Home Country Matters: Environment Munificence Effect on the Strategic Decision and Performance in International Expansion

Abstract

Existing studies on international expansion have made significant advances in investigating various drivers of international expansion decisions including entry mode and locational selection. However, the empirical evidence on performance effect of international expansion is inconclusive, even contradictory. Because of the inconsistency of performance effect, scholars have employed various theoretical views suggested different solutions. Among them, more recent studies have put significant emphasis on the effect of the contextual moderator. This research stream may be generated from the fact that two prevalent theories in explaining international expansion and performance are competing views, the resource-based view (RBV) and the learning theory because these two theoretical frameworks argue the contradictory explanations for international expansion and its performance consequence. Specifically, the RBV theory, the traditional baseline in the international business literature, suggests that international expansion generate positive firm value by exploiting ownership advantages in various geographic locations. However, the learning theory focuses on the firms without ownership advantages and argues that international expansion can be an efficient means of acquiring resources or learning knowledge. Since such exploration activity needs to take some time to create positive value, the argument following the learning theory has suggested that benefits emerge at the later stage. Hence, more recent studies have increasingly examined the contextual effect on the performance or firm value of international expansion, based on the contingency theory or the theory of contextual. Nevertheless, most of the recent studies have still examined several limited environmental dimensions of host country such as culture, economy, or institution. Because the two prevalent theories commonly emphasize resources, this research tries to focus relatively less developed environmental dimension: resource environment of the country. The two theoretical explanations may justify the importance of resource environment in international expansion literature. According to the RBV logic, firms can acquire resources from their external environment and build their competitiveness which can be exploited in foreign markets. Meanwhile, the learning theory indicates that firms pursuing international expansion can overcome or avoid constraints at home to acquire critical resources or competitiveness embedded in foreign countries. In this regard, the resource environment of the country, in particular, the home country, is the critical factor in international expansion strategies and its value creation. Thus, the main objective of this study is to advance the international expansion literature and to contribute to resolving the still-inconsistent performance effect of international expansion by focusing on the resource environment of the home country. The first study reviews the background theories and related arguments on the international expansion and performance, with a focus on the contextual effect of the international expansion. Based on the review and critique of background theories and related disciplines (i.e., entry mode and cultural distance), I restructure previous contextual investigations on the performance effect of international expansion into two resource-related environments: organizational task environment and institutional environment. I also provide several directions for future related studies, suggesting the needs of further investigation on the home country environment, resource environment, and longitudinal analysis. Based on the suggestions in the first study, the second study examines the effects of international expansion on firm value by emphasizing the role of environment munificence of home country. This study also sheds light on the contingent effect or a contextual boundary for value creation of international expansion strategies including entry mode, locational selection, and the objective of international expansion, based on the two competing theoretical explanations (RBV and the learning theory) for the performance of international expansion. The results show that when the home country is less munificent, international expansion, collaborative entry mode decision, and the asset-exploitation strategy generate more positive firm value than in the munificent home country. However, the increasing cultural distance does not relate to the home-country environment munificence. The implications of this research are meaningful with regard to what strategies of international expansion will provide opportunities to achieve positive firm value when the home country is harsh and less munificent.