Academic journal article International Journal of Management

Cognitive Complexity in Global Mindsets

Academic journal article International Journal of Management

Cognitive Complexity in Global Mindsets

Article excerpt

The article examines the cognitive complexity of decisions associated with foreign direct investment (FDI). The research is based on interviews with executives at 27 of Australia's top 100 companies. It examines the information-processing abilities of managers in the sample and compares domestic mindset with global mindset. The results reveal that the decision whether to make or buy necessary knowledge is an important cognitive capability. The study contributes to the operationalization of the information processing abilities of global mindset.

Introduction

There has been a growing interest in the role of knowledge in international business (Gupta and Govindarajan, 2000; and Minbaeva et al, 2003). From the managerial cognition perspective, managers are assumed to be information workers; that is, they spend their time absorbing, processing, and disseminating information about issues, opportunities, and problems (McCall and Kaplan 1 985). The most fundamental challenge faced by managers, however, is that their information worlds are extremely complex, ambiguous, and munificent (Walsh, 1995). Global mindset, or the cognitive capabilities of key decision makers, is seen as a critical success factor that affects a variety of organizational outcomes (Murtha et al., 1998; Gupta and Govindarajan, 2002; Levy, 2005).

In their comprehensive review of the literature, Levy et al., (2007) found that the majority of studies conceptualize global mindset in relation to two salient dimensions of the global environment, most notably in relation to (1) cultural and national diversity and/or (2) strategic complexity associated with globalization. In this paper, we focus on strategic complexity. This dimension argues that the increased complexity of globalization, particularly when compared with domestic markets, must be reflected in the cognitive abilities of managers in order for multinational corporations (MNCs) to succeed (e.g., Murtha et al., 1998). The properties of global mindset may be defined in terms of information-processing capabilities that help managers conceptualize complex global dynamics (Levy et al., 2007).

Recent studies have identified differences in domestic versus global mind sets as being an important predictor of cognitive capability and managerial performance in international business (e.g. Nadkarni and Perez 2007). Researchers distinguish between simple and complex mindsets. When firms use simple mindsets, they oversimplify their environment and make cognitive mistakes, e.g. overlook important information (Fiol and O'Connor, 2003). Complex mindsets, on the other hand, allow firms to notice and understand stimuli, such as differences between domestic and foreign markets (Eisenhardt and Martin, 2000). Researchers have proposed that complex domestic mindsets affects early international commitments positively by making these firms more 'internationalisation ready' and able to overcome the complexity posed by high psychic distance markets (Liesch and Knight, 1999).

In our view, managers may have strong cognitive capabilities associated with a domestic mindset but this may not necessarily translate to strong global mindset capabilities. The objective of this paper is to identify the cognitive capabilities of managers involved in early internationalization commitments, e.g. foreign direct investment (FDI), from an information processing perspective. Based on empirical evidence gathered from interviews with executives at 27 of Australia's top 1 00 companies, the paper examines the cognitive process associated with making decisions associated with FDI. The information processing construct is operationalized in terms of the make versus buy decision, i.e. whether the firm should develop necessary knowledge resources internally or acquire them from external sources (Kaufman, 2007). The paper will argue that the make versus buy decision is an important measure of information processing capabilities associated with global mindset. …

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