Master Thesis
The internationalization of top management teams
and firm international diversification in European
multinational enterprises
Hongguang Li
S1752235
Study program:
International Business and Management
Faculty of Economics and Business
The internationalization of top management teams and firm
international diversification in European multinational enterprises
Abstract
The unprecedented trend of business internationalization is not only reflected in the scope of growing businesses, but also in the internationalization of the top management teams. This paper examines the relationship between the internationalization of top management team and firm international diversification in European multinational enterprises and finds there is a positive relationship between the internationalization of top management team and firm international diversification in European multinational enterprises. Specifically, both the national diversity and foreign experiences of top management team are associated with firm international diversification. The contributions of this paper can be summarized as following: first, this study comprehensively and systematically examine the internationalization of top management teams, and find both of the two elements of internationalization are related to the firm international diversification. Second, this research is based on the environment of European multinational enterprises, on which previous researches rarely focused. The results suggest that the relationship between the internationalization of top management teams and firm international diversification exist in European multinational enterprises.
Table of contents
Section 1: Introduction 1.1 Research background………..4 1.2 Problem indication………..6 1.3 Research questions………..9 1.4 Paper structure………10Section 2: Literature review 2.1 Introduction....………... 12
2.2 TMT and organizational outcomes………12
2.3 Comparative studies on TMT in different countries………. 15
2.4 Demography characteristics of TMT and firm international diversification…… 15
2.5 The internationalization of TMT and its function………. 17
2.6 Conclusions………19
Section 3: Hypotheses 3.1 Introduction………20
3.2 National diversity of TMT and firm international diversification……….20
3.3 Foreign experience of TMT and firm international diversification………...21
Section 4: Data and methodology 4.1 Introduction………23
4.2 Sample and data……….23
4.3 Variables and statistical method………..…...26
Section 5: Results 5.1 Introduction………29
5.2 Descriptive data analysis………29
5.3 Results of hypotheses testing……….30
Section 6: Conclusions 6.1 Introduction………....41
6.2 Discussions………41
6.3 Limitations and further research………44
Section 1: Introduction
1.1. Research background
With the prosperity of global markets, the escalation of international competition, the economic integration of national states, and the development of science and
technology, the trend of globalization in the enterprise management has become increasingly obvious in the last two decades. The unprecedented trend of business internationalization is not only reflected in the scope of growing businesses, but also in the internationalization of the top management teams. Research based on the top management teams to explore the relationship between the top management teams and firm strategic change and firm performance has become one of the most popular directions in management field.
The ‘upper echelon perspective’ is one of the pioneer and classic theories in this field. This theory, first assumed by Hambrick and Mason in 1984, indicates that there is a close relationship between the top management teams and organizational outcomes of strategic choices and firm performance levels. They argue that organizational
outcomes of strategic choices, such as product innovation, diversification and acquisition strategies, as well as organizational performance are strongly influenced by the views, backgrounds and experience of top management teams. (Heijltjes et al., 2003) Since then, scholars began to pay more attention to the top management team issues. Now it is commonly considered that the function of the top management teams mainly lies in two aspects. The first one is to develop the corporate strategic
Goodstein et al., 1994) The other aspect concerns the management of the day-to-day operations, including managing the company’s production operations, sales, product promotion, customers and etc. Executives in the top management teams shift
corporation strategy into daily operations, reduce costs through the integration and reasonable use of resources in order to achieve goals and gain a higher performance. (Carson et al., 2004) Based on these arguments, many empirical investigations have been carried on to explore the relationship between demography characteristics
(functional background, educational background, team tenure, age, nationality, gender and so on) of the top management teams and firm performance. (Goll et al., 2001; Hmieleski and Ensley, 2005:2007; Ferrier and Lyon, 2004; Godthelp and Glunk, 2003; Carson et al., 2004; Simeon, 2001; Herrmann and Datta, 2005; Carpenter, 2002;
Wally and Becerra, 2001)
Despite the relationship between the top management teams and firm performance has been widely discussed by the experts and scholars, there are still not enough empirical studies focusing on that of the internationalization of top management teams and the internationalization of Multinational Enterprises (MNEs) at the same time. Although there are some empirical investigations which tend to focus on the relationship between the characteristics (functional background, educational background, team tenure, age, gender and so on) of top managements and firms’ internationalization, (Sambharya, 1996; Reuber and Fischer, 1997; Athanassious and Nigh, 2000;
Herrmann and Datta, 2005) or the internationalization of top management teams and firm performance, (Thomas, 2005) studies on the relationship between the
internationalization of top management teams and firms’ internationalization at the same time still have not gained due attention (Heijltjes et al, 2003). Therefore, this has become an interesting subject for top management studies. In addition, the existing studies on top management team issue are based mainly on American
geographical constraints became a major barrier to capitalist development. Since the 18th century, European countries began external expansion and entered overseas markets. Therefore the internationalization of the European countries has a longer history. Besides, the European market is also more experienced in global
manufacturing and distribution. (Yang, 2002) How international top management teams run these European multinational enterprises would be an intriguing question and this paper will try to answer it.
1.2. Problem indication
Along with the process of economic globalization, it has become increasingly difficult for a local market to satisfy the needs of large companies. More and more companies began to serve foreign markets, set up subsidiaries in foreign countries, build up joint-venture or wholly-owned overseas production facilities, employ foreign workforce and so on, thus forming a number of multinational enterprises (MNEs). The internationalization processes of MNEs are not only reflected in increasing international diversification, the international level of top management teams in these MNEs has also been continuously deepened. So it is quite interesting to explore to what extent these multinational enterprises run by international top management teams, and what is the relationship between the internationalization of top management teams and firms’ international diversification.
From the theoretical aspect, the internationalization of top management teams and firm international diversification is a two-way interactive process. The
firm’s degree of internationalization reflects its dependence on foreign markets for customers and factors of production, and the geographical dispersion of this
dependence, (Sullivan, 1994) shows that the corporations will face more diversified customers, diversified cultures, more competitors, complicated administrative rules and regulations and so on. (Sanders and Carpenter, 1998) Empirical studies show that the internationalization of top management teams and firm international
diversification promote each other.
On the one hand, as the degree of firm internationalization increases continuously, the macro- and micro- environment of enterprises become more complex. As mentioned before, greater diversification of cultures, costumers, competitors and regulations makes a great amount of information for executives to process. From the information process theory, the more information that needs to be processed, the more
requirements for the information-processing capability of top management teams is needed, which also applies to enterprises development. Michel and Hambrick (1992) have examined the firm international diversification and the characteristics of top management teams. They argue that the higher firm diversification, the greater need to integrate across diversity business units, and this in turn influences the composition of top management team. They also found that those top management teamsthat have more experience to face such kind of complex situations couldhave a good economic performance. In addition, when the companies’ strategy is to be more diversified, it also needs the executives to have matched capabilities. (Marlin et al., 2004; Pitts, 1977; Song, 1982) This means when the companies are active in more countries and employ more foreign workforce, the demand for the integration of various business units will become higher and higher, which requires senior managers to have appropriate treatment for international problems. (Athanassiou and Nigh, 1999) In other words, companies need to have more international executives to run them better, because if the executives have worked or studied abroad before, they are more
be more willing to employ the managers with international experience. (Heijltjes et al., 2003)
On the other hand, the internationalized top management teams also influence the firm international level. Reuber and Fischer (1997) have examined the international experience of top management teams and firm internationalization of Canadian software firms. They state that the foreign experience of executives will affect the decision-making process and firm strategy. Because of the rich international experience, they are more willing to have overseas investment and productive
activities. This means they will not only use cheap global resources to reduce cost, but also sell their productions to more areas to obtain more profits. Such kinds of
behaviors are associated with a higher degree of firm internationalization. Some scholars indicate that expatriate managers are kind of long-term competitive advantage for companies, (Downes and Thomas, 2005); they do not only use the experience by themselves, but also share them with other executive members through the assimilation and institutionalization of learning. Athanassious and Nigh (1999) have found that these kinds of international business experience sharing and learning become more extensive, thus affecting the level of firm international diversification.
1.3. Research questions
This study tends to analyze the relationship between the internationalization of top management teams and firm international diversification in European multinational enterprises. The main research question is as follows:
“Is there a relationship between the internationalization of top management teams and firms’ international diversification in European multinational enterprises?”
There are several ways to measure the internationalization of top management teams. The most popular and dominant way concerns the nationality diversity of top
management teams and international experience of top management teams. The nationality diversity of top management teams usually can be measured by the percentage of foreign members in top management teams. The paper written by Heijltjes et al. (2003) is the first attempt to analyze to what extent multinational companies are run by multinational top management teams. The authors examined the extent of national diversity of top management teams in the two highly
internationalized European countries, Sweden and the Netherlands, from 1990 to 1999. The results in this paper indicate that the percentage of foreign members in the top management teams, the percentage of foreign sales, and the number of foreign subsidiaries have increased in these two countries. My paper will follow this idea to test whether a higher percentage of foreign members in the top management team is associated witha higher firm international diversification.
experience is a very important factor to estimate the internationalization of top management teams. The international experience can be defined as those experience that people gained during their work or study abroad. Similar measurement can be found in many researches. They all illustrate that foreign experience of top
management teams have a strong influence on firm performance or firm international diversification. (Reuber and Fischer, 1997; Athanassiou and Nigh, 1999; Downes and Thomas, 2005; Carson et al., 2004; Lee and Park, 2006) In this case, I add the foreign experience of top management team members into my research, which gives a whole picture of the internationalization of top management teams.
Therefore, the next two sub-questions are formulated:
“Is higher percentage of foreign members in the top management teams associated with a higher firms’ international diversification in European multinational
corporations?”
“Is higher level of international experience in the top management teams associated with a higher firms’ international diversification in European multinational
corporations?”
1.4. Paper structure
analysis. The discussion of these results is given in the next section (6). Besides this, I will conclude with the limitations of this study and give suggestions to further
Section 2: Literature Review
2.1 Introduction
This section will introduce the main literatures in the research field of the top management teams, and categorize them into four directions. The first group explores the relationship between the top management teams and organizational outcomes; the second direction is the comparative studies that examine the characteristics of the top management teams in different countries; the following part of the literatures focus on international characteristics of the firm in relation to demographic variables in a country; the last direction will introduce the internationalization of top management teams themselves and its function. The aims of this section are to show a whole picture of the researches focusing on the top management teams, and try to find out the insufficient points of existing literatures in order to put the value of my research to the existing empirical studies.
2.2 Top management teams and organizational outcomes
The core idea of ‘upper echelon perspective’ assumed by Hambrick and Mason (1984) is that personal characteristics (for example, gender, age, educational level, functional background, tenure, and so on) will influence the attitudes and performance of members as well as causing team dynamic in order to affect on the decision-making process, and finally influence the firm performance. (Heijltjes et al., 2003) Therefore, there are two flows in this research area. The first one focuses on the relationship between the top management team characteristics and firm strategic decision-making process; (Cho and Hambrick, 2006; Papadakis and Barwise, 2002; Nath and Mahajan, 2008; Smith et al., 2006; Wright et al., 2005; Greve and Mitsuhashi, 2007; Yokota and Mitsuhashi, 2008) the second flow examines the demography characteristics of the top management teams and firm performance.
characteristics and experience of executives will influence the decision-making process and the outcomes. (Greve and Mitsuhashi, 2007; Smith et al., 2006) In the research by Papadakis and Barwise (2002), CEO and the top management teams were separated into two groups in order to study the influences of characteristics for each group to the decision-making process. The results showed that both the CEO and the top management teams’ characteristics have an impact on the decision-making process; however, the influences of the top management teams are stronger than that of CEO. At the same time, CEO and the top management teams influence different dimensions of decision-making process. Cho and Hambrick (2006) also found the similar results. Their research was based on the changing trend of the external macro environment for companies. They believed that such changing was a challenge, but also an opportunity for companies to adjust the composition and compensation of the top management teams. Corporate strategy can be changed through the changing of the top management teams to improve firm performance. This research also illustrated that top management teams play an important role in decision-making process. Another research also focused on the changes of the top management teams and corporate strategy. (Yokota and Mitsuhashi, 2008) This research used two ways to measure the change of the top management teams--the change of the top management teams’ size and demographic heterogeneity. By analyzing the data of Japanese textile industry, they found that when the characteristics of the top management teams changed, the corporate strategy would change as well.
a positive relationship with the firm performance. Another article written by Carson et
al., (2004) argued that the workforce diversity in multinational enterprises would
cause the changes on all areas of the firm, so do the top management teams. This paper summarized the existing literatures to come up with some propositions for future empirical studies. The main propositions are tenure and age diversity within the top management teams which will positively impact on the firm performance, education and the culture diversity which show the contrary. Carpenter (2002) examined the effects of education, work experience and tenure on firm performance based on US samples. The positive relationships are found between the top management team educational, functional, tenure diversity on firm performance, in addition, these relationships are significantly stronger in short-tenured top management teams. Wiersema and Bantel (1992) also examined such relationships through their research. They found that better firm performance is associated with lower average age, shorter organizational tenure, higher team tenure and higher educational level. We can see that all the literatures above are based on ‘upper echelon perspective’, different researches focus on different aspects of demography characteristics of the top management teams, and I can summarize these results into a table to show a clear conclusion. (Table 2.1)
Table 2.1 Summary of literatures (1)
Functional Background Educational Background Team Tenure Organizatio nal Tenure Age Goll et al. 2001
+ -
-
Carson et al. 2004-
- + +
Carpenter 2002+ + +
Wiersema and Bantel 1992+ + -
-
2.3 Comparative studies on top management teams in different countries
There are some studies comparing the characteristics of the top management teams in different countries. Norburn (1987) compared the top management teams between the United States and the United Kingdom to find out the similarity and differences between them. The results illustrated there were substantial differences in educational level, experience, and self-concept with regard to aspiration levels and executive success traits. Palmer and Varner (2007) examined the international diversify on the top management teams of multinational enterprises in the United States, Europe and Asia. In this study, authors used national diversity and international qualification to measure the international diversity of the top management teams. The findings showed that the top management teams in European countries have the highest international level than the others, both in the national diversity or the percentage of executives who have international qualifications. They also found that the national diversity in top management teams in Asian companies is not very high; executives are more likely to have international qualifications. Mayer and Wittington (1999) examined the top manager’s background in France, Germany and UK based on the data from 1950 to 1993, and found there are huge differences between each other. Knight et al. (1999) explored how demographic characteristics and group process affect on the firm strategy in the top management teams of U.S. and Irish firms; they also found the significant differences within these two countries. Based on these researches we can see that the top management teams in different countries show different kinds of characteristics, especially when you compare the countries in different continents and cultures.
2.4 The demography characteristics of top management teams and firm international diversification
international level of firms has been deepened. Under such circumstances, scholars started to pay attention to the subject that whether firm’s international diversification will affect the various parts of the firm themselves, top management teams’ issues are one of these parts. Athanassiou and Nigh (1999) examined 37 US multinational companies and their top management teams, found the positive relationships between the firm international behaviors and characteristics of top management teams. The results showed that a higher firm international diversification level would increase the requirements of international related knowledge and experience for top management teams, thus enabling the firm international level to continuously deepen. On this basis, researchers began to study the relationships between top management teams’ demography characteristics and firm international diversification.
(2005) also examined the relationships between top management teams’ compositions and firm international diversification. Based on the sample of 112 relatively large US multinational corporations, they found that the higher levels of international diversification are associated with higher education level, lower average age, greater international experience, and shorter tenures of top management teams. The results of these researches can be summarized in a table. (Table 2.2)
Table 2.2 Summary of literatures (2)
Age Tenure Education International experience Functional Background Tihanyi et al. 2000
- + + +
Simon 2001+
Wally and Becerra 2001+ -
Herrmann & Datta 2005- + +
Notes: “+” means such characteristics are positively related to firm international diversification “-” means such characteristics are negatively related to firm international diversification
2.5 The internationalization of top management teams and its function
In the last two parts of literature review, we talk about the international issues on the nation level and firm level, and this part will introduce the studies and researches focus on the internationalization of top management teams itself, and how this trend influences firm performances or firm international diversification. Based on the literatures, we can see that there are two dominant ways to estimate the internationalization of top management teams, the first one is foreign experience, and the next one is national diversity.
teams which are embedded in the demographic characteristics, (Tihanyi et al. 2000; Herrmann & Datta, 2005), and also some researches discover the international experience of top management teams separately. For example, Sambharya (1996) explored the foreign experience of top management teams and international diversification strategies of US multinational corporations. In this paper, the author used the percentage of foreign members in top management teams, and averages for years of these executives working in foreign countries to deeply explore the international level of top management teams. Regression analyses showed that the higher proportion of top managers with foreign experience was significantly associated with the firm international diversification. The other research by Reuber and Fischer (1997) found that internationally experienced management teams have a greater propensity to develop foreign strategic partners and to delay less in obtaining foreign sales after start-up, and all these behaviors can be supported to associate with the higher level of firm internationalization. Athanassiou and Nigh (2002) also found the same relationship in their studies, in addition, they found that both the CEO and the other top management teams’ members will influence firm international diversification.
international diversification. We can see that the national diversity is commonly ignored by researchers.
2.6 Conclusion
From all the literatures above, we can easily find some features in top management teams’ researches.
1. The majority of studies is conducted around the United States, non-US studies are relatively few;
2. National diversity of top management teams is commonly ignored by researchers;
Section 3: Hypotheses
3.1 Introduction
This study tends to analyze the relationship between the internationalization of top management teams and firms’ international diversification in European multinational enterprises. In this study, I will follow the previous studies that have used national diversity and foreign experience of top management teams to measure its internationalization level. In this section, I will state the relationship between national diversity, foreign experience of top management teams and firm international diversification, and come up with the hypotheses.
3.2 National diversity of top management teams and firm international diversification
The development of economic globalization has accelerated the flow of international senior talent. In particularly, the foundation of European Union has exacerbated the exchanges of top managers within Europe. The model of Hofstede (Hofsted 1980a, b; 1993; 2001) indicates that the variety of national background will provide the individuals’ different values, attitudes, and behavior tend. Such kind of variety will provide foreign managers with broader information resources, skill sets, and “cultural capital”. (Caligiuri et al., 2004)
we could expect that the national diversity of top management teams will also cause the firm international diversification.
Secondly, the cultural backgrounds and personal behaviors of these foreign top managers will affect their decision-making process in daily corporation management. Their opinions along with other local executives’ views will form more diversified opinions. Given the complexity of the decisions made by the top managers of multinational firm, having a wide diversity of cultural attitudes should result in better decisions, (Caligiuri et al., 2004) thus affecting the firm performance and increasing firm international diversification.
So the first hypothesis is formulated as:
Hypothesis 1: “There is a positive relationship between the national diversity of top
management teams and firm international diversification in European multinational enterprises.”
3.3 Foreign experience of top management teams and firm international diversification
Because top managers with foreign experience are more familiar with international markets, customers, cultures and regulations, they can somewhat make better decisions under such international environment, thus to enhance the firm international diversification. Athanassiou and Nigh (2002) assumed that the international business experience of top managers is positively related to firm internationalization. Tihanyi
et al., (2000) explored the composition of top management teams and firm
international diversification; they also found that the higher average of foreign experience of top managers associated with higher firm international diversification.
So the second hypothesis is come up with as following:
Hypothesis 2: “There is a positive relationship between the foreign experience of top
Section 4: Data and methodology
4.1 Introduction
In this section, I will introduce the statistical method and data used in this study. Section 4.2 will introduce the data gathering method and sample. The following part, 4.3 will describe the dependent variables, independent variables and control variables of this study. And the statistical method will be introduced in the endof this part.
4.2 Sample and data
According to Gill and Johnson (2002), my study can be summarized as a deductive research, which firstly has a comprehensive and systematical literature study to come up with some hypotheses, then collect empirical data to test whether these hypotheses can be supported by these empirical data, and finally interpret these results. In order to test the hypotheses mentioned above, along with my research question, I decide to choose several multinational enterprises from seven countries from European Union. These Seven countries include United Kingdom, Germany, France, the Netherlands, Sweden, Denmark and Belgium. Table 4.1 describes the respective GDP of those countries.
Table 4.1 : Economic Size
GDP current prices (Billion USD) % of EU total
Germany 3,322 19.7% France 2,843 16.9% UK 2,773 16.5% The Netherlands 769 4.6% Belgium 454 2.7% Sweden 455 2.7% Denmark 312 1.9% Total 65%
By choosing the three biggest economies (United Kingdom, Germany and France), which constitute 53.1% of total GDP in European Union, and these three countries have so many famous multinational enterprises, so it is necessary to consider these three countries in my sample. After all, these economies represent the most important fraction of the European economy as a whole, which makes them representative. Besides, Heijltjes et al. (2003) indicates that the Netherlands and Sweden are two countries with a higher international level. So I take these two countries into account. In addition, I also involve two othercountries, Belgium and Denmark. Those two countries have the similar amount of GDP with the Netherlands and Sweden and are of great help to show a relatively complete picture of multinational enterprises in European Union.
After selecting the sample countries carefully, I will extract all the necessary data from the officialweb sitesof the chosen companies. For the data about the top management teams, personal CV of each top management members is needed. The firm foreign sales divided by total sales, the percentage of foreign employees, the number of countries the companies have activated in, and the number of foreign subsidiaries operations can be drawn from the annual report from each company. The time period of this research is limited to the year of 2007 only. However, all the annual reports of French companies for 2007 are not available now, so the data of French companies is based on the annual reports of 2006. The multinational
enterprises are selected from the local stock markets in each country (London Stock Exchange in United Kingdom; Frankfurt Stock Exchange in Germany; Paris Stock Exchange in France; Amsterdam Stock Exchange in the Netherlands; Stockholm Stock Exchange in Sweden; Brussels Stock Exchange in Belgium; Copenhagen Stock Exchange in Denmark). The reason for choosing the company data from stock listing is that Ferrarini and Moloney in 2005 examined the disclosure policy in EU firms and found that the companies listing in the stock markets have to use maximum
will be deleted. So it can be summarized that the data used in this research is random.
Different countries have different governance system. Most of the samples use two-tier system. However, the most popular governance system in Germany, the Netherlands and Belgium is the two-tier of executive board (management board) and supervisory board, and the dominant governance system in the other countries of my sample is the two-tier of executive board and board of directors. (Table 4.2) In such a system, the management board, or so-called executive board is responsible for the day-to-day management. The supervisory board and board of directors monitor the management board. (Maassen, 1997) Based on that, the executive board can represent the top management teams, so in my research I will only collect the data of executive board/management board (which includes CEO, CFO and so on). Finally, my data contains 179 multinational enterprises in seven European Union countries. Within these 179 companies, 1065 observations were made. (Table 4.2) Specifically, there are 315 observations from 58 UK firms; 130 observations 23 Dutch firms; 123 observations from 19 Belgium firms; 134 observations from 22 Germany firms; 202 observations from 29 French firms; 88 observations from 10 Swedish firms and 73 observations from 10 Denmark firms.
The data collecting process lasted two month from the beginning of March to the end of April in 2008.
Table 4.2: Data summary
Dominant governance system Country of origin Number of
4.3 Variables and statistical method
Along with the other previous researches on top management teams issues, my study use the firm international diversification to be the dependent variables and the internationalization of top management teams to be the independent variables. In addition, this study also includes two control variables.
4.3.1 Dependent variables
There are several ways to examine the international diversification. The most popular way to measure the international diversification is the foreign sales divided by total sales (FSTS), (e.g. Tihanyi et al., 2000; Heijltjes et al., 2003; Joseph et al., 2002). Another similar measure to the FSTS is the number of international employees as a percentage of total employees. (e.g. Heijltjes et al., 2003; Kim et al., 1989;1993) As multinational enterprises set up more subsidiaries and production facilities, there will be a trend that they employ more workforces in the local market, which will increase the percentage of foreign employees. This figure can also estimate firms’ international diversification. And these two figures are in line with the United Nations Conference on Trade and Development’s measurements. (UNCTAD, 1996) In addition, some other research groupsmeasure firms’ international diversification by using the
number of countries the companies activated in and the number of foreign subsidiaries operations. These two figures show different firm international strategy. For the conservative companies, they are more inclined to the local production, and export their productions to international markets to reduce the difficulty of international productivity for top managers. For these more active companies, they are more willing to reduce their cost through the establishment of foreign subsidiaries, so that they can use the workforce and materials at a lower price, thus enhancing the price competitiveness of their productions. In this sense, it is necessary to study these two dimensions in my study.
foreign employees, total employees, number of countries the company activate in and the number of foreign subsidiaries, is obtained through the official web-site and annual reports of those selected companies.
Dependent Variable (Y): firm international diversifications z Firm foreign sales divided by total sales
z Percentage of foreign employees
z Number of countries the company activate in z Number of foreign subsidiaries operations
4.3.2 Independent variables
The independent variables in this study are the national diversity and foreign
experience of top management teams. The data is gathered through the personal CV on the official website or annual reports of the chosen firms.
Independent Variable (X): Internationalization of TMTs z National diversity of top management teams
The national diversity of top management team can be defined as the percentage of foreign members in top management teams. This will need to know the nationality of each top manager and the country of origin for these multinational enterprises, these data can be obtained from the official website and annual reports from the selecting companies.
z Foreign experience of top management teams
4.3.3 Control Variables z Firm size
A firm’s size may influence its ability to undertake strategic initiatives. Large firms may possess the personnel and resources to facilitate entry into international markets. (Tushman & Romanelli, 1985) So I include this variable as a control in my research. I use the total number of organizational employees in 2007 to measure the firm size.
z Size of TMT
The size of management team may influence the level of heterogeneity on the team. Large groups may reduce the power and influence of single person. (Amason and Sapienza, 1997; Haleblian and Finkelstein, 1993) Therefore, I include this variable as control in my research too. The number of individuals in each firm’s top management team will be used to estimate top management team size.
4.3.4 Statistical method
Section 5: Results
5.1 Introduction
This section introduces the empirical results of this research. In the following part, part 5.2, the analysis of the descriptive data shows the correlations, and tests the distributions among the variables. Part 5.3 will report the results of the statistical and analyze the hypotheses.
5.2 Descriptive data analysis
First of all, I test the meanings, standard deviations, skewness and kurtosis of my variables. The aim of this process is to test whether my variables follow the normal distribution. The results are presented in table 5.1. The outcomes of skewness and kurtosis are usually used to examine the normal distribution of the variables. We can see that all the results of skewness and kurtosis show the significant level (inside the range of -1 and +1). This means all the variables are normally distributed, which can be used in regression analysis without any transformation.
From the results of descriptive statistics we can see that the mean value and std. deviation for each variables are as following: 0.309 and 0.280 for the percentage of foreigners in top management teams; 0.671 and 0.331 for the percentage of members with foreign experience in top management teams; 0.617 and 0.275 for the percentage of foreign sales; 0.584 and 0.287 for the percentage of foreign sales; 56.91 and 57.307 for the number of countries firm active; 53.49 and 43.648 for the number of foreign subsidiaries.
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Insert table 5.1 around here
5.3 Results of hypotheses testing 5.3.1 Statistical method
I will test all my hypotheses by two steps. In the first step, I will examine the relationship between every dependent variable and independent variable separately without considering the control variable through single regression analysis, showing whether there is a relationship between dependent and independent variables. In the second step, I will use hierarchical regression analysis to take the control variables into account. That is to examine the contribution of control variables (top management team size and firm size). These variables were input as a single block in the first step of the hierarchical regression, and the independent variables were entered as one block in the second step.
5.3.2 National diversity of top management team and firm international diversification This part will examine the national diversity of top management team and firm international diversification. Specifically, I will test the national diversity of top management team and the percentage of firm foreign sales, foreign employees, number of countries the companies activate, and the number of foreign subsidiaries.
5.3.2.1 National diversity of top management team and the percentage of firm foreign sales
I expect a positive relationship between the national diversity of top management team and the percentage of firm foreign sales. First, I test for the positive relationship between the national diversity of top management team and the percentage of firm foreign sales without considering the control variables. See table 5.3.
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Insert table 5.2 around here
Through the single regression, we can see that there is a positive relationship (β=0.531) between the national diversity of top management teams and the percentage of firm foreign sales, at a significance level of 0.000. This means there is a significantly positive relationship between the national diversify of top management team and the percentage of firm foreign sales.
Second, I use hierarchical regression to take control variables into account. (Table 5.4) The results show that there is still a significantly positive relationship between the national diversity of top management teams and the percentage of firm foreign sales with ΔR2 =0.304, (β=0.485, p=0.000<0.05) indicate that there is a significantly positive relationship between the national diversity of top management team and the percentage of firm foreign sales with the control the firm size and top management team size. In addition, both the two control variables do not show the significantly positive relationship with the percentage of firm foreign sales.
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Insert table 5.3 around here
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5.3.2.2 National diversity of top management team and the percentage of firm foreign employees
I expect a positive relationship between the national diversity of top management team and the percentage of firm foreign employees. First, I test for the positive relationship between the national diversity of top management team and the percentage of firm foreign employees without considering the control variables. See table 5.5.
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Insert table 5.4 around here
Based on the results of the single regression, we can see that there is a positive relationship (β=0.532) between the national diversity of top management teams and the percentage of firm foreign employees, with the significance level of 0.000. This means there is a significant positive relationship between the national diversity of top management team and the percentage of firm foreign employees.
The hierarchical regression analysis is done after that, (Table 5.6). The results show that there is still a significantly positive relationship between the national diversity of top management teams and the percentage of firm foreign employees with ΔR2 =0.382, (β=0.434, p=0.000<0.05) indicate that there is a significantly positive relationship between the national diversity of top management team and the percentage of firm foreign employees with the control the firm size and top management team size. Here, the top management size do not show a significantly positively relationship with the percentage of firm foreign employees (p=0.333>0.05); however, the firm size is significantly associated with the percentage of firm foreign employees. (β=0.306, p=0.000<0.05)
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Insert table 5.5 around here
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5.3.2.3 National diversity of top management team and the number of countries firm activate
I expect a positive relationship between the national diversity of top management team and the number of countries firm activate. First, I test for the positive relationship between the national diversity of top management team and the number of countries firm activate without considering the control variables. See table 5.7.
the number of countries firm activate, with the significance level of 0.002. This means there is a significant positive relationship between the national diversity of top management team and the number of countries firm activate.
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Insert table 5.6 around here
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After that, the hierarchical regression analysis is tested to take the control variables into account, (Table 5.8). The results show that the control variables weakens such a relationship between the national diversity of top management teams and the number of countries firm activate with ΔR2 =0.141, (β=0.135, p=0.067>0.05) indicate that there is a positive relationship between the national diversity of top management team and the number of countries firm activate with the control the firm size and top management team size, but this relationship is not statistical significant. In addition, the top management size do not show a significantly positively relationship with the number of countries firm active (p=0.688>0.05); however, the firm size is significantly associated with the number of countries firm active. (β=0.302, p=0.000<0.05)
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Insert table 5.7 around here
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5.3.2.4 National diversity of top management team and the number of firm foreign subsidiaries
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Insert table 5.8 around here
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Based on the results of the single regression, we can see that there is a positive relationship (β=0.486) between the national diversity of top management teams and the number of firm foreign subsidiaries, with the significance level of 0.000. This means there is a significant positive relationship between the national diversity of top management team and the number of firm foreign subsidiaries.
The hierarchical regression analysis is done after that (Table 5.10). The results show that there is a significantly positive relationship between the national diversity of top management teams and the percentage of firm foreign employees with ΔR2 =0.333, (β=0.388, p=0.000<0.05) indicate that there is a significantly positive relationship between the national diversity of top management team and the number of firm foreign subsidiaries with the control of the firm size and the top management team size. In addition, the top management size do not show a significantly positively relationship with the number foreign subsidiaries (p=0.316>0.05); however, the firm size is significantly associated with the number of foreign subsidiaries. (β=0.302, p=0.000<0.05)
---
Insert table 5.9 around here
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5.3.2.5 Conclusion
significantly positive relationships are found between the national diversity of top management teams and the percentage of firm foreign sales and foreign employees, and the number of firm foreign subsidiaries. Therefore, I conclude that the national diversity of top management teams is positively related to firm international diversification. Hypothesis 1 is accepted. In addition, the top management team size do not show a significantly positive relationship with the firm international diversification, however, the firm size is significantly associate with firm international diversification.
5.3.3 Foreign experience of top management team and firm international diversification
This part will examine the foreign experience of top management team and firm international diversification. Specifically, I will test the foreign experience of top management team and the percentage of firm foreign sales, percentage of foreign employees, number of countries the companies activate and the number of foreign subsidiaries.
5.3.3.1 Foreign experience of top management team and the percentage of firm foreign sales
I expect a positive relationship between the foreign experience of top management team and the percentage of firm foreign sales. First, I test for the positive relationship between the foreign experience of top management team and the percentage of firm foreign sales without considering the control variables. See table 5.11.
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Insert table 5.10 around here
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of firm foreign sales, with the significance level of 0.000. This means there is a significant positive relationship between the foreign experience of top management team and the percentage of firm foreign sales.
Second, I use hierarchical regression to take the control variables into account. (Table 5.12) The results show that there is still a significant positive relationship between the foreign experience of top management teams and the percentage of firm foreign sales with ΔR2 =0.583, (β=0.752, p=0.000<0.05) indicate that there is a significantly positive relationship between the foreign experience of top management team and the percentage of firm foreign sales with the control the firm size and top management team size. In addition, both the two control variables do not show the significantly positive relationship with the percentage of firm foreign sales.
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Insert table 5.11 around here
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5.3.3.2 Foreign experience of top management team and the percentage of firm foreign employees
I expect a positive relationship between the foreign experience of top management team and the percentage of firm foreign employees. First, I test for the positive relationship between the foreign experience of top management team and the percentage of firm foreign employees without considering the control variables. See table 5.13.
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Insert table 5.12 around here
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the percentage of firm foreign employees, with the significance level of 0.000. This means there is a significant positive relationship between the foreign experience of top management team and the percentage of firm foreign employees.
The hierarchical regression analysis is done after that (Table 5.14). The results show that there is a significantly positive relationship between the foreign experience of top management teams and the percentage of firm foreign employees with ΔR2 =0.550, (β=0.624, p=0.000<0.05) indicate that there is a significantly positive relationship between the foreign experience of top management team and the percentage of firm foreign employees with the control the firm size and top management team size. Here, the top management size do not show a significantly positively relationship with the percentage of firm foreign employees (p=0.185>0.05); however, the firm size is significantly associated with the percentage of firm foreign employees. (β=0.209, p=0.000<0.05)
---
Insert table 5.13 around here
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5.3.3.3 Foreign experience of top management team and the number of countries firm activate
I expect a positive relationship between the foreign experience of top management team and the number of countries firm activate. First, I test for the positive relationship between the foreign experience of top management team and the number of countries firm activate without considering the control variables. See table 5.15.
management team and the number of countries firm activate.
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Insert table 5.14 around here
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After that, the hierarchical regression analysis is tested to take the control variables into account, (Table 5.16). The results show that there is a significantly positive relationship between the foreign experience of top management teams and the number of countries firm activate with ΔR2 =0.253, (β=0.383, p=0.000<0.05) indicate that there is a significantly positive relationship between the foreign experience of top management team and the number of countries firm activate with the control the firm size and top management team size. In addition, the top management size do not show a significantly positively relationship with the number of countries firm active (p=0.662>0.05); however, the firm size is significantly associated with the number of countries firm active. (β=0.205, p=0.005<0.05)
---
Insert table 5.15 around here
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5.3.3.4 Foreign experience of top management team and the number of firm foreign subsidiaries
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Insert table 5.16 around here
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Based on the results of the single regression, we can see that there is a positive relationship (β=0.602) between the foreign experience of top management teams and the number of firm foreign subsidiaries, with the significance level of 0.000. This means there is a significant positive relationship between the foreign experience of top management team and the number of firm foreign subsidiaries.
The hierarchical regression analysis is done after that, (Table 5.18). The results show that there is a significantly positive relationship between the foreign experience of top management teams and the percentage of firm foreign employees with ΔR2 =0.424, (β=0.511, p=0.000<0.05) indicate that there is a significantly positive relationship between the foreign experience of top management team and the number of firm foreign subsidiaries with the control the firm size and top management team size. In addition, the top management size do not show a significantly positively relationship with the number foreign subsidiaries (p=0.214>0.05); however, the firm size is significantly associated with the number of foreign subsidiaries. (β=0.231, p=0.000<0.05)
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Insert table 5.17 around here
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5.3.3.5 Conclusion
Section 6: Conclusions
6.1 Introduction
As the final section of this research paper, I will discuss the statistical results of this study in the next part, Part 6.1. After that, the limitations of this study will be concluded, and suggestions to further studies will be given.
6.2 Discussions
The results of my study support the upper echelon perspective, that the demographic characteristics of top management teams have a strong influence on the firm organizational outcomes, thus firm performance. My study examines one of the demographic characteristics of top management team, the internationalization of top management team, and identifies a positive relationship between which and the firm international diversification. The results assistant with Sambharya’s research, (1996) that the international experience among the members of top management team is associated with international diversification in US multinational enterprises, and Caligiuri et al., (2004) that the national diversity of top management team is positively related to firm boundary spanning. Although my research confirms the association between the internationalization of top management teams and firm international diversification, my results are still extensions to these earlier findings. First, this study comprehensively and systematically examine the internationalization of top management teams, and find both of the two elements of internationalization are related to the firm international diversification. Second, this research is based on the environment of European multinational enterprises, on which previous researches rarely focused. The results suggest that the relationship between the internationalization of top management teams and firm international diversification exist in European multinational enterprises.
Table 6.1 The summary of internationalization of top management teams Country Number of firms
observed Percentage of foreign members in top management teams Percentage of members with foreign experience in top management teams UK 58 31.4% 62.2% The Netherlands 23 50.8% 85.4% Belgium 19 32.5% 72.4% Germany 22 21.6% 60.4% France 29 40.1% 73.3% Sweden 10 23.9% 70.5% Denmark 18 13.7% 68.5% Average 32.5% 69.2%
experience instead of employ foreign members in their top management teams. The results of my paper indicate that both the national diversity and foreign experience of top management teams are positively related to firm international diversification, and thus they provide the multinational corporations greater choices to employ their senior managers.
From another perspective, the results of this paper are aligned with the information processing theory. As the company became more internationalized, these multinational enterprises export their productions to more countries, establish more productive factories in foreign countries, employ more foreign workforce, and therefore enhance the information for top managers to process. Scholars assumed that governance arrangements should be aligned with the level of such information-processing demands (Henderson and Fredrickson, 1996; Galbraith, 1974). Based on the results of this study, I found that the corporations with higher international diversification will employ more foreign top managers or the managers with foreign experience, and it also illustrates that such international knowledge of these members can help these multinational corporations to operate well.
6.3 Limitations and further research This study has several limitations.
First, all the data analyzed in this research come from the official website and annual reports of the selecting companies, and wholly secondary data. This means the results of this study are restricted by the authenticity and validity of the data. Further research can obtain data through various ways, to improve credibility of the data.
between different industries to show the differences and similarities, and explain the reasons.
The third limitation of this paper is that I only use two simple measurements to estimate the internationalization of top management teams. Because of the time limitation and data availability, I only use the percentage of foreign members and the percentage of executives with foreign experience to calculate the internationalization of top management team. However, there are several ways that measure the internationalization of top management team deeply. For example, how many countries the foreign members came from, how many years the executives worked abroad, how many foreign countries the executives worked before, etc. Further research can use these measurements to estimate the internationalization of top management team, to extend the study in this research topic.
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