strategy doctoral ppt 3

04/10/2023 1

Extending the Internationalization

Process Model: Increases and

Decreases of MNE Commitment in

Emerging Economies Paper Review by Akshay S. Bhat, XLRI

Journal of International Business

Studies (2011)

Santangelo & MeyerAkshay S Bhat, XLRI Jamshedpur

04/10/2023 Akshay S Bhat, XLRI Jamshedpur 2

Abstract

• Internationalization Model : Firms Internationalize by building positions in foreign markets, following iterative cycles of learning and changes in commitment

• As Subsidiaries evolve : Commitments• Variation in commitments is not studied• Questions are addressed by combining the above model with

Mintzbergs and Waters’ model of Strategy formulation • Commitment decisions ~ Intended strategy statements• Network Positions ~ Realized strategies• Process of Learning, Opportunity Creation, Trust Building which are

triggered by commitment decisions moderated by institutional influences which lead to divergence between intended and realized strategies


Introduction

• Why do MNE’s Change their strategy in a country after an initial entry?• IP Model: Uppsala Model (Internationalization {Iterative Learning,

Commitment to Foreign Markets}• Recent Scholars have broadened it by analyzing commitment to positions in

business networks and by incorporating trust building, learning, and opportunity creation as process variables

• Some Authors call the model deterministic, albeit a learning model cannot be predicted

• Therefore experiential learning models are quintessential to the IP Model• IP ~ basis for commitment decisions and creation of new competitive advantage

through international operations• Experiential Learning : May not only affect commitment in a positive light but

also affect it negatively• Open Question : “Why strategic decisions at the onset differ from actual

operations”


How this paper fills that gap

Two complementary lines of theory

Relationships between intentions and actual operations (Mintzberg et al.)•F≡(Planned, Unplanned)

Institutional Voids & Institutional Uncertainty

Under which circumstances do MNE’s

increase/decrease commitment

Ex post inconsistencies (Page 895)


Local Competencies like Managerial

Leadership have been weak

Substantial Investments are

needed and integrating transferred

competencies and local competencies

Dynamic Process Facilitates Learning

Process Theories focus on reactions at

time of environmental

change and are more suitable to analyze

business strategies in contexts

characterized by institutional voids and institutional

uncertainty

Why is it important


Institutional Voids : Imperfections in market

mechanisms caused by lack of appropriate market

support institutions

Institutional Uncertainty : ?

IU is caused by : expectation that

institutional rules governing business may

change in ways that businesses cannot themselves predict

Definitions


How MNE’s

Respond to IC

Adjust Strategy•Increase Commitment•Decrease Commitment

Emergent Young, Callow Subsidiaries, Contexts of high IV and IC, Environment Dictates either forcefully or by patterns

Institutional Voids increase rigidity and thus reduce likelihood of commitment decrease

Institutional Uncertainties : Organizations are more Nimble/Flexible


Theory• IP Model describes it as a sequential Process• Present state of Internationalization sees it as a connect of many points• Commitment Decisions (CD) are taken by organizations as a whole and

local subsidiaries also• International Expansion develops out of a firms prior business activities• Cases of Mismatch may exist intentions driving subsidiary establishment

and subsidiaries actual business activity• Commitment ≈ Performance, Prospects• Mintzbergs strategy as a perspective provides this link• Deliberate vs Emergent Strategies• Strategies even in absence of Intentions• In highly unpredictable situations, Strategy will be imposed by the

environment and unlikely it will be a deliberate strategy


Mintzberg + Water + IP


Institutional Perspective

• “How does the institutional environment influence divergences between intended and realized MNE strategy?”

• Institutions - regulate economic activities in different ways in different countries

• Institutional frameworks differ in developing and developed countries

• Facilitate and inhibit complimentary resources


Institutional Voids

• Lack of formal and regulatory mechanisms to support business operations, raise transaction costs, particularly in emerging economies

• Eg. Corruption raises costs of obtaining permits and licenses

• Not only raise cost of current market transactions but also of setting up new operations and relationships

• Environments with high institutional voids, foreign operators need to devote more time to pre entry information search and face high post entry adjustment costs


Institutional Uncertainity

• Arises from the instability of the institutions themselves

• Impacts on future business is hard to predict• Evolving rapidly in transaction economies• May deter companies from entering into a context• MNE’s increase their interactions with market

participants to enhance their understanding of what's going on and increase their market positions

• May also be source of entrepreneurial change


Hypothesis

• Institutional Voids– Extensive information search and preparation to enter– Need to probe deeper and exploit existing business

relationships to search and interpret information– Lengthy negotiations are often needed with government

bodies– They act as entry barriers (cost of entry gets raised)– Difficult for competence creating MNE’s as they have to invest– Increase costs of strategic change and induce organizational

inflexibility– Once firms have made commitment , difficult to rescind


Hypothesis

H1: Greater the institutional voids in the host market, the less likely it is that the MNE will realize a commitment decreasing strategy rather

than a consistent-commitment strategy.


Institutional Uncertainity

The greater the institutional uncertainty in the host market,

the more likely it is that the MNE will realize a commitment increasing strategy rather than

a consistent-commitment strategy


Methodology

• Empirical Analysis• Q Survey, 3 European Economies (Hungary,

Lithuania, Poland)• Sharp increase in FDI • Similar transition processes• Similar institutional voids and uncertainty• 13% 535 firms have been used


Dependent Variable

• Realized Strategy– Captures Match or Mismatch between intended

and realized strategy– Strategic intentions were demarcated as

competence and non competence– Likert Scale– Realized Strategy by means of an instrument by

Meyer at al.


Independent Variables

• Institution Voids have been measured by publicly available indices

• Control Variables– Location and Firm Variables


Results

• Both Hypothesis receive empirical support


Contributions

• Advancement of the IP Model by separating intended and realized strategies

• Analysis of commitment Changes within foreign entry processes and explicitly consider commitment decreases and strategic intentions

• IP model which focused on the internal environment to the external environment


Future Research

• Single data measures limit results future researchers can take more spread out data

• Change aspects could not be measured as it was a cross sectional data, so a longitudinal study will be better

• Advance theories of internationalization• How firms prepare for strategic flexibility, controlling

for degree of equity control.• Concepts of institutional Voids and Institutional

Uncertainty are relevant


Critique

• There are more factors than Institutional Voids and Institutional Uncertainty that play a role in the expansion plans of an MNE

• Why “institutional” it’s the same everywhere why classify it as another category (Racist)

• Transition economies as weak – not all • Staggered Strategies – Impact of changes in

commitment in subsequent internationalization • Management of Large firms not mentioned

strategy doctoral ppt 3

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