Academic journal article Multinational Business Review

Can Strong Home Country Institutions Foster the Internationalization of MNEs?

Academic journal article Multinational Business Review

Can Strong Home Country Institutions Foster the Internationalization of MNEs?

Article excerpt

Introduction

The strategies and actions of firms are influenced by the institutional environment in which they are embedded ([19] Dacin et al. , 2002; [22] Dunning, 1993; [72] Oliver, 1991, [73] 1997; [77] Scott, 2001). Multinational enterprises (MNEs) conduct international operations to pursue investment returns, location advantages, market expansion and economies of scale and scope ([43] Hitt et al. , 2009). By engaging in international operations, MNEs are exposed to diverse institutional environments across countries, which increase subsequent management complexity in terms of coordination, culture differences and host governments ([42] Hitt et al. , 1997; [76] Sanders and Carpenter, 1998), as well as increased institutional costs and liabilities of foreignness ([92] Zaheer, 1995; [93] Zaheer and Mosakowski, 1997). These institutional environments, both at home and overseas, have critical influences on the internationalization of MNEs. As such, institutional theory has been widely used by business scholars to understand the internationalization activities of MNEs ([48] Hoskisson et al. , 2000; [75] Peng et al. , 2008).

MNEs are confronted with varied institutional environments. Business activities of MNEs are governed and guided by a series of rules and regulations in institutional environments of both home and host countries ([77] Scott, 2001). The characteristics of country institutions have been extensively studied by international business scholars investigating the international strategies and performance of MNEs ([10] Brouthers, 2002; [48] Hoskisson et al. , 2000; [67] Meyer et al. , 2009). Previous studies investigate different dimensions of country institutions. For example, [55] Keefer and Knack (1997) use the rule of law, the pervasiveness of corruption, and the risk of expropriation and contract repudiation to evaluate institutional quality and influence on economic activities in a country. They find that since economic activity of domestic firms takes place in the institutional environment at home, competitive capabilities of the home country are therefore dependent on the quality of its institutions ([55] Keefer and Knack, 1997). [37] Hall and Jones (1999) investigated government anti-diversion policies, such as law and order, bureaucratic quality, corruption, and risk of expropriation. Moreover, using data from 152 countries, [61] La Porta et al. (1998) assess government intervention, public sector efficiency, public good provision, size of government, and political freedom as determinants of the quality of governments across countries.

At the country level, institutions in a given country consist of a series of rules and regulations that guide conduct in the country ([69] North, 1990; [77] Scott, 2001). Researchers have primarily focused on the influence of the host country environment ([5] Asmussen et al. , 2009; [12] Chen et al. , 2010; [28] Galan et al. , 2007; [33] Globerman and Shapiro, 2003; [37] Hall and Jones, 1999; [47] Holmes et al. , 2011; [56] Khanna and Palepu, 2000; [66] Ma and Delios, 2010; [54] Kaya and Walker, 2012). However, the institutional environment at home also influences the development of MNEs ([71] OECD, 2002; [86] UNCTAD, 2006). Home-country drivers of internationalization, in which institutions play an important role, push MNEs to pursue international opportunities ([86] UNCTAD, 2006). Unfortunately, research from the home-country perspective has been mainly limited to the impact of restrictive and/or supporting policies and regulations of emerging economy governments on firms' international expansion. For instance, in the 1970s, the Indian government imposed limitations and requirements for outward foreign direct investment (FDI) and Brazil also required approval of investment through exchange control procedures ([89] Wells, 1983). More recently, governments announced policies to encourage FDI. For example, the Chinese government emphasized "go global" policy in 2002 and announced supporting policies and regulations, which encouraged Chinese firms to expand into international markets for growth opportunities ([11] Buckley et al. …

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