The technologic andor organizational edge of MNCs over local producers is one

The technologic andor organizational edge of mncs

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is that it requires information to flow from the HQ to the local environment. The technological and/or organizational edge of MNCs over local producers is one of the drivers of multinationals expansion given that “New technology generation is highly concentrated in a number of advanced industrial countries, taking place in large MNCs” (Chapter 2, Piscitello and Santangelo, 2007). The information relative to the transfer stage is known by the HQ but not in the local economy. 4 The execution stage of the Multinational subsidiary captures, for example, selling the final managers. Markusen and Trofimenko (2009) analyze theoretically and empirically the consequence of the use of foreign experts on workers, to which we will turn below. 3 Although we use the term CEO for the concept of leader in the theoretical section, the concept can be interpreted as a team of managers or experts. Foreign workers in Mexico are likely to be at managerial positions or experts. 4 An example are quality controls. These are a core aspect of Japanese firms corporate culture and were an essential component of the successful experience of Mitsubishi Belting in Singapore. As the following quote from the UNCTAD(1994) reflects, it involved information flows from the HQ to the subsidiaries: “Quality-control con- cepts have been adopted by enterprizes in India, Indonesia, Malaysia, the Philippines, Singapore and Thailand. The diffusion of quality-control methods in Asian developing countries has been accelerated by the presence of a considerable number of Japanese foreign affiliates” 2
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product to local customers or buying inputs from local suppliers. It requires information from the local environment, which may include cultural, regulatory and political aspects of the subsidiary location. These are known by local inhabitants but not by the HQ. The key idea of the model is that the appointment of the CEO will determine the extent of information asymmetries between the HQ, the CEO and the workers in the transfer and the execution stages. The information based theory of leadership of Hermalin (1998) is particularly suited to analyze the choice of MNCs subsidiaries CEOs and its implication on technology transfer. 5 This is so because Hermalin (1998) theory is information based: the leader is defined as someone who induces a voluntary following as a result of having superior information. Further, sending an expatriate the multinational expands the set of strategies to transmit information to the subsidiary, because the expatriate can use his effort in the subsidiary as a signal. 6 In short, the model predicts, first, that multinationals employing expatriates engage in more technological transfer, and more so in technology intensive industries. This is so because expatri- ates, familiar with the technology, can use their own effort to signal the value of this technology, that is, lead by example. This is a cheaper way to communicate information than signaling from headquarters. Therefore, multinationals in technology intensive sectors find it more valuable to hire an expatriate, and the expatriate’s leading by example boosts local efforts to adopt the tech- nology. Second, our analysis of the entry decision reveals that the attractiveness for FDI will be
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  • Spring '17
  • JAMES FENSKE

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