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Journal of World Business 44 (2009) 5162

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Journal of World Business


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Minimizing effects of liability of foreignness:


Response strategies of foreign rms in the United States
B. Elango *
Management and Quantitative Methods Department, College of Business, Illinois State University, Campus Box 5580, Normal, IL 61790-6120, United States

A R T I C L E I N F O A B S T R A C T

Keywords: While anecdotal and research evidence exists supporting the difculties faced by foreign
Liability of foreignness rms in host nation environments due to liability of foreignness, it is clear that many
Response strategies foreign rms have been successfully operating in the U.S. over the years. This study seeks
Foreign rms
to understand the strategies foreign rms use to cope with liabilities of foreignness in an
Boundary spanning
alien environment and compete successfully with domestic rms, specically through
boundary spanning. Using a sample of 3861 rms in the U.S., we nd that foreign rms on
the average underperform compared to domestic rms. We also nd these rms take a
differing strategic posture to cope with the disadvantages of being a foreign rm compared
to domestic rivals. Multiple mediation models indicate that once this strategic posture of
foreign rms is controlled for, performance differentials do not exist between foreign and
domestic rms.
2008 Elsevier Inc. All rights reserved.

1. Introduction use the metaphor of stranger in a strange land (p. c4) to


differentiate the three types of additional costs faced by a
. . .foreign companies blundered by buying control of foreign rm. They point out that the stranger is someone
weak syndicates and hiring second-rate underwriters locals do not know, leading to discrimination hazards.
to run them. It helps to know which underwriters drink According to Hymer (1976, p. 35), the stigma of being
too much at lunch,. . . foreigners would be very hard foreign will persist even after the rm has set up
pressed to know the intricacies. . . (Hagerty & Oster, operations in the host country, wherein domestic rms
2002: p. A5). could receive preferential treatment from customers,
suppliers, and the local government. Being in a strange
Scholars working in the eld of international business,
land leads to unfamiliarity hazards: foreign rms would
starting with Hymer (1976) and Kindleberger (1969) have
lack quality information about local markets due to the
articulated that foreign rms face disadvantages while
lack of understanding of local environment and culture.
doing business abroad. This concept has been referred to as
Second, foreign rms face increased administrative
liability of foreignness (LOF) and has been dened as all
expense due to costs of travel and transportation over
additional costs a rm operating in a market overseas
various time zones, as well as increased setup, coordina-
incurs that a local rm would not incur (Zaheer, 1995, p.
tion, and monitoring costs due to operations being spread
343). The original work of Hymer has been expanded by
across foreign lands (Hitt, Hoskisson, & Ireland, 1994).
later researchers who have attributed liability of foreign-
Finally, changes in currency, economic, and political
ness to a set of interrelated factors. Eden and Miller (2001)
factors in host countries create higher risk for foreign
rms operating in an alien environment, as compared to
local rms (Bae & Jain, 2002; Hymer, 1976; Zaheer, 1995).
* Tel.: +1 309 438 5930; fax: +1 309 438 5510. Several empirical studies exist that provide support for
E-mail address: elango@ilstu.edu. the underlying notion of liabilities of foreignness. De

1090-9516/$ see front matter 2008 Elsevier Inc. All rights reserved.
doi:10.1016/j.jwb.2008.03.012
52 B. Elango / Journal of World Business 44 (2009) 5162

Young and Nolle (1996) found that foreign-owned banks industry rather than a cross-section of industries, it serves
operating in the U.S. were less prot-efcient than local as a control for industry effects and, more importantly, it
U.S. banks. In another study of global banks in 13 countries will allow for usage of industry specic measures in the
by Miller and Parkhe (2002), average levels of efciency comparison between domestic and foreign rms. Mezias
scores for foreign banks were lower than their local (2002a, 2002b) specically calls for this type of research
counterparts. A similar pattern of results was reported by design to identify liabilities of foreignness (p. 273, Table 1).
Miller and Richards (2002) in the European Union. While Among the varied industry choices, we chose the
these studies focused on efciency of banks, Zaheer (1995) insurance sector for three reasons. First, the insurance
and Zaheer and Mosakowski (1997) tested the notion of industry belongs to the service sector and is highly
LOF on foreign currency trading rooms, nding strong regulated compared to most industries in the U.S. Both
support in terms of lower protability and higher failure of these factors are likely to potentially increase LOF for
rate by foreign-owned trading rooms. In a study done by foreign rms, thereby providing an ideal sample for such a
Mezias (2002a, 2002b) on administrative capabilities of study. Second, performance data for these rms are
foreign rms in an alien environment, it was found that available at the business unit level. This allows us to
foreign subsidiaries operating in the United States faced study these rms without the restraints imposed by
signicantly higher labor lawsuit judgments in federal and traditional nancial reports, which largely present con-
state courts compared to a matched sample of U.S.-owned solidated corporate data. Third, we wanted an industry
rms. where there is a strong market presence by foreign rms in
Given the existence of LOF, scholars working on this the U.S., to ensure an adequate sample for this study. We
topic have offered many suggestions to mitigate its effects found that U.S. afliates of foreign insurance-related
on foreign rms. Eden and Miller (2001) argue that the companies conducted business to the tune of $111.7
entry mode choices should be made to reduce the effects of Billion, controlled assets of $1,127 Billion and had 119,000
LOF. Using case studies of Taiwanese rm entry strategies U.S. employees during the year 2004 (Anderson & Zeile,
in Europe, Chen (2006) validates this notion. More 2006). Therefore, to test the study hypotheses, we use
empirical support for this type of rationale in the context regression models comparing U.S. insurance operations of
of LOF can be found in Luo, Shenkar, and Nyaw (2002), in foreign and domestic rms in the insurance industry.
which they report that foreign rms locating in China use a Additionally, using multiple-mediation regression models,
combination of offensive (e.g., networking, legitimacy we seek to understand the impact of these choices on
improvement, etc.) and defensive strategies (contracts, nancial performance of rms. Specically, this study will
guanxi, parents control, etc.) to mitigate the effect of LOF. In serve to increase our understanding of strategies of foreign
a study of the Canadian auto industry, other types of rms in the U.S., and thus generally our understanding of
offensive strategies are presented by Eden and Molot the coping mechanisms of rms in an alien environment.
(2002), wherein rst movers use rm specic advantages
to become insiders and create entry barriers for later 2. Conceptual background and hypothesis development
arrivals. The importance of exploiting rm specic
advantages is highlighted by Nachum (2003), wherein Strategy literature calls for rms to adapt to the
she shows how these resources can be used to outperform environment to compete successfully. A similar logic has
local rms in the nancial services industry. Haiyang, been articulated in LOF literature (Luo & Tan, 1998;
Grifth, and Ru (2006) integrate entry mode choice with Petersen & Pedersen, 2002; Sethi & Guisinger, 2002), where
rm specic advantages and foreign rm entry strategies it is argued that a foreign rm operating in an alien
into the Chinese market, and also posit they are inuenced environment with inherent disadvantages relative to local
by the degree of LOF. rms will take a proactive role to minimize its disadvan-
While extant research serves as an effective foundation tages and potentially gain competitive advantage. In this
for managing LOF through entry mode choice and study, we borrow from boundary spanning literature to
deployment of rm specic advantages, this study seeks argue that foreign rms will seek to enhance their ability to
to contribute to the literature by focusing on under- learn from alien environments through effective informa-
standing how foreign rms relate to the alien environment tion processing and by transmitting positive information
through boundary spanning (Scott, 1998). Boundary to this environment. Learning in the foreign environment
spanning refers to . . .those roles that involve procuring is critical. Petersen and Pedersen (2002) in their study of
resources and disposing of outputs, relating the organiza- 494 foreign rms found that willingness to learn and adapt
tion to its larger community, and adapting the organization in the local environment enhances the ability of a rm to
to the future by gathering information about trends . . . overcome LOF. Conceptually, using the boundary spanning
(Scott, Mitchell, & Birnbarum, 1981: p. 244). This topic logic allows this study to incorporate a holistic perspective
deserves attention, as foreign rm survival and success will (i.e., rational, natural or open systems perspectives) and
be enhanced by managing and learning from the environ- bring in the multiple dimensions of the organizational
ment, even in instances of appropriate entry mode choice interface with environment (Galbraith & Kazanjian, 1986;
and deployment of rm specic advantages. Therefore, this Thompson, 1967). This perspective is also inclusive of the
study seeks to add to the LOF literature by studying the well articulated and accepted institutional perspective in
strategic posture of foreign rms. It focuses on a single the LOF literature (Kostova & Zaheer, 1999; Zaheer &
industry in the U.S. to understand the response mechan- Mosakowski, 1997) and hence complementary to extant
isms of foreign rms. By limiting the sample to one type of literature.
B. Elango / Journal of World Business 44 (2009) 5162 53

Scholars have studied boundary spanning roles at the within-business diversication inuences rms survival
individual (e.g., Perrone, Zaheer, & McEvily, 2003) and and ability to cope with environmental dynamism (Stern &
organizational levels (e.g., Scott, 1998). However, this Henderson, 2004). Additionally, they bring in scope-
studys focus is at the organizational level and specic to related advantages such as asset mass efciencies (Mar-
the role of managing the interface between organization kides & Williamson, 1994).
and environment. In such instances, two roles are primary:
information processing and external representation. The Hypothesis 1. Other things being equal, foreign-owned
rst role is in helping the organization learn and perform rms will have greater product variety in the U.S. com-
according to variation in the environment, while the pared to domestically owned rms.
second role helps maintain legitimacy of the organization
Foreign rms do not have strong local ties which could
and its activities by transmitting favorable information
(Aldrich, 1979). Empirical support for the importance of lead to strong sales in one region, as they lack roots in the
local environment (Zaheer, 1995). One option is that they
such roles in the industry context of this study (i.e.,
nancial services) is provided by Jemison (1984). His could spread themselves across the host country, thereby
exposing themselves to a greater number of customers.
ndings assert two roles to be critical: internalizing
information into the organization about changes in the Since legitimacy is cognitive in nature (e.g., George,
Chattopadhyay, Sitkin, & Barden, 2006; Hannan & Free-
environment, and transmitting information into the
environment that presents the organization favorably. man, 1984), familiarity with an organization leads to
greater credibility and acceptance of its existence.
While boundary spanning roles are important for
domestic and foreign rms, the need for managing this Operating in many geographic regions also allows the
creation of a local network and thus the tapping of local
task effectively is magnied in the case of foreign rms, as
these rms face the disadvantages of LOF. They include the information and connections which a foreign rm does not
have access to (Luo et al., 2002). One can argue, however,
costs associated with distance costs due to unfamiliarity or
lack of roots in the local environment costs due to lack of that operating in multiple geographic regions may increase
familiarity and economic nationalism and potential LOF for foreign rms. We acknowledge this is a possibility,
restrictions from their home country environment (Zaheer, as foreign rms can reduce LOF by focusing on one region.
1995: p. 343). Therefore, when a foreign rm operates in an In such instances, foreign rms will lack scale and be
alien market, its chances of survival and success in the handicapped in operations, having no gains in specializa-
alien environment will be inuenced by its ability to tion due to inefciencies in offering support to customers,
handle these two roles. These two roles allow foreign rms claims processing, and in other infrastructural issues
. . .to achieve a compromise between organizational policy relating to services (Mayers & Smith, 1990). Second, by
and environmental constraints . . . and . . . to choose focusing on a narrow region, foreign rms increase
strategic moves to overcome constraints. . . (Aldrich & volatility in losses and thereby increase bankruptcy risk
Herker, 1977: p. 221). Therefore, in the following para- (due to a lack of risk pooling). For instance, an insurer
graphs we develop four hypotheses on the strategic operating in narrow regions could have nancial state-
posture of foreign rms relative to domestic rms that ments devastated by a single event (e.g., Hurricane
help these rms internalize and transmit information in an Katrina), thus threatening its very survival. Third, insur-
ance rms, as part of their regular operations, resell their
alien environment despite the disadvantages of LOF.
policies to other reinsurance rms or use third party
capital market risk transfer options such as alternative risk
2.1. Hypothesis development
transfer (ART) or catastrophic risk transfer (CRT) mechan-
One of the factors that create LOF is costs to due to lack isms. When insurance rms lack scale, they may not be as
of familiarity in the local environment (Zaheer, 1995). This attractive to supplier rms of such specialized services.
lack of familiarity requires foreign rms to collect Thus, rms which provide such services would not offer
information which is already known to local rms the best rates and would receive unfavorable rates or
(Hennart, Roehl, & Zeng, 2002). On the other side of the second tier treatment. While LOF could be decreased by
coin, there is a lack of awareness by customers and focusing on narrow markets, in this instance foreign rms
regulators leading to discrimination hazards (Zaheer, would face tradeoffs in legitimacy, information and
1995) and time compression diseconomies (Markides & signicant cost and operational penalties. Therefore, in
Williamson, 1994) during market entry. One way for line with the above assertions and boundary spanning
foreign rms to counter this disadvantage is by operating rationale advanced in the theoretical section, we propose:
in a number of product segments in local markets. Two
Hypothesis 2. Other things being equal, foreign-owned rms
motivations exist for doing this. First, by having a greater
will sell products in more states in the U.S. compared to
number of product choices, the foreign rm increases its
domestically owned rms.
odds of offering the customer a product which is desirable
compared to a local rm in spite of discrimination hazards Foreign rms face disadvantages due to a lack of
and other potential judgmental errors caused by LOF. understanding of local culture and underlying market
Second, increased product variety will allow the foreign patterns while operating in an alien land (Zaheer &
rm to gain exposure in underserved segments of the local Mosakowski, 1997). Local rms have advantages in this
markets, allowing for growth with relatively less competi- regard. They are likely to have a better understanding of
tion. Previous studies also support the notion that such specic market needs due to cultural ties and historical
54 B. Elango / Journal of World Business 44 (2009) 5162

evolution in the local environment. Additionally, local devices that enhance public trust (Van de Ven & Garud,
rms may be socially embedded and well-connected with 1989) and by becoming isomorphic with the institutional
unafliated local organizations giving access to market environment (Eden & Molot, 2002). For instance, in the
niches. One of the responses of foreign rms to this case of the insurance industry, foreign rms will use a
situation would be to operate as an intracorporate more conservative (i.e., higher) level of capitalization
network (referred to henceforth as group afliation), relative to potential outstanding claims or obligations in
wherein several rms operate within a unied corporate their U.S. operations. This is possible because rms
identity1 (Inkpen & Tsang, 2005). Such groups are a expanding internationally usually have greater organiza-
common phenomenon in the insurance sector, where tion resources and capabilities and would be able to secure
about two-thirds of rms are afliated to insurance groups, necessary capital before such expansion. Such higher
although individual members are separate corporations capitalization offers two advantages. First, a higher level of
(Cummins & Sommer, 1996). Afliation in a group provides capitalization will serve as slack in the event of managerial
opportunities for developing new connections in alien errors committed due to LOF in an alien land. Second, it will
environments and for sharing resources with other allow foreign rms to secure more favorable ratings
members, thereby reducing replication and increasing through locally reputable independent third-party rating
efciency in operations (Elango & Pattnaik, 2007). Addi- rms which rate the insolvency risk through adequacy of
tionally, in the event of liquidity problems (in times of capital. Such favorable ratings would serve as a legitimiz-
calamity or disaster) a member has a ready option to ing tool and as a valuable benchmark for external
borrow from other group members (Colquitt, Sommer, & stakeholders (i.e., customers and regulators) and reduce
Godwin, 1999). Examples of shared activities include the perceived risk of dealing with a foreign rm.
common branding, infrastructural services, investment
departments and nancial strategies in lending and Hypothesis 4. Other things being equal, foreign-owned rms
borrowing (Cummins, Phillips, & Smith, 2001). By operat- will have higher third-party ratings in the U.S. compared to
ing as a network, all rms belonging to the group optimize domestically owned rms.
acquisition of such knowledge, as local business and tacit
knowledge can be acquired from other members in the 3. Research methodology
network. For instance, member rms could tap into and
learn from current activities taking place at business units 3.1. Data sources
within their networks to rene and optimize operations.
This study used two sources of data, namely the
While such learning is likely to offer greater benet in
National Association of Insurance Commissioners (NAIC)
overcoming LOF when other group members have lengthy
database and Bests Rating guide. NAIC was created in 1871
experience in the host nation, such learning would be
as the organization of insurance commissioners in the
useful even in instances when group rms have limited
United States [for additional information, see http://
experience due to shared learning. By being part of a group,
www.naic.org/]. Insurance rms report data to NAIC as a
information about changes in the host country environ-
part of their overall duciary requirements, because
ment can be internalized into the organization more
regulatory approval (by state) is required for insurance
effectively and efciently (Jarillo, 1988). The occurrence of
operations in the U.S. The data collected by NAIC is deemed
foreign rms learning from other group members during
to be highly reliable and has been used in academic
international expansion has been reported in the literature
insurance research (e.g., Cole & McCullough, 2006; Choi &
(Chang, 1995; Guillen, 2003). Moreover, by being part of a
Weiss, 2005; Cummins & Phillips, 2005) and by regulators
group, they gain from legitimacy spillovers (Kostova &
(including state legislators) for nancial and market
Zaheer, 1999), giving them greater credibility in dealing
conduct regulation. A key advantage of using the NAIC
with external stakeholders.
data for a study is that it provides operational and nancial
Hypothesis 3. Other things being equal, foreign-owned rms data at a business unit level, thereby minimizing
are more likely to be afliated with a business group (insur- confounds (e.g., internal transfer pricing effects, rm
ance) in the U.S. compared to domestically owned rms. specic variances in the grouping of business units, etc.)
that can be introduced in aggregate reporting of perfor-
Foreign rms operating in an alien environment face a mance in 10 K reports. The second data source for this
lack of legitimacy since they do not possess roots in the study, Bests Ratings, have been published by A. M. Best
host nation. This happens because the host country Company since 1899 and are widely used in research (e.g.,
environment has less information with which to judge Browne, Carson, & Hoyt, 1999; Pottier & Sommer, 1999;
foreign rms (Kostova & Zaheer, 1999). In these circum- Viswanathan, 2006) and accepted as a reputable source for
stances, these rms can reduce discrimination hazards by information on insurance companies. Many insurance
transmitting into the environment information that companies voluntarily report such ratings in their promo-
presents the organization favorably (Jemison, 1984; tional information as a validation of their nancial
Kostova & Zaheer, 1999). One approach for an organization soundness.
to seek legitimacy is to use institutional legitimating
3.2. Sample selection

1
However, each of these units is required to maintain an independent We initially started with data from the NAIC database.
balance sheet and income statements for regulatory purposes. Our rst step was to identify domestic and foreign insurers.
B. Elango / Journal of World Business 44 (2009) 5162 55

Foreign insurer is dened as one with a foreign (non- group afliation through a dummy variable where rms
United States) person or entity directly controlling 100% associated with an intracorporate insurance group were
and reporting to NAIC. We quickly noted many U.S. (and classied 1, and 0 otherwise.
non-U.S.) rms had subsidiaries domiciled in tax-haven To proxy third party ratings, we use the previous years
countries, thus showing up as foreign companies. This is a [i.e., (t 1)] Bests capital adequacy ratio (CAR) from Bests
common practice by insurance companies due to greater Key Ratings Guide (19952005). This ratio deals with the
regulatory freedom and taxation policies in those coun- ability of an insurer to meet promises to its customers (i.e.,
tries. Since this studys key research question is on can the insurer hold good on its obligations to its
liabilities of foreignness (which may not apply to American policyholders when the need arises). This ratio is measured
rms located in tax-havens) we decided to eliminate all as insurers adjusted surplus divided by the required capital,
companies based in countries which are commonly known where: adjusted surplus is reported surplus4 minus
as tax-havens (i.e., Bermuda, Cayman Islands, Panama, and adjustments to correct for off-balance sheets items and
Trinidad and Tobago). Later, we identied all the compa- unearned premiums, losses or assets; and required capital
nies which have data for each of the study variables in the is the required level of capital to support seven risk
NAIC database and Bests Rating guide for the years 2000 categories (i.e., xed income, equity, interest rate, credit,
through 20042. This resulted in a sample of 3789 domestic losses, premiums and business) faced by insurance rms.
rms and 51 foreign rms3, giving us a total sample of The efcacy of this particular measure is that it corrects for
3861 rms. The following subsection describes the many items which are usually not factored in the
operationalization of the variables pertaining to each of computations of the ratios directly from income state-
the hypotheses. A later subsection explains the control ments and balance sheets, thereby allowing for a reason-
variables used in the testing of the study models. able comparison across rms. CAR scores can vary from 0
to 1000, and as benchmarks, an insurer with a score of 200
3.3. Variable operationalization or more is deemed to have relatively strong balance sheet,
protability, etc. to cover for future losses, whereas a score
Product variety is operationalized using a variation of the
of 100 would indicate a rm having adequate capitaliza-
Herndahl Index. Product variety is calculated as 1 Spi2,
tion to cover losses. This ratio should be of critical concern
where pi represents the percentage of an insurers net
for customers (i.e., insurance policyholders), since unlike
premiums written on product line i in the U.S. Similarly, we
other industries, advance payments are made by custo-
measure geographic dispersion using the Herndahl Index
mers to an insurer based on contingent payment in a
as 1 Ssi2 where si represents the percentage of an insurers
particular situation at a later date subject to policy triggers
direct premium written on state i. In both measures, we
and caveats. These ratios are generically referred to as
have a score of 0 (zero) when an insurer is active only in one
capitalization tests and used for inferring the strength of
product (or one state). This score will increase in value with
the company (Myhr & Markham, 2004). Since protability
increasing number of products (or states). Similar applica-
measures inuence CAR scores, in the regression models,
tion of the Herndahl Index measures has been practiced in
previous years CAR(t 1) values are used [i.e., regressed
previous research (Mayers & Smith, 1990). Insurance rms
with current years performance(t)] to avoid any potential
can either exist as a single independent rm with no group
violation of regression assumptions.
afliation or as a rm afliated to an insurance group (i.e.,
intracorporate network). A majority of insurance rms 3.4. Control variables
operate as members of business groups with common
ownership ties, whereas only about one-third of rms The regression model incorporates eleven control
operate as independent rms. Though group members have variables (excluding year dummies) that were selected
a common ownership, individual companies are separate based on past research, and the reason for inclusion of each
corporations. Within each group a majority of group can be summed up as follows. Cultural distance is included
members are other insurance rms along with a few to control for the fact that rms from similar cultures to
nancial services rms (e.g., leasing, investing, banking). that of the U.S. would face fewer problems adapting to the
This feature is unique to the insurance industry. Such U.S. environment (and thereby lesser LOF) compared to
arrangements allow for sharing of resources, brand-names rms from more dissimilar cultures. Age of the rm needed
and nancial strategies, while at the same time providing for to be controlled for, as it has been argued that older rms
a separation/segregation of risk proles of individual units. will be able to reduce the impact of LOF due to experience
Additionally, these afliations allow group members an (Calhoun, 2002; Mezias, 2002a, 2002b). Firm size is
important option of securing additional nancial capital included, as size has been found to share a relationship
easily from each other in times of need (i.e., a liquidity crisis), with performance (Lai & Limpaphayom, 2003). Insurers
a contingency any insurer needs to plan for. Consistent with can differ in their focus by choosing to operate either in
past research in the insurance literature on this topic (e.g., personal or commercial lines. This choice of lines will lead
Colquitt et al., 1999; Cummins & Sommer, 1996; Cummins to a different emphasis (and costs) on marketing, under-
et al., 2001; Krishaswami & Pottier, 2001), we measure the writing, etc., and therefore we control for Business Line in

2 4
With the exception of CAR values, as they lagged by a year. Hence the This term is used in the insurance industry to accommodate stock
data for CAR values are from 19992003. rms and mutual rms (since mutual rms do not issue stock). Surplus
3
From 11 countries: Australia, Belgium, Canada, Denmark, France, (referred to as policyholders surplus) is net worth of a rm under
Germany, Japan, Korea, Spain, Switzerland, and the United Kingdom. statutory accounting (Myhr & Markham, 2004).
56 B. Elango / Journal of World Business 44 (2009) 5162

the models (Fiegenbaum & Thomas, 1990). Investment is procedure of these variables and data sources for this
included, as one of the business activities of an insurer is study. The variables were operationalized using commonly
investment, which affects its performance. Following prescribed practices in insurance literature and hence are
Browne, Carson, and Hoyt (2001), we include the per- not specically elaborated (Myhr & Markham, 2004).
centage of the investment portfolio invested in stocks as a Descriptive statistics of the variables used in the study,
measure of an insurers investment activities. Price and along with correlation values, are presented in Table 2. A
Expense ratio are controlled for to incorporate the review of the correlation values between the various
particular characteristics of product segment in which independent variables indicated that the likelihood of
the rm operates. For instance, product lines with higher multicollinearity invalidating the study ndings was
loss rates will have higher insurance rates, and rms in minor. Additionally, in each of the regression models,
these segments are likely to incur higher costs servicing variance ination factor (VIF) scores were checked to
such customers (Myhr & Markham, 2004). Price is ensure that assumptions of the models tested are not
measured as the inverse of loss ratio, consistent with violated. The following section presents the statistical
previous research practice (Elango, 2003). Leverage is results of this study.
included, as it provides a source of capital but also subjects
the rm to increasing levels of nancial risk, which in turn 4. Results
reduces the performance of the rm (Colquitt & Hoyt,
1997; Sommer, 1996). International ratio is included to The theoretical argument made in this paper is built on
control for the extent of operations outside U.S. markets, as the premise that foreign rms face disadvantages in alien
this studys focus is on liabilities in the host country market environments relative to home country rms. While many
(i.e., U.S.). Organization type is included, as insurers are studies support this notion, one study reports contrary
structured as stock and mutual rms. Previous research evidence (Nachum, 2003). Therefore, though no explicit
has argued that the pressure to maximize performance is hypothesis was stated, we felt it would be critical to rst
far less in a mutual rm, since the role of owner and conrm if foreign rms underperform domestic rms. We
policyholder functions are merged (Colquitt et al., 1999). measured performance using return on assets (ROA), as it is
The insurance industry traditionally employs two types of a commonly used measure by managers, regulators, rating
product distribution, the independent and exclusive agencies and investors. ANOVA comparisons between the
agency systems. The costs and efciency of each system foreign and domestic rms (means of .382 and .441,
vary (Berger, Cummins, & Weiss, 1997; Regan, 1997) and respectively) indicate that on the average foreign rms
therefore the type of Distribution system needs to be underperform domestic rms (F = 5.432, p < .02). To
controlled for. Table 1 provides the operationalization ascertain these performance differences further, we ran

Table 1
Variable operationalization and data source

Variable Operationalization

Product variety 1 Spi2 where pi represents the percentage of an insurers net premium written on product line i. Data Source: NAIC
database
Geographic dispersion 1 Ssi2 where si represents the percentage of an insurers direct premium written on state i. Data Source: NAIC
database
Group afliation Dummy variable = 1 if it belongs to a intracorporate group, 0 otherwise. Data Source: Bests Key Rating Guide
Third party ratings Third party ratings are proxied through the previous years [i.e., t 1] Bests capital adequacy ratio (CAR). This ratio
is an insurers adjusted surplus divided by the required capital, where adjusted surplus is reported surplus minus
adjustments to correct for off balance sheets
and unearned premiums, losses or assets; and required capital is required level of capital to support seven
(xed income, equity, interest rate, credit, losses,
premiums & business) risk categories faced by insurance rms. Data Source: Bests Key Rating Guide
Foreign dummy Dummy variable = 1 for an insurer who is 100% foreign owned, 0 otherwise. Data Source: NAIC database
Cultural distance Using the operationalization of Kogut and Singh (1998), cultural distance is dened as the sum of the absolute values
of the differences between the host country and the U.S. with respect to the four dimensions of culture (i.e., power
distance, uncertainty avoidance, individualism,
and masculinity/femininity) identied by Hofstede (1980)
Age Data reporting yearyear of incorporation. Data Source: Bests key rating guide. Data Source: NAIC database
Size Ln (assets in millions). Data Source: NAIC database
Business line Dummy variable = 1 if it operates in commercial lines, 0 otherwise. Data Source: NAIC database
Investment [Assets in common stocks]/[total assets]. Data Source: NAIC database
Price Inverse of loss ratio; where loss ratio = [Incurred loses + Loss adjustment expenses]/earned premiums. Data Source:
NAIC
database
Expense ratio Expenses incurred/earned premiums. Data Source: NAIC database
Leverage Liabilities/[a rms surplus, common stock, and preferred capital stock]. Data Source: NAIC database
International ratio Direct premiums written in international markets/total premiums (expressed as a percentage). Data Source: NAIC
database
Organization Dummy variable = 1 if stock company, 0 otherwise. Data Source: Bests Key Rating Guide
Distribution system Dummy variable = 1 if independent agency rm, 0 otherwise. Data Source: Bests Key Rating Guide
Return on assets After-tax net income/assets. Data Source: NAIC database
B. Elango / Journal of World Business 44 (2009) 5162 57

.239**

.293**

.152**
.042**

.209**
.089**

.078**
Table 3

.011

.015

.011
.020

.009

.007

.009

.008
Summary of regression results with performance as dependent variable

16

1
Independent variable Model 1 Model 2 Model 3 Model 4

.268**

.288**

.118**
.088**

.306**
.105**
.049**
.076**
.560**
.250**

.054**

.057**
.057**

.078**
.021
Product variety .053***
15

Geographic dispersion .031***

1
Group afliation .020***
.062**

.042**
.109**

.051**

.057**
Third party ratings .228***

.041*

.018
.016
.011
.015
.030

.030

.003

.001

.008
Cultural distance .011 .011
14

1
Foreign dummy .015** .022** .012
Age .034*** .031*** .031*** .011
.118**
.215**

.122**
.154**

.122**
.174**
.152**

.152**
.043**

.057**
Size .008 .008 .008 .019**
.011

.013
.022

.015
.003 Business line .040*** .038*** .038*** .024***
13

1
Investment .043*** .042*** .042*** .046***
Price .039*** .036*** .036*** .009
.149**

.468**

.139**
.128**

.152**

.118**
.099**

.094**

.209**
.108**
.080**
.011
.019

.011

.011
Expense ratio .846*** .859*** .859*** .756***
12

Leverage .026*** .024*** .024*** .002


1

International ratio .006 .006 .005 .002


.178**

.174**
.106**

.068**

.048**
.083**
.059**

.108**

.054** Organization .019** .019** .019** .039***


.033*

.016
.010

.006
.010

.009 Distribution system .017** .017** .016** .001


11

Adjusted R2 .755 .777 .777 .821


.122**

.288**
.089**

.056**
.120**

.320**
.099**
.047**

.209**

.089**

F-Value 851.28*** 897.93*** 841.92*** 884.22***


.034*
.032*

.033*
.029

.018

***p < .01, **p < .05, *p < .1. All the independent variables were mean
10

centered in the regression models to remove non-essential multi-


.386**
.145**

.173**

.128**
.059**

.049**

.047**
.059**

.209**
.100**

collinearity. All models were run with 4-year dummies (2004 dummy is
.039*

.031

.021
.003
.001

excluded). All beta values reected standardized beta values.


1
9

.238**

.499**
.113**

.139**
.154**
.308**

.047**

.047**

.099**
.083**

.051**
.250**
.090**

.100**

three regression models (Models 13, Table 3). Model 1 is


.007

the base model or control, wherein we run the model with


1
8

the control variables alone. Model 2 includes all the


.173**

.122**

.293**
.320**

.130**
.054**

.047**

.320**
.048**

.560**
.080**

variables of Model 1 along with the foreign dummy. In


.016

.017
.014

.003

*Correlation is signicant at the 0.05 level (two-tailed), **correlation is signicant at the 0.01 level (two-tailed).

Model 2 the foreign dummy term loaded negatively


1
7

(beta = .015, p < .05) with respect to performance,


.081**
.065**
.064**
.049**
.640**

.049**

.076**
.090**

indicating that foreign rms underperformed domestic


.032*

.041*
.014

.019
.022

.015
.010

rms. Model 3 attempts to verify if the performance


1
6

differential exists even after controlling for cultural


.043**

.640**

.047**

.109**
.049**

distance. In this model the negative loading of the foreign


.034*
.040*
.016
.028

.017

.031

.011
.013
.006

.009

dummy term increased marginally (beta = .022, p < .05),


1
5

validating the notion that performance differences exists


.142**

.148**

.113**

.178**
.468**
.215**
.101**

.049**
.054**

.059**
.120**

.042**
.105**
.042**

across foreign and domestic rms even after controlling for


.028

cultural distance. Model 4 adds the four boundary


1
4

spanning variables to Model 3. It should be noted that


.158**
.258**

.148**

.499**

.118**
.064**
.130**

.056**
.068**
.094**

.306**

no specic hypotheses were offered on the inuence of


.039*
.016

.030

.020

each of these boundary spanning variables on perfor-


1
3

mance. In Model 4, each of these variables were signif-


.289**

.258**

.145**

.149**

.268**
.101**

.065**

.308**

.062**

icant with beta values of .053, .031, .020, and .228


.040*

.016

.029

.011

.011
.010

(respectively, p < .01), validating the importance of these


1
2

boundary spanning roles. Importantly, to our surprise


Means, standard deviations and correlations (N = 3861)

.289**
.158**
.142**

.238**
.386**

.239**
.043**
.081**
.320**

.089**
.106**
.099**
.043**

.088**

we found that foreign dummy became insignicant


.030

(beta = .012, non-signicant) in Model 4.


1
1

Four regression models were run to test the four


0.28
0.37
0.47

0.15
0.11

0.78
0.46
0.16

0.46
0.48
152.96

42.38

1.14
18.69
0.03

0.04

hypotheses proposed in the study, and the results are


S.D.

reported in Table 4. Hypothesis 1 proposed that foreign


rms will operate in more product lines than domestic
0.35
0.41
0.66

0.31
0.12

0.63
236.45

48.61
2.33

1.67
0.01
0.01

0.02

0.70
0.00
31.00
Mean

rms. Findings indicate clear support for this hypothesis


with a positive loading by the foreign dummy term
(beta = .069, p < .01). Hypothesis 2 proposed that foreign
2. Geographic dispersion

16. Distribution system

rms will have a greater spread in their operations


14. International ratio
4. Third party ratings
5. Cultural distance

compared to domestic rms. This hypothesis was not


3. Group afliation

6. Foreign dummy
1. Product variety

13. Expense ratio

15. Organization

supported even though the beta loading was in the


9. Business line
10. Investment

12. Leverage

direction proposed (beta = .021, non-signicant). It should


be noted there was no support either for the counter
11. Price
Variable
Table 2

8. Size
7. Age

argument that foreign rms will concentrate on fewer


locations. Hypothesis 3 proposed that foreign rms will be
58 B. Elango / Journal of World Business 44 (2009) 5162

Table 4 mediation models should be used5. First, this approach


Hypothesis testingsummary of regression results
is analogous to testing using regression with several
Independent Dependent variable predictors, to determine the overall effect. Second, in
variable multiple mediation models, the mediation effect is
Product Geographic Group Third
variety dispersion afliation party captured after controlling for other mediators and is
ratings therefore more reasonable. Third, contingent on situation,
Foreign dummy .069*** .021 .030** .028** simple mediation models can lead to biased results due to
Cultural distance .027 .008 .031 .007 omitted variable problems. Fourth, having several vari-
Age .250*** .132*** .006 .011 ables allows one to determine the relative inuence of one
Size .206*** .233*** .442*** .010
variable over another. However, they acknowledge that the
Business line .288*** .101*** .006 .019
Investment .020 .114*** .058*** .002 preference for single mediator models in many instances is
Price .064*** .023 .038*** .111*** driven by the fact that it is simpler to test. Therefore, as a
Expense ratio .056*** .115*** .010 .427*** next step we tested for multiple mediation based on the
Leverage .049*** .060*** .035*** .135*** methodology suggested. The results of multiple mediation
International ratio .019 .031** .002 .040***
Organization .014 .299*** .207*** .062***
models are presented in Table 5.
Distribution system .097*** .070*** .004 .065*** The multiple mediation model was supported with an
adjusted R-square value of .8035 ( p < .01). Consistent with
Adjusted R2 .281 .186 .287 .259
F-Value 95.066*** 56.265*** 98.326*** 85.186***
the ndings of the ANOVA and regression models (reported
earlier), ndings of the multiple mediation models (see
***p < .01, **p < .05, *p < .1. All the independent variables were mean Table 5) indicate that foreign rms underperform domestic
centered in the regression models to remove non-essential multi-
collinearity. All models were run with 4-year dummies (2004 dummy is
rms when the mediators are not factored in
excluded). All beta values reected standardized beta values. (beta = .2041, p < .05). When the multiple mediators
are factored in, namely the direct effect, we nd no
afliated with groups in greater numbers than domestic performance differences (beta = .1109, non-signicant)
rms. This hypothesis was statistically supported conrming the earlier suspicion of mediation. Table 5 also
(beta = .03, p < .05). Hypothesis 4 proposed that foreign presents the results of the inuence of the independent
rms will have higher levels of third party ratings variable (i.e. foreign dummy) on the mediators (i.e.,
compared to domestic rms. Contrary to Hypothesis 4, boundary spanning variables) (Path A), and the inuence
foreign rms have lower third party ratings, indicated by of mediators of performance (Path B) along with the partial
the negative loading of the foreign dummy term effect of control variables. Findings indicate that foreign
(beta = .028, p < .05). rms have greater product variety and group afliation
To increase condence in the study ndings, we also (beta = .6084 and .2624, p < .01 and .05, respectively),
conducted additional analysis, repeating the analysis which is supportive of Hypotheses 1 and 3. Geographic
reported in Tables 35 using a larger sample of foreign dispersion received no statistical support, although the
rms. While this studys focus is on rms who are 100% loadings were in the direction stated in Hypothesis 2, while
foreign owned, we relaxed the sample requirement to foreign rms had lower third party ratings (beta = .2477,
include any rms which claim any foreign afliation. This p < .05), contrary to Hypothesis 4. While the consistency in
increased the sample size of foreign rms to 399 rms from results reported in Tables 3 and 4 with Table 5 serve as a
13 countries. To reduce confounds, we had dropped these good check of the robustness of this papers nding,
rms from the study sample, as many of these rms either readers are advised to use Table 5 results for inferential
did not disclose the extent of foreign ownership or had less purposes, as it incorporates the varied relationships in the
than 100% foreign ownership. Findings indicate the earlier statistical models.
pattern of the results to be stable and consistent, even While no hypothesis was offered on the inuence of
though there were variations in the beta loading and R2 these boundary spanning variables on performance, multi-
values (typically higher in many instances). Since there ple mediation models do show the effect of the variables on
were no inferential differences compared to what is performance (Path B). Product variety and geographic
already reported, they are not summarized in this paper. dispersion negatively inuence performance (beta = .0553
.0553 and .0318, p < .01), while group afliations and third
4.1. Post hoc analysis party ratings positively inuence performance (beta = .0218
and .2400, p < .01). In line with results in Table 3 (Model 4),
We were intrigued by the fact that, when the four only ve of the eleven control variables were signicant. In
dependent variables were included in Model 4 (Table 3), terms of partial effects, cultural distance, age, price, expense
foreign dummy becomes insignicant. When this result is ratios, international ratio and distribution system did
taken together with the four regression models which test not impact performance while size, business line, invest-
the hypotheses in Table 4, one could infer that boundary
spanning variables potentially mediate the relationship
between foreign ownership and performance (Baron & 5
In similar instances there is also a predisposition by many researchers
Kenny, 1986). This served as a motivator to conduct to use path models. However, Preacher and Hayes (2007) severely caution
additional analysis for mediation. Conventional practice in against such a choice, as these models require setting the mediators
residual covariance to zero, something which cannot be defended either
such circumstances is to use simple mediation models, and
theoretically or based on statistical properties in instances such as this
Preacher and Hayes (2007) offer four reasons why multiple study.
B. Elango / Journal of World Business 44 (2009) 5162 59

Table 5
Summary of multiple mediation model (dependent variable: performance)

Independent Total effect on Direct effect on Foreign dummy Direct effects of Partial effect of
variable performance performance to mediators mediators on control variables
(TE)a (DE)b (Path A)c performance on performance
(Path B)d

Foreign dummy .2041** .1109


Product variety .6084*** .0553***
Geographic dispersion .1852 .0318***
Group afliation .2624** .0218***
Third party ratings .2477** .2400***
Cultural distance .0120
Age .0133
Size .0211***
Business line .0247***
Investment .0470***
Price .0101
Leverage .7367***
Expense ratio .0010
International ratio .0020
Organization .0403***
Distribution system .0017

Adjusted R2 .8035***
F-Value 790.012***

***p < .01, **p < .05, *p < .1. All the independent variables were mean centered in the regression models to remove non-essential multi-collinearity. All
models were run with 4-year dummies (2004 dummy is excluded). All beta values reected standardized beta values.

a
Total effect (TE) is the inuence of independent variable (IV) on dependent variable (DV) in the unmediated model.
b
Direct effect (DE) is the inuence of IV on DV in the mediated model.
c
Inuence of IV on mediator in the mediated model (Path A).
d
Inuence of Mediator on DV in the mediated model (Path B).

ments, leverage and organization impact performance after domestic rms become insignicant in step-wise regression
controlling for the inuence of the mediators. While the and multiple mediation models. Findings support the
negative impact of size (beta = .0211, p < .01) on perfor- overall theoretical premise of this paper that foreign rms
mance may be surprising, this nding is not entirely will undertake strategic postures to enhance their ability to
inconsistent with extant LOF research. For instance, Mezias gain information from the environment and transmit
(2002a, 2002b) reported a negative relationship between favorable information. Under this framework, four hypoth-
size and LOF. One possible untested explanation for these eses were proposed, and ndings support two of the four
results could be due to proliferation of procedures/process strategies suggested. For the remaining two hypotheses, no
and structural inertia patterns commonly attributed to such statistical support was found for one, and in the case of the
rms (Hannan & Freeman, 1984). other, ndings were quite opposite to what was proposed.
Using extant research, Hypothesis 2 suggested that
5. Discussion foreign rms would operate in greater geographic areas in
host country markets than domestic rms to allow tapping
The existence of LOF implies that foreign rms suffer of local information, minimize region specic risk, gain
disadvantages in alien environments, yet it is not surprising economies of scale, and increase legitimacy. No statistical
to see foreign rms thriving in many alien markets. This support was found for this assertion or for the contrary
papers goal was to understand how foreign rms minimize position that increased geographic exposure for foreign
the effects of LOF and survive in an alien market despite LOF. rms may increase LOF. Mezias (2002, p 240) provides one
To this extent, we do nd that, on average, foreign rms reason as to why foreign rms may be reluctant to spread
underperform domestic rms, which is in line with previous operations. In his study, he asserts that direct experience in
research ndings. Once boundary spanning variables are one state may enhance operational effectiveness in that
incorporated, performance differences between foreign and particular state, but not necessarily in other states due to
60 B. Elango / Journal of World Business 44 (2009) 5162

variations in state laws. Similar situations can arise in the alien environment. Study ndings support the overall
insurance sector, as insurance rms are regulated at the rationale of this paper that foreign rms adapt through
state level with prior and concurrent approvals required in differential strategic posture to overcome disadvantages of
many operational facets (e.g., pricing). This mandate LOF. To this extent, this study extends the scope of the LOF
requires insurance rms to adapt according to each states literature using a sample of service sector rms operating
regulations and laws, adding complexity to foreign rms. in a regulated industry. Specically, we nd that in order to
Since these isomorphic pressures vary by state, foreign cope with LOF, foreign rms tend to have greater product
rms need to quickly understand and adopt appropriate variety and are likely to be afliated with a business group,
practices in these micro-institutional environments, compared to domestic rms. Contrary to our expectations,
greatly magnifying the issue of liabilities of foreignness foreign rms have lower third party ratings when
for these rms. Therefore by focusing on fewer markets, compared with domestic rms. We conclude this paper
these rms can reduce within-host country variability as by commenting on the managerial implications of this
well as regulatory lings, while potentially operating with study as well as its limitations.
simpler organizational structures. Surveys on foreign
investments in the United States also nd distinct regional 6.1. Managerial implications
patterns in concentration (Shannon & Zeile, 1999). Hence
in retrospect, one may infer that foreign rms are better off The ndings of this study offer implications for
by limiting exposure to certain geographic segments managers of foreign rms seeking to reduce LOF in alien
within the United States despite the trade-off of this markets. First, evidence supports the notion that foreign
choice for boundary spanning roles. rms offer greater product variety, thus increasing the
Hypothesis 4 proposed that foreign rms would use chances of offering a desirable product in the alien
institutional legitimating devices to transmit favorable environment. Supplemental ndings indicate that product
information to enhance reputation and trustworthiness in variety by itself is negatively related to performance. It is
an alien environment. To the contrary, the ndings were quite plausible that rms (domestic and foreign) might
quite opposite to the direction proposed, wherein foreign stretch themselves too much by having too many products,
rms compared poorly to domestic rms. This nding leading to poor performance (Hitt et al., 1994). Therefore,
leads us to speculate as to why this would be the case. One while foreign rms need greater product variety to
simplistic or naive explanation is that these foreign rms, increase the chances of success and increase awareness
being poor nancial performers relative to their domestic and acceptability in host nations, it might be desirable to
counterparts, are unable to improve their CARs. This prune product lines which are not protable after the
explanation does not bode well for foreign rms, as they foreign rm has established itself. Additionally, reducing
could face a downward spiral in ratings, possibly leading to product variety will help reduce rm size, which also
bankruptcy, making this explanation less plausible. More- seems desirable, as ndings indicate that size is negatively
over, group afliation has a positive relationship with related to performance.
performance, further invaliding this argument. Another Second, for foreign rms entering host countries, the
potential explanation could be that these rms are results of Hypotheses 1 and 2 taken together present an
conforming to their home countries success recipes interesting strategy to follow. This strategy offers a good
and thereby follow differing strategies compared to their compromise between the tradeoffs in reducing LOF and
domestic counterparts (Elango & Sethi, 2007). We found operating efciently. In this strategy, foreign rms offer
some anecdotal support of this notion in our focus group greater product variety but concentrate in selected geo-
discussions with industry executives of foreign rms. graphic markets with maximum potential (i.e., population
These executives mentioned that such ratings (of any kind) centers) in host nations. By doing so, these rms limit the
are not yet the norm in their home countries (i.e., risks of LOF since they have an increased focus on and a
Switzerland, Germany, and Denmark) and acknowledged better understanding of customers in specic regions in an
that they nd it hard to factor in such ratings as much as alien market, while at the same time gaining from
they should. This should not be a total surprise, as previous operational scale and scope benets through sales gener-
studies in other contexts have indicated that nancial ated from a large variety of products.
ratios of multinational rms do not conform to industry Third, ndings also supported the performance benets
norms even in global industries (Duysters & Hagedoorn, of such group afliations validating the efcacy of networks
2001). More importantly, Miller and Eden (2006) show (i.e., groups) for information assimilation and dissemination
that such strategic conformance with the local environ- (Hargadon & Sutton, 1997). Therefore foreign rms are
ment led to higher performance only in circumstances better off being afliated with groups. These groups reduce
wherein there were fewer competitors. By making such a unfamiliarity hazards by quickly internalizing information
choice, however, foreign rms are forced to resist about the external environment and allowing for gains from
isomorphic pressures of the local environment (Kostova legitimacy spillovers. Managers may want to ensure that
& Zaheer, 1999). such membership optimizes knowledge acquisition, con-
nections, resources and operational efciency. Fourth, the
6. Conclusion importance of institutional legitimating devices as a means
to enhance reputation and trustworthiness in an alien
This study began with the objective of understanding environment was highlighted. Apparently foreign rms
the response strategies of foreign rms facing LOF in an have problems adapting to local norms which are based on
B. Elango / Journal of World Business 44 (2009) 5162 61

nancial ratios due to reasons discussed earlier. In this case, Browne, M. J., Carson, J. M., & Hoyt, R. E. (1999). Economic and market
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Calhoun, M. A. (2002). Unpacking liability of foreignness: Identifying cultu-
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or complaints, wherein host country operational norms do subsidiary. Journal of International Management, 8(3): 301321.
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This study relied on large samples based on publicly Choi, B. P., & Weiss, M. A. (2005). An empirical investigation of market
available secondary data and therefore has its design structure, efciency and performance of property-liability insurance.
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limitations. First, it focused on one type of industry to
Cole, C. R., & McCullough, K. A. (2006). A reexamination of the corporate
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by a rm or rm-specic competencies which attenuate the holding by property-liability insurers. Journal of Risk and Insurance,
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Cummins, J. D., & Sommer, D. W. (1996). Capital and risk in property-
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presented supplemental analysis on performance, such Cummins, J. D., Phillips, R. D., & Smith, S. D. (2001). Derivatives and corporate
risk management: Participation and volume decisions in the insurance
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study such as this. Therefore, conventional caveats apply to market share or buying it. Journal of Money, Credit and Banking, 28(4):
this study. However, duplication of this studys results with 622636.
Duysters, G., & Hagedoorn, J. (2001). Do company strategies and structures
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Acknowledgements ment (pp. C1C6).
Eden, L., & Molot, M. A. (2002). Insiders, outsiders and host country bargains.
The Katie School of Insurance Research Grant Program Journal of International Management, 8(4): 359388.
and Illinois State University seed money grant program Elango, B. (2003). The effect of host country factors on the internationaliza-
tion of the U.S. reinsurance industry. Journal of Insurance Issues, 26(22):
funded this project. The ndings reported and the views 93113.
expressed in this research are those of the author and do Elango, B., & Pattnaik, C. (2007). Building capabilities for international
not necessarily reect the position of Katie Insurance operations through networks: A study of Indian rms. Journal of Inter-
national Business Studies, 38(4): 541555.
School or that of the university. I would like to thank Chris
Elango, B., & Sethi, S. P. (2007). Exploration into the relationship between
Anderson, Mike Dumler, George Flannigan, Jim Jones, and country of origin (COE) and the internationalization-performance para-
Claire Lenz (NAIC) for their help during the various phases digm. Management International Review, 3.
of this study. The author would also like to thank the editor Fiegenbaum, A., & Thomas, H. (1990). Strategic groups and performance: The
U.S. insurance industry, 19701984. Strategic Management Journal,
and reviewers of JWB for their constructive suggestions. 11(3): 197215.
Galbraith, J. R., & Kazanjian, R. K. (1986). Strategy implementation: Structure,
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