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The effects of within-country linguistic and religious diversity on foreign acquisitions

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Abstract

This article explores how within-country diversity of both language and religion influences the ownership structure of foreign acquisitions. Commentators have acknowledged the potential importance of “within-country diversity,” but to date this issue has received minimal empirical attention. We propose that diversity plays two distinct roles. Namely, diversity within the host country may be an additional source of behavioral uncertainty and information asymmetry, over and above the effects arising from cross-national differences. Moreover, diversity within the home country may increase the cognitive complexity of the decision makers, moderating the firm’s response to the distance and diversity of the host country. Results based on foreign acquisitions across 67 acquirer and 69 target countries confirm both of these roles. While the main focus of this article is on the role that within-country diversity plays in international business decisions, it also makes contributions in terms of expanding the range of dimensions of distance investigated in the cross-border acquisition literature, in highlighting a potentially positive role that diversity might play in such acquisitions, and in providing a potential explanation for asymmetries in distance – that is, differences in cognitive complexity.

Abstract

Cet article explore comment la diversité de langue et de religion au sein d’un pays influence la structure de propriété des acquisitions à l’étranger. Des observateurs ont reconnu l’importance potentielle de la ‘diversité au sein d’un pays’, mais jusqu’à présent ce sujet a reçu une faible attention empirique. Nous suggérons que la diversité joue deux rôles distincts. Plus précisément, la diversité au sein du pays d’accueil peut constituer une source additionnelle d’incertitude comportementale et d’asymétrie informationnelle, au-delà des effets liés aux différences transnationales. Par ailleurs, la diversité au sein du pays d’origine peut accroître la complexité cognitive des décideurs, modérant la réponse de la firme à la distance et à la diversité du pays d’accueil. Les résultats fondés sur des acquisitions à l’étranger dans 67 pays d’acquéreurs et 69 pays cibles confirment ces deux rôles. Si cet article porte principalement sur le rôle joué par la diversité au sein d’un pays pour les décisions de management international, il apporte également des contributions en élargissant la variété des dimensions de la distance étudiées dans la littérature sur les acquisitions internationales, en soulignant le rôle potentiellement positif que la diversité peut jouer dans ces acquisitions et en fournissant une explication potentielle pour les asymétries en termes de distance – c’est-à-dire, de différences dans la complexité cognitive.

Abstract

Este artículo explora cómo la diversidad entre de un país tanto en lenguaje como en religión influye en la estructura de propiedad en adquisiciones extranjeras. Comentaristas han reconocido la importancia de la “diversidad dentro de los países”, pero hasta la fecha este aspecto ha recibido una escasa atención empírica. Proponemos que la diversidad desempeña dos papeles distintos. A saber, la diversidad dentro del país anfitrión puede ser una fuente adicional de incertidumbre comportamental y asimetría de la información, más allá de los efectos que surgen a raíz de las diferencias entre países. Asimismo, la diversidad dentro del país anfitrión puede aumentar la complejidad cognitiva de los tomadores de decisiones, moderando la respuesta de la empresa a la distancia y la diversidad del país anfitrión. Resultados basados en adquisiciones extranjeras de 67 adquirientes y 69 países objetivos confirman ambos roles. Mientras que el centro de atención de este artículo se encuentra en papel que interpreta la diversidad dentro de un país en las decisiones de negocios internacionales, también hace contribuciones en términos de la expansión de la gama de dimensiones de distancia investigadas en la literatura de adquisiciones transfronterizas, resaltando el potencial rol positivo que la diversidad puede desempeñar en este tipo de adquisiciones y dando una potencial explicación de las asimetrías en distancia – es decir, las diferencias en la complejidad cognitiva.

Abstract

Este artigo explora como a diversidade de língua e religião dentro dos países influencia a estrutura de propriedade de aquisições estrangeiras. Analistas reconheceram a importância potencial da "diversidade intrapaís", mas até agora esta questão tem recebido mínima atenção empírica. Propomos que a diversidade desempenha dois distintos papéis. Especificamente, a diversidade dentro do país anfitrião pode ser uma fonte adicional de incerteza comportamental e assimetria de informações, além dos efeitos advindos das diferenças entre os países. Além disso, a diversidade dentro do país de origem pode aumentar a complexidade cognitiva dos tomadores de decisão, moderando a resposta da empresa à distância e à diversidade do país anfitrião. Resultados com base em aquisições estrangeiras em 67 países adquirentes e 69 países alvo confirmam ambos os papéis. Embora o foco principal deste artigo seja o papel que a diversidade dentro do país desempenha nas decisões de negócios internacionais, ele também faz contribuições em termos de expandir a gama de dimensões de distância investigada na literatura sobre aquisições internacionais ao destacar um papel potencialmente positivo que a diversidade pode desempenhar em tais aquisições, e ao fornecer uma potencial explicação para assimetrias na distância - ou seja, diferenças de complexidade cognitiva.

Abstract

这篇文章探讨了国家内部语言和宗教的多样性如何影响外国并购的所有权结构。评论员已经确认“国家内部多样性”的潜在重要性, 但是至今这一问题受到很少实证关注。我们提出多样性扮演两种截然不同的角色。即, 东道国内的多样性可能是行为不确定性和信息不对称的一种附加来源, 超过了由跨国差异带来的影响。此外, 东道国内部的多样性可能会增加决策者的认知复杂性, 调整公司对东道国距离和多样性的反应。基于67家并购方和69家目标国家的外国并购结果确认了这两种角色。虽然这篇文章的主要关注点是国家内部多样性在国际商务决策中扮演的角色, 它也对跨境并购文献中距离的维度扩展、对这些并购中多样性所扮演的潜在的积极作用的强调、以及对距离不对称的潜在解释, 即, 认知复杂性的差异方面做出了贡献。

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Notes

  1. Global Strategy Journal, International Business Review, International Marketing Review, Journal of International Business Studies, Journal of International Management, Journal of International Marketing, Journal of World Business, and Management International Review.

  2. The sole paper to date that addresses within-country diversity Beugelsdijk et al. (2013) only investigates the impact of cultural diversity on aggregate US MNE sales, not entry mode choice.

  3. Nokia’s difficulties in negotiating a joint venture in Malaysia are documented in a case by Ainuddin (2006); however subsequent interviews with particular participants from the original negotiation indicate that differences in religion may have played an even greater role than indicated in the published case study.

  4. To further illustrate that our results are unlikely to be driven by any country specific influences, we also calculated the Herfindahl index (HHI) for the distribution or concentration of the countries of the acquirers, countries of the targets, and acquirer–target country pairs (dyads) in our data. The HHI ranges from 0 to 1, where 0 corresponds to a perfectly equal distribution across the countries, and 1 corresponds to a single country or country-pair accounting for all the observations. The HHI for the concentration of the countries of the acquirers is 0.12 and the HHI for the concentration of the countries of the targets is 0.07. Finally, the HHI for acquirer–target country pairs is a very low 0.01. These low concentration indices confirm that the large sample we use does not display high concentration patterns.

  5. This data was downloaded from https://sites.google.com/site/ddowresearch/home/scales in December 2013 and is based on a bilateral sample of 120 countries. Dow’s distance measures are standardized on his entire sample and since our sample consists of fewer countries our mean is different. Specifically the mean scores for the distance measures are slightly negative in our sample, indicating that acquisition activity in our sample consists of more proximate dyads of countries (as compared with the set of dyads that can be constructed using all countries for which measures are available).

  6. Linguistic and religious diversity indices for 120 countries are also available in downloadable form from https://sites.google.com/site/ddowresearch/.

  7. Other South East Asian countries where Chinese form a minority such as Malaysia were not part of our estimation sample in the first place.

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Acknowledgements

The authors thank Ram Mudambi, the area editor, and the three anonymous reviewers who helped them improve this manuscript tremendously.

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Authors and Affiliations

  1. Melbourne Business School, University of Melbourne, Carlton, Australia

    Douglas Dow

  2. Lee Kong Chian School of Business, Singapore Management University, Singapore

    Ilya R P Cuypers & Gokhan Ertug

Authors
  1. Douglas Dow
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  2. Ilya R P Cuypers
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  3. Gokhan Ertug
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Corresponding author

Correspondence to Douglas Dow.

Additional information

Accepted by Ram Mudambi, Area Editor, 29 November 2015. This article has been with the authors for two revisions.

The authors contributed equally to this manuscript.

APPENDIX

APPENDIX

Table A1

Table A1 Summary of countries: Frequency counts and diversity indices
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Dow, D., Cuypers, I. & Ertug, G. The effects of within-country linguistic and religious diversity on foreign acquisitions. J Int Bus Stud 47, 319–346 (2016). https://doi.org/10.1057/jibs.2016.7

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