How Home-host Ties Shape Multinational Foreign Operations, Competitiveness, and Performance

In operating in foreign host countries, multinational enterprises (MNEs) are chronically exposed to two types of largely uninsurable discretion:                                                                                              sovereign discretion of host governments and delegated discretion of host country employees, partners, suppliers and such.  The problem in the first case relates to power; and in the second it relates to information. Power and information are the sine qua non of effective control.  Control is a pre-requisite for predictable value capture, which, in turn, influences value creation.  Accordingly, heterogeneity in access to credible power and reliable information in a focal host country predicts heterogeneity in MNEs¹ commitment, competitiveness, and relative performance there.  It is this reasoning that we develop in this paper to theorize why and how, beyond capability differences, heterogeneity in macro-level home-host ties (HHTs) cause durable performance differences among foreign MNEs operating in a focal host country.  In existing work, HHTs have been discussed under the rubrics of similarity and proximity (cultural, economic, institutional, and spatial), and the reasoning centers on value creation advantages related to lower coordination costs and higher isomorphism-based legitimacy.  In contrast, we develop a set of arguments founded on control (rather than coordination) benefits of HHTs.  We contend that beyond home-host affinities that may lower the costs of doing business abroad and directly facilitate value creation, HHTs that support MNE value capture will endogenously elicit higher levels of MNE integration and responsiveness, and, in turn, higher host country competitiveness and performance.  Our theory can explain the ³cultural paradox² reported in some empirical work, and predict emerging patterns of HHTs (such as we see between China and Africa).  In terms of global strategy research, we (i) link causally HHTs to control and value capture (and, in turn, to value creation and performance); (ii) distinguish internalization from control (i.e., entry mode authority from organizational activities and information); and (iii) call for greater research attention to home-host macrostructure and non-market strategy.  Global strategy research stands to contribute more by better understanding the sociology of political and structural (and not only cultural and cognitive) embeddedness.