Leadership experience meets ownership structure: returnee managers and internationalization of emerging economy firms.
| Verfasser | Cui, Lin |
| Posten | RESEARCH ARTICLE |
Abstract How does returnee managers' international leadership experience influence emerging economy firms' internationalization? The internationalization process model suggests that international experience plays a central role enabling firms' internationalization moves. We propose that emerging economy firms can accelerate their development of international experience--and hence their international commitments--by grafting returnees with international leadership experience. We hypothesize that such international leadership experience has a positive effect on firm internationalization, and that this effect is strengthened by central-state ownership and private ownership, but weakened by local-state ownership and foreign ownership. Using 8-year (2001-2008) event-historical data from 164 Chinese electronic manufacturing firms, we found empirical support to our theoretical arguments. Specifically, returnee managers' international leadership experience is positively associated with emerging economy firms' likelihood of conducting foreign direct investment, while for other forms of international experience no positive effect can be detected. Our analysis of moderation by firms' ownership type finds that this positive association is strengthened by central-state and private ownerships, but weakened by local-state and foreign ownership.
Keywords Returnee manager * International experience * Emerging economy * Internationalization process * Corporate ownership * Event history analysis
1 Introduction
International experience of managers plays a central role in explaining the internationalization of business. In particular, studies of the internationalization process model (IPM) suggest that knowledge about foreign markets and international management enables firms to increase their commitment in foreign markets (Eriksson et al. 1997; Hadjikhani et al. 2014; Johanson and Vahlne 1977, 1990). While early IPM studies focus on the role of experiential learning in building foreign market knowledge that drives firm internationalization processes (Johanson and Vahlne 1977), recent studies incorporate a broader range of learning processes, such as networking and vicarious learning by imitating (Clarke et al. 2013; Johanson and Vahlne 2009; Meyer 2014; Meyer and Thaijongrak 2013). This study contributes to the IPM by examining a specific channel for obtaining experiential knowledge, namely the grafting of returnee managers as a source of organizational learning. Our research question asks: what is the effect of the international leadership experience contributed by returnee managers on firms' internationalization, and how is that effect influenced by types of corporate ownership?
The process of knowledge accumulation in internationalizing firms can be accelerated by returnees that help firms, especially those in emerging economies (EEs), to grow and to internationalize (Filatotchev et al. 2009; Kenney et al. 2013; Liu et al. 2010b; Saxenian 2005; Wright et al. 2008). In particular, returnee managers, defined as individuals who gathered leadership experience abroad prior to returning to their home country, hold high potential to contribute tacit knowledge. Local firms in EEs can access such tacit experiential knowledge through recruitment of returnee managers in a process known as 'grafting', which helps organizations to 'increase their store of knowledge by acquiring and grafting on new members who possess knowledge not previously available within the organization' (Huber 1991, p. 97). Grafting is often faster than knowledge accumulation through experiential learning and more complete than knowledge accumulation through imitation (Huber 1991). Since EE firms are typically latecomers in a 'catch-up game' in the global market (Cui et al. 2013; Kumaraswamy et al. 2012; Mathews 2002; Young et al. 1996), they are likely to resort to grafting to accelerate learning, and hence their internationalization process.
The relative advantage of grafting as a faster and more complete channel of organizational learning depends on the effectiveness of the knowledge accumulation process. Specifically, the relevance, and thus value, of externally sourced knowledge is contingent on the fit of that knowledge with the existing dominant logics and values in the recipient organization (Asmussen et al. 2013; Schulz 2003). In EEs, organizations vary in particular across different types of ownership, which reflect differences in resources and governance structures (Bhaumik et al. 2010; Douma et al. 2006; Morck et al. 2008).
We distinguish four prevalent types of ownership: Central-state, local-state, private, and foreign ownership. State ownership is widely represented in the corporate sector in many EEs, and substantially influences the internationalization process of EE firms, especially in China (Cui and Jiang 2012; Meyer et al. 2014; Wang et al. 2012; Xia et al. 2014; Yamakawa et al. 2008). We differentiate state ownership at central and local levels of governments, as they have been shown to carry different strategic objectives, governance practices, and institutional resources (Chen et al. 2009; Li et al. 2014; Wang 2010). Private ownership has grown in EEs as a result of continuous institutional reform and economic liberalization. Research found that the distinct capability, structure, and competitive pressure of private firms motivate their pursuit of growth and their quest for strategic assets overseas, and thus influence their internationalization process (Cui et al. 2013). Lastly, foreign owners not only contribute important resources, but create pressures to enhance systems of governance in EE firms, which has strategic consequences for their internationalization (Bhaumik et al. 2010; Hu and Cui 2013). We argue that returnee managers can achieve different levels of congruity with the strategic objectives and resources in firms of different ownership, and hence the type of ownership moderates the effect of international leadership experience on EE firms' internationalization. Specifically, we hypothesize that international leadership experience has a positive effect on firm's likelihood of conducting FDI, and that this effect is strengthened by central-state ownership and private ownership, but weakened by local-state ownership and foreign ownership.
We empirically test our hypotheses in the context of outward foreign direct investment (FDI) by Chinese listed firms. The Chinese context is appropriate and advantageous for several reasons. First, the rapid rise of Chinese outward FDI from a competitive catch-up context (Cui et al. 2013) makes grafting (e.g., recruitment of returnee managers) a particularly relevant channel of organizational learning and is a widely debated theme in domestic business and policy debates (Kenney et al. 2013; Zweig et al. 2004). Second, the Chinese context provides a great variety of firms with different TMT compositions (Liu et al. 2010a; Wright et al. 2008) and ownership structures (Delios et al. 2006). Such variation allows us to statistically detect the hypothesized effects. Lastly, the relative scarcity until recently of internationally experienced managers in China presents an opportunity for an investigation of the internationalization of latecomer firms. Using data covering a period of rapid growth of Chinese outward FDI (2001-2008), this study examines the effect of returnee managers' international experience both across firms and over time.
This study makes several contributions. First, we add to the IPM by providing new insights on a key relationships suggested by the model, namely between experiential knowledge and international investment decisions. Huber (1991) argues that, under time pressure, organizations frequently use grafting when aiming to acquire new knowledge quickly. Grafting thus provides a channel to accelerate organizational learning, and thereby firms' internationalization, where catch-up pressures motivate firms to pursue faster ways of learning. In so doing, we extend the relevance of the IPM to latecomer firms, who previously received little attention from IPM researchers (Elango and Pattnaik 2011; Meyer and Thaijongrak 2013). Second, we examine the conditions that facilitate or inhibit knowledge accumulation, which is pivotal to explaining internationalization processes, but has not yet received due attention in the IPM literature (Powell and Rhee 2013). Specifically, the contingent value of knowledge from various sources deserves more scholarly attention. We start this agenda by studying the contingent value of returnee managers' international leadership experience, which depends on the congruity of the managerial knowledge created by that experience with the recipient organization. Third, this study also contributes to the upper echelon literature on the impact of top management teams (TMTs) on firm strategy. While several studies tested the direct effects of TMT characteristics on firm internationalization (e.g., Athanassiou and Nigh 2002; Carpenter and Frederickson 2001; Herrmann and Datta 2005; Sambharya 1996; Tihanyi et al. 2000), the role of shareholders in supporting, confining, complementing, or substituting the TMT contribution remains a significant research gap (Nielsen 2010).
2 Returnees as a Source of Managerial Knowledge
International experience plays an important role for businesses eyeing international markets. Knowledge created through such experience is critical for example for assessing business opportunities and risks, and for implementing organizational processes in overseas operations. For example, Chinese firms face considerable obstacles in their overseas operations because their leadership teams struggle to appreciate institutions they encounter, for example, in Europe, such as media, trade unions, or competition law (Liu and Woywode 2013; Meyer 2014; Meyer et al. 2014). Such knowledge is often tacit and embedded in people and teams. Therefore...
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