Country of origin matters for multinationals too

I have been interested in country-of-origin effects in international management since doing my PhD in the mid-1990s. Not to be confused with country-of-origin effects in Marketing in which I have also dabbled, country-of-origin effects in international management explain how MNCs' policies and practices are shaped by the cultural and institutional context of their home country.

Japanese vs. US American vs. European MNCs?

My interest in country-of-origin effects arose from one of the key studies that provided the inspiration for my PhD on control mechanisms in multinational companies: Bartlett and Ghoshal's Managing Across Borders: the Transnational Solution. The book's two authors were very influential early in my academic career. Participating in a doctoral colloquium where I had a chance to talk to Christopher Bartlett and hearing Sumantra Ghoshal speak at conferences had a huge impact on my scholarly identity. In the decade-and-a-half after their seminal book - until Sumantra Ghoshal's untimely death - Bartlett and Ghoshal continued to co-author many articles that shaped the field of international management. So I was and remain a big admirer of their work.

However, there was one thing that always bugged me in their book: the referral to "typical" strategies for US American, Japanese and European firms. As a European, the latter didn't make a whole lot of sense to me. Why would a continent that is culturally and institutionally so diverse be characterised by one typical strategy? My bewilderment grew when I saw that their conclusions about European multinational management were based on one Dutch, one Dutch/English and one Swedish company. In my view, their conclusions might have been substantially different if they had investigated German, French and Spanish MNCs instead.

Is there a "European" strategy? Germany vs. the UK

So when in my PhD I was fortunate enough to be able to collect data from a substantial number of MNCs from nine different countries-of-origin (Finland, France, Germany, Japan, Netherlands, Sweden, Switzerland, UK, USA), I decided to investigate whether there were any country-of-origin effects in terms of control mechanisms, expatriate presence, level of interdependence between HQ and subsidiaries, and level of local responsiveness (the key topics of my PhD).

My first publication on this topic focused on two European countries that are characterised by very different business systems - Germany and the UK - and provided a focused comparison between MNCs originating from these two countries, as well as with MNCs hailing from Japan and the USA. Comparing fourteen specific variables that operationalised the constructs above, we found that whereas German and British MNCs differed significantly on nine of these fourteen variables, German and Japanese MNCs differed on only four and the UK and the USA on only one. Speaking of a "European" model thus seems to make little sense.

  • Harzing, A.W.; Sorge, A.M.; Paauwe, J. (2002) HQ-subsidiary relationships in multinational companies: A British-German comparison, in: Geppert, M.; Matten, D.; Williams, K. (eds.) Challenges for European Management in a Global Context - Experiences from Britain and Germany, Basingstoke, London, New York: Palgrave. Available online...

 

World-wide and European perspectives: empirical and conceptual

In another publication based on the same data-set we compared the effect of country-of-origin on control mechanisms, expatriate presence, level of interdependence between HQ and subsidiaries, and level of local responsiveness with the effect of five contingency variables: industry, HQ size, HQ age, subsidiary size, subsidiary age. We found that, overall, country of origin was a more significant explanatory variable than any of the contingency variables. We also found that there were more significant differences within the group of seven European countries than between the USA, Japan and Europe, hence again cautioning researchers to speak of Europe as a homogenous region.

  • Harzing, A.W.; Sorge, A.M. (2003) The relative impact of country-of-origin and universal contingencies on internationalization strategies and corporate control in multinational enterprises: World-wide and European perspectives, Organisation Studies, 24(2): 187-214. [Roland Calori Prize for the best paper published in Organization Studies 2003-2004] Available online... - Publisher’s version

In the same year, I also published a conceptual paper on country-of-origin effects with Niels Noorderhaven. We argue that both homogeneity of the home country culture, and the level of power distance and uncertainty avoidance in the home country culture, will increase the strength of the country-of-origin effect. In contrast, small size and openess of the home economy, as well the level of diversity in the cultural and institutional environment of host countries, are expected to decrease the country-of-origin effect. Finally, internationalisation through greenfields, rather than through acquisitions is likely to increase the strength of the country-of-origin effect.

  • Noorderhaven, N.G.; Harzing, A.W. (2003) The "Country-of-Origin Effect" in multinational corporations: Sources, mechanisms and moderating conditions, Management International Review, 43, special issue 2): 47-66. Available online... - Publisher’s version

The country-of-origin effect persists over time

A new empirical study on HQ-subsidiary relationships with Niels Noorderhaven in the early 2000s allowed me to compare country-of-origin effects for the USA, UK, Germany and Japan at two points in time (2002 vs. 1995). The findings, which took a while to get published as they weren't considered novel enough by journals, show that even the most internationalised companies in the world continue to show unique country patterns.

In particular, strong differences between US and Japanese MNCs endure. However, MNCs from the US and the UK, already very similar in 1995, have become even more alike in 2002. German MNCs remain similar to Japanese MNCs (and very different from their US and UK counterparts). However, in terms of localisation of subsidiary management (i.e. the reduction of expatriates in subsidiary top management) and the localisation of production and R&D German MNCs do seem to have adapted to the Anglo-American practices of higher levels of localisation.

  • Harzing, A.W.; Noorderhaven, N.G. (2008) Headquarters-subsidiary relationships and the country-of-origin effect, in: Feldman, M.P. & Santangelo, G.D. (2008) New Perspectives in IB Research - Progress in International Business Research, Volume 3): 13–40. Available online... - Publisher’s version

Cultural distance vs. home and host country effects

Eight years later I revisited the country-of-origin theme in an article with Markus Pudelko - also discussed in its own blogpost: Should we distance ourselves from the cultural distance concept? - in which we contrasted cultural distance and home and host country context as explanatory variables in entry mode studies. We showed, through both a thorough review of published research and an empirical study, that any explanatory power of cultural distance was highly limited once home and host country context were accounted for. Any significant effects of cultural distance on entry mode choice are likely to have been caused by inadequate sampling.

We thus suggest that entry mode studies in particular, and International Business research in general, would do well to reconsider its fascination with distance measures, and instead, focus first and foremost on differences in home and host country context. We argue that serious engagement with deep contextualization is necessary in International Business research to pose new and relevant questions and develop new and innovative theories that explain empirical phenomena.

  • Harzing, A.W.; Pudelko, M. (2016) Do we need to distance ourselves from the distance concept? Why home and host country context might matter more than (cultural) distance, Management International Review, vol. 56, no. 1, pp. 1-34. Available online... - Publisher's version (free access!) - Related blog post

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