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Institutional Distance And International Business Strategies In Emerging Economies

  • DELIA IONASCU

    ()

  • KLAUS E. MEYER

    ()

  • SAUL ESTRIN

    ()

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    The concept of ‘distance’ has been used by international business scholars to explain variations in international business strategies and operations across countries. The more distant a host country is from the organizational centre of a multinational enterprise (MNE), the more it has to manage cultural, regulatory and cognitive differences, and to develop appropriate entry strategies, organizational forms, and internal procedures to accommodate these differences. Scholarly research has focused on the concept of psychic distance, which has been narrowed down in empirical work to indices based on Hofstede’s work on culture. However, these measures capture only very partially the dimensions of distance of concern to international business. In this paper, we show how the broader theoretical concept of institutional distance, which incorporates normative, regulatory and cognitive aspects, affects entry strategies. Specifically, our theoretical arguments suggest that the impact of distance varies with different aspects of the concept of institutional distance, and that this impact interacts with both the investor’s experience and with the relative importance of the pertinent operation for the investing MNE. Using a unique dataset of foreign direct investment in emerging economies that incorporates multi-host as well as multi-home countries, we find empirical support for our propositions, and provide an explanation for apparently inconsistent results in the previous literature.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp728.pdf
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    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp728.

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    Length: pages
    Date of creation: 01 Nov 2004
    Date of revision:
    Handle: RePEc:wdi:papers:2004-728
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    1. Klaus E. Meyer & Enese Lieb-Dóczy, 2003. "Post-Acquisition Restructuring as Evolutionary Process," Journal of Management Studies, Wiley Blackwell, vol. 40(2), pages 459-482, 03.
    2. Erin Anderson & Hubert Gatignon, 1986. "Modes of Foreign Entry: A Transaction Cost Analysis and Propositions," Journal of International Business Studies, Palgrave Macmillan, vol. 17(3), pages 1-26, September.
    3. Yigang Pan, 1996. "Influences on Foreign Equity Ownership Level in Joint Ventures in China," Journal of International Business Studies, Palgrave Macmillan, vol. 27(1), pages 1-26, March.
    4. Klaus Uhlenbruck, 2004. "Developing acquired foreign subsidiaries: the experience of MNES in transition economies," Journal of International Business Studies, Palgrave Macmillan, vol. 35(2), pages 109-123, March.
    5. Klaus E. Meyer, 2005. "Foreign Investment Strategies and Sub-national Institutions in Emerging Markets: Evidence from Vietnam," Journal of Management Studies, Wiley Blackwell, vol. 42(1), pages 63-93, 01.
    6. Klaus E Meyer & Saul Estrin, 2001. "Brownfield Entry in Emerging Markets," Journal of International Business Studies, Palgrave Macmillan, vol. 32(3), pages 575-584, September.
    7. Mike Wright & Robert E. Hoskisson & Mike W. Peng, 2005. "Strategy Research in Emerging Economies: Challenging the Conventional Wisdom," Journal of Management Studies, Wiley Blackwell, vol. 42(1), pages 1-33, 01.
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