IDEAS home Printed from https://ideas.repec.org/a/pal/jintbs/v47y2016i6d10.1057_jibs.2016.20.html
   My bibliography  Save this article

How does regional institutional complexity affect MNE internationalization?

Author

Listed:
  • Jean-Luc Arregle

    (EM Lyon Business School)

  • Toyah L Miller

    (Jindal School of Management, The University of Texas at Dallas)

  • Michael A Hitt

    (Mays Business School, Texas A&M University)

  • Paul W Beamish

    (Ivey Business School, Western University)

Abstract

International business research is only beginning to develop theory and evidence highlighting the importance of supranational regional institutions to explain firm internationalization. In this context, we offer new theory and evidence regarding the effect of a region’s “institutional complexity” on foreign direct investment decisions by multinational enterprises (MNEs). We define a region’s institutional complexity using two components, regional institutional diversity and number of countries. We explore the unique relationships of both components with MNEs’ decisions to internationalize into countries within the region. Drawing on semiglobalization and regionalization research and institutional theory, we posit an inverted U-shaped relationship between a region’s institutional diversity and MNE internationalization: extremely low or high regional institutional diversity has negative effects on internationalization, but moderate diversity has a positive effect on internationalization. Larger numbers of countries within the region reduces MNE internationalization in a linear fashion. We find support for these predicted relationships in multilevel analyses of 698 Japanese MNEs operating in 49 countries within 9 regions. Regional institutional complexity is both a challenge and an opportunity for MNEs seeking advantages through the aggregation and arbitrage of individual country factors.

Suggested Citation

  • Jean-Luc Arregle & Toyah L Miller & Michael A Hitt & Paul W Beamish, 2016. "How does regional institutional complexity affect MNE internationalization?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 47(6), pages 697-722, August.
    • Handle: RePEc:pal:jintbs:v:47:y:2016:i:6:d:10.1057_jibs.2016.20
    DOI: 10.1057/jibs.2016.20
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/jibs.2016.20
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1057/jibs.2016.20?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Cameron,A. Colin & Trivedi,Pravin K., 2013. "Regression Analysis of Count Data," Cambridge Books, Cambridge University Press, number 9781107667273, January.
    2. Mark F Peterson & Jean-Luc Arregle & Xavier Martin, 2012. "Multilevel models in international business research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(5), pages 451-457, June.
    3. Linghui Tang & Peter E Koveos, 2008. "A framework to update Hofstede's cultural value indices: economic dynamics and institutional stability," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(6), pages 1045-1063, September.
    4. Ricardo G Flores & Ruth V Aguilera, 2007. "Globalization and location choice: an analysis of US multinational firms in 1980 and 2000," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(7), pages 1187-1210, December.
    5. Oded Shenkar, 2001. "Cultural Distance Revisited: Towards a More Rigorous Conceptualization and Measurement of Cultural Differences," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 32(3), pages 519-535, September.
    6. Alan M. Rugman & Alain Verbeke, 2005. "A Perspective on Regional and Global Strategies of Multinational Enterprises," Chapters, in: Analysis of Multinational Strategic Management, chapter 8, pages 104-119, Edward Elgar Publishing.
    7. Jan Johanson & Jan-Erik Vahlne, 2009. "The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(9), pages 1411-1431, December.
    8. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," Center for International and Development Economics Research (CIDER) Working Papers 233424, University of California-Berkeley, Department of Economics.
    9. Saul Estrin & Delia Baghdasaryan & Klaus E. Meyer, 2009. "The Impact of Institutional and Human Resource Distance on International Entry Strategies," Journal of Management Studies, Wiley Blackwell, vol. 46(7), pages 1171-1196, November.
    10. Chao, Mike Chen-Ho & Kumar, Vikas, 2010. "The impact of institutional distance on the international diversity-performance relationship," Journal of World Business, Elsevier, vol. 45(1), pages 93-103, January.
    11. Santos Silva, J.M.C. & Tenreyro, Silvana, 2011. "Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator," Economics Letters, Elsevier, vol. 112(2), pages 220-222, August.
    12. Oh, Chang Hoon, 2009. "The international scale and scope of European multinationals," European Management Journal, Elsevier, vol. 27(5), pages 336-343, October.
    13. J. Alberto Espinosa & Sandra A. Slaughter & Robert E. Kraut & James D. Herbsleb, 2007. "Familiarity, Complexity, and Team Performance in Geographically Distributed Software Development," Organization Science, INFORMS, vol. 18(4), pages 613-630, August.
    14. Elinor Ostrom, 2010. "Beyond Markets and States: Polycentric Governance of Complex Economic Systems," American Economic Review, American Economic Association, vol. 100(3), pages 641-672, June.
    15. Banalieva, Elitsa R. & Santoro, Michael D., 2009. "Local, regional, or global? Geographic orientation and relative financial performance of emerging market multinational enterprises," European Management Journal, Elsevier, vol. 27(5), pages 344-355, October.
    16. Elizabeth Maitland & André Sammartino, 2015. "Managerial cognition and internationalization," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 46(7), pages 733-760, September.
    17. North, Douglass C, 1994. "Economic Performance through Time," American Economic Review, American Economic Association, vol. 84(3), pages 359-368, June.
    18. René Belderbos & Jianglei Zou, 2006. "Foreign Investment, Divestment and Relocation by Japanese Electronics Firms in East Asia," Asian Economic Journal, East Asian Economic Association, vol. 20(1), pages 1-27, March.
    19. Christian Geisler Asmussen, 2009. "Local, regional, or global? Quantifying MNE geographic scope," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(7), pages 1192-1205, September.
    20. Gerry McNamara & Paul M Vaaler, 2000. "The Influence of Competitive Positioning and Rivalry on Emerging Market Risk Assessment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 31(2), pages 337-347, June.
    21. Alan Rugman & Alain Verbeke & Wenlong Yuan, 2011. "Re‐conceptualizing Bartlett and Ghoshal's Classification of National Subsidiary Roles in the Multinational Enterprise," Journal of Management Studies, Wiley Blackwell, vol. 48(2), pages 253-277, March.
    22. Sjoerd Beugelsdijk & Philip McCann & Ram Mudambi, 2010. "Introduction: Place, space and organization-- economic geography and the multinational enterprise," Journal of Economic Geography, Oxford University Press, vol. 10(4), pages 485-493, July.
    23. Bruce Kogut & Udo Zander, 1993. "Knowledge of the Firm and the Evolutionary Theory of the Multinational Corporation," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 24(4), pages 625-645, December.
    24. Grilli, Vittorio & Roubini, Nouriel, 1992. "Liquidity and exchange rates," Journal of International Economics, Elsevier, vol. 32(3-4), pages 339-352, May.
    25. Busse, Matthias & Hefeker, Carsten, 2007. "Political risk, institutions and foreign direct investment," European Journal of Political Economy, Elsevier, vol. 23(2), pages 397-415, June.
    26. Peter J Buckley & Pervez N Ghauri, 2004. "Globalisation, economic geography and the strategy of multinational enterprises," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 35(3), pages 255-255, May.
    27. Simcha Ronen & Oded Shenkar, 2013. "Mapping world cultures: Cluster formation, sources and implications," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(9), pages 867-897, December.
    28. Baskerville, Rachel F., 2003. "Hofstede never studied culture," Accounting, Organizations and Society, Elsevier, vol. 28(1), pages 1-14, January.
    29. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    30. Luis R Gómez-Mejia & Leslie E Palich, 1997. "Cultural Diversity and the Performance of Multinational Firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(2), pages 309-335, June.
    31. Alan M Rugman & Alain Verbeke, 2007. "Liabilities of regional foreignness and the use of firm-level versus country-level data: a response to Dunning et al. (2007)," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(1), pages 200-205, January.
    32. Schneider, Friedrich & Frey, Bruno S., 1985. "Economic and political determinants of foreign direct investment," World Development, Elsevier, vol. 13(2), pages 161-175, February.
    33. Bat Batjargal, 2013. "Institutional Polycentrism, Entrepreneurs??? Social Networks, And New Venture Growth," William Davidson Institute Working Papers Series wp1060, William Davidson Institute at the University of Michigan.
    34. Simon Collinson & Alan M Rugman, 2008. "The regional nature of Japanese multinational business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(2), pages 215-230, March.
    35. Isin Guler & Mauro F Guillén, 2010. "Institutions and the internationalization of US venture capital firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(2), pages 185-205, February.
    36. Furman, Jeffrey L. & Porter, Michael E. & Stern, Scott, 2002. "The determinants of national innovative capacity," Research Policy, Elsevier, vol. 31(6), pages 899-933, August.
    37. Thomas Hutzschenreuter & Johannes C. Voll & Alain Verbeke, 2011. "The Impact of Added Cultural Distance and Cultural Diversity on International Expansion Patterns: A Penrosean Perspective," Journal of Management Studies, Wiley Blackwell, vol. 48(2), pages 305-329, March.
    38. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
    39. Ricardo Flores & Ruth V Aguilera & Arash Mahdian & Paul M Vaaler, 2013. "How well do supranational regional grouping schemes fit international business research models?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(5), pages 451-474, June.
    40. Peter J Buckley & Pervez N Ghauri, 2004. "Globalisation, economic geography and the strategy of multinational enterprises," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 35(2), pages 81-98, March.
    41. K Sivakumar & Cheryl Nakata, 2001. "The Stampede Toward Hofstede's Framework: Avoiding the Sample Design Pit in Cross-Cultural Research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 32(3), pages 555-574, September.
    42. Piero Morosini & Scott Shane & Harbir Singh, 1998. "National Cultural Distance and Cross-Border Acquisition Performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(1), pages 137-158, March.
    43. Pankaj Ghemawat, 2003. "Semiglobalization and international business strategy," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 34(2), pages 138-152, March.
    44. Gregory Jackson & Richard Deeg, 2008. "Comparing capitalisms: understanding institutional diversity and its implications for international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(4), pages 540-561, June.
    45. Kevin Zheng Zhou & Laura Poppo, 2010. "Exchange hazards, relational reliability, and contracts in China: The contingent role of legal enforceability," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(5), pages 861-881, June.
    46. Klaus E. Meyer & Ram Mudambi & Rajneesh Narula, 2011. "Multinational Enterprises and Local Contexts: The Opportunities and Challenges of Multiple Embeddedness," Journal of Management Studies, Wiley Blackwell, vol. 48(2), pages 235-252, March.
    47. Jane W Lu, 2002. "Intra- and Inter-organizational Imitative Behavior: Institutional Influences on Japanese Firms' Entry Mode Choice," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(1), pages 19-37, March.
    48. A Delios & W J Henisz, 2003. "Policy uncertainty and the sequence of entry by Japanese firms, 1980–1998," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 34(3), pages 227-241, May.
    49. Elitsa R Banalieva & Charles Dhanaraj, 2013. "Home-region orientation in international expansion strategies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(2), pages 89-116, February.
    50. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, March.
    51. Laszlo Tihanyi & David A Griffith & Craig J Russell, 2005. "The effect of cultural distance on entry mode choice, international diversification, and MNE performance: a meta-analysis," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 36(3), pages 270-283, May.
    52. Bradley L Kirkman & Kevin B Lowe & Cristina B Gibson, 2006. "A quarter century of Culture's Consequences: a review of empirical research incorporating Hofstede's cultural values framework," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(3), pages 285-320, May.
    53. Majid Abdi & Preet S Aulakh, 2012. "Do country-level institutional frameworks and interfirm governance arrangements substitute or complement in international business relationships?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(5), pages 477-497, June.
    54. Mansour Javidan & Robert J House & Peter W Dorfman & Paul J Hanges & Mary Sully de Luque, 2006. "Conceptualizing and measuring cultures and their consequences: a comparative review of GLOBE's and Hofstede's approaches," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(6), pages 897-914, November.
    55. Heather Berry & Mauro F Guillén & Arun S Hendi, 2014. "Is there convergence across countries? A spatial approach," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 45(4), pages 387-404, May.
    56. Lewellyn, Krista B. & Bao, Shuji ‘Rosey’, 2014. "A cross-national investigation of IPO activity: The role of formal institutions and national culture," International Business Review, Elsevier, vol. 23(6), pages 1167-1178.
    57. Richard Williams, 2012. "Using the margins command to estimate and interpret adjusted predictions and marginal effects," Stata Journal, StataCorp LP, vol. 12(2), pages 308-331, June.
    58. Li, Quan & Resnick, Adam, 2003. "Reversal of Fortunes: Democratic Institutions and Foreign Direct Investment Inflows to Developing Countries," International Organization, Cambridge University Press, vol. 57(1), pages 175-211, January.
    59. Anupama Phene & Stephen Tallman, 2012. "Complexity, context and governance in biotechnology alliances," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(1), pages 61-83, January.
    60. Jean-Luc Arregle & Paul W Beamish & Louis Hébert, 2009. "The regional dimension of MNEs' foreign subsidiary localization," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(1), pages 86-107, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Arregle, Jean-Luc & Miller, Toyah L. & Hitt, Michael A. & Beamish, Paul W., 2018. "The role of MNEs’ internationalization patterns in their regional integration of FDI locations," Journal of World Business, Elsevier, vol. 53(6), pages 896-910.
    2. Youngok Kim & Sidney J Gray, 2017. "Internationalization strategy and the home-regionalization hypothesis: The case of Australian multinational enterprises," Australian Journal of Management, Australian School of Business, vol. 42(4), pages 673-691, November.
    3. Dirk Ulrich Gilbert & Patrick Heinecke, 2014. "Success Factors of Regional Strategies for Multinational Corporations: Exploring the Appropriate Degree of Regional Management Autonomy and Regional Product/Service Adaptation," Management International Review, Springer, vol. 54(5), pages 615-651, October.
    4. Conti, Claudio Ramos & Parente, Ronaldo & de Vasconcelos, Flávio C., 2016. "When distance does not matter: Implications for Latin American multinationals," Journal of Business Research, Elsevier, vol. 69(6), pages 1980-1992.
    5. de Jong, Gjalt & van Houten, Jerry, 2014. "The impact of MNE cultural diversity on the internationalization-performance relationship," International Business Review, Elsevier, vol. 23(1), pages 313-326.
    6. Minyoung Kim & Curba Morris Lampert & Raja Roy, 2020. "Regionalization of R&D activities: (Dis)economies of interdependence and inventive performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(7), pages 1054-1075, September.
    7. Lee, Jong Min, 2019. "Intra- and inter-regional diversification, subsidiary value chain activities and expatriate utilization," Journal of International Management, Elsevier, vol. 25(3), pages 1-1.
    8. Donnelly, Róisín & Manolova, Tatiana S., 2020. "Foreign location decisions through an institutional lens: A systematic review and future research agenda," International Business Review, Elsevier, vol. 29(4).
    9. Sjoerd Beugelsdijk & Tatiana Kostova & Vincent E. Kunst & Ettore Spadafora & Marc van Essen, 2018. "Cultural Distance and Firm Internationalization," Post-Print hal-02312065, HAL.
    10. Aggarwal, Raj & Berrill, Jenny & Hutson, Elaine & Kearney, Colm, 2011. "What is a multinational corporation? Classifying the degree of firm-level multinationality," International Business Review, Elsevier, vol. 20(5), pages 557-577, October.
    11. Hutzschenreuter, Thomas & Matt, Tanja & Kleindienst, Ingo, 2020. "Going subnational: A literature review and research agenda," Journal of World Business, Elsevier, vol. 55(4).
    12. Bruyaka, Olga & Prange, Christiane, 2020. "International cultural ambidexterity: Balancing tensions of foreign market entry into distant and proximate cultures," Journal of Business Research, Elsevier, vol. 118(C), pages 491-506.
    13. Raquel García-García & Esteban García-Canal & Mauro F. Guillén, 2019. "International Dispersion and Profitability: An Institution-Based Approach," Management International Review, Springer, vol. 59(6), pages 855-888, December.
    14. Sjoerd Beugelsdijk & Björn Ambos & Phillip C Nell, 2018. "Conceptualizing and measuring distance in international business research: Recurring questions and best practice guidelines," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(9), pages 1113-1137, December.
    15. Jiang, Guoliang F. & Holburn, Guy L.F. & Beamish, Paul W., 2016. "The spatial structure of foreign subsidiaries and MNE expansion strategy," Journal of World Business, Elsevier, vol. 51(3), pages 438-450.
    16. Hutzschenreuter, Thomas & Horstkotte, Julian, 2013. "Performance effects of international expansion processes: The moderating role of top management team experiences," International Business Review, Elsevier, vol. 22(1), pages 259-277.
    17. Chidlow, Agnieszka & Holmström-Lind, Christine & Holm, Ulf & Tallman, Steve, 2015. "Do I stay or do I go? Sub-national drivers for post-entry subsidiary development," International Business Review, Elsevier, vol. 24(2), pages 266-275.
    18. Danchi Tan & Weichieh Su & Joseph T. Mahoney & Yasemin Kor, 2020. "A review of research on the growth of multinational enterprises: A Penrosean lens," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(4), pages 498-537, June.
    19. Jingoo Kang & Jeoung Yul Lee & Pervez N. Ghauri, 2017. "The Interplay of Mahalanobis Distance and Firm Capabilities on MNC Subsidiary Exits from Host Countries," Management International Review, Springer, vol. 57(3), pages 379-409, June.
    20. Nielsen, Bo Bernhard & Asmussen, Christian Geisler & Weatherall, Cecilie Dohlmann, 2017. "The location choice of foreign direct investments: Empirical evidence and methodological challenges," Journal of World Business, Elsevier, vol. 52(1), pages 62-82.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:jintbs:v:47:y:2016:i:6:d:10.1057_jibs.2016.20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.