Global Mindset and Entry Mode Decisions: Moderating Roles of Managers' Decision-Making Style and Managerial Experience.

Author:Jiang, Fuming
Position:RESEARCH ARTICLE - Report

1 Introduction

The entry mode literature has extensively examined how business environments and firm resources affect the entry mode decisions of multinational enterprises (MNEs) for their subsidiaries in a host country. Over the last three decades, scholars have examined the antecedents of MNEs' entry mode choices from various theoretical perspectives, including transaction cost economies (Brouthers and Brouthers 2003), the resource-based view (Erramilli 1991; Erramilli et al. 2002), the strategic behavior perspective (Kim and Hwang 1992), the industry-based view (Yang et al. 2009), institutional theory (Cui and Jiang 2012; Yiu and Makino 2002), eclectic frameworks (Agarwal and Ramaswami 1992; Dunning 1988; Hill et al. 1990), and the strategy tripod model (Peng et al. 2008, 2009). These theoretical explanations of entry mode decisions have centered on techno-economic factors that are derived from firms' external institutions that largely position these theoretical dimensions at three analytical levels: The institution (national and international), industry, and firm levels. These levels of analysis constitute the crux of the linkage and interplay between organizations and their competitive environments in the study of MNEs' entry mode decisions in the dynamic and increasingly competitive global business environment. Thus, the literature has essentially explained how an entry mode decision is made under the assumption that each entry mode decision is determined by the MNEs' external environments and internal resources with the aim of enhancing the MNEs' competitiveness, efficiency, and control over their business operations. However, we still do not know how senior managers make sense of the macro and meso environments and make entry decisions (Hennart et al. 2015). In particular, prior studies have not adequately investigated how an MNE's internal institutional factors at the individual level, such as a manager's cognition (including senior managers' global mindsets), contribute to entry mode decisions.

Behavioral theorists at the Carnegie School have argued that complex strategic decisions result largely from the behavioral characteristics of senior managers (i.e., decision makers) rather than from the mechanical pursuit of the best economic outcome (Cyert and March 1963), as rules of thumb are frequently applied by individuals when they confront complex decision-making scenarios that challenge senior managers' cognitive capabilities (Hogarth and Makridakis 1981; Kiesler and Sproull 1982; Schwenk 1984). Therefore, managers are likely to interpret and present a decision-making scenario based on their own cognitive characteristics (Haley and Stumpf 1989; Hambrick and Mason 1984; Henderson and Nutt 1980). In relation to entry mode choices, Herrmann and Datta (2002) studied entry mode choice from the upper echelons perspective and assessed the observable demographic characteristics of top managers. However, research on entry mode decision-making has generally neglected the influence of managers' psychological cognitive bases and values that undergird the unobservable cognitive mental frames of senior managers, such as their global mindset and cognitive personality styles in decision-making (e.g., feeling and thinking decision-making styles) (Foss and Lindenberg 2013; Gavetti 2012). Senior managers select, process, and interpret information through these cognitive mental frames to form their perceptions, which consequently affect their decisions (Hambrick and Mason 1984).

Managerial cognition (e.g., how managers make sense of the environment), which lies at the center of the strategic management processes, is a crucial micro-foundation for modeling heterogeneity in firm-level strategies (Maitland and Sammartino 2015; Stubbart 1989) and for explaining why firms may make significantly different entry mode choices when operating in the same or similar business environments with similar resource endowments. The formulation and implementation of strategies cannot be fully understood without a comprehensive understanding of the cognitive makeup of individual senior managers who are in charge of making strategic decisions (Finkelstein et al. 2009). To obtain such detailed knowledge of entry mode decision-making, we need to study how global mindset and other attributes of senior managers affect their cognitive capability and thereby influence their decision-making patterns (Levy et al. 2007).

Mindset is a predisposition to perceive the world in a particular way that sets boundaries and provides guidelines for ways in which one is expected to behave (Rhinesmith 1992, p. 63). The mindsets of senior managers play a critical role in each activity in firms' decision-making processes and influence firms' strategic decisions, actions, and performance (Nadkarni et al. 2011; Nadkarni and Perez 2007; Porac and Thomas 1990). For senior managers to be effective in making and implementing internationalization decisions and strategies, they need to develop a mindset with global scope (Kedia and Mukherji 1999). Such a mindset with global scope enables senior managers to view the world from a global perspective that accepts reality as a balance of paradoxical and competitive forces and opens their minds by rethinking boundaries and adjusting their behaviors (Arora et al. 2004). The notion of global mindset has been extensively conceptualized from various perspectives, such as the cultural perspective (Adler and Bartholomew 1992; Beechler et al. 2004; Kobrin 1994), the strategic perspective (Arora et al. 2004; Barlett and Ghoshal 1990; Govindarajan and Gupta 2001; Kefalas 1998; Levy 2005), and the multidimensional perspective (Kedia and Mukherji 1999; Levy et al. 2007; Rhinesmith 1996). Hence, the global mindset is "a highly complex cognitive structure characterized by an openness to and articulation of multiple cultural and strategic realities on both global and local levels, and the cognitive ability to mediate and integrate across this multiplicity" (Levy et al. 2007, p. 244). Based on this multidimensional perspective, senior managers with a global mindset possess values including cultural awareness, adaptability, tolerance, and flexibility (Harveston et al. 2000; Levy et al. 2007; Rhinesmith 1992, 1996).

Prior studies have also theorized specifically how managers' global mindset may be relevant to a firm's internationalization strategy (Bouquet 2005; Harveston et al. 2000; Levy 2005; Levy et al. 2007; Murtha et al. 1998; Nummela et al. 2004). However, these conceptual or empirical studies on the relationship between the global mindsets of managers and the internationalization strategies of firms have focused narrowly on whether firm strategy follows global mindset or vice versa. For example, Levy (2005) reveals that the globalization strategies of firms are driven by senior managers' global mindsets, while Murtha et al. (1998), Harveston et al. (2000), and Nummela et al. (2004) find that the internationalization strategies of firms help develop managers' global mindsets. Bouquet (2005) suggests that there is not a straightforward relationship between senior managers' global mindsets and their firms' international strategies and that such a relationship may exist only when the firms have appropriate attention structures in place. The above studies present the diversity of perspectives employed by researchers. To date, the global mindset literature lacks empirical validation of the conceptualizations of the global mindset. Therefore, the major shortcomings of these prior studies lie in their conceptual diversity, with various measures at different levels being proposed and limited empirical validations of the conceptualizations and measures. Little can be concluded about the empirical relationships between the managerial global mindset and other variables at the individual and organizational levels. In particular, how senior managers' global mindset enables them to make sense of their environment and arrive at an entry mode decision is not adequately addressed theoretically and empirically. The lack of clarity on such important knowledge for a strategically critical decision such as MNEs' choice of entry mode may lead to biased conclusions that mislead both academics and practitioners.

Based on the psychological cognitive base and values perspectives, this study specifically examines how senior managers' cognitive decision-making style and managerial experience interact with their global mindset orientation in affecting their choice of foreign direct investment (FDI) entry mode. More specifically, this study answers two specific research questions: (1) does senior managers' global mindset affect their decisions on their firms' foreign market entry mode choice? (2) How do senior managers' decision-making styles and relevant managerial experience interact with their global mindset in influencing their decision-making on their firms' foreign market entry mode choice? In this process, this study endeavors to make three contributions to the entry mode and global mindset literature. First, this study adds to the entry mode literature and explains how macro- and meso-level information is cognitively processed by managers in entry mode decision-making, as well as how managers' personal attributes--including both unobservable (psychological) and observable (background characteristics of managers) attributes--shape the entry mode decision process and outcomes. It further extends both the entry mode and global mindset literature by contextualizing when and to what extent managerial global mindset affects ownership decisions, as the dynamics and interactions among managerial cognitive attributes (i.e., global mindset, decision-making style and experience) shape their cognitive bases and values and consequently influence the decision-making process of senior managers and entry mode decision outcomes. Second, the findings suggest...

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