How does regional institutional complexity affect MNE internationalization?

Jean-Luc Arregle, Toyah L. Miller, Michael A. Hitt, Paul W. Beamish

Research output: Contribution to journalArticle

39 Citations (Scopus)
103 Downloads (Pure)

Abstract

International business research is only beginning to develop theory and evidence highlighting the importance of supranational regional institutions to explain firm internationalization. In this context, we offer new theory and evidence regarding the effect of a region’s “institutional complexity” on foreign direct investment decisions by multinational enterprises (MNEs). We define a region’s institutional complexity using two components, regional institutional diversity and number of countries. We explore the unique relationships of both components with MNEs’ decisions to internationalize into countries within the region. Drawing onsemiglobalization and regionalization research and institutional theory, we posit an inverted U-shaped relationship between a region’s institutional diversity and MNE internationalization: extremely low or high regional institutional diversity has negative effects on internationalization, but moderate diversity has a positiveeffect on internationalization. Larger numbers of countries within the region reduces MNE internationalization in a linear fashion. We find support for these predicted relationships in multilevel analyses of 698 Japanese MNEs operating in 49 countries within 9 regions. Regional institutional complexity is both a challenge and an opportunity for MNEs seeking advantages through the aggregation and arbitrage of individual country factors.
Original languageEnglish
Pages (from-to)697-722
JournalJournal of International Business Studies
Volume47
Issue number6
Early online date12 May 2016
DOIs
Publication statusPublished - 3 Aug 2016

Keywords

  • regional strategy or strategies
  • institutions and international business
  • semiglobalization
  • foreign direct investment
  • mixed models

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