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It is widely acknowledged that foreign firms are at an institutional disadvantage relative to domestic firms operating in the local market. This “liability of foreignness” typically manifests as inferior performance for foreign firms relative to domestic competitors. Although myriad studies document the liability of foreignness, few demonstrate how individual host country institutions generate specific liabilities. In this study, we explore the regulatory liabilities that foreign firms face using a sample of 189 foreign banks operating in the United States. We find that regulators initiate more enforcement actions, on average, against foreign banks than they do against domestic banks. The effects, however, vary by regulation type and firm characteristics. For example, foreign banks are no more likely to receive risk-related sanctions, but far more likely to receive stakeholder-related sanctions. Foreign banks with higher quality of human capital and more host country experience are less likely to run afoul of all regulations. Foreign banks with more third country experience are less likely to receive risk-related sanctions, but more likely to receive stakeholder-related sanctions. The results highlight the contingent nature of regulatory liabilities, the role of information asymmetry versus regulatory bias in enforcement outcomes, and the liability-reducing effects of resources and capabilities.

Research summary In this study, we introduce a new statistical technique to the field of strategy that accounts for complex interrelated decisions. The technique is meant for situations in which one strategic decision depends critically upon another—e.g., where companies must commit to one decision before making another. We demonstrate the value of the technique in the context of companies choosing countries in which to invest, followed by areas within those countries in which to locate their facilities. We then describe the generic benefits of the statistical technique, offer guidance for how to use it, and provide the programming code so that others can implement it. We explain how the technique is particularly well suited to problems in which companies must decide between multiple options and the sample size is small relative to the number of initial options. Managerial summary Research in strategy and international business has increasingly adopted two-stage models to account for endogeneity. Established approaches, however, deal most effectively with problems characterized by binary first-stage models. We introduce an alternative that allows for multiple choices in the first stage. We use the technique to examine the agglomeration patterns of foreign firms, while accounting for country selection. We find that, conditional on country selection, foreign firms tend to agglomerate in host countries characterized by collectivist cultures, political uncertainty, and economic uncertainty. The results imply that host country characteristics exert a strong influence on the agglomeration preferences of foreign firms. We provide guidance on when to use the empirical estimation technique and furnish details of the estimation procedure so that others can apply the technique to a broader class of selection problems.

Research summary: Research demonstrates that foreign firms from institutionally distant countries imitate the practices of domestic firms (i.e., adopt an isomorphism strategy). The conjecture has been that pursuing such a strategy can help foreign firms counteract the deleterious performance consequences associated with institutional distance; yet there is scant evidence of such. This study treats isomorphism as an endogenously selected strategy influenced by institutional distance to examine its performance consequences. Using a dataset of 80 foreign banks from 25 countries operating in the United States, we find that foreign firms from institutionally distant home countries benefit initially from selecting an isomorphism strategy. However, the benefits diminish with experience. Managerial summary: Multinational companies experience great difficulty in managing institutional distance, and research suggests that one way to overcome distance-related constraints is to imitate the strategies of local companies. Unfortunately, we do not know enough about the performance-related consequences of engaging in such imitative behavior. This study examines whether imitating local firms improves performance for multinational companies from institutionally distant markets. We find that imitation improves a firm's performance at first; however, with experience those same strategies result in performance decrements. Managers of multinationals should therefore be careful not to get locked into imitative strategies that provide performance benefits upon entry, but that fail to provide benefits over time. Copyright © 2015 John Wiley & Sons, Ltd.

An interesting theoretical debate arises when considering firm heterogeneity in learning from exporting. One perspective intimates that technologically lagging firms stand to benefit more from exporting because exposure to technological knowledge in foreign markets allows these firms to close the gap with their more technologically endowed counterparts. A contrasting perspective posits that technologically superior firms benefit more from exporting since these firms are better equipped to translate knowledge acquired in foreign markets into innovation. Using a sample of 1,744 Spanish manufacturing firms from 1990–1997, this study empirically investigates how exporting differentially influences the patent output of technologically leading versus technologically lagging firms. We find that exporting is associated with the ex post increase in innovative productivity for both technologically leading and lagging firms. However, subsequent to exporting, technologically leading firms apply for more patents than technologically lagging firms. Copyright © 2010 John Wiley & Sons, Ltd.

Organizational growth and performance hinge upon the effective deployment of productive knowledge in new facilities. However, getting those facilities fully operational can be difficult and time consuming. Interestingly, we understand little about what determines the performance of that process. In this paper we help fill this gap by analyzing multiple determinants of time-to-build—i.e., the time it takes a firm to build and ramp up operations at a new manufacturing facility. Theoretically, we develop predictions regarding the effects of competitive, firm, and technology characteristics on time-to-build. Empirically, we test our predictions on a sample of plant construction projects in the memory segment of the global semiconductor industry. We find that competition from rivals with superior technology is associated with shorter time-to-build, at least up to a point. Firm and industry experience are associated with shorter time-to-build. International projects, and those that push the technological frontier, take longer. Findings from this study enrich the literatures on corporate growth, international expansion, and technology strategy. We discuss implications for research and practice.

We address independent and joint effects of contractual hazards and technological capabilities on governance, arguing that strong technological capabilities improve a firm's ability to govern trans...

Although a substantial body of research has investigated spillovers to FDI, we know very little about whether, and how, firms stand to benefit from spillovers without making such crossborder investments. In this study I investigate this issue by examining the ex-post innovative benefits that accrue to exporting firms. I argue that exporters access diverse knowledge inputs not available in the domestic market.This knowledge spills back to the focal firm and results in increased innovation. I explore how exporters derive such knowledge-based advantages by examining the relationship between export strategies and innovative productivity. Specifically, I contend that firms that export to developed countries will experience increased innovative productivity. Similarly, firms that reach the foreign market directly rather than relying on export brokers should innovate more, as they maintain closer ties with their information conduits.The empirical analysis is conducted using a stratified representative sample of Spanish manufacturing firms from 1990 to 1997. The dependent variable (innovation) is measured using several widely employed proxies including patent counts and innovation counts. I find that export strategies influence innovation in complex ways. I discuss the relevance of these findings for research in international business, strategy, and innovation.

This article presents a study that examined product innovation and patent application counts of a stratified representative sample of Spanish manufacturing firms from 1990-1997. Empirical findings across many nations show that exporters have superior productivity compared to non-exporters and that this relationship is driven by productive firms becoming exporters. Firm level data from a growing set of countries show that exporting firms or plants have superior productivity compared to non-exporters. It is found that exporting is more than just an activity to increase the scope of a company's product market. It is an activity that can generate information that the firm can use to innovate. Therefore, exporting can be considered a strategic action through which firms can enhance their competitive position. In fact, the results on patent applications in Spain suggest that firms may use the knowledge acquired abroad to increase their competitive position at home. Firms will often need enhanced productivity in...

Firms face disadvantages when operating abroad. To overcome these disadvantages, foreign firms often adopt mitigating strategies. One such strategy is to imitate the practices of domestic firms (i.e., pursuing a strategy of local isomorphism). We understand little, however, about how firms vary in the extent of local isomorphism. To fill that gap, this paper explores the institutional drivers of local isomorphism decisions. The findings indicate that foreign firms choose a higher level of local isomorphism as the cultural, economic, and regulatory distances between the home country and the host country increase. Moreover, the evidence suggests that such local isomorphism is relatively enduring, as experience does not systematically moderate the relationship between distance and local isomorphism.

Organizational growth and performance hinge upon the effective implementation and transfer of technological knowledge. Implementing and transferring such knowledge however can be difficult and time-consuming. Interestingly, we understand little about what determines the performance of implementation and transfer projects. In this paper we help fill this gap by analyzing multiple determinants of time-to-build - i.e., the time it takes for a firm to build and ramp up operations at a manufacturing plant. Theoretically, we develop predictions regarding the effects of market, firm, and technology characteristics on time-to-build. Empirically, we test our predictions on a sample of plant construction projects in the memory segment of the global semiconductor industry. Consistent with our theory, we find that competition from rivals with superior technology is associated with shorter time-to-build, as is firm experience; while international projects, and those that push the technological frontier, take longer. Findings from this study enrich the literatures on corporate growth, international expansion, and technology strategy. We discuss implications for research and practice.

This paper examines the impact of knowledge tacitness on a firm's propensity to establish plants in foreign rather than domestic locations. Our predictions build on knowledge-based, internalization, and evolutionary theories of foreign direct investment. We argue that the tacitness of technology has an inverted-U effect on the propensity to undertake foreign investment. We also expect that as a firm learns about a technology, it will become more likely to make foreign investments. We examine two forms of learning: that which accumulates as a function of the number of plants previously built by the firm (transfer-based learning), and that which accumulates as a function of time since the firm started using a technology (time-based learning). We investigate empirical effects in a sample of investments in the memory segment of the semiconductor industry. Our predictions about the curvilinear effect of tacitness are supported. The results also suggest that learning is a matter of taking time to become acquainted with the use of the technology, and of gaining experience through successive foreign plant investments. The study adds to the understanding of the effects of knowledge on corporate expansion.

Knowledge externalities are an important source of economic growth and competitive advantage. In particular, recent research highlights the role of international trade and foreign markets as a valu...