The Multiple Dimensions of Em bedded ness of Small Multinational Enterprises.
| Verfasser | Vanninen, Heini |
| Posten | RESEARCH ARTICLE |
1 Introduction
A firm becomes part of the local institutional and social fabric through embedding, enabling it to draw upon and use resources from its local surroundings (Jack & Anderson, 2002). Firms that establish subsidiaries or branch offices in foreign countries can become embedded in multiple locations, including their home locations and those of their overseas units (Leppaaho et al., 2018). While knowledge of and embeddedness in various local contexts are essential to the success of all MNEs (Ghemawat, 2007; Meyer et al., 2011), they may be especially important for small MNEs, as smaller firms rely more on resources from their environments (Batjargal, 2003; Hite & Hesterly, 2001). A small MNE is a type of SME (smalland medium-sized enterprise) that has used foreign direct investment (FDI) to internationalize by establishing branch offices or subsidiaries to access customers and resources (Fernhaber et al., 2008; Vanninen et al., 2017, 2022).
We use social embeddedness theory (Busch & Barkema, 2020; Granovetter, 1985; Uzzi, 1997) as a lens to understand the social processes through which entrepreneurial outcomes such as internationalization are achieved (Johannisson et al., 2002) and how social ties within specific locations are used and strengthened via mechanisms such as social bridging (Korsgaard et al., 2015; McKeever et al., 2014). We also highlight the unique characteristics of small MNEs and their managers that extant research rarely considers (Laufs & Schwens, 2014). For instance, small MNEs' decisions about how to internationalize are affected by their managers' characteristics, experience, knowledge, networks and interpretations of the environment (Child & Hsieh, 2014; Evers & O'Gorman, 2011; Nummela et al., 2014).
We define social embeddedness as "the nature, depth, and extent of an individual's ties into an environment, community or society" (McKeever et al., 2014, p. 222). Thus, we focus on the embeddedness of individuals, such as founders and top management team members, who influence how firms become embedded. We use "environment" to denote the locations in which small MNEs operate and draw from the literature on spatial embeddedness to understand this form of embeddedness (e.g., Kalantaridis & Bika, 2006; Korsgaard et al., 2015; Welter, 2011). Communities and societies in the host environment(s) are the "social structures" that our case firms and their employees must blend into, and we use the international business literature to examine the role of these social structures (e.g., Johanson & Vahlne, 2009; Zaheer, 1995). We use the term embedding to refer to the process and mechanisms of becoming embedded (Jack & Anderson, 2002); and embeddedness (Hess, 2004) to describe the state of matters during this process or the output of the embedding process.
Both external (outside a firm in its home or host market) and internal (inside the firm) embeddedness have positive effects on corporate, subsidiary, and innovation performance (Ciabuschi et al., 2014; Dellestrand, 2011; Yamin & Andersson, 2011). Yet there is a need to investigate further the interactions among various types of embeddedness (Wigren-Kristoferson et al., 2022; Yamin & Andersson, 2011), especially for understanding how firms manage dual (i.e., simultaneous internal and external) embeddedness (Cenamor et al., 2019; Ciabuschi et al., 2014).
The literature about MNEs refers to embeddedness in two or more locations as multiple embeddedness (e.g., Meyer et al., 2011; Munjal & Pereira, 2015). Embeddedness simultaneously internal within the firm and external within the environment is called dual embeddedness (Cenamor et al., 2019; Ciabuschi et al., 2011, 2014). Multiple embeddedness can help small MNEs access information and resources and gain legitimacy, thus overcoming the challenges of small size and foreignness. However, they must solve a dual-network problem to benefit from local knowledge and resources in multiple places. Their employees in international units must become sufficiently embedded in their location to access local knowledge. Yet they must also become embedded enough in their organization's internal network to share in and impart knowledge across the firm (Meyer et al., 2011). As little is known about how small MNEs solve this problem, we examine how small MNEs simultaneously embed their employees and subsidiaries in local environments and spatially dispersed organizational structures.
We focus on small MNEs for two reasons. First, firms with high levels of internal and external embeddedness may be rare (Ciabuschi et al., 2014). Many studies of SME internationalization focus on exporting. Because export-focused SMEs have fewer opportunities to engage in local networks, this literature has not emphasized external embeddedness. Second, small firms may be more likely to need to balance both forms of embeddedness to succeed in a foreign market because of their limited resources (Brouthers & Nakos, 2004).
We study how four small MNEs originating from the small open economies of New Zealand and Finland internationalized through FDI. Drawing on these firms' experiences, we use the methods described by Eisenhardt (1989) and Welch et al. (2011) to inductively develop an explanation of how their subsidiaries became embedded in their host locations and within their organizations and how these multiple dimensions of embeddedness are managed.
Our work contributes to the research on embeddedness in international business (e.g., Cenamor et al., 2019; Ciabuschi et al., 2014) by investigating how different types of embeddedness interact (Yamin & Andersson, 2011) and how firms coordinate and manage dual embeddedness (Cenamor et al., 2019; Ciabuschi et al., 2011, 2014). To the best of our knowledge, this study is the first to illuminate the multiple dimensions of embeddedness that small MNEs experience and how small MNEs' characteristics influence these dimensions. Small MNEs are embedded to different degrees in their home and host locations. Their subsidiaries' internal embeddedness also varies as they may have different organizational roles (Andersson et al., 2001). We studied multiple embeddedness as a process of increasing (or decreasing) embeddedness in both home and host locations and showed how this process can occur. For example, the extant literature largely overlooks how MNEs manage subsidiary dual embeddedness when it considers subsidiaries' roles and the microfoundations of their leadership (see the literature review of Meyer et al., 2020). Our study adds to the multi-level perspective on this process. Overall, we contribute to the embeddedness and SME internationalization literature by showing how internationalizing SMEs can use embeddedness to mitigate their various liabilities.
We begin by reviewing the research on embedding from the entrepreneurship and international business literature. We then explain our method and describe the four cases. We analyze the cases and integrate our empirical observations with the extant literature to form a visual model of the multiple embeddedness of small MNEs. Finally, we present our conclusions and suggest avenues for further research.
2 Theoretical Background
2.1 Embeddedness
Embeddedness is a multi-level construct that entails the interaction and interplay of institutional constraints (macro-level), market factors (meso-level), and individual-level resources (Wang & Warn, 2018). Complementing the formal (macro- and meso-level) institutions, informal (micro-level) institutions embed the behaviors a society deems acceptable (North, 1990). For instance, a firm's business relationships are socially and locally constructed by the individuals who participate in them (Ojansivu & Medlin, 2018). This relational embeddedness facilitates information exchange and interorganizational learning at the dyadic level (Soontornthum et al., 2020). As these levels of analysis are interrelated (Aguilera & Gr0gaard, 2019), we jointly consider the embeddedness associated with each level (Trettin & Welter, 2011).
Embeddedness refers to who is embedded in what (Hess, 2004) and describes the nature, depth, and extent of an individual or firm's ties to the environment (Dacin et al., 1999; Uzzi, 1997). At the firm level, embeddedness is an element of various business processes (Dacin et al., 1999; Jack & Anderson, 2002; Uzzi, 1997), including internationalization (Leppaaho et al., 2018). It also has relational and structural aspects that are influenced by the environment(s) in which a firm operates (Granovetter, 1985; Jack & Anderson, 2002). The social embeddedness of management is an essential competitive resource (Podolny, 1993) because its benefits are complex and difficult to replicate (Geletkanycz & Boyd, 2011). These benefits include information and learning (Westphal et al., 2001) and relational assets such as trust that are key to accessing critical resources and implementing strategies, including internationalization (D'Aveni & Kesner, 1993).
The spatial context of embeddedness has received relatively less attention (Kalantaridis & Bika, 2006). It exists at multiple levels of granularity, including countries, communities and neighborhoods, industrial districts, and clusters (Welter, 2011). The ability of people or organizations to move among or bridge (Miiller & Korsgaard, 2018) various spatial contexts enhances their potential to access additional or unique resources in each location (Korsgaard et al., 2015). However, spatial contexts also introduce the challenge of distance (including geographical and cultural) that must be bridged in the external environment and inside the firm's organizational structure (Ciabuschi et al., 2011; Meyer et al., 2011).
Spatial elements influence embeddedness greatly, as proximity enhances the potential for close contact among parties by facilitating exchanges of knowledge and know-how in the local economy (Kalantaridis & Bika, 2006). Smaller...
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