The significance of adequate institution in Foreign investment

Multinational enterprises (MNEs) investment in developing world: Does institution play any role in technological spillovers to local firms?

Introduction

This essay is on technological spillovers from MNEs to local firms in the local markets especially in developing world in Africa and Asia. It elucidates how MNEs transfer technology to local firms and the role of institutions in enhancing technological spillovers to local firms. Furthermore, gaps in the literature are uncovered, unit of analysis is mentioned and methodology to tackle the issue is mentioned.

MNEs investment and its positive effects on technological spill overs to the local firms

Piscitello (2003) argued that Multinational enterprises have become important economic agents with respect to generation, commercialization and international transfer of technological knowledge to local companies especially in developing countries. MNEs  and their FDI  transfer technology to local firms in terms of R&D capabilities and equipments, manufacturing know how, marketing resources, work practices and managerial techniques, supplier and distribution expertise; physical transfer of resources to new locations or sharing resources without physical transfer between parts involved. Additionally, Meyer and Sinani (2009) argued that local firms learn from MNEs by observing technology and management practices employed by MNEs or by attracting employees trained by MNEs.

Furthermore, Liefner, Hennemann and Xin (2006) added that trading with foreign companies helps domestic companies to get new ideas that enable them to enter the market with new products. This implies that, domestic companies gain absorption capacities from MNEs in the form of knowledge base, skilled human resources and some form of in house knowledge generation. This concur with Cantwell and Athreye (2007) statement that MNE and FDI promote technological catch up to the countries that already have acquired sufficient absorptive capacity and spill over through skilled labour and technological innovation infrastructures such as R&D institutions.

On top of that, Marin and Bell (2005) argued that Multinational Companies’ subsidiaries are leaky containers at the end of the technological transfer process of technology spill over. This implies that MNCs subsidiaries own knowledge creations that are significant source of spill over potential.  Innovation Spill over occur in different industries such as electronics, agriculture, service and manufacturing because they employ skilled workers and undertake R&D (Marin & Bell, 2005).

Moreover, Glass and Sagi (1998) argued that technology transfer from FDI to the local firms in the developing world is linked to the rate of imitation of best technology available. Moreover, Glass and Sagi (1998) argued that  indicators of technological innovation transfer to domestic firms are such as R&D (Reported expenditures on R&D), employees’ training intensity, skills intensity of employees  employed in production such as engineers, professionals and technicians; Investment in licensed technology (Evidenced in licensed designs, know how), Investment in capital embodied technology, investment on IT, investment on equipment for innovation and  report on expenditure to introduced new products. However, Spill over is not automatic phenomenon as it occurs to a particular group of domestic firms that do investment in technology infrastructures and in training of human resources (Marin & Bell, 2005).This means that limited absorptive capacity of the domestic firms in the developing world act as a constraint of the technology transfer tunnel from FDI. This is also emphasized by Meyer and Sinani (2009) who argued that productivity spill overs are related to the host country level of development in terms of level of income in the economy. This is to say when country is very poor, it is hard for spill over to take place because catch up potential of innovation technology is very low as absorptive capacity is associated with the level of income which provide firms with financial resources to acquire technology, equipments and other complementary resources, to pay wages that match foreign investors wages and to attract and retain skilled employees.

Institution’s Role in MNEs Technological Spillovers

Giddens (1984) defined institutions as the more enduring features of social life which includes conventions (regularities in action and norms), rules, rituals, organizations and systems of organizations. This means that institutions are applied to customs and behaviour patterns of a society as well as formal organization of government and public services. Put differently, Institutions consist of norms, values, laws and regulations that formulate behaviour that governs daily interactions in the society. Additionally, Benito and Larimo (2003) argued that institutions involve the way the governments are shaping the conditions for developing various sectors in the economy including education, tax and competition policies.

Meyer and Sinani (2009) stated that institutional development of the host economy influences national innovation system of the country; as institutions are fundamental cause of economic development of any  country ( Acemoglu et al, 2004).This is supported by Glass and Sagi (1998) who argued that Government policies in a given county enable the upgrading of technology through fair competition, trade and market openness, R&D policies, regulations that provides good environment for international trade such as FDI and development in higher education. The best example is Singapore which emerged as new technology producer through setting good policies and regulations that attracts FDI; another example is China’s positive economic results due to good policies. Chinese government policies promoted joint venture and encouraged domestic firms to become suppliers of foreign firms as well as special economic zones that encouraged FDI to invest in China. Moreover, Korea’s economic development relied little on technological spillovers from FDI but depended on setting good policies and regulations on international trade, copying, reverse engineering, Licencing, R&D policies and higher education. This implies that technology spill over of a country from MNEs to local firms rely on the institutions of a given country (Glass & Sagi, 1998).

Weak Institutions as impediment of innovation technology spillovers

World Bank (2002) stated that weak/inadequate institutions include tangled laws, corruption and corrupt courts, biased credit systems and elaborate business registration. Furthermore, Meyer and Sinani (2009) argued that weak institutions are associated with inefficient market, network driven business practices and protected niches for local firms. Weak institutions make local firms to take advantage of business practices and fail to observe fair competition and intellectual property rights. This results into local firms to attain illegally knowledge that FDIs prevents from diffusing. Athreye and  Cantwell, (2007) argued that property rights and licensing are more sensitive to local institutions and governance of a specific country; this implies that FDI and international trade flourish in the countries with adequate institutions. Thus Meyer and Sinani (2009) further argued that MNEs and FDI prefer going to the countries where there is open trade regimes, free trade and fair competition. This means therefore that enforcing adequate institutions should be prioritized since it is a prerequisite behind innovation catch up and flourishing of international business.

Gaps available in the literature

Firstly, a gap in the literature is how do human capital and institutional development affect increase in firms’ productivity. Secondly, there is a gap in the literature as to why other countries in the emerging markets with almost the same strategies like China are not progressing in the same pace as China despite following the same Chinese policies such as promoting joint venture and encouraging domestic firms to become suppliers of foreign firms. Moreover, literature seem not to address the technology and human capital gap between domestic and foreign firms since the larger the gap in technology between the two,  the less likely the domestic firms can  gain from the foreign firms spill overs. Lastly, the literature has a gap in showing the effects of exchange rates levels on FDI inflows.

Unit of analysis

Unit of analysis is Government institutions, MNEs subsidiaries,domestic firms, Higher institutions and R&D institutions.

Methodology to takle the issue

Literature review especially on  meta analysis papers on FDI can shed the light on FDI and its positive and negative spliovers  to the developing world.Additionally, openness to international trade generates competitive market environment  and higher level of exchange between host country firms and FDIs.

Reference

Acemoglu D., Johnson S., & Robinson J.,(2004).Institutions as the fundamental cause of long run growth, NBER Working paper 10481.(http://www.nber.org/papers/w.10481)

Athreye, S., & Cantwell, J.,(2007).Creating competition? Globalization and the emergence of new technology producers. Research policy, 36(2), 209-226.

Benito G.R.G., & Larimo (2003).Multinational Enterprises from small economies: Internationalizing patterns of large companies from Denmark, Finland and Norway. Studies of Management and Organization, 32(1)57-78.

Giddens, A., (1976).New rules of sociological methods, London, Hutchinson

Glass A.J.,& Saggi K.,(1998).International technology transfer and the technology gap.Journal of Development economic 55,369-398.

Liefner I.,Hennemann S., Xin L.,(2006).Cooperation in the innovation process in developing countries:Empirical evidence from Zhongguancum,Beijing.Environment and Planning 38(1)111-130.

Marin, A.,& Bell M.,(2005).Technology spill overs from FDI: the active role of MNC subsidiaries in Argentina in the 1990s.Journal of Development studies,42(4)678-697.

Meyer K.E & Sinani E., (2009).Where and When does FDI generate positive spillovers. A Meta analysis. Journal of International Business studies, 1075-1094

Piscitello L., (2003).Knowledge transfer in cross boarder acquisitions. Knowledge transfer between firms. Paper presented at the DRUID SUMMER CONFERENCE, Copenhagen, Denmark

World Bank (2002).World Development report 2002: Building Institutions for markets, Oxford, Oxford University Press.

Money is Your Reward for Serving Others

By Bob Proctor, 
Creator of the science of getting Rich

There is a very real possibility that everything you and I have been taught about how to earn money is so far from the truth that it's almost comical.

Earning money has nothing to do with age, formal education, gender or geography. It has nothing to do with past experience or your formal years of education or your level of intellect.

There are individuals who are functionally illiterate who have become multimillionaires, while there are others who are absolutely brilliant and they are broke. Virtually anyone can be taught how to earn millions of dollars and yet the sad truth is that 97 out of every 100 people are born, live their entire lives, and die without ever learning how to earn money. To perpetuate this ridiculous problem, their ignorance is passed along from one generation to the next.

Our school system has been designed as an environment to enlighten young minds, to replace ignorance with understanding and ultimately improve the quality of life. And though our educational system has obviously been successful in many areas, it has woefully neglected one important subject, ''How to Earn Money.''

A lack of understanding in this area is the cause of numerous unwanted and unnecessary problems, since money is the medium of exchange that is used worldwide for other people's products and services.

The Real Source of Wealth

There has always been a small, select group, approximately 3% of our population, who clearly understand that prosperity consciousness is the primary cause of wealth and their prosperity consciousness, like ignorance, is also passed down from one generation to the next.

Let's look at ''money.'' What is it?

Money is a reward you receive for the service you render. The more valuable the service, the greater the reward. Thinking of ways we can be of greater service will not only help us earn more money, it will also enable us to grow intellectually and spiritually.

Money is an Idea

The paper you fold and place in your purse or pocket is not money. It is paper with ink on it. It represents money, but it is not money. Money is an idea. The earning of money has nothing to do with the paper stuff, it has to do with consciousness.

To accumulate wealth, a person must become very comfortable with the idea of money. That may sound strange, however most people are not comfortable with the idea of money, which is why they do not have any. The cause of poverty is poverty consciousness. A poverty consciousness will cause a person to see, hear, think and feel ... lack and limitation.

The late Mike Todd said, ''Being broke is a temporary situation. Being poor is a mental state.''

He was correct. There are wealthy people who lose every cent they have through a series of mistakes in judgment, but that does not make them poor. They will have it all back in a short time because of their prosperity consciousness.

Many years ago, George Bernard Shaw expressed his thoughts on money. People have such strong views on both of these statements, I purposely use them in my seminars to cause the attendees to think.

1. It is the duty of every person to be rich.
2. It is a sin to be poor.

Before you reject these as being ridiculous, let's analyze them. To fully understand what Shaw was saying, you must have an open mind. There is a law that states everything is moving, absolutely nothing rests. You are either moving ahead in life or going in reverse ... growing or dying ... creating or disintegrating, becoming richer or poorer.

The Most Important Universal Law for Becoming Wealthy

There is another law to which people often refer in many different ways ... Karmic Law ... Sowing and Reaping ... Cause and Effect ... Action, Re-Action. How you refer to this law is of little importance relative to your understanding of how it works.

The thoughts, feelings, and actions that you express in life are seeds that you sow. The conditions, circumstances and things that come into your life are the harvest you reap as a RESULT of the seeds that you sow. For a moment, store this information in the back of your mind while we investigate the deeper understanding of the words SIN and MONEY.

Sin is ... transgression of the law. Violating the law is a sin and, in truth, the price of sin is death. That does not mean your heart will stop beating, but it does mean you will regress. I previously mentioned there is a law that states you will either create or disintegrate, you will grow or die. When you attempt to ''get'' without giving, you are trying to reap the harvest without sowing the seeds, and it will not work.

Now let's look at ''money.'' What is it? Money is a reward you receive for the service you render; the more valuable the service, the greater the reward. Attempting to ''get'' money without providing service is also a violation of the law.

We Are Here to Serve Each Other

Shaw believed you and I are here to serve one another. Thinking of ways we can be of greater service will enable us to grow intellectually and spiritually. It is our duty to serve and money is a reward we receive for that service. If a person has received their money in an unlawful manner - by law, they must pay the price; you reap what you sow.

In light of the laws that govern our universe, what Shaw said is correct. However, if a person is not consciously thinking, Shaw's statements would appear very callous, even ridiculous. Personally, I believe Shaw made those statements the way he did, to provoke people to think.

Quite simply, what Shaw was emphasizing was the importance of our own responsibility in the quest for abundance. Abundance is something we magnetize ourselves to ... we draw it into our lives ... in every aspect our lives. Business associates, friends, everything we want will come into our life by law, not luck. You are either attracting or repelling good. It is your own consciousness that ultimately determines your results.

''Money is in consciousness and it must be earned.'' If you want to improve your financial position in life, focus your attention on creating a higher level of prosperity consciousness. Begin by preparing a powerful, positive affirmation and fuel it with emotion. When you do this, you are depositing this creative energy in the treasury of your subconscious mind. And, by repeating this process over and over and over again every day, it will begin to alter your conditioning and mentally move you in the direction you want to go. Write it out, read it, feel it, and let it take hold of your mind.

How much money do you want? Saying you want more is not good enough. Five dollars is more. How much more? Decide on a figure. Be specific. You will not seriously want more money than you are capable of earning ... however, you would be wise to remember, you must earn it.

There are Three Income Earning Stategies

• Trading time for money – By far the worst of the three income earning strategies, it is employed by approximately 96% of our population – doctors, lawyers, accountants, laborers, etc. There is an inherent problem with this strategy – saturation. You run out of time. If a person accumulates any degree of wealth employing this strategy, it will be at the expense of a life. They compromise on the car they drive, the house they live in, the clothes they choose and the vacations they take. They rarely, if ever, get what they want.
• Investing money to earn money – This strategy is used by approximately 3% of the population. The number is small for the obvious reason – very few people have any money to invest. Many people who effectively employ this strategy follow the advice of a trusted, knowledgeable advisor.
• Leveraging yourself to earn money – This is where you multiply your time through the efforts of others by setting up Multiple Sources of Income (MSIs). This is, without question, the very best way to increase your income. Make a decision to have many sources of income; it's the strategy that wealthy people have used dating clear back to the ancient Babylonians. Unfortunately, this strategy is only used by approximately 1% of our population, yet that 1% earns approximately 96% of all the money that is earned! You are only a decision away from membership.

Once you determine how much money you want to earn, write it down on a sheet of paper in large figures. Look at the number with the dollar sign beside it and tell yourself over and over again:

THAT AMOUNT OF MONEY IS AN EFFECT. IT REPRESENTS A REWARD THAT I WANT TO RECEIVE. WHAT SERVICE CAN I RENDER THAT WOULD BE DESERVING OF THAT REWARD?

Take the total figure and divide it into multiple parts. Let each part represent a source of income. Each source of income represents a separate reward that you would receive for a service you would render. Work on one source of income at a time; each one can become an exciting part of your life.

• Think of how you can do whatever you do – more effectively.
• Think of how you can improve the quality and quantity of service you render.
• Think of how you can help people in a greater way.

Money is a servant; the more you earn, the more you can help others.

COMPETITITON BETWEEN MULTINATIONAL COOPERATION(MNC) HEAD OFFICES AND THEIR SUBSIDIARIES

Introduction

This  essay explains about the competition between subsidiaries and their head offices in the MNCs context.Furthermore the essay explain why the competition occurs and factors that causes competition between MNCs head office and their subsidiaries.

MNCs Subsidiary and MNCs Head office overview

Foreign MNCs’ subsidiaries are not independent entities.They are mandated by the parent organizations which reside in a foreign land. Additionally, they are supposed to comply with the parent organization practices (Kostova & Roth, 2002).Further to that,  Subsidiaries access  resources and other forms of organization support  based on their reputation within MNE (Kostova & Roth, 2002). Additionally, conforming to parents mandate increases subsidiary reputation and legitimacy (Dimaggio & Powell,1983)

Birkinshaw, Bouquet and Ambos (2007) stated that many MNCs subsidiaries start with the objective of being a market unit of parent company.However, as the subsidiaries grow they  develop  resources and capabilities of their  own and take on additional responsibilities by being innovative in the local market and interact with others in the local environment.This leads  to uniqueness in their approaches  that not only help parent organization to gain competitive edge but also themseslves in new directions  that were not considered initially.

Schotter and Beamish(2011) stated that conflict and competition between subsidiaries and headquarters is not necessary regarded as dysfunctional or the result of inefficient global intergration instead it is considered as normal consequence of organizing and managing across national boarders.This implies misunderstanding between subsidiaries and headquarters is a given phenomenon.

Antecedent of competition between subsidiary and head office

Schotter and Beamish(2011) argued that competition refers to misunderstanding and contest between MNC subsidiaries and their parent organization. This occur due to the fact that both face different institutions and operating environment at the time of their existence. Besides, Kostova & Roth (2002) stated that foreign subsdiaries are supposed to maintain legitimacy between the host country where they conduct their operations  and the MNC rules and regulations. This is termed as institution duality. Additionally, the competition between subsdiaries and their headquarters occur due to dominance of the MNCs head office in the decision making process in which interests of those outside the home country are regarded as secondary or largely neglected,moreover this stir debates on the question of centralization against decentralization between MNCs head offices and subsidiaries (Daily Telegraph , 2008).

Factors that cause competition between subsidiary and and the head office  among MNCs

Perception of the threat of the subsidiary initiatives

Birkinshaw,Hood and Johnson(1998) urged that MNC head office often view subsidiary initiatives  with suspision or hostility especially when they are not aligned with MNEs existing priorities; so initiatives are at times considered as self interested behaviour that aim at empire building regardless of the soundness of the initiatives.Moreover, initiatives are also considered as  threat to the livelihood or status within the corporation by the MNC head office. Simultaneously, Burgelman(1983) argued  that subsidiaries’ new ideas  and initiatives encounter resistance from headquarters since they are considered   to be building an empire to the subsidiary; though the initiative might intend to  contribute to the value creation of the entire MNE. Consequently,  MNEs’ head offices increase monitoring to subsidiary initiatives in order to prevent any unexpected behaviour from the subsidiary. However, this constrain subsidiaries degree of freedom in decision making. Additionally, excessive monitoring process cause  misunderstanding between head office and subsidiaries.

Difference in Institution environment between subsidiary and head office

Competition between subsidiary and head office may also  occur due to enforcement of MNCs practices to be diffused worldwide to its subsidiary offices.This is done with a good will of ensuring  technical efficiency.However due to institutional duality some practices might be viewed by subsidiaries as inappropriate or inefficient from the host country institutional standpoint. In such cases, therefore compliance is not expected from the foreign subsidiaries. This is because the institutional environment of the home country from where the MNC comes from is different from that of the host country where the subsidiaries operate.As a result, ceremonial adoption is likely in such situation due to high uncertainty on value of the  practice to the business environment of the host country.This contradicts with the officers in the   parent organization as they normally believe that their practices are right (Kostova & Zaheer,1999; Kostova & Roth 2002; Meyer & Rowan,1977)

Lack of trust of Subsidiary on head office

 Kostova & Roth (2002) argued that another source of competition between subsidiary and head office is lack of trust on the perceived value of the practice suggested by the MNC head office to the subsidiary.This result into uncertainty about efficiency of the suggested practice. But trust resolves uncertainty and ambiquity between parent and subsiadiary of the MNCs.Trust can enforce the internalization and implementation of the MNC practices to its subsidiaries.Thus, trust is important between head quarters and subsidiaries as it assists in  implementation of MNC mandates (Borys & Jemison,1989).

Pricing policies and incentives

 Pricing policies and incentives are sore phenomenon that cause competition between headquarters and subsidiaries. Competition happens because MNC headquarter and subsidiary operate from different countries that have different  institutions and economic conditions, as a result there is always conflict on price and incentive policies expected to be executed; this stir the debates whether there should be standardization or  customization of price; remuneration and incentive policies( Daily Telegraph,2008; Kostova & Roth ,2002).

Cultural differences

Cultural distance between MNC home country and the host country of  subsidiary causes misunderstanding because of differences  in perceptions and expectations. The differences sometimes  lead to delay of  information sharing and learning between headquarter and subsidiary (Cao&Yang, 2006;  Lane & Beamish, 1990). Besides, Daily Telegraph (2008) contended that difference between different nationalities and cultures often leads to unnecessary tension because of differences in language,traditions and different ways of doing business and this has negative impact on internal MNCs business.

Lack of effective communication

Lack of effective communication between headquarters and subsisary is another source of competition between headquarter and  subsidiary.Lack of communication occurs though many companies have information systems in place;but they tend to be underutilized to the extent that headquarters and subsisary relations and work processes are jeopardized.This implies that information dissemination is critical in enabling faster decision making and formulation of service promises which are adhered to the point of delivery (Daily Telegraph, 2008).

 Effective communication and Information assist  the subsidiaries to perfome their duties in acceptable and required manner.However when headquarters responses are confusing or inadequate, it brings problem to subsidiaries on information about products,perfomance,customers and competition( Daily Telegraph,2008)

Conclusion

Conflicts and misunderstanding between  headquarters and subsisary abound but active international companies make solution.For example, the  presence of boundary spanners is critical during competition and conflicts for organization perfomance as they act as mediators and solution providers by bringing trust and positive network between MNCs and subsidiaries..Moreover, good and personal relationship between MNC headquarters and subsisaries  is critical as power imbalance and distance delude many headquarters and subsidairy managers into thinking that there is no pressing need to develop and nurture good relationship in country offices.Thus training on good relationship between head office and employees in subsidiaries elsewhere is critical.

Reference

Birkinshaw J.,Bouquet C.,& Ambos T.(2007).Managing executive attention in the global company.MIT Sloan Management Review 48(4) 39-45.

Birkinshaw J.,Hood N.,& Johnson S.,(1998).Building firm specific advantage in MNC.The role of subsidiary initiative.Strategic Management Journal 19(13)221-241

Borys, B & Jemison D.B.,( 1989).Hybrid arrangement as strategy alliance: Theoretical issues in organization combinations. Academy of Management Review,14, 4-49

Burgelman R.A.,(1983).A process model of internal venturing in the diversified major firm.Administrative Science Quarterly 28(2),223-244.

Cao Z., & Yang J.,(2006).A framework of case study. Influence of MNE on management transfer to its subsidiaries in China. Human-society Research, Ministry of Education, PRC Project No 05JD630089

Kostova T.,& Roth K.,(2002).Adoption of an organization practice by subsidiaries of Multinational corporation.Institutional and relational effects.Academy of Management 45(1) 215-233.

Kostova T.,& Zaheer,S.,(1999). Organizational legitimacy under conditions of complexity:The case of the multinational enterprise.Academy of Management Review 24,64-81

Lane H.W & Beamish, P.W., (1990).Cross cultural cooperative behaviour in joint venture in LDCs. Management International Review,30, 87-102.

Meyer A.,& Rowan,B.,(1977).Insitutionalized organizations:Formal structure as myths and ceremony. American Journal of sociology, 83,340-363.

Subsidiaries should be seen and heard by Headquarters (2008, April,). Daily Telegraph. Retrieved from http://www.telegraph.co.uk/finance/2787874/Subsidiaries-should-be-seen-and-heard-by-HQ.html

DiMaggio P., & Powell, W., (1983).The iron cage revisited: Institutional isomorphism and collective rationality in organization fields. American Sociological Review, 48,147-160

Be the best at what you are

“If a man would write a good book, preach a better sermon, make a better bread, make a better mouse trap, than his neighbor, though his house is in the wood, the world will make beaten paths to his door”-Abraham Lincoln.

Opportunity

               If Opportunity does not knock build a door-Berle(2013)

Are you a warrior or a worrier

Learning

Learning is the key to improvement

       
Learning is the key to improvement!!

Remember this next time when you fail

There is always a way

Corporate Entrepreneurship

Corporate Entrepreneurship context

Corporate entrepreneurship is described by different terminologies such as corporate venturing, intrapreneurship, internal corporate entrepreneurship, internal entrepreneurship, strategic renewal and venturing . Moreover, entrepreneurial organization and internal corporate venture as other terminologies commonly used in the corporate entrepreneurship field.

Additionally, there are  four forms of practices  mostly used in corporate entrepreneurship (CE) field; namely,  employees initiatives to undertake something positive and new without being asked, creation of new business activity within the existing organization, transformation or renewal of existing organization and the ability of the enterprise to change the rules of the industry so as to spearhead competition in the industry 

Corporate entrepreneurship is defined as managerial strategy that aims at stimulating entrepreneurial behaviour among employees to promote innovation and continuous improvement in the organization. Similarly,  corporate entrepreneurship hinges on ability of corporations to act entrepreneurially such as pursuing opportunities regardless of resources controlled, tolerating failure while pursuing opportunities and innovation plus enforcement of entrepreneurial culture that treat fairly the Intrapreneurs.

Importance of positive thinking

Winners are the people with unique characteristic

Determination

Excellence in Business

This especially applies in Business and sales. Provide more service than others expect.