MNEs' Agency Within Institutional Contexts: A Study of Walmart's Post-acquisition Practices in Mexico, Germany, and Japan

Journal of International Management 25 (2019) 100655

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MNEs' Agency Within Institutional Contexts: A Study of Walmart's Post-acquisition Practices in Mexico, Germany, and Japan

T

Lai Si Tsui-Aucha, , Dawn Chowb ⁎

a b

Nanyang Technological University of Singapore, Singapore Singapore University of Social Sciences, Singapore

ARTICLE INFO

ABSTRACT

Keywords: Neoinstitutional theory Comparative institutional analysis Retail industry Case study International business Local adaptation

The issue of MNEs' adaptation to host country institutional environments in their post-crossborder acquisition implementation, and the outcomes thereof, remains underexplored in international management studies. The purpose of this paper is to assess the applicability of three institutional approaches — (1) the earlier variant of the neoinstitutional theory (ENIT), (2) its recent variant (RNIT), and the comparative institutional analysis approach (CIA) — to explain (non)adaptation behavior in host country environments. Using Walmart's acquisition cases, we show that the MNE adopted a non-adaptation behavior in Mexico and Germany—countries which represent vastly different institutional environments—and succeeded in the former, but failed and withdrew from the market in the latter. However, in the Japanese institutional environment, which is similar to the German one, Walmart engaged in selective adaptation and survived in the market. Based on the case data, we offer a critical assessment of the applicability of the three approaches. These three approaches provide a base on which to develop a model to explain the relationship between institutional influences, an MNE's organizational agency and adaptation behavior, as well as outcomes. Moreover, we discuss future research directions and provide implications for practitioners related to MNEs' adaptation behavior and the ensuing outcomes in host markets.

1. Introduction The growing literature on economic globalization traces the increasing prevalence of cross-border acquisitions. Most studies in international management have examined MNEs' motivation, locational choices, political risks, and outcomes of acquisitions (for a summary, see Shimizu et al., 2004; Zhu and Zhu, 2016). Relatively few research works have analyzed post-cross-border acquisition implementation (Graebner et al., 2017). Studies on this theme largely focus on cultural and structural integrations at the intraorganizational level (Lubatkin et al., 1998; Weber et al., 1996). Whether MNEs adapt to the larger host country institutional environments during their post-acquisition operations, and the outcomes thereof at both firm and industrial field levels, is a topic that remains understudied. To help fill the gap in the existing literature, we draw on three institutional approaches to examine MNEs' (non)adaptation in particular institutional contexts. The institutional perspective has offered a strong theoretical foundation for the study of MNEs' post-acquisition implementation. Prior studies using the earlier variants of neoinstitutional theory (ENIT) emphasize how strategies are constrained by institutional environments through processes of isomorphism (Davis et al., 2000; Yiu and Makino, 2002). They maintain that MNEs are driven to

⁎

Corresponding author. E-mail addresses: [email protected] (L.S. Tsui-Auch), [email protected] (D. Chow).

https://doi.org/10.1016/j.intman.2018.11.001 Received 29 January 2018; Received in revised form 1 November 2018; Accepted 3 November 2018 Available online 02 January 2019 1075-4253/ © 2019 Elsevier Inc. All rights reserved.

Journal of International Management 25 (2019) 100655

L.S. Tsui-Auch and D. Chow

adapt to host country institutional systems to gain legitimacy and that the conformists will be able to gain survival and success, whereas deviants will fail. However, the ENIT has increasingly been challenged for having overemphasized isomorphism and institutional constraints over MNEs (Saka-Helmhout and Geppert, 2011). Studies, drawing on the recent variant of NIT (RNIT), instead advocate a focus on MNE agency and argue that MNEs enjoy a high degree of institutional freedom given their cross-border condition and internal resources. The RNIT argues that MNEs are unlikely to conform to the host country institutional system and are more likely to gain legitimacy and trigger institutional changes through non-conformance and negotiation for changes to the rules of the game (Kostova et al., 2008). By contrast, the third approach, i.e., the comparative institutional analysis (CIA) approach, contends that MNEs care more about maintaining comparative institutional advantages (Whitley, 1999) from their home markets rather than by gaining legitimacy within host countries. Applying the CIA approach, Ahmadjian (2016) argues that MNEs with the aim of capability exploitation (exploiting internal resources and capabilities rather than learning new knowledge in new markets) are unlikely to adapt to host country systems, or at most, adopt a strategy of selective adaptation. The aim of this paper is to assess the applicability of the three approaches by identifying the following in real-life acquisition cases: (1) host country's institutional pressures on MNEs, (2) MNEs' adaptation behavior, and (3) outcomes at both the firm and industrial field levels. Our case analysis will provide a base on which to assess the applicability of the three approaches, and also provide implications for MNEs adaptation behavior within host country environments. To illustrate the adaptation behavior of MNEs, we chose Walmart's acquisitions in three economies — Mexico (1997 to present), Germany (1997 to 2006), and Japan (2007 to present). The case data shows that Walmart adopted a non-adaptation behavior in Mexico and Germany, which represent vastly different institutional environments, and succeeded in the former but failed and withdrew from the market in the latter. Yet, in the Japanese institutional environment which resembles that of the German one, Walmart engaged in selective adaptation and survived in the market. Our comparative case study represents an initial attempt to illustrate the relationship between the institutional environment, MNEs' adaptation behavior, and outcomes across host markets. Based on the case data, we argue that the ENIT draws attention to the role of institutional constraints, but underestimates MNE agency and differences in the degree of institutional constraints across host countries. The RNIT is able to explain the role of MNE agency, but understates the difference in the degree of institutional freedom the MNE enjoys across its institutional environments. It thus risks overestimating MNE agency and the changes it can foster. The CIA approach offers insights into the degree of favorability of institutional environments to MNEs, the possible tradeoffs between comparative institutional advantage and legitimacy, and the varied options of adaptation behavior. Nevertheless, like the RNIT, a gap lies in identifying the outcomes of non-adaptation across institutional environments. Moreover, we argue that the explanatory power of three approaches will increase if the boundary conditions of the theories are specified. This paper makes several contributions. First, we are able to tease out key tenets across the three institutional approaches so as to guide research. Second, we offer a critical assessment of the applicability of the approaches, which provides a base on which to develop a model to integrate concepts and insights from various institutional approaches to explain the relationship between institutional influences, MNEs' adaptation behavior, and outcomes. Last, we generate practical implications for MNE practitioners related to MNEs' adaptation behavior in host markets. This paper is divided into four sections. First, we review the gaps in the M&A literature and identify the similarities and differences amongst the three institutional approaches. Second, we explain the reasons for our case selection and outline the research methods. Next, we report the case study results, based on which we discuss the applicability of the three approaches, and provide future research directions as well as managerial implications in the last section. 2. Literature review 2.1. Post-cross-border acquisition implementation Cross-border acquisitions present opportunities for firms to gain access to new resources, enter new markets, and realize more value from their investments (Dunning, 1992; Lu et al., 2010; Shimizu et al., 2004). Most studies in international management have analyzed MNEs' motivation (Barkema and Vermeulen, 1998; Harzing, 2002), locational choices (Deng and Yang, 2015; Hennart and Park, 1993), political risks (Li et al., 2017; Meyer et al., 2014), and outcomes of acquisitions (for a summary, see Zhu and Zhu, 2016). Relatively little effort has been devoted to examine post-acquisition implementation. Studies of post-acquisition have so far relied on the resource-based view (Larsson and Finkelstein, 1999), the upper echelons approach (Krug and Hegarty, 2001), and the crosscultural perspective to examine intra-organizational cultural and structural integrations as well as the standardisation versus the localisation of practices in marketing (Graebner et al., 2017; Lubatkin et al., 1998; Weber et al., 1996). However, the issue is that MNEs face increasing challenges not only internally, but externally, in relation to their host country institutional environment during their post-acquisition operations. Research works, which have utilized the institutional perspective, have focused on foreign firms' institutional disadvantages and challenges in host institutional environments (Tsui-Auch and Möllering, 2010; Wu and Salomon, 2017), or how institutions affect market entry modes (Ang et al., 2015). Yet studies on postacquisition implementation have been scanty, with notable exceptions such as Vaara and Monin (2010) who examine the dynamics of discursive legitimation and firm actions in post-merger organizations. Nevertheless, the issue of MNEs' (non)adaptation to host country institutional environments, and the associated outcomes thereof, remains understudied. Therefore, to help fill the gap in the existing literature, we draw on the institutional perspective to examine if, and how, MNEs adapt to their host country institutional environments, and the subsequent outcomes thereof. Kostova et al. (2008) point out that MNEs do not face a single organizational field, but multiple fields across levels — intra2

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L.S. Tsui-Auch and D. Chow

Table 1 Key concepts from the ENIT, the RNIT and the CIA approach. Approaches

ENIT

RNIT

CIA

Source of legitimacy

Source of legitimacy

Coordinating mechanism

Constraints to cope with Constraints to cope with Limited To gain legitimacy

Constraints to overcome Constraints to overcome Significant To gain legitimacy

Not a focus

Internal resources (firm size, social status, etc.)

Behavior

Conformity (compliance, decoupling)

Outcomes

Firm survival/success

Non-conformance (institutional entrepreneurship, adoption of practices deviating from norms, and negotiation for a change in rules) Firm success & institutional change

Constraints to avoid/bypass Advantages to harness Significant To harness comparative institutional advantage Internal and external organizational systems Non-adaptation or selective adaptation

Concepts Conceptualization of institutions Host country Home country Agency Aim of an MNE in host countries Resources

Firm success

organizational, inter-organizational (in relation to competitors, customers/suppliers), and national (regulatory and social environments). In light of the complexity highlighted, we explore MNEs' adaptation behavior in the host country (1) within their organization (e.g. management and industrial relations), (2) in relation to their competitors and suppliers (e.g. market competition and supply chain management), and (3) as a response to their regulatory and socio-economic environments (e.g. regulations and norms on employment and market competition). 2.2. Perspectives on MNEs' adaptation to host country institutional environments The institutional perspective is well-suited to explore MNEs' adaptation behavior across institutional environments because it takes into account institutional complexity derived from market, cultural, and institutional forces (Djelic, 2010; Henisz and Swaminathan, 2008a, 2008b). Disregarding disciplinary, conceptual and geographical divides, institutionalist authors maintain that organizational actions are driven not by context-free agency, pure economic rationality, efficiency concerns, or natural evolution, but by legitimacy concerns (Tsui-Auch et al., 2015). Hence, organizations need to take into account the effect of institutions that include “formal rules that order an economy and taken-for-granted notions of how firms relate to their stakeholders and their environment” (Ahmadjian, 2016: 14). Under the broad label of “institutionalism,” there is a fair amount of diversity (Djelic, 2010). We review three approaches that are most relevant to the study of MNEs, and summarize their key tenets in Table 1. 2.2.1. The earlier variant of NIT (ENIT) The earlier variant of “neo-institutional theory” (Meyer and Rowan, 1977) has been widely adopted in the field of international management. In this set of literature, the institutional environment is conceptualized broadly to be composed of regulative, normative, and cultural-cognitive pillars (Eden and Miller, 2004; Xu and Shenkar, 2002). When a specific structure or practice becomes fully institutionalized, it possesses a “taken-for-granted” status (Gooderham et al., 1999), exerting isomorphic pressures on MNEs to conform (Busenitz et al., 2000; Davis et al., 2000). In particular, MNEs need to overcome their liability of foreignness (Zaheer, 1995) by gaining legitimacy in their host economies. Legitimacy is defined as “a generalized perception that the action or assumption of an entity is desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman, 1995: 574). Such legitimacy is often gained by adopting structures and practices (through substantive action via compliance, or at least symbolic action, via decoupling) which are institutionalized in the host nation environment (Kostova and Roth, 2002; Lawrence et al., 2002). Conformity with host country environments enhances opportunities for survival and success and non-conformity poses a high risk to MNEs which could fail to gain acceptance, or even the license to operate (Peng, 2003; Zaheer, 1995). Essentially, institutional constraints from a host country environment pose a limit on MNEs' ability to transplant organizational practices across national borders. Eventually, practices across institutionally embedded firms within a host economy are supposed to become similar (Yiu and Makino, 2002). 2.2.2. The recent variant of NIT (RNIT) The emphasis on institutional embeddedness in the earlier variant of NIT was first challenged by DiMaggio (1988) who reintroduced to neo-institutionalism the role of interests and agency as drivers of institutional change, which has subsequently inspired research into institutional entrepreneurship. The reemphasis on agency reflects “a wider shift in the study of institutions in the social sciences from a view that emphasizes institutional embeddedness to one that focuses on active agency” (Cantwell et al., 2010, p. 572). The cross-border condition faced by MNEs offers researchers opportunities for an assessment of the contextual limits of the ENIT (Whetten, 1989), and to address the debate on MNE agency vis-à-vis institutional pressures for isomorphism. Prior studies highlight the fact these enterprises face multiple, conflicting institutional pressures from their host country environment for local adaptation, and also from their headquarters to achieve global integration (Morgan and Quack, 2005). Given their cross-border condition, MNEs 3

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enjoy much institutional freedom (Kostova et al., 2008) to produce strategic responses (Regner and Edman, 2014; Saka-Helmhout and Geppert, 2011), and to negotiate terms with institutional bodies (Child and Tsai, 2005). Kostova et al. (2008) argued that the isomorphic pressures in host economies are limited to the regulatory domain. MNEs, based on their large firm size and transnational status, possess a license to deviate (Edman, 2016), enjoy some degree of immunity from local pressures, and advantages of foreignness (Mallon and Fainshmidt, 2017). Even if such pressures exist, local actors will have limited capacity to enforce compliance as MNEs, which possess internal resources, do not need to rely on them for many critical resources. To gain legitimacy and to overcome liabilities of foreignness (Denk et al., 2012; Luo and Mezias, 2002; Mezias, 2002; Schmidt and Sofka, 2009), MNEs can actively engage in practices that are viewed as socially desirable, rather than by (symbolic) compliance with local practices. MNEs may be appreciated precisely because of their differences from their local counterparts, and such differences eventually enhance local diversity. Essentially, given a high degree of institutional freedom, MNEs are in a position to exercise agency to engage in negotiation and partial construction of their local institutional environments. Essentially, the argument of these studies embodies the concept of institutional entrepreneurship, whereby firms can play the role of institutional entrepreneurs, i.e., organized actors who introduce new practices to advance interests that they highly value yet are blocked by existing logics (Garud et al., 2002; Greenwood and Suddaby, 2006). Despite being embedded in the institutional environment, MNEs are perceived to be able to depart from existing practices, and institutionalize alternative practices (Garud et al., 2007; Maguire et al., 2004; Battilana et al., 2009). 2.2.3. The comparative institutional analysis (CIA) approach Whereas research on MNEs based on the different variants of NIT emphasizes institutions (in home and host countries) as constraints to be overcome, or barriers to be avoided or bypassed, the CIA approach views the home country institutional environment as an advantage (Ahmadjian, 2016; Whitley, 1999). This approach conceptualizes the institutional environment as distinctive, complementary configurations of institutions which constitute a national business system, thus supporting distinctive capabilities and the comparative institutional advantages of its firms (Jackson and Deeg, 2008; Schneider et al., 2010). Firms in their overseas expansion aim to maintain their comparative institutional advantages (e.g., Casper and Whitley, 2004), at times, even at the expense of legitimacy in their host countries. According to Ahmadjian (2016), firms from different nations have different distinctive capabilities. For instance, national systems such as that of the USA foster equity finance through stock markets, deemphasize job security, encourage arms-length relationships between firms, and thus tend to produce firms which adopt a short-term perspective, focusing on financial performance and rapid responses to environmental changes (Hall and Soskice, 2001). National systems such as those of Japan and Germany, which foster relational finance through banks and emphasize job security and long term relationships between firms, tend to produce firms which adopt a long-term perspective, maintaining a stable workforce and supplier chains (Whitley, 1999). In applying the CIA approach on MNEs' adaptation behavior in host countries, Ahmadjian (2016) argued that they would be better off by maintaining their organizational systems generated from their home institutions, and from which they enjoy comparative institutional advantages, rather than adapting to host country systems. This is especially so if the objective of an MNE is to exploit its internal resources when operating in host markets rather than gaining capabilities there (Kogut and Zander, 1993). Ahmadjian hypothesized that an MNE from the USA, which penetrates Japan with an objective for capability exploitation, is likely to maintain its own systems of sales and employment, disregarding different expectations prescribed by the Japanese environment. To bypass the local Japanese systems, the MNE is likely to build ties with actors (such as female managers) that are marginalized from the local systems. Nevertheless, Ahmadjian acknowledged that host country regulations and entrenched attitudes could pose limits to the ability of MNEs to preserve all elements of their own systems, and thus MNEs might opt for selective adaptation to certain elements in host markets. In essence, the CIA approach focuses on organizational and national levels of analyses rather than the field levels. 2.2.4. Comparison of the three approaches In summary, all the three approaches share two fundamental assumptions. First, national institutions exert an effect on firm structure and practices. Second, national institutions are country specific as they have been developed within the boundaries of the political and socio-economic environments and become entrenched as a result of social interactions. However, the three approaches show significant differences in the conceptualization of institutions, agency, adaptation behavior, and outcomes. The CIA approach sees institutions as not only a source of legitimacy (as suggested by the two NIT approaches), but also a coordinating mechanism nurturing comparative institutional advantages. Institutions across environments pose constraints which MNEs either reactively cope with (ERIT), or proactively overcome (RNIT). But in the CIA approach, institutions differ across environments. In other words, those from home countries present advantages for a firm to harness, whereas those from vastly different environments generate disadvantages which firms attempt to avoid or bypass. Agency, on the other hand, is related to two factors: firm objectives and resources/capabilities. For both NIT approaches, the firm objective is to gain legitimacy for survival and success. While the ENIT approach views MNE agency amidst institutional constraints as limited, the RNIT approach emphasizes an MNE's internal resources (such as firm size and social status) to enable it to exercise significant agency to gain legitimacy through non-compliance. For the CIA approach, the firm objective is to harness its comparative institutional advantages, and at times, even at the expense of legitimacy within host countries. An MNE often possesses significant agency based on its organizational systems developed from its home country institutional environment. With respect to MNE behavior and outcomes, the ENIT argues that behavior is institutionally determined and thus MNEs must conform to host country institutional expectations through compliance or at least decoupling. Conformity will generate economic survival and success whereas non-conformance will lead to failure in gaining acceptance and economic losses. However, both the 4

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RNIT and the CIA approach adopt a more organizational agency-focused view, arguing respectively that MNEs can adopt practices deviating from norms, and opt for non-adaptation or selective adaptation. Whereas the CIA approach sees outcomes in terms of firm success in transferring knowledge to local subsidiaries, selling new products to local market, and staying competitive against local counterparts, the RNIT predicts outcomes with respect to not only firm success, but also the firm role as institutional entrepreneur in triggering institutional change within its host environment. Which approach better explains MNEs' adaptation to host country environments? The aim of this paper is to assess the applicability of the approaches by identifying, in real life, cases on post cross-border acquisition implementation with respect to: (1) what pressures host country environments exert on an MNE, (2) whether and how the MNE, with its objectives and resources, adapted to host environments, and (3) what outcomes across the firm and field levels, were generated. 3. Research design and method To assess the applicability of the three approaches, we use case study methodology. This methodology enhances contextualization (Edmondson and McManus, 2007; Miles and Huberman, 1994). It is thus most appropriate to fathom the complex and contextual nature of MNE behavior in host markets. We argue that MNEs operations are embedded in host country environments, which need to be understood in time and space contexts for which precise boundaries are hard to draw (Gillham, 2010). We therefore maintain that case study methodology offers a better prospect than a large-sample study research to understand MNE's behavior in post-integration implementation. Specifically, we chose a multiple case study design because it enhances comparison across contexts and MNE behavior, and permits a richer assessment of the three approaches than a single case study (Eisenhardt, 1989; Yin, 2003). 3.1. Case selection In a case study design, case selection is purposive. In this research, we select the hypermarket segment of the retail industry for several reasons. First, this trade does not create national security concerns in host nations and hence the institutional freedom that MNEs enjoy is likely to be relatively high. However, as they penetrate local consumer markets and compete with local retailers, they encounter isomorphic pressures and their institutional freedom may be reduced. The choice of this segment enables us to avoid the potential pitfalls of either overestimating or underestimating the degree of institutional freedom and thus allows us to assess the three approaches. Amongst MNEs, we select the US-based Walmart because it is one of the world's largest retailers with firm conditions including internal resources and objectives of overseas expansion as respectively stated by the RNIT and CIA approaches. Walmart has abundant organizational and financial resources and distinctive information management and distribution systems, and an objective of capability exploitation—exploiting its Every Day Low Price (EDLP) business model, low cost global supply chain, and its centralized decision-making model (Gereffi and Christian, 2009). Our choice of host markets was driven by three criteria. First, they are in the early phase of overseas expansion because more data are available (see Table 2). Second, they host Walmart's full acquisitions (some of which were developed from joint venture or partial, incremental acquisitions) whose entry mode is more contentious than joint venture, or through investment via minority stake. Last, they reflect differences in the institutional environment and MNEs' adaptation behavior. Given the space limit, we limit the cases to three based on two dimensions: degree of institutional constraints, and type of behavior (non-adaptation versus selective adaptation). We exclude the category of full adaptation due to the non-existence of cases, which is consistent with Walmart's international strategy that seeks a high degree of global integration rather than local adaptation. According to Ahmadjian (2016), nonadaptation to a local system means that an MNE would find a way to transplant its own system in its host country operations, whereas selective adaptation refers to an adoption of only certain elements in the host markets. We note that Mexico and Germany present a sharp contrast in the degree of institutional constraints posed to Walmart, but a similar behavior of non-adaptation. However, we also bring in the Japanese case as it reflects a behavior of selective adaptation in contrast to non-adaptation adopted in Germany despite the similarity in their institutional environments. The three cases show different outcomes—success in Mexico (Alexander and Myers, 2000; Roberts and Berg, 2012), failure in Germany (Christopherson, 2007; Jui, 2011), and survival in Japan (Uranaka, 2007; Shimizu, 2016). The variety with respect to institutional environments, MNE behavior, and outcomes as summarized in Table 3 renders the three cases to be most appropriate to assess the three institutional approaches. 3.2. Data sources and analysis Our multiple case studies are based on archival research relying on publicly available data (Dhanesh and Sriramesh, 2017). We rely on both internal sources including Walmart's annual reports and press releases as well as external sources (books, journal papers, media reports, business magazine articles, trade publication articles, market reports, videos, and TV programs) — to construct a credible account. Databases accessed include Factiva for media and magazine articles, and ABI-INFORM as well as EBSCO-Host for academic publications. Academic publications reviewed include those from the fields of management studies, international business, marketing, economic geography, as well as country and regional studies. We conducted the data analysis using the four conceptual dimensions reviewed above—institutional environments, MNE agency, MNE behavior, and outcomes. The study included within-case analysis and cross-case analysis (Eisenhardt, 1989). Three student groups (with two students each) were recruited for data collection. Each group first gathered data from media reports for Walmart's post-acquisition behavior in the three countries along the categories of: (1) responses to host country regulatory and socio-economic 5

6

Mexico Canada Brazil China Germany

S. Korea U.K. Japan Central America

India Chile S. Africa

1991/1997 1994 1995 1996/2015 1997/1998

1998 1999 2002 2005

2007 2009 2011 No Info $1.5 billion (Initial) $2.4 billion

JV2 Acquisition Acquisition3

Acquisition Acquisition Acquisition Acquisition1

$120 million $300 million $757 million $517 million Wertkauf ($880million) Spar Handels ($659million) $181 million £6.7 billion $878 million $212 million

Transaction amounts

JV/Acquisition Acquisition Acquisition JV/Acquisition Acquisition

Entry modes

Iritani, E., 1998. Walmart Is Changing the Country's Retail Landscape. Los Angeles Times. The Guardian., 1999. Walmart swallows Asda. Guardian News and Media Limited. Dolan, D., Layne, N., 2007. Walmart to acquire rest of Japan retailer Seiyu. Reuters. United States Securities and Exchange Commission., 2006. Walmart Form 10-Q Quarterly Report (July). United States Securities and Exchange Commission. Jara, A. d., Maestri, N., 2009. Walmart wins 58.2% stake in Chile D&S tender. Reuters. Maylie, D., 2012. Walmart, Massmart Merger Approved in South Africa. The Wall Street Journal.

Lee, L., Millman, J., 1997. Walmart to Invest $1.2 Billion for Control of Mexican Retailer. The Wall Street Journal. Adelson, A., 1994. Company News; Walmart Entering Canada. The New York Times. Walmart News., 2005. Walmart Announces Acquisition of Retail Chain in Southern Brazil. Walmart. Global Times., 2015. Walmart buys out Chinese partner's holdings in joint venture for $517 m. Global Times. JOC.com., 1998. Walmart to Buy 74 German Stores. JOC.com Maritime News.

Sources

Existing Existing Existing

Withdrew Existing Existing Existing

Existing Existing Existing Existing Withdrew

Status

2

Walmart acquired 33.3% in Central American Retail Holding Company and has been operating in Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. Walmart established a Joint venture with Bharti Enterprises which has created 20 wholesale stores located in major cities such as Amritsar, Zirakpur, Jalandhar, Kota, Bhopai, Ludhiana, Ralpur, Indore, Vijayawada, Agra, Meerut, Lucknow and Jammu. 3 Walmart acquired 51% in Massmart and has been operating in Sub-Saharan African nations which include Botswana, Ghana, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Uganda, Tanzania, Kenya, Swaziland, Lesotho and Zambia.

1

Countries

Years of entry

Table 2 Walmart's major overseas investments as of 2011.

L.S. Tsui-Auch and D. Chow

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Table 3 Case selection. Institutional constraint

Low

High

Mexico (success) Not applicable

Germany (failure/exit) Japan (survival)

Behavior Non-adaptation Selective adaptation

level (regulations and norms on employment and market competition), (2) behavior at the intra-organizational level within their organization (management and industrial relations), and (3) behavior at the inter-organizational level (market competition and supply chain management). Next, two students from each group individually did a within-case analysis of post-acquisition implementation at different levels in each host market based on the data gathered from the media reports. Whenever there was a discrepancy in analysis, the lead author referred to the raw data from media reports and additional data from journal papers and helped the research team to reach consensus. For each case, we wrote a contextualized account of the institutions across national, inter-organizational and intra-organizational levels that exert isomorphic pressures on Walmart, its agency and adaptation behavior, and the outcomes at the subunit and industrial levels. After the within-case analysis, we conducted a cross-case analysis by comparing across the four conceptual dimensions. Based on the data, we constantly revisited the three approaches to assess their argumentation for the role of institutions versus agency, and explanation for MNE behavior and their outcomes. The comparative analysis resulted in additional data collection and further analysis, and sharpened our assessment of the applicability of the three institutional approaches. The entry and expansion into the three markets and the specifics of the post-acquisition implementations are summarized in Table 4 and elaborated in the following section. Table 4 Walmart's acquisitions in selected economies: host country environment and implementation. Mexico (from 1997 to present)

Germany (from 1997 to 2006)

Japan (from 2007 to present)

Market entry & expansion/ divestment Host country regulatory and socio-economic levels

1991: Formed a JV with CIFRA 1997: Acquired a controlling stake By mid-2000s: Has become the largest retailer in Mexico Legal protection of the right to unionize, but with weak enforcement. Market competition regulations in favor of foreign companies. Violation of labor laws and received punitive measures.

1997: Acquired Wertkauf 1998: Acquired Interspar 1997–2006: Incurred a huge annual financial loss 2006: Divested them Co-determination laws, giving a strong protection for labor rights for unionization and wage bargaining. Regulations on zoning, store hours, and price competition. Flouted such regulations and was sued.

Intra-organizational level management

Appointed US expatriates for top and middle management.

Appointed US/UK CEOs with limited local knowledge.

Industrial relations

Transplanted centralized decisionmaking model and HQ's HR policies with few obligations to employees.

Transplanted centralized decision-making and adopted heavy-handed approach, which contrasts with the German consultative approach.

Inter-organizational Market competition

Forced large competitors into “Walmartization.” Offered higher pay than local competitors to lure talents. Continued to rely on its international sourcing/distribution system. Local suppliers were weakened due to either bankruptcy or compliance with Walmex's terms.

Started price wars but was curbed by regulatory agencies. Failed to increase market shares.

2000: Invited by Seiyu to purchase its stocks 2002–2006: Undertook a gradual acquisition 2007: Turned it into a wholly-owned subsidiary 2008–2013: Generated profits annually 2014–2016: Closed underperforming stores since 2016: Expanded e-commerce and didn't open new stores Legal protection of the right to unionize. Norms of stable employment. Large Scale Retail Store Act as nontariff barrier to foreign entry and protection of small stores. Shifted from violations of norms of stable employment to moderate degree of conformance. Shifted from appointing a US CEO to appointing a Japanese CEO and more Japanese top managers. Tolerated labor union. Shifted from mass firing to offering voluntary retirement. Hired women managers (above Japanese average) Failed to meet consumer demands for good value. Posed no threat to local competitors.

Sourcing/distribution system was resisted. Failed to alter the existing distribution system.

Adapted to Japanese systems. Made limited progress in getting local suppliers to adopt its distribution system.

Supplier-chains

7

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4. Walmart's post-acquisition implementation in Mexico, Germany, and Japan 4.1. Walmart's distinctive resources, capabilities, and objectives Walmart is rooted in a “compartmentalized” national institutional system (Whitley, 1999) which relies on market forms of coordination, and breeds arms-length relationships with buyers, suppliers, investors, and employees. This system encourages equity finance through the stock market, shareholder-oriented corporate governance, short-term transactions between firms, and offers low job security. Such a system, marked by clear rules and transparent information disclosure, is specifically effective in industries which require fast and flexible responses to rapidly changing market conditions (Hall and Soskice, 2001). Specifically, in the US retail sector, the product market is dominated by hypermarkets and discounters engaging in cut-throat competition, the supply chain is highly consolidated, and labor unions are weak (Christopherson, 2007; Roberts and Berg, 2012). The complementary institutional configurations within this system shape Walmart's strategy on internal structure and external relationships. Walmart has developed a business model based on EDLP (Fairris, 1997) and low cost global supply chains, which are supported by a centralized decision-making model, non-unionized employment relations, and arms-length relations with suppliers. When it expanded overseas, it aimed to exploit such capabilities. Despite the shift towards a localization of middle management appointments, ultimate decision-making authority lies in the hands of the company's CEO, who monitors international operations from the headquarters in the US (Holstein, 2007; Neate, 2012). 4.2. Walmart in Mexico In 1997, Walmart saw the potential in Mexico and seized the opportunity to obtain a controlling stake in CIFRA, Mexico's then biggest retailing chain (Tilly, 2006), and renamed the entity as Walmex (Javorcik et al., 2008). Walmart's acquisition was opposed by domestic retailers, farmers, and many ordinary Mexicans (Copeland and Labuski, 2013), but were welcomed by the neo-liberal regime and “white unions”— labor unions which engaged in pro-business practices and negotiated contracts that favored employers rather than employees (Mexico Solidarity Network, 2012). At the legal and socio-economic levels, Walmex encountered labor laws which favored foreign investors and gave workers minimum protections. As an emerging market in the backyard of the USA, the government embraced NAFTA (North American Free Trade Agreement) signed in 1994 and was highly dependent on FDI (especially from the USA which constituted 50% of it, see MarketLine, 2013) for economic growth and employment generation (McKinley, 2004; Orlandi, 2004). Hence, regulations on market competition and labor were generally favorable to foreign companies. Although the right to unionization was recognized by labor laws, their enforcement was lax. The labor unions showed a high degree of cooperation with foreign employers. Moreover, Mexican firms are controlled by block shareholders, and thus are oriented towards serving their interests rather than considering employees' interests in their strategic decisions. Walmex simply violated the laws by paying workers in part with store cards that could be used only in Walmex stores. The company eventually bore punitive actions imposed by Mexico's Supreme Court (Reuters, 2008). At the intra-organizational level, Walmax was able to transplant its HQ's centralized decision-making model. It appointed US expatriates for top and middle management, replicating Walmart's HR policy of bearing few obligations to employees. Although the labor union was tolerated, labor contracts provided few benefits other than the minimum as required by the Mexican labor law, and in the main, possessed largely identical provisions to Walmart's HR policies in the US. Given that Walmex had become Mexico's largest private sector employer by number of employees (Bussey, 2006; EFE News Service, 2013), the union and workers could not afford to exert much pressure over Walmex's management. At the inter-organizational level, Walmex significantly shaped the industry's practices and landscape via the changes it introduced. It did not follow the industrial wage and pricing practices adopted by its local competitors. To lure workers, it paid employees slightly better than most of its competitors (Tilly, 2007). On pricing, Walmex was able to capitalize on reduced import tariffs with Mexico's signing of the NAFTA and the government's pro-FDI stance to lower its prices and trigger price wars amongst its local competitors. Its EDLP provided a counterbalance to market dominance by large local retailers from a national retailing association that prevented cut-throat competition. Eventually, its three remaining major local competitors were forced to implement some sort of EDLP and automated distribution systems, removing intermediaries in the sales process, and demanding discounts from suppliers (Tilly, 2006), reflecting a Walmartization of business practices. By mid-2000s, Walmex has become the largest retailer and captured a larger market share than all its local rivals combined (Di Gregorio et al., 2008; Matusitz, 2014). Moreover, Walmex continued to rely on its own global supply chain. Its sheer size and ability to source globally from its extensive network of US and international suppliers resulted in higher pressures on suppliers' margins (Durand, 2007a, 2007b; Lacovone et al., 2015). Many small, local suppliers who were unable to meet its terms lost their market share and eventually went bankrupt. The larger ones who survived had to meet Walmart's demands for annual price reductions (Javorcik et al., 2008) and payment terms (Biles et al., 2007; Durand, 2007a). Overall, Walmart transplanted its successful US practices (pricing, regional distribution systems, and highly centralized operational control) into its Mexican subsidiary (Alexander and Myers, 2000; Vida, 2000). Walmex has been considered to be “a phenomenal success” for Walmart, enjoying “a colossal market leadership” in the economy and sustaining growth “at a breakneck pace” (Roberts and Berg, 2012, p. 195). It has reshaped the retail sector in terms of market competition and supply chain management.

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4.3. Walmart in Germany Walmart kick-started its entry into Germany by acquiring Wertkauf stores, a home-grown chain in 1997 and Interspar stores in 1998 (Knorr and Arndt, 2003). It then proceeded to rebrand and rename these local icons as Walmart hypermarts (Carol, 1999). At the legal and socio-economic level, Germany's law enforcement on labor protection, zoning, store hours, and price regulations have been strict, although it welcomes FDI. The historical contingency of cooperative industrial relations, which has developed as a result of the democratization of Germany after World War II, has led to the enactment of Co-determination laws, giving a strong protection for labor rights for unionization and wage bargaining (Edwards and Ferner, 2002). In order to protect traditional domestic retailers from competition by large competitors, the German government has enacted strict zoning regulations and prohibited the establishment of stores with over 800 square meters in locations not designed for retailing (Jui, 2011). Thus it was difficult for Walmart to realize its competitive advantage by relying on the format of the supercenter and long store hours with low operating expenses (Jui, 2011). Also, its “Act Against Restraints of Competition” forbids companies ‘“with superior market power in relation to small and medium-sized competitors” from pricing below cost, except when such pricing occurs only “occasionally” and there is an “objective justification” for the pricing scheme (Bundesgesetzblatt [Federal Law Gazette], 2013). However, Walmart flouted certain regulations. For instance, in 2000, it engaged in a price war with established local supermarket chains, and this was curtailed by the German regulatory agencies. It also decided to maintain its anti-union position (Edwards and Ferner, 2002) and thus neither signed retail sector agreements nor joined employers' associations (Judd and Levine-Sabol, 2005). At the intra-organizational level, Walmart continued to transplant its approach of centralizing the decision making process which stood in sharp contrast to the consultative approach usually adopted by German firms. Consequently, Walmart alienated its employees. The appointments of its first CEO in Germany, a US citizen who was reluctant to learn German, and of the second, a Briton who decided to head the German subsidiary from his UK office through managers in the UK, indicate that management was unable to relate to local norms (Knorr and Arndt, 2003). The resulting resignation of local managers proved costly in the longer run as Walmart lacked experienced and capable senior employees to support its expansion plans (Economist, 2004). In terms of both policy and operations, Walmart did not consult its employees and many of its decisions were unilateral. Its antiunion stand and changes in its internal rules and code of ethics severely lowered employee morale (Talaulicar, 2009). To make things worse, Walmart tried to substitute the unions with an open-door policy of asking disgruntled associates to bring to the attention of management their problems with colleagues. This move had sinister connotations, as this system was redolent of an “informer hotline,” evoking unsavory memories of the East German secret police system (Lichtenstein, 2009). Eventually, the unions, in conjunction with their members, successfully sued Walmart for infringing their co-determination rights. Also, the German service union sued Walmart for not disclosing its year-end profit figures which could be used for wage negotiation. Eventually, Walmart compromised with a wage increase (Jui, 2011). At the inter-organizational level, the highly competitive German grocery market precluded Walmart from realizing its EDLP model (Gerhard and Hahn, 2005). Walmart's attempt to shape the retail industry by starting its price war with the dominant discounters including Aldi and Lidl was curtailed by the Federal Cartel Office (Andrews, 2000; Wilmer et al., 2002). In addition, Walmart failed to reshape the German supplier networks to its advantage. The imposition of its own supply chain management system on the German context was resisted, as the German networks are based on a relational system in which domestic retailers and suppliers engage in long-term business relations, focusing on reliability and service quality; and retailers have little bargaining power to buy products from suppliers at low cost (Jui, 2011). A supply chain expert commented: “Walmart's abject failure in the German market was at least partially attributable to the retailer's cack-handed attempts to export US supply chain orthodoxies to an entirely unsuitable market” (Roberts and Berg, 2012, p. 131). Walmart thus incurred a huge annual financial loss of about $200 million in the German markets, and announced in 2006 a divestment of the acquired entities that cost it approximately $1 billion (Christopherson, 2007). It failed to reshape the retail industry in terms of employment relations, market competition, and supply chain management. The withdrawal from the German market has presented Walmart with some important lessons (Films Media Group, 2010). Roberts and Berg (2012, p. 3) observed: “Experiences such as this resulted in Walmart adopting a more localized approach to subsequent international adventures….” In response to his company's exit from Germany (and South Korea) in mid-2000s, Michael Duke, the then-international chief, began to offer local managers more autonomy while imposing more stringent financial goals for each region (Boyle, 2009; Hammerich and Lewis, 2013). 4.4. Walmart in Japan In 2007, Walmart raised its stake of Seiyu, a top Japanese supermarket chain to 95%, upon the invitation of Seiyu which was struggling with the negative repercussions from over-expansion (Associated Press, 2007). Given its position of white knight to rescue the company, Walmart could have adopted a non-adaptation behavior at least within Seiyu. However, it faced strong isomorphic pressures for conformance with local norms. At the legal and socio-economic level, Japan shares much in common with Germany. The right to unionize is enshrined in law. Organizational behavior is coordinated, to a large extent, through cooperative industrial relations. The resulting institutional environment gives firms incentives and nurtures their capabilities to pursue business models which exploit non-transferable assets. However, exploiting non-transferable assets is antithetical to Walmart's strategy of exporting its competitive advantage of the EDLP model and distribution chains across its host economies. In particular, the imposition of the “hire and fire” approach of the US employment model was immediately condemned by the Japanese media (Soroush, 1993), leading to a loss of public goodwill as the Japanese place a premium on social harmony (Holstein, 2007). With respect to market competition, the Japanese parliament passed 9

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the “Large Scale Retail Store Act” in response to local retailers' resistance in 1978 (Flath, 1990), which has since served as a non-tariff barrier for foreign entry and has protected small stores (Takatoshi and Maruyama, 1991), resulting in a highly fragmented retail market. At the intra-organizational level, Walmart initially imposed its managerial model on the Japanese subsidiary, but subsequently complied with local norms to a certain extent. Right after the full acquisition, it applied top-down directives to staff. This move met with much resistance, as the Japanese style of kaizen productivity improvement typically involves bottom-up feedback. It also did not help to have appointed an American CEO who possessed primarily US-based experience and only a rudimentary knowledge of Japanese language and customs. The attendant communication problems and disappointing financial performance of Seiyu finally resulted in the appointment of a Japanese executive as the CEO (Holstein, 2007) and more local top managers. This subsequently sent a positive signal to employees that Walmart was willing to adapt to Japanese corporate norms and hand over the reins of leadership to local managers (Nikkei Report, 2013). Nevertheless, in contrast to local norms, Walmart has increased the promotion of female staff to managerial positions. 14.9% of managers are women, exceeding the Japanese average of 6.6% (Walmart Seiyu, 2017). In a bid to resolve Seiyu's cash flow and potential bankruptcy problems, Walmart tried to impose a major cost-cutting and restructuring program on the company, closing down 20 unprofitable stores and reducing the workforce by 29% (Roberts and Berg, 2012). The company was immediately condemned by the Japanese media for its imposition of the US employment model on Seiyu. Hence, Walmart's public image suffered greatly in the eyes of Japanese employees and consumers. In order to prevent further loss of goodwill, it began to implement a voluntary retirement program for 25% of Seiyu's full-time employees instead of retrenchment. It also offered similar benefits to employees who were willing to shift from regular employment to temporary contracts. Moreover, in contrast to its previously anti-union position, it complied with local norms in the form of tolerance towards Seiyu's union (Ungson and Wong, 2008). At the inter-organizational level, Walmart also faced a vastly different environment. In the highly fragmented Japanese retail market, several national players face many local and regional competitors which are supported by wholesalers and manufacturers who maintain control over distribution channels. Walmart thus saw a potential for entering the market by transplanting their operational and management principles which had enabled it to succeed and dominate its home market. However, its EDLP notion did not enable Seiyu to shake off the image of being cheap rather than providing products of good value to affluent but price-sensitive Japanese consumers (Aoyama, 2007). Hence it failed to achieve the economies of scale required to outbid competitors through lower prices (Layne and Adler, 2014). While it has lately begun to adapt by competing on the basis of low prices with quality especially through e-commerce, it has struggled to leverage its global scale against local retail giants Aeon Co and Seven & I Holdings Co. (Presswire, 2018) and failed to reshape the retailing industry (Pollock and Banjo, 2014). Walmart attempted to continue to largely rely on direct sourcing, one of its major cost reduction strategies and success factors. It made Seiyu cut ties with several major wholesalers while attempting to increase direct dealings with manufacturers. It has been able to make some headway in convincing some smaller Japanese suppliers, who recognized the need for cost-cutting after a prolonged recession, and the benefits of having an in-house computerized inventory system and distribution infrastructure rather than relying on intermediaries (Meyer-Ohle, 2007; Ungson and Wong, 2008). Nevertheless, the local supply chain management was not significantly affected by Walmart's entry. This is because Japanese local distribution networks, which are based on the long standing keiretsu system with a complex network dominated by intermediaries, prevented retailers from direct purchase from the suppliers (Aoyama, 2007; Rajakumari and Anita, 2008). Instead, the closely-knit Japanese contractor-supplier relationship (Rowley, 2005) forced Walmart to recalibrate its supply chain within the country by using Japanese intermediaries in order to survive in the market (Meyer-Ohle, 2007). Seiyu started to reverse seven consecutive loss-making years by generating a profit in 2008 (Roberts and Berg, 2012; Uranaka, 2007). It confirmed in 2013 that profits had grown for a fifth consecutive year. Nevertheless, it maintained only 345 stores in Japan in 2016 compared with 434 before the closures of underperforming stores announced in 2014 (Shimizu, 2016), revealing the challenges it encountered to secure market growth (Reuter 10/31/2014). It has expanded e-commerce, and focused on remodeling existing stores rather than opening new ones since 2016 (Presswire, 2018; Nassauer and Negishi, 2018). But it has made no plans to withdraw from the country (Nikkei Report, 3/17/2016; Shimizu, 2016). Specifically, on its employment practice to promote female managers, Walmart has slowly begun to become a catalyst for change (Meyer-Ohle, 2007), though the possibility of a substantial change remains to be seen. 5. Case analysis and conclusion 5.1. A cross-case comparison The cross-case comparison provides us with data to assess the applicability of the three institutional approaches. In Mexico where institutional constraints over foreign retailers are limited, Walmex did not need to adapt much, and could make a wholesale transplant of its structure and practices into that country. Walmex's financial resources, global scale, and extensive distribution network enabled it to lure local workers and achieve greater market share through its EDLP to the benefit of consumers but the detriment of its local competitors. It provided a counterbalance to market dominance by large local retailers from a national retailing association that blocked market competition, and drove them to undergo “Walmartization.” However, in Germany, the institutional constraints for foreign retailers were significant. Apart from legal constraints over market competition and labor protection, companies are highly embedded in a relational system, emphasizing long-term relationships between firms, the unionized workforce, and stable employment. Walmart's non-adaptation behavior as shown by its brusque dismissal 10

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Table 5 An assessment of the three institutional approaches in light of the case data. ENIT

RNIT

CIA

What it explains

Impact of high levels of coercive and normative pressures from host environments on MNEs (Germany and Japan) Outcome of MNEs' non-adaptation behavior in host environments with high institutional pressures (Germany)

MNE agency, non-adaptation behavior, and positive firm outcomes in host environments with low institutional pressures (Mexico) Institutional changes (in the industrial field) as a result of non-adaptation (Mexico and to a lesser extent, Japan)

What it is less suited to explain

Impact of host environments with low levels of institutional pressures (Mexico) MNE agency and non-adaptation behavior in host environments with low institutional pressures, and positive outcomes from nonadaptation (Mexico)

MNEs in response to normative pressures from host environments rather than simply to regulatory pressure (Japan) Differential outcomes of non-adaptation in different host environments (Mexico vs. Germany). The double-edged sword of MNE resources (Japan)

Difference in favorability of institutional environments (Mexico vs. Germany and Japan) for specific types of organizational practices. Trade-offs between legitimacy and comparative institutional advantage (Germany) Differences in adaptation behavior in host environments with different levels of institutional constraints (Mexico versus Japan) Outcome of non-adaptation in environments with high levels of institutional pressures (Germany)

of regulatory requirements and defiance of norms led to failures to secure cooperation from employees, to enlarge its market share, and to penetrate the local supplier networks. The failures eventually led to a heavy financial loss and its ignominious exit from the German market. In Japan where institutional constraints are similar to those in Germany, Walmart's shift from non-adaptation to selective adaptation enabled it to survive in the market. The adaptation was made largely on employment relations: an increasing reliance on local management, recognition of the company union as an important stakeholder, and adoption of a more localized approach based on voluntary retirement. Walmart also adapted slowly to engage intermediaries to source local supplies, while continually luring some local suppliers to adopt its distribution system. However, its insistence on its EDLP model rendered it to fail in meeting the Japanese consumers' demand for good value, and thus, Walmart was unable to alter local competitors' ways of retailing their products. Yet, with regard to female managerial workforce participation, it has slowly become a catalyst for change. 5.2. Assessing the applicability of the three institutional approaches Our assessment of the approaches in light of the case data is summarized in Table 5. The ENIT would have led us to expect that the agency of Walmart would be severely constrained by institutional isomorphic pressures within all the host economies. We agree that agency in Walmart was significantly constrained by coercive isomorphic pressures from state agencies in Germany and normative pressures from corporate norms and work culture in Japan. Hence, even a giant MNE such as Walmart is not immune from such pressures, and thus non-adaptation led to its failure and exit from the German market. However, we found that Walmex was much less constrained by institutional pressures in Mexico than Walmart's subsidiaries in Germany and Japan, reflecting the role of different institutional arrangements. Therefore, we argue that the ENIT explains well the impact of host environments with high institutional constraints on MNEs and the negative outcome of non-adaptation to such markets. However, contrary to the ENIT's prediction, Walmex, based on its internal resources and distinctive capabilities, could exercise much agency and practice non-adaptation to reshape the retail sector. Also, despite the severe institutional constraints in the Japanese market, Walmart had leeway for selective adaptation. We therefore argue that the ENIT's deterministic approach renders it to underestimate MNE agency. Hence, it is less suited to explain MNEs' nonadaptation behavior and their role in generating institutional change in host environments with low institutional constraints on MNEs. The organizational agency-focused RNIT draws our attention to MNEs' agency and their role of triggering institutional change. The theory would have led us to expect that there is much room for Walmart to negotiate its status and create its practices in host economies. This theory is especially appropriate to explain the case in Mexico where institutional constraints over foreign retailers were limited, and Walmart's resources and capabilities gave it an upper hand in reshaping the retailing sector. Although the large local wholesalers dominated the supply chain of the economy, their capacity to ensure Walmex's compliance with local practices was weakened over time as Walmart gained a larger market share and hence higher bargaining power. Obviously, Walmex rewrote the local rules for retailing and largely negated the need for isomorphism, especially in terms of supplier relations. Walmex gained legitimacy from employees and consumers not so much by observing norms but by deviating from the norms—offering slightly higher salary than its counterparts, and offering lower-priced products to break the market domination by local retailers. However, the cases of Germany and Japan provide little support for the RNIT. Based on our comparative analysis, isomorphic pressures exist not only in the regulatory arena as Kostova et al. (2008) argued, but also in the socio-economic arena. In such coordinated market economies such as Germany and Japan, even powerful MNEs can neither weaken the power of labor unions, nor 11

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alter the supply chains and market competition. Particularly in Japan, Walmart's firm size and status worked against it as they attracted much media scrutiny, further limiting its exercise of agency for non-adaptation. Rather, its non-adaptation approach was abandoned in Japan over time, making way for selective adaptation to local norms, yielding to institutional isomorphic pressures, and becoming similar to its local counterparts. Therefore, we argue that the RNIT is less suited to identify normative pressures from host environments as well as the differential outcomes of non-adaptation in vastly different institutional environments. Furthermore, as illustrated by the cases, the resources in terms of firm size and status constitute a double-edged sword, which not only enables but also inhibits MNE agency. Therefore, we caution researchers against overestimating MNE agency. The CIA approach helps fill the gaps left by the variants of NIT. First, it explicates how institutional environments can be more or less favorable for specific types of organizational practices, depending on the institutional arrangements. Given the different regulations and norms on labor protection, market competition, and supply chain relations, the Mexican environment is more favorable to Walmart than the German and Japanese environments. Next, the approach helps identify the trade-offs between comparative institutional advantage and legitimacy when MNEs operate in environments vastly different from their home environment. This is especially obvious in the German case. Last, it highlights the option of selective adaptation by acknowledging the regulatory and normative constraints in host country environments, which is applicable to the Japanese case. Walmart yielded to institutional isomorphic pressures and adapted to local employment relations and supply chain management. But it continued to deviate from local norms by promoting women to managers and luring suppliers to its distribution systems, which Ahmadjian (2016) conceptualized as building ties with marginalized actors to recreate their own conditions and reduce reliance on local resources from the mainstream. Nevertheless, similar to the RNIT, the CIA approach is less suited to explain the outcome of non-adaptation in environments with high levels of institutional pressures. In Germany, Walmart's non-adaptation and defiance of norms weakened cooperation from internal stakeholders and generated highly negative outcomes. As a result, Walmart failed in and exited from the German market. While the three approaches theorize about the relationship between MNE agency and institutional environments, they do not clearly distinguish the boundary conditions of the theories (Tsang and Williams, 2012). We suggest that the concepts of institutional void versus institutional stability should help define the boundary conditions for the RNIT and the CIA approach versus the ENIT. Khanna and Palepu (1997) argue that emerging markets, which lack institutions that facilitate market transactions, are replete with institutional voids, i.e., they have an absence of reliable intermediaries. Firms with a favorable reputation are perceived to offer a credible signal which helps mitigate uncertainties and offer transactional confidence, perceptions of quality, and resilience. Cantwell et al. (2010) argued that an institutional system that is in flux is likely to exhibit institutional voids that offer MNEs opportunities for institutional co-evolution rather than adaptation. The authors asserted that institutional adaptation is more likely to take place in institutionally stable environments, while institutional co-evolution is more likely to occur in dynamic environments filled with institutional voids. In emerging markets with constant environmental changes, the variety that MNEs introduce is often missing in the local environments (see also Hoskisson et al., 2000; Meyer, 2004; Peng et al., 2008). Hence, MNEs are likely to be well-received if their institutional entrepreneurship contributes to an on-going institutional change process. By contrast, in a relatively stable institutional environment, the varieties that MNEs introduce are unlikely to generate legitimacy or significant impact (Cantwell et al., 2010). In emerging markets such as Mexico, which are filled with institutional voids and exert lower levels of institutional constraints on MNEs, Walmart has been welcomed partly because it has introduced practices that are missing in the local environment. Essentially, Walmart has gained legitimacy by constructing the rules of the retailing sector, thereby contributing to an ongoing transformational process of the host economy. In contrast, in the institutionally stable economies of Germany and Japan which exert a higher level of institutional constraints, Walmart could hardly reshape the norms of the retailing sector as well as that of employment relations. Based on the contrast between Walmart's attempts to change local organizational and business practices in Mexico and those in Germany and Japan, we argue that the room for an MNE to act as institutional entrepreneur is likely to be wider in emerging economies filled with institutional voids (Garrone et al., forthcoming) rather than in institutionally stable economies. In a nutshell, the explanatory power of the three approaches can be strengthened if the boundary conditions of the theories are specified. To conclude, our comparative case study represents an attempt to illustrate the relationship between institutional pressures, MNE agency, adaptation behavior, and outcomes across institutional environments, and offers data to assess the applicability of the three institutional approaches. We incorporate insights from the three approaches and the concepts of institutional void (CIV) and institutional stability (CIS) to offer a more comprehensive explanation for MNEs' adaptation behavior in post cross-border implementation. As seen in Fig. 1, both the home country institutions and firm conditions determine the degree of MNE agency which shapes an MNE's adaptation behavior in host markets, and that, in turn, conditions the outcomes at both firm and field levels. Nevertheless, host country environments might moderate (1) the effect of MNE agency on the adaptation behavior, and (2) the effect of the adaptation behavior on outcomes. 5.3. Future research directions This study, like all other studies, is limited in scope. Given that the case of Walmart is used, the generalizability of the research results is confined to large MNEs which can, by themselves, set their overseas expansion goals. However, these limitations can serve as a stepping stone to guide future research in several areas. The first research direction is to conduct comparative studies of MNEs of different firm size, resources, and market power with respect to their organizational agency and adaptation behavior. Walmart represents an extreme case. For example, it could afford to 12

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Fig. 1. The relationship between institutional influences, MNE agency, adaptation behavior, and outcomes: a model.

offer higher pay than its local competitors, and drive those competitors into “Walmartization” in Mexico. It could wage price wars and stay for a decade in Germany despite a substantial annual financial loss. Such actions are most likely impractical for smaller MNEs with fewer resources and lower market power. In the future, researchers can conduct comparative studies of large versus smaller MNEs in host countries filled with institutional voids and low levels of institutional constraints. They can examine if smaller MNEs are more likely to comply with local norms as compared to their larger competitors. Such comparative studies will enable us to enhance theoretical generalization (Tsang and Williams, 2012; Tsang, 2013) by illuminating if the ENIT offers a better explanation for smaller MNEs' adaptation even to host environments with a low degree of institutional constraints, whereas RNIT and CIA are more well-suited to explain large MNEs' limited adaptation to such host environments. The second research direction is to conduct studies of MNEs from the state sector. The generalizability of our research results is limited to MNEs from the private sector which have the autonomy to set their own overseas expansion goals. However, state-owned MNEs (SOMNEs), especially those from nations with strong states such as China, Russia, Singapore, and Malaysia, are often suspected by host governments for having expansion goals superimposed by home country governments, and therefore room for agency is relatively limited as compared to their counterparts from the private sector, irrespective of the type of institutional environment. Eyecatching examples include ZTE (China) being severely fined by the US government in 2018 for repeated sanctions violations, and Singapore's government-linked corporations being scrutinized for their acquisition bids in various Asian countries and Australia over the past two decades. Future research on large SOMNEs may help extend the existing approaches, which hold an assumption that MNEs set their own (commercial) goals, and are thus limited in their explanatory power when it comes to offering explanations for SOMNE agency in host country environments. The third direction is to examine how MNEs learn to adapt to host markets, and how they learn from failure in prior acquisitions across markets (Graebner et al., 2017), as different environments can trigger changes in adaptation behavior. We can infer from our case data however, that Walmart has engaged in some degree of learning to adapt to different host markets such as Japan and Mexico, and how it has also learnt from its failure in Germany. In the future, researchers can more thoroughly identify an MNE's learning from within and from across host markets (Perkins, 2014). Researchers can also conduct in-depth studies with personal interviews to identify how Walmart managers learn from failure across contexts (for example, Germany, South Korea, etc.) and adjust their adaptation behavior. Accumulated knowledge through such research will help enhance our understanding on the roles of learning, institutions, and organizational agency in shaping adaptation behavior in post-cross-border acquisition implementation. 5.4. Implications for practitioners Our study offers practical value for MNEs in adapting to host markets in two related aspects. The first set of recommendations relates to organizational agency. MNE managers should consider the implications of both institutions (host and home) and firm conditions (resources, capabilities, and comparative institutional advantages) in charting their (non)adaptation behavior in host markets. Second, we highlight the differential outcomes of non-adaptation behavior in different institutional environments. We suggest that managers pay close attention to the relationship between adaptation behavior, institutional environment, and outcomes, as well as the possible trade-offs between competitive advantages generated from home institutions, and legitimacy, in vastly different host markets. With regard to post cross-border acquisition implementation, MNEs that do not adapt to host country environments with high levels of institutional constraints may have to pay a heavy price. Declaration of interest None. 13

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Acknowledgements The authors thank Chalmer Labig, AOM session participants, and Masaaki Kotabe, the editor, and three reviewers from the Journal of International Management for their insightful comments on an earlier version of this paper, as well as Jie Lun Choy, Su Yin Lee, and Yong Hwa Tong for his research assistance. Specifically, they are indebted to two of the reviewers with respect to their suggestions for discussing the generalizability issue and the concepts of institutional entrepreneurship and institutional void. The research described herein was supported by a research grant from Nanyang Business School, Nanyang Technological University. References Ahmadjian, C.L., 2016. Comparative institutional analysis and institutional complexity. J. Manag. Stud. 53 (1), 12–27. Alexander, N., Myers, H., 2000. The retail internationalization process. Int. Mark. Rev. 17, 334–353. Andrews, E.L., 2000. Germany Says Walmart Must Raise Prices. 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