Login | Register

The Impact of Relative Institutional Challenge on the Process of Firms’ Internationalization


The Impact of Relative Institutional Challenge on the Process of Firms’ Internationalization

Derayati, Ehsan (2016) The Impact of Relative Institutional Challenge on the Process of Firms’ Internationalization. PhD thesis, Concordia University.

Text (application/pdf)
Derayati_PhD_F2016.pdf - Accepted Version
Available under License Spectrum Terms of Access.


In increasingly turbulent and competitive international environments, having a comprehensive and proper understanding of institutional environments at the country level is fundamental for success in international business. Many studies have examined how environmental and institutional factors affect the internationalization decisions of firms, and used different constructs for showing those institutional factors.
This dissertation demonstrates a comprehensive view of the challenge that firms perceive in countries’ institutional environment by developing a new construct called Relative Institutional Challenge and testing its effects on firms’ internationalization process.
For this purpose, this dissertation is structured in two main sections. In the first section, the construct of Relative Institutional Challenge was developed. Relative Institutional Challenge considers the effect of institutional differences between host and home countries (institutional distance), the state of institutionalization of the host country (institutional development) and rate of institutionalization of the host country (institutional uncertainty) simultaneously. Using extensive data from databases such as Global Competitiveness Report, Fragile States Index and Worldwide Governance Indicators, an index for measuring Relative Institutional Challenge was developed.
In the second part of this thesis, the effects of the Relative Institutional Challenge (RIC) on firms’ internationalization process were investigated. Three hypotheses were developed and validated. The hypotheses were demonstrating that the effect of the RIC, asthe independent variable on firms’ ownership structure and the variation of firms’ ownership percentage as the dependent variables. Empirical testing was performed based on an extensive dataset on international Joint Ventures (JVs) and acquisitions extracted from SDC Platinum dataset. The obtained results show the significant relationship between the level of institutional challenges that firms perceive, measured through the RIC Index, and the firms’ internationalization process, measured by firms’ ownership percentage and variance of ownership structure. Also, the moderating effect of firm size on this relationship was supported.

Divisions:Concordia University > John Molson School of Business > Management
Item Type:Thesis (PhD)
Authors:Derayati, Ehsan
Institution:Concordia University
Degree Name:Ph. D.
Program:Business Administration (Management specialization)
Date:29 August 2016
Thesis Supervisor(s):Molz, Rizk
Keywords:Institutional Theory, Relative Institutional Challenge, International Business, Ownership Structure
ID Code:981557
Deposited On:09 Nov 2016 14:02
Last Modified:18 Jan 2018 17:53


Allen, F., Qian, J., & Qian, M. (2005). Law, finance, and economic growth in China. Journal of Financial Economics, 77(1), 57–116.
Anil, I., Tatoglu, E., & Ozkasap, G. (2014). Ownership and market entry mode choices of emerging country multinationals in a transition country: evidence from Turkish multinationals in Romania. Journal for East European Management Studies, 19(4), 413–452.
Arpan, L. M., & Sun, H. (2006). The effect of country of origin on judgments of multinational organizations involved in a crisis. Journal of Promotion Management, 12(3-4), 189–214.
Bae, J. H., & Salomon, R. (2010). Institutional distance in international business research. Advances in International Management, 23, 327–349.
Bartholomew, S. (1997). National systems of biotechnology innovation: complex interdependence in the global system. Journal of International Business Studies, 241–266.
Bartlett, C. A., & Ghoshal, S. (1999). Managing across borders: The transnational solution (Vol. 2). Taylor & Francis.
Bénassy-Quéré, A., Coupet, M., & Mayer, T. (2007). Institutional determinants of foreign direct investment. The World Economy, 30(5), 764–782.
Bevan, A., Estrin, S., & Meyer, K. (2004). Foreign investment location and institutional development in transition economies. International Business Review, 13(1), 43–64.
Birkinshaw, J., Hood, N., & Jonsson, S. (1998). Building firm-specific advantages in multinational corporations: the role of subsidiary initiative. Strategic Management Journal, 19(3), 221–242.
Brouthers, K. D. (2002). Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 33(2), 203–222.
Brouthers, K. D., & Hennart, J.-F. (2007). Boundaries of the firm: Insights from international entry mode research. Journal of Management, 33(3), 395–425.
Brunetti, A., & Weder, B. (1998). Investment and institutional uncertainty: a comparative study of different uncertainty measures. Weltwirtschaftliches Archiv, 134(3), 513–533.
Bruton, G. D., Fried, V. H., & Manigart, S. (2005). Institutional influences on the worldwide expansion of venture capital. Entrepreneurship Theory and Practice, 29(6), 737–760.
Burt, A., Hughes, B., & Milante, G. (2014). Eradicating Poverty in Fragile States: Prospects of Reaching The’High-Hanging’Fruit by 2030. World Bank Policy Research Working Paper, (7002).
Busenitz, L. W., Gomez, C., & Spencer, J. W. (2000). Country institutional profiles: Unlocking entrepreneurial phenomena. Academy of Management Journal, 994–1003.
Chan, C. M., Isobe, T., & Makino, S. (2008). Which country matters? Institutional development and foreign affiliate performance. Strategic Management Journal, 29(11), 1179–1205.
Chan, C. M., & Makino, S. (2007). Legitimacy and multi-level institutional environments: Implications for foreign subsidiary ownership structure. Journal of International Business Studies, 38(4), 621–638.
Chao, M. C.-H., & Kumar, V. (2010). The impact of institutional distance on the international diversity–performance relationship. Journal of World Business, 45(1), 93–103.
Child, J., & Möllering, G. (2003). Contextual confidence and active trust development in the Chinese business environment. Organization Science, 14(1), 69–80.
Christmann, P., Day, D., & Yip, G. S. (2000). The relative influence of country conditions, industry structure, and business strategy on multinational corporation subsidiary performance. Journal of International Management, 5(4), 241–265.
Coltman, T., Devinney, T. M., Midgley, D. F., & Venaik, S. (2008). Formative versus reflective measurement models: Two applications of formative measurement. Journal of Business Research, 61(12), 1250–1262.
Cui, A. S., Calantone, R. J., & Griffith, D. A. (2011). Strategic change and termination of interfirm partnerships. Strategic Management Journal, 32(4), 402–423.
Cumberland, F. (2006). Theory Development within International Market Entry Mode -- An Assessment. Marketing Review, 6(4), 349–373.
Davis, P. S., Desai, A. B., & Francis, J. D. (2000). Mode of international entry: An isomorphism perspective. Journal of International Business Studies, 239–258.
Dikova, D., & Van Witteloostuijn, A. (2007). Foreign direct investment mode choice: entry and establishment modes in transition economies. Journal of International Business Studies, 38(6), 1013–1033.
DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 147–160.
Doz, Y. L., & Prahalad, C. K. (1991). Managing DMNCs: A search for a new paradigm. Strategic Management Journal, 12(S1), 145–164.
Duanmu, J.-L. (2011). The effect of corruption distance and market orientation on the ownership choice of MNEs: Evidence from China. Journal of International Management, 17(2), 162–174.
Duncan, R. B. (1972). Characteristics of organizational environments and perceived environmental uncertainty. Administrative Science Quarterly, 313–327.
Dunning, J. H. (1980). Towards an eclectic theory of international production: some empirical tests. Journal of International Business Studies, 11(1), 9–31.
Dunning, J. H. (2000). The eclectic paradigm as an envelope for economic and business theories of MNE activity. International Business Review, 9(2), 163–190.
Eden, L., & Miller, S. R. (2004). Distance matters: Liability of foreignness, institutional distance and ownership strategy. Advances in International Management, 16, 187–221.
Etemad, H. (2004). Internationalization of Small and Medium-sized Enterprises: A Grounded Theoretical Framework and an Overview. Canadian Journal of Administrative Sciences/Revue Canadienne Des Sciences de l’Administration, 21(1), 1–21.
Gaur, A. S., & Lu, J. W. (2007). Ownership strategies and survival of foreign subsidiaries: Impacts of institutional distance and experience. Journal of Management, 33(1), 84–110.
Guinn, D. E., & Straussman, J. D. (2015). Improving the Budget Process in Fragile and Conflict-Ridden States: Two Modest Lessons from Afghanistan. Public Administration Review.
Hakanson, L., & Ambos, B. (2010). The antecedents of psychic distance. Journal of International Management, 16(3), 195–210.
Hannan, M. T., & Freeman, J. (1984). Structural inertia and organizational change. American Sociological Review, 149–164.
Hannan, M. T., Pólos, L., & Carroll, G. (2002). Structural Inertia and Organizational Change Revisited: Architecture, Culture and Cascading Change. I. Graduate School of Business, Stanford University.
Hayes, A. F. (2013). Introduction to mediation, moderation, and conditional process analysis: A regression-based approach. Guilford Press.
Henisz, W. J. (2000). The institutional environment for multinational investment. Journal of Law, Economics, and Organization, 16(2), 334–364.
Henisz, W. J., & Zelner, B. A. (2003). The strategic organization of political risks and opportunities. Strategic Organization, 1(4), 451–460.
Hennart, J.-F., & HL Slangen, A. (2015). Yes, we really do need more entry mode studies! A commentary on Shaver. Journal of International Business Studies, 46(1), 114–122.
Hernández, V., & Nieto, M. J. (2015). The effect of the magnitude and direction of institutional distance on the choice of international entry modes. Journal of World Business, 50(1), 122–132.
Hilmersson, M., & Jansson, H. (2012). Reducing Uncertainty in the Emerging Market Entry Process: On the Relationship Among International Experiential Knowledge, Institutional Distance, and Uncertainty. Journal of International Marketing, 20(4), 96–110.
Hitt, M. A., Ahlstrom, D., Dacin, M. T., Levitas, E., & Svobodina, L. (2004). The institutional effects on strategic alliance partner selection in transition economies: China vs. Russia. Organization Science, 15(2), 173–185.
Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. (2000). Strategy in emerging economies. Academy of Management Journal, 43(3), 249–267.
Hymer, S. H. (1960). 1976, The International Operations of National Firms: A Study of Direct Investment. MIT Press, Cambridge, Mass.
Ingram, P. L., & Silverman, B. S. (2002). The new institutionalism in strategic management. Elsevier.
Jepperson, R. L. (1991). Institutions, institutional effects, and institutionalism. The New Institutionalism in Organizational Analysis, 6, 143–163.
Johanson, J., & Vahlne, J. E. (1977). The internationalization process of the firm-a model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 23–32.
Johnston, M., Gilmore, A., & Carson, D. (2008). Dealing with environmental uncertainty: The value of scenario planning for small to medium-sized entreprises (SMEs). European Journal of Marketing, 42(11/12), 1170–1178.
Kaplan, S. (2014). Identifying truly fragile states. The Washington Quarterly, 37(1), 49–63.
Kaufmann, D., Kraay, A., & Mastruzzi, M. (2010). The worldwide governance indicators: A summary of methodology. Data and Analytical Issues, World Bank Policy Research Working Paper, (5430).
Khanna, T., & Palepu, K. (1997). Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4), 41–48.
Khanna, T., & Palepu, K. (2000). Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. The Journal of Finance, 55(2), 867–891.
Kiss, A. N., & Danis, W. M. (2008). Country institutional context, social networks, and new venture internationalization speed. European Management Journal, 26(6), 388–399.
Kogut, B., & Singh, H. (1988). The effect of national culture on the choice of entry mode. Journal of International Business Studies, 411–432.
Kostova, T. (1999). Transnational transfer of strategic organizational practices: A contextual perspective. Academy of Management Review, 308–324.
Kostova, T., & Roth, K. (2002). Adoption of an organizational practice by subsidiaries of multinational corporations: Institutional and relational effects. Academy of Management Journal, 215–233.
Kostova, T., & Zaheer, S. (1999). Organizational legitimacy under conditions of complexity: The case of the multinational enterprise. Academy of Management Review, 64–81.
Law, K. S., Wong, C.-S., & Mobley, W. M. (1998). Toward a taxonomy of multidimensional constructs. Academy of Management Review, 23(4), 741–755.
López-Duarte, C., & Vidal-Suárez, M. M. (2010). External uncertainty and entry mode choice: Cultural distance, political risk and language diversity. International Business Review, 19(6), 575–588.
Lu, J. W., & Beamish, P. W. (2006). SME internationalization and performance: Growth vs. profitability. Journal of International Entrepreneurship, 4(1), 27–48.
Lu, J. W., & Xu, D. (2006). Growth and Survival of International Joint Ventures: An External-Internal Legitimacy Perspective. Journal of Management, 32(3), 426–448.
Maguire, S., Hardy, C., & Lawrence, T. B. (2004). Institutional entrepreneurship in emerging fields: HIV/AIDS treatment advocacy in Canada. Academy of Management Journal, 47(5), 657–679.
Meyer, J. W., & Rowan, B. (1977). Institutionalized organizations: Formal structure as myth and ceremony. American Journal of Sociology, 340–363.
Meyer, K. E., Estrin, S., Bhaumik, S., & Peng, M. W. (2009). Institutions, resources, and entry strategies in emerging economies. Strategic Management Journal, 30(1), 61–80.
Meyer, K. E., & Nguyen, H. V. (2005). Foreign Investment Strategies and Sub-national Institutions in Emerging Markets: Evidence from Vietnam*. Journal of Management Studies, 42(1), 63–93.
Miller, D., Lee, J., Chang, S., & Le Breton-Miller, I. (2009). Filling the institutional void: The social behavior and performance of family vs non-family technology firms in emerging markets. Journal of International Business Studies, 40(5), 802–817.
Miller, K. D. (1992). A framework for integrated risk management in international business. Journal of International Business Studies, 311–331.
Milliken, F. J. (1987). Three types of perceived uncertainty about the environment: State, effect, and response uncertainty. Academy of Management Review, 12(1), 133–143.
Moeller, M., Harvey, M., Griffith, D., & Richey, G. (2012). The impact of country-of-origin on the acceptance of foreign subsidiaries in host countries: An examination of the “liability-of-foreignness.” International Business Review.
Möllering, G., & Stache, F. (2007). German-Ukrainian business relationships: trust development in the face of institutional uncertainty and cultural differences. Retrieved from http://edoc.vifapol.de/opus/volltexte/2007/31/pdf/dp07_11.pdf
North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge university press.
Oliver, C. (1991). Strategic responses to institutional processes. Academy of Management Review, 145–179.
Pan, Y. (2002). Equity ownership in international joint ventures: The impact of source country factors. Journal of International Business Studies, 33(2), 375–384.
Peng. (2001). Business Strategies in Transition Economies. Academy of Management Review, 26(2), 311–313.
Peng, M. (2000). Business strategies in transition economies. Thousand Oaks, CA: Sage.
Peng, M. W. (2003). Institutional transitions and strategic choices. The Academy of Management Review, 275–296.
Peng, M. W., & Luo, Y. (2000). Managerial ties and firm performance in a transition economy: the nature of a micro-macro link. Academy of Management Journal, 43(3), 486–501.
Peng, M. W., Wang, D. Y. L., & Jiang, Y. (2008). An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39(5), 920–936.
Phillips, N., Tracey, P., & Karra, N. (2009). Rethinking institutional distance: strengthening the tie between new institutional theory and international management. Strategic Organization, 7(3), 339–348.
Porter, M. E. (1990). The competitive advantage of notions. Harvard Business Review.
Powell, W. W., & DiMaggio, P. J. (1991). The new institutionalism in organizational analysis. University of Chicago Press.
Puranam, P., Singh, H., & Zollo, M. (2006). Organizing for innovation: Managing the coordination-autonomy dilemma in technology acquisitions. Academy of Management Journal, 49(2), 263–280.
Ramachandran, J., & Pant, A. (2010). The liabilities of origin: an emerging economy perspective on the costs of doing business abroad. Advances in International Management, 23, 231–265.
Ramamurti, R. (2004). Developing countries and MNEs: Extending and enriching the research agenda. Journal of International Business Studies, 35(4), 277–283.
Ramasamy, B., Yeung, M., & Laforet, S. (2012). China’s outward foreign direct investment: Location choice and firm ownership. Journal of World Business, 47(1), 17–25.
Roberts, N., & Thatcher, J. (2009). Conceptualizing and Testing Formative Constructs: Tutorial and Annotated Example. SIGMIS Database, 40(3), 9–39.
Rodrigues, S., & Child, J. (2008). The development of corporate identity: A political perspective. Journal of Management Studies, 45(5), 885–911.
Rodriguez, P., Uhlenbruck, K., & Eden, L. (2005). Government corruption and the entry strategies of multinationals. Academy of Management Review, 30(2), 383–396.
Rossi, S., & Volpin, P. F. (2004). Cross-country determinants of mergers and acquisitions. Journal of Financial Economics, 74(2), 277–304.
Rugman, A. M. (1996). A new theory of the multinational enterprise: Internationalization versus internalization. The Theory of Multinational Enterprises: The Selected Scientific Papers of Alan M. Rugman, 1, 3.
Rugman, A. M., & Verbeke, A. (1992). A note on the transnational solution and the transaction cost theory of multinational strategic management. Journal of International Business Studies, 761–771.
Rugman, A. M., & Verbeke, A. (2004). A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35(1), 3–18.
Ruiz-Moreno, F., Mas-Ruiz, F. J., & Nicolau-Gonzálbez, J. L. (2007). Two-stage choice process of FDI: Ownership structure and diversification mode. Journal of Business Research, 60(7), 795–805.
Sala-I-Martín, X., Bilbao-Osorio, B., Di Battista, A., Drzeniek, M., Galvan, H. C., & Geiger, T. (2014). The Global Competitiveness Index 2014–2015: Accelerating a Robust Recovery to Create Productive Jobs and Support Inclusive Growth-The Global Competitiveness Report 2014–2015. In World Economic Forum Publication, Geneva, ISBN-13 (pp. 978–92).
Salancik, G. R., & Pfeffer, J. (1978). The external control of organizations: A resource dependence perspective. Harper and Row.
Salomon, R., & Wu, Z. (2012). Institutional distance and local isomorphism strategy. Journal of International Business Studies, 43(4), 343–367. http://doi.org/10.1057/jibs.2012.3
Schwens, C., Eiche, J., & Kabst, R. (2011). The moderating impact of informal institutional distance and formal institutional risk on SME entry mode choice. Journal of Management Studies, 48(2), 330–351.
Scott, W. R. (2001). Institutions and organizations. Sage Publications, Inc.
Scott, W. R. (2007). Institutions and organizations: Ideas and interests. Sage Publications, Incorporated.
Shaver, J. M. (2013). Do we really need more entry mode studies&quest. Journal of International Business Studies, 44(1), 23–27.
Spender, J. C. (1996). Making knowledge the basis of a dynamic theory of the firm. Strategic Management Journal, 17, 45–62.
Sutcliffe, K. M., & Zaheer, A. (1998). Uncertainty in the transaction environment: an empirical test.
Uhlenbruck, K., Rodriguez, P., Doh, J., & Eden, L. (2006). The impact of corruption on entry strategy: Evidence from telecommunication projects in emerging economies. Organization Science, 17(3), 402–414.
Vora, D., & Kostova, T. (2007). A model of dual organizational identification in the context of the multinational enterprise. Journal of Organizational Behavior, 28(3), 327–350.
Woolcock, M. (2014). Engaging with fragile and conflict-affected states: An alternative approach to theory, measurement and practice. WIDER Working Paper. Retrieved from http://www.econstor.eu/handle/10419/102993
Wu, J. (2013). Marketing capabilities, institutional development, and the performance of emerging market firms: A multinational study. International Journal of Research in Marketing, 30(1), 36–45.
Xu, D., Pan, Y., & Beamish, P. W. (2004). The effect of regulative and normative distances on MNE ownership and expatriate strategies. MIR: Management International Review, 285–307.
Xu, D., & Shenkar, O. (2002). Institutional distance and the multinational enterprise. Academy of Management Review, 608–618.
Yiu, D., & Makino, S. (2002). The choice between joint venture and wholly owned subsidiary: An institutional perspective. Organization Science, 13(6), 667–683.
Zaheer, S., Schomaker, M., & Genc, M. (2003). Identity versus culture in mergers of equals. European Management Journal, 21(2), 185–191.
All items in Spectrum are protected by copyright, with all rights reserved. The use of items is governed by Spectrum's terms of access.

Repository Staff Only: item control page

Downloads per month over past year

Back to top Back to top