SEMIGLOBALIZATION: INSTITUTIONAL EFFECTS ON MULTILATINA CROSS- BORDER

ACQUISITIONS

Rusty V. Karst

Dissertation Prepared for the Degree of

DOCTOR OF PHILOSOPHY

UNIVERSITY OF NORTH TEXAS

May 2016

APPROVED:

Nolan Gaffney, Committee Co-chair Danielle Cooper, Committee Co-chair Anna Sidorova, Committee Member

Karst, Rusty V. Semiglobalization: Institutional Effects on Multilatina Cross-border

Acquisitions. Doctor of Philosophy (Business Administration – Management), May 2016, 123

pp., 15 tables, 8 figures, references, 284 titles.

The internationalization research domain has predominantly focused on country level

antecedents of firm level decisions, with particular emphasis on why certain countries are

selected over others for foreign direct investment (FDI). This approach may oversimplify what

actually occurs from both practical and research perspectives. Recently, MNE strategic

orientation and conduct, as an outflow of a region-based localization perspective (i.e.

semiglobalization), has gained increased scholarly attention. The tradition of considering

country-level institutional environments may be more robustly informed by extending a

paradigm which considers region-based institutions, in addition to country. Thus, in this study I

examine institutional effects, as underpinned by institutional theory, on one segment of FDI

decision making, cross-border acquisition behavior, in an understudied context, Latin American

MNEs (i.e., Multilatinas). Linear and mixed regression are used to test hypotheses, by

examining a sample of all Multilatina CBAs exacted over a five year period (2007 – 2011) in

targeting host country firms within eight geographic regions. Multilevel study results provide

overarching support for hypotheses, that a Multilatina’s internationalization into a country and

region through cross-border acquisition equity participation is influenced by both country and

region institutional environments. Contributions are made to the semiglobalization, cross-

border acquisitions, institutions, and Multilatina literature streams through development of a

more robust, multilevel perspective which more accurately captures how MNEs consider

institutional environments in their international strategy and conduct.

ii

Copyright 2016

By

Rusty V. Karst

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ACKNOWLEDGMENTS

I would like to thank my dissertation committee members: Dr. Nolan Gaffney, Dr.

Danielle Cooper and Dr. Anna Sidorova, for providing me direction, support, and

encouragement during the dissertation process. In particular, I would like to thank Dr. Nolan

Gaffney for his guidance and support. Over the past four years, Dr. Gaffney played a key role in

helping shape my research approach and has been an invaluable mentor.

I would also like to thank the professors in the Department of Management whom I

have interacted with during my time at University of North Texas. They have been integral in

my indoctrination into academia and development as a contributing faculty member. Finally, I

would like to thank my fellow PhD students, a few of whom I have become friends with during

the past four years.

This dissertation is dedicated to my mother, Cora J. Karst, for her guidance and support

throughout my life. Difficult and yet life changing decisions she made in the past positively

influenced my development and journey to this doctoral point. I would not be on the planet or

in this position without her.

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TABLE OF CONTENTS

Page

ACKNOWLEDGEMENTS iii

LIST OF TABLES viii

LIST OF FIGURES x

LIST OF ABBREVIATIONS xi

CHAPTER 1 - INTRODUCTION 1

Study Importance and Research Contribution 7

Research Questions 10

Format of Study 10

CHAPTER 2 - THEORY, EXTANT LITERATURE AND HYPOTHESES 12

Cross-border Acquisitions and the Multinational Enterprise 11

Latin America and Multilatinas 22

Institutions and Institutional Theory 27

Formal Institutional Influence on MNE Internationalization 35

Semiglobalization of Multinational Enterprises 39

Semiglobal Multilatina Cross-border Acquisitions 45

Institutional Influence on MNE Semiglobalization 47

Hypotheses 50

H1a & H1b: Regulatory Control and

Multilatina Internationalization via CBA 52

v

H2a & H2b: Political Democracy and

Multilatina Internationalization via CBA 54

H3a & H3b: Capital Investment and

Multilatina Internationalization via CBA 56

H4: Multi-level versus Single-level Formal

Institutions Explanatory Ability 57

H5: Multilatina Region Localization Direction and

Internationalization via CBA 58

CHAPTER 3 - METHODS 60

Sample 60

Independent Variables 63

Dependent Variable 70

Controls 72

Statistical Method and Modeling 73

CHAPTER 4 – FINDINGS 78

Hypotheses Testing 78

CHAPTER 5 – DISCUSSION 89

Implications 95

Limitations and Future Research 98

REFERENCES 103

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LIST OF TABLES

Table Page

1 Cross-border Acquisitions: Areas of Study 18

2 Latin America: Characteristics and Manifestations 24

3 Composition of Regions 63

4 Variable Units, Definitions, and Data Sources 65

5 Institutional Dimensions 69

6 Region Formal Institutional Influences 70

7 Akaike’s Information Criterion / Bayesian Information Criterion 75

8 Descriptive Statistics 80

9 Pairwise Correlations 80

10 Regulatory Control and Multilatina Equity Participation 82

11 Political Democracy and Multilatina Equity Participation 83

12 Capital Investment and Multilatina Equity Participation 84

13 Country and Region Influence Compared to Country 86

14 Intra-region versus Inter-region Localization 87

15 Aggregated Hypotheses Test Results 88

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LIST OF FIGURES

Figure Page

1 Institutions and MNE semiglobalization: construct to variable map 6

2 The funnel effect: emergence of MNE research micro-foundations 21

3 Country and region institutional attractiveness to MNE FDI 48

4 Research model 59

5 Regulatory control and Multilatina equity participation 82

6 Capital investments and Multilatina equity participation 83

7 Political democracy and Multilatina equity participation 84

8 Levels of analysis comparison: relationship relative strength 93

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LIST OF ABBREVIATIONS

ANOVA Analysis of variance

ANCOVA Analysis of covariance

CBA Cross-border Acquisition

CEO Chief Executive Officer

CSA Country-specific Advantage

DMNE Developed country multinational enterprise

DNA Deoxyribonucleic acid

EFW Economic Freedom of the World Index

EI Euromonitor International

EMH Efficient Market Hypothesis

EMNE Emerging market multinational enterprise

FDI Foreign Direct Investment

FSA Firm-specific advantage

GLOBE Global leadership and organizational behavior effectiveness

HLM Hierarchical linear modeling

HLR Hiearchical linear regression

HRM Human resource management

HRO Home region orientation

IB International business

ICRG International Country Risk Guide

IEF Index of Economic Freedom

IM International management

ICCM International cross-cultural management

IFDI Inward foreign direct investment

II Institutional Imprinting

ISI Import substituting industrial;ization

IT Instituional Theory

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LOE Liability of Emergingness

MANOVA Multiple analysis of variance

MANCOVA Multiple anaysis of covariance

M&A Merger and acquisition

MIXREG Mixed Regression

MNE Multinational enterprise

OFDI Outward foreign direct investment

OL Organizational Learning

OLS Ordinary least squares

PLS Partial least squares

PMI Post-merger integration

POLCON Political Constraint Index

PRS Political Risk Services

RFSA Region-bound Firm Specific Advantage

R&D Research and development

SCP Structure conduct performance

SEM Structural equation model

TCE Transaction cost economics

UNCTAD United Nations Conference on Trade and Development

WDI World Bank’s World Development Index

WIR World Information Report

WTO World Trade Organization

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CHAPTER 1

INTRODUCTION

The rise of the multinational enterprise (MNE) in number and influence on the global

stage (Buckley & Casson, 1976; Dunning, 1980; Kostova & Zaheer 1999) carries with it unique

MNE firm-specific strategic decisions, such as those surrounding internationalization into

foreign markets (Goerzen & Beamish, 2003; Hitt, Hoskisson, & Kim, 1997). Influential decision

factors associated with internationalization device, direction, and degree continue to attract

increasing scholarly attention, as studied through diverse theoretical perspectives. One foreign

direct investment (FDI) entry device, the cross-border acquisition (CBA), has continued to gain

tremendous momentum as a key MNE internationalization mechanism. CBA occurs when an

acquiring MNE headquartered in one country (home) targets a firm in another country (host)

for some acquisition ownership level. CBA represents over a third of all worldwide merger and

acquisition (M&A) activity and has exhibited significant continued growth as a primary FDI

avenue, up 22.3% (US$63.4 billion) over the last five years, 2011 to 2015, (US$285.4 billion to

US$348.8 billion) (UNCTAD, 2016). As a consequence of the trended increase in CBA transaction

frequency and deal value over the last few decades, the research stream has become more

entrenched in the examination of its antecedents, interventions, and consequences (e.g. Arikan

& Shenkar, 2011; Bertrand & Capron, 2014; Dikova, Sahib & Van Witteloostuijin, 2010; Grimpe

& Hussinger, 2014; Jory & Ngo, 2014; Kirca et al., 2011; Vaara, Junni, Sarala, Ehrnrooth &

Koveshnikov, 2014).

Within the varied theoretical foundations of MNE internationalization studies, the

importance and influence of institutions, as underpinned by Institutional Theory (IT), is a

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leading paradigm. Within the IT perspective, researchers historically have focused on effects of

location-specific institutional factors at the country level of analysis on an MNE’s

internationalization decisions (e.g., device, direction and degree). MNEs evaluate host country

institutions as factor components in their strategic choice decision mix - because these

institutions may either support or thwart the MNE’s resource exploitation capabilities in

targeted countries, and by extension, may facilitate or impede associated internationalization

success (Chan, Isobe, & Makino, 2008; Kedia, Gaffney, & Clampit, 2012; Gaur, Delios, & Singh,

2007; Meyer, Estrin, Bhaumik, & Peng, 2009).

Very recently, semiglobalization - based on region localization - has emerged as a

specific MNE internationalization strategy, and this has spurred a research stream rife with

investigative opportunity. Regions, as geographic and logistic extensions of countries, play the

leading role in the ‘semiglobalization’ perspective. Within this developing stream, scholars have

begun to examine the impact of regions (e.g. geographic) on MNE internationalization strategy

and decision making. Particular interest and focus is placed on MNE regional coordination and

just how it influences their ability to maintain local responsiveness and exploit region-bound

firm-specific advantages (RFSAs) (Arregle, Miller, Hitt, & Beamish, 2013; Ghemawat, 2007;

Rugman & Verbeke, 2005). These two research streams – institutions and semiglobalization -

have developed independently and only very recently have been initially examined in concert

to further our understanding of regional institutional influences on MNE strategy and resultant

internationalization – with semiglobalization prospects. The interaction of these constructs

affords opportunities for greater examination and understanding, for example, of how formal

institutions at both the country and region levels influence MNE internationalization decisions

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(Arregle, et al. 2013; Chan et al., 2008); and further, how, why, and to what extent varying

context applications may result in disparate MNE strategic FDI decisions and

internationalization commitment / aggressiveness by way of regional localization.

Testing the institutions-semiglobalization MNE relationship through context-specific

constructs in this study will help this budding literature further take root. Pursuit of research

rigor and practical relevance is a challenge confronted by all sub-disciplines within the IB

domain, and this is most directly accomplished via study context. Scholars contend that

contextual dimensions are what distinguish IB and IM research from domestic (Buckley, 2002;

Child, 2009; Oesterle & Wolf, 2011). Given the shift in business from the United States and

Europe toward more 'exotic' developing markets in Asia, Latin America and Africa, with more

pronounced differences in business, institutions, and cultural environments, resultant IB

research scope and boundaries have recently experienced accelerated contextual expansion.

The process of incorporating context into studies, or “contextualization”, has been

accomplished through many lenses, and at multiple levels of analysis, to include diverse

elements of theory building (Child, 2009; Tsui, 2004; Whetten, 2009), contrasting 'single

contextuality' with 'polycontextuality' (Von Glinow, Shapiro & Brett, 2004), and by embedding

certain contexts within others (Shapiro, Von Glinow & Xiao, 2007). Location is one specific form

of context which continues to grow in IB importance and relevance to both strategists (Ricart et

al., 2004, Rugman & Verbeke, 2001) and behaviorists (Rousseau & Fried, 2001; Gelfend, Erez &

Aycan, 2007). To this end, the contextual integration in this dissertation of an important

geographic region as the MNE location headquarters (i.e. Latin America), with CBA as the

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particular MNE FDI entry mode, provides a new and previously unstudied “laboratory

condition” for this nascent institutions-semiglobalization research stream.

Within the CBA stream, there has been a noticeable increase over the last two plus

decades in CBAs from multinationals located in less advanced, and more developing/emerging

market economies. Associated CBA activity now rivals that of the developed nations tradition

(e.g. 31.7% Developing Market CBA vs.68.3% Developed Market CBA in 2011, compared to

47.1% Developing Market CBA vs. 52.9% Developed Market CBA in 2015) (UNCTAD, 2016). This

significant growth of the developing market CBA segment has led to highly varied incumbent

MNE conduct. Thus it has become more fragmented in academic and practical examination,

which has led to the establishment of “new multinationals” whom are classified through a

number of varied descriptions and means (Guillén & García-Canal, 2010). Multinational

corporations headquartered in Latin America, or “Multilatinas” (Cuervo-Cazurra, 2007, 2008,

2010; Martinez, Esperanca & De La Torre, 2005), is one such specified new multinational –

classified based on geographic regional location - whose incumbent MNEs are increasingly

exacting CBA as a preferred foreign market entry mode for international expansion. Latin

America has become a top region in the global economy, reinforced by one-half billion plus

citizens, a US$4 trillion plus gross domestic product, and a growing middle class. 2010 marked

Latin America’s arrival as the globe’s fastest-growing region for both inward and outward

foreign direct investment (FDI) (Martinez & Kallini, 2012). According to the 2016 UNCTAD World

Information Report, Multilatina OFDI has more than doubled in value ($65.12US billion to

$132.71US billion) within the last five years (2011 to 2015). As of 2015, Multilatina OFDI

represents over one-fourth of all developing country OFDI.

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My study will extend this newly developing multilevel institutional logic for investigating

MNE internationalization decisions specific to foreign destination and investment level, by

evaluating an MNE’s internationalization commitment toward a host region through a specific

country or countries. This investigation is “multilevel” in that it simultaneously examines the

combined effects of formal institutions (i.e., North, 1990; Williamson, 2000) of targeted country

and region, on the commitment and aggressiveness of an MNE to internationalize into a

particular region through a targeted gateway country (i.e. semiglobalization). This is

accomplished by considering the effects of three formal institutions - regulatory control,

political democracy, and capital investment - on semiglobalization (internationalization through

region localization) by Latin American MNEs (Multilatinas). These constructs, as integrated in

this study, extend the literature by illuminating how MNEs consider layered institutional

environments (countries and regions) in their decisions about where and how much to

internationalize at two influential levels, particular regions and gateway countries.

Extant literature supports the importance of institutions to MNE foreign investment

strategy and the downstream localization decision mix. Institutional consideration is largely

evaluated at the country level of analysis. In this study, however, I extend and test a unique and

nascent perspective – that of multilevel interaction effects at the country and region

institutional levels. This multilevel perspective is grounded in the position that supporting

institutions influence perceptions of country attractiveness to an MNE, but do so not exclusively

because of said country-level institutions. These countries have the potential to be

compoundingly attractive because they also function as gateways for MNE entry into their

regions for future FDI localization there. Further examination of this semiglobalization strategic

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perspective reveals the potential for cumulative MNE benefits through regional arbitrage, the

creation of real options for expanding operations in the targeted region, and for compounding

the value of previously established investments there, through a mechanism which I have

termed herein as FDI regional parlay. The potential for aggregate benefits at the region level

would not be accessible otherwise, and is thus an improvement beyond the potential availed at

the country level only. I therefore contend that the region level institutions in which a country

is situated are a critical factor in influencing MNE internationalization – or more precisely,

semiglobalization - into a country. These MNE decisions specific to FDI direction and degree, as

influenced by multilevel country and region institutional effects, in aggregate represent the

semiglobalization perspective of this study (see Figure 1).

Figure 1. Institutions and MNE Semiglobalization: Construct to General Variable Map

Institutions Semiglobalization

Formal Institutions

MNE Region-basedInternationalization via

Foreign Direct Investment

Political Democracy

Regulatory Control

Capital Investment

Multilatina Cross-border Acquisition

Region Localization

Multilatina Cross-border Acquisition

Internationalization

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Study Importance and Research Contributions

Testing this semiglobalization approach has not been carried out previously and furthers

the literature in several ways. The multilevel interaction of country and region institutional

effects will be used to help explicate the commitment and aggressiveness of Multilatinas to

internationalize into countries located in eight geographic regions. This semiglobalization

perspective will help illuminate the degree to which an MNE may have a region oriented

internationalization strategy. Formal institutional factors - regulatory control, political

democracy, and capital investment - at both country and region levels, will serve as lenses of

examination. At the aggregate research level, this study specifically contributes to scholarly

work on MNE FDI decisions, institutions and their influences, and semiglobalization strategies

and internationalization conduct. This study extends the budding research argument for the

importance and relevance of semiglobalization (regional localization) by validating that an

MNE’s interest in a region is influential in its internationalization decisions, and at what level,

into a country within that region. Also, the academic and practical significance of an

institutional approach that is of a ‘semiglobalized’ nature is revealed in this study through

unravelling the dual-layered influence - country and region - of three formal institutions on

internationalization decisions of multinationals. These country and region institutional

environments are crafted within this study based on geography and effects are measured based

calculations of a particular targeted country’s institutional profile relative to the region profile,

as formed by the combined weighted profiles of the other countries’ in the same region (e.g.

Arregle, et al., 2013). Some extant regional research exists which considers institutional

influence (e.g. Arregle, et al., 2013; Oxelheim & Ghauri, 2004; Schiavo, 2007; Seyf, 2001), yet it

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is quite limited in scope specific to MNE strategy and FDI as an outflow of considering the

interaction effects of country and region institution attractiveness (e.g., Arregle et al., 2013).

Likewise, extant research is severely limited in scale, based on incumbent MNEs examined on a

global basis. To build upon this nascent body of knowledge, I contextualize the traditional

research approach (i.e., country level institutional effects) in a new way and compare it directly

with the emerging semiglobal approach (i.e., combined country and region institutional

effects). The overarching purpose and contribution of this comparison is to determine if the

semiglobalization perspective adds value beyond tradition to our understanding of the

multinational foreign investment localization decisions as influenced by the targeted

geographic area’s constraining institutions. Regarding operationalization of independent

variables in this study, the three formal institutional indictors are newly developed composite

scores of 95 countries, segmented into 8 regions based on geographic proximity, and were

computationally updated herein based on the most recent and relevant institutional data

available – as extended from Arregle and associates, (2013), and originally conceived by Holmes

et al., (2013). Predictor variable operationalization processes (e.g. principal component

analysis, multi-dimensional variable equations) were aligned with these Strategic Management

Journal and Journal of Management empirical manuscripts, respectfully, yet my study extends

these operationalizations by bringing the composite scores up to date and recalculating all

associated equations using 2011 data, versus 2003 from these previous studies. The dependent

variable in my study - equity participation - is adopted from recent and relevant cross-border

acquisition internationalization studies and applied to the semiglobalization approach. Also new

to the semiglobalization perspective is the use of Multilatinas and cross-border acquisitions as

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the internationalization context. Layering CBA into this study as the FDI mechanism examined,

also furthers associated research in the cross-border acquisitions stream. CBA is a dominant

internationalization method, and this study effectively brings semiglobalization into and

informs the CBA domain.

The fastest growing new multinational segment of overall FDI, and specifically FDI

through CBA - Multilatina CBA – is also furthered in this study. The Latin American economic

landscape is evolving and beginning to play a more influential role on the global stage

(Casanova, 2009; Cuervo-Cazurra, 2008; Fleury & Fleury, 2010; Santiso, 2013), and yet prior to

just recently there existed a common trend in the IB literature that seemingly ignored the Latin

American region. For instance, in examining IB journals over a 10 year period (1987-1997),

Elahee and Vaidya (2001) discovered that not quite 6% of the manuscripts mentioned Latin

America. A similar but more extensive review, conducted from 2001- 2005, revealed a paltry

2.75% inclusion of the Latin American region (Perez-Batres, Pisani & Doh, 2010). Due to

incorporation of this non-traditional MNE examination (Multilatina CBA), Latin American IB and

MNE literatures will also be enriched beyond their prior state. Questions exist in the Latin

American literature regarding levels of intra-regional integration and drivers for and against it.

This study will help answer some of these questions.

In sum, this dissertation will contribute to theory and practice in presenting a more

robust perspective – semiglobalization – through contextualized use of new multinationals –

Multilatinas – and how they consider formal institutions (regulatory, political, economic) at

multiple levels (country and region) in decisions of international strategy and

internationalization commitment and aggressiveness (regional localization) into a target region,

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by way of gateway country, through specified FDI (equity participation taken through cross-

border acquisitions). This dissertation thus extends the very limited extant research accounting

through a more comprehensive approach, as directed by these research questions.

Research Questions

How and to what extent do formal institutions of the target firm host country and region

influence Multilatina semiglobalization, as evidenced by foreign direct investment?

How and to what extent does a multilevel institutional perspective (integrated country and

region level institutions), when compared to a single-level institutional perspective (i.e.

traditional country level), result in disparate explanatory ability for Multilatina

semiglobalization through foreign direct investment? In other words, in the Multilatina

semiglobalization through cross-border acquisition context, how and to what extent do regions

matter, beyond countries?

To what extent do Multilatinas differentiate their semiglobalization (region localization)

strategy intra-regionally (within Latin America but external to their home country) versus inter-

regionally (external to Latin America)?

Format of Study

This section (Chapter 1) introduced the constructs and context of the study, describing

its focus, importance, and intended contributions. The next section (Chapter 2) discloses the

theoretical background and relevant extant literature on institutions and institutional theory, as

well as semiglobalization of the multinational enterprise, and in the context of Multilatina

cross-border acquisitions. Hypotheses are then extended, grounded in relevant theoretical logic

and supported by extant literature. Chapter 3 discusses the research methodology, including

the sample, measures, and statistical analysis. Detailed empirical findings of the study are

discussed in Chapter 4. To wrap up the dissertation, Chapter 5 discusses the general findings of

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this study and highlights implications, limitations, and contributions. This final chapter will also

discuss future avenues of research, based on the findings of this dissertation.

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CHAPTER 2

THEORY, EXTANT LITERATURE AND HYPOTHESES

Four main concept areas are integrated in this internationalization study: institutional

influence, semiglobalization, Multilatinas, and cross-border acquisitions. As such, herein I will

support each theoretically, provide relevant extant literature reviews, and extend the

hypotheses. In the spirit of this study’s contextualization, I will first review cross-border

acquisitions and Multilatinas, then position the main study constructs of institutional influence

and semiglobalization.

Cross-border Acquisitions and the Multinational Enterprise

The Multinational Enterprise

Why do multinational enterprises exist? The multinational enterprise (MNE) is an

organization which operates in two or more countries with multiple subunits linked through

shared policies or strategy (Kostova & Zaheer 1999). Buckley and Casson (1976) applied the

Coase Theorem (Coase, 1937) to the domain of foreign direct investment (FDI) and extended a

theory to help explain the existence of the multinational enterprise. Underpinning this

paradigm is the proposition that, when firms endeavor to expand beyond their home country

borders, transaction costs emanating from market imperfections serve as a firm enticement to

internalize into external markets. John Dunning (1980) extended the work of Buckley and Cason

(1976) in putting forward the eclectic paradigm (i.e. OLI framework - Ownership, Location,

Internalization), which incorporates factors linked to advantages derived from ownership and

location. The eclectic (OLI) paradigm of internationalization is one of the flagship explanations

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for why a domestic company decides to directly invest across national borders versus within the

home country. The decision itself transitions the firm structure from domestic to multinational,

thus establishing the multinational enterprise (MNE). Understanding that there are potentially

significant obstacles (costs and disadvantages) inherent in a firm trying to compete across

borders with host country domestic firms, OLI stipulates that the firm must have some source

of advantage that enables it to overcome these inherent obstacles. Dissecting OLI helps reveal

the process which may spur an MNE. “O” is for ownership, whereby firms develop proprietary

assets (e.g. brands, processes, technologies etc.) that can afford advantages in host country

markets relative to their own. “L” is for location, in which firms place specific operations in the

most advantageous global locations intent on taking advantage of heterogeneous global factor

and/or resource/capability markets, and in so doing integrate activities across sectors of the

world. “I” is for internalization, whereby firms aggregate activities which are spread across

countries, enabling them to build economies of scale and scope while concurrently minimizing

certain associated transaction costs.

The preponderance of the more mature extant literature has used these theories in

support of the position that it’s only when a firm believes it can exploit its own existing firm-

specific competitive assets abroad that they will pursue FDI. As we clearly understand now, a

countervailing position has arisen more recently, namely that FDI will also be pursued in

situations when acquiring knowledge, resources, and/or markets in the host country which are

not available at home, will protect, increase, or develop firm-specific competitive advantages

(e.g., Almeida, 1996; Chang, 1995; Chen & Chen, 1998; Kogut & Chang, 1991; Shan & Song,

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1997). These tactics are examples of asset exploitation or asset augmentation based FDI,

aligning with the asset exploration / exploitation dichotomous paradigm (i.e. March, 1991).

Regarding further motivation for MNE (new or established) pursuit of FDI, Dunning

(1993) extended concepts introduced by Behrman (1972) in proposing four principal reasons.

First, MNEs may pursue FDI as a means of resource seeking, in order to acquire specific

resources not present/available at home, and/or at lower costs than can be obtained at home.

Second, MNEs may be market seeking in new cross-border markets as a means to exploit their

own firm-specific, internalized advantages there. Third, MNEs may be efficiency seeking in FDI

pursuit by leveraging global diversification and/or expediting economies of scale/scope, in

hopes of maximizing efficiency via an ideal component structuring world-wide. Fourth and last,

in order to facilitate long-term strategic goal achievement, MNEs can be strategic asset seeking

via targeting particular assets which align with said goals. For example, an MNE may desire to

set up shop in a specific country as a component step/part of their strategic plan. They acquire

a host firm there that has strong local brand recognition and in so doing attain immediate

legitimacy and reduce the liability of foreignness.

Cross-border Acquisitions

Serving as the MNE FDI device in this study, cross-border acquisitions (CBA) occur when

an acquiring firm in one country targets a firm in another country for some acquisition level of

ownership. CBA represents over a third of all worldwide merger and acquisition (M&A) activity

and has exhibited significant continued growth as a primary avenue for foreign direct

investment (FDI), up 22.3% (US$63.4 billion) over the last five years, 2011 – 2015, (US$285.4

billion to US$348.8 billion) (UNCTAD, 2016). CBA’s tremendous growth is tightly coupled to the

15

existence and global rise of the multinational enterprise (MNE) (Buckley & Casson, 1976;

Dunning, 1980; Kostova & Zaheer 1999), resulting from and spurred on by privatization,

consolidation of industries, and liberalization of economies around the world (Barkema &

Schijven, 2008; Haleblian, Devers, McNamara, Carpenter, & Davison, 2009; Shimizu, Hitt,

Vaidyanath, & Pisano, 2004). As a consequence of the trended increase in CBA transaction

frequency and deal value over the last decades, the research stream has become more

entrenched in the examination of a host of associated antecedents, interventions, and

consequences (e.g. Arikan & Shenkar, 2011; Barkema & Schijven, 2008; Bertrand & Capron,

2014; Dikova, Sahib & Van Witteloostuijin, 2010; Grimpe & Hussinger, 2014; Haleblian et al.,

2009; Jory & Ngo, 2014; Kirca et al., 2011; Vaara, Junni, Sarala, Ehrnrooth & Koveshnikov,

2014). Hopkins (1999) aptly envisioned CBA as an outflow of the globalization process and

reflected that it is now the most desired means of integrating the world’s economies.

The largest segment of aggregate global FDI is CBA. According to a recent report (2014)

from the United Nations Conference on Trade and Development (UNCTAD), data (10 years:

2004 to 2013) reveal M&A activity as a share of global outbound FDI generally averaged over

75% a year. Drivers of this activity can be categorized into three behavioral paradigms. (1) The

synergy hypothesis posits that the acquisition decision by managers will occur when the

combined firm value is greater than that derived in summing together the individual firms.

Examples of avenues whereby this can occur are efficiency gains such as those resulting from

economies of scale or scope, the replacement of less competent target firm managers with

those of enhanced competence from the acquiring firm, and/or increased post-acquisition

market power (Bradley, Desai, & Kim, 1983, 1988; Set, 1990). (2) The CEO hubris hypothesis

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contends that decision-making manager overconfidence resulting from oversized egos and

bounded rationality, manifest in unrealistic manager expectations of their own ability (i.e. CEO

hubris) to manage acquired assets relative to their actual existing manager ability. This process

results in excessive acquisition premiums that negatively affect acquisition performance

(Hayward & Hambrick, 1997; Roll, 1986). (3) The managerialism hypothesis is grounded in

agency theory and follows the assertion that managerial self-interest drives specific acquisition

decisions because said acquisitions are normally accompanied by increased CEO compensation

(Grinstein & Hribar, 2004; Harford & Li, 2007), which concurrently increases CEO power and

discretion, while reducing personal employment risk (Gomez-Mejia & Wiseman, 1997;

Hambrick & Finkelstein, 1987).

CBA research is quite entrenched and has served as host and examination lens for a

multitude of study perspectives (see Table 1), to include culture (Chakrabarti, Gupta-Mukherjee

& Javaraman, 2009; Malhotra, Sivakumar, & Zhu, 2011; Vaara, Junni, Sarala, Ehrnrooth &

Koveshnikov, 2014), resource-based (Feinberg & Gupta, 2009; Grimpe & Hussinger, 2014; Kirca,

et al., 2011), institutions (Ang, Benischke & Doh, 2014; Dikova, Sahib & Van Witteloostuijin,

2010; Gaffney, Karst & Clampit, 2015), spillover effects (Spencer, 2008; Zhang, Li & Li, 2014),

alliances & networks (Arikan & Shenkar, 2011; Yang, Lin & Peng, 2011), corruption (Malhotra,

Zhu, & Locander, 2010), and developing markets (Deng & Yang, 2015; Sun, Peng, Ren & Yan,

2012). Within the experience & ownership stream of CBA, empirical examination of the effects

of acquisition experience on performance has revealed widely varying results, from positive

(Barkema, Bell, & Pennings, 1996), to non-significant (Zollo & Singh, 2004), to U-shaped

(Haleblian & Finkelstein, 1999), to inverted U-shaped (Hayward, 2002), and also to negative

17

(Uhlenbruck, Hitt, & Semadini, 2006). One would surmise that these highly mixed results point

to the importance of contexts and contingencies (Barkema & Schijven, 2008), and that the

reasons behind these disparate effects will be found in a more exhaustive examination of

interventions based on context and contingency. Understanding this is particularly relevant to

this institutions – semiglobalization study by way of the Multilatina CBA context.

Recent emerging/developing market MNE studies have affirmed CBA to be a significant

facilitator of firm competitive advantage acquisition, especially when the FDI pursued is

strategic asset-seeking in classification (Dunning & Lundan, 2008). Williamson, Ramamurti,

Fleury and Fleury (2013) examined the internationalization entry modes and processes followed

by a sample of EMNEs located in Brazil, Russia, India and China (BRIC). Specific to CBA, the

authors found that - provided they are appropriately carried out and effectively integrated into

the acquirer’s organization - CBAs, in sequence: (1) facilitate access to new and useful

capabilities, resources, and knowledge; (2) accelerate and improve innovation (3) adjust the

firm value chain configuration; (4) enhance firm competitiveness in both domestic (home) and

international (host) markets; and (5) specific to “sunset industries” where technology is

relatively mature with well-defined customer needs (e.g. steel and petrochemical), promote

global industry consolidation.

Within the geographic distance stream of CBA, Chakrabarti and Mitchell (2015) apply

concepts from the spatial geography and acquisition strategy streams in arguing that

acquisition spatial characteristics can partially explain successful acquisition completion. They

found that increased geographic distance will significantly reduce the likelihood of related

acquisition completion. This has direct implications within the context of this region localization

18

(semiglobalization) CBA-based study. Non-geographic distance studies also have significantly

informed this dissertation, such as that carried out by Gaffney and associates (2015) in their

examination of institutional distance between home and host countries, and the disparate

downstream effects on CBA decisions carried out by MNEs headquartered in emerging markets

(EMNE), when compared to developed markets (DMNE). In their examination, varying

institutional distance operationalizations (e.g. economic, knowledge) – as extended from Berry,

Guillen, and Zhou (2010) – were found to incentivize EMNEs differently than DMNEs.

Table 1

Cross-border Acquisition Research Streams: Areas of Study

Most CBA research originally emanated from the study of MNEs headquartered in

developed markets (DMNE) such as United States, United Kingdom, Japan etc. and thus the

supporting theoretical tenets and frameworks did as well. These traditional DMNE based

Research Stream Articles

Culture Vaara, Junni, Sarala, Ehrnrooth & Koveshnikov, (2014); Malhotra, Sivakumar, & Zhu (2011); Chakrabarti, Gupta-Mukherjee & Javaraman (2009)

Resource-based Grimpe & Hussinger (2014); Kirca et al.’s (2011); Feinberg & Gupta (2009)

Institutions Ang, Benischke & Doh (2014); Dikova, Sahib & Van Witteloostuijin (2010);

Spillover effects Zhang, Li & Li (2014); Bertrand & Capron’s (2014); Spencer (2008) Experience and ownership Barkema, Bell, & Pennings, (1996); Zollo & Singh, (2004); Haleblian &

Finkelstein, (1999); Hayward, (2002); Uhlenbruck, Hitt, & Semadini, (2006); Barkema & Schijven, (2008b); Ellis, Reus, Lamont & Ranft (2011); Jory & Ngo (2014)

Alliances and networks Arikan & Shenkar, (2011); Yang, Lin & Peng (2011); Corruption Malhotra, Zhu, & Locander (2010) Developing market Deng and Yang (2015); Sun, Peng, Ren & Yan (2012); Dunning & Lundan,

(2008); Williamson, Ramamurti, Fleury & Fleury (2013) Distance Chakrabarti & Mitchell (2015); Gaffney, Karst & Clampit (2016) Semiglobalization Karst dissertation (2016)

19

theories and firm behaviors are characterized by FDI designed and directed toward exploiting

firm-specific resources/capabilities, which were originally developed at home, in order to

internationalize on a gradual country by country basis by virtue of these firm-specific

resources/capabilities (Guillén & Garcia-Canal, 2009). There has been a noticeable increase over

the last two plus decades, however, in CBAs from multinationals located in less developed and

more developing/emerging market economies (EMNE), and their CBA activity now rivals that of

the developed nations tradition (DMNE), as previously established (i.e. UNCTAD, 2016). The

distinction of EMNEs as “latecomers” (Mathews, 2002), their inability to leverage the traditional

advantages of their DMNE counterparts (Kedia, Gaffney & Clampit, 2012; Luo & Rui, 2009; Luo

& Tung, 2007; Mathews, 2002, 2006), and associated examinations of their behavioral and

theoretical differences from, and similarities to, DMNEs is now prominently established in the

literature (e.g. Aulakh, 2007; Cuervo-Cazurra, 2012; Cuervo-Cazurra & Ramamurti, 2014;

Gammeltoft, Barnard & Madhok, 2010; Gaffney, et al. 2015; Hoskisson, Wright, Filatotchev, &

Peng, 2012; Luo & Tung, 2007; Ramamurti & Singh, 2007, Sauvant, 2008; Williamson et al.,

2013). This is largely because these CBAs facilitate timely, direct access to resources,

competencies and host intelligence/knowledge without the encumbrances/risks associated

with standing up actions such as Greenfield investments that may be more subject to the

liability of foreignness (Ahammad & Glaister, 2011; Teerikangas & Very, 2006).

Upon further examination of the standing ‘developed vs. developing’ MNE research

bifurcation, I concur with Ramamurti’s (2009) reflection as to whether existing theories -

emanating from studies of developed markets – and their paradigms and frameworks

adequately explicate developing market MNE existence and behavior,

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“The answer will depend upon what question one asks. Existing IB theories are quite

adequate to explain why EMNEs internationalize, what challenges they face in host

countries, and why they prefer markets or hierarchies, but they fail to explain what the

EMNE’s competitive advantages are, where these advantages come from, why some of

them make substantial foreign direct investments in developed economies and compete

head-on against Western MNEs” (2009, p. 418).

When provided a subsequent and more recent opportunity to weigh-in on “the truth”

surrounding the continued debate, Ramamurti (2012) answered,

“I suspect the truth is somewhere in between and the real challenge is to discover which

aspects of existing theory are universally valid, which are not, and what to do about the

latter” (p.41).

Xu and Meyer (2013) further supported the “somewhere in between” perspective, after

reviewing all relevant literature since Wright et al. (2005), and found that some of the

assumptions on which theories were built (e.g. relatively stable and efficient markets, firm-

specific advantages) are quite challenged by contexts of emerging markets and economies. It is

within these contextual difference/challenges that researchers have advanced a number of

divergent theoretical paradigms. Underlying these phenomena, institutional theory was found

to be the most influential perspective in this research stream by Wright et al. (2005), as did Xu

and Meyer (2013). No matter what side a scholar may take, whether they take a side at all, and

no matter by what analogy or metaphor described (e.g. Goldilocks debate), the aggregate MNE

research itself has intensified. Not unlike a deductive funnel, as the research domain matures, it

appears to be narrowing into separate, deeper micro-foundational streams which carry and

convey more case and situation specific contextual analysis and meaning. This narrowing of

MNE research into a series of contextualized funnels, envisioned (see Figure 2), is largely in

response to researcher examination of smaller MNE context specific clusters (e.g. geographic

21

regions, micro-economies). Because of their conspicuous arrival and rise to more prominent

influence, Guillén and García-Canal (2010) collectively identified them as “new multinationals”

and classified them from an economic, country perspective, as follows: (1) upper-middle-

income economies such as Spain, Ireland, Portugal, South Korea, or Taiwan; (2) emerging

economies like Brazil, Chile, Mexico, China, India, or Turkey; (3) developing economies such as

Egypt, Indonesia, or Thailand; or (4) oil-rich economies like the United Arab Emirates, Nigeria,

Russia, or Venezuela. Since this, Hoskisson, Wright, Filatotchev, and Peng (2012) completed an

EMNE specific institutional and factor effects study using the EMNE mid-range economies as

their sample.

Figure 2. The Funnel Effect: Emergence of MNE Research Microfoundations

The literature upholds this “MNE funnel effect” in that authors independently classify

segments of these new multinationals based on their idiosyncratic characteristics, and coin new

labels to help provide idiosyncratic identity, such as “third-world multinationals” (Wells 1983),

“latecomer firms” (Mathews 2002), “unconventional multinationals” (Li 2003), “challengers”

MNE

DMNE EMNE

M I C R O

Traditional Research

Theoretical Divide

Emerging Microfoundations

New Multinationals (e.g. Multilatinas)

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(BCG 2009), or “emerging multinationals” (Ramamurti & Singh, 2009). In some cases, these new

multinationals are labeled and studied according to their economic characteristics, such as

“mid-range economies” (Hoskisson, et al., 2012), or by contextual characteristics of their region

of origin, such as “dragon multinationals” (Mathews 2002), or “Multilatinas” (Cuervo-Cazurra

2008). Collectively, new multinationals are significant and increasing contributors to GDP

through FDI and specifically, CBA, on a global comparative scale (UNCTAD 2015).

Latin America and Multilatinas

As previously introduced, multinational corporations headquartered in Latin America, or

“Multilatinas” as they are collectively termed (Cuervo-Cazurra, 2007, 2008, 2010; Martinez,

Esperanca & De La Torre, 2005), is a particular classification of ‘new multinational’ - based on

geographic regional location. I will first discuss Latin America in a broader environmental

context, and then Multilatinas in a more pointed study specific context. Latin America has

become a top region in the global economy, reinforced by one-half billion plus citizens, a US$4

trillion plus gross domestic product, and a growing middle class. 2010 marked Latin America’s

arrival as the globe’s fastest-growing region for both inward and outward FDI (Martinez &

Kallini, 2012). According to the 2016 UNCTAD World Information Report, Multilatina OFDI has

more than doubled in value ($65.12US billion to $132.71US billion) within the last five years

(2011 to 2015). As of 2015, Multilatina OFDI represents over one-fourth of all developing

country OFDI. As a percentage of aggregate EMNE OFDI, this increase represents a tremendous

upsurge (15.5% in 2011 to 28.2% in 2015). This is further compounded by the ever growing

share of the ‘total CBA pie’ that developing market MNEs continue to consume relative to those

from developed markets (31.7% Developing Market CBA vs.68.3% Developed Market CBA in

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2011, compared to 47.1% Developing Market CBA vs. 52.9% Developed Market CBA in 2015)

(UNCTAD, 2016).

Vasslo, DeCastro and Gomez-Mejia (2011) depict Latin America as a “paradoxical

region” in that it inherently contains inimitable conditions that position it as one of the most

attractive business contexts on the planet, and yet it also faces significant challenges that offset

and may otherwise severely limit these opportunities. The authors evaluated principal factors –

aspects of the region - which characterize and illustrate this unique Latin American business

landscape, to include their institutional context, macroeconomic environment, consumer

profile, and natural resource endowments. Although the last two decades have seem marked

improvement, Latin America’s institutional context remains relatively unstable and vulnerable.

The region contains areas with varying levels of institutional voids and weak market

infrastructures. This culminates in a context of potentially ineffective institutions which may

spur increased corruption and informal business activities. Informal markets are currently

entrenched as a major business component of Latin American economies. Informal firms can be

defined as “businesses that are unregistered but derive income from the production of legal

goods and services” (Nichter & Goldmark, 2009, p. 1455). Informal markets have a tremendous

global economic impact and produce between 40% and 60% of the gross domestic product

(GDP) of emerging market economies (Schneider, 2005). As of the year 2000, it was estimated

that informal firms and markets accounted for US$353 billion in Latin America (Schneider,

2000) and their influence continues to grow (see Table 2).

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Table 2

Latin America: Characteristics and Manifestations

Construct Characteristics

Institutional Context

- Vulnerable institutional context at region level - Institutional Voids / Weaknesses at varying country levels and at overall region level - Weak Market Infrastructures - Informal Markets are a key element in economies. Underground economic markets - High corruption levels - Weak Educational Systems - Common legal structure across countries - Young political democracies on the rise. More consistent political system now - Historical institutional effects from pro-market reforms and the like - Cultural Duality: The duality of homogeneity mixed with significant heterogeneity

across countries. - Lack of cross-country wars and rivalries - Role of Family and Family oriented Business Groups - Significant levels

Macroeconomic Environment

- Market Volatility: Economic/Financial rollercoaster of frequent collapse and fast recovery

- Market characteristics: volatility, informality - Consequent pressures to the input-output relationships of firms’ value chains. - Heterogeneous GDP growth pattern from country to country - Large segments of the economy remain underground. - Economic Liberalization versus Government Regulation - Weak Market Infrastructures; Lagging capital markets

Consumer Profile - Income Distribution Inequality: Disproportionately high BOP population who exist within the informal market, both as customers and firm owners - More than 80% of the region hold more than one job to supplement their low salaries - Fragmented Market/Society – between informal market and formal regular market necessitates different and conflicted business models (formal/informal) - Rising Middle Class - Weak Educational Systems: Roughly 8 percent of the region’s population over the age

of 15 is illiterate (CEPAL, 2011), but with important variations among countries. Higher education appears to be stymied by a lack of resources

- Strongly influenced by The United States. High immigration from the south to the north

Natural Resource Endowments

- Endowment Counterbalance – High level of natural resources versus low level of high quality labor (human capital)

Regional Economic Integration

- Regional economic integration severely lags behind that of other regions world-wide - Multilatina intra-regional cross-border acquisition activity levels seem to be

increasing - Effects of country-level historical and institutional development. Barriers to

integration

Latin America’s macroeconomic environment is volatile on a global comparison, which

manifests in an economic/financial rollercoaster of regular collapses and fast recoveries. This

25

results in disparate negative influence and effects on the input-output relationships of

incumbent firm value chains. Severe income distribution inequity within the Latin American

region results in an economic pyramid with an extremely disproportionate number of resident

customers at the bottom (BOP). The aforementioned massive footprint of informal businesses

and markets in the region (Nichter & Goldmark, 2009; Schneider, 2005) serve this

disproportionately high number of BOP customers, who could not otherwise afford

products/services through formal market channels/means. This same mass of BOP customers

create and grow the informal businesses as well, which generates and perpetuates

dichotomous business models (formal and informal) to serve the fragmented market and

society at large.

Latin America is rife with natural resource endowments and yet also is home to

relatively low labor force numbers classified as ‘highly qualified’. This endowment

counterbalance significantly influences and biases the formation, growth and proliferation of

incumbent industries, steering them to enter the commodities and low-value-added market

sectors. This counterbalance phenomenon influences conduct and performance of all

incumbent firm players, but does so disparately (Vasslo et al., 2011). The socio-economic

landscape in Latin America is showing recent signs of positive change with the seeming

development of a growing middle-class (Santiso, 2013). This may pose as a leading indicator of

future possibilities. There is also an interesting dyad within the Latin American region between

its entrenched country-specific homogeneity and readily visible heterogeneity across countries.

Cultural homogeneity appears to be quite high across the region, as evidenced by holistic

characteristics of its residents, such as commonality in language (Spanish & Portuguese) and

26

religion (Christian: Roman Catholic), as well as uniformity of cultural traits within countries (e.g.

tradition, hierarchical institutions and gender bias) which may vary (heterogeneity) across

countries.

Multilatina Cross-border Acquisitions

From relatively minor use in the late 1980’s and early 1990’s, CBA systematically grew to

a point where it is now the primary vehicle for Multilatina foreign market entry. This steep

upsurge was spurred by pro-market macroeconomic reforms, concatenating from nation to

nation throughout much of Latin America, reaching its highest level at that time by 2007 at

$40US billion. CBA deals plummeted the following year due to the 2008 world financial crisis

(UNCTAD, 2009), but have substantially rebounded and now far surpass prior transactions in

total value and number of deals, as reflected above (UNCTAD, 2016).

Latin American economic and structural reforms (i.e., pro-market reforms) such as “The

Washington Consensus” (Suarez & Oliva, 2002, 2005) and import-substituting industrialization

(ISI) policies (Fleury & Fleury, 2011) have been found to be influential in strategy and conduct of

MNE’s originating there (i.e. Multilatinas). Multilatina development within these idiosyncratic

environments created path dependencies which influenced, to some degree, past, FDI conduct

in their attempts to capitalize on ownership-based advantages for the purpose of foreign

market exploitation (Chudnovsky & Lopez, 2000; Cuervo-Cazurra & Dau, 2008; Cuervo-Cazurra

& Dau, 2009; Dau, 2012; Dominguez & Brenes, 1997). Extreme economic reforms, however,

broke these path dependency bonds and facilitated new market-oriented economic and

institutional arrangements that in turn deeply influenced most facets of the Multilatina. These

institutional and environmental changes have compelled Multilatinas to increasingly pursue

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international markets through CBA and do so in unique ways (Carneiro, 2012; Carneiro &

Brenes, 2014; Cyrino & Tanure, 2009; Da Rocha & Da Silva, 2009). This lends support and

credibility in using Multilatina CBA in my study as the context for examining MNE consideration

of institutions in their semiglobalization efforts.

Institutions and Institutional Theory

Institutional influence, the predictive construct lens of this study, emanates from

multiple literature sources and is conveyed through parallel paradigmatic schools of thought,

yet are primarily underpinned by Institutional Theory (IT). The evolved state of Institutional

Theory was initially spurred from the work of Philip Selznick (1949, 1957), who posited that

organizations can become “institutionalized” - generally based on the idea that an organization

can be enriched with value beyond what is technically derived from the task oriented

interaction at hand. Selznick positioned institutionalism as the emergence of stable social

patterns from unstable technical activities (Broom & Selznick, 1955).

A seminal IT paradigm was extended by Nobel winning American economics historian

Douglas North, who defined institutions as “the humanly devised constraints that structure

human interaction” (1990: 3). North (1990) portrayed institutions as being established by

formal constraints such as rules, constitutions, and laws, informal constraints such as customs,

traditions, norms of behavior, conventions, taboos, sanctions and self-imposed codes of

conduct, and lastly by their individual and collective enforcement characteristics. These

constraints, influenced by the manner and degree of their enforcement, collectively contribute

to the formation and preservation of order and safety within a market or society. A variety of

circumstances influence the manner and degree of institutional effectiveness, such as levels of

28

organized state and degree of governmental coercive force, as well as the presence/absence of

a resilient religious precept.This enforcement characteristic of informal and formal constraints

is aptly captured by North’s (1990) original abstraction that they are “the rules of the game”.

Operating as rules, they delineate a society’s incentive framework, and by extension, dictate

and bind constituent participant behavior. Fundamentally economic institutional approaches by

North (1990) and Williamson (2000) focus on costs and economic factors associated with

institutional mechanisms and forces. In the economics stream, micro-foundations such as

contracting, norms of organizing/exchange, and property rights are examined in conjunction

with macro forces related to market efficiency inhibitors such as public policy and legal

structures (North, 1990; Williamson, 2000).

The sociology grounded institutional perspective has its origins in Selznick’s (1948, 1949,

1957) examination of organizational rules and governance mechanisms and how they affect

social relations and adaptation. Meyer and Rowan’s (1977) seminal contribution explored

informal structures, myths, and symbolic activities which firms adopt in attempts to rationalize

their adherence to economically inefficient institutional norms and thus trade off efficiency in

pursuit of legitimacy. DiMaggio and Powell (1983) explored competitive selection and

institutional forces which spur isomorphism within specific organizational fields. Their work

defined and extended core institutional concepts such as coercive, mimetic, and normative

forces, as well as organizational fields, structuration, and legitimacy (DiMaggio & Powell, 1983).

Due to the firm’s perceived need to achieve legitimacy, it will adopt or endeavor to appear to

adopt some level of the norms and practices deemed legitimate in the organizational field

within which they operate. This legitimacy, a valuable intangible resource that firms must

29

acquire through their behavior (i.e. legitimation – Dacin et al. 2002), can be obtained through

alternative pathways (Suchman, 1995), but the point is, it must be obtained.

Organizational sociologist Dick Scott's (2001) position on institutions is likewise a

seminal view of the sociology-based paradigm, depicting institutions as societal pillars that

influence and guide participant members’ thoughts, feelings, and behavior. These societal

pillars are delineated along regulative, normative and cultural-cognitive means. The regulative

pillar encompasses formally codified rules, while the normative pillar is where standards,

conventions, values and norms prescribe expectations and obligations. The cultural-cognitive

pillar is where thought and manifested behavior is often guided by taken-for-granted socially

constructed systems of shared meaning. The interaction effects of these three pillars may

constrain behavior by rationally bounding and limiting decision sets entertained, such as when

influences from the cultural-cognitive pillar result in viable options not even coming to mind.

Further, legal sanction or loss of legitimacy may become a real risk to those who are perceived

as violating and/or exceeding pillar mandates and/or boundaries, respectively. Within this

paradigm, isomorphism is where the ‘rubber meets the road’, acting as the principal

transmission process through which organizations operating in similar environments leads to

them exhibiting homogenous structure, strategy, and procedure (Deephouse, 1996; DiMaggio

& Powell, 1983; Meyer & Rowan, 1977).

For this study, I adopt North’s overarching view of institutions as a primary perspective

and study independent lens. Its dichotomous categorization of institutions as formal and

informal, and their conveyance through enforcement characteristics, affords a robust and

holistic institutional paradigm which aligns with and captures the most salient aspects from

30

parallel paradigms (e.g. Scott, 2001). My institutional approach herein, namely the

categorization of formal institutions according to their characteristics of origin and enforcement

– economic, political, and regulatory - is based on the underlying assumption that there are

formal institutions and informal institutions, while also considering the influences, interaction

effects and enforcement aspects of both. Their alignment and overlap with parallel paradigms

lends credibility to North’s accounting of institutions. Ostrom’s framework of institutions

principally focuses on the voluntary resolution of issues related to the governance of common

pool resources within polycentric environments, much of which can be placed in either of

North’s dichotomous construct categories. Further, North’s formal instituions domain has

aspects which overlap those of objective national culture studies, economists’ studies of

institutional influences such as laws, rules, and regulations (e.g. La Porta, et al., 2008), as well as

Scott’s (2001) regulatitive pillar. North’s informal institutions construct has considerable

dimensional similarities to subjective nationl culture constucts, sociology-based focus on

cultures, norms, and values (e.g. DiMaggio & Powell, 1983; Meyer & Rowan, 1977), as well as

Scott’s (2001) normative and cultural-cognitive pillars. Even though emerging from

independent and distinct sources, these institutional frameworks converge in specifying how

and to what extent laws, regulations and rules are differentiated from norms, cultures and

ethics, as formal, informal and abstract institutional enforcement influences on the firm,

occurring as a consequence of operating in a particular setting (i.e. organizational field). As

such, applying North’s institutions paradigm as a predictor construct affords dissertation

consistency and parsimony.

31

The Logic of Institutions

Important to this study is the rationale which upholds institutional influence. North’s

(1990) narrative of the village allegory reveals this logic in a simple, yet clear manner. Within

the story structure, North invokes game theory at a micro-foundational level and subsequently

applies it to higher levels of analysis. His narrative depicts how an old village transitions from

local exchange to regional trade through creation of nascent institutions intended to minimize

transaction costs. Within this old village, there initially were local trading partners who lived

near each other, who were acutely knowledgeable of one another’s trading reliability, and who

conducted repeated trades with one another in this smaller exchange environment. In this

context, one can readily grasp the existence of strongly embedded social pressures to “live up

to one’s end” of the multifarious and often repeated personal trade negotiations. Conversely,

the village expansion to long distance, potentially “one off” single trades with other traders

about whom little was known is more of an impersonal characterization of exchange in a much

larger environmental context. The underlying game theory framing is rooted in a binary playing

field: a high repetition personal context versus a singular, rarely repeated impersonal context.

As a consequence of the long distance single-trade scenario, agents were acquired and

compensated to transport goods to distant markets, sell them at a profitable price, and return

to the home land surrendering the profits from said travels and transactions. Newly employed

agent trustworthiness varied significantly, especially as commerce and involved businesses

grew beyond the capability of being able to just employ family and others with closer ties to the

original core of village traders. This increased risk was further compounded by the degree of

32

safety of the trade routes themselves (threat of bandits), often leading to hiring a specific type

of man (brutes, mercenaries) for security and protection.

The lesson of North’s story is that some societies, in response to the narrated changes,

developed institutions which facilitated trade. Some of these manifested as immature forms of

rule of law and contract enforcement, such as arrangements with local princes for security or

the establishment of guilds that began to oversee quality standards for traded goods. Trade

thrived in regions where these nascent institutions took root by way of stronger and more

consistent institutional enforcement. This enabled incumbents to realize gains from

specialization and divisions of labor, resulting in material prosperity for all above board players.

The end game of prosperity etc. did not materialize, however, when similar institutions and

enforcement characteristics did not consistently develop in other regions. Economies, by

extension, didn’t grow either because transaction costs outpaced the payout, resulting in

unrealized potential trade.

Accounting for Institutional Context

Scholarly questioning of whether industry-based and resource-based prescriptions

uniformly apply and hold across time and space has led to identification of gaps and

shortcomings in the respective extant literature streams. IM, IB, and strategy scholars

increasingly contend that these two views, while powerful and widely held, are incomplete for

an accurate, holistic view of firm conduct and performance, thus leaving gaps and creating

opportunities to better inform the literature. The IT grounded Institution-based View is one

specific prescription which fills this gap (Peng, 2002, 2006; Peng et al. 2009; Peng et al., 2008).

In their Academy of Management Perspectives article, Peng and associates (2009) articulated

33

the institution-based view as the “third leg of the strategy tripod”, validating its equivalent

theoretical upholding relative to the other two legs, the industry-based view and the resource-

based view. Beyond industry conditions and firm resources/capabilities, firm-specific strategy,

conduct, and performance is likewise influenced by the manner in which managers face the

formal and informal constraints of particular institutional frameworks (Jarzabkowski, 2008).

Institutions have multi-functional roles and a significant one is to reduce uncertainty (Peng,

2006; Scott, 2008). Thus, studies centered on the effects of institutional uncertainty on

strategic choice, firm behavior and outcomes are important, as are the direct and intervening

effects of formal and informal institutions. Institutions and institutional theory based research

continues to gain significant momentum (e.g. Bitektine & Haack, 2015; Clemente & Roulet,

2015 ; Cornelissen, et al., 2015; Gray, et al., 2015; Harmon, et al., 2015; Ocasio, et al., 2015;

Peng, et al.2009; Peng, et al., 2008; Voronov & Vince, 2012).

The Influence of Informal Institutions on Formal Institutions

Formal institutions, by any depiction, can vary quite considerably across countries and

regions. By extension, so can the variance of their effects. Holmes and associates, (2013)

provide one explanation for this diversity in formal institutions, namely that they are linked to

and influenced by their own country level informal institutions. Scholars have extended theory

which signals culture as an important facet of informal institutions (e.g., North, 1990; Peng et

al., 2008), and contend that it also operates as an antecedent for the development of country-

specific formal institutions (Holmes, et al. 2013). Problems are inherent in any society, so its

members devise formal institutions to address and hopefully fix, reduce or contain them. One

societal member’s perception of a potential problem will vary from another. Overall however,

34

the prevailing societal culture exhibits a collective perception, embodied in norms and values,

which is influential in shaping and guiding each individual member’s evaluation of said

problems. This evaluation manifests in specific problem: (1) prioritization of importance, (2)

alternative solution development, and (3) solution implementation processes. Society-specific

norms and values, over the course of time, will reinforce and uphold their formal institutions

and facilitate their acceptance and maintenance.

The empirical findings of Holmes et al., (2013) support that a country’s key cultural

dimensions influence its formal institutions’ development and evolution, which reinforces the

scholarly position that “formal institutions reflect the society’s collective actions and behaviors”

(DiMaggio, 1988; Powell, 1991; Tolbert & Zucker, 1996). I join these scholars in examining

institutional influences through formal institution proxies, the constitution of which captures

informal institutional effects. Through this assumption – that the diversity of formal institutions

among countries is influenced by informal institutions – it can be further argued that the

disparity between country and region level formal institutions is linked to variance in their

respective informal institutions.

Formal Institutional Influence on MNE Internationalization

MNE internationalization theory and study underscores the importance and relevance

of systematic ownership and location advantages of foreign direct investment, within which the

role of institutions is central in motivating FDI into a country (e.g., Delios & Henisz, 2003;

Globerman & Shapiro, 2003). Societies are supported by framework structures of their

institutional environments, which guide and constrain behavior within its boundaries and reach

35

(North, 1991). These societal boundaries and influential reach largely emanate from their

formal institutions, which fulfill several functions. They: (1) provide stability, (2) reduce

information complexity, (3) help minimize market failures, and (4) ease uncertainty in economic

transactions and financial exchanges (North, 1990; Williamson, 2000). The idiosyncratic formal

institutions of societies are formed and perpetuated through its laws, regulations, and

associated policies. The degree to which formal institutions are influential is coupled to their

respective levels of enforcement. By extension, these society-specific formal instructions

prescribe the varied actions and behaviors of its inhabiting people, systems development, and

incumbent organizations situated within and influenced by its institutional scope (Holmes et al.,

2013). In this manner, formal institutions matter.

This study adopts and tests North’s (1990) logic that the constraints emanating from

formal institutions are transmitted through political, regulatory, and economic structures (i.e.,

North’s three pillars and the predictor constructs of this study). MNE internationalization

strategy and localization decisions are influenced to varying degrees in relation to the presence,

strength, and visible effect of each of these structures, independently, and in combination

(Holmes et al., 2013).

Regulatory Institutional Environments: Proxied by Regulatory Control

Organizational conduct is bounded and guided by the regulatory environment within

which a firm choses to or happens to operate. MNEs are directly influenced by their regulatory

environments, which operate or are perceived to operate as institutions of potential coercive

force. Regulatory institutions thus guide organizational behavior through decisions/actions

involving rule-setting, monitoring, and sanctions. MNE decisions to operate in a specific area

36

may result in realization of institutional benefits from associated regulatory environments, such

as reducing transaction uncertainty to varying degrees (North, 1991). Coase (1959) and other

pioneering institutional economists concentrated on the creation and enforcement of property

rights protections, and how they are disparate from one area to the next, due in part to the

regulatory power of governing institutions. The main regulatory principle in play here is that

these regulations would influence and facilitate market transactions to some desired level of

stimulation; at this point, ‘government steps aside’ (Williamson, 2000: 598), relinquishes this

previously established control, in order to allow and enable free markets. By extension,

individual aspects of the regulatory environment such as its associated enforcement aspects

would also have the effect of reducing uncertainty and facilitating market transactions

(Globerman & Shapiro, 2003). Extensive or excessively perceived governmental control,

however, could be considered by firms as burdensome, as business interference, as an obstacle

to conducting business transactions, and even as going beyond serving its beneficiaries

(Bardhan, 1989). As examples, Brouthers, (2002), as well as Yiu and Makino, (2002) found

government regulations, in specific contexts, negatively influenced multinational FDI due to

increases in perceived transactions costs and efficiency losses. In this study, increased

regulatory control is thus described as greater involvement by government in rule setting and

standards enforcement – which collectively support and yet also limit firm conduct in

commerce - which operate within the government’s geographic sphere of influence (Arregle et

al., 2013; Holmes et al., 2013). As envisioned herein, the varying levels of regulatory control

that occur from one area to another will impose direct and/or indirect costs on the impacted

MNE in a differentiated manner.

37

Political Institutional Environments: Proxied by Political Democracy

As a formal institution which creates and maintains specified amounts of governmental

checks and balances, political democracy represents a specified societal canon of just how its

people and organizations should be overseen or governed (Gaur et al., 2007; Holmes et al.,

2013). The degree to which these democratic institutional processes occur will thus vary greatly

from society to society. MNEs are impacted by this institution because political regimes may

create and perpetuate significant uncertainty by creating potential costs for making transaction

decisions and otherwise, for conducting business within its sphere of influence. A society’s level

of political democracy reflects the specific level of government discretion established and

maintained over its citizenry, which is largely identified and represented by freedoms and rights

availed central to voting, speech, and assembly, as well as media latitude and freedom. As a

point of differentiation between these two formal institutional domains - the regulatory

environment attends to the how laws and rules are applied in business transactions/exchanges

- whereas the political environment prescribes how said laws and rules are enacted, by

signaling and delineating a society’s level of human rights and political freedoms specific to

freedom of expression, and for inclusion and participation in associated rule-setting (Adam &

Filippaios, 2007). Existing as separate constructs, one is reflective – political democracy –in

conveying the people’s level of participation and representation availed to voice their opinions

and act to influence outcomes. The other is formative – regulatory control – spurred by

legislative action and centered on supporting/constraining commerce through varying levels of

direct and indirect involvement.

38

Economic Institutional Environments: Proxied by Capital Investment

The level of capital investment in an area can be viewed as emanating from strong

economic institutions which establish rules in that particular market economy. This has a

formalized constraining effect on transactions and exchanges when borrowers and lenders

come together in the market, and serves to minimize information asymmetries and ease

uncertainty between these parties (Holmes, et al., 2013; North, 1990). Economic institutions

are idiosyncratic to a geographic locale and vary accordingly in their ability to influence overall

market conduct and firm-specific behavior (Zukin & DiMaggio, 1990). Location specific financial

resource availability and level of consumption are an outflow of economic institutional practice,

and organizational production, as well as the location’s relative cost of living (e.g., country

and/or region). In aggregate, this has a strong influence on all FDIs into and out of the area

(Brouthers & Brouthers, 2000), because the monetary and fiscal policies there serve as a signal

and evidence of economic institutional activity (Beck, Levine, & Loayza, 2000; Holmes et al.,

2013; Lucas, 2003). This has the aggregate effect of influencing participant purchasing ability

and localized downstream investments in areas such as technology, labor, and production

(Romer, 1994). An important signal of stronger economic institutions at the country level is

their level of capital investment - the commitment of capital or money to purchase assets and

promote an economy’s strength and liquidity. MNEs are generally attracted to invest within this

type of institutional environment, and capital investment in an area - country and/or region -

thus serves well as proxy for economic institution robustness and strength (Arregle et al., 2013;

Holmes et al., 2013; Tirole, 2003).

39

Semiglobalization of Multinational Enterprises

When MNE internationalization research solely considers a target firm’s country-level

effects, including their supporting institutions, this may not parsimoniously represent an MNEs’

true strategic intent (Arregle, et al., 2013; Rugman & Verbeke, 2004). As such, an MNE

expansion perspective which concurrently considers target firm regions in addition to countries

- a semiglobalization perspective - contends that a firm’s FDI may be arranged to facilitate

regional aggregation based on an arbitrage logic. This regional expansion perspective (i.e.,

semiglobalization) directly addresses and helps an MNE deal with the countervailing need to

globalize (i.e., integrate) versus the need to respond directly to idiosyncratic local markets (i.e.,

localize) (Arregle, et al., 2013; Arregle, Beamish, & Hebert, 2009). A compelling characteristic of

semiglobalization makes a link to CBA benefits, namely the notion of partial cross-border

integration - whereby geographically proximate countries recognize high barriers to market

integration, but strategically rationalize that these barriers are not significant enough to fully

insulate neighboring countries from one other. In this setting, idiosyncratic country-level factors

and levels of analyses cannot fully explicate responding MNE strategy and conduct. Here,

multiple operations in proximate locations should be examined and strategically evaluated;

thus, it would add great value to broaden the lens of examination to include an entire

geographic region, where incumbent countries are separate from each other, but are

geographically proximate and are thus connected and dependent on one another in certain

ways (Arregle, et al., 2009: Ghemawat, 2003). It is logical then that this approach (regional

view) and level of analysis (i.e., region comprised of geographically proximate countries) adds

value beyond the traditional country level approach, when studying the impact of

40

environments (i.e., institutional influences) on MNE internationalization strategy and conduct

(Arregle et al., 2013; Arregle et al., 2009; Ghemawat, 2003). The semiglobalization perspective,

as set forth here, extends that firms may have a regional strategy which includes

internationalization on a targeted regional basis – based on attractiveness - with identification

of the most conducive countries within the region, relative to the other proximate countries, as

targeted points of entry (i.e. country gateways). There are two specific tactics/processes which

MNEs may follow to carry out this semiglobalization strategic behavior: (1) the initial

deployment and subsequent redeployment of region bound firm-specific advantages, and (2)

fine tuning the process of and capitalizing on organizational learning (Arregle et al., 2013).

Region-bound Firm Specific Advantages

Geographic scope is an important dimension of an MNE’s international strategy and is

realized to varying extents contingent on the degree to which it can integrate firm-specific

advantages (FSAs) with country-specific advantages (CSAs). In so carrying out, every foreign

location must have some sort of location-specific linking investment(s) to combine existing FSAs

with CSAs’ (Rugman & Verbeke, 2005: 13). Fungibility is a resource characteristic critical to this

process because specific resources may have a wider range of potential use and service to a

particular firm (Mahoney & Pandian, 1992). Resource fungibility is characterized by the degree

to which a particular resource might be used in different ways at a particular point in time – and

over time (i.e., deployed and redeployed) - at a cost to the firm which is low enough to warrant

doing so (Sapienza et al., 2006). Resource fungibility is thus central to this process (Teece,

1982). It is understood that uncertainty is an inherent condition of internationalization, but can

be reduced through certain mechanisms and practices by an MNE. Resource fungibility is one

41

such mechanism, because it provides flexibility and discretion for alternative resource uses, and

thus creates real options for an MNE to select from varying strategies of use. Groups of fungible

resources held by an MNE have the capacity to expand these options even further. They have

the potential to enable firm survival in changing and hypercompetitive environments (i.e.,

D’Aveni, Dagnino, & Smith, 2010), while and facilitating growth through expansion leaning

operational expenses by reducing costs (Arregle, et al., 2013; Sapienza et al., 2006).

The scale and scope of resource redeployability is enhanced with increased fungibility

and when across more resources held; its potential benefits can be compounded by an MNE

through development and deployment of region-bound FSAs (RFSAs). Through the deployment

and redeployment process, an MNE can exploit RFSAs throughout a region, as opposed to the

restrictions and limitations associated with being bound to one country (Arregle, et al., 2013).

When an MNE expands beyond a single country in a particular region, they begin the process of

additionally benefitting from deployment and redeployment of their regional fungible

capabilities. A key firm-specific MNE capability which expedites this process is found in an

MNE’s ability to carry out two opposing strategies simultaneously: (1) regional globalization

(i.e., regionally integrate its foreign subsidiaries), and (2) country localization (i.e., sustaining

country specific responsiveness). If an MNE develops this capability and successfully carries out

this process, their RFSAs can then be optimally directed and redirected across targeted

countries in an attractive region and done so in a relatively inexpensive manner. FDIs can be

linked within the region at lower relative transaction costs due to targeted country geographic

proximity, which further compounds benefits of associated country-specific advantages (CSAs)

(Arregle, et al., 2013; Rugman & Verbeke, 2005). Accomplishing this in foreign regions and their

42

targeted entry countries - through fungible resource replication and exploitation - can be

challenging because of associated resource and capability intangibility. This is further

complicated by the necessity of a firm to have created specific methods to cope with and

overcome idiosyncrasies and characteristics intrinsic to the foreign markets (Kumar, 2009). In

aggregate, all of these processes illuminate the importance for an MNE to discover the critical

traits of these identified markets – which can be facilitated through organizational learning.

Organizational Learning

A valuable time component of the MNE internationalization process is acquiring

experiential knowledge that is location-specific to particular target markets and their associated

networks. It is a time-consuming process but critical to their success because an MNE must

overcome entry and operating obstacles stemming from its “liability of foreignness or

outsidership” (Johanson & Vahlne, 2009). This type of knowledge is acquired and built upon by

an MNE through experience in international operations, past and present. A significant liability

of foreignness/outsidership obstacle in target markets is psychic distance, which is comprised

of “factors that make it difficult to understand foreign environments” (Johanson & Vahlne,

2009: 1412). With increases in psychic distance between home and host markets, MNEs face

magnified challenges which make it more difficult for them to develop experiential knowledge

through accumulation over time. Knowledge development by a firm is cumulative and requires

some degree of continuity and proximity between old and new competences; absorptive

capacity (Cohen & Levinthal, 1990) helps firms such as the MNE with this knowledge

development. Psychic distance between firms whom are party to transactions, and well as

absorptive capacity of the acquiring MNE, individually can negatively influence resultant

43

economic advantages due to increased time necessary to overcome these impediments. When

experienced in concert, these obstacles can become compoundingly disadvantageous (Dierickx

& Cool, 1989; Vermeulen & Barkema, 2002) for an MNE, as well as potentially creating limited

path dependence for their internationalization efforts. These mechanisms for MNE

organizational learning illuminate a sequential international entry approach; one facilitated

through experiential learning in which they gradually accumulate capabilities and knowledge in

relatively proximate countries and then capitalizing on the most appropriate fitting

opportunities availed through this process (Chang, 1995). From a geographic perspective, there

are also spatial aspects of knowledge acquisition in that information flows are spatially

constrained (Arregle et al., 2009; Buckley & Ghauri, 2004), culminating in geographic proximity

being a positive conveyance for knowledge and organizational practice transmission fluidity

within the MNE (Chang & Park, 2005; Strang, 2003). Thinking through this, an MNE with foreign

subsidiaries that are proximally closer will be able to share knowledge and organizational

routines with more ease and less risk.

More and more, business networks are developing a regional dimension (Buckley &

Ghauri, 2004), and upon making the commitment of FDI into a region, overall MNE liability

coupled to subsequent investment there is reduced. Regions are composed of proximate

countries, and this proximity is accompanied by similarities shared across countries. Similarity

in this context is a characteristic which reduces psychic distance among countries within a

region, which in turn enables MNEs to more efficiently and effectively accumulate knowledge

and learn from chronological, related FDI into the targeted region. Through incremental

regional learning, an MNE can augment investment expansion costs in a region, while

44

enhancing absorptive capacity, reducing risk of time compression diseconomies, and through

this, be successful in the learning of new capabilities. Country-level FDI thus enables an MNE to

produce real options from a gateway perspective for region-level sequential FDI through

attractive proximate countries (Kogut, 1983; Kogut & Kulatilaka, 1994), based on developed

RFSAs there (Arregle et al., 2013). Thus, MNE semiglobalization is expedited through region-

bound firm-specific advantages and organizational learning.

Semiglobal Multilatina Cross-border Acquisitions

A general pattern of region localization has been observed with Multilatinas in that they

oftentimes will first internationalize within Latin American country markets (intra-regional), and

next transition to CBA in more distant, world-wide regional markets external to Latin America

(inter-regional). Economists speculate that this trend will continue to strengthen in the future,

as bolstered by, among others, current and forecasted levels of Latin American regional growth,

a rising middle class and the growing ease of doing business in an increasing number of

countries in Latin America (Carneiro & Brenes, 2014; Chattopadhyay & Batra, 2012; Lopez et

al., 2009).

Intra-regional Multilatina CBA

Multilatinas increasingly recognize their own Latin American regional market as an

opportunity for investment and expansion. Emerging market companies such as those in Latin

America have been progressively substituting exports and FDI previously directed to more

developed countries for intra-regional “South–South” trade and investment (Ramamurti,

2009a). For example, Mexican companies increasingly target Central America as a natural

45

boundary extension of their operational activities. Central American companies are likewise

broadening their operational activities to include all countries in the region (contingent on

strategy and scope). This intra-regional CBA activity ranges in regional breadth (entire region to

specific countries or groups of countries) as an outflow of strategy and influences such as

institutions (i.e. economic, political, and regulatory) and location-specific aspects (e.g., industry,

logistics). As current examples, Colombian and Ecuadorian companies chiefly target FDI in

Central America, Brazilian and Chilean companies on South American countries, and Peruvian in

Argentina and Bolivia. Industry driven examples, such as firms in the commodity businesses

(e.g., food grains, oil or mining) remain involved in developed country exports (Carneiro &

Brenes, 2014).

Inter-regional Multilatina CBA

Multilatinas who decide to internationalize beyond their own Latin American regional

boundaries seem to do so mostly following a regional (semiglobalization) pattern of

internationalization. Even for MNEs from all origins - DMNE, EMNE, New Multinational,

Multilatina - who are classified as “born globals”, closer examination of their

internationalization patterns (initial exports etc.) at birth reveal that most are actually ‘‘born

regional’’ (Lopez, Kundu, & Ciravegna, 2009). Multilatinas appear to follow this regional pattern

in that “Global Latinas” (Casanova, 2009) have essentially focused on exploiting opportunities in

neighboring countries within the region, at least during the onset of FDI activities. Specific

Multilatina examples are: JBS-Friboi, Gerdau, and Odebrecht from Brazil; CEMEX and Grupo

Modelo from Mexico; Avianca-Taca, Banco de Colombia, Banco Davivienda and Grupo Aval

from Colombia; Natura, Brahma and Antarctica (currently ABInbev), and Itaú from Brazil, COPA

46

Airlines from Panama; Indurama and ACOSA-Edimca from Ecuador; CEMEX, Maseca and Elektra

from Mexico; Grupo Monge and Grupo Britt NV from Costa Rica; Pollo Campero from

Guatemala; LAN Chile Airlines and Tiendas Falabella from Chile; L'bel and Grupo Gloria from

Peru; and La Curaçao from El Salvador. However, very few companies in the region are truly

global (Brenes, Chattopadhyay, & Montoya, 2012; Brenes, Montoya, & Chattopadhyay, 2012;

Carneiro & Brenes, 2014; Chattopadhyay & Batra, 2012).

Institutional Influence on MNE Semiglobalization

MNEs may be prompted to target a specific country for CBA due to its relative

geographic proximity within an attractive region, or because it has had successful experience

within the country previously. Even so, there are oftentimes more than just one or two

attractive countries within each attractive region from which to select. Ceteris paribus (e.g.

global mindset, internationalization strategy), central to the ‘decision factor mix’ examined by

an MNE are the institutional characteristics of the region under consideration, as well as those

of its incumbent countries (Arregle et al., 2013; Kreinin & Plummer, 2008). An aspect of this

which affords evaluation validity and reliability is that all geographic regions can be consistently

and systematically described by the general, or average, characteristics of the institutional

environments of the region’s incumbent countries. An MNE, in light of this, will systematically

appraise a region’s ‘general institutional environment’ prior to directing FDI there (i.e., region

localization), as opposed to the other possible locales. A pervading antecedent to this region

localization decision is the understanding that featured RFSAs will be constrained to the

selected geographic region, and thus spatially bounded in consideration of future exploitable

47

FDI opportunities there (Arregle, et al. 2013). MNE region localization -in other words,

semiglobalization – through a specified country will thus either be additionally encouraged or

discouraged by the constraining institutions of: (1) the targeted country, (2) the surrounding

countries, and (3) the overall region (see Figure 3). RFSA resource acquisition and capability

development avail MNEs opportunities which they would not otherwise have, to strategically

and tactically arbitrate within the targeted region among of its most attractive countries. To

Figure 3. Country and Region Institutional Attractiveness for MNE FDI

carry this out, an MNE will evaluate each country under consideration according to the

characteristics which best ‘fit the firm’ and make comparisons with other geographically

proximate countries in the region, in order to select the most attractive environments in which

to make FDIs (Arregle et al., 2013; Arregle et al., 2009; Chung, Lu, & Beamish, 2008). While it is

understood that proximate countries nested within a particular region have similarities, they

More

More

Less

Less Institutionally

Attractive Country

Institutionally Attractive

Region

Moderate FDI

Moderate FDI Decreased FDI

Increased FDI

48

also have differences; an important aspect of the semiglobalization process is realized when

MNEs make moves to exploit these differences within the targeted region and position

transactions and exchanges that help them benefit from these intra-region country-level

variations. Accordingly, an MNE can make country-specific region localization FDI based on the

attractiveness of the targeted country’s institutional environment as compared to and

contrasted with (i.e., relative to) the institutional environments of the other countries in the

same targeted and attractive region. This comparative evaluation process reveals a country’s

‘region-relative’ institutional environment; as an institutions-based concept and variable, it

captures these differences (idiosyncratic variations) and specifies the institutional

state/condition of a country relative to the region’s trended general institutional tendency

(Arregle, et al., 2013). Extending this logic, a country may have a better or worse region-relative

institutional profile, and thus will attract or detract MNE FDI relative to the other countries in

the region, contingent on the MNE global mindset and associated regiocentric strategy (i.e., the

degree to which the firm internationalization strategy is region-based). In sum, through this

narrative I posit that when MNEs face internationalization decisions, they will also consider and

compare a country’s institutional environment to that of other countries in the same attractive

region. This study will use formal institutions at the regulatory, political, and economic level to

further examine and develop this contention – namely that these institutions will concurrently

influence MNE localization decisions at both the region and gateway country levels.

Regulatory Control

In order to be seen as ‘legitimate’ in host markets, an MNE must overcome perceived

and real liabilities associated with not being a domestic firm (i.e. liability of foreignness and

49

outsidership). Progress is made to this end when an MNE conforms to known country and

region regulatory policies and requirements and by overtly responding to the perceived

cognitive and normative pressures that uphold these institutions (Holmes et al., 2013; Yiu &

Makino, 2002). This process comes with costs however, in that MNEs must adopt new or

modified organizational practices necessary for subsidiaries to be compliant. Thus, economic

costs associated with implementation are incurred, and new risks are faced in understanding

and navigating newly encountered rules and regulations of the country and/or region (Eden &

Miller, 2004; Tirole, 2003). When not excessive to the MNE however, country- and region- level

enforcement of regulations and protections can insulate firms from certain risks and support

certain business activities (Coase, 1959). FDI may be invited in this way and positively

reinforced through institutional support systems such as openness of regulations and

transparency of their enforcement, as well as having a developed of a legal system – all of

which reduce FDI uncertainty for MNEs (Arregle et al., 2013; Bevan, Estrin, & Meyer, 2004;

Globerman & Shapiro, 2003; Holmes et al. 2013; Rammal & Zurbruegg, 2006). There may be a

tipping point, however, when government goes beyond providing necessary transaction

protections and increases their control over market entry/expansion through increased trade

tariffs and the like. For an MNE, this may have the effect of creating an FDI risk continuum, at

which beyond some point may become unattractive/uninviting.

In this dissertation, I examine MNE FDI (i.e., CBA) using an influential component of the

regulatory environment as a lens – regulatory control - the breadth and depth of government

reach and control over commercial business, which can also be characterized as interference in

commercial activity. As described here, certain levels (low to moderate) of regulatory control

50

are an assumable business cost to the firm which can be factored in and offset by future

benefits and opportunities. An environment such as this actually can have the effect of

stimulating commercial business because of reduced uncertainty in understanding and

accepting these ‘rules of the game’ (North, 1990). However, significant levels of regulatory

control are a negative business cost which at some cost point may surpass its associated

benefits. The inflection point where opportunity/benefits are overshadowed by risk/costs will

vary from location to location (country and region). MNEs fundamentally favor and seek the

freedom and flexibility of open trade environments (Globerman & Shapiro, 2003); it is thus

logical that at some level of increasing regulatory control, firms may become investment averse

due to negative consequences experienced, such as increased management issues, inconsistent

and unexpected violations, high relative costs, increased negotiation distance and friction with

local business partners, and even increased government conflict.

Increased levels of regulatory control over organizations arise from high levels of

government involvement and regulation, which stifles operational freedom, limits decision

flexibility and otherwise reduces MNE incentives for entering a country under consideration for

investment (Holmes et al., 2013; Kaufmann, Kraay, & Zoido-Lobaton, 1999). Yet when MNEs

decide to make the FDI commitment, in order to survive and hopefully thrive, the costs of local

regulation compliance are internally absorbed and regulatory requirements and policies are

learned and followed (Eden & Miller, 2004). In these foreign markets, direct economic costs

incurred emanate from regulations/policies established in favor of local businesses, such as:

entry and license fees, tariffs, quotas, trade barriers, and expenses incurred to protect

intellectual and property rights (Boddewyn, 1988). Indirect costs are also incurred, such as an

51

MNE having to take an alternative, and less efficient/effective course of action relative to the

primary one desired, in an effort to be compliant. Strategically, higher levels of regulatory

control reduce MNE flexibility and places boundaries and limits on their strategic options, which

beyond some level will dissuade their FDI (e.g. Brouthers, 2002; Loree & Guisinger, 1995),

particularly when it differentially reduced local government knowledge by the MNE relative to

local firms (Yiu & Makino, 2002). From an overall performance perspective, higher failures rates

were found to be associated with MNEs located in countries with greater levels of regulation,

relative to those with less (Zaheer & Mosakowski, 1997). Considering the literature, I posit that

the formal institutional factor - regulatory control – has a curvilinear (inverted U-shaped)

relationship with a MNEs internationalization into a country/region through cross-border

acquisition equity participation. Applying the previously delineated semiglobalization

framework, and in a Multilatina context, I extend the following hypotheses:

Hypothesis 1a: A Multilatina’s internationalization into a country through cross-border

acquisition equity participation has a curvilinear relationship (inverted U-shaped) with

the regulatory control in its region.

Hypothesis 1b: A Multilatina’s internationalization into a country through cross-border

acquisition equity participation has a curvilinear relationship (inverted U-shaped) with

the country’s ‘region relative’ regulatory control.

Political Democracy

Country inward FDI (IFDI) attractiveness is positively influenced by political democracy

because potential investors are more directly and openly able to analyze and gauge the

possibility of laws changing abruptly via government leader decisions, taken without first being

52

vetted through appropriate checks and balances or gaining public involvement/approval

(Harms & Ursprung, 2002; Holmes et al., 2013; Jensen, 2003). Certain researchers contend that

MNEs strategically pursue internationalization in environments which are comparatively

repressed, and either are or are highly susceptible to be under autocratic rule. In this context,

an MNE may pursue FDI in order to: (1) benefit from differential labor expense offsets, (2)

curtail collective bargaining risk, and (3) improve the probability of securing advantageous local

government arrangements - which then may facilitate exploitation of power concentrations

(Arregle et al., 2013; Bucheli, 2008). Another group of researchers alternatively contend that

political democracy - with its inherent process of checks/balances and citizen say – attracts FDI

since it curbs the propensity for sudden changes in policies and their unpredictable

enforcement, while concurrently emphasizing the quality and value of human capital (Henisz,

2008; Holmes et al., 2013). Here, researchers posit that IFDI is attracted due to reduced

comparative risk and decreased investor uncertainty - stemming from a significant reduction in

the possibility for sweeping power shifts and unanticipated changes in policy/enforcement

(Busse & Hefeker, 2007; Jensen, 2003). Lower levels of government political democracy are

accompanied by less transparency to businesses and citizenry, which may: (1) create political

instability, (2) allow for the establishment of autocratic control, and (3) invite corruption - all of

which have a tendency to make IFDI less attractive/inviting (Orr & Scott, 2008). Research

supports that countries governed by political democracy afforded increased institutional

stability, and as a result were able to summon increased levels of IFDI (Jensen, 2003). From a

direct cost perspective, MNEs who pursue CBA in countries and/or regions with low levels of

political democracy, additional transaction costs are incurred in: (1) drafting contracts which

53

will be approved by all involved parties, (2) monitoring foreign business relationships, which

have increased volatility/variability, and (3) developing a flexible exit strategy plan and

accompanying procedures (Luo, 2005; Oxley, 1999). A related empirical study found that

political and civil repression negatively influenced IFDI (Harms & Ursprung, 2002), and as

argued, MNEs were dissuaded by countries and/or regions with lower civil rights and political

freedoms, and persuaded by those with high rights (Arregle et al., 2013; Busse & Hefeker, 2007;

Harms & Ursprung, 2002). These outcomes provide increased support that MNEs will pursue

greater internationalization through cross-border acquisition equity participation in countries

with greater levels of region-specific and region-relative political democracy. Applying the

previously delineated semiglobalization framework, and in cross-border acquisition and

Multilatina contexts, I extend the following hypotheses:

Hypothesis 2a: A Multilatina’s internationalization into a country through cross-border

acquisition equity participation is positively related to the political democracy of its

region.

Hypothesis 2b: A Multilatina’s internationalization into a country through cross-border

acquisition equity participation is positively related to the country’s ‘region relative’

political democracy.

Capital Investment

Countries and regions with strong economic institutions can attract IFDI because they

represent a locational advantage for entering MNEs (Dunning, 1988). These stronger economic

institutions share commonalities in that they reflect specific financial factors necessary for

economies, and by extension, businesses to grow (Levine & Zervos, 1998) - which are spurred

by organizational and societal capacity/capability to concurrently produce and consume (Lettau

54

& Ludvigson, 2001) – which is all predicated on having access to sufficient capital.

Understanding this sequential relationship, and that a country or region will vary in their degree

of execution, upholds capital investments as a worthy proxy for economic institutions that are

well-developed and highly functioning. Further, government institutional policies and conduct,

as supported by those of central banks and private financial intermediaries, afford increased

capital flow as a result of greater availability of and access to capital, as well as due to increased

support for market growth and liquidity (Bevan et al., 2004; Holmes et al. 2013). Economic

institutions stimulate capital availability through their decisions and actions, such as those

prompting increased capital flow through foreign debt issuance (Tirole, 2003); another

supporting activity are budget deficit increases - an action which parallels tax cuts or

government spending increases – which increase market influx of capital (Bohn, 1991). It makes

sense why then that capital investments have been highlighted as a central FDI determinant

(Agarwal, 1980). Capital investments generate positive MNE spillover effects and strengthen

the shape and condition of resource supply and demand - which significantly influence an

MNE’s decisions and actions at both strategic and tactical levels (Burdekin & Weidenmier, 2001;

Orphanides, 2002).

The economic geography literature contends that government executed economic

policy and action help determine the level of capital investments within their area of reach

(Martin & Sunley, 2008; Romer, 1994). These capital investments stimulate learning,

downstream technology development, and knowledge resource expansion. By extension,

higher concentrations of economic activity in a country or region are tied to greater capital

flows there, relative to other countries and regions. These greater location-specific capital flows

55

in one area versus another (e.g. country and region) are likewise tied to income differences,

accessibility barriers, relative infrastructure expenses, and resultant profitability gains/losses

(Arregle et al., 2013; Martin & Sunley, 2008). IFDI gravitates toward stronger economic

institutions because MNEs must have capital in order to fund expansion and financially

stimulate critical functions/competencies such as research and development, labor

training/development, and production innovation/optimization (Beck et al., 2000; Globerman &

Shapiro, 2003). These learning and development processes would otherwise be limited and

possibly eliminated without cost-effective and stable-valued capital availability. The wealth of

the local citizenry also plays a contributory role in that location-specific capital investments

increase probabilities that incumbent firms will profit from these citizens of wealthy means, by

virtue of their increased access to capital (Meyer & Nguyen, 2005). MNEs pursue markets such

as these, where investors and consumers both have increased purchasing power resulting from

greater access to financial resources and holdings; thus, MNEs benefit from a higher return on

capital in these markets (Agarwal, 1980). Multinationals thus will pursue increased

internationalization through cross-border acquisition equity participation in regions with

greater capital investment levels and in countries with stronger region-relative capital

investment levels. Applying the previously delineated semiglobalization framework, and in

cross-border acquisition and Multilatina contexts, I extend the following hypotheses:

Hypothesis 3a: A Multilatina’s internationalization into a country through cross-border

acquisition equity participation is positively related to the capital investment in its

region.

56

Hypothesis 3b: A Multilatina’s internationalization into a country through cross-border

acquisition equity participation is positively related to the country’s ‘region-relative’

capital investment.

Host Institutional Effects: Countries and Regions

The institutions literature suggests a relationship exists between institutional influence

within a country/region and MNE FDI there. In consideration of this, and the semiglobalization

perspective tenets, as positioned within the Multilatina cross-border acquisition context, I posit

that examination will reveal increased explanatory ability associated with the combined effects

of integrated formal institutional influences (i.e., regulatory control, political democracy, capital

investments) of host countries and their regions (i.e., multi-level institutional approach), when

compared to host country institutional effects (traditional single-level institutional approach)

only, on Multilatinas’ commitment and aggressiveness to internationalize into a country.

Hypothesis 4: A semiglobalization institutional perspective which considers host regions,

in addition to countries, has increased influence and explanatory ability when compared

to the traditional host country institutional perspective.

Multilatina Region Localization: Intra-region versus Inter-region

To further contextualize the above capitulation of the MNE semiglobalization approach,

I bring in prior arguments that Multilatinas may initially prefer intra-regional localization -

influenced by current and forecasted levels of Latin American regional growth, a rising middle

class, and the growing ease of doing business in an increasing number of countries in Latin

America (Carneiro & Brenes, 2014; Chattopadhyay & Batra, 2012; Lopez et al., 2009). Fleury and

Fleury (2011) found that Latin American country pro-market reforms prompted a dynamic chain

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reaction of home country technological learning and modernization, which in turn significantly

enhanced local technological capabilities, total factor productivity and by extension,

international competitiveness. Suarez and Oliva (2002, 2005) examined organizational

transformation processes in competitive Latin American environments rife with sweeping

changes, particularly during the structural reforms known as “The Washington Consensus”. The

authors explicate that firms who effectively manage processes and navigate the stormy waters

of radical environmental changes transform themselves into more competitive organizations.

Latin American countries have been progressively substituting exports and FDI previously

directed to more developed countries for intra-regional “South–South” trade and investment

(Ramamurti, 2009a). For example, Mexican companies increasingly target Central America as a

natural boundary extension of their operational activities. Central American companies are

likewise broadening their operational activities to include all countries in the region (contingent

on strategy and scope). This intra-regional CBA activity ranges in regional breadth (entire region

to specific countries or groups of countries) as an outflow of strategy and influences such as

institutions and location-specific aspects. Applying the two central semiglobalization tenants

and conveyances – region-bound firm specific advantages (RFSAs) and organizational learning -

within the context of Multilatina semiglobalization through cross-border acquisitions, I extend

the following hypothesis on an MNE’s internationalization into a region through countries:

Hypothesis 5: A Multilatina’s internationalization into a country through cross-border

acquisition equity participation is greater for intra-regional localization than for inter-

regional localization.

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Figure 4. Research Model

Formal Institutions

Host Country and Region

Formal Institutional Approach

Multilevel vs. Single level

H3a

Controls Industry Type

Ownership Type Deal Year

Deal Value Country Population

Equity Participation

Multilatina Internationalization

Through Cross-border Acquisition

Regulatory Control Country ‘Region Relative’

Capital Investment Country ‘Region Relative’

Political Democracy Region

Intra-region | Inter-region

Country and Region

Country

Region Localization

Regulatory Control Region

Political Democracy Country ‘Region Relative’

Capital Investment Region

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CHAPTER 3

METHODS

Sample

All hypotheses testing (H1 – H5) was carried out with analysis of a sample of all Latin

American MNE (Multilatina) cross-border acquisition deals greater than $1MillionUS completed

between 2007 to 2011 (5 years), as reported in the Thomson Financial SDC Platinum Database

for Worldwide M&As. SDC Platinum is the premier source of up to date information on cross-

border transactions from around the world and is most often used by investment banks to

quote prices on companies that are being investigated for acquisition. It has also been used as

the source of deal information by numerous recent top-tier academic journal publications

focused on cross-border acquisitions (e.g., Chakrabarti, Gupta-Mukherjee, & Narayanan 2009;

Dikova et al., 2010; Gaffney et al., 2015). For each deal, I matched the deal characteristics

provided in the SDC with the formal institutional variables operationalized and computed

within this study (i.e., country, region, and country ‘region relative’ variables for each of the

three institutional indicators (regulatory control, political democracy, and capital investments).

Each region level and country ‘region relative’ level institutional variable is calculated by year

and country pair (home acquirer | host target) for each CBA transaction deal. Deals with

missing information (i.e., data necessary to operationalize) – 76 transactions - were removed

from the sample. The final sample is composed of 1,189 Multilatina CBA transactions occurring

across 8 regions between 2007 and 2011, as operationalized in this study. 2011 was used as the

study cutoff in order to align and match the CBA transaction specifics from Thomson SDC

Platinum with the formal institutions independent variables based on year. The institutional

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indicators used to construct the formal institutions variables through principal components

analysis are from year-to-year data sources ending in 2011.

Levels of Analysis

Due to the hierarchical nature of the hypotheses and the data (i.e., firm level, country

level, region level data), hypotheses testing was carried out with models constructed,

measured, and analyzed at three levels: Level 1 - firm characteristics, Level 2 - firm foreign

country selections and country-specific characteristics, and Level 3 - firm foreign region

selections and region-specific characteristics. An MNE’s firm/corporate level effects are

controlled through Level 1. Country-level and region-level effects were situated in their own

levels, level 2 and 3 respectively. In this study, regions are conceptualized in geographic terms -

defined as a countries clustered based on physical continuity/proximity (Arregle et al., 2013;

Arregle et al., 2009, Rugman & Verbeke, 2004). Other region operationalizations have been

used (i.e., Aguilera, Flores, & Vaaler, 2007), however, geographic-based grouping is used in my

study because it is most consistently aligns with relevant extant semiglobalization studies and is

the most parsimonious modeling structure, based on my variable operationalizations. This

study’s semiglobalization perspective, conceptualization, and methodological approach aligns

with and relates to its intended emphasis – foreign country and region localization (Aguilera et

al., 2007) - as a core component of a firms’ internationalization strategy (Arregle et al., 2013;

Buckley & Ghauri, 2004; McNamara & Vaaler, 2000). Literature does support that cultural

dimension-based regional grouping has research merit, however it is not as relevant and

meaningful when studying corporate strategy. In fact, scholars have recently converged more in

their contention that further integration of economic geography is needed for deeper

61

examination of MNE strategy from a spatial dimensions perspective (e.g., Arregle et al., 2013;

Arregle et al., 2009; Buckley & Ghauri, 2004). Geographically proximate countries within a

region play a critical role here, in that it has been found to stimulate trade, investment, and

further, acts as a conduit for country to country(ies) governmental convergence and

alignment/optimization of previously insulated management practices (Khanna, Kogan, &

Palepu, 2006). Further, studies confirm that physical distance is empirically and practically

significant in FDI and affects firm operational pathways internationally (Nachum & Zaheer,

2005). Of course, this has particular relevance and importance for this study’s semiglobalization

perspective – as previously revealed in the theory section (i.e. two paradigms of

Seminglobalization). To align my study accordingly, I followed Arregle and associates (2013) in

grouping all sample specific countries (target host and acquirer home) into 8 geographic regions

(Table 3). As noted, this regional grouping based on geographic proximity was adopted (i.e.,

Arregle et al., 2013), as extended from the region classification created in 2008 by the United

Nations Statistics Division. By constructing a series of multilevel models using differing subsets

of variables, the sample used enabled concurrent examination of country-level and region-level

strategies (i.e., the semiglobalization perspective). The included countries and respective

regions in this study represent all OFDIs made by Latin American MNEs through CBA equity

participation, and are commensurate with those previously established in the nascent

semiglobalization literature (Arregle et al., 2013; Belderbos & Zou, 2006).

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Table 3

Composition of Regions

Independent Variables

This study examines effects of formal institutions - emanating from countries and/or

regions (i.e., single level and multilevel formal institutional effects) spurred through regulatory,

political, and economic institutional environments - on MNE internationalization through cross-

border acquisition equity participation - into a region through targeted gateway country(ies)

(i.e. the semiglobalization perspective). This perspective, as examined through a formal

institutions lens, is complemented by also using a region localization (intra-region and inter-

region) lens.

To test hypotheses one through four (H1a, H1b, H2a, H2b, H3a, H3b, H4), I created two

levels of institutional variables - a region-level measure (H1a, H2a, H3a) and a country-level

measure which incorporates influences of the supporting region (i.e., a region-relative country

variable) (H1b, H2b, H3b). The region-specific formal institutional variables are formed using

the eight regions framework, with each region being calculated as a weighted average. Within

Regions Countries

North America United States, Canada

Western Europe United Kingdom, Netherlands, France, Germany, Sweden, Portugal, Italy, Spain, Finland, Austria, Greece, Denmark, Ireland, Switzerland

Eastern Europe Russia, Turkey, Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovenia

Latin America Mexico, El Salvador, Nicaragua, Costa Rica, Panama, Brazil, Colombia, Argentina, Chile, Peru, Venezuela, Ecuador, Uruguay, Paraguay, Guatemala

Oceania Australia, New Zealand

East Asia China, Taiwan, Hong Kong, South Korea

Northwest Asia India, Pakistan

Southeast Asia Thailand, Singapore, Vietnam, Malaysia, Philippines, Indonesia Note: Regional composition based on country geographic proximity (Arregle et al., 2013)

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each of the eight regions, the institutional score of all incumbent countries are individually

weighted based on the specific country’s gross domestic product (GDP) relative to the

particular region’s GDP, then summed for all countries in said region. The process of weighting

the country-specific institutional scores within the region as a ratio based on their particular

GDP relative the region GDP results in an accurate reflection of the varying economic

importance/impact of each country in the same region (e.g., Arregle et al., 2013; Hejazi, 2007).

Each region measure, as a weighted average, reflects the general institutional environment

(central tendency) of the particular region, and each incumbent country measure accounts for

country to country differences/variations. Next, each country measure - a country ‘region

relative’ variable - reflects a country-specific institutional score compared to the weighted

region average (i.e., the weighted sum of all other countries in the same region). It is not

relative to all countries, just all countries nested in the same region. The country ‘region

relative’ variable is calculated as: country’s original institutional score minus its respective

region-level weighted average institutional score. In concert, this methodology captures and

illuminates the semiglobalization perspective (Arregle et al., 2013) of formal institutional

influence on MNE region localization and internationalization through cross-border acquisition

equity participation.

Composite measures (e.g., Gaur et al., 2007) are used in this study to form the

institutions-based predictor variables, as originally conceived by Holmes and associates (2013),

regionally oriented by Arregle and associates (2013), but significantly expanded and updated in

my study (Table 6) to represent institutions through year 2011 (versus 2003), and 95 countries

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(versus 50). For this study, I worked with Holmes and associates (2013), as well as Arregle and

associates (2013), to update and extend original variables, thus ensuring the validity and

Table 4

Variable Units, Definitions, and Data Sources

Institution Name Untransformed Units Definition Data Source Regulatory Corruption Index, 0 (high) to 6 (low) The use of a public office for private gain,

thereby reducing the integrity of regulatory institutions

ICRG

Contract and Property rights

Index, 1 (few) to 5 (more) The extent to which governments protect individuals and organizations from violations of exchange commitments and asset expropriations

IEF

Fiscal burden (taxation and government spending)

Index, as above The financial impact on organizations of government policies

IEF

Foreign investment restrictions

Index, as above Government limitations and monitoring that pertain to foreign firms, including which firms are allowed to enter

IEF

Government control over wages and prices

Index, as above The extent to which governments interfere with free market transactions

IEF

Government intervention in banking

Index, as above The influence of regulations on the financial services industry

IEF

Government restrictions on industry

Index, as above The extent to which governments interfere with private sector activities

IEF

Informal markets

Index, as above Reflects the prevalence of unregulated and untaxed markets that operate outside the government’s formal authority

IEF

Monetary policy

Index, as above Reflects the level of government involvement in managing the country’s money supply

IEF

Regulatory burden

Index, as above Reflects government influence over business behavior through, for example, licensing and registration requirements

IEF

Trade Policy Index, as above Captures the government’s control over a country’s exports and imports through, for example, the use of quotas and tariffs

IEF

Political Civil Liberties Index, 1 (high) to 7 (low) Measures a country’s approach to governing human rights, such as freedom of speech, religion, and assembly

Freedom House

Executive political restrictions

Index, 0 (low) to 1 (high) Indicates specific restrictions on executive behavior

POLCON

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Political constraints

Index, 0 (low) to 1 (high) The degree of restrictions on policy changes from veto power and the distribution of power across political branches

POLCON

Political rights Index, 1 (high) to 7 (low) Extent to which the country’s laws allow citizens to participate in government through, for example, voting and running for office

Freedom House

Economic Budget balance

Billions of dollars

The difference between a country’s tax revenue and spending

PRS

Capital investments

Billions of dollars

The money paid to purchase capital assets and fixed assets

PRS

Economic cont’d

Change in real wages

% change in real wages -year over year

The change in money wages, corrected for inflation over time

PRS

Credit transfers

Billions of dollars

The amount of payment order(s) made to disburse money for another party

PRS

Exchange rate Exchange rate vs. the U.S. dollar

Rate at which one country’s currency may be converted to another’s currency

PRS

Debt service cost

Billions of dollars

The interest cost of payment on debt PRS

Industry work force

% of population Individuals employed in manufacturing industries

PRS

Inflation rate Inflation rate (%) The percentage increase in the price of goods and services

PRS

Liabilities Billions of dollars

The amount of a country’s financial commitments or debt

PRS

Liquidity Months import cover

Ability to convert assets into cash quickly to cover obligations

PRS

Money Supply Billions of dollars

The year-end money in circulation in the economy

PRS

Net reserves Billions of dollars

The amount of change in a country’s holdings of international reserves due to financial transactions (calculated as year-end gross reserves, including gold, minus liabilities)

PRS

Nominal GDP Billions of Dollars (nominal)

A measure of economic output for a country, not accounting for inflation

PRS

Size of population

Total population (in millions)

The number of people within a country PRS

Services work force

% of population Individuals employed in service industries PRS

Value of stocks traded

Total value of stocks traded / GDP

The total value of stock traded within a country

WDI

Trade balance Billions of Dollars

The difference between imports and exports PRS

Total foreign debt

Billions of Dollars

The amount of money that a country owes other countries

PRS

Unemployment rate

% of population The percentage of a country’s workforce population that is without a job

PRS

Unionized workforce

% of persons employed The percentage of a country’s workforce that consists of union members

PRS

Note: ICRG = International Country Risk Guide; IEF = Index of Economic Freedom; POLCON = Political Constraint Index; PRS = Political Risk Services; WDI = World Development Indicators (Holmes et al., 2013)

66

reliability of measures, and increasing their breadth. Seven independent indices were resourced

to obtain 34 comprehensive institutional measures to create new factor scores (Table 5) for five

years (2007-2011) across the three formal institutional variables used in my study and done so

for 95 countries (Table 4). The resulting factors accurately proxy the three constructs used in

my models - regulatory control, political democracy, and capital availability. In consideration of

my previous discussion regarding informal institutions helping shape formal institutions and

thus possibly having similar origins, oblique rotation was used to permit factor correlation. In

accordance with their original derivation in Holmes et al. (2013), as contextualized in Arregle et

al. (2013), then updated and broadened herein, the resulting principal component factors had

high internal reliability and discriminant validity, were structurally stable, and conceptually

discrete. To ensure study validity and reliability, I adopted conceptualization and

operationalization procedures for these formal institutional variables, which were deemed

statistically and practically significant by their successful use in the Journal of Management and

Strategic Management Journal respective articles from Holmes and associates (2013), as

extended by Arregle and associates, (2013).

The independent variables for hypotheses 1 (H1a & H1b) - regulatory control - captures

effects of laws, regulations, and government policies on business. Influenced by the level of

government involvement (Busenitz, Gomez, & Spencer, 2000), resultant regulatory control

constrains behavior differentially through variation in degree of rule-setting, monitoring, and

administration (Scott, 1995). This variable is measured by a country’s regulatory burden, trade

policy, foreign investment restrictions, contract and property rights, government intervention

in banking, informal markets, and monetary policy. Per Holmes et al., (2013), all associated

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measures positively and significantly loaded, which reflects increased levels of regulatory

control. Higher relative regulatory control institutional scores for a country/region are

associated with characteristics of increasing regulatory control (i.e., stronger, more far-reaching

and additionally constraining regulatory oversight and involvement). The independent variables

for hypotheses 2 (H2a & H2b) - political democracy - represent the degree of government

influence, power, and use of it over its people - illustrated by the amount a country confers its

citizenry with political rights, civil liberties, political constraints and executive political

restrictions. Countries with higher political democracy institutional scores are governed by

increasingly democratic governments - characterized by actions such as endowing its people

with more liberties and rights, as well as enacting and enforcing rights protection measures. Per

Holmes et al., (2013, higher institutional scores for political rights and civil liberties reflect fewer

rights/liberties, thus these indicators are reverse coded in the data. Higher scores for all other

indicators of this variable segment reflect increasing levels of political democracy. As political

democracy indicators, political constraints and executive political restrictions represent the

degree of checks and balances in place that help prevent/avert government power

concentrations (Arregle et al., 2013; Holmes et al., 2013). The independent variables for

hypotheses 3 (H3a & H3b) - capital investments - represent greater levels of capital infusion

into an economic area. All associated indicators loaded positively and significantly, to include

money supply, total foreign debt, net reserves, capital investments and nominal GDP. Higher

capital investment institutional scores reflect increased levels of capital available and directed

toward commerce in a country (Arregle et al., 2013; Holmes et al., 2013).

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Table 5

Institutional Dimensions: Results of Factor Analysis

To test hypothesis five (H5) – the effects of Multilatina regional localization (i.e.,

semiglobalization) on internationalization propensity – I operationalized the independent

variable, regional localization, on an intra-region versus inter-region dichotomous basis. Within

this conceptualization, a Multilatina will make an “either or” region-based location decision,

specifically, whether to exact CBA within its own geographic region but external to their home

country (intra-region localization), or to exact CBA external to both home country and region

(inter-region localization). This ‘two alternatives’ decision point is best captured and measured

Formal Institutions Factor 1

Regulatory

Control

Factor 2

Political

Democracy

Factor 3

Capital

Investment

Regulatory burden .80 .02 -.06

Contract and property rights .79 -.21 -.09

Trade policy .77 -.09 -.04

Informal markets .77 -.10 -.18

Government intervention in banking .77 -.-2 .06

Foreign investment restrictions 75 .07 .23

Monetary policy .58 -.04 -.22

Money supply -.03 -.01 .96

Capital investments -.07 -.02 .94

Total foreign debt .00 -.06 .93

Nominal GDP -.10 .01 .89

Budget balance -.15 -.10 -.73

Net reserves -.06 -.19 .71

Political constraints .24 .96 -.02

Political rights .12 -.87 -.03

Civil liberties .28 -.76 -.02

Executive political restrictions -.31 .68 .01

Total proportion of variance explained

70.8

Note: The grayed block indicates the factor on which the variable loads (Holmes et al., 2013)

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by a dichotomous categorical independent variable (i.e., Intra-region = 0, Inter-region = 1). In

accordance with the context of this study, intra-region Multilatina choice is represented by

Latin America, and inter-region is any of the other seven regions, as established in this study.

Table 6

Region Institutional Profiles of the Three Formal Variables

Dependent Variable

The dependent variable used in testing all hypotheses (H1-H5), equity participation, is

conceptualized at the country-level to represent MNE internationalization aggressiveness and

commitment - as proxied by individual MNE (firm-level) decisions of specific ownership levels

taken through CBA on a deal to deal basis. As contextualized in this study, the objective is to

relate the Multilatina’s strategic investment decision (i.e. CBA ownership level acquired) in a

targeted country to that country’s institutional environment, as well as relative to the target

region’s institutional environment (i.e., relative to the cumulative weighted institutions of all

other countries in the region). As such, equity participation ownership level - the degree of

equity ownership in the target firm that the acquirer obtains in the CBA - is operationalized

Weighted region-average institutional values

Region Regulatory

Control

Capital

Investment

Political

Democracy

North America 1.294 5.273 -1.031

Western Europe 1.217 1.073 -1.02

Eastern Europe -.319 -.117 -.47

Latin America -.105 -.111 -.374

Oceania 1.696 .027 -1.031

East Asia -.595 1.20 1.317

Northwest Asia -.88 .072 -.342

Based on 2011 institutional index data

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herein as a continuous variable. Equity participation, as a continuous variable, is the main

criterion operationalization of the study and is based on a scale provided in the SDC Platinum

for each acquisition, ranging from 0.1% to 100%. Rather than using the dichotomous variable of

partial or full acquisition like previous research, we join more recent scholars (Chari & Chang

2009, Chen & Hennart 2004; Gaffney et al., 2015; Malhotra et al. 2011) in examining the full

range of equity participation sought. This provides a more nuanced incremental examination

when compared to a dichotomous variable, which may artificially intensify finding magnitudes

specific to the type of statistical methodology used in the main study For the dependent

variable, a high score (i.e. higher equity participation) for a firm within a country indicates that

the Multilatina has an increased internationalization commitment into that specific country. In

our sample of Multilatina cross-border acquisitions, equity participation had a mean of 72.69%

and a standard deviation of 35.28%. These values are consistent with prior research on cross-

border acquisitions (Chari & Change, 2009; Gaffney et al., 2016; Malhotra, Sivakumar, & Zhu).

Equity participation has gained momentum and attention in the literature as an important

outcome in CBAs, with variations of equity taken in CBA being driven by divergent strategies

and varied context “laboratory conditions” (Chari & Chang, 2009; Chen & Hennart, 2004;

Malhotra et al., 2011). The level of ownership taken in an acquisition impacts many aspects of a

firm’s strategy (Chari & Chang, 2009; Das & Teng, 2000; Pisano, 1989). Furthermore, it is not

clear that partial cross-border acquisitions should be treated the same as joint ventures. Entry

through partial acquisition is not a Greenfield venture like traditional JVs (Brouthers & Hennart,

2007; Chen & Hennart, 2004). Multinationals seek varied levels of CBA equity participation in

accordance with their firm-level perceived outcomes from cost-benefit analysis – weighing

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increased control resulting from higher levels of ownership versus the potential for the reduced

exposure to risk which accompanies decreased ownership levels taken (Inkpen, 2001).

Opportunity costs are thus evaluated based on MNE-specific internationalization strategy, and

in consideration of host country and region environmental conditions. Limited ownership may

decrease the MNE’s ability to harness the full potential of RFSAs, increase partner opportunism

risk, reduce operational processes integration potential, and increase organizational learning

difficulty (Anderson & Gatignon, 1986; Hennart, 1991; Kogut & Zander, 1993). In light of its

increasing successful use in current and relevant literature, equity participation was brought

into the nascent semiglobalization approach as this study’s proxy for Multilatina

internationalization commitment in cross-border acquisitions.

Controls

To facilitate more focused and nuanced examination of formal institutional effects on a

Multilatina’s internationalization through CBA equity participation using a multilevel model, I

controlled for effects at each of the three levels (i.e. firm, country, and region). I adopted

relevant prior successful study control procedures (e.g., Arregle et al., 2013; Chan, Makino, &

Isobe, 2006; Gaffney et al., 2016; Gaur et al., 2007), and molded them to better fit my study. I

included: population (a country’s number of inhabitants); industry type (the acquirer’s macro

industry - defined by Thomson Financial based on SIC codes, coded as 0= Consumer Products

and Services, 1= Energy and Power, 2= Financials, 3= Government and Agencies, 4= Healthcare,

5= High Technology, 6= Industrials, 7= Materials, 8= Media and Entertainment, 9= Real Estate,

10= Retail, 11= Consumer Staples, and 12= Telecommunications); ownership type (the

acquirer’s ownership type, coded as 0= Government Owned, 1= Privately Held, and 2= Publicly

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Held); deal year (coded for the calendar year of the deal (2007 – 2011) to help account for

economic shifts over time (Y1-2007, Y2-2008, Y3-2009, Y4-2010, 0-2011)); firm size (calculated

as the net sales of the acquirer for the last 12 months in US$ as reported in the SDC Platinum)l;

and lastly, deal value (the reported monetary size of the acquisition as reported in the SDC

Platinum).

Statistical Method and Modeling

Due to the structure of the data and the hierarchical nature of certain research

questions, I used a multilevel model to test hypotheses, but specifically in order to answer

hypothesis 4, which necessitates comparison of multilevel institutional effects (country and

region) versus traditional single level institutions (country). Multilevel modeling can address

and accommodate potential statistical problems characteristic of multilevel data (e.g. variable

dependence between levels, homoscedasticity) and enables identification of individual level

effects (i.e., firm, country, and region), as well as between level effects and cumulative effects

(Arregle et al., 2009; Arregle, Hebert, & Beamish, 2006; Hitt et al., 2007). Because my study is

most appropriately examined by multilevel models with two and three levels, I followed recent

successful scholars’ (e.g. Arregle, et al., 2013) use of the multilevel software SuperMix (Hedeker

et al., 2008). Hierarchical structures are increasingly encountered across all disciplines in

management research, on the micro, meso, and macro levels, as well as with research that

spans boundaries between these levels of analysis. To allow for simultaneous examination at

the varying overall levels, between the levels, within the levels at the individual indicator level,

and for overall multi-level model estimation, a model that acknowledges the data's inherent

73

hierarchical structure (e.g. country-level data nested within region-level data), and allows the

study of both models along with the way these models are related to each other, is needed.

SuperMix (Hedeker et al., 2008) combines the functionality of four mixed-effects programs,

MIXREG, MIXOR, MIXNO, and MIXPREG, into a single application to provide estimates for

mixed-effects regression models. Specific to my study, these models are created for and have

been successfully used with clustered data (e.g. Arregle et al., 2013) such as in this dissertation,

where the mixed-effects model does not assume that each observation is independent, but

does assume that data within clusters are dependent to some degree. SuperMix uses a

maximum marginal likelihood solution, based on a Fisher-scoring algorithm for continuous and

nominal data, like that used in this study (Hedeker et al., 2008).

With this type of data and statistical analysis (i.e., multiple levels with somewhat

dependent between-level data), a ‘goodness of model fit’ indicator must be used over, or in

addition to, variance explained model measures such as R-square. Goodness of fit indicators

identify which model(s) best fit the specific data on a comparative basis. The identification of

best fitted data (i.e. lowest score) reveals the most parsimonious accounting or best

explanation of studied phenomenon relationships. As such, I used the Aikake Information

Criterion (AIC) and the Bayesian Information Criterion (BIC), which are penalized likelihood

criteria and are the most relevant statistics appropriate to this study (Arregle et al., 2013; Dziak,

Coffman, Lanza, & Li, 2012). AIC and BIC both allow for mixed model evaluation and comparison

of different subsets of predictor variables with different numbers of levels; their main benefit is

that they are used for selecting best predictor subsets among compared models in regression

(Burnham & Anderson, 2004; Dziak et al., 2012). Some scholars prefer one of these information

74

Table 7

Akaike’s Information Criterion and Bayesian Information Criterion

criterion over the other (i.e., AIC vs. BIC) (Table 7), due to differences in their emphasis and

because their analysis of model–data fit is based on different assumptions, yet it is increasingly

recognized that best overall theory/model/data studies have ‘best models’ identified and

favored by both criteria in consensus (i.e., lowest AIC and BIC). (Dziak, et al., 2012; Kuha, 2004).

From an evaluation perspective, a particular AIC and BIC model value, in isolation, is

meaningless without other model values with which to compare. Best models are identified and

selected by comparing their relevant information side by side (best models have the lowest AIC

and BIC). Model differences can then be evaluated mathematically between a particular

model’s AIC/BIC values and those of the model with the lowest AIC/BIC (i.e., the best model).

The number difference between models indicates the loss of information experienced - in the

fitting of models to data - if we use the model with the higher/highest AIC or BIC values

compared to the “best model” with the lowest AIC or BIC values. (Burnham & Anderson, 2004;

Dziak, et al., 2012).

There are discussions within the literature as to the appropriateness of multilevel model

use in management, and specifically strategy, using “nested” data (e.g. country level indicators

nested within region level indicators) although its origins are disparate and multidisciplinary,

relevant multilevel paradigms are increasingly understood and accepted/adopted in recent

Criterion Emphasis Likely Kind of Error

AIC Good Future Prediction overfitting

BIC Parsimonious Model underfitting

75

management research (Mathieu & Chen, 2010), and researchers have shown how successful it

can be in considering multilevel approaches for strategic management (e.g. Arregle, et al.,

2013; Dess, Gupta, Hennart, & Hill, 1995; Drnevich & Shanley, 2005; Holmes et al., 2013; Short,

Ketchen, Palmer, & Hult, 2007). When variable dependence is influenced by multilevel data

structures and research does not properly acknowledge and model it, covariation of variables

across levels may lead to errors of prediction if a researcher uses a statistical approach not

designed to model data structures that include dependence due to clustering of entities

(Aguinis & Culpepper, 2015; Aguinis & Edwards, 2014; Aguinis & Molina-Azorin, 2015). I

addressed these potential statistical problems in my study by using SuperMix (Hedeker et al.,

2008) – as explained previously - to test the multilevel hypotheses.

As an independent analysis, I tested hypotheses one, two, three, and five (i.e., not H4

because of clustered data and potential variable dependence, as described above) using a

model based on OLS regression - in order to introduce predictors in a specific order, so that

increments in explained variance and changes in regression coefficients can be more effectively

evaluated. I used hierarchical linear regression for hypotheses testing here so that certain sets

of controls and predictors can be entered in the regression in a certain order. Hierarchical linear

regression (HLR) has been successfully used in extant research on the topic in top tier

international business publications (e.g., Aybar & Ficici 2009; Gaffney et al., 2015; Gubbi et al.,

2010; Hope et al. 2011). HLR affords robustness in hypotheses testing in that it enables starting

the analysis by adding only demographic control variables to the model in one step, and then

adding specific predictors in order of hypotheses tests, to determine if they predict the

criterion, in consideration of, and above and beyond the effect of the controls. It builds

76

separate but related models in each step. Again, HLR was used to test hypotheses that did not

incorporate nested data.

77

CHAPTER 4

FINDINGS

Hypotheses Testing

The descriptive statistics and intercorrelation matrix for each variable are presented in

Tables 7 and 8 respectively. Before examining statistical findings of specific hypotheses tests, I’ll

first explain the five models used and why they were used. Model 1 introduces the firm level

headquarters and industry characteristics used as study controls. Model 2 added the country-

level institutional variables (regulatory control, political democracy, capital investment) to the

controls in order to test for isolated country level institutional effects so they could be

compared to region level effects, country ‘region relative’ effects and lastly, combined country

and region effects together. Following this logic, Model 3 included the country ‘region relative’

institutional variables, Model 4 included the region level variables, and Model 5 included both

the country and region level variables simultaneously. Model 5’s incorporation of both country

and region level variables in a simultaneous examination necessitated use of the multilevel

modeling software for reasons previously explained, and revisited below.

Overall model evaluation is necessary in order to test hypothesis 4 - comparison of

multilevel institutional effects (country and region) versus traditional single level institutions

(country) - results of the multilevel model (i.e., simultaneous evaluation of country level and

region level institutional data) predicting a Multilatina’s internationalization commitment and

aggressiveness into a country (i.e., equity participation taken) is presented in Model 5 (Table

14). To revisit, with this type of data and statistical analysis (i.e., multiple levels with somewhat

dependent between-level data), a ‘goodness of model fit’ indicator must be used over, or in

78

addition to, variance explained model indicators such as R-square. Goodness of fit indicators

identify which model(s) best fit the specific data on a comparative basis. The identification of

best fitted data (i.e. lowest score) reveals the most parsimonious accounting or best

explanation of studied data - phenomenon relationships. As previously discussed (see Statistical

Method and Modeling for a more in-depth review), to compare models created in my study and

identify the best ones according to parsimonious goodness of fit, I concurrently used the Aikake

Information Criterion (AIC) and the Bayesian Information Criterion (BIC) (i.e., Burnham &

Anderson, 2004; Dziak et al., 2012; Kuha, 2004). In order to test for the hypothesized curvilinear

relationship between regulatory control and Multilatina cross-border acquisition equity

participation (H1a and H1b) I followed Cohen et al., (2013) protocol by separating first- and

second-order terms for the quadratic effect into sequential levels (e.g. Arregle et al., 2013). In

order to further validate model test results, I created independent predictor subset models

without the region level data (i.e., Models 1 – 3), and with the region level data (i.e., Models 4

& 5), and tested them ceteris paribus (e.g., all other controls/nuisance variables/model

evaluation statistics were held constant). Considering the AIC and BIC (lowest scores indicate

the most parsimonious model-data fit), Model 5 is the best model, as fitted to the data (AIC

6208, BIC 6249). Thus, Model 5 (using country and region institutional influences) affords the

best explanation – most accurate representation – of institutional effects on Multilatina

internationalization commitment, when compared to other models tested (i.e., M2: country

level only; M3: country ‘region relative’ level; M4: region level only). The varying levels of

information loss (i.e., goodness of fit distance) between the best fitting model (Model 5) and

the other four models examined, are revealed in Table 13 and discussed in more detail next.

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Table 8

Descriptive Statistics

Variable Mean Std. Deviation

%Own 72.6890 35.28111

Y1 .19 .389

Y2 .19 .388

Y3 .19 .395

Y4 .23 .420

DealValue 162.16 445.17

Ind1 .10 .305

Ind2 .40 .490

Ind3 .00 .029

Ind4 .02 .138

Ind5 .03 .159

Ind6 .05 .221

Ind7 .17 .377

Ind8 .03 .162

Ind9 .03 .162

Ind10 .02 .146

Ind11 .10 .298

Ind12 .03 .162

AcOT1 .01 .087

AcOT2 .02 .135

AcOT3 .25 .433

AcOT4 .34 .472

AcOT5 .38 .486

TgtRgnPol .085735913 .6368700301

TgtRgnReg .217544155 .7838398475

TgtRgnCap .433355761 1.0419828250

TgtCRRPol -.535159458 1.2982608850

TgtCRRReg .164823878 1.5410688266

TgtCRRCap 1.377019305 2.4267390930

IntraRegion .51 .500

N = 1189

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Table 9

Pairwise Correlations

Intrntl Propn

Pop TgtCn Pol

TgtCn Reg

TgtCnCap

TgtRgnPol

TgtRgnReg

TgtRgnCap

Interntnlzn Propensity

Pearson 1 -.054 -.006 -.087** -.083** .152** .179** -.099**

Sig. .065 .846 .003 .004 .000 .000 .001

Population Pearson -.054 1 .355** -.234** .404** -.298** -.056 .200**

Sig. .065 .000 .000 .000 .000 .055 .000

TgtCnPol Pearson -.006 .355** 1 -.610** -.010 -.683** .337** -.283**

Sig. .846 .000 .000 .732 .000 .000 .000

TgtCnReg Pearson -.087** -.234** -.610** 1 .267** .354** -.684** .476**

Sig. .003 .000 .000 .000 .000 .000 .000

TgtCnCap Pearson -.083** .404** -.010 .267** 1 -.153** -.587** .758**

Sig. .004 .000 .732 .000 .000 .000 .000

TgtRgnPol Pearson .152** -.298** -.683** .354** -.153** 1 -.254** .202**

Sig. .000 .000 .000 .000 .000 .000 .000

TgtRgnReg Pearson .179** -.056 .337** -.684** -.587** -.254** 1 -.777**

Sig. .000 .055 .000 .000 .000 .000 .000

TgtRgnCap Pearson -.099** .200** -.283** .476** .758** .202** -.777** 1

Sig. .001 .000 .000 .000 .000 .000 .000

TgtCRRPol Pearson -.078** .359** .934** -.539** .069* -.899** .327** -.268**

Sig. .007 .000 .000 .000 .017 .000 .000 .000

TgtCRRReg Pearson -.142** -.107** -.526** .929** .453** .335** -.906** .672**

Sig. .000 .000 .000 .000 .000 .000 .000 .000

TgtCRRCap Pearson -.064* .434** .109** .139** .960** -.284** -.420** .546**

Sig. .028 .000 .000 .000 .000 .000 .000 .000 IntraRegion

Pearson .274** -.227** -.056 -.451** .549*** .312** .787** -.524**

Sig. .000 .000 .054 .000 .000 .000 .000 .000

SQTgtRgn_Reg

Pearson .009 .063* -.499** .315** .268** .704** -.368** .582**

Sig. .757 .030 .000 .000 .000 .000 .000 .000

SQTgCRR_Reg

Pearson -.146** .084** -.299** .434** .414** .415** -.820** .680**

Sig. .000 .004 .000 .000 .000 .000 .000 .000 DealValue ($M)

Pearson Correlation

.127** .021 -.096** .045 .093** .110** -.075** .088**

Sig. .000 .463 .001 .120 .001 .000 .010 .002

N=1189; ***p<.001; **p<.01; *p<.05

Hypotheses 1a and 1b predict that a curvilinear relationship - an inverted U-shaped

relationship – exists between the region’s formal institution of regulatory control (H1a) and

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Multilatina internationalization into a country through cross-border acquisition equity

participation, as well as an inverted – U relationship between the country’s region-relative

regulatory control (H1b) and Multilatina’s internationalization into a country through cross-

border acquisition equity participation. Models 3, 4, and 5 test these hypotheses by two

methods and with two statistical analyses, as previously explained in detail. To briefly revisit,

hierarchical linear regression (HLR) is an appropriate statistical method here because variables

are not dependent between levels. Hypothesis 1a is fully supported/significant and H1b is

partially supported, in that the relationship was confirmed to be in the hypothesized direction

(inverted U), but the second-order quadratic text was not statistically significant. Models 4 and

5 tested region regulatory control (H1a) and both found inverted u-shaped relationships (see

Figure 4 and Table 9). Model 4 results: region regulatory control (.410, p < .01); second order

quadratic region regulatory control squared (-.307, p < .001). Model 5 results: region regulatory

control (.415, p < .01); second order quadratic region regulatory control squared (-.263, p <

.001). Models 3 and 5 tested country ‘region relative’ regulatory control (H1b) and both found

inverted u-shaped relationships (see Table 10 and Figure 5). Model 3 results: country ‘region

relative’ regulatory control (.190, p < .001); second order quadratic region regulatory control

squared (-.005, ns). Model 5 results: country ‘region relative’ regulatory control (.197, p < .001);

second order quadratic country ‘region relative’ regulatory control squared (-.024, ns).

Hypotheses 2a and 2b predict a positive linear relationship between the region’s formal

institution - political democracy - (H2a), and separately, the region-relative political democracy

of a country (H2b), on a Multilatina’s internationalization into a country through cross-border

acquisition equity participation. Models 3, 4, and 5 test these hypotheses by two methods and

82

Table 10

The Influence of Regulatory Control on Multilatina CBA Equity Participation

Figure 5. The Influence of Regulatory Control on Multilatina CBA Equity Participation

with two statistical analyses, as previously discussed in detail and in following the HLR rationale

extended under H1a and H1b testing. Hypotheses 2a and 2b are supported (see Table 11 and

Figure 6). Models 4 and 5 tested region political democracy (H2a) and both found positive and

significant relationships. Model 4 results: region political democracy (.361, p < .001). Model 5

results: region political democracy (.306, p < .001). Models 3 and 5 tested country ‘region

relative’ political democracy (H2b) and both found positive and significant relationships (see

Figure 5). Model 3 results: country ‘region relative’ political democracy (.150, p < .01). Model 5

results: country ‘region relative’ political democracy (.146, p < .001).

H1a and H1b Test Coefficients Model 3 Model 4 Model 5 H1a Regulatory control – region [1st order quadratic] .410** .415** (Regulatory control – region)2 [2nd order quadratic] -.307*** -.263*** H1b Regulatory control - country ‘region-relative’ .190*** .197*** Regulatory control - (country ‘region-relative’)2 -.005 -.024 N=1189; ***p<.001; **p<.01; *p<.05

Regulatory Control

Low Level

High Level

High Level Low Level

Region (H1a) Country ‘Region Relative’ (H1b)

Equity Participation

83

Table 11

The Influence of Political Democracy on Multilatina CBA Equity Participation

Figure 6. The Influence of Political Democracy on Multilatina CBA Equity Participation

Hypotheses 3a and 3b predicted a positive linear relationship between the formal

institution - capital investment - of the region (H3a) and a Multilatina’s internationalization into

a country through cross-border acquisition equity participation, as well as a positive linear

relationship between the country’s region-relative capital investment (H3b) and a Multilatina’s

internationalization into a country through cross-border acquisition equity participation.

Models 3, 4, and 5 test these hypotheses by two methods and with two statistical analyses, as

previously discussed in detail and in following the HLR rationale extended under H1a, H1b, H2a,

H2b testing. Hypotheses 3a and 3b are supported (see Table 12 and Figure 7). Models 4 and 5

H2a and H2b Test Coefficients Model 3 Model 4 Model 5 H2a Political democracy - region .361*** .306*** H2b Political democracy - country ‘region-relative’ .150** .146*** N=1189; ***p<.001; **p<.01; *p<.05

Low Level

Political Democracy

Equity Participation

Low Level

High Level

Region (H2a) Country ‘Region Relative’ (H2b)

High Level

84

tested region capital investment (H3a) and both found positive and significant relationships.

Model 4 results: region capital investment (.298, p < .001). Model 5 results: region capital

Table 12

The Influence of Capital Investment on Multilatina CBA Equity Participation

Figure 7. The Influence of Capital Investment on Multilatina CBA Equity Participation

investment (.249, p < .01). Models 3 and 5 tested country ‘region relative’ capital investment

(H3b) and both found positive and significant relationships (see Figure 7). Model 3 results:

country ‘region relative’ capital investment (.084, p < .05). Model 5 results: country ‘region

relative’ capital investment (.081, p < .01).

Hypothesis 4 predicted that a multilevel semiglobalization approach (i.e., country and

region) to investigating formal institutional effects (i.e., regulatory control, political democracy,

capital investment) – specifically, one that considers both country and region level institutions –

H3a and H3b Test Coefficients Model 3 Model 4 Model 5 H3a Capital Investment - region .298*** .249** H3b Capital Investment - country ‘region-relative’ .084* .081** N=1189; ***p<.001; **p<.01; *p<.05

Low Level Capital Investment

High Level

High Level

Low Level

Region (H3a) Country ‘Region Relative’ (H3b)

Equity Participation

85

has increased explanatory ability and significance over one that considers country level

institutional effects only. Hypothesis 4 is supported (see Table 13). I used a multilevel model and

statistical analysis (i.e., SuperMix) to test this hypothesis for reasons previously explained (e.g.,

variable dependence between levels, homoscedasticity). Extant empirical support has led to

greater convergence in our overall understanding that MNE FDI strategy and conduct (e.g.,

investment location and level) are significantly influenced by country level institutions. Building

on this, and based on the detailed logic previously extended herein, one of the main predictions

and contributions of my dissertation is that a semiglobalization perspective and explanation of

MNE FDI patterns is more robust and accurate when compared to the country level tradition.

Thus, tested models crafted to represent semiglobalization should explain these effects more

accurately than those representing country level influences. Whereas hypotheses 1-3 test

disaggregated and individual aspects/predictions of the semiglobalization approach, the main

overarching prediction of additional value being extended by the aggregate semiglobalization

perspective is tested in hypothesis 4. Hypothesis 4 predicts that a multi-level semiglobalization

perspective - a three-level model with country level and region level institutional effects (Model

5)- accounts for additional explained value and variance in MNE FDI (Multilatina CBA equity

participation) when compared models representing country-level institutional effects (Models 2

& 3): Model 5 markedly produces a much better explanation of Multilatina internationalization

through cross-border acquisition equity participation (i.e. lower AIC and BIC relative to the

other models) - Model 5: AIC 6208 and BIC 6249 are lower than Model 2: AIC 6418, BIC 6496; or

Model 3: AIC 6287, BIC 6376. In additional confirmation, HLR variance explained (R-square and

Adjusted R-square) are greater for Models 4 and 5 than for Models 2 or 3 as well (See Table 13).

86

These results provide strong support for the notion that, compared to a country-level

constrained model, a semiglobalization perspective, which considers both country and region

institutions, affords a better explanation of these relationships.

Table 13

Country and Region Institutions Compared to Country Institutions

Hypothesis 5 predicted that Multilatinas would display increased internationalization

through cross-border acquisition equity participation on an intra-region basis (external to their

headquartered country but internal to the Latin American region), when compared to an inter-

region basis (external to both their headquartered country and region, thus occurring in a

country within one of the seven regions other than Latin America). Hypothesis 5 is supported

(see Table 14). Models 2, 3, 4, and 5 incorporated the intra-region/inter-region dichotomous

predictor variable to ensure test validity across all hypotheses tests and with divergent

institutional variable use – with the following coefficients, all of which were significant at p <

.001 (M2: .278; M3: .334; M4 .204; M5: .237). Interestingly, the greatest correlation was in

Model 3 (.334, p<.001) which also tested the country ‘region relative’ institutional variables,

Mixed Regression (SuperMix) Model Fit Summaries

Model 2 Model 3 Model 4 Model 5

Goodness of fit: Akaike information criterion 6418 6287 6232 6208

Delta = AIC(model) – AIC of lowest AIC: Model 4) 210 79 24 0

Goodness of fit: Bayesian information criterion 6496 6376 6281 6249

Hierarchical Linear Regression Model 2 Model 3 Model 4 Model 5

R-square .166*** .182*** .185*** .221***

Adjusted R-square .142*** .162*** .166*** .198***

F 9.285*** 9.531*** 9.777*** 10.171*** N=1189; ***p<.001; **p<.01; *p<.05

87

and the smallest correlation was Model 4 (.204, p<.001) which tested the region institutional

variables. To isolate and verify these results, I retested the hypothesis (H5) using logistic

regression and converted the continuous dependent variable – equity participation – into a

dichotomous dependent variable (full ownership | partial ownership) to further understand

effects of the dichotomous region localization predictor variable (intra-region | inter-region) in

Model 3. Results parallel and confirm main effects results from M2 through M5 examination

(Exp(B): 3.543, p < .001).

Table 14

Multilatina Internationalization: Intra-region versus inter-region localization

H5 Test Coefficients Model 2 Model 3 Model 4 Model 5

HLR and Mixed Regression Intra-region / Inter-region .278*** .334*** .206*** .237*** Logistic Regression Exp(B) 3.543***

N=1189; ***p<.001; **p<.01; *p<.05

88

Table 15

Aggregated hypotheses test results using mixed regression and linear regression

Variable Model 1 Model 2 Model 3 Model 4 Model 5

Intercept 86.532*** 68.848*** 68.422*** 92.224*** 91.282***

Level: firm

Deal value .125*** .125*** .121*** .116*** .110***

Deal year (2007-2011)

Acquirer ownership type (5)

Industry type (13 segments)

Level: firm/country

Regulatory control .162***

Capital investments .078*

Political democracy .173***

Population -.030 -.041 -.032 -.037 -.012

Regulatory control - country ‘region-relative’

.190*** .197***

Regulatory control - (country ‘region-relative’)2

-.005 .-024

Capital investments - country ‘region-relative’

.084* .081**

Political democracy - country ‘region-relative’

.150** .146***

Level: firm/region

Intra-region / inter-region .278*** .334*** .206*** .237***

Regulatory control - region .410** .415**

(Regulatory control – region)2 -.307*** -.263***

Capital investments - region .298*** .249**

Political democracy - region .361*** .306***

Mixed Regression (SuperMix) Model Fit Summaries

Model 1 Model 2 Model 3 Model 4 Model 5

Goodness of fit: Akaike information criterion 6512 6418 6287 6232 6208

=AIC(model) –AIC of lowest AIC: Model 4) 304 210 79 24 0

Goodness of fit: Bayesian information criterion 6572 6496 6376 6281 6249

Hierarchical Linear Regression Model 1 Model 2 Model 3 Model 4 Model 5

R-square .153*** .166*** .182*** .185*** .221***

Adjusted R-square .136*** .142*** .162*** .166*** .198***

F 9.132*** 9.285*** 9.531*** 9.777*** 10.171*** N=1189; ***p<.001; **p<.01; *p<.05

Due to space limitations, these firm level variable results are

located in other tables

89

CHAPTER 5

DISCUSSION

Relative to extant studies, this dissertation uses a more robust and comprehensive

approach in examining how and to what extent the host institutional environment influences

MNE internationalization - as represented by Multilatina cross-border acquisition location

choices and levels of equity participation pursued. Results of this study strengthen the

significance and relevance of a newly emerging region-oriented institutional perspective –

semiglobalization. Featured relationships are tested by investigating how an MNE carries out its

internationalization strategy in consideration of a target country’s institutional environment in

relation to the institutional environment of the country’s respective region, as well as in

consideration of the region level environment in and of itself. Findings support and extend

nascent extant semiglobalization research (e.g., Arregle et al., 2009; Arregle et al., 2013),

providing significant support for the importance of geographic regions as a level of analysis for

MNE internationalization strategy.

Of significant importance and promise to the literature and practice, this study

reinforces that an MNE considers and evaluates – or should - the overall institutional

state/condition of the host geographic region, and considers target country institutions -

relative to those of other countries in the same region - in their internationalization strategy

and ultimate decisions to pursue equity participation in specific country markets via cross-

border acquisitions. In other words, within their strategic vision and decision points, MNEs

examine a country’s institutional environment from a regional perspective. Thus, this

dissertation progresses beyond the consensus research framework accord, based on the

90

country-level tradition, and provides a more nuanced and accurate analysis of institutional

effects and MNE semiglobalization strategy. Therefore, MNE research assigns greater

importance to the region in understanding the constraints of its critical institutions - and of the

target country’s institutional position - compared to other countries in the same region. Beyond

the level of analysis comparison (i.e., country and region), this study also finds that

relationships examined between institutional effects and Multilatina internationalization vary

significantly in their strength and direction from one formal institution to another (i.e.,

regulatory control, political democracy, and capital investment). As illustration, when

examining institutional effects at the country level, variables found to be most important (i.e.,

those determining greater MNE CBA equity participation at the country level), are different

from those identified at the region level, ceteris paribus. Further, the magnitude of their

differences likewise differentially vary across the specified constraining institutions. For

example, in consideration of only country-level institutions – without any region level effect

consideration – political democracy was the most important and significant institution from a

Multilatina internationalization perspective. However, in consideration of only region-level

institutions – without any country-level effect consideration – regulatory control was the most

important and significant institution from the same Multilatina internationalization perspective.

As an example of variance in relationship strength across the same institutions, capital

investment is much more important and significant, ceteris paribus, at the region level than at

the country level.

This study’s results, from an overall standpoint and from a comparative one, reflect the

complex nature of institutions and their effects (upholding Ostrom, 2005). This complexity is

91

multi-dimensional in nature - because multiple levels of varying institutions exist, each having

differential effects of disparate importance/significance – for which differences will be further

moderated by context contingencies. Considering only country-level institutional effects

simplifies (i.e., reduces complexity of) the examination process, but as this study affirms, can

produce results which render a less precise explanation and understanding of the effects of

institutions on MNE FDI patterns. For example, adding complexity through inclusion of region-

level institutional effects adds explanatory value within the context of this particular study.

With all other variables held constant, examining country-level effects only (i.e., Model 2), even

though statistically and practically significant, produces a less complete explanation of

Multilatina internationalization propensity - in consideration of all three formal institutions -

when compared to the Multilatina ‘semiglobalization’ perspective, which simultaneously

considers region-level influences in concert with country-level (i.e., Models 4 and 5). Thus, the

combined country and region institutional models display stronger relationships, better fit, and

an improved omnibus explanation of these phenomena, with greater relative statistical and

practical significance. The semiglobalization perspective is thus more complex, but more

meaningful, in illustrating the role of institutions in MNE internationalization decisions.

Outcomes from this study also begin to answer questions regarding which may be the

most relevant level of analysis for examining the influence of institutions and explaining their

effects on MNE strategy and conduct. Seeking to answer this question in varying empirical

contexts not only furthers the literature, but has significant implications for both research and

application regarding the influence of institutions on MNEs. In comparing the different levels of

analysis examined in this study (i.e., country level, country level relative to region level, region

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level, and combined country & region levels), some very interesting results surface (see Figure

8). While all levels of analysis reveal findings which are statistically and practically significant,

main effects relationship strengths vary widely across levels of analysis, as well as across the

institutions themselves. This signals that certain levels of analysis in this context (i.e.,

Multilatina internationalization commitment through cross-border acquisitions) are more

important and relevant than others. For example, a general trend is found of increasing

relationship relative strength (i.e. levels of analysis main effects results strictly compared to

each other) beginning with country-level only, then to the country ‘region relative’ level, and

ending with the greatest strength in combined country and region level – with the exception of

one trend variation with political democracy, where country only is stronger than country

‘region relative’, but neither as strong as country and region together. Even though this general

trend is important, the differential variance across levels of analysis but within each institution

(e.g., regulatory control) may be more important to scholars and practitioners alike. For

example, within regulatory control, the country ‘region relative’ variable relationship is 17.28%

stronger than the country-only variable relationship with internationalization propensity.

Further, the region variable is 153.08% stronger than the country variable. Interestingly, capital

investment at the region level is 2.8 times stronger than the country only relationship. “All 3

Institutions”, as revealed on the bar-chart (Figure 8), compares omnibus model results – with

simultaneous evaluation of all three institutions in concert – across levels of analysis.

Interesting to note that the simultaneous evaluation of both country and region institutions

together (i.e., the ‘semiglobalization” approach - 3 level multilevel model) reveals the strongest

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Figure 8. Level of Analysis Comparison: Relationship Relative Strength

and most significant relationships, as well as being the model that best fit the data, compared

to country ‘region relative’ and country only levels of analysis. Also noteworthy is that the

traditional ‘country only’ level of analysis – which has previously pervaded the literature –

displayed weaker relationships relative to the other two levels of analysis, which incorporated

region institutions in some form. It must be reinforced however, that country level relationship

results were statistically significant and practically meaningful. It appears however, the

‘semiglobalization approach’ may be more meaningful in this study context.

Beyond the country-level tradition, the semiglobalization approach as operationalized

herein generates results that also reinforce the research and practical importance of

institutions, the constraining environments they create and maintain, and how they influence

MNE foreign direct investment. At the region level, all three formal institutions (regulatory

Note: Level of analysis comparison is based on correlation coefficients for regulatory control, political democracy, and capital investment; “All 3 Institutions” bar chart compares omnibus model results across the three levels of analysis

Stronger

All 3

Institutions

Capital

Investment

Multilatina Internationalization

Cross-border Acquisition Equity Participation

Political

Democracy

Regulatory

Control

Country

Country ‘Region Relative’

Country and Region

Relationship Relative Strength

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control, political democracy, and capital investment) have a positive initial effect on Multilatina

internationalization propensity through CBA. At increasing amounts of institutional influence,

however, the relationship for regulatory control becomes significantly negative (i.e., inverted u-

shaped), whereas political democracy and capital investment relationships remain positive and

linear. Interpreted, a region’s political democracy level and capital investment amounts both

continue to motivate foreign investments, even at greater amounts of institutional influence. In

other words, the more a region’s government ‘central tendency’ is politically democratic in

nature, the more a Multilatina will display an increased propensity to internationalize there.

The lack of political democracy in a region will dissuade Multilatina CBA there. This is most likely

a result of the central tendency of Latin America itself becoming more and more democratic in

nature. Likewise, the more capital investment is infused into a region, the more a Multilatina

will display an increased propensity to internationalize there. Increasing levels of regulatory

control as a central tendency with a region however, have a threshold point beyond which

Multilatina internationalization is dissuaded. These regulatory control results suggest that

increased regulations and their enforcement across the region, are positively viewed initially by

a Multilatina and seen as an FDI motivator. However, when regulations and their enforcement

become too dominant and pervasive, it creates costs and overwhelms any positive effects,

thereby discouraging Multilatina FDI through CBA. It is worthy of mention that certain

relationships found in my study are inconsistent with some found in extant studies, such as the

finding of a negative relationship between political democracy and MNE FDI – when controlling

for property rights (Li & Resnick, 2003). Arregle and associates (2013) likewise found a negative

relationship with political democracy and FDI. This inconsistency points to the importance of

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context, which varied significantly across these studies. For example, a single Japanese MNE

was the focus of the Arregle et al., (2013) semiglobalization study, as compared to my study

which is based on all MNEs headquartered within the entire Latin American region. The highly

varied study context is most likely the driver behind the inconsistent findings. In other words, a

Japanese MNE’s strategy and FDI motivation may be very divergent from the Multilatina

population. Likewise, the particular MNE focus of a study, even if held constant, will likely vary

over time. Differential findings resulting from divergent “laboratory conditions” upholds the

importance of conducting MNE microfoundations studies in varying contexts, and further, that

it may be difficult to rationalize generalizations across large MNE populations, like has been

done in the past.

Implications

This dissertation’s findings have important implications for theory and research – in

aggregate for international strategy – and independently for each of the four construct streams

(i.e., institutions, semiglobalization, cross-border acquisitions, Multilatinas). Simply stated, this

study clearly establishes the importance of regions on MNE’s internationalization decisions.

Also, MNEs’ evaluation of institutions in their internationalization decisions is more

comprehensive than demonstrated by prior research. MNEs demonstrate behavior which

seems to reinforce a country ‘region relative’ paradigm - in selecting one country over others

for FDI entry, and doing so based on its institutional attractiveness relative to that of the

proximate countries in the same geographic region. Additionally, this illuminates the empirical

and practical importance of determining and evaluating the institutional central tendency of

the region under consideration. Strategy and decisions enable MNEs to leverage and optimize

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these location–specific FDIs across the region, and in so doing control/reduce risk while

improving returns and other benefits across the countries within the region. This study also

supports the semiglobalization perspective and its relevance to a more holistic and

comprehensive understanding of institutional effects. This is very important, because the

semiglobalization approach – as conceptualized here - alters the manner in which we view and

the processes whereby we measure, evaluate, and understand institutional effects on MNE

strategy, motivations, and behavior, regardless of context. This signals the need for future

theorizing and empirical testing of institutional influences on MNE strategy / conduct /

performance to be carried out differently than has been the tradition.

Theoretical extensions and empirical findings from my dissertation have practical

significance, in addition to academic, on the need for further MNE focus on: (1) institutional

influences, (2) geographic regions, and (2) multilevel models. Strategic decision making and

tactical/operational actions are an outflow of an MNE’s decision mix considered; this ‘mix’

which would be greatly enriched by including robust representations/examination these

constructs (i.e., country and region institutions, geographic regions, multilevel analysis). MNE

leaders, policy makers, and management teams increased awareness of institutional

environments and their effects is critical, at both the country and region levels, and

compoundingly so if arbitrage is a part of their strategy. MNEs would benefit greatly from, and

possibly have competitive advantages associated with, a more complete understanding of the

specific processes whereby the institutions of host environments (country AND region)

constrain their own decision making – specific to overall FDI strategy, location choices,

investment levels, as well as resource and capability coordination & orchestration. One can

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begin to see the potential compounding benefits realized if this capability scope is developed

on a larger scale (beyond country) but not too large to lose logistic efficiencies and market

idiosyncrasies from increased distance (i.e. benefits from focusing on a particular region, versus

a country, versus a larger field beyond region). Policy maker greater understanding of these

combined effects would likewise benefit their country/region as well – in recognizing the

importance of having a regional dimension of international institutional attractiveness - to

entice IFDI from competitive environments. My study further illuminates potential benefits

gained from increased regional collaboration between incumbent country governments, in

order to strengthen their competitive edge over other regions for IFDI. Region collaboration

across countries would also help facilitate regional integration, which then could be fashioned

and situated in such a way as to increase FDI inflows to a region strategically through countries.

The ‘semiglobalization approach’ provides governments with a more intricate perspective in

deciding which institutions might be selected over others for focus in attracting foreign direct

investment from MNEs. A regional structure and cohesive framework among linked countries

could be strategically maintained in efforts to entice IFDI while swaying opportunistic intra-

regional competitive behaviors. Further, country specific adoption of a semiglobalization centric

approach may make them more attractive over other countries in a region who do not.

In consideration of results, and the previous discussion of government cohesion and

region integration, this study also has implications for Latin America and Multilatina research

and practice. It specifically helps further our understanding of where and how Multilatinas may

internationalize on an intra-regional (within Latin America but external to their country of

origin) versus inter-regional (external to both their country and region) semiglobal basis, as well

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as how institutional environments may influence their international strategy and FDI decision

processes. Latin America has historically trailed other regions in their economic regional

integration across countries. Regional economic integration there has severely lagged behind all

other 7 regions, as operationalized in this study. Effects of country-level historical and

institutional evolution and development have served as barriers to integration. Beyond this,

there are a number of explanations for this lag (e.g. vulnerable regional institutions, weak

market infrastructures, dominant informal economy, high corruption, income distribution

inequality, cultural duality - see Table 2, p23 for a complete picture). However trends indicate

that increased regional economic integration is occurring through intra-regional FDIs by MNEs

headquartered in Latin America (Multilatinas). Multilatina intra-regional cross-border

acquisition activity levels are significantly increasing. As demonstrated in this study, a

Multilatina is roughly 3.5 times more likely to pursue full ownership during a cross-border

acquisition when targeting firms within their same region (i.e., Latin America). This study will

further the Latin America and Multilatina research streams in revealing specific

internationalization patterns and propensities, specific to which particular institutional

conditions serve as motivators versus dissuaders. For example, high levels of country and

region regulatory control dissuade Multilatina FDI through CBA, whereas high levels of political

democracy and capital investment at country and region levels both increasingly motivate

Multilatina FDI. From an applied perspective, this information is very useful in having a more

accurate picture of specifically how a government entity or other institution could motivate IFDI

from a Multilatina into their country and region.

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Limitations and Future Research

Commensurate with all social science research, my dissertation has limitations. The

semiglobalization perspective adopted herein conceptualizes and frames regions based on

geography. This is not a limitation per se, but there are alternative regional frameworks study in

the literature, such as those conceptualized in terms of trading blocks, culture, and institutions.

However, specific to testing research questions and hypotheses associated with my study, a

geographic conceptualization and framing and regions is clearly the most relevant and optimal

operationalization. As illustration, Arregle and associates (2013) used a geographic regional

framework in their study, then retested hypotheses using alternative definitions of regions for

purposes of post hoc robustness checks, and found that alternative conceptualizations did not

provide as good of a test of their research question as did the geographic framework (see

Arregle et al. (2013) for the complete regions robustness study). Secondly, from application and

generalization perspectives, MNE semiglobalization-based strategy and conduct does not

necessarily apply unilaterally to the population of all multinationals. MNEs may not have this

perspective for a variety of reasons. For example, if an MNE cannot successfully use at least one

of the two mechanisms to facilitate semiglobalization (i.e., region-bound firm specific

advantages and region-based organization learning) it will have reduced incentives/motivation

to adopt a semiglobalization-based strategy and would not pursue FDI to fulfill this strategy. In

addition, MNEs may pursue FDI localization in only one target country without considering

expansion into the corresponding region and any of its proximate countries. This could be due

to the absence of regionally fungible resources –which are available and capable to deploy and

redeploy, or having a strategy which necessitates focus only on a specific country - possibly due

100

to or based on its idiosyncratic characteristics - which are attractive to the MNE. It is thus

important to note that MNEs (in this case, Multilatina) who take equity ownership through CBA

and do so in several countries may or may not have a region-level strategy. Next, all hypotheses

in this study are tested using Latin American MNEs (Multilatinas) over a specific period of time

(2007-2011). The informal and formal institutional environments of Latin America may

differentially influence the strategies and decisions taken by these firms, as well as based on

those of the targeted countries and regions. There likewise may be variation associated with

the temporal components of this study. This intent of this study, however, was not to

generalize Multilatina behavior to that of the MNE population at large. The contextualization of

my study does reinforce and greatly extend research and practical value of the very limited

previous semiglobalization studies (e.g., Arregle et al., 2013), by examining semiglobalization in

a completely different context (Latin America MNEs) and by a different, yet extremely

important internationalization mechanism (CBA equity participation). And further, because

semiglobalization findings vary across institutions from study to study, this points to the

importance of context and MNE microfoundations studies. Thus, instead of generalizing to the

larger MNE population, study results uphold MNE microfoundations and reinforce the need for

more nuanced, context based examination. It would be interesting and add research value to

replicate this study with data for other periods of time (e.g. the previous five years) on a

comparative basis, because the institutional environments of countries and regions can change,

resulting in divergent MNE strategy and conduct. However, this comparative study would add

value specific to the context set in and does not otherwise undermine the core logic of this

dissertation, or the relative improvement of the semiglobalized approach over the country-level

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tradition. Also, there was no consideration or accounting within this study for the actual MNE

decision-making process and how they may sequence consideration of region and country

institutional influences in their strategy or decision mix. For example, their strategy could

necessitate starting the evaluation process at either the region or country level, which might

influence the decision mix and the ultimate decisions made. As such, a study of this nature

would inform the literature. Next, my research questions, hypotheses, and operationalization

of models focuses on predictor variable subsets reflecting formal institutions, as opposed to

informal institutions such as culture. I decided to use formal institutional influences and

operationalize them through procedures which also reflect and incorporate informal

institutional effects and influences in the formation of formal institutional variables used in my

study (see Holmes et al., (2013) for an extensive review of informal institutional influence on

development of formal institutions). Finally, although my semiglobalization approach based on

8 geographic regions of the world provides an effective way of measuring such regions, future

research might extend this this by examining other region based MNES (other than Latin

America), in contrasting (complementing) parts of the world.

In conclusion, this dissertation and study uniquely merges traditional institutional

perspectives with a semiglobalization perspective – using four previously uncombined

constructs (institutions, semiglobalization, Multilatinas, and cross-border acquisitions) - to

examine the effects of the country environment and of the general institutional environment of

a region on internationalization decisions. The nascent ‘institutions – semiglobalization’ stream

is thus furthered. Results suggest that the internationalization of this MNE microfoundations

segment is influenced by the general institutional environment of both countries and regions.

102

Thus, this study introduces newly operationalized institutional variables, in solidifying a new

perspective regarding institutional influences on the international strategy of MNEs, in a new

and previously unexamined context and methodological manner.

103

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