Volume 34 Number 1 2017ISSN 0265-1335

International Marketing R

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International Marketing Review

Volume 34 Number 1 2017

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Number 1Collaborative entry modes. Part 1Guest Editors: Shlomo Y. Tarba, Michael R. Czinkota and Demetris Vrontis

1 Editorial boards 2 Guest editorial 5 Information technology and marketing performance within international market-entry alliances:

a review and an integrated conceptual frameworkShasha Zhao and Constantinos-Vasilios Priporas

29 Push and pull factors in international franchisingMelih Madanoglu, Ilan Alon and Amir Shoham

46 Born global firms’ growth and collaborative entry mode: the role of transnational entrepreneursYipeng Liu

68 Barriers to enter in foreign markets: evidence from SMEs in emerging marketMahfuzur Rahman, Moshfique Uddin and George Lodorfos

87 Explaining the surge in M&A as an entry mode: home country and cultural influencesAgyenim Boateng, Min Du, Yan Wang, Chengqi Wang and Mohammad F. Ahammad

109 Multi-country collaborative innovation in the internationalisation processHela Chebbi, Dorra Yahiaoui and Alkis Thrassou

138 Standardization versus adaptation of global marketing strategies in emerging market cross-border acquisitionsRekha Rao-Nicholson and Zaheer Khan

Collaborative entry modes. Part 1Guest Editors: Shlomo Y. Tarba, Michael R. Czinkota and Demetris Vrontis

ISBN 978-1-78714-401-9

International Marketing Review

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SENIOR ADVISORY BOARD

Prof. Dr Catherine N. AxinnOhio University, USA

Professor AdamantiosDiamantopoulosHarvard University, USA

Professor David A. GriffithLehigh University, USA

Professor Constantine S. KatsikeasLeeds University Business School, UK

Professor Nicolas PapadopoulosCarlton University, Canada

Professor Saeed SamieeUniversity of Tulsa, USA

Professor Bodo B. SchlegelmilchWirtschaftsuniversitat Wien WU Wien,Austria

Professor K. SivakumarLehigh University, USA

Professor Jan-Benedict SteenkampUniversity of North Carolina at Chapel Hill,USA

Professor Charles R. TaylorVillanova University, USA

EDITORIAL BOARD

Dr James AgarwalUniversity of Calgary, Canada

Dr Henrick AgndalStockholm School of Economics, Sweden

Professor Gerald AlbaumUniversity of New Mexico, USA

Professor Nicholas AlexanderLancaster University, UK

Professor George BalabanisCity University, UK

Dr David BallantyneUniversity of Otago, New Zealand

Professor Bradley R. BarnesUniversity of Sheffield, UK

Dr Jean J. BoddewynBaruch College, USA

Professor Steven BurtUniversity of Stirling, UK

Professor Michael CallowMorgan State University, USA

Professor Marylyn CarriganUniversity of Coventry, UK

Professor Paul ChaoEastern Michigan University, USA

Dr Irvine Clarke IIIJames Madison University, USA

Dr Mark ClevelandThe University of Western Ontario, Canada

Professor Nicole CovielloUniversity of Glasgow, UK

Professor David CrickUniversity of Ottawa, Canada

Dr Charles Chi CuiThe University of Manchester, UK

Professor Alain d’AstousHEC Montreal, Canada

Professor Tevfik DalgicUniversity of Texas at Dallas, USA

Dr Christian DianouxCEREFIGE, University of Paul Verlaine,France

Professor Anne Marie DohertyUniversity of Glamorgan, UK

Dr Felicitas EvangelistaUniversity of Western Sydney, Australia

Dr Jody EvansMelbourne Business School, Australia

Professor John B. FordOld Dominion University, USA

Dr David I. GillilandColorado State University, USA

Dr Gary GregoryUniversity of New South Wales, Australia

Dr Louise A. HeslopCarleton University, Canada

Professor Nigel HoldenCentre for International Business Universityof Leeds, UK

Professor G. Tomas M. HultMichigan State University, USA

Associate Professor Ruey-Jer JeanNational Chengchi University, Taiwan(Republic of China)

Professor Erdener KaynakPennsylvania State University, USA

Dr Frederic KroppMonterey Institute of International Studies,USA

Dr Luis Filipe LagesUniversidade Nova Lisboa, Portugal

Professor Leonidas LeonidouUniversity of Cyprus, Cyprus

Dr Dawn LermanFordham University, USA

Professor Peter MagnussonFlorida International University, USA

Dahlia El-ManstrlyUniversity of Edinburgh Business School,UK

Dr Oscar Martin MartinUniversidad Publica de Navarra, Spain

Professor Bulent MengucBrock University, Canada

Professor Robert E. MorganCardiff Business School, UK

Professor Stefanos MouzasLancaster University, UK

Prof. Dr Hans MuhlbacherUniversity of Innsbruck, Austria

Professor Cheryl NakataUniversity of Illinois at Chicago, USA

Dr Shintaro OkazakiKing’s College London, UK

Professor Sam C. OkoroafoUniversity of Toledo, USA

Professor D. PalihawadanaLeeds University Business School,University of Leeds, UK

Professor Stanley J. PaliwodaUniversity of Strathclyde, UK

Associate Professor Ravi PappuThe University of Queensland,Australia

Professor Pieter PauwelsHasselt University, Belgium

Professor Helen PerksManchester Business School, UK

Dr Dan PetroviciUniversity of Kent, UK

Professor Michael Jay PolonskyDeakin University, Australia

Professor Nina L. ReynoldsUniversity of Southampton, UK

Dr Petra RieflerUniversity of Vienna, Austria

Professor Matthew J. RobsonLeeds University Business School, UK

Professor Ilkka RonkainenGeorgetown University, USA

Dr Lisa ScheerUniversity of Missouri-Columbia, USA

Dr Aviv ShohamUniversity of Haifa, Israel

Dr Nitish SinghSt Louis University, USA

Professor Rudolf SinkovicsUniversity of Manchester, UK

Dr Dionysis SkarmeasAthens University of Economics andBusiness, Greece

Dr Stephanie SlaterCardiff Business School, UK

Professor Anne L. SouchonLoughborough University, UK

Professor Carlos M.P. SousaDurham University, UK

Dr Vicky StoryLoughborough University, UK

Professor Chris StylesUniversity of New South Wales, Australia

Professor Sanna SundqvistLappeenranta University of Technology,Finland

Prof. Dr. Prof. h.c. Bernhard SwobodaTrier University, Germany

Professor Isabelle T.D. SzmiginUniversity of Birmingham, UK

Emeritus Prof. Vern TerpstraUniversity of Michigan, USA

Professor Sharon V. ThachTennessee State University, USA

Professor Jean-Claude UsunierUniversity of Lausanne, Switzerland

Associate Professor AnaValenzuelaZicklin School of Business Baruch College,CUNY, USA

Prof. Dr Peeter W.J. VerleghUniversity of Amsterdam, The Netherlands

Professor Kevin E. VossOklahoma State University, USA

Professor Peter G.P. WaltersThe Hong Kong Polytechnic University,Hong Kong

Dr Catherine WelchUniversity of Sydney Business School,Australia

Associate Professor Stanford A.WestjohnThe University of Toledo, USA

Prof. Dr Martin WetzelsMaastricht University, The Netherlands

Prof. Dr Heidi WinklhoferNottingham University Business School, UK

Professor Katharina Zeugner-RothIESEG School of Management, France International Marketing Review

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Editorialboards

Guest editorial

About the Guest Editors Shlomo Y. Tarba is a Reader (Associate Professor) in Business Strategy, Head ofDepartment of Strategy and International Business, and a member of Senior Management Team at theBusiness School, University of Birmingham, UK. Previously he has been an Assistant Professor (Lecturer) at theUniversity of Sheffield, UK. In addition, Professor Tarba has vast teaching experience in the leading research-intensive institutions in Israel such as The Hebrew University of Jerusalem, Tel-Aviv University, Ben-GurionUniversity, and others. He received his PhD in Strategic Management from the Ben-Gurion University andMaster’s in Biotechnology and BSc in Agriculture at the Hebrew University of Jerusalem, Israel. His researchinterests include foreign market entry modes, mergers and acquisitions, ambidexterity, and strategic agility.Professor Tarba is a member of the editorial board of Human Resource Management (USA, Wiley), Journal ofManagement Studies, British Journal of Management, Journal of World Business, and ManagementInternational Review. He has serves/served as a guest-editor for the special issues at California ManagementReview (University of Berkeley), Journal of Organizational Behavior (USA, Wiley), Human ResourceManagement (USA, Wiley), and Management International Review. His research papers are published/forthcoming in journals such as Journal of Management (SAGE), Academy of Management Perspectives,California Management Review, Human Relations, British Journal of Management, Journal of World Business,Human Resource Management, Management International Review, International Business Review,International Journal of Human Resource Management, Human Resource Management Review,International Studies of Management & Organization, Thunderbird International Business Review, andothers. One of his papers has been selected and published in Best Paper Proceedings of the Academy ofManagement (USA) in 2006. Professor Tarba’s recent co-authored book isA Comprehensive Guide to Mergers& Acquisitions: Managing the Critical Success Factors Across Every Stage of the M&A Process by Pearson &Financial Times Press (2014). His consulting experience includes biotechnological and telecom companies, aswell as industry association such as The Israeli Rubber and Plastic Industry Association, and The US-IsraelChamber of Commerce. Shlomo Y. Tarba is the corresponding author and can be contacted at:tarba2003@gmail.com

Michael R. Czinkota is a Professor of International Business and Trade in the Graduate School ofBusiness at Georgetown University, where he also served as the Chairman of the National Center for Export-Import Studies. Michael R. Czinkota concurrently holds two professorships, one at the Georgetown University,USA and the other at the University of Kent, UK. Professor Czinkota served in the US government during theReagan and Bush Administrations. In the Bureau of Export Administration he was Senior Advisor forexport controls. As Deputy Assistant Secretary of Commerce he was responsible for trade analysis andretaliatory actions. He also was head of the US Delegation to the OECD Industry Committee in Paris.His academic work has focused on export development strategies and the linkage between terrorism andinternational business. His research has been published in leading journals such as Journal of Marketing,Journal of International Marketing, International Marketing Review, Journal of International BusinessStudies, Journal of World Business, and others. He is the author of Mastering Global Markets – which reflectsthe challenges of international management in a world of conflict and uncertainty. He also wrote two leadingcollege texts, International Marketing 10th edition and International Business, 8th edition. ProfessorCzinkota serves on the Global Advisory Board of the American Marketing Association, the GlobalCouncil of the American Management Association, and on the Board of Governors of the Academy ofMarketing Science. Dr Czinkota serves on several corporate boards and has worked with corporationssuch as AT&T, IBM, GE, Nestle, and US WEST. He has advised the Executive Office of the Presidentand the US General Accountability Office on trade policy issues. He also serves as advisor to the UnitedNations and the World Trade Organization. Professor Czinkota holds a PhD in logistics from The OhioState University.

Demetris Vrontis obtained a PhD in International Marketing from the Manchester MetropolitanUniversity Business School. He is a Professor of Marketing and the Dean of the School of Business and theDirector of the MBA Program at the University of Nicosia in Cyprus. His prime research interests are onstrategic marketing planning, branding, international marketing, and marketing communications.His publications appeared in such outlets as Human Resource Management, International MarketingReview, Journal of Business Research, Journal of Marketing Management, European Business Review,Journal of Marketing Communications, International Journal of Human Resource Management, and others.Professor Vrontis is the Founder and President of the EuroMed Research Business Institute (EMRBI – www.emrbi.com) and the Chairman of the EuroMed Academy of Business (EMAB), which aim to contribute to andshare the understanding of different business environments and trends in the region through research,teaching and consulting. The two organizations have already successfully organized four internationalconferences and currently have hundreds of members (individual, universities and organizations) from allover the world.

International Marketing ReviewVol. 34 No. 1, 2017pp. 2-4© Emerald Publishing Limited0265-1335DOI 10.1108/IMR-01-2017-0004

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An assessment of collaboration between multinational firmsIn the past two decades, cross-border collaborative entry modes (alliances, joint ventures, andmergers and acquisitions) activity has increased significantly (Chiao et al., 2010; Czinkota et al.,2011; Czinkota et al., 2009; Whitelock, 2002; Whitelock and Jobber, 2004).

Yet, the growth in cross-border collaborative entry modes activity, the volume of capitalinvolved, and their popularity stand in sharp contrast to their high rate of failure (Gomeset al., 2011; Weber et al., 2011).

One of the central questions in international marketing strategy is whether MNCs andSMEs coming from the particular country pursue a distinct paradigm of best marketingpractices or tend to manage their marketing capabilities in ways that are distinct from thoseof their host country (Burgel and Murray, 1999; Czinkota, 1997; Gabrielsson et al., 2012;Vrontis, 2003; Vrontis et al., 2009) as well as the timing of the foreign market entry (Murrayet al., 2012).

Within a complex organizational context, collaborative market entry modes (alliances,joint ventures, and M&As) pose many challenges to both executives and researchersbecause handling the interface between the two or more different organizations is a multi-faceted and multi-stage process (Gomes et al., 2013). Thus executives and researchers alikeface a daunting challenge in attempting to develop and accumulate specific knowledge andcapabilities about the collaborative partnership process management in general andmarketing practices during it in particular.

The goal of this special issue was to stimulate scholars to focus on marketing practices atindividual, group, and firm level in collaborative entry modes such as mergers andacquisitions, joint ventures, strategic alliances, licensing, franchising, equity participation, etc.

Therefore, a major goal of this special issue has been to encourage research on howunderlying concepts and methodologies in international business, strategic management,and other related areas can enhance our understanding of the marketing practices incollaborative partnerships.

In sum, this special issue brings together an eclectic range of work that offers newinsights for scholars on collaborative entry modes, and we hope it will inspire scholars toengage in cross-disciplinary, multi-level, multi-stage, and multi-temporal research of thisimportant topic in the international marketing realm.

Shlomo Y. TarbaManagement School, The University of Birmingham, Birmingham, UK

Michael R. CzinkotaMcDonough School of Business, Georgetown University, Washington, DC, USA, and

University of Kent, Canterbury, UKDemetris Vrontis

School of Business, University of Nicosia, Nicosia, Cyprus

References

Burgel, O. and Murray, G.C. (1999), “The international market entry choices of start-up companies inhigh technology industries”, Journal of International Marketing, Vol. 8 No. 2, pp. 33-62.

Chiao, Y.-C., Lo, F.-Y. and Yu, C.-M. (2010), “Choosing between wholly-owned subsidiaries and jointventures of MNCs from an emerging market”, International Marketing Review, Vol. 27 No. 3,pp. 338-365.

Czinkota, M.R. (1997), “Russia’s transition to a market economy: learning about business”, Journal ofInternational Marketing, Vol. 5 No. 4, pp. 73-93.

Czinkota, M.R., Ronkainen, I. and Moffett, M. (2011), International Business, 8th ed., Wiley, Hoboken, NJ.

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Guest editorial

Czinkota, M.R., Grossman, D.A., Javalgi, R.G. and Nugent, N. (2009), “Foreign market entry mode ofservice firms: the case of US MBA programs”, Journal of World Business, Vol. 44, pp. 274-286.

Gabrielsson, P., Gabrielsson, M. and Seppälä, T. (2012), “Marketing strategies for foreign expansion ofcompanies originating in small and open economies: the consequences of strategic fit andperformance”, Journal of International Marketing, Vol. 20 No. 2, pp. 25-48.

Gomes, E., Angwin, D., Weber, Y. and Tarba, S.Y. (2013), “Critical success factors through the mergersand acquisitions process: revealing pre- and post-M&A connections for improved performance”,Thunderbird International Business Review, Vol. 55 No. 1, pp. 13-35.

Gomes, E., Weber, Y., Brown, C. and Tarba, S.Y. (2011), Mergers, Acquisitions and Strategic Alliances:Understanding the Process, Palgrave Macmillan, Basingstoke.

Murray, J.Y., Ju, M. and Gao, G.Y. (2012), “Foreign market entry timing revisited: trade-off betweenmarket share performance and firm survival”, Journal of International Marketing, Vol. 20 No. 3,pp. 50-64.

Vrontis, D. (2003), “Integrating adaptation and standardisation in international marketing: theadaptstand modelling process”, Journal of Marketing Management, Vol. 19 Nos 3-4, pp. 283-305.

Vrontis, D., Thrassou, A. and Lamprianou, I. (2009), “International marketing adaptation versusstandardisation of multinational companies”, International Marketing Review, Vol. 26 No. 4,pp. 477-500.

Weber, Y., Tarba, S.Y. and Reichel, A. (2011), “International mergers and acquisitions performance:acquirer nationality and integration approaches”, International Studies of Management &Organization, Vol. 41 No. 3, pp. 9-24.

Whitelock, J. (2002), “Theories of internationalization and their impact on market entry”, InternationalMarketing Review, Vol. 19 No. 4, pp. 342-347.

Whitelock, J. and Jobber, D. (2004), “An evaluation of external factors in the decision of UK industrialfirms to enter a new non-domestic market: an exploratory study”, European Journal ofMarketing, Vol. 38 Nos 11/12, pp. 1437-1455.

Further reading

Czinkota, M.R. and Ronkainen, I. (2013), International Marketing, 10th ed., CENGAGE, Cincinnati, OH.

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Information technology andmarketing performance withininternational market-entry

alliancesA review and an integrated conceptual

frameworkShasha Zhao

Department of International Management and Innovation, Business School,Middlesex University, London, UK, andConstantinos-Vasilios Priporas

Department of Marketing, Branding and Tourism,Business School, Middlesex University, London, UK

AbstractPurpose – The purpose of this paper is to engage in a comprehensive review of the research on informationtechnology (IT)-mediated international market-entry alliances.Design/methodology/approach – This paper provides a theory-informed conceptual framework ofIT-enabled cross-border interfirm relationships and performance outcomes. It integrates perspectives of resource-based view (RBV) and transaction cost economics (TCE) to argue that the establishment of interfirm IT capabilitiesenhances the marketing performance of the foreign partner in the host location by improving interfirm relationshipgovernance. Furthermore, IT-related risks and contextual restrictions are identified as important moderators.Findings – Conceptualisations of IT capabilities, IT-enhanced interfirm governance, and IT-led marketingperformance improvement are suggested. Drawing on RBV and TCE, IT resources, related human resources, andIT integration between partner firms in combination enhances the ability of firms to manage the relationshipmore effectively through shared control, interfirm coordination, cross-firm formalisation, and hybridcentralisation. These benefits then bring about better upstream and downstream marketing performance inthe host location. Additionally, IT capabilities help to mitigate possible contextual limitations and risks.Research limitations/implications – The paper offers a number of theory- and literature-informedresearch propositions which can be empirically tested in future studies.Practical implications – Top managers of firms currently in or planning to enter international alliances formarket entry should carefully consider effective development of interfirm IT capabilities in terms of readinessof hardware and software, human resources, and organisational resources.Originality/value – The paper provides an integrated framework and propositions which contribute tolimited understanding and appreciation of IT value in international market-entry alliances.Keywords Information technology, Entry modes, Cross-border alliance, Marketing performancePaper type Conceptual paper

1. IntroductionDuring the past two decades, the international business sphere has witnessed dramaticallyincreasing growth in cross-border collaborations in the forms of strategic alliances, jointventures, and merger and acquisitions (Ahammad et al., 2012; Ahammad, Tarba, Liu and

International Marketing ReviewVol. 34 No. 1, 2017

pp. 5-28Emerald Publishing Limited

0265-1335DOI 10.1108/IMR-01-2016-0024

Received 30 January 2016Revised 8 June 2016

Accepted 9 June 2016

The current issue and full text archive of this journal is available on Emerald Insight at:www.emeraldinsight.com/0265-1335.htm

© Shasha Zhao and Constantinos-Vasilios Priporas. Published by Emerald Publishing Limited.This article is published under the Creative Commons Attribution (CC BY 3.0) licence. Anyone mayreproduce, distribute, translate and create derivative works of this article (for both commercial &non-commercial purposes), subject to full attribution to the original publication and authors. The fullterms of this licence may be seen at http://creativecommons.org/licences/by/3.0/legalcode

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Glaister, 2016; Ahammad, Tarba, Liu, Glaister and Cooper, 2016; Basuil and Datta, 2015;Chiao et al., 2010; Czinkota et al., 2009; Di Guardo et al., 2016; Dutta et al., 2016; Gaffney et al.,2016; Rao-Nicholson et al., 2016; Sinkovics et al., 2015; Whitelock, 2002; Zheng et al., 2016).Marketing practices and performance in this context have received growing recognition as akey measure of overall effectiveness of the collaboration (Ahammad, Tarba, Liu and Glaister,2016; Burgel and Murray, 2000; Dan and Zondag, 2016; Eng and Ozdemir, 2014; Huang andBrass, 2016; Sinkovics et al., 2015; Vrontis et al., 2009). Positive marketing performance in thehost location is considered crucial for foreign investor firms due to the widely recognisedcontrast between the amount of capital involved and the high rate of failure (Gomes et al., 2011;Weber et al., 2011). In spite of the risks involved, cross-border collaboration continues to growin popularity. A major cause of this trend is globalisation. Increasing international competitionrequires firms to seek multiple channels for market growth as heavy reliance on domesticmarkets could no longer be sustainable (Bartlett and Ghoshal, 2002; Campos et al., 2016;Yu, 2011; Murmann et al., 2015). Studies on collaborative entry modes have long focussedon the aspect of performance (Bleeke and Ernst, 1990; Larimo et al., 2016; Merchant, 2014;Pak and Park, 2004; Perkins et al., 2014), however, literature on how it can be successfulin the international context whereby culture difference is prominent remains fragmented(Almor et al., 2014; Gomes et al., 2016; Junni et al., 2015; Niesten and Jolink, 2015). Bothstrategic alliances and joint ventures across borders have been managerially challengingfor firms (Aklamanu et al., 2016; Junni et al., 2015). The investment capital and time devoted toany alliance are considerable; hence, success becomes an inevitable objective. To shed light onways that effective alliances can be achieved, our paper introduces the role of informationtechnology (IT). In spite of IT being a necessity for today’s business operations (Mabey andZhao, 2016), so far research on the role of IT in collaborative entry modes has been limited andshould be given much more recognition. Limited IT research has focussed on the facilitation ofcross-border alliances. Specifically, it is noted that IT has contributed to the establishment andimprovement of international market-entry alliances through enhancing communication,information exchange, and knowledge transfer between partner firms (Tafti et al., 2013).For example, Tesco successfully tapped into Thailand by forming joint venture supermarketswith Thai company Lotus which has extensive and strong upstream and downstreamnetwork relationships locally, making marketing practices much less difficult for Tescothrough IT alignment with Lotus in local supply and distribution operations (Shannon, 2014;Tafti et al., 2013).

Despite the prominent use of IT, both researchers and practitioners have had deep-rooteddoubts about the promising contribution of IT on company performance. Specifically, asJean et al. (2008) and Dwivedi et al. (2015) correctly identified, there has long existed a debateon the impact of IT performance. So far empirical evidence has shown contradictory resultswhich suggest that IT does not necessarily improve performance or enhance business value.Instead, the “IT productivity paradox” exists (Brown, 2015; Brynjolfsson, 1993; Brynjolfssonand Hitt, 1996; Hajli et al., 2015). Some others viewed IT as a commodity which had littledistinct value in terms of creating sustainable advantages for firms, instead it is easilyimitated by competitors (Carr, 2002; Jean et al., 2008). In an attempt to contribute to thetheoretical advancement of the issue of the value of IT in the context of cross-borderalliances, which remains under-explored (Dewett and Jones, 2001; Lioukas et al., 2016), therelationship between IT, interfirm relationship, and marketing performance needs to beestablished. This also responds to a recent call from Chang et al. (2015) in terms of exploringthe driving force of IT in international collaborations. Hence, this paper aims to address theimportant question of whether and how IT contributes to interfirm marketing performancethrough international market-entry alliance.

Against this background, our main objective is to develop a theory-informed integratedconceptual framework to comprehend the impact of IT on interfirm relationship and

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therefore marketing performance based on cross-border alliances and IT research.A link between resource-based view (RBV) and transaction cost economics (TCE) isestablished and underpins the framework. An interaction between these two theoreticalperspective helps to form the central proposition that IT resources lead to enhancedmarketing performance through improving interfirm governance. Additionally, we developa series of research propositions. The proposed framework and propositions leads to furtherempirical testing of international market-entry alliances. We conclude the paper bydiscussing theoretical and practical implications.

2. Overview of IT in international market-entry alliance and marketingperformance literatureIT and collaborative entry modes are two areas of research which rarely intersect.Specifically, collaborative entry mode is a topic long rooted in international business andstrategy research. On the other hand, research focussing on the role and effects of IT hasresided mainly in IS literature and to some extent, management literature ( Jean et al., 2008;Lioukas et al., 2016; Tafti et al., 2013). While there is a common consensus that we have beenliving in an “information age” (Tapscott and Caston, 1993; Yu, 2011) largely led byadvancement in IT, so far research linking IT and collaborative entry modes is ratherlimited and lagging behind time (Lioukas et al., 2016; Tafti et al., 2013). A shortage ofscholarly interest indicates that there is an under-appreciation of how critical IT is in today’sbusiness environment.

Specifically, our review shows that topics relating to international collaborative marketentry modes have been extensively studied by scholars from international business andstrategy fields over a number of decades. International collaborative entry modes aretraditionally known as forms of business whereby a foreign firm intends to penetrate a hostmarket by partnering with its indigenous companies (Beamish and Lupton, 2009). Beingpart of international trade and doing business beyond borders, international joint venturesand alliances are not the only means of penetrating global markets; however these methodsof collaborative market entry are often preferred over franchising, contracting, or licensing,etc. Specifically, international alliances are widely used as the form of market entry incountries with high uncertainty or low experiential knowledge, for example, less developedeconomies. A study by Brouthers (2002) shows alliances in this context have outperformedother types of foreign investment methods (such as wholly owned subsidiaries) due tolocational advantages provided by domestic partners. Similarly, Fang et al. (2015) discussthe benefits of strategic alliance in the global pharmaceutical industry in terms ofuncertainty reduction and new product development synergy. In terms of marketingconsideration, Fang and Zou (2009) stress the importance of marketing dynamic capabilitiesin international joint ventures. They claimed that the empirical literature on strategy hasdocumented the impact of dynamic capabilities of firms on their performance, yet literatureon the operationalization and conceptualization of marketing related dynamic capabilities inthe context of international alliances has been rather limited. Their data from top managersin China indicates that marketing dynamic capabilities have a significant impact on the hostmarket performance and competitive advantage of international joint ventures.

Whilst previous studies presented diverse focusses (e.g. motivations, choices of modes,country selection, and performance consequences) and approaches (e.g. TCE, RBV,knowledge-based view, and agency theory), a central rationale many of them share is theeffectiveness of alliances in achieving performance levels. For instance, Ming-Chang et al.’s(2015) study of 152 cross-border joint ventures revealed that perceived value gap andinformation asymmetry are two mediating factors which directly affect interfirmperformance. Pak and Park (2004) also used an empirical approach in a Korean contextto contend that alliances benefit economies of scale and help share risks. Furthermore, based

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on a social contract perspective, Wallenburg and Schäffler (2014) found that internationalalliance partnerships enhance market performance through relationship building.Hadjimarcou et al. (2015) also noted international alliances are more likely to succeed interms of overseas market performance.

On the other hand, extensive evidence suggests that whilst there are manyorganisational performance benefits associated with international collaborative entrymodes, especially for foreign investor firms, there is a high risk of failure deriving from anumber of internal and external causes. Ineffective interfirm relationships have been arguedas one of the main reasons collaborations fail (Venkatesh et al., 2000). Sivadas and Dwyer(2000) estimated that 70 per cent of alliances fail for that reason. Extant research hasattempted to provide methods and tools for relational improvement. For instance,Venkatesh et al. (2000) proposed joint product development and branding between partnersto create a positive collaborative effort. Inkpen and Currall (1998) asserted that buildinginterfirm trust is important in contributing to joint venture performance. Similarly, Blodgett(1992) took the view that communication is an enhancer of international joint ventures.

In comparison to these propositions, references to IT usefulness have been ratherscattered (Lioukas et al., 2016; Tafti et al., 2013). However, in comparison to extensivediscussions of many of the other organisational tools in improving the performance ofinternational market-entry collaborations by way of enhancing interfirm relationships, sofar IT has either been only briefly mentioned in previous literature or closely examined invery few studies (Table I).

Therefore, it shows research into the role of IT and its impact in the context ofinternational market-entry collaboration has been very limited and static to date,particularly in terms of empirical evidence. Furthermore, a more integrated framework tocomprehend different theoretical perspective is still lacking in previous literature.

We propose that in order to enhance our understanding of the topic, some majororganisational factors should be identified and studied to resolve potential conceptualambiguity about the role and effect of IT and the lack of consensus among internationalbusiness, marketing, and IS scholars. Specifically, one major factor to consider is the ITdimension. Recent research from IS and marketing literature, drawing on RBV, hasdiscussed different IT resources and capabilities and their performance impact in thecontext of interfirm supply chain relationships. For instance, Kim et al. (2006) conceptualisedapplied technological innovation, administrative innovation, and interfirm systemsintegration as three IT resources. Similarly, Lu and Ramamurthy (2011) defined ITcapability (three dimensions: IT infrastructure capability, IT business spanning capability,and IT proactive stance) as an enabler of firm agility. Hence, one general conclusion we candraw is that IT capability has been a dominant dimension in most research.

A second major factor we consider is the debate on IT-mediated interfirm relationshipand performance. Brown (2015) noted that so far research has centred around the argumentabout the direct and indirect link between IT and performance. A more recent view inmeasuring IT performance, which has received increasing support and recognition, is aprocess-oriented approach ( Jean et al., 2008; Pavlou and Sawy, 2006; Ray et al., 2005).

Author Research Collaboration mode Empirical/conceptual

Lioukas et al.(2016)

IT has higher value in non-equitygovernance structure

Strategic alliances Empirical

Tafti et al. (2013) Different IT capabilities entail differenttypes of collaboration

Strategic alliances andjoint venture

Empirical

Gallivan andDepledge (2003)

IT enhances control and trust Interfirm partnerships Conceptual

Table I.Recent studies onIT-mediatedinternationalcollaboration

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The view asserts that IT enhances performance through improving specific organisationalprocesses. Much of the research adopting this approach has drawn upon RBV in IT valueresearch. It is argued that IT alone does not directly derive performance benefits, but ratherthat benefits are generated when IT interacts with higher order organisational processes( Jean et al., 2008). For instance, Kim et al. (2006) found IT-mediated coordination andresponsiveness lead to positive interfirm performance. Similarly, works of Sanders (2008)and Lioukas et al. (2016) showed that IT contributes to interfirm cooperation. Building onTCE, Gallivan and Depledge (2003) identified that IT enhances interfirm control and trust.

3. An integrated conceptual framework of IT on marketing performance ininternational market-entry alliancesJean et al. (2008) made an important assertion about how IT contributes to firm performance.Although it focussed on supply chain relationship, their study explicated and reconfirmedIT business value in an interfirm context. Specifically, discussion of applicability of TCEand RBV to IT value research was provided showing a transition of IS research fromtransaction cost concerned to resource-based value creation. In particular, their argumentabout the inappropriate outcomes about IT and value creation in previous research echoesour thoughts and direction in this paper. Research exploring this area is not only limited butambiguous in conceptualising different IT resource attributes to firm performance.For instance, a recent management information system study by Bhatt and Grover (2005)defined IT capabilities into IT infrastructure, IT business experience, relationship infrastructure,and organisational learning which enable the creation of competitive advantages forfirms; while Bharadwaj (2000) separated IT capabilities into IT infrastructure, human ITresources, and IT-enabled intangible resources. Clearly, ambiguities and confusion inIT value research and theoretical applications remain. We agree with Jean et al. (2008) thatconceptualisation of IT resources and capabilities are still inconclusive, leading todevelopment of different terminologies. Furthermore, knowledge gaps remain on how ITresources and capabilities interact with organisational processes to create value andenhance performance. This is particularly emphasised by the long unsolved IT productivityparadox problem (Brynjolfsson, 1993; Brynjolfsson and Hitt, 1996; Hwang et al., 2015).

In this paper, we provide our own definitions of IT as a critical resource for firms in thecontext of international alliances. At the outset, IT resources can be seen as organisationalskills and capabilities related to IT, which enable firms to leverage their existing non-ITrelated resources for better performance (Chae et al., 2014). Building upon RBV, IT resourcesin comparison to IT assets, can have a greater impact on interfirm processes whichultimately lead to mutual performance outcomes in a more sustainable way. This is becauseIT resources and capabilities are idiosyncratic to the collaborating firms and thereforeextremely difficult to imitate (Lioukas et al., 2016). By integrating RBV with the TCEperspective in the context of international alliances, we argue that interfirm transactioncosts associated with opportunistic behaviour as a result of bounded rationality can becounteracted by interfirm IT resources to reduce risks and associated costs.

Consequently, we integrate different streams of literature and theories of RBV and TCEto develop a conceptual framework in this paper. Specifically for the framework, we applythe two interactive theoretical perspectives: RBV denotes IT value creation in the context ofcollaborative market-entry partnerships while TCE explains interfirm processes which areaffected by IT. We argue that IT value should not be measured directly against interfirmperformance, as it creates further confusion to the “paradox”. Instead, we conceptualise ITresources to contribute to interfirm performance through interacting with importantinterfirm alliance factors. This specific context has been given limited attention in previousresearch (Lioukas et al., 2016). In addition, building on international business literature, wespecifically focus on marketing practices associated with market-seeking as the main

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performance measurement in host locations (Douglas and Samuel, 2011; Holtbrügge andBaron, 2013). Lastly, the framework emphasises the perspective of foreign partner firmsinstead of the host country partner.

Developed using RBV and complemented by TCE, our proposed conceptual framework(Figure 1) suggests that when interfirm IT capabilities, which are dynamic and critical, arepresent between foreign and local partner firms, specific interfirm relational aspects can beenhanced. Also, we argue that these relational aspects are important interfirm governancemechanisms which IT can facilitate (Chatterjee et al., 2006; Jean et al., 2008). Therefore, itenables the building of a more efficient interfirm relationship and therefore improvedmarketing performance. Further, IT-enabled governance can help to counteract associatedinvestment risks and contextual limitations which are potentially negative. Additionally, weadapt the contingency theory perspective (Donaldson, 2001; Luo and Bu, 2016) to argue thatIT and interfirm performance are likely to be moderated by process-based factors.

3.1 Organisational IT capabilities dimensionsIT capabilities refer to the ability of a firm to mobilise and deploy IT through appropriate ITmanagement, which in combination or co-presence with other resources and capabilitiesserves as a source of sustainable competitive advantages (Bharadwaj, 2000). This definitionimplies that, rather than IT resources per se, human IT skills and complementarity betweenIT and human resources are the necessary components which in combination create firm-wide IT capabilities. Despite extensive studies on IT-related topics, many authors whodiscussed IT capabilities failed to appropriately address their differences (Wade andHulland, 2004). This in turn becomes misleading and causes confusion in literature (Chaeet al., 2014; Sabherwal and Jeyaraj, 2015; Wade and Hulland, 2004). In this paper, we followthe explanation of Ross et al. (1996) who divided IT capabilities into three categories: humanassets (technical skills, business understanding, and problem-solving orientation), technicalassets (physical IT assets, technical platforms, databases, architectures, and standards), andintegration process (with other divisions internally and partner firms externally). In thispaper, we argue that IT resources, IT-related human resources, and IT integration are threedistinct and intertwined sets of capabilities which require specific and separate attention.

3.1.1 IT resources. The discussion of information in recent management and marketingliterature has specifically suggested the importance of IT as an information and knowledgemanagement tool (Orlikowski and Gash, 1992; Wade and Hulland, 2004). Organisational ITassets are generally defined as the combination of hardware and software a firm possesses

Firm PerformanceOutcomes

Interfirm GovernanceMechanisms

Organisational IT Capabilities

IT-related Risks • Technological Uncertainty• Market Uncertainty

• Downstream Marketing• Upstream Marketing

• IT Assets • IT-related Human Resources • IT Integration

• Shared Control • Interfirm Coordination • Cross-firm Formalisation • Hybrid Centralisation

Organisational Characteristics• Knowledge Tacitness • Horizontal Visibility • Absorptive Capacity

Process Moderators

Figure 1.An integratedconceptual framework

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(Moore and Benbasat, 1991). Whilst some researchers argued that IT is the driving force forchange, some others believed it plays a more supportive role in current business practices.Despite much debate about the subject, it is generally agreed that IT is a fundamentalelement in the changed natured of work processes, in organisational restructuring, and insocietal transformation (Avgerou and Walsham, 2001). Hence, considering the notedcontribution of IT in value creation for firms, we adopt the RBV (Barney, 1991; Penrose,1959) to suggest that IT resources are critical assets in the context of interfirm allianceswhen entering a foreign market. Our view of IT resources is in line with recent literature.Specifically, prior to the mid-1990s, works of IT lacked an appropriate theoretical base.Melville et al. (2004) found that researchers employed a wide variety of different theoreticalparadigms in examining the subject without appropriate justifications. For instance,theories or views of industrial organisation, sociology, or socio-politics were used Only sincethe mid-1990s, it has a more unified theoretical paradigm towards RBV started to emerge(Bharadwaj, 2000; Powell and Dent-Micallef, 1997; Shin, 2006; Wade and Hulland, 2004; Wuet al., 2006). In short, the view enables researchers to examine the value of IT resources incontributing to organisational performance.

3.1.2 IT-related human resources. While IT resources are crucial, they need to beoperationalised in order to realise their value and since IT does not function by itself, humanresources are our second IT capability consideration. A number of scholars emphasised theimportance of having the right human IT skills (Bharadwaj, 2000; Powell and Dent-Micallef,1997). Whilst some viewed it as purely technical IT skills (Feeny and Willcocks, 1998; Wadeand Hulland, 2004), others considered it to denote both technical and managerial IT skills(Bharadwaj, 2000; Melville et al., 2004). The former refers to the know-how needed to buildand maintain IT applications using the technology available (Bharadwaj, 2000; Capon andGlazer, 1987). For instance, it includes knowledge of programming languages, experiencewith operating systems, and understanding of communication protocols and products. Onthe other hand, managerial IT skills include the ability to understand and appreciate thebusiness needs of other units, suppliers and customers, to work with IT users to developappropriate applications, to coordinate IT activities efficiently, and to anticipate future ITneeds (Capon and Glazer, 1987; Copeland and McKenney, 1988). These skills are likely to bedifficult to transfer as they are developed over long periods of time and are causallyambiguous and socially complex and thus likely to serve as sources of sustainablecompetitive advantage (Mata et al., 1995). In the context of interfirm alliances, we argue fororganisational resource complementarity (de Matías Batalla, 2014; Grimpe and Hussinger,2014). It refers to effective alignment between IT and the human resources of partneringfirms so to best leverage value.

3.1.3 IT integration. Although IT is seen as a useful organisational resource insupporting a firm’s value creation, it is also generally agreed in the literature that ITresources alone are not always distinctive enough to create sustainable competitiveadvantages (Clemons and Row, 1991; Wu et al., 2006). This is because, as RBV suggests,resources that can create sustainable competitive advantages need to meet the criteria ofrarity, inimitability, immobility, and durability. Since readily available IT hardware andsoftware have relatively low barriers to imitation and acquisition by other firms, IT-createdadvantages (if any) tend to diminish fairly, quickly (Clemons and Row, 1991). Even whensome IT resources can be kept proprietary in the short term (Bain, 1956; Porter, 1980),eventually imitation is difficult to avoid, hence it is unlikely that IT resources alone can be asource of sustainable competitiveness.

Instead, as RBV suggests, firms can use a bundle of resources (Penrose, 1959; Barney, 1986)which enable them to operate and implement strategies and these resources can be eithertangible and intangible, therefore the possession of IT hardware and the operation of it can be

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both seen as part of an organisational resource portfolio (Wu et al., 2006). On this basis, not onlyshould tangible IT be classed as resources, the operational process of IT should also beregarded as resources because only possession of IT cannot create value in any way unless it isutilised through processes (Ciborra, 1996; Shin, 2006). In the context of interfirm alliances, weargue that it is even more critical that IT integration is effectively achieved between partnerfirms in order to maximise opportunity for value creation from the new market.

Specifically, the topic of IT integration has been extensively studied (Bharadwaj, 2000;Feeny and Willcocks, 1998; Mata et al., 1995; Melville et al., 2004; Wade and Hulland, 2004),and despite the fact that these authors have taken slightly different emphases, their allresearch suggested one central idea: any IT integration activities should be concerned withcreating a condition for which IT resources and human resources can be operationalisedsynergistically for maximum value creation. IT integration is generally concerned withthree key factors, one of which is having the right technological infrastructure in placebetween collaborating firms. The infrastructure includes the technologies, sharabletechnical platforms, and databases. Bharadwaj (2000) found that when a non-integrated ITinfrastructure exists which is dominated by system incompatibilities, firms’ operations areseverely restricted. Hence, an integrated IT infrastructure which spans across collaboratingfirms and links key business processes together is crucial for effective interfirm alliances.

3.2 Firm performance outcomesOne area of IT and management literature that has provoked much debate over the pastdecades has been the performance effect of IT (Bharadwaj, 2000). This is caused by a lot ofresearch producing very mixed results. For instance, a group of researchers found throughempirical studies that possession and operationalisation of IT has direct and positive effectson firm performance (e.g. Banker and Kauffman, 1991; Clemons and Weber, 1990; Choi et al.,1990), on the other hand, Warner (1987) and Hunter (2003) found direct and negative effects.Another group noted no effect at all (e.g. Sager, 1988; Venkatraman and Zaheer, 1990), whilesome others noticed contingent effects of IT on performance (e.g. Bharadwaj, 2000; Carrolland Larkin, 1992; Powell and Dent-Micallef, 1997; Wu et al., 2006), and Hendricks et al. (2007)found mixed results depending on the type of technologies. This is despite the fact thatwell-established measures for performance (e.g. return on investment, stock returns, andproductivity) were used. The contrast in the results has created confusion for bothresearchers and practitioners. Even though large investments have been made in IT, somefirms achieve successful outcomes whilst others fall victim to the “productivity paradox”(Tippins and Sohi, 2003). The term “productivity paradox” has been well recognised inliterature and refers to the difficulty in measuring IT investments against its performance(Brynjolfsson, 1993; Brynjolfsson and Hitt, 1996).

Arguably, one common flaw found in much of the previous studies is the ambition ofresearchers to measure a series of performance indicators in a single paper. In our paper, wespecify our performance focus to marketing outcomes only to provide a more realisticallymeasurable conceptualisation of IT-led performance. Moreover, marketing performance isparticularly crucial in the context of interfirm collaboration when the purpose of thepartnership is market entry (Cavusgil and Zou, 1994). In reference to Porter (1985) and hiswork on value chain activities, we break down marketing performance into two categories:upstream and downstream marketing activities.

3.2.1 Downstream marketing outcomes. Previous literature has long discussed theperformance benefits of foreign firms forming interfirm alliances with firms which alreadyhave an established presence in the host market (Sarkar et al., 2001). One obvious benefit isthe availability of downstream marketing channels including marketing and advertising,distribution, and customer services ( Jean et al., 2008). Foreign firms new to a market arelikely to experience “foreignness” in the areas of culture recognition, psychic distance, and

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knowledge and experience shortage. Dealing with these barriers from within the firmrequires time and capital investment (Claro and Claro, 2010). In a market of high competitionintensity, such a strategic move is likely to create competitive disadvantages. Instead,international joint ventures or strategic alliances with locally-established firms is oftenviewed as a more efficient mode of entry (Fang et al., 2015; Sarkar et al., 2001), particularlywhen downstream marketing channels are complex and difficult to establish in moredynamic environments. Collaborating with carefully selected local firms who haveestablished networks in place can help to significantly speed up market entry processes.More importantly, the absence of “foreignness” as a result of the alliance enables foreignpartner firms to effectively market and advertise, distribute, and service the host marketwith contribution from the local partner ( Jean et al., 2008).

3.2.2 Upstream marketing outcome. Upstream marketing is less discussed by scholarsthan downstream marketing (Charan, 2004, 2005; Ellis, 2010; Lew et al., 2013; Smith et al.,2015; Woletz et al., 2005), however, it is equally and if not more, important as a measure ofmarketing performance in the context of collaborative market entry. Upstream marketingactivities are generally considered more strategic than downstream activities (Charan, 2004)which orient around market extension, customer segmentation, and product and processinnovation. Whilst downstream activities are closely aligned with upstream marketingdecisions, the former is more operational once decisions are made, and the latter is aboutplanning and decision making for downstream activities (Charan, 2005; Ellis, 2010). In thecontext of collaborative market entry, foreign investors are likely to benefit from teaming upwith local partners when developing marketing plans and making decisions because thelocal context and customer preferences can be more effectively considered as partner firms’knowledge and experience is made use of in the process.

In our paper, we suggest that IT capabilities, in the context of interfirm alliance for marketentry, can improve foreign firm performance by enhancing upstream and downstreammarketing outcomes. This is because knowledge and information shared between foreign andlocal partners can help to inform more appropriate marketing decisions and more appropriateplans – this helps to improve upstream marketing performance. Conversely, effective timelyinformation exchanges between foreign and local partners when carrying out downstreammarketing activities can help both parties better adapt to market needs and changes quickly.These arguments are in line with works of Sambamurthy et al. (2003) who suggested theimportant role of IT in facilitating information exchanges and Mowery et al. (1996) who notedhe importance of local knowledge to counteract “foreignness” in marketing. Thus:

P1a. The establishment of interfirm IT capabilities, including shared IT resources,related human resources, and cross-firm IT integration, is likely to improve foreignpartner firm upstream performance by enhancing local knowledge and informationexchanges for better informed decision making.

P1b. The establishment of interfirm IT capabilities, including shared IT resources,related human resources, and cross-firm IT integration, is likely to improve foreignpartner firm downstream performance by enabling more localised marketingactivities which better meet customer needs through effective informationexchanges between local and foreign partners.

3.3 Governance mechanisms dimensions3.3.1 Shared control. We draw upon the TCE perspective to discuss three governancemechanisms which have been extensively discussed in international business literature.First, control is generally a form of governance which is, according to Child (1973, p. 117),“essentially concerned with regulating the activities within an organisation so that they are

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in accordance with the expectations established in policies, plans, and targets”. At the heartof control is the monitoring process, and there are two phenomena which can be monitored,i.e. behaviour and output (Baliga and Jaeger, 1984; Egelhoff, 1984; Ouchi, 1977). These twoaspects are not substitutes of each other but two different means of control (Egelhoff, 1984).In any context, control induces the desired performance while inhibiting dysfunctionalbehaviour (Gencturk and Aulakh, 1995). It reduces uncertainty, increases predictability, andensures that behaviours originating in separate parts of the organisation are compatible andsupport common goals. Such an activity becomes more difficult to exercise as the contextbecomes more complex, such as in the context of interfirm alliances. TCE suggests thepresence of opportunism and self-interest, therefore shared control is considered a necessityfor partner firms to ensure both parties are acting towards achieving common goals.

Literature on IT and management discusses the role of IT in facilitating monitoringprocesses in both intra- and interfirm contexts ( Jean et al., 2008; Yu, 2011). IT-enabledinformation exchanges between functions or firms allow a more “real-time” and moredetailed understanding of individual actions. In the context of interfirm alliances, a clearerview of each other’s actions discourages opportunism and dysfunctional behaviour. Instead,actions become more visible to all (Yu, 2011) and therefore more predictable behaviour ispromoted to achieve common objectives ( Jean et al., 2008).

3.3.2 Interfirm coordination. Coordination is considered another important mechanismboth in intra- and inter- firm contexts ( Jap, 1999; Karunaratna and Johnson, 1997). Its keyfunction is to help firms to leverage their organisational resources locally and globally.There are generally two directions of coordination. Buvik and Reve (2002) noted verticalcoordination to involve top-down two-way information transfer and co-actions betweenfunctions or firms whilst Baumol (2001) suggested horizontal coordination to involve jointefforts between alliances or joint venture partners. Despite the two entailing different typesof synergy seeking and resource leverage (Baumol, 2001), in the context of interfirm alliancefor market entry, we would expect both vertical horizontal coordination to be favourable forforeign firms as the former brings about upstream or downstream value creation throughcollaboration with local partners and the latter brings about synergy in product or processinnovation and market performance.

As previous research argues that coordination requires effective communication andinformation flows between functions or firms, and IT has been found in studies tosignificantly enhance real-time communications and information exchanges (Adams et al.,1992). In the context of interfirm alliance for market entry, foreign and local partners mustcoordinate effectively with each other for upstream and downstream activities. It issuggested that IT improves such process through better exchanges which enhance interfirmvalue creation (Streeter et al., 1991).

3.3.3 Cross-firm formalisation. Formalisation, defined as “the degree to whichorganisational norms are defined explicitly” (Hall, 1982), is seen as the governance formwhich prescribes allowable and non-allowable behaviour through the use of rules andprocedures (Egelhoff, 1984; Gencturk and Aulakh, 1995; Martinez and Jarillo, 1989). Hence, ithas a direct impact on individuals’ behaviour by defining the nature of acceptable taskperformance and criteria for decision making (Baliga and Jaeger, 1984; Björkman et al., 2004;Fredrickson, 1986; Pfeffer, 1978). Formalisation is seen as providing governance throughmodifying behaviour (Baliga and Jaeger, 1984; Ouchi, 1977). In other words, throughprescribing the bounds of behaviour, formalisation can limit decision-making discretion andrestricts individual autonomy. Formalisation is also suggested to facilitate vertical andhorizontal coordination by standardizing the ways in which functional activities areperformed (Kim et al., 2003). In the context of collaborative partnerships, cross-firmformalisation is important for standardising individual partner’s behaviour to ensure

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consistency in operations (Schul and Babakus, 1988). It also helps to provide a higher levelof certainty and reduced conflicts in the partnership (Grandori and Soda, 1995).

As previously suggested, the important role of IT in transferring information andtherefore establishing a more standardised view on organisation-wide practices can lead tomore effective internal formalisation of operations. This view is empirically supported bythe work of Yu (2011). In the context of collaborative market entry, actions and processes offoreign and local partners can be more consistent and visible to each other, and therefore,more effective in establishing interfirm best practices and greater value creation.

3.3.4 Hybrid centralisation. Centralisation is also an important form of governancecommonly discussed in the context of headquarter subsidiaries (Baliga and Jaeger, 1984;Egelhoff, 1988; Gencturk and Aulakh, 1995; Martinez and Jarillo, 1989, 1991). It is generallydefined as the division of decision-making authority between parties (Ghertman, 1988; Gatesand Egelhoff, 1986). The greater the centralisation a firm chooses to implement, the lessdelegation of decision making outside (Baliga and Jaeger, 1984; Gates and Egelhoff, 1986). Twomajor determinants of the level of delegation are suggested to be the complexity of operations(Hage and Aiken, 1967) and environmental uncertainty (Lawrence and Lorsch, 1967). In thecontext of collaborative partnerships, we argue that local firms are in a better position thanforeign partners to evaluate the situations of the host market. Moreover, decisions to act arebetter informed at the local level due to the proximity to the market in response to diverse localdemands (Bartlett and Ghoshal, 2002). Hence, over centralisation by a foreign partner can resultin ineffective decisions beingmade when the local context is not accommodated (Henderson andSmith-King, 2015; Mindruta et al., 2016; Roth and Nigh, 1992). Instead, a shared decision-makingarrangement is likely to deliver both local and organisational benefits to partnering firms.

IT and management literature has suggested that organisational IT can help firms to gathernecessary information for decision making (Huber, 1990). When real-time information isconstantly and accurately shared between partner firms, mutual decision making becomes apossible and asymmetric relationship (Elg and Johansson, 1997; Mohr et al., 1996). Suchdecisions are made on the basis of combining local partner’s market knowledge with foreignpartner’s product knowledge, and hence create higher value for both firms.

Hence, we draw upon RBV and TCE to propose that interfirm alliances with the intentionof market entry are likely to generate most IT-led benefits in the areas of upstream anddownstream marketing by enhancing four important interfirm governance mechanisms. Itis likely that the relationship between IT capabilities (IT resources, related human resources,and IT integration) and firm performance outcomes (upstream and downstream marketing)is mediated by shared control, interfirm coordination, cross-firm formalisation, and hybridcentralisation. Specifically, interfirm IT capabilities can help both partners in terms ofshared control of marketing processes and output in the way of timely informationexchanges. Second, shared IT capabilities can also facilitate information exchanges betweenthe partners. In terms of marketing decisions and activities which require coordinativeefforts; both parties can be informed on time via shared IT. Third, shared IT capabilitiesallow both partners to “pre-programme” each other’s role and practices by setting agreedprocedures inside the IT systems so that a level of operational formalisation for carrying outmarketing activities is achieved. Building on these arguments, it is thus proposed:

P2a. The establishment of interfirm IT capabilities is likely to lead to more effectivecontrol shared between the foreign and local partner firms, so that marketingperformance (upstream and downstream) is likely to be more desirable.

P2b. The establishment of interfirm IT capabilities is likely to lead to more effectivecoordination between the foreign and local partner firms, so that marketingperformance (upstream and downstream) is likely to be more desirable.

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P2c. The establishment of interfirm IT capabilities is likely to lead to greaterformalisation of shared marketing processes, so that marketing performance(upstream and downstream) is likely to be more desirable.

3.4 Process moderatorsValue creation of IT has been considered to be under the effects of internal and externalmoderators (Kim et al., 2006; Melville et al., 2004; Jean et al., 2008). This is due to potentialeffects many variables can have on IT and user firms. However, we argue that thesemoderators are still not fully explored to date in the context of interfirm alliances. Hence, webuild upon the contingency theory perspective to conceptualise two categories ofmoderators which can have an impact on interfirm processes. We consider IT-related risks,and organisational processes to moderate the relationship between IT capabilities andinterfirm governance mechanisms.

3.4.1 IT-related risks dimension. In our paper, we also propose two IT-related riskswhich are likely to impact on IT capabilities of the collaborating firms. Specifically, Mataet al. (1995) noted that technological uncertainty can be a risk as IT investment may notmeet the expectations of the collaborating partners in a timely manner. Specific sources ofthis type of uncertainty include failure to obtain the anticipated IT results because ofimplementation difficulties, higher than anticipated implementation costs, longer thananticipated implementation time, low-technical performance at the outset of the investment,and incompatibility of the IT with the current organisational systems and processes of thepartner firms. The second risk is market uncertainty which reflects the degree of acceptanceof the invested IT in the respective marketplace of the collaborating firms (McFarlan, 1981).Consequently, we draw two related propositions: first, is that these two types of risks canpotentially have negative effects on value creation between collaborative partnerships ifinappropriately handled, and second, is that these risks can potentially be counteracted bydeveloping appropriate IT capabilities at the outset between the partner firms througheffective communications and teamwork (Feeny and Willcocks, 1998; Gorry and Morton,1989; Shin, 2006). Hence:

P3a. IT-related risks can have negative moderating effects on the achievement ofeffective interfirm governance mechanisms through use of IT capabilities.

P3b. Effective establishment of interfirm IT capabilities counteract IT-related risksthrough reduced technological and market uncertainty.

3.4.2 Organisational characteristics dimension. Knowledge tacitness: it has been longsuggested by RBV that one of a firm’s critical resources nowadays is knowledge. We followthe general classification of knowledge into two intertwined categories: explicit and tacit(Assimakopoulos and Yan, 2006; King and Zeithaml, 2003; Teece, 1998). Explicit knowledgeis also known as codified information and expressed in words, data, numbers, and language.It is codified into symbolic forms such as documents and databases, and shared amongindividuals relatively easily. In contrast, tacit knowledge is personal, context-specific, andhard to formalise and to communicate among people. Tacit knowledge embeds cognitiveelements including personal beliefs, values and mental models, and technical elementsincluding technical skills and know-how (Nonaka and Takeuchi, 1995; Nonaka et al., 1998).Tacit knowledge often involves activities at individual, group, and organisational levelswhich are often invisible to outsiders of a particular organisational context. It is morepersonal and subjective, making it difficult to be formalised and tends to be deeply rooted inaction, commitment, and involvement in a specific context (Nonaka and Takeuchi, 1995).Therefore, of the two types, tacit knowledge has more limited transferability. Further,explicit and tacit knowledge are inseparable and interactive (Polanyi, 1966; Roberts, 2000).

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Hence, the distinctive properties of heterogeneity and immobility of tacit knowledge makesinterfirm information and knowledge transfer challenging. Although IT facilitatesinformation and codified knowledge exchanges between partner firms, the inevitablenature of tacit knowledge can moderate the exchange process. On another note, Nonakaet al. (2001) asserted socialisation is considered as an important and necessary process fortacit knowledge transfer, which occurs when knowledge to be transferred merely makessense if it is abstracted from its context. Hence, for transfer to succeed, sender and receiverneed to share a similar thinking process. This can only be achieved via continuous socialinteractions. Borghoff and Pareschi (1997) noted the importance of IT in facilitatingsocialisation via virtual networks for communications and information sharing. Personalinteractions in distant context become possible and effective. Thus:

P4a. Knowledge tacitness has negative moderating effects on achievement of effectiveinterfirm governance mechanisms through utilisation of IT capabilities.

P4b. Effective establishment of interfirm IT capabilities facilitates tacit knowledgetransfer through enhanced socialization.

Horizontal visibility: the issue of invisibility between two entities has been mostly discussed inthe context of headquarters-subsidiary relationships. The underlying cause is suggestedembeddedness which implies an ambiguous view of a firm’s internal operations for outsiders(Holm et al., 1995). It is argued that such embeddedness makes it difficult for outsiders to form agood picture of the operation since the internal network is invisible to those who are notdirectly involved in a continuous manner. Hagedoorn (2006) described such a networkrelationship as a matter of trust, knowledge, and interpretations based on social interaction.It has evolved gradually overtime and can only be understood by those individuals who weredirectly involved in interactions. Hence, for collaborating partners from two differentbackgrounds and long-established idiosyncratic internal networks, a lack of accurateunderstanding and appreciation of the partner firm limits their ability to collaborate effectively.Visibility can only be improved overtime through enhanced information/knowledge exchanges.It is suggested only when parties have close proximity, will they be able to counteractinformation asymmetry (O’Donnell, 2000). Hence, without efficiency information exchanges,physical distance between them undermines coherent development. On another note, the abilityof IT to manage (including storage, transfer, and integration) information by supportinginterfirm communications in real time allows more obtainable knowledge and information(Walsham, 2001). Similarly, Nault and Dexter (1995) and Powell and Dent-Micallef (1997) sawIT as an important tool to facilitate effective collection and use of information. Hence, we arguethat while collaborating partners are likely to experience horizontal invisibility issue as a resultof internal embeddedness within their own organisations, IT can enhance interfirm visibilitythrough efficient information exchanges. Thus:

P5a. Restricted interfirm horizontal visibility has negative moderating effects on theachievement of effective interfirm governance mechanisms through the use of ITcapabilities.

P5b. Effective establishment of interfirm IT capabilities enhances horizontal visibilitythrough efficient information and communication exchanges.

Absorptive capacity: although knowledge transfer is well-acknowledged by many to benefitfirms’ capability enhancement, ultimately, what determines the value creation of the transfer(which therefore influences capability development) is another question. After knowledge istransferred, firms expect to see effective application of transferred knowledge to currentoperations in order to justify the action. Many have suggested that the outcomes of atransfer can be measured based on the absorptive and retentive capacity of the receiver

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(Hansen, 2002; Malhotra et al., 2005; Minbaeva et al., 2014; Zahra and George, 2002).The former refers to the ability to acquire, absorb, and assimilate new knowledge to producedynamic organisational capabilities, and the latter is the institutionalisation of what hasbeen transferred. Specifically, once knowledge is successfully transferred, the receiver mustmake adjustments so that it can fit into (or become applicable in) the new context.The receiver needs to be able to identify the opportunities available to use knowledge in thecurrent context (Garud and Nayyar, 1994). Effective communications and informationexchanges between firms can help them make more appropriate use of received knowledge(Sambamurthy and Subramani, 2005). Hence, in the context of interfirm alliances for marketentry, while partner firms’ ability to absorb and retain exchanged knowledge or informationis likely to moderate the relationship between IT capabilities and interfirm governance,IT is also likely to enhance information exchanges and therefore absorptive capacity ofpartner firms. Thus:

P6a. The limited absorptive capacity of partner firms’ has negative moderating effectson the achievement of effective interfirm governance mechanisms through the useof IT capabilities.

P6b. Effective establishment of interfirm IT capabilities facilitates partner firms’absorptive capacity through enhanced information and communication exchanges.

4. Contribution and implications for future researchEchoing a recent study by Jean et al. (2008) on IT-mediated international supply chainrelationships, our paper has provided a holistic research framework and a number ofpropositions. Specifically, we provide a more complete and detailed conceptualisation of theimpact of IT on interfirm governance mechanisms in the specific context of cross-bordermarket-entry alliances. Our paper therefore contributes to the international marketing,international business and strategy, and IS literature.

Specifically, we reviewed diverse views and provided an integrated perspective of RBVand TCE into the framework. We believe this view underpins our answer to the followingresearch question:

RQ1. Whether and how interfirm IT affects international marketing performance in theway of improving collaborative relationships?

Several conclusions can be drawn from our conceptualisation. First, interfirm IT capabilitiesare not an effort of any one firm but the outcome of effective alliance between partner firms.Any one set of IT resources, e.g. IT systems, related human resources, or IT integration,alone could not create maximum value. Instead, appropriate alignment among the threebrings IT capabilities, which are dynamic and idiosyncratic to the specific alliance. Second,IT capabilities do not necessarily have a direct effect on international marketingperformance; instead, it is most effective in enhancing the interfirm relationship whichsubsequently leads to positive performance. Third, the marketing performance implicationsof IT in the context of cross-border alliances is an important managerial consideration andtherefore successful implementation of IT is particularly necessary and critical for foreignpartner firms. Lastly, the establishment of interfirm IT capabilities is further emphasised asthey help firms to counteract associated risks and contextual limitations. Subsequently, ourproposed framework and propositions developed in this paper open up several avenues forfuture empirical research.

Our paper has provided a distinct and integrated theoretical perspective whichemphasises the role of IT in international alliances. We have provided a solid theoreticalfoundation for future empirical testing of IT capabilities in enhancing alliance performanceby way of improving interfirm governance. Particularly, we have offered an alternative

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view to the IT performance debate. Second, we have offered an integrated view of IT in thecontext of international alliances by building upon a number of literature streams (IT and IS,strategic management, and international business). Third, we have developed a conceptualframework incorporating key IT, interfirm relational, and marketing performance relatedvariables in order to provide a more overarching conceptualisation of the usefulness of IT inalliance studies. This area remains under-explored.

Consequently, a number of research directions can be pursued to enhance currentknowledge and understanding of IT value in international market-entry alliances. One ofthem is empirical testing of the propositions and the related framework in future studies.Another direction may be to specifically examine other types of international collaborations,such as joint venture, mergers, and acquisition to identify any potentially differences interms of IT value. The availability of IT capability, governance, and marketing performancemeasures, as discussed in our paper, enable researchers to empirically test against eachform of collaboration. A third possibility is to conduct longitudinal study of the effects of ITin the processes of international alliances, though the procedure involved is likely to becumbersome. However, it would shed light on the “IT productivity paradox”. Futureresearch can also take the direction of exploring the view of host market partner firms andcomparing it against foreign partners to not only identify the value of the IT from a newperspective, but also to reveal any potential gaps or conflicts between foreign and localpartners so to further enhance performance.

We hope that our paper has provided some useful insights on the topic of internationalmarketing and generated new research interests into IT-mediated international market-entry alliances.

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Further reading

Aulakh, P.S., Kotabe, M. and Sahay, A. (1996), “Trust and performance in cross-border marketingpartnerships: a behavioral approach”, Journal of International Business Studies, Vol. 27 No. 5,pp. 1005-1032.

Chan, Y.E., Huff, S.L., Barclay, D.W. and Copeland, D.G. (1997), “Business strategic orientation,information systems strategic orientation, and strategic alignment”, Information SystemsResearch, Vol. 8 No. 2, pp. 125-150.

Dos Santos, B.L., Peffers, K. and Mauer, D.C. (1993), “The impact of information technology investmentannouncements on the market value of the firm”, Information Systems Research, Vol. 4 No. 1,pp. 1-23.

Fry, L.W. (1982), “Technology-structure research: three critical issues”, Academy of ManagementJournal, Vol. 25 No. 3, pp. 532-551.

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performance

Kang, N. and Sagai, K. (2000), “International strategic alliance: their role in industrial globalisation”,OECD Science, Technology and Industry Working Papers No. 2000/05, OECD Publishing, Paris.

Mahmood, M.A. and Soon, S.K. (1991), “A comprehensive model for measuring the potential impact ofinformation technology on organizational strategic variables”, Decision Sciences, Vol. 22 No. 4,pp. 869-897.

Reich, B.H. and Benbasat, I. (1996), “Measuring the linkage between business and informationtechnology objectives”, MIS Quarterly, Vol. 20 No. 1, pp. 55-81.

Zahra, S.A. and Covin, J.G. (1993), “Business strategy, technology policy and firm performance”,Strategic Management Journal, Vol. 14 No. 6, pp. 451-478.

About the authorsShasha Zhao (PhD) is a Lecturer in International Business at Middlesex University Business School,UK. She obtained her PhD from the Manchester Business School. She has published in severalinternational academic journals and conferences, such as Academy of International Business.In addition, she also published a research monograph on the managerial and relational implications ofIT in MNEs. She is a member of several professional bodies and has acted as Guest Reviewer for anumber of journals and conferences.

Constantinos-Vasilios Priporas (PhD, MCIM, FEMAB) is a Senior Lecturer in Marketing atMiddlesex University Business School, UK. He has published in several international academicjournals and conferences, including Tourism Management, Journal of Travel Research, The ServicesIndustries Journal, European Business Review, EuroMed Academy of Business, EMAC. In addition,he co-edited a book. He is a Member of several professional bodies and he is an Editorial Board Memberof the Journal of Customer Behaviour and has acted as a Guest Editor, Reviewer, and Track Chair inacademic journals and conferences. Constantinos-Vasilios Priporas is the corresponding author andcan be contacted at: C.Priporas@mdx.ac.uk

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Push and pull factors ininternational franchising

Melih MadanogluFlorida Atlantic University, Boca Raton, Florida, USA

Ilan AlonSchool of Business and Law, University of Agder, Kristiansand, Norway, and

Amir ShohamThe Fox School of Business, Temple University, Philadelphia, Pennsylvania, USA

AbstractPurpose – Using munificence, real options and ambidexterity theories, the purpose of this paper is todemonstrate how the differential between home and host market environmental conditions affects USinternational franchising expansion.Design/methodology/approach – The authors used firm-level panel data for 151 US-based franchisingfirms, from Bond’s Guide for Franchise Opportunities, for the years 1994-2008 plus macroeconomic data on theenvironment, to explain the probability of franchising.Findings – The paper finds that the differential in economic growth and economic uncertainty impactsfranchisors’ desire to expand abroad on a continual basis.Research limitations/implications – Researchers in international franchising should not only focus onhost market environmental variables (pull factors), but also on conditions in the home market (push factors).Originality/value – The paper adds to environmental explanations of international franchising by focusingon the differential in munificence and uncertainty between home and host countries.Keywords Uncertainty, Ambidexterity, Real options, Economic conditions,Franchising internationalization, MunificencePaper type Research paper

1. IntroductionInternationalization is a prerequisite for firm growth and competitiveness today (Buckleyand Casson, 1976; Czinkota and Ronkainen, 2013). Research on international marketingchannels has accelerated in recent years, focused mainly on the macroenvironment indeveloped countries (Hoppner and Griffith, 2015). Among international marketing channels,collaborative modes of entry have gained in popularity because many internationalizingfirms are small and young and because some international environments are higher in risk(Swoboda et al., 2015). Franchising is a unique collaborative mode of entry with lowerembedded risk (due to limited needed investment by the franchisor) and high level ofcontractual control (through a prescribed business format). Franchisors transfer know-how,industrial rights and intellectual property in return for consideration in the form of fees androyalties. Casson (2015) suggested that franchising is the desirable collaborative mode ofentry where knowledge is an important component of the business model. As a result,franchising has become a dominant strategy among internationalizing firms across theservice sector, particularly in hotels, retailing, and fast-food restaurants ( Jell-Ojobor andWindsperger, 2014).

American franchisors accelerated their internationalization in the 1990s due to both pushfactors (such as domestic saturation, competition, and demanding consumers) and pullfactors (such as economic opportunities and risk profiles of host markets) (Alon and McKee,1999a). The franchising sector in the USA is largely international, with over 60 percent offranchisors seeking overseas opportunities. Franchising has allowed American servicefirms to internationalize with limited risk since the host market partner, either a directfranchisee or a master franchisee, assumes startup costs and initial investments.

International Marketing ReviewVol. 34 No. 1, 2017

pp. 29-45© Emerald Publishing Limited

0265-1335DOI 10.1108/IMR-03-2015-0037

Received 3 March 2015Revised 15 October 2015

Accepted 16 October 2015

The current issue and full text archive of this journal is available on Emerald Insight at:www.emeraldinsight.com/0265-1335.htm

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Research on international franchising has focused on the challenges ofinternationalization, contrasting motivations, including economic growth, populationgrowth, and low competition with the barriers in host countries, such as the legalenvironment, restrictions on repatriation of capital, and risk of losing intellectual property(Alon and Banai, 2000; Castilla and Mejías, 1998; Rysman, 2001; Alon and Welsh, 2001).Other researchers have investigated the organizational determinants of internationalfranchising, finding that scale, agency, and resources are important variables (Alon andMcKee, 1999b; Alon et al., 2012; Kalnins, 2005; Ni and Alon, 2010). A few papers examineboth organizational and environmental factors simultaneously (Aliouche and Schlentrich,2011; Sashi and Karuppur, 2002), but these papers have been mostly conceptual in nature.Case studies also show the impact of both company and country factors (Lee et al., 2008;Ngaochay and Walsh, 2011; Xu and Velamuri, 2009). Two problem are inherent in thisearlier research: first, much of this research saw internationalization as a discrete one-timedecision to explore foreign markets; once the decision was made, the franchisor wasconsidered “international.” Second, when the external environment was considered most ofthe studies examined only characteristics of the host market. We view internationalizationas a continuous decision that rests on conditions both at home and abroad.

The current paper expands the literature on international franchising by providingempirical evidence for the theories of international franchising that connect organizationaland environmental variables. Specifically, we examine the impact of differential munificenceand uncertainty between home and host markets. By doing so, we not only includeinformation on the environment, controlling for firm-specific factors, but also suggest thatinternationalization via franchising is a continual process of evaluating the opportunity andrisk in both the domestic and international marketplace. Previous research on the timing ofinternational franchising assumes that the decision to go global, once made, is permanent.Our research suggests that the decision is made by examining the differential between thehome and host markets, which changes on an annual basis. We explore the effects ofenvironmental resources and uncertainty on international expansion via franchising.

Previous research on international franchising relies mostly on resource scarcity andagency explanations (Alon and McKee, 1999b; Lafontaine and Oxley, 2004). While theseapproaches are good for modeling firm capabilities in the context of internationalization,they are limited in providing the link to the external environment. We fill this gap in theliterature by drawing from arguments of environmental munificence (Dess and Beard, 1984;Castrogiovanni, 1991) real options (Trigeorgis, 1996; Fisch, 2008), and organizationalambidexterity (Duncan, 1976; Raisch and Birkinshaw, 2008), this study combinessynergistic prowess of these approaches to explain the internationalization of franchisingfirms. We investigate how external environmental conditions in the home market act as a“push factor” for firm executives to seek international franchising, and how the “difference”between home and host markets can attract firms or “pull” them internationally.We contend that real options, environmental munificence, and organizational ambidexterityoffer a good explanation for when franchising firms will seek international partners.

2. Theory and hypotheses2.1 Literature on international franchisingThe literature discusses international franchising in five distinct domains: domestic vsinternational, the relationship between host market conditions and internationalfranchising, propensity to enter international markets through franchising vs equitymodes, international franchisor-franchisee relationship, and governance modes( Jell-Ojobor and Windsperger, 2014).

The first two domains are closely related and both use strategic, internal (firm-specific)factors that influence franchising internationalization based on the tenets of resource

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scarcity and agency theory. Resource scarcity theory contends that franchisors will seekpartners in international markets because franchisees possess local market knowledge andprovide human and equity capital (Elango and Fried, 1997). Research shows that resourcescarcity can explain franchising in the early years of a firm’s life cycle, whereas agencytheory gives a more complete description in later years of franchising (Castrogiovanni et al.,2006). Agency theory, with its focus on aligning incentives to manage agency costs such asopportunism and monitoring (Shane, 1996), emerged as a better predictor ofinternationalization of franchising firms. Several studies in the 1990s (e.g. Alon andMcKee, 1999b; Huszagh et al., 1992; Shane, 1996) and some more recent studies (Alon et al.,2012; Ni and Alon, 2010) use these two theories to identify antecedents of franchisinginternationalization such as firm size, franchising experience, growth rate, royalties, fees,price bonding, learned monitoring capability, and domestic geographic dispersion.For example, Shane (1996) reports that franchisors who create stronger price bonding aremore likely to seek international expansion, since bonding helps curb franchiseeopportunism. Ni and Alon (2010) confirm these findings in a study of fast-food restaurantfranchisors. Shane (1996) also finds that monitoring capabilities of franchisors (learned overtime) decrease opportunism, and thus lead to a higher probability of internationalization.More recently, Perrigot et al. (2013) suggested that intangible resources and plural forms aredrivers of internationalization. The problem with these studies is their focus on firm-specificfactors, and the lack of external factors for explaining internationalization.Internationalization is considered desirable regardless of external conditions when firmsreach a certain scale and maturity.

The second domain investigates the effect of host market financial, economic, andpolitical conditions on international franchising (Aliouche and Schlentrich, 2011) as pullfactors for entering international markets. While there is growing evidence about whatattracts franchising firms to international markets (Aliouche and Schlentrich, 2011; Preble,1995; Hoffman and Preble, 2004), most of it relies on conceptual arguments. Eroglu (1992)proposes, for instance, a conceptual model where organizational and environmental factorshave perceived risks (i.e. costs) and benefits which lead to intention to internationalize.While she does not specify the effect of economic conditions, one of the underlyingdimensions of environmental factors pertains to the perceived favorability of externalenvironment. Melo et al. (2015) suggested that both market opportunity (includingconsumption power) and business efficiency (including government and regulatory risk)contributed to the internationalization of Brazilian franchises.

Alon andMcKee (1999a) developed a semantic scale to measure four host country factors –economic, demographic, cultural distance, and political – to explain the internationalization ofUS franchising systems. The economic dimension consists of three measures: GDP per capita,average GDP growth (over a seven-year period) and level of urbanization. While theseconceptualizations are useful depictions of the economic environment, there is still limitedevidence about how economic conditions affect international franchising after accounting forfirm-specific characteristics. This line of research also suffers from a focus on the host market,with little attention given to how the home market conditions affect internationalization.To overcome the weaknesses of past studies of either the company-specific or host market-specific factors, we use theoretical arguments of munificence, real options, and ambidexterityto explain how the external economic conditions (both home and host) can influenceinternational franchising.

2.2 Theories to explain international franchisingInternationalization studies employ several theoretical lenses that consider the effect ofeconomic conditions of home or host markets, including real options (Fisch, 2008),transaction cost framework (Brouthers and Brouthers, 2003), environmental munificence

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(Wan and Hoskisson, 2003), and organizational ambidexterity (Lou and Rui, 2009). But theinternational franchising literature has little to say about these theories, in part becausefranchising researchers rely on franchising theories (particularly resource scarcity andagency theories) despite the former theories’ robust explanation of when and whyorganizations need to make simultaneous decisions that are not mutually exclusive. In ourcase, franchising firms have an option to expand both domestically and internationally.While many drivers influence these decisions, we claim that the home and host economicenvironments together co-determine internationalization.

There is a research gap in theoretical explanations about how macroeconomic conditionsserve as antecedents of internationalization in franchising (Alon and McKee, 1999a) becauseprior studies do not take into account the effect of home and host market conditionssimultaneously. Outside the franchising literature, examining internationalizing Chinesefirms, Child and Marinova (2014) examined institutional maturity and political stability asthe dimensions affecting firms’ internationalization strategies, and suggested that it is theinteraction between the home and host market conditions that determines theinternationalization of firms.

The franchising literature to date has examined neither comparative development norcomparative risk in assessing internationalization. To overcome these shortcomings, thispaper uses three theories that show how external economic factors influence decisionmaking within organizations, in particular, with respect to going global (munificence, realoptions, and ambidexterity).

The munificence theory has to do with the external economic environment. Lawrenceand Dyer (1983) posit that, along with uncertainty, munificence is a broad-based dimensionof the environment. Munificence can be defined as abundance or scarcity of resources thatdetermine the size of the opportunity present in the environment, ranging from high to low(Castrogiovanni, 1991). In the context of internationalization, home market munificenceserves as an opportunity for a franchisor to grow its domestic markets because of anabundance of resources both on the supply and demand sides. For example, home marketmunificence is likely to spur business demand due to an increase in disposable income,which leads to improved firm performance through higher revenues (Colpan, 2008).In addition, the availability of human and capital resources opens the door for betterfirm-level productivity and growth. Tushman (1977) contends that in munificentenvironments firms may prefer to penetrate domestic markets, leading to a lowerprobability of expanding internationally.

The other dimension that influences firm’s decision is related to environmentaluncertainty. Milliken (1987, 1990) put forward three types of environmental uncertainty:state, effect, and response uncertainty. Liu and Almor (2016) suggest that uncertainty isperceived differently between entrepreneurs of eastern and western cultures. Othercategories of uncertainty could be external, economic, political, and currency uncertainties(Sashi and Karuppur, 2002). As we follow only franchisors from the USA at the firm level,the study adopts the classification from Sashi and Karuppur (2002) and focuses onuncertainty relating to the state of the economy. To determine the directionality impact ofthis uncertainty, the paper discusses theories on the relationship between economicuncertainty and international expansion (real options and ambidexterity).

Real options theory is commonly used to explain how firms make financial investmentdecisions under uncertainty. According to this theory, when investing in internationalmarkets multinational firms gain a right, but not an obligation, to exercise a future option(e.g. to defer, expand, contract, postpone, and abandon) (Li and Li, 2010). Li and Li (2010)point out that real options are valuable because they allow firms to increase theircommitment or decrease their investment on the basis of environmental uncertainty.More specifically, this theory includes a time component, so firms that expand

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internationally may exercise a waiting option (option to defer) to enter a given internationalmarket (Fisch, 2008). Firms may also adjust their mode of entry on the basis of changingmarket conditions. Previous studies show that the value of the option to defer is negativelyinfluenced by factors including the level of market competition, the option to grow, and theoption to learn (Folta and O’Brien, 2004; Kester, 1984; Kulatilaka and Perotti, 1998). In thecontext of franchising firms, environmental uncertainty in home markets should act as apush factor, and influence firm’s decision to seek expansion in international markets. By thesame token, the positive difference in uncertainty between home and host markets (high vslow) will act as a pull factor for franchising firms. Internationalization provides an option forfranchisors to escape unwelcome domestic conditions, and expand their presence in a lessvolatile and more fertile economic environment.

As a complement, another theory that may answer firms’ response to changing economicconditions is the organizational ambidexterity theory (Duncan, 1976). This theory statesthat the success of organizations depends on the concurrent use of strategies that requiredifferent structures, and are sometimes paradoxical in nature, such as exploration andexploitation. Raisch and Birkinshaw (2008) discussed several contexts in whichcontradictions between exploration and exploitation take place such as organizationallearning, technological innovation, organizational adaptation, strategic management, andorganizational design. It is important to note that there are two schools about whatconstitutes organizational ambidexterity for organizations that pursue exploration andexploitation. A meta-analysis by Junni et al. (2013) considered both of these perspectives:a balanced vs combined view. On one hand, the balanced perspective contends that thereexist an optimal or mid-point where exploration and exploitation offer greatest benefits tofirm performance (March, 1991). On the other hand, the combination view, contends thatexploration and exploitation are independent of each other ( Junni et al., 2013) and bothshould be maximized to increase organizational performance (Cao et al., 2009).

The theory of organizational ambidexterity has only recently been introduced tointernational management and marketing research (Lou and Rui, 2009). However, Lou andRui (2009) claim that organizational ambidexterity is a potent theory for reasoning aboutinternationalization because firms that become international do not have to make a choicebetween staying domestic and being international. Rather than viewing internationalizationas a trade-off, this theory treats expansion in host markets as an “either/and” decision(Lou and Rui, 2009). That is, firms can still grow domestically while expanding internationally.

In franchising, organizational learning lens helped predict the use of market exploration(i.e. seeking franchising partners to open outlets) and market exploitation (i.e. openingcompany outlets in these markets) given the level of geographic dispersion of chain outlets(Sorenson and Sorensen, 2001). The study of Sorenson and Sorensen (2001) adopted the“balanced perspective” of organizational ambidexterity and did not offer any implicationsabout the simultaneous use of exploration and exploitation in a given market across yearsnor the study considered internationalization. Therefore, there exists a need to predict whenfranchising firms will prefer to seek international franchising given macroeconomic marketconditions. More specifically, the present study adds to the combined perspective of Caoet al. (2009) in the context of international marketing as in Lou and Rui (2009).

The real options and ambidexterity theories are complementary, and help explain thecontinuous international and domestic expansion of a franchisor. Ambidexterity theorypostulates that firms can grow in their home markets and enter international marketssimultaneously. What is more, firms can learn from these two strategies and implementthem synergistically. For example, they could have an idea for developing a new productinternationally, and apply it successfully in their domestic markets. In the present study, weaim to amalgamate the external environment conditions with the organizationalambidexterity of franchising firms. In other words, we posit that franchising firms are

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capable to both expand internationally and grow in their home markets. However, in someyears firms may do only one of these two things for economic reasons such asenvironmental munificence and uncertainty. Therefore, ambidexterity can be used as atheoretical lens to explain internationalization in both dimensions of the environment:munificence and uncertainty. Expanding simultaneously in both home and host markets isconsistent with the tenets of organizational ambidexterity. That is, firms displayambidexterity because they engage in both exploration and exploitation, and learn fromboth. In international marketing, home market growth can be considered a type ofexploitation, while international markets may bear features of exploration. McDonald’s, forexample, learned logistics from their operations in Singapore and added menu items fromtheir Indian operation, which they could later apply elsewhere. India and Singapore wereimportant consumer markets, but also improved innovation at the headquarters’ level(Mujtaba and Patel, 2011).

2.3 Environmental munificence and international franchisingSeveral studies (e.g. Wan and Hoskisson, 2003) examine the potential influence ofmacroeconomic environments on internationalization. For instance, scarcity of resources(i.e. low munificence) is viewed as a push factor for international diversification into othermarkets to overcome a potential dependency on present domestic locations where a firmmaintains outlets. On the other hand, a survey of franchising executives indicates that“ample growth opportunities in the United States is the main reason why franchising firmsdo not want to enter international markets” (Aydin and Kacker, 1990, p. 47). Thus, firmsseek entry into international markets when the home market is less munificent than othermarkets (i.e. “negative relative munificence”). Under high home market munificenceconditions, firms will prefer to grow in their home market and be less likely to seekinternational franchising. But when there is a negative relative munificence in favor of hostmarkets, firms will be more likely to seek expansion into international markets.These arguments lead to the following hypotheses:

H1. Home market environmental munificence is negatively related to the probability ofseeking international franchising.

H2. Relative environmental munificence has a negative relationship to the probability ofseeking international franchising. When the USA has a higher environmentalmunificence than the rest of the world, US franchisors are less likely to seekinternational franchising.

2.4 Environmental uncertainty and international franchisingIn the case of international franchising, firms that desire to expand in foreign markets viafranchising contracts tend to focus on deciding which markets to enter, when to enter, orboth. Even though franchising firms use little if any equity when they franchise theiroutlets, they still face several costs borne by various types of economic, political, andcurrency uncertainty (Sashi and Karuppur, 2002). Economic uncertainty can lead to failureand failure can damage the brand.

External uncertainty is usually defined as unpredictability of the environment in the hostmarket (Anderson and Gatignon, 1986), but external uncertainty in the home market mayalso play a role in the decision to go international. External uncertainty may be especiallycritical because it manifests in both home and host markets, and may affect the intention toexpand internationally. We argue that real options and ambidexterity theories can helppredict the probability of seeking international expansion through franchising byconsidering the effect of external economic uncertainty.

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Based on the tenets of real options theory, economic uncertainty in home markets woulddecrease the net present value of domestic investments due to higher costs of borrowing anddemand fluctuations. Thus, when economic uncertainty at home is high, firm may beginlooking for host markets that are less uncertain than the home market (Fisch, 2008). Wheneconomic uncertainty in home markets is high, the uncertainty will influence the net presentvalue of the expansion in international markets. That is, the value of financial services, likefinancial assistance, lease assistance, training, and site selection assistance, will diminish.Franchisors also recognize that when home economic uncertainty is high, the likelihood oftheir reputation and brand being tarnished is also high. However, the present value ofexpanding in host markets should still be higher than the value of postponing internationalexpansion. When home market uncertainty is lower than uncertainty in host markets, notseeking international expansion would be a better option. Therefore, firms will prefer todefer their international entry into some markets that have a higher uncertainty than theirhome markets. The real options perspective on how decision making works in reality isprovided by the parsimonious model (McGrath and Nerkar, 2004). A firm will enter a hostmarket or markets only when the net present value of such entry (C) is higher than the valueof option to defer such an entry (D) (Fisch, 2008): If CWD, then internationalization occurs.

The ambidextrous view is built on the premise that organizations can be successful atdoing two disparate things (Lou and Rui, 2009). In the context of franchising, growing in bothforeign and homemarkets are not a mutually exclusive options, because firms use some of theexploitative knowledge gained in home markets when they enter international markets.By the same token, the experience gained in international markets may be useful in improvingdomestic operations. On the basis of organizational ambidexterity, franchising firms will viewhome and host markets as important sources for gaining valuable experience. In economicterms, when environmental uncertainty in home markets is high, firms will prefer to useexploitative knowledge because it is based on perfected routines, requires less resources andbrings more certain returns (Im and Rai, 2008). However, under conditions of low uncertainty,firms can share both explorative and exploitative knowledge, because of the difficulty ofmaking predicting and the varying nature of explorative knowledge whose outcomes areeasier to handle when external environment is less uncertain (Im and Rai, 2008). We contendthat when the relative uncertainty of these markets favors host markets, franchising firms willresort to explorative knowledge and seek international franchise partners. Together, thereasoning and discussion of real options and ambidexterity lead to the following hypotheses:

H3. Home market economic uncertainty is positively related to the probability of seekinginternational franchising.

H4. Relative economic uncertainty is positively related to the probability of seekinginternational franchising. When the USA has higher economic uncertainty than therest of the world, US franchisors are more likely to seek international franchising.

3. Methods3.1 Sample and dataThe sample for this study consists of US-based franchising firms listed in Bond’s Guide forFranchise Opportunities, a data set commonly used in studies about franchising (Alon et al.,2012). The main data set for the period between 1994 and 2008 has a database of 151 firmswith eight years of consecutive listing in the Bond’s Guide between 2001 and 2008. Thus, weare able to eliminate firms that failed, exited the data set toward the end of the period orsimply stopped franchising. For robustness checks, we used the full data set, comprising thesame observation period (1994-2008) for 1,999 firms, resulting in 10,001 firm-yearobservations. All firm-specific measures are obtained from the Bond’s Guide.

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3.2 VariablesThe dependent variable in this study was whether or not firms sought internationalexpansion through franchising. It was a binary variable where a given firm was coded “1”if it looked to expand internationally via franchising in that year and “0” otherwise (Shane,1996; Alon et al., 2012). Shane (1996) contends that the intention to enter foreign marketsanswers two distinct questions about time and type of entry: “Do we want to expand at thispoint in time? And do we want to do it through franchising?” (p. 80).

The independent variables in this study are based on objective economic measures thatserve as proxies for environmental munificence and economic uncertainty. The firstindependent variable was home market munificence (MUNIFICENCE), measured as theannual GDP growth rate (World Bank, n.d.)[1] (McNamara et al., 2003) of the US economyfrom year t− 2 to t− 1. We lagged this variable one year (t− 1) because we expect that firmexecutives use the prior year’s GDP growth rate as a reference when they seek internationalexpansion. The second measure was relative munificence (RELMUNIF) between twomarkets: the USA and the rest of the world, calculated as the difference between the US GDPgrowth rate and the GDP growth rate for the rest of the world. This variable was lagged inthe same fashion as MUNIFICENCE.

The second set of independent variables pertains to economic uncertainty. Home marketuncertainty (UNCERTAINTY) was estimated using the ARCH model (McKenzie andMitchell, 2002) with a series of annual GDP growth rates between 1930 and 2012. Theconditional variance of the model was used as a measure of economic uncertainty. We alsocomputed a measure of relative uncertainty (RELUNCERT), the difference betweenconditional variance of annual GDP growth rate series of the USA vs the rest of the world.

We used several firm-level control variables that are common covariates in franchisingstudies, including firm size (SIZE) (total number of outlets), franchising experience (AGE)(number of years franchising), franchisee fee (FEE) (the initial fee paid to the franchisor), andstartup cost (STARTUP) (the initial investment required to open an outlet) (cf. Shane, 1996;Alon et al., 2012) The study controls for international experience (INTEXP) measured as theproportion of international outlets to total outlets. We also included an industry dummyvariable (IND) and used year dummies (YEAR) to control for time trends.

Descriptive statistics for macroeconomic indicators show that the mean value forMUNIFICENCE was 2.83. The mean value for relative munificence was −0.42, which showsthat the rest of the world had a greater mean munificence for the observation period.RELUNCERT also had a negative value (−2.10) which shows that the USA had a lowermean uncertainty for the examined period. On average, firms in our sample have beenfranchising for approximately 27 years, had a presence in more than 30 US states, and anaverage size of 1,119 outlets (Table I). The average franchise fee was US$27,553 and thestartup investment was US$341,714 with a standard deviation of more than US$665,000.

Variable Mean SD 1 2 3 4 5 6 7 8 9 10

1. MUNIFICENCE 2.83 1.03 12. RELMUNIF −0.42 1.25 0.677* 13. UNCERTAINTY 18.70 11.70 −0.202* 0.136* 14. RELUNCERT −2.10 12.37 −0.585* −0.054* 0.279* 15. SIZE 1,119.50 3,069.99 −0.049* −0.052* 0.008 −0.002 16. AGE 27.75 17.50 −0.122* −0.194* −0.039 −0.039 0.502* 17. STATES 30.79 15.47 −0.053* −0.060* −0.008 −0.014 0.749 0.385* 18. FEE 27.553 40.252 −0.014 −0.060* −0.025 −0.033 0.088* 0.028 0.049* 19. STARTUP 341.714 665.018 −0.079* −0.108* 0.001 −0.026 0.155* 0.155* 0.009 0.055* 1

10. INTEXP 0.126 0.179 −0.050* −0.060* 0.006 −0.008 0.155* 0.259* 0.123* 0.084* 0.004 1

Notes: Reported means and standard deviations for SIZE and STARTUP are not transformed. *p⩽ 0.05Table I.Descriptive statistics

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The four independent variables measuring macroeconomic conditions were not highlycorrelated, which implies that they have distinct relationships with the probability ofseeking international franchising. Among the control variables, SIZE and STATES had thehighest correlation (0.749). As a precaution, we looked at the variance inflation factor values,which ranged between 1.02 and 1.26. These values are well below the threshold value of 10(Pedhazur, 1997), which allows us to conclude that multicollinearity is not present.

3.3 Data analysis and modelingWe use logistic regression with two-way clustered robust standard errors; the intention toexpand internationally through franchising (INTFRAN) was our dependent variable. We usedtwo-way clustered approach controls for correlations among franchising firms in the sameobservation year, while it also considers the observation of the same firm across all observationsyears which yields unbiased standard errors (Cameron et al., 2011; Thompson, 2011).

We used a hierarchical logistic regression to demonstrate the unique impact of economicvariables on internationalization. We first ran a baseline model with all control variables,then added economic variables to each of the models (Model 2 through Model 5). Below wepresent Model 2 with home market munificence (MUNIFICENCE) as an independentvariable:

INTFRAN ¼ aþb1 SIZEþb2 AGEþb3 STATESþb4 FEEþb5 STARTUPþb6 INTEXP

þb7 IND dummiesð Þþb8 YEAR dummiesð Þþb9 MUNIFICENCE

where INTFRAN denotes whether or not a firm seeks international expansion throughfranchising, SIZE is the number of outlets, AGE the franchisor age, STATES the number ofUS states, FEE the franchise fee, STARTUP the startup cost, INTEXP the proportion ofinternational outlets to total outlets, IND the industry categories, YEAR the year dummies,and MUNIFICENCE the home market munificence.

4. FindingsAs Table II shows, the findings for Model 1 with control variables suggest that older firmsare less likely to seek international franchise partners (−0.021, po0.05). Priorinternationalization experience is positively related to future international franchising

Variables Model 1 Model 2 Model 3 Model 4 Model 5

Constant 13.646*** 51.071*** −35.813*** −16.318*** 14.064***SIZE 0.339 0.336 0.336 0.339 0.339AGE −0.021* −0.020 −0.020 −0.020 −0.020STATES 0.002 −0.001 −0.001 0.002 0.002FEE 0.009 0.011 0.011 0.009 0.009STARTUP 0.324 0.362 0.362 0.324 0.324INTEXPER 0.100** 0.109** 0.109** 0.100** 0.100**IND Yes Yes Yes Yes YesYEARa Yes Yes Yes Yes YesMUNIFICENCE −20.167***RELMUNIF UNCERTAINTYRELUNCERT

−10.088*** 1.466*** 1.494***

Pseudo R2 0.283 0.306 0.306 0.306 0.306n 1,759 1,623 1,623 1,759 1,759Notes: a“Yes” denotes that dummy variables were included in the logit model estimation. *p⩽ 0.05;**p⩽ 0.01; ***p⩽ 0.001

Table II.Economic conditions

and internationalfranchising

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(0.100, po .01). Model 2 tests the hypothesis about the effect of munificence oninternationalization. Results show that munificence is negatively related tointernationalization of franchising firms (−20.167, po0.001) which lends support for H1.The relationship between relative munificence (the USA vs the rest of the world) also has anegative significant influence on international franchising (−10.088, po0.001), consistentwith H2. The third hypothesis predicts that home market uncertainty will push firms toseek international franchising in more stable markets. Model 4 shows that UNCERTAINTYhas a positive influence on franchising internationalization, which confirms the predictionsof H3 (1.466, po0.001). The last model (Model 5) indicates that relative uncertainty (theUSA vs the rest of the world) is also a significant predictor of international franchising. Thatis, RELUNCERT is positively related to international franchising (1.494, po0.001) andfirms are more likely to seek international franchising when the US market is moreuncertain than the rest of the world which offers support for H4.

The logit regression is a binary regression, a well-established statistical technique tomodel a choice in marketing (Guadagni and Little, 1983). A positive coefficient indicates ahigher probability of seek international franchise partners (“1”) and a negative coefficientmeans a lower probability of seeking international franchise partners. The followingequation shows how the coefficients indicate the probability of seeking internationalfranchise partners:

Pi ¼‘xb

‘xbþ1¼ 1

1þ‘�xb (1)

P is the probability of having 1 (seek international franchise partners); x the vector of thevariables of the logit regression; and b the vector of the coefficients of the variables in thelogit regression.

To explain the support that our regressions gives to our hypotheses, we used the aboveequation to find the marginal impact that the four dependent variables (MUNIFICENCE,RELMUNIF, UNCERTAINTY, RELUNCERT) have on the probability of seeking aninternational franchise partner. In Equation (2), we use the impact of RELMUNIF and inEquation (3), the impact of RELUNCERT as examples, but the same relationships would beseen using the other variables. Note that the coefficient in the equations is taken from therespective logit results (Table II) for RELMUNIF and RELUNCERT:

pInternational Franchise ¼1

1þ‘½10:88� RELMUNIFð Þ� (2)

pInternational Franchise ¼1

1þ‘½�1:494� RELUNCERTð Þ� (3)

The results of Equations (2) and (3) are displayed in Figures 1 and 2, respectively. TheY-axis represents the marginal effect on seeking international franchise partners probability(from 0 to 1); and the X-axis represents an extraction of the dependent variable range ofvalues in the sample.

We conducted additional analyses to confirm the robustness of our results. First, weincluded the two bonding and monitoring variables from Shane (1996) to our models forpredicting franchising internationalization. Next, we calculated annual industry growth foreach industry as an additional control variable. All munificence and uncertainty variablesremained significant and had the hypothesized directional signs. To confirm thatmunificence and uncertainty variables make a unique contribution for explaininginternational franchising, we ran two additional models. In the first model, we included both

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MUNIFICENCE and UNCERTAINTY as independent variables. Our findings indicated thatboth variables were significant and had the expected directional signs. We repeated thesame analysis by including both relative measures (RELMUNIF and RELUNCERT). Hereagain, both relative measures were significant and had the same sign as in main analysis.Finally, we reran our four focal models (Model 2 through Model 5) with the full, unbalancedsample. Results remained unchanged, increasing our confidence in the models.

5. Discussion and conclusionThe findings of this study not only corroborate previous studies on market conditions andinternationalization of franchising firms (Aydin and Kacker, 1990; Alon et al., 2012), but alsoadd to more than four decades of research on collaborative entry modes by empiricallyshowing that both home and host market economic conditions play a role when firms seekinternational expansion. This is an important contribution to international marketing literaturewhich looked at host market factors on the choice of market entry mode (Kwon and Konopa,1993) but rarely considered the timing of internationalization decision. Therefore, unlikeprevious studies in marketing which sought an answer to the question of “which mode” forservice firms (Erramilli and Rao, 1993), this study offers an answer to the question of “when.”

Despite franchising is inherently a low-risk option, the paper finds that franchisors preferto avoid uncertainty. This study contributes to research on collaborative entry modes by

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demonstrating how market conditions, along with internal firm characteristics, affectinternationalization. In addition, results of this study enrich recent literature oninternationalization of service firms which investigates issues such as augmenting vsexploiting entry modes (Pla-Barber et al., 2014) internalization speed (Mohr and Batsakis,2014), value creation logics (Ørberg Jensen and Petersen, 2014), and internationalizationthrough social entrepreneurship (Ghauri et al., 2014).

Our results show that seeking partners in host markets is driven by the environmentalmunificence and uncertainty. Theoretically, we demonstrate that the real options andambidexterity theories offer a complementary explanation for when franchising firms seekinternational expansion. More importantly, we contribute to the theory of real options byshowing that firms follow the “wait and see” approach when host markets are lessmunificent or more uncertain than home markets. The use of real options and ambidexterityto explain when franchising firms seek international partners expands marketing literaturewhich employed more traditional theories of internationalization such as the Uppsala modeland the eclectic paradigm (Whitelock, 2002).

Franchising by its very nature is ambidextrous because organizations learn by exploringand exploiting their home markets (Sorenson and Sorensen, 2001). Our study adds anadditional layer to exploration vs exploration dilemma by demonstrating that home marketsare best suited for exploitation and host markets are hotbeds for exploitation. The findingsof the present study confirm the claim made by Lou and Rui (2009) that disparate factorssuch as growing in home and host markets should be considered simultaneously. That is,when possible both strategies should be applied. However, when munificence anduncertainty say otherwise, then an organization ought to implement the strategy that ismost beneficial to the firm.

The present study contributes to practice by showing that internationalization is not adiscrete activity that happens once in a company’s life. In fact, managers continuouslymonitor both the domestic environment and the foreign environment simultaneously, anddevote resources to those markets that are more munificent and less uncertain based onthese evaluations. Marks and Spencer, for example, went global in the 1960s partially as aresponse to pressures from market labor unions in their home market, and expanded toAsia in the 1990s due to the economic boom there (Alon, 2012). International franchisingprovides an opportunity to test the market with relatively little risk, thereby, providing aplatform or “real option” for future growth. During the US financial crisis in 2008, the lack ofcredit and a deep economic recession pushed some US franchisors to seek marketselsewhere, through franchising. The current discussion suggests that managers should notsee “internationalization” as a single discrete activity, but rather as an ongoing option andan alternative to domestic growth in times of differential economic growth or uncertainty.Rather than focusing on the timing of the “go global” decision, managers should focus onresource-allocation in diversified markets that generate system-wide growth, regardless ofthe country. Internationalization provides an opportunity for managers to explore newvenues of growth and to exploit their competitive advantage. For example, McDonald’sinternational success has helped it buffer against a slowing US economy, and develop newproducts and services for its worldwide system. Franchising can also be used as an optionfor greater involvement in the market, for example, through direct ownership.Most franchisors resist the temptation of ownership in lieu of more franchises in existingor new markets, but the option to deepen the investment and control does exist and shouldbe examined when differential environmental conditions warrant it.

Previous studies, such as Melo et al. (2015) and Aliouche and Schlentrich (2009) correctlyidentified the host market factors attracting international franchisors. However, managersshould be aware of that the push factors ought to be evaluated against these pull factorswhen deciding to devote additional resources to internationalization. Only if the

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attractiveness of the foreign market overcomes that of the home market should managers betempted to divert scarce resources.

Finally, most studies of international franchising to date have concentrated on either themacroenvironmental factors (e.g. Alon and McKee, 1999a; Welsh et al., 2006) affectingexpansion, or the organizational factors (e.g. Huszagh et al., 1992; Fladmoe-Lindquist, 1996;Doherty, 2009) associated with internationalization. The international franchising literaturehas mostly concentrated on the latter. This study takes both environmental andorganizational variables into account and focuses on the former. Further, it examinesenvironmental factors from the standpoint of both the host and home environments.

5.1 Limitations and future researchThis study has several limitations that we acknowledge. Our data do not specify whichcountries the firms targeted. Therefore, our study is not specific to a particular market.We looked at domestic vs international markets in general. Future research may analyzehow companies chose specific markets vis-à-vis each other and the domestic market basedon differences in market potential and risk. Direct measures of franchising in specificcountries can facilitate data analysis and knowledge development on internationalfranchising and its theoretical underpinnings.

The present study does not look at other external factors such as political risk andculture that are known to influence internationalization (e.g. Alon and McKee, 1999a;Hoppner and Griffith, 2015; Samiee et al., 2015). Augmentation of the current study mayenlarge the number of macroenvironmental variables to model the impact of distances oninternationalization, but data on the specific host market environment are needed. Futurestudies should consider other external factors and use measures such as cultural distanceand political risk as additional antecedents of international franchising.

We were unable to control perceived behavioral uncertainty by firm executive teams,which may affect the timing of international expansion. In addition, our dependent variabledoes not capture if firms intend to grow in home markets either via franchising or company-owned outlets. Our focus here is on the internationalization decision and not on the modes ofentry per se. Therefore, the present study does not offer a full picture of organizationalambidexterity and real options. Future studies should include the dynamic and sequentialinvestment in host markets to better test real options theory in international franchising.We also hope that researchers use other theoretical lenses such as real options and resourcedependence to better understand the timing of entry through collaborative entry modes.

Note

1. Please see the Appendix, Table AI for a detailed description of all the variables.

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Appendix

Corresponding authorAmir Shoham can be contacted at: amir.shoham@temple.edu

Variable Source Definition/Question

GDPGrowth

World DevelopmentIndicators

Annual percentage growth rate of GDP at market prices based onconstant local currency. Aggregates are based on constant 2005 USdollars. GDP is the sum of gross value added by all residentproducers in the economy plus any product taxes and minus anysubsidies not included in the value of the products. It is calculatedwithout making deductions for depreciation of fabricated assets orfor depletion and degradation of natural resources

SIZE Bond’s Guide forFranchise Opportunities

Total number of outlets

AGE Bond’s Guide forFranchise Opportunities

Number of years since the chain began franchising

FEE Bond’s Guide forFranchise Opportunities

Initial fee to join the system

STARTUP Bond’s Guide forFranchise Opportunities

The minimum net worth required

INTXEP Bond’s Guide forFranchise Opportunities

Proportion of international outlets to total outlets Table AI.Variable definition

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45

Push and pullfactors

Born global firms’ growth andcollaborative entry mode: the roleof transnational entrepreneurs

Yipeng LiuDepartment of Entrepreneurship and Local Economy,

Birmingham Business School, University of Birmingham, Birmingham, UK

AbstractPurpose – The purpose of this paper is to investigate the role of transnational entrepreneurs in growing bornglobal firms, with a focus on the growth process facilitated by collaborative entry mode.Design/methodology/approach – The author chose the solar photovoltaic industry as the empiricalsetting. This industry is a particularly good context for the study because many firms in this industry sellknowledge-intensive products internationally from their inception. The primary data consist of 32 in-depthinterviews with entrepreneurs, industry association representatives, research institute scholars, andprofessional service firms.Findings – The study highlights the importance of transnational entrepreneurs who develop born globalfirms to maturity by using their technological knowledge, international connections, and biculturaladvantages to navigate and leverage institutional complexity. Collaborative entry mode with distributorsenables born global firms’ high growth rapidly, whereas transnational entrepreneurs play a central role inbuilding and expanding international network. Initial public offering in overseas stock exchange acceleratesthe high growth trajectory of born global firm by signalling its maturity.Research limitations/implications –The author took a process perspective by examining the growth andmaturity of born global firms by collaborative partnership; the author’s focus on the role of transnationalentrepreneurs highlighted entrepreneurs’ sensitivity to institutional complexity along the growth trajectory.Practical implications – The author recommends both incumbent and entrepreneurial firms in developedeconomies collaborate with transnational entrepreneurs in various business areas. Industry firms may be ableto cooperate on product and marketing development, and professional service firms can offer services toexpand born global firms further, because transnational entrepreneurs follow the global “rules of the game”.Originality/value – The author shed important light on the role of transnational entrepreneurs throughoutthe growth of born global firms via collaborative entry mode. Furthermore, the author develops a multilevelframework for analysing the combined influence of transnational entrepreneur and institutional complexityon the growth of born global firm.Keywords Maturity, Institutional complexity, Born global firms, Growth by collaboration,Solar photovoltaic industry, Transnational entrepreneurPaper type Research paper

1. IntroductionAs an important form of international new venture, born global firms have received significantattention from both scholars and practitioners over the past two decades (McDougall-Covinet al., 2014). Born global firms are commonly characterised as young, knowledge-intensiveorganisations that typically sell innovative, self-developed technology-based products to globalmarkets (Almor, 2011; Knight and Cavusgil, 2004; Oviatt and McDougall, 1994). To date,scholarship on born global firms has investigated why and how born global firmsinternationalise early on (Almor et al., 2006; McDougall and Oviatt, 2000), yet a dearth ofresearch addresses their growth and maturity ( Jones et al., 2011; Keupp and Gassmann, 2009).

We argue that accounting for individual entrepreneurs’ role and taking a processperspective on growth significantly enhances the field’s understanding of entrepreneurialgrowth in general and born global firms’ growth in particular. First, despite theoretical andempirical progress in the study of born global firms, various authors note that born globalliterature rarely accounts for the role of the individual entrepreneur(s) behind bornglobal firms (Andersson, 2000; Wright et al., 2007; Yeung, 2002). Because entrepreneurs are the

International Marketing ReviewVol. 34 No. 1, 2017pp. 46-67© Emerald Publishing Limited0265-1335DOI 10.1108/IMR-05-2015-0130

Received 21 May 2015Revised 31 August 2015Accepted 8 October 2015

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ones who envision, initiate, and develop born global firms, researchers have called for morescholarly attention to individual entrepreneurs and their roles in establishing and developingborn global firms (Madsen and Servais, 1997). By focusing on entrepreneurs – individualmanagers of born global firms, the accelerated internationalisation and strategic orientation ofborn global firms can be better understood (Freeman and Cavusgil, 2007; Freeman et al., 2013).Aligning with this line of argument, we suggest that a focussed, nuanced analysis of theentrepreneur(s) behind born global firms can provide novel and deeper insights into the bornglobal phenomenon.

Transnational entrepreneurs migrate from one country to another and maintain businesslinks in both their former and their current locations (Drori et al., 2009). By extension then,transnational entrepreneurial activities involve cross-national contexts and are initiated andcarried out by actors who are embedded in at least two different social and economic arenas.Because of their dual (or multiple) embeddedness, the actions of such entrepreneurs are enabledand/or constrained by the institutional structures in which they operate (Saxenian, 2007).We suggest that these particular characteristics of transnational entrepreneurs are highlyrelevant for the growth trajectory of the born global firms.

Combining a process view with a focus on the transnational entrepreneur(s) behind aborn global firm, we aim to examine how transnational entrepreneurs grow born globalfirms. Specifically, we explore the roles of their technological knowledge, internationalexperience, and social capital (Gassmann and Keupp, 2007). An entrepreneur’s internationalexperience helps mobilise knowledge flows beyond geographical boundaries and facilitatesglobal market dispersion (Terjesen and Elam, 2009). Furthermore, the social capital ofentrepreneurs behind born global firms is crucial for growing new ventures globally(Coviello, 2006). Moreover, collaborative entry mode constitutes an important organisationalform for firms entering overseas markets (Gomes et al., 2011). However, the existing bornglobal literature fails to acknowledge the importance of collaborative entry mode and itsinfluence on born global firm’s growth. We thus investigate:

RQ1. How do transnational entrepreneurs develop born global firms’ growth bycollaborative entry mode?

Furthermore, as Yeung (2002, p. 30) points out, transnational entrepreneurial activities mustadapt to the institutional relations in both home and host countries, while “Theseinstitutional relations may be defined by the social and business networks in which thesetransnational entrepreneurs are embedded, the political-economic structures, and thedominant organisational and cultural practices in the home and host countries”. By fulfillingthe global market demand for knowledge-intensive products, born global firms may exhibita high growth trajectory by standardising high-tech products (Almor et al., 2006). Thus, thesecond research question we examine is as follows:

RQ2. How do transnational entrepreneurs respond to institutional complexity ingrowing born global firms?

To investigate our research questions, we chose the solar photovoltaic (PV) industry as ourempirical setting. This industry is a particularly good context for our study because manyfirms in this industry sell knowledge-intensive products internationally from their inception(Haley and Schuler, 2011). The nature of our research questions led us to choose qualitativeresearch methods, adopting a methodological pluralism approach (Coviello and Jones, 2004;Leitch et al., 2010). Our primary data consist of 32 in-depth interviews with entrepreneurs,industry association representatives, research institute scholars, and professional servicefirms. We carried out interviews from August 2010 to September 2011. We collected thesecondary data used in our analysis from sources such as annual reports and governmentregulatory and policy documents.

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The role oftransnationalentrepreneurs

We structure this paper as follows. We begin by discussing the current research on bornglobal firms, transnational entrepreneurs, and institutional complexity – in particular, theinfluences of transnational entrepreneurs and institutional complexity on born global firms’growth. We then present the research context and design. Next, we discuss our empiricalfindings. We conclude by proposing a multilevel process model and outlining theoreticaland managerial implications, as well as future research directions.

2. Theoretical backgroundBorn global firms and transnational entrepreneursAccording to a seminal article, born global firms are “small, technology-oriented companiesthat operate in international markets from the earliest days of their establishment” (Knightand Cavusgil, 1996, p. 11). Researchers commonly characterise born global firms as young,knowledge-intensive organisations that sell mainly innovative, self-developed, technology-based products to global markets (Almor, 2011; Knight and Cavusgil, 2004, 2005; McDougalland Oviatt, 2000; Oviatt and McDougall, 1994, 1995). Despite theoretical and empiricaladvances in studying born global firms, few studies have examined the roles of individualentrepreneurs in developing born global firms (Karra et al., 2008). Scholars urge thatprimary consideration should be given to the past experiences, current ambitions, andmotivation levels of born global leaders when investigating the born global phenomenon(Madsen and Servais, 1997).

The knowledge-based view has been applied to studying the internationalisation of bornglobal firms (Hohenthal et al., 2014). Entrepreneurs who possess the required technologicalknowledge and international knowledge play a critical role in developing a born global firm(Nordman and Melén, 2008). One study that examines the born global phenomenon in thecontext of Brazilian software firms highlights the influence of entrepreneurs in driving theborn global path instead of the traditional internationalisation process (Dib et al., 2010).As for rapid knowledge development, born global entrepreneurs can use both preexistingand newly formed relationships to quickly and proactively develop new knowledge for therapid commercialisation of their products (Freeman et al., 2010).

Transnational entrepreneurs who bridge national boundaries have been argued to havea significant impact on the development of local industries (Saxenian, 2002, 2007; Wadhwaet al., 2011). Extant research has discussed returnee entrepreneurs, but for our purposes,transnational entrepreneurs differ from returnee entrepreneurs significantly. In particular,returnee entrepreneurs are largely oriented towards their original home country markets,though they could adopt an international orientation using their experience and affiliationwith the countries from which they have returned (Lin and Tao, 2012). In contrast,transnational entrepreneurs are more inclined to capitalise on the global market byleveraging their transnational experience, becoming active wherever they perceive demandfor their products or services. Terjesen and Elam (2009) show that the foundingentrepreneur’s international experiences help mobilise knowledge flows beyondgeographical boundaries and facilitate global market dispersion. The internationalexperience of transnational entrepreneurs reduces barriers and helps smooth a born globalfirm’s interactions and negotiations with firms from different cultures (Kuemmerle, 2005).Furthermore, the social capital of migration plays a critical role in influencing theinternational growth of new ventures (Prashantham and Dhanaraj, 2010). Transnationalentrepreneurs with international social capital could facilitate a firm’s rapid growth on aglobal scale. Consequently, compared with returnee entrepreneurs, transnationalentrepreneurs are more likely to develop born global firms on a global rather thannational or binational scale. Transnational entrepreneurs with both advanced technologicalknow-how and an entrepreneurial orientation can take advantage of the technologicaladvances and develop more alliances with international markets.

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Transnational entrepreneurs tend to exhibit the characteristics of bicultural people, thosewho can identify with two (or more) distinct cultures by internalising more than one set ofcultural schemas (Brannen and Thomas, 2010). Biculturals not only develop more complexcultural representations, but also seem to develop increased cognitive complexity acrossdomains (Tadmor et al., 2009). These cognitive capabilities are necessary to understand theinstitutional elements and environmental impact of an individual’s venture creation decision(Lim et al., 2010). Urbano et al.’s (2011) Spanish case study concludes that sociocultural factorsaffect the development of transnational entrepreneurial activities. Consequently, a transnationalentrepreneur’s cognitive capabilities may facilitate the born global firm’s growth.

Collaborative entry mode and born global firms’ growthEntry mode decision is critically important for firms expanding aboard. Existing researchdocumented the influences of institutional and cultural factors on entry mode choice and firmperformance (Brouthers, 2013). Foreign market entry strategies affect post-entry growthperformance (Tan, 2009). Most recently, scholars suggested entry mode studies should considerthe evolution of operations resulting from the peculiar entry mode choice (Hennart and Slangen,2014). Collaborative entry mode constitutes an important organisational form for firms enteringoverseas markets (Gomes et al., 2011). For instance, collaborative arrangement can assist firmsto gain access to the required resources (Speckbacher et al., 2015). Furthermore, knowledgesafeguards and institutional safeguards influence foreign market entry mode choice of smalland medium-sized enterprises (Maekelburger et al., 2012). Hence, the influence of collaborativeentry mode on firm growth warrants serious scholarly investigation.

We subscribe to the growth as a process view (Leitch et al., 2010) and argue that byjuxtaposing the process perspective with institutional context, we can gain a nuancedunderstanding of born global firms’ growth as we consider the transnational entrepreneur’srole. During this growth process, collaborative entry mode plays a critical role for thefollowing reasons: the nature of born global firms to export products overseas, collaborativeentry mode may overcome resource constraints, and collaboration is conducive to managinguncertainty. First, born global firms generate income mainly through overseas marketoperation (Coviello, 2015). The nature of born global firms requests the intensive interactionwith overseas partners in operating and growing the business. The collaborative entrymode is associated with a dynamic characteristic, such as sellers and buyers interact witheach other over time (Narayandas and Rangan, 2004). Collaborative entry mode enables theborn global firms to dynamically observe and adapt their interactive relationships withoverseas partners. One recent study revealed that maturing technology-based born globalfirms can increase their chances of survival by acquiring other firms (Almor et al., 2014).

Second, born global firms normally possess limited resources as the firms began pursuingglobal strategy since inception, this can significantly constrain its entry mode choice. A recentstudy investigated the born global maturing process and found out the HRM practices of bornglobal firms evolved over time as the resource constraints changed (Glaister et al., 2014).Another study based on 700 SMEs in Germany revealed that SMEs tend to undertake acooperative approach in collaborating with other firms to cope with talent management inorder to overcome the resource constraints (Festing et al., 2013). Collaborative partnership,such as selling produces through distributors, can help born global firms to mitigate theinfluence of resource constraints. Third, due to the institutional differences between home andhost country contexts, a high degree of uncertainty may put additional obstacle for bornglobal firms. The dynamics and potential vulnerability of the supplier-buyer relationship mayfurther enhance uncertainty. A recent study found that entrepreneurs choose to establish andnurture collaborative partnership in managing uncertainty (Liu and Almor, 2016). Therefore,we argue collaborative entry mode may facilitate born global firms manage and navigatethrough institutional complexity in the pursuit of growth.

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Born global firms and institutional complexityThe institutional context constitutes a crucial factor for entrepreneurial and born globalfirms’ growth (Welter, 2011; Wright and Stigliani, 2013). Multiple competing institutionaldemands necessitate that organisations deploy appropriate responses when dealing withinstitutional complexity (Greenwood et al., 2011). Scholars have begun to explore actors’interaction with institutional complexity by examining institutional logics in action(Lounsbury and Boxenbaum, 2013), such as how individuals in hybrid organisationsrespond to competing institutional logics (Pache and Santos, 2013). Pache and Santos (2013),for example, use a comparative case study of four French work integration socialenterprises and find that they used selective coupling to navigate competing demands.Another study of entrepreneurs from China, Russia, France, and the USA notes theinfluence of institutional complexity on venture growth (Batjargal et al., 2013).

To capture institutional complexity, we focus on two important aspects that researchershave noted have a significant impact on born global firm’s growth: international networksand initial public offering (IPO). First, networking competences to develop alliances andcollaborative partnership with suppliers, distributors, and joint venture partners can assistborn global firms to overcome resource constraints to achieve rapid growth internationally(Freeman et al., 2006). The network development necessitates internal firm resources andentrepreneurial orientation, that in turn, facilitate the process of capturing the networkbenefits, such as tapping new opportunities, enhancing competitive advantages andlowering uncertainty and risk exposure for business to business born global firms(Sepulveda and Gabrielsson, 2013). However, there exists the export manufacturers’dilemma in international expansion, namely manufacturers need to develop stronger localmarket competence while minimising the cost of distributor opportunism simultaneously(Cavusgil et al., 2004; Wu et al., 2007). Hence, it is of significant importance to leverageexperiential network knowledge to enhance the value of business relationship in the foreignmarket (Hohenthal et al., 2014).

Furthermore, the transnational entrepreneur can play a key role in driving growth byleveraging his or her knowledge of the global market. One study articulated strategicre-structuring of born global firms using outward and inward-oriented activity by highlightingthe central role played by entrepreneur in driving born global firms strategy and growth(Freeman et al., 2013). Their exploration of the managerial mind-set of these smaller born globalfirms leads to the identification of four states of commitment to accelerated internationalisationby top management. Another study based on 107 Israeli born global firms indicates thatinternal factors, such as an entrepreneur’s market knowledge, can drive the long-termperformance of born global firms (Efrat and Shoham, 2012). Understanding the global marketand developing customer intimacy-based innovative products are associated with bornglobal firms’ enhanced performance (Mort et al., 2012). Therefore, we argue that transnationalentrepreneurs may leverage their bicultural experience in dealing with internationaldistributors by building trust and using international experience.

IPO constitutes another important factor to institutional complexity, because IPO inforeign market encounter institutional environment that may differ extensively from firm’shome country institutional environment. The effectiveness of born global firms to navigatedifferent institutional contexts affects their development and growth. IPO is an importantmilestone for firm growth, which arguably can be regarded as the indicator for firmmaturity (Almor, 2013). One study found out that firms that possess financial, innovational,and managerial slack resources are sending a positive signal to potential investorsregarding the quality of the IPO (Mousa and Reed, 2013). The challenges imposed by atransnational context require transnational entrepreneurs to be aware of diverseinstitutional, structural, and cultural factors, which can significantly affect born globalgrowth. Consequently, the entrepreneur’s ability to navigate through competing

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institutional demands can be crucial for born global firms’ growth trajectory. Therefore, weargue that transnational entrepreneurs can accelerate born global growth by their effectivemanagement of institutional complexity.

3. Research methodologyResearch contextWe chose born global firms in the Chinese solar PV industry as the context of our analysis.Although Chinese firms contribute significantly to the production side of the solar industry,global consumption is driven by developed economies, such as USA and Western Europeancountries. Specifically, a major driver is the “feed-in tariff” available in Germany and Spain, whichprovides incentives for consumers to install solar panels on their houses (Haley and Schuler,2011). China has become one of the most important players in the world for the solar PV industry.In 2009, it announced an ambitious goal of deploying 20 gigawatts of solar power by 2020, morethan the available total global solar PV capacity in 2008 (Solar Plaza 2009). As with many high-tech products in the renewable energy industry, solar companies produce a knowledge-intensivestandardised product for the global market. Considering that almost no domestic Chinese PVmarket exists, Chinese solar companies are good examples of born global firms, because theywere created to address global markets and have done so since their inception.

We chose Jiangsu Province as our geographic focus, because it has a high concentration ofsolar PV manufacturers, and Suntech Power, our primary source, was founded in Wuxi City,Jiangsu Province. Jiangsu Province is host to more than 50 solar PV companies, 70 per centcrystalline cell producers and 30 per cent thin-film producers. In 2009, six solar PV companiesfrom Jiangsu Province belonged to the top ten national cell production companies. Theircombined total cell production was 2,142 megawatts, occupying some 54 per cent ofnationwide capacity, 93 per cent of that in Jiangsu Province (Grau et al., 2012). Therefore, weselected four companies as our sample (see Table I) that largely represent the Chinese solar PVsector. They mainly produce solar cells and panels in the module-manufacturing phase.The four firms also support comparative purposes; they include born global firms founded bytransnational entrepreneurs (Suntech and Canadian Solar (CSI)) and their counterpartsfounded by domestic entrepreneurs (Trinasolar and Solarfun). This comparative approachenabled us to isolate the role of transnational entrepreneurs in born global development.

Qualitative research methodsScholars have emphasised the advantages of using a methodological pluralism approach inexamining born global firms (Coviello and Jones, 2004; Leitch et al., 2010). The nature of ourresearch questions suggests qualitative methods as the appropriate research methodology.We utilised a multi-method approach consisting of case studies (Eisenhardt and Graebner,2007;Welch et al., 2011), storytelling (Gartner, 2007), and content analysis (Krippendorff, 2012).Finally, we sought to reveal the underlying mechanisms and social dynamics by usingseveral complementary sources of data and methods of analysis (Vaara and Monin, 2010).

Founding conditions Growth

CaseCompanyname

Foundingyear

Organisationaltype

Country of transnationalentrepreneur

Productionlocation

Sales(d bn)a

1 Suntech 2001 Private Australia Wuxi 2.52 CSI 2001 Private Canadian Suzhou 1.33 Trinasolar 1997 Private Changzhou 1.54 Solarfun 2004 Private Qidong 1Note: aTotal sales in the 12 months 2010 December-2011 December

Table I.Founding conditions

and growthdevelopment of four

case companies

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The role oftransnationalentrepreneurs

Furthermore, prior research has emphasised the need to adopt a process perspective wheninvestigating entrepreneurship, to aid researchers in unpacking the complexities anddynamics that characterise entrepreneurial activities (Moroz and Hindle, 2012; Wright andMarlow, 2012). We suggest that adopting such a view, to investigate the growth of born globalfirms empirically, can contribute to the theoretical and empirical advancement of ourunderstanding of firm growth.

Case studies and international marketingQualitative research method is valuable for theory development in the field of internationalmarketing. As acknowledged by marketing scholars, the marketing practices in emergingmarkets may challenge the assumptions of received body of knowledge (Sheth, 2011).The international marketing strategy of emerging market firms might pursue differentstrategy against the conventional wisdom (Vrontis, 2003; Vrontis et al., 2009). Therefore, it isof significant importance to explore the emerging phenomenon and to examine theboundary conditions of extant theory when investigating emerging markets firms by usingcase studies (Siggelkow, 2007). A recent systematic review of qualitative internationalmarketing – focussed publications in International Marketing Review from 1990 to 2010highlighted the value of qualitative research for advancing theory in the field ofinternational marketing (Andriopoulos and Slater, 2013).

Narratives and storytelling interviewsAs a research method, storytelling carries particular advantages for studying complex,dynamic organisations and management topics. Qualitative in-depth interviews with keyactors can provide insightful information (Eisenhardt and Graebner, 2007), beyond what canbe extracted from the documentary data. Storytelling interviews offer the possibility ofuncovering hidden information. For example, one research project uses storytelling toexamine the institutional change dynamics of an Israeli high-tech firm after the bubble(Zilber, 2006, 2011). The temporal dimension awaits in-depth empirical investigation ininternational entrepreneurship, particularly in the context of emerging economies (Kisset al., 2012). In addition, we use the storytelling research method that is suitable to studyingcomplex and dynamic organisation and global marketing topics (Liu Xing and Starik, 2012).Narrative and storytelling are both useful, effective methods to unpack contextual factors,thus contributing to the advancement of entrepreneurship research (Short et al., 2010).

Data collection and analysisWe collected our primary and secondary data as part of a broader research project on theChinese solar industry, technology entrepreneurship, and institutions. We opted to focus onfour born global firms that had reached maturity, as manifested by their overseas IPO.We collected the primary data through personal and professional networks and several coldcalls based on desk research. In fall 2008, we interviewed three researchers working atvarious institutions in the USA and China as a pretest to refine research questions. FromAugust 2010 to August 2011, we conducted face-to-face, in-depth interviews with high-techsolar entrepreneurs, managers, and directors from a range of energy associations andprofessional service firms.

Next, in September 2011, we conducted additional interviews at the 26th European PVSolar Energy Conference and Exhibition, an international solar PV trade fair andsymposium held in Hamburg, Germany. In total, we conducted 32 in-depth interviews withsolar entrepreneurs, industry association representatives, research institute scholars, andprofessional service firm managers. Throughout the data collection, we sought to discussthe interviews and observations that formed the basis of our data. This sharing process

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allowed us to adjust our inquiry directions and hone interview techniques continuously.We ended the primary data collection when additional interviews did not engendersignificant new insights with respect to our research questions (Yin, 2003). Table II displaysinformants included in this study in a role-ordered matrix (Miles and Huberman, 1994).

The interviews were recorded and transcribed. We structured and analysed them usingthe software tool NVivo 9. During this process, NVivo 9 facilitated the organisation of thedata and the process of data analysis to enhance the trustworthiness of qualitative research(Sinkovics and Alfoldi, 2012).

We used a semistructured guideline that consisted of three main sections: theinstitutional environment regarding energy policy, renewable energy in particular; theSuntech story and related anecdotes; and the regional policy on technologyentrepreneurship. The interview questions were developed based on theoretical literaturereview, in particular the previous studies in transnational entrepreneurship, collaborativepartnership, and born global firms. In addition, we also develop questions based on thecontextual situation and industry specific factors, namely emerging economies andrenewable energy industry. We drew the secondary data from archives such as companyannual reports, media articles in national and international press, and governmentaldocuments to triangulate our data analysis based on primary data collection. Mostimportant, the annual reports of the four case firms from 2006 to 2011 were accessedthrough United States Securities and Exchange Commission and systematically analysed.Furthermore, we collected industry policy reports and regulatory documents from 1997 to2010 related to renewable energy and solar PV at both regional and national levels. We usedcontent analysis (Krippendorff, 2012) to evaluate these secondary sources.

4. FindingsWe present our findings and report on the empirical evidence with a focus on the growthdevelopment of born global firms via collaborative partnership. First, we shed light on therole of the transnational entrepreneur on born global growth, according to technologicalknowledge, international knowledge, and social capital. Second, we analyse born globals’responses to institutional complexity and elucidate how the transnational entrepreneursmanaged institutional complexity to achieve born global maturity.

The transnational entrepreneur’s role in born global growthAs a high-tech sector, the solar PV industry involves advanced technological knowledgeand complex manufacturing and production processes (Haley and Schuler, 2011).For example, to create the polysilicon production chain, various technology firms arerequired to cover the whole production spectrum, ranging from upstream to modulemanufacturing to downstream.

Our analysis shows that transnational entrepreneurs play a critical role in carryingthe advanced technological knowledge needed for born global firm development.Australia’s advanced development in the solar energy sector has made it a major source of

Informants China EU PVSEC, Germany

Solar energy firm 11 9Privately owned (8) (6)State-owned (3) (3)

Energy research institute 2 1Energy association 2 2Professional service firm 4 1

Table II.An overview of

interview informants

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technological knowledge. Solar born global firms are heavily influenced by Australianfirms and research institutes through transnational entrepreneurs who carried thetechnology and know-how beyond geographical boundaries. One important example wasSuntech Power, whose founder and chief executive officer (CEO) Dr Shi conductedresearch at the University of New South Wales in Australia and gained industrialexperience by working for the Australian company Pacific Solar. Equipped with in-depthknowledge and rich experience in solar technology, Dr Shi founded Suntech in 2001 inWuxi, China, and commercialised his solar energy technology.

Research has documented the significant impact of transnational entrepreneurs inhigh-tech industry development. The knowledge circulation of transnational entrepreneursfrom Silicon Valley to periphery economies such as Israel and Taiwan has helped theseeconomies become successful technology centres (Saxenian, 2007). One study on theemergence of the information and communications technology industry sectors in emergingeconomies underscores how returning entrepreneurs played an important role in theexpansion and growth phase of the industry after indigenous entrepreneurs and policymakers had laid the groundwork for the industry (Kenney et al., 2013). Our analysisresonates with this line of argument, emphasising the role of transnational entrepreneurs indeveloping and growing born global firms in the solar PV industry.

The second important dimension is the international knowledge that the transnationalentrepreneur possesses. Although local scientists and private entrepreneurs established thefirst few solar energy firms in China in the late 1990s, our analysis revealed that it was notuntil transnational entrepreneurs arrived that the Chinese solar PV firms realised the rapidgrowth path as born global firms. An early solar PV firm, Trinasolar, was founded in 1997,during which time the solar energy sector was merely stimulated by the central government’spolicy push. The chair of China’s renewable energy industry association related:

In the [late 1990s], there was no market for solar panel. It was Chinese central government thaturged using renewable energy to solve non-electrification issues in the remote areas. For example,the first such project, the “Brightness Project Program,” was launched in 1997 by the state, andTrinasolar was involved.

In addition, international organisations such as the World Bank and the United Nationscollaborated with the Chinese government to initiate several flagship solar energy projectsin China (Kirkegaard et al., 2010). Only a few solar PV firms existed in 1990s. Transnationalentrepreneurs stimulated the creation of born global solar PV firms and consequently rapiddevelopment, due to the wide spread of international knowledge about the global market.

Tim, the founder of a privately owned PV solar firm, shared his reasons for choosing toenter the PV solar industry in 2006:

We are a private-owned family business specialising in mechanical equipment. We entered [the]solar sector mainly because of two reasons: (1) solar is an emerging industry with a promisingfuture as demonstrated by Suntech and the global market, [and] (2) we are able to find qualifiedpeople. Suntech alike the Huangpu military college [Chinese version of West Point] in the PV solarindustry offers [a] talent pool that we can recruit from.

Transnational entrepreneurs not only spread international knowledge about the globalmarket but also generated a positive spillover effect on domestic firms, encouraging them todevelop into global firms. In summary, transnational entrepreneurs and their internationalknowledge play a vital role in technology industries’ global expansion and makeincreasingly important contributions to economic growth and development.

The third important dimension in the development of born global firms is social capital(Coviello, 2006; Presutti et al., 2007). Although compared with domestic solar firms,transnational entrepreneurs may not have the local social capital to acquire resources, theirinternational social capital can be leveraged (Liu Woywode and Xing, 2012). When there is

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almost no market demand, government plays an important role in cultivating a new high-tech industry (Spencer et al., 2005). In the solar PV industry, even though no market demandexisted in the early stage, transnational entrepreneurs convinced the local government toprovide it with crucial resources. The case of CSI is a typical manifestation of howtransnational entrepreneurs leverage government policy to develop born global firms.During the same time frame as Suntech, Mr Qu, the founder and CEO of CSI, led his solarenergy team from Canada back to China in 2001. Although CSI was registered in Ontario,Canada, the production site was located in Suzhou City, Jiangsu Province. Mr Qu shared hisstrategy for receiving governmental support:

A solar company needs a large production site and infrastructure. When we decided to come back, welooked for the place that could offer good conditions. Finally, we chose Suzhou due to the infrastructureand investment atmosphere. The local government favours [foreign direct investment (FDI)], andwe told them that we are a foreign firm and there was huge market potential for solar energy in thefuture. The government support helped us a lot, because we don’t have guanxi at our disposal.

Stories and narratives are leveraged by transnational entrepreneurs as effective tools to acquireresources and endorsement (Martens et al., 2007; Zott and Huy, 2007). Prospective marketpotential invites entrepreneurs and important stakeholders to collectively make sense of newtechnology and surrounding opportunities. Our analysis indicated that the government supporthelped compensate for the lack of social capital for transnational entrepreneurs in developingborn global firms. We extend the line of argument of social capital for born global development(Zhou et al., 2010) by noting that transnational entrepreneurs can leverage their internationalconnections in the development of born global firms.

Born global responses to institutional complexityOur analysis indicated that transnational entrepreneurs’ response to institutionalcomplexity can facilitate the rapid growth of the born global to maturity. We found thatentrepreneurs were able to circumvent institutional complexity to their advantage.

The takeoff of the Chinese solar PV industry was driven by global demand. Europeancountries had great need for solar energy as a direct result of policy incentives, such as thefeed-in tariff in Germany. New installations of solar PV reached a global record of7.2 gigawatts in 2009; Germany alone had 3.8 gigawatts of new capacity, which accountedfor more than half of the global market (Kirkegaard et al., 2010). The founder of a solarequipment trading company explains:

The Chinese solar PV sector is like “two heads outside,” which are upstream and downstream. Theupstream head outside is the ingot materials that manufacturers need to produce cell and panel.The downstream head outside of China is the demand. The Chinese players essentially play the roleas manufacturer of cells and panels for the global solar energy market.

This global market demand as a key driver for born global firms’ rapid growth wasmanifested in the development trajectory of the international sales of the four companies westudied. As shown in Table III, the international market constituted the majority of totalrevenue for all four.

2004 (%) 2005 (%) 2006 (%) 2007 (%) 2008 (%) 2009 (%) 2010 (%) 2011 (%)

Suntech 92.2 75.0 78.3 98.1 90.3 95.5 94.7 88.2CSI 98.9 97.2 79.4 97.8 96.4 95.9 97.0 93.2Trinasolar 91.9 96.9 90.7 97.9 96.3 97.1 96.2 92.9Solarfun n/a 79.8 94.3 91.6 93.4 95.3 92.1 90.7Note: Author’s analysis based on firm’s annual reports

Table III.International salesof total revenues

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The role oftransnationalentrepreneurs

Given the importance of the global market demand, born global firms encounterinternational distributors when they embark the internationalisation journey. Tom, seniormanager of a major solar company, elaborated the driver for growth:

We sell our products outside of China primarily to distributors, such as solar distributors, engineeringand design firms and other energy product distributors. In 2006, SolarWorld AG was the onlycustomer whose purchases accounted for 10.0% or more of our total net revenues for the year.

Our analysis shows that solar energy firms work with a relatively small number ofdistributors that have particular experience in a given geographic or applications marketsegment. Therefore, dealing with international distributors effectively characterises the natureof rapid growth. Collaborative partnership with distributors requests the process of trustbuilding and mutual understanding between cooperation partners (Cavusgil et al., 2004).Networking capability facilitates identification and exploitation of appropriate distributors.In so doing, born global firm international market performance can be significantly affected.

Transnational entrepreneurs can leverage their international experience in identifying andstrengthening distributors. William, Marketing Director of pan-European market, shared:

We proactively expand our distribution channels by selectively adding distributors. In summary,we believe that our relationships with our distributors enable us to, firstly leverage the marketingand distribution and after-sales service capabilities of other companies, secondly exploreopportunities for additional product development, last but not least more easily, quickly andcost-effectively enter new geographic markets, and attract new customers.

This shows the importance of collaborative partnership with distributors accelerated the bornglobal firms’ growth. Our analysis extends the findings of born global firms as an appropriateand novel context to advance entrepreneurial marketing research (Mort et al., 2012).In particular, our study highlights the central role played by entrepreneur in driving bornglobal growth. Comparatively, transnational entrepreneurs are better equipped with theinternational experience and knowledge to networking with distributors. Our results resonatewith a recent study that emphasised the international experience of its key decision-maker inthe internationalisation of SMEs (Child and Hsieh, 2014). Following Almor’s (2011, p. 203)definition of mature companies as “companies that started out as born global companies, andare currently traded on international stock exchanges”, we used overseas IPOs as an indicatorof the maturity of born global firms. Transnational entrepreneurs’ understanding ofinstitutional contexts facilitates born global maturity by addressing global markets whilefollowing the market function. Mr Qu, CEO of CSI, shared his thoughts:

To compete in the global marketplace, we have to follow the global “rules of the game.” Ourinternational experience and understanding on the global market helps us. For instance, during ourIPO, we choose Nasdaq instead of [the New York Stock Exchange (NYSE)] because we [felt] thatour high-tech profile and growth potential fit Nasdaq better.

Our analysis of primary data based on 32 interviews largely support Mr Qu’s statement: to agreat extent, the transnational entrepreneur determines the rapid maturation of born globalfirms, specifically, those with overseas IPOs. Interestingly, there was an isomorphic effectamong born global solar firms with respect to IPOs issued in overseas stock exchanges.Suntech’s IPO at the NYSE in December 2005 signified the first Chinese solar energy firmthat went public in a leading overseas stock exchange. This landmark event stimulatedother solar PV firms to initiate overseas IPOs. Moreover, a positive legitimacy spillovereffect among born global firms can be observed in the response to the global capital marketsentiment. Table IV notes the time and place of other solar PV firms’ IPOs.

The comparative analysis in Table IV highlights the variations among born global solarPV firms. Transnational entrepreneurs possess technological knowledge, internationalexperience, and international social capital. In comparison, domestic entrepreneurs are

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relatively lacking in terms of advanced technological knowledge and international experience.Therefore, recruiting talented employees from transnational entrepreneur-led born globalfirms could help domestic entrepreneur-led born global firms compensate. Such employeemobility and resource interaction affects the development and growth of born global firms.

In responding to institutional complexity, transnational entrepreneurs’ cognitive capacity tocomprehend global demand and market function facilitates the rapid growth and maturity ofborn global firms. According to the two aspects of institutional complexity, building overseasdistributors network require the entrepreneurs of born global firms to leverage theinternational experience to achieve foreign market familiarity (Schwens and Kabst, 2011).Furthermore, the individual experience ( Jones and Casulli, 2014) of transnational entrepreneursis largely attributed to the rapid growth of born global firms by collaborating with distributors.Our findings lend support to a previous study that compares international new ventures,exporters, and domestic firms and concludes that managerial cognition affects a newventure’s speed of internationalisation (Acedo and Jones, 2007). From foreign IPO perspective,Suntech’s early born global overseas IPO generated a positive legitimacy spillover effect onsubsequent overseas IPOs. Hereby, the transnational entrepreneurs pave the way by setting upa growth model that can be emulated by follow-up domestic entrepreneurs in pursuing rapidgrowth path. Therefore, we argue understanding and responding to institutional complexitysuch as the global market demand for export and the capital market, drives the rapid growth ofborn global firms. Adhering to the global market rules highlights the importance of born globalfirms responding to institutional complexity.

5. DiscussionA multilevel model for born global firms’ growth to maturityFigure 1 presents our multilevel model, which shows the influences of institutionalcomplexity, collaborative entry mode, and the transnational entrepreneur on a born globalfirm’s growth. We have adapted the analysis framework for the growth of maturing bornglobal firms that are jointly influenced by institutional complexity and the transnationalentrepreneurs’ responses to competing institutional demands. From a process perspective,born global firms are founded by transnational entrepreneurs who have technologicalknowledge and the goal of commercialising the technology. If the market potential exists,transnational entrepreneurs can navigate through institutional complexity to takeadvantage of it. Given the nature of born global, born global firms largely rely ondistributors to reach out the global market. This growth pattern can be named as growth bycollaborative entry mode.

Entrepreneura Institutional complexityBorn globalmaturity

CaseCompanyname

Technologyknowledge

Internationalexperience Social capital

Policy andregulation Marketb IPO time

IPOplace

1 Suntech Transnational Australia International Gov.invest

Firstoverseas IPO

2005 Dec NYSE

2 CSI Transnational Canadian International FDI case First NasdaqIPO

2006 Nov Nasdaq

3 Trinasolar Localscientists

Lack Local Gov.project

Follow-upIPO

2006 Dec NYSE

4 Solarfun Spin-over Lack Local/international

– Follow-upIPO

2006 Dec Nasdaq

Notes: aCases 1 and 2 are transnational, whereas cases 3 and 4 are domestic; bglobal market demand and marketfunction

Table IV.Comparative analysison entrepreneur and

institutionalcomplexity’s

influences on bornglobal development

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The role oftransnationalentrepreneurs

When the global market demand emerges, established born global firms can quickly seizethe looming market opportunity by leveraging transnational entrepreneurs’ internationalexperience. In nurturing the rapid maturation of born global firms, the international socialcapital of transnational entrepreneurs plays a crucial role in speeding this process throughcollaborative partnership. Market function takes over as the major determinant during thegrowth phase. The global market function and market demand become the majordeterminants as the born global firm reaches maturity. During the growth process,collaborative entry mode plays a crucial role to speed up the born global firms’ growth tomaturity. As illustrated in Figure 1, collaborative partnership helps transnationalentrepreneurs comprehend the institutional complexity from partners, such as distributors.The collaborative entry mode underpins the growth process of born global firms’ inceptionthrough to maturity. The IPOs in overseas stock exchanges illustrate that the transnationalentrepreneurs fully comprehended the market dynamics and “rules of the game” in theglobal market. Consequently, overseas IPOs can accelerate the rapid growth path of bornglobal firms. Our model lends support to the study on the emergence of information andcommunication technology industry sectors in emerging economies, which notes thatoverseas entrepreneurs play an important role in the expansion phase of the industry afterindigenous entrepreneurs and policy makers had laid its groundwork (Kenney et al., 2013).

Our model describes the challenges born global firms face and emphasises theimportance of managing institutional complexity as maturing born global firms enter therapid growth path. Transnational entrepreneurs, as bicultural individuals with complexcognitive capacity (Zahra et al., 2005), are able to accommodate the sophisticatedinstitutional contexts – specifically, the crucial areas of global market demand. Moreimportant, the process model underscores the dynamic responses of transnationalentrepreneurs to institutional complexity. When operating in the global market, the global“rules of the game” have important bearing on the growth path of born global firms. Whenentering the maturity phase, born global firms participate in the worldwide capital market.Overseas IPOs are a manifestation of the maturity of born globals. In essence, the dynamicdevelopment trajectory of born global firms requires that transnational entrepreneurs beable to discern the differences and leverage the institutional complexity accordingly.Therefore, our model elucidates the multilevel interactions, namely, the institutional levelinfluences on an organisational-level born global firm’s development through individual-level transnational entrepreneurs.

Theoretical implicationsOur findings contribute to the increasing body of research on how born global firms growand mature (e.g. Almor, 2011) by: taking a process perspective from born global growth to

Founding of born globalfirms

• Global market demand

• Global capital market

Transnationalentrepreneurs

Maturity of born global firms

Growth process

Institutional complexity

Navigate institutional

complexity

Transnationalentrepreneurs

Leverage institutional

complexity

Collaborativeentry mode

Figure 1.A multilevel modelof maturing bornglobal growth

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maturity, and examining the role of the individual entrepreneur in the growth viacollaborative entry mode and responses to institutional complexity of the born global.Our findings reveal that the transnational entrepreneur’s ability to navigate and leverageinstitutional complexity is a key factor in determining the growth and maturity of bornglobal firms. Our research also closely examines individual entrepreneurs (Yeung, 2002) andtheir role, knowledge, network, and cognitive ability. Our research contributes totransnational entrepreneurship by articulating the biculturalism and cognitive ability oftransnational entrepreneurs that enables them to circumvent constraints and overcomeinstitutional complexity. Our findings suggest that highlighting entrepreneurs whenexamining the born global phenomenon can engender a nuanced, contextualisedunderstanding of the growth and maturity of born global firms.

Our research contributes to the literature stream on collaborative entry mode by focusingon the born global firms’ growth and the influence of collaborative entry mode on growth.Building upon the most recent collaborative entry mode studies, our study extends thisresearch stream by investigating the born global entrepreneurial context and howcollaborative entry mode can be conducive in reducing the resource constraints of bornglobal firms. Our findings lend support to a recent study on collaborative partnership forSMEs from advanced economies venturing into emerging economies (Stokes et al., 2016).Importantly, our study on the role of transnational entrepreneurs in navigating through theinstitutional complexity for accelerating firms’ growth adds useful theoretical articulationand empirical support from a behavioural perspective. Importantly, our qualitative researchaims to generate theoretical generalisability (Tsang, 2014) that can shed some light onfuture scholarly investigation by delivering theory building endeavour. Theoreticalgeneralisation carries the explanatory power of being across the empirical and theoreticallevels (Tsang and Williams, 2012).

In addition, our research makes a contribution to broader literature on institutionalcomplexity by empirically examining individual responses and strategies for coping withmultiple institutional logics. Our findings add to understanding of the notion of“institutional logics as strategic resources” (Durand et al., 2013). Most institutional logicliterature discusses organisational responses (Greenwood et al., 2011); very few studiesempirically investigate the individual’s response. Therefore, our research is among the firstto identify the role of the transnational entrepreneur’s response to institutional logics in thecontext of the born global phenomenon. Moreover, we provide empirical evidence that thetransnational entrepreneur can manage institutional complexity in born globaldevelopment. Our findings emphasise the joint influences of individual and institutionallevel factors in enabling the growth of born global firms as they mature.

Recent research has begun to emphasise the importance of multicultural employees andtheir contribution to organisations (Fitzsimmons, 2013). Our study extends this line ofreasoning by offering empirical evidence and a contextualised understanding ofmulticulturalism in examining transnational entrepreneurs and born global development.By examining the individual entrepreneur’s role and the responses of the transnationalentrepreneur to institutional complexity, we extend prior work on born global growth andprovide a framework within which future researchers can extend the body of knowledge onborn global growth. Our study reveals the importance of transnational entrepreneurs inmanaging the institutional complexity by leveraging their bicultural advantages andcomplex cognitive capabilities.

Managerial implicationsThis study has several implications with respect to international business and policymaking. Transnational entrepreneurs who found born global firms in the high-tech sectorhave become an emerging force in global competition against multinational enterprises

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(Isenberg, 2008). These entrepreneurs’ global network, industry knowledge, andinternational experience enable them to move technology and know-how acrossgeographical boundaries (Drori et al., 2009). In capitalising on the knowledge-intensive,high-tech market globally, transnational entrepreneurs become disruptive forces thatleverage emerging economies’ advantages, beyond cost leadership. Therefore, werecommend that both incumbent and entrepreneurial firms in developed economiescollaborate with transnational entrepreneurs in various business areas. As our findingsindicate, transnational entrepreneurs are prepared to utilise collaborative partnerships toaccelerate born global firms’ growth. Bearing in mind that transnational entrepreneursfollow the global rules of the game, industry firms may be able to cooperate on product andmarketing development, and professional service firms can offer services to expand bornglobal firms further.

Regarding policy recommendations, in the aftermath of the 2008 economic crisis,the worst depression since the 1930s, governments have begun to directly interfere inthe economic sphere, whether reluctantly or intentionally. Profiting from such interactionrequires some flexibility in the political arena. It is a daunting challenge to navigatethe cross-sector partnerships (Koschmann et al., 2012). Transnational entrepreneurs’ skillin doing so, particularly in interaction with government, highlights how anentrepreneurship policy might be nurtured amid the migration of institutional logicfrom FDI driven to talent oriented. The entrepreneurial policy in attracting returnee talentto found entrepreneurial ventures and born global firms delivered initial success inmanaging global talent (Wang and Liu, 2016). Our study can shed some light on effectivepolicy making and implementation for other countries to initiate entrepreneurship policyand cultivate new high-tech industries that eventually could change the globalcompetitive landscape.

Limitation and further research directionsAs with any study, our study has several limitations. First, it is an explorative studywhose purpose is to answer the “how” question. Thus, generalising our findings must beapproached with caution. Second, our empirical setting is born global firms in China, atransition economy with continuing change and influx from an institutional perspective.Researchers could further validate our findings in other contexts, both emerging anddeveloped economies, following the comparative international entrepreneurship approach(Terjesen et al., 2016). Third, though we believe the explanatory power of our multilevelmodel, which captures cross-level effects and joint influences, is strong, another multilevelmodelling approach (Shepherd, 2011) might be used to test our framework. As for futureresearch directions, we encourage scholars to empirically test our conceptual model.Future researchers might operationalise our model via empirical research by measuringthe degree of institutional complexity and influence of collaborative entry mode on bornglobal firms’ growth.

We took a process perspective by examining the growth and maturity of born globalsthrough collaboration; our focus on the role of transnational entrepreneurs highlightedentrepreneurs’ sensitivity to institutional context along the growth trajectory. By focusingon the relationship between contexts and entrepreneurship (Autio et al., 2014), ourconceptualisation might be further advanced if entrepreneurial behaviours from a strategicperspective were further integrated, in line with recent encouragement that strategic agility(Weber and Tarba, 2014) might offer the impetus in the pursuit of a high growth pathwayfor born global firm. Taking our study as a departure point, we encourage scholarly inquiryto pay close attention to micro-processes, which could further advance both academicscholarship and management practice and facilitate a nuanced, contextualisedunderstanding of the complexity of the born global phenomenon.

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6. ConclusionThis paper addresses how transnational entrepreneurs grow born global firms to maturity.We illustrate transnational entrepreneurs’ responses to institutional complexity. Our studyunderpins the idea that coping with institutional complexity is important for born globalfirms along a process perspective. In our framework of growth development for maturingborn global firms, the dynamic process is triggered by the interaction between transnationalentrepreneurs and institutional complexity. We thus highlight the importance oftransnational entrepreneurs who grow born global firms by navigating and leveraginginstitutional complexity. The case studies and narrative evidence of born global solar PVfirms support our conceptualisation and argument.

Our study contributes to the understanding of the growth and development of born globalfirms in several ways. First, we shed light on the important role of transnational entrepreneursthroughout the growth and development stages of born global firms via collaborative entrymode. In particular, our findings support the importance of the transnational entrepreneur ingrowing born global firms and offer a nuanced understanding of the influences of institutionalcomplexity and transnational entrepreneurs’ responses to them. Second, we provide insightsinto the different roles of, as well as the interplay between, transnational entrepreneurs andinstitutional complexity – namely, transnational entrepreneurs navigating through andleveraging institutional complexity to develop born global firms.

We hope this study inspires scholars to further investigate this line of inquiry ontransnational entrepreneurs and born global firms. In particular, our tentative multilevelmodel is an attempt to elucidate the interplay across multiple levels and serves as adeparture point for further theoretical refinement and empirical analysis. Furthermore,transnational entrepreneurs’ technological knowledge, know-how, and internationalexperience offers strong collaboration opportunities with both new ventures andincumbent firms in today’s fast-changing, hypercompetitive, and interconnected world.

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Corresponding authorYipeng Liu can be contacted at: Y.Liu.8@bham.ac.uk

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Barriers to enter inforeign markets: evidence

from SMEs in emerging marketMahfuzur Rahman

Lincoln Business School, University of Lincoln, Lincoln, UKMoshfique Uddin

University of Leeds, Leeds, UK, andGeorge Lodorfos

Leeds Business School, Leeds Beckett University, Leeds, UK

AbstractPurpose – Foreign market entry is considered as a key strategy to grow and survive over longer periodof time for small and medium enterprises (SMEs). The decision to enter a foreign market is not astraightforward story. Considering resource limitation, SMEs need to analyse the key barriers to entryin foreign markets very carefully. The purpose of this paper is to identify these barriers for the SMEs ina developing country.Design/methodology/approach – This study has used primary data collected through questionnairesfrom 212 Bangladeshi SMEs. A mixed method data analysis technique is used to analyse the firms both frommicro- and macro-levels. Following the running example-based case study approach, this study hasdeveloped and validated a partial least square-based structural model to assess the key barriers to entryin foreign markets.Findings – This study has identified the key socio-economic barriers faced by the SMEs in a developingcountry to enter in foreign markets. It has successfully framed the socio-economic barriers to enter in foreignmarkets for Bangladeshi SMEs as a second-order hierarchical model.Originality/value – It is often believed that foreign market entry is more affected by social barriers asexplained by the existing theories including the Uppsala model. This study, however, revealed that theinternational market expansions of SMEs in developing countries are more sensitive to the economic barriers.Keywords Bangladesh, Emerging markets, Internationalization, Market entry,Small-to-medium-sized enterprisesPaper type Research paper

IntroductionThe economic development and sustainability of growth both for developed and developingcountries depend primarily on small and medium enterprises (SMEs), which play a key rolein generating income, creating employment opportunities and even reducing poverty(Ayyagari et al., 2011; Cravo et al., 2012). Therefore, the factors that hinder or limit thegrowth of SMEs are considered as the most significant constraints for the economicdevelopment for those countries (Olawale and Garwe, 2010; OECD, 2004; Syed et al., 2012).Common barriers to growth of SMEs may include limited access to finance, lack ofexperience, shortage of skill, competition, inability to use advanced technology, improperrecord keeping and lack of knowledge. Due to these barriers, a large number of SMEs fail togrow or even survive regardless of the size of economy (Hulbert et al., 2013). For example,the studies on the SMEs from the context of USA, UK and Australia identified that almost80-90 per cent of SMEs fail within the first ten years due to the external barriers to growthand the lack of positive entrepreneurship traits, such as lack of commitment, limitedknowledge, deficiency of willingness and absence of flexibility (Zimmerer et al., 2008;Hodges and Kuratko, 2004; Khalique et al., 2011). Similarly, the failure rate of SMEs inMalaysia is roughly 60 per cent (Ahmad and Seet, 2009), in South Africa 75 per cent

International Marketing ReviewVol. 34 No. 1, 2017pp. 68-86© Emerald Publishing Limited0265-1335DOI 10.1108/IMR-10-2014-0322

Received 6 October 2014Revised 15 July 201530 September 2015Accepted 1 October 2015

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(Fatoki and Asah, 2011) and in Pakistan 90-95 per cent (Khalique et al., 2011). There are anumber of different strategies that SMEs are following in order to avoid failure, for example,geographical expansion both at domestic and international level, introducing new relatedand unrelated products, product improvement, offering customer loyalty programme andtaking initiatives for the acquisition of new clients (Navarro et al., 2012). Among these,geographical expansion in overseas markets has been pointed out as one of the mostpopular options for SMEs to enjoy both short- and long-term economic benefits (Peng andDelios, 2006; Pangarkar, 2008). However, foreign market entry is prone to a number ofbarriers that need careful attention (OECD, 2006; Pangarkar, 2008; Sokfa and Zimmermann,2008). For example, Musteen et al. (2010, p. 197) have highlighted the inability of SMEs tocope with the additional risk (such as, maintaining international standards, following thelegal procedures both at home and abroad, facing the international competition, etc.) in theoverseas markets due to insufficient resources. These additional sources of risk makethe SMEs’ foreign market entry more challenging.

The key motivation of this study is to investigate the barriers that SMEs face whiletrying to enter into foreign markets. Although previous studies have identified barriers ofinternationalisation for different countries, they may not be applicable to the developingeconomies as the majority of those studies are focussed on the North American or EuropeanSMEs (Bruton et al., 2008). Socio-economic aspects of the developed countries are differentfrom the developing countries. Therefore, generalising these developed countries’experience to deal with the developing countries situation would be misleading (Milanzi,2012). Therefore, it is imperative to conduct further research on SME foreign market entrybarriers using samples from developing countries. Even generalisation of entry barriersamong the developing countries may sometimes be difficult as Leonidou (2004) has pointedout that two businesses operating in two different developing countries may face differenttypes of barriers to entry into foreign markets. This study collected data from a set of SMEsin Bangladesh. Selection of Bangladesh as the sample developing country is due to itsdependence on SMEs as a major source of economic growth. Ahmed et al. (2011) reportedthat 82 per cent of the Bangladeshi labour force is working in different SMEs across thecountry. Bangladesh has huge potential to become one of the leading exporters of productsmainly produced by SMEs and the economic growth of the country is comparable to Indiaand China (Ahmed et al., 2011). O’Neill (2013) pointed out the potential of Bangladesh tobecome world’s leading emerging market. However, due to lack of appropriate empiricalresearch to identify relevant international market entry barriers for the SMEs inBangladesh, potential entrepreneurs from this country might have incorrect or insufficientinformation about the potential challenges to face while entering into foreign market.Therefore, identification of the international market entry barriers for Bangladeshi SMEs inthis study is certainly a timely response. Moreover, the foreign market entry barriersidentified in many of the previous studies might be inconsistent due to the use of relativelyweak methodologies (Arteaga-Ortiz and Fernández-Ortiz, 2010). Building on previousstudies, a model on the factors that hinder the SMEs to expand internationally has beendeveloped and validated in this study.

Literature reviewForeign market entry pathwaysForeign market entry is a dynamic international marketing paradigm whose applicationsare constantly expanding (Hallbäck and Gabrielsson, 2013). The extant literature identifiesvarious entry modes with diverse dimensions based on the backgrounds, assessmentcapabilities and market orientations of owners and managers (Prange and Verdier, 2011;De Clercq and Zhou, 2014). In addition, the timing of entry, business environments andnon-equity forms of control also play a pivotal role in the selection of market entry strategy

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(Nielsen and Nielsen, 2011; Zhou et al., 2012). Although there are number of studies, theunderstanding on different entry modes and their implications are still under explored incomparison to the significance. The choice of entry mode plays a very important role indetermining the future international market operations of the firms (Brouthers, 2013;Casillas et al., 2012). Therefore, owners and managers need to be responsive about thedifferent entry modes available to the firms in the context of the operating environment( Javalgi et al., 2011). In the context of SMEs, there are three dominating pathways – steadyway to enter in foreign markets as explained by the Uppsala model, rapid way to enter inforeign markets as clarified by born global and radical but late as evidenced by born-againglobal firms (Olejnik and Swoboda, 2012).

Steady or gradual pattern to enter in foreign market is applicable both for MNEs andSMEs (Sui et al., 2012). According this pattern of foreign market entry, firms start theirbusiness in their home country and then gradually expand to the international market in avery sequential manner (Vahlne and Johanson, 2013). During the growth stage, firms awareof some particulars of a foreign market that may have an impact during and after enteringin the foreign markets. These factors are related to the culture, languages, political systemsand level of industrial development ( Johanson and Wiedersheim-Paul, 1975; Yeoh, 2011;Papadopoulos and Martín, 2011). A rapid way to enter in foreign market or born global orglobal start-up is a more recent approach of international marketing theory which has beenstudied for over a decade and is still evolving (Efrat and Shoham, 2012). This approachaims to facilitate firms entering into international markets or even the global marketright from their birth and does not seem to follow any kind of stages. Various terms are usedto describe this internationalisation process by the scholars. These are “born global”(Hashai, 2011; Cannone and Ughetto, 2014), “global start-ups” (Oviatt and McDougall,1995), “no pattern” (Mockaitis et al., 2006), and “international new venture” (Coviello, 2006;Ripollés et al., 2012). In some research this is also regarded as “another type” of SMEinternationalisation (Larimo and Rumpunen, 2007). Another pathway to enter into foreignmarkets particularly suitable for SMEs is established by Bell et al. (2001). According to thispathway, some companies suddenly enter foreign markets after becoming well establishedin the home market. Due to a sudden incident, event or resource, a firm can becomecommitted to entering foreign markets. This pathway is introduced as born-again global asthe firms normally get this change through the changes in ownerships and managements(Olejnik and Swoboda, 2012). In fact, the condition of the markets (stable or unstable) mightalso influence the entry modes significantly (Figueira-de-Lemos and Hadjikhani, 2014;Alexander et al., 2011). In summary, some SMEs enter in foreign market in a gradualprocess, some other firms become global from the very beginning and the other types offirms are operating in the home market for long time but enter in the foreign market allof a sudden.

Barriers to enter in foreign marketsEconomic barriers. Economic barriers are the institutional barriers in general and politicaland legal constraints in particular. Politics is the combinations of effort by the governmentand other institutions, fields, and special interest groups to give future directions to thecountry considering the value and interest that people hold in addition to carrying ongovernmental and state affairs (Daunton, 2011). Generally, the government of a particularcountry develops the rules and procedures for the day to day life through political and legalsystem. Business is considered as the integral part of this daily life. Therefore, businesscould not be conducted avoiding the political and legal system (Sethi et al., 2012). There aremany ways that the political and legal environment might influence the businessenvironment. First, political and legal systems of each and every country influence thebusiness environment directly by changing existing (or by introducing new) policies,

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regulations and laws. Second, government determines the fiscal and monetary policies thatdirectly influence the way of doing business. Finally, the situation of political stability hasgreat impact on the ease of doing business. Political forces might assist the internationalisationof firms, such as, removing the barricades to international trade or even by setting up exportprocessing zone where the firms can produce and trade under favourable condition. Similarlysome of the political and legal factors might also become barriers to entering foreign markets,such as, political instability, legal procedural barriers, corruptions and inadequate legalsupports (Bhatti and Awais, 2012). Therefore, the decision to go for international marketexpansion should only be taken after understanding the unseen nature of political and legalenvironment of the target country.

Social barriers. The social and cultural environment includes the attitudes, tastes, beliefs,behaviours, lifestyle and relationships among the people of a particular society in their day today life. Business activities are to meet the demands of the people, whereas, the demands ofthe people are based on these social and cultural aspects. In fact, business activities are shapedby culture and society. In the case of international business activities, the role of the social andcultural environment is more predominant. By crossing the national boundary throughinternationalisation process, firms are involved with a different culture and society. Althoughmost of the theories of internationalisation raised these cultural issues as a dominant factor forinternationalisation (Ellis, 2011), the Uppsala internationalisation model sheds light on theterm “psychic distance”. According to Johanson and Vahlne (1977, p. 24), psychic distance is“the sum of factors preventing the flow of information from and to the market”. In furtherexplanation of the psychic distance, they have given examples, such as, language, education,culture, political factors, business practices and industrial development-related distances.In fact, according to the Uppsala model of internationalisation, culture is the part of psychicdistance. Previous studies identify a number of social and cultural factors working as thebarriers of internationalisation to the firms including different socio-cultural traits, verbal andnon-verbal language differences, different habits and attitude of foreign customers and clients(OECD, 2006). Similarly, Barkema and Vermeulen (1997) reported cultural distance as one ofthe most influential barriers of internationalisation. Rothaermel et al. (2006) also identified astrong connection between cultural dimension and internationalisation.

Conceptual model and hypotheses development. Based on the extant literature on thesocio-economic barriers to enter in foreign markets, this study proposes the research modelshown in Figure 1.

In Figure 1, there are seven hypotheses that are formed based on the factors found inliterature on the internationalisation of SMEs. Socio-economic barriers to entering foreignmarkets for Bangladeshi SMEs are classified into two major categories: social and economic.Out of seven hypotheses, three hypotheses are related to the social and four hypotheses arerelated to economic barriers for SME internationalisation.

Language is the medium of communication between two or more individuals or firms byusing arbitrary signals, such as, voice, writing, signs, etc. Inability to communicate properlymay hinder the overseas business prospect. By crossing national boundaries, SMEs have tobe active in an unknown and often in transparent economic, political and culturalenvironment, which is a big impediment to SMEs internationalisation (OECD, 2006).In addition to the language barrier, a common socio-cultural barrier faced by SMEs duringinternationalisation is different social approaches (Barkema and Vermeulen, 1997). In fact,there is no denying in the argument that the social approach may vary from one country toanother. Although it is generally agreed that the different social attitudes have impacts onbusiness, nature of impact (positive or negative) is ambiguous. While these studiessuggested negative impacts of different socio-cultural approaches in international business,others (Krishnan et al., 1997; Morosini et al., 1998) have claimed that the socio-cultural

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diversity may also be a source of value creation. Some other studies pay no attention toa different social approach as being a key barrier to internationalisation of SMEs (Okparaand Kabongo, 2010). Considering the important link between language difference and adifferent social approach with social (and cultural) barriers to internationalisation, thisstudy proposes the language difference and different social approach as functions of socialbarriers to entering foreign markets in the context of developing countries’ SMEs. On thebasis of above discussions, the following hypotheses are proposed:

H1. Language difference as a factor of social barriers and foreign market entry of SMEswill not be independent from one an other.

H2. Different social approach as a factor of social barriers and foreign market entry ofSMEs will not be independent from one an other.

Research and development (R&D) is the initiative of discovering new understanding about aproduct, service or process. While the ability of a firm to increase technological developmentis considered as an important dimension of competitive advantages, R&D is viewed asthe key source of such ability (Yam et al., 2011). Considering the investment in R&D as theinvestment in knowledge, public and private R&D investment is increasing. While a largerpart of public R&D investment is spent by developed countries, the majority of the privateR&D investments are done by the large and established companies. Therefore, the SMEsfrom developing countries (such as Bangladeshi SMEs) may find it difficult to face globalchallenges due to the lack of better R&D facilities. Due to the lack of R&D facilities,many organisations find it difficult to compete internationally (Tseng et al., 2009). Incontrast, some other studies overlook the lack of R&D facilities as the key barriers ofinternationalisation of SMEs (Gunaratne, 2009; Okpara and Kabongo, 2010). Considering theimportant link between lack of R&D facilities with social (and cultural) barriers ofinternationalisation, this study proposes lack of R&D facilities as a function of technologicaland infrastructural barriers of internationalisation in the context of developing countries’SMEs. In the light of the above discussions, the following hypothesis is proposed:

H3. Lack of R&D as a factor of social barriers and foreign market entry of SMEs will notbe independent from one an other.

Socio-economicbarriers to enter in

foreign markets

Social Economic

DifferentLanguages

Different socialApproaches

Lack of R&DFacilities

Legal Proceduralbarriers

Lack of ExpressService

Corruption

H1 H2 H3 H5 H6 H7

PoliticalInstability

H4

Figure 1.Hypothesis on thesocio-economicbarriers to enter inforeign markets forBangladeshi SMEs

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Impacts of political instability are a major concern for business activity particularly in theemerging economies. According to Luo and Tung (2007), political instability is the commonfeature of developing countries. Due to this institutional constraints, the majority of thebusiness organisations, particularly the SMEs from the developing countries, are notachieving adequate opportunities from foreignmarkets (Zeng et al., 2008). Al-Hyari et al. (2012)also found the negative relationship between political instability and international businessperformance. Political instability of the country may also increase the costs of doing businessand therefore create competitive disadvantages both for local and international firms. Due tothese negative outcomes (e.g. higher risk, additional cost, market fluctuation and competitivedisadvantage), some of the investors may become demotivated from investing in countrieswhich have political instability (Lu and Beamish, 2001). In contrast, some other studies ignorepolitical instability as the key barriers to internationalisation for SMEs (Okpara and Kabongo,2010). Therefore, the influence of political instability as the barrier to internationalisation isstill an unsettled issue. Considering the important link between political instability andpolitical (and legal) barriers of internationalisation, this study posits political instability as afunction of economic barriers in the context of developing countries’ SMEs. In the light ofabove discussion, it has been hypothesised that:

H4. Political instability as a factor of economic barriers and foreign market entry ofSMEs will not be independent from one an other.

Each and every country has some legal systems both for the people and the organisations.To carry on life or business, people need to go through these legal procedures, such asregistering property, filing tax, applying for permission to start a business and carrying onthe business legally. Based on the number, days and requirements of these procedures, easeof doing business is examined. Ease of doing business varies from country to country due tothese legal processes. In Bangladesh, it takes a minimum of six working days to get thetrade licence from the local government authority, whereas it takes one to three days insome developed countries. In the case of international business, firms may need to faceadditional legal restrictions than the domestic firms, such as, currency restrictions, quotasor tariffs. Based on the country of origin of the foreign partners, additional formalities mayalso need to maintain, for example, product standards, compliance procedures, health andsafety requirements, and patent and trademark issues (OECD, 2006). Despite theimportance, legal procedural complexity has not been considered as a key barrier to SMEinternationalisation (Okpara and Kabongo, 2010). Thus, the impact of legal proceduralcomplexity as the barrier of internationalisation is still an under explored issue. Consideringthe important association between legal procedural complexity and political (and legal)barriers of internationalisation, this study proposes legal procedural complexity as afunction of economic barriers in the context of developing countries’ SMEs. On the basis ofthe above discussions, it has been hypothesised that:

H5. Legal procedural complexity as a factor of economic barriers and foreign marketentry of SMEs will not be independent from one an other.

Express service is an accelerated service where the customers or the clients receive thedelivery of goods or services faster than the normal time. Considering the value of time,express service is getting popular both in personal and professional levels day by day. Due tobetter financial ability, larger firms may use express service facilities in their day to daybusiness operations. However, resource constraint may limit SMEs’ ability to use this serviceand this in turn will slow down the process of internationalisation for SMEs. OECD (2006) hasreported that the number of days required for developing countries to finish the process ofeither export or import is three times higher than the requirement of developed countries.

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Despite the critical role of express service to facilitate internationalisation of SMEs,earlier studies failed to identify this as a key barrier for the SME internationalisation process(Okpara and Kabongo, 2010). In the light of above discussion, it has been hypothesised that:

H6. Lack of express service as a factor of economic barriers and foreign market entry ofSMEs will not be independent from one an other.

Corruption is the abuse of public power for private benefits. Common forms of corruptionare bribery, extortion, fraud, embezzlement, nepotism, cronyism, appropriation of publicassets and property for private use, and influence peddling (Myint, 2000). Any of these typesof corruption may occur at any time (such as, day, night, evening or even weekends), at anylevel (e.g. top level and mid-level or even grass root level), in any sector (such as, sports,education, banking, health care) and anywhere. Corruption is not only costly for thebusiness and people, but also it can be arbitrary and unpredictable. In case of SMEs,corruption is considered as a significant political and legal barrier in a number of countries(Okpara and Kabongo, 2010). Although the negative relation between corruption andgrowth of SMEs is identified both from developed and developing countries, developingcountries are mostly affected by the presence of corruption (Okpara and Kabongo, 2010).On the basis of the above discussions, it has been hypothesised that:

H7. Corruption as a factor of economic barriers and foreign market entry of SMEs willnot be independent from one an other.

Research methodologyThis study has proposed a hierarchical reflective model on the barriers to entering foreignmarkets for Bangladeshi SMEs and it formulates a theory that is empirically testable.An empirical survey was carried out because this study also attempts to measure a casualnetwork relationship as proposed in Jenkins (1985) on the barriers to entering foreignmarkets for Bangladeshi SMEs. To carry on the empirical investigation, cross-sectionalsurvey technique was applied to extract views from the respondents only once (Malhotra,2008). To achieve the maximum response rate a postal survey was applied rather than atelephone, e-mail or online survey (Malhotra, 2008).

Running example-based on case studyIn addition to macro-level quantitative analysis, this study has also used qualitative case studyat the piloting stage as the context can play a crucial role in understanding the socio-economicphenomenon. This approach has facilitated both contextual understanding and causalexplanation which is not otherwise offered by the structural equation modelling (SEM).One firm was selected based on the definition of SMEs in Bangladesh and their engagement ininternational market (Table I).

Imperial Collection is one of the leading, oldest and reputed buying agents in knit itemsexporting agency in Bangladesh. The firm was very innovative at the early stages through

Particulars Imperial collection

Year founded 1990Owner/CEO Hemayet UddinNumber of employees 5-10Business type Trading company, buying office, agentForeign market activity Exporter of knit itemsMain market/source North America and EU

Table I.Basic informationof the case firms

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using ICT facilities but lack of further R&D culture is visual. The firm positioned itself as anexperienced trading agent than innovative as reflected in the quote below:

We have the pleasure to introduce ourselves as a leading, oldest and reputed buying house ofBangladesh, established in the year 1990 (Owner/Imperial Collections).

Political instability and legal procedural barriers delay the process of production andshipments of goods usually in Bangladesh. Firms normally keep multi-site productionplants to carry on production in one place while there is apolitical unrest in another factoryarea. The firms confirm to provide the additional monitoring to ensure timely shipment ofproducts to foreign markets as expressed below:

We monitors to our buyers regarding production status from starting to end. We have sisterconcern of T-shirt factory as well as good contacts and control over many factories in Dhaka,Naryanganj and Chittagong (Owner/Imperial Collections).

Lack of express service as an economic barrier to enter in foreign market was also reflectedby the firm’s ability to maintain timely shipments with foreign buyers. The firm and theindustry always concern about this as expressed by the owner:

Although we are bringing huge foreign earnings from abroad, government seem non cooperative inneed of express service as it is available in other countries (Owner/Imperial Collections).

Language difference and different social approaches are considered as the key barriers toenter in foreign markets in many theories including the Uppsala model. The firm usedmiddleman or negotiator to overcome this problem. As the owner put it:

We employ commission agents to overcome language issues and social problems in foreigncountries particularly in some EU countries except UK (Owner/Imperial Collections).

Questionnaire survey. Data were collected from four major divisions of Bangladesh – Dhaka,Khulna, Chittagong and Rajshahi from July/2011 till September/2011. For data collection,250 questionnaires were distributed to each division following cluster sampling technique.From each division, districts were selected and from each district, villages or wards of thefour major city corporations were selected, and, finally, international SMEs were selectedfrom each villages and wards. To ensure the equal opportunity to be selected, systematicrandom sampling technique was applied. Population for the survey was defined as theSMEs doing international business. Out of 1,000 questionnaire sent, 219 responses werereceived. Among the 219 received questionnaires, seven were unsuitable due to excessivemissing data. Finally data from 212 questionnaires were analysed.

From Table II, it can be comprehended that the data were collected from a diversecross-sectional population. Out of 212 respondents, 68.1 per cent were male and 32.9 per centwere female. From the business sector point of view, 13.9 per cent were from primary,51.4 per cent from manufacturing and 34.7 per cent from the service sector. In total,

Particulars Category % Particulars Category %

Gender Male 68.10 Sector of business Primary 13.90Female 32.90 Manufacturing service 51.40

34.70Area Dhaka 28.50 Business type Sole trader 28.90

Chittagong 25.80 Partnership 21.40Rajshahi 22.10 Family 09.10Khulna 23.60 Co-operative 06.90

Private Ltd 33.70

Table II.Demographic profiles

of respondents

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28.5 per cent were from Dhaka, 25.8 per cent from Chittagong, 22.1 per cent from Rajshahi and23.6 per cent from Khulna division. From the business type point of view, 28.9 per cent weresole traders, 21.4 per cent were partnership, 9.1 per cent were a family business, 6.9 per centwere co-operative and 33.7 per cent were a private limited company.

Items of the questionnaire were identified from the systematic review of literature. All ofthe items of the questionnaire were measured in five-point Likert-scale. Before the final datacollection, a pre-test was carried out among 20 samples and five academics to ensure theappropriateness of wording, contents, scales, sequence and format. Very minor amendmentswere made on the basis of pre-test.

Specifying socio-economic barriers to enter in foreign markets for Bangladeshi SMEs as ahierarchical reflective model. Hierarchical construct (also known as the multidimensionalconstruct) is defined as a construct with multiple dimensions at several hierarchies tocapture an overall latent variable ( Jarvis et al., 2003). For the advantages of reducing themodel complexity and increasing theoretical discretion, these constructs ( hierarchicalconstructs) have proven to be successful by many studies (Akter et al., 2010). In addition, the“level of abstraction for predictor and criterion variables” is considered as one of the mostimportant advantages of using the hierarchical constructs in the research studies (Chin andGopal, 1995). This study aims to identify the barriers to entering foreign markets forBangladeshi SMEs. Considering this exploration, this study specifies the barriers ofinternationalisation for Bangladeshi SMEs as a hierarchical reflective model with tworeflective constructs (see Figure 1) – social and economic barriers to enter in foreign marketsfor Bangladeshi SMEs. Besides, all of these constructs of this model share the commontheme that is the overall socio-economic barriers faced by Bangladeshi SMEs to enter inforeign markets. According to Bollen and Lennox (1991), the correlation between twomeasures is supposed to be highly positive for a reflective construct. This is also supportedby Akter et al. (2010), who have explained internal consistency as one of the most importantelements of reflective constructs. Besides, the un-dimensional nature of the reflectivemeasures assists to get rid of the individual measures for the purpose of improving theconstruct validity with no effect on the content validity (Petter et al., 2007).

In Figure 2, there are two orders – first and second. In the first order, there are twolatent variables of socio-economic barriers to enter in foreign markets for BangladeshiSMEs – social and economic barriers that are related to the respective indicators(manifest variables (MVs)) each. In the second order, barriers to enter in foreign markets forBangladeshi SMEs are shown in a hierarchical reflective model that is constructed by sevenMVs (three+ four) of two first-order constructs.

In Table III, the equations for estimating the hierarchical reflective models on thesocio-economic barriers to enter in foreign markets for Bangladeshi SMEs are presented.There are two-order models – first-order model and second-order model. The equation forthe first-order model specifies first-order MVs ( yi), latent variable (ηj), loadings (Δy) and anerror term (εi). The equation of the second-order model specifies the first-order factors (ηj) interms of the second-order latent variables (ξk) and error (ζj) for the first-order factor andsecond-order latent variable loadings (Г).

Using partial least square (PLS) to assess the socio-economic barriers to enter in foreignmarkets for Bangladeshi SMEs. PLS path modelling, also known as the component-basedSEM, is popularly used for ensuring more theoretical parsimony and less complexity(Akter et al., 2010). In the above section of the study, it has been discussed that a higherorder, reflective model will be used in this study to encompass the constructs having morethan one dimension and indicator. By using the higher order reflective model, this study willavoid the limitations of co-variance-based SME. Therefore, this study will be free from thecommon draw backs of SEM, including measurement level, sample size, distributional

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properties and lack of identification (Wetzels et al., 2009). Besides, “it can give more accurateestimates of mediating and moderating effects by accounting for the measurement errorthat attenuates the estimated relationships and improves the validation of theories”(Akter et al., 2010, p. 293). Furthermore, it is also suitable for the study where the objective isprediction and the research context is new or changing (Chin and Gopal, 1995). Therefore, ahigher order reflective model will be suitable for this study because this study aims to assessthe socio-economic barriers to entering foreign markets for Bangladeshi SMEs.

FindingsFindings from the investigation related to the socio-economic barriers to entering foreignmarkets for Bangladeshi SMEs are presented in three stages – evaluation of the modelmeasurements, evaluation of the model and finally the relationship in the model are tested.These three steps of presenting the results ensure the validity and reliability of the latentvariables prior to drawing the conclusion on hypothesised relationships (Akter et al., 2010).

MV 4 MV 5 MV 7MV 6

Social Economic

MV 1 MV 2 MV 2 MV 3

MV 3

MV 4

MV 3

Socio-economic Barriers toEnter in Foreign Markets

FIRST ORDER

SECOND ORDER

MV 3

MV 1 MV 2 MV 3

MV 2MV 1

Firmspecific

Countryspecific

MV 1

MV 2 MV 4MV 1

Figure 2.Socio-economic

barriers to enteringforeign markets for

Bangladeshi SMEs asa hierarchical

reflective model

First order Second order

yi¼Δy.ηj+εi ηj¼Г.ξk+ ζjyi¼manifest variables ηj¼ first-order factors (e.g. political)Δy¼ loadings of first-order latent variables Г¼ loadings of second-order latent variablesηj¼ first-order latent variables(political, economic, technological and social)

ξk¼ second-order latent variables (procedural barrier)

εi¼measurement error of manifest variables ζj¼measurement error of first-order factors

Table III.Estimation of the

socio-economicbarriers to enteringforeign markets forBangladeshi SMEs

as a reflectivehierarchical model

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Analysis of measurement modelThis study has used PLS graph 3.0 (Wetzels et al., 2009) to investigate the socio-economicbarriers to enter in foreign markets for Bangladeshi SMEs by using the hierarchical modelwith PLS path modelling with a path weighting scheme for the inside approximation(Akter et al., 2010). Following the path weighting scheme, this study used non-parametricbootstrapping (Wetzels et al., 2009) where the standard error of the estimates are obtainedby using 500 replications. Following the suggestion made by Akter et al. (2010), this studyhas used the approach of repeated indicators to estimate the higher order latent variables.Therefore, the second-order factor (socio-economic barriers to enter in foreign markets forBangladeshi SMEs) is directly measured by the indicators (MVs) of the first-order factors(social and economic).

As proposed in Wetzels et al. (2009), a confirmatory factor analysis is conducted to testthe model and analyse the reliability and validity. Table IV shows that the individual itemloading is higher than 0.70 and which is also significant at 0.01. Further, reliability of thescale is assessed through the composite reliability (CR), Cronbach’s α (CA) and averagevariance extracted (AVE) as recommended in Akter et al. (2010). The result (Table III) findsthat the values for CR and CA on the social and economic barriers are well above thethreshold point of 0.70 (Hulland, 1999), which indicates the scale consistency for each item.On the other hand, AVE for economic and social barriers (Table IV) is also higher than themodest threshold 0.50 (Fornell and Bookstein, 1982). Again this indicates that eachconstruct captures adequate variance from its items and all the constructs are conceptuallydistinct. Therefore, the convergent validity of all the scales is ensured. Finally, the result ofthe square root of AVE found in Table V ensures discriminant validity. The square rootvalue of AVE confirms that they are higher than the corresponding correlation coefficientsin the correlation matrix (Fornell and Bookstein, 1982). Therefore, it can be concluded thatall the empirical results related to the analysis of the measurement model are satisfactorywith respect to adequate reliability, convergent validity and discriminant validity.

Assessment of higher order modelA hierarchical construct model is developed to show the socio-economic barriers to enteringforeign markets for Bangladeshi SMEs in Figure 2. The second-order constructs (overallbarriers) are reflected in the first-order constructs and the degree of explained variances areeconomic (88 per cent) and social (81 per cent). The result shows that (Table IV) the path

Constructs Items summary Loadings CR CA AVE

Social barriers Language differences 0.971 0.967 0.948 0.907Different social approaches 0.974Lack of R&D facilities 0.911

Economic barriers Political instability 0.937 0.953 0.934 0.837Legal procedural barrier 0.897Lack of express service 0.962Corruption 0.861

Table IV.Psychometricproperties for first-order constructs

Social Economic

Social 0.952a

Economic 0.689831 0.915a

Note: aSquare root of AVE on the diagonal

Table V.Latent variablecorrelations

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coefficients from overall barriers of internationalisation to second order (political, financial,social and technological) are significant at po0.01. Further, the validity of higher orderreflective model is confirmed from the CR and AVE value. CR and AVE for the first-orderconstructs (political, economic, social and technological) are higher than threshold value of0.70 and 0.50, respectively.

Analysis of structural model and results of hypotheses testingThis study has estimated the relationship between the overall socio-economic barriers and itssub-dimensions, i.e., economic and social barriers with an objective to measure the structuralvalidity of the model (see Figure 3). The respective standardized β found in Figure 3 for socialand economic barriers are 0.900 and 0.936 each; this result refers a strong association betweenthose variables. Further, all these path coefficients are significant at po0.01 (please seeTable VI). Therefore, overall findings support the hypotheses (please see Table VII).

Summary of findingsOne of the key objectives of this study is to identify the socio-economic barriers to enteringforeign markets for the SMEs in a developing country. To fulfil this objective, this study hasdeveloped and validated a barriers model that is able to explain the major barriers faced bythe Bangladeshi SMEs to enter into the international market. This study also contributesto extend our knowledge on the barriers of SMEs from Bangladesh perspective bycategorising the barriers in two dimensions (social and economic) with seven indicators.It has effectively enclosed barriers to enter in foreign markets for SMEs in a second-orderreflective model where both dimensions reflect overall socio-economic barriers. Hence itcontributes to the theoretical support for OECD’s (2006), Pangarkar’s (2008) and Sokfa and

Language differences

Different social approaches

Legal procedural barrier

Lack of express service

Lack of R&D facilities

Political instability

0.811

Languagedifferences

Different socialapproaches

Corruption

Politicalinstability

Legal proceduralbarrier

Lack of expressservice

Lack of R&Dfacilities

Social

Economic

0.000

0.876

OverallSocio-economicBarriers

Corruption

0.971(t=123.988)

0.87

9(t=

25.4

07)

0.88

1(t=

27.0

62)

0.811(t=15.743)

0.842(t=15.075)

0.891(t=23.594)

0.833(t=19.800)

0.900(t=31.399)

0.93

6(t=

44.3

30)

0.937(t=47.427)0.897(t=21.329)

0.962(t=74.254)

0.861(t=21.263)

0.974(t =124.100)

0.859(t =19.161)

0.911(t=25.022)

Figure 3.Main loadingsof the model

Original sample (O) Sample mean (M) SD SEt-statistics(|O/STERR|)

Overall barriers→ economic 0.936195 0.932717 0.021119 0.021119 44.32955Overall barriers→ social 0.900278 0.896526 0.028672 0.028672 31.39871

Table VI.Analysis of

structural modelpath coefficients

(mean, SD, t-values)

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Zimmermann’s (2008) studies. In fact, this study extends all these conceptualisation as themodel of this study is also competent to provide the ranking of these barriers. In general,economic barriers seem to be most influential barriers for the SMEs to expand ininternational markets in developing countries as it explains 88 per cent of overall variancefollowed by the social barriers with 81 per cent. Though the ranking has been done on the basisof explanation power of individual constructs, the magnitude of difference is relatively verysmall. Therefore, it can be recommended that all these constructs should be given equal attention.

Another objective of this study was to demonstrate the complex relationship among thesocial and economic barriers to enter in foreign markets for SMEs empirically through PLSpath modelling. To support this objective, a second-order reflective hierarchical model isdeveloped using the data collected from SMEs in Bangladesh. This model should be able tobetter explain the complex relationship as suggested by (Fornell and Bookstein (1982).Following the suggestion made by Wold (1985), this study is used repeated indicators fromfirst-order model to second-order model. All results confirmed the validity of measurementmodel and structural model. Therefore, it has successfully shifted individual barriers ofinternationalisation to overall barriers of internationalisation as stated by Wold (1985, p. 589),“PLS comes to the fore in larger models, when the importance shifts from individual variablesand parameters to packages of variables and aggregate parameters”.

The main objective of this study was to identify the key socio-economic barriers to enteringforeign markets for the SMEs in a developing country. To address this objective, a model onthe socio-economic barriers has been developed and validated. This has surely extended ourknowledge particularly from the Bangladeshi SMEs and their barriers to entering foreignmarkets context. However, it is believed that the findings of this study will assist policymakers and owners of SMEs to know their priority to back the internationalisation of SMEs.Through the PLS path model, this study clearly rated the barriers faced by SMEs to enteringinto international market. It shows that economic barriers are more dominating over socialbarriers in developing countries. Therefore, support services given by government andnon-government organisation in developing countries to assist the growth of SMEs shouldprioritise the political issues followed by the social barriers.

ConclusionThis study has identified the key socio-economic barriers faced by the SMEs in a developingcountry to entering foreign markets. It has successfully framed the socio-economic barriers

HypothesisPath

coefficient t-value Conclusion

H1: Language difference as a factor of social barriers and foreign marketentry of SMEs will not be independent from one an other

0.971 123.988 Supported

H2: Different social approach as a factor of social barriers and foreignmarket entry of SMEs will not be independent from one an other

0.974 124.100 Supported

H3: Lack of R&D as a factor of social barriers and foreign market entry ofSMEs will not be independent from one an other

0.911 25.022 Supported

H4: Political instability as a factor of economic barriers and foreign marketentry of SMEs will not be independent from one an other

0.937 47.427 Supported

H5: Legal procedural complexity as a factor of economic barriers and foreignmarket entry of SMEs will not be independent from one an other

0.897 21.329 Supported

H6: Lack of express service as a factor of economic barriers and foreignmarket entry of SMEs will not be independent from one an other

0.962 74.254 Supported

H7: Corruption as a factor of economic barriers and foreign market entry ofSMEs will not be independent from one an other

0.861 21.263 SupportedTable VII.Results on hypotheses

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to entering foreign markets for Bangladeshi SMEs as a second-order hierarchical model,indicating both dimensions of barriers significantly reflecting on the overall barriers. Allseven hypotheses are supported (Table VI). There is no study, so far, on the socio-economicbarriers faced by the SMEs from the Bangladesh perspective. Findings of this study willcontribute to filling this gap. Another key contribution of this study is the development ofhierarchical reflective model using PLS to assess the socio-economic barriers to enter inforeign markets for the SMEs in a developing country.

Limitations and future research directionsThis study has some limitations that may be considered for future research. First, the modeldeveloped in this study is based on a specific context (developing country) which may not begeneralised in the other context (developed country). Second, this study used cross-sectionaldata which may have some common method variance (Straub et al., 2004). By using thelongitudinal analysis, future research can achieve better measurement reliability. Finally,the comparative analysis between the hierarchical models of component-based PLS and co-variance-based SEM could be done under different research circumstances, such as numberof MVs, sample size per latent variables, and distributional properties of the MVs. Thesevariations may be able to develop a model comparing both formative and reflectiveapproaches of SEM.

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Constantinescu, M.L. and Cojoaca, A. (2011), “A PEST analyse of the marketing environment of theRomanian SME sector during the last financial crisis years”, Annales Universitatis ApulensisSeries Oeconomica, Vol. 13 No. 2, pp. 629-635.

Da Silva, P.A. and Da Rocha, A. (2001), “Perception of export barriers to Mercosur by Brazilian firms”,International Marketing Review, Vol. 18 No. 6, pp. 589-610.

Douglas, S.P. and Craig, C.S. (2011), “The role of context in assessing international marketingopportunities”, International Marketing Review, Vol. 28 No. 2, pp. 150-162.

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Fleiss, B. (2007), “External impediments to SME access to international markets: what are they andhow can they be reduced?”, OECD working papers, paper presented at UNECE 19 InternationalConference on Reducing Barriers to Entrepreneurship and Encouraging EnterpriseDevelopment: Policy Options, Geneva, 18-19 June.

Gabrielsson, M., Kirpalani, V.H.M., Dimitratos, P., Solberg, C.A. and Zucchella, A. (2008), “Born globals:propositions to help advance the theory”, International Business Review, Vol. 17 No. 4, pp. 385-401.

(The) Gallup Organisation (2007), “Flash Eurobarometer 196 – SME Observatory survey”, The GallupOrganisation.

Ghauri, P., Lutz, C. and Tesfom, G. (2003), “Using networks to solve export-marketing problems ofsmall- and medium-sized firms from developing countries”, European Journal of Marketing,Vol. 37 Nos 5/6, pp. 728-752.

Hessels, J. and Parker, S.C. (2012), “Constraints, internationalization and growth: a cross-countryanalysis of European SMEs”, Journal of World Business, Vol. 48 No. 1, pp. 137-148.

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Leonidou, L.C. (2000), “Barriers to export management: an organizational and internationalizationanalysis”, Journal of International Management, Vol. 6 No. 2, pp. 1-28.

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Ojala, A. and Tyrväinen, P. (2007), “Market entry and priority of small and medium-sized enterprises inthe software industry: an empirical analysis of cultural distance, geographic distance, andmarket size”, Journal of International Marketing, Vol. 15 No. 3, pp. 123-149.

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Oviatt, B.M. and McDougall, P.P. (1994), “Toward a theory of international new ventures”, Journal ofInternational Business Studies, pp. 45-64.

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Corresponding authorMoshfique Uddin can be contacted at: m.m.uddin@leeds.ac.uk

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Explaining the surge in M&Aas an entry mode: home country

and cultural influencesAgyenim Boateng

Glasgow Caledonian University, Glasgow, UKMin Du

Leeds Business School, Leeds Beckett University, Leeds, UKYan Wang

University of Huddersfield, Huddersfield, UKChengqi Wang

University of Nottingham, Nottingham, UK, andMohammad F. Ahammad

Nottingham Trent University, Nottingham, UK

AbstractPurpose – The purpose of this paper is to examine the trends, patterns and the impact of cultural and homecountry macroeconomic influences on Chinese cross-border mergers and acquisitions (CBM&A) as foreignentry strategy for the period of 1998-2011.Design/methodology/approach – Using three regression models, namely, ordinary least squares,the random effects and fixed effects to examine the impact of home country macroeconomic and culturalfactors on CBM&A outflows as an entry mode of Chinese firms. The authors check the robustness of theresults using system GMM.Findings – The findings suggest that CBM&A as a preferred mode of market entry provides a means forobtaining strategic resources to develop competitive advantages for the Chinese emerging market firms.The regression results indicate that home country macroeconomic and cultural variables, including grossdomestic product (GDP), liquidity, interest rates, inflation, acquisitions in resource seeking sectors andcultural distance play an important role in explaining the trends of CBM&A outflows by the Chinese firms.Research limitations/implications – The results imply that government support to emerging marketmultinational enterprises (EMEs) to acquire strategic assets and economic policies in the home country playan important role in shaping international expansion behaviour of EMEs through CBM&A. The studydemonstrates that outward investments of EMEs are partly a function of the level of economic policies andgovernment support at home. The limitation is that most of the Chinese CBM&A transactions took place inAsia/Pacific locations. Future studies appear warranted if new data become available.Originality/value – The study demonstrates how the institutions, strategic asset seeking with governmentsupport and economic policies in the home country play important role in shaping international expansionbehaviour of emerging market enterprises through CBM&A thereby contributing to the political economyliterature and institutional theory. More importantly, the study shows that the level of economic policies anddevelopment such as GDP, money supply, interest rates, inflation of the home country are important for EMEgrowth in the international market.Keywords China, Internationalization, Mergers, Culture, Macroeconomics, AcquisitionsPaper type Research paper

1. IntroductionForeign market entry choice is inherently risky and challenging and has direct impact onthe international marketing strategy and performance of a firm (Erramilli, 1991; Sakaryaet al., 2007; Malhotra and Sivakumar, 2011). The challenges associated with the foreign International Marketing Review

Vol. 34 No. 1, 2017pp. 87-108

© Emerald Publishing Limited0265-1335

DOI 10.1108/IMR-10-2014-0330

Received 14 October 2014Revised 14 May 2015

29 July 2015Accepted 6 August 2015

The current issue and full text archive of this journal is available on Emerald Insight at:www.emeraldinsight.com/0265-1335.htm

The authors are grateful to the Guest Editors, particularly Dr Shlomo Tarba and the three anonymousreviewers for providing detailed and constructive feedback throughout the review process.

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market entry decision stem from the varied impact of institutional and environmentalfactors on firms’ market selection decisions (Whitelock and Jobber, 2004). This paperfocusses on one form of establishment modes[1] of foreign market entry, namely,cross-border mergers and acquisitions (CBM&A) which has become the predominantmode of market entry by large emerging market multinational enterprises (EMEs) overthe past 20 years (Deng, 2010; UNCTAD, 2012; Contractor et al., 2014). Despite the use ofCBM&A to penetrate into foreign markets, prior studies that consider the impact of homecountry factors on CBM&A as an entry mode are rare and most studies have concentratedon the effects of host country factors, firm- and industry-specific determinants (Brouthersand Dikova, 2010). For example, the relationship between the host country macroeconomicfundamentals and CBM&A in advanced market economies has been examined by studiessuch as Alguacil et al. (2011), Boateng et al. (2011) and Uddin and Boateng (2011). Incontrast, relatively little is known about the relationship between the home countrymacroeconomic factors and CBM&A outflows (Morschett et al., 2010). However, it isargued that the environmental factors associated with a firm’s country of origin provide acrucial means, even if partially, to the development of a firm’s competitive advantages byproviding the context in which firm choices are made (Tolentino, 2010; Hennart, 2009;Kalotay and Sulstarova, 2010). Second, earlier work in marketing and strategy hasrevealed that specific economic and cultural features of the national environment act asbarriers and may impact on the choice between the greenfield investment and acquisitions(Brouthers and Brouthers, 2000; Slangen and Hennart, 2008a, b; Georgopoulos andPreusse, 2009; Malhotra and Sivakumar, 2011). Researchers such as Whitelock and Jobber(2004), Hennart (2009) and Berry et al. (2010) also note that the cultural distance betweenthe home and host country markets affects firms’ international market entry strategies,outward investment patterns and the market potential of the host country. In this paper,we examine the trends, patterns and the extent to which home country macroeconomicand cultural factors influence the CBM&A outflow activities of large firms from EMEs.We ask the following questions: what are the trends and patterns of CBM&A as an entrymode choice by EMEs? To what extent do macroeconomic and cultural factors fosterCBM&A as a mode of market entry?

China provides a good case to explore the impact of home country factors on EMEinternational expansion for the following reasons. First, in the last decade, a substantialnumber of firms from emerging markets, particularly, Brazil, Russia, India and China (BRIC)have entered into international markets (UNCTAD, 2013). Economic liberalisation andreforms in the trade policies of BRIC countries have motivated firms from these countries toinvest abroad. China as the largest emerging country among the BRIC countries has been atthe forefront of the economic reforms, transforming itself from centrally planned socialistcountry to a market-oriented market economy. In particular, China has seen some massivechanges and improvement in the macroeconomic fundamentals over the past two decadesand many developing countries are looking up to China for a guide. Second, Peng (2009),Luo et al. (2010) and Du and Boateng (2015) note that Chinese firms do not have similarownership advantages and capabilities compared to their counterparts from advancedcountries and that Chinese government reforms and improvement in macroeconomicpolicies and institutions are behind the rise in CBM&A outflows. This point is supported byHitt et al. (2004) who indicate that the Chinese government’s authority over businesses ispervasive and CBM&A decisions of Chinese firms are driven by institutional and otherhome country factors. China therefore provides an important setting to explore the impact ofhome country macroeconomic influences on CBM&A. This study contributes to the existingliterature in the following ways. Our results shed lights on how the institutions, strategicasset seeking with government support and economic policies in the home country playimportant role in shaping international expansion behaviour of emerging market

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enterprises through CBM&A thereby contributing to the political economy literature andinstitutional theory. More importantly, the study shows that the level of economic policiesand development such as gross domestic product (GDP), money supply, interest rates,inflation of the home country are important for EME growth in the international market.The paper enriches our understanding of how emerging country government policy, i.e., the“go abroad” for Chinese firms to go abroad and seek strategic resources unavailable inChina can leverage support to EMEs in their process of global expansion and competition.

The remainder of this paper is organised along the following lines. The next sectionsummarises the literature and develops the hypotheses of the study. Section 3 presents thedata and the modelling framework that accounts for the role of cultural and macroeconomicinfluences on CBM&A. Section 4 presents the results and discusses the findings of thestudy. The last section provides a summary of the conclusion and discusses the implicationsof the study.

2. Literature review2.1 Why CBM&A as an entry mode by EMEs?UNCTAD (2012) points out that about 70-90 per cent of the outward FDI from emergingmarkets are carried out via acquisitions. The predominant use of CBM&A as a vehicle forinternationalisation by EMEs is driven by the need to acquire strategic assets in advancedcountries that are unavailable at home (Boateng et al., 2008; Rui and Yip, 2008). The abovefindings are consistent with the often cited reason for CBM&A in the internationalmarketing literature, namely, to improve company’s innovativeness and product portfolio(Markovitch et al., 2005; Prabhu et al., 2005). However, the tacit nature of some types ofproprietary and intangible resources and capabilities makes them difficult to purchasethrough market transactions (Coff, 1999; Gupta and Govindarajan, 2000). Nadolska andBarkema (2007) and Capron et al. (1998) argue that the market for firms may be moreefficient than the market for some resources, thus making acquisitions the popular entrymode for gaining and reconfiguring new resources and capabilities. Empirical studies haveconfirmed that CBM&A is a preferred entry mode choice for firms with less distinctresearch and development (R&D) capabilities or competitive advantages (Hennart and Park,1993; Deng, 2004; Boateng et al., 2008). It is also argued that CBM&A enable fasteradaptation to the local environment of the host country (Slangen and Hennart, 2008a, b).Unlike greenfield investments, acquisitions do not involve building businesses from scratchin the host country, but are going concerns with an established network, have local marketknowledge, locally accepted products and brands (Caves, 1996; Slangen and Hennart,2008a, b). Therefore, entering the host country via CBM&A can help emerging market firmsto overcome transaction cost barriers and improve their market position in the local market(Demirbag et al., 2008; Georgopoulos and Preusse, 2009). Moreover, acquisitions are lesslikely to suffer from a liability of foreignness (Zaheer, 1995). As latecomers in theinternational market, Chinese firms use CBM&A to overcome costs and risks associatedwith a liability of newness (Deng, 2009).

2.2 Firm-specific and external determinants of entry mode choicePrior research efforts have examined international entry mode choice from a number oftheoretical approaches including transaction cost theory (Erramilli and Rao, 1993;Anderson and Gatignon, 1986; Brouthers, 2002), resource-based view (Ekeledo andSivakumar, 2004; Nadolska and Barkema, 2007; Liu and Zou, 2008), eclectic paradigm(Dunning, 1988), strategic intent perspective (Rui and Yip, 2008), communication-basedtheory (Slangen, 2011), real options theory (Slangen, 2013), political economy view(Boddewyn, 1988) and institution-based view of international business strategy (Peng,2002; Arslan and Larimo, 2011; Slangen and Dikova, 2014). Transaction cost theory posits

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that firms base their entry-mode decisions on the extent to which total transactionand production costs are minimised (Anderson and Gatignon, 1986; Brouthers, 2002).Ownership preference is one major way of protecting a firm’s ownership advantages andminimising the overall costs (Tsang, 2005). In similar vein, eclectic paradigm points outthat a firm with ownership advantage such as cutting edge technology, R&D, productinnovation capability would prefer to internalise activities hence the preference for highentry mode strategy (Klein et al., 1990). The overall thrust of the above theoreticalperspectives is that internal factors such as ownership advantages, especially thepossession of superior resources are critical for building competitive advantage and drivethe choice of foreign entry mode.

While internal factors associated with firms’ assets and competencies are central totheir competitive advantages and overseas expansion decisions, Hennart (2009) andDunning (2009) suggest that external factors such as country-specific factors and culturaldifferences between home and host countries have explanatory power for overseasinvestment expansion decisions. For example, Dunning (2009) recognises marketimperfections and explicitly points out that, the propensity of firms to undertake foreignproduction is influenced by financial and foreign exchange markets. In variousmodifications and extensions to OLI, Dunning (2009) and Kalotay and Sulstarova (2010)have reinforced the importance of country-specific factors, including governmenteconomic policies in explaining the international production activity within the OLIparadigm. More specifically, Meyer and Nguyen (2005) and Luo et al. (2010) alsoemphasise that home country economic policies and institutional environment createmacroeconomic stability, minimise distortions, support competitiveness and play a crucialrole in private sector development and foreign expansion decisions of emerging firms. Intheir examination of the outward investment by Chinese firms through the lens ofstrategic intent, Rui and Yip (2008) argue that Chinese firms use CBM&A as a means tosecure strategic capabilities to offset competitive disadvantages by taking advantage ofthe government “go abroad policies” and the associated institutional incentives. Similarly,recent studies such as Tihanyi et al. (2005); Efrat and Shoham (2013); Malhotra andSivakumar (2011); Contractor et al. (2014) suggest that cultural differences between theacquirer and target nations matter in a firm’s internationalisation and entry choicedecisions. Brouthers and Brouthers (2000) note that the “cultural context helps to defineprofits potential and/or the risks associated with a specific market entry” (p. 91). It isargued that being less familiar with the target country leads to higher uncertainty levels,unpredictable outcomes and increase in unforeseen costs hence a preference for the entrywhich requires a lower resource commitment (Randøy and Dibrell, 2002; Zhao et al., 2004).This suggests that, opting for greenfield would lock an investor into large and irreversibleinvestments. As a result, firms are more likely to choose acquisitions since they requirerelatively less resource commitment and do not involve building the business from scratch(Contractor et al., 2014). The above argument is in line with uncertainty avoidancetendency of entry mode choice which is well documented in stage models ofinternationalisation ( Johanson and Vahlne, 1977). Risk aversion is, in this perspective,likely to lead to a careful resource commitment in a foreign market (Kogut and Singh,1988). In the context of emerging economies, Boateng et al. (2008) note that given the firmsfrom China are latecomers in foreign markets, lack strategic resources and have highinvestment risk, they tend to choose CBM&A as a fastest way of entering into foreignmarkets to obtain the resources they do not have at home.

Despite decades of research on entry mode in international management research (seeSlangen and Hennart, 2007), and the recent provocative question by Shaver (2013) on theneed for more entry mode studies, Hennart and Slangen (2015) emphasise the importance ofexploring the factors influencing entry mode choice in developed and emerging market

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context. While recent work is beginning to pay some attention to the effects of culturaldistance and home country factors on the patterns and trends of CBM&A as entry mode theresults appear inconclusive (Tihanyi et al., 2005; Morschett et al., 2010). This studycontributes to this line of research and shed more light on how home country economicpolicies and institutional environment affect Chinese firms’ expansion abroad.

3. Hypotheses developmentAccording to political economy theory, governments, economic policies in the home countryand institutions played an important role in shaping international expansion behaviour andthe trajectory of multinational enterprises (Boddewyn, 1988). For example, home countryeconomic policies and institutional environment create macroeconomic stability, minimisedistortions, support competitiveness and encourage private sector development andexpansion. Drawing on both macroeconomic theory and institutional perspectives, we putforward a number of home country factors that may influence EMEs to engage in CBM&A.

3.1 GDP (Growth)GDP has been identified as one of the determinants of international expansion of the firms.Prior studies suggest that the size of home country GDP influence the decision to investabroad (Uddin and Boateng, 2011; Boateng et al., 2011). For example, Neto et al. (2010) arguethat multinational firms located in large markets are more inclined to invest in theinternational market as the largeness of home economy help them to acquire firm-specificadvantages. China is the largest emerging economy and has witnessed anincreased prosperity over the last two decades. For example, GDP in China which stoodat 8,440.23 billion Chinese Yuan in 1998 has grown at an average of 9.49 per cent each yearto 47,156.37 billion Chinese Yuan in 2011 (National Bureau of Statistics of China, 2012).Consistent to the conclusions drawn by Vasconcellos and Kish (1996) which indicate that,in times of economic prosperity firms tend to undertake international expansion throughM&A. Some studies such as Uddin and Boateng (2011) suggest a negative relationshipbetween GDP and CBM&A outflows because higher GDP levels can encourage local firms toacquire domestic companies rather than invest abroad due to liability of foreignness. Weargue that this may not be the case in China because Chinese firms, as latecomers in theforeign market, strategically use CBM&A to acquire strategic capabilities abroad whichlocal firms lack at home to offset their competitive weaknesses (Deng, 2009; Rui and Yip,2008 for review of latecomer theory). We therefore expect that Chinese acquiring firms willengage in international expansion due to the growth in GDP. In the light of the argumentabove, it is hypothesised that:

H1. The growth of GDP is positively related to the outflows of Chinese CBM&A.

3.2 Interest rate (IntRate)Interest rate is another macroeconomic factor which may influence CBM&A transactions(Tolentino, 2010). It is argued that a lower interest rate in a home country can reduce the costof financing and increase cash financed acquisition activities (Yagil, 1996). Tolentino (2010),Forssbaeck and Oxelheim (2008) and Uddin and Boateng (2011) concur and point out thatlower interest rate results in capital abundance in home country which stimulates outwardinvestments across different countries to help local firms diversify, reduce risks andincrease the level of profitability. In the context of China, there have been periods oflow interest rate ranging from 1.98 to 3.6 per cent. Similarly, there have also been periodswhere interest rates rocketed to 12.21 per cent. However, the interest rate has been, on theaverage, around 5.5 per cent over the period of 1998-2011 and therefore we expect the low

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interest rate to have a positive impact on Chinese CBM&A. In light of above discussion, wehypothesise that:

H2. Lower interest rates in China will lead to an increase CBM&A outflows.

Stock price (SPrice). Researchers such as Benzing (1991) argue that high share priceimplies a booming economy and thus leads to more stock-financed CBM&A transactions.One dominant explanation is based on overvaluation hypothesis (see Shleifer andVishny, 2003; Baker et al., 2009). Shleifer and Vishny (2003) suggest that in the boomingstock market, stock prices of some firms are likely to be overvalued. In order to protectshareholder from subsequent share price decrease, managers may use firms’ overvaluedshares to conduct CBM&A to acquire real assets. Baker et al. (2009) examined the shareprices in the context of FDI and render support to this relationship, claiming thatovervalued share in the home country may motivate firms to conduct outward FDI. Kishand Vasconcellos (1993) find that high share prices in Japan and lower share prices inthe USA stimulate Japanese firms to acquire US firms. The above argument leads to thefollowing hypothesis:

H3. Stock price and Chinese CBM&A outflows will be positively related.

3.3 Inflation (CPIndex)Gugler et al. (2012) argue that when firm’s return on its capital exceeds cost of capital thenQ isgreater than one and this leads the firms to acquire more assets either in the form of capitalinvestments or acquisitions of other firms. Inflation in the economy affects both the return oninvestments and also the cost of capital thereby affecting the acquisition decision of a firm.For example, McKinnon (1973) pointed out that at higher rates of inflation, money becomesmore costly to hold and the net return from investment is lower. On the other hand, Fisherequation of nominal interest rate shows that nominal interest rate which is a measureof cost of capital is always higher than real interest rate in the presence of inflation.The presence of high inflation in the home country discourages domestic acquisitions bynegatively affecting the firm’s Q thereby reducing return on investments and increasing costof capital. The alternative available to a firm is to invest abroad where the inflation is lower.Lower inflation in the host country relative to home country will help boost the Q ratio andincrease the volume of acquisitions activity. Sayek (2009) also found that changes in inflationrates of the domestic or foreign country tend to alter the net returns and optimal investmentdecisions of the MNEs. In the presence of inflation, multinational enterprises minimise thenegative effects of inflation by changing location of production based on the extent of inflationbetween home and host country. Although the role of inflation in explaining aggregateCBM&A flow is important, there are few studies in the Chinese context. According toEconomic Intelligence Unit (EIU) (2012), China’s inflation peaked in 2008 and 2011 around 5.9and 5.4 per cent, respectively. However, in 1998, 1999 and 2002, China recorded a negativeinflation ranging from 0.7 to 1.4 per cent suggesting that there have been periods of relativelylow and high inflation in China and it will be interesting to see the impact of inflation onoutward M&A. In the light of the above, it is hypothesised that:

H4. Inflation rate has a positive impact on the Chinese CBM&A outflows.

3.4 Liquidity (Money supply)CBM&A may be motivated by the liquidity position of the economy (Harford, 2005).According to Harford (2005), the liquidity of the economy is positively associated with theaggregate level of M&A transactions. Shleifer and Vishny (1992) pointed out that an

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increased money supply in the home economy leads to more liquidity which affects thedisposable income and the cost of finance. From the theoretical standpoint, an increasinglevel of liquidity in the home economy leads to lower cost of finance and thereforeencourages M&A formation. Consistent with the earlier studies by Shleifer and Vishny(1992) and Uddin and Boateng (2011), the overall liquidity of the economy is used as a proxyfor money supply in this paper. Based on the above discussion, it is hypothesised that:

H5. Liquidity (money supply) is positively associated with the Chinese CBM&A outflows.

3.5 Culture distance (CDist)Conceptual and empirical studies in marketing and international business that examinecultural effects at the country level have yielded many important and interesting insights(Griffith and Yaprak, 2008; Steenkamp, 2001; Slangen and Hennart, 2008a, b). On one hand,David and Singh (1994, p. 251) point out that cultural differences represent a sourceof “acquisition cultural risk” and a potential obstacle to achieving integration benefits.In similar vein, Chakrabarti et al. (2009) and Kogut and Singh (1988) argue thatmultinational firms entering foreign markets with dissimilar cultures face diverse socialroutines and implicit assumptions which are unfamiliar and challenging may necessitateadjustment and adaptation. Thus, Contractor et al. (2014) and Datta and Puia (1995) indicatethat the greater the culture distance, the higher the perceived uncertainties, costs and risksinvolved in a firm’s internationalisation.

On the other hand, some researchers challenge the view that cultural differences areindicative of cultural clashes and argue that some cultural differences can, in fact, beattractive to acquirers (e.g. Erramilli, 1991; Very et al., 1997). For example, Very et al. (1997)suggest that British acquired firms perceived domestic buyers as particularly incompatibleand French acquired firms viewed domestic buyers as less compatible than US buyers. It isthus argued that more culturally distant acquisitions are more attractive because of thecultural differences increase potential synergies between the acquiring and target firms(Morosini et al., 1998; Chakrabarti et al., 2009). Morosini et al. (1998) assert that throughacquisitions across borders, organisations may tap into valuable resources which areunavailable in the home markets, and so emphasise the value of a culturally diverse marketlocation. Studies such as Morosini et al. (1998) and Anand et al. (2005) found empiricalsupport for the notion that cultural differences result in opportunities to gain competitiveadvantage, fresh knowledge, innovative thinking and valuable resources which mayoutweigh the costs of implementing CBM&A. Morosini et al. (1998), Papadakis (2005) andShimizu et al. (2004) argued that the greater the cultural differences, the higher theprobability that a firm may learn and/or gain value from the acquired strategic assets. Giventhat Chinese firms are latecomers and are motivated to go abroad to acquire strategicassets which involve huge capital investments, the use of acquisitions may reduce risks andcosts, enhance network opportunities in foreign locations and improve acquirers’ confidenceto expand abroad (Lin et al., 2009). In the light of the above arguments, we put forward thefollowing hypothesis:

H6. Culture distance exerts a positive impact on Chinese CBM&A outflows.

Strategic asset seeking (AssetS). Gubbi et al. (2010) suggest that CBM&A conducted byemerging market enterprises are motivated by the differences in the quality of resourcesand institutional development in the host country markets. Chen and Young (2010) suggestthat Chinese firms tend to pursue strategic resources which china lacks or to gain nationalpride when they invest abroad. As part of its economic reforms, Chinese government hasembarked on the “go abroad” policy since 1999 to facilitate the acquisition of strategicresources in the international market to augment the competitive advantage of Chinese firms.

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Using strategic intent perspectives, Rui and Yip (2008) support the contention that Chineseforeign acquisitions are a means to acquire strategic capabilities to offset competitivedisadvantages. For example, Chinese government has designated areas like R&D,technology and scare natural resources as priorities where it provides financial supportand other incentives to firms investing in these priority areas. Assuming that managersare organisationally rational and implement strategies that they think will lead to higherperformance (Simon, 1976), we expect that the so-called “helping hand” approach of Chinesegovernment to lead to more CBM&A by Chinese firms: Therefore, we hypothesise that:

H7. The strategic resource seeking by Chinese firms is positively associated withCBM&A outflows by Chinese firms.

Home-host country foreign trade linkage (TraLink). A number of studies, includingJohanson and Vahlne (1977) and Buckley et al. (2012) note that the process of firms’internationalization generally starts with export and after that firms tend to conductfurther outward investment by directly servicing the market. It is argued that a highfrequency of business dealings from trade may facilitate CBM&A activities. Highfrequency of business dealings between the host country and home country helps theacquiring firms to have better understanding of the foreign market (Dunning, 1980) andthus facilitating the acquisition transactions. Moreover, home country foreign trade withhost country helps firms to see the attractiveness of host market which may stimulatefurther investment decision (Buckley et al., 2012) to switch from export to foreign directinvestment such as CBM&A. The above arguments lead to the following hypothesis:

H8. Foreign trade linkage between China and host country is positively related withoutward CBM&A by Chinese firms.

4. Data and methodology4.1 Sources of dataThe data are derived from the records of Chinese Stock Market and Accounting Research(CSMAR) database and the United Nations Conference for Trade and Development(UNCTAD). The volume and value of Chinese CBM&A are compiled from CSAMR andUNCTAD. The macroeconomic data including GDP, interest rate, stock price, inflation,exchange rate, liquidity, foreign trade linkage and resource seeking data of this study aretaken directly from CSMAR. Culture distance data which are measured by Hofstede’sCulture Distance Index is collected from Geert-Hofstede website. Geographical distance dataare collected from geographic information system. The sample of the study consists ofmainland Chinese listed companies that announced and completed CBM&A during the period1998-2011. CSMAR provides a reliable and comprehensive source of Chinese CBM&Ainformation and has been used in a number of research works such as Du and Boateng (2015).

4.2 MethodologyIn order to estimate the effects of independent variables on the dependent variable, we usedthree regression models, namely, ordinary least squares (OLSs), the random effects andfixed effects to provide a meaningful comparison and improve the robustness of the results.Our model therefore is:

CBMAit ¼ b1þb2Growth2itþb3IntRate3itþb4SPrice4itþb5CPIndex5itþb6M26it

þb7CDist7itþb8AssetS8itþb9TraLink9itþeit (1)

where β1 is the intercept and εit is the error terms associated with the model.

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We adopt panel data and GMM for this research. Hsiao (1985) notes that to use paneldata estimation, the data should have at least two dimensions, that is, a cross-sectionaldimension and time series dimension. The variables in this paper have data characteristicsranging from cross-sectional variables like cultural distance and trade openness to timeseries data such as interest rates and stock prices. By blending the characteristics of boththe cross-section and time series variables, panel data improve the efficiency of econometricestimates by reducing omitted-variable problem (Hsiao, 1985; Antoniou et al., 2008).In addition, panel data provide a greater data points and thus additional degrees of freedomand help generate more accurate predictions (Hsiao, 1985). Panel data can also be used foraggregate data and studies such as Deesomsak et al. (2004) and Antoniou et al. (2008)employed panel estimates to model aggregate financial time series data which include shareprices, interest rates in conjunction with cross-sectional data. The panel data are deemedappropriate for this paper because of its advantages over conventional cross-sectional ortime series data estimations (Hsiao, 1985).

4.3 Variables measurementThe way in which the dependent and independent variables were measured are providedin Table I.

Definition Data source

Dependent variableCBM&A Natural logarithm of volume of Chinese cross-border M&As by target

country by year from 1998 to 2011CSMAR/UNCTAD

Macroeconomic variablesGrowth GDP growth of China as measured by the natural logarithm of the annual

gross domestic products growthData were collected from National Bureau of Statistics of China and CSMARdatabase

CSMAR

IntRate Interest rate as measured by the natural logarithm of the annual nominallending rate of China

CSMAR

SPrice Stock return as measured by the natural logarithm of yearly closing minusyearly opening Shanghai (securities) composite index

CSMAR

CPIndex Inflation as measured by the natural logarithm of annual CPI CSMARM2(liquidity)

Money supply of China as measured by the natural logarithm of annual M2 CSMAR

Institutional factorsCDist We use a cultural distance index based on Hofstede’s culture dimensions,

namely, power distance, individuality, masculinity, uncertainty avoidanceand long-term orientation (long-term orientation is excluded from thecalculation for lack of data). For each target country in our sample, we dividethe value for the selected cultural index category for that year by thecorresponding value for China and taking the mean across the four ratiosthus obtained as the final value. ValuesW1 signify greater distance andthoseo1 reflect cultural proximity (Gubbi et al., 2010)

Greert-HofstedeIndex (GIS)

AssetS Endowment of knowledge-based resources of host country as measured bythe natural logarithm of yearly patent registration by residents in hostcountry (Buckley et al., 2007)

World Dev.Indicators

TraLink Trade linkage as measured by the natural logarithm of annual imports andexports between home country and host country

CSMAR/WorldDev. Indicators

Source: Chinese Stock Market and Accounting Research (CSMAR) database

Table I.Definition of variables

and descriptivestatistics

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5. Analysis of trends and patterns of Chinese CBM&A5.1 Number of CBM&A by Chinese firmsThe number of deals of CBM&A outflows by Chinese firms during the period 1998-2011 isshown in Table II. The table indicates that the accumulated outward M&As during theperiod from 2007 to 2011 accounts for over 80.24 per cent of the total acquisition whichindicates significant increasing number of CBM&A deals after 2007. During this period, 189deals took place with the highest being recorded in the year 2009. The results in Table IIconfirm CBM&A as a preferred mode of market entry by Chinese firms. The results suggestthat Chinese firms are motivated by the need to acquire strategic assets in order to competesuccessfully in the global stage as pointed by Deng (2004). CBM&A provides a quick way tobuild a foreign presence by gaining access to new knowledge and skills (Boateng et al., 2008;Nadolska and Barkema, 2007). The findings are in line with the conclusion drawn by Zolloand Singh (2004) that CBM&A tend to help companies overcome barriers to entry, accessnew knowledge of markets and technologies, promote organisational learning, and achievecompetitive advantage.

5.2 Value of CBM&A by Chinese firmsTable III shows the yearly deal values of CBM&A by Chinese firms. The value of CBM&As inChina stood at $319 million in 1998 and remained relatively low level until 2006 when thevalue reached $12,090 million. The value of the deals increased dramatically from 2007($19,794 million) to the highest level of $37,941 million in 2008. It then fell to $21,490 million in2009 before rising to $36,554 million in 2011. Although, the rising trends in terms of valueappears consistent with the volume of CBM&A suggesting that the institutional reforms haveplayed a pivotal role in CBM&A by Chinese firms. However, another plausible explanationmay be the financial crisis which occurred in the late 2007 and 2008 which saw a number ofacquisitions being made at cheaper prices in most of the developed countries especially theUSA and countries from the European Union. The results therefore support the valuationhypothesis and economic disturbance theory (Gort, 1969) which posit that M&A waves arecaused by economic disturbances which change individual expectations and increase thegeneral level of uncertainty. The table shows that the accumulated CBM&A over the period2006-2011 accounts for the vast majority of the acquisition. Overall the table suggests thatChina is becoming increasingly important investor in the global market for corporate control.

Year Number Percentage

1998 24 2.421999 23 2.322000 24 2.422001 19 1.922002 34 3.432003 31 3.132004 44 4.442005 45 4.542006 42 4.232007 113 11.392008 168 16.942009 189 19.052010 183 18.452011 143 14.42Total 100 100Source: Authors’ calculation based on CSMAR database, UNCTAD (2012)

Table II.Number of cross-border M&As byChinese firms(1998-2011)

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5.3 Destination of CBM&A by Chinese firmsPanel A of Table IV reports the Chinese CBM&A outflows into developed and developingcountries with about two-thirds of Chinese investments going into developing countries.Panel B of Table IV exhibits the target regional distribution of CBM&A by Chinese firms.As we can see from the table, Asia/Pacific region constitutes the biggest destination ofChinese CBM&A accounting for 66.63 per cent suggesting that geographical and culturalproximity may be important factors as entry mode for Chinese outward investments.Western Europe and North America also appear to be important destinations of ChineseCBM&A, accounting for 11.66 and 9.95 per cent of total deals, respectively. Boateng et al.(2008) and Rui and Yip (2008) point out that Chinese firms as latecomers in the globalmarket tend to acquire strategic resources, such as high-end technology, marketingresources and R&D in developed countries and this may explain the importance of NorthAmerica andWestern Europe as leading destinations for Chinese CBM&A. Latin America isanother important destination of Chinese CBM&A, accounting for 8.02 per cent. This isfollowed by and Africa and Mid-East accounting for 2.35 per cent. The least popular

Year Value of deals (million US dollars) Percentage

1998 319 0.191999 202 0.122000 361 0.222001 1,194 0.722002 1,194 0.722003 1,590 0.952004 917 0.552005 3,653 2.192006 12,090 7.242007 19,794 11.862008 37,941 22.742009 21,490 12.882010 29,578 17.722011 36,554 21.90Total 166,877 100Source: Authors’ calculation based on CSMAR database, UNCTAD (2013)

Table III.Value of cross-border

M&As by Chinesefirms (1998-2011)

Region Number of deals Percentage

Panel ADeveloped economies 312 33.37Developing economies 623 66.63Total 935 100

Panel BAfrica/Middle East 22 2.35Asia/Pacific 623 66.63Western Europe 109 11.66North America 93 9.95Eastern Europe 13 1.39Latin America 75 8.02Total 935 100Source: Authors’ calculation based on CSMAR database

Table IV.Regional distribution

of CBM&Asby Chinese firms

(1998-2011)

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destination is Eastern Europe which accounts for only 1.39 per cent of the total CBM&A byChinese firms suggesting that Eastern European countries are less attractive as majorinvestment destinations for Chinese firms.

5.4 Regression results: factors influencing Chinese CBM&ATable V reports descriptive statistics. A number of interesting observations are worthy ofdiscussion. The mean of GDP growth rate is 9.75 per cent from 1998 to 2011, suggesting ahigh economic development in China during this period. The mean of culture distance indexis 0.4864 suggesting that the cultural distance between China and the rest of the world isincreasingly becoming narrow. The mean of strategic asset seeking and home-targetcountry trade linkage are 3.0488 and 7.2732, respectively, demonstrating that the Chinesefirms tend to acquire targets in knowledge-based countries and countries with moreinternational business linkage.

Table VI reports correlations of the variables. As we can see from the table, mostcorrelations with the exception of the correlation between inflation and interest rate,home-target trade linkage and knowledge-based transactions are fairly low. We check thevariance inflation factor scores and they appear to be within the cut-off point of 10 asrecommended by Neter et al. (1985). Multicollinearity appears not to be a serious problem inthis study.

Comparison of the models. In order to test the impact of macroeconomic and institutionalfactors on the outflows of Chinese M&A, we carried out a regression analysis using OLS,random effect and fixed effect models on the Chinese CBM&A outflows. The Hausmanspecification test is employed to test the fixed effect model and the random effect models.

Variable Obs Mean SD Min. Max.

Growth 154 0.097 0.011 0.076 0.119IntRate 154 0.432 0.106 0.296 0.717SPrice 154 0.135 0.605 −0.654 1.298CPIndex 154 2.756 2.521 −1.400 5.900M2 154 5.616 0.257 5.019 5.930CDist 154 0.486 0.149 0.211 0.750AssetS 154 3.048 1.370 0.301 5.295Tradelink 154 7.273 1.148 3.588 8.649Notes: The table contains the characteristics of the macroeconomics variables and institutional factors of thesamples used in the study. See Table I for the full definition of variables

Table V.Summary statistics(1998-2011)

1 2 3 4 5 6 7 8

1. Growth 12. IntRate 0.446*** 13. SPrice −0.002 −0.211*** 14. CPIndex −0.221*** 0.608*** −0.461*** 15. M2 −0.377*** 0.093 −0.107 0.524*** 16. CDist 0.121* 0.003 −0.051 −0.069 −0.161* 17. AssetS −0.001 −0.080 0.032*** −0.090 −0.108 0.009 18. Tradelink −0.075 0.005 0.013 0.110 0.193* −0.211 0.651*** 1Notes: This table contains Pearson’s parametric correlation coefficients. See Table I for the full definition ofvariables. *,**,***Correlation is significant at 10, 5 and 1 per cent levels, respectively

Table VI.Pearson’s correlationmatrices

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The null hypothesis is: H0: The X variables are not correlated with the errors (RandomEffects). The alternative hypothesis is: H1: The X variables are correlated with the errors(Fixed Effects). The test is asymptotically x² distributed with seven degrees of freedom.The analysis suggests that the random effects model can be rejected in favour of the fixedeffects model at a 1 per cent critical level.

The empirical evidence obtained and reported in Table VII suggests that the coefficientsof interest rates, inflation and money supply are significant for all the regression modelswith the exception of cultural distance variable which appear to be insignificant for fixedeffect model. The results show that the three models offer quite similar findings but slightlydifferent levels of significance. The significant exception is the adjusted R² which suggeststhat random effect has more explanatory power, followed by OLS and fixed effects with25, 20 and 15 per cent, respectively. We now discuss the results of the three regressionmodels reported in Table VII.

Home country macroeconomic factors and CBM&A outflows. Both fixed effect andrandom effect regression models reported in Table VII indicate that GDP growth exerts asignificant influence on the volume of outward mergers and acquisitions by Chinese firms.The results suggest that the growth in GDP leads to higher CBM&A by the Chineseacquiring firms. The results imply that economic prosperity as reflected in the country’sGDP provides an important means for EMEs to expand into international markets toacquire resources lacking at home through CBM&A. Specifically, the period underconsideration has seen a high growth of about 10 per cent increase in China’s GDP and thismay explain the rising trends of CBM&A activities. This finding is consistent with theconclusion drawn by Vasconcellos and Kish (1996) who find that an improvement in thecountry’s GDP has positive effect on investment outflows. Regarding the effects of interestrate, inflation rate and liquidity, all the three analytical methods, namely, OLS, randomeffect and fixed effect models have coefficients that are highly significant. Interest rates andmoney supply have positive impact on Chinese CBM&A. The finding that the lower level ofinterest rates leads to an increase in the Chinese CBM&A renders some support to H2. Thisfinding is expected on the grounds that, the interest rates appear to be relatively low overthe 1998-2011 period thereby leading to cheaper sources of finance with which to undertake

OLS Random effect Fixed effectIndependent variable CBM&A CBM&A CBM&AModel (I) (II) (III)

Growth – 7.178 (3.57)*** 8.162 (4.08)***IntRate 13.700 (3.36)*** 14.680 (4.25)*** 16.480 (4.72)***SPrice 0.048 (0.13) −0.007 (−0.02) −0.290 (−0.77)CPIndex −0.616 (−3.62)*** −0.654 (−4.06)*** −0.793 (−4.69)***M2 4.642 (4.88)*** 5.135 (5.63)*** 6.752 (4.19)***CDist 4.813 (3.28)** 4.560 (2.47)* –AssetS 0.211 (1.02) 0.126 (0.54) 0.767 (2.00)*TraLink 0.129 (0.48) 0.223 (0.72) 0.812 (0.51)Constant −13.490 (−2.02)* −17.520 (−2.51)** −25.510 (−3.88)***Adjusted R2 0.20 0.25 0.15Hausman test 430.20***N 154 154 154Notes: The standard errors robust to heteroscedasticity, clustered, are reported in the parentheses. Hausmantest compares fixed effects and random effects estimations. The significant p-value rejects the null hypothesisthat the unobserved entity heterogeneity is uncorrelated with the regressors, hence favouring fixed effectresults. *,**,***Coefficients are significant at the 10, 5 and 1 per cent levels, respectively

Table VII.Regression results

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outward CBM&A. Regarding the liquidity, our hypothesis is supported. The finding suggeststhat rising levels of liquidity in the home economy lead to lower cost of finance thusencouraging CBM&A formation as pointed out by Shleifer and Vishny (1992) and Uddin andBoateng (2011). Inflation appears to have a negative and significant impact on the CBM&Aoutflows across all the three analytical models at 1 per cent level. This may be explained bythe rising levels of inflation in China. Inflation in China has been rising in recent years therebyexerting a negative influence on CBM&A. Surprisingly, stock index has positive coefficient inthe OLS model while negative coefficients in the random and fixed effects models. However,the effects of stock price on Chinese CBM&A are not statistically significant. The resultssuggest that home country macroeconomic factors drive CBM&A decisions by the Chinesefirms and provide support for the institutional and location theories.

Cultural factors and M&A outflows. We document a significant and positive impact ofculture distance on CBM&A in respect of two regression models, namely, OLS and randomeffect on Chinese CBM&A outflows. H6 is supported suggesting that higher culturaldistance between the host and target countries tend to encourage CBM&A outflows fromChina. This finding is consistent with the view of Very et al. (1996), Morosini et al. (1998),Anand et al. (2005) and Chakrabarti et al. (2009). The findings indicate that cultural distanceprovides opportunities for Chinese firms to learn and tap into valuable resources inculturally diverse target organisations thereby enhancing their competitive advantage(Morosini et al., 1998) and capabilities (Papadakis, 2005). The results also support the notionthat cultural differences may lead to cultural attraction (Very et al., 1996) and increase inCBM&A outflows in culturally distant countries.

We also find moderate support for the relationship between resource seeking and CBM&Aoutflows. All the three models appear positive with fixed effect model being significant at10 per cent level. This finding is interesting because Chinese government through its“go abroad” policy provides financial support and other incentives to firms making acquisitionsabroad in the government priority sectors. The finding therefore supports the notion thatmanagers are organisationally rational and would implement strategies such as acquisitions toobtain competitive advantage (Simon, 1976). Regarding the trade link between home and hostcountries, the finding suggests that trade between home and host countries appears not to exerta significant influence and hence our hypothesis is not supported. The finding is at variance withthe conclusion drawn by Buckley et al. (2012) indicating that existing trade linkage stimulatesinvestment outflows. Table VIII provides a summary of the results of our study in comparisonswith the past studies on CBM&A which are mainly based on developed countries. The tablesuggests that home country and institutional factors including interest rates, stock prices,cultural distance and strategic asset seeking have positive effects on CBM&A outflows similarto prior studies in developed countries confirming the importance of home country economicpolicies and institutions in firm’s foreign expansion decisions. However, the results in respect ofGDP, inflation, liquidity and home-host country trade linkage produced inconclusive findings.

Robustness check: system GMM. We conducted a further analysis using the dynamicmodel to check the robustness of our conclusions. Table IX provides the results for thedynamic model using system GMM. In the dynamic model, we include all factors in theregression model. It is important to note that the GMM results after controlling forendogeneity are generally similar to the results in Table IV.

6. ConclusionThis paper examines the trends, patterns and the impact of cultural and home countrymacroeconomic policies on CBM&A as an entry mode using three analytical regressionmodels, namely, OLS, random and fixed effects. Our results indicate that Chinese firms useCBM&A as an entry mode to acquire, build a foreign presence and gain access to new

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Home country factors Findings of the present studyFindings of past studies positivenegative insignificant

Growth of GDP Positive relationship between GDP andCBM&A by the Chinese acquiring firms

Vasconcellos and Kish (1996)(US and Canada)Uddin and Boateng (2011)(UK)

Interest rate Positive relationship between interest rates andCBM&A

Uddin and Boateng (2011)(UK)

Stock price Relationship between stock price and CBM&Ainsignificant

Kish and Vasconcellos (1993)( Japanese firms)Shleifer and Vishny (2003)Uddin and Boateng (2011)(UK)

Inflation Negative relationship between Inflation andCBM&A

Uddin and Boateng (2011)(UK)

Liquidity (M2) Positive relationship between liquidity andCBM&A

Shleifer and Vishny (1992)Uddin and Boateng (2011)(UK)

Culture distance Positive relationship between higher culturaldistance and CBM&A outflows

Very et al. (1996)Morosini et al. (1998)Chakrabarti et al. (2009)

Strategic asset seeking Positive relationship between strategic resourceseeking and CBM&A outflows

Chen and Young (2010)Rui and Yip (2008)

Home-host countryForeign trade linkage

Insignificant relationship between trade linkand CBM&A outflows

Buckley et al. (2012)

Table VIII.Comparison: ourfindings vs past

studies on CBM&A

Independent variable CBM&A

Growth 2.136 (0.04)IntRate 12.981 (2.53)**SPrice −1.400 (−1.28)CPIndex −1.149 (−3.36)***M2 −10.213 (−1.42)CDist 6.785 (2.15)**AssetS 0.437 (1.03)TraLink −0.001 (−0.00)CBM&A (t-1) 0.237 (1.24)Constant 0.383 (0.03)Wald test 1,474.14AR(1) test ( p-value) 2.10 (0.036)AR(2) test ( p-value) 1.24 (0.214)Hansen J ( p-value) 6.14 (0.90)Diff-in-Hansen tests ( p-value) 2.69 (0.61)Notes: See Table I for the full definition of variables. Volume of CBM&A is dependent variable. The standarderrors robust to heteroscedasticity are reported in the parentheses. Wald statistic tests the joint significance ofestimated coefficients; asymptotically distributed as χ2(df ) under the null of no relationship. AR(1) and AR(2)are the first- and second-order autocorrelation of residuals, respectively; which are asymptotically distributedas N(0,1) under the null of no serial correlation. Hansen J is the test of over identifying restrictions,asymptotically distributed as χ2(df ) under the null of instruments’ validity. We tested for the endogeneity ofshare price using the “Difference-in-Hansen” statistic, for which the null hypothesis states that laggeddifferenced instruments used for the equations in levels are exogenous. *,**,***Significant at the 10, 5 and 1per cent levels, respectively

Table IX.System generalisedmethod of moments

(GMM) results

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knowledge and skills in culturally diverse locations. We also find that home countrymacroeconomic policies play an important role in explaining the CBM&A outflows by theChinese firms rendering support to H1, H2, H5, H6 and H7. On the influence of nationalculture, our results suggest cultural distance has a positive bearing on Chinese CBM&Aformation – a view consistent with the conclusions drawn by Very et al. (1996), Morosiniet al. (1998), Anand et al. (2005) and Chakrabarti et al. (2009). Our regression results suggestthat strategic asset seeking exerts significant influence on CBM&A outflows and the resultsappear consistent with the Chinese government’s “go abroad” policy which encouragesChinese firms to seek strategic resources abroad.

6.1 Theoretical implicationsIn contrast to prior studies which have focussed on host country macroeconomic variables,the current study provides evidence of the effects of the home country macroeconomic,strategic asset seeking and cultural variables on EME international expansion decisions.The results suggest that government support to EMEs to acquire strategic assets andeconomic policies in the home country play an important role in shaping internationalexpansion behaviour of EMEs through CBM&A. More importantly, the study demonstratesthat outward investments of EMEs are partly a function of the level of economic policies andgovernment support at home. This finding also implies that emerging country governmentpolicy can leverage support to EMEs in their process of global expansion and competitionthereby supporting the political economy view of FDI which suggests that government andhome country policy environment matter for a firm’s investment strategies. Regarding theeffects of culture, this paper enriches the institutional perspective and indicates that culturaldistance impacts on Chinese international market expansion in the global market.

6.2 Managerial and policy implicationsThe policy implication is that home country macroeconomic policies and institutions do notonly influence CBM&A outflows but also shape international expansion and market entrystrategies of Chinese firms. The results imply that economic policies at home spur theprocess of internationalisation and growth of EMEs thereby helping policy makers todetermine the effectiveness of their economic policies. The results also imply that Chinesegovernment support for firms going abroad to seek resources that China lacks in order tobolster the nation’s competitive advantage is in the right direction and lead to an increase inCBM&A outflows. We suggest senior managers charged with the responsibility of makinginternational expansion decisions in an attempt to secure strategic and other marketingresources such as new brands, product development and extension to gain competitiveadvantage should pay attention to cultural and home country macroeconomic policies.

Although this study focusses on China, the findings have implications for otheremerging economies given the significant and similar macroeconomic policies have takenplace in most emerging market countries, particularly, BRIC countries. While this studycontributes to the growing stream of research on EMEs by testing whether macroeconomicand cultural factors drive international expansion of emerging market enterprises, itslimitation should be noticed. The limitation is that most of the Chinese CBM&A transactionsin this study took place in Asia/Pacific countries. More studies appear warranted. Furtherstudies should examine whether a cross-section of emerging countries with high growthrates as latecomers in the global market for corporate control would generate similar resultsconsistent to what we found in our examination of Chinese firms.

Note

1. Establishment mode encompasses acquisitions and greenfield.

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Further reading

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UNCTAD (2006), “World investment report 2006: cross-border mergers and acquisitions anddevelopment”, United Nations, New York, NY and Geneva.

Vasconcellos, G. and Kish, R. (1998), “Cross-border mergers and acquisitions: the European-USexperience”, Journal of Multinational Financial Management, Vol. 8 No. 4, pp. 431-450.

Appendix. List of target countriesUnited Arab Emirates, Australia, Belgium, Barbados, Bahrain, Canada, Cayman Islands, Cyprus,Czech Republic, Germany, Denmark, Finland, France, Great Britain, Greece, Hong Kong, Ireland, Israel,Italy, Japan, Korea, Luxembourg, Macao, Mauritius, Malaysia, The Netherlands, New Zealand,Panama, Philippines, Poland, Portugal, Russia, Saudi Arabia, Singapore, Sweden, Thailand, USA,British Virgin Islands, Vietnam, Samoa, South Africa.

About the authorsAgyenim Boateng is a Professor of Finance, Banking and Financial Services at the GlasgowCaledonian University, Glasgow, UK. Agyenim Boateng is the corresponding author and can becontacted at: Agyenim.Boateng@gcu.ac.uk

Min Du is a Senior Lecturer in Finance at the Leeds Business School, Leeds Beckett University, UK.Yan Wang is a Lecturer in Finance at the University of Huddersfield, Huddersfield, UK.Chengqi Wang is a Professor of International Business at the University of Nottingham, UK.Mohammad F. Ahammad is a Senior Lecturer at the Nottingham Trent University,

Nottingham, UK.

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Multi-country collaborativeinnovation in the

internationalisation processHela Chebbi

EDC Paris Business School, Paris, FranceDorra Yahiaoui

Kedge Business School, Marseille, France, andAlkis Thrassou

University of Nicosia, Nicosia, Cyprus

AbstractPurpose – The purpose of this paper is to operationalise the collaborative cross-border innovation processemployed by multinational corporations in their effort to penetrate new markets.Design/methodology/approach – The paper is based on the case study of a leading Europeantelecommunications group (OPERACOM). Methodologically it relies on 32 interviews, observation andsecondary data analysis, and is theoretically founded on an extensive (mostly narrative and partlymeta-synthetic) literature review.Findings – The findings show that two new activities merit inclusion in the collaborative cross-borderinnovation process: strategic marketing anticipation and pre-opportunity studies. In this context, threestrategic marketing levers are elucidated: subsidiaries’ knowledge integration, communication/coordinationmechanisms, and collaboration-governance; interrelating on the way the activities and elements comprisingthe breadth and depth of the process’ continuum.Research limitations/implications – These stem from and are inherent to the very nature of the research(case study), which proscribes generalisations. Additionally, the research’s long-term span subjects the resultsto some inevitable potential temporal distortions.Practical implications – The research findings, owing to their detailed and activity-specific disposition,constitute a case prototype towards further and/or corresponding application to organisations of this and/orother industries; presenting executives with an existing and market-tested positive paradigm of theinnovation aspect of the collaborative market-entry mechanism.Originality/value – Carrying significant scholarly and executive value, the research substantially andspecifically enhances the understanding of innovation as an integral part of the internationalisation process,describing and prescribing explicit processes and actions throughout the horizontal and verticalorganisational axes.Keywords Knowledge, Telecommunications, Europe, Innovation process,Collaborative cross-border innovation, Foreign market entry, International marketing strategy,Multi-country innovationPaper type Research paper

IntroductionUnderstanding cross-border collaborative entry modes stems from the identification andcomprehension of the critical factors involved therein. This research, focussing on one suchcritical factor (cross-border innovation), studies, comprehensively refines, and develops thecorresponding process; interrelating on the way the activities and elements comprising thebreadth and depth of its continuum.

Research contextIn contemporary business, international markets are an integral part of the life of a growingnumber of firms (Czinkota and Ronkainen, 2013). Inexorably, the number of cross-bordercollaborative partnerships (mergers and acquisitions (M&A), joint ventures ( JVs), strategic

International Marketing ReviewVol. 34 No. 1, 2017

pp. 109-137© Emerald Publishing Limited

0265-1335DOI 10.1108/IMR-12-2015-0286

Received 22 December 2015Revised 22 September 2016

Accepted 23 September 2016

The current issue and full text archive of this journal is available on Emerald Insight at:www.emeraldinsight.com/0265-1335.htm

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alliances, etc.) has significantly increased since the mid-1990s (Ahammad et al., 2012;Gomes et al., 2011; Rossi et al., 2015) in different business sectors. Czinkota et al. (2009),for example, explored the foreign market-entry modes of US business schools. Theyhighlighted the importance of a clear international market-entry strategy for the educationalinstitution to choose among licensing, franchising, JV, or full equity investment modes. Themarket strategy can be affected by the political (P), economical (E), and social (S) conditions(Whitelock and Jobber, 2004). Chiao et al. (2010) found that the entry mode choice depends onmany factors: the firm-specific assets, the international experience, the investment in aforeign market to satisfy a certain customer category, the firm’s sleekness of complementaryassets abroad, and the perceived institutional differences between a firm’s home countryand the host country. They further concluded that the entrant entity should have a goodunderstanding of the target market and a structured communication strategy.

Daniels et al. (2009) identified the JV as a type of popular ownership among internationalcompanies in which more than one organisation owns a company. This type of collaborativeentry mode can help to share knowledge (culture differences and business systems), cost,and risk. For some countries, such as China, it is sometimes the only way for a foreigncompany to penetrate a market (Bresciani et al., 2015; Hill, 2009). However, conflicts mayappear between partners because of disparities in their bargaining power and control issues.

Another cross-border collaborative entry mode, for the purposes of this research, is theM&A operation. Researchers are paying more and more attention to M&A (Gomes et al.,2013; Junni et al., 2015a; Sarala et al., 2014; Tarba et al., 2012), but many M&A underperformin spite of their growing numbers (Gomes et al., 2011). Many factors have been identified asunderlying this phenomenon, including the individual and group reaction to changes andnational and corporate cultural distance (Hill and Birkinshaw, 2014; Weber et al., 2011), forexample. This research, however, still focusses on one part of the process (pre-acquisition orpost-acquisition phase).

Using a processual approach, Gomes et al. (2013) identified the main critical success factorsassociated with the whole cross-border M&A process. For the post-acquisition phase, whichconstitutes this paper’s focus, specific factors were identified as important, includingintegration strategies, post-acquisition leadership, speed of implementation, the post-mergerintegration team, communication, and the management of corporate and national culturaldifferences. In the post-acquisition phase, cross-border innovation constitutes a particularchallenge because the acquiring and acquired units should collaborate to satisfysimultaneously the needs of the individual markets and the strategic marketing aims of theinternational group, all within a marketing system that engulfs the wide-ranging spectrum ofknowledge, management, processes, structures, cultures, and so on of the constituentorganisations (Kauppila, 2010; Styhre and Sundgren, 2005; Thrassou et al., 2012).

Aims, findings, value, and structureThis research is descriptive and qualitative and answers the following question:“While venturing abroad, how can multinational corporations effectively collaborate withtheir acquired firms in order to innovate”? In answering this question, the paperoperationalises the collaborative cross-border innovation process employed bymultinational corporations in their efforts to penetrate new markets. Characterised byglobal-local arbitrage and significant involvement of strategic partners and acquired firms,such processes have the merit of encouraging the development of multi-countryinnovations. Through a detailed case study of a French telecommunications group, thispaper highlights the importance of creating specific activities to encourage acquired firms tocontribute to the global innovation process.

The findings show that, in the context of internationalisation, the classic innovationprocess is insufficient. In the post-integration phase, the acquiring company should gain the

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commitment of the acquired firm to get global innovation. This paper highlights theimportance of creating new activities through which acquired firms can generate addedvalue. Two main activities merit inclusion in the global innovation process: strategicmarketing anticipation and pre-opportunity studies. In this context, to facilitatecollaboration with the acquired firm, three strategic marketing levers are studied andhighlighted: the acquired firm’s knowledge integration, communication-coordinationmechanisms, and collaboration-governance. The results further demonstrate the way inwhich these levers evolve throughout the entire innovation process.

The value and contribution of this paper stem from its detailed research on the chosencase (OPERACOM), its long-term span, which follows the case from implementation tomaturity, and the consequent elucidations regarding innovation and adjacent systems ascross-border collaborative market-entry modes. Specifically, the study of OPERACOMreveals a positive paradigm whose unique global innovation processes result in thedevelopment of new “multi-country” services capable of simultaneous commercialisation inseveral markets. The case study presents an excellent example of collaborative partnershipacross organisations and countries, within a wider and explicitly designed strategicmarketing context that produces a practicably effective, and efficient international market-penetration system. Of further significant scholarly and executive worth, the researchsubstantially and specifically provides new insights to innovation as an integral part of thecollaborative internationalisation process, describing and prescribing explicit processes andactions throughout the horizontal and vertical organisational axes.

The paper initially undertakes a narrative literature review towards the construction ofits theoretical foundation, injected throughout the work with more targeted meta-syntheticanalysis. The methodology section ensues and, thereafter, the findings, starting with thedescription of the new multi-country innovation process. Subsequently the findings on theinternational strategic-integration phase, the adaptive market pre-opportunity studiesphase, and the international commercialisation phase are presented. The findings are thendiscussed to distil their meaning and essence to finally draw scholarly conclusions andexecutive implications and to prescribe future research on the subject.

Theoretical foundation – a narrative literature reviewInnovation in collaborative market-entry strategiesTo enter new international markets, multinational corporations face two important strategicdecisions: foreign direct investment establishment and/or ownership-mode strategies. Thesecorporations have to decide whether to acquire an existing enterprise (acquisition), build anew start-up (greenfield investment), or create a JV with a local partner (Arslan et al., 2015).M&As are considered to be one of the important mechanisms for the growth andinternationalisation of firms (Almor et al., 2014; Sarala et al., 2014). To ensure highacquisition performance, the integration between the acquiring and acquired firms shouldbe considered carefully (Yahiaoui et al., 2016). Future performance can be affected bydifferent factors such as strategic agility ( Junni et al., 2015a, b) and cultural distance(Weber et al., 2011).

Innovation is considered to be a good indicator of the acquisition’s performance. In recentyears, an increasing number of studies have examined the process used by large groups todevelop new products for both local and international markets (Doz et al., 2001; Doz andWilson, 2012; Zander and Sölvell, 2000). Certain researchers have stressed the importance ofdeveloping such a process in order to benefit from global networks (Birkinshaw, 1998;Ghoshal and Bartlett, 1988; Subramaniam and Venkatraman, 2001), and others haveattempted to study the characteristics of these process, including their structure, actors, andorganisation (Doz et al., 2001; Doz and Wilson, 2012; Elenkov et al., 2005; Jansen et al., 2012;Subramaniam, 2006). Despite focussing especially on the complexity of managing

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innovation in an international context and the importance of its development (Dachs andPyka, 2010; Flynn et al., 2003), very few studies have succeeded in operationalising thisprocess. Several questions, in fact, remain to be answered, such as “Which activities makeup the global innovation process”? “How do the actors’ roles (Lavie et al., 2010) evolve ineach of these activities”? “What types of knowledge does each firm bring to each activity”?and “How do the communication mechanisms evolve throughout the process”?

In one of their more recent works, Doz andWilson (2012) have attempted to provide someanswers to the above questions by examining the innovation process in its entirety.This research develops the ideas of these authors by proposing a detailed examination ofthe characteristics of each activity in the process. After describing the new global structureof the process, it focusses on three main components of each activity: the knowledge to beintegrated, the actors’ roles, and the communication mechanisms.

Taking a step back in the narrative review, the ability to increase international salesvolumes while also reducing costs has long been identified as one of the key challengesfacing major groups (Ghoshal and Bartlett, 1988; Harzing, 2000). The question, however, isno longer simply whether to standardise or adapt (Boddewyn et al., 1986; Vrontis et al.,2009); companies instead need to successfully find an equilibrium between these twotensions (Bartlett and Ghoshal, 1989; Birkinshaw, 1998; Vrontis et al., 2009; Zander andSölvell, 2000). Centralised (central for global) or local (local for local) processes havegradually given way to globalised processes (Bartlett and Ghoshal, 1989; Doz and Wilson,2012). These are called hybrid processes, during which the different actors (parent company,subsidiaries, partners, acquired firms) interact and transfer and pool their knowledge todesign, create, and develop a new “multi-country” product that is launched simultaneouslyon several different markets. This new type of process, which illustrates the transnationalstrategy employed by multinationals, has been examined by a number of researchers.

In order to operationalise the transnational innovation process, Subramaniam andVenkatraman (2001) introduced the notion of the “sprinkler strategy”, wherebymultinationals develop products that “contain both features that are standardized acrossmarkets and features that are responsive to individual markets” (p. 360) simultaneously formultiple markets. Although their research provides us with little information on the actualfunctioning of the global innovation process, it does highlight the importance of thesimultaneous nature of international product development (Hui Li and Huang, 2012).Doz et al. (2001) had previously made an initial attempt at operationalisation with their“metanational” model. This model shows that the simple international projection ofknowledge (and innovations) from the parent company is a real “handicap” for innovation.To remedy this situation, three key phases for exploiting this globally dispersed knowledgeare proposed: “sensing” (prospecting for globally dispersed strategic knowledge andopportunities based on the network developed), “mobilising” (mobilising knowledge ownersas “magnets” by creating a common language and performance measures), and “operating”(operationalisation by developing operating lines and global functions based on “think local,act global” (Park and Vanhonacker, 2007). This model takes into account the different levelsat which knowledge is integrated, albeit it sheds little light on the nature of this knowledgeand on the governance applied.

Knowledge as an international market-entry tool to innovateKnowledge transfer is critically important for value creation, both for the acquirer and forthe target of a cross-border M&A (Ahammad et al., 2016a). In fact, in the pre-acquisitionphase, acquirers can try to identify where potential complementarities are located in thetarget firm and create incentives to retain employees with complementary skills (Saralaet al., 2014). This has been founded on resource- and knowledge-based arguments,highlighting that the firm’s resources and its knowledge, particularly, determine value

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creation in acquisitions ( Junni et al., 2015b). The resource-based view conceptualises firmsas bundles of heterogeneously distributed resources and capabilities (Barney, 1991).Competitive advantage can be achieved through resources that are valuable, rare,imperfectly imitable, and non-substitutable. Knowledge, in particular, is considered to be themost important resource of the firm (Grant, 1996). Firms can achieve higher performancewith intangible, idiosyncratic, and non-substitutable knowledge.

Knowledge complementarities create unique combinations for the acquirer and the targetfirm that are more difficult for competitors to imitate ( Junni et al., 2015b). This knowledgecomplementarity can be useful to achieve high-innovation performance ( Junni et al., 2013).Doz and Wilson (2012) added to this reflection by positioning dispersed knowledge at theheart of the new innovation process. For these authors, companies should not project theirinnovations via local adaptation. Instead, they should capture the most useful internationalmarket knowledge and integrate it into the innovation process. Integrating knowledge istherefore a strategic driver for developing dispersed (Doz and Wilson, 2012) and agile(Wilson and Doz, 2011) innovation. The authors identify three types of knowledge: explicit,embedded, and existential:

(1) Explicit. Codified, modular, complementary, and transferable via a commonlanguage, this knowledge stems from scientific research and discovery. Thisapproach is known as “attracting”. Its integration in the innovation process appearsto be relatively easy, with little resistance or evidence of the “not-invented-here”(NIH) syndrome. This exchange of knowledge may create added value in terms ofsubstitution (cheaper production, for example).

(2) Embedded. Linked to local contexts, observable but difficult to define precisely, thisknowledge must be well understood. It is for this reason that Wilson and Doz (2011)suggest a flexible approach, known as “foraying”, based on identifying anddispatching “scouts” to companies that have produced new knowledge. The role ofthese actors is to understand the feasibility in the country of origin. To achieve this,site visits are essential: local experts present their work in the country of origin andthe scouts travel to the site to understand the technology as developed in its localcontext.

(3) Existential. Systemic and linked to the local context, norms, and behaviours, thistype of knowledge is complex and does not belong to any given group. Itsintegration in the global innovation process stems from what Wilson and Doz (2011)refer to as “experiencing”. Examples may include the creation of a local innovationcentre. In this context, bicultural (or multicultural) managers could be asked to act asrelays. This diversity may reduce the cultural distance (Mayrhofer and Roth, 2007)and facilitate the absorption (appropriation) and elucidation of knowledge arising indifferent contexts.

These three knowledge types are essential for developing “multi-country” innovations.Although not detailed with regards to each activity within the process, the typology doesenlighten scholars and managers as to the diversity of knowledge to be integrated and theactions to be implemented in this context. Doz and Wilson (2012) position this approachwithin a global framework in which the optimum integration of knowledge is achieved viathree main actions: the innovation footprint, communication, and collaboration (Figure 1).

Optimisation of the international marketing innovation footprint, communication,receptiveness, and collaborationDoz and Wilson (2012) maintain that networks should be developed based on thelocalisation of critical knowledge. The company should, thus, begin by mapping the

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network of critical knowledge before selecting locations, which requires a significantamount of agility and flexibility. The authors have identified five pre-determinants of thesize and dispersion of the footprint: the knowledge required, strategic choices,organisational ability, corporate culture, and company history.

In order to integrate knowledge into the global innovation framework, several obstaclesneed to be overcome: lack of receptiveness, unsuitable communication tools (technologies),differences in context (structure, culture, norms, language), and complexity of knowledge. To dothis, the authors emphasise the importance of diversifying communication methods. From atechnological point of view, communities of practice, workflows, online forums, andvideoconferences can facilitate the global exchange of knowledge. These tools need to becompleted by organising face-to-face meetings, transferring “key” managers between thedifferent company sites, using a common language, ensuring senior manager support,involving bicultural, cosmopolitan managers, temporarily co-locating teams, as well asdeveloping a corresponding internal marketing mix (Vrontis et al., 2010). These people-basedmechanisms build up trust between managers while also reducing potential tensions andmisunderstandings. Applying these to M&As, Junni et al. (2015b) found that acquirerknowledge transfer contributed to performance following the acquisition. Many factors canfacilitate this transfer between the acquirer and the acquired firm, such as the socioculturalinterfirm linkages (complementary employee skills, trust, collective teaching, and culturalintegration) (Sarala et al., 2014), HRM, social capital (team meetings, shared language)(Aklamanu et al., 2016), collective commitment (cultural acceptance and cultural learning) ( Junniet al., 2015a, b), and planned employee retention (Ahammad et al., 2016b; Zhang et al., 2015).

In terms of co-developing innovations, collaboration needs to be optimised among thedifferent global sites and actors. On this topic, Doz and Wilson (2012) have identified threephases for defining global projects: identification, definition, and delivery:

(1) Identification consists of collecting ideas (of different natures) sourced from differentlocations and functions. Open-mindedness, dialogue, and trust are needed to movefrom the idea to the design concept.

(2) Definition consists of answering the question “Who does what?” Staffing should beorganised according to the capability of each team rather than the team’savailability. Informal communication, site visits, and temporary transfers are crucialfor finding a consensus and defining the details of the project (architecture, interface,organisation of activities, reporting structure, stability, etc.). This enables allcontributors to understand the project (Wilson and Doz, 2012).

Complexknowledge

Moving Towards Global Innovation

Knowledgecomplexity

Explicitknowledge

Co-locatedInnovationFootprint Dispersed

Optimise

collaboration

Optimise

Communication

and receptivity

Optimise

the “footprin

t”

Source: Doz and Wilson (2012, p. 9)

Figure 1.Knowledge complexityin managing globalinnovations

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(3) Delivery represents the beginning of the project’s real operations. In this phase, theimplication of the different sites varies. A site leader should be appointed in order tocoordinate the different actors (internal and external) (Wilson and Doz, 2012).

As emphasised, few studies have attempted to operationalise the global innovation process.Subramaniam (2006) highlights the importance of three factors – transnational teams,transnational communication, and transnational collaboration – but does not provide detailson these factors. The contribution of Doz and Wilson (2012) has the additional merit ofproposing practical lessons to managers on the nature of dispersed knowledge (explicit,embedded, and existential), communication methods, and collaborative phases.

These factors although characterising the entire process, evidently merit more detailedexamination for each activity, because they help firms, and especially the acquirer, toidentify new opportunities of innovation. According to the dynamic capability perspective,the acquirer should have the ability to identify a target and use its knowledge to helpmerging firms renew or transform their resource bases continuously in a changingenvironment ( Junni et al., 2015b; Teece et al., 1997). The limited attention to these factors inexisting literature thus constitutes a discernible gap in knowledge. The research’stheoretical foundation and its consequentially established need to develop this frameworkhave thus led to a formulation of the main research question:

RQ1. While venturing abroad, how can multinational corporations effectivelycollaborate with their acquired firms in order to innovate?

This primary question subsequently and naturally gives rise to sub-questions:

RQ1a. Which activities make up the global innovation process?

RQ1b. How do the actors’ roles evolve in each of these activities – especially regardingthe acquirer firm?

RQ1c. What types of knowledge does each firm bring to each activity?

RQ1d. How do the communication mechanisms evolve throughout the process?

The research was, thus, designed and executed towards best answering these questions, ashereafter described.

Research methodology – the OPERACOM case studyResearch designConsidering the exploratory nature of this study, it was deemed important to make anin-depth analysis of the global innovation process within an international group that wasexperiencing the development of “multi-country” innovation.

This paper builds theory within a relatively new area and adopts the case study as avalid research approach, which is considered especially appropriate in such contexts(Eisenhardt, 1989). The case study is a research strategy that focusses on understanding thedynamics present within single settings. This research has partly applied Eisenhardt’s(1989) theory, which supports that theory-building research begins “as close as possible tothe ideal of no theory under consideration and no hypotheses to test” (p. 536). And though(Eisenhardt admits) this is practically impossible to achieve, attempting to approach thisideal is important because preordained theoretical perspectives or propositions may biasand limit the findings. “Thus, investigators should formulate a research problem andpossibly specify some potentially important variables, with some reference to extantliterature” (p. 536). This approach bears the strengths of the likelihood of generating noveltheory, because creative insight often arises from the juxtaposition of contradictory orparadoxical evidence, that the emergent theory is likely to be testable with constructs that

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can be readily measured and hypotheses that can be proven false, and that the resultanttheory is empirically valid because the theory-building process is so intimately tied withevidence that it is very likely that the resultant theory will be consistent with empiricalobservation. This research’s design, though, also considered the potential weaknesses of apossible yielding of theory that is overly complex or narrow and idiosyncratic and unable toraise the level of generality of the theory. In view of the theoretical and practical contextualfactors of this research, therefore, this research has applied the case study methodologypartly through the theory-building approach.

The study is based on the case of OPERACOM, an international telecommunicationsgroup and leader in the French market. Throughout the early and mid-2000s, in order toestablish a European presence, the group implemented an increasingly internationallyfocussed strategy based on acquiring and creating a number of subsidiaries. In fact,OPERACOM created its own subsidiaries in several countries, such as Spain, Germany, andthe UK. In other countries, such as Poland, it acquired a local firm and named it POLCOM.OPERACOM acquired POLCOM through a multi-billion Euro deal to boost its internationaldevelopment and benefit from its technological know-how. Indeed, POLCOM was onetechnological step ahead of France regarding the MPEG4 technologies (this standardspecifies the techniques that deal with the contents of sequences including one or moreaudio-video objects) as well as the UMTS (the third-generation telecommunication standardused in Europe and based on W-CDMA technology). The acquisition of POLCOM by theOPERACOM group thus favoured its growth because it benefited from a new market andthe synergy of a complementary technology.

In this context, the implemented integration process focussed on two main steps: discoveryand rationalisation. Discovery lasted a year and allowed POLCOM to become familiar withOPERACOM’s activities as well as its innovation strategy and so on. Numerous exchangesand meetings were held with that aim. Meanwhile, the French managers were engaged in aconsolidation process to identify the key competences within POLCOM with itstransformation into a centre of excellence in mind. For this purpose, two French managerswere appointed as expatriates in Poland. Subsequently, the rationalisation phase was put inplace to enable OPERACOM to use the know-how of POLCOM managers. It is within thisframework that POLCOM started participating in the global innovation process that wasdesigned and driven by OPERACOM. At the beginning, managers of both entities facedseveral problems, which were resolved through mutual communication and trust.

Despite this burgeoning development, “the results of the group fell short of itsinvestment”, as emphasised by one R&D manager interviewed. An audit performed severalyears later showed that the services developed by the parent company in France weredifficult to market in certain countries. This observation and the desire of the parentcompany to benefit from the expertise of its subsidiaries led senior management to designthe NExT plan (“new telecom experience”). This plan involved reorganising the group bycountry, gradually phasing out the divisions (internet, mobile, and landline), integrating theinformation systems and the networks linking the countries, and creating new structures.The aim of these changes was to revitalise the innovation process and give the internationalgroup the competitive marketing edge it was seeking to begin with.

This company background thus shows the case to be a good opportunity tooperationalise the collaborative cross-border innovation process, its activities, the roles ofactors involved in each activity, the type of knowledge integrated, and the way theyintegrate with each other.

Data collectionIn order to understand the specific characteristics of this new process, an exploratory studybased on three series of (16, 9, and 7) interviews and secondary data analysis was performed

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(Eisenhardt, 1989; Yin, 2009) within this single case study. In fact, there is a lack of priorresearch on the operationalisation of the global innovation process and the factors related toeach of its activities, so an exploratory case study methodology (Eisenhardt, 1989) enables“an extensive examination of a single instance of a phenomenon of interest” (Hussey andHussey, 1997, p. 65). Moreover, this qualitative approach was deemed to be the mostappropriate regarding questions of the how and why nature (Stewart et al., 1994; Yin, 2009).

In the first data collection phase, 16 semi-directive interviews took place with parentcompany managers in France. These managers are actors of the global innovation projectand were able to describe the different phases of the new innovation process.The interviewees’ profiles are detailed in Table I. These interviews were conductedfollowing the implementation of the various international strategic marketing changesand lasted about 90 minutes each. They addressed the following issues: the key phases forconstructing a new innovation process, managing (decision making and coordination),structures, the actors involved, and the knowledge exchanged between the parentcompany and its subsidiaries. To address the confidentiality issues surrounding thisproject, the data sources were increased to also include several internal documentsproduced by the parent company to inform its employees about this new project, andmeetings between the group’s strategic marketing division and certain local unit’smanagers were attended.

Because the information collected was essentially sourced from the parent company, itwas deemed scientifically proper that it should be completed through interviews withinternational actors. Thus, and in order to record the latter’s opinions and perspectives andto better understand the new, continually evolving innovation process in its longer-termmaturity, a second series of interviews were performed. In total, nine additional interviewswere performed with managers sitting on the various newly created boards and who areinvolved in the multi-country innovation process. Their profiles are shown in Table II.

Interviewee’srole

IS integrator(IS partner)

Inventor, developer,ergonomist, designer,

qualityMarketingpartner (P)

Middlemanagement(marketing R&D)

Strategicmarketing

Division Network andinformationsystem

R&D Explocentre Technocentre Technocentre

Number ofinterviews

1 7 2 3 3

Note: Explocentre is a structure tasked with identifying and assessing new ideas

Table I.Profiles of the

managers interviewedat the parent company

Structure Country product board (CPB)International productboard (IPB)

Internationalmarketing board(IMB)

Number ofinterviews

3 3 3

Profiles ofinterviewees

1 R&D manager (Polish-acquired firm,3P team)

1 R&D manager (England,ex-expatriate in France)

1 marketingmanager (Germany)

1 marketing manager (Polish-acquired firm,3P team, ex-expatriate in France)

2 country representatives(Poland and England)

1 marketingmanager (Poland)

1 information systems manager (Germansubsidiary, 3P team, ex-expatriate in France)

1 marketingmanager (Spain)

Table II.Profiles of the

managers interviewedat the international

structures

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Each interview lasted for an average of 90 minutes. Interviewees who were involved indeveloping various multi-country services discussed their roles in the projects, the contentof discussions between the different project participants, the difficulties encountered, and soon. Focussed attention was paid to the managers working in POLCOM, the acquired firm(four managers among six interviewed). The aim was to understand their commitment andcontribution to the innovation process of OPERACOM.

Data analysisAs recommended by Miles and Huberman (1994), data analysis was performed parallel tothe data collection phase. The recorded data were transcribed and then, using the latestNvivo software, organised in terms of the structure of the new global innovation processand the conceptual categories to facilitate relating the information to the research questionsand thus formulate conclusions (Ghauri and Gronhaug, 2002). For internal validity, awithin-case analysis was conducted (Yin, 2009) that led to a comparison between theresponses of interviewees from both units and a description of the knowledge exchanged,the actors’ roles, and the communication mechanisms used for the activity of each process.This description is also based on the literature review related to innovation and knowledgewithin international collaborative markets.

Finally, the implicative findings of this paper were designed and tested using seven experts’interviews and reviews. Three of these (two industry, one scholarly) took place prior to thedevelopment of the research findings and contributed to the identification and interrelation ofthe concepts of the research; the remaining four (two scholarly, two industry) took placesubsequent to the theory development, and the participants acted as post-developmentalreviewers and refiners of the final work.

Theoretical researchThe theoretical foundation of this work rests on an extensive narrative literature review.This method was applied because of its suitability in critiquing and summarising a relevantbody of literature, drawing conclusions about the topic, and identifying gaps (Fink, 2010;Urquhart, 2011). It required a significant quality and volume of research, as well as asufficiently focussed perspective; though, for practical purposes, this paper presents onlythe most relevant and substantive findings of the review. The theoretical part of theresearch, especially the more abstract aspects of linking marketing, strategy, andmanagement, to some degree, also rests on a meta-synthesis literature review. This methodwas applied partially because of its suitability in integrating, evaluating, and interpretingfindings of multiple qualitative research studies, in identifying common core elements andthemes; and in involving, analysing, and synthesising key elements into a unified system(Fink, 2010; Urquhart, 2011). It is also based on a significant quality and volume of researchbut largely rests on a smaller number of relevant conceptual models identified in the past tohave a sufficiently focussed perspective.

Research limitationsThe research limitations stem from and are inherent in the very nature of the chosenmethodology. Specifically, the primary research is qualitative and single case studybased; as such, it is confined to a single organisation or industry, which proscribesgeneralisations and presents a sample selection bias (Campbell and Stanley, 1966) that canbe overcome only with a wider sample and a cross-case analysis. Additionally, theresearch’s long-term span, which follows the case from implementation to maturity, thoughconstituting a significant value of the work, also subjects the results to inevitable potentialtemporal distortions.

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Research findings – towards a new multi-country innovation developmentprocessFor several years, new telecommunications services (video on demand, integrated TV,telephone, internet, etc.) were developed exclusively by the parent company. Via a processcentralised in France, a team of marketing managers and engineers was responsible forcomparing customer needs with existing technologies (or technologies to be developed) inorder to design the various services.

As part of the NExT plan, accelerating the time to market remained the key priority.As a result, new structures were created progressively in order to support the evolution ofthe new global marketing innovation process. The first, an “explocentre” was establishedto act as an incubator for high-innovation concepts, which have high potential butalso high risk. Several months later, the group set up the first technocentre. Similar toRenault’s technocentre in the automotive industry, the objective of OPERACOM’Stechnocentre (also known as the “product factory”) was to industrialise innovativeservice offerings. Working in project mode, three-partner, or “3P”, teams (marketing,R&D, and information systems) were responsible for designing and developingnew services.

According to the interviewees, eight months were spent educating POLCOM, theacquired firm, about these new structures (created in France), after which the globalprocess was launched in a test phase. Local technocentres were set up in each of sixcountries (France, Poland, Spain, England, Oman, and Abidjan). After three months ofexchange as part of a project led by the parent company, certain managers on the group’sstrategic marketing board (SMB) (composed of managers from the various OPERACOMentities) felt that it was necessary to structure the exchanges around the POLCOM’ssuggestions. Accordingly, a new strategic anticipation technocentre (SAT) was created.Also based on the 3P mode, anticipation time to market (A-TTM) became an integral partof the innovation process, aiming to consolidate innovation projects at an internationallevel. Given the specific characteristics of each local context, some managers fromPoland suggested establishing an additional pre-opportunity study. This study wasintegrated into the innovation process and aimed to test services on a local basis. All ofthese new structures, whose activities will be detailed later, played a role in restructuringOPERACOM’s innovation process. More precisely, strategic anticipation and the pre-opportunity study were designed to encourage subsidiaries to participate in developingglobal innovations that can maximise market penetration and establishment at individual-market level:

A multi-country project delivers a product to two or more countries using group and country resources[…] The country TTM projects complete country-specific deliverables and local deployment in orderto launch the product in the market (extract from a memo circulated during the exchange meeting).

As shown in Figure 2, the exploration activity is the starting point for the process. The newbusiness concepts are explored before opening up the process to other units (partners,acquired units, etc.) concerned with the project.

In order to consolidate ideas, acquired firms can contribute at several levels. Afterwards,according to the maturity of the idea, the concept is tested in several countries before beingdeveloped and commercialised. The structure of the multi-country innovation process is farfrom linear, with the continual toing and froing among the different activities and theexchanges between actors with different backgrounds complicating the processconsiderably. In order to understand this complexity, the following section details theactivities that make up the innovation process, focussing particularly on three main aspectsof each activity (see also the theoretical research section): the knowledge to be integrated, theactors’ roles, and the coordination-communication mechanisms. The points are focussed on

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to ensure that the chosen approach is consistent with the framework developed by Doz andWilson (2012), which will shed new light on the evolution of these parameters throughoutthe whole innovation process continuum.

Research findings – the international strategic A-TTM phaseForming part of the SAT the A-TTM was designed to enhance idea-generating networks inorder to consolidate new service projects proposed by the parent company. This pooling ofindividual countries’ service use needs was achieved through detailed study of the maintechnical attributes of the projects:

Several countries may contribute to the same project […] All of the ideas are put into the meltingpot, and then each country structures a local A-TTM informing everyone else about each project(strategic anticipation manager, marketing).

Strategic anticipation work, which lasts six months on average, is not linear. In the first fourmonths, considerable effort is put into marketing the project. After several iterations, theteam is put together and the consolidation work can begin, which may last two months.According to one manager interviewed, this activity is designed to avoid the NIH syndromeat the acquired firms. By blurring the psychological barriers, POLCOM, for example, feltmore involved in the initial activities of the innovation process.

International knowledge integration in A-TTMIn order to investigate potential service offerings, the group launched interaction andnegotiation phases with the whole global network. By coding the interviews, four categories ofknowledge systematically exchanged during strategic anticipation projects were identified:

(1) the group’s global strategy (fit of the proposed offering with the group’s existingportfolio of services);

(2) the technical structure of the offering in each country (network and infrastructure ofeach country and knowledge related to the terminals, such as initial technicalspecifications, design, industrial partners, and service-terminal integration);

(3) use structure in each country (attributes of the service offering, customerknowledge, such as technical tests and changes in use); and

(4) general information about each local market (competition, target customer base, etc.).

These knowledge categories showed that the interactions among the different members ofthe network and the parent company essentially related to the needs and propositions ofeach participant in the global project. The statements of the managers interviewedconverged on the importance of each acquired firm’s willingness to participate, motivation,and entrepreneurial outlook. In their opinion, the exchange of knowledge during theanticipation phase aimed to fine-tune service offerings to local needs, consolidate the group’sroad map, and improve visibility. Of the managers interviewed 80 per cent consideredstrategic anticipation to be a necessary pre-design phase for innovative service offerings.

The international actors’ roles in A-TTMA project team was mobilised in the SAT for each service concept. These teams included anR&D manager, a marketing partner, and a third network and information systems partner,giving rise to the “3P” (three partners) team name. In order to discuss matters with thecountries and to collect information on local needs and propositions, this team workedtogether with country “interfaces”. Known as “country representatives”, these were appointedby each unit (acquired firm and own subsidiaries) in function of the specific characteristics of

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each project. They worked in the “country delivery” structure and were initially responsiblefor exchanges with the subsidiaries regarding the group’s strategy.

A group anticipation board was established to structure exchanges with the countriesduring the anticipation activity. It was composed of various actors: the different countryrepresentatives, the 3P team running the project, and the strategic marketing manager inthe parent company. This board continually exchanged with a country anticipation board,primarily composed of each country’s representative and a local 3P team. The objective ofthis exchange was to assess the progress of the activity and to outline future plans. Variousexternal parties could also take part in the anticipation activity alongside the parentcompany and the actors involved in the project, with interviewees specifically highlightingthe role played by suppliers of models and prototypes.

Cross-country coordination and communication in A-TTMIn addition to the described characteristics, mobilising the network (own subsidiaries andacquired firms) was a key element for successful anticipation. Most of the managersinterviewed underlined the importance of the acquired firm’s willingness to participate,which implies that participation is not obligatory. For example, monthly meetings were heldwith the various managers of POLCOM in order to look into potential new services. Severalinterviewees highlighted the importance of face-to-face contact in order to properlyunderstand local suggestions and needs. The 3P team, also known as the “3P steeringboard”, was responsible for bringing together the various country representatives for suchmeetings. This approach meant that many potential misunderstandings were avoided.

To address the problem of the geographical distance between participants, some meetingswere performed via conference call or video conference. In these cases, the managersemphasised the importance of using English as the common language for all exchanges. Thisapproach enabled the middle managers (of the French parent company) to interact withinternational laboratories and the different countries in order to gather new ideas.

Research findings – international markets pre-opportunity studies phase(T-1-T0)Pre-opportunity studies are the second activity in the process of transforming ideas intoinnovative service offerings. More specifically, they form the first phase of the process ofindustrialising the group’s innovations. Once the country needs have been identified and thepotential service offerings consolidated, the pre-opportunity study is launched:

Between T1 and T0, the business line, the country and the technocentre, marketing side, jointlyanalyse the opportunity: potential revenues, sales and margin on each local market, as well as theimpact on distribution channels, the communication plan, and the marketing mix for each country(marketing manager).

For each multi-country project, the pre-opportunity study lasted about two months beforethe global business plan was finalised. According to the managers interviewed, this planincluded the knowledge exchanged among the various participating units of the network.

Knowledge to be integrated across markets in the pre-opportunity phaseIn describing this activity, the managers interviewed emphasised the importance of theinteraction between the technocentre project team (parent company in France) andthe different countries involved in the project. Through the coding of the collected information,the knowledge highlighted by the managers was grouped together into four categories:

(1) commercial feasibility of the service offering (estimate of market potential and revenuepotential, business model, impact on the marketing mix, target in local market);

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(2) technical feasibility of the service offering (technical analysis and costs, localinfrastructure and network, standardisation);

(3) local market characteristics (degree of local competition, regulation, characteristicsof local market); and

(4) local subsidiary characteristics (availability of local resources, positioning of groupand subsidiary in country).

These highlight the diversity and, above all, the specific characteristics of the knowledgeexchanged during the pre-opportunity study. Integrating this knowledge into the projectwas achieved via an assessment phase that compared the feedback from the differentcountries involved in the global project.

The international actors’ roles in the pre-opportunity phaseIn order to ensure continuity with the strategic anticipation phase, the pre-opportunitystudy should be run by the parent company technocentre (or the local technocentre if theproject is being run locally). In this case, the same 3P team initially formed inthe anticipation phase continued its exchanges with subsidiaries and acquired firms. For theacquired firms, the commitment needed to be explicit. For this reason, fewer local units areinvolved in the actual project compared to the anticipation phase. According tothe managers at the technocentre in France, this may be explained by the availability ofresources, the maturity of the local market, or incompatibilities among participatingactors (conflicts, tensions, etc.). Some managers highlighted, for example, the existence ofsome tensions between the subsidiary of OPERACOM in Spain and some acquired firms,such as POLCOM.

Various structures were created alongside the actors working on the global innovationproject. As shown in Figure 3 and extracted from the Nvivo analysis, during this activity,the project’s governance was clearly defined among the different actors of the global project:

• The international product board (IPB). The board is composed of managers from theparent company, country representatives, and the international R&D laboratories.These are mobilised as centres of excellence in tightly defined technological domains(network, usage). The objective is to transfer their knowledge on the technicalfeasibility of the pre-design service. During the pre-opportunity study, this board isresponsible for decision making.

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Actors’ roles in pre-opportunity governance

Figure 3.Distribution of

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• The international product marketing board. This board is composed of marketingmanagers from the parent company and units involved in the global project. Duringthe pre-opportunity study, these managers are merely informed of the project’sprogress and are not involved in any way in making decisions.

• Group SMB. This board is composed of five marketing managers working in thegroup’s various business units at the parent company in France. During thepre-opportunity study activity, these managers are also informed of the project’sprogress but are not involved in making decisions in any way.

• The country product board (CPB). This type of board is set up locally and includesmarketing, information system, and R&D managers involved in the project in eachlocal market. During the pre-opportunity study activity, these managers areconsulted for their advice on the feasibility of the service and the progress of theglobal project.

These structures complement the role played by the steering board (3P team) that wasinitially created during the strategic anticipation activity and responsible for leading theproject’s pre-opportunity study activity.

Cross-country coordination and communication in the pre-opportunity phaseWorkshops were organised during the pre-opportunity study so that each country couldmake its voice heard at the technocentre. In addition to the workshops, some managersmentioned that business travel and site visits by managers to each local market wereimportant. To address the high cost of business travel, monthly conference calls andvideoconferences were also organised.

Additional mechanisms were implemented, alongside the country representatives andthe business lines, to ensure coordination and encourage exchange. These were essentiallyformalised, standardised project files drafted in English:

The country delivery brings together building blocks from the whole technocentre to developactual customer propositions for the countries to ensure accelerated and successful delivery oftechnocentre products across countries, to coordinate the global management for thetechnocentre major programmes and projects with NC&IT and R&D, to anticipateopportunities and risks, and to provide a unified market vision, filter, and select new growthopportunities (document extract).

The managers have emphasised that the project files for the pre-opportunity studycontained summarised information on the project leader and the milestones, deliverables,standards, and allocation of resources. Finally, “enablers” were built – “poolable productcomponents” that included the subsidiaries’ needs (based on strategic anticipation) and theirconstraints (via the pre-opportunity study).

It should be noted that this new pre-opportunity study activity represented a strategicphase of the global innovation process. The exchange of different local constraints helped tobuild a shared reflexion process and to ensure better global collaboration and economies ofscale. In this context, each local unit, even acquired firms involved in the project, undertooka local pre-opportunity study before submitting the results to the parent companytechnocentre. This international synchronisation of knowledge was an “input” for thedesign-development activity.

Research findings – international design and development activity (T0-T2)As shown in Figure 4, the design and development activity commenced once thepre-opportunity study was completed. Nevertheless, the process was not linear. Iterationsamong the different phases were performed in order to consolidate the new service offerings.

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Knowledge to be integrated in the design and development activityThe analysis of the information collected shows that the group made use of varied types ofknowledge to industrialise its services:

• design, development validation, and specification know-how;

• ergonomics, standardisation, and development of enablers; and

• knowledge related to integration of terminals and services (the service process).

This information underlines the diversity of the knowledge necessary to design and developa new telecommunication service. The knowledge itself was sourced from the differentactors mobilised in terms of their skills and was integrated by the technocentre steeringboard after being validated by the international product board.

International actors’ roles in the design and development activityAs for the previous multi-country innovation process activities, the technocentre (3P) projectteam (the steering board) formed the central hub for designing and developing globalservices. This hub was responsible for mobilising content suppliers and industrial partners.These latter were chosen by the parent company, subsidiaries, and acquired firms as part ofthe “top sourcing” programme during the anticipation process. The group used thisprogramme for many years to achieve economies of scale. Alongside this board, certaininternational laboratories were solicited by the parent company for their expertise. For thispurpose, OPERACOM senior management clearly distinguished between research anddevelopment.

As for the pre-opportunity study activity, governance of design-development wasallocated to the different actors involved. The information collected shows that thegovernance systems were similar for these two activities. The IPB was responsible forgo/no-go decisions for multi-company project milestones. The country representatives, whoparticipated on this board, approved these decisions (milestones and resource allocation) onbehalf of their country. The CPB prepared each country’s contribution at the milestonereviews. The 3P steering board ran the project. The contributors (subsidiaries, acquiredfirms, marketing, network and information systems, support functions) and the CPB wereconsulted, and they frequently participated in projects. Finally, the SMB and the IMB werecontinually informed of the progress of the various projects.

Cross-country coordination and communication in the design and development activityAt the technocentre, project teamwork was the primary method of transferring thedescribed knowledge. In this context, coordination was essentially performed usingmilestones, planned standard deliverables, reverse planning, and a culture of commitment(meeting deadlines). In addition, the different board members interviewed emphasised theimportance of involving local managers in the technocentre during the design-developmentphase. This approach aimed to create co-located teams that continued the project in France.

Research findings – the international commercialisation phaseThe deployment and commercial launch were the last stages of the global innovationprocess for multi-country services. Within the framework of a controlled delegation grantedto the countries, the local 3P team was responsible for organising deployment methods,revenues, and the marketing mix (media plan, packaging, distribution network, organisingthe sales forces). According to the managers, all of these aspects should be prepared, underthe governance of the CPB, at the outset of the pre-opportunity study activity. In this laststep of the global innovation process, some managers of POLCOM highlighted the highercontrol opted by the parent company on their acquired firms compared to the other units.

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Continuous reporting about the sales methods and volumes was asked by the Frenchmanagers:

If you don’t bring the country on board at the beginning of the process, you are going to run intotrouble at the T2 and T3 stages […] While the technocentre is building the service between T0 andT2, the country is preparing for battle (middle manager, SAT).

Knowledge to be integrated in international commercialisationThe deployment and local launch of multi-country services are based on several dimensions:deployment methods, revenues, and the marketing mix (media plan, packaging, distributionnetwork, organising the sales forces). All of the managers emphasised the importance ofsequentially launching multi-country services in each foreign market. In this context, theyunderlined that a first version was launched for an initial group of countries (or for onecountry). A second version (V2) of the service offering was then developed, especially by theacquired firms, based on the feedback received. For this reason, learning is an essentialcomponent of the commercial launch of multi-country services.

International actors’ roles in commercialisationOn a local level, each 3P team that contributed to the project since its inception was responsiblefor deployment and launch activities in its own market. For the technocentre’s operations inFrance, three partners (R&D, marketing, and network and information systems) supported theproject locally. The autonomy granted to the local units during the innovation’s deploymentand commercial launch phases changed the governance rules of the multi-country process.In fact, the T3 and T4 milestones were individually planned and approved for each country.The CPBs weremade responsible for go/no-go decisions and the IPB was informed and was nolonger responsible for these. Instead, it recorded the decisions made by the CPBs. The IPB wasconsulted via a change request for any change in objective (T3/T4), functionality, or price:

The 3P team remains “responsible” for multi-country project progression through T3 and T4 andinforms the international product board of any decisions and issues (extract from the governancechart for the process).

Figure 5, prepared using Nvivo software, summarises the governance characteristics of thedeployment and commercial launch activity for multi-country services.

Cross-market collaboration and communication in commercialisationConscious of the need to learn about country delivery modes, the managers emphasised thatthe country representatives ensured coordination and communication. Conference calls,videoconferences, and occasional face-to-face meetings were organised, permitting each localunit to report the results of local deployment of the offer and local sales force organisation.

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Figure 5.Governance systemfor commercialising

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Drawing on the factors developed previously, it is important to emphasise the complexityof implementing a global innovation process, with the structure, the diversity of the actors,and the geographical and cultural distances only further complicating project management(see Table III).

Strategic anticipationPre-opportunitystudy Design/development Local commercialisation

Length 6 months 2 months 4 to 6 months 6 monthsObjective To consolidate the

innovation projectTo test theconsolidated ideaon each marketinvolved and totransfer results

To industrialisemulti-countryservices

To commercially launchthe multi-country serviceat a local level(sequential launch bygroup of markets)

Position ofsubsidiaries

Importance ofsubsidiaries’ willingnessto participate,motivation, andentrepreneurial spirit

Importance ofcommitment

Play role of expertand mobilise localpartners (industrial,content)

Controlled delegationand autonomy grantedto subsidiaries by theparent company

Knowledgeintegrated

The needs andpropositions of eachcountry(Group’s global strategy,technical structure of theoffering, uses in eachcountry, generalinformation on each localmarket)

Local feasibilityof the serviceoffering(commercial,technical)Characteristics ofthe local marketand thesubsidiary

Technical know-how(ergonomics,specification,terminals)

Commercialisationapproach and results(revenues, marketingmix)

Actors’ rolesandgovernance

An anticipation board(3P, French technocentre)exchanges with a local3P team via the localrepresentatives

Run by the same 3P anticipation boardGovernance shared between severalboards:The international product board (IPB) isresponsible for milestone achievementdecisions (the country representative, amember of this board, validatesdecisions and resource allocation)The international marketing board(IMB) and the strategic marketing board(SMB) are informed of progressThe country product board (CPB) isconsulted (plays a contributory role)

Change in governancerules:The internationalproduct board (IPB) issimply consultedThe internationalmarketing board (IMB)and the strategicmarketing board (SMB)are informed of progressThe country productboard (CPB) isresponsible forlaunching decisions

Coordinationandcommunication

Organisation of monthlymeetings, face-to-facecontactAdditional telephoneconferencesCentral role of countryrepresentative

Organisation ofworkshopsImportance of sitevisits of theFrench 3P teamto each localmarket involvedUse of formalised,standardisedproject filesUse of a commonlanguage:Englishrole of countryrepresentative

Milestones andstandarddeliverables plannedReverse planningImportance of the 3Pteams from eachcountry in theFrench technocentre:co-located teams

Role of countryrepresentativesOrganisation ofmeetings (conferencecalls, videoconferences,workshops)

Table III.Summarisedcharacteristics of theactivities making upOPERACOM’s globalinnovation process

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This complexity was particularly visible in terms of the knowledge exchanged, thecommunication mechanisms employed, and the governance rules that continually evolvedfrom one activity to another. This evolution is analysed in the following section to furtherdevelop and complete the analysis framework of Doz and Wilson (2012).

DiscussionThe innovation model implemented by the OPERACOM group presents a viablecross-border collaborative entry mechanism that achieves better arbitrage between globaldemands and local specificities as per Bartlett and Ghoshal (1989) and Park andVanhonacker (2007). The analysis of this model shows the diversity of the activities thatmake up the process. It is found that the classic activities of any innovation process(research, exploration, design and development, and commercial launch) as well as twoactivities specifically created to enable acquired firms such as POLCOM contribute to theprocess – strategic anticipation and the pre-opportunity study. Within this framework,the interaction between the parent company and its local units, the transfer of the localfirms’ knowledge, and their integration in the process appear to be real levers for action andinternational market development.

Knowledge exchanged and integrated in the international processOnce an innovative new idea and the related new technologies have been identified, theactors focus on accessing the diverse knowledge of the different subsidiaries involved in themulti-country project. The case of acquired firms, in particular, shows that POLCOMparticipated in each activity of the process. By exchanging its knowledge, its managers hada real added value to consolidate each project. Doz et al. (2001) consider that mobilisation,and consequently “assessing” access, depend on the complexity of market- and technology-related knowledge. Indeed, analysing the characteristics of the knowledge to be mobilised ineach activity shows that local needs and commercial information arise from strong market-related knowledge. Results linked to technological know-how are generally technical innature (e.g. network specificities). Furthermore, the results show that the knowledge to beintegrated in the process varies from one activity to another. During strategic anticipation,for example, knowledge is strongly related to local customer behaviour such as customerneeds, uses and preferences, specific characteristics of the local market, and so on(Thrassou, 2007), whereas the pre-opportunity study requires the transfer of knowledgerelating to the commercial and technical feasibility of the service offering and itscompatibility with the local market. Design and development require specific know-how(specification, validation, etc.) and cutting-edge expertise, while commercialisation is drivenlocally by each subsidiary. The latter communicates their marketing approach and theirresults (media plan, packaging, distribution network, methods of organising the sales forces)to the rest of the group.

Comparing these characteristics to the work of Wilson and Doz (2011) enablesclassification of the knowledge exchanged during the anticipation phase as embedded,given the strong link to the local context. For the pre-opportunity study, knowledge can beembedded (characteristics of the local market and subsidiary) and above all existential (localfeasibility, norms, etc.). It is possible therefore to highlight the variety of embeddedknowledge and its evolution from one activity to another, giving rise to the distinctionbetween contextual knowledge related to the subsidiary and knowledge related to the localmarket. For the design-development activity, the typology of Wilson and Doz appears lessappropriate. In fact, the knowledge integrated is highly specific (contact with localmanufacturer, specifications, etc.) and could be classified as “industry knowledge”.For commercialisation activities, the knowledge is explicit (Doz and Wilson, 2012).This knowledge is far from static given that it is progressively enhanced by the acquired

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firms ( Junni et al., 2015b) and can therefore be classified as “evolutive knowledge”.All of these characteristics clearly show the permanent interaction among the differentphases and the evolution, in certain cases, of the same types of knowledge from oneactivity to another.

Collaboration within the global networkAs emphasised in the first part of this study, penetrating the international markets demandsa capability to develop multi-country products, itself commanding the optimisation of thecollaboration among the different organisational sites around the world. Some are owned byOPERACOM, such as in Spain and the UK. Others are acquired, such as POLCOM. Doz andWilson (2012) have identified three phases necessary for all global projects: identification,definition, and delivery. The analysis of this study’s results shows that these three phasescannot be applied to the process as a whole but should instead be examined with regards toeach of the innovation process activities: identifying actors, defining roles, and actualoperations (delivery). This is clearly seen through the evolving governance ofOPERACOM’s projects, with the roles of the various boards (CPB, international productboard, strategic and international marketing boards) continually evolving through variousroles as “director”, “manager”, “informed”, and “consulted”. Particularly, it was noticed thatPOLCOM, as an acquired firm by OPERACOM, participated in different projects, similar tothe other units. This can be explained by the maturity of the Polish market and the strategictechnological knowledge it had.

Cross-market communication and coordination mechanismsAs one of the most critical factors of success in any market-entry collaborative mode,communication and coordination mechanisms constitute the second strategic lever forsteering the global innovation process. Country mobilisation is based on localentrepreneurial spirit, motivation, and willingness to participate. Middle managers playan important role in this context in terms of encouraging their team’s commitment to theproject. Putting together a head team for each project, made up of partners from R&D,marketing, and network and information systems, is also a key requirement for actors tomobilise. Supported by co-located teams (composed of ex-expatriates and biculturalmanagers), this steering board gradually builds mutual trust among the managers from thedifferent units, especially the acquired firms (Sarala et al., 2014).

This research shows that this is particularly true during the initial activities inthe process. In fact, in contrast to the aforementioned authors, the present study has themerit of detailing the evolution of the communication mechanisms throughout theentire process (Table IV). The results also highlight the importance of site visits andface-to-face contact in the strategic anticipation and pre-opportunity study phases,especially with the acquired firm POLCOM. As the project advanced, the site visitsbecame less frequent, giving way instead to formal procedures and workshops.Conversely, the country representative remained the common thread from the beginningof the project to the end, and may be considered to be a “scout” – to use the terminology ofWilson and Doz (2011).

A focussed recapitulationDrawing on the factors developed in the previous section, the collaborative elements of“integrating country-sourced knowledge”, “diversity of communication and coordinationmechanisms”, and “varied roles played by the actors” constitute critical factors of success incross-border market entry and development. In addition, it is found that these three strategiclevers continually evolve to encourage the development of multi-country innovations.

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Continuous dialogue with the acquired firm, especially, is therefore highlighted as a sourceof diverse ideas, generating added value across the international strategic market-entryprocess continuum through accelerated transformation of ideas, verification of thesuitability of each local actor’s strategy (and the characteristics of his or her environment),improved pooling of efforts between countries, a consolidated group “road map”, andimproved visibility. Nevertheless, certain aspects may impede this optimisation approach,including poor local resources, the maturity of the local market, or incompatibilities amongparticipating subsidiaries (conflicts, tensions, etc.). To avoid these potential obstacles thisresearch concurs with the Wilson and Doz (2011) findings that advise the mapping of thekey knowledge network before selecting locations.

Conclusions, implications, and further researchScholarly conclusionsRecounting the efforts by businesses across the globe to enter new markets, often as theinescapable means towards survival and growth, this research focusses on the critical factorof innovation and its role in the cross-border collaborative market-entry mechanism. Basedon the premise that traditional innovation processes are no longer adapted to thedevelopment of multi-country products, the research responded to the imperative ofexamining the structure of global innovation processes and their strategic levers(Birkinshaw, 1998; Doz et al., 2001; Subramaniam, 2006; Zander and Sölvell, 2000). In linewith the works of Wilson and Doz (2011) and Doz and Wilson (2012), this research proposesa tentative operationalisation of a global innovation process regarding the participation ofvarious actors (acquirer, acquired firm, own subsidiaries). More important, though, it goesfar beyond the overall reflections of the aforementioned authors to respond to the followingsignificant questions:

RQ1a. Which activities make up the global innovation process?

RQ1b. How do the actors’ roles evolve in each of these activities – especially regardingthe acquirer firm?

Strategicanticipation Pre-opportunity study

Design/development

Localcommercialisation

Knowledgeintegrated

Embeddedknowledge(contextual linkedto local markets)

Embedded knowledge(contextual linked tosubsidiaries) andExistential (feasibility andlocal norms)

“Industry”knowledge(techniques andnetwork)

Explicit “evolutive”knowledge

Actors’ roles(collaboration)

Identification ofactors, definitionof roles and actualoperations(delivery)

Identification of actors,definition of roles andactual operations(delivery)

Identification ofactors, definitionof roles and actualoperations(delivery)

Identification ofactors, definition ofroles and actualoperations (delivery)

Contributingcountries

Contributing countries Consultedcountries

“Responsible anddecision-making”countries

Evolution of the roles of the boards among “leader”, “manager and decision-maker”,“information”, and “consultation”

Communicationandcoordinationmechanisms

Table IV.Evolution of the

three strategic leversof the global

innovation process

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RQ1c. What types of knowledge does each firm bring to each activity?

RQ1d. How do the communication mechanisms evolve throughout the process?

The findings of the research, based on a case study of OPERACOM, a leading Europeantelecommunications service provider, show that in the context of a collaborative entry mode,two activities need to be included in the classic innovation process. First, strategicanticipation consolidates innovative service offerings by collecting cross-border local units’propositions and needs. Second, the pre-opportunity study encourages inclusion of theresults of local feasibility tests into the international market-entry process. These twoactivities can help develop a mutual knowledge transfer between heterogeneous local actorssuch as acquired firms and own subsidiaries.

In addition to examining the structure of the process, this research also has the merit ofemphasising the evolution of the strategic levers throughout the process. In fact, this studyshows that the knowledge integrated at the beginning of the process is essentiallyembedded and very contextual in nature. Subsequently, this knowledge evolves fromexistential to explicit via “industry” knowledge. The latter, which is not addressed in thetypology of Wilson and Doz (2011), is exchanged during the design-development activity.The second lever is the collaboration between actors. The research finds that each activitymaking up the process is characterised by three key phases: identifying the actors, definingthe roles, and actual operations. This means that the various actors involved in theco-development of multi-country innovations see their roles evolve in one way or another,leading to changes in governance. Turning to communication and coordinationmechanisms, the last lever studied, the research shows that informal mechanisms tend tobe used at the beginning of the project (site visits and business trips, co-located teams, etc.).Team meetings and shared language (English) seem to be necessary to integrate theacquired firm into the global network (Aklamanu et al., 2016). Formal mechanisms(standardised documents, workshops, etc.), however, are more often employed in the laterstages of the project, without forgetting the important role played by the countryrepresentatives in building mutual trust between the actors and reducingmisunderstandings.

Overall, the research has substantially and specifically enhanced the understanding ofinnovation as an integral part of the internationalisation process, describing andprescribing explicit processes and actions throughout the horizontal and verticalorganisational axes.

Executive implicationsThe research findings, though predominantly scholarly in nature, also give rise toelucidations of significant executive worth. Because of their detailed and activity-specificdisposition, the research findings, in effect, constitute a case prototype useful for furtherand/or corresponding application to organisations in this and other industries.This research’s scholarly findings present executives with an existing and market-tested positive paradigm of the innovation aspect of the collaborative market-entrymechanism. The practical application of the paradigm, nonetheless, to otherorganisations, industries, and markets cannot be direct or in the form of imitation.The specific processes and actions implemented by OPERACOM were the result of carefuland explicit consideration of the characteristics, attributes, resources, and competences ofthe parent company, the individual local units, the countries and markets involved, andthe wider strategic context governing all. As such, the direct replication of this prototypein other organisational and/or industry contexts is neither wise nor feasible. Instead,executives are called on to draw from this case study its wider frame of strategicmarketing thinking, the specific aspects that are potentially applicable to their own case,

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and the scholarly research’s explicit and prescriptive findings. All are valuable tools thatare helpful in the development of companies’ own corresponding innovation mechanismstowards cross-border market entry.

Further researchFurther research is called for in three separate directions. First, and contextually, the case studyapproach that proved so valuable in this research can and should be used, albeit in differingcontexts, to provide an understanding of corresponding processes of market expansion in otherorganisations, sectors, and geographic regions. Second, empirical research across the lattershall provide the data necessary to generalise the findings and to test, validate, refine, anddevelop the findings further. Third, further research can focus on the individual components ofthe findings towards refinement and/or identification of second-level sub-processes, with theimpact of cultural proximity between the actors in the internationalisation process being aparticularly interesting area. The case study itself has not been exhausted, and further researchmay collect more data on the case and apply a quantitative methodology. A valuable aimwould be to generalise the findings through a structural equation modelling.

The present research findings may, in fact, be used largely as propositions for thisfurther research. The described cross-border collaborative entry mechanism is a propositionin itself, calling for further testing of its better arbitrage between global demands and localspecificities (P1). Another proposition is that in addition to the classic activities of anyinnovation process (research, exploration, design and development, and commercial launch)two additional methods need to be specifically created to enable acquired firms to contributeto the process: strategic anticipation and the pre-opportunity study (P2). Regarding theknowledge to be integrated in the collaborative internationalisation process, it is proposedthat it varies from one activity to another, as previously described (P3). Elaborating on thelatter it is further proposed that – using the Wilson and Doz (2011) typology – theknowledge exchanged in the anticipation phase is embedded (P3a); in the pre-opportunitystudy knowledge it can be embedded and above all existential (P3b); in the design-development activity the integrated knowledge is highly specific and could be classified as“industry knowledge” (P3c); and in the commercialisation activities, the knowledgeis explicit and evolutive (P3d). With regards to collaboration within the global network, it isproposed that the three phases necessary for all global projects – that is, identification,definition, and delivery (Doz and Wilson, 2012) – cannot be applied to the process as a wholebut should instead be examined with regards to each of the innovation process activities:identifying actors, defining roles, and actual operations (delivery) (P4). Regarding cross-market communication and coordination, this research has proposed (see Table IV) thedetailed evolution of the corresponding mechanisms throughout the entire process (P5).Additional propositions also may be drawn from the critical factors of success, the strategiclevers, and potential impediments to the process as previously discussed.

EpilogueTranscending the scientific analyses and findings of this research it is evident thatunderstanding cross-border collaborative entry modes comes from the identification andcomprehension of the critical factors involved therein. This research, focussing on one suchcritical factor (cross-border innovation), has comprehensively refined and developed thecorresponding process across its continuum; interrelating on the way the activities andelements comprising its breadth and depth. The findings are quite explicit and equallyimportant. Their application, nonetheless, is conversely open to interpretation according to thecontextual and organisational elements of each individual case. Scholars and practitionersare thus called on to use this enhanced knowledge on the subject and pay due respect to themultiplicity of factors involved, both in the evolution of the knowledge itself and its application.

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About the authorsDr Hela Chebbi is a Professor of Strategic Management at the EDC Paris Business School and theDirector of the Observatory and Research Center in Entrepreneurship. Following her Master’s Degreein International Management, she obtained her PhD in Management at the IAE-Lyon III University.Her research interests rest within innovation/corporate entrepreneurship and transnationalmanagement, areas in which she has widely consulted, researched and published. She lectures onStrategic Analysis, Research Methodology, Business Planning and International Project Management;and is the Country Director (France) for the EuroMed Research Business Institute and the Chair of theTransnational Innovation Strategies Research Interest Committee.

Dr Dorra Yahiaoui is a Professor of Human Resource Management and Organisational Behaviourat the KEDGE Business School. She holds a PhD in Management from the University of Lyon III,France and is a Co-chair of the research group: Human Resource Management at EuroMed ResearchBusiness Institute (EMBRI). Her research is mainly focussed on the international transfer of HRMpractices, transnational innovation, and comparative CSR practices and has published in a number ofinternational refereed journals. Her research made within multinationals corporations was alsoaccompanied by consultancy activities on diverse HRM subjects.

Dr Alkis Thrassou is a Professor at the School of Business, University of Nicosia (Cyprus, EU).He holds a PhD from the University of Leeds (UK) and is also a Fellow Chartered Marketer (FCIM, UK),a Fellow Chartered Construction Manager (FCIOB, UK), a Chartered Management ConsultancySurveyor (MRICS, UK), and a Senior Fellow of the EuroMed Academy of Business (SFEMAB/EMRBI).He focusses on the fields of strategic marketing, services and customer behaviour; and his work hasbeen published in dozens of internationally esteemed refereed scientific journals and books. He retainsstrong ties with the industry, acting also as a consultant. Dr Alkis Thrassou is the correspondingauthor and can be contacted at: thrassou.a@unic.ac.cy

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Standardization versusadaptation of global marketingstrategies in emerging market

cross-border acquisitionsRekha Rao-Nicholson

Bristol Business School, University of the West of England, Bristol, UK, andZaheer Khan

Sheffield University Management School, University of Sheffield, Sheffield, UK

AbstractPurpose – The recent increase in the presence of emerging market firms (EMFs) in global markets requires acloser examination of their international marketing strategies (including branding). The purpose of this paperis to examine the factors behind the standardization or adaptation of global marketing strategies adopted byEMFs for their cross-border acquisitions.Design/methodology/approach – This paper examines the determinants of the marketing strategiesadopted by Indian and Chinese firms for their cross-border acquisitions. The drivers of the standardization/adaptation of marketing strategies (including branding) are identified using both quantitative data collectedin 168 cross-border acquisitions conducted by the EMFs mentioned above and the institutional theory andorganizational identity literature.Findings – Institutional factors have a stronger effect than organizational identities on global marketingstrategies, including branding. The standardization of the EMFs’ marketing strategies is driven by theprivate statuses of the acquirers, legal distances, target countries’ economic development, and the ethnic tiesthat exist between the home and host countries. The acquirers’ decisions to retain the targets’ brand identities,thus adapting their global marketing strategies, are related to the cultural distances, economic freedomdistances, and sizes of the targets.Research limitations/implications – In this study, two large emerging markets – India and China – areused to gather the empirical data; future works can expand upon this line of research and examine other EMFs.Practical implications – The acquiring companies have to decide whether to adopt an adaption marketingstrategy, with reference to the acquired targets’ local stakeholder requirements, or to incorporate their targets’brands into their own global marketing strategies.Originality/value – Typically, previous work on the adaptation vs standardization of global marketingstrategies adopted in the wake of cross-border deals has focussed on acquisitions involving companiesfrom developed countries; this paper extends the field of research to the EMFs of two of the most importantdeveloping countries: China and India.Keywords Marketing strategy, Branding, Standardization, Adaptation, Cross-border acquisitions,Emerging markets firmsPaper type Research paper

IntroductionIn this paper, we examine the motivations underpinning the global marketing strategiesadopted by emerging market firms (EMFs) in their cross-border acquisitions and elucidatethe different factors that lead to either the standardization or adaptation of their globalmarketing strategies in the post-acquisition period.

The growth of EMF cross-border acquisitions has led to a closer examination of theiracquisition processes, post-acquisition performances, and post-acquisition integrations(Buckley et al., 2007, 2012; Gubbi et al., 2010; Li, 2007; Nicholson and Salaber, 2013, 2014;Rao-Nicholson et al., 2015; Yaprak and Karademir, 2010). Research into the standardization/adaptation strategies adopted by EMFs in the branding of their acquisitions in orderto streamline their global marketing strategies is pertinent as EMFs try to mitigate any

International Marketing ReviewVol. 34 No. 1, 2017pp. 138-158© Emerald Publishing Limited0265-1335DOI 10.1108/IMR-12-2015-0292

Received 24 December 2015Revised 3 May 2016Accepted 17 June 2016

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“latecomer” issues in the international business world by acquiring incumbent firms in bothdeveloped and developing markets. EMFs also acquire relevant strategic assets, includingbrands, and marketing and distribution channels (Li, 2007; Luo and Tung, 2007; Makinoet al., 2002; Mathews, 2002; Rui and Yip, 2008; Yaprak and Karademir, 2010).The standardization/adaptation strategies (Demetris et al., 2009) adopted in the brandingof cross-border acquisitions also relates to EMFs’ adoption/non-adoption of globalmarketing strategies (Kumar, 2009).

In developed country contexts, standardization is based on financial gains andcompetitive advantages, whereas adaptation is driven by location-specific requirementswhich outweigh economics of scale (Zou and Cavusgil, 2002). Particularly, the arguments forand against the standardization of global marketing strategies are based on two key factors:cost savings and enhanced value. Both these factors are driven by considerations of markethomogeneity (Szymanski et al., 1993; Zou and Cavusgil, 2002). Yet, in spite of the growth ofEMF cross-border acquisitions, there is limited research on the determinants behindstandardization/adaptation of their global marketing strategies. For example, EMFs willtypically suffer from liability deriving from their foreignness and from the perceptions oftheir countries of origin (Salomon and Wu, 2012; Zaheer, 1995). Thus, in this study, thedecision to adapt to/standardize the targets’ brands with respect to those of the EMFs formsthe focus of an empirical investigation aimed at answering the following research question:

RQ1. What drives EMF decisions to standardize/adapt their global marketing strategiesin the aftermath of their cross-border acquisitions?

The personalities and identities of multinational companies are determinants of consumerchoice between their products and those of other companies (Eales, 1990). The core of abusiness’s projected image is its brand identity, which is reflected by its adopted name, logo,colour, slogan, and typography (Melewar and Saunders, 1998). The decisions towardsthe adoption of branding standardization/adaptation strategies have stimulatedconsiderable interest among academics and others with regard to the formulation ofappropriate international marketing strategies (Cavusgil and Zou, 1994; Chung et al., 2012;Demetris et al., 2009; Jain, 1989; Okazaki et al., 2006; Theodosiou and Leonidou, 2003).For example, Rosson and Brooks’ (2004) study found that, in 80 per cent of cases, the targetsassumed the acquirers’ brand identities. In those exceptional cases in which the targets’brand identities were maintained in the post-acquisition period, the factors underlying suchdecisions related to the fact that the targets operated as autonomous subsidiaries or weremajor brand entities.

Earlier studies on emerging markets typically looked at the entry of developed markets’firms into them (Aysegul et al., 1991; Grosse and Zinn, 1991; Hoskisson et al., 2000), whilelittle attention was given to the international marketing strategies adopted by the EMFs intheir cross-border activities (Aulakh et al., 2000; Salwan, 2009; Zou et al., 1997). In spite of therapid globalization and growth of international trade and cross-border acquisitions,the cultural barriers to both business and consumer activities are still all pervasive(Whitelock and Pimblett, 1997). These issues can be assumed to be highly pertinent forEMFs, which may face liabilities of foreignness and of country of origin in foreign markets(Salomon and Wu, 2012; Zaheer, 1995). Kumar (2009) illustrated how the acquisition offoreign firms led one Indian aluminium company, Hindalco, to obtain knowledge of theindustry’s value chain and to develop the ability to brand products and distribute them toboth vendors and business-to-business customers. Similarly, Tata Tea Ltd’s acquisition ofTetley Tea, a 160-year-old British company, helped it establish the Tetley brand in morecountries than before (Pradhan and Abraham, 2005). Through this acquisition, Tata wasable to access global tea markets as well as Tetley’s brand, technology, and expertise.Yet, there is limited literature on the determinants behind EMF decisions to retain the brand

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identities of their acquisitions in the post-acquisition period. Thus, this paper fills this gap inthe extant literature on the determinants of the standardization vs adaptation of EMF globalmarketing strategies in their cross-border acquisitions.

This study contributes to the extant literature in three important ways. First, itestablishes a link between acquirer and target organizational identities and thestandardization/adaptation adopted by EMFs to align their global marketing strategies.Previous studies have examined EMF global marketing strategies in the context ofgreenfield investments and exports (Zou et al., 1997). Yet, EMFs have also emerged as theleading companies engaging in the cross-border acquisitions (Buckley et al., 2007; Kumar,2009; Nicholson and Salaber, 2013; Rao-Nicholson et al., 2015); thus, this paper provides avaluable insight to understand how organizational-level attributes could drive companies’global marketing strategies. Second, this paper identifies the relationship between theinstitutional factors that impact the targets’ branding standardization/adaptationstrategies. This work links to other cross-border studies that relate company-levelstrategies to institutional factors (Albaum and Tse, 2001; Auh and Menguc, 2009;Zou et al., 1997) and extends their scope to reflect the impact of institutional factors onacquirer global marketing strategies in the post-acquisition period. Third, this studydemonstrates that institutional factors have a stronger impact on target brandingdecisions than both acquirer and target organizational identities. Thus, the liability offoreignness and of country of origin arguments have a much higher resonance in thedecision-making process in terms of the EMFs’ adoption of standardization/adaptationmarketing strategies (including branding).

Literature reviewPost-acquisition integrationPost-merger integration (PMI) is vital for the success of cross-border mergers and acquisitions(M&As). Most M&As fail due to poor integration; it has been suggested that cultureand identity-related issues play central roles in their high failure rate (e.g. Drori et al., 2011;Nahavandi and Malekzadeh, 1988; Weber et al., 2012). For instance, Drori et al. (2011)reported cultural clashes occurring in the wake of M&As involving high technologystart-ups. Culture and identity issues could also affect the transfer of marketing-relatedknowledge between the merging entities (Drori et al., 2011), and identity issues have beensuggested to play an important and vital role in the PMI of companies, as boundaries arenegotiated (Drori et al., 2013). Culture and identity-related clashes could potentially affect thestandardization or adaptation of global marketing strategies following M&As. However,despite its contributions, prior research on PMI has largely neglected the factors that lead tothe standardization or adaptation of marketing strategies adopted during the M&Aintegration phase (e.g. Homburg and Bucerius, 2005; Sinkovics et al., 2014). This gap is evenmore glaring in the context of EMNEs M&As. Studies have noted the challenges emergingin customer relationships management following M&As (Degbey, 2015; Öberg, 2014).Scholars have documented the role played by marketing integration during M&As(Sinkovics et al., 2014). Research has also focussed on brand equity following M&A andwhether the merging companies should retain their existing names or be jointly identifiedby that of the acquiring company (Lambkin and Muzellec, 2010). For instance, Lambkin andMuzellec (2010) showed that rebranding is useful for integrating the acquired company andhas a positive association with employees and the merging of the companies’ stock marketperformances. Recent studies have noted that M&As may cause changes to businessnetworks, particularly amongst customers and suppliers, and other actors that are part ofthe M&A (Degbey and Pelto, 2015). The above discussion suggests that, following M&As,the standardization or adaptation of marketing programmes could be crucial for thesuccessful PMI of cross-border M&As.

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Standardization/adaptation of the EMFs’ global marketing strategiesThe extant literature has defined standardization in two different ways – first, the samemarketing strategies are used in all markets, and second, the domestic marketing strategiesare applied to foreign markets (Cavusgil et al., 1993; Samiee and Roth, 1992; Zou et al., 1997).For the purpose of this study, the standardization of the EMFs’ global marketing strategiesmeans that the same marketing modes are applied to all markets (Kamel et al., 2010), whilealso being impacted by institutional factors (Irem et al., 2010). The degree of standardizationof the EMFs’ global marketing strategies depends on organizational and environmentalfactors (Zou et al., 1997). Despite playing an important role in the post-integration stage,both the marketing strategies, and the targets’ post-acquisition corporate identities andcultures are short-changed in most post-acquisition studies (Melewar et al., 2013; Rosson andBrooks, 2004; Weber et al., 2011a, b). In this study, we are also keen to examine thestandardization/adaptation of the targets’ visual identities, which are embedded in theirbrands, rather than considering the whole set of marketing tools available to the acquirers tostructure their global marketing strategies (Demetris et al., 2009). The primary motive forthis focus on brand visibility and standardization/adaptation is that most EMFs areviewed with some degree of suspicion (Aybar and Ficici, 2009) and the host stakeholders arelikely to perceive any visible changes with considerable misgivings; more than theywould by any soft changes made to the target organizations’ marketing departments, to thelocal positioning of the products, or to advertising campaigns. In addition, when theyacquire developed market companies, EMFs face legitimacy issues, as some see theacquisition of strategic assets as the key motive behind their investments (Nicholson andSalaber, 2013).

Corporate or organizational brand identities are defined by the ways in which companiesview themselves and by what others think of them. This is especially pertinent for EMFs,which have both foreignness and country-of-origin liabilities to contend with in foreignmarkets. Foreign market consumers, both individual and business customers, may bereticent to buy the EMFs’ products (Aybar and Ficici, 2009). Thus, the organizational brandidentities of both acquirers and targets may drive the choice between the standardizationor adaptation of the acquirers’ marketing strategies, which may also be affected byinstitutional factors (Zou et al., 1997).

At present, we do not know much about the relative importance of the roles played byinstitutional factors and organizational brand identities in company decisions on whether tostandardize or adapt their marketing programmes in international markets. For the purposeof this study, we consider these two motivators as distinct channels driving standardization/adaptation in the post-acquisition period. Next, we describe both these channels separately,taking one from organizational identity literature and the other from institutional literature,and develop testable hypotheses based on our literature review.

EMF organizational brand identitiesTihanyi et al. (2003) argued that different types of institutional owners have different stakesin company strategies, and that contextual factors, such as boards, accentuate thesedifferences. In the EMF context, the home countries’ institutional voids make effectivecompany-level monitoring particularly important. Hence, some ownership identities thatare uncommon in advanced markets are commonplace in emerging ones. The extantliterature has noted the extensive role played by business groups in emerging markets(Guillen, 2000; Khanna and Palepu, 2000; Khanna and Rivkin, 2001; Maman, 2002; Yaprakand Karademir, 2010). The works on business groups in India have highlighted theimportant role played by these business entities in circumventing institutional weaknessesacross various elements of the business ecosystem, such as the financial system andcontract management. Thus, in the post-acquisition stage, EMFs that belong to business

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groups are likely to standardize their marketing strategies across their newly acquiredcompanies to reinforce the groups’ brand identities.

Another key ownership brand identity in emerging markets is the ownership structure;for instance, government-owned or state-owned enterprises (Bremmer, 2009; Buckley et al.,2007; Li, 2007; Lu and Yao, 2006). The studies on the internationalization of Chinese firmshave noted the role played by government policies (Cai, 1999; Chen and Findlay, 2003; Deng,2007; Luo and Tung, 2007; Luo et al., 2010; Singh, 2009; Sun et al., 2012), as well as thesoft internationalization loans that government-owned enterprises are granted for theircross-border activities (Nicholson and Salaber, 2013). Some of the companies are nationalicons and are tightly linked to their governments’ brand identities (Wang et al., 2012).Whereas private business entities are typically free to make their strategic decisions free ofgovernmental interference, state-owned organizations are, in many cases, the vehicles ofgovernment policies and are restricted from exercising the full breath of their strategicdecision making. In the wake of their cross-border acquisitions, these EMFs are more likelyto standardize their marketing strategies towards the target companies as this facilitates theeasier implementation of their home governments’ policies.

Many internationalizing EMFs are privately-owned and are not exposed to the same levelof scrutiny as public listed ones. Following their cross-border acquisitions, these EMFs maywant to retain the original nature of their business; in these cases, they are likely to curtail thetargets’ marketing strategies and streamline them by standardizing them to their own.

Thus, companies belonging to business groups with standardized marketing strategieswill adopt strict standardization to reinforce group brand identities. Government- or state-owned companies will standardize their marketing strategies as this will enable them toseamlessly apply the policies of their main stakeholder. Finally, privately-owned companiesare likely to adopt standardization of marketing strategies to align them with those adoptedin their home markets. In all these three cases, organizational identities descending from thenature of their ownerships will drive marketing strategies; we argue that this will lead tothe alignment of their targets’ marketing strategies with those of the acquirers. In all threeorganizational brand identity cases mentioned above, EMFs will be expected to focus onstandardizing their marketing strategies in the post-acquisition period. Hence, we posit that:

H1. EMF organizational brand identity factors positively impact marketing strategystandardization.

Target organizational brand identitiesThe reasons that may cause EMFs to allow their targets to retain their original brandidentities can be linked to the value to the acquirers of the target brands or the EMFs’strategic decisions to operate their new acquisitions as stand-alone subsidiaries with theirown unique identities. Rosson and Brooks (2004) found that, during the post-acquisitionperiod, standardization was relatively common, with the targets adopting the acquirers’brand identities in 80 per cent of the cases. The exceptions, in which the acquirers decided topreserve the targets’ brand identities and adopt adaptation strategies in the post-acquisitionperiod, were typically motivated by the targets operating as autonomous subsidiaries or bytheir being major brand entities. Thus, in the case of EMFs, it can be argued that thestrength of targets’ assets will drive acquirers to adapt to local stakeholder demands andpotentially lead to the adoption of adaptation strategies.

Kumar (2009) suggested that EMFs typically acquire global market companies to accessnew technologies, brands, and consumers. In this assessment, EMFs are usually low-costcommodity players, which acquire value-added branded-product companies in foreignmarkets. Thus, the value of the targets’ existing brand identities can bring about theacquirers’ decision to allow them to operate independently of their own. Also, EMFs prefer

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not to interference much in their new acquisitions’ management and may thus adopt alight-integration strategy, allowing them to operate independently in their own markets(Kumar, 2009; Liu and Woywode, 2013). For example, India’s Hindalco’s post-acquisitionintegration strategy for US can manufacturing company, Novelis, involved allowing thelatter to operate under its existing brand name. Similarly, Chinese acquisitions, such asShanghai Automotive Industry Corporation’s acquisition of MG in the UK and Geely’sacquisition of Volvo, did not result in the loss of the targets’ brand identities. Thus, in hightechnology sectors, the targets’ brand value is likely to dissuade the acquirers from adoptinga standardization strategy for their global brand management.

From the above discussion, it can be argued that when a target’s organizational identityis stronger than or equal to that of the acquirer, the target is likely to experience a looseintegration with the acquirer (Liu and Woywode, 2013) and retain the autonomy to pursueits own marketing strategies. Thus, EMFs are less likely to adopt standardization in theirmarketing strategies. Either the strength of the targets’ assets or their ownership ofwell-known brands make it likely that their unique organizational brand identities willprevent the acquirers’ from adopting standardizing global marketing strategies.Thus, we argue:

H2. The strength of the targets’ organizational brand identities will be negativelycorrelated to the acquirers adopting standardizing global marketing strategies in thepost-acquisition period.

Institutional and cultural factorsInstitutional factors have been demonstrated to impact company marketing strategies(Homburg et al., 1999; Zou et al., 1997). The central thesis of institutional theory is thatcompany-level strategies and structures are embedded in the business environment and areaffected by such environment’s legitimacy requirements (Friedland and Alford, 1991).Homburg et al. (1999) argued that both the state and the broader society can place pressure oncompanies to pursue one option rather than another via implied societal norms, regulations,and other factors. They also found that institutional factors account for variance not explainedby other determinants commonly studied in marketing literature.

Studies of cross-border acquisitions enacted by developed country companies havefound that these acquirers are more likely to engage in standardization (Brooks et al., 2005).Also, the acute liabilities linked to the foreignness of EMFs manifest themselves acrossinstitutional factors such as economic distance (Salomon and Wu, 2012). The differencesbetween the formal institutions found in the EMFs’ home countries and those of the hostcountries can drive EMFs to identify any synergies made possible by cross-border economicstatus and regulatory differences. In this case, acquiring EMFs may decide to preserve theirtargets’ brand independence not only to assuage any potential conflict with host countrystakeholders (Zou et al., 1997), but also to cater to both home and host country consumers.An example of this adaptation logic of EMF marketing strategies is provided by the cross-border acquisitions completed by Indian company Tata, which acquired premium brandssuch as Jaguar and Land Rover. In these cases, Tata decided to continue to market itstargets’ products as independent brands rather than merging them all under Tata’sumbrella branding. This argument for adaptation to local situations also reflects thedrawbacks linked to the adoption of standardizing marketing strategies, which imply placingthe focus upon products rather than upon consumers and competitors (Zou et al., 1997).Hence, we argue that:

H3a. The institutional distances that exist between home and host countries arelikely to negatively impact the adoption of standardizing marketing strategiesby EMFs.

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The branding of products and services is affected by cross-cultural differences; thus,companies need to be sensitive to effects that these may have in driving consumerperception of their products ( Jun and Lee, 2007). Jun and Lee’s (2007) study of the top100 South Korean and US companies found that brand-logos found in the former countrytend to be more abstract compared to those prevalent in latter. This demonstrates theimportance for EMFs to develop locally adapted marketing strategies.

On the other hand, the existence of cross-border ethnic ties will have a moderating effectupon any changes linked to brand cultural integration. Also, several challenges presentedby country of origin liabilities can be mitigated by the presence, within the target’s country,of populations with ethnic ties to those of the acquirer (Kedia and Bilgili, 2015). In thisparticular situation, EMFs might engage in standardization strategies to leverage thebenefits of scale inherent in a single global marketing strategy. Thus:

H3b. Whereas cultural distance will negatively impact standardizing marketingstrategies, the existence of historical and ethnic ties will positively impact them.

Figure 1 shows the relationship between various stakeholders and EMF marketingstrategies for their newly acquired targets.

MethodologySample selectionCross-border acquisitions from China and India form this study’s empirical setting toexamine the adoption of target brand post-acquisition standardization/adaptation by EMFs.We chose two large emerging markets, India and China, as they have different homecountry business environments, different historical and ethnic ties, and can traditionally beexpected to have different approaches to the standardization/adaptation of the targets’brands. In addition, these two markets are the largest brand acquirers in both thedeveloping and developed country context. The data on the foreign acquisitions of Indianand Chinese companies were collected from the Thomson One database, which holdsinformation on all global mergers and acquisitions. The data relating to cross-borderacquisitions were collected for all those deals that met the following criteria: the deals werefrom China and India; the acquisitions had been completed; the acquirers owned majoritystakes in the target companies after the acquisition; the targets were publicly listedcompanies. This data collection process leads to a set of 173 deals for which company-level

+

–/+

+

–

–+

Acquirer OrganizationalBrand Identity

Business Group Membership

Government ownership

Private acquirer

Target Organizational BrandIdentity

Target Size

High technology industry

Standardizationof target brand

Adaptation totarget brand

Institutional factors

Official language Distance

Political Risk difference

Economic distance

Target National Development

Legal Distance

Cultural factors

Cultural Distance

Historic Links

Ethnic Ties

Channel 1 Channel 2

+

+Figure 1.Adaptation vsstandardization inglobal brandingstrategies in emergingmarket companies’acquisitions

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information on acquirers and targets was available. Chinese deals were more numerous thanIndian ones and all had been completed between 1986 and 2014.

Brand identity change (STANDARD). Post-acquisition target brand standardization/adaptation was proxied by any changes in name, symbol, typography, and colour. The mainanalysis presented in this paper made use of the name change variable, whereas the otherchange variables were used for robustness checks. Although we could probably replicatethe study using other proxies for the standardization/adaptation dimension – e.g. slogan –the results of our study would be likely to be the same since acquirers are likely to change allbrand elements once they decide to replace the targets’ brands with their own.

The brand identity change data were collected from various sources, including bothacquirer and target company websites, Nexis, and the OSIRIS database (which also providescompany-level activity and financial information). This helped us identify whether theEMFs adopted standardization/adaptation strategies for their targets. The STANDARDvariable, which is a dummy variable, takes value 1 if the target’s name was changed to thatof the acquirer and 0 if the target retained its original name. For five deals, there was noinformation on whether the targets had undergone a name change or not; thus, these dealswere excluded from further analysis. Table I provides information on the standardization/adaptation variable; we observe that around 44 per cent of targets underwent apost-acquisition change of name to that of the acquiring EMFs. Table II shows the top tenhost countries in which the sample EMFs conducted cross-border acquisitions. We observethat Chinese firms typically engage in cross-border activities with Hong Kong (which, forthe purposes of this study, is considered a different host destination as its institutional andcultural environment are different from those of mainland China), where they have strongethnic ties. Indian firms, on the other hand, invest mostly in the USA, which is one of thelargest global markets.

Acquirer organizational brand identity. In this study, the acquirer’s organizational brandidentity is determined by its various company-level characteristics, such as membership of abusiness group (BUSINESS_GROUP), government ownership (GOV_OWN), and privateacquirer (PRIVATE_ACQUIRER). Internationalizing Indian companies are traditionally

STANDARD¼ 1/0Home country STANDARD¼ 0 STANDARD¼ 1 Total % STANDARD¼ 0 % STANDARD¼ 1

China 74 51 125 59 41India 20 23 43 47 53Total 94 74 168 56 44

Table I.Summary detailson the sample ofemerging market

firms

China IndiaDestinations Total deals Destinations Total deals

Hong Kong 52 United States 18Australia 17 United Kingdom 6Canada 17 Canada 3United States 17 Germany 3Singapore 6 South Africa 3United Kingdom 5 Australia 2Japan 2 Bermuda 2South Korea 2 Singapore 1Thailand 2 South Korea 1Germany 1 Thailand 1

Table II.Top ten targetdestinations for

Chinese andIndian firms

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part of large business groups; for example, companies like TATA, Reliance, and Mahindra& Mahindra are at the forefront of cross-border acquisitions. In case of China, government-owned companies – e.g. Sinopec, Industrial, and the Commercial Bank of China – are leadingcross-border acquirers.

Target organizational brand identity. For the purpose of this research, the target’sorganizational brand identity is valuable to the acquirer if the target belongs to the hightechnology product market (HIGHTECH) and, in the case of large targets, if theirstakeholders are more powerful in local markets (LOG_ASSET).

National institutional and cultural factorsThis study looks at various national institutional factors that may impact target brandidentity change – official language distance (LANG_OFF_DIST), political risk difference(DIFF_POLRISK), economic distance (DIFF_EFI), target national development(TAR_NAT_DEV), and legal distance (LEGAL_DIST). The official language distance is adummy variable that indicates whether the EMF’s and target’s countries share the sameofficial language (in which case it is set to 1; to 0 if they do not). The underlying argumentpresented for the impact of official language similarity is that a shared languageimplies ease of doing business, which may instil confidence in an EMF with regard todoing business in the target country. A high political risk distance between home and hostcountries might impel an EMF to grant its target a higher degree of autonomy, also aimed atshielding the target from any negative information from the home country, thus allowing itto operate independently. Political risk difference (DIFF_POLRISK) is therefore agood measure to examine the EMFs’ adoption of standardization/adaptation strategiesfor their targets.

Economic distance is proxied by the economic freedom index developed by the HeritageFoundation (Kane et al., 2007; Meyer et al., 2009), which provides detailed information oninstitutions, concentrating on the freedom the people and companies of a country have inestablishing and managing their business operations. This index (DIFF_EFI) has been usedwidely in the extant literature (Bengoa and Sanchez-Robles, 2003; Easton and Walker, 1997;Meyer et al., 2009; Stroup, 2007). Also, this index is available as time series and generatestime-sensitive variations among our cross-section data. Target national development,TAR_NAT_DEV, is a dummy variable that indicates whether the target belongs to adeveloped economy (as classified by the World Bank); it is assigned a value of 1 if it doesand 0 otherwise (Gubbi et al., 2010; Sun et al., 2012). The data from the IMD WYC executivesurvey are used to create the legal distance index (LEGAL_DIST), which is available in timeseries format.

In this study, several of the cultural factors that can potentially impact target brandidentity change were examined – namely, cultural distance (CULTURE_DIST), historicallinks (HISTORICAL_LINKS), and ethnic ties (ETHNIC_TIES). As in prior-related works(Kogut and Singh, 1988; Morosini et al., 1998), cultural distance is a composite measurecalculated as:

CULTURE_DISTf ¼ffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiX6

i¼1I if�I ih� �2r

where the cultural dimensions are power distance (PDI), individuality-collectivism (IDV),masculinity-femininity (MAS), uncertainty avoidance (UAI), long-term orientation vsshort-term orientation (LTO) and indulgence vs restraint (IND), and Ii is the index for each.f denotes the index pertaining to the host country and h denotes that of home country.Historical links (HISTORICAL_LINKS) are those that exist between the home and hostcountries, whereas ethnic ties (ETHNIC_TIES) are a measure of the similarities in

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population ethnicity between the home and host countries. For example, Malaysia hasa sizeable ethnic Chinese population and, similarly, South Africa is home to a substantialIndian one.

Control variablesWe also controlled for various deal-level characteristics which may impact the decision tochange target name: if both target and acquirer belong to the same industry(SAME_INDUSTRY); if the deal was paid in cash (CASH); the percentage of the targetacquired (PERCENTACQ); if the deal was likely to have been carried out due to market-seeking motives (MARKET_SEEKING); or to leverage currency advantage (FOREX). We alsoinclude industry and year dummies in our analysis to control for their effects. Table IIIpresents the information on our variables and Table IV shows the summary statistics andPearson correlation between the non-binary variables and theϕ correlation between the binaryones. We do not observe a high degree of correlation between our explanatory variables andwe believe not to have experienced multicollinearity issues in our empirical analysis.

ResultsThe results of the analyses of target and acquirer organizational brand identities withregard to standardization are presented in Table V. These indicate that membership ofbusiness groups, BUSINESS_GROUP, and government ownership, GOV_OWN, do nothave effect on acquirer standardization decisions. We find that acquirer private ownership,

Variable name Source Data description

STANDARD Company websites, Nexis,OSIRIS

When target changed its name to that ofacquirer¼ 1/0 otherwise

BUSINESS_GROUP Company websites, ThomsonOne

If acquirer was part of business group¼ 1/0otherwise

GOV_OWN Company websites, ThomsonOne

If acquirer was majority owned bygovernment¼ 1/0 otherwise

PRIVATE_ACQUIRER Thomson One If acquirer was privately-owned¼ 1/0 otherwiseLOG_ASSET Thomson One Log (target assets)HIGHTECH Thomson One If target belonged to high technology industry¼

1/0 otherwiseCULTURE_DIST Website of Geert Hofstede Data on 6 dimensions from the websiteHISTORICAL_LINKS National newspapers, country

information websiteIf there were colonial links between countries¼1/0 otherwise

ETHNIC_TIES Country information websites If there was a significant % of ethnic population inthat country¼ 1/0 otherwise

LANG_OFF_DIST CIA World Factbook Official language for target and acquirer issame¼ 1/0 otherwise

DIFF_POLRISK IMD WYC executive survey Data for political risk variableDIFF_EFI Heritage Foundation The difference of composite index for economic

freedomTAR_NAT_DEV World Bank If World Bank listed target country as developed

¼ 1/0 otherwiseLEGAL_DIST IMD WYC executive survey Data for legal distanceSAME_INDUSTRY Thomson One If target and acquirer belonged to the same

industry¼ 1/0 otherwiseCASH Thomson One If deal was paid in cash¼ 1/0 otherwisePERCENTACQ Thomson One % shares acquired in transactionMARKET_SEEKING World Bank If GDP(target)WGDP(acquirer)¼ 1/0 otherwiseFOREX oanda.com Target currency to $/acquirer currency to $

Table III.Details on variables

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Variablename

Mean/

frequency

SD1

23

45

67

89

1011

1213

1415

1617

18

1.ST

ANDARD

741.00

2.BUSINESS

_GROUP

410.026

1.00

3.GOV_O

WN

91−0.122

−0.28*

1.00

4.PR

IVATE_A

CQUIRER

109

0.100

0.011

0.124

1.00

5.LO

G_A

SSET

2.11

0.93

−0.149

0.178

0.29*

−0.115

1.00

6.HIGHTECH

30−0.038

−0.084

−0.194

−0.145

−0.044

1.00

7.CU

LTURE_D

IST

−4.40

18.61

−0.035

−0.129

−0.39*

−0.33*

−0.26*

0.103

1.00

8.HISTORICAL_

LINKS

71−0.055

0.187

0.109

0.20*

0.23*

0.073

−0.51*

1.00

9.ETHNIC_T

IES

880.029

0.125

−0.063

−0.027

0.123

0.29*

−0.45*

0.647*

1.00

10.L

ANG_O

FF_D

IST

128

−0.067

−0.007

0.38*

0.35*

0.172

−0.32*

−0.45*

0.110

−0.39*

1.00

11.D

IFF_

POLR

ISK

1.22

0.32

−0.043

−0.091

−0.031

0.23*

−0.209

−0.130

0.020

−0.004

−0.061

0.058

1.00

12.D

IFF_

EFI

1.52

0.16

0.012

0.028

0.25*

0.40*

0.035

0.030

−0.64*

0.41*

0.44*

0.160

0.34*

1.00

13.T

AR_N

AT_D

EV

910.046

−0.144

−0.22*

−0.026

−0.34*

−0.007

0.74

−0.62*

−0.61*

−0.149

0.32*

−0.25*

1.00

14.L

EGAL_

DIST

1.21

0.37

−0.004

−0.022

0.196

0.24*

0.059

−0.045

−0.53

0.198

0.33*

0.064

0.39*

0.73*

−0.183

1.00

15.S

AME_INDUST

RY

830.010

−0.007

−0.070

−0.37*

0.26*

0.161

0.30*

−0.146

−0.035

−0.20*

−0.166

−0.32*

0.120

−0.25*

1.00

16.C

ASH

90−0.015

−0.137

0.101

−0.059

0.030

0.091

−0.098

−0.097

0.068

−0.072

0.027

0.111

−0.041

0.27*

0.036

1.00

17.P

ERCE

NTACQ

63.70

32.49

0.102

−0.095

−0.196

−0.014

−0.154

−0.008

0.45*

−0.33*

−0.34*

−0.173

0.061

−0.34*

0.47*

−0.34*

0.085

0.195

1.00

18.M

ARKET_S

EEKING

−0.073

0.069

−0.109

0.023

0.084

0.112

−0.26*

0.44*

0.56*

−0.092

−0.129

0.100

−0.49*

−0.002

−0.007

−0.196

−0.22*

1.00

19.F

OREX

3.57

21.53

−0.002

−0.060

0.036

−0.139

0.023

−0.068

0.071

−0.094

−0.136

0.091

−0.180

−0.32*

−0.160

−0.26*

0.141

−0.047

−0.073

0.0986

Note:

Correlationsign

ificant

at*p

o0.1

Table IV.Descriptive statisticsand Pearson and ϕcorrelation (for binaryvariables) matrix

148

IMR34,1

(1)

(2)

(3)

(4)

(5)

Acquirercharacteristics

BUSINESS

_GROUP

0.0299

(0.260)

0.128(0.295)

GOV_O

WN

−0.139(0.281)

0.325(0.321)

PRIVATE_A

CQUIRER

0.495(0.279)*

0.524(0.303)*

Targetcharacteristics

LOG_A

SSET

−0.219(0.127)*

−0.252(0.134)*

HIGHTECH

−0.185(0.331)

−0.205(0.342)

SAME_INDUST

RY

0.0278

(0.249)

0.0398

(0.250)

0.128(0.255)

0.192(0.294)

0.272(0.295)

CASH

0.0295

(0.231)

0.0366

(0.230)

0.0927

(0.234)

0.00572(0.248)

0.0734

(0.251)

PERCE

NTACQ

0.00202(0.00343)

0.00173(0.00351)

0.00123(0.00354)

6.44e−

05(0.00373)

−0.000380

(0.00397)

MARKET_S

EEKING

−0.472(0.274)*

−0.477(0.275)*

−0.520(0.280)*

−0.307(0.291)

−0.365(0.291)

FOREX

−0.00145(0.00462)

−0.00115(0.00481)

−0.000154

(0.00458)

−0.00133(0.00450)

−0.000197

(0.00425)

Indu

stry

dummies

Includ

edInclud

edInclud

edInclud

edInclud

edYeardu

mmies

Includ

edInclud

edInclud

edInclud

edInclud

edDUM_INDIA

0.338(0.293)

0.267(0.319)

0.520(0.319)

0.367(0.326)

0.676(0.385)*

Constant

5.160(1.013)***

5.400(1.111)***

4.579(1.075)***

5.959(1.148)***

5.011(1.290)***

Observatio

ns168

168

168

148

148

R2

0.0814

0.0829

0.0946

0.0845

0.1025

Prob.W

χ20.0000

0.0000

0.0000

0.0000

0.0000

Notes

:Robuststandard

errors

inparentheses.*p

o0.1;**po

0.05;***po

0.01

Table V.Organizational

identity measures foracquirer and target,and their impact on

target standardization/adaptation branding

strategy

149

Emergingmarket

cross-borderacquisitions

PRIVATE_ACQUIRER, has a positive effect on standardization (coeff.: −0.524, significance:10 per cent level). The size of the target, proxied by its assets, LOG_ASSET has a negativeand significant effect on the standardization variable (coeff. :−0.252, significance: 10 per cent).

The analysis of the impact of institutional factors is presented in Table VI.We acknowledge the low reliability of the regression results presented in columns 1 to 8 ofthis table (prob.Wχ2 are all greater than 0.0000). The final model presented in this table,which is our full model, not only has a satisfactory prob.Wχ2 value (0.0000) but also a goodR2 one (0.3609). We observe that DIFF_EFI, which indicates differences in home and hostcountry economic freedom, has a negative and significant effect on the standardizationvariable (coeff.: −4.154; significance: 10 per cent level). This supports our H3a.The TAR_NAT_DEV (coeff.: 4.922; significance: 1 per cent level) and LEGAL_DIST(coeff.: 2.644; significance: 5 per cent level) variables both have positive and significanteffects on the standardization variable. This result contradicts our H3a. So overall,we observe partial support for our H3a.

From Table VI, column 9, we observe that our cultural distance variable,CULTURE_DIST, has a negative and significant effect on the standardization variable(coeff.: −0.189; significance: 1 per cent level). Also, the variable that measures ethnic tiesbetween the home and host countries, ETHNIC_TIES, has a positive and significant impacton the standardization measure (coeff.: 2.186; significance: 10 per cent level). Thus, we findsupport for our H3b. Table VII summarizes the results of our empirical analysis and weobserve that most of our hypotheses are supported by this study’s results.

Robustness checksWe used variance inflation factor (VIF) and tolerance (Tolerance) values to examine the levelof multicollinearity of our variables. We found that both these values were within theacceptable levels for this type of analysis. We found that all VIF values were below 10 andTolerance values above 0.10.

To test the robustness of our results, we ran our analyses with alternate measures for thestandardization of the EMFs marketing strategies. Instead of using target name change asthe dependent variable, we evaluate changes in symbol, typography, and colour. Theanalyses of these three dependent variables did not produce results significantly differentfrom those presented in this paper. We also used alternate measures of country-levelinstitutional variables. We used institutional data from Berry et al. (2010) in our analyses.These yielded results similar to those presented in this paper.

Discussion and research implicationsThe aim of this paper was to examine the factors that lead to the standardization oradaptation of global marketing programmes of EMF M&As. The contemporary researchnotes that, due to the integration of world economies, there is no need for companies to adapttheir marketing strategies in host markets; rather, companies should standardize. Yet,studies point out that cultural differences matter and companies should find ways to adaptat least certain elements of their marketing programmes. It is in this context that this paperexamines the decision of EMFs to standardize/adapt their global marketing strategies aftercross-border acquisitions. There has been a limited research investigating marketingintegration-related issues that follow M&As (Degbey and Pelto, 2015; Öberg, 2014;Sinkovics et al., 2014). Yet, marketing integration is as important as other variables, such ascultural integration and boundary negotiation, between the merging companies (Drori et al.,2011, 2013; Sinkovics et al., 2014).

Compared to institutional and cultural dimensions, target and acquirer organizationalidentities are observed to have a weaker effect on EMFs’ decisions regardingstandardization of marketing strategies.

150

IMR34,1

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

LANG_O

FF_D

IST

−0.132(0.488)

0.435(1.031)

DIFF_

POLR

ISK

0.212(0.606)

0.519(0.914)

DIFF_

EFI

1.036(1.026)

−4.154(2.500)*

TAR_N

AT_D

EV

−0.101(0.394)

4.922(1.487)***

LEGAL_

DIST

1.017(0.457)**

2.644(1.157)**

CULT

URE_D

IST

−0.0310

(0.0122)**

−0.189(0.0590)***

HISTORICAL_

LINKS

−0.529(0.332)

−0.785(0.724)

ETHNIC_T

IES

0.104(0.389)

2.186(1.203)*

SAME_INDUST

RY

0.375(0.407)

0.812(0.477)*

0.438(0.412)

0.369(0.399)

0.565(0.422)

0.477(0.405)

0.321(0.408)

0.378(0.403)

1.336(0.587)**

CASH

−0.0150

(0.286)

0.412(0.333)

−0.0620

(0.274)

−0.0228

(0.295)

−0.169(0.279)

−0.195(0.283)

0.0697

(0.274)

−0.0314

(0.296)

0.262(0.459)

PERCE

NTACQ

0.00362(0.00447)

−0.000981

(0.00489)

0.00535(0.00461)

0.00423(0.00488)

0.00670(0.00466)

0.00786(0.00471)*

0.00245(0.00455)

0.00414(0.00470)

0.000847

(0.00768)

MARKET_S

EEKING

−0.111(0.342)

−0.415(0.374)

−0.121(0.330)

−0.127(0.365)

−0.157(0.329)

−0.348(0.342)

0.110(0.349)

−0.144(0.385)

−1.308(0.873)

FOREX

0.0007

(0.0050)

−0.0008

(0.0051)

0.0038

(0.0054)

0.0001

(0.0048)

0.0037

(0.0042)

0.0026

(0.0042)

−0.0013

(0.0049)

0.0010

(0.0052)

0.0116

(0.0069)*

Indu

stry

dummies

Includ

edInclud

edInclud

edInclud

edInclud

edInclud

edInclud

edInclud

edInclud

edYeardu

mmies

Includ

edInclud

edInclud

edInclud

edInclud

edInclud

edInclud

edInclud

edInclud

edDUM_INDIA

0.0741

(0.501)

0.289(0.522)

0.268(0.395)

0.156(0.373)

0.306(0.394)

0.627(0.437)

0.141(0.375)

0.119(0.395)

4.574(1.148)***

Constant

−0.834(1.180)

−0.788(1.502)

−2.555(1.842)

−0.872(1.149)

−2.634(1.302)**

−0.820(1.102)

−0.917(1.087)

−0.971(1.067)

−2.896(3.396)

Observatio

ns129

107

129

129

128

128

129

129

106

R2

0.0986

0.1243

0.1054

0.0985

0.1210

0.1338

0.1124

0.0987

0.3609

Prob.W

χ20.9753

0.9673

0.9367

0.9665

0.7697

0.7567

0.9705

0.9666

0.0000

Notes

:Robuststandard

errors

inparentheses.*p

o0.1;**po

0.05;***po

0.01

Table VI.Institutional andcultural factorsaffecting EMF

standardization/adaptation marketingstrategies for targets

151

Emergingmarket

cross-borderacquisitions

Organizational brand identities of privately-owned EMFs will be positively related to thestandardization of marketing strategies in the post-acquisition period (e.g. Lambkin andMuzellec, 2010). One potential underlying reason could be that, compared to publicly-listedEMFs, privately-owned acquirers are less likely to be closely scrutinized by externalstakeholders. Hence, privately-owned EMFs can freely integrate strategic resources,including brand and marketing, into their own assets. Yet, target size will drive EMFstowards adapting their marketing strategies to meet local demands; hence, EMFs will granttargets the autonomy to pursue their own local marketing strategies.

Contrary to our expectations, we observe that institutional distance positively impactsthe standardization of EMF global marketing strategies. It can be argued that, in theirpursuit of the transfer of capabilities from more highly developed host markets to theirhome ones, EMF stakeholders may rely on a higher degree of integration of the acquiredsubsidiary with the parent EMF (Björkman et al., 2007; Meyer et al., 2009). Also, in the caseof economies less developed than that of their home country – e.g. Chinese acquisitions inAfrica and East Asia – the benefits linked to standardization of marketing strategiesmay outweigh retaining the local identities of target companies. Nevertheless, we observethat the economic freedom distance between the home and host countries negativelyimpacts standardization of marketing strategies. The possible explanation for this positiveeffect rests on the EMFs’ possible desire to leverage the higher economic freedom found insome of their targets’ markets, thus allowing their subsidiaries to maintain their ownindependent operations.

EMFs have to take great care in responding to cultural pressures without the restrictiveconstraints of institutions (Goodrick and Salancik, 1996). Kostova and Zaheer (1999) insistedthat cultural distance creates greater issues than institutional distance for foreigncompanies. In the case of EMFs, hence, cultural distance will negatively impact thestandardization of marketing strategies and targets may be granted considerable autonomy(Wang et al., 2013). Similarly, when there are profound historical and ethnic ties betweencountries, EMFs can leverage relationship-based synergies to strengthen their cross-borderpresence and acceptability. Hence, in the case of countries with a sizeable presence of ethnicIndian and Chinese populations, we observe that EMFs are likely to engage in thestandardization of their marketing strategies in the post-acquisition period.

Based on these findings, we believe that this paper enhances the academicunderstanding of the factors that lead to the standardization or adaptation of globalmarketing strategies (Degbey and Pelto, 2015; Lambkin and Muzellec, 2010; Öberg, 2014)during PMI, thus contributing to cross-border M&A success in three important ways.

First, it provides an initial understanding of the factors that lead to the standardizationor adaptation of global marketing strategies during the PMI period. This adds to theexisting studies investigating the factors that contribute to the successful integration of twomerging companies (Drori et al., 2011, 2013). The paper establishes a link between acquirerand target company identities and the standardization/adaptation adopted by EMFs toalign their global marketing strategy. Most existing research has focussed on EMF globalmarketing strategies in the context of greenfield and exporting (Zou et al., 1997), whileignoring the global marketing strategies involved in EMF cross-border acquisitions.

Explanatory variables Expected effect Observed effect on the standardization strategy

Acquirer organizational identity Positive PositiveTarget organizational identity Negative NegativeInstitutional distance Negative PositiveCultural distance Negative NegativeEthnic ties with host country Positive Positive

Table VII.Summary of results

152

IMR34,1

Second, the study identifies the relationship between the institutional factors that impacttarget brand standardization/adaptation strategies. By doing so, it ties in to othercross-border studies which link company-level strategy to institutional factors (Albaum andTse, 2001; Auh and Menguc, 2009; Zou et al., 1997), and extends these studies to reflect theimpact of institutional factors on acquirer global marketing strategies in the wake of M&As.

Third, this study highlights that institutional factors have a higher impact thanorganizational identities on target branding decisions made by both acquirer and target(Drori et al., 2013; Lambkin and Muzellec, 2010). This indicates that foreignness and countryof origin liability arguments have much higher resonance in the decision-making process interms of the standardization/adaptation marketing strategies (including branding) adoptedby EMFs following M&As.

Besides this, our study also enriches previous M&A-related performance research byproviding an advanced understanding of the role played by standardization or adaptation ofglobal marketing strategies during the PMI period. More specifically, previous researchfocussed on the performance implications of post-merger marketing integration andparticularly addressed the issue of integration speed as a success factor of M&As(e.g. Homburg and Bucerius, 2005). By contrast, our study analyses how different factorslead to the standardization or adaptation of global marketing strategies during thepost-M&A phase of EMFs.

Limitations and future research directionsAlthough we have considered the two largest emerging economies, the lessons from thisstudy are still limited to the institutional and cultural factors that govern these countries,which are also uniquely placed for this research as they have deep ethnic and historical linkswith several other countries worldwide. However, this is not true for several other emergingeconomies, so EMFs from these should potentially reflect on these issues whilstinternationalizing their marketing strategies (Seth, 1986). This point is equally valid forresearchers examining these EMFs’ marketing strategies, as these companies might derivesynergies in other areas.

Also, Indian and Chinese EMFs are themselves different from those from other emergingeconomies in terms of sheer size, institutional support for internationalization, and policiesmandating target integration with parent companies; hence, differences, however subtle,need to be taken into account when comparing the results of this research with other EMFs’post-cross-border acquisition marketing strategies.

Due to the limited availability of data, the proxies for both acquirer and targetorganizational brand identities were restricted to a few key characteristics; future works canpotentially examine the issues of post-acquisition marketing strategies on a wider set ofcharacteristics making up organizational brand identities. Lastly, studies on EMFs shouldalso pay closer attention to corporate social responsibility issues (Khan et al., 2015), and theirlinks with standardization or adaptations of marketing strategies in host markets, ascompanies may adapt their marketing strategies in order to portray themselves as beingsocially responsible.

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About the authorsRekha Rao-Nicholson is a Senior Lecturer in International Business at the Newcastle UniversityLondon. Her research interests are strategy and business in emerging economies, growth of MNCsfrom emerging economies, and the economics of innovation. She has published in Research Policy,International Business Review, International Marketing Review, International Journal of HumanResource Management, Asia Pacific Journal of Management, Journal of Evolutionary Economics,Economics of Innovation and New Technology, Journal of World Business, and Human ResourceManagement Review, among others.

Zaheer Khan is a Reader (Associate Professor) in International Business at Kent Business School,the University of Kent, UK. His research focuses on global technology management, with a particularinterest in knowledge transfer through FDI to emerging economies. His work has been published in theInternational Business Review, the Global Strategy Journal, the Journal of International Business Studies,Journal of World Business, Critical Perspectives on International Business, International Journal ofHuman Resource Management, Industrial Marketing Management, International Marketing Review,Human Resource Management Review, and Human Relations, among others. Zaheer Khan is thecorresponding author and can be contacted at: z.khan-53@kent.ac.uk

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