Global Strategy Journal

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  • Flexibility as firm value driver: Evidence from offshore outsourcing

    Research Summary This article tests real options theory predictions that uncertainty and flexibility are key value drivers for offshore outsourcing moderated by switching costs. Examining firm‐specific and market data for outsourcing cases by U.S. firms, we find that the impact of market and environmental uncertainty and flexibility on outsourcing value is net positive and that it is greater for offshore than for domestic outsourcing. Outsourcing benefits are related to flexibility arising from growth options and moderated by switching costs underlying outsourcing activities, including loss of innovative capability and economic, institutional, and cross‐country cultural differences. Managerial Summary In the popular business literature, the “footloose” nature of outsourcing strategy characterized by an outsourcing firm's flexibility, as well as the ability in finding appropriate suppliers on a global basis, has often been touted as an important means of dealing with market uncertainty. However, the academic literature has not offered direct empirical support for the inherent value of such outsourcing strategies. Our study shows that firms tend to perform better financially when they have such outsourcing flexibility under uncertain market and environmental conditions, although this relationship may be somewhat weakened by potential loss of innovative capability and cultural and other differences in dealing with foreign suppliers.

  • How to achieve benefits from diversity in international alliances: Mechanisms and cultural intelligence

    Research Summary Despite interest in alliance management in the global strategy field, we have only limited insights into how firms can manage diversity‐related conflicts in international alliances. By referring to the conflict literature, our study introduces task discourse as a crucial mechanism allowing task conflict resolution. We further describe conflict resolution via socializing practices, including social events, joint workshops, and interorganizational teams. Socializing practices and discourse take advantage of cultural intelligence, empowering managers to interact efficiently in intercultural settings. Data on 148 international alliances in the photonics and biotechnology industries reveal that managerial cultural intelligence improves task discourse, thus enhancing performance, especially in young alliances. Socializing practices, however, decrease performance with increasing cultural distance and without sufficient levels of managerial cultural intelligence. Managerial Summary International alliances face a dilemma. Cross‐national differences offer valuable complementarities, but they can also spark a negative spiral of dysfunctional conflict. Our study shows that task discourse is an important mechanism for achieving advantages from the different perspectives offered by international alliances. Interestingly, our results further reveal that socializing practices including interorganizational teams, social events, and joint workshops do not per se have beneficial effects for international alliances. Putting people together who are unable to perform in intercultural settings is damaging to alliance performance. Our study indicates the specific conditions under which socializing practices have negative and positive effects and, thus, provokes a discussion about the appropriate application of these practices.

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  • Institutional determinants of ownership positions of foreign acquirers in Africa

    Research summary Using unique features of the African context and blending institutional, hostage, and transaction cost theories, we address gaps in our understanding of institutional determinants of ownership position in cross‐border acquisitions (CBAs) in emerging countries. We focus on two traditional institutional determinants: Informal and formal institutional distances between the two firms’ home countries and two determinants that are particularly acute in the African context: the colonial ties between and fractionalization of the two firms’ home countries. We find colonial ties and uncertainty avoidance distance, an indicator of informal institutional distance, are negatively related to ownership position. Conversely, we show that formal institutional distance and the host country's fractionalization positively influence ownership levels, but the latter effect is weakened when acquirers come from more fractionalized home countries. Managerial summary We examine the effects of four institutional factors that influence organizational decision‐making in the African context: (a) its colonial history, (b) differences in informal cultural norms, (c) differences in formal regulatory structures, and (d) ethnic and linguistic diversity within a country on the percentage of equity ownership that foreign acquirers hold in African target firms. Results indicate that this equity position is lower when colonial ties and greater differences in uncertainty avoidance exist between the acquirer's home country and the target African country. Conversely, foreign acquirers’ equity ownership positions are higher when there are greater formal regulatory differences between the two countries and the host country is more ethnically and linguistically diverse, though the latter effect is reduced when the acquirer is from a home country that is also diverse.

  • Network information and cross‐border M&A activities

    Research Summary How information about social networks affects firms’ global expansion is an important but rarely investigated question. We argue that different sources of network information will affect a firm's investment activities in the global market, but their relative importance may vary. Moreover, the influence of network information can be bounded by the global trade network. The results from a sample of cross‐border merger and acquisition (M&A) activities conducted by U.S. publicly listed firms reveal that although M&A experience of both interlocking and joint venture partners affects the focal firm's global expansion, the effect of interlocking partners is more influential than joint venture partners. Meanwhile, when mutual trade dependence between countries is high, the positive effect of network information from board interlocks diminishes. Managerial Summary Firms are hesitant to engage in cross‐border M&As, because it is difficult for them to get information about local business practices and environmental idiosyncrasies. This study shows that firms can deal with this challenge by accessing relevant information from the M&A experience of interlocking partners and joint venture partners. The information generated from the M&A experience of interlocking partners is even more valuable and important than that of joint venture partners in shaping firms’ cross‐border M&A decisions. Moreover, the M&A experience of interlocking partners and joint venture partners is particularly valuable for firms contemplating M&A activities in a country with relatively fewer buyer‐seller exchange networks with their home country.

  • Advanced service offshore outsourcing: Exploring the determinants of capability development in emerging market firms

    Research Summary: We analyze the effect of offshored service task types on the development of capabilities in emerging market service provider firms. Using multiple case studies, we find that, dependent on task interdependent service types, implying different client interactions (firm‐external determinants), organizational capabilities are developed. More specifically, reciprocal task interdependent services generate human capital and management capabilities, while sequential task interdependent services generate organizational capital and management capabilities. Moreover, we find a relationship between the capabilities, where the deficient development of one capability can be mitigated by the development of another capability (firm‐internal determinants). Grounded in organization and service production theory, the article contributes to the thematic literature on service offshoring and the literature on organizational capabilities, with a particular focus on emerging market firms. Managerial Summary: Offshore outsourcing of advanced services is contributing to the development of capabilities for client firms, but is also expected to benefit service provider firms from emerging markets. Thus, we study how offshore outsourcing of services contributes to the development of these capabilities for service provider firms. We find that the characteristics of the services, which are causing different interactions with the client, help the firm develop a variety of capabilities. These capabilities affect the management, employees, and organization of service provider firms. Although the developed competencies are not a solution for all business development challenges of emerging market firms, the implications of this study could lead to competitive advantages for the firms if fully explored and exploited.

  • The boundaries of the firm in global strategy

    Research summary We briefly review the evolution in the analysis of the boundaries of the firm in global strategy. We explain how initial studies that argued that firm boundaries were driven by the minimization of transaction costs were later complemented by analyses that proposed that firm boundaries were driven by the development and use of resources to maximize value creation and capture. Studies of global strategy combine these two approaches and introduce the influence of location—both the home and host countries—as a third influence on boundary decisions. We encourage future studies to focus more deeply on the complexity, dynamics, and mechanisms of three themes: the consideration of all boundary options, the study of the entirety of the multinational, and the simultaneous consideration analysis of the characteristics of all the locations in which the multinational is active. These suggestions help better connect the three drivers of firm boundaries: transactions, resources, and locations. Managerial summary We briefly review the evolution in academic thinking regarding the scope of activities of a firm, that is, a firm's boundaries, in global strategy. We explain how initial studies that argued that firm boundaries are driven by a desire to reduce costs were complemented by analyses that proposed that firm boundaries are driven by a desire to increase value creation and capture. Studies of global strategy combine these two drivers and introduce the influence of the location of operation—the home and host countries—as a third influence on boundary decisions. We provide suggestions for future studies on how to incorporate the complexity, dynamics, and mechanisms of the complete array of methods to manage boundaries, the complete set of subsidiaries of the multinational, and the complete set of characteristics of the relevant locations.

  • Boundary spanners and intra‐MNC knowledge sharing: The roles of controlled motivation and immediate organizational context

    Research summary We examine the conditions under which boundary spanners positively contribute to intra‐MNC knowledge sharing. Specifically, we argue that the knowledge‐sharing behavior of boundary spanners should not be taken for granted, as it is affected by the individual's motivation to share knowledge and is contingent upon the immediate organizational context in which the individual is located. An analysis of data covering 482 individuals located in different business units of a Danish MNC confirms our arguments. Managerial summary Boundary spanners are employees who act as knowledge intermediaries between many individuals from within and outside their organizations. They are well connected internally and externally and share knowledge across MNC units to a greater extent than non‐boundary spanners. However, their contribution to knowledge sharing should not be taken for granted as it depends on their motivation and their immediate context.

  • The pursuit of international opportunities in family firms: Generational differences and the role of knowledge‐based resources

    Research Summary: We argue that willingness (attitude toward risk, return, and socioemotional wealth), ability (extent of control), and resource availability influence the internationalization of family firms. We hypothesize that the internationalization of family firms led by founding and later generation family members differs from the internationalization of nonfamily firms and from each other and that knowledge‐based resources moderate the relationship. Longitudinal analysis of 4,925 firm‐year observations of S&P 1500 manufacturing firms from 2002 to 2008 shows that compared to nonfamily firms, family firms run by founding (later generation) family members internationalize less (more). Knowledge resources increase (decrease) the internationalization of founder‐led (later generation) family firms. Overall, how family ownership influences firm behavior is likely to vary as much by its type as its amount. Managerial Summary: We explore the internationalization of family firms based on a sample of S&P 1500 manufacturing firms from 2002 to 2008. Compared to nonfamily firms, family firms run by founding family members internationalize less, and family firms run by later generation members internationalize more. However, as knowledge resources increase, the internationalization of founder‐led family firms increases, whereas the internationalization of firms led by later generation family members decreases. Therefore, our findings suggest that knowledge resources can facilitate or hamper international expansion in family firms, depending on the generation of family control. These findings underscore the role of goals, governance, and resources as important drivers of differences in internationalization between family and nonfamily firms, as well as of variations in internationalization among family firms.

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