Management and Marketing - Theses
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ItemContract and expansion: sovereignty, transitional economies and Australian MNEs( 1998)Property rights regimes crucially affect the structure of economic activity, by defining the 'rules of the game'. Each country's 'rules of the game', or its institutional structure, is the outcome of a path dependent historical process. Given the institutional environment, MNEs expand internationally by writing a complex web of contracts with JV partners, wholly-owned subsidiaries, foreign licensees and the state. The first contribution of the thesis is the specification of a model of firm-state contracting based in New Institutional Economics. This expands and modifies traditional approaches to MNEs that take as given the property right regimes. Based on the concept of sovereignty, the thesis shows that the state is the key player in the definition, allocation and enforcement of the property rights regime. The state also contracts explicitly or implicitly with MNEs. These contradictory roles are explored theoretically. It is argued that the state is not a unitary actor but a series of political organisations comprising individuals subject to cognitive limitations and degrees of choice as to their behaviour. Manipulations of the investment environment occur not only through formal regulations and policy statements but also through corruption of office for private gain. State behaviour is motivated by unique sets of rules and players in each location. The thesis then studies how Australian firms met this contractual challenge in the transitional economies of India, Indonesia and Vietnam. Each country experienced fundamental shifts in their institutional environment with the re-opening of their economies to foreign investment. Each country was marked by a property rights regime that was unstable, changing and ill-defined. The hallmark of the study is the reliance on firm-specific data to analyse how Australian MNEs contracted in these newly opened economies. The data reveal that Australian MNEs competitive advantages lay predominantly in the expertise of their human capital and the co-specialisation of this tacit knowledge with codified organisational processes and tangible product technology. Given the institutional regimes in Indonesia and Vietnam, Australian firms wrote intermediate contractual arrangements governed by the notions of relational contract or formed JV agreements with firms possessing knowledge of the complexities of local commercial and political processes. In India, Australian firms under-estimated the institutional complexities. Despite negligible host country experience, Australian firms eschewed joint ventures, acquisitions and non equity alliances with local companies able to decipher the Indian institutional environment. Correspondingly, the firms experienced difficulties with the environment confronting them. In contrast to the successful performance of Australian firms in Indonesia and Vietnam, the firms in India expressed dissatisfaction with the performance of their activities. The types of multinational experience possessed by Australian differed across the three country samples. From their Asian networks of subsidiaries, Australian firms in Indonesia captured learning and information advantages that aided their entry and performance in Indonesia. In Vietnam, firms similarly possessed concentrated subsidiary networks in Asia, which were influential in the assessments of risk factors and the design of contractual arrangements. In India, prior multinational experience afforded few advantages in interpreting the complexity of the institutional environment. This study emphasises the importance of understanding the institutional regimes within which international business is conducted. It argues that these institutional regimes emerged as a path dependent historical process. Facing complex and opaque institutional environments, Australian firms designed contracts to capture returns in enlarging and promising economies. History and sovereignty were the defining variables in the expansion of Australian MNEs in India, Indonesia and Vietnam.