Beibei Dong, Shaoming Zou, and Charles R. Taylor
When multinational corporations (MNCs) expand internationally, it is important that they carefully seek an appropriate degree of control over their foreign operations. Indeed, maintaining a degree of control is critical in implementing MNCs’ global marketing strategy. Therefore, it is critical for international marketing managers to understand the factors that influence MNCs’ control over their foreign operations. In the literature, transaction cost analysis (TCA) and bargaining power (BP) theory both have been widely applied to research on ownership structure and MNCs’ control. However, few studies have taken a comprehensive approach to combining these theories into a joint model, leaving only partial explanations in the literature. Furthermore, few studies have assessed the relative explanatory power of these two alternative perspectives. Finally, most empirical studies have used secondary data to test these theories, leading to concern about the suitability of such data for measuring the types of abstract TCA and BP constructs.
Dong, Zou, and Taylor present a joint model that combines TCA and BP theories to explain MNCs’ control, and they compare these theories’ relative explanatory power. They incorporate seven key factors drawn from the two theories into the joint model. Specifically, TCA identifies demand uncertainty, international experience, and frequency of transactions as determinants of the MNC’s degree of control. Because these factors are expected to increase transaction costs, Dong, Zou, and Taylor propose that they have a positive effect on the MNC’s degree of control over its foreign operations. In addition, the authors include four factors suggested by BP as principal determinants of the MNC’s control over its foreign operations in the model. Of these, they expect that stake of the host country and the MNC’s resource commitment have a positive effect on the MNC’s degree of control because they increase the MNC’s BP, and they hypothesize the need for local contribution and local firm’s capability to have a negative impact on the MNC’s degree of control because they decrease the MNC’s BP.
Dong, Zou, and Taylor collected primary survey data from 269 executives of multinational manufacturing companies. They performed confirmatory factor analysis to examine the measurement model and conducted logistic regression to test the relative explanatory power of these two theories. The results suggest that three factors, two drawn from BP and one from TCA, are significant factors in explaining MNCs’ degree of control. More specifically, MNCs tend to exert a high level of control over their foreign operations when they have more international experience and a high level of resource commitment. In contrast, MNCs tend to have a low level of control when their need for local contribution is high.
Theoretically, this study demonstrates the importance of combining multiple theoretical perspectives and suggests that researchers should work to integrate these frameworks in the future. From a managerial perspective, the study further suggests that managers must consider a complex bundle of factors and balance their desire to minimize the costs with their desire for control when deciding how much control they should exert over their foreign operations.
Beibei Dong is a doctoral candidate in the Department of Marketing at the University of Missouri - Columbia. Before joining the doctoral program, Beibei worked for BearingPoint, a management consulting firm, for over two years. She provided consulting services for the two largest telecom operators in China. Beibei has pursued research interests in services marketing, international marketing, and marketing strategy. Her articles have been accepted for publication in Journal of the Academy of Marketing Science and Journal of International Marketing. She has published a chapter in the book, Advances in Banking Technology and Management: Impact of ICT and CRM, and has led several sessions at national conferences. Beibei Dong is a member of the American Marketing Association. She has received a Juran Doctoral Award from the Joseph M. Juran Center for Leadership in Quality at the University of Minnesota.
Shaoming Zou is Associate Professor of Marketing at University of Missouri - Columbia, and External Professor of Marketing at Peking University. His research is focused on export marketing, global marketing strategy, and marketing strategy issues. He has published in major marketing and international business journals, such as Journal of Marketing, Journal of International Business Studies, Decision Sciences, Journal of the Academy of Marketing Science, Journal of Advertising, Journal of International Marketing,and International Marketing Review. His work is among the most cited in international marketing and has won several major research awards, including the American Marketing Association Global Marketing SIG’s inaugural “Excellence in Global Marketing Award” for 10-year impact on global marketing research. He serves on several editorial review boards, including Journal of the Academy of Marketing Science, Journal of International Business Studies, Journal of International Marketing, and Journal of Marketing Science (Chinese).
Charles R. “Ray” Taylor is John A. Murphy Professor of Marketing at Villanova University. He served as President of the American Academy of Advertising in 2005. Dr. Taylor’s research interests are in the areas of marketing and advertising regulation and international marketing. He has published academic articles and book reviews in outlets that include Journal of Advertising, Journal of Advertising Research, Journal of Marketing, Journal of International Marketing, Journalism and Mass Communication Quarterly, Journal of Public Policy and Marketing, Journal of Marketing Research, and Journal of Current Research and Issues in Advertising. He serves on the Editorial Review Boards of Journal of Advertising, Journal of Public Policy and Marketing, Journal of Business Research, Journal of Current Issues and Research in Advertising, Advances in International Marketing, Psychology and Marketing, and Journal of Consumer Affairs. His research has received the Hans B. Thorelli Best Paper Award and the Charles Slater Award.
Journal of International Marketing, Vol. 16, No. 1, March 2008
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