Uncertainty, Imitation, and Plant Location: Japanese Multinational Corporations, 1990-1996

Abstract

This paper combines neoinstitutional theory and research on the institutional environment to explain the process of organizational entry into new geographic markets. We extend neoinstitutional theory's proposition that prior decisions and actions by other organizations provide legitimization and information to a decision marked by uncertainty, by showing that the prevalence of this effect varies across imitation modes as determined by levels of organizational and market uncertainty. We exploit interorganizational cross-sectional and inter-temporal variation in organizational uncertainty, to demonstrate not only that mimetic strategies are pursued, but also that they are more commonly pursued when the level of uncertainty is high. To test the influence of policy uncertainty in the institutional environment, we rely upon observable inter-temporal and cross-national differences in the structure of a country's political environment to craft an internationally comparable measure of policy uncertainty in a potential host country. We test these ideas on a sample of international plant location decisions for the population of listed Japanese multinational corporations, across a possible set of 155 countries in the 1990-1996 period.

Keywords: FDI, Political risk, Japan, International