Ram Mudambi

Multinational Enterprises and Local Contexts: The Opportunities and Challenges of Multiple Embeddedness

Some scholars have argued that globalization will reduce the importance of local contexts. We argue instead that despite the increased frequency and intensity of interactions across local contexts, they continue to retain their distinctive differences. MNEs face growing challenges in managing the complexity of these interactions, because they must manage ‘multiple embeddedness’ across heterogeneous contexts at two levels. First, at the MNE level, they must organize their networks to exploit effectively both the differences and similarities of their multiple host locations. Second, at the subsidiary level, they must balance ‘internal’ embeddedness within the MNE network, with their ‘external’ embeddedness in the host milieu. Balancing the subsidiarys strategic role within the MNE with its local identity and its domestic linkages can sometimes represent a trade‐off. Multiple embeddedness thus creates both business opportunities and operational challenges, which are explored in this special issue.

Conventional and Reverse Knowledge Flows in Multinational Corporations

Leveraging knowledge from geographically disparate subsidiaries is a crucial source of competitive advantage for multinational corporations (MNCs). This study investigates the determinants of knowledge transfers to and from newly acquired subsidiaries in three transition economies in Central and Eastern Europe. It is hypothesized that the determinants of conventional knowledge transfers from MNC parents to subsidiaries and reverse knowledge transfers from subsidiaries to MNC parents are based on different transfer logics. A sample of 105 acquired subsidiaries revealed that organizational characteristics are important in conventional knowledge flows from headquarters, so that subsidiaries acquired with competence-creating objectives receive significantly larger inflows. Knowledge characteristics are important in reverse flows to headquarters so that subsidiaries whose knowledge is more relevant are able to transmit significantly larger outflows. Host country locations have significant moderating effects. The significance of the directional context in knowledge transfers is an important new finding.

Knowledge management in multinational firms

Multinationals by their very nature are network firms. They are therefore able to leverage their networks to effectively manage dispersed knowledge assets. They do this by tapping into a number of local clusters to assimilate and integrate knowledge. However, knowledge traffic is almost always two-way, so that clusters have much to gain from both intentional and unintentional knowledge outflows from MNEs. Thus, MNEs can serve as conduits between clusters, so that their network knowledge contributes to the health of all the clusters in which it operates.

The Strategic Nexus of Offshoring and Outsourcing Decisions

One important effect of the increasing integration of the world economy is the rising importance of possibilities to offshore and outsource value-creating activities. In many industries, firms are able to disaggregate their value chains into smaller parts. This process allows for a less path-dependent approach to the firms ideal location profile (through offshoring and relocation) and control strategies (through outsourcing). This article argues that optimal decisions regarding individual processes recognize the linkages of these processes with the firms entire value chain. The article explores the magnitude, sequence, and dynamics of interdependent decisions regarding the location and control of various parts of the value chain. By using case illustrations from the mobile handset and financial services industries, this article provides a novel perspective on the disintegration, mobility, and reintegration of value chain activities in a global context.

Institutions and internation business: a theoretical overview

Globalization has led to a spectacular rise in the international exchange of goods and services. In many countries, international trade and foreign direct investment have led to unprecedented wealth creation, through such means as high value employment opportunities and the transfer of technology to local producers and buyers. Growing international competition has multiplied the number of viable locations for business facilities. Multinational firms compare and evaluate different locations in different countries on the basis of their expected profitability. If a location loses its competitiveness, firms move their operations, together with their capital and technical and organizational knowledge to locations where the conditions for business are more favorable. The competitive advantage of a given location has been traditionally seen in terms of macroeconomic conditions. Economic factors such as the size and growth of the market, the availability of labor and its costs, the inflation level, the degree of foreign indebtedness and the state of the balance of payments were considered to be the major indicators of location profitability for international investment and trade. Variations in the institutional structures across countries were either completely disregarded or treated only as unimportant secondary factors. This view was heavily influenced by neoclassical economic theory. This theory stated that equilibrium in the economy as well as the relevant economic variables,

Diversification and market entry choices in the context of foreign direct investment

Multinational enterprises (MNEs) consider many factors when making decisions in the context of foreign direct investment (FDI). The MNE must decide whether to diversify or to concentrate on its main line of business (LOB). It must also decide whether to enter into a foreign market through a greenfield or acquisition strategy. This paper analyzes both decisions. The international business literature has generally treated these strategic choices as independent. This paper introduces a more realistic selection model, in which the diversification choice and the entry mode choice are made sequentially, and are therefore related. The model is tested using a data set of FDI into the United Kingdom by MNEs in engineering and related industries. The analysis indicates a strong relationship between the diversification choice and the entry mode decision. In virtually all cases, the statistical significance of the selection model is higher than that of the independent model, indicating an improvement over previous research. Overall, the results indicate that the decisions on product diversification and foreign mode of entry are related. Diversified firms are more likely to enter through acquisition. Firms focusing on their main LOB are more likely to enter through greenfield entry. The paper also identifies a number of managerially relevant factors affecting these relationships.

A Story of Breakthrough vs. Incremental Innovation: Corporate Entrepreneurship in the Global Pharmaceutical Industry

Breakthrough innovations are difficult to create; yet they are critical to long term competitive advantage. This highlights the considerable opportunities and risks that face corporate entrepreneurs. We study the complex explorative and exploitative entrepreneurial processes of multinational firms operating in the global pharmaceutical industry. We analyze over 1,500 new drug approvals by the U.S. Food and Drug Administration (FDA). We find that a successful track record in breakthrough innovation significantly increases the likelihood of a current breakthrough, while achievements in non-generic incremental innovation do not have a significant effect. A strong foundation in generic incremental innovation hinders breakthrough performance. Thus, incremental innovation processes appear to be heterogeneous. Products that emerge from joint ventures and alliances are more likely to be breakthroughs. Foreign subsidiary participation in innovation processes did not significantly inhibit breakthroughs. These suggestive findings support the decentralization literature that highlights the benefits associated with exploiting knowledge from foreign centers of excellence. Contrary to the literature arguing that younger firms tend to have greater advantages in “exploration”, we do not find firm age to be a significant predictor of the likelihood of breakthrough innovation.

Strategic Segmentation: An Empirical Analysis of Tourist Expenditure in Turkey:

This article presents a methodology to aid strategic planners in analyzing segment attractiveness. The methodology involves using country of origin as the primary segmenting variable and a number of demographic and behavioral characteristics as secondary segmenting variables. The methodology is quite flexible and quantitatively robust. The methodology is illustrated through an application to country-of-origin-based tourist expenditure in Turkey, and target segments for promotional strategies are identified.

Multinational Enterprises and the Geographical Clustering of Innovation

Research on the geographic clustering of economic activity dates back to the early twentieth century. It is recognized that in spite of advances in transportation and communications, clustering remains most critical, and is consequently prevalent, in knowledge-intensive fields. Multinational enterprises (MNEs) that increasingly base their value creation and competitive advantage on knowledge-intensive activities are key participants in clusters, affecting both the nature and intertemporal evolution of local innovative activities. However, the role of MNEs in clusters remains under-researched. This paper traces the origins of research on geographic clusters, identifies the seminal contributions focusing on the role of MNEs, discusses potential problems inherent to this area of inquiry and develops an organizing framework for new research.

Globalization, Entrepreneurship, and Public Policy: A Systems View

It has been commonly observed that the activities of firms are becoming increasingly globalized. Not only have exports grown faster than production in the industrialized countries; foreign direct investment (FDI) has also grown considerably faster than exports over the last several decades (UNCTAD 1999). In recent years, an increasing share of FDI by multinational firms has involved research and development (R&D) activities and facilities. But globalization does not mean that local conditions no longer matter. Surveying the literature, three major findings stand out. First, certain geographic regions are more dynamic and attract more economic activity than others, particularly in highly R&D-intensive industries (Cantwell and Janne 1999). Second, high-technology firms tend to cluster in close proximity to each other (Sabety and Griffin 1996; Sabourin and Pinsonneault 1997; Walcott 1999). Third, regions expend resources competing with each other to attract FDI and are particularly interested in R&D investment (Guisinger 1986; Young et al. 1994; Mudambi 1998). Given these observed tendencies toward regional clustering and globalization of the activities of firms, how can a region leverage its resources and capabilities to shift its comparative advantage into activities likely to yield high and sustainable growth? What is the role of public policy in this regard, particularly in creating a favorable climate for private entrepreneurship? We take a systems approach in dealing with these questions. We view the economic and innovative activities of firms within a framework of academic, financial, and other institutions, networks among firms and other actors, government policies and agencies, etc., and the relationships among these. We begin by discussing globalization and its driving forces. This is followed by a brief overview of regional clustering of economic activities and the role of technological spillovers. We conclude by examining the implications for public policy.