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Institutional Distance And International Business Strategies In Emerging Economies

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  • DELIA IONASCU

    ()

  • KLAUS E. MEYER

    ()

  • SAUL ESTRIN

    ()

Abstract

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.

Suggested Citation

  • Delia Ionascu & Klaus E. Meyer & Saul Estrin, 2004. "Institutional Distance And International Business Strategies In Emerging Economies," William Davidson Institute Working Papers Series wp728, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2004-728
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    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/40114/3/wp728.pdf
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    References listed on IDEAS

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    1. Erin Anderson & Hubert Gatignon, 1986. "Modes of Foreign Entry: A Transaction Cost Analysis and Propositions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 17(3), pages 1-26, September.
    2. Klaus Uhlenbruck, 2004. "Developing acquired foreign subsidiaries: the experience of MNES in transition economies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 35(2), pages 109-123, March.
    3. 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, March.
    4. 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, January.
    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, January.
    6. Klaus E Meyer & Saul Estrin, 2001. "Brownfield Entry in Emerging Markets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 32(3), pages 575-584, September.
    7. Yigang Pan, 1996. "Influences on Foreign Equity Ownership Level in Joint Ventures in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(1), pages 1-26, March.
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    Cited by:

    1. Zhang, Jianhong & Zhou, Chaohong & Ebbers, Haico, 2011. "Completion of Chinese overseas acquisitions: Institutional perspectives and evidence," International Business Review, Elsevier, vol. 20(2), pages 226-238, April.
    2. Qiangbing Chen & Yali Liu & Lu Jiang, 2010. "Culture distance and foreign equity ownership in international joint ventures: Evidence from China," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 3(3), pages 189-203, October.
    3. repec:bla:jomstd:v:54:y:2017:i:3:p:304-339 is not listed on IDEAS
    4. repec:eee:tefoso:v:123:y:2017:i:c:p:35-44 is not listed on IDEAS
    5. repec:eee:riibaf:v:42:y:2017:i:c:p:630-644 is not listed on IDEAS
    6. Tykvov√°, Tereza & Schertler, Andrea, 2014. "Does Syndication With Local Venture Capitalists Moderate the Effects of Geographical and Institutional Distance?," Journal of International Management, Elsevier, vol. 20(4), pages 406-420.
    7. Fainshmidt, Stav & White, George O. & Cangioni, Carole, 2014. "Legal Distance, Cognitive Distance, and Conflict Resolution in International Business Intellectual Property Disputes," Journal of International Management, Elsevier, vol. 20(2), pages 188-200.

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