Academic journal article Management International Review

Top Management Team Internationalization and Firm Performance: The Mediating Role of Foreign Market Entry

Academic journal article Management International Review

Top Management Team Internationalization and Firm Performance: The Mediating Role of Foreign Market Entry

Article excerpt

Abstract:

* This paper develops a multi-dimensional construct of top management team (TMT) internationalization reflecting TMT ability to deal with challenges of managing firm foreign operations in the process of ongoing globalization.

* Drawing upon upper echelons and firm internationalization theories, the relationships between TMT internationalization, foreign market entry and performance are empirically investigated in a sample of 165 Swiss listed companies.

* The results confirm the validity of the multi-dimensional construct and suggest that TMT internationalization leads to subsequent foreign market entries, which in turn are positively related to firm performance.

Keywords: TMT internationalization * Nationality diversity * International experience * Firm internationalization * Foreign market entry * Corporate performance * Executive effects

Introduction

The Uppsala internationalization process model (Johanson and Valne 1977) emphasizes the use of experiential knowledge in expanding and managing firm international operations. Consistently, the role of learning from experience in the process of gradually increasing firm international involvement has been investigated extensively in the internationalization literature (e.g., Andersen 1997; Barkema et al. 1996; Barkema and Vermeulen 1998; Melin 1992). Yet, in most of these studies emphasis is placed on firm level experience, whereas the impact of individual (managerial) level of knowledge and expertise remains largely unexplored. At the same time, upper echelons theory has long recognized the influence of managerial characteristics and experiences on firm strategic choices and behavior (Finkelstein and Hambrick 1996; Finkelstein et al. 2008).

Focusing on the team level of analysis, upper echelons theory suggests that the composition of the top management team (TMT) creates the basis for managerial decisions and ultimately firm behavior (Hambrick and Mason 1984). Over the past twenty years upper echelons research has provided coherent evidence for a link between TMT backgrounds and firm strategy/performance (for reviews see Carpenter et al. 2004; Certo et al. 2006; Finkelstein et al. 2008). However, only over the past decade has the discussion of the effects of top management team composition been extended to the context of MNCs and firm internationalization (Herrmann and Datta 2005).

A number of influential international business scholars argue the importance of having top managers who know and understand the logic and dynamics of firm foreign markets (e.g., Bartlett and Ghoshal 1989; Luo 2005). Extensive experience from a particular country helps a manager to better understand the local market and institutions and to make sound managerial decisions (Kobrin 1984). However, international assignment experience is often limited in time and regional scope and thus also limited in its impact (Caligiuri et al. 2004; Caligiuri and DeSanto 2001). Instead, Perlmutter and Heenan (1974) suggest the use of foreign nationals as top managers. With the increasing globalization and emerging markets opening up, foreign-born managers have become more prevalent among the leaders of the world largest multinationals (Greve et al. 2010; Staples 2007; van Veen and Marsman 2008).

The existing upper echelons studies dealing with international contexts (Athanassiou and Nigh 2002; Carpenter and Frederickson 2001; Carpenter et al. 2001; Herrmann and Datta 2005; Reuber and Fischer 1997; Sambharya 1996; Sanders and Carpenter 1998; Tihanyi et al. 2000) are based on North-American samples and focus primarily on top managers' international experience as an important source of competitive advantage for multinational corporations. Only a few studies, mostly outside the US, address the nationality diversity in top management teams as related to firm internationalization (e.g., Caliguri et al. 2004; Greve et al. 2010; Heijltjes et al. …

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