Experience Diversity in Top Management Teams

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Experience Diversity in Top Management

Teams

The Impact on Entry Mode Choices of European

Multinationals for Emerging Economies

Master’s Thesis

MSc International Business and Management

Leon Jungeblodt

(S3736288)

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Acknowledgement

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Abstract

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1.0 Introduction

In case of a decision for a firm expansion into a foreign country, the question concerning the entry mode type is one of the most important strategic decisions within the internationalization process (Vern, Sarathy & Russow, 2000). Having said this, it is obvious that it will be even more significant in case of massive cultural, economic and institutional differences between the host and home country of the entrant. In our paper, we will therefore specifically focus on the entry mode choice of an European developed-country MNE for an emerging economy, since Gelbuda et al. (2008) & Wright et al. (2005) classify these countries as highly different from each other in terms of institutions, policy systems and economy. In addition, a scientific investigation concerning the overall topic of ‘expansion into emerging markets’ is important and worth to do, considering the recent developments and predictions of these economies. For instance, Cavusgil et al. (2002) predicted that growth rates of emerging countries will exceed the ones from mature markets in the near future. This goes along with the prediction of London & Hart (2004), who state that the focus of MNE’s internationalization targets increases towards emerging economies, because of a constantly rising saturation of developed markets. A projection by the International Monetary Fund (IMF) in 2014 confirmed these assumptions by predicting that only Brazil, India, Russia and China will be responsible for about half of the world’s GDP in 2020.

When firms plan to invest in a foreign country, they are faced with two major strategic decisions. The first one refers to the question, whether the investment should be made from scratch (Greenfield) or whether an already existent entity should be acquired. The second decision deals with the matter of ownership, namely whether the entrant firm should establish a wholly owned subsidiary (WOS), or an entity with shared ownership in cooperation with a local partner (JV) (Dikova & Witteloostuijn, 2007). In this paper, we will concentrate on the second decision, also known as the ‘entry mode decision’ and how TMT experience diversity influence this decision.

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All the investigated factors mainly refer to the transaction cost theory and link it, to e.g. country-specific impacts such as culture or institutions. Findings have revealed that the characteristics of the context in which a company operates, significantly influence a firm’s foreign market entry strategy (Hoskisson et al., 2000 & Tsui, 2004).

One of these characteristics refers for example to a host country’s institutions. At the beginning, institutions were only treated as background or side conditions, but Ingram and Silverman (2002) found out that this factor directly influences a firm’s market entry strategy.

Moreover, although it is traditionally assumed that strategic choices are only based on rationality, micro-level components of decision maker’s backgrounds and demographic experiences were researched to additionally have a crucial impact on strategic decisions (Cannella et. al., 2008). This goes along with the papers of Brouthers & Hennart (2007) & Dikova & Brouthers (2009), which state that instead of only focusing on the overall organizational decision making, the importance of individual managerial decision making should actually receive more attention.

Since it is not the organization itself, which is making the entry mode decision, but individual decision maker within the TMT, the upper echelons theory of Hambrick & Mason (1984) gained more and more relevance regarding the entry mode choice investigation. This approach suggests that characteristics like backgrounds and experiences crucially influence the strategic decisions top managers make. It further argues that strategic decisions of an organization strongly reflect the values and cognitive modes of its main actors with the necessary degree of power. This is additionally confirmed by the study of Carpenter & Fredrickson (2001), who found that the impact of the TMT on the organization is largely linked to be a result of their life experiences, as represented in their demographic characteristics.

The upper echelons theory is the fundament of our paper, however we will not only replicate it, but employ it in order to examine an increasing factor in top management teams, namely experience diversity. Due to increasing globalization, it is likely to assume that also Top Management Teams face an increasing diversity of different values, norms and beliefs that have their roots in the demographic experiences of their members.

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(1992) & Sambharya (1996) find that organizational tenure, international experience and nationality crucially influence the strategic decision making of a firm.

So far, there are no studies that clearly separate these two types of experiences from each other and investigate them with reference to the entry mode choice for an emerging country. Nevertheless, the field of experiences is not unexplored, since for example Herrmann & Datta (2006) have provided valuable insight concerning the CEO experiences and their effects on the FDI entry mode choice. Their findings show that CEOs with less firm experience would rather choose a WOS instead of a JV, which also counts for CEOs with international experience. They found out that CEO’s backgrounds and experiences are massive indicators of their knowledge domains and mindsets, which in turn crucially influence strategic decisions, as also suggested by the upper echelons theory.

In their future research suggestions, they call for further work on this topic but 1) in another setting and 2) with focus on entire top management teams or boards. We will extend their research regarding both suggestions, as instead of focusing on US-firms only, we will specifically concentrate on the entry mode choice of European developed-country firms for emerging economies. Furthermore, we will consider the demographic experiences of all directors on board, including all executive directors and the CEO, since also the work of Westphal & Fredrickson (2001) underlines that the board of directors has a significant influence on strategic decision making. Another distinction of our study is the explicit focus on experience diversity within the team. We want to find out, what really matters for the strategic decision making, work-related experience like international work experience and organizational tenure, or personal-related experiences, such as nationality.

Finally, we will also investigate a possible moderating effect of organizational tenure on the two other main relationships between International work experience heterogeneity, nationality heterogeneity and the entry mode choice.

Based on these arguments, our research question is, how does the diversity of experiences with

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Within our hypothesis development, we will investigate each experience variable with respect to heterogeneity, since our aim is to understand how an increasing diversity of these experience factors will affect the firm’s entry mode choice for an emerging country.

We assume that all three types of experiences provide managers with a certain set of values, norms, beliefs and confidences, which in turn influence the cognitive modes and thus also the entry mode choice. In addition, we argue that all independent variables are beneficial in terms of broad international networks and contacts of the board members, which possibly might reduce uncertainty in terms of cultural differences in the target country.

2.0 Literature Review

2.1 Entry Mode Choices in Emerging Economies

According to Root (1987), an entry mode is defined as an institutional arrangement, which allows a firm’s entry of technology, products, human capital and further resources into a foreign country. This view was extended by Gatington & Anderson (1988), who state that a foreign entry mode could also be seen as a governance structure that enable companies to exercise control over their operations in a foreign country.

According to Herrmann & Datta (2006), entry mode choices in foreign environments mainly depend on 3 factors, namely 1) level of control over foreign operation, 2) risk exposure and 3) resource commitment. In our hypothesis development, we will especially focus on risk exposure and resource commitment and their perception by the TMT.

As previously explained, it can be distinguished between an establishment and entry mode choice regarding this matter. Whereas the establishment mode choice refers to the decision whether to build up a foreign operation from scratch (Greenfield) or to acquire an existing firm (acquisition), the entry mode choice is linked to the question whether to establish a wholly owned subsidiary (WOS) or to choose a shared ownership structure (Joint Venture).

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On the other side, a JV does not provide the maximum of control over the entity, but reduces commitments and risks. For instance, a JV project can reduce political risks for the investing firm, as the local firm can be helpful to mitigate the negative impacts of political risk. In case of high nationalist fervor in the host country, the local partner can crucially reduce the governmental and societal hostility against the entering firm (Phatak, 1997). Furthermore, flexibility is much higher in a JV, since they can be easily dissolved, allowing MNEs to stop cooperating and disinvest in unfavorable situations (Gatignon & Anderson, 1988). Concerning the level of resource commitment, Erramilli & Rao (1993) rate the Joint Venture solution only as “moderate”, whereas the WOS receive a “very high” on their scale.

Regardless the type of target country, entry mode choices have always been associated with several theories of internationalization. Following these theories, an entry mode choice depends on different factors.

Starting with the transaction-cost factors, this theory considers and assumes an opportunistic and self-interest behavior of the involved firms in case of a market expansion into a foreign country. After Williamson (1975), a firm will choose the entry mode strategy, which promises the lowest transaction and production costs possible. These costs are mainly linked to firms exchanging assets and their specificity, but also knowledge transfer. Thus, the higher the specificity of assets and the more explicit the knowledge involved in a transaction between two parties and countries, the higher the transaction costs of this project. However, also differences in culture, language and business practices can let these transaction costs increase, since they would for example complicate the knowledge transfer between two parties in terms of communication problems.

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reference to the decision between a WOS or a JV, Meyer (2001) underlines that the need for a local partner and its resources declines with the increasing functionality of institutions, as they reduce the need to rely on relationships and networks of a local partner firm in daily business (Oxley, 1997 & Meyer, 2001). Based on these arguments, Meyer et al. (2008) suggest that the stronger the market-supporting institutions in an emerging country are, the less likely a JV as an entry mode is chosen.

To conclude, the market- environmental perspective suggests to evaluate the general differences between home and host country, in order to determine whether a local support (JV) is needed to overcome these dissimilarities or not.

A third theory regarding the entry mode decision in emerging countries has its origin in the resource-based view. This theory suggests that a firm’s resources in terms of assets and capabilities are the key driver of its business strategy. Thus, this approach clearly assumes a WOS to be the entry mode, since a shared ownership structure would not guarantee the exploitation and usage of own resources (Grant, 1991). Therefore, the resource-based view stays in critical contrast to the transaction cost view and market-environment perspective, since these two approaches do not choose a certain entry mode strategy as default.

Next to transaction costs, environments and resources, also technological intensity of entrants was found to influence the entry mode decision in emerging countries. According to Hennart (2000), the competitive advantages of technological intensive companies are highly embedded in their organizational processes and labor force skills. Therefore, the most appropriate way to transfer them into another location is by establishing a new subsidiary in form of a greenfield project and train local labor accordingly, which we would consider as a WOS. Moreover, Hennart (1991) found out that entrant firms with advanced proprietary technologies would rather choose a wholly owned subsidiary than a shared ownership solution, because the risk of opportunistic behavior of the partner firm is high, especially in emerging countries where institutional frameworks are weak regarding the protection of property rights. Oxley (1999) correspondingly states that in corrupt countries with low (intellectual) property protection, the ability of firms to transfer valuable intellectual property will be reduced.

2.2 Demographic Experiences and the Entry Mode Choice

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echelons theory by Hambrick & Mason (1984). This approach says that strategic decisions of managers are influenced by their personal demographic experiences, linked to values, norms and beliefs. In fact, these characteristic factors crucially influence the interpretation of certain situations, which in turn have an impact on the strategic direction that is selected. In total, we will investigate three aspects that are said to influence cognitive modes of people, as they are linked to individual experiences. These factors are international work experience, organizational tenure and nationality.

Starting with organizational tenure, which is defined as the length of employment within an organization (Steffens et al., 2014), Finkelstein & Hambrick (1996) investigated to which extend the firm tenure of executives affect organizational outcomes in terms of strategic persistence, performance conformity and strategic conformity. Their result underlines how different organizational outcomes are with different levels of firm experience of TMT members, since short-tenured managers differ crucially from the long-tenured in their attitude towards risk and resource commitment.

International work experience is defined as any official international work and assignment experience outside the country, where an individual was born (Nielsen, 2009). Athanasiou & Nigh (2002) find that international career experience has a crucial influence on firm internationalization. In their study, a sample of 39 US-based MNC’s was investigated and the relation between the internationalization extend of the firm and the international work experience of the CEO was examined. Results show that there is a positive relationship between the international experience of a decision maker and the extend of the firm’s internationalization. Moreover, the scholar of Peng et al. (2015) reveals a positive relationship between CEO international work experience and an increase in compensation. This makes it likely to assume that the voices of managers with international experience are highly respected and recognized by the organization.

Finally, nationality is said to be influential regarding entry mode choices as well. Following the argumentation of Nielsen (2009), values that have their roots in managers nationality, influence the way how strategic decisions are made. This goes along with the finding of Schwenk (1988), who says that cognitive modes are mainly determined by a person’s background and experiences. Building up on this, Prahalad & Bettis (1986) argue that these cognitive schemas determine the strategy, which is used for resource allocation and control over foreign business activities.

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Hoffman & Maier (1961) researched that in general, group heterogeneity is positively related to problem solving-propensity, cognitive resources and a greater number of generated alternatives and solutions. Furthermore, Katz (1982) argues that team heterogeneity with respect to their demographic characteristics would facilitate the adaption of a firm to an unknown foreign environment.

Herein, we examine the relationship between the heterogeneity in terms of international work experience, nationality and organizational tenure of the TMT and the entry mode choice between a WOS or a JV for an emerging economy. Moreover, the role of tenure heterogeneity and its moderating effect on the other two main relationships is further examined.

We will now continue with the hypotheses development, which will be tested at the end of our work.

3.0 Research Hypotheses

3.1 International Work Experience Heterogeneity

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help to reduce the psychic distance regarding differences is languages, legislation and culture, which are often a major problem within the FDI process of a firm.

All these benefits of having work experience in a foreign country, would additionally reduce the transaction costs linked to an investment in an emerging country, since the adaption process of the firm would be less time consuming. At the same time, they reduce uncertainties regarding the foreign and unknown host country environment, where the entrant firm plans to invest. Thus, it can be assumed that due to the previously explained positive impacts of international work experience on cognitive modes, the need to rely on the knowledge of local partner tends to decrease in case of an internationally experienced TMT, which would make a WOS the preferred entry mode strategy.

As explained before, this experience factor also leads to a greater confidence of managers to handle foreign business operations (Tung & Miller, 1990). Schwenk (1988) also claimed this confidence to play an important role with respect to certain biases. One of these biases is the illusion of control, which could lead to an overestimation of control over certain outcomes. This in turn could additionally make executives rather choose a more risky and costly FDI mode, such as a WOS instead of a shared investment with a local partner.

On the other side, team members who did not work in a foreign country, will differ in terms of their cognitive developments and are more likely to choose a more secure solution, such as a JV. However, as the internationally experienced managers are obviously more capable and experienced in dealing with foreign cultures and uncertainties (Carpenter et al., 2001 & Sambharya, 1996), we assume that their voice and power regarding FDI decisions is likely to be more respected and recognized than the preferences of managers without international experience. One indication for this assumption could be the finding by Peng et al. (2015), which shows a positive relationship between CEO international assignment experience and the increase in compensation.

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As a recap, we can conclude that international work experience positively influences the cognitive modes of managers in terms of mindset, knowledge and estimation competences. All these factors would decrease the need for local support in the target country and thus, make a WOS the more likely chosen entry mode. In addition, we expect the voice of internationally experienced TMT members to be more powerful concerning entry mode decisions than the opinion of managers who have not been working abroad.

Moreover, as the heterogeneity literature states that in situations with high turbulences and uncertainties, a diverse TMT is more suitable, we assume that this also leads to the choice of a WOS instead of a Joint Venture, since being fully responsible for the subsidiary without a local partner would be linked to more risks, which increases uncertainties and turbulences. However, as mentioned before, a heterogeneous TMT is more efficient is such situations than a homogenous one. Based on these arguments, we set up our first hypothesis.

H1) A TMT with a high degree of international work experience heterogeneity would rather choose a wholly owned subsidiary as an entry mode than a Joint Venture in an emerging economy.

3.2 Nationality Heterogeneity

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respect to generated alternatives regarding a certain problem. Managers would simply not consider a broader range of issues and alternatives in case of less or no cognitive conflicts at all. These findings go along with the ones from Hoffmann & Maier (1961), who suggest that diversification within groups generally increases problem solving propensity, perspective gathering and cognitive resources.

Having said that a diverse nationality TMT is beneficial for alternatives gathering, another crucial point should be considered, which are the cultural dimensions of Hofstede (1980). According to him, nationalities and cultures can be clustered in certain groups, which have the same attitudes towards factors like uncertainty avoidance or power distance for instance. Agarwal & Ramaswami (1992) found that significant cultural distances between home and host country would make MNE’s rather chose a JV as an entry mode, as it provides more local support and thus reduces uncertainty. Taking Hofstedes’ dimensions into account, a higher diversity of nationalities within the TMT would increase the probability that at least one board members’ cultural background is similar to the one of the target country. This could refer to overall business practices and market structures, but also values and norms, which in turn would additionally lead to a decrease in transaction costs and environmental difficulties. Therefore, the need for a local partner would not be high, since the required knowledge and insights about the host country are already in possession.

Based on this line of argumentation, we form our second hypothesis.

H2) A TMT with a high degree of nationality heterogeneity would rather choose a wholly owned subsidiary as an entry mode than a Joint Venture in an emerging economy.

3.3 Organizational Tenure Heterogeneity

This variable has been studied in several ways, such as tenure in the industry, organization or position (Finkelstein et al., 2009). In our study, we will have the focus on the organizational tenure heterogeneity of TMT members, which refers to the years, managers work in the organization. This factor was selected, as it represents a crucial component of executive’s commitment and knowledge base, which in turn have an important impact on the internationalization strategy of a company (Athanassious & Nigh, 1999).

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limit their information processing (Katz, 1982). Moreover, according to Thomas et al. (1991), executives with a high degree of organizational tenure often concentrate on already existing markets rather than new ones. In addition, they focus more on internal improvements in the organization, rather than on external market expansions. Empirical evidence for this argumentation also comes from Thomas et al. (1991), who linked executives with longer organizational tenure to ‘defender’ rather than ‘prospector’ strategies and approaches. Possible reasons for this conservative behavior towards changes could lie in the decreasing interest in their jobs, or also in the raised power to be able to avoid suggestions for change (Hambrick & Fukutomi, 1991). These findings fit to the ones from Simsek et al. (2005), who state that managers with a long tenure are often conservative and old-fashioned.

This phenomenon is greatly described by Finkelstein & Hambrick (1990, p.488), who state: ‘Executives with short tenures have fresh, diverse information and are willing to take risks, often departing widely from industry conventions. As tenure increases, perceptions become very restricted and risk taking is avoided. The lowest-risk thing to do is follow the general tendency of mainstream competitors.’

Based on the previous described arguments, we assume that if the TMT has a high degree of tenure diversity among the members, preferences for strategic choices will differ crucially. The short-tenured members will more likely favor a WOS as an entry mode choice in an emerging market, whereas long-tenured team members will rather choose a JV, which is the less risky option, as it does not require as high commitments and investments as a WOS (Erramilli & Rao, 1993).

Let us now have again a closer look at the heterogeneity of this factor within the TMT. If TMT’s consists of members that have different tenures and thus also made distinct experiences, different perspectives and views are generated. On the one hand, the short-tenured members will favor risky and innovate strategies, whereas the old-tenured managers are more prone to the status quo. This fits to the finding of Wiersema & Bantel (1992), who state that team tenure diversity leads to a greater diversity of opinions and approaches, which in turn encourage consideration of innovation and thus also challenge the status quo. Thus, it could be assumed that due to the old-tenured members, existing processes within the organization will remain stable, but on the other hand, new markets tend to be explored due to the openness and motivation of the short-tenured managers.

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beliefs. These sets are crucially shaped by manager’s experiences, made during their organizational tenures. We would consider a market entry in an emerging country as a complicated and challenging project, which in turn requires a high degree of heterogeneity within the TMT in order to operate as efficient as possible, following the argumentation of Bantel & Jackson (1989).

Therefore, we assume that a diverse tenure structure of the TMT would more likely favor a WOS instead of a JV as an entry mode choice in an emerging country. If the TMT would be homogenous with respect to organizational tenure, less diversified perspectives and opinions would be discussed, which would result in less solutions and alternatives. This range of different alternatives would probably overestimate the cultural and institutional differences linked to the entry mode choice in an emerging country, which in turn makes a JV the most likely entry mode, as it is not linked to as much risk potential as a WOS. Another aspect that should be considered are the different external networks that arise with different organizational tenures (Smith et al., 1994). It could be assumed that a broader and more diversified network of managers would make it more likely that a suitable contact is located in the target country, which could help to overcome cultural differences and makes a cooperation with another local company not necessary. Again, this helps to reduce transaction costs and environmental adaption problems. All these arguments lead us to the third hypothesis.

H3) A TMT with a high degree of organizational tenure heterogeneity would rather choose a wholly owned subsidiary as an entry mode than a Joint Venture in an emerging economy.

3.4 Moderating Effect of Organizational Tenure Heterogeneity

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tenure heterogeneity in the TMT is also linked to a higher willingness to take risks, since the stability of internal processes is ensured by older-tenured managers, which in turn makes younger-tenured managers more open for risky decisions, such as an WOS. Therefore, we further propose:

H4) Organizational tenure heterogeneity within the TMT reinforces the relationship between international experience heterogeneity and the choice of a WOS in an emerging economy.

We state that nationality heterogeneity within the TMT reduces uncertainties in the host country, because the probability of having a board member with a similar cultural background as the target country is higher in TMT’s with diverse nationalities. In addition, we argue that tenure heterogeneity provides a broader and more diversified global network to the organization (Smith et al., 1994), which again makes it more likely that there is a suitable contact in the host country, who could help to overcome cultural differences and makes a JV not necessary. Therefore, we form the following final hypothesis.

H5) Organizational tenure heterogeneity within the TMT reinforces the relationship between nationality heterogeneity and the choice of a WOS in an emerging economy.

All in all, the previously developed hypotheses can be also expressed in the following conceptual model (Figure 1).

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4.0 Methodology

4.1 Sample and Data

In order to test our hypotheses, we make use of a quantitative research approach, which is based on data from Zephyr, Orbis and Boardex.

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defined a sample size of 40 as a minimum, which we clearly exceed with total 89 TMTs that have been investigated. In total, from these 89 deals, 37 were Joint ventures and 52 wholly owned subsidiaries. It should be noted that sometimes, firms were involved in several M&A deals within the same year. As an emerging market categorization, we make use of the recently renewed ‘MSCI Emerging Market Index’ (2019) by Morgan Stanley Capital International, an organization that classifies 24 countries as emerging economies. In our data collection, we therefore only considered target countries that fall into these categorizations.

5.0 Measures

5.1 Dependent Variable

The dependent variables in our work are represented by the two different entry mode strategies, namely a wholly owned subsidiary and a Joint Venture. A wholly owned subsidiary was represented by a 100 % acquisition of another firm on Zephyr. Consistent with previous literature, a Joint Venture was defined as a completely new entity that was set up by pooling assets of two or more companies. However, in the generated results, we also considered partial acquisitions and treated them as Joint Ventures, since the main interest of our study is to investigate the different entry modes with respect to whether it would consist of a shared ownership or not. Thus, no distinctions were made between newly set up Joint Ventures or partial acquisitions, similar to the study of Chang & Rosenzweig (2001).

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5.2 Independent Variables

Our three independent variables are represented by the TMT international work experience heterogeneity, organizational tenure heterogeneity and nationality diversity. For the data collection regarding the board members’ demographic characteristics, we made use of the databank Boardex, which provides information about most of the board members previous work stations, nationalities and organizational tenures. For the organizational tenure heterogeneity, we used the coefficient of variation as a measurement approach, which has been widely employed by previous scholars in this field of study (e.g. Wiersema & Bantel, 1992 & Carpenter et al., 2001). In other words, this index equals the standard deviation divided by the mean. According to Allison (1999), this type of measurement is the most suitable one for interval-level variables. On the other hand, the TMT nationality heterogeneity and international work experience was measured by the Blau Index, which is expressed as 𝐵𝐵 = {1 − ∑( 𝑝𝑝𝑖𝑖 )2}, where

𝑝𝑝𝑖𝑖 is the percentage of members in group 𝑖𝑖 . Thus, the higher the value for B is, the larger is the

heterogeneity of the independent variable within the TMT. The international experience was expressed by a dummy variable and thus takes a ‘1’ if the manager has work experience in more than his home country, and a ‘0’ if not.

5.3 Control Variables

Based on several prior studies regarding entry mode choices, we will incorporate firm’s size, amount of previous WOS, amount of previous JV, cultural distance and year dummies as control variables in our study (e.g. Herrmann & Datta, 2006).

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Singh Index (1988), which is based on four cultural dimensions from Hofstede (1980) that distinct from culture to culture. The data for these dimensions were collected on the official website of Geert Hofstede.

6.0 Data Analysis and Results

In order to test our research model, we make use of the binomial logistic regression analysis. This method was already employed within studies of Dikova & Witteloostuijn (2007) and Hermann & Datta (2006) and thus seems to be suitable for research questions that have a focus on entry mode choices. In addition, we are confronted with a binary dependent variable, as they can either take the value of ‘1’ for a WOS or a ‘0’ for a JV, which further argues for a binomial logistic regression analysis. In our analysis, the regression coefficients estimate the influence of the independent and control variables on the choice of a wholly owned subsidiary as an entry mode in an emerging country (carries the value of 1). Therefore, our model consists of the following equation, as also used in the work of Dikova & Witteloostuijn (2007) (See Formula 1).

Formula 1

P(Y) = (1/ 1 + e-Z_{) P}

In this formula, the dependent variable is expressed as Y, whereas Z is the linear combination of the independent and control variables. Thus, Z equals following equation (See Formula 2).

Formula 2

Z = β 0 + β 1 X 1 + β 2 X 2 + …. β n X n

Here, β represents the intercept, whereas β 1 until β n indicate the regression coefficients.

Moreover, X 1 until X n are the independent and control variables.

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coefficient is shown in the column “coefficient”, which provides valuable information about the probability that the concerned independent variable has an impact on the choice of a wholly owned subsidiary. In case of a positive coefficient value, the variable increases the probability of choosing a WOS, whereas a negative figure would imply that the probability of choosing a WOS would decrease with reference to the independent variable.

However, before starting with the regression, a Pearson Correlation Matrix is generated, including all independent, control, moderating and dependent variables. The reason for this approach is to test for correlations and if required to correct for any multicollinearity. As it can be seen in Table one, the matrix starts with the dependent variable, followed by the independent variables and finally the control and moderating variables. In addition, we provide the standard deviation and means of each variable.

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In order to test the null hypothesis and that all coefficients (βn) except of β0 are zero, we also

inspected the overall Wald Chi value and its significance level, as shown in our binomial logistic regression results as well (Table 3). If this value is significant, we can reject the null hypothesis. Whereas the models one, two, four and six represent significant values, models three, five and seven have no significant results. Therefore, we conclude that the null hypothesis can be rejected for all models except of three, five and seven.

Regarding the outcomes of our binomial logistic regression, we can conclude following results with reference to our previously developed hypothesis.

Whereas Model one shows a positive relationship between the control variables firm size, cultural distance and previous WOS and the choice of a WOS, it also indicates a negative correlation between previous JV and the choice of a WOS. The outcomes for previous WOS and previous JV and their impact on the entry mode choice decision cover the findings of Nadolska & Barkema (2007), who state that it is very likely that firms choose FDI modes which has been previously chosen in past projects. Since in our analysis, the amount of previous WOS positively influences the choice of an WOS, we can confirm this finding. The same counts for previous Joint Ventures, which stay in a negative relationship with the choice of an WOS in our analysis result. In other words, if the firm has chosen Joint Ventures in the past, it will favor this FDI type for an emerging country in the future as well. Moreover, the positive relationship between firm size and a WOS decision seems reasonable, as larger firms might have more resources and capabilities to set up WOS and handle cultural distances. The positive linkage between cultural distance and a WOS choice seems questionable, since it can be assumed that cultural distances can be better handled with support of a local partner. However, in our analysis the opposite is the case, which could be argued with the increasing cooperation difficulties with a local partner, due to a high cultural distance.

As the analysis in model two indicates, international work experience heterogeneity is positively linked to the choice of a WOS, which was already found in the Pearson’s correlation matrix (Table 1). This means that TMTs with a high international work experience diversity among their members, would prefer a WOS instead of a Joint Venture in an emerging economy. In addition, also the overall Chi-Square is highly significant in Model two (0,037**).

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negative correlation (-0,016). Therefore, we do not find any support for our second hypothesis, which says that boards with a high degree of nationality diversities would rather choose a WOS instead of a JV in an emerging country.

Furthermore, also the outcome for the third hypothesis (H3) is contradicting to our developed theory. The Pearson’s matrix reveals a negative correlation between tenure heterogeneity and the choice of a WOS. Moreover, our prediction is further proved wrong, since in the binomial logistic regression result, we find corresponding negative coefficients in model four and model seven as well (-0,465 & -0,853). As a final result, we therefore reject our third hypothesis as well, which says that organizational tenure heterogeneity within the TMT increases the probability that a WOS is chosen as an entry mode strategy in an emerging economy.

Regarding our predicted moderating effects, models five and seven reveal a positive impact of tenure heterogeneity on the relationship between TMT international experience heterogeneity and the choice of a WOS (0,3 & 3,764). This goes along with what we have predicted in our fourth hypothesis. However, the second reinforcing effect of tenure heterogeneity on the relationship between nationality heterogeneity and the choice of an WOS could not be supported in our model, since it reveals a negative linkage in the binomial logistic regression result (-0,464 & -2,796).

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26 M ean St d. D ev ia tion 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1. E nt ry m od e c ho ic e 0, 5506 0, 50026 2. In ter nat io nal E xp er ien ce Het er og en ei ty 0, 4221 0, 11894 0, 085 3. N at io nal ity H et er og en ei ty 0, 4536 0, 24282 -0, 016 -,300 ** 4. T en ur e H et er og en ei ty 1, 3030 0, 56355 -0, 166 0, 004 -0, 121 5. F irm s iz e 5, 0540 0, 35449 0, 015 0, 091 -0, 056 ,395 ** 6. C ul tu ral D ist an ce 0, 8578 0, 73742 0, 125 -0, 015 ,259 * -0, 067 -0, 076 7. P re vious W OS 4, 2697 4, 06974 0, 183 ,219 * -0, 063 -0, 144 0, 162 ,266 * 8. P rev io us JV 1, 7528 2, 27776 -0, 019 ,241 * -0, 107 0, 176 ,564 ** -0, 059 ,348 ** 9. Y ear 2010 0, 1348 0, 34348 -0, 040 0, 007 -0, 107 0, 190 0, 105 -,319 ** -0, 043 0, 116 10. Y ear 2012 0, 1461 0, 35517 0, 182 0, 100 0, 065 -0, 089 -0, 019 0, 065 -0, 114 0, 045 -0, 163 11. Y ear 2011 0, 1685 0, 37647 -0, 076 0, 096 0, 177 0, 003 0, 028 0, 039 -0, 201 0, 049 -0, 178 -0, 186 12. Y ear 2013 0, 1011 0, 30320 -0, 146 -0, 050 -0, 079 0, 013 -0, 030 -0, 087 -0, 032 -0, 079 -0, 132 -0, 139 -0, 151 13. Y ear 2014 0, 0449 0, 20835 0, 196 -0, 036 -0, 001 0, 007 0, 028 -0, 015 -0, 014 0, 024 -0, 086 -0, 090 -0, 098 -0, 073 14. Y ear 2015 0, 1236 0, 33098 -0, 072 -,232 * -0, 127 -0, 019 -0, 043 -0, 111 -0, 076 -0, 125 -0, 148 -0, 155 -0, 169 -0, 126 -0, 081 15. Y ear 2016 0, 0449 0, 20835 -,240 * 0, 074 0, 149 ,277 ** -0, 079 -0, 019 -0, 189 0, 000 -0, 086 -0, 090 -0, 098 -0, 073 -0, 047 -0, 081 16. Y ear 2017 0, 1573 0, 36615 0, 204 0, 073 -0, 166 -,242 * -0, 042 ,223 * ,520 ** 0, 006 -0, 171 -0, 179 -0, 195 -0, 145 -0, 094 -0, 162 -0, 094 17. Y ear 2018 0, 0787 0, 27072 -0, 072 -0, 062 0, 159 -0, 011 0, 036 ,222 * 0, 063 -0, 060 -0, 115 -0, 121 -0, 132 -0, 098 -0, 063 -0, 110 -0, 063 -0, 126 18 . TH by IE H 0, 5503 0, 29082 -0, 083 ,536 ** -,232 * ,821 ** ,392 ** -0, 070 -0, 023 ,290 ** 0, 162 -0, 026 0, 075 0, 002 -0, 027 -0, 132 ,286 ** -0, 165 -0, 093 19 . T Hb yNH 0, 5747 0, 35455 -0, 119 -,220 * ,757 ** ,484 ** ,247 * 0, 133 -0, 103 0, 083 0, 039 0, 012 0, 179 -0, 101 0, 015 -0, 061 ,243 * -,281 ** 0, 054 ,298 ** *. C or rel at io n i s si gn ifi can t at th e 0. 05 l ev el (2-tai led ). ** . C or rel at io n i s si gn ifi can t at th e 0. 01 l ev el (2-tai led ).

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27 Table 2: Collinearity Tolerance VIF International Experience Heterogeneity 0,699 1,431 Nationality Heterogeneity 0,638 1,569 Tenure Heterogeneity 0,628 1,592 Firm size 0,545 1,835 Cultural Distance 0,703 1,423 Previous WOS 0,478 2,091 Previous JV 0,529 1,890 Year 2010 0,409 2,442 Year 2011 0,344 2,907 Year 2012 0,414 2,414 Year 2013 0,546 1,831 Year 2014 0,707 1,414 Year 2015 0,500 2,001 Year 2016 0,470 2,126 Year 2018 0,606 1,650

Model Collinearity Statistics

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7.0 Conclusion & Discussion

The objective of our paper was to understand and investigate the impact of different diversities of experiences within the TMT on a strategic decision, namely which entry mode to choose for an emerging economy. As a fundament, we made use of the upper echelons theory, which provided crucial insights for our hypotheses development. We have chosen organizational tenure, nationality and international work experience heterogeneity as proxies for overall experience heterogeneity within the TMT. In total, we not find support for all of our hypotheses. As our investigated independent variables are all associated with a manager’s experiences, we are now able to refer the outcomes to the initial research question, how the individual experience diversities effect the entry mode choice of an European multinational.

First, we did not find support that heterogeneous international work experience within the TMT is linked to the choice of a more risk-intense entry more choice, namely a wholly owned subsidiary in an emerging economy. Thus, our finding does not supports the notion that work experience in a foreign country develops cognitive modes and provides confidence to make more risk-related decisions in terms of for example a WOS solution.

Second, we could not find support for our next hypothesis, which states that nationality heterogeneity within the TMT would increase the probability of choosing a WOS as an entry mode in an emerging economy. Whereas the Pearson’s Matrix reveal a negative correlation, also our binomial logistic analysis indicate a negative relationship between nationality heterogeneity and the choice of a WOS in an emerging economy. The argumentation, that the probability of having a board member with the same cultural background as the target country increases with a higher diversity of nationalities seems to be not strong enough for determining an entry mode choice.

This would also explain the rejection of our second moderation hypothesis (H5), stating that the relationship between the choice of a WOS and nationality heterogeneity in a TMT is reinforced by tenure heterogeneity of the members. The network argument, which we also used in this hypothesis appears to be not significant and strong enough in this case as well.

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room to explore new markets for the shorter tenured managers. This notion is not supported in all our analysis and results. Nevertheless, its reinforcing effect on the relationship between TMT international experience heterogeneity and the choice of a WOS is supported in our results, which again underlines the importance of international work experience of decision makers within an organization.

If we split these independent variables into two categories, we have work-related experiences on the one side and personal-related experience on the other side. Whereas organizational tenure and international work experience can be clearly defined as work-related experiences, nationality is assigned to the personal-related experience section, since it is fully independent from work. As previously described, we also did not find support for Hypothesis 1) and 4), which refer to international work experience heterogeneity and the moderating effect of organizational tenure heterogeneity on the relationship between international work experience heterogeneity and the choice of an WOS.

Unfortunately, due to our outcomes we are not able to clearly answer the question, which experience category is more relevant for the entry mode choice in an emerging country, since we 1) did not find any significant results and 2) both, personal-related experiences (nationality) and work-related experiences (organizational tenure heterogeneity) stay in a negative relationship towards the choice of a WOS.

Nevertheless, this paper has several limitations. First of all, we encountered an unexpected problem with data shortage, since our deal choice only consisted of Joint Ventures and acquisitions. Unfortunately, the amount of greenfield investments was not published in the database, we made use of. Moreover, we only had our focus on the manufacturing sector. Perhaps, including the wholesale or service sector would have generated a larger data set than 89 deals in total. Another possible reason for the small quantity of M&A deals within the manufacturing sector, could be the financial crisis in 2008, which might have had an impact on the especially small amount of deals in 2010 and 2011.

Another limitation is that people are further influenced by other aspects, we did not consider. After Hambrick & Mason (1984), managers’ characters are not only directed by their demographic experiences, but also by other factors that cannot be measures, as they are highly personal. In order to explore these additional aspects, a qualitative research approach might be more suitable than a quantitative one.

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experiences (nationality, gender, age) and 3 work-related experiences (tenure, international experience, functional experience). This would probably increase reliability and generalizability in this field of research.

Another great future research idea could be the investigation of firms, located in different sectors but also different locations, such as developing country firms, which would like to enter an emerging country.

All in all, although we could not find any support for our five hypotheses, we are confident that our outcomes are a great fundament for future research. In addition, it again underlines the importance of matching TMT experiences with the international business strategy of a firm. Regarding its managerial application it should be noted that a firm should take care of its board member’s experiences in the past, as it has a crucial impact on future decisions. This does not only refer to entry mode choice, but can be also applied to further strategic choices, where risks and uncertainties play an important role.

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Experience Diversity in Top Management Teams