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Journal of International Business Studies

, Volume 45, Issue 9, pp 1072–1095 | Cite as

Offshoring innovation to emerging markets: Organizational control and informal institutional distance

  • Michael A Sartor
  • Paul W Beamish
Article

Abstract

The literature on innovation offshoring has focused on the dichotomous choice between two distinct investment strategies – captive offshoring and outsourced offshoring. We use the concept of organizational control to investigate how differences in the informal institutions that prevail in the home and host countries influence multinational enterprise (MNE) strategy (or, the organizational control decision) with respect to subsidiaries established to offshore innovation. While the relationship between formal institutions and MNE strategy has been the subject of considerable academic scrutiny, less is known about the role of informal institutions. We propose that the type of uncertainty precipitated by informal institutions is critical to understanding the strategic behavior of foreign-investing MNEs. We hypothesize that an MNE’s organizational control over a subsidiary will be contingent upon the type of informal institutional uncertainty encountered by the subsidiary. More specifically, we disaggregate the informal institutions construct and develop three new, more explicit, latent constructs – behaviorally-oriented informal institutions (BOII), technology-oriented informal institutions (TOII) and demand-oriented informal institutions (DOII). Our theory posits that while an increase in BOII distance will precipitate a preference for greater organizational control, heightened TOII and DOII distances will induce the opposite outcome – a preference for lower levels of organizational control.

Keywords

informal institutions and uncertainty informal institutional differences foreign market entry emerging markets/countries/economies country risk innovation and R&D 

Notes

Acknowledgements

Our sincere thanks to Area Editor Paula Caligiuri and two anonymous JIBS reviewers for providing constructive and valuable input during the review process. We also acknowledge the insightful comments and feedback of Andreas Schotter, Shige Makino and Norihiko Takeuchi.

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Copyright information

© Academy of International Business 2014

Authors and Affiliations

  • Michael A Sartor
    • 1
  • Paul W Beamish
    • 1
  1. 1.Ivey Business School, Western UniversityLondonCanada

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