Global Mindset and Entry Mode Decisions: Moderating Roles of Managers' Decision-Making Style and Managerial Experience.
The entry mode literature has extensively examined how business environments and firm resources affect the entry mode decisions of multinational enterprises (MNEs) for their subsidiaries in a host country. Over the last three decades, scholars have examined the antecedents of MNEs' entry mode choices from various theoretical perspectives, including transaction cost economies (Brouthers and Brouthers 2003), the resource-based view (Erramilli 1991; Erramilli et al. 2002), the strategic behavior perspective (Kim and Hwang 1992), the industry-based view (Yang et al. 2009), institutional theory (Cui and Jiang 2012; Yiu and Makino 2002), eclectic frameworks (Agarwal and Ramaswami 1992; Dunning 1988; Hill et al. 1990), and the strategy tripod model (Peng et al. 2008, 2009). These theoretical explanations of entry mode decisions have centered on techno-economic factors that are derived from firms' external institutions that largely position these theoretical dimensions at three analytical levels: The institution (national and international), industry, and firm levels. These levels of analysis constitute the crux of the linkage and interplay between organizations and their competitive environments in the study of MNEs' entry mode decisions in the dynamic and increasingly competitive global business environment. Thus, the literature has essentially explained how an entry mode decision is made under the assumption that each entry mode decision is determined by the MNEs' external environments and internal resources with the aim of enhancing the MNEs' competitiveness, efficiency, and control over their business operations. However, we still do not know how senior managers make sense of the macro and meso environments and make entry decisions (Hennart et al. 2015). In particular, prior studies have not adequately investigated how an MNE's internal institutional factors at the individual level, such as a manager's cognition (including senior managers' global mindsets), contribute to entry mode decisions.
Behavioral theorists at the Carnegie School have argued that complex strategic decisions result largely from the behavioral characteristics of senior managers (i.e., decision makers) rather than from the mechanical pursuit of the best economic outcome (Cyert and March 1963), as rules of thumb are frequently applied by individuals when they confront complex decision-making scenarios that challenge senior managers' cognitive capabilities (Hogarth and Makridakis 1981; Kiesler and Sproull 1982; Schwenk 1984). Therefore, managers are likely to interpret and present a decision-making scenario based on their own cognitive characteristics (Haley and Stumpf 1989; Hambrick and Mason 1984; Henderson and Nutt 1980). In relation to entry mode choices, Herrmann and Datta (2002) studied entry mode choice from the upper echelons perspective and assessed the observable demographic characteristics of top managers. However, research on entry mode decision-making has generally neglected the influence of managers' psychological cognitive bases and values that undergird the unobservable cognitive mental frames of senior managers, such as their global mindset and cognitive personality styles in decision-making (e.g., feeling and thinking decision-making styles) (Foss and Lindenberg 2013; Gavetti 2012). Senior managers select, process, and interpret information through these cognitive mental frames to form their perceptions, which consequently affect their decisions (Hambrick and Mason 1984).
Managerial cognition (e.g., how managers make sense of the environment), which lies at the center of the strategic management processes, is a crucial micro-foundation for modeling heterogeneity in firm-level strategies (Maitland and Sammartino 2015; Stubbart 1989) and for explaining why firms may make significantly different entry mode choices when operating in the same or similar business environments with similar resource endowments. The formulation and implementation of strategies cannot be fully understood without a comprehensive understanding of the cognitive makeup of individual senior managers who are in charge of making strategic decisions (Finkelstein et al. 2009). To obtain such detailed knowledge of entry mode decision-making, we need to study how global mindset and other attributes of senior managers affect their cognitive capability and thereby influence their decision-making patterns (Levy et al. 2007).
Mindset is a predisposition to perceive the world in a particular way that sets boundaries and provides guidelines for ways in which one is expected to behave (Rhinesmith 1992, p. 63). The mindsets of senior managers play a critical role in each activity in firms' decision-making processes and influence firms' strategic decisions, actions, and performance (Nadkarni et al. 2011; Nadkarni and Perez 2007; Porac and Thomas 1990). For senior managers to be effective in making and implementing internationalization decisions and strategies, they need to develop a mindset with global scope (Kedia and Mukherji 1999). Such a mindset with global scope enables senior managers to view the world from a global perspective that accepts reality as a balance of paradoxical and competitive forces and opens their minds by rethinking boundaries and adjusting their behaviors (Arora et al. 2004). The notion of global mindset has been extensively conceptualized from various perspectives, such as the cultural perspective (Adler and Bartholomew 1992; Beechler et al. 2004; Kobrin 1994), the strategic perspective (Arora et al. 2004; Barlett and Ghoshal 1990; Govindarajan and Gupta 2001; Kefalas 1998; Levy 2005), and the multidimensional perspective (Kedia and Mukherji 1999; Levy et al. 2007; Rhinesmith 1996). Hence, the global mindset is "a highly complex cognitive structure characterized by an openness to and articulation of multiple cultural and strategic realities on both global and local levels, and the cognitive ability to mediate and integrate across this multiplicity" (Levy et al. 2007, p. 244). Based on this multidimensional perspective, senior managers with a global mindset possess values including cultural awareness, adaptability, tolerance, and flexibility (Harveston et al. 2000; Levy et al. 2007; Rhinesmith 1992, 1996).
Prior studies have also theorized specifically how managers' global mindset may be relevant to a firm's internationalization strategy (Bouquet 2005; Harveston et al. 2000; Levy 2005; Levy et al. 2007; Murtha et al. 1998; Nummela et al. 2004). However, these conceptual or empirical studies on the relationship between the global mindsets of managers and the internationalization strategies of firms have focused narrowly on whether firm strategy follows global mindset or vice versa. For example, Levy (2005) reveals that the globalization strategies of firms are driven by senior managers' global mindsets, while Murtha et al. (1998), Harveston et al. (2000), and Nummela et al. (2004) find that the internationalization strategies of firms help develop managers' global mindsets. Bouquet (2005) suggests that there is not a straightforward relationship between senior managers' global mindsets and their firms' international strategies and that such a relationship may exist only when the firms have appropriate attention structures in place. The above studies present the diversity of perspectives employed by researchers. To date, the global mindset literature lacks empirical validation of the conceptualizations of the global mindset. Therefore, the major shortcomings of these prior studies lie in their conceptual diversity, with various measures at different levels being proposed and limited empirical validations of the conceptualizations and measures. Little can be concluded about the empirical relationships between the managerial global mindset and other variables at the individual and organizational levels. In particular, how senior managers' global mindset enables them to make sense of their environment and arrive at an entry mode decision is not adequately addressed theoretically and empirically. The lack of clarity on such important knowledge for a strategically critical decision such as MNEs' choice of entry mode may lead to biased conclusions that mislead both academics and practitioners.
Based on the psychological cognitive base and values perspectives, this study specifically examines how senior managers' cognitive decision-making style and managerial experience interact with their global mindset orientation in affecting their choice of foreign direct investment (FDI) entry mode. More specifically, this study answers two specific research questions: (1) does senior managers' global mindset affect their decisions on their firms' foreign market entry mode choice? (2) How do senior managers' decision-making styles and relevant managerial experience interact with their global mindset in influencing their decision-making on their firms' foreign market entry mode choice? In this process, this study endeavors to make three contributions to the entry mode and global mindset literature. First, this study adds to the entry mode literature and explains how macro- and meso-level information is cognitively processed by managers in entry mode decision-making, as well as how managers' personal attributes--including both unobservable (psychological) and observable (background characteristics of managers) attributes--shape the entry mode decision process and outcomes. It further extends both the entry mode and global mindset literature by contextualizing when and to what extent managerial global mindset affects ownership decisions, as the dynamics and interactions among managerial cognitive attributes (i.e., global mindset, decision-making style and experience) shape their cognitive bases and values and consequently influence the decision-making process of senior managers and entry mode decision outcomes. Second, the findings suggest that managerial cognition is an important missing piece and should be added as the fourth dimension of the eclectic models proposed by Dunning (1980, 1988) and Hill et al. (1990) to explain entry mode decisions and in the strategic tripod framework proposed by Peng (2009) and Peng et al. (2008). Third, this study is among the first to empirically validate a multidimensional conceptualization of managers' global mindset. It helps us to understand how managers' global mindset affects MNEs' entry mode decisions and how managers' cognitive decision-making style and managerial experience affect their ability to acquire and analyze information, leading to different decision outcomes. This study also empirically validates a set of multidimensional measurements of global mindset based on survey data collected from senior managers of both headquarters and subsidiaries of 345 Chinese MNEs.
2 Theoretical Foundations
2.1 Cognitive Perspective of Decision-Making
Firm strategies and organizational outcomes may reflect the values and cognitive bases (e.g., structure and contents) of senior managers in the organization (Hambrick and Mason 1984). Senior managers face complex and dynamic organizational environments that consist of far more situations and scenarios than they can easily realize and understand. Thus, strategic decision makers must use their cognitive base and values as a screen or filter in forming managerial perceptions through a perceptual process. This process includes directing their attention to these phenomena, selectively perceiving a number of phenomena, and interpreting these perceived phenomena. The strategic decision makers then make strategic decisions on the basis of these perceptions or interpretations (Hambrick and Mason 1984; Hambrick and Snow 1977). Therefore, organizational outcomes (e.g., strategic choices) can be predicted by upper echelon characteristics (both psychological and observable).
Humans have developed a unique ability to purposefully extract relatively small amounts of relevant information from the extensive flow of available information for effectively managing their organizations (Cyert and March 1963; Szalay and Kelly 1982). Such extraction occurs through a specific cognitive structure or filter: A mindset, as defined by Rhinesmith 1992, p. 63), is "a 'predisposition' to see the world in a particular way that sets boundaries and provides explanations, for example--why things are the way they are, while at the same time establishing guidance for ways in which we should behave". Senior managers' cognitive structures, including their global mindset, affect their actions through three sense-making mechanisms: Scanning/noticing, interpreting and identifying appropriate actions (Kaplan 2008; Nadkarni et al. 2011; Nadkarni and Narayanan 2007; Weick 1995). Such effects particularly manifest under conditions where the operating environment provides a large flow of ambiguous information in the absence of clear cognitive clues and attention and patterns for interpreting the information (Abrahamson and Hambrick 1997).
2.2 Sense-Making Process of Entry Mode Decisions
A global mindset has two underlying functional dimensions--conceptualization and contextualization (Arora et al. 2004; Kefalas 1998). Conceptualization refers to managers' way of thinking and their ability to understand themselves as a part of the business environment with global scope, whereas contextualization signifies managers' ability to take action in a complex local context and adapt their way of thinking and strategies to the context in which their firms operate (Kefalas 1998). A global mindset affects the three stages of the sense-making process, especially under conditions of dynamism, uncertainty, and complexity in the global operating environment (Kiesler and Sproull 1982; Levy et al. 2007).
At the noticing stage, a global mindset acts as a lens through which managers filter all available information on the environment by directing their attention toward certain pieces of information while obstructing others. Thus, a global mindset can influence information-processing patterns. It can direct managers' attention to a variety of sources of information about the business operating environments in host countries or globally. The conceptualization ability of a global mindset elicits a non-judgmental stance on the importance and quality of information, thus enabling managers to be open to and collect information from multiple and diverse sources and arenas. Contextualization ability reflects the cognitive complexity inherent within global mindset, thus enabling managers to recognize, refine, and articulate the available information and integrate it into more complex schemas (Arora et al. 2004).
At the interpretation stage of sense-making, a global mindset helps determine how senior managers perceive, interpret, assimilate and understand information (Levy et al. 2007). A global mindset embeds openness and high levels of differentiation and integrative capabilities, which enable managers to not only perceive but also evaluate and integrate information regardless of its national or cultural origin. Indeed, the integrative abilities offered by a global mindset enable managers to "synthesize information from varied and unlikely sources and incorporate diverse interpretative frameworks into the decision-making process" (Levy et al. 2007, p. 245), guiding the configuration of new and even more complex explanations of the global and local environments (Barr et al. 1992).
At the action stage of sense-making, managers make strategic decisions and possess the power needed to make choices derived from their interpretations of information from the two earlier stages (Hambrick and Mason 1984). The capabilities of managers in the information-processing domain are particularly important in a global operating environment that is characterized as dynamic and complex, where strategic responses involve interpreting and 'enacting' the business environment (Carpenter and Fredrickson 2001; Daft and Weick 1984; Smircich and Stubbart 1985). Managers, particularly those in senior positions, with a global mindset are more likely to reach complex and innovative interpretations of the realities of the global environment (Levy et al. 2007). Hence, global mindset affects managers' cognitive information-processing capability, which can subsequently influence their strategic decision-making in determining firms' strategic response.
In the global operating environment, an MNE's foreign subsidiaries often simultaneously face pressures for local responsiveness in a foreign host country and the MNE's global integration ambitions. On one hand, in order to survive and succeed, MNEs' foreign subsidiaries must conform to established institutional rules in order to obtain external legitimacy when operating in a foreign market (Kostova and Zaheer 1999). Whether the organizational structures, strategies, and practices of the foreign subsidiary in a given country are socially acceptable or not is determined by the established formal and informal institutions in that country (DiMaggio and Powell 1983), and firms respond to external institutional pressure and enact a legitimization processes based on their managers' interpretations of the institutional demands in the host country (Greenwood and Hinings 1996; Lounsbury 2001). A high external demand is likely to require high responsiveness by the investing firms, leading to a lower-level foreign ownership entry mode. On the other hand, MNEs' foreign subsidiaries also face pressure to acquire internal legitimacy within the MNE (Westney 1993) and gain acceptance and approval from the headquarters and other parts of the MNE. Subsidiaries often face internal pressure to institutionalize headquarters' practices in order to implement and accommodate their headquarters' global integration strategies (Kostova and Zaheer 1999), which requires an appropriate subsidiary organizational structure to implement the strategies. A higher level of ownership in a foreign subsidiary is likely to provide the headquarters with higher level of control, enabling MNEs to coordinate and integrate their global strategies and practices (Li et al. 2016). Therefore, other things being equal, the ownership structure of a foreign subsidiary is an outcome of a complex managerial sense-making process (action) that is based on senior managers' noticing of the demands for both external and internal legitimacy faced by the subsidiary and their interpretations of the nature of the external and internal demands via their global mindset.
Managers with a stronger global mindset may be more open to and collect information from various sources, regardless of its national and cultural origin, and have high-level abilities to process, articulate and interpret information in a more meaningful and accurate manner. A stronger global mindset may equip managers with the cognitive capability to adequately conceptualize the global integration strategy and contextualize it in the local environment, which will allow the managers to craft an entry mode with an optimal balance of ownership as perceived by the managers in order to cater to the demands between internal pressure for global integration and local expectations of responsiveness. As a result, managers may opt for either a lower or higher ownership position for their subsidiary depending on how they interpret the nature of the demands for integration vs. local representativeness. For example, managers with a stronger global mindset may sense the importance of external demands for local responsiveness more than the firm's internal demands for global integration than managers with relatively weaker or no global mindset may. In this case, managers may prefer a relatively lower ownership structure for their subsidiaries. In contrast, managers who have weaker global mindset may have limited exposure to the global business environment and may tend to be more ethno-centrically oriented, prioritizing firms' global integration over local responsiveness in host countries, and may thus choose a high ownership entry mode.
The managerial cognition perspective also suggests that managers' sense-making process is influenced by individual characteristics, such as their cognitive personality type, which indicates their dominant decision-making styles (Jung 1971) and their managerial experience (Maitland and Sammartino 2015). Individuals' cognitive personality types manifest 'how' rather than 'how well' they identify and interpret information in order to solve problems (Hough and Ogilvie 2005; Witkin et al. 1977). Depending on differences in personality types, managers exhibit discretion in their own ways of collecting information and generating alternatives (Haley and Stumpf 1989). Research on cognitive styles reveals that individuals exhibit preferences in their orientation toward the world outside of themselves (introversion vs. extraversion), in their perceptual process (intuition vs. sensing) and in their assessment process (thinking vs. feeling) (Hough and Ogilvie 2005). Central to the notion of cognitive personality type is the judgment process, in which one makes decisions through either thinking (i.e., making logical connections) or feeling (i.e., relying on the merits and values of the situation/issue) (Jung 1971). Decisions are functions of a decision maker's cognitive makeup (Henderson and Nutt 1980), and managers' individual characteristics can interact within a given situation leading to different decision outcomes (Ruble and Cosier 1990). Therefore, the influence of managers' global mindset on ownership choice regarding overseas entry modes is not universal and is, in fact, contingent upon managers' cognitive personality type, which can alter their perception of risk and inclination to adopt certain ownership structures for their foreign subsidiaries.
Decisions on subsidiary ownership can be subject to managers' perceptions and interpretations of the level of threat and risks associated with the subsidiary in the host country (Cui and Jiang 2009). When managers have a thinking decision-making style, they are more likely to collect objective information related to procedural, technical, financial, and economic aspects of a foreign subsidiary (Hough and Ogilvie 2005) and interpret uncertainty overseas as a negative force through their cognitive structure (i.e., mindset). Hence, in order to avoid potential market risk and gain local legitimacy, they may opt for a relatively lower ownership entry mode. In contrast, when managers have a feeling decision-making style, they may prefer to use subjective information based on their personal values, and they can be more tolerant of potential risk in the foreign market (Henderson and Nutt 1980). Given their cognitive structure, they may have different interpretations and see more opportunities rather than threats associated with a proposed FDI project. Therefore, in order to increase their control and leverage such an opportunity, they may prefer a relatively higher ownership entry mode.
Researchers also suggest that managers differ in how they make sense of internationalization decisions, especially in relation to how they recognize and articulate different knowledge areas (Maitland and Sammartino 2015) because of the heterogeneity in their stored knowledge gained from experience (Denzau and North 1994). Managerial experiences allow them to draw on more detailed and extensive domain knowledge, which may increase the knowledge base in breadth and depth of the cognitive structure (i.e., mindset), having a stronger positive effect on their cognitive capability (i.e., sense-making). As a result, this process may enhance managers' ability to notice and interpret the information, leading to a more accurate interpretation of the environment. Managers who have more experience in dealing with global operations may have a stronger ability to balance the demand between local responsiveness and the firm's internal global integration and may manage the risks associated with external legitimacy more effectively than managers with less relevant experience. Therefore, we argue that managerial experience can alter the influence of managers' global mindset on ownership choices regarding overseas FDI entry modes. We conceptualize decision-making regarding foreign market entry mode choices as a cognitive process for the senior manager in a firm, and this process is driven by the senior manager's global mindset and contingent upon the senior manager's cognitive decision-making style and managerial experience. The conceptual framework is depicted in Fig. 1.
2.3.1 Global Mindset and Ownership Decisions
A managerial global mindset has been conceptualized as the possession of a global view and a local adaptation capacity (Kefalas 1998). This mindset involves three overarching capabilities, including the ability to process and analyze global business information, the capacity to use globally relevant information during decisionmaking, and the capacity to foster relationships with stakeholders (Bouquet 2005). Studies on the global mindset suggest that managers with a stronger global mindset are superior in their cognitive abilities and sense-making capabilities, which help them to understand the global environment (Jeannet 2000), mitigate the tension between different demands and concerns (Arora et al. 2004; Kefalas 1998), differentiate and integrate different markets and cultures (Gupta and Govindarajan 2002), and make sense of issues around the world (Bouquet 2005; Levy 2005). When expanding overseas, firms are likely to face dynamic and complex environments (Levy et al. 2007). We contend that under such conditions, firms must rely on senior managers' sense-making when using their cognitive filter (i.e., global mindset) to make strategic decisions, including the level of ownership in overseas subsidiaries, because the environment may not provide clear cognitive cues.
In the first step of this sense-making, senior managers usually scan environmental stimuli based on their perceptions (Pfeffer and Salancik 1978); hence, managers' attention is directed toward certain groups of environmental stimuli (Levy et al. 2007). Given that one of the defining characteristics of a global mindset is managers' ability to simultaneously consider local and global market conditions (Govindarajan and Gupta 2001; Gupta and Govindarajan 2002), we suggest that senior managers with a stronger global mindset are likely to direct their attention toward a wide range of information about global and local markets (Levy et al. 2007). This increased information use allows senior managers to have more raw material to assist in their interpretation (Knight and McDaniel 1979), which facilitates the creation of a base of new knowledge (Bogner and Barr 2000; Nadkarni and Narayanan 2007) and reduces their likelihood of having discounting bias (i.e., oversimplifying their environments and failing to notice less salient but important and powerful environmental stimuli) (Kiesler and Sproull 1982). Moreover, a stronger propensity for information scanning gives senior managers a sense of mastery (Eisenhardt 1989) and makes them more likely to perceive factors as 'controllable' (Thomas et al. 1993; Thompson 1967). Because more comprehensive information scanning contributes to the early detection of environmental disturbance (Jackson and Dutton 1988), senior managers feel that they are more capable of predicting long-term foreign investment outcomes and thus experience a greater sense of control (White et al. 1980). In addition, research reveals that senior managers who use additional information are more confident in their ability to ensure a fit between their firm and the environment (Aldrich 1979); thus, they are more likely to notice and focus on the positive aspects of an issue (e.g., overseas expansion) (Thomas and McDaniel 1990). This finding implies that senior managers are more likely to interpret overseas expansion more positively and label it as an 'opportunity' rather than as a 'threat' on account of the values embedded within their global mindset (Levy et al. 2007). We suggest that these positive interpretations by senior managers will associate proposed FDI projects with positive outcomes and expectations of gain (Jackson and Dutton 1988), and they do not need to rely on high levels of control (i.e., higher ownership in foreign subsidiaries) to safeguard against external threats.
Furthermore, we contend that senior managers with a stronger global mindset are also more aware of issues and challenges such as organizational legitimacy, not just techno-economic ones. Prior work shows that MNEs' organizational legitimacy, which refers to the acceptance of the organization by their environment (Kostova and Zaheer 1999), is critical for the survival and success of the organization (Dowling and Pfeffer 1975; Scott 1995). One way for MNEs to achieve such legitimacy is to give more subsidiary ownership to local partners (Bangara et al. 2012; Chan and Makino 2007). By partnering with legitimate local firms, foreign MNEs can demonstrate the local identity of their subsidiaries, and their activities need not be perceived as foreign or harmful to local firms (Dobrev 2001; Xu and Shenkar 2002). Lower ownership in a foreign subsidiary signals a stronger local identity, which means that the subsidiary is more isomorphic with other indigenous firms and is thus more legitimate (Chan and Makino 2007). Hence, we argue that senior managers in MNEs with a stronger global mindset are more capable of making sense of environmental stimuli and are more aware of legitimacy challenges when expanding overseas; therefore, they choose lower levels of ownership in foreign subsidiaries in exchange for organizational legitimacy.
In contrast, senior managers with a weaker global mindset are characterized by lower cognitive abilities and information-processing capabilities (Levy et al. 2007), which could undermine their ability to scan and notice information while making ownership decisions for overseas subsidiaries. Because of these lower levels of information scanning and noticing capability, senior managers are more likely to evoke discounting bias and thus fail to notice important environmental stimuli and tend to overlook potential market opportunities. Thus, senior managers may give these environmental stimuli more negative interpretations and label them as threats rather than opportunities. To overcome such host market threats, senior managers may prefer higher ownership in foreign subsidiaries to ensure higher levels of control and intra-firm integration (Cui and Jiang 2009). Furthermore, we suggest that senior managers with a weaker global mindset are more likely to overlook legitimacy challenges. This lack of awareness means that senior managers with a weaker global mindset may not consider exchanging ownership for organizational legitimacy and thus may prefer a relatively higher share in ownership structure in a proposed FDI project than would managers with a stronger global mindset. These arguments underpin our first hypothesis:
Hypothesis 1: The global mindset of senior managers decreases ownership level in overseas subsidiaries.
2.3.2 Moderating Role of the Cognitive Style of Decision-Making
Research on social cognition has found that managers' idiosyncratic decision-making behaviors are influenced by psychological characteristics, such as their cognitive style, personality, and interests (Taylor 1984). In particular, a decision maker's cognitive style can influence how he or she selects a course of action (Mason and Mitroff 1973). Because different cognitive styles develop and display discrete preferences for certain modes of gathering information, thereby generating and evaluating alternatives, these cognitive styles can affect the strategic decision-making of managers (Haley and Stumpf 1989), including their decision-making of ownership in overseas subsidiaries. One of the most widely accepted theories in this area was advanced by Carl Jung (1971), who studied human behavior and proposed that people develop two distinct and alternative cognitive styles of decision-making based on their judgment: Thinking and feeling. Both the thinking and feeling styles are used to make rational decisions. However, their degree of rationality is influenced by an individual's judgment of the data received. Jung (1971) viewed these cognitive styles as dominant rather than absolute modes of expression, and people tend to have their preferred cognitive styles (Simon 1987).
Thinking-dominant individuals emphasize both logical and formal modes of reasoning, whereas feeling-dominant individuals generate personalized value judgments in their reasoning (McGuiness 2004). Thinkers make rational and impartial decisions based on what they believe to be fair and correct according to predefined rules of behavior (Jung 1971). These individuals tend to make decisions from a more detached standpoint and judge decisions based on what seems reasonable, causal, consistent, and matched with a given set of rules (McGuiness 2004). In contrast, feelers think and explain in human terms and focus on affective and personal processes in decision-making, emphasizing how others might respond (Sharp 1987). These individuals tend to make decisions by associating or empathizing with the situation, having an 'inside view', and considering the situation to achieve the best balance of consensus and fit depending on the needs of the people involved (McGuiness 2004).
We argue that during the ownership decision-making for overseas subsidiaries, sense-making process will differ between senior managers who have different dominant cognitive styles (i.e., thinking or feeling) such that the influence of their global mindset on levels of ownership in overseas subsidiaries is contingent upon the cognitive style of senior managers. First, when senior managers use their global mindset to make sense of environmental stimuli, their dominant cognitive styles can lead to different focuses on information during the scanning/noticing stage of their sense-making process. Senior managers who have a thinking cognitive style prefer hard data and logical analysis and tend to conduct orderly sequential searches for relevant information within specified areas. Conversely, senior managers with a feeling cognitive style tend to focus on the feelings of different parties and are more sensitive to cues (Hunt et al. 1989), which implies that senior managers with a thinking cognitive style may source their information from procedural, technical, financial and economic aspects of the proposed FDI project, whereas senior managers with a feeling cognitive style may consider personal impacts (e.g., individual feelings or emotions) of the proposed FDI project. Moreover, senior managers with a thinking cognitive style prefer to use objective information, whereas senior managers with a feeling cognitive style prefer to use information based on their person-centered values (Hough and Ogilvie 2005). Thus, when senior managers have a thinking cognitive style, their global mindset is more likely to scan/notice more objective information during their sense-making process, and this behavior reduces the likelihood of discounting bias. By contrast, when senior managers have a feeling cognitive style, their global mindset is more likely to collect subjective information based on their person-centered values, which might evoke illusory bias, causing senior managers to make premature or inappropriate correlation and causation judgments through the false association of events (Kiesler and Sproull 1982).
Second, senior managers' dominant cognitive styles can affect their levels of risk tolerance (Henderson and Nutt 1980), which lead to varied interpretations of information when using their global mindset to make sense of the environmental stimuli. Empirical evidence suggests that senior managers with a thinking cognitive style are more likely to perceive conflict negatively because it creates uncertainty, whereas those with a feeling cognitive style tend to view each decision situation as unique and are more adaptable and react less intensely to conflict-filled environments (Henderson and Nutt 1980). Hence, the difference in levels of risk tolerance between the two cognitive styles suggests that senior managers with a thinking cognitive style are more likely to perceive an incompatible or uncertain environment (e.g., an overseas market) as a negative force than are managers with a feeling cognitive style, and the former may interpret environmental stimuli more negatively in relation to a proposed FDI project. As a result, when senior managers have a thinking cognitive style, their global mindset is more likely to view the proposed FDI project from a detached perspective and label it as a 'threat'; this view may lead to a further reduction of ownership in the subsidiary to avoid potential market risk and to gain local legitimacy. By contrast, when senior managers have a feeling cognitive style, they are more tolerant of risk and tend to make decisions based on person-centered values. We argue that their global mindset makes them more likely to view the proposed FDI project as an 'opportunity', and they will have more incentives to increase ownership in a subsidiary because this decision increases their control over resources, which leads to the increased compensation, power, and prestige of senior managers (Bebchuk and Grinstein 2005; Jensen and Murphy 1990; Rose and Shepard 1997; Shleifer and Vishny 1989). This phenomenon is evident in MNEs originating from emerging economies, where senior managers tend to seek investment decisions that instill individual and national pride to enhance their self-worth, sense of accomplishment and superiority (Hope et al. 2011; Tracy and Robins 2004). These discussions lead to our next hypothesis:
Hypothesis 2: The negative relationship between senior managers' global mindset and ownership levels in overseas subsidiaries is stronger when senior managers have a 'thinking' decision-making style and weaker when they have a 'feeling' decision-making style.
2.3.3 Moderating Role of Managerial Experience
A large number of cognitive science and management studies have shown that differences in managers' experience-based expertise are akin to sources of heterogeneity in firm-level strategic decisions (Gavetti 2012; Kaplan 2011; Powell et al. 2011). In particular, empirical evidence has revealed that managerial experience can influence managers' information processing and decision-making (Taylor 1975). Researchers have indicated that decision makers who have spent more time in their positions (i.e., those who have more managerial experience) become better acquainted with the decision-making process, have greater knowledge and expertise, and develop more influence in firms (Finkelstein and Hambrick 1996; Hambrick and Fukutomi 1991). More managerial experience can also enhance senior managers' learning, which reduces their outsiders' information and knowledge deficit (Johanson and Vahlne 1977; Kostova 1999; Rugman and Verbeke 2003). This may increase the knowledge base with regard to the breadth and depth of the cognitive structure (e.g., global mindset) of senior managers and enhance their cognitive capability. Hence, those senior managers develop greater autonomy and seek opportunities to pursue strategic options that involve greater risk and higher levels of resource requirements. We argue that the sense-making process during senior managers' ownership decisionmaking for overseas subsidiaries will vary among senior managers who have different managerial experiences, such that the influences of their global mindset on the level of ownership in overseas subsidiaries is subject to their managerial experience.
In the first step of managerial sense-making, experienced senior managers are more likely to search for more important information (Chiesi et al. 1979). Managerial experience also allows senior managers to place more weight on relevant information and less on peripheral (irrelevant) information (Brucks 1985). Such abilities can enhance senior managers' information scanning and noticing when using their global mindset to make ownership decisions for overseas subsidiaries, as managers can refer to their detailed knowledge of various domains, such as business systems, consumer behavior, cultural norms, government regulations and stakeholder powers. For example, senior managers from MNEs in emerging economies may draw on their own managerial experience in weak formal and insufficient market-supporting institutions and search for more business ties to access local business networks (Khanna and Palepu 1997). In contrast, the lack of such managerial experience may not alert senior managers to pursue such information. Senior managers with more managerial experience may also have better knowledge that their firm-specific advantages must adapt to a different host country's market conditions; therefore, those managers are more likely to seek information on the firm-specific advantages' cross-border transferability compared to those managers with less managerial experience (Maitland and Sammartino 2012).
Furthermore, managerial experience encoded in senior managers' mental models can enhance their ability to interpret information (Maitland and Sammartino 2015), as past experience creates frameworks that mitigate ambiguity and generate meaning (Ramaprasad and Mitroff 1984), which in turn increases the accuracy of their interpretation and facilitates a better understanding of environmental stimuli (Barr et al. 1992). Increased managerial experience enables senior managers to use more relevant and accurate information, and they tend to focus on the positive side of an issue (Thomas and McDaniel 1990). Richer experience also enables the senior managers to develop stronger cognitive abilities and greater confidence in balancing out demands and creating a fit between their firm and the external environment (Thomas et al. 1993). Therefore, we argue that when using their global mindset to make ownership decisions for overseas subsidiaries, a more comprehensive interpretation of environmental stimuli stemming from managerial experience can in turn reduce senior managers' perception of uncertainty of the host country and thus affect their levels of risk-taking, involvement, and commitment (Kahneman and Tversky 1984). Moreover, increased managerial experience makes it easier for senior managers to identify viable alternative legitimizing channels; hence, there is less pressure for senior managers to trade equity for legitimacy, leading to greater ownership in a proposed FDI project. For example, experienced senior managers who are able to draw on more detailed and extensive domain knowledge may easily find alternative solutions to deal with the pressure for external legitimacy. They may use legitimacy spillovers by associating the subsidiary with other highly legitimate local companies (Kostova and Zaheer 1999), which helps create a positive image about the overseas subsidiary and lower the pressure for external legitimacy without trading their equity. Experienced managers may even choose to use more active responses to tackle the pressure for legitimacy, as they might purposefully use influence tactics to mitigate legitimacy pressure by redefining existing institutionalized values and beliefs (Oliver 1991) instead of having a lower level of ownership in the overseas subsidiary.
In contrast, limited managerial experience may undermine senior managers' information scanning, which could lead to a less positive interpretation of the environmental stimuli. Under such circumstances, senior managers tend to use a simplified assessment of the situation and distort their information processing (Smart and Vertinsky 1984), which may evoke discounting bias (Kiesler and Sproull 1982) and limit their responses to external challenges, including how to obtain local legitimacy. As a result, they have fewer alternative legitimizing channels, and they have to trade equity for legitimacy under pressure, thereby, choosing a lower level of ownership in a proposed FDI project. These arguments provide support for the following hypothesis:
Hypothesis 3: The negative relationship between senior managers' global mindset and ownership levels in overseas subsidiaries decreases with senior managers' experience.
3.1 Sample and Data Collection
In this study, we tested our hypotheses using Chinese MNEs. China has become a major source of outward FDI, and by the end of 2012, it was ranked the third and thirteenth largest investing country in terms of outward FDI flow and outward FDI stock, respectively (MOFCOM 2013). Since strategic management in China is largely leader-oriented (Tsui et al. 2004), senior managers have great authority over Chinese firms (Deng 2009). Furthermore, given that many Chinese firms have limited international experiential knowledge, they tend to rely on top managers' mindsets to scan international markets and guide their internationalization (Yiu and Makino 2002). Therefore, the influence of top managers' mindset on internationalization decisions is more salient in Chinese firms than their counterparts from developed economies.
Similar to prior studies (Li 2015; Li et al. 2016), we used part of a large survey database that we collected from Mainland Chinese MNEs. We identified the population using the 2010 Statistical Bulletin of China's Outward Foreign Direct Investment, which indicated that approximately 13,000 Chinese MNEs had conducted outward FDI projects by the end of 2010. Given that the list of these MNEs was not released by the Chinese government, we manually collected the names of MNEs from multiple government sources. The 2010 Statistical Bulletin of China's Outward Foreign Direct Investment comes with a list of the top fifty Chinese MNEs based on their FDI stock volume, total size of foreign assets, and foreign revenue. A total of 72 firms were extracted after combining the three lists and eliminating the overlaps. We also found lists of Chinese MNEs from the information service website of the provincial government. We identified 914 firms from these sources. We also accessed a database of Chinese stock markets for listed companies. We found over 1300 Chinese firms listed in two stock exchanges, and extracted 45 firms with ten per cent equity ownership or more in their overseas affiliates. Finally, we performed online searches to screen for online content containing key words that are related to Chinese FDI firms and Chinese outward FDI. A total number of 350 MNEs were identified from this web search. In total, a sample of 1381 firms was identified. We then designed questionnaires for the senior managers in the Chinese MNEs' headquarters and overseas subsidiaries. Each respondent needed to be a senior manager (e.g., a director or general manager) directly in charge of his or her firm's outward investment activities at its headquarters and subsidiary. The headquarters respondents were asked to identify their firms' most recent outward FDI project and answer all questions based on that particular project. Then, we distributed the subsidiary version of the questionnaires to one subsidiary respondent (senior manager directly in charge of the operations in that particular subsidiary) who is identified by the headquarters respondent from the same firm.
To improve the response rate, we also followed Li et al. (2016) and used a two-step procedure for our survey. First, we identified a potential respondent from each firm who had the most knowledge about decision-making related to the firm's most recent FDI project by telephone pre-screening. We emailed them research information and asked potential respondents for their initial consent to participate. Based on the telephone pre-screening, we then commenced with the second step of delivering questionnaires. To ensure that answers from both the headquarters and subsidiaries were not answered by the same respondent and to avoid having respondents from both sides share their answers, we divided the questionnaire delivery into two phases. In the first phase, we presented questionnaires to respondents at the headquarters only. After the questionnaires were delivered, we sent three rounds of reminders to the potential respondents via email and made biweekly phone calls over a six-week period. After the questionnaires from the respondents at the headquarters were collected, we commenced with questionnaire delivery to the subsidiary respondents. In total, we received 392 responses from the 1381 MNEs, with two questionnaires from each MNE. Of the 47 responses deemed unusable, thirty-four questionnaires were incomplete, and the remaining four were from Hong Kong-headquartered firms, which is not considered part of Mainland China in our study. Thirteen questionnaires with a significant number of missing values were also excluded from the data analysis. In total, 345 responses were usable, yielding a response rate of 24.98%.
3.2.1 Entry Mode
Our dependent variable, entry mode, is the initial headquarters' ownership in the overseas subsidiary. Following prior studies (Chan and Makino 2007; Cui and Jiang 2012), we used the percentage of equity share of ownership as the measure of entry mode decisions. Entry mode information was collected from our surveys of both headquarters and respective subsidiaries, and the data were then crosschecked between the responses of headquarters and subsidiaries and with secondary data from the Orbis Database.
3.2.2 Global Mindset
We used 39 statement items developed by Arora et al. (2004) and recommended by Levy et al. (2007) to measure our independent variable, global mindset (refer to Appendix 1). The items include 19 statements that measure the conceptualization of and 20 statements that measure the contextualization of a global mindset at work and in life (where 1 represents 'strongly disagree' and 5 represents 'strongly agree'). The original scale had 20 items for the conceptualization of a global mindset, but we omitted one item--'Doing business with former enemies is not patriotic'--because it was deemed culturally insensitive in the Chinese context. According to Govindarajan and Gupta (2001), Gupta and Govindarajan (2002), and Kefalas (1998), a global mindset is characterized by high levels of both conceptualization and contextualization capabilities and the ability to simultaneously consider local and global dynamics, which suggests that the global mindset measurement must be a composite score of both conceptualization and contextualization dimensions. Therefore, we measured global mindset by using a composite variable for the 39 items. The scale reliability test resulted in a Cronbach's alpha value of 0.94.
3.2.3 Cognitive Decision-Making Style
Following McGuiness (2004), we adopted ten pairs of items (feeling vs. thinking decision-making styles) to measure how managers make decisions (refer to Appendix 1). The respondents were asked to choose an item representing either feeling or thinking for each pair. To determine which decision-making style was preferred by a particular manager, we summarized the responses for feeling and thinking. For each respondent, the decision-making preference was defined as a feeling decision-making style if the respondent chose six or more items from the feeling decision-making item list and was identified as a thinking decision-making style if six or more thinking decision-making items were chosen. The feeling decision-making style was coded as 0, and the thinking decision-making style was coded as 1.
3.2.4 Managerial Experience
Following Acquaah (2012) and Kor and Mahoney (2005), we used the senior managers' tenure (i.e., the number of years that a senior manager held his or her position until the year the entry decision was made) as a proxy for managerial experience.
To eliminate alternative interpretations of the results, we controlled for the age of the parent firm, the parent firm's experience with outward FDI (OFDI), the parent firm's industry, percentage of state ownership of the parent firm, cultural distance between China and host country, respondents' gender, respondents' experience in the current firm, the direction and focus of respondents' energy, and the respondents ' preferred way to gather information. The age of the parent firm was expressed as the number of years since its establishment (Jiang and Stening 2013). The experience of the parent firm with OFDI influences firms' risk perception and resource commitment (Anderson and Gatignon 1986; Brouthers 2002; Cui and Jiang 2012) and was measured as the number of years from when the firm made its first FDI entry to the time when the entry was reported in the survey (Cui and Jiang 2012). The industry of the parent firm was measured using a dummy variable with the value of 1 for manufacturing and 0 for all non-manufacturing industries. The percentage of state ownership in the parent firm reflects the home government's resource and political support (Cui and Jiang 2012), which may affect ownership decisions when Chinese firms conduct FDI projects. Cultural distance between China and the host country was included to capture institutional differences, as a difference in institutions may affect ownership strategies (Eden and Miller 2004). We followed prior studies (Drogendijk and Slangen 2006; Li et al. 2016) and used a five-item Likert scale adapted from Hofstede's five cultural dimensions (Hofstede 2005) to measure cultural distance between China and the host countries. We asked our respondents to indicate their perceived degree of differences on each of Hofstede's cultural dimensions between China and the host country, where T represents 'very low' and '5' represents 'very high'. We then averaged the scores of the five questions to form the compound variable of cultural distance. Respondents' gender was measured using a dummy variable with the value of 1 for male and 0 for female (Lyness and Heilman 2006). Respondents' experience in the current firm was measured by the number of years they had worked in the firm, as their experience can cause a change in their global mindset over time (Gupta and Govindarajan 2002). Finally, the direction and focus of respondents' energy and the respondents' preferred way to gather information are also included as control variables because the two personality types may also influence the way people behave (McGuiness 2004; Myers 1998) and are measured using MBTI Preferences paired items from McGuiness (2004) (refer to Appendices C and D). The respondents were asked to choose an item representing either extroversion or introversion for each pair under 10 paired items for the direction and focus of respondents' energy, and an item representing either sensing or intuition for each pair under ten paired items for their preferred way to gather information. To determine the preferred direction and focus of respondents' energy, and preferred way to gather information by a particular manager, we summarized the responses for extroversion or introversion and for sensing or intuition. For each respondent, the direction and focus of energy were defined as extroversion if the respondent chose six or more items from the extroversion item list and identified as introversion if six or more introversion items were chosen. The introversion direction and focus were coded as 0, and the extroversion direction and focus were coded as 1. For each respondent, the preferred way to gather information was defined as sensing if the respondent chose six or more items from the sensing item list and identified as intuition if six or more intuition items were chosen. The sensing way to gather information was coded as 0, and the intuition way to gather information was coded as 1.
3.3 Common Method Variance
We applied the following measures recommended by Chang et al. (2010) to minimize the possibility of common method variance in our data. First, we developed separate questionnaires for headquarters and subsidiary respondents, which allowed us to access different information sources (Podsakoff et al. 2003). Furthermore, we administered our questionnaire in two stages. We began to gather subsidiary data after all the questionnaires from headquarters managers were collected. Adopting this method of collection at different points in time reduced the likelihood that the same individual would provide answers to both questionnaires or that individuals from both sources shared their answers with one another. Second, we clearly stated that there were no right or wrong answers before the respondents answered the questionnaires, and we ensure the anonymity of their identities and the confidentiality of their answers (Chang et al. 2010). This procedure encouraged the respondents to answer the questions as honestly as possible; thus, they would provide less biased responses.
4.1 Preliminary Analyses
Table 1 shows the means, standard deviations, and correlations. As the table shows, none of the correlation coefficients exceeds 0.6, except the correlation between experience in current position and experience in current firm. Given that a correlation coefficient greater than 0.6 is considered high (Churchill 1991), we also checked the variance inflation factors (VIFs) during the regression analysis. The VIFs for all variables are well below the suggested cutoff of ten (Hair et al. 2006). Therefore, multicollinearity is not a concern in any of the correlations.
4.2 Hypothesis Testing
To test our hypotheses, we performed moderated hieratical regression analysis. In the moderated hieratical regression analysis, we used data from headquarters for all the control variables, the independent variable, and moderators, and we used data from subsidiaries for the dependent variable. Table 2 reports the estimates.
Hypothesis 1 proposed that a negative relationship exists between managers' global mindset and levels of ownership in the overseas subsidiary. The negative sign of the beta coefficient in Model 2 suggests that managers with a stronger global mindset tend to choose an entry mode with lower ownership, and this relationship is statistically significant (p < .01). Therefore, Hypothesis 1 is supported.
Hypothesis 2 proposed that a manager's thinking decision-making style moderates the relationship between his or her global mindset and level of ownership in the overseas subsidiary. This hypothesis is supported by the empirical results in Model 4 (p <0.05). The results in Fig. 2 indicate that when senior managers have a thinking decision-making style, there is a stronger negative relationship between their global mindset and the level of ownership in the overseas subsidiary.
Hypothesis 3 proposed that managerial experience moderates the relationship between a manager's global mindset and ownership levels in overseas subsidiaries. We find that the negative relationship between a global mindset and ownership levels in overseas subsidiaries is weaker when senior managers have more experience in their position in Model 6. This result supports our hypothesis (p < 0.05), and the moderating effect is depicted in Fig. 3. We also followed prior studies using the Johnson-Neyman technique (i.e., floodlight analysis) to identify regions in the range of the moderating variable in which the effect of the independent variable on the dependent variable is and is not significant (Johnson and Neyman 1936; Spiller et al. 2013). As shown in Fig. 4, the Johnson-Neyman point for p<0.05 (t = - 1.97 and 1.97) for the managerial experience occur at values of 9.21 and 38.74, which indicates that managers' global mindset results in significantly lower levels of ownership in the overseas subsidiary for values of managerial experience below 9.21 and above 38.74.
Based on the psychological cognitive base and values perspectives, we developed and empirically examined a contingency model that specifies how senior managers' cognitive decision-making style and managerial experience interact with their global mindset orientation in affecting the level of ownership sought in foreign subsidiaries. We discuss our three main findings. First, we theorize and provide empirical evidence to validate the relationship between a managerial global mindset and ownership in an FDI entry mode. Specifically, we affirm that senior managers with a stronger global mindset tend to choose a lower-level ownership entry mode for their foreign subsidiaries. Indeed, senior managers' stronger global mindset may increase their awareness of institutional influences from both the home and host countries, thus constraining their strategic choices (Cui and Jiang 2012; Davis et al. 2000; DiMaggio and Powell 1983). When expanding overseas through FDI, senior managers tasked with making strategic decisions are often challenged with myriad layers and sources of information relating to both home and host environments. Some of this critical information could be ambiguous and uncertain. Such critical information could include adherence to institutional demands from both the home and host countries, such as the home country's control of outward FDI to prevent capital flight (Cui and Jiang 2010; Deng 2004; Luo et al. 2010) and the host country's regulatory restrictions or administrative measures foreign investment into their country in order to protect domestic business and/or national interests (Cui and Jiang 2012). To respond to these institutional pressures manifested in the information obtained, senior managers call on their abilities to make sense of the information via their global mindset orientation (or cognitive filter). Consequently, the cognitive base and values embedded within the managers' global mindset inform their strategic decisions relating to the level of ownership in overseas subsidiaries, which is a critical strategic decision that senior managers have to make.
The finding suggests that, as a response to such institutional pressures in a complex and challenging information environment, senior managers with stronger global mindsets tend to choose lower levels of ownership in their overseas subsidiaries. We argue that this choice is further exacerbated in MNEs that lack firm-specific advantages. Chinese MNEs, for example, are generally devoid of appropriate global managerial talent (i.e., talent without sufficient exposure to global endeavors or experiences) and management know-how (Jiang and Stening 2013; Luo and Tung 2007). In turn, these deficiencies become significant competitive disadvantages (Child and Rodrigues 2005), which may present a negative social image and create a discriminatory hazard for firms and managers in the host country (Eden and Miller 2004). MNEs owned by governments may be perceived as state powers and bureaucracies that may transmit a negative political image for the firm and its managers (Cui and Jiang 2012), and these negative social and political images stemming from competitive disadvantages can undermine MNEs' efforts to establish local legitimacy (Li et al. 2016). With a stronger global mindset, senior managers are more likely to filter information to become aware of such competitive disadvantages. At the same time, they are more likely to value cultural diversity in foreign countries, while simultaneously maintaining a certain degree of strategic cohesion within the MNE internally (Paul 2000). As a consequence, they would prefer a lower-level ownership in overseas subsidiaries to gain legitimacy, given that lower ownership in the overseas subsidiary underpins stronger local identity and is more isomorphic (Chan and Makino 2007). A stronger global mindset affords senior managers a superior cognitive ability to make sense of environmental stimuli and become mindful of legitimacy trade-offs, especially when they are relatively new to the international foray and therefore influence their decisions toward lower levels of ownership in overseas subsidiaries.
Our second finding provides empirical evidence to support the influence of cognitive preference on entry mode choices. The results suggest that when senior managers have a thinking decision-making style, there is a stronger negative relationship between their global mindset and the ownership structure in the overseas subsidiary, which affirms that cognitive preference (feeling vs. thinking) and values that help shape this preference (e.g., risk-taking) play an important role in influencing the effect of global mindset on the level of ownership in outward FDI. Such personal values are "beliefs about preferable modes of behavior and end-states that shape attitudes" (Schoham et al. 2015, p. 81). Moreover, they are cognitive representations of abstract goals (Schwartz 1992) that ultimately inform managers' cognitive preferences. The finding provides an underpinning for the argument that the level of risk tolerance inherent in cognitive styles is an important consideration in strategic decisions because they can influence the sense-making process in terms of their scanning/noticing and interpretation of environmental stimuli (Henderson and Nutt 1980) and result in the identification of appropriate actions, such as the level of ownership in outward FDI. The thinking managers' preference for reliance on logical reasoning based on factual and objective information informs their perception of uncertain overseas markets in a negative light. Consequently, managers with a thinking style could interpret information regarding conflict-filled uncertain environments as a threat, i.e., negatively, when making decisions on proposed overseas FDI and therefore prefer a further reduction in the ownership at the overseas subsidiary. This process will help managers and--through their decisions--the firm to avoid any unforeseen or unquantifiable risks and help gain legitimacy.
The third finding provides empirical evidence to support the notion that the level of ownership in the overseas subsidiary based on managers' global mindset orientation is moderated by their managerial experience. Substantial global managerial experience improves managers' ability to interpret information (Maitland and Sammartino 2015) and arguably gain a better understanding of environment stimuli (Barr et al. 1992), thereby providing more assurance of the accuracy of their interpretations. This ability consequently influences managers' risk-taking abilities (Kahneman and Tversky 1984) and enables managers with more managerial experience to choose a higher level of ownership in an overseas subsidiary. Therefore, managerial experience plays a significant role in weakening the negative relationship between senior managers' global mindset and entry mode choice. As managers spend more time and gain more experience, they actively participate in or are exposed to complex multinational activities (Arora et al. 2004). Before managers arrive at the entry mode decision, they call on their global mindset, which has been shaped over time by experience. Greater experience will likely encourage managers to find suitable alternative legitimizing channels, and consequently they will opt for greater ownership in FDI projects. We suggest that managerial experience becomes an asset that ultimately aids in the decision-making process for overseas expansion through FDI.
This paper contributes to the literature on entry mode decisions and global mindset in three ways. First, this study improves our understanding of the determinants of entry mode decisions. While a rich body of literature shows that entry mode decisions can be affected by a broad range of techno-economic factors at the macro (institutional, country or industry) and meso (organizational) levels, there is rather limited empirical evidence on the influence of background characteristics at the managerial level. Only one reported study has examined the influence of senior managers' observable characteristics (position tenure, educational background, functional background and international experience) on entry mode decisions (Herrmann and Datta 2002). However, our study empirically validates the notion that senior managers' unobservable characteristics, such as managerial cognition (i.e., global mindset), can affect entry mode decisions through their sense-making process. This finding suggests that firms' entry mode decisions are also tied to managerial cognition--that is, the lens through which senior managers sense the business environment and make critical decisions. Furthermore, by using the sense-making mechanism, our study provides detailed knowledge of how entry mode decisions are actually made by senior managers, which provides a thorough description of the managerial decision-making process. As such, we address the calls made by Herrmann and Datta (2002) and Hennart et al. (2015) to capture additional cognitive variables in study entry mode decisions and scrutinize the entry mode decisionmaking process by studying the impact of global mindset, thereby offering a unique theoretical insight on the factors affecting entry mode decisions.
Second, we extend the application of managerial cognition in entry mode studies. While managerial cognition has been used to explain MNEs' internationalization strategies and performance in general (Levy et al. 2007), little is known about how senior managers' cognitive perspectives specifically affect entry mode decisions in MNEs. Our findings highlight that managerial cognition (i.e., global mindset) is a critical determinant of the entry mode via overseas FDI decisions. We find that the cognitive and information-processing capabilities embedded within senior managers' global mindset assist them in conceptualizing complex global dynamics (Jeannet 2000) while attempting to identify the level of ownership in the overseas subsidiaries. This study helps us to understand the importance of global mindset on entry mode decisions by identifying two significant moderators (decision-making style and managerial experience). Based on the psychological cognitive base and values perspectives our study postulates that senior managers' unobservable (decision-making style) and observable (managerial experience) characteristics can interact with global mindset in shaping entry mode decisions. It extends the literature by specifying how unobservable and observable managerial characteristics moderate the relationship between senior managers' global mindset and level of ownership in overseas subsidiaries. It also highlights that the fit between senior managers' global mindset and other (unobservable and observable) managerial characteristics is critical in shaping entry mode decisions. Our finding lend evidence to support the argument that the eclectic models proposed by Dunning (1980, 1988) and Hill et al. (1990) and the strategic tripod models put forward by Peng et al. (2009) and Peng et al. (2008) are incomplete in explaining MNEs' complex strategic decision-making. Therefore, a managerial cognition perspective should be incorporated into these models or frameworks as a fourth dimension to make these prior eclectic models or frameworks more comprehensive in order to explain multiple and complex decisions and strategies of MNEs. A global mindset and a cognitive decision-making style--which are examined in this study together with a domestic mindset (Nadkarni et al. 2011; Nadkarni and Perez 2007)--are three of the key variables nested under the dimension of the managerial cognition construct.
Third, this study empirically validates a multidimensional conceptualization and measurement of managers' global mindset. Within the context of entry mode decisions by Chinese managers in Chinese MNEs, our study is among the first to further support suggestions from prior studies (Arora et al. 2004; Levy et al. 2007) that the global mindset should be captured by a multidimensional rather than one-dimensional measurements due to both the complex cognitive structure and the level of complexity and multidimensionality of the global and local business environments.
5.2 Practical Implications
The findings also have practical implications for both senior managers and organizations. Our results indicate the importance of a global mindset for senior managers vested with strategic decision-making responsibilities in organizations seeking to expand overseas through FDI. Gupta and Govindarajan (2002) argue for a managerial global mindset to be cultivated over time. This argument is strengthened by our findings of both observable and unobservable managerial characteristics that interact with a global mindset to influence strategic decisions. Indeed, senior managers should not only understand the importance of a global mindset in their respective roles and work toward strengthening it but also identify and proactively initiate mechanisms that will help cultivate their managerial characteristics concurrently. Achieving the optimal balance between a global mindset and the managerial characteristics that interact with it will help senior managers navigate the challenges and complexities inherent to global strategic decision-making, including overseas FDI.
The implications for organizations are equally important. Organizations run both financial and reputational risk if incorrect decisions related to overseas FDI ownership levels are made and senior managers--in their decision-making roles--must consequently align their decisions with their organization's strategic priorities, including a penchant for risk-taking. Given the demonstrable importance of managerial global mindset from our findings, organizations are encouraged to ensure that senior managers with decision-making responsibilities possess an optimal balance between their penchants for conceptualization and contextualization--the two dimensions of global mindset--to ensure alignment with the organizations' strategic priorities. These strategic priorities determine whether firms expand overseas through FDI to establish legitimacy or trade legitimacy for equity, and hence the decision makers' responsibilities with respect to entry mode decisions are critical. For example, Chinese MNEs generally seek to expand overseas via low-equity FDI modes due to the liability of foreignness (Cui and Jiang 2012); the penchant for risk-taking therein is thus quite low. In such case, senior managers with a stronger global mindset (higher levels of conceptualization and contextualization) are better aligned with the MNEs' strategic priorities. Appropriate in-house and external training is essential for senior managers to achieve the desired levels of global mindset through experiential training, overseas trips and posting and boundary-spanning activities (Gupta and Govindarajan 2002). Further, organizations are encouraged to also identify and nurture decision-making styles that will complement the global mindset and provide enhanced information-processing capabilities. Organizations also need to manage the experience levels of these decision makers to allow optimum interactions with the level of global mindset sought (given the positive correlation between global mindset and managerial experience) through appropriate career development opportunities. In summary, organizations need to play a proactive role in balancing the observable and unobservable characteristics among its senior managers in order to achieve their global ambitions and strategic aspirations.
5.3 Limitations and Suggestions for Future Research
The study's findings must be interpreted within the context of its limitations. First, our data were collected from Chinese MNEs, which may limit the generalizability of our findings to a wider population. We encourage future researchers to empirically assess and validate the conceptual framework with different samples (e.g., service sector MNEs, public and private MNEs) and in different contexts (e.g., overseas FDI by other emerging and developed country MNEs) to provide further underpinning and generalizability. Further studies are required to validate our claim of extending the study of MNEs' internationalization decisions beyond the context of institutions, industries and firms by including managerial cognition as a fourth and critical contextual factor.
Second, it can be argued that we studied the impact of only a limited number of observable (position tenure) and unobservable (global mindset and decision-making style) managerial characteristics on entry mode decisions. Future research should include additional observable and unobservable (e.g., cognitive and personality types) characteristics of senior managers in order to provide a more holistic understanding of how these characteristics affect strategic decisions in general and entry modes in particular. Moreover, additional observable and unobservable managerial characteristics that interact with senior managers' global mindset should be theoretically and empirically validated. We also encourage researchers to utilize qualitative and longitudinal methods, case studies and multi-level quantitative studies to explore these phenomena.
Third, our study assessed only the perspective of the senior manager vested with decisions related to overseas FDI. Notwithstanding that strategic decisions including overseas FDI might involve complex teams of senior managers, each with his or her own set of observable and unobservable characteristics--which can influence the way in which the top management team (TMT) arrives at key strategic decisions--we encourage future researchers to design studies that focus on how TMTs conceptualize and formulate entry mode and other strategic decisions.
Finally, although we empirically discerned the influence of a global mindset and the two moderators on the level of overseas FDI ownership, we did not assess the impact of this decision on the subsidiary's performance. We believe that future researchers should extend our model by including subsidiary performance outcomes through structural equation modeling methods and empirically assess whether global mindset and the moderators ultimately impact subsidiary performance.
From the managerial cognition perspective, this study contributes to the entry mode and global mindset literature by explaining how senior managers of MNEs cognitively make sense of the global business environment and choose an entry mode for their subsidiary. In doing so, this study theorizes and empirically examines the effect of senior managers' global mindset on their decisions regarding the choice of entry mode for foreign subsidiaries, and how their cognitive decision-making style and relevant managerial experience interact with their global mindset and thereby affect their cognitive capability in selecting, processing, and interpreting global environment information, leading to their entry mode decisions. It is found that senior managers' global mindset, their cognitive decision-making style, and their relevant managerial experience are important and significant contributing factors to their entry mode decisions. More specifically, senior managers with a stronger global mindset tend to choose an entry mode with a lower level of ownership for their foreign subsidiaries. This relationship becomes even stronger when senior managers possess a 'thinking' decision-making style as opposed to a 'feeling' decision-making style, but it becomes weaker when senior managers have more relevant managerial experience. These findings suggest that managerial cognition is as important as other techno-economic factors with regard to MNEs' strategic decisions in general and entry mode decisions in particular.
Acknowledgements We are grateful for insightful comments and suggestions received from the Editor-in-Chief Professor Michael-Jorg Oesterle and the two anonymous reviewers of Management International Review.
Appendix 1: Global Mindset Scales (Arora et al. 2004)
Scale: 5-point Likert scale (' 1' being strongly disagree, and '5' being strongly agree)
(1) In my job, the best one can do is to plan ahead for at most 1 year. (2) I think it is necessary today to develop strategic alliances with organizations around the globe. (3) Projects that involve international dealings are long term. (4) I take pride in belonging to an international organization. (5) I believe that in the next 10 years, the world will be the same as it is today. (6) In this interlinked world of ours, national boundaries are meaningless. (7) Almost everybody agrees that international projects must have a shorter payback period than domestic ones. (8) We really live in a global village. (9) In discussions, I always drive for the bigger, broader picture. (10) I believe life is a balance of contradictory forces that are to be appreciated, pondered, and managed. (11) I consider it to be a disgrace when foreigners buy our land and buildings. (12) I really believe that 5-10 years is the best planning horizon in our line of business. (13) I find it easy to rethink boundaries, and change direction and behavior. (14) I feel comfortable with change, surprise, and ambiguity. (15) I become frustrated when someone is constantly looking for context. (16) Contradictors are time wasters that must be eliminated. (17) I have no time for somebody trying to paint a broader, bigger picture. (18) I believe I can live a fulfilling life in another culture. (19) Five years is too long a planning horizon.
(1) I enjoy trying food from other countries. (2) I find people from other countries to be boring. (3) I enjoy working on world community projects. (4) I get anxious around people from other cultures. (5) I mostly watch and/or read the local news. (6) Most of my social affiliations are local. (7) I am at my best when I travel to worlds that I do not understand. (8) I get very curious when I meet somebody from another country. (9) I enjoy reading foreign books or watching foreign movies. (10) I find the idea of working with a person from another culture unappealing. (11) When I meet someone from another culture, I get very nervous. (12) Traveling in lands where I can't read the street names gives me anxiety. (13) Most of my professional affiliations are international. (14) I get irritated when we don't accomplish on time what we set out to do. (15) I become impatient when people from other cultures seem to take a long time to do something. (16) I have a lot of empathy for people who struggle to speak my own language. (17) I prefer to act in my local environment (community or organization). (18) When something unexpected happens, it is easier to change the process than the structure. (19) In trying to accomplish my objectives, I find that diversity and multicultural teams play a valuable role. (20) I have close friends from other cultural backgrounds.
Appendix 2: Cognitive Decision-Making Styles (McGuiness 2004)
How do you prefer to make decisions? (A) Thinking, or (B) Feeling (Choose either A or B for each item)
1. (A) Use logic to make decisions, or (B) Use personal values to make decisions;
2. (A) Seek honesty and truth, or (B) Seek personal approval;
3. (A) Need to be competent, or (B) Need to be appreciated;
4. (A) Analyze and critique, or (B) Empathize;
5. (A) Firm and tough-minded, or (B) Persuasive and warm-hearted;
6. (A) Focus on justice and fairness, or (B) Focus on mercy and compassion;
7. (A) Questioning--focus on Why? or (B) Accepting--focus on Who?;
8. (A) Seek logical reasons, or (B) Seek harmony with values and others;
9. (A) Focus on goals and tasks, or (B) Focus on people and relationships;
10. (A) Consider principles and consequences, or (B) Consider the impact on people.
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Fuming Jiang (1) * Subramaniam Ananthram (1) * Jizhong Li (1)
[??] Fuming Jiang
(1) School of Management, Faculty of Business and Law, Curtin University, Bentley, WA, Australia
Received: 9 January 2017 / Revised: 27 January 2018 / Accepted: 21 March 2018 / Published online: 10 April 2018
[c] Springer-Verlag GmbH Germany, part of Springer Nature 2018
Table 1 Summary statistics and correlation matrix Variables Mean SD 1 2 1. Age of parent firm 28 32.43 1.000 2. Parent firms' experience 5.95 1.31 -0.370 (***) 1.000 with OFDI 3. Parent firms' 0.40 0.49 0.104 -0.125 (*) industry 4. Percentage of state 48.85 42.14 0.231 (***) -0.177 (**) ownership of the parent firm 5. Cultural distance 3.69 0.56 0.059 -0.072 6. Respondents' 0.82 0.38 0.090 -0.114 (*) gender 7. Respondents' 12.15 9.35 0.342 (***) -0.320 (***) experience in the current firm 8. Direction and focus 0.65 0.48 0.040 -0.018 of respondents' energy 9. Respondents' preferred 0.43 0.50 -0.078 0.068 way to gather information 10. Global mindset 3.61 0.49 0.174 (**) -0.194 (***) 11. Decision-making 0.68 0.47 0.005 0.007 style 12. Experience in 7.81 6.34 0.206 (***) -0.315 (***) current position 13. Ownership level 76.37 25.65 -0.081 0.162 (**) in overseas subsidiaries Variables 3 4 5 1. Age of parent firm 2. Parent firms' experience with OFDI 3. Parent firms' 1.000 industry 4. Percentage of state -0.057 1.000 ownership of the parent firm 5. Cultural distance 0.066 0.196 (***) 1.000 6. Respondents' -0.018 0.237 (***) 0.130 (*) gender 7. Respondents' 0.041 0.122 0.037 experience in the current firm 8. Direction and focus -0.020 -0.083 -0.064 of respondents' energy 9. Respondents' preferred -0.033 -0.060 0.110 (*) way to gather information 10. Global mindset 0.042 0.305 (***) 0.495 (***) 11. Decision-making 0.035 -0.021 -0.017 style 12. Experience in 0.044 0.040 -0.009 current position 13. Ownership level 0.003 0.002 0.080 in overseas subsidiaries Variables 6 7 8 1. Age of parent firm 2. Parent firms' experience with OFDI 3. Parent firms' industry 4. Percentage of state ownership of the parent firm 5. Cultural distance 6. Respondents' 1.000 gender 7. Respondents' 0.276 (***) 1.000 experience in the current firm 8. Direction and focus 0.025 0.034 1.000 of respondents' energy 9. Respondents' preferred -0.001 -0.054 -0.236 (***) way to gather information 10. Global mindset 0.203 (***) 0.146 (**) -0.047 11. Decision-making 0.067 0.043 0.313 (***) style 12. Experience in 0.193 (***) 0.703 (***) 0.031 current position 13. Ownership level -0.102 -0.089 -0.023 in overseas subsidiaries Variables 9 10 11 1. Age of parent firm 2. Parent firms' experience with OFDI 3. Parent firms' industry 4. Percentage of state ownership of the parent firm 5. Cultural distance 6. Respondents' gender 7. Respondents' experience in the current firm 8. Direction and focus of respondents' energy 9. Respondents' preferred 1.000 way to gather information 10. Global mindset -0.091 ([dagger]) 1.000 11. Decision-making -0.350 (***) -0.159 (**) 1.000 style 12. Experience in -0.039 0.130 (*) 0.014 current position 13. Ownership level 0.040 -0.134 (*) -0.049 in overseas subsidiaries Variables 12 13 1. Age of parent firm 2. Parent firms' experience with OFDI 3. Parent firms' industry 4. Percentage of state ownership of the parent firm 5. Cultural distance 6. Respondents' gender 7. Respondents' experience in the current firm 8. Direction and focus of respondents' energy 9. Respondents' preferred way to gather information 10. Global mindset 11. Decision-making style 12. Experience in 1.000 current position 13. Ownership level -0.223 (***) 1.000 in overseas subsidiaries ([dagger]) p<0.10; (*)p<0.05; (**) p<0.01; (***) p<0.001 (two-tailed) Table 2 Moderated hierarchical regression results DV: ownership level in overseas Model 1 Model 2 subsidiaries Control variables Age of parent firm -0.023 -0.013 Parent firm's experience 0.154 (**) 0.147 (*) with OFDI Parent firm's industry 0.017 0.018 Percentage of state 0.044 0.075 ownership of the parent firm Cultural distance 0.101 ([dagger]) 0.192 (**) Respondents' gender -0.127 (*) -0.110 (*) Respondents' experience -0.004 (**) 0.004 in the current firm Direction and focus -0.001 -0.011 of respondents' energy Respondents' preferred 0.031 0.004 way to gather information Independent variables Global mindset (HI) -0.202 (**) Moderator Decision-making style Experience in current position Interaction terms Global mindset x decision-making style (H2) Global mindset x experience in current position (H3) Model fit N 345 345 R square 0.056 0.083 Adjusted R square 0.030 0.055 Change in R square 0.027 (**) F value 2.195 (*) 3.015 (**) DV: ownership level in overseas Model 3 Model 4 subsidiaries Control variables Age of parent firm -0.014 -0.008 Parent firm's experience 0.149 (*) 0.150 (*) with OFDI Parent firm's industry 0.021 0.024 Percentage of state 0.077 0.085 ownership of the parent firm Cultural distance 0.210 (**) 0.199 (**) Respondents' gender -0.102 (*) -0.105 ([dagger]) Respondents' experience 0.008 0.016 in the current firm Direction and focus 0.015 0.030 of respondents' energy Respondents' preferred -0.033 -0.045 way to gather information Independent variables Global mindset (HI) -0.233 (***) -0.227 (**) Moderator Decision-making style -0.112 ([dagger]) -0.106 ([dagger]) Experience in current position Interaction terms Global mindset x -0.109 (*) decision-making style (H2) Global mindset x experience in current position (H3) Model fit N 345 345 R square 0.092 0.103 Adjusted R square 0.062 0.071 Change in R square 0.009 (**) 0.011 (***) F value 3.080 (**) 3.188 (***) DV: ownership level in overseas Model 5 Model 6 subsidiaries Control variables Age of parent firm -0.032 -0.043 Parent firm's experience 0.113 ([dagger]) 0.107 ([dagger]) with OFDI Parent firm's industry 0.019 0.021 Percentage of state 0.059 0.073 ownership of the parent firm Cultural distance 0.175 (**) 0.178 (**) Respondents' gender -0.110 (*) -0.108 ([dagger]) Respondents' experience 0.199 (*) 0.208 (**) in the current firm Direction and focus -0.008 -0.023 of respondents' energy Respondents' preferred 0.008 0.001 way to gather information Independent variables Global mindset (HI) -0.182 (**) -0.167 (**) Moderator Decision-making style Experience in current -0.284 (***) -0.316 (***) position Interaction terms Global mindset x decision-making style (H2) Global mindset x 0.136 (*) experience in current position (H3) Model fit N 345 345 R square 0.122 0.139 Adjusted R square 0.093 0.108 Change in R square 0.019 (***) 0.017 (***) F value 4.219 (***) 4 477 (***) ([dagger])p<0.10; (*) p<0.05; (**) p<0.01; (***) p<0.001 (two-tailed)
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|Title Annotation:||RESEARCH ARTICLE|
|Author:||Jiang, Fuming; Ananthram, Subramaniam; Li, Jizhong|
|Publication:||Management International Review|
|Date:||May 1, 2018|
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