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Unveiling the impact of corruption on the ownership strategies of multi-national enterprises. A literature review

Hausarbeit 2019 10 Seiten

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Leseprobe

Unveiling the impact of corruption on the ownership strategies of MNEs – a literature review

1. Introduction

The phenomenon of globalization has increased the international business operations of multi- national enterprises (MNEs) and especially the growth in emerging economies makes it likely that companies are confronted with the issue of corruption (Uhlenbruck, Rodriguez, Doh & Eden, 2006).

Furthermore, as MNEs are more and more internationalising, they have to decide on entry strat- egies as it is an important factor for the success of the MNE (Di Guardo, Marrocu & Paci, 2016; Duanmu, 2011, Baena, 2011). Therefore, there are many different firm-level as well as country- level factors, which have to be considered (Uhlenbruck et al., 2006). Globermann and Shapiro (2003) stress that an effective macro-level ‘governance infrastructure’, which includes the ab- sence of corruption, is a vital point for the willingness of foreign MNEs to invest (as cited in Rugman & Verbeke, 2010). Therefore, corruption is an important country-level aspect (Uhlen- bruck et al. 2006, Baena, 2011).

The Corruption Perception Index 2017 shows that the majority of the 180 countries and territo- ries ranked have not been able to end corruption in the last years (Transparency International, 2018). For the index a scale of 0 to 100 is used, where 0 refers to high corruption and 100 to no corruption. Experts and business people give scores to the countries according to their perceived levels of public sector corruption, resulting in two-thirds of the countries scoring below 50. The average score of these countries is 43. Even below this average score is the region Sub-Saharan Africa (average score 32), but also Eastern Europe and Central Asia (average score 34) (ibid.).

Corruption is thought to be prevalent in emerging economies (Hellman, Jones, Kaufmann, & Schankerman, 2000; as cited in Petrou & Thanos, 2015). This explains that there is many liter- ature, which focuses on corruption in these countries (Baena, 2011; Duanmu, 2011; Godinez & Liu, 2015; Jiménez, Russo, Kraak & Jiang, 2017; Karhunen & Ledyaeva, 2012; Uhlenbruck et al., 2006). But, there are also articles which deal with corruption in general as corruption is present in all countries, only differing by the degree (Petrou & Thanos, 2015).

Literature suggests that the ownership strategies of MNEs are influenced by corruption in a host country (Uhlenbruck et al., 2006; Barassi & Zhou, 2012; Jiménez et al., 2017; Baena, 2011; Petrou & Thanos, 2014; Di Guardo et al., 2016) as well as by the corruption distance from the home country (Duanmu, 2011; Godinez & Liu, 2015; Faria, Carvalho & Reis, 2018; Karhunen & Ledyaeva, 2012). Faria et al. (2018) suggest that corruption influences the extent of the own- ership as it is directly connected to the level of control, the risk, resource commitment and return on investment for the MNE. Mauro (1995) states that corruption has a negative effect on the macroeconomic development as well as on firm growth. This is in line with the “grabbing hand” view on corruption, which implies that corruption increases the costs of doing business (Shleifer and Vishny,1992, 1993; Bliss and Di Tella, 1997; Aidt, 2003; as cited in Barassi & Zhou, 2012). However, Lui (1985) and Bjorvatn and Søreide (2005) state that corruption can also be seen as a “helping hand”, thus, facilitating business activities as MNEs can get around regulations and red-tape. As there are these contradictory views on corruption, this literature review tries to shed light on it and tries to give an overview of the impact of corruption on the ownership strategies of foreign MNEs.

In the following section, the method for this chapter is shortly described and an overview of the empirical articles, which are used for the literature review, is given. After this, the articles are reviewed, providing insights on the impact of corruption on ownership strategies as well as the influence of the corruption distance between the home and host country. The literature review is concluded with a short and critical analysis of the used articles, identifying their strengths, weaknesses, opportunities and threats. The final chapter draws conclusions about the role of corruption in the decision-making of MNEs when entering a foreign country and summarizes the findings of the literature review. Further, limitations of this paper are pointed out and future research topics are suggested.

2. Method

The articles for the following literature review have been found in two databases, Google Scholar and the Summon from the Högskolan Kristianstad. In order to gather relevant articles the key words “local corruption” and “ownership strategy” were used and a filter was set to search only for articles, which were published between 2000 and 2018, to ensure the current- ness. Through these key words five articles were selected to be relevant. Further, the article from Duanmu (2011) and Barassi and Zhou (2012) were found, as they were suggested by the Elsevier database as additional downloads, when downloading the article from Godinez and Liu (2015). Moreover, a search with the key words “corruption” and “ownership strategy” was carried out to complement the existing seven articles with three more. All articles are written in English and are published in scientific journals. Nine of the articles are published in journals, which can be found in the ‘Academic Journal Guide 2018’ of the Association of Business Schools. Only the article from Faria, Carvalho and Reis (2018) is not included, but was anyway taken as it is the most current article for this literature review. Table 1 shows an overview of the empirical articles, which were used to write this review.

Abbildung in dieser Leseprobe nicht enthalten

Table 1: Overview of the empirical articles of the literature review

3. Literature Review

This chapter reviews the empirical articles listed in Table 1. First, the nature of corruption is discussed in general. Afterwards the impact on ownership strategies and the influence of corruption distance is analysed. In the end of the chapter the articles are critically reflected upon.

3.1 The nature of corruption

There are several definitions of corruption, but mostly it is defined as the abuse of public power for positive gain (Petrou & Thanos, 2015; Uhlenbruck et al., 2006; Jiménez et al., 2017; Godinez & Liu, 2015; Faria et al., 2018; Karhunen & Ledyaeva, 2012). There are several types of corruption such as payments of bribes, favouritisms, embellishment, inappropriate use of influence or irregular payments in public contracting (World Bank, 2000; as cited in Jiménez et al., 2017). Some type of corruption is seen as tax on foreign firms (Mauro, 1995; Voyer & Beamish, 2004; Wei, 2000; as cited in Petrou & Thanos, 2015). This is often under organized governments (Uhlenbruck et al., 2006). This kind of corruption is up to a point predictable for the MNEs and thus not so influential for their decision-making about ownership strategies as they can calculate the extra costs for the bribes (ibid.).

A bigger issue is the level of uncertainty, which is associated with corruption especially under disorganized governments (Uhlenbruck et al., 2006; Petrou & Thanos, 2015; Jiménez et al., 2017; Godinez & Liu, 2015; Faria et al., 2018; Di Guardo et al., 2016; Karhunen & Ledyaeva, 2012; Baena, 2011). It increases the costs of business activities of foreign MNEs to an extent which cannot be predicted beforehand (Karhunen & Ledyaeva, 2012; Di Guardo et al., 2016; Faria et al., 2018). This “grabbing hand” view of corruption is supported by many authors (Uh- lenbruck et al., 2006; Petrou & Thanos, 2015; Jiménez et al., 2017; Godinez & Liu, 2015, Faria et al., 2018; Di Guardo et al., 2016; Karhunen & Ledyaeva, 2012; Baena, 2011). In addition to the increasing costs MNEs face further disadvantages from corruption such as information asymmetries, poor contract enforcement and legitimacy problem because of reduced transparency (Javorcik & Wei, 2009; as cited in Petrou & Thanos, 2015).

However, there is literature, which discusses also the “helping hand” view of corruption (Petrou & Thanos, 2015; Barassi & Zhou, 2012; Jiménez et al., 2017; Godinez & Liu, 2015; Di Guardo et al., 2016; Karhunen & Ledyaeva, 2012), implying that corruption can facilitate business ac- tivities. Through bribing MNEs can get around regulations and speed up bureaucratic activities (Jimenéz et al., 2017; Barassi & Zhou, 2012; Petrou & Thanos, 2015), thus making their busi- ness activities more efficient. Furthermore, the foreign MNE can gain government consent through corruption, making it as competitive as local companies (Uhlenbruck et al., 2006).

3.2 Corruption and the ownership strategies of foreign MNEs

Uhlenbruck et al. (2006) find that firms from the telecommunication sector adapt to the pressure from high corruption in emerging economies by doing business in form of less ownership strat- egies such as joint ventures (JV). Further, it is suggested that companies are entering countries with high levels of corruption with a non-equity entry, for example through contracting. The reluctance of companies to enter a foreign country, where the corruption level is high, with equity is also supported by other authors (Baena, 2011; Jiménez et al., 2017). However, the empirical analysis from Petrou and Thanos (2015) and Di Guardo et al. (2016), show that the relationship between corruption and the level of ownership is U-shaped, implying that MNEs are likely to enter the foreign markets with a wholly owned subsidiary if the corruption level is either low or high. In their research, they point out that shared ownership entry modes like JVs are likely to be chosen if the corruption level is moderate (Petrou & Thanos, 2015; Di Guardo et al., 2016). Barassi and Zhou (2012) even go further and suggest that corruption has no influ- ence on FDI inflows into a country, when the FDI stocks of that country are already high. Thus, Countries like China, who have a high corruption, but also a high FDI stock, are still likely to get high inward investments (ibid.).

3.3 Corruption distance and the ownership strategies of foreign MNEs

Literature suggests additionally that the ownership strategy is influenced by the corruption dis- tance between a host and the home country of foreign companies (Duanmu, 2011; Faria et al., 2018; Godinez & Liu, 2015; Karhunen & Ledyaeva, 2012). Duanmu (2011) shows that MNEs from less corrupt countries than China prefer to have wholly owned subsidiaries in China as it guarantees them more control. This is in line with the findings of Petrou and Thanos (2015) and Di Guardo et al. (2016) that companies tend to have more ownership in countries with high corruption. Furthermore, it is stated that if home and host country are equally corrupt, corrup- tion does not influence the choice of entry mode (Duanmu, 2011). MNEs from equally corrupt home countries might even be attracted by the corrupt environment of the host country and try to take their advantage out of it (Godinez & Liu, 2015). However, the impact of corruption distance on FDI is asymmetrical. If there is a “negative” corruption distance, there are signifi- cantly lower levels of inward FDI as MNEs from home countries with low corruption are more reluctant to deal with the uncertainty of corruption (Godinez & Liu, 2015; Faria et al., 2018; Karhunen & Ledyaeva, 2012). It might even be influenced by the ethical believe of the foreign investors that corruption is morally wrong (Duanmu, 2011).

3.4 Critical Reflection

The chosen articles show all that corruption is somehow influencing FDIs and the ownership strategies of foreign MNEs. Whereas Barassi and Zhou (2012), Petrou and Thalos (2015) and Uhlenbruck et al. (2006) approach the topic of corruption from a general point of view, other articles are focusing on specific countries or regions (Baena, 2011; Di Guardo et al, 2016; Duanmu, 2011; Faria et al., 2018; Godinez & Liu, 2015; Jiménez et al., 2017; Karhunen & Ledyaeva, 2012). This offers on the one hand the opportunity to get a broad overview as well as comparing the influence of corruption on the ownership strategies of MNEs in different countries or regions. On the other hand, it is a threat as differences in the findings cannot be explained easily. The differences might come from different country factors, but can also be influenced by other aspects as all articles have other variables in addition to the corruption such as cultural distance or FDI stock level. All these factors can have a significant impact on the findings and need to be considered when analysing the articles.

4. Conclusion

The literature review shows clearly that corruption is an important topic, which has an impact on the entry strategies of MNEs (Uhlenbruck et al., 2006; Baena, 2011; Di Guardo et al., 2016; Jiménez et al., 2015; Petrou & Thalos, 2015). Furthermore, it becomes clear that the differences between the host and home countries in respect to corruption play an important role in the choice of ownership strategy (Duanmu, 2011; Faria et al., 2018; Godinez & Liu, 2015; Karhunen & Ledyaeva, 2012). However, there are different results concerning a high degree of corruption and the suggested ownership strategies from a shared ownership strategy in form of a joint venture (Baena, 2011; Jiménez et al., 2015; Uhlenbruck et al., 2006) to a wholly owned subsidiary (Petrou & Thanos, 2015; Di Guardo et al., 2016). These differences might be because of different focuses of the chosen articles. Therefore, it might be useful to conduct further re- search in the field which is in one industry in countries, which are culturally and geographically similar, to understand the impact of corruption without having the need to take other influencing factors into consideration.

References

Baena, V. (2011). The effect of corruption on global franchising in emerging markets. Interna- tional Journal of Business and Emerging Markets, 3(1), 57-74. DOI: 10.1504/IJBEM.2011.037685

Barassi, M. R., Zhou, Y. (2012). The effect of corruption on FDI: A parametric and non-para- metric analysis. European Journal of Political Economy, 28(3), 302-312. DOI: 10.1016/j.ejpoleco.2012.01.001

Bjorvatn, K., Søreide, T., 2005. Corruption and privatization. European Journal of Political Economy 21, 903–914. DOI: 10.1016/j.ejpoleco.2005.02.001

Di Guardo, M. C., Marrocu, E., Paci, R. (2016). The effect of local corruption on ownership strategy in cross-border mergers and acquisitions. Journal of Business Resarch, 69(10), 4225-4241. DOI: 10.1016/j.jbusres.2016.03.002

Duanmu, J.-L. (2011). The effect of corruption distance and market orientation on the owner- ship choice of MNEs: Evidence from China. Journal of International Management, 17(2), 162-174. DOI: 10.1016/j.intman.2011.01.003

Faria, M. P, Carvalho, F., Reis, N. R. (2018). The Impact of Corruption Distance on Ownership Strategies of Spanish and Portuguese MNEs. Revisto Ibero-Americana de Estratégia, 17(1), 15-30. DOI: 10.5585/riae.v17i1.2603

Godinez, J. R., Liu, L. (2015). Corruption distance and FDI flows into Latin America. Interna- tional Business Review, 24(1), 33-42. DOI: 10.1016/j.ibusrev.2014.05.006

Jiménez, A., Russo, M., Kraak, J. M., Jiang, G.F. (2017). Corruption and Private Participation Projects in Central and Eastern Europe. Management International Review, 57(5), 775- 792. DOI: 10.1007/s11575-017-0312-4

Karhunen, P., Ledyaeva, S. (2012). Corruption Distance, Anti-corruption Laws and Interna- tional Ownership: Strategies in Russia. Journal of International Management, 18(2), 196-208. DOI: 10.1016/j.intman.2011.10.002

Lui, F. T. (1985). An equilibrium queuing model of bribery. Journal of Political Economy 93, 760–781.

Mauro, P. (1995). Corruption and Growth. The Quarterly Journal of Economics, 110(3), 681-712.

Petrou, A. P., Thanos, I. C. (2014). The ‘‘grabbing hand’’ or the ‘‘helping hand’’ view of cor- ruption: Evidence from bank foreign market entries. Journal of World Business, 49(3), 444-454. DOI: 10.1016/j.jwb.2013.10.004

Rugman, A. M., Verbeke, A. (2010). Location, Competitiveness, and the Multinational Enterprise. In Rugman, A. M. (2010). The Oxford Handbook of International Business (2nd ed.), 146-180. Oxford: Oxford University Press. Kindle-Version.

Transparency International (2018). Corruption Perception Index 2017, Retrieved from: http://www.transparency.org

Uhlenbruck, K., Rodriguez, P., Doh, J., Eden, L. (2006). The Impact of Corruption on Entry Strategy: Evidence from Telecommunication Projects in Emerging Economies. Organi- zation Science, 17(3), 402-414. DOI: 10.1287/orsc.l060.0186

Details

Seiten
10
Jahr
2019
ISBN (Buch)
9783668926714
Sprache
Englisch
Katalognummer
v463291
Note
1,7
Schlagworte
Corruption Ownership Strategies

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Titel: Unveiling the impact of corruption on the ownership strategies of multi-national enterprises. A literature review