The impact of country risk on international real estate returns

Commercial real estate investors have well-established methods to assess the risks of a property investment in their home country. However, when the investment decision is overseas another dimension of uncertainty overlays the analysis. This additional dimension, typically called country risk, encompasses the uncertainty of achieving expected financial results solely due to factors relating to the investment’s location in another country. However, very little has been done to examine the effects of country risk on international real estate returns, even though in international investment decisions considerations of country risk dominate asset investment decisions. This study extends the literature on international real estate diversification by empirically estimating the impact of country risk, as measured by Euromoney, on the direct real estate returns of 15 countries over the period 1998-2004, using a pooled regression analysis approach. The results suggest that country risk data may help investor’s in their international real estate decisions since the country risk data shows a significant and consistent impact on real estate return performance.

Race-to-the-bottom or -top at home or abroad: Health and safety standards and the multinational firm

We develop a model to illustrate potential complexities in the relationship between corporate geographical diversification and the health and safety (H&S) standards set in national jurisdictions. A firm, that initially has a plant in its home country, may choose to also have one or two foreign plants in order to improve its bargaining position versus local governments, and so ensure reduced H&S standards, i.e. a race-to-the-bottom. However, contrary to the main focus of the popular debate on this topic, we note the potential for the race-to-the-bottom tendency to be exerted on H&S standards in the multinational company’s home rather than host country, and also for an upward push on H&S to instead result.

The regional and global competitiveness of multinational firms

International competitiveness ultimately depends upon the linkages between a firm’s unique, idiosyncratic capabilities (firm-specific advantages, FSAs) and its home country assets (country-specific advantages, CSAs). In this paper, we present a modified FSA/CSA matrix building upon the FSA/CSA matrix (Rugman 1981). We relate this to the diamond framework for national competitiveness (Porter 1990), and the double diamond model (Rugman and D’Cruz 1993). We provide empirical evidence to demonstrate the merits and usefulness of the modified FSA/CSA matrix using the Fortune Global 500 firms. We examine the FSAs based on the geographic scope of sales and CSAs that can lead to national, home region, and global competitiveness. Our empirical analysis suggests that the world’s largest 500 firms have increased their firm-level international competitiveness. However, much of this is still being achieved within their home region. In other words, international competitiveness is a regional not a global phenomenon. Our findings have significant implications for research and practice. Future research in international marketing should take into account the multi-faceted nature of FSAs and CSAs across different levels. For MNE managers, our study provides useful insights for strategic marketing planning and implementation.

Do we need different frameworks to explain infant MNEs from developing countries?

I argue that the initial set of firm-specific assets (FSAs) act as an envelope for the early stages of internationalization of multinational enterprises (MNEs) (of whatever nationality) AND THAT there is a threshold LEVEL of FSAs that IT must possess for such international expansion to be SUCCESSFUL. I also argue that the initial FSAs of an MNE tend to be constrained by the location-specific (L) assets of the home country. However, beyond different initial conditions, there are few obvious reasons to insist that INFANT developing country MNEs are of unique character THAN ADVANCED ECONOMY MNEs, and I predict that as they evolve, the observable differences between the two groups will diminish. Successful firms will increasingly explore internationalization, but there is also no reason to believe that this is likely to happen disproportionately from the developing countries.

The outsourcing strategy of local and multinational firms: A supply base perspective

Firms outsource through connecting to local and global supply bases and making such connections produces costs of search and evaluation, which are a function of transaction characteristics and firm capabilities. We argue that firms outsource more when those costs are low. Hence, domestic subsidiaries of multinational firms, with low cost access to both local and global supply bases, outsource more than either domestic firms or foreign subsidiaries, as confirmed by evidence from a large data panel. We also propose that among foreign subsidiaries, distance from the home country co-determines search and evaluation costs such that subsidiaries from more distant countries outsource less. This is confirmed for geographic distance, but a positive effect is found for political distance and a mixed effect for cultural distance.

Can British multinational enterprises finance economic development in South East Asia?

Purpose – The purpose of this paper is to shed new light on the debate about the role of foreign direct investment (FDI) and public policy in fostering economic development. Specifically, can the capital inflow of multinational enterprises (MNEs) and the ability of the subsidiaries to raise funds locally help promote development? This paper addresses this issue by examining the capital structure and financing sources of foreign subsidiaries of MNEs. Design/methodology/approach – This paper integrates the capital structure theories in finance with internalization theory in international business. It uses an original primary dataset collected by a survey of 101 foreign subsidiaries of British MNEs in six emerging economies in the ASEAN region. Findings – There are three significant findings. First, these subsidiaries rely heavily on internal funds generated within the MNEs and less on external debts raised in the host countries. Second, the foreign subsidiary's capital structure is influenced by the home country of origin of the parent firm and the parent firm's financing sources. Third, these subsidiaries have used the financial resources to develop business networks with local small and medium enterprises (SMEs) which contribute to economic development of the host countries. Originality/value – This paper examines the internal capital market within the MNE. It provides theoretical and empirical support for the capital structure theory of the hierarchy financing approach and also for internalization theory by addressing FDI inflows by MNEs and the raising of funds locally. These findings have important implications for public policy, namely the facilitation of MNE entry to encourage economic development.

The bi-cultural option for international human resource management: the Japanese/Brazilian Nikkeijin example

This paper reports on an important subgroup of international boundary-spanners – immigrants and second or third generation migrants from the MNC's home country living in the subsidiary host country. We take as our example the Nikkeijin (Japanese immigrants and their descendants) in Brazil. Such bi-cultural people are a largely unexplored source of boundary-spanning internationally competent talent for multinational enterprises. Using two different surveys, we find that this group is recognized as a source of talent by Japanese MNCs, but that their HRM practices are not appropriate to attract and use them in their global talent management programmes.

Internationalization motives: sell more, buy better, upgrade and escape

Purpose – The purpose of this the paper is to review the motives for internationalization to clarify previous arguments and provide a theory-driven classification. Design/methodology/approach – The authors build on behavioral economics and propose a classification of internationalization motives as the result of the interaction among two dimensions, an economics-driven exploitation of existing resources or exploration of new resources, and a psychology-driven search for better host country conditions or avoidance of poor home country conditions. Findings – These two dimensions result in four internationalization motives: sell more, in which the company exploits existing resources at home and obtains better host country conditions; buy better, in which the company exploits existing resources abroad and avoids poor home country conditions; upgrade, in which the company explores for new resources, and it obtains better host country conditions; and escape, in which the company explores for new resources and avoids poor home country conditions. Originality/value – This theory-driven classification provides predictive power for future analyses of internationalization motives.

Rethinking the literature on the performance of Chinese multinational enterprises

We synthesize the literature on Chinese multinational enterprises (MNEs) and find that much of the prior research is based on as few as a dozen case studies of Chinese firms. They are so case-specific that it has led to a misplaced call for new theories to explain Chinese firms’ internationalization. In an attempt to better relate theory with empirical evidence, we examine the largest 500 Chinese manufacturing firms. We aim to find out the number of Chinese manufacturing firms to be true MNEs by definition, and to examine their financial performance relative to global peers using the financial benchmarking method. We develop our theoretical perspectives from new internalization theory. We find that there are only 49 Chinese manufacturing firms to be true MNEs, whereas the rest is purely domestic firms. Their performance is poor relative to global peers. Chinese MNEs have home country bound firm-specific advantages (FSAs), which are built upon home country-specific advantages (home CSAs). They have not yet developed advanced management capabilities through recombination with host CSAs. Essentially, they acquire foreign firms to increase their sales in domestic market, but they fail to be competitive internationally and to achieve superior performance in overseas operations. Our findings have important strategic implications for managers, public policy makers, and academic research.

Why the home region matters: location and regional multinationals

Much of the literature in international business analysing the multinational enterprise uses the country as the relevant environmental parameter. This paper presents both theoretical and empirical evidence to demonstrate that country-level analysis now needs to be augmented by analysis at the ‘regional’ level of the broad triad markets of Europe, North America and the Asia Pacific. The great majority of the world's 500 largest firms concentrate their activities within their home region of the triad. This study uses variance component analysis and finds that this home region effect outperforms the country effect. Together, the regional and industry effects explain most of the geographic expansion of multinational enterprises (MNEs), whereas country, firm and year effects are very minor. The new data and variance component analysis on the activities of large MNEs reported here suggest that new thinking is required about the importance of large regions of the triad as the relevant unit of analysis for business strategy to supplement the conventional focus on the country.