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Institutional distance and local isomorphism strategy

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Abstract

Firms face disadvantages when operating abroad. To overcome these disadvantages, foreign firms often adopt mitigating strategies. One such strategy is to imitate the practices of domestic firms (i.e., pursuing a strategy of local isomorphism). We understand little, however, about how firms vary in the extent of local isomorphism. To fill that gap, this paper explores the institutional drivers of local isomorphism decisions. The findings indicate that foreign firms choose a higher level of local isomorphism as the cultural, economic, and regulatory distances between the home country and the host country increase. Moreover, the evidence suggests that such local isomorphism is relatively enduring, as experience does not systematically moderate the relationship between distance and local isomorphism.

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Notes

  1. For a notable exception, please see Rosenzweig and Nohria (1994).

  2. Foreign-bank branches should not be confused with local branch offices. Foreign-bank branches are a separate banking operation with a limited scope of business. Local branch offices, by contrast, are the individual local operations of bank subsidiaries. They conduct full-service local commercial/retail banking activities on behalf of the subsidiary. They can engage in a full range of banking activities for foreign and local customers in the United States. It is not uncommon for foreign-bank subsidiaries to have a number of local branch offices in the United States conducting their day-to-day commercial/retail operations.

  3. For example, if HSBC were to first file for, and open, a banking subsidiary in New York, we would focus on its New York subsidiary. If it later opens an operating subsidiary in California, or any other state, those would not enter our analysis.

  4. For a notable exception, see Perkins (2008).

  5. Results did not change when we limited the sample to those countries for which all five cultural dimensions were available.

  6. All results mentioned but not presented are available from the authors upon request.

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Correspondence to Robert Salomon.

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Accepted by Witold Henisz, Area Editor, 9 December 2011. This paper has been with the authors for two revisions.

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Salomon, R., Wu, Z. Institutional distance and local isomorphism strategy. J Int Bus Stud 43, 343–367 (2012). https://doi.org/10.1057/jibs.2012.3

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