How does de‐globalization affect location decisions? A study of managerial perceptions of risk and return

Abstract

Research Summary Our understanding of how managers take international location decisions is still scarce. Building on the microfoundations view, we explore managers' perceptions of risk and return in a discrete choice experiment with 2,618 decisions in 2013 (a globalizing world) and 2017 (a de‐globalizing world). While managerial perceptions vary over time due to economic and political changes, such as the current de‐globalization trend, decision heuristics remain remarkably stable: locations perceived as least risky offer the highest expected returns. We also find that distance is a good proxy for managerial perceptions. Investigating the microfoundations of decision‐making we show that international experience, risk‐taking propensity, and shareholder status affect heuristics. In sum, our study provides novel insights into the microfoundations of location decisions and extends the behavioral perspective on internationalization. Managerial Summary While many researchers in the field of international business and global strategy have studied internationalization, surprisingly few of them put the actual decision maker in the spotlight. This study investigates the decision heuristics of managers who are confronted with international location decisions. We show that their perceptions of risk and return in the context of a globalizing world (in 2013) and in the context of a de‐globalizing world (in 2017) vary. However, the underlying heuristic—locations that are perceived as least risky offer the highest expected returns—remains stable. Our study also indicates that distance is a good proxy for managerial decisions and that managers' international experience, risk‐taking propensity, and shareholder status affect their decision‐making patterns.

Political risks and foreign direct investments by multinational corporations: A reference point approach

“…The overall purpose of this study is to develop insights into microfoundations of location strategy, namely, a behavioral framework for management decision‐making under bounded rationality to analyze FDIs and political environments in host countries. While the existing literature has largely ignored the behavioral aspect of decision‐making (Aharoni, 2010; Aharoni, Tihanyi, & Connelly, 2011; Ambos, Cesinger, Eggers, & Kraus, 2019; Kano & Verbeke, 2019; Schubert, Baier, & Rammer, 2018), our behavioral approach resolves the contradictory findings in the literature on the relationship between political risks and MNCs' investments. We posit that managers' perceptions of opportunities and threats in the environments are a result of their simplified assessment of the external environment due to their cognitive limitations (e.g., Hsieh, Rodrigues, & Child, 2010).…”

Into the unknown: The extent and boldness of firms' international footprint

“…Indeed, earlier works on the internationalization process of the firm (Johanson & Vahlne, 1977) and managerial decision‐making in foreign direct investments (Aharoni et al, 2011) had recognized the key role of managerial decisions and perceptions in shaping firms' internationalization. More recently, studies grounded in behavioral theory have argued that managers do not always behave in the way theory predicts (Buckley, Devinney, & Louviere, 2007; Elia, Larsen, & Piscitello, 2019), and that managerial perceptions of risk and returns may affect location decision (Ambos, Cesinger, Eggers, & Kraus, 2019). Research has also addressed the role of the characteristics of the CEO and TMTs on the degree of internationalization, the international entry mode, and risk‐taking, but these studies tend to look at unidimensional measures of internationalization.…”

Skepticism of globalization and global strategy: Increasing regulations and countervailing strategies

“…Additionally, uncertainty can emerge from the changes in the behavior of consumers toward foreign firms and their products, with the skepticism being matched by not only rhetoric but also actual boycotts of foreign firms. Ambos, Cesinger, Eggers, and Kraus () provide a detailed explanation of how the conditions of the context influence the decision‐making in firms, with managers taking into account the uncertainty in their decisions and using established heuristics in their selection of locations.…”