The evolving definition of what comprises international strategic management research

Summary of: Bruton, B., Lohrke, F. & Lu, J. (2004). The evolving definition of what comprises international strategic management research. Journal of International Management, 10, 413-429

THE EVOLVING DEFINITION OF WHAT COMPRISES INTERNATIONAL STRATEGIC MANAGEMENT RESEARCH

This article investigates the international strategic management field evolution over the past 15 years. ISM research today employs a rich set of theories and frameworks that have largely been drawn from other disciplines.

Theoretical evolution

In the 1990s, international strategy clearly began to develop a strong theoretical foundation building on the eclectic paradigm, as well as agency, transaction costs, and diversification theories. In particular, 4 theories/frameworks have come into greater play since 1995:

1. Institutional theory

2. Social network theory

3. Organizational learning theory

4. Resource-based view (RBV)

Institutional theory

Institutional theory (sociology): organizations do not make pure rational choices because such decisions are embedded in the task, technical, and institutional environments.

This Embeddedness creates institutional forces that guide “programmed actions” that lead to homogeneity in actions by the various firms in the industry.

Isomorphism captures the extent to which the organization employs structures and practices prevalent within organizational fields.

• Coercive isomorphism: occurs when institutional fields contain environmental agents powerful enough to impose practices on organizations. (e.g. host country governments typically represent institutional regulatory forces that shape the structure and strategies of MNEs).

• Mimetic isomorphism: significant factor in the choices of entry mode and investment location, especially under high levels of uncertainty. Institutional theory argues that firms adopt practices and structures that many other firms employ because when many firms adopt a practice, the legitimacy of that practice is enhanced.

Social network theory

In contrast to institutional theory, social network theory does not primarily focus on environmental constraints but instead on actions that result from membership in social networks (sociology). The network perspective suggests that economic action is embedded in social networks.

Social networks: a set of nodes (e.g. persons, organizations) linked by a set of social relationships (e.g. friendship, transfer of funds) of a specified type.

Embeddedness: the fact that economic action and outcomes, like all social action and outcomes, are affected by the actors’ dyadic relations and by the structure of the overall network of relations.

An actor is best defined by his/her networks and that his/her network relationships have an important effect on the actor’s economic actions an outcomes. An example of the social network theory is Silicon Valley.

In a broad sense, all organizations must develop network ties or relationships to access resources from and to provide products or services to actors in their environments. This kind of resource exchange has significant implications for the survival and profitability of the firm. The ability to develop a network can be viewed as a valuable organizational capability.

Specifically, a social network of relationships is difficult to trade or transfer, history dependent and time consuming to nurture -> important strategic resources that give rise to sustainable competitive advantages.

Various forms of competitive advantages associated with network development:

• Increased market power

• Lower transaction costs

• Shared risks

• Generation of trust and commitment

• Learning

• Ability to pool resources and competencies

Organizational learning theory

This theory emphasizes the importance of organization learning and the processes through which such learning occurs, primarily focusing on how firms balance exploiting current and exploring new capabilities.

Organizational learning perspective: MNEs establish subsidiaries in disparate host country environments to both exploit and enhance a firm’s knowledge base.

Operating in new environments facilitates experience-based learning for the development of capabilities suited to international competition. In addition, each host country has its unique resource endowments and location-specific advantages, which may not be available in the home country. These country-specific advantages can motivate a firm to establish subsidiaries in a host country so as to explore these advantages and augment its competitiveness in both home and host markets.

Real option theory complements learning theory in examining how an MNE explores new competencies.

Real option: an investment in physical and human assets that enhances a MNEs ability to respond to future contingencies. By investing in an option, a MNE can gain the ability to exploit an opportunity in the future.

Resource-based view (RBV) of the firm

RBV argues that an organization can develop a sustainable competitive advantage from its unique resource endowments (e.g. tacit knowledge-based routines, brand name capital, shared strategic capabilities within a diversified firm).

For a competitive advantage to exist, a firm must develop an asset or capability that is:

• Valuable

• Rare

• Imperfectly inimitable

• Non-substitutable

New model

Porter (1990): model of international competition -> a competitive diamond exists in a nation composed of factors of production, supporting industries, nature of competition within an industry, and consumers’ demands for quality.

New research topics

1. International entrepreneurship research and international strategy research domains increasingly overlap. Especially since ISM also started to include small business and new ventures in search for how to employ tacit knowledge to succeed overseas. International new ventures are nowadays ‘born global’ and, thus, do not fit into the traditional stage model of internationalization.

2. E-commerce is expected to present firms of all sizes with both new opportunities and threats.

• Opportunities: reduce firm’s transactions costs based on three key effects:

  • Electronic commination: communicate faster and less expensively

  • Brokerage: reduce search costs to find one another

  • Integration: ability to firm tighter couplings

• Threats: may increase price transparency for customers, thereby increasing a firm’s threat of price competition.