Reshaping the Boundaries of the Firm in an Era of Global Interdependence: Volume 5

The fifth volume of the Book Series Progress in International Business Research combines two basic themes in international business studies. On the one hand, global interdependence continues to rise, even though it looked as if the financial and economic crisis of 2008 and its aftermath would retard or stop the globalization process. On the other hand, firms engaged in international activities keep testing out new organizational structures that reconfigure their boundaries. Property rights over assets and control over decisions within and across these boundaries are central to the design of the multinational organization. Although the boundaries of the firm were originally stressed by Reginald Coase in his famous Economica article of 1937 (Volume 4, pp. 254–266) about The Nature of the Firm, the increasing complexity of international activities and the changing relationships between countries and regions make this into a continuous research challenge in international business.

This volume of Progress in International Business Research includes a selection of 13 papers from the 35th European International Business Academy (EIBA) annual conference, which was held in Valencia (Spain) from the 13 to the 15 of December 2009. Following the usual guidelines for EIBA annual conference organization, papers submitted to this conference had a double-blind revision process. The acceptance rate for oral presentations was 68%.

Purpose – The purpose of the chapter is to analyze the factors that lead firms to offshore advanced tasks.

Methodology/approach – The study uses a 1,500-firm survey from Denmark to investigate the offshoring of 12 tradable manufacturing, technical, and service activities across different industries.

Findings – Findings indicate that offshoring of advanced tasks is driven by a different set of strategic motives than previous waves of offshoring, which predominantly included simple and standardized routine tasks. While the lower cost of unskilled, labor-intensive processes is the incentive for firms that offshore less advanced tasks, a desire to broaden and deepen global networks of new knowledge spurs highly knowledge-intensive companies to offshore more advanced tasks.

Originality/value of chapter – We propose that offshoring should be analyzed on a more disaggregated level of analysis than is the norm in mainstream offshoring literature. To reflect the trend whereby firms are “slicing” their value chain in finer and finer parts and locate these in various locations around the world, offshoring should be analyzed at the task level, since this paves the way for a richer understanding of offshoring strategies and processes.

Purpose – After tracing the development of the global value chains (GVC) approach, the chapter argues that by refocusing on the international strategies of lead firms it is possible to bring location specificity issues into play and contribute to retrieve a distinctive international content to the GVC governance theory.

Design/methodology/approach – The chapter discusses the GVC governance theory, drawing from recent contributions in the field of international business (IB).

Findings – Although designed to account for the rise of new inter-firm networks controlled by international lead firms, the new GVC theory of governance somehow lacks a distinct international content and, privileging transactional constraints, falls short of explicitly considering variations in lead firm structural characteristics and strategies. An alternative governance schema is then proposed, taking explicitly into account the strategic evaluations that lead firms carry out with regard to their internal resources compared to suppliers’.

Research limitations/implications (if applicable) – The chapter provides the outlines of a new promising international research agenda for GVC researchers. Additional research is needed to further investigate the relation between location specificity, the strategic motives to go global and the international organisation of the value chain.

Practical implications (if applicable) – The alternative governance schema proposed in the chapter aspires to represent a simple tool aimed at supporting managers in the establishment of the appropriate boundaries of the firm.

Originality/value – The chapter shows that both IB research and GVC analysis could greatly benefit from reasoned cross-fertilisation.

Purpose – We investigate whether the partnership behavior of Japanese partners in their joint ventures (JVs) with European partners in Europe can be explained by the Trojan horse hypothesis (THH) view or by the cooperative specialization (CS) view. The THH view assumes that Japanese firms establish JVs to steal the knowledge of their partners and dissolve JVs as soon as they have achieved their goals. The CS view, on the other hand, argues that Japanese firms set up JVs to achieve CS and that these JVs will be stable.

Methodology – First, we derive implications of both the THH and the CS views for the longevity of JVs. Second, we make a census of all Japanese–European JVs manufacturing in 1987 and analyze their evolution to 1996. Third, we count how many of these JVs have evolved in ways that are predicted by the THH and the CS views. We argue that a particular view is supported if the number of JVs following the predicted path is larger than that following alternative paths.

Findings – We find that the partnership behavior of Japanese firms is more consistent with a CS view than with a THH view.

Limitations – This is a conservative test of THH behavior since JVs can dissolve for other reasons than the knowledge-stealing behavior of their Japanese partners.

Value of chapter – This is, as far as we know, the only study that has investigated the evolution of the population of Japanese–European JVs in Europe and has derived implications for the validity of the THH and CS views of JVs.

Purpose – In accordance to the globalized and competitive environment, traditional manufacturing sectors’ companies are being particularly forced to reshape their global strategy and reconfigurate their activities to survive. Due to the fact that these firms present special characteristics that make the change extremely difficult, this chapter tries to analyze the influence of managerial attitudes and characteristics on the decision of their international strategy.

Methodology/approach – The study was carried out in Spanish traditional manufacturing sectors through a questionnaire, obtaining a final sample of 115 SMEs. We performed a cluster analyses to classify groups of companies, innovative and rigid, and assessed their different perceptions and characteristics.

Findings – Our results show that the adoption of these new models of internationalization is indeed related to the attitude and characteristics of managers. We found that more innovative strategies are associated with managers with intermediate experience in business, higher education levels, and a more realistic perception of the severity of the situation, the influence of the environment, and its strategic capabilities.

Practical implications – This chapter evidences that there are still important internal barriers affecting the international competitiveness of these companies. We propose that more traditional strategies of internationalization in the manufacturing sectors should move toward more complex models that combine the advantages of the cooperation, multilocation, diversification, and integration of those key activities of the value chain. Therefore, we display the critical role of managers’ profile in this process.

Originality/value of the chapter – Despite the fact that many works have analyzed the determinants of strategic change, we offer a wider view considering the essential role of managers, by combining demographic and perception variables. Furthermore, we based this idea on the theoretical perspective known as managerial cognition; therefore, we give new explanatory factors on the decision of the international strategy.

Purpose – We analyze the influence of the internationalization process of small and medium-sized enterprises on the adoption of a proactive environmental strategy.

Design/methodology – Using direct interviews with the CEOs of 106 Spanish export firms from the food industry, we tested our research question through ordinary least squares regression analysis.

Findings – We find that a high degree of environmental international diversification leads these firms to take advantage of different environmental competitive advantages from the different locations where they operate, and consequently integrate environmental proactive practices and programs within their organizational strategy.

Research implications/limitations – The result obtained in this work contributes to better understanding of the importance of firms’ internationalization process in the generation of valuable environmental knowledge abroad. The chapter also discusses implications for managers, scholars, and policy makers. Future analysis should include longitudinal data of export firms based in other countries.

Originality/value of chapter – We pay special attention to the environmental management undertaken by small- and medium-sized export enterprises. Specifically, we study the environmental institutional profile of the different regions where these firms operate.

Purpose – The purpose of this chapter is to provide a review of literature that analyses the internationalisation of the firm, through the function and role of networks.

Design/methodology/approach – A total of 23 papers (published between 1988 and 2008) explicitly using network as a research framework to study the internationalisation process of the firm were selected. They have been analysed according to a range of factors, including the author, journal, time frame in which they were published, type of focal firm, country of origin of focal firms, market entered, methods applied in the studies, theories adopted and research topic.

Findings – Networks have emerged as one of the dominant frameworks used to explain the phenomenon of internationalisation. Having originally been applied in studies of firms from developed countries entering similar markets, network theories are now as popular in studies of firms both originating in and entering emerging markets. This review also finds that both qualitative and quantitative methods have been adopted in the studies; however, few papers have tried to combine the two. Furthermore, the network approach has been used for comparative analysis with findings from FDI theory, as well as to supplement international new venture (INV) and born global theories. Lastly, this review highlights topics that have been explored in previous studies and suggests areas for further research.

Originality/value – This is the first review paper on this subject and as such it contributes to the growing body of knowledge on the network approach and assists in understanding the internationalisation phenomenon of the firm.

Purpose – The purpose of this conceptual chapter is to discuss the limitations of the network organization in multinational corporations (MNCs). Since many IB/IM publications concentrate on the advantages of this organizational form, the focus of the chapter is on identifying the limitations that MNCs need to be aware of when they use network organizations.

Methodology – The analysis is based on a sound review of the literature that refers to the network organization in general and its application in MNCs.

Findings – The chapter shows that MNCs present a context that can aggravate the problems of a network organization. Four types of problems are identified: (1) knowledge transfer between MNCs’ subunits, (2) trust-building and corporate culture within MNCs, (3) subsidiary development and subsidiary managers’ stress, and (4) additional problems of a more general nature.

Practical implications – As a result of these problems, it is expected that the formal, hierarchical structure will remain an important organizational instrument for MNCs. The chapter specifies in which ways the formal organizational structure can help to reduce the limitations of the network organization. Finally, the chapter argues that, among the formal organizational models, the matrix structure should be considered more intensively in the future.

Originality/value of chapter – Since existing discussion of the network organization in MNCs tends to ignore the limitations and downsides of this organizational form, the chapter contributes to a more balanced understanding of the network organization.

Purpose – The purpose of this chapter is to develop a more fine-grained model of the relationship between multinational corporation (MNC) external embeddedness and subsidiary contribution to firm-level competitive advantage.

Methodology/approach – We briefly review previous international management literature and show that the conception of MNC embeddedness in external networks is often simplistic. We develop the concept of the HQ–subsidiary dyad being externally embedded and derive propositions on how this more holistic concept of MNC embeddedness influences subsidiary contribution.

Findings – We argue that subsidiary contribution depends not only on the relational embeddedness dimension of the subsidiary but that there is a complex interplay between several embeddedness dimensions on multiple levels. We suggest that the much emphasized effect of subsidiary relational embeddedness might be contingent on the HQ's own relationships, and the structure of the overall network. We also develop propositions which show that subsidiary relational embeddedness mediates the relationship between overall network structure and subsidiary contribution.

Research limitations – For the sake of theoretical stringency, we keep other influencing factors such as MNC strategy and specific subsidiary mandates as constant.

Originality/value of the chapter – Subsidiaries are an important source of firm-level competitive advantage. Subsidiary resources have also been shown to develop to a large extent in relationships with external actors. Despite this importance, we argue that our understanding of how the MNC is embedded in external networks and how this in turn influences subsidiary contribution is limited. This chapter attempts to make a first step into filling this gap.

Purpose – This research aims to understand inter-subsidiary innovation transfers from a subsidiary business network perspective. We examine transfer performance with particular interest in the influence of subsidiary business networks in innovation development stage. The moderating effect of knowledge inputs, that is, external and internal business partners, on transfer efficiency and effectiveness are hypothesized.

Methodology/approach – This study utilizes the data of 129 inter-subsidiary transfer projects from 19 multinational corporations. The empirical analysis specifically examines how and to what extent the development partnership – source of knowledge inputs – affects the efficiency and effectiveness of innovation transfer between subsidiaries.

Findings – The results indicate that the source of knowledge inputs influence transfer performance indirectly, but not directly. The impact is made through the dyadic relationship to the transfer performance. The findings complement the literature on innovation/knowledge transfer by incorporating innovation development into scrutiny and gauging transfer efficiency and effectiveness explicitly.

Value of paper – The empirical evidence highlights the significance of dyadic willingness to both transfer efficiency and effectiveness. Its influence to transfer performance exceeds that of dyadic similarity or previous collaboration experience. The result provides useful managerial implications to MNCs headquarters and subsidiaries. The lack of previous collaboration experience or technical similarity may pose the down side for innovation transfer between subsidiaries. But that should not put off the initiatives to conduct innovation transfers. Such problem could be effectively remedied by strong willingness between the dyad. The resources and support that subsidiaries receive could counteract the hurdle of dissimilarity and unfamiliarity.

Purpose – Integrating insights from the literatures on internationalization and knowledge externalities, we posit that the reservoirs of scientific knowledge residing in different locations around the world have significant power in explaining interfirm performance variations. We assert that the ability to access and exploit such intangible resources differs considerably across multinationals, according to both firm-specific and exogenously determined factors.

Methodology – Unlike previous research that typically focuses on knowledge flows within one nation or between two countries, our statistical analysis combines firm-level data with industry-level information on 18 countries and 15 manufacturing sectors.

Findings and implications – The empirical findings indicate that the performance-enhancing effect of global knowledge reservoirs is positive and often higher than that of a firm's own knowledge. Whereas some multinationals excel at exploiting such intangible resources, others fail to do so successfully. In this respect, the results indicate that a firm's ability to benefit from global knowledge reservoirs is positively associated with its degree of international diversification, the intensity of its own research efforts, and exogenously determined opportunities pertaining to different technological domains.

Purpose – The main aim of this chapter is to analyse the implications of innovation and, directly and indirectly, of cooperation on the internationalisation of knowledge-intensive business services (KIBS). Specifically, we analyse the potential impact of innovation capability on the propensity of KIBS to internationalise. We also look at whether cooperation has any influence on the international growth of these firms or on their innovation results.

Methodology/approach – This is an empirical research. Empirical analyses are based on information provided by the Spanish Technological Innovation Panel data for the period 2003–2005. Tobit and probit models are estimated to test our hypotheses.

Findings – The empirical findings support all our theoretical hypotheses. A positive relationship between cooperation, innovation and internationalisation of KIBS is also found. Thus, the results confirm the relevance of innovation for internationalisation. KIBS that establish collaborative relationships find access to international markets easier and improve their innovation capability. In these terms, cooperation is found to be directly and indirectly related with internationalisation in KIBS.

Originality/value of paper – The services sector is the most important sector in Spain and Europe nowadays, and it is the sector that has experienced the fastest growth in recent years. However, the research efforts it has received have not been commensurate with its size and role in international commerce. In general, the literature has paid scant attention to the relationships between innovation and internationalisation in services sectors, and more specifically, among KIBS. This chapter sheds light on this topic.

Purpose – The purpose of this chapter is to study how dimensions of entrepreneurial orientation (competitive aggressiveness, proactiveness and risk taking) affect international performance in competitive and technology-intensive international environments.

Methodology/approach – To address the research questions, structural equation modelling is applied to Finnish survey data (N=271).

Findings – Our findings reveal that the dimensions of entrepreneurial orientation are differentially related to international performance, and that their effect is contingent on moderating variables.

Research limitations – One limitation is the use of cross-sectional data as it limits the possibility of drawing strong conclusions from the development of the relationships between the different constructs. Also the fact that the study was conducted in a single-country setting is a limitation.

Practical implications – Results indicate that entrepreneurial behaviour is of importance for international business managers. However, results imply that prior to striving for proactive behaviour, competitive aggressiveness and venturesome risk taking managers should study their international market environments carefully and truly understand the nature of these turbulent markets, as in many occasions strong emphasis on entrepreneurial behaviour did not contribute positively to the international performance indicators, such as increasing sales and profits.

Originality/value of the chapter – Present study extends the works of Zahra and Garvis (2000), Lumpkin and Dess (2001) and Wiklund and Shepherd (2005), for example, by (a) applying entrepreneurial orientation on international business, (b) examining the effects of different dimensions of entrepreneurial orientation on a firm's international performance and (c) extending the research of the role of moderating effects on the relationship between entrepreneurial orientation and firm performance.

Purpose – The purpose of this study is to examine the influence of technological resources and external research partners on the export performance of Italian high-tech small and medium firms (SMEs).

Methodology/approach – Drawing on the resource-based view as theoretical framework and deriving hypotheses from the export management literature, we used a sample of Italian manufacturing firms to run a two-step analysis. First, a Levene's test is conducted to assess whether SMEs operating in the high-tech sectors differ from those operating in other manufacturing sectors. Second, employing ordinary least squares (OLS) regression we analysed which technological resources and external research partners best discriminate the export performance of high-tech SMEs.

Findings – Our empirical results revealed that: (1) the use of output rather than input measures of innovation better captures the contribution of technological resources on export performance of firms in our sample; (2) product innovations positively and significantly affect the export performance of technology intensive SMEs; (3) among external research partners, universities provide positive spillover effects on their export performance.

Originality/value – This study provides the heterogenic perspective of the high-tech sectors when attempting to explain the influence of technological resources and external research partners on the export performance of SMEs. Second, the study expands the traditional measures used in the literature for firms’ technological resources and it comprehensively analyses innovative inputs and innovative outputs while exploring whether innovative efforts have had a measurable effect on the export performance of high-tech SMEs.