Escape FDI and the Varieties of Capitalism: Why History Matters in International Business.
Over 10 years ago, Jones and Khanna prominently called for a (re-)integration of historical perspectives into International Business (IB) in the pages of UBS (Jones and Khanna 2006). They argue that history can complement IB theory by reminding us of what is new and commonplace in FDI research, and by highlighting what resources and path dependencies contribute to or hinder successful cross-border investments. The authors emphasize that many of the most interesting causal questions in International Business are best addressed with rigorous long-term analyses that supplement quantitative techniques (Jones and Khanna 2006). Jones and Khanna contributed to a series of articles and books by business historians and IB theorists who are very conscious of the historical evolution of their principal subject, business, and who advocate an integration of history into business theory (Buckley 2009, 2016; Buckley and Fernandez Perez 2016; Casson 1990; Dunning 1993; Ingram et al. 2012; Jones and Pitelis 2015; Morck and Yeung 2007). Principally, there should be nothing new about integrating history and IB theory. Like other related social disciplines, IB has to rely on the past, as constructing future experiments is difficult, if not impossible. Although IB theorists generally acknowledge the importance of history to their work, they--as much as concerned historians--have not yet found a sturdy bridge with which to integrate history and IB theory. With a few notable exceptions--such as the views of Chandler in strategic and general management as well as Wilkins and Jones in IB--important insights drawn by professional business historians about different periods rarely find their way into IB theory while much of the research outcome still relies on cross-sectional, empirical analyses with data stemming from rather short periods of time (Doz 2011; Hurmerinta-Peltomaki and Nummela 2006; Michailova 2011; see also Sect. 2).
Against this unsatisfactory background, we intend to underline the necessity of a perspective of history in IB research. For this purpose, we will discuss the topic of 'escape FDF as an example of scholarly work, which lacks historical evidence and which has the potential to showcase how historical knowledge might improve IB theory. Assessing the origins of FDIs and their drivers is a widely discussed and controversial topic in IB. For many years, those discussions revolved around economic, value driven internal firm considerations (Dunning and Rugman 1985; Calvet 1981; Faeth 2009; Moon and Roehl 2001). More recently, external, institutional influences have entered discussions. Among these influences on FDI motivation, 'escape FDF is playing a significant role. The term 'escape FDF describes the potential response of a firm to an institutional misalignment between its corporate goals and its country of origin. Scholars are taking corporate flight more seriously as an answer to institutional misalignments between home country and firm goals. Those interpretations of misalignments, however, tend to be narrowly focused on differences between home and host countries, derived from only a single period of time (Witt and Lewin 2007). In order to buttress our general point, we argue that current explanatory patterns of 'escape FDF ignore historical examples from other periods which are not consistent with their results and that they are not adequate as explanations of the political impetus to transfer activities outside of a company's home country. Quite representatively for its field, the example of 'escape FDF highlights just how much history matters in IB.
With 'escape FDF as an example, we intend to make a broad contribution. First, we provide an analysis of the current explanatory pattern of 'escape FDF and highlight certain inconsistencies. Building specifically on Jones and Khanna (2006) as well as Witt and Lewin (2007), we argue that the business environment plays a much greater and varied role for 'escape FDF than acknowledged in IB literature. Second, we present a discussion on the interwar period as an historical example. This 20-year period during the first half of the twentieth century illustrates the multifaceted motivations for 'escape FDF over time. Most of these motivations had little or nothing to do with the current explanatory pattern. In consideration of longer historical frames, it seems doubtful that conclusions concerning 'escape FDI' derived from only one period of time do justice to the diversity of 'escape FDF motivations. Overall, our discussion of 'escape FDF is designed to highlight how IB theorists could profit from examining examples from earlier historical periods. By presenting the interwar period as a specific historical example, we do not only employ business history methodology for the sphere of IB deliberately, but we further show that FDI theory--at the very least in the context of 'escape FDF--has focused too much on somewhat simplified economic considerations.
The core body of this paper is divided into three sections. The first emphasizes the low prevalence of a perspective of history in IB and outlines why this presents an unfavorable status quo. We provide evidence from IB journals of how little cross-fertilization has occurred in the past decade between history and IB. In order to reinforce our position, the second part reviews the matter of 'escape FDF as an example of scholarly work, which tends to rely heavily on dichotomies and insights derived in a quasi-ahistorical manner. In this context, the third section discusses German FDIs to the US during and around the interwar period as a historical counter-factual example to current explanatory patterns of 'escape FDF. Our case shows that the current explanatory pattern neglects detailed insights from larger historical periods. Thereby, it highlights the limits of drawing general theory from just one period. Furthermore, our time-conscious example serves as an illustration of the importance and complexity of environmental factors in explaining FDI-decisions. Thereby, it expands the discussion of 'escape FDF.
2 Dearth of an Interdisciplinary Dialog
Business historians and IB theorists are struggling to find common ground as the historical narrative and methodology contain many features that run counter to the interests of business theorists (see Buckley 2016, for example, for an overview of historical methodology). Although the benefits of historical analysis to international business studies (i.e., its use in stimulating the imagination and providing counter-factual analysis) should not be up to debate, the complexity of the past casts doubt on the breadth of social generalization based on data drawn from different periods or cultures; thus discouraging IB theorists who attempt to implement business history methodology. Furthermore, promotion and publication criteria still hinder scholarly work that amalgamates more than cursory insights from IB theory and historical research despite the interest of some young scholars in pursuing interdisciplinary work and some recruiting of historians for business school faculties.
Regretting the dearth of interdisciplinary dialog, recently many business historians have offered a series of solutions, mostly, but not exclusively, addressed to business historians. In some cases adopting the language of management theory, they bemoan historians' reticence to discuss their own 'theory' and methodology, to address specific management theories, and to produce higher level generalizations. Intended to gain recognition for business historians among management scholars, these discussions tend to gloss over how many differences in research agendas and methodological orientations there are between history and management studies (Fear 2014; Rowlinson et al. 2014).
As for other management scholars, the work of many IB theorists rests on statistical analyses of aggregate data collected over a relatively short period of time and contains little or no historical contextualization (Doz 2011; Hurmerinta-Peltomaki and Nummela 2006; Michailova 2011). This lack of recognition for business history is also manifested in the applied research methodologies in influential IB journals. In order to examine the role of history in IB, we took a closer look at the published articles in two of the most notable IB journals, JIBS and JWB, from 2006 to 2015. We chose to examine these two journals primarily because of their sturdy reputation of being high-quality research outlets in the sphere of IB. (1) This assessment is also reflected by the yearly average number of citations of both journals. JIBS (2015) has an impact factor of 3.620, JWB (2015) has an impact factor of 2.811 (self-disclosure of the publishers). These values are unmatched in the group of high-quality International Business journals, which publish their respective impact factors. With our investigation we intended to identify the number of longitudinal studies that considered a historical context for their analysis. In order to be classified as a longitudinal study, an article had to review the same research variables over a period of at least 2 years--thus allowing for a historical comparison between at least two points in time. If an article was not classified as a longitudinal study, it was either considered to be cross-sectional, i.e., it is built on data from a specific point in time, or to be conceptual, i.e., it is not empirical.
The survey of JIBS articles included 509 articles (see Fig. 1). Only 117 of these articles can be considered as longitudinal studies (there are 35 conceptual as well as 357 cross-sectional studies). Of these 117 articles, only 16 longitudinal studies tried to exam the historical context of the data they were using. Even these efforts at contextualization were thin at best.
A closer examination of publications in JWB yielded similar results (see Fig. 2). Here our survey included 463 articles. Only 31 of these articles can be considered as longitudinal (there are 82 conceptual as well as 350 cross-sectional studies). Of these 31 articles, only 7 longitudinal studies tried to exam the historical context of the data they were using. These numbers illustrate how little historical contextualization seems to be valued by IB theorists despite the popular calls for more and better integration.
Fig. 1 Categorization of published articles in JIBS, 2006-2015 Total Number of Studies 509 Cross-Sectional Studies 357 Conceptual Studies 35 Longitudinal Studies 117 16 Longitudinal Studies (3.14%) with Historical Context Note: Table made from bar graph. Fig. 2 Categorization of published articles in JWB, 2006-2015 Total Number of Studies 463 Cross-sectional Studies 350 Conceptual Studies 82 Longitudinal Studies 31 7 Longitudinal Studies (1.51%) with Historical Context Note: Table made from bar graph.
In comparison to the research of IB theorists, it is the historian's craft to determine what is unique and commonplace in the present as well as to give us a perspective beyond the present, which works against statistical generalization. Historians strive to compare and contrast periods as well as the actors working within those periods. Unlike many IB theorists, for historians, significant social change is the essence of their metier. Indeed, many historians look at their work as the study of social change over time. Although those who study business, especially International Business, recognize that the changing contours of the multinational's environment are essential elements of firms' decision processes (Jones 2005), they usually do not call into question the validity of applying solely quantitative techniques on large amounts of data without historical contextualization. In this regard, it is worthwhile to take a closer look at the matter of 'escape FDF as an example of scholarly work, which is marked by a certain neglect of changing contexts and which could benefit from an historical perspective.
3 'Escape FDI' and Its Current Explanatory Pattern
When it came to assessing the origins of FDIs in the past, FDI theories, even those that followed a more political orientation, often applied a very strict behaviorist and economic approach, as they considered primarily product markets and resource advantages (e.g., Vernon's Product-Life-Cycle Theory, Hymer's Theory of Monopolistic Firm Specific Advantages, and Dunning's Eclectic Theory). In fact, IB studies regularly seemed to show symptoms of an overvaluation of direct 'value creation factors' as drivers of FDIs. The respective theories and approaches, dedicated to researching the underlying motivations of FDIs, made at least implicitly clear that its drivers are connected to value creation. It is no exaggeration to say that intrinsic economic motives were the predominant explanations for FDIs in classical IB literature.
Most research hardly dealt with external, environmental factors as explanations for FDIs. For example, Ajami and Ricks (1981) explored the motives for US bound FDIs of non-American firms. But like most IB theorists at the time, the authors identified primarily market reasons and (technological) resource advantages as salient motives. The significance of environmental factors, such as political and regulatory influences, is for the most part left out of their explanation. Although the authors' ranking of the "average reported importance of motives" (see Table 1) included four environmental factors among the top 15 motives, these motives played little or no further role in the conclusions of the authors (regarding the importance of various FDI drivers). Essentially, explanations using non-economic factors for FDI have had little resonance among most IB theorists until recently.
In comparison to past IB research approaches, political scientists and researchers of business taxation placed a much larger importance on environmental institutional motives for firm internationalization via FDI (De Mooij and Ederveen 2003; Goodman et al. 1996; Higson and Elliott 1994; Jodice 1980; Keohane and Ooms 1975; Sansing 1996). Institutional motives are deduced from the favorability of the institutional "foreign investment regime" (Jodice 1980, p. 177). "The national regime for FDI is the set of rules, regulations, and behavioral norms under which foreign enterprises are expected to operate" (ibid.). Notably, political (e.g., political stability, rule of law) as well as regulatory (e.g., strict or relaxed industry regulations), and fiscal causes (e.g., tax incentives, subsidies) play a major role in the decision making process of MNEs with regard to FDIs. Despite these factors, an environmental approach to FDI motivation has been often neglected by IB theorists and is somewhat underrepresented within its field.
The concept of 'escape FDF, a term that was introduced by Dunning (1996), has been at the center of recent attempts to correct this imbalance. 'Escape FDIs' are the consequence of "restrictive legislation or macro-organizational policies by home governments" (Dunning and Lundan 2008, p. 74). A contribution of Witt and Lewin (2007) to the Journal of International Business Studies plays a pivotal role in the 'escape FDF literature because it correctly describes the phenomenon of 'escape FDF as a response of a firm to an institutional misalignment between the country of origin and its corporate goals. Unlike many prior contributions, the authors acknowledged the importance of the institutional environment as a potential FDI driver in addition to more self-evident escape motives such as a decreased bargaining power vis-a-vis the government or a less favorable competitive position. Subsequently, further scholars dedicated themselves to the influence of the institutional environment on FDI motivation (Ang and Michailova 2008; Cantwell et al. 2010; Cuervo-Cazurra 2016; Fainshmidt et al. 2016; Hoskisson et al. 2013; Jackson and Deeg 2008; Stoian and Mohr 2016; Witt and Jackson 2016; Witt and Redding 2009). These papers have more or less in common that they connect International Business activity with an institutional misalignment, similarly to the argument behind 'escape FDF. Witt and Lewin have therefore played an important role in establishing 'escape FDF as one explanation for outward FDIs. They have shown how the employment of a theory--in this case neo-institutional theory--can contribute in a valuable manner to the understanding of 'escape FDIs'. However, despite their groundbreaking work and the innovational strength of their theoretical approach, Witt's and Lewin's work shows argumentative weaknesses.
Witt and Lewin base their argumentation on a dichotomous distinction between liberal market economies (LMEs) and coordinated market economies (CMEs)--similarly to the terminology introduced by Hall and Soskice (2001) in their influential introduction to their edited book 'Varieties of Capitalism'. The principal idea of their explanatory pattern is the proposition that the extent of 'escape FDF rises with the degree of institutional misalignment which a firm faces at home. This is a very convincing and plausible argument to which we fully agree. However, Witt and Lewin further assume that the degree of institutional misalignment rises with the extent of societal coordination in the political economy. This is based on the assumption that the institutional decision making process in highly coordinated market economies involves more actors than similar processes in LMEs. As a result, the former are 'institutionally sluggish'. Therefore, societies with high degrees of societal coordination must go hand in hand with slow rates of institutional adjustment, leaving the market participants eventually in a 'deadlocked' situation. Highly liberal economies, on the other hand, are characterized by minimal governmental interference in the market. Therefore, companies have the opportunity to act proactively upon environmental changes without paying importance to the decisions of other institutional actors. Hence, it is Witt's and Lewin's conclusion that coordinated market economies are more prone to institutional misalignments and outward FDIs. They provide statistical evidence in order to support their assumptions by correlating (R = 0.35) the Societal Coordination Index (the SCI measures the importance of coordination in an economy between 0 and 1 with higher values indicating a high importance of coordination in the political economy; Hall and Gingerich 2004) with the increase in outward FDI positions exclusively in the time period from 1990 until 2003 (the ratio of the 2003 FDI stock, standardized by the 2003 GDP, and the 1990 FDI stock, standardized by the 1990 GDP; Witt and Lewin 2007).
Despite this evidence we disagree and point out that there is not necessarily a generally positive correlation between the extent of societal coordination and the institutional misalignment (thus causing more 'escape FDIs' in CMEs). In contrast, we argue that in the long term economies--LMEs and CMEs alike--undergo favorable and non-favorable phases of their institutional environment. The prevalence of 'escape FDF might be fully independent from the degree of societal coordination, which could be unfit as an analytical criterion in this context. This line of reasoning is based on two fundamental objections.
From a statistical stance one may object that Witt and Lewin do not investigate the destination of outward FDIs in their study. Their results are somewhat constrained to the correct yet limited assessment that CMEs correlate with increases of outward FDI. If we carry the underlying rationale of Witt and Lewin forward, however, CMEs should not attract as many FDIs as LMEs: Foreign managers should be alienated by the supposedly adverse institutional environment in coordinated market economies which might clash with their corporate goals. In order to verify this continued rationale, we have calculated the correlation between the Societal Coordination Index and the change in FDI stock for the present study; in contrast to Witt and Lewin, however, we added the inward FDI data to their analysis. We have first reproduced the original statistic (see Fig. 3) with one minor exception: For greater breadth, we added the data for Belgium, which was unavailable to Witt and Lewin. This, however, did not change the general result of the original analysis with regard to the positive correlation between the Societal Coordination Index and the increase in outward FDI positions (R = 0.354; p = 0.126).
In a second step we changed the dependent variable from outward FDI to inward FDI delta (see Fig. 4). Interestingly, we came to a similar result, measuring a positive correlation (R = 0.38; p = 0.099*) between the Societal Coordination Index value and the change in inward FDI stock.
This result indicates that CMEs are not only 'causing' more outward FDIs but rather that they are also fairly attractive to inward FDIs, a conclusion that at the very least seems contrary to the hypothesis that these economies clash with corporate goals. This may be true because a stable and elaborated institutional environment does not only promote 'escape FDIs' but also, in contrast, provides an interesting investment setting for foreign direct investors. Therefore, the institutional environment of CMEs has corporate consequences that are at least ambiguous; allowing the statement that their characterization as negative per se may be an oversimplification. The conclusion that 'escape FDIs' and institutional misalignments are particular problems of CMEs seems premature in the light of our findings. The degree of coordination might as well have positive or simply no consequences at all on FDI behavior in coordinated markets. Exclusively depending on aggregated data without historical contextualization seems particularly ill advised for this question.
In addition to our statistical objection, we can also identify certain inconsistencies from a historical stance. These inconsistencies begin with the labels of 'coordinated' and 'liberal market economies' as well as with the Societal Coordination Index itself. While the Societal Coordination Index is very helpful and informative, it is also overly static in its observation. Hall and Gingerich (2009, p. 452) themselves conceded that "instances of market and strategic co-ordination occur in all capitalist economies". National economies as well as their institutional environments change over time from being liberal to being coordinated and vice versa (Thelen 2004; Thelen and Streeck 2005). The SCI observations, however, were only drawn in the period between 1990 and 1995. Given the knowledge that economies are not permanently liberal or coordinated, this casts doubts upon the statistical insights and generalizations on 'escape FDF which rely on the SCI. In the light of this substantial criticism against the SCI--and therefore against the differentiation between CMEs and LMEs--one should abstain from relying singularly on such simplified indices. Furthermore, the identified inconsistencies continue with the neglect of a historical perspective in Witt's and Lewin's work. Like other IB theorists, they tend to ignore changing environmental factors that drive or at least influence the pace of FDIs irrespectively of the degree of societal coordination. For example, consider the changes of the political environment for the supposedly coordinated Continental-European countries during Witt's and Lewin's investigation period. Between 1990 and 2003, firms from respective countries were inter alia confronted with the consequences of the completion of the Single European Market as well as with the collapse of the Soviet Union and its satellites. Both events presented significant FDIstimuli and had potentially a larger impact on FDI behavior than the degree of societal coordination. Furthermore, it seems doubtful that the societal degree of coordination (and its rather short investigation period) provides the right lens for the analysis of 'escape FDF motivations for longer historical periods (cf. Sect. 4). Therefore, Witt and Lewin have formulated their conclusions in a quasi-ahistorical manner.
This objection is consistent with our observation that IB theorists often oversee historical factors in their hunt for generalizable observations about business motivations for foreign investments. Environments change, making generalization difficult. Conclusions drawn for the period between 1990 and 2003 can prove to be non-applicable in other (historical) contexts. We contend that any robust general theory should be derived from data from more than one period. Business people make the decision to invest internationally in widely different political and social contexts. These changing contexts shape the direction, form, and content of investments as much as microeconomic imperatives. The prevailing lack of a longer historical perspective helps to explain some misrepresentations and--in the context of 'escape FDF--a certain bias toward liberal (versus coordinated) economies (Hall and Soskice 2001), underestimating the utility of coordination in economies in some periods and some countries. History can help to understand the various ways in which institutional environments have the potential to shape foreign investment strategies and explain how both the environments and the strategies evolve over time in an ever changing dialectic. If we might borrow or paraphrase an insight from Karl Marx, while men make history, they structure businesses within historically framed sets of opportunities and constraints.
4 A Historical (Counter-) Example of 'Escape FDI': The Interwar Period
Against the background of afore mentioned objections, we would like to present another argument against the current explanatory pattern as it loses much of its relevance in consideration of longer historical periods. Therefore, we will take another look at the matter of 'escape FDF through the lens of business history. We will examine German FDIs to the US during and around the interwar period. These FDIs were considerably marked by escape motivations; contrary to the Witt and Lewin perspective, however, neither the form nor the direction were determined by the extent of home country or host country coordination. As outlined in the following, other externalities came into play and may have been decisive. Little of this period conforms neatly to the idea of businesses from CMEs investing in LMEs. This relatively small chunk of time illustrates a larger truth about many periods: the past is messy.
For much of the twentieth century, Germany was the second largest economy in the world. Before World War I, German companies were among the first movers of international direct investment; what we now call the problem of 'foreignness' played little role for these firms. The 'Great War' was therefore particularly disruptive for them (Kobrak et al. 2004). German companies, such as Bayer and Hoechst, had large manufacturing operations in the USA and other countries (Hayes 1987). Whereas in 1913 over one-third of all electrical production and nearly half of world trade in electrical goods involved German companies, by 1918, Germany had lost much of that dominance in global markets to new competition from other countries (Feldenkirchen 2004). Most importantly for German firms, virtually all German property in the USA was seized by the US government in 1917. The seizure amounted to approximately $500 million (Wilkins 2004), roughly 1% of US GDP (if an expropriation of that scale happened today, i.e., 2015, the figure would be roughly $181 billion). Some of the assets were sold off to American companies; some were returned to their German owners in the late 1920s, providing a windfall that helped finance external and home-country (German) investment. The firms that tended to come out of the expropriation best or avoid totally were ones that had been associated with companies in family networks, such as Merck (chemicals and pharmaceuticals), and those that used a holding company or other complex structures to keep the ownership of the assets ostensibly outside of Germany (Kobrak 2002; Wilkins 2004). This was a lesson that was not lost on German businessmen. While the risk of expropriation reduced the overall amount of German investment, it also distorted patterns of German FDI in the interwar period (Jones 2005; Wilkins 2004; Kobrak and Wustenhagen 2006).
By 1929, many of the German companies had rebuilt their international businesses, but with some new forms. German managers realized that acquiring and keeping sources of financing required much more complex international structures. Long before the collapse of liberal democracy in Germany in the early 1930s, companies established subsidiaries abroad where they once operated through agencies. Some of these international subsidiaries could hold dollars and other currencies (Jones and Lubinski 2012). Under German accounting rules, subsidiaries were not fully consolidated into German parent accounts. Thus, German companies could keep the proceeds of American financial settlements 'offshore'. Schering (a large pharmaceutical company that was acquired by Bayer in 2006), for example, won a huge suit against Kodak in the late 1920s. The funds remained in the USA and were used to guarantee dollar loans in Germany. They were not repatriated to Germany until the mid-1930s, as part of schemes to make money off discounted German debt and win foreign exchange concessions from the German authorities (Kobrak 2002). Some German companies actually transferred ownership and nation of incorporation outside of Germany. Stinnes, formerly one of Germany's largest concerns, provides a striking example. In 1926, on the verge of collapse, the Stinnes family, which inherited the concern after its founder's death in 1924, transferred the ownership of most of its huge European oil, coal, and coking holdings, mostly located in Germany, to the USA. In order to secure dollar financing, it founded several American subsidiaries, with 50% of shares in the hands of the German investors, 50% in American hands. The companies were used to secure a $25 million debenture, the payment of which relied on funds that came out of Europe and which became blocked in the 1930s (Hugo Stinnes Corporation 1957). German firms developed even more complex international strategies. Some, for example, were cloaking (i.e., the practice of camouflaging ownership) the identity of their companies in the USA. Although this strategy ultimately failed, it was based on the reasonable judgment that the USA would not enter World War II and British fears of alienating its large, potential ally by interfering with business coming out of the USA--a strategy which would have allowed German companies to operate internationally from the USA (Casson and da Silva Lopes 2013; Jones and Lubinski 2012; Kobrak and Wustenhagen 2006; Lubinski 2014).
Considering these circumstances, German FDIs to the USA were not just a function of the US's reputation as a liberal economy--an interpretation which the Germans in particular had much reason to doubt since the USA had just demonstrated an astonishing lack of commitment to property rights. Likewise, German FDI activity to the US had little to do with the degree of market coordination in Germany even though the involved firms were evading their domestic region. Much rather, there seemed to be a large spectrum of externalities that have the potential to explain the investment behavior of German firms. These environmental motivations included capital requirements, above all dollar financing, and the evasion of political risks. Yet, these externalities are irrespective of the degree of societal coordination. Therefore, societal coordination must be an unfit analytical instrument for this particular period. A comprehensive analysis of the German investment activity during the interwar period surely requires the referencing of the political and economic environment in which German companies operated and cannot be conducted on the grounds of aggregated data only. In general, during the 1920s and 1930s, investments became more political. Often, they were driven by escape motives, but not necessarily from coordinated to liberal economies. Companies had to take into consideration the interests of their governments. German companies were expected to integrate German foreign policy into their investment decisions; even American companies were hauled in front of congressional committees to explain their dealings with foreign companies (Kobrak 2002). Certainly, some of these FDIs created huge management problems and embroiled the multinationals in conflicts between parent and subsidiaries before World War II (Feldman 1989; Heide 2004; Turner 2005).
5 Discussion and Conclusion
In the previous sections we have dedicated ourselves to the understanding and improvement of the role of historical analysis in International Business. We conclude that despite a long tradition and many recent calls for interdisciplinary work, current IB literature contains very little insight from historical contextualization. In order to underline this issue and in order to showcase the need for a stronger perspective of history in IB, the topic of 'escape FDF has been discussed. We doubt the current explanatory pattern that 'escape FDIs' are related to the degree of coordination in a society and that CMEs are more prone to 'escape FDIs' than LMEs. Based on aggregate statistical analysis as well as on an historical example, we find that such a dichotomy has limited explanatory use. First, CMEs are not only more prone to outward FDIs than LMEs (as shown by Witt and Lewin), but are surprisingly also more likely to attract inward FDIs (as shown by our findings). This suggests at least that economic coordination is not a deterrent to investments and that heavy reliance on economic coordination as a predictor of 'escape FDF is unwarranted. Second, we present arguments for the view that the current explanatory pattern loses much of its explanatory power as it does not necessarily apply to periods lying further in the past. A perspective of business history could provide a better lens in this regard as it has the potential to fully capture the matter of 'escape FDF beyond the limitations of statistical analyses.
Our historical counterexample--a rare application of historical counter-factual analysis in IB--yields insights about the complex environmental contexts that produce unsteady FDI motivations. During and around the interwar period the current explanatory pattern is of limited use as the categories of LME and CME are insufficient as an explanation for German investments to the US despite the circumstance that these FDIs were often driven by the motivation to evade the domestic region. The example highlights that IB theory could profit from a broader and deeper appreciation of business history research. With regard to 'escape FDF for example, detailed analysis of the past casts doubt on using simplified labels, such as LME and CME. Our interwar period case points to motivations for 'escape FDIs' beyond the societal degree of coordination. Firms might escape political and financial constraints imposed by firms' home countries, both liberal and coordinated ones. Similarly, history offers many examples of environmental factors with a broad impact on FDI decision making (Kobrak et al. 2004; Newburry 2012; Tallman 1988). The nature of that impact changes not only with the risks posed by home countries, but how that home country fits into the world. Both home and host country risk is relational. The one cannot be understood without the other, and is not confined to categories such as coordinated versus liberal regulatory environments. Our historical example provides by no means a complete panorama of environmental influences on FDIs. It does, however, illustrate the varied environmental factors that have shaped German firms' investment strategies and tactics in the past. In consideration of the multifaceted nature of environmental influences on FDI decision making, this study suggests that aggregated data need to be supplemented with a detailed analysis of their historical environmental contexts which are 'not carved in stone'. A better fusion between history and IB methodologies can produce fruitful results in this regard by helping to avoid static variables, such as the Societal Coordination Index. The example of 'escape FDF serves as a cautionary tale of using static aggregate data only.
Acknowledgements The authors would like to thank Mira Wilkins, Geoffrey Jones, Krzysztof and Tomasz Obtoj, and Sevda Sparks for their helpful comments. Furthermore, the comments of the anonymous reviewers for MIR as well as for the 40th Annual Conference of the European International Business Academy (EIBA, 2014) have been much appreciated.
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Christopher Kobrak (1,2) * Michael-Jorg Oesterle (3) * Bjorn Rober (3) [iD]
Christopher Kobrak: Deceased.
[??] Bjorn Rober
(1) University of Toronto, Toronto, Canada
(2) ESCP Paris, Paris, France
(3) University of Stuttgart, Stuttgart, Germany
(1) Cf. the Journal Quality List by Harzing for instance: http://www.harzing.com/resources/journal-quality-list (accessed on 10 June 2017)
Received: 7 March 2017/Revised: 24 July 2017/Accepted: 25 July 2017/Published online: 21 August 2017
[c] Springer-Verlag GmbH Germany 2017
Table 1 Importance of US inward FDI motives (Ajami and Ricks 1981, p. 32) Rank Motive 1 Extremely large US market 2 General need for growth 3 Search for new markets 4 Attractive political climate 5 Desire to preserve markets that were established by exporting 6 Attractive US attitude toward foreign investment 7 General desire for higher profits 8 Desire to acquire technologies 9 Desire for geographical dispersion as a means for spreading risks 10 Desire to compete abroad by employing technological, managerial or financial advantages 11 US managerial and marketing know-how and innovations 12 Attractive US technology 13 Traditional US receptivity to new products, methods, and ideas 14 Fear of further investments at home because of political unrest 15 Comparatively attractive amount of US Government control over business
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|Title Annotation:||RESEARCH ARTICLE|
|Author:||Kobrak, Christopher; Oesterle, Michael-Jorg; Rober, Bjorn|
|Publication:||Management International Review|
|Date:||May 1, 2018|
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