Presented On: July 5, 2013 - 10:55-12:10
Chair: C. Bulent Aybar, Southern New Hampshire University
Forecasting the Exchange Rate as a Group Experiment: The Wisdom of Crowds and the Social Influence Effect Haruo Hagiwara Horaguchi, Hosei University
Social psychologists, cognitive scientists, economists and managerial scientists recognize the existence of the wisdom of crowds’ effect: estimations that are made by a large number of people coincide with the true values.
It has also been pointed out that the estimations by the crowds tend to have certain biases. These biases are called social influence effect. This article explains why the wisdom of crowds’ effect exist, inquires to what extent crowds can foresee the future and assesses whether the social influence effect really exist. To answer these questions, I show simulation results, give mathematical proofs of them and use the data from forecasted foreign exchange rates. The data are provided by Nikkei, which holds a forecasting competition by a group of students. The participants consist of 3,657 groups over a period of eight years in Japan. The participants recorded 1.43 percent as the average absolute deviation during an eight-year period. They show some
evidences that their forecasts are affected by the real exchange rate at the time of their forecasts. These results suggest that the social influence effect exists in this data set. (For more information, please contact: Haruo Hagiwara Horaguchi, Hosei University, Japan: [email protected])
The Usefulness of Factor Models in Forecasting the Exchange Rate: Results from the Brazilian Case Jose Luiz Rossi Junior, Insper
Wilson Felicio, Insper
This paper studies the usefulness of factors embedded on the common movements of exchange rates in forecasting the exchange rate Real/Dollar. The results show that when considering the entire period of the sample, from January 1999 to August 2011, no one model containing the factors is able to beat the random walk benchmark. However, when the period directly following the adoption of the floating exchange rate regime is discarded, there is evidence that several models containing these factors beat the random walk. Lastly, the paper shows that the addition of factors improves the predictive power of the models comprising only
macroeconomic variables commonly used in the literature to forecast the exchange rate. (For more information, please contact: Jose Luiz Rossi Junior, Insper, Brazil: [email protected])
The Mediating Impact of National Culture on Real Options Exercise: Potential for Suboptimal Time Delays and Value Destruction
Derek G. Lehmberg, North Dakota State University Matt Davison, University of Western Ontario
Real options (RO) valuation has been suggested as a way to evaluate investment opportunities and make investment decisions that takes into account the value of managerial flexibility in the face of uncertainty.
Although RO enjoys a substantial body of literature considering its application and applicability in different situations, the impact of national culture on the application of real options has received little attention. National culture plays a role in how managers frame information and make decisions; it can also influence how
individuals inside organizations communicate and interact. Culture, therefore, can systematically impact the way in which real options are applied, potentially leading to sub-optimal outcomes. In this paper, we develop a
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process model of real options application, hypothesize how culture affects RO exercise along specific steps of the model, we estimate the magnitude of sub-optimality resulting from these impacts. Our estimates suggest real options may not be a superior valuation approach to net present value for national cultures with certain characteristics. (For more information, please contact: Derek G. Lehmberg, North Dakota State University, USA:
Auditors’ Assessment of the Liability of Foreignness: Evidence from ADRs Kimberly Gleason, University of Pittsburgh
Yezen Kannan, Duquesne University
The Liability of Foreignness paradigm has been applied to capital markets participants who exhibit a “home country bias” when they make and evaluate their investments. In this paper we use the Capital Markets Liability Of Foreignness (CMLOF) framework and a sample of foreign firms cross-listed on U.S. exchanges to investigate auditor pricing behavior. Drawing on agency theory, this paper is the first to apply the CMLOF to examine whether auditors price aspects of foreignness of their non-U.S. headquartered clients, and the factors that mitigate perceived agency costs to the shareholders of these firms. Our results indicate that auditors price the liability of foreignness when they consider excess cash holdings of ADRs, and that the costs are higher to shareholders of firms with a dissimilar legal system, low disclosure regulations, and weak enforcement of law.
Furthermore, the agency costs of excess cash are mitigated by a stronger institutional framework. (For more information, please contact: Kimberly Gleason, University of Pittsburgh, USA: [email protected])
Session: 2.2.12 - Interactive
Track: Track: 5 - MNC Management and Organization
MNE, Subsidiaries, and Knowledge Management
Presented On: July 5, 2013 - 10:55-12:10
Chair: Danchi Tan, National Chengchi University
Psychic Distance, Control Mechanism and Subsidiary Performance Manfred Fuchs, University of Graz
Beatrix Joebstl, University of Graz
This study analyses how psychic distance affects control mechanism and how they relate to the performance of subsidiaries in psychically close and psychically distant countries. It is based on an analysis of 75 Austrian MNE Headquarters and two of its subsidiaries, each located in one as distant and one as close perceived locations (N=150). Effects between formatively and reflectively measured latent variables psychic distance, control mechanisms, and subsidiary performance have been tested using SmartPLS. Results suggest that psychic distance affects the selection of control mechanisms and it can be shown that more autonomy in psychically distant subsidiaries shows a robust effect on better performance compared to close locations. Results suggest that psychic distance affects the selection of control mechanisms and it can be shown that the appliance of uniform accounting practices and control through socialization are influenced by psychic distance. However, it is individual control which positively affects performance of subsidiaries located in countries perceived as close and control through socialization having a negative effect on subsidiary performance. In psychically distant
countries, centralized decision-making in financial aspects positively affects subsidiary performance while control through uniform accounting practices and direct control have a negative effect. (For more information, please contact: Manfred Fuchs, University of Graz, Austria: [email protected])
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Which Factors Influence the Level of Control over the Foreign R&D Subsidiaries?
Kazuhiro Asakawa, Keio University
We investigate the extent to which the headquarters’ perceived knowledge about overseas labs influences the level of control over the R&D subsidiaries. We confirm that the headquarters’ knowledge about the local would lower the level of control over the R&D subsidiaries. But surprisingly legitimacy granted to the R&D subsidiaries does not necessarily lead to the reduced headquarters’ control over them. Nor does legitimacy of the R&D subsidiaries influence the effect of headquarters’ knowledge about them on the level of control. While the headquarters’ knowledge about the R&D subsidiaries tends to grant legitimacy to them, the effect of legitimacy of the R&D subsidiaries seems rather minimal. Such findings imply that the headquarters rests more assured to reduce control over the subsidiaries by having updated knowledge about their current situation than by the established positive image of the R&D subsidiaries. (For more information, please contact: Kazuhiro Asakawa, Keio University, Japan: [email protected])
Control in Subsidiary Networks: The Case of French MNCs in Asia Johannes Schaaper, Bordeaux Management School Jacques Jaussaud, University of Pau UPPA
Bruno Amann, University of Toulouse
This research considers two research questions. First, do new forms of control mechanisms, appeared in the last decade thanks to the NTICs (ERP, increased travel and the reinforcement of regional headquarters), fit the
"centralisation–socialisation–formalisation" framework. Second, how MNCs articulate dimensions of an enriched C-F-S framework to keep control over their networks of subsidiaries? We conducted 77 interviews with
expatriate managers of subsidiaries in Asia established by 47 French MNCs. By combining factor analysis and qualitative content analysis, we reveal four dimensions of control: (1) centralisation of decision making at HQ;
(2) formalisation; (3) informal, through short-term missions and visits, facilitated by regional headquarters; (4) expatriation. Training of local employees constitutes a shared control mechanism across dimensions. Our results are consistent with the C-F-S framework. We identify five groups of MNCs exercising different degrees of control through implementing different mixes of the control dimensions, outlined by the enriched C-F-S framework. This research offer three contributions: it updates the classical C-F-S framework, it shows that combining qualitative and quantitative research offers perspectives for international management research and it helps MNCs improve the design of their international control systems. (For more information, please contact: Johannes Schaaper, Bordeaux Management School, France: [email protected])
Gone are the Creatures of Yesteryear? On the Diffusion of Technological Capabilities in the Modern MNC Katarina Blomkvist, Uppsala University
Philip Kappen, Uppsala University Ivo Zander, Uppsala University
This paper probes the notion that the emergence of the ‘modern’ multinational corporation (MNC) has resulted in the increasingly rapid diffusion of technological capabilities across units of the multinational network. It draws upon a database containing the complete U.S. patenting history of 24 Swedish multinationals over the 1946-2008 period, which allows us to trace both the emergence and subsequent intra-firm diffusion of technological capabilities throughout the post-war period. The findings reveal that the pace of diffusion has indeed become faster over the observed time period, and that the main period of change has occurred over the past two decades. In line recent observations about skewed patterns of innovation activity in larger MNCs, the findings nevertheless indicate substantial variation in the firms’ adoption of modern ways of organizing and managing technology within the MNC network. (For more information, please contact: Katarina Blomkvist, Uppsala University, Sweden: [email protected])
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Cross-Border Organizational Practice Transfer and Management: Evidence from Multinational Corporations’
Affiliates in China
Leanne Chung, Cardiff University
This research synthesizes international and comparative management perspectives to develop a framework for analyzing the transfer and management of organizational practices in multinational corporation (MNC) cross-border affiliates. The key subjects for an examination of the framework and the issues it raises are five Hong Kong international firms operating in three cities in China, including Shenzhen, Shanghai, and Ningbo, through the medium of joint ventures or wholly-owned affiliates. The framework suggests that there are four main kinds of accommodation that MNCs seek and achieve between their standard international practices and those of local national partners or staffs. The study provides further empirical evidences that MNC practices cannot be
homogeneously applied to all firms. Instead, there can be different and clearly discernable practices which reflect each party’s cognitive and behavioural preferences under the different accommodation processes. The study offers new insights into (1) the processes that lead to convergence and divergences of organizational practices, and (2) the need for managers to understand the underlying connection between behavioural and cognitive accommodation in responses to both the contextual and contingency requirements. (For more information, please contact: Leanne Chung, Cardiff University, United Kingdom: [email protected])
Advantages to Creativity in a Multinational Manufacturing Firm - Perspective from Knowledge Diversification and Social Ties
Chih-Hsing Sam Liu, Ming Chuan University Bernard Gan, University of New South Wales
Sheng-Fang Chou, National Taiwan Normal University
This study aims to investigate the relationship between the social ties of employees, their access to heterogeneous knowledge and the generation of creativity. We tested our hypotheses in a sample of 350 employees from a large, multinational manufacturing firm. Our findings suggest that, while social ties matter, access to heterogeneous knowledge is of equal importance in the generation of employee creativity, and receiving help and support from colleagues has a positive influence on social ties, heterogeneous knowledge and creativity. (For more information, please contact: Chih-Hsing Sam Liu, Ming Chuan University, Taiwan:
Matrix Veneer: Quantitative Models of Information-Processing by Matrix in Multinational Corporations Jane Qiu, University of New South Wales
Lex Donaldson, University of New South Wales
Why multinational corporations (MNC) use matrix structures instead of elementary structures in spite of their high cost and conflict-prone nature? How much extra advantage do matrix structures confer in comparison to elementary structures? Can these advantages be quantitatively studied? In this paper we seek to provide new thoughts to these questions by considering the amount of advantage conferred by matrix structures used by MNC in information-processing. Based on two different views about the structure of MNC matrix, two
quantitative models are developed to predict the amount of extra advantage in information-processing brought by matrix to an MNC. The models are empirically explored in a secondary analysis using data from a study of German MNCs. (For more information, please contact: Jane Qiu, University of New South Wales, Australia:
Foreign Subsidiary Performance and Home Country Alliance Experience: A Theoretical Investigation Linda Rademaker, Tilburg University
Xavier Martin, Tilburg University
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The growing presence of emerging economy firms in global markets has led scholars to become increasingly interested in understanding how these firms expand internationally. This paper addresses the ways in which home country alliances with foreign multinational enterprises allow local firms to gain access to knowledge that can be used as the foundation on which to build future internationalization. Through the identification of the types of knowledge that can be transferred between multinational enterprises and local firms we develop a theoretical framework for learning from alliances with foreign multinational enterprises. In addition, our study reveals a number of contingencies that affect the extent to which local firms can benefit from alliances with foreign firms in their home country. We advance propositions about the ways in which this learning can increase foreign subsidiary performance and use fieldwork conducted in China to support our theoretical arguments. This study seeks to contribute to our understanding of learning from strategic alliances, the liability of foreignness, and the internationalization of emerging economy firms and as such open up new avenues for research. (For more information, please contact: Linda Rademaker, Tilburg University, Netherlands:
Session: 2.2.13 - Interactive
Track: Track: 8 - Developing Country MNCs
Location Choices
Presented On: July 5, 2013 - 10:55-12:10
Chair: Luis Alfonso Dau, Northeastern University
The Influence of Firm Resources and Internationalization Motivations on the Location Choice of Emerging Market MNEs
Naveen Kumar Jain, University of Akron Somnath Lahiri, Illinois State University
The purpose of this paper is to develop a research framework that elucidates the role of firm-specific resources and internationalization motivations on the location choice of emerging market firms (EMFs). Location choice made by EMFs constitutes an important yet somewhat neglected topic in international business (IB) research.
To address this gap we first review the literature pertaining to firm-specific resources and internationalization motivations as determinants of location choice. This is followed by the development of a research framework grounded in the emerging market context. Our framework illustrates how location choice of EMFs is determined by the interplay of various resources (relationship-based, home experiences-based and country created assets-based) and internationalization motivations (market-seeking, asset-seeking, and resource-seeking). Through our discussion and research propositions we contribute to the location choice literature in particular and IB
scholarship in general. (For more information, please contact: Somnath Lahiri, Illinois State University, USA:
Location Choices by Multinational Enterprises from Emerging Markets: Legitimizing versus Economizing Logic Ali Taleb, MacEwan University
Louis Hebert, HEC Montreal
This paper investigates the dominant logics underlying foreign location choices by multinational enterprises from emerging markets (EM-MNEs). The economic view of host country selection suggests that MNEs in general tend to focus their activities in nearby countries for efficiency reasons. In contrast, recent studies with institutional view posit that EM-MNEs in particular tend to prevail in developing markets for legitimacy imperatives. We mobilize and contrast economic efficiency and institutional legitimacy rationalities to study the logic underlying location choices by EM-MNEs. We analyze the configurations of the location networks of 203 EM-MNEs and show general empirical support for our theoretical predictions. In particular, EM-MNEs are found to mobilize different logics depending on whether location choices are made within their home regions or elsewhere.
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Specifically, they follow economizing logic only in their home regions. In other regions, they seem to arbitrate legitimizing logic and economizing logic depending on the degree of their international experience. Our findings make important contributions to the current debates on the regional nature of international strategy and on the internationalization process of EM-MNEs. They also have important theoretical and managerial implications. (For more information, please contact: Ali Taleb, MacEwan University, Canada: [email protected])
The Effect of Host Institutional Quality on the Location Choice of Emerging Market Multinationals: Evidence from China
Geng Cui, Lingnan University
Xiaolin Li, Guangdong University of Business Studies Tsang-Sing Chan, Lingnan University
This study examines the effect of the institutional quality of host country on the location choice of emerging market multinational corporations (EMMNCs). Drawing from the work of Dixit (2012) and given the interplay between institutional experience and transaction cost, we propose a curvilinear relationship between host institutional quality and country location choice, which is moderated by the bilateral relationship in both trade and investment. Based on the data from 342 Chinese firms, the authors find that the relationship between host institutional quality and location choice exhibits an inverted U-shape and that bilateral investment positively moderates the impact of host institutional quality, while bilateral trade does not. These findings furnish meaningful insight into the location choice of EMMNCs and their internationalization behavior. (For more information, please contact: Geng Cui, Lingnan University, Hong Kong, SAR-PRC: [email protected])
Globalization of Indian Multinationals: Case Study on Cultural Strategies in Developed Countries Roli Nigam, Laval University
Zhan Su, Laval University
The objective of this study is to focus on the cultural adaptation of Indian multinationals in developed North America. An extensive review of the literature shows that although multinationals from emerging countries are climbing up the global ladder rapidly, there is still a serious lack of studies on the subject, especially empirical studies. Our paper fills the gap in the literature through case study of three Indian multinationals and their six subsidiaries present in developed countries. The results indicate that Indian multinationals make use of a mixed strategy to attain successful cultural adaptation. With the use of this strategy they are also able to maintain high level control over the subsidiary on one hand and able to learn from their international experience on the other hand. The paper advances our understanding on the deployment of adaptation strategies by
multinationals from emerging countries in general and India in particular. (For more information, please contact: Roli Nigam, Laval University, Canada: [email protected])
multinationals from emerging countries in general and India in particular. (For more information, please contact: Roli Nigam, Laval University, Canada: [email protected])