FMIB #5

Resource2.pdf

Home >Business & Finance homework help >FMIB #5

Government Effectiveness and the Global Financial Crisis 65

Government Effectiveness, the Global Financial Crisis, and Multinational Enterprise Internationalization Christopher Williams and Candace A. Martinez

ABSTRACT This study examines the influence of national institutions on multinational enterprise entry mode behavior during eco- nomic downturns. Drawing on institutional and transaction cost theories, the authors propose (1) alternative hypothe- ses for the effect of host-country government effectiveness (a spatial institution) and (2) hypotheses for a direct and an indirect effect of a global financial crisis (a temporal event affecting all countries) on firms’ internationalization strategy. With a sample comprising 624 foreign expansion investments conducted by Dutch multinational enterprises between 2004 and 2009 into 66 countries, this investigation confirms that majority control more likely occurs when host- country government effectiveness is high or when the investment is made during a global financial crisis. The authors also find support for a hypothesized moderating effect of a global financial crisis. Concluding remarks discuss the impli- cations of these findings for scholars and practitioners.

Keywords: institutions, financial crisis, government effectiveness, internationalization, multinational enterprises

I nstitutions—or rules of the game—delineate individu- als’ and organizations’ choice sets. Weak institutions are especially problematic for multinational enterprises

(MNEs) as they seek new markets in developing coun- tries. When the regulations that govern political, social, and economic business transactions are less transparent, more poorly specified, or more weakly enforced than those in societies with effective regulatory regimes, uncertainty results (Henisz 2000; Ramamurti and Doh 2004). Multinational enterprises use many interrelated firm- and country-level strategies to cope with uncertain environments in their overseas operations (Agarwal 1994). These plans of action can range from a system- atic sequencing of internationalization stages through gradual commitment of resources (Johanson and Vahlne 1977, 1990), to internal processes of learning and net- work development (Welch and Welch 1996), to tech- nology transfer and knowledge management (Cui, Grif- fith, and Cavusgil 2005). Indeed, it has been argued that

an MNE’s performance in foreign environments is linked to the degree of integration in its foreign sub- sidiaries and to its market responsiveness—that is, its ability to evaluate changing, exogenous market condi- tions and make informed strategic decisions (Anderson and Coughlan 1987; Lee 2010; Luo 2001; Prahalad and Doz 1987; Yip, Gomez Biscarri, and Monti 2000).

External pressures may arise not only within the borders of one country, however. A firm’s choice of entry mode when venturing into foreign markets can also be driven by outside forces that are not under the control of the MNE’s host or home country. Although academic research has examined the role of the host-country insti- tutional environment in determining firms’ preference for full or shared ownership (Brouthers 2002; Delios and Beamish 1999; Gatignon and Anderson 1988; Henisz and Macher 2004), little scholarly attention has been directed at the impact of national institutions on

Christopher Williams is Assistant Professor, Richard Ivey School of Business, University of Western Ontario (e-mail: [email protected]). Candace A. Martinez is Assistant Professor, John Cook School of Business, Saint Louis University (e-mail: [email protected]).

66 Journal of International Marketing

firm-level responses to the internationalization process during times of worldwide volatility, such as the recent global financial crisis. On the aggregate level, reports have observed changing patterns as well as severe declines in foreign direct investment (FDI) inflows and outflows (Lairson 2011; United Nations Conference on Trade and Development 2011). Global merger-and- acquisition activity dropped sharply in 2008 and 2009 (Multilateral Investment Guarantee Agency 2011; Organisation for Economic Co-operation and Develop- ment 2008; World Bank Group 2009). Yet a downturn in FDI does not mean that all MNEs cease committing resources to foreign markets or stop establishing foreign subsidiaries and international joint ventures. Some firms, for example, persistently invest in innovation dur- ing worldwide economic recessions, while others do not (Filippetti and Archibugi 2011). It is also known that firms exhibit heterogeneous decision making in good times, that they use different strategies for different mar- kets, that their ability to respond to change differs, and that the national institutional setting influences their behavior and performance (Douglas and Craig 2011; Freeman 1995; North 2005). What is not known, how- ever, is the impact of institutional forces on firm responses to foreign market expansion when the volatil- ity is not concentrated within the host country alone but rather is diffused at the global level as represented by an international economic decline.

We address this lacuna by investigating how host- country government effectiveness influences MNE entry mode choice, a strategy affecting the crucial make-or-buy decision for firms’ global supply chain, and how the presence of a global financial crisis directly and indirectly affects MNE internationalization strate- gies as firms cross borders for new market opportuni- ties (Lee 2010). We apply institutional and transaction cost theoretic logics to underpin our hypotheses (North 1990, 2005; Scott 1995; Williamson 1975, 1983). We also hypothesize an interaction effect between govern- ment effectiveness in the host country and the presence of a global financial crisis. We posit that in a volatile financial period, relatively lower levels of government effectiveness do not deter MNEs from choosing majority control to the degree they might in the absence of financial uncertainty. Our analysis is based on 624 foreign expansions of Dutch MNEs listed on the AEX (Amsterdam Stock Exchange) into 66 developed and developing countries between 2004 and 2009. Control- ling for a range of firm-, country-, and industry-level factors, we find support for our direct and indirect effects hypotheses.

We contribute to research on the relationship among host-country institutions, international sources of risk, and MNE choice of entry mode in international mar- kets. First, we enhance understanding of how MNEs pursue international market expansion in the face of exogenous (to the firm) uncertainty, a topic of keen interest in the international business and marketing fields (Agarwal 1994; Barkema, Bell, and Pennings 1996; Brouthers 2002; Malhotra, Agarwal, and Ulgado 2003; Yip, Gomez Biscarri, and Monti 2000). In par- ticular, we are among the first to document the impact of the recent global financial crisis on MNE entry mode choice. Second, we extend institutional theory as it has been applied to the relationship between a host coun- try’s governance mechanisms and the internationaliza- tion strategy of an MNE. By revealing a statistically sig- nificant interaction between national-level governance and a temporal financial crisis, we contend that institu- tional theory should be extended in the context of MNE market internationalization to include not only local sources of risk in the host-country environment but also exogenous global sources of risk that change over time.

THEORY AND HYPOTHESES

Both transaction cost and institutional theories are appropriate lenses through which to view MNE entry mode choices across countries with differing institu- tional contexts (Henisz 2002; Yiu and Makino 2002). According to transaction cost analysis, MNEs reduce the transaction costs of arm’s-length contractual arrangements by internalizing intermediate product markets (Buckley and Casson 1976; Coase 1937; Rug- man and Verbeke 2003; Williamson 1975, 1983). The two principal behavioral assumptions of transaction cost analysis—namely, bounded rationality (the limits of human cognition) and opportunism between exchange partners (the risk of self-interest-seeking behavior)— have direct implications for the way MNEs approach international markets. Transaction cost theory uses an efficiency argument to explain and predict alternative governance structure choices (Hennart 1982; Kogut 1988). Among its most salient arguments is that firms will opt for minority or shared ownership to lessen the negative impact of environmental uncertainty and to minimize the likelihood of opportunistic behavior.

Institutional theory similarly reasons that in countries in which the institutional environment—the fundamental legal, political, and socioeconomic ground rules—does not inspire confidence (i.e., institutions are weak), firms

Government Effectiveness and the Global Financial Crisis 67

will show a preference for ownership modes with less control (Davis and North 1971; North 1990). Weak- nesses in the institutional environment refer to condi- tions that undermine property and contract rights, thus increasing investment risk. When these conditions exist in the host country, firms are less willing to make large resource commitments because increased ownership and control also implies commensurate responsibility and risks (Ahmed 1977; Brouthers 2002). As such, the nature of the institutional environment influences the comparative efficiency of governance structures; the firm’s ownership structure choice will vary with the need to safeguard its assets and minimize risks across differing institutional environments.

We follow previous scholars in defining institutions as the regulative, normative, and cognitive structures that form the boundary conditions for individual and orga- nizational behavior and that establish a society’s ability to uphold the rule of law (North 1990; Scott 1995). Research into the role of shared ownership is consistent with both transaction costs and institutional predic- tions. On the one hand, firms may join forces with a partner for purely efficiency reasons (e.g., to access locally based assets) (Hennart 1988). Scholars have found an association between the foreign parent’s decreasing level of ownership and an increased need to source complementary host-country assets (Beamish 1987; Gomes-Casseres 1989). On the other hand, firms may opt for a minority controlling stake to mitigate the potential downside risk of opportunistic behavior by host governments (Agarwal and Ramaswami 1992; Delios and Henisz 2003), the logic being that host gov- ernments treat joint ventures with a local partner more favorably, all else being equal. Empirical evidence sug- gests that when institutions are not well specified, mon- itored, or enforced, MNEs will forgo full or majority ownership for their affiliates abroad (and the greater control over decision making it implies) and select arm’s-length arrangements or a minority ownership stake to compensate for their exposure to institutional risk (Delios and Beamish 1999; Gomes-Casseres 1990; Hill, Hwang, and Kim 1990; Kim and Hwang 1992).

Baseline Hypotheses: Government Effectiveness and MNE Entry Choice

One of the unique mandates of national governments is their ability to draft and enact binding laws that guide the conduct of individuals and organizations. The notion that some corporations wield (or seek to wield) as much or more power than some nation-states in a

post-Westphalian world has received attention in the popular press and in academic journals (Kobrin 2009, 2011; Litan 2005; The New York Times 2010). Govern- ments make laws, and citizens and organizational actors (i.e., firms) follow them under penalty of fines, sanc- tions, or worse. In the context of transacting business across borders, a crucial element of the formal institu- tions (rules and regulations) that affect local firms and MNEs is that laws are perceived as fair and are enforcea ble (North 1990; Williamson 1996). This notion of credible and enforceable laws backed by meaningful deterrents is what we refer to as government effectiveness. Government effectiveness is part and par- cel of a strong institutional environment.

Government effectiveness undergirds most, if not all, aspects of business ventures—starting a business, paying taxes, trading across borders, accessing credit, drafting contracts, and liquidating a business. When a multi- national firm faces the quintessential internationaliza- tion decision of how much commitment and control to use when establishing new ventures abroad, it must con- sider the extent to which local laws will protect its inter- ests. If the host government does not have comprehen- sive or adequate legislation in place, or if it is not willing or able to uphold its own laws, this lack of government effectiveness will represent an important source of uncertainty and potential cost for the firm.

What are the implications of this? One line of reasoning argues that firms will have a preference for more control in their international new ventures when they view host- country institutions, policy formulation, and policy implementation as reliable and effective. Because MNEs tend to trust the legal system, they will be more willing to make greater resource commitments. According to institutional theory, greater government effectiveness will make it less likely that assets committed to the foreign market will be expropriated because governments will not pursue such action outside their own laws. Greater government effectiveness will also make it easier for the firms to set up the operation, engage in international trade from the location, access credit, and conduct other business on foreign soil. This institutional argument sug- gests, however, that when government effectiveness is inadequate, MNEs will choose lower (minority) control stakes and initially commit fewer resources in the host country (Brouthers 2002; Delios and Henisz 2003). This leads to the following hypothesis:

H1: The higher the level of government effective- ness in a host country, the more likely an

68 Journal of International Marketing

MNE is to choose a majority control stake in its internationalizing strategy.

An alternative perspective reasons that an MNE will likewise prefer a majority stake when the level of gov- ernment effectiveness is low. According to this line of reasoning, because good, sound institutions engender strong incentives for lawful conduct (which in turn are upheld by good, sound institutions), partners are less likely to act in a self-interested and unlawful manner. In the absence of safeguards that signal a host govern- ment’s credible commitment toward a functioning legal system, however, this counterargument follows transac- tion cost logic: Without the threat of perceived penalties in a context of incomplete contracts and bounded rationality, actors could resort to opportunistic behavior (Williamson 1975, 1985). A partner has better knowl- edge and appreciation of the political system in the host country and is better positioned to avoid legal reprisals, potentially at the expense of the investing MNE, both of which are factors that could expose MNE assets to part- ner opportunism. Coupled with an ineffective host- country legal system, MNEs would avoid partnering and seek control over the venture (Agarwal and Ramaswami 1992; Brouthers and Brouthers 2000). This leads to an alternative hypothesis:

H1alt: The lower the level of government effective- ness in a host country, the more likely an MNE is to choose a majority control stake in its internationalizing strategy.

New Hypotheses: The Global Financial Crisis and MNE Entry Choice

Many observers consider the recent global financial cri- sis the worst economic recession in modern history. The center of the crisis marked a global “credit crunch,” in which banks were reluctant to lend money and govern- ments, private-sector firms, and consumers worldwide were negatively affected by worsening liquidity and decreasing confidence in international financial mar- kets. Large financial institutions collapsed in various developed countries, and many national governments needed to bail out their financial institutions and recap- italize them to secure stability in the financial system.

We argue that such types of unstable conditions in inter- national markets have a profound impact on the way MNEs approach their internationalization strategies. Dur- ing times of worldwide financial crises, firms’ revenues are put under pressure and equity prices are down. As a result,

more host-country firms, which may be undervalued because of the dire economic conditions, become possible targets for acquisition (Agrawal and Jaffe 2003). The value destruction that a global financial meltdown induces thus may represent a ripe investment opportunity for MNEs to gain valuable assets at an attractive price. If majority ownership is consistent with MNEs’ internation- alization strategy, the crisis may tempt them to acquire (or gain a controlling interest of) firms overseas that, absent the financial crisis, they would not have considered.

A global financial crisis represents additional transac- tion costs for the MNE that may cause it to reassess the risks of partnering with minority control and seek majority control as the most optimal governance arrangement (Shelanski and Klein 1995). The potential partners the MNE seeks in its cross-border expansions are also affected by the economy’s tighter credit and lending conditions. Therefore, the number of potential joint venture partners that have the capability and will- ingness to undertake new ventures with an investing MNE will be reduced. As a result, the MNE will have at its disposal a smaller and more challenging pool from which to select potential partners, increasing its search and monitoring costs as well as the likelihood of more uncertain outcomes if it decides to partner (Williamson 1975, 1983). This process will induce the MNE to reevaluate the advisability of minority versus majority control modes of entry (Gulati 1998).

In addition to these issues, sovereign debt and corporate default risks are especially germane concerns for firms in times of financial turbulence (Vaaler and McNamara 2004). The MNE will be less inclined to get involved in minority control partnering in new ventures because of the increased ex ante search and monitoring costs incurred when assessing the level and impact of part- ners’ credit worthiness and their associated financial sta- bility. Moreover, after the partnership is underway, unforeseen contingencies (not contracted for ex ante) are more likely to surface in tandem with an increase in ex post transaction costs linked to partners’ exposure to the global financial crisis. Prolonged haggling, monitor- ing, dispute settling, and bonding expenses may result (Moschandreas 1997). These concerns may also lead the MNE to prefer majority ownership stakes that allow it to control operations and avoid becoming hostage to partner-related risks (Jap and Anderson 2003). Thus:

H2: In times of a global financial crisis, an MNE is more likely to choose a majority control stake in its internationalizing strategy.

Government Effectiveness and the Global Financial Crisis 69

Moderating Effect of a Financial Crisis

Previously, we presented two alternative hypotheses (H1 and H1alt) for the relationship between government effectiveness and MNE entry mode preference. We also posited a positive association between the worldwide economic downturn and an MNE’s choice of majority control entry mode (H2). We now extend these predic- tions by arguing that when an MNE internationalizes during a global financial crisis, the transaction cost logic of H1alt becomes more important than the institutional logic of H1. The external transaction costs related to partnering in a new international venture will be higher during a global financial crisis because of the increased difficulties in searching for partners, writing contracts, and establishing credible commitments and other safe- guards (e.g., trust) in an inherently unstable environ- ment (Dyer 1997). The question then arises: Will gov- ernment effectiveness in a host country alleviate the additional transaction costs brought about by the pres- ence of a global financial crisis in an MNE’s choice of internationalization strategy?

When MNEs consider entry into countries with low government effectiveness during a financial crisis, they will be less inclined to use minority control modes. The liquidity problems facing potential partners need to be assessed and contracts written in a changing and uncertain context for both the investing MNE and the partners. Host governments operating in weak institu- tional environments will be ineffective in helping the MNE resolve any co-ownership issues with joint ven- ture partners in an efficient and expeditious manner or deal with additional transaction costs. Not only will the government have little influence over the course of events in global markets, but it will also likely have few capabilities to reassure the investing MNE that legal safeguards are adequate enough to compensate for the additional risk that the MNE is assuming. However, when considering other countries with higher levels of government effectiveness during a financial crisis, the MNE will be more inclined to use minority control modes. In this situation, the govern- ment can be trusted to deal with any unforeseen or negative consequences arising from additional transac- tion costs. Thus:

H3: In the presence of a global financial crisis, there is a negative relationship between gov- ernment effectiveness and the likelihood of an MNE choosing a majority control stake in its internationalizing strategy.

METHODOLOGY Sample

To test our hypotheses, we used MNEs from a single developed home country that invested in a wide range of host countries. We collected data from the entire universe of 24 MNEs that were listed on the Dutch AEX index in 2004 and traced their expansion activities for all years from 2004 through 2009. Although the economy of Netherlands is smaller than that of other developed countries (e.g., the United States, Japan), its geographic and historical legacy as an important trading hub make it one of Europe’s most important countries in terms of FDI activity (Central Intelligence Agency 2011). As of 2009, the Netherlands was among the top ten countries in the world in terms of its inward and outward FDI lev- els (De Nederlandsche Bank 2011). In 2010, its MNEs’ direct investments in Latin America, for example, made it the second-largest investor in the region, surpassed only by the United States and followed by China in third place (Economic Commission for Latin America 2011). For foreign affiliates owned by BRIC-country parents (Brazil, Russia, India, China), the Netherlands is the third most important internationalization choice after Germany and the United Kingdom (Groot et al. 2011), and FDI levels in the Netherlands from Chinese and Indian firms in particular are higher than would be expected for a country of a size comparable to that of the Dutch economy (Groot et al. 2011).

High FDI activity translates into a sizable universe from which to draw a sample of international strategy deci- sions. For this study, we chose the Netherlands’ AEX- listed companies because they tend to be large, interna- tionally focused MNEs with foreign investment located not only in other developed countries but also in devel- oping countries. Furthermore, because AEX-listed firms are obligated by law to publish audited annual reports, foreign expansion data are transparent and available. We identified new expansion data by manually entering relevant key words (e.g., “acquisition,” “start-up,” “joint venture”) into the English version of the firms’ corporate reports for each of the six years. We screened the acquisitions that resulted from earlier joint ventures within the time frame of analysis, thus distinguishing initial expansion from subsequent expansion and omit- ting the latter from our final sample.

To ensure the robustness and reliability of the data, we conducted an interrater reliability test on approximately 33% of the sample and a systematic check of company press releases to verify entry mode of the cases we had

70 Journal of International Marketing

deemed to be “ambiguous” during the first round of data collection. We omitted the few cases whose entry mode data remained questionable from the final sample. The frequency of observations (i.e., Dutch MNEs’ over- seas investments) by year is as follows: 76 in 2004, 86 in 2005, 137 in 2006, 136 in 2007, 134 in 2008, and 55 in 2009.

Variables

Dependent Variable. In line with the theoretical under- pinnings of our hypotheses, the dependent variable measures two types of entry mode: majority and minority control stakes. We define majority control as a 51% or greater ownership stake in the overseas sub- sidiary by the multinational parent company and minority control as less than a 51% control. We identi- fied 23 cases of 50% investment by the focal MNE and coded them as minority control joint ventures. The dummy variable was coded as 1 for majority control and 0 for minority control. A positive sign on the explanatory and control covariates therefore indicates that majority ownership is more likely.

Independent Variables. Government effectiveness and financial crisis are the key variables of interest in this study. To test H1 and H1alt, we operationalized govern- ment effectiveness by using the World Governance Indi- cator composite measure (Kaufmann, Kraay, and Mas- truzzi 2007). Taken from myriad data sources, this operationalization captures the essence of what we are interested in—namely, the government’s ability to for- mulate and implement policy and the credibility of the government’s commitment to uphold and enforce such policies. This measure also includes the quality of pub- lic and civil services and the degree of a government’s independence from political pressures. Composite meas- ures, such as government effectiveness, are both valid and useful for making cross-country comparisons over time. We used the scores for the government effective- ness measure from the corresponding year of entry for each observation in the data set, with relatively higher values corresponding to better outcomes. On average, the countries in our sample were evenly distributed on this measure.

For H2, we used a dichotomous variable to test the influence of a global financial crisis on an MNE’s pref- erence for a majority- or minority-controlling stake in its international operations. Experts concur that late 2007 to early 2008 marked the temporal boundary of the worldwide financial meltdown (Lairson 2011;

United Nations Conference on Trade and Development 2011; World Bank Group 2009). We coded Dutch MNE expansions abroad in 2008 and 2009 as 1 (crisis years) and those in 2004 through 2007 as 0 (pre-crisis years). Finally, to test the hypothesized moderating role of the financial crisis in terms of its impact on the relationship between government effectiveness and MNEs’ prefer- ence for majority ownership stake, we created an inter- action term between government effectiveness (stan- dardized) and financial crisis.

Control Variables. To account for alternative explana- tions for MNE internationalization strategy in times of a global financial crisis, we used several control variables. We controlled for host government laws or reforms that influence a country’s level of FDI inflows. We used the mean of a survey question taken from the World Economic Forum’s (2006) Global Competitive- ness Report that asks, “To what extent do rules govern- ing [FDI] encourage or discourage it?” Rankings ranged from 1 to 7, with higher values referring to national leg- islation that encourages FDI. Next, we controlled for the cultural distance between the home and host mar- kets. Some scholars have found that cultural distance can increase MNEs’ transaction costs and, consequently, their preference for shared ownership modes of entry (Erramilli and Rao 1993; Kogut and Singh 1988). Oth- ers have provided empirical support that attests to the role of cultural distance in encouraging MNEs to choose majority control (Barkema, Bell, and Pennings 1996; Gatignon and Anderson 1988). To measure the cultural distance between the home country (the Netherlands) and the host countries in our sample, we applied Hof- stede’s (1980) four dimensions of culture—power dis- tance, individualism, masculinity, and uncertainty avoidance—to Kogut and Singh’s (1988) cultural dis- tance formula.

Another alternative explanation that we controlled for is the market size of the host country. Previous empiri- cal research has found that the attractiveness of an over- seas location for MNEs depends partly on the size of the host-country market (Delios and Henisz 2003; Dha- naraj and Beamish 2004), suggesting that MNEs are more willing to enter a host country with a shared own- ership structure if the potential demand (market power) of the host country counterbalances their loss of control and likewise fills a strategic need in their global distribu- tion network. Previous research has similarly argued that the greater the size of a host country and the more attractive its potential demand for the MNE’s products, the more likely MNEs will enter the country using the

Government Effectiveness and the Global Financial Crisis 71

entry mode most favored by the host government, which historically has been associated with joint venture for- mation (Moran 2002). Our proxy for market size fol- lows that of previous scholars: the log of host-country population (obtained from Thomson DataStream 2006).

We also controlled for MNE size. Parent firm size is associated with the likelihood of an MNE making inter- national resource commitments and choosing a majority over a minority ownership stake (Stopford and Wells 1972). Large firms typically have the resources and experience for full or majority ownership in their inter- national expansion strategies and thus do not require or seek partners (Agarwal and Ramaswami 1992; Delios and Beamish 2001; Hoskisson et al. 2004). Previous research has consistently established the link between firm size and MNE propensity for higher ownership stakes (often full control) as well as MNE ability to deal with the risk conditions of a host country (Delios and Beamish 2004; Moran 2001; Pan and Li 2000).

Scholars have predominantly measured parent firm size by a log transformation of the number of employees in the parent firm or by the log transformation of the amount of total parent firm sales worldwide. We use the former measure.

Finally, we included a control variable at the industry level. Natural resource extraction has long been a sensi- tive sector, especially in resource-rich developing coun- tries, where it has historically raised concerns about the exploitation of host countries and their loss of sover- eignty (Moran 1999). Independent of ceding to host government demands for sharing ownership with local private and/or government partners when requested, MNEs in the extractive and mining fields may also choose a minority stake for mode of entry to mitigate the potential risk of expropriation (Jensen and Johnston 2011). We control for this possibility with a dummy variable, coding parent firms whose primary sector is in an extractive industry as 1 and those in other industries as 0. Table 1 lists all the variables, their measurements, definitions, and sources.

Using a binary logistic regression, we first ran a model to examine the effects of the control variables, followed by three separate estimation models to test the direct effects predicted by H1, H1alt, and H2: (1) government effectiveness, (2) the presence of a global financial crisis, and (3) both of these together. Finally, we ran an inter- action model to test H3 using the standardized value of

government effectiveness multiplied by the dichotomous dummy for financial crisis (Aiken and West 1991).

RESULTS

Table 2 shows the intercorrelations and descriptive sta- tistics for all variables. The pairwise correlations do not indicate the presence of multicollinearity. We note that government effectiveness and financial crisis are both positively and significantly correlated with majority control (p < .01 and p < .05, respectively). We also note that financial crisis does not significantly correlate with any of the other explanatory variables. As might be expected, rules that encourage FDI are positively corre- lated with government effectiveness (p < .01). We also find a positive correlation between host-country popula- tion and cultural distance from the Netherlands (p < .01), which is indicative of investment activity during the period under study in countries such as Brazil, India, and China. Table 3 presents the results of the binary logistic regression analysis.

The statistical results for the control variables indicate that while MNE size did not have a significant impact in any of the models, population size and extractive indus- try consistently exerted a negative influence on choosing majority control in all models. Laws that encourage FDI had a similar effect in three of the five models. Cultural distance had a negative impact in two models. The over- all findings for the control variables indicate that culture is not as important as the nature of the industry, the size of the market, or local pro-FDI laws with respect to MNE internationalization strategy. In particular, the pull toward minority ownership stakes (a negative coef- ficient) for MNEs in extractive industries is especially strong, perhaps because of host-country government laws that constrain foreign control of natural resources through mandated joint venturing with local partners, a common occurrence in many resource-rich developing countries.

Models 2–4 show direct-effects estimations. Both gov- ernment effectiveness (p < .001) and the presence of the global financial crisis (p < .1 and p < .05) increase the probability of a majority control stake. This outcome provides strong support for H1 and H2 but no support for H1alt. Model 5 shows that the presence of a world- wide economic crisis reverses the positive relationship between government effectiveness and a majority con- trol MNE internationalization choice. The interaction term is statistically significant (p < .05) and negative,

72 Journal of International Marketing

consistent with the prediction of H3. Figure 1 shows the interaction effect. When no global financial crisis is present, institutional logic prevails. Greater government effectiveness implies that the government is relatively more independent from political pressures and thus is able to put in place, and to enforce, credible public policy, such as strong property rights regimes. Risks of appropriation of assets or other uncertainties arising from the formal institutional environment of the host country are therefore relatively lower, and the MNE is more willing to commit larger resources and seek

majority or full ownership. Figure 1 also indicates, how- ever, that this institutional rationale is reversed in the presence of a global financial crisis. In this case, the MNE is more likely to seek a minority control mode as government effectiveness increases.

DISCUSSION AND CONCLUSIONS

We contribute to the body of empirical research on the relationship between host-country institutions, global

Variable/Type Measurement Definition Source

Majority control/ dependent

1 = majority control; 0 = minority control

Parent firm’s ownership structure in overseas investment: majority = ≥51%; minority = <51%

AEX-listed MNE annual report

Government effectiveness/ independent

Percentile rankings from 0 to 100. Higher scores reflect relatively higher levels of govern- ment effectiveness.

Perception of the quality of public and civil services and its independence from political pressures, perception of policy formulation and implementation, and credibility of a government’s commit- ment to these policies.

The World Bank (http://info.worldbank.org/ governance/wgi/resources.htm)

Financial crisis/ independent

1 = 2008 or 2009; 0 = 2004–2007

Worldwide economic and financial downturn, post-2007

Timing of MNE entry mode gathered from secondary sources (e.g., press releases, AEX-listed MNE annual reports)

MNE size/control Log of total number of parent firm’s employees

Parent firm’s size in terms of its world- wide employee base

AEX-listed MNE annual reports

Extractive industry/ control

1 = extractive industry; 0 = otherwise

If parent firm’s primary industry in its overseas operation is in one of the extractive industries (i.e., oil, natural gas, mining)

AEX-listed MNE annual reports

Population/control Log of host-country population

The size of the host country’s market in terms of population

Thomson DataStream 2006

Cultural distance/control

Summed squares of the variance between host country and the Netherlands

National cultural differences between home and host country based on four dimensions

Hofstede (1980); Kogut and Singh (1988)

FDI rules/control Item 6.12 in the Global Competitive- ness Report; scores from 1 to 7 with higher values = pro-FDI laws

The degree to which host countries legislate rules and regulations that foster FDI

Global Competitiveness Report 2006–2007 (World Economic Forum)

Table 1. Data Variables, Measurements, Definitions, and Sources

Government Effectiveness and the Global Financial Crisis 73

Table 2. Descriptive Statistics and Correlations

M SD 1 2 3 4 5 6 7

1. Majority control .71 .46 1

2. Government effectiveness 76.49 19.71 .190** 1

3. Financial crisis .31 .46 .070* –.060 1

4. FDI rules 4.95 .48 –.014 .481** –.075 1

5. Cultural distance 3.19 1.45 –.135** –.394** –.057 –.064 1

6. Population 245.68 383.25 –.173** –.316** –.035 .137** .365** 1

7. MNE size 86.65 81.45 –.086* –.101* –.057 –.029 .040 .025 1

8. Extractive industry .20 .40 –.194** –.279** –.007 –.099* .054 –.025 .465**

*Correlation is significant at the .05 level (two-tailed). **Correlation is significant at the .01 level (two-tailed). Notes: Population in millions; MNE size in thousands of employees.

Table 3. Logistic Regression Results

Model 1 Model 2 Model 3 Model 4 Model 5

FDI rules –.209 –.519** –.189 –.505** –.497** (.192) (.217) (.193) (.217) (.219)

Cultural distance –.160*** –.081 –.154*** –.072 –.077 (.062) (.068) (.062) (.068) (.069)

Population (log) –.157*** –.120* –.158*** –.120* –.108* (.060) (.064) (.009) (.061) (.062)

MNE size (log) –.092 –.088 –.089 –.086 –.094 (.063) (.064) (.063) (.064) (.064)

Extractive industry –.940*** –.756*** –.945*** –.757*** –.762*** (.235) (.243) (.235) (.244) (.245)

Government effectiveness (GE) .018*** .019*** .025** (.006) (.006) (.007)

Financial crisis (FC) .351* .385** .333 (p = .11) (.207) (.209) (.208)

GE × FC –.415** (.210)

Constant 5.435** 4.823*** 5.201*** 4.551*** 5.226*** (1.363) (1.365) (1.376) (1.379) (1.467)

Number of observations 624 624 624 624 624

–2 log-likelihood 709.46 700.047 706.522 696.575 692.603

Pseudo-R2 (Nagelkerke) .09 .113 .099 .120 .129

*p < .1. **p < .05. ***p < .01. Notes: Robust standard errors are below the estimates. All p-values are estimated using two-tailed tests.

74 Journal of International Marketing

sources of risk, and MNE choice of entry mode in inter- national markets. First, we add to scholars’ understand- ing of MNE international market expansion in turbu- lent host environments and in times of change. Scholars in international business and marketing have tested the impact of risk in foreign markets on MNE strategy (Barkema, Bell, and Pennings 1996; Brouthers, Brouthers, and Werner 2003; Delios and Henisz 2003; Ekeledo and Sivakumar 2004; Malhotra, Agarwal, and Ulgado 2003; Yip, Gomez Biscarri, and Monti 2000). Few studies, however, have examined MNE ownership control preferences in the context of major external events affecting all countries, such as the recent global financial crisis. How does a prolonged, worldwide eco- nomic downturn influence MNE international strategy? Our study indicates that volatility in external, global financial markets is a critical driving force for change in MNE internationalization strategy, inducing the MNE to modify the way it views the role of institutions in for- eign markets when considering entry into those markets. Thus, we contribute to extant research by examining both the timing and the commitment of MNE market internationalization with the presence of a financial cri- sis as a temporal constraint that established institutional theory has thus far not addressed.

The phenomenon we examine is very recent, and schol- arship on MNE strategy in this context is largely yet to mature. Nevertheless, we extend institutional theory as it has been applied to the relationship between a host country’s governance mechanisms and the internation- alization strategy of an MNE. Our research indicates

that when MNEs invest internationally in globally tur- bulent times, the way government effectiveness in a mar- ket affects entry choice is dramatically altered. This sug- gests that institutional theory needs to be reexamined in the context of MNE internationalization to include global, not just domestic, drivers of risk. In some situa- tions, institutional arguments may overrule transaction cost arguments (e.g., the comparative costs and benefits of finding and managing potential joint venture part- ners) regarding MNE international strategy. This out- come is more likely to occur when the sources of risk and uncertainty and their concomitant costs are local (i.e., country specific). However, when the risk exposure becomes global, affecting all players at various levels in the business system, institutional effectiveness becomes a secondary consideration.

Managerial Implications

Several managerial implications and discussion points arise from this study. First, this research highlights the importance of timing for MNE market entry decisions. Although MNEs must comply with the rules of the game in the countries in which they have business operations, our study provides a pre- and post-crisis nuance to this generally accepted maxim. It suggests that financial crises denote time constraints. That is, financial crises present market entry opportunities that encourage firms to act quickly if they want to exploit timely internation- alization opportunities before their rivals do (Rivoli and Salorio 1996). Thus, when a global economic crisis occurs, the ability of a host country to draft and enforce effective laws loses some of its importance given the urgency and agility with which MNE managers need to respond to foreign expansion decisions.

Firms do not completely abandon internationalization in times of change. Our study suggests that during an extended worldwide financial crisis, MNEs are less aggressive and more selective in their investments abroad as they continually reassess the risks associated with overseas product–market opportunities. The total number of investments by the Dutch MNEs in our sam- ple dropped significantly in 2009. Moreover, our data set reveals that the majority of the 55 investments in 2009 took place in other developed countries. These trends signal that a sustained downturn in the global economy creates an uncertain competitive space that not only reduces the volume of investments of MNEs but also leads them to select “safer” and more developed markets for their expansion strategies. Statistical analy- ses of the data further corroborated that global financial

Figure 1. Interaction Effect

No crisis Global financial crisis

P ro b ab

il it y o f M aj o ri ty C

o n tr o l

Low Government Effectiveness

High Government Effectiveness

4.9

4.7

4.5

4.3

4.1

3.9

3.7

3.5

Government Effectiveness and the Global Financial Crisis 75

crises present new opportunities for MNE executives in the form of partnerships in high-quality institutional markets in which they might have otherwise pursued majority-owned acquisitions or Greenfield investments. Thus, in addition to understanding country-level and industry factors (Porter 1990), MNE executives are wise to modify their market internationalization strategy to coincide with the timing (start and end) of exogenous events that affect all countries. This anticipation of and reaction to a worldwide financial crisis is not easy; no one has a crystal ball. Nevertheless, appreciating the need to change (but not totally abandon) internationali- zation strategy during a global crisis is an important mentality among the strategic leaders of MNEs.

Second, times of crisis may lead to increased tension within the strategic apex of the MNE in terms of how to approach internationalization strategy. While some executive decision makers may view an economic crisis as a time to act conservatively, to maintain the status quo, and to hold steady until the crisis passes, others may view it as a market opportunity and a time to reevaluate entry strategy in light of local institutions. Our analyses suggest that some MNEs do continue to see value in internationalization during global financial crises and that they modify their internationalization strategy accordingly. Yet the strategic change required to achieve this may lead to fault lines in the top manage- ment team and present issues in terms of how to man- age shareholders and other stakeholders. However, when a global crisis starts, if the top management team concludes that the timing is right for a preemptive strike or decides to use an entry mode that the firm tradition- ally would not have used, the MNE may have gained a competitive edge over rivals. Further research is required to develop knowledge on this specific point, but we believe that the strategic flexibility needed to modify internationalization strategy during a financial crisis can be an important competitive weapon.

Third, our analysis suggests that MNE executives alter their view of the role of government effectiveness in for- eign markets during times of worldwide economic crisis. In good times, when the world’s financial industries are relatively stable, effective government policy in a host country provides reassurance to MNEs about local insti- tutions and the risks associated with conducting busi- ness transactions. Laws will be followed, and contracts will be honored. If they are not, recourse can be sought. In contrast, in times of economic crisis, government effectiveness no longer provides a sufficient guarantee to offset the myriad risks associated with large-scale,

majority-control commitments. Thus, executives need to have a clear understanding of the limits of government effectiveness in their various target markets across the world to make the most appropriate entry mode deci- sions under conditions of global financial volatility.

Limitations and Further Research

Although this study presents important findings about the confluence of MNEs’ choice of entry mode, host- country institutions, and worldwide financial turbu- lence, some limitations deserve attention. First, the sam- ple comprised MNEs from one country only, the Netherlands. Although we argue that its relatively small geographic size belies a market-oriented, open, and internationalized society with high levels of globaliza- tion and important MNEs, studies on MNEs from one developed country may not be generalizable to the behavior of MNEs from other developed countries. Relatedly, our study does not consider whether MNEs from developing countries exhibit similar behavior in their overseas investments in times of crisis. Second, we gathered two years’ worth of “crisis” data (2008 and 2009). As the worldwide recession continues to play out, gathering an extended data set will provide more insights into whether enduring economic crises exercise a sustained effect on MNE market entry strategies.

Despite these constraints, this investigation underscores the tension between a temporal, worldwide phenomenon (the recent financial crisis) and a spatial, country-specific institution (government effectiveness) on firm-level inter- nationalization strategies during times of change. Addi- tional research could further tease out the intertwining and sometimes competing roles of national institutions and transaction costs in turbulent environments for firms’ market entry strategy and the significance of these on MNE perceptions of risk in different competitive set- tings. In a similar vein, further research could broaden the scope of the current study to include the internation- alization strategy of developing and emerging country MNEs. Understanding how global financial crises affect the ability of MNEs from these types of countries to compete, survive, and flourish would add to the general understanding of internationalization in turbulent times. Research could also examine causality between world- wide economic crises and the positive and negative forces that shape MNE market strategies. Our hope is that scholarship in the future will continue to explore MNE responses to exogenous temporal events, such as a global financial crisis, and to interpret their significance for MNE expansion in foreign markets.

76 Journal of International Marketing

REFERENCES Agarwal, Sanjeev (1994), “Socio-Cultural Distance and the Choice of Joint Ventures: A Contingency Perspective,” Jour- nal of International Marketing, 2 (2), 63–80.

——— and Sridhar N. Ramaswami (1992), “Choice of Foreign Market Entry Mode: Impact of Ownership, Location and Internalization Factors,” Journal of International Business Studies, 23 (1), 1–27.

Agrawal, Anup and Jeffrey F. Jaffe (2003), “Do Takeover Targets Underperform? Evidence from Operating and Stock Returns,” Journal of Financial and Quantitative Analysis, 38 (4), 721–46.

Ahmed, A. Ahmed (1977), “Channel Control in International Markets,” European Journal of Marketing, 11 (4), 327–36.

Aiken, Leona S. and Stephen G. West (1991), Multiple Regres- sion: Testing and Interpreting Interactions. Newbury Park, CA: Sage Publications.

Anderson, Erin and Anne T. Coughlan (1987), “International Market Entry and Expansion via Independent or Integrated Channels of Distribution,” Journal of Marketing, 51 (Janu- ary), 71–82.

Barkema, Harry G., John H. Bell, and Johannes M Pennings (1996), “Foreign Entry, Cultural Barriers, and Learning,” Strategic Management Journal, 17 (2), 151–66.

Beamish, Paul W. (1987), “Joint Ventures in LDCs: Partner Selection and Performance,” Management International Review, 27 (1), 23–37.

Brouthers, Keith D. (2002), “Institutional, Cultural and Trans- action Cost Influences on Entry Mode Choice and Perform- ance,” Journal of International Business Studies, 33 (2), 203–221.

——— and Lance E. Brouthers (2000), “Acquisition or Green- field Start-Up? Institutional, Cultural and Transaction Cost Influences,” Strategic Management Journal, 21 (1), 89–97.

———, ———, and Steve Werner (2003), “Transaction Cost- Enhanced Entry Mode Choices and Firm Performance,” Strategic Management Journal, 24 (12), 1239–48.

Buckley, Peter J. and Mark Casson (1976), The Future of the Multinational Enterprise. London: Macmillan.

Central Intelligence Agency (2011), The World Factbook. Washington, DC: US Government Printing Office, (accessed February 2012), [available at https://www.cia.gov/library/ publications/the-world-factbook/geos/nl.html].

Coase, Ronald H. (1937), “The Nature of the Firm,” Econom- ica, 4 (16), 386–405.

Cui, Anna Shaojie, David A. Griffith, and S. Tamer Cavusgil (2005), “The Influence of Competitive Intensity and Market Dynamism on Knowledge Management Capabilities of Multi- national Corporation Subsidiaries,” Journal of International Marketing, 13 (3), 32–53.

Davis, Lance E. and Douglass C. North (1971), Institutional Change and American Economic Growth. Cambridge, UK: Cambridge University Press.

De Nederlandsche Bank (2011), “Netherlands Leads the Field in Direct Investment,” DNBulletin, (accessed February 2012), [available at http://www.dnb.nl/en/news/news-and-archive/ dnbulletin-2011/dnb256487.jsp].

Delios, Andrew and Paul W. Beamish (1999), “Ownership Strategy of Japanese Firms: Transactional, Institutional, and Experience Influences,” Strategic Management Journal, 20 (10), 915–33.

——— and ——— (2001), “Survival and Profitability: The Roles of Experience and Intangible Assets in Foreign Sub- sidiary Performance,” Academy of Management Journal, 44 (5), 1028–1038.

——— and ——— (2004), “Joint Venture Performance Revis- ited: Japanese Foreign Subsidiaries Worldwide,” Management International Review, 44 (1), 69–91.

——— and Witold J. Henisz (2003), “Political Hazards, Experi- ence, and Sequential Entry Strategies: The International Expansion of Japanese Firms, 1980-1998,” Strategic Manage- ment Journal, 24 (11), 1153–64.

Dhanaraj, Charles and Paul W. Beamish (2004), “Effect of Equity Ownership on the Survival of International Joint Ven- tures,” Strategic Management Journal, 25 (3), 295–305.

Douglas, Susan P. and C. Samuel Craig (2011), “Convergence and Divergence: Developing a Semiglobal Marketing Strategy,” Journal of International Marketing, 19 (1), 82–101.

Dyer, Jeffrey (1997), “Effective Interfirm Collaboration: How Firms Minimize Transaction Costs and Maximize Transaction Value,” Strategic Management Journal, 18 (7), 535–56.

Economic Commission for Latin America (2011), “Foreign Direct Investment in Latin America and the Caribbean 2010,” (accessed February 2012, [available at http://www.eclac.cl/ cgibin/getProd.asp?xml=/publicaciones/xml/0/43290/P43290. xml&xsl=/ddpe/tpl-i/p9f.xsl&base=/tpl-i/top-bottom.xsl].

Ekeledo, Ikechi and K. Sivakumar (2004), “International Mar- ket Entry Mode Strategies of Manufacturing Firms and Serv- ice Firms: A Resource-Based Perspective,” International Mar- keting Review, 21 (1), 68–101.

Erramilli, M. Krishna and C.P. Rao (1993), “Service Firms’ International Entry-Mode Choice: A Modified Transaction- Cost Analysis Approach,” Journal of Marketing, 57 (July), 19–38.

Government Effectiveness and the Global Financial Crisis 77

Filippetti, Andrea and Daniele Archibugi (2011), “Innovation in Times of Crisis: National Systems of Innovation, Structure, and Demand,” Research Policy, 40 (2), 179–92.

Freeman, Chris (1995), “The ‘National System of Innovation’ in Historical Perspective,” Cambridge Journal of Economics, 19 (1), 5–24.

Gatignon, Hubert and Erin Anderson (1988), “The Multi- national Corporation’s Degree of Control over Foreign Sub- sidiaries: An Empirical Test of a Transaction Cost Explana- tion,” Journal of Law, Economics, and Organization, 4 (2), 305–336.

Gomes-Casseres, Benjamin (1989), “Ownership Structures of Foreign Subsidiaries: Theory and Evidence,” Journal of Eco- nomic Behavior and Organization, 11 (1), 1–25.

——— (1990), “Firm Ownership Preferences and Host Govern- ment Restrictions: An Integrated Approach,” Journal of Inter- national Business Studies, 21 (1), 1–22.

Groot, Stefan P.T., Henri L.F. de Groot, Arjan M. Lejour, and Jan Möhlmann (2011), “The Rise of the BRIC Countries and Its Impact on the Dutch Economy,” Ministry of Economic Affairs, Agriculture and Innovation, (accessed February 2012), [available at http://www.montesquieu-institute.eu/ 9353000/1/j4nvgs5kjg27kof_j9vvhfxcd6p0lcl/viv1keg0jaxm/ f=/blg142300.pdf].

Gulati, Ranjay (1998), “Alliances and Networks,” Strategic Management Journal, 19 (4), 293–317.

Henisz, Witold J. (2000), “The Institutional Environment for Multinational Investment,” Journal of Law, Economics and Organization, 16 (2), 334–64.

——— (2002), Politics and International Investment. Northampton, MA: Edward Elgar Publishing.

——— and Jeffrey T. Macher (2004), “Firm- and Country- Level Trade-Offs and Contingencies in the Evaluation of For- eign Investment: The Semiconductor Industry,” Organization Science, 15 (5), 537–54.

Hennart, Jean Francois (1982), A Theory of Multinational Enterprise. Ann Arbor, MI: University of Michigan Press.

——— (1988), “A Transaction Costs Theory of Equity Joint Ventures,” Strategic Management Journal, 9 (4), 361–74.

Hill, Charles W., Peter Hwang, and W. Chan Kim (1990), “An Eclectic Theory of the Choice of International Entry Mode,” Strategic Management Journal, 37 (4), 117–28.

Hofstede, Geert Jan (1980), Culture’s Consequences: Inter- national Differences in Work-Related Values. London: Sage Publications.

Hoskisson, Robert E., Albert A. Cannella Jr., Laszlo Tihanyi, and Rosario Faraci (2004), “Asset Restructuring and Business Group Affiliation in French Civil Law Countries,” Strategic Management Journal, 25 (6), 525–39.

Jap, Sandy D. and Erin Anderson (2003), “Safeguarding Inter- organizational Performance and Continuity under Ex Post Opportunism,” Management Science, 49 (12), 1684–1701.

Jensen, Nathan M. and Noel P. Johnston (2011), “Political Risk, Reputation, and the Resource Curse,” Comparative Political Studies, 44 (6), 662–88.

Johanson, Jan and Jan-Erik Vahlne (1977), “The Internationali- zation Process of the Firm—A Model of Knowledge Develop- ment and Increasing Foreign Market Commitments,” Journal of International Business Studies, 8 (1), 23–32.

——— and ——— (1990), “The Mechanism of Internationali- sation,” International Marketing Review, 7 (4), 11–24.

Kaufmann, Daniel, Aart Kraay, and Massimmo Mastruzzi (2007), “Governance Matters VI: Governance Indicators for 1996-2006,” World Bank Policy Research Working Paper No. 4280.

Kim, W. Chan and Peter Hwang (1992), “Global Strategy and Multinationals’ Entry Mode Choice,” Journal of International Business Studies, 23 (1), 29–53.

Kobrin, Stephen (2009), “Private Political Authority and Public Responsibility: Transnational Politics, Transnational Firms, and Human Rights,” Business Ethics Quarterly, 19 (3), 349–74.

——— (2011), “The Transnational Transition and the Multi- national Firm,” in Dynamics of Globalization: Location- Specific Advantages or Liabilities of Foreignness? (Advances in International Management), Vol. 24, Christian Geisler Asmussen, Torben Pedersen, Timothy M. Devinney, and Las- zlo Tihanyi, eds. Cambridge, MA: Emerald Group Publishing, 5–23.

Kogut, Bruce (1988), “Joint Ventures: Theoretical and Empirical Perspectives,” Strategic Management Journal, 9 (4), 319–32.

——— and Harbir Singh (1988), “The Effect of National Cul- ture on the Choice of Entry Mode,” Journal of International Business Studies, 19 (3), 411–32.

Lairson, Thomas D. (2011), “The Global Financial Crisis and the Restructuring of the World Economy,” AIB Insights, 11 (4), 3–7.

Lee, Ruby P. (2010), “Extending the Environment–Strategy– Performance Framework: The Roles of Multinational Corpora- tion Network Strength, Market Responsiveness, and Product Innovation,” Journal of International Marketing, 18 (4), 58–73.

Litan, Robert E. (2005), “The FP Memo: Attention, Wal-Mart Executives,” Foreign Policy, 151 (November–December), 66–70.

78 Journal of International Marketing

Luo, Yadong (2001), “Determinants of Local Responsiveness: Perspectives from Foreign Subsidiaries in an Emerging Mar- ket,” Journal of Management, 27 (4), 451–77.

Malhotra, Naresh K., James Agarwal, and Francis Ulgado (2003), “Internationalization and Entry Modes: A Multitheo- retical Framework and Research Propositions,” Journal of International Marketing, 11 (4), 1–31.

Moran, Theodore H. (1999), Foreign Direct Investment and Development. Washington, DC: Institute for International Economics.

——— (2001), Parental Supervision: The New Paradigm for Foreign Direct Investment and Development. Washington, DC: Institute for International Politics.

——— (2002), Beyond Sweatshops: Foreign Direct Investment and Globalization in Developing Countries. Washington, DC: Brookings Institution Press.

Moschandreas, Maria (1997), “The Role of Opportunism in Transaction Cost Economics,” Journal of Economic Issues, 31 (1), 39–57.

Multilateral Investment Guarantee Agency (2011), World Investment and Political Risk. Washington, DC: The Inter- national Bank for Reconstruction and Development/The World Bank.

The New York Times (2010), “Editorial: Google and China,” (March 23), [available at http://www.nytimes.com/2010/ 03/24/opinion/24wed2.html].

North, Douglass C. (1990), Institutions, Institutional Change and Economic Performance. New York: Cambridge Univer- sity Press.

——— (2005), Understanding the Process of Economic Change. Princeton, NJ: Princeton University Press.

Organisation for Economic Co-operation and Develop- ment (2008), “Grim Outlook for FDI and Shifting Global Investment Patterns,” OECD Investment News, (November 8), 1–2.

Pan, Yigang and Xiaolian Li (2000), “Joint Venture Formation of Very Large Multinational Firms,” Journal of International Business Studies, 31 (1), 179–89.

Porter, Michael (1990), The Competitive Advantage of Nations. New York: The Free Press.

Prahalad, C.K. and Yves L. Doz (1987), The Multinational Mis- sion: Balancing Local Demands and Global Vision. New York: The Free Press.

Ramamurti, Ravi and Jonathan P. Doh (2004), “Rethinking Foreign Infrastructure Investment in Developing Countries,” Journal of World Business, 39 (2), 151–67.

Rivoli, Pietra and Eugene Salorio (1996), “Foreign Direct Investment and Investment Under Uncertainty,” Journal of International Business Studies, 27 (2), 335–57.

Rugman, Alan M. and Alain Verbeke (2003), “Extending the Theory of the Multinational Enterprise: Internalization and Strategic Management Perspectives,” Journal of International Business Studies, 34 (2), 125–37.

Scott, W. Richard (1995), Institutions and Organizations. Thousand Oaks, CA: Sage Publications.

Shelanski, Howard A. and Peter G. Klein (1995), “Empirical Research in Transaction Cost Economics: A Review and Assessment,” Journal of Law, Economics and Organization, 11 (2), 335–61.

Stopford, John M. and Louis T. Wells Jr. (1972), Managing the Multinational Enterprise. New York: Basic Books.

United Nations Conference on Trade and Development (2011), “Global and Regional FDI Trends in 2010,” (accessed February 2012), [available at www.unctad.org/en/docs/webdiaeia20111_ en.pdf].

Vaaler, Paul and Gerry McNamara (2004), “Crisis and Compe- tition in Expert Organizational Decision Making: Credit- Rating Agencies and Their Response to Turbulence in Emerg- ing Economies,” Organization Science, 15 (6), 687–703.

Welch, Denice and Lawrence C. Welch (1996), “The Interna- tionalization Process and Networks: A Strategic Management Perspective,” Journal of International Marketing, 4 (3), 11–28.

Williamson, Oliver E. (1975), Markets and Hierarchies: Analy- sis and Antitrust Implications. New York: The Free Press.

——— (1983), “Credible Commitments: Using Hostages to Support Exchange,” American Economic Review, 73 (4), 519–40.

——— (1985), The Economic Institutions of Capitalism. New York: The Free Press.

——— (1996), The Mechanisms of Governance. New York: Oxford University Press.

World Bank Group (2009), “Financial Crisis and Foreign Direct Investment,” North American Affairs News, (January 23), 1–2.

World Economic Forum (2006), The Global Competitiveness Report 2006-2007. Hampshire, UK: Palgrave Macmillan.

Yip, George S., Javier Gomez Biscarri, and Joseph A. Monti (2000), “The Role of the Internationalization Process in the Performance of Newly Internationalizing Firms,” Journal of International Marketing, 8 (3), 10–35.

Yiu, Daphne and Shige Makino (2002), “The Choice Between Joint Venture and Wholly Owned Subsidiary: An Institutional Perspective,” Organization Science, 13 (6), 667–83.

Copyright of Journal of International Marketing is the property of American Marketing Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.