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How does Regional Institutional Complexity Affect MNE Internationalization?

Author

Listed:
  • Jean-Luc Arregle

    (EM - EMLyon Business School)

  • Toyah Miller

    (Jindal School of Management, The University of Texas at Dallas - Jindal School of Management, The University of Texas at Dallas)

  • Michael Hitt

    (Texas A&M University [College Station], TCU - Texas Christian University)

  • Paul Beamish

    (UWO - University of Western Ontario)

Abstract

International business research is only beginning to develop theory and evidence highlighting the importance of supranational regional institutions to explain firm internationalization. In this context, we offer new theory and evidence regarding the effect of a region's "institutional complexity" on foreign direct investment decisions by multinational enterprises (MNEs). We define a region's institutional complexity using two components, regional institutional diversity and number of countries. We explore the unique relationships of both components with MNEs' decisions to internationalize into countries within the region. Drawing on semiglobalization and regionalization research and institutional theory, we posit an inverted U-shaped relationship between a region's institutional diversity and MNE internationalization: extremely low or high regional institutional diversity has negative effects on internationalization, but moderate diversity has a positive effect on internationalization. Larger numbers of countries within the region reduces MNE internationalization in a linear fashion. We find support for these predicted relationships in multilevel analyses of 698 Japanese MNEs operating in 49 countries within 9 regions. Regional institutional complexity is both a challenge and an opportunity for MNEs seeking advantages through the aggregation and arbitrage of individual country factors.

Suggested Citation

  • Jean-Luc Arregle & Toyah Miller & Michael Hitt & Paul Beamish, 2016. "How does Regional Institutional Complexity Affect MNE Internationalization?," Post-Print hal-02313366, HAL.
    • Handle: RePEc:hal:journl:hal-02313366
    DOI: 10.1057/jibs.2016.20
    as

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    Keywords

    regional strategy or strategies;

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