The Internationalisation Process of Manufacturing Firms in the Former Soviet Union

OF THESIS By using a longitudinal dataset of over 200 privatised industrial companies, covering the period 1995-1998, data analysis was carried out to explore two main issues: which factors determine export activity; and which firm characteristics determine the presence of a foreign partner in a host firm? The determinants of export intensity and propensity were examined by a wide variety of techniques. The key results are interesting for policy makers and export promotion agencies alike. It was found that large firms undergoing industrial decline are more likely to be exporters and have higher export intensities, reflecting a “push effect” into foreign markets, as a result of the decline in domestic sales. In addition to general firm characteristics, a number of hypotheses were tested concerning the relationship between ownership, board structure and exporting activity. Results showed that foreign ownership, institutional ownership, outsider control and presence of a group of dominant owners positively influence export activity. As for board structure, it was found that this has a weak effect on export activity. This provides four conclusions: foreign owners are foreign market sourcing i.e. seeking new markets to act as an export platform (Caves, 1996); institutional investors are active or “pressure resistant” investors and act in a manner to further firm performance, as hypothesised by Kochar and Parthiban.(1996), this also confirms the efficient monitoring hypothesis of Pound (1988); a group of dominant owners may solve agency problems within an environment with a weak legal environment, as suggested by La Porta et al. (1999), and attempt to boost firm performance via exporting activity; finally outsiders need control in terms of both voting shares and seats on boards to influence export activity. Secondly, the extent of actual partner presence was explored by using non parametric tests. Following this, logistic regression was employed to estimate the likelihood of a firm having a foreign partner or not. This analysis assumes a novel approach by treating the perceptions of the host and entering firm as a determinant of firm foreign partner presence, and includes firm characteristics such as ownership structure, firm size and investment. The principal findings show that the likelihood of having a foreign partner increases in firms requiring investment, which export and are not large, but decreases when managers are focused upon domestic strategies and foreign partners are seeking alliances in order to gain access to local technology. Lastly, it was found that financial performance and indicators of industrial restructuring determine whether a firm retains a foreign partner. The general contribution of my thesis to extant research is to explore two of the main elements of the internationalisation process in a unique institutional environment. Results have shown that most relevant theories in the Western literature apply to the transition environment, for example, foreign ownership positively affects exporting. Furthermore, existing internationalisation research has not explored the link between organisational culture, ownership and strategic goals. Lastly, when examining the determinants of foreign partner presence the view of the local partner is included, whilst previous research has concentrated upon the developing country’s partner.