Corruption and multinational companies’ entry modes. Do linguistic and historical ties matter?

Abstract

The literature on FDI entry modes and corruption tends to convey the idea that corruption leads to a choice between low equity modes, i.e. joint ventures with local partners, and non-equity modes, namely exports and contracting, in order to avoid contact with corrupt state officials. Recently, some studies have argued that despite corruption, linguistic and historical ties between home and host countries lead MNCs to prefer high-equity modes. Focusing on a rather unexplored setting, the African countries, most specifically the Portuguese-speaking ones (PALOP -Países Africanos de Língua Oficial Portuguesa), which include countries where levels of corruption are very high (e.g., Guinea-Bissau and Angola), high (e.g., Mozambique, Sao Tome and Principe), and intermediate (e.g., Cape Verde), maintaining also close linguistic and historical ties with Portugal, we found that the FDI entry mode is associated with the less corrupt markets. Thus, our results do not support the recent contention that cultural and historical links are likely to perform a mediating role, by fostering foreign direct investment, in supporting African countries to overcome the dismal growth some have been facing in the last few decades. On the contrary, our findings highlight the pressing need for these countries to combat corruption if higher economic growth via FDI attraction is envisioned.

Entry mode choices of multinational companies (MNCs) and host countries’ corruption: A review

“…Albeit the richness of the empirical studies on corruption and the entry mode choices of MNCs, it is important to underline that such studies either took a general overview based on a cross-country composition (Uhlenbruck et al, 2006;Straub, 2007) or have focused mainly on Eastern Europe (Javorcik and Wei, 2009) or Asian countries (Demirbag et al, 2010). Similar analyses encompassing African countries have been rather neglected in this regard (a recent exception is Grande and Teixeira, 2012). This is quite unfortunate for two orders of reasons.…”

Cost efficiency of African insurance companies using a finite mixture model

“…On the one hand, the relevance of filling this gap in the literature is based on the importance of these two countries in the world economy. According to Grande and Teixeira (2012), an analysis by The Economist (2011) finds that, over the last decade, no fewer than six of the world's ten fastest-growing economies are in sub-Saharan Africa, including Angola, which is ranked in first place, and Mozambique, which is ranked eighth. On the other hand, this literature gap contrasts with already published research on insurance companies in other African countries (Munro & Snyman, 1995;Giesbert, Steiner & Bending, 2011;Uche, 1999;Chourouk, 2003;Ibiwoye & Adeleke, 2008;Olaosebikan, 2012).…”

A Descentralização das Políticas Públicas para a Promoção da Internacionalização das PME. Uma Explicação Teórica

“…Internationalization involves distinct patterns, that is, choices of international markets and of entry mode. Nonequity modes include export and contractual agreements (e.g., Licensing, Franchising, Turnkey projects), whereas equity modes include joint venture and wholly owned subsidiaries (Grande and Teixeira, 2012). Compared with larger multinational enterprises, SMEs tend to favor exporting as their primary entry mode because of the high degree of international business opportunities and strategic flexibility it offers (Kamakura et al, 2012).…”