Tatiana Kostova University of South Carolina Reading, UK, March 31, 2009 MNCs Contribution to Host Countries: Developed Country MNEs vs. Emerging Market MNEs

Tatiana Kostova Main Proposition Developed countries MNEs [DMNE s] bring far more benefits to host countries compared to emerging markets MNEs [EMNE s] DMNEs have a higher capacity to improve the overall quality of management for all companies operating in the host country by impacting individuals, organizations, and the host country institutional environment

Tatiana Kostova DMNEs are more effective in providing: Individual Better work experiences and jobs Improved management skills Professional management knowledge Higher motivation, better attitudes, work values Organization Professional management practices & business conduct Advanced strategies & structures More professional organizational culture Country/Society Institutional improvement Diffusion of advanced management practices and knowledge Country reputation as an IB destination

Tatiana Kostova Theoretical Explanation (IT) HOME => SUB DEs have better institutional environments DMNEs practices reflect home country institutional environment In general, DMNEs will have superior management practices MNEs are effective mediums for transferring knowledge DMNEs subs will likely replicate best practices from the home country

Tatiana Kostova Theoretical Explanation (IT) SUB => HOST Mimetic isomorphism by other companies Spillovers through networks Individual managers mobility (micro) Institutional entrepreneurship

Tatiana Kostova Benefits to host country = f(MNE x HC) Unpacking the Main Proposition

Tatiana Kostova MNE / HC Combinations DMNE EMNE EMDM GE - IndiaBMW - SC Haier - SCHaier -India

Tatiana Kostova EMNEs – DE (Haier in SC) Limited individual benefits (managers cross cultural and institutional skills re the home country) Limited organizational benefits (learning about the home country) No country impact; lack legitimacy; placed in a different organizational field; irrelevant; non-consequential Overall, limited impact at best

Tatiana Kostova DMNEs – DE (BMW in SC) Individuals expand skill sets & capabilities Organizations add to their portfolio of institutional frames Countries institutional environments are enriched with a broader set of effective arrangements DMNEs help reconfirm existing institutions in the host country Potentially help create meta-institutions Overall, constructive contribution

Tatiana Kostova DMNEs – EE (GE in India) Huge impact on host country employees and managers (e.g., knowledge, skills, cognition, values) Transfer and diffusion of best practices and management knowledge to subs and other companies in host country Major impact on country institutional environment (moderated by other DMNEs impact, government policies, ID, etc.) DMNEs are more challenged and monitored in EE and thus pushed to become better Overall, the biggest impact on host country

Tatiana Kostova EMNEs – EE (Haier in India) Reinforce existing ineffective behaviors, attitudes, and values Reinforce outdated management models and practices Most comfortable for the local companies and host country; not challenged to improve Inhibit institutional reform; inertia Overall, the management impact is negative and harmful

Tatiana Kostova Caveats = Theorizing Opportunities Overgeneralization re country class emerging vs. developed vs. transition vs. developing... Regional and country variations within these classes What is the conceptual distinctiveness of these refined subclasses of country environments and how do these characteristics theoretically affect the management benefits and why? (vs. comparative) Overgeneralization re company type Intra-class company variation by industry, sector, age, etc. What company characteristics theoretically affect the management benefits and why? Possible interaction between country and company characteristics

Tatiana Kostova More Theorizing Opportunities Over time EMNEs may achieve quality of management and status as DMNEs; then they may have a similar impact on host countries (e.g., CEMEX, Infosys) Impact of institutional distance (home-host) on the institutional potential of the MNC (???) Does industry matter? Role of host governments as facilitators or inhibitors of institutional improvement and diffusion of practices locally