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Foreign investment or divestment as a near-term solution to performance shortfalls? The moderating role of vicarious learning

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Abstract

Most studies on problemistic search do not pay sufficient attention to how below-aspiration organizations decide what types of strategic actions to use to cope with performance shortfalls. In this study, we examine the preferences of multinational corporations (MNCs) for selecting foreign investment or divestment as a near-term solution to performance shortfalls. We first argue that foreign divestment is generally a more preferred performance solution. Drawing on the literature on vicarious learning, we further argue that MNCs are more likely to engage in foreign investment or foreign divestment to combat large performance shortfalls if peers recently and actively undertook the same type of strategic action. Moreover, they are less likely to undertake the other type of strategic action simultaneously because they adopt the satisficing principle and time constraints deter them from implementing multiple types of strategic action substantially. The analysis of the data about Japanese manufacturing MNCs reveals that vicarious learning influences MNCs’ selection preferences in certain conditions, thereby extending the literature on problemistic search.

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Notes

  1. Some studies refer to selection preferences in problemistic search as direction of search (e.g., Bromiley et al., 2001; Kuusela et al., 2017).

  2. It should be noted that the proposition of Kuusela et al. (2017) that large performance shortfalls reduce merger and acquisitions is contrary to that of other scholars (e.g., Iyer & Miller, 2008; Zhang & Greve, 2019).

  3. The proposed substitution relationship exists in time t + 1 only if the performance shortfalls are present at time t. At time t + 2 or later, the substitution relationship may not persist for two reasons. First, if the chosen type of strategic action cannot solve the performance problem and bring the performance back to the aspiration level, MNCs may adopt the other type of strategic action. Second, it is more likely to adopt multiple types of strategic action at time t + 2 or later due to more sufficient time. Our analyses confirm that the substitution relationship does not persist at time t + 2 or later.

  4. We held other variables at their mean level when calculating marginal effects.

  5. We discussed the marginal effect of performance shortfalls at the level of 555 (around two standard deviations above the mean) because it is not significantly positive at any level below 555 (e.g., 400 [around one standard deviation above the mean]) and thus not meaningful practically.

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Acknowledgments

Qi Cui and Naipeng Jiang contribute equally. We thank the advice of Editor David Ahlstrom and two anonymous reviewers. We thank the data support of Professor Shige Makino. This research is supported by the Fundamental Research Funds for the Central Universities under Grant 2072021141 and JSPS KAKENHI Grant Number JP15K45678.

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Authors and Affiliations

  1. School of Management, Xiamen University, Xiamen, 361005, Fujian, China

    Kent Ngan-Cheung Hui

  2. Discovery Program for Global Learners, Okayama University, Okayama, 700-8530, Japan

    Yuanyuan Gong

  3. Department of Organization and Human Resources, Renmin University, Beijing, China

    Qi Cui

  4. Tourism Department, Fudan University, Shanghai, China

    Naipeng Jiang

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Hui, K.NC., Gong, Y., Cui, Q. et al. Foreign investment or divestment as a near-term solution to performance shortfalls? The moderating role of vicarious learning. Asia Pac J Manag 39, 1481–1509 (2022). https://doi.org/10.1007/s10490-021-09778-6

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