FDI entry strategies and the impacts of economic freedom distance: Evidence from Nordic FDIs in transitional periphery of CIS and SEE

Abstract

This paper addresses foreign direct investment (FDI) entry strategies of multinational enterprises (MNEs) by analysing both establishment mode (greenfield investment vs. acquisition) and ownership mode (wholly owned subsidiary vs. joint venture) strategies together. It contributes to extant IB literature by being one of the first to specifically address influences of economic freedom distance on both FDI establishment and ownership mode strategies of MNEs. The novel empirical sample consisting of 348 FDIs made by 146 Nordic (Denmark, Finland, Norway and Sweden) MNEs in the less researched transitional periphery of the European Union (EU), i.e. Common Wealth of Independent States (CIS) and SouthEastern Europe (SEE), during 1990-2009 further enhances the contribution of our study. The study results revealed that high economic freedom distance leads to preference of greenfield investments and JVs by Nordic MNEs in the full sample. Further in depth analysis by dividing the sample into FDIs in the Russian Federation vs. other host economies lead to more interesting insights into the establishment and ownership mode strategies of Nordic MNEs.

International Business and National Culture: A Literature Review and Research Agenda

“…While some factors may enhance the influence of CD, others may act as closing distance mechanisms (Shenkar, 2001). Linguistic differences (Joshi and Lahiri, 2015;Zhu et al, 2015), economic freedom distance (Arslan et al, 2015) and management practices (Gunkel et al, 2015) are among the most recently explored moderators/mediators. This seems to be a particularly interesting issue in identified transversal/common sub-streams (i.e.…”

Dynamic marketing capabilities, foreign ownership modes, sub-national locations and the performance of foreign affiliates in developing economies

“…The second contribution is to develop understanding on the direct relationship between foreign ownership modes and sales performance by considering the full generic range of ownership modes. Prior literature examined different entry modes such as mergers and acquisitions, and investigated a number of diverse area in M&As such as choice between green field and acquisition (Arslan et al, 2015), knowledge transfer (Ahammad et al, 2015;Sarala et al, 2016), HR issues (Ahammad, et al, 2012;Zhang et al, 2015;Weber et al, 2012, post-acquisition integration (Almor et al 2009;Almor et al 2014;Gomes et al, 2013), strategic agility and M&A . The literature reveals that Wholly Owned Foreign Affiliates (WOFA) are more likely than International Joint Ventures (IJV) to receive higher levels of technology and knowledge transfers from parent companies, leading to superior competencies in WOFA (Chang at al., 2013;Chiao, Lo and Yu, 2010).…”

Added distance, entry mode choice, and the moderating effect of experience: The case of British MNEs in emerging markets

“…Although culture is undeniably an important country‐level factor shaping the entry mode choice decision of MNEs, other forms of distance, such as administrative (and/or institutional), geographic and economic, are equally important in shaping this decision (Ghemawat, ). With regards the role of institutions and the impact of their quality on entry mode choice, some studies have adopted a unidimensional approach to examining the aforementioned relationship, focusing on the quality of the institutional context within the host country only (e.g., Arslan, Tarba, & Larimo, ; Cui, Jiang, & Stening, ). However, the decision‐making process with regards an MNE's entry mode choice is, by its very nature, more dynamic, and is also based on bilateral forces and the quality indicators of the home and host location.…”