About AMA

Executive Summary
Many small and medium-sized enterprises (SMEs) around the world choose to expand internationally using fully owned subsidiaries. Although research on this topic is scarce, that which does exist has shown that SMEs tend to perform poorly when they use integrated entry modes. Claude Obadia and Irena Vida investigate the causes of such poor performance and explore the issues that SMEs face with their foreign subsidiaries.

After analyzing the cases of ten SMEs from Europe and South America that experienced severe problems with a foreign branch, Obadia and Vida find evidence of opportunistic behaviors of the local foreign staff. These behaviors were targeted at the assets of the foreign subsidiary, including stealing cash and equipment, selling industrial and commercial secrets, alienating brands, and creating serious legal issues. Furthermore, the local staff often operated their own companies using the subsidiary’s facilities. Management at the SMEs headquarters claims that these opportunistic behaviors caused the poor performance of the subsidiaries. The study proposes that the amount and scope of the foreign subsidiaries’ assets triggered these behaviors. In addition, a poorly designed incentive policy failed to deter the foreign staff from embezzling the overseas branch. Furthermore, inadequate monitoring caused an information asymmetry between headquarters and the foreign subsidiary that intensified the opportunistic behaviors to their most extreme forms.

This study is the result of carefully designed qualitative analysis of ten cases of SMEs, using secondary and primary field data from interviews with the SMEs’ management, employees, and competitors. To examine the phenomenon termed “endogenous (intra-firm) opportunism,” Obadia and Vida use the principles of grounded theory methodology. This approach is recommended when trying to isolate and understand little-known phenomena.

With endogenous opportunism examined and its causes identified, Obadia and Vida suggest several ways to mitigate it. First, they recommend that SMEs should reduce the amount and scope of the assets of their overseas branches. Second, the monitoring of the foreign subsidiaries should be reinforced. A primary contribution of the study is the development of a classification scheme of endogenous opportunism that identifies the specific behaviors that firms should monitor in their foreign branches. Third, recommendations are provided on how to design incentive schemes for the foreign branch staff to minimize instances of opportunism. Finally, Obadia and Vida invite the SMEs’ managers to question their integrated entry-mode choices and to bear in mind that they can control their international operations even when working with independent foreign distributors.

Biography
Claude Obadia earned his PhD (2006) from La Sorbonne, Paris. He is currently an associate professor in the Graduate School of Entrepreneurship, Advancia, Paris. His research focuses on the governance of international channels of distribution. Before joining academia, he spent two decades as an international executive. Eventually, he became the managing partner of a consulting firm. He has worked in Europe, Asia, and South America. Currently, he teaches in France, Italy, and the United States. In addition to Journal of International Marketing, he has published in journals such as Banque and Entreprendre et Diriger.

Irena Vida earned her PhD (1997) from the University of Tennessee, Knoxville. She is currently an associate professor and a department chair in the Faculty of Economics, Department of Marketing, at the University of Ljubljana. Her research focuses on strategic issues in international business and marketing and on application of existing behavioral theories in cross-cultural settings. She has been involved in consulting and/or in teaching with various domestic and international companies in the past five years. Her publications appeared in various journals, such as Journal of International Marketing, International Marketing Review, European Journal of Marketing, International Business Review, and Economic and Business Review.