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Article

Business History in International Business  

Teresa da Silva Lopes

Historical research on the multinational enterprise has long been important in international business studies. When the discipline of international business first developed in the late 1950s, historical evidence was frequently used to build generalizations and propose theories. However, over time, that tradition eroded, as the discipline moved toward using more quantitative and econometric reasoning. International business and business history share important commonalities, such as the topics they address. These include: multinational patterns of international trade and foreign investment; the boundaries and competitiveness of the multinational enterprise; changes in organizational strategy and structure of multinational enterprises and the connections between the two; coordination and management of the activities of the multinational enterprise; impact of multinationals on knowledge and capital flows in host countries; and investment, resilience, and survival in high-risk environments. Nonetheless, the approaches followed can be quite distinct. While both disciplines consider the firm and other institutional forms as the unit of analysis, the way context and the environment are integrated in the analysis, the methodologies followed, the types of comparative analysis carried out, the temporal dimensions adopted, and the way in which theory is used are quite distinct. There are possible ways forward for international business history to be more integrated and provide new dimensions in international business studies. These include using history as a generator of theory to understand phenomena such as the origins of competitiveness and as a way to uncover phenomena that can be fully understood only after the situation has occurred, such as the impact of entrepreneurship on economic development; as a way to check false claims that certain phenomena is new; and to inform discussions on complex phenomena and grand challenges such as globalization and deglobalization, investment in high risk environments, and climate change.

Article

The Concept, Treatment, and Future of Language in Contemporary Business and Management  

Terry Mughan

In the literature of business and management, language, unlike the contiguous concepts of culture and communication, did not have a recognized place until the early part of the 21st century. Isolated publications about language might have appeared occasionally in journals in subdisciplines such as marketing, communication, and international business (IB), but there was no real visible research community or concentration of output in the field. Special issues appearing in International Studies of Management and Organization, 2005 and the Journal of World Business, 2011 were significant steps in demonstrating the emergence of active researchers at this time. In 2014, the Journal of International Business Studies (JIBS), the top-ranked IB journal and the only such journal used by the Financial Times for its global journal rankings, published its first special issue on the subject. This landmark issue attracted 78 submissions, of which 14 were published in JIBS over two issues, and this represented a breakthrough in terms of both quality and quantity that captured the attention of all in the IB field. Many explanations have been proffered for the delay in breaching this barrier, from tacit resistance on the part of monolingual executives and institutions to methodological bias in favor of numerical data to the daunting definitional complexity of the term “language” itself and its relation to nation-level phenomena.

Article

From Absorptive Capacity in International Business to Strategic Flexibility of Multinational Corporations  

Carine Peeters

Both the absorptive capacity (AC) and international business (IB) literatures are interested in knowledge processes and learning in organizations. Although originating from different streams of research, AC and IB were thus meant to meet and reinforce each other. Fundamentally, the role of AC in IB is to condition the performance outcome of firms’ internationalization efforts. Firms benefit from their IB activities conditional on being able to absorb new knowledge and learn. In other words, multinational corporations (MNCs) need to have the necessary AC to overcome their liabilities of foreignness and outsidership. Short of AC, the costs and challenges of entering foreign markets and operating across countries are likely to outweigh potential performance gains. Moreover, AC plays a role in the technological upgrade and economic development of nations, as it helps firms in emerging economies to benefit from spillovers of foreign direct investments by MNCs from more economically advanced economies. And national governments can play an important role to facilitate this effect by developing appropriate economic and innovation policies that support knowledge creation and learning. Firms can also proactively develop AC. For instance, MNCs can nurture a broad knowledge base that can be leveraged in different contexts and opt for a decentralized structure with mechanisms that help subsidiaries access the knowledge base of the parent organization. They can also practice specific routines to identify and access relevant knowledge from their external environment, transfer that knowledge in their organization, and assimilate it in their own knowledge creation processes. Moreover, MNCs can adopt human resources management practices that help raise the capacity and motivation of their employees to acquire and exploit new knowledge. Ultimately, the most important contribution of AC in IB might be to help MNCs develop the strategic flexibility that enables them to thrive in dynamic environments. High-AC MNCs may indeed be in a better position than other firms to (a) build diverse options to prepare for uncertain evolutions in the market, (b) access flexible resources to allocate to new courses of actions, and (c) redeploy resources across options over time. Unpacking the exact mechanisms as well as boundary conditions for the role of AC in building strategic flexibility offers ample opportunities for future research on a highly relevant topic for MNCs.

Article

The Liability of Foreignness  

Jesper Edman

The liability of foreignness—or LOF—is the additional cost that multinational enterprise (MNE) subsidiaries face relative to local competitors in foreign markets. The LOF arises in the form of unfamiliarity costs, relational costs, and discrimination costs in host country markets. Because these costs are unique to foreign firms, the LOF constitutes a difference in both kind and degree that distinguishes the MNE from other organizations. LOF has been addressed from a wide array of theoretical perspectives, including internalization theory, institutional theory, the resource-based view, network theory, cross cultural management, and organizational identity. The antecedents of LOF can be found in inter-country distance and dissimilarity, country-specific institutional arrangements, as well as firm-level experiences. Scholars have traced the implications of LOF to many of the critical attributes of the MNE, including internationalization patterns and country selection, entry mode choice, subsidiary performance and survival, localization strategies, and the development of firm-specific advantages. As such, the LOF constitutes one of the foundational assumptions of the international business domain.. Several research gaps and controversies remain in the LOF literature. LOF is often used as a catch-all term for the MNE’s disadvantages and costs in general, rather than the extraordinary costs faced by foreign-owned subsidiaries. Although numerous works invoke LOFs in their overall framing and theoretical argumentation, few studies explain the mechanisms behind the extraordinary costs facing subsidiaries. Empirical measurement of LOFs is rare, with many works using inter-country distance and institutional voids as proxies for LOF. Conceptually, LOF is often confounded with proximate but nonetheless distinct constructs, including the liability of newness, the liability of origin, and the liability of emergingness. A critical issue for extant and future work is to clarify the scope, boundary conditions, and operationalizations of LOF.

Article

External Corporate Governance Mechanisms: Linking Forces to Behaviors  

G. Tyge Payne and Curt Moore

Corporate governance research has a long and varied history, having evolved from a broad number of scholarly disciplines, including sociology, law, finance, and management. Across these various disciplines, it is maintained that governance is essential to corporate success, as it provides strategic and ethical guidance to the company. While research has largely focused on internal mechanisms through which governance is enacted (such as ownership arrangements, board structures, managerial rewards and incentives, etc.), external forces and mechanisms are increasingly important to modern businesses. External corporate governance mechanisms emanate from outside the organization and support forces that promote governance structures, processes, and practices by top executives and board directors. Institutions, industries, markets, networks, and strong individual external stakeholders all work to influence corporate governance decisions and behaviors both directly and indirectly. The external forces induce mechanisms that influence desirable behaviors or intervene when internal mechanisms are compromised or ineffective. Recent literature on external governance mechanisms can help scholars and practitioners develop a better understanding of this important area of inquiry, and future research should consider three broad suggestions to move the field forward: differentiating between forces and mechanisms; recognizing unique stakeholders, boundaries, and levels of analysis; and improving empirical designs to better recognize and understand what factors matter in instituting governance adjustments and behavior changes.

Article

The Application of Real Option Approach in International Business Research  

Tailan Chi and Yan Huang

The real option theory (ROT), a theory on investment decision making under uncertainty, has been applied to analyzing a broad range of questions in international business (IB). In the face of uncertainty, any discretion that the managers of a multinational enterprise (MNE) have over the timing, scale, speed, and sequence of investing or using the firm’s resources, in the forms of physical or intellectual capital or managerial time and effort, can be a real option. Such options confer upon the managers the right, but not the obligation, to exploit the upside potential while limiting the downside risk. Uncertainty, irreversibility, and absence of immediate and complete preemption are three necessary conditions for a real option to create value. Uncertainty offers opportunities to gather more information in the future, and such information can help managers make better decisions or alter prior decisions for improvement. Irreversibility is defined as the proportion of the investment committed to a project that cannot be recouped if the project is abandoned. Preemption refers to the revocation of the decision-making discretion that nullifies the option. It is possible to distinguish seven types of real options that have been examined in IB studies: (a) option to defer, (b) option to abandon/exit, (c) option to exchange, (d) option to grow/scale up, (e) option to contract/scale down, (f) option to switch, and (g) compound options. These types of options are found to influence a firm’s international market-entry strategies (e.g., location, timing, scale, speed, and mode) and the configuration and organization of the firm’s geographically dispersed production network. ROT has also been integrated with other economic theories, such as transaction cost economics and resource-based view, to better understand these decisions. Although ROT assumes a strong form of rationality on the part of the decision maker, it is also possible to incorporate cognitive or cultural biases into the theory and give the theory’s analysis greater realism. ROT represents a theoretical approach that can be integrated with various economic and noneconomic theories. More work in such theoretical integration can potentially help researchers gain deeper or more complete understandings of IB questions. Extant studies in IB typically analyze only a single type of option in isolation. But the global production network of a MNE typically has a portfolio of different types of options embedded, and the different types of options inevitably interact. The study of interactions among two or more types of options under different sources of uncertainty is likely to yield new insights on the strategy and organization of the MNE.