Institutional distance, establishment mode choice and international experience: the case of Indian MNCs

Abstract

Purpose Focusing on the growing importance of Indian multinational corporations in the past decades, this paper aims to understand how establishment mode decisions in a foreign market can differ depending on a series of factors. Specifically, the authors examine how institutional distance, including cultural distance and political risk, could affect these decisions, and how international acquisition experience could moderate this relationship. Design/methodology/approach The authors test their hypotheses using data from 114 outward foreign direct investments between 2000 and 2010. Findings The findings suggest that experience in international acquisitions increases the likelihood of subsequent acquisitions in high-risk and culturally distant countries. Originality/value By considering that the country of origin also matters, some differences among emerging-market multinational corporations (MNCs) may arise. Besides, since empirical research focusing on emerging-market MNCs is scarce, more empirical studies are needed to analyze the influence of cultural distance and political risk on some decisions. In the case of India, there are also additional motivations for analyzing those institutional factors. First, since this is a country with significant linkages to Western countries, it is interesting to know if the influence of cultural distance is similar or not. Second, there is a lack of empirical evidence on the relationship between political risk and establishment mode choice in the case of Indian MNCs. To fill this gap, the first aim of this paper is to analyze how cultural distance and political risk affect the establishment mode choice of Indian MNCs. Moreover, recognizing international experience to be an important factor in explaining international expansion, we focus on international experience interactions with sources of uncertainty inherent in the host market.

Experiential learning for Chinese companies to complete cross-border acquisitions: the case of Chinese acquirers

“…In other words, even though firm's prior acquisition experience and more specifically firm's acquisition experience in the target country can have positive effects on the success of a CBA (Li et al, 2018), experiential learning in M&A contexts depends on whether learning transfers effectively (Ermolaeva, 2019;Haleblian et al, 2009;Hayward, 2002). For instance, whereas acquisition experience is likely to be more beneficial when the involved companies have similar sizes (Ellis et al, 2011) or are from similar industrial sectors (Finkelstein and Haleblian, 2002) or cultural regions (Barkema et al, 1996), effective transfer of the experience in international acquisitions can increase the likelihood of subsequent acquisitions even in high-risk and culturally distant countries (Rienda et al, 2018). Although investigations of target-to-target similarity have advanced our understanding of contingencies moderating the transfer of acquisition experience, we lack research on experiential learning effects on CBA completion among EM companies.…”

“…Some scholars have studied how learning from acquisition experience affects the likelihood of M&A completion, the main components in our work (e.g. Basuil and Datta, 2015;Chakrabarti and Mitchell, 2016;Ellis et al, 2011;Haleblian and Finkelstein, 1999;Li et al, 2018;Muehfeld et al, 2012;Rienda,et al, 2018), but we provide a more fine-gained characterization of acquisition experience by testing an expanded experiential learning framework in the Chinese context. Moreover, we respond to calls to combine dominant industrial logic and cultural distance to observe their interactions in CBAs (Argote and Miron-Spektor, 2011).…”

Distance factors and establishment mode choice of emerging‐market multinationals: The moderating effect of administrative distance

“…Similarly, establishment mode decisions are also affected by firm international experience (Rienda et al, 2018). We used three variables to control for firm international experience (Barkema & Vermeulen, 1998;Kogut & Singh, 1988).…”

Family businesses from emerging markets and choice of entry mode abroad: insights from Indian firms

“…By contrast, MNEs could Asian Bus Manage https://doi.org/10.1057/s41291-018-00053-z 5 reduce financial and business risks through more cautious entry modes using a greenfield investment (Boellis et al, 2016). This is because a greenfield investment allows MNEs to replicate the exiting organizational structure, thus reducing the uncertainty derived from interactions with a foreign firm (Rienda, Claver, & Quer, 2018).…”