Entrepreneurial Orientation in Multinational Corporations: Antecedents and Effects.

Author:Chen, Li
 
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1 Introduction

With fast-changing global market demand and regulatory heterogeneity among countries, an entrepreneurial orientation (EO) becomes critical for multinational corporations (MNCs) to succeed in the global market. Since domestic success does not always transfer into foreign markets (Hu 1995), MNCs need to explore new resources, reconfigure current capabilities, and develop new operational models to create competitive advantages in foreign markets, all of which can hardly occur without an EO that allows for experimentation and risk-taking (McGrath et al. 1995). In the global market, MNCs are exposed to fast-changing customers' and suppliers' demands and competitors' actions (Hacklin et al. 2013). Success in such a dynamic environment requires an MNC to be proactive, innovative, and risk-taking to identify opportunities and respond to changes quickly and effectively (Rosenbusch et al. 2013). Consider the case of Heinz, one of the world's largest food and beverage MNCs with operations in more than forty countries. As its longtime CEO Bill Johnson described, to succeed in the global market, MNCs need to be risk aware but not risk averse, to innovatively introduce new products to cater to customers' unique and changing tastes, and to proactively reach out to build relationships with local parties (Johnson 2011). In other words, Heinz's successful international growth can hardly be attained without its entrepreneurial mindset.

Despite the importance of EO for MNCs, EO in an internationalization context is still an under-researched topic (Covin and Miller 2014; Jantunen et al. 2005). Specifically, the genesis of EO as an organizational phenomenon remains unclear (Covin and Lumpkin 2011; Wales et al. 2013). In addition, although theoretical arguments converge on the idea that firms benefit from adopting EO, empirical evidence varies on the magnitude of EO's positive effect on firm performance (Jantunen et al. 2005). A key question remains as to whether different types of MNCs (e.g., young or experienced) indeed can benefit from EO in the global market. These major gaps in the existing literature severely hinder knowledge development about how MNCs can quickly and effectively respond to fast-changing environment by developing an EO and improve their performance in the global market.

To fill these research gaps and advance the literature, the present study aims to investigate (1) the antecedents of EO in MNCs, (2) the effect of EO on MNCs' performance, and (3) the moderating effects of international experience and external competition on the relationship between EO and MNCs' performance. The intended contribution of this study is threefold. First, we further the understanding of EO in the context of large MNCs by systematically examining its antecedents and outcomes. Most prior studies of EO in an international context focus on born-global or small and medium-sized enterprises (SMEs). Very few has investigated the role EO plays in large MNCs, which may lead to a biased conclusion that these large firms are inherently less entrepreneurial.

Second, we focus on strategic organizational factors that can foster EO in MNCs. Since the introduction of the EO concept by Miller (1983), most research treats EO as a firm-level trait that is stable over time (Covin and Lumpkin 2011), rather than a strategic orientation shaped by certain organizational variables. Although prior studies have shown significant correlations between organizational characteristics (e.g., size, degree of internationalization) and EO (Williams and Lee 2009), more studies are needed to advance our theoretical and empirical understanding of what MNCs can do to facilitate the development EO. Our study contributes to the literature in this direction by promoting a unified knowledge network perspective and examining antecedents in all three MNC integration mechanisms (i.e., centralization, formalization, and socialization) in MNCs' EO development process.

Third, we emphasize the concept of fit, both internal and external, in performance outcomes of EO in MNCs. Empirical supports of the relationship between EO and firm performance in an international context are very limited and mixed (Covin and Miller 2014). Although prior studies have taken a contingency perspective to investigate the conditions within which EO-performance relationships are either strengthened or weakened, most of these studies focus on external environmental factors, such as market uncertainty and hostility (e.g., Dimitratos et al. 2004; Wales 2016; Zahra and Garvis 2000). Internal fit has received very little attention. By identifying international experience as an important relevant moderator that negatively moderates the EO-performance relationship, we intend to shed light on the complexity of EO's performance outcomes and help clarify when MNCs can derive most benefit from EO.

The remainder of this paper is constructed as follows. In the next section, we provide literature background of our research. Next, we develop our conceptual model and research hypotheses. Following that, we describe our data collection procedure and construct measurement. Then we present our data analysis and results. Finally, we discuss the theoretical and managerial implications of this study and our suggestions for future research.

2 The Background Literature

2.1 EO

EO is a strategic orientation which reflects the firm-level entrepreneurial decisionmaking practices and managerial philosophies (Anderson et al. 2009; Lumpkin and Dess 1996; Rauch et al. 2009; Wiklund and Shepherd 2005). In this study, we follow the mainstream entrepreneurship research and adopt Miller's (1983) conceptualization of EO as a higher-order composite construct consisting of three dimensions of innovativeness, proactiveness, and risk-taking (Rauch et al. 2009; Wales 2016). Innovativeness refers to a firm's tendency to engage in experimentation, support new ideas and depart from established practices (Lumpkin and Dess 1996), whereas proactiveness is defined as the propensity to take initiative by anticipating and pursuing future market needs and changes in the operating environment (Jantunen et al. 2005), and risk taking involves the willingness to commit significant resources in projects that have uncertain outcomes or unusually high profits and losses (Lumpkin and Dess 1996).

Since its introduction by Miller (1983), EO has attracted considerable theoretical and empirical research attention in various business research domains (Andersen 2010; Lumpkin and Dess 1996; Wales 2016; Wiklund 2006; Wiklund and Shepherd 2005). As the driving force behind the organizational pursuit of entrepreneurial activities (Covin and Wales 2012), EO determines a company's decision-making style, ongoing practice of innovation, its seeking of new opportunities, and its response to environmental changes (Jantunen et al. 2005). Based on the idea that firms benefit from newness and responsiveness, EO is considered very important to the survival and performance of firms (Miller 1983; Rauch et al. 2004; Wiklund 1998).

Highlighting the spirit of pursuing new opportunities, renewing current operations, and creating new products, EO promotes the value that leads firms to "engage in product market innovations, undertake risky ventures, and be the first to come up with 'proactive' innovations" (Miller 1983). These entrepreneurial activities enable firms to create products ahead of competitors and even ahead of customers' realization of needs (Slater and Narver 1995), and help firms develop competitive advantages which often result in superior performance (Ireland et al. 2003). Therefore, conceptual arguments converge on the idea that firms adopting EO will have better performance.

2.2 EO Research in International Business

In the international context, it is reasonable to expect that EO is especially important because it supports opportunity recognition in new and unfamiliar foreign markets, helps balance global efficiency with local responsiveness, and allows a firm to assume risk that is inherent in operating internationally. Not surprisingly, some researchers argue that EO should positively influence firms' international performance (Jantunen et al. 2005).

However, empirical supports of the relationship between EO and firm performance in the international context are very limited and mixed (Covin and Miller 20)4). In some studies, EO has been found to have a direct positive effect on firm performance. For example, Ripolles-Melia et al. (2007) reported that EO is positively related to international scope and international sales percentage. Dimitratos et al. (2004) revealed that EO positively predicts satisfaction of the firm with its operations in a foreign country. Zhang et al. (2009) observed that various dimensions of international entrepreneurial capability (e.g., innovativeness and risk-taking) are positively associated with subjective financial and strategic indicators of global performance for both traditional exporting firms and international new ventures. Notwithstanding the aforementioned evidence of positive relationships between EO and firm performance, other studies reported a weak or insignificant relationship between EO and firm performance (Covin and Miller 2014). Further investigations from a contingency perspective suggest that the relationship between EO and firm performance should be context-specific (Lumpkin and Dess 1996). In accordance with this view, Dimitratos et al. (2004) found that uncertainty in firms' domestic markets positively moderates the relationship between entrepreneurship and international performance, and Wiklund and Shepherd (2005)'s study of 413 Swedish firms revealed that in a dynamic environment the impact of EO on business performance is stronger. Zahra and Garvis (2000) demonstrated that there was a point of diminishing returns to a company's pursuit of entrepreneurship under excessive environmental...

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