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1. To develop an understanding of the seven concepts of this book’s unifying framework.
2. To link specific types of transfers of firm-specific advantages (FSAs) across borders with the four corresponding multinational enterprise (MNE) archetypes of administrative heritage.
3. To describe the various motivations for foreign direct investment (FDI) and to explain the linkages among non-location-bound (or internationally transferable) FSAs, location-bound (or non-transferable) FSAs, and location advantages within each of the four MNE archetypes.
4. To define the ten often-observed patterns of FSA development and resource recombination in international business.
5. To explain the need for complementary resources of external actors, including those in the MNE’s stakeholder network and ecosystem, and the potential reasons for bounded rationality and bounded reliability when doing international business.
1. To identify the different international expansion trajectories of newly established firms, namely, international new ventures (INVs).
2. To explain how entrepreneurs who establish INVs identify gaps in the present servicing of foreign markets and then exploit these gaps, inter alia, through usage of digital-assets-based business models.
3. To acknowledge that viable, ‘sharing economy’ business models can include the cross-border entrepreneurial initiatives of start-ups.
4. To consider how globally oriented entrepreneurs craft value chains that from the outset target access to requisite resources in distant environments.
5. To recognize that many of the normative recommendations made for INVs to be successful are subject to strong qualifications: especially the bounded rationality and bounded reliability challenges at play should never be underestimated.
In Chapter 1, we lay out the main building blocks of the unifying framework used throughout the book. In Chapters 2 to 17, we discuss what we consider to be the best international business articles published in HBR, SMR, and CMR since the early 1980s, and we systematically refer to the unifying framework. After starting each chapter by discussing a classic article in one of the practitioner journals, we then extend the analysis by describing the additional insights gained from articles published in the other journals. We also discuss new challenges in international business strategy, many of which address complexities arising from the growth of the digital economy and from the deployment of more complex business models across borders. The book is divided into three parts: core concepts (Chapters 1 to 5), functional issues (Chapters 6 to 10), and the dynamics of international strategy (Chapters 11 to 17). Chapter 17 has two distinct parts: Part A addresses corporate social responsibility; and Part B discusses environmental sustainability of MNEs. In the Conclusion, we brieﬂy address a few key implications of the book’s analysis for MNE managers.
Asian economies are attempting to (re)balance their interests in fostering burgeoning outbound investment and attracting inbound investment, while preserving appropriate regulatory autonomy, while maintaining an attractive environment for foreign investors. To understand the issues and the likely future trajectory for international investment law in the region, this chapter first introduces Poulsen’s comprehensive recent study focusing on the experiences of developing countries world-wide, but including analyses of several Asian states (as outlined in Part 2 below). Despite marshalling powerful arguments and evidence for manifestations of ‘bounded rationality’ in BIT negotiations and drafting, some limits to his theory are suggested by a closer analysis of several countries in the region (Part 3). Given such historical experiences, it seems premature to abandon altogether the current treaty protection regime. Nonetheless, a combination of new approaches is worth considering under existing treaties, including more principled use of proportionality testing and deference to host state decision-making (Part 4.1). Greater care is also needed when assessing the net benefits from entering into new treaties, including the latest research into whether investor-state dispute settlement provisions lead to significantly greater cross-border investment (Part 4.2).
Optimal or rational decision making is not possible due to informational constraints and limits in computation capability of humans (March & Simon, 1958; March, 1978). This bounded rationality serves as a filtering process in decision making among business executives (Hambrick & Mason, 1984). In this study, we propose the concept of CEO reflective capacity as a behavior-oriented cognitive capability that may overcome to some extent the pervasive limitation of bounded rationality in executive decision-making. Following Hinkin's (1998) method and two executive samples, we developed and validated a three-dimensional measure of CEO reflective capacity. Based on two-wave surveys of CEOs and their executive-subordinates in 213 Chinese small-medium sized firms, we tested and confirmed three hypotheses on how CEO reflective capacity is related to a firm's sustainability performance (including economic, societal, and environmental dimensions) through the mediating mechanisms of strategic decision comprehensiveness and CEO behavioral complexity. We discuss the contribution of this study to the literature on the upper echelons and information processing perspectives. We also identify the implications for future research on strategic leadership and managerial cognition in complex and dynamic contexts.
Chapter 2 systematically presents the book’s theoretical approach. After acknowledging the contribution of various causal factors to democratic breakdown during the interwar years, it highlights the fundamental role of the double deterrent effect. Because established elites saw both revolutionary Communism and its most potent antidote, counterrevolutionary fascism, as serious dangers, they used their preponderant power capabilities to impose conservative authoritarianism as a safeguard in many countries. These threat perceptions and dictatorial reactions were driven by basic mechanisms of cognitive psychology. With their deviation from standard rationality, heuristic shortcuts and asymmetrical loss aversion gave rise to striking misperceptions and overreactions, which help account for the proliferation of autocracy and the horrendous, “unnecessary” bloodletting of the 1920s and 1930s.
Does the recent wave of right-wing populism foreshadow a revival of fascism? To elucidate this question, this book examines the politics of fascism, authoritarianism, and Communism during the interwar years. In this way, the study sheds light on the reversal of liberal progress during this era, which brought the frequent downfall of democracy and the proliferation of authoritarianism and fascism. This autocratic riptide arose from a massive backlash against Communism and from conservative elites' wariness of fascism and their preference for authoritarian rule. After summarizing the book's main argument, the chapter explains its scholarly contributions, its research design & sources, and central concepts, namely fascism and reactionary rule. It ends with brief chapter summaries.
The interwar years saw the greatest reversal of political liberalization and democratization in modern history. Why and how did dictatorship proliferate throughout Europe and Latin America in the 1920s and 1930s? Blending perspectives from history, comparative politics, and cognitive psychology, Kurt Weyland argues that the Russian Revolution sparked powerful elite groupings that, fearing communism, aimed to suppress imitation attempts inspired by Lenin's success. Fears of Communism fueled doubts about the defensive capacity of liberal democracy, strengthened the ideological right, and prompted the rise of fascism in many countries. Yet, as fascist movements spread, their extremity and violence also sparked conservative backlash that often blocked their seizure of power. Weyland teases out the differences across countries, tracing how the resulting conflicts led to the imposition of fascist totalitarianism in Italy and Germany and the installation of conservative authoritarianism in Eastern and Southern Europe and Latin America.
This chapter examines how establishment sectors, ranging from the right to the moderate left, responded to the rash efforts of radical left-wingers to replicate Lenin's revolutionary success in Russia in a wide range of countries. Fearful of Communism, status-quo defenders everywhere squashed these precipitous uprisings. For this purpose, they employed excessive violence and resorted to significant "overkill." This reaction was driven by cognitive heuristics, which inspired an overestimation of the extreme-left threat and which activated loss aversion and thus prompted a disproportionately drastic response. Going beyond repression, the reaction to this early riptide of left-wing revolutionary efforts included the emergence of fascism in Italy, which arose in direct struggle against leftist contention; and the imposition of authoritarianism in Hungary, which followed upon a failed "Soviet Republic." The chapter provides substantial analyses of these two cases and explains why different types of autocracy emerged in these two countries.
Chapter 3 examines the immediate impact of the Russian Revolution, which triggered the proliferation of autocracy during the interwar years. With ample primary sources, the chapter documents how Lenin’s success quickly stimulated a wave of radical-left emulation efforts, especially in Central and Eastern Europe. Driven by cognitive shortcuts, rather than fully rational decision-making, these imitation attempts were precipitous and ill-planned; therefore, they uniformly failed. The chapter investigates the experiences of many countries, especially the Baltic States, Finland, Germany, and Hungary.
Bounded rationality and practice theory have both become popular theories of action for major strands of work in constructivist and rationalist International Relations (IR). Based on this observation, I make two arguments. The first is that although they underpin what are generally seen as opposed theoretical camps in IR, bounded rationality and practice theory share two fundamental assumptions. They both accept that how agents process information and make decisions depends on where they are situated in social space, and where they stand in historical time. In turn, these shared assumptions imply that they agree on the existence of a common type of change: change in terms of how groups of people process information and make decisions over time. My second argument is that by studying this type of change, it is possible to shed new light on major transformations of international relations, and that one way of engaging in this type of research is to study international practitioners' education over substantial time periods. With these arguments, this article makes a methodological contribution to the study of change in historical international relations and charts a practical course for pluralist dialogue in IR.
Hypothetical thinking involves imagining possibilities and mentally exploring their consequences. This chapter overviews a contemporary, integrative account of such thinking in the form of Jonathan Evans’s hypothetical thinking theory. This default-interventionist, dual–process theory operates according to three principles: relevance, singularity, and satisficing. To illustrate the explanatory strength of the theory a range of empirical evidence is considered that has arisen from extensive research on hypothesis testing, which involves individuals generating and evaluating hypotheses as they attempt to derive a more general understanding of information. The chapter shows how key findings from hypothesis-testing research undertaken in both laboratory and real-world studies (e.g. in domains such as scientific reasoning) are readily explained by the principles embedded in hypothetical thinking theory. The chapter additionally points to important new directions for future research on hypothetical thinking, including the need for: (1) further studies of real-world hypothesis testing in collaborative contexts, including ones outside of the domain of scientific reasoning; (2) increased neuroscientific analysis of the brain systems underpinning hypothetical thinking so as to inform theoretical developments; and (3) systematic individual-differences investigations to explore the likely association between people’s capacity to think creatively and their ability to engage in effective hypothetical thinking.
Chapter 2 constitutes the core theoretical chapter of the book. It serves two functions. First, it introduces the micro–institutional rational choice approach that is applied throughout the work. It explains why producers targeted by market-driven regulatory governance can be considered boundedly rational actors, what this characterization entails, and how institutional arrangements can help such actors to overcome collective action problems. It then shows how Kiser and Ostrom’s Three Worlds of Action can be leveraged to link institutional design choices to their outcomes. In a second step, Chapter 2 examines market-driven regulatory governance using this approach. It uncovers the institutional design dilemma that standards face as they scale up, and specifies a number of hypotheses on how these choices (e.g., between binding and flexible standard–setting; strict or flexible oversight mechanisms; and a focus on price premiums or on capacity building) will affect the implementation of standards by drawing on institutional rational choice theory as well as insights from the socio-legal literature.
The expectational stability (E-stability) property of rational expectations equilibria (REE) in linear macroeconomic dynamic stochastic general equilibrium (DSGE) models is known to be sensitive to the information available to decision makers as well as the structure of the economic environment considered. Models featuring news shocks as a source of macroeconomic fluctuations depart from traditional assumptions regarding both the structure of the economy and the information set of agents. This paper investigates whether E-stability of REE is affected by either the inclusion of news shocks by themselves or the complementary structural changes. The main results find that the E-stability property of REE is robust to the inclusion (or exclusion) of news shocks and that well-known news-shock DSGE models permit REE which are simultaneously E-stable and capable of producing qualitatively realistic expectationally driven business cycles.
As countries develop, they are likely to face challenges in meeting growing energy demand and in ensuring energy security. Given this, and the problem of climate change, improving demand-side energy efficiency is pivotal to ensuring sustainable development. However, agents often underinvest in energy-efficient technologies due to behavioral failures such as low levels of energy-related financial literacy, defined as the combination of energy knowledge and cognitive abilities needed to evaluate the lifetime costs of durables. Using novel data, we analyze the levels and determinants of energy-related financial literacy of households in urban areas in the eastern lowlands of Nepal, and whether it is correlated with their attitudes towards replacement of energy-inefficient appliances. We find that respondents have low levels of energy-related financial literacy, and higher levels of literacy are associated with more rational attitudes towards appliance replacement. The findings of this study are relevant to addressing the energy-efficiency gap in developing countries.
In the framework of a critical illustration of the contemporary history of economics, this chapter provides an (original) illustration of Hayek’s thought: his formative years, his contributions to the theory of the trade cycle and the theory of capital and the subsequent debates with Sraffa and Kaldor, his theory of the spontaneous order and of the market as a mechanism of knowledge diffusion, his political individualism and the similarities to and differences from the notions of methodological individualism, liberism and liberalism, his thesis on the denationalization of money.
The standard neoclassical conception of rationality is narrow. It was created mainly for technical purposes such as making economic models internally consistent and mathematically tractable. We advocate a broader notion, especially for normative purposes, of “inclusive rationality.” This rationality concept is consistent with many of the choices and behaviors attributed to cognitive biases by behavioral economists. In fact, these biases can even be useful in helping people achieve their purposes. Although a narrow form of rationality may be more easily falsified, the broader form is the normatively relevant one.
This article presents two theorems: (1) a generalization of Löb’s Theorem that applies to formal proof systems operating with bounded computational resources, such as formal verification software or theorem provers, and (2) a theorem on the robust cooperation of agents that employ proofs about one another’s source code as unexploitable criteria for cooperation. The latter illustrates a capacity for outperforming classical Nash equilibria and correlated equilibria, attaining mutually cooperative program equilibrium in the Prisoner’s Dilemma while remaining unexploitable, i.e., sometimes achieving the outcome (Cooperate, Cooperate), and never receiving the outcome (Cooperate, Defect) as player 1.