How does regional institutional complexity affect MNE internationalization?

Jean Luc Arregle*, Toyah L. Miller, Michael A. Hitt, Paul W. Beamish

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

68 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)697-722
Number of pages26
JournalJournal of International Business Studies
Volume47
Issue number6
DOIs
Publication statusPublished - 1 Dec 2016
Externally publishedYes

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