Multinationals and Global Consumers

Tension, Potential and Competition

T. Chan, G. Cui, T. Chan, G. Cui

• Publisher: Palgrave Macmillan
• Year: 2013
• Print ISBN: 9781137307286
• eBook ISBN: 9781137307293
• Topic: Business
• Subtopic: Business Communication
• Index: Business

International business (IB) research on Asian firms is on the rise, challenging conventional theories and providing opportunities for IB researchers to address several paradoxical issues such as ownership advantage and risk-returns. The book focuses on IB research in Asia and addresses some of these problems in several keys areas of IB research.

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International Business Research in Asia

Shige Makino, T. S. Chan and Geng Cui

Research on Asian firms

Makino and Yiu (2013) have conducted a systematic literature search of Asian firm strategies published in eight top-tier management journals: Academy of Management Journal (AMJ), Academy of Management Review (AMR), Administrative Science Quarterly (ASQ), Journal of International Business Studies (JIBS), Journal of Management (JoM), Journal of Management Studies (JMS), Organizational Science (OrgSci) and Strategic Management Journal (SMJ). There were 228 articles published between 1980 and 2011, and among the abovementioned eight journals, JIBS and SMJ published 71% of the research on Asian firm strategies with 94 and 69 articles, respectively. In addition, JMS published 19 articles, AMJ and OrgSci each published 18, AMR and ASQ each published 4 and JoM published 2.

With respect to country focus, among the 12 Asian countries, Japan is ranked first as the subject of 98 articles, accounting for almost 40% of the total articles published. China is ranked second as the subject of 76 articles (31%). Taken together, Japan and China account for 71% of the Asian country samples. Studies on Korea, Taiwan and India are growing, with 17, 13 and 13 articles, respectively, followed by 9 articles on Singapore and 7 on Hong Kong. The topics are all related to international strategy: foreign market entry (20%), joint ventures (13%), multinational corporations (MNCs) (9%), corporate governance (9%), business groups (8%) and network-based strategy (7%). Therefore international business (IB) research on Asian firm strategies exhibits a rising trend. The topics of such research have covered a range of management issues that add significant value to the study of organizations and strategic management. The publication of these articles also suggests that researchers have conducted more robust and in-depth studies of the country-specific contexts that surround Asian firms and organizations.

One of Asia’s strengths is its ability to provide unique research settings for international business researchers. It has one of the world’s largest advanced economies (i.e., Japan), the two economies with the highest gross domestic product per capita (Singapore and Hong Kong), and the world’s two largest emerging economies (China and India), along with a varied collection of less developed economies. In addition, Asian countries are characterized by distinctive business systems that are bounded by historical legacies, institutional embeddedness and sociocultural cohesiveness. Thus research on Asian economies and companies has important implications for theory development and practice in the international business field. Recent research suggests that many interesting phenomena in this region contradict conventional beliefs. Several such critical issues that researchers should address when conducting international business research in Asia are highlighted in the following examples.

Three paradoxes in international business research

Ownership advantage paradox

Ownership advantage has been identified as a key determinant of foreign direct investment (FDI) (Dunning 1981). Internalization theory suggests that companies with greater ownership or competitive advantage over local rivals are more likely to engage in FDI. In emerging economies, however, this is not always the case. Consider Google’s exit from China. Google was struggling with censorship and shut down its China operations two years ago. Despite its advantages over the local competitor, it failed to sustain its business in China, whereas Baidu, a Chinese-run search engine company, enjoys a close relationship with the government and maintains the market leader position in China. This is a good example of conventional theory failing to explain FDI practice in emerging economies. The same can also be said of eBay’s first entry into China, which ended in failure due to strong local competition from Taobao.com.

Risk–return paradox

Within the framework of asset pricing theory, large exposure to risk factors should be associated with higher expected returns in that risk and return are positively associated. An examination of the mean and standard deviation of return on sales (ROS) for Japanese subsidiaries in Asia revealed a clear positive association between the two. In this example, China provides a high-risk, high-return environment for Japanese firms. However, the story changes when the performance of local (indigenous) firms is examined. With the exception of a few countries, a moderate negative relationship was observed between the mean and standard deviation of ROS. In this example, China provides a low-risk, high-return environment to local (indigenous) firms. Thus the asset-pricing model is unable to explain a cross-section of expected returns in Asia. One reason for this is that Asian nations have unique institutional environments that influence foreign and domestic firms in different ways, but the specific factors and mechanisms of such influences have yet to be identified.

Paradox in the flying geese hypothesis

The flying geese hypothesis, proposed by Japanese scholar Kaname Akamatsu (1962), suggests that less developed Asian nations will follow the growth path of advanced economies in a wild-geese flying pattern. Underlying this hypothesis is the assumption that the growth of advanced economies in Asia (e.g., Japan) is a driving force for the growth of less developed Asian economies. However, while the advanced economies have experienced slower growth, some emerging economies, particularly China, have become the world’s fastest-growing markets. The viability of MNCs hinges on their success in these emerging economies, such that the growth of advanced economies is no longer a driving force in the growth of emerging economies but rather is conditioned, by and highly dependent on, the emergent economies’ growth.

These examples illustrate some of the ways in which conventional wisdom cannot precisely explain today’s international business practices in Asia. Thus unconventional perspectives are needed to examine these issues. In this regard, the following approaches to conducting research on Asian firms and organizations have been proposed: i) multilevel, ii) historical and iii) variance-based.

Three perspectives for international business research in Asia

A multilevel perspective

Multilevel analysis has become popular in international business research, in part because scholars have recognized that separating micro-and macro-issues is increasingly irrelevant. Multilevel research is a useful approach to examining the multiple causes or consequences of behavior at and across different levels. For example, employees’ job satisfaction cannot be comprehensively understood once separated from broader institutional and social contexts, such as labor laws and national culture. Another reason for the increasing popularity of multilevel research is that a single-level analysis often creates misleading implications for practice.

Multilevel thinking has important implications for theory development. Organizational management theories in international business research explain variations in the behavior and performance of individuals and organizations. It is important to understand that such variations come from both within- and between-country variations. This means that both the within- and the between-country variations in observed behavior and performance must be explained. If the focus remains exclusively on within-country variations, ignoring the “country context” or between-country variations, researchers risk producing findings that are undercontextualized. To understand complex practices in Asian business, one must understand the unique country contexts.

Makino, Isobe and Chan (2004) conducted a variance component analysis on a panel of data on the performance of more than 5,000 Japanese subsidiaries in 80 countries and 160 industries over ten years, and found that country differences explain 5.5% of the total performance variation (see Table 1.1). One interesting finding is that country effects are stronger than parent-firm effects, and as strong as industry effects in emerging economies, which suggests that country differences can be considered to be an additional factor in explaining performance variations, and that their effects are greater in emerging economies. They also examined how much the regional differences within a host country can explain the performance variations of Japanese subsidiaries in the US and China, and found that regional differences mattered more in China than in the US, indicating that China provides more discontinuous and heterogeneous environments for Japanese firms compared with the US (Chan, Makino and Isobe, 2010).

One general implication of these findings is that locations, including countries and subnational regions, matter more in emerging economies than in advanced economies. In conventional strategic management theories, such industrial organization (IO) and the resource-based view (RBV), researchers have examined why company performance varies between industries and among firms, but these conventional studies have paid little attention to how much county context matters and why. In this regard, international business scholars have a great opportunity to develop alternative theories that can complement those based on IO and RBV.

Table 1.1 Variance component analysis of performance of Japanese subsidiaries

Variables	Estimate	% variance explained
Year	0.06	0.1
Foreign subsidiary	20.90	31.4
Parent firm	7.17	10.8
Host country	3.67	5.5
Industry	4.61	6.9
Error	30.21	45.3
Total	66.6	100.0

Source: Makino et al. (2004).

Attention to history

History is important in understanding the complex nature of international business practices. A country’s institutions evolve in a path-dependent manner with cross-country relations developing as a consequence of a variety of historical events. As Jones et al. (2006) note, however, “IB researchers have tended to treat history in a stylized fashion with little concern for the complexities of particular historical situations.” For instance, many researchers have used “distance” variables to capture the cultural, administrative, geographic and institutional differences between countries. However, this popular stream of distance research may provide misleading implications for international business practices if historical factors are not considered. Such research focuses on distance in culture, administrative practices, geographic proximity or economic development between home and host countries. Ghemawat’s (2001) CAGE model (referring to cultural, administrative, geographic and economic distances among countries) is one of the frameworks that examine how distance affects the flow of economic activity across borders. The basic premise underlying this stream of research suggests that distance makes international exchanges and interactions difficult and costly.

However, distance research has several critical weaknesses. First, it focuses on the static comparison of location-specific attributes that reside independently within countries and overlooks the effects of relational factors that have been historically developed between countries (Makino and Tsang, 2011). For example, Vietnam has diverse historical links with a number of other countries as a consequence of occupation, colonization and war. It was under the direct rule of, or paying tribute to, successive Chinese dynasties (111 BC to the early nineteenth century), colonized by France (1880s to 1954) and then unified as the Socialist Republic of Vietnam and supported by the former Soviet Union (1975–). It engaged in the Sino-Vietnamese War (1979) with China. If distance research is conducted, France and Vietnam would have a large cultural and geographical distance. However, France has been one of the major investors in Vietnam due to the previous colony–colonizer relationship. In contrast, despite the fact that China and Vietnam have a very small cultural and geographical distance, they do not have a meaningful trade relationship due to the previous war. Thus historical ties provide an additional factor that affects FDI decisions in Vietnam beyond what has been captured by the effect of conventional distance variables. Understanding a country’s effect on international business requires a historical understanding of that country and its international relations.

Attention to variance

Finally, variances in the phenomena of interest, rather than the average effect, demand greater attention from researchers. One often assumes that observed events will follow a normal distribution as the sample size grows, and that average values tend to represent the most essential characteristics of the sample. The values that deviate from the average are usually considered to be non-essential or noise. Ironically, most practitioners are interested in how to excel against rivals rather than how to become the average company. Hence a simple comparison of average values across samples may not provide meaningful implications for practice. For example, assume a distribution of firm performance in two countries, A and B. Country A has a lower average than Country B, but it also has exceptionally high performers. Country A is more successful than Country B in terms of the average performance of its firms. However, one may also suggest that Country B is successful because it hosts its own group of exceptionally good firms.

In this example the amount of variance contains critical information about the business environments in each country. Most large sample studies, particularly those that use regression analysis, merely show the “average tendencies” of the sample, which masks the complex nature of the data. Thus the examination of variance provides additional implications for international business research in Asia. A recent study looked into the patterns of performance distribution of Japanese subsidiaries across countries (Makino 2012). While the overall observed distributions followed a bell-shaped curve, a close look at the data revealed that there are four distinct performance distribution patterns: one for advanced economies, one for transitional economies and two for emerging economies. In the advanced economy model, the performance distribution had a bell-shaped structure with a high peak. In the transitional economy model, the performance distribution had a bell-shaped structure with two lower peaks. As for the emerging economies, the performance distribution had a bell-shaped structure with a very low peak and the curve was skewed to the left, leaving a greater proportion on the positive side of performance. Another model for emerging economies had an unclear, bell-shaped structure compared with the other models. These patterns suggest that the transitional and emerging economy models tend to have longer tails, greater skewedness and lower peaks compared with the models for advanced economies. The underlying factors of the variant performance distributions among different country groups warrant systemati...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures and Tables
• Preface
• Notes on Contributors
• 1. International Business Research in Asia
• Part I: Multinationals and Organizational Management
• Part II: International Business and FDI
• Part III: Marketing and Consumer Behavior
• Index