reflects the internal coherence among nodes (Friedkin, 1981). Network density was 0.23 for 1990–2000 and 0.35 for 2001–2011. This increase, though partly explained by the increasing number of papers, is especially remarkable given that network density tends to decrease with the size of the network. Three more theoretical perspectives were used in multi-theory papers in the second period, which tended to depress density; indeed when density for 2001–2011 is computed for the same set of theories as found in the first period, density increases to 0.43. These figures imply that more, and more different combinations of, theoretical perspectives are being used to study international strategy. We now turn to the substantive interpretation of these graphs in terms of the relationships between theories. First, a general comparison of Figs. 3

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and 4 is informative as to which theories become more prominent and central, and which waned, between the first and second period. This analysis shows that internalization, transaction costs, agency and behavioural decision theories have decreased in prominence in the co-occurrence matrix, meaning that they are more seldom found alongside other theories in the literature. These leave room, in the second period, to a growing cluster around the resource-based and knowledge-based views and institutional theory. The graphs imply that perspectives that were once central to the conceptual development of IB as a scholarly domain, namely internalization theory (and related transaction costs economics and agency theory) as well as internationalization, became less prominent and less central to theoretical recombination in the part of the domain of interest here. This is all the more important as we found, as discussed earlier, that the study of the strategy-performance link is itself gaining in prominence within IB. In terms of closeness centrality, the graphs imply that theories that originated within IB (internalization, OLI) and related ones grounded in economics (agency theory, transaction costs) have become more peripheral over time. At the same time theories originating in strategic management grew in prominence (resource-based view) or started appearing (upper echelon theory). Furthermore, theories associated with macro-organization research (network, resource dependency) also grew in importance over time. Although the assignment of some other theories to broader disciplines is more ambiguous, the general pattern implies that theoretical IB conversations increasingly feature perspectives from strategic and organizational management. This is not to say that classical IB theories are disappearing. Their apparent drift to the periphery may actually indicate that they are more often used as stand-alone theories, befitting their specialized nature and their ability to explain IB outcomes on their own. Internalization theory, in particular, remains a relatively central node and one that is quite frequently used (indeed, per Table 2, its relative use grew). However, other IB-grown perspectives are declining, and in general they and economic theories are less a part of the theoretical debates in international strategy and business. The changing landscape of theory in international strategy also implies a change in the intensity of theory combinations. Thus, we turn next to the investigation of how theories are used individually and jointly in this IB area.

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MANNER OF THEORY REFINEMENT AND COMBINATION Overview The co-occurrence of theories as described above makes it all the more important to understand how theories are brought together, i.e. in what ways they feature jointly in international strategy research. As indicated in the Concepts section above, theories can be used differently, whether alone or alongside other theories. A paper may use a single theory to introduce it or expand its application (single-theory addition); use multiple theories independently to explain a given phenomenon (theory integration); revisit one theory to challenge its core assumptions and narrow rather than expand its scope (theory pruning: single theory pruning); pit two or more theories directly against each other with a view to sorting them out (theory pruning: acid test); or use multiple theories with one theory specifying the boundaries of the other theory (theory synthesis). Theory synthesis can in turn be done via splitting the sample, moderation and/or mediation analysis. Table 3 summarizes, per period and overall, how papers go about using theory in accordance with this categorization. As Table 3 indicates, no approach to theory diminishes in absolute frequency of use between the first and second period, and new approaches to synthesis appear. That is, the range of approaches to theorizing is getting broader in empirical international strategy research. Starting with the major categories identified in bold in Table 3, the single most common approach in each period is the use of a single theory, typically to expand its use rather than refine its boundaries. However, the most notable increase is in the number of articles doing a theoretical synthesis; this rose fivefold between 1990–2000 and 2001–2011. In general, these data show that the use of multiple theories is on the rise. During the second period, one fifth of the strategy-performance articles theorized by actively combining perspectives – mostly as synthesis (23%), but also as acid tests pitting one theory against the other (3%). Thus, empirical strategy papers published in JIBS have combined theories in increasingly complex ways. We next compare trends in theory addition vs. theory pruning. Although single-theory addition is the most common category, its share declined slightly over time (from 42% to 38%). Meanwhile, the share of theory pruning went up (from 5% to 8%, combining single-theory and acid test versions). This dual pattern is important because, absent systematic efforts

Single-theory addition Theoretical integration Theory pruning, of which: Single-theory pruning Acid test Theoretical synthesis, of which: Split sample (alone) Moderation (alone) Mediation (alone) Both moderation and split sample Both moderation and mediation Both mediation and split sample

16 15 2 1 1 5 0 2 3 0 0 0

41 33 9 6 3 25 2 15 3 3 1 1

2001–2011

Counts

57 48 11 7 4 30 2 17 6 3 1 1

Total 0.42 0.39 0.05 0.03 0.03 0.13 0 0.05 0.08 0 0 0

1990–2000

Categories of Theorizing Per Time Period.

1990–2000

Table 3.

0.38 0.31 0.08 0.06 0.03 0.23 0.02 0.14 0.03 0.03 0.01 0.01

2001–2011

Frequencies

0.39 0.33 0.08 0.05 0.03 0.21 0.01 0.12 0.04 0.02 0.01 0.01

Total

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to discover the limitations of extant theories, the explosion in the number of theories that we documented would give rise to ever more ambiguity in the field’s theoretical apparatus (Cuypers & Martin, 2010; Leavitt et al., 2010). In this respect, it is hopeful that the rise in the absolute number of single theory-adding work has been accompanied by a numerically lesser, but relatively growing, amount of effort at determining the boundaries of theories. Turning to the sub-categories of Table 3, theory pruning encompasses two approaches, namely single-theory pruning and the acid test. Both approaches are used more often in the second period. Since there was only one single-theory pruning paper and one cross-theory acid test paper in the first period, it is not very meaningful to compare the rates of use of these approaches across time periods. It appears that the single-theory pruning approach became somewhat more popular than the acid test approach (seven vs. four instances in the second time period).While this is relevant when it comes to theories that are relatively specialized or stand-alone, such as real options (Cuypers & Martin, 2010), the relative scarcity of acid tests begs the question of whether and how the theoretical landscape may be ‘cleared’ when it comes to the multiple-perspective contributions which we showed are becoming more frequent.

Approaches to Theoretical Synthesis For this purpose, we examine the use of theoretical synthesis in more detail. The data show a growth not only in its frequency, but also in the diversity and complexity of manners in which it is conducted between the two periods. The theoretical synthesis articles in 1990–2000 only used moderation or mediation approaches, and no paper used both – though the number of papers involved was admittedly small in that period (five). By contrast, in 2001–2011, split sampling was also used and combinations of these three approaches also came into being (Fig. 6). While mediation was the most frequently used way to synthesize two or more theories in 1990–2000 (albeit based on just five cases), in 2001–2011 moderation was the most frequently used single approach. Furthermore, while mediation was still used and sample splitting came into use, both approaches were often used together with moderation. In particular, sample splitting was used more often in combination with moderation than alone. This can be seen both as a positive and as a negative sign. On the positive side, this reflects the complementarity between these approaches, and suggests that researchers

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30 Both mediation and split sample

Number of papers

25

Split sample 20 Both moderation and split sample

15

Moderation

10

Both moderation and mediation

5

Mediation

0 1990-2000

2001-2011

100% Both mediation and split sample

90% 80%

Split sample

70% 60% 50%

Both moderation and split sample

40%

Moderation

30% Both moderation and mediation

20% 10%

Mediation

0% 1990-2000

Fig. 6.

2001-2011

Theory Synthesis Sub-Categorization: Absolute and Percentage Distribution.

are more thorough in evaluating their moderation results. On the negative side, this indicates that some of the most powerful uses of sample splitting for the field, namely in explicating the differences between contexts that are so distinctive to IB in general (Koen, 2005; Kotabe, Martin & Domoto, 2003; Martin, Salomon & Wu, 2010), may be understudied in recent research (Martin, 2013). It is also worth noting that the use of mediation has stagnated in terms of its absolute numbers, as well as declined sharply in relative terms. It thus accounted for 20% of syntheses during the 2001–2011 period (including combinations with moderation or sample split), down from 40% in

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1990–2000. Yet mediation is especially suitable for establishing the causal structure of phenomena, partly because it is inherently a causal methodology (Miller, del Carmen Triana, Reutzel & Certo, 2007; Pearl, 2009). This implies that empirical work in international strategy, and we suspect in IB more generally, is lagging in explicating the causal structures that are inherent to complex foreign expansion phenomena. This is all the more unfortunate as panel data, of the type that is increasingly available to IB scholars and underlies many other approaches to synthesis, can also enable powerful mediation testing (MacKinnon, Fairchild & Fritz, 2007). Conversely, in the second time period, full 76% of the theoretical synthesis articles used moderation (alone or with a combination of mediation or split sampling) to synthesize two or more theories. Although this development may be welcome with respect to the incorporating contingencies into international strategy reasoning (see also Boyd et al., 2012), one methodological implication is worth highlighting: Interaction models are comparatively complex to interpret, and they may yield little practical insight, particularly when the dependent variable is limited or is a count variable (Shaver, 2007). This limitation extends to the case of multilevel (Peterson et al., 2012) and conditional or mixed outcomes (Martin et al., 2007).

DISCUSSION Having documented the changing prevalence of various theoretical perspectives in empirical papers in international strategy published in JIBS, and changing patterns in the way these papers use individual theories or set of theories, we can now return to the question set out at the beginning of this paper: Is this evidence of progress, maturity or exhaustion in the development of scientific ideas and evidence in this critical area of IB scholarship? That is, is the area bound to decreasing returns, or conversely one of on-going and even greater opportunity (Martin, 2013; Shaver, 2013)?

Progress Starting with the most optimistic side of the argument, we see some evidence of progress for international strategy research in our data. First, and perhaps most obviously, there has been an increase in the number of publications on this topic in the leading IB journal (JIBS), both in absolute

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and relative to other topics (Tables 1 and 2). Thus, the ‘market for ideas’ – or more precisely the editorial process – demonstrates increasing interest in the issues that link MNC strategy and performance, and acceptance of this work into print, although analysis outside the scope of this study, such as of forward citations, could tell us yet more about whether this acceptance is accompanied by impact. Second, we see a positive sign in the fact that the trends towards extra theory and extra methodology that we discussed earlier as separate phenomena are actually occurring simultaneously. At the same time when more theories are being used (overall as well as per paper), more complex and plausibly more thorough methodologies for separating out main and contingent effects are being implemented. This simultaneity appears to be purposeful, with researchers being aware of the requirements of testing their theories and following these requirements. Further research could examine whether the extra theory and the extra methodological attention occur at the level of individual papers (rather than at the level of the field as documented here), for it bears remembering that methodological sophistication alone and for its own sake – and likewise theoretical sophistication alone – is no guarantee or indicator of progress (Shaver, 2013). However, our evidence provides grounds for optimism that the international strategy field is growing to encompass a broader theoretical and methodological toolkit in a manner that helps future IB researchers maintain appropriate fit between predictions and the means of testing them.

Exhaustion Turning next to the most pessimistic case, some potential signs of exhaustion, and even decline, can be found in some facets of the field. First, there is a relative, and in some cases absolute, decline of some theories, which we documented quantitatively and graphically as the literal marginalization of perspectives arising from economics and some born within IB. Our data document the rate and scope of a pattern that key representatives of these perspectives became concerned about 10–15 years ago (Buckley & Casson, 2001; Caves, 1998). Arguably, displacement of some theories by others is a healthy development in the evolution of IB as science (Kuhn, 1970). Indeed, John Dunning (2007), another foundational IB scholar, welcomed such a development insofar as it was borne out of recognition of the growing role of organizational and social factors in practice and in scholarship. However, this re-centring of the field implies

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that IB as a stand-alone discipline, and by extension primarily IB-trained scholars, can expect to face an on-going legitimacy challenge relative to related and ancillary academic fields. This is also borne out, and indeed reinforced, by casual observation of the decline in the number of independent IB academic departments and Ph.D. programmes. A second potential concern is whether the propensity to combine theories is not so much a sign of healthy progress as of defensive cobbling, as might happen if the gaps in one primary theory get stubbornly patched by introducing elements of other theories rather than recognizing the need for an outright alternative to the primary theory (Lakatos, 1999). However, we see as more compelling a more virtuous interpretation of our results, whereby the theories that have become central to the field explain different and complementary levels (firm resources, interfirm networks, institutional environment) that genuinely interact with each other (Peterson et al., 2012). This development may also allow more thorough and more differentiated coverage of the different corporate functions (R&D, manufacturing, production etc.) as they pertain to international strategy themes such as alliances and outsourcing (Gospel & Sako, 2010; Martin, 2002). Analyses of the path of individual theories and of their combinations, and of the subtopics thus covered, may shed further light on this.

Maturity We turn, finally, to a milder but nevertheless interesting possibility. Is international strategy, and indeed much of IB, simply exhibiting signs of maturity, i.e. is it achieving a state where a creditable balance of reinforcement and replacement accompanies the steady, if unspectacular, accretion of knowledge? We see two plausible signs of this in our data. First, we documented a relatively modest, but important uptick in the use of theory pruning. This now consists of more single-theory pruning (e.g. Cuypers & Martin, 2010) than acid tests – perhaps because the latter require strong ceteris paribus conditions that are difficult to attain in IB settings (see Leavitt et al., 2010). Unfortunately, the raw numbers also suggest that there is still deficit of pruning relative to addition. Nevertheless, we find evidence that some active cleaning up of the theoretical apparatus of international strategy is occurring, along with the abandonment of some perspectives. All of this is consistent with a science in progress, where theoretical perspectives are pitted against each other on their merit in solving empirical questions and ultimately in informing practice (Laudan, 1977).

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Second, IB scholars have engaged in a healthy amount of give-and-take with related topical areas, which is consistent with the flow of perspectives across Figs. 3 and 4. Three examples illustrate versions of this give-and-take. First, knowledge-based research originated both in IB (Kogut & Zander, 1993) and strategy (Grant, 1996) and is experiencing progress in both fields (Martin & Salomon, 2003a, 2003b; Salomon & Martin, 2008). Second, institutional theory, although it was first formalized outside of IB, has received ground-breaking input from IB research (e.g. Kostova & Zaheer, 1999). Third, real options theory originated outside IB but has been tested and pruned by IB scholars in a manner that would be all but impossible in other contexts (Cuypers & Martin, 2007, 2010; Kogut, 1991).

Towards Closure This pruning and give-and-take leads us to conclude that maturity is a better description of the state of international strategy research – and plausibly of IB more generally – than outright expansion or exhaustion. As IB scholars have gained a stronger understanding of the (institutional) environment as well as the strategic and organizational dimensions of the MNC, international strategy has established a robust foundation that supports both contingency building within IB and the exchange of concepts and empirical findings with other fields. This is not to ignore the relative inadequacies and failings of the field as discussed earlier, or the very real threats to its academic legitimacy. For example, the relative growth of international strategy within IB, which we have documented, is no guarantee that this area of IB can stand its ground relative to other areas of strategy scholarship. But equally, our analysis implies that the rise and (mostly relative) fall of various theories and methods within IB is not a matter of the field failing to add insight. Rather, it corresponds to the field encompassing a finer-grained understanding of interfirm and environmental contingencies, with a matching refinement of the approach to testing the contingencies and limitations of various theories.

RECOMMENDATIONS AND CONCLUSION This paper demonstrates that the study of the relationship between international strategy and performance is a vibrant topic, as befits one of

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the central themes in IB. Besides the sheer number of studies being published, we show that there has been a rise in the number of theories advanced in the pursuit of this topic. Although economic and IB centred perspectives remain in use, there has been a general movement – at least in the pages of JIBS over the last 22 years – towards greater use of strategic and organizational management arguments. Furthermore, the associated theories are increasingly used as components for developing more complex predictions in individual papers. For this reason, it is also relevant to note that the manner in which theories get used has changed, with more papers using one theory to set boundaries to another. While less prevalent, efforts at theory pruning are also gaining some ground, although perhaps not fast enough to keep up with the explosion of theoretical claims and the combinations being applied. Altogether, we provide consistent and systematic evidence that the strategyperformance articles published in JIBS are becoming more complex, and plausibly more sophisticated, over the years. The balance of theory accretion with the various approaches to adding or reducing the theoretical landscape will, in our opinion, become more important in IB and particularly with respect to research on the strategy-performance relationship. This will be critical if IB research is to remain both pragmatically fruitful and academically sound.

Recommendations Having illustrated the areas of co-occurrence and potential complementarities between theories – and by default having also shown those (perhaps implausible) pairings that could yet be pioneered – we will not endeavour here to guess what theory(ies) or combinations require more emphasis. However, our findings allow several recommendations regarding topic definition and the conduct of research. First, a thorough understanding of the international strategy– performance relationship cannot be attained without overcoming the conceptual and methodological hurdles raised by endogeneity, and specifically self-selection. Although the range of solutions is becoming better understood and applied within IB (Reeb, Sakakibara & Mahmood, 2012), Martin (2013) showed that some of the most powerful methodology for assessing the strategy–performance relationship remains underutilized. Furthermore, this is not just a matter of econometric modelling. Progress in this area requires a firm conceptual grasp of the factors that affect self-selection, even

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if some of these are unobserved, and sharp theorizing about the mechanisms that underlie performance. That is, theory and empirics go hand-in-hand (Martin, 2013). Second, a related gap in the literature we reviewed pertains to the attention given to reverse causation and the specification of intervening mechanisms. Greater attention to feedback and causal mechanisms, and to mediating factors, would advance the field and strengthen its inferences. Again, this is a matter of theory as well as methods. Third, we found that there remains a gap in the effort given to pruning our theories. In assembling the data for this study, we found a remarkable scarcity of replication studies. A rare instance, and compelling in correcting fallacies of earlier trust research in IB, can be found in Wasti & Wasti (2007). Partly, this scarcity results from the editorial policy of JIBS, though the issue is hardly limited to IB (Singh, Ang & Leong, 2003). In any instance, replication as well as extension should plausibly become a greater part of the apparatus of a mature IB field where theories get refined and pruned more systematically.

Contributions and Conclusion We have documented the changing prevalence of various theoretical perspectives in international strategy. In so doing, we introduced a networkgraph tool for the representation of bibliometric patterns, which we believe is new to IB. We have demonstrated a parallel pattern whereby theories are used increasingly in combination with each other, although our analysis of the manner of these combinations unearthed some gaps. Overall, our study informs an important debate about the prospects and future of a key area of IB (Martin, 2013; Shaver, 2013). We find, overall, that the parallel development in theory and in empirics is suggestive of a maturing field that participates in meaningful exchange with related fields – although this may come at the cost of, or perhaps simply reflect the existence of, some loss of theoretical independence such that IB functions less as a stand-alone field.

NOTES 1. Venkatraman (1989) identifies yet more forms of synthesis such as gestalt or profile deviation, but we could not find evidence of their use in the research reviewed here.

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2. This indicates that very few articles deal with the feedback effect of performance on strategy, and this is especially so in recent years. This is consistent with the relative decline in attention to theories that could support such research, such as behavioural decision theory. Still, further work dealing with feedback as well as reverse causation would seem well warranted. 3. In the same spirit as for Table 2, we also created versions of this analysis that assign lower weights to each co-occurrence when more than two theories were used in one paper. The weighting scheme is more complex and the alternative results less interpretable due to the network nature of the data used at this stage, but in any case the results are similar to those presented here.

ACKNOWLEDGEMENTS We acknowledge the insightful comments of Editors Timothy M. Devinney and Torben Pedersen, and participants at the Advances in International Management conference in London. All errors remain ours.

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APPENDIX THEORETICAL PERSPECTIVES: KEYWORDS AND REPRESENTATIVE WORKS Theoretical Perspectives Agency theory

Behavioural decision theory

Contingency theory

Industrial organization

Institutional theory

Internalization theory

Keywords

Information asymmetry, contract, moral hazard, alignment of interests, risk sharing Aspiration level, target performance, satisficing, goals, goal setting, managerial hubris in decision making Organizational size, structure, fit Market structure, competition, market position, timing of entry, concentration Conformity, legitimacy, isomorphism, institutionalization, institutions Intangible assets, market imperfection

Internationalization theory

Incremental process, learning, sequential internationalization

Knowledge-based view

Knowledge, knowledge transfer, capabilities

Network literature

Network, relationships, centrality, embeddedness

Examples

Gande, Schenzler, & Senbet (2009) Zou & Adams (2008) Seth, Song & Pettit (2000) Dow (2006)

Roth & Morrison (1990) Woodcock, Beamish & Makino (1994) Luo (1998) Li, Zhou & Shao (2009)

Aybar & Ficici (2009) Chacar, Newburry & Vissa (2010) Filatotchev & Piesse (2009) Doukas & Lang (2003) Contractor, Kundu & Hsu (2003) Barkema & Drogendijk (2007) Liu, Li, Filatotchev, Buck & Wright (2010) Makino & Delios (1996) Danis, Chiaburu & Lyles (2010) Chen & Chen (1998)

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Appendix (Continued ) Theoretical Perspectives

Keywords

OLI

Internalization, ownership advantages, location

Organizational learning

Learning, experience, knowledge

Population ecology

Density, legitimacy, competition, population, specialists, generalists Product life cycle, exporting, sequential internationalization Portfolio, real options, strategic investments

Product life cycle theory Real options theory

Resource dependency theory

Power, dependence, interorganizational relations

Resource-based view

Assets, capabilities, resources, competitive advantage, organizational performance Exchange relation, approval, status, reputation, flexibility and trust, distributive justice Governance structure, outsourcing, vertical integration, opportunism, asset specificity, uncertainty Senior management, CEO

Social exchange theory

Transaction cost theory

Upper echelon theory

Examples

Wooster (2006) Brouthers, Brouthers & Werner (1999) Bouquet, Morrison & Birkinshaw (2009) Ellis (2011) Zhou & Li (2008) Zhou & Van Witteloostuijn (2010) Cassiman & Golovko (2011) Chung, Lee, Beamish & Isobe (2010) Pantzalis (2001) Cadogan, Diamantopoulos & Siguaw (2002) Murray, Kotabe & Zhou (2005) Erramilli, Agarwal & Dev (2002) Morosini, Shane & Singh (1998) Luo (2002) Griffith & Myers (2005) Wooster (2006) Zhang, Li, Hitt & Cui (2007) Fernhaber, Gilbert & McDougall (2008) Herrmann & Datta (2002)

WHAT DO WE KNOW ABOUT THE SUCCESS AND FAILURE OF INTERNATIONAL JOINT VENTURES? IN SEARCH OF RELEVANCE AND HOLISM Michael Nippa and Schon Beechler ABSTRACT Rather than add another review of the numerous scholarly publications of success factors and performance of International Joint Ventures (IJVs) this study offers an overview of the extant research based on the findings, criticisms and recommendations of previous reviews. Scholars and practitioners interested in the research field may profit from our contribution in several ways. First, we provide a comprehensive overview of the state-ofthe-art of the field in a table listing the characteristics of the most relevant review studies published in leading management journals. These special reviews offer more detailed analyses of the studies under investigation, different frameworks and proposals for future research directions. Finally, we summarize the criticisms and recommendations of previous researchers that have been ignored and discuss why many of those recommendations have gone unheeded and how future research may benefit from more systematic development of this field. Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 363–396 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026019

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INTRODUCTION A volume that aims to answer the question of whether the field of International Business and Management has matured as a discipline after more than 50 years of endeavour definitely needs to address one of its main research streams, i.e. research on the antecedents and economic outcomes of International Joint Ventures (IJVs) since it is an important part of research on strategic alliances in an international context. Although frequently defined as legally and economically separate organizational entities formed and/or partially held by two or more legally independent firms headquartered in different countries (e.g. Geringer & Hebert, 1989; Reus & Ritchie, 2004; Shenkar & Zeira, 1987; Yan, 1998), IJVs are not restricted to arrangements that require shared stakes in equity. They may also appear as contractual agreements of two or more international partner organizations that pursue a joint business interest or temporal joint projects (e.g. Gale & Luo, 2004; Ozorhon, Arditi, Dikmen, & Birgonul, 2007). Thus, both forms, equity and contractual IJVs, constitute and are frequently subsumed under International Strategic Alliances (e.g. Inkpen & Beamish, 1997). Careful research that can move the field on IJVs forward has to address the topical overlap with the more general research on JVs and Strategic Alliances (Kogut, 1988). IJVs are a special case of JVs, which implies that while cross-border collaborations may exhibit additional success factors that are not relevant for domestic JVs (conflicting institutional contexts, cultural distance) or important moderating effects, the same principle economic rationales and theories apply for them too. However, many authors seem to consider both these matters (equity/contractual and international/domestic) of lesser relevance and abstain from clearly defining their research subject and samples. Consequently, the theories that they develop, their empirical findings, conclusions, and recommendations are potentially flawed. In the wake of globalization of businesses and international competition International Strategic Alliances and especially IJVs have been chosen by many firms to enter foreign markets (Kogut, 1988), to get access to advanced technologies, to gain knowledge and explore new business opportunities while sharing risks and complementary resources (Contractor & Lorange, 2002). Although one has to challenge Roy and Oliver’s (2009; citing GarciaCanal, 1996) appraisal that IJV growth has surged exponentially since the 1970s seriously (for a counter-example see Xia, Tan, & Tan, 2008), IJVs have certainly been an important organizational form in the international

What Do We Know about the Success and Failure of IJVs?

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management context for decades and there is no evidence of a future loss of significance (Luo & Park, 2004). While IJVs have many theoretical advantages and enjoy popularity as an organizational form, their performance, whether measured in economic value added, parent organization’s satisfaction or survival, however, turns out to be quite poor (e.g. Child & Yan, 2003; Delios & Beamish, 2004). Research has shown that strategic alliances at large (Jiang, Li, & Gao, 2008) and IJVs are unstable organizational forms that are frequently internalized, sold or liquidated (Beamish, 1985; Steensma, Barden, Dhanaraj, Lyles, & Tihanyi, 2008). Independently from the debate, whether this instability indicates an above-average failure rate of IJVs (Beamish & Delios, 1997; Hambrick, Li, Xin, & Tsui, 2001; Sim & Ali, 1998; Zhu, Speece, & So, 1998) or resembles that of alternative organizational modes such as wholly foreign owned enterprises (Delios & Beamish, 2004; Hennart, Kim, & Zeng, 1998) research on success factors of effectively managing IJVs has been a topic of growing research interest since the late 1980s. Research on the success or failure of IJVs, both in developed and developing countries, is a major research field within the strategic and international management discipline. Routinely citing seminal works by scholars like Friedmann and Kalmanoff (1961), Tomlinson (1970), Franko (1971) and Killing (1983), researchers in the field of IJVs have, since the beginning, proposed different theories and concepts such as transaction costs (Gatignon & Anderson, 1988; Kogut, 1988), bargaining power (Gomes-Casseres, 1990), social institutional processes (Child & Faulkner, 1998), imprinting (Yan & Gray, 1994) or cultural differences (Kogut & Singh, 1988; Tse, Pan, & Au, 1997) to explain both managerial motivation to establish and maintain IJVs and the variations of their performance. Quantitative, cross-sectional research on success factors for managing IJVs and for determining IJV exit became very prominent among IB/IM researchers particularly beginning in the early 1990s (e.g. Luo, 1997; Park & Ungson, 1997; Reus & Ritchie, 2004). Numerous scholars picked – more or less based on comprehensive theoretical considerations – factors that may affect the success or failure of IJVs. This resulted in a vast number of findings, interpretations and propositions. According to the most recent reviews of the field and taking into account the aforementioned differentiation difficulties, one has to assume that the number of IJV-centred articles in leading management journals alone likely exceeds 500. For this reason, it is impossible for new scholarly contributors to factor in all previous studies, their assumptions, specific samples and conditions, as well as the findings into new empirical research. Interestingly

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however, scholars have started to provide the research community with summaries and reviews of the emerging research field (Beamish, 1985; Kogut, 1988). In the course of mounting research on IJV success factors, especially with regard to the economic development of the People’s Republic of China and India, review studies that try to analyse, systematize, and assess the different insights published in order to identify propositions for future research directions have been published in reputed journals (see Table 1). However, even the relatively small number of review papers in the field of IJV performance and success factors seem to neglect – with rare exceptions – conclusions and recommendations of preceding studies, although they frequently cite them for what appears to be exculpatory reasons only. Additionally, there is no significant stocktaking of any effect of the reviewers’ recommendations regarding theory development, methodological issues or research directions on subsequent IJV research. To address these gaps and build on previous reviews of IJV success factor research and our own work in this field, the objectives of this chapter are: (1) to provide a brief up-date of previous empirical research on IJV success and exit factors based on relevant reviews; (2) a critical discussion regarding rigor, relevance, and perspicuity of studies and their findings; and (3) an analysis of the reasons that hamper adoption of previous calls for a reorientation of the research on success factors of IJVs.

REVIEWS OF FINDINGS REGARDING IJV PERFORMANCE Although one would expect that empirical studies of IJV performance published in leading management journals and periodicals would provide a sufficient literature review of previous findings related to their research objective in order to allow the authors to qualify the research context, to derive theory-based hypotheses, to advance empirical methods, and to further develop relevant theories, many scholarly contributions do not provide a thorough analysis. It has been already mentioned that the more the field advanced and broadened, leading to a multitude of publications, the more understandable is a lack of comprehensive literature reviews as part of primarily empirical studies. These papers have had to elaborate their theoretical foundations, hypotheses development, method and sample within very limited space targets. One would therefore expect, however, that these authors would avail themselves of special review papers that

Study/Authors

Geringer & Hebert

Parkhe

Yan & Zeng

Park & Ungson

No./Publ Year

(1)/1989

(2)/1993

(3)/1999

(4)/2001

OSc

JIBS

AMR

JIBS

Journal

Table 1.

Not specified, 16 studies (1971–1999)

Not specified

Studies - failure of strategic alliances

Not specified

Not specified

Review Method and Sample

Empirical studies - IJV instability

State of extant IJV research

Control-IJV performance

Review Scope

Basically cited: (1); several times cited: (2)

Basically cited: (1), (2)

Basically cited: (1)

Not applicable

Reference to Previous Reviews

An integrative model of alliance failure

None

‘Hard’ and ‘soft’ core theoretical dimensions

Strategy-Control Model of JV performance

Development or Application of Framework

Propose to focus on interfirm rivalry and managerial complexity and a process theory of alliance erosion and failure (ex ante, in situ, ex post conditions)

Previous results not useable Limited perspective of multidimensional IJV control concept, simple control–performance linkages, conflicting results, evidence of control-performance relationship in IJVs still limited Propose integration of transaction cost and strategy-structure framework incl. three control perspectives Lack of theory development, over-emphasis on quantitative theory testing, focus on noncumulative, isolated variables, i.e. deductive/theory-testing/nomothetic research Need for shift to inductive/theory-generating/ idiographic research and behavioural determinants of IJV success (trust, reciprocity, opportunism, forebearance) Lack of theoretical definition of IJV instability, theory rather than data-driven choice of measures, unclear instability-performance relationship, static instead of dynamic approach Call for: integrative studies, process-oriented approach (IJV development), analyses of feedback effect, comparison with other organizational modes, and methodological adjustment (in-depth, longitudinal data, repeated data designs) Contestable measures, lack of cross-disciplinary integration

Key Results

Reviews of IJV Success Factor Research Published in Management Journalsa

364

249

823

1533

Cited byb

Reus & Ritchie

Nippa, Beechler, & Klossek

Jiang, Li, & Gao JIM

(6)/2004

(7)/2007

(8)/2008

MOR

MIR

MIR

Robson, Leonidou, & Katsikeas

(5)/2002

Journal

Study/Authors

No./Publ Year

Empirical studies - IJV performance; comparison of Sino-Foreign vs. non-China results

IJV research

Empirical Studies - IJV performance

Review Scope

Specified; top-ranked, empirically oriented journals; 41 out of 248 IJVrelated studies (1991–2005)

Specified; top-ranked, journals; 194 articles in the IJV field (1989–2003)

Specified production industry, 91 studies (before 2001)

Review Method and Sample

Basically cited: (1); Analysis: (3)

Several times cited: (2); analysis and advancement:(5)

Basically cited: (3); Definition: (1); several times cited: (1), (2), (5)

Basically cited: (1), (2), (3)

Reference to Previous Reviews

Conceptualization of alliance stability;

Development and application of own classificatory framework based on (2) and (5)

No, but distinguish three levels of analysis:  IJV-related  Parent-related  Environmentrelated

Development and application of own classificatory framework

Development or Application of Framework

Table 1. (Continued )

Suggestions for future research: focus on procedural justice, environmental factors, motives-IJV performance measure link, application of less prominent theories, use of hierarchical linear modeling to analyse multilevel effects Eleven theories have been applied to explain IJVs and IJV success (TCT, rbv, and organizational learning dominate), studies mainly address structural rather than procedural factors, similar research gaps wrt China and non-China studies, negligence of institutional factors, but only weak host country effect, methodical problems and predominantly inconsistent findings Future research will profit from combining differrent theories and more behavioural approaches, applying longitudinal methods Variety of theoretical perspectives and approaches cause different, even

Seven theories have been applied to explain IJVs and IJV success, yet interconnections are disregarded, no single theory provides adequate foundation; IJV performance research remains chaotic and ambiguous Future research should encourage paradigmatic pluralism, expand and better operationalize variables, control for contingencies, account for external factors, enhance methodological rigor Do not elaborate in detail into shortcomings and suggestions highlighted by earlier reviews, esp. (2); mainly descriptive state-of-the-art report

Key Results

31

20

35

92

Cited byb

Nemeth & Nippa

(11)/2013

MIR

MIR

JoM

Extant research on IJV exit

Meta-Analysesof emp. studies on selected factors - IJV performance link

Extant research on IJV performance since 1999 (3)

Specified; top-ranked journals plus back- and forward citation; 44 studies (1991–2011)

Basically cited: (1), (8); several times cited: (2), (5), (9); adaptation: (7)

Specified; equity IJV; Basically cited: (2), 66 studies; (3), (4), (5), (6); 61 samples definition: (1) (1989–2007)

Specified; equity IJV; Basically cited: (1), empirical 12 (3), (6) journals; 54 studies (1999–2008)

Not specified; 15 studies (1971– 2005)

Application of advanced classificatory framework based on (7)

Need to consider (changing) strategic purposes of parent firms, to distinguish exit modes, to use a multi-method approach, to re-test findings, to conduct comparative studies, to focus on theory-generating rather –testing, to combine theories

perform, directly, control increases perform., determinants explain 19% of variance, indication of host country effect (China) Research predominantly quantitative, large sample oriented 39- versus case 1-, conceptual 4-; well-known conceptual, methodological and theoretical problems persist

contradictory findings that are not cumulative, not comparable and not generalizable, outcome- dominate process-oriented studies Propose a comprehensive conceptualization of key constructs particular alliance stability and a stage model of alliance development, that embraces hard/structural and soft/relational factors Unexplained proDifferent performance measures, numerous posal of a conconflicting models, low replication of factors ceptual model and analysed lead to inconsistent, impractical longitudinal multiresults Propose own multi-level model derived on level model literature-based assumptions to overcome limitations and build a general theory of IJV performance Contribution to reduce allegation of nonPath modelreferring cumulative research through comparing to Agency Theory and a behavioural extant findings perspective incl.: Find support for tested theories; cultural cultural distance, distance tends to increase conflict, conflict control, conflict, tends to reduce IJV perform, commitment commitment reduces conflict and additionally increases

integrated process model of alliance development

n.a.

9

26

b

Studies in italics offer reviews of the research on IJV at large or of the success factors – IJV performance linkage; unhighlighted studies focus on special aspects. Number of citations as indicated by google scholar (Jan, 2013); n.a.=not applicable.

Reus & Rottig

(10)/2009

a

Ren, Gray, & Kim

(9)/2009

Alliance and IJV stability research

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MICHAEL NIPPA AND SCHON BEECHLER

summarize the state-of-the-art in the field, highlight previous shortcomings and warn against possible flaws. A closer look reveals that such references, if present at all in research papers, seem to be purely superficial; i.e. references are included to ‘cover all of the bases’ and their recommendations are not discussed or followed. And for those authors who have not utilized existing reviews, this chapter will identify and summarize existing reviews primarily in the field of research on IJV success factors, thus, provide a kind of metareview. In combination with the specific content of the single reviews the interested reader is better able to: (a) grasp what is already known in this important research field of IB/IM, (b) discern what conclusions are warranted, and (c) design their own research efforts in order to advance theories and practical insights.

Early Reviews of an Emerging Research Field The earliest reviews that summarized previous research attempts especially those that were of empirical in nature, have been provided by Beamish (1985) and Kogut (1988). It is noteworthy that their papers primarily focus on motives and characteristics, as well as theoretical explanations of JV at large, but highlight distinctive features of IJVs. In the latter regard, Kogut (1988, p. 327) states that studies of IJVs are of special interest as they have been investigated in the context of entry into foreign markets and have included the strategic choice between different organizational modes and the impact of different governmental regulations. Interestingly, while acknowledging the ‘unquestionable interest’ of case study–based research (Friedmann & Kalmanoff, 1961; Tomlinson, 1970) he excluded them from further investigation and focused upon studies that statistically analysed entry decisions. His review of the few studies at that time reveals that equity decisions depend on strategic importance and diversification, that several factors including cultural aspects influence the choice of the market entry mode and the degree responsibilities will be assigned to the IJV. Yet, as both Beamish (1985) and Kogut (1988) contributions devote only a part of their work on IJVs, these publications cannot be characterized as special review papers. Consequently, while important to the field of IJVs, neither paper is included in the following analysis of IJV review papers published in management journals (see Table 1). To the best of our knowledge, the first distinct review paper on the success factors of IJVs was published by Geringer & Hebert (1989). However, the authors do not review the literature on success factors at large, rather they

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focus on control as an important determinant of successfully managing IJVs. While comprehensively defining control and highlighting possible difficulties for parent organizations to control their IJV, they refrain from giving a description how they searched for, selected, and synthesized previous studies. Apparently, they align previous IJV studies to controlrelated topics or research streams such as mechanisms, extent and focus of parental control over IJVs. They also put an emphasis on studies that address the relationship of control to IJV performance and find that early studies (Franko, 1971; Tomlinson, 1970), although highlighting interesting aspects of control, suffer from serious limitations (Geringer & Hebert, 1989, pp. 243–244). Most likely because subsequent studies applied a more quantitative, cross-sectional approach, they are labeled by the authors as ‘mainstream’ research on IJV control and performance. For example, Killing (1983) found that dominant parental control based on majority stakes leads to superior performance but his results could not be replicated by later studies. The underlying reason, and a general problem of IJV research more generally, is because Killing (1983) is focused on JVs, not IJVs and, at the very least, his sample consists of a mix of the two types of organizational forms. Furthermore, various studies have been inconsistent in the variables they included and excluded, how those variables are operationalized, and often test very simple cause-effect models, neglecting possible interaction terms and potentially important factors. Consequently, Geringer & Hebert (1989) conclude that empirical evidence regarding the relationship of parental control and IJV performance is missing. Hence, they developed and proposed a conceptual framework that links international strategy and, consequently, JV strategy, with the aforementioned three dimensions of control and JV performance that could direct future research (Geringer & Hebert, 1989, p. 246ff). Again, it is noteworthy that the authors claim that their framework applies for JVs, not just international joint ventures.

Parkhe’s Fundamental Criticism of the ‘Messy’ Research in International Joint Ventures Arvind Parkhe’s seminal work published in the Academy of Management Review in 1993 marks the beginning of broader reviews of IJV and IJV performance research at large. He attributes the observable lack of a theorybased framework that would allow for integration of past findings at that time to ‘the nascent, pre-paradigmatic stage of international management

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research’ and further argues ‘that acceleration of theory development in IJVs is needed and possible, and that it must be preceded by a deeper understanding and systematic incorporation of core concepts in future research’. (ibid.: 227–228). His call apparently went unheeded as a decade later a comprehensive appraisal of IJV research concluded that the ongoing ‘rush to empiricism’ has led to ‘the morass which justifies the criticism that much of the work is ‘‘non-cumulative’’’ (Buckley & Glaister, 2002, p. 67). However, Parkhe (1993, p. 242) foresaw the slow process of transforming the nascent international management research onto the next stage of scientific development: ‘y the transformation will likely be neither easy nor quick’. While abstaining from providing a comprehensive overview of IJV studies and books published until that time, Parkhe (1993) thoroughly reviewed the research in IJVs, particularly the conceptual and methodological approaches, as well as obvious research gaps. With regard to the content of future IJV research, he proposed to supplement existing research foci through four ‘soft’ core concepts, namely ‘mutual forbearance’, ‘reciprocal behaviour’, ‘mutual trust’ and ‘absence of opportunism’ (see Figure 1). With regard to methodological issues, he states that there is an overwhelming dominance of theory-thin, narrow, and non-cumulative, although methodologically impeccable, empirical studies over qualitative research. IJV research, as a subarea of international management research, is further characterized as a predominantly deductive, theory testing, nomothetic, and objective. Consequently, findings are considered somewhat arbitrary, piecemeal, non-additive, and of not much use to scholars or practitioners. Finally, Parke provides fruitful directions for future research that basically would foster IJV theory development based on the use of a multi-method, eclectic stage model (Parkhe, 1993). The years that followed Parkhe’s critical appraisal saw a sizable increase of large sample multivariate empirical studies published in leading management journals while his call for case studies or other qualitative approaches was largely ignored. Of the very few case studies on IJV management and performance that have been published between 1993 and 1999 (e.g. Koza & Lewin, 1999) to our best knowledge only the study of Arin˜o and de la Torre (1998) has a specific reference to Parkhe (1993). Similarly, one finds only two studies on IJVs and strategic alliances that develop a framework or model and distinct propositions regarding important determinants of managing IJVs (Koza & Lewin, 1999; Pearce, 1997). And again, it is just Pearce (1997) who reflects, at least to a minor degree, Parkhe’s call for a redirection of IJV research, albeit only with regard to his demand to address ‘soft’ factors and a multidisciplinary approach proposed by Kogut (1988)

373

What Do We Know about the Success and Failure of IJVs?

Motives for IJV Formation

Reciprocity

Partner Selection/ Characteristics

Trust

Opportunism

Control/ Conflict

Forbearance

IJV Stability/Performance

Figure 1.

Integrating ‘Soft’ Concepts to Extant IJV Research Streams. Source: Parkhe, 1993, p. 231.

and Parkhe (1993). The great majority of IJV studies published during the above-mentioned period interestingly consists of the types of research that Parkhe had criticized (e.g. Barkema & Vermeulen, 1997; Child & Yan, 1999; Hennart et al., 1998; Hill & Hellriegel, 1994; Hu & Chen, 1996; Li, 1995; Lichtenberger & Naulleau, 1993). Of these exemplary studies, not a single one cited Parkhe (1993) although at least some referred to the early review paper by Geringer and Hebert (1989). Using a broader sample of performance-related IJV studies published during this same period and examined by the first author, fully confirmed this negligence. Hence, one has to note that peer reviewers and editors apparently ignored Parkhe’s criticism, too.

Reviews of Specific Research Interests in the 1990s Yan & Zeng’s (1999) review of empirical studies that address IJV instability, as well as Park and Ungson’s (2001) review of studies that focus on the

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failure of strategic alliances, provide additional evidence that most of what Geringer & Hebert (1989) and Parkhe (1993) called for went unheeded. Other than citing the earlier review papers, neither paper reflects on or addresses the criticisms or recommendations of Geringer & Hebert (1989) or Parkhe (1993) in detail. Additionally, they do not answer the question whether and to what degree subsequent researchers adopted reasonable advice and re-focused their research. Rather, Yan & Zeng (1999) complain about missing definitions of core concepts, ambiguity regarding the instability-performance linkage, and the predominantly static approaches found in the literature and call for changes in the field (see Table 1). Park & Ungson (2001), among others, argue that studies that address factors leading to failure of strategic alliances should put more emphasis on selecting and defining the right operationalizations and measures, on multidisciplinary approaches and especially on comparing initial conditions with changes over time, i.e. on processes.

Applying a Conceptual Framework to Assess Research Gaps and Findings Even more surprisingly, the same criticism holds with the review of empirical IJV performance studies provided by Robson, Leonidou, and Katsikeas in 2002. Referring to previous reviews of the IJV research at large (Beamish, 1985; Parkhe, 1993) as well as more specialized reviews (Geringer & Hebert, 1989; Yan & Zeng, 1999) rather superficially, the authors state that scholarly knowledge regarding IJV performance is still highly fragmented, unconsolidated, and has not assessed consistent and conflicting findings. Hence, they attempt to provide ‘a methodological, analytical, and focused review of those empirical studies examining the factors affecting IJV performance’ (ibid.: 387). They identify alternative theories and perspectives that have been applied to explain and predict IJV performance differences, namely transaction costs economics (e.g. Hennart, 1988), agency theory (e.g., Reuer & Miller, 1997), resource-based view (e.g. Mjoen & Tallman, 1997), behavioural perspective (e.g. Eroglu & Yavas, 1996), organizational learning (e.g. Lyles & Salk, 1996), focal aspects (e.g. Yan & Gray, 1994) and strategic management (e.g. Lyles and Baird, 1994). Referring to the call for eclecticism and paradigmatic pluralism and applying an appropriate method of analysis, the authors further develop an integrating framework for systematizing extant and future IJV performance research. They propose to distinguish between so called ‘background variables’ – i.e., intra-partner characteristics and intra-partner fit, ‘antecedent variables’, which mainly group structural

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and process-related aspects of IJV development – ‘core variables’ – that turn out to be strategic factors or a collection of organizational functions – and ‘external variables’ – i.e., industry characteristics and regulatory environment. Robson et al. (2002) use their framework to assess the findings of a total of 91 empirical studies published in various journals before the end of 2000 and provide the first overview of empirically tested correlations between IJV success factors and different IJV performance measures. The results are rather discouraging, as the authors frequently conclude that most factors that have been examined by different researchers show either non-significant or conflicting results (e.g., firm size, sociocultural distance, strategic scope similarity, manager demographics). Thus they conclude: ‘IJV performance research constitutes the largest stream of empirical inquiry within the collaborative strategy field, yet it remains chaotic and to a large extent ambiguous. y for most independent factors that did attract considerable research attention, the consolidated results are inconclusive.’ (Robson et al., 2002, p. 407). In the light of these findings one has to doubt that there is more than just a vague proof of any theory applied, although the findings of single studies suggest the opposite; i.e., an overwhelming proof of theoryrelated hypotheses. In order to improve the quality of IJV performance research Robson et al. (2002) propose to further paradigmatic pluralism, to apply extended sets of independent variables, to control for contingencies and external forces; i.e., institutional contexts, to improve performance measures and enhance methodological rigor at large.

First Evidence of ‘Research as Usual’ Behaviour The next review of the IJV research was written by Reus and Ritchie (2004) who seized the opportunity to review IJV research papers published in topranked management journals within 15 years following the 1988 special issue of Management International Review (MIR) on co-operative issues in international business. They summarize their key results as follows: ‘In fifteen years, ten major journals published 194 articles in the IJV field. The numerous contradictory findings and lack of my multi-level research are intricate, but controllable, weaknesses of the field. The assessment offers numerous opportunities for future research on and across the different levels of analysis.’ (ibid.: 369). Interestingly, the authors refrain from elaborating on results from previous review studies other than adopting Geringer and Hebert’s definition of IJV and summarizing one or another of the other general criticisms (e.g., lack of consolidation, negligence of existing

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knowledge, lack of synthesis due to the complexity of the research subject). Based on a comprehensive and reliable research method the authors find that almost three-fourths (138) of the identified 194 articles are empirical – most likely large-scale quantitative studies – compared to 39 conceptual and 17 case studies. From this, one may deduce that there is not much of a redirection of IJV following the early stage summarized for example by Geringer & Hebert (1989) and Parkhe (1993). Such an impression is additionally corroborated by the fact that according to Reus and Ritchie (2004) only nine studies aimed at theory development or advancement and only a few more focused on trust, commitment, cooperation and other attitudes compared to numerous studies on control, conflict, partner selection and characteristics highlighting the fact that hard factors still dominate soft factors (see Figure 1). Regarding advancements of the research field we do not share Reus and Ritchie’s (2004) assessment that 162 of the 194 studies applied ‘some theoretical framework’ (predominantly transaction cost economics and organizational learning) to derive hypotheses means that ‘the majority of authors consolidate findings on existing knowledge in the field’. Rather, their assessment is another proof of the continuing dominance of a ‘Theory-Testing-Objective-NomotheticQuantitative-Outsider Approach’ criticized by Parkhe (1993, p. 235ff).

In Search of Host Country Effects and Reliable Findings Referring to our own work in this field, i.e. a review of empirical studies published in top-ranked, empirically oriented management journals that investigate success factors of IJV performance (Nippa et al., 2007), we are able to reflect on the publication process itself which may offer insights into possible reasons why scholars have not heeded the calls for change by Parkhe and others. Our review builds on and advances the organizing framework proposed by Robson et al. (2002), while we have to admit that we did not design our analysis as a review intentionally to reflect Parkhe’s various recommendations. Assuming that IJVs are basically cooperative, organizational arrangements that involve at least two founding parent organizations from different countries and the joint venture itself (cf. Contractor & Lorange, 2002; Harrigan, 1986; Shenkar & Zeira, 1987) these three organizational entities and their interdependencies constitute the primary focal point of the conceptual framework (see Figure 2). Pursuing a theory-based approach, prominent organizational and economic theories frequently used in IJV research, such as: (a) the resource-based view of the firm, (b) the resource dependency perspective, (c) organizational economics,

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Relationship Management Conflict Behavior

Foreign Parent Attributes Constitutional Characteristics LJV-related Strategy Resources Process

I Foreign ParentLocal Parent Fit Constitutional Characteristics LJV-related Strategy Resources Process

Local Parent Attributes Constitutional Characteristics LJV-related Strategy Resources Process

IJV Governance Ownership Control II Foreign Parent IJV Fit Constitutional Characteristics Resources Process

IJV Attributes Constitutional Characteristics Performance Resources Process

III LOCAL PARENTIJV FIT Constitutional Characteristics Resources Process

EXTERNAL ENVIRONMENT Regulatory Regime

Figure 2.

Informal Institution

Industry & Competition

Economy

Conceptual Framework of Success Factor – IJV Performance Link. Source: Nippa et al., 2007, p. 280.

(d) institutional perspective and industrial organization economics, and (e) contingency theory, are used to derive major categories elaborated in detail elsewhere (Nippa et al., 2007, pp. 279–282). We applied the framework when reviewing empirical IJV studies published in seven top-ranked, empirically oriented journals between 1991 and 2005. This review had a particular emphasis on comparing findings regarding Sino-Foreign IJVs with studies that involve other countries (Nippa et al., 2007) in order to identify potential country specifics (i.e., host country effects), as called for by several authors (Lee & Beamish, 1995; Makino, Isobe, & Chan, 2004). However, our focus on China, i.e. Sino-foreign IJVs, and the subsequent comparison with IJVs in countries other than the PRC was just as much a result of our decision to submit the paper to Management Organization Review, a peer-reviewed journal predominantly publishing research on Chinese management issues. We also experienced the firm though fully understandable pressure from the editors and reviewers to our first drafts to significantly cut the word count of the paper, which results in concentrating on major findings while omitting information that may be of value to better interpret these findings. Today, publishing 40 printed pages, the length of Parkhe’s article (1993), seems to be a hopeless endeavour. Hence, one would need to switch to books or other formats.

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Overall, our 2007 results reconfirm the assessment of Parkhe (1993) and shortcomings reported by previous reviews (Robson et al., 2002). Although the number of empirical studies on IJV performance and related success factors has further increased, they still apply – with rare exceptions (e.g., Arin˜o & de la Torre, 1998; Osland & Cavusgil, 1996) – large sample multivariate statistical methods. Only a few empirical studies adopt and apply organizational or economic theories and even fewer provide conclusions regarding theory development. The majority of the studies we investigated in 2007 refer to only one out of the currently most popular organizational theories, such as transaction cost economics, the resourcebased view, and organizational learning. They derive a handful of related hypotheses and try to empirically test them based on primary and secondary data. Hence, it comes as no surprise that the independent variables studied are overwhelmingly static and structural; i.e., determinants that can be easily quantified and measured by more or less appropriate proxies. With the exception of a few control variables (e.g., industry, size, growth, equity shares) and prominent IB/IM concepts such as ‘cultural distance’ or the China-specific ‘IJV location,’ the majority of independent variables are analysed by just one study. Due to little replication, varying definitions and operationalizations of constructs, the influence of important contingencies that are not controlled for (e.g., host country effects), as well as methodological biases (e.g., survival bias) imply that even significant findings of IJV performance research can not be generalized. Rather, one may argue that those factors which repeatedly produced insignificant and/or inconsistent results – such as for instance ‘cultural distance’, ‘prior experience with IJV’, or ‘foreign partner size’– may be excluded from further investigation or need to be tested for different contingencies. Of special interest to the field of international management, the robust identification of host country effects based on comparing respective IJV studies, rather than conducting comparative studies (e.g., Hennart & Zeng, 2002; Li, Lam & Qian, 2001; Lyles & Baird, 1994), runs into major methodological problems.

More Reviews of Special Aspects of IJV Research and IJV Performance Research Jiang et al. (2008) published a specialized review of studies published between 1971 and 2005 that focuses on the stability of alliances and IJVs. First, one has to highlight that their review covers more than pure IJVs, as the latter are subsumed under the broader concept of strategic alliances (ibid.: 174ff). However, this is the case with many other studies in the

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research field that do not offer clear definitions and differentiations of the research subject, thus making it difficult to grasp the essence of the findings and their generalizability. Second, their review focuses on stability as a measure of success and apparently implies a more in-depth consideration of Yan and Zeng’s review of IJV instability studies (1999). At the same time, with the exception of Geringer & Hebert (1989), the authors ignore other reviews of the literature and do not cite them at all. Third, as the authors do not provide the reader with information regarding how they selected or why they included the 15 studies, it is difficult to follow their conclusions, which seem to be in line with previous appraisals. They further develop a conceptualization of key constructs and recommend the application of a process-oriented analysis to strategic alliances that embraces both hard/ structural and soft/relational factors and a stage model. One year later, Ren Gray, & Kim (2009) published a review of IJV performance studies in the Journal of Management. Again, one has to bewail that the authors ignore findings, discussions, conclusions and recommendation of previous reviews other than citing two of them once in their paper (Geringer & Hebert, 1989; Reus & Ritchie, 2004) and citing Yan and Zeng (1999) three times. The latter basically serves as the justification for limiting the analysis on empirical studies published within the period of 1999 until 2008. They, therefore, do not evaluate the quality of previous research, its conclusions, or conceptual bases and whether the foundations of the field are sound or weak. The authors propose and apply a conceptual model for studying international joint venture performance (ibid.: 808, 822f) that appears not to be grounded in sound empirical research. There is no indication in their paper how they identified and weight the ten ‘important’ determinants of IJV success and why they propose to link them the way they do. On the positive side, the review offers an additional up-to-date stocktaking of empirical studies published in leading management journals and, thus, complements the overall picture of the state of research in the field of IJVs. Given the experience with previous reviews we are in doubt that the authors’ hope that ‘Ultimately, our model can be used as a framework to build a more general theory of IJV performance’. (ibid.: 827) will come to fruition.

First Meta-Analysis of IJV Success Factors As the number of quantitative empirical studies that focus on various determinants of IJV success and performance runs into the hundreds one might wonder whether there are any meta-analyses. To the best of our

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knowledge, Reus and Rottig were the first scholars who conducted and published a meta-analysis of IJV performance determinants in a leading international management journal; i.e. MIR, in 2009. Taking into account the findings of earlier reviews, the reason for this lack of statistical metaanalyses becomes obvious. Such meta-analyses require clear, comparable definitions, concepts, operationalizations and statistical methods applied (Lipsey & Wilson, 2001) in order to avoid comparing apples and oranges – something that has been lacking with regard to the research on success and failure of IJVs (Nippa et al., 2007; Robson et al., 2002, p. 413). As we are neither able nor interested in checking these aspects and their impact on the reliability and validity of the analyses of Reus and Rottig (2009), we leave it to prospective researchers in this field and concentrate on briefly reporting their findings. It is noteworthy that the authors do not analyse all existing variables but propose a simple model of IJV performance, which interrelates dependent variables that have dominated quantitative research since the beginning; i.e. cultural distance, IJV partner conflict, hierarchical control and commitment (Reus & Rottig, 2009, p. 610). The theoretical foundation in agency theory and the behavioural perspective – which are somewhat surprisingly assumed to complement each other – is difficult to follow and does not lead to any illustrative discussion or advancement. The results show that, on the one hand, over 75% of the variance is attributable to sampling and measurement errors and, on the other hand, that the independent variables explain just 19% of the variance in IJV performance. The authors conclude ‘y that the type of operationalization for cultural distance [note: as well as other performance measures] significantly determines directionality and strength of hypothesized relationships’ (Reus & Rottig, 2009, p. 632). Furthermore, the results indicate that important contextual or moderator variables lead to opposing effects since a significant negative effect of control on conflict has been found for Chinese IJVs compared to a positive effect for the sample of non-Chinese IJVs, resulting in null effect for the full sample. To sum up, meta-analyses are difficult to perform and interpret because of the aforementioned problems (see, e.g. Devinney & Tang, 2013, this volume). Additionally, their findings suggest the need to include other underexplored variables and the need to check for important, often unknown moderating effects.

Most Current Review of the IJV Exit Literature The series of reviews on the research of success and failure of IJVs ends, for now, with a special review published in early 2013 in MIR that identified

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and summarized the extant research on IJV exit or termination published between 1991 and 2011 predominantly in peer-reviewed management journals (Nemeth & Nippa, 2013). We slightly expanded and applied the framework developed in our previous review (Figure 2) to systematically depict, analyse, and evaluate the rigor and relevance of IJV exit research, particularly factors that impact IJV termination or IJV longevity whether through internalization or liquidation. Findings for this sub-group of IJV performance research confirm the big picture once more: research is predominantly quantitative, large-scale oriented (89% of total sample) while embracing very few conceptual articles (9% of the sample; Hambrick et al., 2001; Koza & Lewin, 1998; Makhija & Ganesh, 1997; Pearce, 1997) and just one case study (2% of the sample; Arin˜o & de la Torre, 1998). Additionally, well-known conceptual, methodological and theoretical deficiencies continue to persist. Thus, we propose to explicitly consider the motives and objectives of all organizational entities that constitute an IJV. More specifically, we recommend: (1) to characterize IJVs more carefully, i.e. identifying and describing both or all parent organizations and the IJV itself, (2) to analyse the strategic purposes/intents/performance expectations of all entities (foreign parent, local parent, IJV itself) at the time of negotiating and establishing the IJV – initial stage – (3) to further analyse changes of the structure (e.g. equity shares, additional partners) and of their strategic purposes/intents/performance expectations – ongoing stages – and, if applicable, (4) to describe and analyse the strategic purposes/intents/ performance expectations of all entities (foreign parent, local parent, IJV itself) at the time the IJV is terminated – final stage. We further point to the importance of clearly defining, distinguishing and operationalizing different exit modes, of developing concepts and theories of why and how certain phenomena occur, and of testing these ideas based on appropriate methods and research instruments beyond exploiting archival data only. Selfevidently, we realize that our criticism, recommendations, and calls for redirecting future research efforts are by no means new, but have been raised over and over again.

SUMMARY OF THE CRITICISM OF IJV PERFORMANCE RESEARCH Based on the aforementioned and elaborated reviews of IJV performance studies and some more recent publications in the field (Chung & Beamish, 2012; Farrell, Oczkowski, & Kharabsheh, 2011; Reuer, Klijn, van den

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Bosch, & Volberda, 2011) we must conclude that 20 years after Parkhe’s call for a major reorientation of IJV research, which has been frequently cited in subsequent publications in the field of IB/IM (google scholar: 823 times; web of science: 215 times), there has been almost no substantial change at all in the content and methodology of IJV research. Although each researcher has added new pieces to a complex jigsaw puzzle, albeit without the aid of a master plan, the overwhelming majority of empirical studies still use a deductive, theory-testing, nomothetic approach and focus on quantitative and ‘objective’ variables while neglecting procedural, relational and longitudinal factors. Table 2 summarizes the most important criticisms of research on success factors of managing IJVs (Nippa & Klossek, 2004), aligns reviews, highlights recommendations, and appraises whether these criticisms have led to adjustments in subsequent research studies. The different aspects and dimensions of extant criticism are classified and subsumed under four major categories: (a) Conceptual Deficits and Problems, (b) Theory Deficits and Problems, (c) Methodological Deficits and Problems, and (d) Practical Deficits and Problems. Taking a bird’s eye view, we see some advancement in the research field with regard to conceptual issues. Scholars incrementally improve their research approaches with regard to appropriately describing, understanding, and defining the research object as well as deriving sufficient research models and choosing the right research questions and research design. Yet, there are still significant deficiencies, as empirical articles that frequently do not elaborate on conceptual issues continue to dominate the literature. Research models are still rather simple, although most recent studies seem to expand the scope of what they are examining (e.g. Chung & Beamish, 2012). There are significant improvements in addressing methodological deficiencies as far as sophisticated statistical models are concerned. Additionally, researchers are more and more aware that applying multiple measures and multiple research methods, including using multiple informants, and analysing dynamic aspects supports the reliability and validity of their findings. For various reasons, one has to conclude that scientific rigor is not the core problem when it comes to addressing the success and failure of IJVs. Rather, it is its theoretical foundation, the ongoing lack of theory generation and development, and the general focus on what Parkhe called deductive, theory testing, nomothetic, and objective research. Finally, and not surprisingly, elaborating and discussing the practical implications of the research, i.e. increasing its relevance, is utterly neglected in the current literature. To sum up, research on success factors of international joint ventures still produces heterogeneous and exclusive findings, is lacking widely accepted

Killing (1983); Jiang et al. (2008)

Examples

(3), (11)

Emphasized by Review Studiesa or Others

Enforce consideration of research reviews Encourage and reward replication studies

Great majority of all IJV studies; Missing specifics, e.g., Li & Atuahene-Gima (2001); Luo (1998, 2001)

Lack of replication studies i.e., selection of new, ever more specific factors over already analysed ones; lack of information regarding sample characteristics

(2), (6), (7), (9), (11)

Application of explicit test such as path analysis Including tests / controls for feedback effect

Disregard of feedback effect, i.e. impact of (1), (5); Luo (2001); Chen, Hu, & Hu 2002 previous success on current IJV success

Simple cause-effect models e.g., disregard of important moderators; negligence of reverse causality

Combining hard and soft factors Focusing on neglected ‘soft’ factors

(2), (6), (7), (11)

Especially studies that use archival data only

Negligence of ‘soft’ factors e.g., trust, commitment, attitudes, forbearance

Augmented consideration and analysis of initial, on-going, and final conditions of IJVs analysed Fostering research on IJV management and decision-making processes over a period of time

(3), (4), (7), (8), (11)

Majority of IJV performance studies

Preference of studies that consider the whole organizational group and interdependencies

Use of clear definitions and distinct objectives and samples (e.g. equity IJV with one foreign and one local parent)

Recommendations (if not self-explanatory)

Dominance of static, structural models over process and dynamic considerations e.g., disregard of changing objectives and expectations over time; institutional changes

Disregard of specifics of org. arrangement Reuer & Miller (1997); Yan & Zeng (1999) (6), (11); Makino, Chan, Isobe, & Beamish e.g., need to consider strategic intents and (2007) objectives of both (or multiple) parent organizations and IJV

Conceptual Deficits and Problems Insufficient differentiation of research object, i.e. IJV e.g., strategic alliance versus JV, contractual vs. equity, international versus domestic, two vs. multiple parent organizations

Subject of Criticism

Table 2. Overview of the State-of-the-Art of Criticism on Research of IJV Performance. Adopted or Ignoredb

Inconsistent, confusing definition and operationalization of independent variables i.e., same construct, i.e. success factor is defined and operationalize differently; in/stability

‘harmonic relationship between partners’ (Wang et al., 1999)=orBor6¼ ‘personal attachment’ (Luo, 2001) various definitions of ‘entry timing’, ‘entry mode’, or ‘ownership structure’

(3), (4), (5); Harrigan (1986); Makino & Beamish (1998)

Park & Ungson (1997); Compare measure (1), (3), (4), (9), (11); Cui, Calantone & Griffith of success used by Luo (2001) with Luo (2011) et al. (2001)

Account for moderating effects of different performance measures (Hilger, 2001) Application of both, multidimensional subjective and objective measures (Luo, 1997)

Call for studies that identify, describe and compare different IJV performance measures incl. applicability, operationalizations, proxies, and limitations to generate common ground

Development of a coherent theoretical framework of IJV management

Most of the above cited examples and many more

Minor theory advancement, no theory generation e.g., theories mainly for justification reasons only; studies do not clearly discuss their results in light of the theory chosen

Methodological Deficits and Problems Insufficient operationalization of the dependent variable, i.e. performance e.g., exit, termination, longevity, survival, in/stability, objective and subjective measures

Avoidance of urging researchers to use a specific theory or dogma Acceptance of dissenting opinions and substantiated criticism of dominant theory

Luo (1997); Makino & Beamish (1998); Luo, Shenkar, & Nyaw (2001); Xu & Lu, 2007

Rejection of all papers that lack a theoretical or conceptual foundation, i.e. lack to apply extant theories or to propose a new idea

Develop central database at professional IB/ IM institution and enforce use and up-dates

Recommendations (if not self-explanatory)

Opportunistic choice of grounding theory e.g. theories mainly for justification reasons only; selection of theories according to existing paradigms, e.g. TCT, PAT, RBV

(2), (5), (8), (10)

Emphasized by Review Studiesa or Others

(2), (7), (11) Lin & Germain (1998); Wang, Wee, & Koh (1999); Yao, Yang, Fisher Ma, & Fang (6) (2013)

Examples

Theory Deficits and Problems Absence of theoretical foundation no or fig leaf use of theories; e.g. RBV to justify important resources, org. learning

Research is noncumulative, Non-additive e.g., studies do not build on previous findings

Subject of Criticism

Table 2. (Continued ) Adopted or Ignoredb

=adopted to a high degree;

For numbers refer to Table 1.

b

a

=widely ignored.

Publication and citation success in the IB/IM community depends on many other factors (paper type, tier 1, used any theory) than practical relevance (see Beamish, 2006)

=somewhat adopted;

Relevance of research is not in the primary interest of researchers e.g., practical implications are often meager

Difficult access and readability of scholarly literature e.g., scientific writing uses own terminology not well-understood by many readers

(2) (9) Many studies focus on unique samples, are/have to be based on simple models, and test only All these deficits to ‘transfer’ (new) scientific some contingencies knowledge into practice are not exclusive to research in IB/ IM or on IJV performance but rather a general problem which has particular relevance with regard to success factor research (March & Sutton, 1997) In principle relevant for all articles published in scholarly journals as managers have other search strategies

Practical Deficits and Problems Generalizability dilemma e.g., representativeness of sample and results

The same is true for recommendations

Differentiation of factors that cause success (but can not prevent failure) and vice versa Consideration of biases in research design

(11); Luo & Park (2001)

Isobe et al. (2000)

Disregard or inevitability of biases e.g., survival, informant, response biases

Need for longitudinal or repeated studies esp. with regard to fast changing environments Need to encourage and reward qualitative research approaches Increased use of method mix, e.g. combining quantitative and qualitative methods (e.g., Alford, Healy & Hwa, 1998)

Inclusion of all IJV constituting organizations

Use of multiple informants (Isobe, Makino & Montgomery 2000)

(2), (4), (7), (11); Lin & Germain (1998)

Kumar, Stern, & Anderson (1993)

Reporting on sample characteristics and composition, sample context, and sample period should be made mandatory

Majority of studies on IJV performance as indicated in this article

Many surveys can not prove the identity and reliability of respondents

Many studies use official yet not necessarily reliable databases

Pan, Li & Tse (1999)

Overuse of quantitative over qualitative research methods such as case studies e.g., negligence of dynamic developments, of important moderators, and hard to operationalize and to measure variables

Questionable quality of data-bases e.g., outdated; unaudited survey data

Insufficient or difficult to comprehend samples Chen (1999); Luo (1998) e.g., exclusion of failed IJVs; focus on specific industries, country mix (nonChina) biases results and impedes comparisons

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concepts and frameworks, and has findings that are still non-additive and frequently inconsistent. Furthermore, research results cannot easily be retrieved and understood by scholars, let alone most practitioners. However, this criticism is also true for success factor research at large (March & Sutton, 1997; Nippa & Klossek, 2004). The question, however, is whether and why researchers ignore and disregard widely acknowledged, and very thoughtful, recommendations aimed at advancing their research on this topic. As highlighted throughout this chapter, there is evidence that the many reviews of IVJ research, at large, or more special reviews of research on success factors and performance of IJVs, did not induce scholars in the field to deal constructively with their criticisms and recommendations. In order to substantiate this assertion we investigated in more detail into the scholarly appreciation of the seminal review of Parkhe (1993). The first reason for doing so is that, despite its focus on research in the field of IJVs, Parke’s review offers a general debate about appropriate ways to conduct rigorous and relevant research in social sciences such as management and economics. Second, it covers IJV research at large, not only important subsets. Third, the review was published late enough in the development of the field that it could assess the dominant research approaches that emerged in the early stages of this research field. The age of the paper also offers an opportunity to analyse its impact over a period of time. Finally and most importantly, although Arvind Parkhe challenged the prevailing research orthodoxy and stood up against his peers, his work had the quality to be published in one of the most prestigious and thus ‘visible’ journals in the field of management research. AMR is continuously ranked as A+ and has one of the highest impact factors in the field. Therefore, one can assume that Parkhe’s ideas could not be overlooked and ignored. The impact of a scholarly article is frequently assessed using its citation record. Despite fast development of electronic databases and recording of publications there are still some gaps, inconsistencies, and reliability problems within and among, for example, web of science, scopus, or google scholar. However, they offer the opportunity to analyze and illustrate relevant developments in a research field. Applying the source ‘web of science’ resulted in a total of 215 publications that cited ‘‘‘Messy’’ Research, Methodological Predispositions, and Theory Development in International Joint Ventures’ between 1993 and 2013. The majority of these publications are articles (186 or 86.5%), while the rest are reviews, proceedings paper and editorial material. Not surprisingly publications are predominantly assigned to the research area of business and economics (195 or 90.7%). We also analyzed which journals cited the paper and found that the largest numbers

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are in JIBS (28 articles), trailed by journals that address organizational issues more generally (Figure 3). Interestingly, only three articles published in MIR cited the paper, albeit the journal has published numerous articles on direct and indirect success factors of IJV management since the early 1990s. Furthermore, we examined the citation pattern over time, assuming that it would show an inverse U-type shape or some kind of accelerated growth of citations. To our surprise citations per year are rather stable since 1995/1996 (Figure 4). Apparently, Parkhe’s review paper made, and continues to make its impact in in the research field, as measured by its tendency to be cited. As we believe we have thoroughly proved, however, its actual impact on subsequent research – measured for example by an increase of qualitative research, longitudinal, theory generating papers published in leading IB/IM or other management journals – is negligible. This is evidenced by another analysis. Screening a random sample of approximately 150 empirical research papers on IJV performance published between l995 and 2013 we found that less than 10% of these studies cite Parkhe’s AMR article – in other words, 90% ignore it (no doubt knowingly). However, this appears to be not uncommon. Nearly all other review papers, with the exception of Geringer and Hebert (1989), are disregarded. Interestingly, Geringer and

30

1. JIBS, 28

Numbers of publ. citing Parkhe (1993)

25

20

15 2. OrgSt, 11 10

5

3. OSc , 9 4. JoWB, 7 7. JoMSt, 6 7. AMJ, 6 10. BritJoM, 5 4. IndMM, 7 4. SMJ, 7 7. JIM, 6 16. AMR, 3 16. MIR, 3

0 Journals

Figure 3.

Articles citing Parkhe (1993) per journal. Source: Web of Science; retrieved Jan 2013.

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Numbers of publ. citing Parkhe (1993)

14 12 10 8 6 4 2 0

Year

Figure 4.

Publications citing Parkhe (1993) per year. Source: Web of Science; retrieved Jan 2013.

Hebert’s article is not a pure review article, rather offering a more detailed analysis of research published previously as well as providing more conceptual thoughts on a dominant topic, i.e. control and governance of IJVs. The apparent disregard and ignorance by researchers conducting empirical analyses, together with the fact that reviews of research on the success factors of IJVs receive continuing attention from journal reviewers and editors as well as from the rest of the IB/IM community, calls for an explanation. At the same time, it is not just the field of IJV success factors where these issues arise. We are raising questions concerning the very nature of how management research is conducted and the role of institutional practices and the identity of social scientists in undermining scientific progress.

VOICES IN THE RESEARCH WILDERNESS – WHY CALLS FOR CHANGE STILL GO UNHEEDED Parkhe’s call, meant to kick-started case studies, longitudinal research, inclusion of complex ‘soft’ factors, consideration of extant research, and systematic replication studies, has gone largely unheeded and the IJV

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research field is still flooded by more of the same quantitative studies. Authors of these studies as well as journal editors and reviewers seemingly suffer from a common blind spot and pretend not to know, or show disdain toward, the highly visible criticisms and calls for reorientation in the field. In what follows we offer first thoughts on reasons and rationales for this antagonism and some ideas to overcome it. First, the research subject is a rather complex one particularly given the international dimension in which IJV research is embedded and the different organizational manifestations seen in reality. It consists of hard facts – such as costs, turnover, assets, geographical distance and so forth – and many soft facts arising from the interaction of human beings attempting to achieve varied goals. Adding dynamism, reflexiveness, interdependency, probability and heuristics it is difficulty to identify, isolate, operationalize and verify those factors that significantly influence the success or failure of IJVs. Research complexity may, consequently, prevent researchers from adopting and implementing an ideal methodological approach of conducting rigorous and relevant scholarship. For instance, there is an inherent conflict between building and estimating simple enough models on the one hand and on the other hand include as many interdependent variables as possible to exclude fortuity and to approximate reality. Yet, this explanation holds for many other issues in social sciences as well and does not explain why empirical research does not cite or address well-founded criticism. Science at large is not conducted by individuals free of personal and institutional interests doing science for the sake of science alone. Researchers and authors pursue their own interests – for example, earning recognition and status in order to get their employment contracts prolonged or to receive tenure. Faculties and universities need research successes to receive funding and to attract excellent scholars, talent and students. The more research productivity is measured in terms of quantifiable key performance indicators, such as number of publications in A-journals, citation indices, patents and so forth, the more the interest and behaviour of scholars is directed towards these indicators. The careers of scientists – most likely until they are tenured – are increasingly dependent on publishing articles in a small number of highly ranked, peer-reviewed journals. According to economists this will lead to a rat race (Akerlof, 1976) that will ensure maximum effort of all participating scholars. Yet, assuming rational behaviour and decision-making also implies that scholars will maximize their own utility functions and do so by balancing the costs and benefits. Without discussing the following issue in detail, one can reasonably assume that publishing an empirical cross-sectional paper based upon

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archival data is – despite significant investments in learning sophisticated statistical methods – easier, faster and less risky than conducting longitudinal case studies or developing new and most notably convincing theories. As such it is in the interest of the researchers not to include any evidence of possible limitations of their research and alternative approaches that would raise questions as to the validity of their work. Instead, they prefer to let sleeping dogs lie. However, if research performance is not measured based on getting it published in a limited set of journals, but based on its impact measured by citations, different rationales and strategies may emerge in the field. According to a rather recent study by Beamish (2006) the number of citations a paper in international (joint venture) research receives depends heavily on the paper’s age and whether it is published in a ‘tier 1’ journal. In addition, and more significantly, the number of citations depends whether or not the paper contributes to theory building (versus hypothesis testing) and uses any theory at all. Even more interesting, because it relates to the specific research context, is the finding that the number of performance measures applied has a positive impact on attracting future citations. The predominant need to publish in peer-reviewed management journals has additional, often latent, consequences. Most journals, i.e. its editors and editorial boards, have strict limits of the length of an article. However, the need to demonstrate rigor requires authors to elaborate into methodologies, operationalizations, measures and statistical analyses, as well as to provide a brief literature review of a fast growing research field – all of which takes up a reasonable part of the paper. Hence, while there is an enforced necessity to establish a theoretical foundation and conceptualization of the research problem and to provide a discussion of the implications of results for advancing the chosen theory, explanations regarding its practical relevance are meager. Monographs or books might be better outlets for this type of complex research, but they are undervalued in hiring, tenure and promotion decisions at most of the major universities around the world. One might question why relatively independent, often senior editors do not require authors to cite more critical perspectives on accounting for the limitations of research. First, it is not in their interest to do so, as readers and peers may consequently question the editor’s decision to accept a paper that may fall into aseemingly inferior category. Second, the high number of submissions to a journal requires standard procedures to process them, including efficiently assigning competent reviewers, who should be capable of evaluating sophisticated statistics. Third, the editors themselves, in many cases, become qualified for their position through publishing in highly ranked journals. Hence, one may provocatively argue that the existing

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peer-review, publish or perish system has become rather immune to changes that appear attractive at first sight. Finally, theory building, especially in IB/IM, is hard and time-consuming work with an uncertain outcome. Theories cannot be built in an office in an ivory tower. Researchers have to expose themselves to reality – i.e. see new phenomona – they have to get access to organizations and managers on a global scale, they have to receive funding to cover travel expenses in the case of face-to-face interviews, and they have to accept and bear labour-intensive analyses (e.g. transcripts, content analysis). Subsequently, publishing a theory article is difficult, as there are only very limited outlets, reviewers are often advocates of incumbent theories, and a theoretical paper offers more points of attack. Reviewers frequently ask for evidence based on empirical research to support the theory. Finally, the length of article allowed in the major journals works against changing the type of IJV research pursued and developing new theories. Apparently, these explanations for the ongoing persistence on deductive, hypothesis testing, objective, and quantitative research and disregard of calls to reorient the field offer little room for suggesting straightforward, compelling and sustainable changes as the barriers to change are deeply embedded in the structures, processes, culture and reward systems in academia. One idea that may help in solving the problem that research on success and failure of IJVs is still noncumulative is to call for an initiative of research associations such as the Academy of International Business or a leading international management journal to design and implement a highly visible and user-friendly online database of previous research in specific fields that helps future researchers to grasp what is already known and to suggest avenues for future research efforts. Additionally, we might hope for self-regulating forces of the community of scientists, which will develop and test alternative forms of quality control other than the existing blind peerreview system based on advanced information technologies and for changes in the management and career-systems of higher education. At the end of the day, it is time for us to individually and collectively step back and seriously answer the question, ‘What is the result that we are trying to create?’

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WHAT DO WE KNOW ABOUT GOING GLOBAL EARLY? LIABILITIES OF FOREIGNNESS AND EARLY INTERNATIONALIZING FIRMS Lydia Bals, Heather Berry, Evi Hartmann and Gordian Raettich ABSTRACT In this chapter, we embrace the recent phenomenon of early internationalizing firms with the goal of understanding these firms in light of decades of research on multinational firms, which has long stressed liabilities of foreignness. It is often implicitly assumed that the only way to reduce liabilities of foreignness is by doing business in foreign markets and learning about the local business environment. However, in this chapter, we focus on several distinctive antecedent firm characteristics that have been shown to facilitate early international expansion by firms, but which are not commonly considered in the international business literature. We perform a systematic review of the literature on early internationalizing firms (following David & Han, 2004), based on the

Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 397–433 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026020

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seminal work of Oviatt and McDougall (1994) to guide our analysis of early internationalizing firms and to identify important ways in which these firms differ from multinational firms. We argue that long-standing arguments about the impact of liabilities of foreignness on firm foreign expansion apply to newly internationalizing firms, but that these liabilities are reduced by the experiences and knowledge of the founders and top managers in these firms acquired prior to the inception of these firms.

INTRODUCTION Over the past 15 years, there has been an evolution in the literature on multinational firms regarding the speed at which firms internationalize. Traditional approaches in the international business literature, including the Uppsala school (Johanson & Vahlne, 1977, 2009) and the product life cycle model (Vernon, 1966, 1979), have long suggested that firms need to approach international expansion with a slow and sequential pace because firms need to learn about foreign countries, and product cycles and consumer demand needs to evolve to create appropriate market conditions for firm international sales and operations. These more traditional approaches emphasize both differences across countries and the difficulties that firms face in foreign locations, leading to what has been termed ‘liabilities of foreignness’ (Hymer, 1976; Zaheer, 1995). However, despite these constraints, recent studies have documented a much quicker pace of international expansion by many firms (Fan & Phan, 2007; Knight, 1997; Oviatt & McDougall, 1994; Weerawardena, Mort, Liesch, & Knight, 2007; Zhou, Wu, & Luo, 2007). Studies on early internationalizing and born global firms, for example, suggest that firms can be more efficient and competitive right from the start by exploiting opportunities in foreign countries much earlier in the firm’s life cycle. In fact, there is a rather substantial body of research that calls into question the impact of liabilities of foreignness on firm international expansion, dating from the seminal article of Oviatt and McDougall (1994) on early internationalizing firms to the over one hundred subsequent articles that have examined and documented firms that go global early. In this paper, we embrace the recent phenomenon of early internationalizing firms with the goal of understanding these firms in light of decades of research on multinational firms that has long-stressed liabilities of foreignness. It is often implicitly assumed that the only way to reduce

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liabilities of foreignness is by doing business in foreign markets and learning about the local business environment over time (Johanson & Vahlne, 1977; Zaheer & Mosakowski, 1997). However, in this chapter, we examine how several distinctive antecedent firm characteristics that have been shown to facilitate early international expansion by firms, but which are not commonly considered in the more traditional approaches provide firms with advantages that can be used in their international expansion. In this sense, our study is similar to a recent work by Jones, Coviello, and Tang (2011) in considering how the aspect of timing can be used to understand global start-ups and born global firms. However, we go beyond that study by focusing on both specific venture types and several firm characteristics that have been shown to impact early internationalizing firms. In this chapter, we perform a systematic review of the literature on early internationalizing firms (following David & Han, 2004), based on the seminal work of Oviatt and McDougall (1994) to guide our analysis of early internationalizing firms and to identify important ways in which these firms differ from multinational firms. From our extensive review of the literature, we organize several findings across this literature to explain how individual characteristics lessen the impact of liabilities of foreignness for early internationalizing firms. We argue that long-standing arguments about the impact of liabilities of foreignness on firm foreign expansion apply to newly internationalizing firms, but that these liabilities are reduced by the experiences and knowledge of the founders and top managers in these firms acquired prior to the inception of these firms. We contribute to the literature that examines speed of foreign expansion in two ways. First, we analyse early internationalizing firms in a way that is more comparable to traditional multinational firms. Though early internationalizing firms have been studied for almost two decades, it can be difficult to compare the internationalization strategies of these firms to existing studies on multinational firms because of the different approaches and frameworks that have been used to describe each of these types of firms. We incorporate speed and mode of entry into our analysis of early internationalizing firms to analyse how the concept of liabilities of foreignness relates to early internationalizing firms. Second, by focusing on founder, firm and country characteristics, we highlight factors that are not commonly considered in the international business and management literature but that have been shown to impact the early internationalizing strategies of firms. Though early internationalizing firms may appear to be at odds with the more traditional approaches in the international business literature, by considering founder and firm characteristics that have been

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accumulated prior to a firm’s inception, we explain how these firms overcome what have long been considered to be significant liabilities of foreignness in the traditional international business literature early in their life cycle and ‘appear’ to skip this difficult stage in their growth and international expansion. Though advances in information technology and communication more generally will lower information costs for all firms, the importance of firm-specific experiences and knowledge about foreign markets remains for all firms who are expanding into international markets. By explaining how several founder and firm characteristics that have been accumulated prior to a firm’s inception are used by newly internationalizing firms, we resolve an important tension across the more traditional and more recent literatures on speed of foreign entry.

INTERNATIONAL EXPANSION In the international business literature, it is commonly assumed that the pace or speed at which firms internationalize their operations should be slow and deliberate. Hymer first introduced the concept of the ‘liability of foreignness’ in his doctoral dissertation (published in 1976). He and others have argued that local firms have advantages in their home countries that come from being better informed about their country in terms of the economy, the language, the culture, the laws and the politics (Hymer, 1976; Zaheer, 1995; Zaheer & Mosakowski, 1997). In contrast, foreign firms are at a disadvantage vis-a`-vis local firms due to their unfamiliarity with the local environment. Zaheer (1995) argued that these disadvantages result from spatial distance, firm-specific lack of knowledge about local markets, additional costs that can come from doing business in host country markets and even costs imposed by a home country government (i.e. high-technology sales). Several authors have examined how differences across markets and the need for local market knowledge can impact the pace of foreign expansion by firms (Johanson & Vahlne, 1977, 1990; Mezias, 2002; Zaheer, 1995), with Zaheer and Mosakowski (1997) estimating that it takes more than 15 years for foreign enterprises to overcome the disadvantage of being foreign in the currency trading industry. The Process Theory of Internationalization (also called the Uppsala school), which has its origins in Johanson and Vahlne’s (1977) classic study, begins with assumptions about the cognitive limitations and behaviours of individual managers (Cyert & March, 1963) and seeks to understand how firms can move beyond their national borders (Johanson & Vahlne, 1977) by

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focusing on the relationship between the level of knowledge about a foreign country and decisions regarding committing to foreign markets. According to the Uppsala school, firms will only gradually increase their commitment and control in foreign markets because of a tendency to avoid uncertainty. Starting with exporting, firms would only move towards wholly owned subsidiaries when they are more familiar with the local market. Vahlne and Johanson (2002, 2009) have argued that this approach is still relevant and useful for understanding the internationalization process of firms despite changes in the global environment over the last three decades. Further, analysing a panel of Dutch firms over a 26-year time period, Vermeulen and Barkema (2002) have shown that the speed with which a firm establishes foreign subsidiaries is negatively related to the performance benefits that come from international operations. Another classic approach that offers a slow pace for international expansion can be found in Vernon’s (1966, 1979) product life cycle model. In the first stage of this model, a firm manufactures and sells in its home market. As the firm’s products mature, low-cost production becomes important because foreign competitors have access to lower cost inputs. Though lower cost production may be initially directed towards the foreign host country, it can also be exported back to the home country. Finally, once host country costs are uncompetitive, this model predicts that all production will be shifted to a lower-cost host country. This approach suggests that firms will focus their innovative activities in their home market and only invest in foreign markets to produce or sell their products in mature production stages and the firm can benefit from lower production costs in these markets. Importantly, demand and production cost evolution determines the timing of foreign expansion in this approach, with market changes occurring only gradually across many countries. Because of the complexities involved with international expansion, traditional arguments in the international business literature have tended to focus on a slow and sequential pace when expanding abroad (Vermeulen & Barkema, 2002), and an incremental commitment to foreign markets through entry mode choices. Despite these arguments research over the last 15 years has increasingly recognized a quick pace of internationalization by firms (Fan & Phan, 2007; Oviatt & McDougall, 1994; Weerawardena et al., 2007; Zhou et al., 2007). Several studies now argue that quick and early internationalizing of firm value chain activities can provide firms with business models that allow them to be as efficient, effective and competitive as possible right from the start. For example, by becoming an early internationalizing firm, a firm can benefit from an accelerated process of

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accessing competitive advantages across national borders, like increased demand, access to cheaper inputs, access to managerial talent or macroeconomic diversification, for example. These early internationalizing firm arguments are at odds with the more traditional arguments that focus on the importance of firm learning and competitive advantages.

SYSTEMATIC LITERATURE REVIEW One challenge in analysing early internationalizing firms comes from the difficulty of gathering data on these firms. Much of what we know about early internationalizing firms comes from case studies and it can be difficult to analyse more qualitative studies systematically. However, given the extensive literature that exists on these firms, we offer a systematic literature review of these to explore how firms within these studies have overcome liabilities of foreignness. The purpose of a systematic literature review is to provide as systematically as possible, a review of all the literature that relates to a research issue. In the medical field, so-called systematic reviews have been applied to assess the results of individual studies and to develop clinical guidelines and evidence-based policies. Among others, Higgins and Green (2008) provide with their handbook of systematic reviews a process for conducting a systematic review. In the management literature, a systematic literature review approach has been developed by David and Han (2004) and enhanced by Newbert (2007). The benefit of a systematic review is to use as objective as possible of an approach to synthesize research while minimizing bias (David & Han, 2004). Through our review of the literature on early internationalizing firms, we offer a structured approach to examining how these firms overcome liability of foreignness early in their life cycle. We conducted our literature review with a fairly wide scope and followed a seven step process to search for relevant studies – including seven of the nine steps laid out by David and Han (2004). We focused on articles published in scholarly journals, using ABI/Inform and EconLit databases and searched on the terms that have been used to describe early internationalizing firms, including the following 12: Export Start-up, Import Start-up, Multinational Trader, Geographically Focused Start-up, Global Start-up, born global, Born Global Firm, BGF, Early Internationalizing Firm, EIF, International New Venture or International entrepreneur (the asterisk at the end of a word indicates that variations of the word were permitted). The first five keywords stem directly from Oviatt and

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McDougall’s typology of international new ventures from their seminal 1994 article (shown in Fig. 1) and the others come from highly cited articles in this literature (including Knight & Cavusgil, 2004; McDougall, Shane, & Oviatt, 1994; Oviatt & McDougall, 2005b). We review the approach we followed in Table 1. We did not include two of the steps of David and Han (2004) because we did not feel the need to use secondary keywords to further limit our search (they were searching in the much larger transaction cost economics literature) and we did not use a methodological filter to limit our search to empirical studies only. Our approach yielded 107 articles on early internationalizing firms that we use below to identify important antecedent characteristics of these firms. The most common dimensions for analysing early internationalizing firms come from the Oviatt and McDougall framework and include the multinationality and function dimensions (see Fig. 1). These dimensions are useful when considering the different types of firms that we reviewed and we will use these dimensions in our discussion of early internationalizing firms. Below, we start by considering how these dimensions have been treated across the 107 articles we analysed. We also go beyond these dimensions and introduce notions of speed and entry mode from the broader international business literature into our discussion to allow for a deeper consideration of how early internationalizing firms overcome liabilities of foreignness. Coordination of Value Chain Activities I

II

New International Market Makers Few Activities Coordinated

Export/Import Start-Up

Multinational Trader III

Many Activities Coordinated

Geographically Focused Start-Up

Many

IV

Global Start-Up

Few

Number of Countries Involved

Fig. 1.

Types of International New Ventures in Oviatt and McDougall (1994).

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Table 1.

Overview of Systematic Literature Review Steps.

Steps

Description of Procedure

Step 1: Search only for articles published in scholarly journal

According to the original argumentation of David and Han, when they refer to Light and Pillemer (1984, p. 34), the exclusion of book chapters and unpublished work enhances the quality by requiring a review process. Following this logic, the limitation on only scholarly journals further increases the quality due to a rigorous peer review process prior to publication.

Step 2: Search the ABI/Inform and EconLit databases

We chose ABI/Inform and EconLit as our key databases. Because these firms have been examined from several vantage points and theoretical perspectives, the multidisciplinary ABI database provides an appropriate base. To ensure an exhaustive coverage of our research, we enhanced the ABI search by an additional search in the EconLit database to include all studies from economic journals.

Step 3: Safeguard articles of substantive relevance

We searched on the terms that have been used to describe EIFs, including the following 12: Export Start-up, Import Start-up, Multinational Trader, Geographically Focused Start-up, Global Start-up, born global, Born Global Firm, BGF, Early Internationalizing Firm, EIF, International New Venture or International entrepreneur. As explained by David and Han (2004), the asterisk () at the end indicates that variations of the word were permitted. The first five keywords stem directly from Oviatt and McDougall’s typology of international new ventures from their seminal 1994 article. To ensure the identification of most of the articles treating the born global topic, even if called differently, the rest of the keywords were derived from two more, innovative and highly cited, articles contributing to the development of a ‘born global’ theory. On the one hand, Oviatt and McDougall’s 2005 article ‘Defining International Entrepreneurship and Modeling the Speed

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Table 1. (Continued ) Steps

Description of Procedure of Internationalization’ was chosen for its enhancements of the International Entrepreneurship theory, backing the born global phenomenon. On the other hand, Knight and Cavusgil’s 2004 article ‘Innovation, Organisation Capability and the Born-Global Firm’ has been selected for its innovative developments of international business theory supporting the born global topic. In addition to ‘international new venture’and the variations/abbreviation of born global, two more frequently used terms, describing the topic, could be derived from these articles (i.e. ‘Early internationalizing firm’ and ‘International entrepreneur’). Applying step 1 to 3 resulted in a sample of 326 studies form both databases.

Step 4: Remove substantive irrelevant articles from the sample by only selecting articles that appear in journals in which multiple articles appear.

Applying this criterion on our sample allowed us to remove 57 of the 326 gathered articles. Having a closer look at all the articles eliminated by this filter, it became apparent that the eliminated articles had quite drifted off the core early internationalizing firm topic. The following example representatives the validity of this criterion. Out of the 326 articles, for example, there were 37 articles of the Journal of International Business Studies gathered, while there was only one article from the International Tax Review in the sample. And this one article concentrates on the effects of globalization and internationalization on fiscal authorities and tax advisers (Van Leent, 1999), treating international entrepreneurship only as a subordinate aspect. For this reason this article was eliminated.

Step 5: Ensure substantive relevance through reading all remaining abstracts for substantive context.

Articles retained had to indicate a contribution to the early internationalizing firm topic in the abstract. This criterion allowed us to reduce the number of articles from 269 to 229.

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Table 1. (Continued ) Steps

Description of Procedure

Step 6: Ensure substantive relevance through reading all remaining articles in their entirety for substantive context.

Articles that did not meet the restriction were eliminated from the sample. For example, the article of Ahmed, Julian, and Majar (2006) met all criteria, even passed step 5 because after reading the abstract it seemed as if they provide valuable findings to the early internationalizing firm topic. But after reading this article in its entirety, the article was removed because it treats the international entrepreneurship topic but focuses exclusively on export activities and incentives to export of manufactures and not on EIFs. By applying this last filter on our sample, 67 more articles were removed.

Step 7: Consolidate results from ABI/Inform and EconLit to eliminate duplicate articles.

After applying criterion 6 the number of articles remaining was 162, with still some articles in common from both databases. The 55 duplicates were eliminated in the last step.

Function The first dimension that Oviatt and McDougall (1994) incorporated in their framework is the ‘type of activity’ that firms perform in foreign markets. Of the 107 studies we examined, we found 28 studies that mentioned only exporting as the type of activity of the firms in their sample (e.g. Lopez, Kundu, & Ciravegna, 2009; Moen & Servais, 2002). There are 39 studies in our sample that do not give any information on value chain activity (e.g. Casillas, Moreno, Acedo, Gallego, & Ramos, 2009; Zhou et al., 2007). In the marketing literature, born globals often have a clear functional marketing focus (Knight, Madsen, & Servais, 2004). In fact, some studies use the term ‘born exporters’ to describe this type of firm (e.g. Quelch & Klein, 1996; Sharma, 2001). When information on value chain activities is given (43 out of 107), it tends to be too broad to really capture what activity the firm is performing in foreign markets. Thirty-five out of the 43 studies mentioning the business function dimension describe value chain activities of the studied firms simply as including more than just export activities without further specification. Notable exception include, for example,

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biotech firms with major shares of their development activities on another continent (Gassmann & Keupp, 2007) or computer accessories manufacturing firms having their administrative activities spread over three continents (McDougall et al., 1994). Across these studies, the most often mentioned activities performed internationally are research and development, marketing, sales, distribution and after sales services. In addition, production was mentioned in 19 of the 43 studies that give some information on value chain activities.

Multinationality Although the wording ‘multiple countries’ was used in the original definition of international new ventures, most of the research on early and rapid internationalization does not specify what multinationality means; i.e. either the number of countries or the distances across countries (Kuivalainen, Sundqvist, & Servais, 2007). Twenty-two of the articles provide information on the exact number of countries accessed by the firms in our studies. The number of countries accessed by the 1,070 total firms covered across the studies ranged from 2 to 70 countries. To illustrate the difference between those firms we revert to two representative cases from different studies. On the one end of our range we can find firms starting in Switzerland, expanding international activities to two geographically close countries; e.g. Germany and the Czech Republic (Gassmann & Keupp, 2007). On the other end of the range we found a firm expanding more radically from Sweden to various countries in Europe, North America, South America, Asia, Africa and Oceania across value chain activities (R&D, production marketing and distribution) in the respective foreign markets (Nordman & Melen, 2008). Beyond these 22 studies, 33 of our remaining 110 studies simply use the term ‘multiple countries’ to define the scope of a firm’s international activities. We find that this concept has been used more to distinguish a domestic or multinational focus by firms, but not to refer to the few or many countries in the Oviatt and McDougall framework. In addition to the two dimensions that form the axes of Oviatt and McDougall’s framework, we believe that there are two additional dimensions that underlie this framework and early internationalizing firms more generally – namely, speed to internationalization and mode of entry. As reviewed above, the timing dimension has long been approached from an Internationalization Process School point of view, which has suggested a slow and incremental approach to international expansion by firms. Mode

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of entry and ownership issues have also been a mainstay in the international business literature. An important focus in the internalization theory (Buckley & Casson, 1976; Hennart, 1982) is on ownership of foreign operations because it provides firms with the ability to not only reduce risk but also increase their abilities to appropriate the returns from its proprietary assets.

Speed Though speed is an underlying concept for all early internationalizing firms, our review of the literature suggests that issues of time and speed are somewhat ambiguous concepts. There is generally a wide spectrum of how the time dimension has been operationalized. Some studies keep their operationalization of time to internationalization rather vague by using terms as ‘in their early life cyles’ (Zahra, Ireland, & Hitt, 2000), or ‘almost from birth’ (Casillas et al., 2009). Considering the 31 studies using the term Born Global exclusively, the mean time between inception of the firm and its first international activities is one year, but includes a range of 0–6 years. Of the 63 studies of our sample using the terms ‘Born Global Firms’ combined with others, the variation of the exact time, used to define the firm as their research objectives, is immense. McDougall et al. (1994) use an eight-year definition, others suggest that Born Globals enter foreign markets between two and six years after inception (Coviello & Munro, 1995). To be fair, issues of speed and timing are not clear-cut for more traditional multinational firms either. Though the international business literature has long argued that firms need to approach international expansion with a systematic and sequential approach (Johanson & Vahlne, 1977), the speed of international expansion is not a clearly articulated aspect of either the Uppsala approach or the product life cycle approach. Instead, the focus is on the importance of gathering knowledge about foreign markets to reduce liabilities of foreignness, or on the life cycle of a firm’s products.

Mode of Entry The second underlying issue that we consider is mode of entry. The majority of the analysed studies do not mention an ownership dimension (in our

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sample, only 19 of 107 studies provided information about the ownership dimension). Nevertheless, the ownership dimension has been implicitly taken into account in some (more IB-oriented) studies, when for example studies exclude from the analysis companies that only rely on other companies on a subcontractor or private-label manufacturer basis (Fan & Phan, 2007). In Table 2, we indicate how the studies we analysed have incorporated issues of multinationality, function, speed and mode of ownership. While our review of these studies reveal that there is no common approach to defining early internationalizing firms, this table reveals which studies incorporate each of these issues (even if the study does not provide an exact definition, the study needed to use one of the dimensions to describe or define early internationalizing firms to have an X in the corresponding dimension box). While Oviatt and McDougall (1994) provide an important tool for analysing early internationalizing firms, we suggest that we can better understand early internationalizing firms by also using the more common dimensions of speed to international expansion and mode of entry. While our approach is more complicated than the Oviatt and McDougall framework, this complexity allows us to focus more broadly on how early internationalizing firms have overcome liabilities of foreignness early in their life cycle, including the more traditional dimensions in the international business literature. Therefore, we now turn to a specific examination of our analysis of antecedent firm characteristics from the 107 studies.

ANTECEDENT FIRM CHARACTERISTICS AND EARLY INTERNATIONALIZING FIRMS Our systematic review of the literature on early internationalizing firms revealed several firm, founder and country characteristics that have been shown to influence the speed and mode of entry decisions of early internationalizing firms. In Table 3, we summarize each of the antecedent characteristics and the articles that highlight these characteristics that are included in our discussion. We start by discussing the firm-specific advantages that allow firms to overcome liabilities of foreignness and then move on to country and industry pressures that increase the need for these firms to go global quickly.

Casillas et al. (2009) Chandra, Styles, and Wilkinson (2009) Chetty and Campbell-Hunt (2004) Clercq, de, Sapienza, and Crijns (2005)

Cabrol, Favre-Bonte´, and Fayolle (2009) Callaway (2004)

Andersson and Evangelista (2006) Andersson and Wictor (2003) Arenius et al. (2005) Aspelund and Moen (2005) Bell, McNaughton, and Young (2001) Berg, Aspelund, and Sørheim (2008) Blesa, Monferrer, Nauwelaerts, and Ripolles (2008) Bra¨nnback, Carsrud, and Renko (2007) Burgel and Murray (2000)

Acedo and Casillas (2007) Acedo and Jones (2007) Andersson (2004)

X

X

X

X

X X

X

X

X

X

X X

X

X

X

X

X

X

X

X

X X

X

X X X

X

X

X X X

Timing

X

X

X

X X

X X X

X

X

X

X

Ownership

X

Function

Han and Celly (2008)

Han (2007)

Gleason and Wiggenhorn (2007) Hallba¨ck and Larimo (2006) Han (2008)

Gabrielsson and Pelkonen (2008) Gabrielsson, Sasi, and Darling (2004) Gassmann and Keupp (2007)

Gabrielsson and Gabrielsson (2003) Gabrielsson, Kirpalani, and Luostarinen (2002)

Freeman et al. (2006) Freeman and Reid (2006) Gabrielsson (2005)

Freeman and Cavusgil (2007)

Fan and Phan (2007) Fernhaber et al. (2007) Ferro, Pre´fontaine, and Skander (2009) Fletcher (2004)

Mapping Studies to Dimensions.

X

X

X

Multinationality

Table 2.

X

X

X X

X

X

X

X

X X

X

X X X

Multinationality

X

X X

X

X

X

X

X

X

X

Function

X

X

X

X

X

Ownership

X

X

X X

X

X

X

X

X

X X X

X

X X X

Timing

410 LYDIA BALS ET AL.

Mathews and Zander (2007) McDonald, Krause, Schmengler, and Tuselmann (2003) McDougall et al. (1994) McDougall (1989) McDougall, Oviatt, and Shrader (2003) McNaughton (2003)

X

X

X X X

X

X X

X X

X

X

X

X

X

Dimitratos, Johnson, Slow, and Young (2003) Dimitratos and Plakoyiannaki (2003) Drori, Honig, and Wright (2009) Etemad and Salmasi (2001) Evangelista (2005) Knight and Cavusgil (1996) Kropp, Lindsay, and Shoham (2006) Kropp, Lindsay, and Shoham (2008) Kuivalainen et al. (2007) Loane (2005) Lopez et al. (2009) Mainela and Puhakka (2009)

X X X X

X X

X

Dana, Chan and Chia (2008) Di Gregorio, Musteen, and Thomas (2008)

Contractor, Hsu, and Kundu (2005) Coviello (2006) Coviello and Cox (2006)

X

X

X

X X

X

Vissak (2007a) Vissak (2007b) Wakkee (2006) Weerawardena et al. (2007)

X X X X

X

X X X X

X

X X X

X Knight et al. (2004) Knight and Cavusgil (2004) Sasi and Arenius (2008) Servais, Madsen, and Rasmussen (2006) Servais Zucchella, and Palamara (2006) Shrader (2001) Spence and Crick (2006) Styles and Seymour (2006) Terjesen, O’Gorman, and Acs (2008) Thai and Chong (2008) Vapola, Tossavainen, and Gabrielsson (2008)

Katz, Safranski, and Khan (2003) Knight and Cavusgil (2005)

X

X

X X

Ibeh, (2005) Ibeh, Johnson, Dimitratos, and Slow (2004) Ibrahim and McGuire (2001) Jantunen, Nummela, Puumalainen, and Saarenketo (2008) Jones and Coviello (2005)

Hansen and Witkowski (1999)

X X

X

X

X

X X X

X

X

X X

X

X

X

X

X

X

X X

X

X

X

X X

X

X

X

X

X X

X

X

X

X

X

X X X

X X

X X X X

X

X X X X

X

X

X

X

X

X

What Do We Know about Going Global Early? 411

Moen, Sørheim, and Erikson (2008) Morgan-Thomas and Jones, (2009) Mort and Weerawardena (2006) Mudambi and Zahra, 2007) Nordman and Mele´n (2008) Oviatt and McDougall (1994) Oviatt and McDougall (2005) Oviatt and McDougall (2005) Rhee, 2002) Rialp and Rialp (2006) Rialp, Rialp, Urbano, and Vaillant (2005)

Mele´n and Nordman (2009) Michailova and Wilson (2008) Moen (2002) Moen and Servais (2002)

X

X

X X X X

X X X

X

X

X

X

X

X X X

X

X X

X X

Timing

X X X X X

X

X

Ownership

X

X X

X

Function

X

X

X X

X

Multinationality

Zahra, Matherne, and Carleton (2003) Zettinig and Benson-Rea (2008) Zhang and Dodgson, 2007) Zhou (2007) Zhou et al. (2007)

Yeoh (2000) Young, Dimitratos, and Dana (2003) Zahra (2005)

Welch and Welch (2004) Westhead (2008)

Table 2. (Continued )

X X X

X

X

X

X

X

Multinationality

X

X

Function

X

X

X

Ownership

X X X

X

X

X

X X

X

Timing

412 LYDIA BALS ET AL.

Quicker learning, more openness to foreign expansion

Organizational dynamism/lack of organizational inertia Social network

Financial resources, pressure from funding bodies to be global from the start, foreign knowledge, foreign contacts

Small or mature home marketInadequate access to raw materials and inputs

Global competitors, price competition, knowledge clusters

Venture capitalists

Home country deficiencies

Industry globalization pressures

International networks, contacts in foreign countries, knowledge acquired through foreign contacts, credibility

Capabilities and skills, entrepreneurial mindset, global mindset, overseas education, overseas family

Specific Examples

Founders and managers

Antecedents Autio et al., 2000; Birley & Norburn, 1987; Bloodgood et al., 1996; Busenitz & Barney, 1997; Cabrol et al., 2009; Clercq et al., 2005; Harveston et al. 2000; Madsen & Servais, 1997; Shrader, Oviatt & McDougall, 2000; Weerawardena et al., 2007; Zhou, 2007 Autio et al., 2000; Cavusgil, 2004; Knight & McDougall et al., 2003; Weerawardena et al., 2007; Zahra & George, 2002 Berg et al., 2008; Contractor et al., 2005; Coviello, & Cox, 2006; Freeman, & Cavusgil, 2007; Freeman et al., 2006; Gabrielsson, & Pelkonen, 2008; Hallba¨ck, & Larimo, 2006; McDougall et al., 1994; Nordman, & Melen, 2008; Oviatt, & Phillips McDougall, 1997; Zhou et al., 2007 Andersson & Wictor, 2003; Fernhaber & McDougall, 2009; Fried et al., 1998; Gabrielsson & Pelkonen, 2008; MacMillan et al., 1989; Ma¨kela¨ & Maula, 2005; McDougall et al., 1994; Nordman & Melen, 2008; Sapienza, 1992; Sapienza et al., 1996 Andersson & Evangelista, 2006; Fan & Phan, 2007; Freeman et al., 2006; Knight & Cavusgil, 2004; Madsen & Servais, 1997; McDougall et al., 1994; McDougall & Oviatt, 1991; Vissak, 2007 Fernhaber et al., 2007; Gabrielsson & Pelkonen, 2008; McDougall & Oviatt, 1991; McDougall et al., 2003

Articles That Highlight These Antecedents

Table 3. Antecedents and Article Sources.

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Firm-Specific Advantages Founders and Managers. Based on the influential writings of Hymer (1976) and the transaction cost approach (following Buckley & Casson, 1976; Williamson, 1985), the internalization theory in the international business literature argues that a firm will expand abroad when it can organize interdependencies between agents located in different countries more efficiently than markets (Hennart, 1982). Most applications of the transaction cost/internalization theory have focused on firm know-how (Buckley & Casson, 1976; Hennart, 1982; Hymer, 1976). Markets for firm knowledge suffer from the problem of information asymmetry (Arrow, 1962; Buckley & Casson, 1976). Because of the importance of ownership and control over firm proprietary assets, these firms need to own operations abroad to successfully exploit their intangible assets in foreign markets and to appropriate the returns from their investments in these assets (Berry & Sakakibara, 2008; Buckley & Casson, 1976; Dunning, 1980; Pugel, Kragas, & Kimura, 1996). When thinking about firms that internationalize quickly, however, these firms are likely to lack the R&D or advertising intensities or capabilities that are generally examined in the international business literature. Instead, an important asset that these firms have is founders and managers who bring important experiences and knowledge to a firm’s plans to create competitive advantage by accessing multi-market inputs or sales. The entrepreneurship literature adds an important dimension in this respect by highlighting the important capabilities and experiences of firm founders to help new ventures enter foreign markets early in their evolution. For example, an entrepreneurial owner-manager with a global mindset, prior international experience or a learning orientation (Weerawardena et al., 2007) can provide important sources of advantages for early internationalizing and born global firms. The aggressive pursuit of international growth opportunities is a function of the founding entrepreneurs’ international competences, their vision, and awareness regarding growth opportunities at an international level (Autio, Sapienza, & Almeida, 2000; Bloodgood, Sapienza, & Almeida, 1996). Founders of early internationalizing firms were also recognized to be more likely to have travelled and to be educated overseas (Birley & Norburn, 1987). Prior founders’ international experience has been spelled out as a vital aspect of early internationalizing firms (e.g. Harveston, Kedia, & Davis, 2000; Madsen & Servais, 1997; Oviatt & Phillips McDougall, 1997; McDougall and Oviatt, 2000) because the experience and exposure of the managers prior to the start of a new venture can play an important role in

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the early internationalization decision (e.g. Busenitz & Barney, 1997; Harveston et al., 2000; Madsen & Servais, 1997; Shrader, 2001). Further, founders of early internationalizing firms are often immigrants with family and personal contacts overseas (McDougall et al., 1994). Founder international experiences prior to the inception of the firm can lead firms to make early internationalizing firm choices. Extant literature shows that the founders of early internationalizing firms are more likely to have experiences within foreign countries. These founders may also have been born in a foreign country. This antecedent founder characteristic of international experience provides advantages to an early internationalizing firm in the sense that these countries are known to the founder. The business norms, local culture, government regulations (Hymer, 1976; Johanson & Vahlne, 1977; Zaheer, 1995) that create distance across countries for most firms, do not have the same impact when a founder has lived and worked in different country settings. As Sapienza, Autio, George, and Zahra (2005) argue, knowledge embedded in prior managerial experiences with internationalization is likely to influence the choices that managers make in their new positions. This suggests that founder and manager international experiences can provide early internationalizing firms with knowledge about foreign countries that can allow them to expand into these countries much earlier than firms without such experiences. One way that firms can skip the learning phases of international expansion is by focusing on those countries they already know. Having lived or worked in a particular country, these founders have already accumulated knowledge that allows them to be an international firm very close to inception and reduce their liability of foreignness. Taken together, existing studies have shown that early internationalizing firms tend to have top managers and founders that leverage their international experiences. Organizational inertia. It is also interesting to consider how the literature on early internationalizing firms portrays what has been called the ‘liability of newness’ of young organizations (Stinchcombe, 1965). While internalization theory in the international business literature focuses primarily on how firms can exploit competencies created in their home market, early internationalizing firms may have little or no existent organizational routines to unlearn while they pursue foreign opportunities (Autio et al., 2000; Cohen & Levinthal, 1990). Some authors have even gone so far as to state that the learning advantages of newness (Autio et al., 2000; Oviatt & McDougall, 2005a) may actually represent a counterpoint to liabilities of newness for young organizations (Stinchcombe, 1965). Also, it has been suggested that the fast-paced learning of these companies that are resource-constrained

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and technology-oriented would allow them to internationalize early (e.g. Knight & Cavusgil, 2004; Zahra & George, 2002). Importantly, the youth of these early internationalizing firms does not suggest that these firms have no experience in their industry. On the contrary, previous research has found that entrepreneurs tend to create companies that produce the same goods and services as that of their previous employers (e.g. Aldrich, 1990; Cooper & Dunkelberg, 1986). A founder’s knowledge can be crucial in allowing firms to for realize opportunities that are available (Oviatt & McDougall, 2005). Early internationalizing firms have been portrayed as having high organizational dynamism (McDougall et al., 1994) and less organizational inertia when moving into new countries. Existing studies suggest that early internationalizing firms are less likely to have organizational inertia or vested managerial interests against international expansion than more traditional multinational corporations. Social networks. Networks are essential for the discovery of opportunities, the testing of ideas, and the gathering of resources for establishing the new organizational structures (Aldrich & Zimmer, 1986). Prior research has shown the importance of networks to information and knowledge flows (see, e.g., Burt, 1992; Ellis & Pecotich, 2001; Granovetter, 1985; Sharma & Blomstermo, 2003; Yeoh, 2000). Oviatt and McDougal have highlighted the important role of an entrepreneur’s international network while Zhou et al. (2007) have identified three types of benefits from (home-base) social networks, including: knowledge of foreign market opportunities, advice and experiential learning and referral trust and solidarity. Extant studies show that early internationalizing firms are more likely to have social networks that allow them to access business opportunities in foreign countries. These ties can allow a firm to enjoy advantages such as trust, status and reputation (Blankenburg, Eriksson, & Johanson, 1996; Sapienza et al., 2005). These founders are likely to have ‘excellent network leverage to foreign markets that allows accelerated pace of internationalization’ (Freeman & Cavusgil, 2007), and to use extensive personal networks and contacts (Freeman, Edwards, & Schroder, 2006; Mort & Weerawardena, 2006; Rialp & Rialp, 2006). These personal contacts are different from international experiences because they provide local contacts that can run the operations of an early internationalizing firm, or at least are on-site to manage the activities of the firms in the country. While international experiences provide knowledge of the norms, culture and regulations in a local host country, a founder’s social network can provide the actual people who can run the local operations. Existing studies that have examined social networks have found that early

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internationalizing firms are more likely to have founders with dense international social networks. Venture capitalist funding. Studies taking an entrepreneurship approach also highlight the role of venture capitalists in encouraging early internationalization by firms. Many international new ventures receive financial resources from venture capitalists (Ma¨kela¨ & Maula, 2005) and venture capitalists with an international background themselves can put pressure on the founder(s) to internationalize quicker (McDougall et al., 1994). Also, apart from financial resources, the entrepreneurship literature highlights how venture capitalists can contribute to, and influence, the strategic direction of their portfolio companies (e.g. MacMillan, Kulow, & Khoylian, 1989; Sapienza, 1992; Sapienza, Manigart, & Vermeir, 1996). Venture capitalists can contribute international knowledge and reputation resources for firms (Fernhaber & McDougall-Covin, 2009). Several studies have argued that venture capitalists can play an important role in pushing firms to internationalize to receive funding (e.g., Fried, Bruton, Hisrich, 1998; MacMillan et al, 1989; Sapienza, 1992; Sapienza, Manigart, & Vermeir, 1996). Early internationalizing firms can thus skip incremental international expansion because of the networks and experiences of venture capitalists.

Country and Industry-Specific Pressures Extant research on early internationalizing firms has paid less attention to how country factors can allow firms to overcome liabilities of foreignness, but this literature does suggest that there are country deficiencies and industry globalization pressures that can increase the pressures on these firms to go global early. Regarding considerations that are relevant to a firm’s sales, the size of the product market in a firm’s home market has been identified as an important influence on the internationalizing activities of that firm (Fan & Phan, 2007; Knight & Cavusgil, 2004; Madsen & Servais, 1997; McDougall et al., 1994). The home country setting of a firm can impact the need for value chain activities to be located and owned across different countries in particular product markets. Differences in factor costs, availability of inputs, differences in the knowledge assets across different country locations and differences in market size can impact the need for firms to locate activities in different country locations. Early internationalizers may come from countries that offer fewer resources for their products or smaller market size for their products. Very specific niche markets can be quite important to early internationalizing firms (Rialp, Rialp, & Knight, 2005)

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and the country specific deficiencies to which we are referencing may be quite industry specific – i.e. the size of market for specific products or knowledge assets for particular processes or inputs. Even though the early internationalizing firms we reviewed may come from large markets in general, the specific product niche of these firms may require either cheaper inputs or greater demand – than one market can offer. Foreign markets can allow firms to overcome both supply and demand deficiencies (Yamakawa, Peng, & Deeds, 2008). Arenius, Sasi, and Gabrielsson (2005) examined a Finnish company that aimed to focus its specialized software products in the US market from inception given the demand conditions in this foreign market. If the domestic market is too small, founders will look to international market opportunities much earlier. Other factors found in this context are market scale and domestic inertia (McDougall & Oviatt, 1991). An adequate and efficient supply of inputs (e.g. raw materials or low-cost or talented labor pools) suggest that there can be important differences in where a firm may want to locate value chain activities such as R&D or manufacturing to benefit from the most competitive country locations. External country characteristics can play an important role in the choices of early internationalizing firms and these studies suggest that early internationalizing firms are more likely to originate from countries with deficiencies (i.e. more expensive factor inputs, smaller size of product market or lack of technology resources for products) in their home country. The level of global integration in an industry can also push firms to early internationalization (McDougall et al., 2003). Global integration refers to the international exchange of resources among firm units resulting from the increased specialization and geographic dispersion of value-added activities (Bartlett & Ghoshal, 1989; Kobrin, 1991). When other firms in an industry benefit from cheaper inputs or expanded sales across country locations, this impacts the competitive advantages of firms without access to such factors (Fernhaber, McDougall, & Oviatt, 2007). Moreover, the presence of global competitors can motive firm to internationalize quickly (Oviatt & McDougall, 2005). In Table 4, we summarize these factors and contrast them with the more traditional focus in the international business literature on factors that slow international expansion by firms. While founder and management experiences in foreign markets and international social networks and family ties help firms to overcome their lack of knowledge of foreign markets, more limited home country supply and demand factors can also push firms to access larger markets and additional inputs from other source countries.

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Table 4.

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Factors that Influence Liabilities of Foreignness and Pace of Internationalization.

Factors That Increase Liabilities of Foreignness and Slow Internationalization

Factors That Reduce Liabilities of Foreignness and Speed Up Internationalization

Management lack of knowledge of foreign countries

Founder experiences in foreign countries Manager experiences in foreign countries International experiences of venture capitalists

Lack of foreign contacts

International social networks family in foreign countries

Organizational inertia and bias towards foreign expansion Primarily domestic competition in home country industry Large home market/sufficient demand Sufficient inputs in home market

Advantages of newness Global competition in industry Small home market for products/services Scarce inputs in home market

As discussed above, there are several founder-specific characteristics that can influence the early international expansion strategies of firms that need to be examined prior to the inception of a firm, including founder international experience and founder social networks. In addition, the home country of a firm suggests that external conditions in terms of demand conditions, related and supporting industries, factor endowments and competition (Porter, 1985) can also provide important stimulus for firms that are based in smaller, less endowed countries to seek these inputs and demand conditions elsewhere. Given the findings from these studies, we argue that the time perspective should be extended beyond a firm’s birth for early internationalizing firms and moved to the level of the individual. This conception of antecedent characteristics can provide an important difference between more traditional and early internationalizing firms that allows early internationalizing firms to appear to skip growth stages that are commonly assumed to exist in the international business literature. By considering the individuals within firms, we argue that long-standing arguments about the impact of liabilities of foreignness on firm foreign expansion still hold for newly internationalizing firms, but they are tempered by the experiences and knowledge of the individuals in these firms. We suggest that early internationalizing firms benefit from the experience and knowledge at the firm and individual levels at t-1, substituting for long-term accumulation normally occurring after t0 in traditional multinational firms

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Throughout this paper, we have considered how several of the antecedent firm characteristics we identified above can impact the strategic decisions of early internationalizing firms. Fig. 2 includes both these antecedent characteristics and the important dimension of time to highlight how firm characteristics, and industry and country pressures exist prior to the formation of the firm. Though all of the firm, founder and country characteristics we identified through our literature review do not need to exist at

Founder International Knowledge and Experiences

Organizational Newness

Founder Social Networks Reduced Liabilities of Foreignness or Increased Pressures to Go Global Early

Venture Capitalist Experience and Pressures

Home Country Deficiencies

Industry Globalization

Characteristics Accumulated Prior to Firm Formation

T-2

Fig. 2.

T-1

T

Impact of Firm, Founder and Country Antecedent Characteristics.

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the same time, the ones that do exist have been shown to pre-date the formation of early internationalizing firms.

DISCUSSION Traditional approaches to studying the pace of international expansion by firms (Johanson & Vahlne, 1977; Vernon, 1966, 1979) suggest that firms will make incremental and sequential steps when they expand into foreign countries in order to learn about these countries and/or allow country markets to evolve in their demand for a firm’s products. In this paper, we embrace notions of liabilities of foreignness (Hymer, 1976; Zaheer, 1995) that underlie the more traditional approaches to studying the international expansion of multinational corporations and focus on how firms can accumulate foreign learning and experiences prior to inception and appear to skip the stages that have long been highlighted in the international business literature. In this sense, we analyse early internationalizing firms within the scope of the long-standing Uppsala school while at the same time carving out distinctive characteristics that stand in contrast to the more traditional multinational firm competitive advantages. In so doing, we follow Autio’s (2005) approach of focusing more on enabling conditions that can give rise to early internationalizing firms. We also extend the recent study by Jones et al. (2011) that has highlighted the important aspect of timing to understand global start-ups and born global firms. Although several studies have documented a quick pace of international expansion by firms (Fan & Phan, 2007; Oviatt & McDougall, 1994; Weerawardena et al., 2007; Zhou et al., 2007), we believe that it is important to acknowledge that ‘liabilities of foreignness’ (Hymer, 1976; Zaheer, 1995) are relevant to all firms that expand across country borders. We have argued that by expanding not only the set of firm characteristics but also the time frame from when a firm can accumulate firm-specific competitive advantages (prior to inception), we can better understand both entrepreneurial early internationalizing firms and when and how these firms can overcome liabilities of foreignness early in their life cycle. We have focused on several founder and pre-inception characteristics that involve founder international experiences and networks. Though these characteristics are underexplored in the current international business literature, we have considered how these antecedent firm characteristics can give rise to important advantages for early internationalizing firms. Further, by using a systematic literature review to ground our study in extant literature on early

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internationalizing firms, we have offered far more characteristics than is possible in an empirical study of early internationalizing firms. We have also contributed to the literature on early internationalizing firms by comparing these firms with dimensions that are more commonly used to analyse the international expansion decisions of more traditional multinational firms. Though there are many studies on early internationalizing firms, it is not easy to compare early internationalizing firms to more traditional multinational firms because of the different frameworks that are used to describe each of these types of firms. By incorporating speed and mode of entry into our analysis of early internationalizing firms along with Oviatt and McDougall’s dimensions of multinationality and functions, we have extended our understanding of firms that go global early using a more traditional international business lens for these firms. While issues of speed and entry mode underlie the Oviatt and McDougall framework, we believe that they have received much less attention in the literature on early internationalizing firm over the last decade. For future studies, we would also suggest that differences across which firm value chain activities are being internationalized (the functions that are in the Oviatt and McDougall framework) are also understudied. Exporting has received much attention in the early internationalizing firm literature, while production and R&D have been much less studied. R&D is a particularly interesting activity because some countries do not offer either advanced technological capabilities in certain industries (e.g., biotechnology) or the institutional protections that are necessary for firms to perform R&D. R&D is generally the last activity that multinational firms internationalize and it would be useful to understand how both firm and country level characteristics impact the decision to internationalize a firm’s R&D. With our focus on entrepreneurial global firms, our study also contributes to the entrepreneurship and international business literatures by considering founder characteristics in a global setting. For the entrepreneurship literature, the focus on a founder’s social network has not often been extended into global markets. While global expansion strategies may be more difficult to implement, they can provide young, entrepreneurial firms with new markets, inputs and advantages that can be exploited across that firm’s operations. Unlike the common focus on technology and marketing abilities in the international business literature (Berry & Sakakibara, 2008; Buckley & Casson, 1976; Morck & Yeung, 1991; Pugel et al., 1996), these entrepreneurial early internationalizing firms provide new firm and founder characteristics that give important firm advantages that can be exploited through in foreign markets.

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Regarding future research, we regard as a highly interesting avenue for further research is to study the ‘strategic intent’ of the founding teams. This was a dimension hardly found in the studies explicitly, but would warrant an interesting object of study to more exactly classify the set-up intended by the functions involved as well as speed. Moreover, it is not only the individual, but also the founding team formulating this intent. This also resonates with the results the literature review of Jones et al. (2011, p. 646), in which they suggested ‘[y] the entrepreneurial team, not just the entrepreneur, is relevant [y]’. Considering that the founder teams bring along the mentioned antecedent characteristics, the design of the early internationalizing firms can also already virtually take place a considerable time before the official founding. Taking this into account in studies as well when clarifying the prefoundation process could yield interesting insights on the different paths chosen by firms instead of bringing them all under one very general heading of early internationalizing firms. Autio et al. (2000) argued that early internationalizers are more likely to grow more rapidly than older entrants because of ‘learning advantages of newness’. They suggest that younger firms tend to adopt more novel approaches to internationalization than older firms. While we agree that younger firms are less likely to be hampered by competency traps (Cohen & Levinthal, 1990), we offer a broader perspective on what gives rise to early internationalizing firms that complements the learning advantages of newness view. By focusing on how antecedent firm characteristics can provide resources and capabilities that can both be exploited by early internationalizing firms and offset liabilities of foreignness, we focus on advantages that early internationalizing firms possess that can be complemented with novel approaches that older and more traditional firms cannot explore due to embedded approaches to operations (Bettis & Prahalad, 1995) that can constrain exploitation of growth opportunities by older firms. Finally, by considering the speed of foreign entry, our research considers how firms deal with uncertainty in foreign markets and how relationships and knowledge about relevant networks is necessary for firms to succeed (Johanson & Vahlne, 2009). The Uppsala school tradition focuses on the importance of learning and building trust in firm internationalization. In contrast, the born global literature embraces an accelerated process of accessing competitive advantages across national borders. These literatures offer very different views regarding how risk and uncertainty impact firm international expansion decisions. On the one hand, the slow and sequential view captures the more measured and steady approach to limit risk and

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uncertainty. On the other hand, the accelerated view embraces the opportunities that are available across country markets to allow firms to become efficient, effective and competitive at a much quicker pace. Though in many ways, the born global literature questions the risk and uncertainty assumptions of the Uppsala school, our findings suggest that what is more accurately questioned is how much information and learning firms need before entering different foreign markets. While some might suggest that the risk assumption of the Uppsala model is not valid, our review suggests that a more fruitful area for inquiry involves how much experience firms need in foreign markets before committing to these markets. In highly competitive global industries in particular, how long can firms afford to wait before accessing competitive resources that are not available in their home country markets or larger populations who demand their products? The Uppsala model may suggest a slower pace than is possible in several globally competitive industries. Overall, early internationalization has gained momentum during the last decade. As these firms appear to challenge the conventional wisdom on speed and pace of international expansion, we believe that they deserve more attention. Understanding how these firms go about gaining and leveraging competitive advantages is relevant to a variety of fields – including international business, entrepreneurship as well as strategic management research. With the approach we have taken in this paper, we hope to foster more interdisciplinary efforts to better understand the choices and behaviours of early internationalizing firms.

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INTERNATIONAL TECHNOLOGY TRANSFER AND ITS IMPLICATIONS TO DOMINANT DESIGN THEORY Olavi Uusitalo ABSTRACT In international business international technology transfer is an important part. It involves several modes. Product or process technologies can be transferred to a host country within a multinational company. Other modes include sale or licensing of technology. In these cases a company other than the technology owner takes technology to a host country. International technology transfer involves many matters such as transfer mode, government trade policies, risk of losing technology and influence of industry associations. In this chapter I report a longitudinal case study (1950–1980) of the diffusion of new manufacturing technology, suspension preheating, within the U.S. cement industry. Here I employ concepts from the literature on international technology transfer. Based on this analysis I identify what impact international technology transfer literature has on dominant design theory. Here I address in more detail the era of ferment of the most recent technology adoption (that is innovation).

Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 435–467 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026021

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The U.S. cement industry was included in the original development of the dominant design model. However, technology adoption or innovation was defined as the first commercial introduction of a product made by a new manufacturing technology or process in the United States. This domestic definition of technology adoption neglects all aspects of international technology transfer mentioned earlier. While comparing the results of these two studies of the U.S. cement industry I found differences in the adoption time of technology and inconsistence in the introduction of the technology in the United States. I found that the length of the era of ferment was 29 years – contrary to the seven years reported in the development of dominant design model. This time difference has naturally impacted on the analysis of diffusion. It seems that the international business and international technology transfer literature have impacted on the dominant design model and theory.

INTRODUCTION By 1960 the world stock of foreign direct investment (FDI) reached $60 billion. By 1980 it was more than $500 billion. In these decades the term ‘multinational’ was invented, and when economic theorists turned their attention to explaining their existence. In 20 years from 1945 the United States accounted for around 85% of all new FDI flows. By 1980 it held 40% of total stock. In the same time both German and Japanese FDIs remained low, but after growth in the 1970s they both had an overall share of world FDI of 7–8%. By 1980 more than 65% of world FDI was located in Western Europe and North America Jones (2005). The U.S. cement industry experienced the similar evolution illustrated above. By 1950 the domestic companies produced the cement. European manufacturers had exported cement to the United States for 50 years. In the 1950s and the 1960s the import mainly from Europe accounted less than 5% of the cement consumption. Two large European companies, Holderbank from Switzerland and Lafarge from France, entered Canada in the mid1950s. In the 1960s these companies moved gradually to the United States. In the United States there was cheap energy and expensive labour while in Europe expensive energy and cheap labour. Thus, because different factor endowments the U.S. manufacturers used the energy intensive technology while the European ones the labour intensive.

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The cement manufacturers acquired the production lines from cement equipment manufacturers (CEMs), which mainly located in Europe. The cement manufacturing and CEM industries internationalized in different times. The CEMs were internationalized companies by 1950 selling and developing technology all over the world. Because of the high domestic demand the U.S. cement manufacturers had no need to focus on technology. The European cement manufacturers co-operated with CEMs and became experienced in dry process. The sudden oil crisis in the 1970s causing the change of in factor endowment accelerated the internationalization of the U.S. cement industry. The large European Multinational companies (MNCs) (from Canada) and Europe entered to the United States. Less energy consuming dry technology was the company specific asset overcoming easily the liability of foreignness (Zaheer, 1995). Borders, both in terms of geography and politics, can affect the diffusion of innovations and ideas. There is, however, another side to this issue; namely, that borders can affect scholars’ attention and hence our knowledge of innovation diffusion. In this paper, I demonstrate through a case study how taking a global view rather than a local country-specific view leads to very different conclusions about the diffusion of a new manufacturing technology, suspension preheating (SP), within the U.S. cement industry. I also show that the approach coming from the international technology transfer literature (i.e. to track both the owner and the recipient of the technology) can help avoid making erroneous conclusions. Globalization has created the need for firms to exploit their technologies on a global scale (Arora & Fosfuri, 2000). According to Kedia and Bhagat (1988), in the field of international management, issues concerning effective international technology transfer are central to the field’s mission. From the home-country perspective, international technology transfer does accrue economic and technological benefits to the supplier. The benefits are apparent in the maximization of real income and the ability to access the world’s scientific and technical capability (Reddy & Zhao, 2000). The literature on international technology transfer is based on internalization theory and entry mode (Buckley & Casson, 1976). According to internalization theory multinational enterprises (MNEs) exist to exploit firm-specific knowledge internally. Firms prefer to keep their knowledge/ technology within their own subsidiaries. It is an important management decision to choose which technology to transfer. Firms are more likely to transfer older (thus, usually less valuable) technologies to foreign production facilities (Vernon, 1966). Some authors, such as Cannicea, Chena, and

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Daniels (2003), says that firms also introduce new products at home and abroad at the same time. Anderson and Tushman (1990) did not take the international business view. They did not regard international technology transfer while defining innovation. They defined innovation within the domestic market as the first time a product manufactured by a new process in the United States sold in the U.S. market. This study proposes that international business, and especially in this case international technology transfer, should be included in the creation of the model. This means for instance that innovation should be defined as the first piece of a product produced by a new process in the world market. Thus, my main objective is to evaluate the impact of international business and especially of technology transfer on the application of Anderson and Tushman’s (1990) model. Empirically, this research seeks to increase our understanding of the complexities involved in the diffusion process of new manufacturing technologies. Anderson and Tushman’s model was based on a study of five U.S. industries: (1) Portland cement (henceforth ‘cement’), (2) window glass, (3) plate glass, (4) container glass and (5) microcomputers in the United States (Anderson & Tushman, 1991). According to international technology transfer literature there are always two partners involved: the owner of technology and the recipient of technology. The transfer mode (and the recipient) can be sale of technology (another company), licensing (another company) or FDI (own subsidiary). In my study of the U.S. cement industry I look at both the owner (whether located in the United States or elsewhere) of the new technology, the 4-stage suspension1 preheater kiln, and the recipient of the new technology in the United States. According to Anderson and Tushman (1990), suspension preheating was introduced in the U.S. cement industry in 1972. In fact, the 4-stage suspension preheater kiln was introduced in the international market (in West Germany) in 1950, and the first kiln with a suspension preheater went on stream in the United States in 1953 (Biege & Parsons, 1977; Garrett & Murray, 1974; Nordberg, 1954). A kiln with a 4-stage SP and flash or precalciner emerged as the industry standard in 1979. According to Anderson and Tushman (1990) the era of ferment for suspension preheating was seven years. In reality, it was 29 years. Probably the approach coming from the international technology transfer literature (i.e. to track both the owner and the recipient of the technology) would have prevented Anderson and Tushman (1990) from missing the

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original introduction of suspension preheating technology in the United States in 1953. The rest of this paper is divided into five sections. The first section addresses the theoretical base, which has two parts, beginning with the pertinent international technology transfer literature and then discussing the cyclical model of technological change. The second section is devoted to a detailed illustration of the research methodology used in the empirical study. The third section elaborates on the empirical part and includes brief illustrations of products, technology, production technology manufacturing companies and case descriptions of the evolution of the U.S. cement (the diffusion of the SP technology) industry from 1950 to 1980. The fourth section has three parts: First, international technology transfer literature is applied in the modified dominant design model. Second, there is a repetition of Anderson and Tushman’s (1990) analysis of the cement industry. Third, there is a comparison between Anderson and Tushman’s study and my study. In the final section, theoretical and managerial implications, plus suggestions for future research, are presented.

THEORETICAL BACKGROUND In this section I first discuss briefly international business and then international technology transfer. Much of the literature on international technology transfer is based on internalization theory and focuses on entry mode (Buckley & Casson, 1976). Internalization theory says that MNEs exist to exploit firm-specific knowledge internally by expanding their organization into foreign markets through their own subsidiaries. Firms prefer to keep their knowledge/technology within their own subsidiaries as knowledge is a public good and its value, if compromised, diminishes rapidly. However, there is also evidence that companies transfer technology internationally both internally and externally (Meyer, 2001). According to the factor proposition theory created by Heckscher – Ohlin a country exports those commodities produced with relatively large quantities of the country’s relatively abundant factor. Technology determines the way they combine to form a product. Different products require different proportions of two factors of production, labour and capital. The factor proposition of production differs substantially across goods. (Hecksher, 1919 and Ohlin, 1933 in Jones, 1956–1957).

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Researchers in international business say that MNEs doing business abroad have costs caused by the unfamiliarity of the environment, from cultural, political and economic differences, and from the need for coordination, among other factors. This is called the liability of foreignness (Hymer, 1976). To overcome the liability of foreignness and compete with local firms, a MNE needs to either bring to its foreign subunit resources or capabilities specific to the firm (firm-specific advantages) (Zaheer, 1995).

International Technology Transfer (Between Industrially Advanced Countries) Here I examine the literature on how technology was transferred internationally (between industrially advanced countries such as West European countries and the United States) over the period 1950–1980. Reddy and Zhao (1990), and Zander (1991) provide excellent discussions on international technology transfer. According to them the mode of international technology transfer and its determinants had been well researched in the 1960s, 1970s and 1980s. Technology transfer typically includes a bundle of information, rights and services. This composition determines its effect on the user company and on the recipient country’s indigenous technological capability. For the firm transferring the technology, the composition of the technology determines the degree of control maintained (Contractor & Sagafi-Nejad, 1981). Technology and its transfer modes are crucial in the theory of FDI. Three essential concepts – ownership advantages, location advantages and internationalization advantages – have been used to explain the occurrence of FDI and the existence of multinational companies (MNC) (Casson, 1987). Ownership-specific advantages are necessary to explain MNCs (Dunning, 1981; Hymer, 1976). FDI can take place if the firm has a competitive advantage that pays off the additional costs associated with foreign operations. Typical ownership-specific or competitive advantages are proprietary technology, brand names, economy of scale, management skills, government support and raw material or capital. However, many times it is technology. Johanson and Vahlne (1997) emphasized the gradual internationalization process. They addressed different types of distance that affect the choice. Learning is important in reducing the distances and preparing for more committed modes of operation. It is a critical management decision to choose which technology to transfer. Firms are more likely to transfer older (thus, usually less valuable)

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technologies to foreign production facilities. According to Vernon (1966), firms produce newer products at home and transfer production abroad only when the domestic markets are mature, when foreign markets grow and when competitors are in a other way able to produce the products in foreign markets. Cannicea et al. (2003) said that there is also evidence that firms increasingly introduce new products at home and abroad at the time and use the newest technologies abroad before they use them at home. Nevertheless, internalization theory suggests firms are likely to transfer low value or noncore technologies (Cannicea et al., 2003). Magee (1977 in Reddy & Zhao, 1990) suggested that market imperfections are a result of conscious attempts by MNCs to create advantages for themselves. These advantages are in the appropriability form of technology that is not easily duplicated. According to Davidson and McFetridge (1985), companies preferred FDI over licensing (1) for newer technologies, (2) for technologies with fewer previous licenses, (3) for technologies closely related the owner’s core line of business, (4) for more R&D intensive technology than the owner is used to and (5) if the owner had affiliates in the target country prior to the transfer. Technology licensing is the external mode of technology exploitation in addition to internal technology application in the firm’s own products and processes. Licensing operations have several motives (Fosfuri, 2006). Licensing provides both monetary (lump sum, royalties plus revenue from the sales of raw material) revenue and strategic (position in the industry as a technological leader) benefits (Lichtenthaler, 2009; Uusitalo & Grønhaug, 2012). Entry mode licensing provides an alternative to FDI. Pavitt (1971) saw licensing and joint ventures as inferior choices since they give other firms legal rights and technology which can later be used in competition against the licensor. According to Contractor (1980), Telesio (1979) and Stobaugh & Gagne (1988), returns from FDI are often greater than opportunism. Cultural distance is a crucial limitation for resource commitment. Firms prefer licensing in technology transfer when the target country is culturally distant from the home country. Prior experience in the host country increases the propensity through wholly owned subsidiaries rather than licensing. The number of potential licensors, for example the competition on the technology selling side, seems to increase licensing over wholly owned subsidiaries (Arora & Fosfuri, 2000). The culture of the recipient organization, strategic management issues and the cultural differences between the two nations involved play significant roles in determining the effectiveness of international technology transfer (Kedia & Bhagat, 1988). However, for example transfer of high technology from a firm in the United

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States to another in West Germany can be viewed as a strategic issue by both of the transacting organizations. In this case strategic considerations are more important than either the societal culture or the organizational culture-based variations in determining the success of the technology transfer (Kedia & Bhagat, 1988). Davidson and McFetridge (1985), among others, emphasize the importance of factors such as language, common ancestry, shared history, level of economic development, physical proximity, technical competence of the work force, age of the technology at the time of transfer, number of successful prior transfers and so forth, as determinants of the effectiveness of international technology transfer.

The Cyclical Model of Technological Change In the 1980s and 1990s a growing number of scholars used biological analogies throughout the social sciences to explain the dynamics that govern technical and institutional changes as a social evolutionary process of variation, selection and retention (Van de Ven & Garud, 1994). Variation means a major technological or institutional change/discontinuity (see Fig. 1). Selection or emergence of a dominant design occurs through competition among alternative novel forms. This is an era of ferment. Retention forces to maintain earlier selected technical and institutional forms. In this era many incremental innovations occur (Anderson & Tushman, 1990, 1991; Tushman & Anderson, 1986). Technological innovation is defined as the first commercial introduction of a product or a process in an industry when that introduction constitutes a technological change as defined above (Anderson & Tushman, 1990).

Fig. 1.

The Technology Cycle (Modified from Anderson & Tushman, 1990, p. 606).

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A Redefined Performance Parameter Before Anderson and Tushman’s (1990) model could be examined (the impacts of international business), parameters had to be redefined. Anderson and Tushman (1990, p. 620) ‘followed Tushman and Anderson’s [1986] practice of focusing on barrels-per-day production capacity for cement’. Thus they used production volume, number of barrels-per-day, as the performance parameter in their evaluation of technological progress. However, production volume measures the efficiency, not the effectiveness, of an organization (Pfeffer & Salancik, 1978). Generally in manufacturing businesses the most important parameter for the manufacturing line is the production cost, not necessarily the production volume. Prices derived from the production cost create the effectiveness (that is sales) of the manufactured product on the market. Thus, I followed Pfeffer and Salancik (1978) in using the external effectiveness (in the market place) of an organization as the performance parameter. In the cement industry this was the sales price (derived from both fixed and variable costs) of a barrel of cement.

METHOD Case Study Approach This study adopted a longitudinal, historical and contextual case study approach. The purpose of the study was to find out what impacts, if any, international technology transfer had on Anderson and Tushman’s (1990) cyclical model of technological change within the U.S. cement industry. The unit of analysis is a technological change: the suspension preheating innovation in the cement industry. According to Yin (2009), a single case study is an appropriate design when the case represents a critical case in testing a well-formulated theory, proposition or model. The purpose is to confirm, challenge, or extend the theory. The single case can represent a significant contribution to knowledge and theory building. Since the present case (suspension preheating) can be regarded as a critical case in testing a well-formulated theory, the choice of the innovation was appropriate. Pettigrew (1985) argues that to understand a change one has to study it as a continuing process in the context (in this case in the international business context) in which it appears, and he encourages one to adopt contextual and historical perspectives on processes of change, whatever the content of the

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change might be. The present case study of innovation in the cement industry meets the criteria of both the theoretical and empirical objectives. A single case study design (here I have one innovation in one industry) has certain advantages compared with multiple cases. The most important is the depth of the analysis, both in terms of the number of factors studied and the sources of information used (Yin, 2009). A single case analysis is the best way to get a holistic picture and understanding of the research problem. Patton (1990, p. 95) argued that ‘qualitative inquiry is highly appropriate in studying processes because depicting a process requires detailed description’. However, the case study has its limitations. One of the biggest concerns has been the lack of rigor in case study research. The methods of analysis are not well formulated in the use of qualitative data (Miles, 1979). Case study research is very time-consuming and results in massive amounts of documentation – the handling of which requires special skills (Yin, 2009). Another limitation of case studies is that they provide very little basis for scientific generalization.

The Choice of the Case Industry, the Innovation and the Research Period The purpose of this paper is to explore the impact of literature on the dominant design theory. The decision was made to reduce the number of industries and technological changes researched (i.e. reduce the research periods) compared to the original Anderson and Tushman (1990) study in order to enhance the depth and quality of the data collected, as recommended by Berg and Smith (1988) and Eisenhardt (1989). There are several reasons for the choice of the U.S. cement industry and the suspension preheating innovation as research targets. First, the innovation, suspension preheating, was radical enough to fulfill the requirements of the technological change needed to test Anderson and Tushman’s (1990) model. Second, Anderson and Tushman (1990, 1991) included the U.S. cement (1888–1980) industry in their studies (Anderson & Tushman, 1990) while developing their model, and thus also included suspension preheating. Third, the U.S. cement industry is well documented. Fourth, the results concerning the last technological discontinuity, suspension preheating, in the cement industry in Tushman and Anderson (1986) and Anderson and Tushman (1990) were inconsistent. In international technology transfer there are always two partners: the technology owner and the technology recipient. Since the technological change, 4-stage suspension preheater kiln technology, was introduced in 1950 in Europe the European cement manufacturing equipment suppliers such as Humboldt, Polysius, Krupp and F.L. Smidth (Mehta, 1970;

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Schroth, 1972) are included. The research period is 1950–1980. Since suspension preheating was introduced in 1950, the research period was long enough to analyse the diffusion of this innovation. Research Process Porter (1980) points out that in an industry analysis there are important benefits in gaining an overview of the industry first, and then only focusing on the specifics. Descriptions are central to the generation of insight (Pettigrew, 1990). After finding inconsistent evidence I attempted reconciliation through deeper probing of the meaning of the differences (Eisenhardt, 1989). I collected both theoretical and empirical material, and went through the data thoroughly on several occasions to create a watertight chronology as Minzberg (1979) suggested. I tracked down patterns and inconsistencies in the empirical data. I accept the deletion According to Eisenhardt (1989) and Cipolla (1991), the accumulation of knowledge involves cycling between theory and data. Measures First, I discuss the operationalization of one concept, performance parameter, of Anderson and Tushman’s (1990) model. The operationalization of the concepts of Anderson and Tushman’s model is discussed next (see Table 1). The effect of the technological change (suspension preheating) Table 1. Summary of Variables, Measures and Data Sources (the Main Concepts of the Cyclical Model of Technological Change). Variable Performance parameter

Measure Change in production costs (selling price) Alkali content in cement´

Technological discontinuity Technological innovation

Change in production costs (selling price) Manufacturing processes Cement (made by suspension preheating technology) sold

Data Source Demshar (1935), Duda (1985), Nordberg (1954), Norbom (1974), Mehta (1970) Clausen (1960), Carlsen (1966), Cooke (1979) Duda (1985), Nordberg (1954), Ritzmann (1974) Duda (1985), Carlsson (1978) Nordberg (1954), Garrett and Murray (1974), Biege and Parsons (1977)

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was measured by using the performance parameter indicating the change in the production costs of a manufacturing process of cement. The case study approach and focus on only one technological change also allowed me to take into account pertinent qualitative environmental attributes (Downey & Ireland, 1979). This attribute was alkali content for cement. Since the definition of technological innovation should include international technology transfer, it was defined as the first commercial introduction of a product (cement) or a process (suspension preheating) in an industry worldwide. Thus, it is defined as the moment the first barrel of cement (produced by a suspension preheating kiln) was sold in the world. A technological discontinuity is a technological innovation which fulfills the required change as measured by the performance parameter. I had to be able to identify and distinguish the various manufacturing processes of cement in the cement industry. The length of the era of ferment measures the complexity of the product; the shorter the era the less complexity the product has. The arbiters of dominant design include all stakeholders for a particular technology. In this case extensive licensing, joint ventures and FDIs took place. Validity and Reliability of the Empirical Research Yin (1984) divides validity into three types: construct, internal and external. Construct validity refers to the establishment of appropriate operational measures for the concepts being studied. The analysis of the operationalization process of this study was divided into two parts: (1) an evaluation of the competence of the present author, and (2) the quality of the data sources. Since the present study concerns technological changes in process technology, the engineering (power electronics and automation) background and work experience (around 10 years in international industrial companies both in marketing2 and R&D areas) of the present author laid a good foundation for technologically oriented research. Moreover, the fact that my work experience is from fields other than the cement industry permits a less biased understanding of industries, firms and their actions. Data Sources To improve the validity of my theory re-examination I used the triangulation methods described by Jick (1979) and Pettigrew (1990) to construct case studies from a variety of information sources: interviews, company and

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industry histories, industry studies, business periodicals, books written by businessmen, trade journals, company correspondence, academic studies and journals and news clippings from the mass media. Interviews: The role of the interviews of the former managing director of Partek, a Finnish cement manufacturer and persons both from F. L. Smidht and Allborg Cement Plant in Denmark in spring 2000 was to guarantee that an accurate and truthful understanding of the cement industry would be obtained. These interviews were carried out in 1999–2000. Company and Industry Histories, Academic Studies and Manufacturing Technology Books: Smeds (1998), A˚berg (1972) and Stensson (1997) provided a basic knowledge of the history of the international cement manufacturing technology transfer and the cement industry. Two books on cement technology, Duda (1985) and Chosh (1983), were also used. Trade Journals, Business Periodicals and Business Books: The account of the development of the U.S. cement industry in 1950–1980 was based on an extensive review of issues of Rock Products during the period 1950–1984, Cement and Lime Manufacture during the period of 1950–1970 and Cement Technology during 1970–1980. Conference records of the I.E.E.E. Cement Industry Technical Conference from the years 1969–1984 were examined as well. Several articles from business periodicals (Business Week, The Economist, Fortune, International Management and Management Today) provided the management point of view on the evolution of the cement industry. Archival Records: Archival records (i.e. industry statistics, production volumes, import and export records) were also used, but mainly in the Scandinavian market (Uusitalo, 2007).

Data Analysis Data analysis is important in the case of explanatory and causal studies. The concept of internal validity deals with establishing a causal relationship, whereby certain conditions are shown to lead to other conditions, as distinguished from false relationships. Internal validity can be enhanced through pattern recognition (Minzberg, 1979), or examining evidence through multiple lenses (Eisenhardt, 1989). The high level of internal validity in this study was assured by subanalyses that approached the research phenomenon (i.e. the evolution of the cement industry during the research period) from many different perspectives. These subanalyses were combined at the end of the analysis in a way that resembled pattern recognition and examining evidence through multiple lenses (See Table 2). As far as reliability

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Table 2. Seeing the Research Phenomenon through Multiple Lenses. Lens

Focus of Analysis

Technology Technology transfer

Industry Regional Concentrated Fragmented Global Company Large (MNC) Small Vertical integration (processing industries)

Wet, dry and preheater kiln technology in cement manufacture In an international context The viewpoint of technology owner and recipient Wholly-owned subsidiary, licensing, or joint venture The cement and concrete industry The cement industry in the U.S. The cement industry in the U.S. and Scandinavia Licensing; 4-stage suspension preheaters and precalcining F.L Smidht, Holderbank, Lafarge, Ideal Scandinavian and many U.S manufacturers The cement and concrete industries

is concerned, a critical point in a case study is that the operations of the study (data collection and analysis) can be repeated with the same results being achieved. According to Yin (1984), this is done by developing the case study protocol and case study database. During the research process the empirical data were filed to form a proper database.

THE CEMENT INDUSTRY IN EUROPE AND THE UNITED STATES This section provides a brief illustration of the cement industry, the diffusion of the suspension preheating system in the cement industry in the United States. First, there is a brief description of the cement manufacturing including the main cement manufacturing technologies, CEMs and the internationalization of the U.S. cement industry.

Cement Manufacturing in Europe and the United States The cement industry is characterized by a low value added product that requires a high initial capital investment in production equipment and a

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long payback period for investments. These structural features make economies of scale important. The unit costs of cement are sensitive to industrial usage rates. In the latter part of the 19th century cement was exported from Europe to the United States as the example tells. Mr. Charles Boettcher, the founder of Ideal Cement Company, one of the largest local cement manufacturers in 1950–1980, moved from Germany to the United States in 1852. He went to the cement business almost by accident. In 1901 he with his associates was building a sugar plant in the United States by using imported German cement. The freight cost made him wonder why it was necessary to go that far for cement. The small cement plant on the same area made him quickly to move into the cement business (Anonym, 1957, pp. 105–106). Very soon it was noticed that cement was not able, as for the product, to be delivered over long distances due to its characteristics and logistic costs. The manufacturing of cement is dependent on mineral supplies and energy. Thus, manufacturers restricted the plant activities to the region where it was located due to the impossibility of long distance exports. As a result, except of the first exports the internationalization in the industry was in the first achieved through technology transfer either between cement manufacturing technology equipment producers or cement manufacturers in partnerships and later on plant acquisition or building around the world (Jacobsen et al., 1982). In the 1990s and 2000s a movement of consolidation has taken place. In 2012 few groups known as global players hold an outstanding position in the industry. In the cement industry the cement manufacturers produce cement with the equipment (or technology) acquired from CEMs. By the 1950s cement manufacturers were local companies while the equipment producers were the European based companies. Less than ten companies dominated the equipment business. Before of the WW II, some of them had had subsidiaries also in the United States. Portland cement and the process of sintering to give strength were invented in the United Kingdom in 1824 and 1845, respectively. In the 1840s and 1850s the first cement plants started production in France and Germany. The first cement plant is the United States was built in 1871. Burning, or using the kiln, is the most important and expensive phase in the manufacture of cement. The rotary kiln, a horizontally laid long pipe (with a diameter of 2m and length of 23m, and a capacity of 40 tonnes/day), was introduced in 1885 in the United Kingdom and then the next year in the United States. There are two fundamental methods for the preparation of the feed for rotary kilns: the wet process, and the dry process. In the wet

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process, slurry with a water content of approximately 18–45% is prepared in wash mills, by wet grinding, or by a combination of both procedures. In the dry process the raw materials are dried, ground and mixed to form a fine, homogenous powder. This powder is fed into the kiln where the heat promotes the necessary chemical reactions. No water is used. The kiln exhaust gases are the main source of heat used to dry the raw materials. (Duda, 1985). In the early 1950s in Europe where labour costs were relatively low and fuel costs high, dry processes were used, while in the United States, where the situation with labour and fuel costs was the opposite, wet processes were employed. Thus, kilns had developed in different directions. In the United States, fuel accounted for about 25% of the total manufacturing cost, whereas in Europe the fuel cost was between 50% and 75% of the total. Since wages were low in Europe a producer over there spent money on challenging heat-utilizing equipment even if it required reasonably more manual operation and supervision. In the United States, firms used large simple units that required a minimum of operating labour (Clausen, 1955). Preheating of dry pulverized cement raw material while in suspension in rotary kiln exit gases is practical and lowers the energy costs. Suspension preheater technology, a new dry cement manufacturing process, was developed in Europe in the 1930s. This technology, which saves fuel but slightly raises labour costs, was introduced in Europe in 1951. Japanese manufacturers licensed the suspension preheater technology and used this technology in new plants in the 1950s and 1960s (Duda, 1985). By 1966 a total of 285 kilns (excluding the United States) operated with the preheating technology delivered by six European equipment manufactures. The European cement manufacturers quickly adopted this new energy saving technology (Duda, 1985).

Cement Equipment Manufacturers ‘In the 1950s, 1960s and 1970s there had been only a handful CEMs in the world (one Danish, a few West Germany and Japanese and two American companies) who compete in designing and selling whole systems. Two American companies operate mainly on licenses from the other manufacturers’ (Carlsson, 1978, p. 131). F.L. Smidth (FLS) was founded in 1882 in Denmark and by 1900 became known worldwide as a company providing cement burning technology and equipment. By 1973 the company had delivered 1,400 kilns to the cement

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and allied industries. At that time 40% of the world’s cement capacity was based on FLS equipment. The company opened subsidiaries in the United Kingdom and the United States in 1890 and 1895, respectively. In 1912 FLS founded a cement manufacturing company in the United Kingdom. In the 1940s it built a manufacturing equipment plant in the United States. Later on subsidiaries were opened all over the world. By 1973, on average 95% of the orders placed with FLS were for export. Humboldt was founded in 1856 in Germany and produced screens, drum washers, jigs, conveying systems and mills for mining. In the 1930s it was reorganized twice. In the late 1940s Humboldt quickly picked up the technology for cement manufacturing. Humboldt installed in Germany the first 4-stage suspension preheater technology in use in 1951. Polysius was founded in 1859 in Germany, and in 1888 entered the cement business by selling equipment to producers. By 1890 the company’s reference list included 13 cement plants, among which was one in Switzerland, and one in England. In 1893, Polysius formed a joint venture with a U.S. partner to manufacture and sell rotary kilns based on the U.S. technology in Europe. By 1904, when Polysius acquired the joint venture it had erected 45 rotary kilns. By 1907, Polysius had supplied about 100 kilns. In the 1920s it founded a subsidiary in the United States. However, the 1930–1932 economic crisis forced the company close it. In 1928 the Lepol kiln was introduced, featuring a gas circuit that lowered fuel consumption. By 1940, Polysius had sold 120 Lepol kilns. In the 1950s the Dopol SP system was introduced. In 1964, Krupp from Germany introduced its counterflow suspension preheater technology. By spring 1967 it was in operation in five cement works and 19 more were under a construction. Krupp acquired Polysius in 1971. Fives-Cail Babcock from France was a result of a couple of mergers. In 1973 it was one of the leading cement plant manufacturers. Fives Lille went to the production of equipment for cement works by an acquisition. By the end of the 1950s, Fives Lille-Cail was formed. At the same time the new company delivered equipment to the largest cement works in the world at Atchink in the U.S.S.R. In 1973, Fives-Cail Babcock was formed in a merger. The company had sales subsidiaries in the United Kingdom, Spain, Brazil, Mexico, a plant in Brazil and licensees in several countries. In 1971 the share of exports was 48%. Fuller was founded in 1926 in Pennsylvania, United States, in the heart of a cement-producing area focused on cement and cement raw material conveying. During the first 20 years, Fuller was an engineering concern using subcontracting. In 1946 it built its own plant. In 1977 Fuller had five

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large, well-equipped plants. The company licensed both the SP system in 1953 from Humboldt in Germany, and the flash calcining system in 1974 from Ishikawajima-Harima Heavy Industries (IHI) in Japan. Allis-Chalmers was founded in 1847 in Wisconsin, United States, and licensed the Lepol technology from Mr. Lellep (Polysius) from Europe. The first double-gas Lepol, or the double-pass Allis-Chalmers/Lellep (ACL) kiln in the United States started production in 1957. The CEM industry was by 1950 very international and there were also some global firms such as FLS from Denmark and Fail-Cail Babcock form France.

The Internationalization of the U.S. Cement Industry in 1950–1980 Holderbank, a Swiss cement manufacturer, entered the United States in 1958 by building a plant in Michigan. Several years earlier it entered the Canadian market by acquiring St. Lawrence Cement in 1954 and constructing a plant in 1957 in Clarkson, Ontario. Both were expanded later. In 1967 Holderbank opened its second U.S. plant in Missouri. Lafarge from France had exported cement from France since the 1898s. In the 1920s it did not manage to establish a subsidiary in the United States. In 1956 Lafarge opened a cement plant in Canada. In the late 1960s it was the third largest cement producer in Canada. In 1967 it started co-operation with a U.S.-based cement manufacturer, Lone Star and started exports to the United States. Since 1948 Lafarge had concentrated in dry manufacturing process (Barjot, 2009). Grancher (1974, p. 59) cited the report of the U.K. based Blue Circle Group while discussing the state of the internationalization of the cement industry: Gray powder is rapidly becoming an international commodity trade in a global scale. Of course there have always been exports of cement from one country to another but over the last fifteen years the trade has increased and developed into a world wide operation y the static demand patterns are over. In the 1970s the U.S. cement industry was in crisis; the manufacturing technology was obsolete and foreign companies became interested in them. Even small firms from the Nordic countries thought of buying a plant on the East Coast. In 1983 about 34% of the U.S. cement manufacturing capacity was owned by foreign firms. Lafarge and Societe des Ciments from France, Holderbank and Heidelberg Cement from Germany, and Blue Circle from the United Kingdom were the largest foreign investors.

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The Diffusion of Suspension Preheating in the U.S. Cement Industry in 1950–1980 Fuller was the first to introduce SP of the Fuller-Humboldt type in the United States in 1953. It was pointed out that suspension preheaters cut fuel costs and increase output (Nordberg, 1954). The original installation was still in operation in 1975. In 1955–1958 Fuller sold another 12 SP systems in the United States. The 4-stage suspension preheater kiln was applied successfully for many years in Europe and other parts of the world (see Table 3). The 4-stage preheater was not a success in North America, and by the mid-1960s it was out of use. Problems of build-up and clogging in the preheater were encountered. The preheater unfortunately trapped alkalies, and since the market required low alkali clinker, this was a serious drawback. The preheaters did not work. The kiln exit gas bypass (to prevent alkali trapping and build-up problems) was used successfully in Europe and elsewhere. The bypass arrangement led to the new introduction (in 1972) of 4-stage SPs in the U.S. cement industry. In 1970-75 a total of 40 kilns were startedup in the U.S. The wet process was still popular. In those years 15 wet process kilns were started up compared to 25 dry process kilns (14 of which were kilns with 4-stage SP) (Cooke, 1979, Garrett & Murray, 1974 and the

Table 3. Developer and Manufacturer

World and U.S. Data on Suspension Preheater Kilns. Origin

U.S. Representative

Year Developed

World Sales to

1966

1971 16 0

22

Humboldta Wedag

Germany Germany

Fuller

1950 1962

180 15

F.L. Smidth Polysius Kruppc MIAG

Denmark Germany Germany Germany

F.L. Smidth Polysius Krupp Allis-Chalmers

1955 1958 1964 1968

24 55 11 0

267 Include above 75 132 26 5

285

505

Total Source: Fig. 22 in Garrett and Murray (1974, p. 59). a Humboldt purchased Wedag in about 1969. b Excludes five 2-stage systems sold in United States. c Krupp purchased Polysius in about 1970.

U.S. Sale through 1971

1b 0 3 2

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review of Rock Products). In the mid 1970s Fuller introduced a precalciner system with the flash calcining – the secondary furnace (SF) - process in the U.S., under a license from Ishikawajima-Harima Heavy Industries (IHI). IHI started research in 1963 on the development of a calcining system outside the kiln on the SP unit licensed from Humboldt. The first kiln with 4-stage SP and a calcining system (IHI-SF) started in Japan in 1971 (Kapoor, 1975; Garrett and Murray, 1974). In Germany the first industrial 4-stage SP with precalciner system started in 1968. The precalcining system gave the following advantages: 1) reduced alkali and sulphate build-up, 2) improved control and kiln stability, 3) ability to burn low-grade fuels, 4) possibility of very large production units, and 5) reduction of NOX emissions (Cooke, 1979). The National Cement Company acquired by La Sciete Des Ciments Vicat of France in 1974 was the first company to invest a 4-stage SP with precalciner in the U.S. in 1975. Production started in 1977. In 1976–1982 total of 21 kilns out 46 new kilns were four stage SP with the precalciner systems (see Figure 2). In Figure 2 there are five types

12

SP + precalciner 10

SP ACL Dry Wet

Number of kilns

8

6

4

2

0 1976

1977

1978

1979

1980

1981

1982

Year into operation

Fig. 2.

Number of kilns into operation in the United States per year and by type.

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of kilns: 1) wet process, 2) dry process also called long dry, 3) ACL having a grate, 4) four stage -SP type and 5) four stage -SP with a precalcining unit. In that time six wet process kilns went in operation.

ANALYSIS OF THE RESULTS This section has four parts: First, I illustrate briefly the international nature of the cement industry. Second, I apply the international technology transfer literature in the modified cyclical model of technological change (Anderson & Tushman, 1990). This means that the technological discontinuity or innovation is defined as the sale of the first barrel made by the particular technology on the world market. Third, I repeat Anderson and Tushman’s analysis of the U.S. cement industry with suspension preheating innovation. And Fourth, I combine these two analyses. International Nature of the Cement Industry The cement industry has been international industry since its beginning in the mid 19th century. After WWII it has been internationalized rapidly as the example of Holderbank tells. In 1978 Holderbank comprised over 50 cement plants, located on four continents, as well as consulting and engineering offices in Switzerland, Canada, Egypt, and India. The total shipments of the group’s plants had grown from 5 million tonnes in 1957 to about 30 million tonnes in 1977. With this experience and information from these worldwide operations, Holderbank’s management could fully understand the situation then existing in North America. The topic of energy saving had become foremost, whereas a few years ago the main concern was focused on labour productivity and automation. (Peter, Erni, & Schra¨mli 1978). Because of the international or even global nature of the cement and CEM industries we apply international technology transfer from the international business literature. Application of International Technology Transfer Literature in the Modified Cyclical Model of Technological Change As was mentioned the cement equipment manufacturing (CEM) business was international by 1950. Suspension preheater technology was invented in

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1950 Introduction of Suspension Preheater on the world market

1953

Era of Incremental Change

1979

Introduction of Suspension Preheater in the U.S. Cement Ind.

Time

Suspension Preheater & Flash Calciner Dominant Design

Fig. 3. Application of International Technology Transfer Literature on the Modified Dominant Design Model for the Diffusion of Suspension Preheating in the U.S. Cement Industry.

Europe in the 1930s. The first start-up of a kiln with a 4-stage suspension preheater in the world market was in 1950 (see Fig. 3). In the United States the first similar technology was introduced in 1953. Following the international technology transfer literature I regarded the arrival of the 4-stage suspension preheater kiln in the cement industry in 1950 as a technological change. Although 13 plants came on stream in the United States during 1955–1958, it did not emerge as the dominant design in the United States (Garrett & Murray, 1974). According to Fig. 2, I regarded kilns with 4-stage suspension preheaters with precalciners as emerging as the dominant design in the U.S. cement industry in 1979. The emergence of the industry standard or dominant design indicates when the era of ferment ends. In Fig. 2 one can count that in 1979–1982, in four consecutive years, the market shares of suspension preheaters with a precalciner in each year were more than 50% or equal to 50%. Anderson and Tushman’s View As mentioned earlier, Anderson and Tushman (1990) defined technological discontinuity or innovation as the point when the first barrel of cement made by the particular technology was sold on the local market. According to them suspension preheater technology was introduced in the United States in 1972 (see Fig. 4). They saw that a kiln with 4-stage suspension

457

International Technology Transfer and its Implications to Dominant Design Era of Incremental Change

Era of Ferment 7 years

1972 Introduction of Suspension Preheater

Fig. 4.

Time

1979 Suspension Preheater & Flash Calciner Dominant Design

Anderson and Tushman’s (1990) Analysis of the Diffusion of Suspension Preheating in the U.S. Cement Industry.

Era of Ferment / 29 years

Era of Incremental Change

Era of Ferment 7 years

1950 Introduction of Suspension Preheater on the world market

1953

1972

Introduction of Suspension Preheater in the U.S. Cement Ind.

Fig. 5.

Introduction (A&T) of Suspension Preheater

1979

Time

Suspension Preheater & Flash Calciner Dominant Design

Combination of Two Analyses.

preheater with precalciner emerged as the dominant design in the U.S. cement industry in 1979. The era of ferment was 7 years.

Combination of Two Analyses In Fig. 5 I have combined Figs. 3 and 4. According to the analysis based on the international technology transfer literature the suspension preheating

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technology was introduced in the United States in 1953, 19 years earlier than Anderson and Tushman (1990) concluded. The era of ferment was 29 years instead of 7 years. The period included several events and matters, some of which also had impacts on the length of the era of ferment. Several European companies sold licenses to U.S. companies (see Table 3). During the period between 1953 and 1972 (19 years), the suspension preheating technology was struggling with alkali problems. The technology competed unsuccessfully with existing wet and dry processes. The energy crisis of the early 1970s made energy efficient preheater kilns popular. In the early 1970s imports of cement into the United States rose dramatically. Large foreign cement manufacturers recognized the poor shape of the U.S. cement industry and started invading. In 1976 suspension preheaters with precalcining were introduced into use by a local company acquired by a French manufacturer.

CONCLUSION The firms began to make greenfield investments or acquisition across borders during the 19th century. Reasons for multinational investments occurred were that telegraph, railroads and steamships eroded the obstacles for travelling and communication. Non-geographical barriers to crossborder business were low. In the host countries there were few restrictions on foreign-owned firms. People could travel from one country to another without passports or work visa. Capital for investments could flow freely across borders. The city of London acted as a global information hub. If firms could build a working managing structures, there were few outside hinders for them to work abroad. This created starting premises for the first global economy (Jones, 2005). In the 1930s and the 1940s the first global economy eroded. After the WW II, the General Agreement on Tariffs and Trade (GATT) reduced world trade barriers. This reduction of trade barriers got its peak in the 1960s. New technologies made travelling, transportation and communication even faster. In the 1950s containers made ship transport faster and cheaper. Telex was a considerable advance over telephone in facilitating international communication and co-ordination of multinational businesses. The introduction of commercial jet planes increased the air traffic of business people (Jones, 2005). All these matters relating to the international business had effects on at least three industries: (1) cement, (2) plate glass and (3) sheet, studied by

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Anderson and Tushman (1990). As mentioned earlier the cement industry has been international since 1850. The plate glass and sheet glass industries have been international from 1850, as well (Barker, 1977). More over all these industries internationalized rapidly and even globalized in the 1950–1980 during the research period of this study. Thus, I suggest the international business approach with international technology transfer should have taken into account. Although Anderson and Tushman’s (1990) cyclical model of technological change creates a good platform for structuring the adaptation of technology in a longitudinal way, the model is even more powerful when the international business and technology transfer literature is employed. This means that the innovation is defined based on the global market (first introduction to the world) instead of on the domestic market. Now the evolution of an industry or technology is in the international or global context. Moreover, the application of international technology transfer literature emphasizes the most important and useful part of the cyclical model of technological change: the era of ferment including design competition and substitution. The reason why Anderson and Tushman (1990) missed the introduction in the United States in 1953 was because they did not have a global view, and not because of the way they defined innovations. Had they had a global or international technology transfer point of view they would have tracked when technology was introduced in the global market and the time after that more carefully. This would have led them to recognize the first introduction. There is an interesting finding relating to technology re-entry in a country. The suspension preheater technology was first introduced in the United States in 1953. However, it did not work because of alkali trapping problems. Later on in the early 1970s the alkali bypass systems developed in Europe acted as complementary technology (Teece, 1986) and made it possible for suspension preheating technology to re-enter the United States. This finding will add to our knowledge on international technology transfer knowledge.

Theoretical Implications The important theoretical aspect in this re-examination of the definition of innovation is to recognize how problems in operationalization of key concepts can lead to serious errors in conclusions.

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The Impact of International Technology Transfer To evaluate what is the best way to define innovation in models like Anderson and Tushman’s (1990), I will first address the studied cement industry. Then, I will look at events in other industries. Finally, I will discuss the implications. In the studied industry, international technology transfers occurred since the birth of the industry. Since the late 1940s the number and variety of international operation modes has increased. European companies used licensing, sale of technology, and FDIs as modes of transferring technology to the United States (see Table 3). Moreover, Western European countries and the United States were, in a sense, culturally similar. Matters such as language, shared history, level of economic development, technical competence of the work force and the number of successful prior transfers made the technology transfer easier and lowered the failure risk as Davidson and McFetridge (1985) suggested. The choice in this situation is a more strategic one as pointed out by Kedia and Bhagat (1988). The first entrant to the U.S. cement industry, the Swiss Holderbank, was a large, well-performing company. Holderbank’s view of global R&D and international operations briefly illustrates the internationalization processes of the industry: Cement’s immediate shortage gap has been provided for by purchased product from producers elsewhere. Its capital gap is increasingly being met by investment funds from foreign sources. Its technological gap in energy efficient operation is being filled by process, equipment, and engineering of overseas origin. An extension of this internationalization is expected to include a heavy reliance on research and development experience and approach from abroad. (Grancher, 1980, p. 58) Today [1988] U.S. cement is 55% owned/controlled by other than traditional domestic producers. From virtually nil during the 1960s (when Holderbank – Dundee built and placed on stream its Michigan and Missouri plants), to just over 15% owned by the end of the 1970s to the rapid pace of acquisitions of the 1980s not seen ending. (Grancher, 1988, p. 534)

The cement industry was quickly globalizing outside the US. In 1973 Fortune’s directory of the 300 largest industrial corporations outside the United States had six cement groups: Lafarge (France, Canada), Holderbank, Associated Portland (Blue Circle), Genstar (Canada), Ube Industries (Japan) and Mitsubishi Mining and Cement (Japan). Ray (1969, p. 57) noticed the unique international structure of the flat glass industry. In her analysis of the French flat glass industry in the 1970s, Milner (1988, p. 189) also described the French flat glass industry as a highly export-dependent, multinational industry. She also pointed out that

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internationalization of the flat glass industry had begun early and it was well advanced by 1970. The U.S. automobile industry provides another example. In the 1960s there was U.S. brand domination by GM, Ford, and Chrysler. In the 1960s, U.S. car manufacturers studied a new type of energy source and engines. However, they did not follow what happened outside the United States, for instance in Japan. Japanese car manufacturers enhanced the conventional engine and created smaller cars. In the early 1970s the oil crisis hit the U.S. companies, which were not prepared for manufacturing small, fuel-efficient cars. In the 1980s there was nation or continent-dominant hierarchy in the U.S. auto market: United States, Japanese and European (Kotler, 1988). Christensen (1997) provides still another example: the Honda motorbike. Honda brought off-road bikes to the United States, entered into other segments, and finally challenged Harley-Davidson. Transistor radios were invented in the United States, but in the early 1950s the Japanese licensed it for $25.000, began radio manufacturing and successfully entered the U.S. market. U.S. radio manufacturers did not follow the innovations outside of the United States (Drucker, 1985). In summary, I argue that researchers who try to make the life of business managers easier should take international business into account. Here I can apply Cooper and Schendel’s (1976) ideas but in an international context. They studied innovation from the perspective of other companies not that of the innovator. The authors requested the monitoring of new developments in competing technology through scanning and forecasting. They argued that steam locomotive manufacturers should have followed the progress in power-to-weight ratio in diesel locomotives. In the same way, cement producers could have carefully followed the progress of alkali bypass systems in preheating technology outside the United States. Moreover, had the international business and especially international technology transfer been included in the literature of their study, Anderson and Tushman (1990) would not have missed the first introduction of the suspension preheater in the United States in the 1950s. They would have followed how and when the inventor/technology owner transferred the technology to the United States.

Managerial Implications The lesson of this exercise for managers is that it might be dangerous to regard the diffusion of new technologies of non-assembled products

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as extremely simple and straightforward without any risks and interorganizational, social or political influences. New Streams of Research Tushman and Rosenkopf’s (1992) typology of organizational determinants of technological change (Fig. 6) links the interaction of technical options with organizational and inter-organizational dynamics that shape the path of technological progress. The path of progress is based on Anderson and Tushman’s (1990) model. The organizational community includes stakeholders such as suppliers, manufacturers, user groups, governmental agencies, standards bodies and professional associations for a particular technology. The more complex the product is, the more subsystems it has, the greater the number of internal and external interfaces there are, and the greater the technical and contextual uncertainty (Tushman & Rosenkopf, 1992). The basis of design dominance for non-assembled products was

Social/Political/Organizational Influence Increasing for Core Subsystems

Open Assembled System

Closed Assembled System

Simple Assembled Product Nonassembled Product

Technological Discontinuity

Dominant Design Era of Ferment

Fig. 6.

Technological Discontinuity

Era of Incremental Change

Era of Ferment

Towards a Sociology of Technology (Tushman & Rosenkopf, 1992, Fig. 6, p. 342).

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technical superiority of dimensions of merit. A single focused practitioner community was the only arbiter of dominant design and political, organization, and social dynamics are minimal. The examples of nonassembled products were cement and glass, the analyses of which are based on Anderson and Tushman’s (1990) study. Probably the abandon of international business literature and the operationalization and particularly the definition of innovation (neglecting the international technology transfer) in Anderson and Tushman’s study had an impact on the conclusions drawn by Tushman and Rosenkopf (1992). This impact would be interesting to research more in detail. It would also be interesting to look at this case in more detail from this angle. It seems that non-assembled products, such as cement and flat glass are simple; however, the manufacturing processes of non-assembled products are not necessary simple (Garrett, 1985), which makes their diffusion complicated. This Garrett’s (1985) suggestion of complicated manufacturing processes of non-assembled products requires further attention.

NOTES 1. Suspension preheater in this paper means 4-stage suspension preheater unless indicated otherwise. 2. The author’s marketing responsibilities also included export marketing of production lines similar to suspension preheating systems.

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WHAT DO WE KNOW ABOUT POST-MERGER INTEGRATION FOLLOWING INTERNATIONAL ACQUISITIONS? Christina O¨berg and Shlomo Yedidia Tarba ABSTRACT This chapter presents a review of the state of the art on the topic of knowledge transfer following post-merger integration (PMI) in international mergers and acquisitions (M&A) and identifies points of agreement and disagreement, recognizes underexplored areas and provides suggestions on how they could be explored in future studies. The chapter points to the limited amount of literature that describes knowledge transfer following international acquisitions, while highlighting it as an emerging field of research. The knowledge transfer literature mainly refers to innovation and innovation capabilities, while areas such as marketing and customer knowledge are vitally absent in the literature. In any international acquisition, such knowledge transfer would be of fundamental importance, given the acquisition motive to reach new markets or customers. Two case studies on the transfer of knowledge about customers following international acquisitions are provided. The case illustrations point to a focus on knowledge transfer on strategic levels

Philosophy of Science and Meta-Knowledge in International Business and Management Advances in International Management, Volume 26, 469–492 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1108/S1571-5027(2013)0000026022

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in the post-merger integration following international acquisitions, while the operational sales forces’ transfer of knowledge is largely disregarded in practice. Since much of the tacit knowledge about customers is handled on that level, it needs to be recognized and developed. The chapter indicates that raising the awareness of the transfer of knowledge about customers following international acquisitions is important from a practitioner’s as well as a research point of view.

INTRODUCTION Mergers and acquisitions (M&A) are among the most important internationalization strategies for firms (Gomes, Weber, Brown, & Tarba, 2011; Haleblian, Devers, McNamara, Carpenter, & Davidson, 2009; Teerikangas, Ve´ry, & Pisano, 2011; Weber, Tarba, & Reichel, 2009, 2011). While they may be pursued to access the resources or competences of target firms, international acquisitions are frequently conducted to reach a new geographical market and customers for marketing and sales of the acquirer’s products. Literature on internationalization describes M&A as a means to enter new markets (Anand & Delios, 2002; Casillas, Moreno, Acedo, Gallego, & Ramos, 2009), while it focuses less on what happens following the market entrance. Post-merger integration (PMI) refers to the process where the acquiring and acquired party are unified, and decisions are made in terms of degree of unification, its direction, content and areas (company functions) of integration (Haspeslagh & Jemison, 1991). Following an international acquisition, the integration of marketing organizations (cf. Homburg & Bucerius, 2005) would be of fundamental importance given the motive to reach new markets and customers. Such integration describes the potential unification of sales forces, the cross-bundling of offerings, and the transfer of general marketing expertise (Capron & Hulland, 1999). Each area of integration includes the transfer of knowledge between parties – that is the use of one partner’s knowledge by the other acquisition partner. Learning would be associated with sales processes, local market conditions, and customers, and entail tacit as well as explicit knowledge. Although the topic of knowledge in general management literature has been explored extensively (Foss, Husted & Michailova, 2010; Foss & Pedersen, 2002; Gupta & Govindarajan, 2000; Jensen & Szulanski, 2004; Kane, 2010; Kogut & Zander, 1992; Minbaeva, 2007; Minbaeva, Pedersen,

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Bjo¨rkman, Fey, & Park, 2003; Petersen, Pedersen, & Lyles, 2008; Szulanski, 1996; Szulanski, Cappetta, & Jensen 2004), it is still under-researched in the context of international M&A (Child, Duarte, Tanure, & Rodrigues, 2012; Javidan, Stahl, Brodbeck, & Wilderom, 2005). Research indicates that international M&As fail to create value (e.g. Almor, Tarba, & Benjamini, 2009; Gomes, Angwin, Weber, & Tarba, 2013; Park & Vambery, 2010; Reus & Lamont, 2009; Schoenberg, 2001; Vazirani, 2012). The growth in the knowledge-based explanations of value-creation in general management literature (Grant, 1996) highlights the importance of understanding the role of knowledge in international M&A (Bjo¨rkman, Stahl, & Vaara 2007, Schoenberg, 2001; Weber, Rachman-Moore, & Tarba, 2012; Weber & Tarba, 2010). Recently drawing from advances in the acquisition, strategic HRM, knowledge management, and leadership studies, Lakshman (2011) examines the nature and features of the PMI process following international acquisitions using a knowledge lens to elucidate the cultural and organizational integration mechanism leading to integration effectiveness. Specifically, the model proposed by Lakshman (2011) identifies knowledge leadership, cultural knowledge integration, early involvement in integration process design and causal ambiguity-related variables as critical components of effective management of the integration process in M&A. This chapter presents a review of the state of the art on the topic of knowledge transfer following post-merger integration in international mergers and acquisitions, and identifies points of agreement and disagreement, underexplored areas and suggests how they could be explored in future studies. Given that international acquisitions are often conducted to reach new markets and customers, specific attention is paid to the transfer of knowledge about customers in PMI. We discuss different forms of integration of marketing following international acquisitions to highlight their implications for the transfer of knowledge about customers, specifically in relation to business-to-business customer relationships. The reliance on customer relationship continuity is expressed in the valuation of companies (Koller, Goedhart, & Wessels, 2005), where the cash flow valuation tools indicate beliefs that customers will continue to buy from the acquired party after the acquisition. As for the chapter’s contribution, two recent metaanalyses on M&A (King, Dalton, Daily, & Covin, 2004; Stahl & Voigt, 2008) point to that several areas of M&A remain underexplored. Researchers call for studies concerning processes that create value during PMI, and regarding factors that support or impede the integration process (Haleblian et al., 2009; Weber, Tarba, & Rozen-Bachar, 2011; Weber, Tarba, Stahl, & Rozen Bachar, 2012; Zander & Zander, 2010). Researchers

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such as Anderson, Havila and Salmi (2001) point to the limited amount of research that includes business relationship effects of mergers and acquisitions, and Homburg and Bucerius (2005) indicate that very few researchers focus on the marketing effects of such endeavors. The chapter is structured as follows: The next section presents an overview of research on post-merger integration following international acquisitions. The PMI entails the important transfer of knowledge between the acquirer and the acquired party; therefore a literature review on knowledge transfer follows after the section on integration. It is noted that this literature focuses on the transfer of technology and innovation, while it largely disregards other areas of knowledge transfer. Based on the statement that international acquisitions are conducted to reach markets and customers, a description of marketing integration and its current standing in the M&A literature is presented. The knowledge transfer literature is then cross-sectioned with ideas on marketing integration and the transfer of knowledge about customers in international acquisitions to create a preliminary understanding for such knowledge transfer. To illustrate this, two case studies are presented and analyzed, where the cases depict knowledge transfer between small and large, and geographically distanced or close acquirers and acquired parties. The chapter ends with a concluding discussion and ideas for further research.

KNOWLEDGE TRANSFER IN POST-MERGER INTEGRATION FOLLOWING INTERNATIONAL ACQUISITIONS Post-Merger Integration Post-merger/acquisition integration is of crucial importance for realizing the synergistic benefits between amalgamating firms (Almor et al., 2009; Ellis, Reus & Lamont, 2009; Ellis, Weber, Raveh, & Tarba, 2012; Puranam, Singh, & Zollo, 2003, 2006). Yet, the loss of autonomy that is generally associated with applying the integration process can sometimes be detrimental to acquisition performance (Chatterjee, Lubatkin, Schweiger & Weber 1992; Weber & Tarba, 2011; Weber, Tarba, & Rozen Bachar, 2012). High levels of integration may result in the destruction of the acquired firm’s knowledge-based resources due to senior management and key employee turnover as well as disruption of organization routines (Puranam,

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Singh, & Chaudhuri, 2009; Puranam et al., 2006; Puranam & Srikanth, 2007). The choice of PMI approach given the existing synergy potential and cultural differences is of paramount importance in M&A in general, and in M&A in international acquisitions in particular. Literature on PMI following international acquisitions often describes the integration process through the lens of national culture. Cultural differences impede the ability to integrate companies, and impact on the transfer of knowledge (Barkema, Bell & Pennings, 1996; Sarala & Vaara, 2010). Kanter and Dretler (1998) point to how companies may choose to practice local integration in order not to destroy current identities of firms. Barmeyer and Mayrhofer (2008) as well as Goh (2001) discuss the need for global versus local organizational cultures. Other examples similarly highlight how integration is encompassed in circumstances of the individual firms rather than in an ‘all global’ regime (cf. Devinney, Midgley & Venaik, 2000; O¨berg, 2008; Tarba, 2009). Based on a model that includes national culture dimensions, organizational culture differences and the synergy potential between the combining companies, Gomes et al. (2011) and Weber et al. (2009, 2011) propose that the reason for the negative performance track record of the acquiring companies results from unwillingness or failure to implement the integration approach actually required in each specific case. In a detailed analysis of the merger between the high-tech companies Lannet in Israel and Madgein the United Kingdom, Weber et al. (2012) outline the impact of the post-merger integration approach on the ultimate success of an M&A. This study has extended the existing knowledge of cross-cultural management in international high-tech M&A by examining the effects of national and corporate cultural differences on the effectiveness of the symbiosis PMI approach (Weber et al., 2012). In the same vein, the in-depth study of the German company Fast’s acquisition of the Israeli company Aladdin illustrates the PMI-related issues that stem from the culture clash between merging companies (Weber & Tarba, 2011).

Knowledge Transfer in International Acquisitions – A Literature Overview In terms of knowledge transfer, the literature on international acquisitions elaborates on how knowledge is transferred between acquisitions and determines the choice of entrance into new countries (e.g. Casillas et al., 2009; Halebilan, Kim, & Rajagoplan, 2006; Hayward, 2002; Muehlfeld, Rao Sahib, & Van Witteloostuijn, 2012). Less is known, however, about the transfer of knowledge in the PMI process.

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The general acquisition literature on PMI is frequent to emphasize the transfer of technology knowledge and the skills of innovating (Ranft & Lord, 2000, 2002). Puranam et al. (2006) indicate the short-term negative effects on innovation output and how these processes are enabled, in the long-term, by innovation trajectories. This hints at a re-orientation of the path to innovation. Makri, Hitt and Lane (2010) point to how complementary knowledge (science and technology knowledge in their article) contributes to new ideas following the merger or acquisition. Schweizer (2005) reveals how pharmaceutical companies remain separated from their new owners so as not to interfere with their knowledge, and Castro and Neira (2005) relate autonomy to the type of knowledge to be transferred. This all links knowledge transfer to PMI, yet focuses on innovation and innovation capabilities. Concerning the outcomes of M&A knowledge transfer, studies examining the knowledge transfer–acquisition performance link have generally found a positive relationship (e.g. Capron, 1999; Capron & Pistre, 2002; Zollo & Meier, 2008). However, knowledge transfer from the acquirer to the target firm has tended to result in better performance than knowledge transfer from the target to the acquiring firm (Capron, 1999; Capron & Pistre, 2002). In addition, the relationship between the acquirer and the target has been examined. In general, strategic similarities (Capron, Dussauge, & Mitchell, 1998; Capron, Mitchell, & Swaminathan, 2001) can support knowledge transfer by making the knowledge easier to transfer. Also, the social relationships between the partner firms’ employees can influence the level of knowledge transfer by influencing the employees’ willingness to engage in knowledge transfer (Junni, 2011; Junni & Sarala, 2013; Yildiz & Fey, 2010). Specifically related to international acquisitions, it has been established that knowledge characteristics, such as tacit knowledge (Bresman, Birkinshaw, & Nobel 1999; Junni, 2011; Westphal & Shaw, 2005), ambiguity (Junni & Sarala, 2011) and cultural differences (Javidan et al., 2005; Lam, 1997) can impede M&A knowledge transfer. The way the integration process is managed has been suggested to influence M&A knowledge transfer. More specifically, researchers have tended to focus on the degree of integration that is necessary to facilitate knowledge transfer versus the degree of autonomy that the target firm requires to continue innovating and developing its knowledge without being disturbed – the findings of these studies being mixed (cf. Vaara, Sarala, Stahl, & Bjo¨rkman, 2012; Westphal & Shaw, 2005). Bresman et al. (1999) point to how the acquiring firm may possess superior knowledge or ‘best practices’ that it wishes to transfer to the target firm in order to allow the target firm to become more effective.

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They conclude that communication, visits and meetings facilitate the transfer of technology knowledge. The knowledge is first transferred from the acquirer to the acquired party, to later become increasingly reciprocal. Verbeke (2010) points to how the acquirer’s establishment of a social community that includes both the acquirer and the acquired party representatives, and the achievement of communalities in dominant logics, enable knowledge transfer and innovation improvements following an international acquisition. Child et al. (2012) describe the importance of management retention. Finally, bi-directional transfer of knowledge between the acquiring and target firms can enhance the innovativeness and improve the processes of both firms (Bjo¨rkman, Stahl, & Vaara 2007; Eschen & Bresser, 2005). What is evident from the literature is that knowledge transfer in PMI has been mainly concerned with technology and innovation contexts, while such aspects as customer and market knowledge remains underexplored. The literature rarely focuses on international acquisitions (Child et al., 2012), and when it does so, it adds cultural differences to the present discussion on technology and innovation transfer. This chapter continues by describing marketing integration and then cross-sections such integration with knowledge transfer to create a preliminary understanding for such knowledge transfer in international acquisitions, and then explore it via two illustrating case studies.

Marketing Integration – An Overview The merger and acquisition literature dealing with the integration of marketing largely approaches the field from two different perspectives: Research that focuses on the integration of marketing functions, and literature that describes customer reactions following mergers and acquisitions. This literature does not significantly distinguish between domestic and international acquisitions, while some empirical work provides examples of international acquisitions (e.g. Havila & Salmi, 2000; O¨berg, 2008; Saunders, 1990). In regard to the integration of marketing, early literature in that domain discussed brand valuation issues and how brands may enhance a small firm’s performance (Nicholls & Broadbent, 1979; Saunders, 1990). The conclusion from that literature was that it is difficult to predict the value of acquired brands, as well as brand effects that follow from how an acquired may be included in the brand community of its acquirer. Kumar and Blomqvist

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(2004) provide guidance on how to handle brands in mergers and acquisitions through pointing to the need to consider brands in due diligence, consider a brand strategy and establish a migration plan. Muzellec and Lambkin (2006) discuss brand effects in terms of the transfer, creation, and destruction of brand equity. However, marketing integration extends beyond the brand issues (cf. American Marketing Association, 2007), and includes products, distribution, customer services, advertising, sales force, and market planning tasks. Weber and Dholakia (2000) discuss these areas and their potential for synergies. The approach that Weber and Dholakia (2000) suggest is that of minimizing duplicate activities and thereby focusing on cost reductions. Capron and Hulland (1999) cover fields similar to Weber and Dholakia (2000) when they discuss redeployment strategies of brands, sales forces, and general marketing expertise. Their focus is on whether such redeployment strategies have positive or negative effects on profitability and market share. Homburg and Bucerius (2005) focus on general marketing aspects of mergers and acquisitions, specifically discussing the speed and extent of integration. Homburg and Bucerius (2005) conclude that the market-related performance has much higher impact on a company’s finances following a merger or acquisition than do cost savings. Other studies on marketing integration elaborate on specific areas. Mansfield (2004) discusses cultural aspects of integration of marketing organizations, focusing on marketing expertise-related issues. Richey, Kiessling, Tokman, and Dalela (2008) point to how relationship managers have a stabilizing effect for other marketing employees. As for other staffrelated issues, the literature has pointed to how the continuum of sales representatives has positive impact on the retention of customers. Palmatier, Miao, and Fang (2007) discuss sales channel integration and propose a stepwise approach to determine whether and how channels should be integrated. Table 1 summarizes the different aspects of marketing integration and relates them to the dimensions described by Capron and Hulland (1999). The second strand of the literature on marketing integration constitutes research on customer reactions. This literature began by questioning whether business relationships could be retained following a merger or acquisition. Havila and Salmi (2000) describe how a merger or acquisition would have effects for business partners of the acquirer and the acquired party, while Anderson et al. (2001) question whether relationships could really be transferred following a merger or acquisition. Jaju, Joiner, and Reddy (2006) relate brand redeployment to consumer reactions, thus connecting research on brand values and equity (cf. Kumar & Blomqvist,

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Table 1. Dimension (Capron & Hulland, 1999)

Marketing Integration – Previous Research. Implications

Brands

Brand value – brand destruction and brand enhancement

Sales force

Continuum of person-to-person relationships with customers has positive impact on customer retention How to integrate marketing expertise and its consequences: Continuum of managers has positive impact on employee retention

Marketing expertise

Scholars

Kumar and Blomqvist (2004); Muzellec and Lambkin (2006); Nicholls and Broadbent (1979); Saunders (1990) Palmatier et al. (2007)

Mansfield (2004); Richey et al. (2008)

2004; Muzellec & Lambkin, 2006; Nicholls & Broadbent, 1979; Saunders, 1990) to customer reactions in a consumer marketing setting. Thorbjørnsen and Dahle´n (2011) discuss consumer reactions and relate them to brands. Sindhav (2001) specifically focuses on changes in marketing channels (cf. Palmatier et al., 2007), while describing the process of integration and its effects on commitment, trust, and satisfaction. O¨berg (2008) relates business-to-business customer relationships to integration, and thus connects the idea of business relationship changes (Anderson et al., 2001; Havila & Salmi, 2000) specifically to integration and their impact on customer relationships. While marketing integration has rendered some increased recent research interest, it remains limited (Homburg & Bucerius, 2005). Few studies connect integration to customers, and while some studies propose a processperspective with step-wise approaches to marketing integration (Palmatier et al., 2007; Weber & Dholakia, 2000), the literature does not to focus on how knowledge about customers is transferred in the PMI. Nor does it – with the exception from some empirical examples specifically related to business partner reactions – describe international acquisitions. With such endeavors often having as their goal to reach new markets or customers, the transfer of knowledge about customers in the PMI process would be important.

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Transfer of Knowledge about Customers in Mergers and Acquisitions The literature on transfer of knowledge regarding technology and innovation provides some dimensions for understanding PMI knowledge transfer in international acquisitions. It describes whether knowledge is transferred or maintained, and whether it is structured as a help to transfer it, or if it is largely informal. In the general literature on knowledge transfer, some other dimensions of knowledge transfer appear; knowledge could both be understood on an individual and an organizational level (cf. Leroy & Ramanantsoa, 1997). Knowledge on the organizational level would either be upheld by its staff, or potentially embedded in organizational devises such as systems, methods, and rituals. Empson (2001) points to how codified knowledge may be shared, but that it relies on the individuals to interpret and use the knowledge. On the other hand, the knowledge embedded in organizational devices may not exist beyond those structures surrounding it, and hence not easily be taken into new organizational compositions, nor upheld with reliance only on the organizational staff. In the management of knowledge, it may either be held at its original position, where it would be enough for other parties to be aware of where and how the knowledge can be obtained, or the knowledge transfer actually involves the process of distributing the knowledge to those targeted for it. Table 2 summarizes these dimensions. In relation to the transfer of knowledge about customers in PMI following international acquisitions, such knowledge would expectedly both be structured into KAM systems and similar, and upheld by sales and service staff. It would be both tacit and explicit in terms of facts and figures on previous sales, and contain ideas that mainly make sense to the original carrier of the knowledge. Decisions would need to be made as to whether the knowledge should be integrated, its direction of transfer (from the acquirer to the acquired party, or the converse) or whether it is enough to know that the other party holds the knowledge and can use it. The knowledge would need to be further analyzed in terms of whether it is unique for each customer, or homogeneous between customers or groups of customers. Classifications would also expectedly relate to the importance of the individual customers and differ between the mass marketing to consumers and the here described relationships between companies in business-tobusiness marketing settings. The internationalization would need to take into consideration cultural differences (cf. Lam, 1997), not only between sales or marketing organizations, but also between customers. Such differences may in turn impact the PMI decisions and decrease its potential,

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Table 2. Dimensions of Knowledge Transfer. Dimension

Description

Individual/organizational

Maintained/transferred

Tacit/explicit

Each piece of knowledge is unique/ knowledge treated as homogeneous

The unit of analysis either refers to knowledge as held by the organizational members or the organization as such. A combination of the two, where the organizational members are regarded as the ones to interpret organizational knowledge and the group level enables its use, could also be considered. Individuals or organizations learn from one another (transferred knowledge), or they use the knowledge by the other party, while they do not learn its skills (maintained). Explicit knowledge is ‘tangible’ and consists of manuals, etc. Tacit knowledge cannot be articulated and is more difficult to transfer. Each unit of knowledge needs to be learned by its own merits (unique knowledge) or general knowledge also applies to other contexts (homogeneous).

as well as impede the knowledge transfer. The literature however does not elaborate on these matters, and we, therefore, introduce two case studies to indicate how companies work with the transfer of knowledge about customers in PMI following international acquisitions.

TWO ILLUSTRATIVE CASE STUDIES The empirical part of this chapter is based on two case studies. The case studies aim to illustrate (Siggelkow, 2007) issues related to the transfer of knowledge about customers in PMI following international acquisitions. One of the cases illustrates a global company (Asian origin) acquiring a Europe-based firm. The other case describes two equally sized, yet comparably small, firms located in neighboring countries (Finland and Sweden). The choice of cases aims to reflect possible differences between large and small companies. It also intends to highlight whether the geographical distance between the acquirer and acquired party is an issue for the knowledge transfer. The case companies operate in business-to-business markets, and represent both manufacturing (Case I) and service companies

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(Case II). The acquired party in Case I has also extensively extended its offerings into services. Interviews served as the primary source of data. The data collection was performed between 2003 and 2012 and comprised 56 interviews. Interviewees included CEOs, CFOs, procurement, marketing and sales managers as well as local sales representatives. Customer interviews were performed to capture their viewpoints. These interviews equally targeted both the strategic and operational levels of the business relationships (O¨berg, 2010). The interviews used a template of areas to cover, yet were informal, which allowed for the addressing of follow-up questions and the adjusting of questions to the circumstances and representation of each interviewee. Each interview lasted between one and three hours and was taped and transcribed. To complement the questions, secondary data was captured on financial developments, announcements in the media, and the press coverage of the companies, the acquisitions, and their customers. The secondary data enabled the capture of a timeline of events, while it also helped to validate interviews. In the analysis procedure, items indicating the transfer of knowledge about customers in the PMI following the acquisitions were extracted and coded (Pratt, 2009). The coding followed the dimensions of knowledge as outlined in Table 2, but was also explorative so as to find out whether the cases indicated additional dimensions of knowledge transfer. The cases were compared to see potential differences that could be explained by the size of or the geographical distance between the acquirer and acquired party. Since the cases do not represent any best practices, but rather illustrate how companies may act in regards to the transfer of knowledge about customers following international acquisitions, the analysis further attempted to capture missing dimensions of the transfer based on how the companies were not necessarily successful in creating value from the acquisitions (cf. Almor et al., 2009; Park & Vambery, 2010).

Case I: Global Inc. Acquires European Ltd. Case I illustrates how Global Inc. acquired European Ltd. Global Inc. was a global market leader in a specific niche of the industrial equipment industry, while European Ltd. had gained a similar position through a recent acquisition in its related niche of business. The acquisition was completed with full ownership of European Ltd. in the beginning of the new millennium. Global Inc. had a distribution net of independent dealers

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throughout the world that handled its sales and maintenance, while Global Inc. provided the equipment and spare parts to them. European Ltd. owned its distribution net, mainly acted on the European market, and saw service as part of its offering. Following the acquisition, it was decided to keep the companies separate in terms of their marketing and sales organizations. European Ltd. would however provide some of its product range to Global Inc.’s dealers. On several geographical markets, this caused competition between the sales organizations, and 10 years following the acquisition, a new decision was made: to integrate the sales organizations. This included how previous independent dealers of Global Inc. were acquired by European Ltd., merged in case they were already owned by Global Inc., how joint ventures were created, or how the market was divided into regions separating previous dealers from European Ltd.’s sales organization. On the strategic level, the first decision meant that no knowledge about customers was to be transferred between the companies, while the subsequent decision to unify sales organizations did start such a process. In the evaluation of dealers to acquire, the dealer’s customers were part of the due diligence. Customers were hence referred to in terms of amounts of equipment, service agreements, and values of sales. In the integration, CRM systems were brought together, with the hurdle of them containing different information and not being fully possible to integrate. The transfer of knowledge about customers describes a process of transferring information that was largely contained in systems on the strategic level. In the operational sales organizations, sales staff that had previously worked with either Global Inc.’s or European Ltd.’s customers was assigned to work with both groups of customers, especially so in the circumstances that the geographical sales districts were changed. Focus in the PMI was placed on learning. The learning largely related to the equipment previously not attained by the sales staff. In addition, learning programs were developed with regards to maintenance. This created an internal focus, where customers experienced some short-term interruptions. Since focus on the knowledge transfer on the operational level was on equipment and maintenance, specificities of customers were largely disregarded. This had two consequences: sales staff continued to mostly support its previous contacts, which in turn meant that in a region assigned to a salesperson previously representing European Ltd., sales of Global Inc.’s products declined. Secondly, customers experienced how they did not receive the support they previously had, since the newly assigned salesmen did not know about their specific requirements.

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Case II: Abroad Oy Acquires Domestic AB Case II describes Abroad Oy’s acquisition of Domestic AB. Abroad Oy was a Finnish company that had started its internationalization some years before it acquired Domestic AB. Domestic AB acted on the Swedish market and was a one-product company focusing on IT solutions for the handling of documents. Abroad Oy represented a competing product. The acquisition took place in the first years of the new millennium and was the consequence of how Domestic had run into financial problems due to some overspending by its previous owner. Abroad Oy found it important to reach the customers of Domestic AB and to secure itself a strong position on the Swedish market. Following the acquisition, it was first announced that the companies would continue with their respective systems and serve their individual customers. The companies were run in this manner for a year, with Abroad Oy establishing its headquarters in the Swedish capital, while Domestic AB continued to operate from a small municipality in the northern part of Sweden. The decision that followed after the first year, however, changed the conditions for Domestic AB. Abroad Oy decided to replace Domestic AB’s system with its own. This was launched as an upgrade to Domestic AB’s customers, but caused a lot of internal interruption in Domestic AB, and impacted the customers’ decision to stay with the company. Abroad Oy had the strategy to keep present sales staff. Each individual customer represented important revenues to the company and this was done to avoid additional disruptions for the customers. The consequence of this strategy was that the sales staff of Domestic AB would have to learn to sell the Abroad Oy system, but while efforts were placed on such knowledge transfer, the system replacement meant that sales staff and also developers left the combined company. Again, no knowledge about customers was transferred on the operational level of the companies, but focus was on the technology and its use. Customers experienced how the combined firm failed to deliver to expectations, since many of the customers’ system requirements were lost in the replacement and also not considered in upgrade versions.

Analysis of the Case Studies The two case studies point to how knowledge regarding customers was considered on the strategic levels of the companies, while largely disregarded on the operational level in the PMI following the international acquisitions.

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Both cases indicate how early decisions on how to work with customers were later changed. Early decisions seemed to regard cultural differences between customers and markets, while later decisions focused on integration from the acquired party to the acquirer, or the converse (cf. Bresman et al., 1999). In terms of cultural differences (Lam, 1997), Global Inc. and European Ltd. represent those firms with the larger geographical and national differences. Global Inc. was originally an Asian firm, while European Ltd. was European. These firms differed in their market approaches. European Ltd. owned its distribution net and provided services, while Global Inc. sold its products to independent dealers that in turn interacted with customers. The ways of organizing markets and sales followed from different philosophies and ways to consider middle management (Global Inc.) versus end-customers and after-sales (European Ltd.). Since both firms had acted internationally before the acquisition, they had acquired knowledge on alternative ways to approach markets. Such knowledge was important for the decision to integrate the sales organizations, and points to how previous knowledge had an impact on later decisions (cf. Halebilan et al., 2006; Hayward, 2002). Abroad Oy and Domestic AB originated from countries with cultures much more alike (cf. Vaara et al., 2012). However, they had less knowledge of each other’s markets. While customers were more similar, the PMI became more iterative with larger losses in terms of staff as a consequence (cf. Child et al., 2012). In the PMI, the strategic level included the integration of CRM systems, strategies for how to interact with customers, and also decisions on how the sales force would be organized. Here, the knowledge transfer followed the integration decisions. The more integrated the firms, in terms of brands, sales staff or marketing expertise (cf. Capron et al., 1998), the larger the efforts to transfer knowledge. The large companies (Global Inc. and European Ltd.) had more of such knowledge structured into programmes and systems, while the smaller companies (Abroad Oy and Domestic AB) relied on their marketing managers and less formalized information in their knowledge transfer. Still, and also for the smaller companies, the strategic information regarding customers was contained on organizational levels (cf. Leroy & Ramanantsoa, 1997), well documented and underpinned by records of contracts, and data on annual sales, number of users etc. (cf. Empson, 2001). But while both cases indicate a conscious PMI and knowledge transfer on strategic levels, the operational levels were largely disregarded. Sales and maintenance staff held important information on customer preferences, ways to interact, individual contact persons and knowledge on how to

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behave with the customers in the day-to-day organizing of work. This knowledge relied much more on the individuals and was to a lesser extent organizational (cf. Leroy & Ramanantsoa, 1997). It was also much more tacit and more rarely shared among the company representatives (Empson, 2001; Westphal & Shaw, 2005). Sales and maintenance staff interacted with the customers based on rituals without considering their origins or being actively aware of how and why they did so. The behavior had been formed during repeated interactions with the customer representatives. This type of knowledge was important for the customers, while it was largely undetected as long as the same salesman or service technician met with the customer. As interruptions occurred, which were caused by the integration of sales organizations or products, the knowledge became highlighted in terms of missing links and understandings between the customer and the sales and maintenance staff. This in turn had consequences for the customer retention. Customers became increasingly wary of the companies as they realized that previous interaction parties were no longer present and new ones did not represent as deep customer knowledge as the

Table 3. Transfer of Knowledge About Customers in the PMI Following the International Acquisitions Studied. Dimension of Knowledge

Relates to

Individual/organizational

Strategic level knowledge more embedded into devices than operational level knowledge. The transfer of knowledge would be reflected in the integration of marketing (brands, sales staff and marketing expertise). Difficulties of transferring knowledge about customers would lead to lower degrees of marketing integration. Devices make strategic-level knowledge about customers more explicit, while sales and service staff knowledge is a mixture of explicit and tacit knowledge. The size and importance of individual customers. Business-to-business customers would more often be treated as heterogeneous. Consumers and less important customers would be treated as homogeneous or groups of homogeneous customers. The more important and heterogeneous the customers, the more important to include them in the knowledge transfer processes.

Maintained/transferred

Tacit/explicit

Each piece of knowledge is unique/ knowledge treated as homogeneous

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previous ones. The lack of transfer of knowledge about customers on the operational level hence put value creation at risk (cf. Almor et al., 2009), or even destructed present value. The cases point to a difference in the knowledge about customers in terms of whether customers (on the strategic level) were considered to be individual and heterogeneous, or treated as a group. The small companies (Abroad Oy and Domestic AB) that served large organizations to a higher extent treated each customer as a unique item of knowledge, while the large companies (Global Inc. and European Ltd.) referred to both individual customers and groups of customers in their integration and transfer of knowledge. These latter parties classified customers into A, B and C customers based on their individual importance and tracked data on each such group with different levels of detail. Following the PMI, the acquirer’s and the acquired party’s customers were brought together to the same classification. Table 3 summarizes the dimensions of knowledge transfer in the PMI as they appeared following the studied international acquisitions.

CONCLUDING DISCUSSION Research on knowledge transfer in PMI following international acquisitions remains a sparsely researched area (cf. Child et al., 2012; Javidan et al., 2005). Those descriptions that can be found in the literature seem to equal knowledge with technology, innovation or the skills of innovating (e.g. Bjo¨rkman et al., 2007; Eschen & Bresser, 2005). The literature indicates how cultural differences, ambiguity and tacit knowledge complicate the knowledge transfer following international acquisitions (Bresman et al., 1999; Junni & Sarala, 2011; Westphal & Shaw, 2005). With the focus on technologies and innovation, other areas of knowledge transfer are largely disregarded in the literature. International mergers and acquisitions, that often are performed to reach new markets and customers, would be followed by potential integrations among sales organizations and in terms of marketing (cf. Capron & Hulland, 1999). Such integration would require transfer of knowledge about customers, including both the integration of customer data contained in CRM systems and related devises, and the sharing of understanding for how to interact with the customers and their (individual) preferences. This chapter points to how literature does not seem to reflect on such knowledge transfer in PMI following international acquisitions. Two case studies indicate areas that need to be considered by pointing to integration that has been applied in

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practice, yet failed to create value as a consequence of disregarding customer knowledge transfer in the PMI following international acquisitions. The cases point to a distinction between the strategic and operational levels of the transfer of knowledge about customers. Knowledge about customers is embedded both in strategic marketing expertise and in operational sales and service organizations’ day-to-day activities. These different levels of the organization have different customer contacts (this being the central procurement department on the strategic level, and individual users on the operational level; O¨berg, 2010). PMI is largely handled as a strategic decision, based on ‘tangible’ knowledge at such levels. However, much of the tacit knowledge about customers, and also the ties that keep the customer with the company, would be maintained at operational levels. Knowledge at the strategic level is to a larger extent organizational, explicit and also partly operates so that customers are treated as homogeneous or groups of different customers. Such knowledge is easier to transfer than the operational-level knowledge. The operational level is marked by knowledge about individual customers, is individually held by sales representatives or maintenance staff, and is tacit and unique. It is more complex to transfer, while, as indicated by the cases, not widely acknowledged in the PMI. The case studies indicate how previous experience from foreign markets is more important than the cultural or geographical similarities between the acquirer and the acquired party. An acquirer that has previously acted on different geographical markets is more open to understand differences and handle them, as illustrated by the acquisition between Global Inc., and European Ltd. The geographical closeness between Abroad Oy and Domestic AB, did not help in the transfer of knowledge about customers. This points to a relation between knowledge transferred between acquisitions and the knowledge transfer in the PMI (cf. O¨berg, 2011), while it also indicates how cultural differences (Lam, 1997) may be outweighed by general market knowledge. Through highlighting how much knowledge about customers is maintained on operational levels, and the overall absence of a discussion on knowledge transfer of customer information in the literature, this chapter indicates some fields for further exploration. Further studies would focus on finding best practices for including operational levels, and also potentially customers for transfer of marketing information in PMI following international acquisitions. Cultural differences, previous knowledge from internationalization processes, and overlaps between customers are areas worth exploring further. Studies could also focus on other areas of

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knowledge transfer in international as well as domestic acquisitions: knowledge on production processes, supplier relationships, and related topics. The division between strategic and operational levels of PMI is worth exploiting further, as is the long-term value creation of PMI following international acquisitions, where the general literature on such acquisitions extensively focuses on the entry into new countries and less so on what happens following such entrances (cf. Anand & Delios, 2002).

ACKNOWLEDGEMENTS The authors would like to thank the organizers and participants of the Advances in International Management workshop, held in London in December 2012, for valuable insights and support that helped them develop this chapter. They also would like to thank the editors for critical and important comments during the review process and completion of the chapter.

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AUTHORS’ BIOGRAPHIES Yair Aharoni is a Professor Emeritus at the Faculty of Management, Tel-Aviv University. He received his DBA from the Harvard University Graduate School of Business Administration. His doctoral dissertation – The Foreign Investment Decision Process – was published in a book version and was translated to Spanish and Japanese. He is a Fellow of the International Academy of Management and the Academy of International Business. During his long and distinguished academic career, Aharoni was the Daniel and Grace Ross Professor of International Business and later the Issachar Haimovic Professor of Business Policy – both at Tel Aviv University. He was the Thomas Henry Caroll Ford Foundation Visiting Professor of Business Administration, Harvard Graduate School of Business Administration (1978–1979). He was also the J. Paul Stitch Visiting Professor of International Business at Duke University (1987–1995) and the director of CIBER (Center of International Business Education and Research) (1992–1995). He published several dozens books and monographs in Hebrew and in English, more than 100 papers and chapters in books and more than 150 cases. For his academic achievements he was awarded both Landau Prize (2007) and Israel Prize in management science (2010). Martinho Isnard Ribeiro de Almeida is a Professor of Business Management at University of Sao Paulo, Brazil. He holds a PhD and an MSc in Business Administration from the University of Sao Paulo (Brazil). Professor Almeida has published numerous articles and books, received several awards and is member of the editorial boards of several Brazilian journals. His research interests include strategic management, strategic planning, entrepreneurship and innovation. Lydia Bals is the Head of the Department Procurement Solutions (e.g. Procurement Strategy, Controlling, Source2Contract and Purchase2Pay Processes, Methods, Tools & Systems, Benchmarking and Excellence) at Bayer CropScience AG Global Procurement. Moreover, she is steering the international Procurement Solutions network in Germany, United States, France, India, China and Brazil. Prior to that she worked as a Project Manager at Bayer Business Consulting, Germany, the inhouse consulting 493

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AUTHORS’ BIOGRAPHIES

unit of Bayer. Since 2008 she is a Visiting Scholar at the Department for Strategic Management and Globalization at Copenhagen Business School. She obtained her Doctoral Degree from EBS European Business School, Germany and made research visits at the Wharton School of the University of Pennsylvania and at Columbia Business School, Columbia University, United States. Her research interests centre on offshoring, sustainable sourcing and internationalization of R&D. She has published in the Journal of Supply Chain Management, International Journal of Production Economics, Industrial Marketing Management, Journal of Purchasing and Supply Management and other academic outlets. Schon Beechler is a Senior Affiliate Professor of Leadership and Organizational Behavior, INSEAD. She received her Undergraduate Degree with high honours in Sociology and Anthropology from Oberlin College and earned a joint PhD in Business Administration and Sociology from the University of Michigan. She is a specialist in global leadership and the management of multinational corporations. Schon has published a number of articles in academic journals in the fields of global leadership, international human resource management and adult education. She has authored two books on Japanese management and her research has also been published in book chapters and practitioner-oriented journals. Schon spent 17 years on the faculty of Columbia Business School, where she held the title of Associate Professor of Management and taught credit courses in the MBA, Executive MBA and PhD programmes. Since 1991 she has designed, directed and taught in hundreds of open enrollment and custom executive education programmes for for-profit, not-for-profit and NGOs in the United States, Austral-Asia and Europe. Schon was elected to the Executive Committee of the International Management Division, Academy of Management for five years, serving as Chair of the Division from 2004 until 2005 and has worked as a pro bono consultant with Synergos, Save the Children and Teach For America. Heather Berry is an Associate Professor of International Business and International Affairs at the George Washington University School of Business. She earned her PhD with a joint degree in Strategy & Organization and International Business from the Anderson School at UCLA. Her research focuses on understanding the scope, integration and performance of multinational corporations (MNCs). Her papers have been published in top academic journals, including Organization Science, the Strategic Management Journal, the Journal of International Business Studies and the Journal of Economic Behavior and Organization. Heather was elected to

Authors’ Biographies

495

serve on the BPS Executive Committee in the Academy of Management (2008–2010) as well as the INFORMS College on Organization Science Executive Committee (2007–2010). Heather received the 2001 Richard Farmer Award for the best dissertation at the Academy of International Business and the 2002 Barry Richman Award for the best dissertation from the IM Division of the Academy of Management. During the 2010–2011 academic year, Heather was awarded an ASA/NSF/BEA Fellow for her research at the Bureau of Economic Analysis. Before joining GW, Heather was a Professor at the Wharton School at the University of Pennsylvania, where she remains a Senior Fellow at the Mack Center for Technological Innovation. Peter J. Buckley (BA (Econ), York; MA, East Anglia; PhD Economics, Lancaster; Dr hc (Uppsala); DSc hon (Lappeenranta)) is a Professor of International Business, Founder Director of the Centre for International Business, University of Leeds, (CIBUL), UK and Director of the Leeds International Business Confucius Institute. CIBUL was rated as the top international business research group in the world based on publications in leading journals (International Business Review) 2006. He was elected a Fellow of AIB in 1985 for ‘outstanding achievements in international business’. He is also a Fellow of the British Academy of Management (BAM), a Fellow of the Royal Society of Arts (RSA) and a Fellow of the European International Business Academy (EIBA). In December 1998 he was made an Honorary Professor at the University of International Business and Economics, Beijing, China. He is also an Honorary Member and Executive Committee member of the 48 Group Club. He was President of the Academy of International Business 2002–2004 and served as Immediate Past President 2004–2006. He is past Chair of the European International Business Academy (2009–2012). He was awarded a Cheung Kong Scholar Chair Professor in the University of International Business and Economics (UIBE), Beijing in September 2010. He was Principal Consultant to UNCTAD’s World Investment Report 2011. He was appointed an Officer of the Order of the British Empire (OBE) in the Queen’s New Year Honours List 2012 ‘for services to higher education, international business and research’. Brent Burmester is a lecturer in international business at the University of Auckland, New Zealand. His doctoral research concerns the idiosyncrasies of foreign direct investment (FDI) when engaged in the international relocation of production. His post-doctoral research revolves around the political implications of international business phenomena, at both national

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and international levels. Brent’s more recent works, published and forthcoming, address the role of exit barriers in offshoring, extension to the categories of motivation for FDI, evaluation of changes to overseas investment law in New Zealand, and the relationship between host-state respect for human rights and inward FDI. Manuel Portugal Ferreira is an Associate Professor of Strategy at Universidade Nove de Julho, Brazil where he teaches Masters and Doctoral students, and a Post-Doctoral at the University of Sao Paulo, Brazil. He is the director of globADVANTAGE – Center of Research in International Business & Strategy, in Portugal. He received his PhD in Business Administration from the David Eccles School of Business, The University of Utah and the MBA from the Portuguese Catholic University, Portugal. He published 12 books and his research has appeared in Strategic Management Journal, Scandinavian Management Journal, Brazilian Administration Review, Revista Administrac- a˜o de Empresas, Journal of Business Research, Management Research, among others. He is the Associate Editor of Revista IberoAmericana de Estrate´gia. His research interests lie on international strategy, specifically on multinationals’ strategies, internationalization and cross-border acquisitions and on cross-cultural issues. Evi Hartmann is a Professor for Supply Chain Management at FriedrichAlexander-University Erlangen-Nuremberg (Germany). Her primary areas of research interest include global sourcing, buyer-supplier collaboration and sustainable supply chain management. She has published in Journal of Supply Chain Management, International Journal of Production Economics, International Journal of Physical Distributionand Logistics Management, Journal of Business Logistics and other academic outlets. Jean-Franc- ois Hennart is Distinguished Visiting Professor at Singapore Management University, Professor in Strategy and International Business at Queen’s University Management School, Extramural Scholar at Tilburg University’s Center and a consultant to the University of Pavia. His research focuses on the comparative study of international economic institutions such as multinational firms and their contractual alternatives, joint ventures and alliances and modes of foreign market entry. His Theory of Multinational Enterprise pioneered the application of transaction cost theory to international business. He is consulting editor for JIBS and Fellow of the Academy of International Business and of the European International Business Academy. He holds an honorary doctorate from the University of Vaasa. His highly cited work has been published in the Journal of

Authors’ Biographies

497

International Business Studies, the Strategic Management Journal, the Global Strategy Journal, Management International Review, Management Science, Organization Science, the Journal of Economic Behavior and Organization and the Journal of Retailing, among others. Jenny Hillemann, PhD (ABD) is a Research Associate in the Department of Management and Strategy at the Solvay Business School, University of Brussels (VUB, Belgium). She is a graduate from the WHU – Otto Beisheim School of Management, Vallendar (Germany) and the University of Antwerp, Antwerp (Belgium). Her doctoral research includes managerial analysis of multinational enterprise entry mode choices and the broader governance challenges facing international firms. Xavier Martin (PhD, University of Michigan) is a Professor of Strategy, International Business and Innovation, a Fellow of the Center for Research in Economics and Business, and co-founder of the Center for Innovation Research at Tilburg University (The Netherlands). His research examines how (international) corporate strategies, interfirm relationships and knowledge-based assets affect each other and jointly affect firm performance. His papers have appeared in Administrative Science Quarterly, the Academy of Management Journal, the Strategic Management Journal, Organization Science, Management Science, the Journal of International Business Studies and Research Policy, among others. He is a recipient of multiple research awards, including the Best International Paper Award (now Dexter Award) from the Academy of Management, both the Haynes Prize for Best Paper and the Richard N. Farmer Best Dissertation Award from the Academy of International Business, and several Best Paper/Best Student Paper awards from the Strategic Management Society. He serves on the editorial boards of the Strategic Management Journal and the Journal of International Business Studies. He is a former member of the Board of the Strategic Management Society and the former chair of its Competitive Strategy Interest Group. Michael Nippa is a Professor of Management, Leadership and HumanResources at the TechnischeUniversita¨t Bergakademie Freiberg, an internationally renowned university in the field of natural resources and energy technologies founded in 1765. He has spent research sabbatical leaves at the Marshall School of Business (USC), at the Australian Graduate School of Management (UNSW) and at the Lee Kong Chian School of Business (SMU). Prior to his scholarly career he has been co-founder and managing director of a management consulting firm and served on several corporate boards. To date, he has published three books, 12 editorships, 15 articles in

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AUTHORS’ BIOGRAPHIES

peer-reviewed journals including the Academy of Management Perspectives, Management International Review, Journal of World Business, European Journal of International Management and Management Organization Review, and more than 40 peer reviewed articles and book chapters as well as numerous other articles and working papers. Christina O¨berg is a Reader in Industrial Marketing at Lund University, Sweden and is currently conducting research at University of Exeter, United Kingdom. She received her PhD from Linko¨ping University, Sweden. Her research interests involve mergers and acquisitions, customer relationships and innovation management. Her work has appeared in such journals as Construction Management and Economics, European Journal of Marketing, Industrial Marketing Management, International Journal of Innovation Management, Journal of Business Research, Journal of Business-to-Business Marketing, Scandinavian Journal of Management and The Service Industries Journal. Gordian Raettich earned his Doctoral Degree at Friedrich-AlexanderUniversity Erlangen-Nuremberg (Germany). His primary research areas are internationalization, international entrepreneurship and procurement. Nuno Rosa Reis is a PhD candidate in Management (specializing in strategy) at the Faculty of Economics of the University of Coimbra, Portugal, and a researcher at globADVANTAGE – Center of Research in International Business & Strategy. He teaches international management, strategic management and entrepreneurship at the Polytechnic Institute of Leiria, Portugal. He has co-authored several books – Nego´cios internacionais e internacionalizac- a˜o para economias emergentes, Gesta˜o empresarial and Marketing para empreendedores e pequenas empresas – and articles on international and strategic management. His research interests lie on international strategy, internationalization and cross-cultural issues. Asmund Rygh is a Doctoral candidate at BI Norwegian Business School in Oslo, Norway. He is MA in Economics from the University of Oslo. His research focuses on corporate governance in international business, including the effect of state ownership in multinational enterprises (MNEs) and the use of subsidiary capital structure as an intra-MNE governance instrument. He has published an article in Business and Politics (2011) and a chapter in the book Business and Politics in a New Global Order (edited by Kjell A. Eliassen) (2012). He has also presented his research-in-progress at international peer-reviewed conferences.

Authors’ Biographies

499

Andreas Schwab is an Associate Professor and Dean’s Fellow in the College of Business at Iowa State University. His main research interest focuses at learning opportunities, learning challenges and their contingencies during the formation and execution of innovative project ventures. His research has been published in the Academy of Management Journal, Organization Science, Strategic Organization, Industrial and Corporate Change, Industrial Relations, Family Business Review and various other outlets. His studies have received support by the National Science Foundation, the Office of Naval Research, the Hearin Foundation and the Center for International Business Education and Research (CIBER). He serves on the editorial board of Organization Science, the Strategic Entrepreneurship Journal and the Journal of Small Business Management. He received his PhD in Management and Organization Theory from the University of Wisconsin – Madison. Fernando Ribeiro Serra is an Associate Professor of Strategy at Universidade Nove de Julho, Brazil and Dean of HSM Education, Sao Paulo, Brazil. He earned his PhD in Engineering from PUC-Rio (Pontific Catholic University of Rio de Janeiro). He is member of S3 Studium (Italy) and a cofounder and researcher of globADVANTAGE (Portugal). In the past years he has taught MBAs in IBMEC/RJ, PUC-Rio, FGV, Universidade Candido Mendes and UFRRJ. He has a long executive and consultancy experience, both in Portugal and Brazil. His research focus is on strategy and organizational decline. Arjen H. L. Slangen (PhD, Tilburg University) is an Associate Professor of International Business at the Department of Strategic Management & Entrepreneurship of the Rotterdam School of Management, Erasmus University. His research primarily focuses on how multinationals’ foreign activities and entry mode choices are affected by institutional factors. It has been published in leading international journals such as the Journal of International Business Studies and Journal of Management Studies. He currently serves on the editorial review boards of the Journal of Management Studies and Journal of World Business, among others. William H. Starbuck is courtesy Professor-in-Residence at University of Oregon and Professor Emeritus at New York University. He has held faculty positions in economics, sociology or management at Purdue University, Johns Hopkins University, Cornell University, University of WisconsinMilwaukee and New York University, as well as visiting positions in England, France, New Zealand, Norway, Sweden and the United States. He was also Senior Research Fellow at the International Institute of

500

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Management in Berlin. He edited Administrative Science Quarterly, chaired the screening committee for Fulbright awards in business management, directed the doctoral programme in business administration at New York University, and was President of the Academy of Management. He has published over 150 articles on accounting, bargaining, business strategy, computer programming, computer simulation, forecasting, decision making, human-computer interaction, learning, organizational design, organizational growth and development, perception, scientific methods and social revolutions. He has also authored 2 books and edited 17 books. Ryan W. Tang is a Doctoral Candidate at The University of Technology – Sydney. He received B.Ec (Management) and MBA (Strategy Management). His primary research interest is in International Business/Management Strategy. The specific focus is related to two topics: choice of international strategy and cross-culture business behaviour. His studies employ methodologies including behaviour experiments, discrete choice experiments, econometric analysis and meta-analysis. He attended many academic conferences such as the Strategic Management Society 2012 and the Australian and New Zealand International Business Academy 2011. His work has been published in Advances in International Management. He also worked as a reviewer of International Journal of Emerging Markets. Shlomo Yedidia Tarba is a lecturer in strategic management in Management School of The University of Sheffield, The United Kingdom. He received his PhD from Ben-Gurion University, Israel. His research has been published in journals such as Human Resource Management Review, International Studies of Management & Organization, Thunderbird International Business Review, International Journal of Cross-Cultural Management, Advances in Mergers and Acquisitions and others. His was recently granted an 2010 Outstanding Author Contribution Award by Emerald publishing. His recent co-authored book is Mergers, Acquisitions, and Strategic Alliances: Understanding The Process by Palgrave Macmillan. His consulting experience includes biotechnological and telecom companies, as well as industry association such as The Israeli Rubber and Plastic Industry Association, and The USIsrael Chamber of Commerce. Romeo V. Turcan is Associate Professor of International Business and Entrepreneurship at Aalborg University in Denmark. He holds a PhD and an MSc degree from Strathclyde University in the United Kingdom, and a diploma of mechanical engineering from Air Force Engineering Military Academy, Riga, Latvia. His main research interests are in the areas of

Authors’ Biographies

501

entrepreneurship and international business, legitimation and crossdisciplinary theory building. Dr Turcan has published in the Journal of International Entrepreneurship, International Journal of Entrepreneurship and Small Business, International Entrepreneurship and Management Journal, Venture Capital: An International Journal of Entrepreneurial Finance, International Small Business Journal, Foresight Journal and Advances in International Management. Olavi Uusitalo is Professor of Marketing and International Business at the Department of Industrial Management in Tampere University of Technology in Finland. He holds an MSc (English) in Power Electronics from the Tampere University of Technology, MBA from Helsinki School of Economics (presently the Aalto University) and Queen’s University and a PhD in Marketing also from Helsinki School of Economics. His field of research work lies primarily in innovation, industrial marketing, networks and international business. Before entering in the academics he worked 12 years for Finnish international companies. He has also 20 years experience of developing and running Intopia, International Business Strategy courses in several Finnish and European universities. Koen van den Oever is a Research Master student in the Organization and Strategy track at Tilburg University. His research interests lie primarily in inter-organizational relationships, business models and network analytics and methods. Currently, his research focuses on understanding what drives firms to change their business models in the video game and water utility industries. Alain Verbeke, PhD, is a Professor of International Business Strategy and holds the McCaig Research Chair in Management at the Haskayne School of Business, University of Calgary (Canada). He was previously the Director of the MBA programme, Solvay Business School, University of Brussels (VUB, Belgium). He has also been a Visiting Professor at Dalhousie University, the University of Toronto and the Universite´ Catholique de Louvain, as well as an Associate Fellow of Templeton College (University of Oxford). He is presently an Academic Associate of the Centre for International Business and Management, Judge Business School, University of Cambridge. Dr Verbeke is an elected Fellow of the Academy of International Business, and has served as JIBS Area Editor (MNE Theory and International Strategy). His widely used textbook is International Business Strategy: Rethinking the Foundations of Global Corporate Success, Cambridge University Press, 2nd edition, 2013.