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Handbook of Research on Globalization, Investment, and Growth-Implications of Confidence and Governance Ramesh Chandra Das Katwa College, University of Burdwan, India

A volume in the Advances in Finance, Accounting, and Economics (AFAE) Book Series

Detailed Table of Contents

Foreword............................................................................................................................................... xx Preface.................................................................................................................................................. xxi Acknowledgment............................................................................................................................... xxix Section 1 Growth and Economic Confidence Chapter 1 Does Consumers’ Confidence Cause Consumption Spending? An Analysis of Selected Countries under the Purview of Global Financial Crisis.......................................................................................... 1 Ramesh Chandra Das, Katwa College, India Amaresh Das, Southern University at New Orleans, USA The present chapter addresses the financial crisis issue in light of its effect upon the interplay between the consumers’ confidence upon an economy and consumption spending of the households of the same economy. A simple correlation analysis for the quarterly data from January 1996 to October 2012 shows that the occurrence of the crisis has badly affected the consumers’ confidence and consumption spending of the developed countries. Emerging countries have performed well despite the crisis. Also that majority of the developed countries with a few developing ones produce the result of bidirectional causalities whereas in leading emerging countries, consumption spending is making a change in confidence in a ‘causal’ sense for the entire period of study. During pre-crisis phase the result show that the leading developed countries experience unidirectional causal relation from consumption to confidence. But in the post crisis phase seven out of twenty countries produce a line of causation going from consumption to confidence and nine countries fail to show any line of causation. Chapter 2 The Role of Market Sentiment in Stock Price Movements: An Indian Experience.............................. 25 Kiranjit Sett, West Bengal State University, India Debabrata Mukhopadhyay, West Bengal State University, India In an efficient capital market, the prices of securities always fully reflect all available information implying that prices always reflect the fundamental values. When there is under reaction or over reaction to new information, competition among the arbitrageurs quickly brings the price of an asset back to its fair value. But, if the asymmetry of information about a stock is high and there is a ‘limit to arbitrage’,

sentiment of the noise traders is likely to influence the price of that stock. This chapter aims at studying the role of market sentiment, during the period which starts with June 2003 and ends with July 2011, in influencing the return from investment in small capitalization stocks listed on Indian stock exchanges. We have found the presence of ARCH (1) in the time series on returns. Market sentiment, rate of interest and inflation are found to have significant influence on return from investment in small capitalization stocks. The presence of month effects in returns from such stocks has also been detected. Chapter 3 Consumer Sentiment and Confidence during Post-Crisis 2008: A Panel Data Analysis...................... 45 Tonmoy Chatterjee, Sidho-Kanho-Birsha University, India Soumyananda Dinda, Sidho-Kanho-Birsha University, India This chapter attempts to find out the impact of recent recession on the consumption pattern through consumer confidence index (CCI) of selected developed and developing economies. This chapter examines how the macroeconomic variables like growth rate, inflation, unemployment rate and debt-GDP ratio etc. influence the consumer’s confidence during 1996-2012, in which the crisis occurred in 2008. Moreover, in this chapter we have explained the role of consumptions sentiment in terms of consumer confidence regarding future expectation. Apart from that, from the panel data set of 11 countries, we have found that more or less all the economies including the United States have experienced downward movement of consumer’s confidence in the presence of the great recession of 2008-2009. Chapter 4 Post Crisis Performance and Confidence of the Indian Economy......................................................... 65 Rajib Bhattacharyya, Hooghly Mohsin College, India The recent global financial crisis is viewed as a glaring example of limitless pursuit of deregulation of financial markets and failure of global corporate governance. Though the global economic slowdown had its epicenter in the US but its impact is being witnessed in all major economies of the world. The present chapter seeks to analyze the post crisis experience of the Indian economy as compared to the global economic performances, using various macroeconomic indicators as output, employment, inflation, current account balance, movement in real effective exchange rate and inflow of FDI. It is based on a statistical analysis using secondary time-series data and is based on the Exogenous Structural Break Model developed by Perron (1989). Finally it tries to highlight the confidence of the economic agents based on some well recognized confidence indices (for e.g. Business Confidence Index, Consumer Confidence Index, FDI Confidence Index etc.) during the post-crisis period. Chapter 5 Market Fundamentals and Stock Pricing in Nigeria: Further Evidence from Micro and Macro Analysis.................................................................................................................................................. 94 Chukwuma Agu, University of Nigeria, Nigeria Anthony Orji, University of Nigeria, Nigeria This chapter investigates the relationship between stock pricing and behaviour of the stock market on one hand and micro and macroeconomic fundamentals in the Nigerian economy on the other from 1980-2009 using both primary and secondary data. Results from the primary survey indicate that the key drivers of share prices were neither broad macroeconomic indicators nor key indicators of the health of the firm. Prices were clearly shown to be much above levels that could have been determined

by such indicators as posted profits of firms, amounts paid out as dividend and its regularity. Secondary data analysis equally show that the relationship between actual levels of the all share price index for the period of our analysis and during the financial crisis were not driven by “expected” variables. While its fundamental values are driven by monetary and relative price variables, actual values are driven by external sector variables and prices. Chapter 6 Globalization, Consumer’s Preference, and Welfare in India: Results from CGE Model................... 112 Koushik Das, Chandias Mahavidyalaya, India The purpose of the present chapter is to analyse general equilibrium effects of different trade liberalization policies for India under imperfectly competitive market structure. Since present day world trade is much akin towards the increasing returns to scale and market structure oriented industry behaviour, we have considered monopolistically competitive market structure for our analysis. Computable General Equilibrium (CGE) modelling has been applied as it seems to be relevant methodology for policy simulation. Consumer’s love for variety and increasing returns to scale present in the sectors involving large fixed costs, are strong determinants of consumer’s as well as producer’s business confidence. Our study reveals that increased welfare gain due to trade and openness is not much larger as compared to standard perfect competition scenario as the scale economy benefit is predominant only in few sectors like capital goods industries and not prominently visible in large agricultural and informal manufacturing sectors. Section 2 Governance, Institution, and Growth Chapter 7 Governance and Capital Accumulation under Globalization: A Study on Some Selected Countries.139 Kamal Ray, Katwa College, India Ramesh Chandra Das, Katwa College, India Utpal Das, Katwa College, India Sustaining good governance is necessarily required for all countries in the world after the phase of globalization, especially when almost the entire world is struck by the global financial crisis originated from the USA. The present study tries to concentrate upon establishing an interlinkage among capital accumulation of a sample of countries with principal components of governance for the time period 1996-2012. Correlation analysis along with the Granger Causality test is applied to identify directions of causalities among capital formation and all the governance indicators. The study observes an inverse relation between governance indicators and capital accumulation for majority of the developing countries and in some cases positive relations for developed countries. Besides, it is observed that there are causal relations from capital formation to governance in most of the developed countries whereas in most of the developing countries there are causalities from governance to capital formation.

Chapter 8 Corruption, Size of Government, and Economic Growth: Evidence from Global Data..................... 159 Qaiser Munir, Universiti Malaysia Sabah, Malaysia A big size government fosters corruption, which can lead to inefficiencies and resource costs that impede economic progress. In this chapter, it is argued that much of the previous studies have focused only on detecting the linear effects of corruption on growth. This study, therefore adopts the Threshold Autoregression (TAR) approach by using an annual panel data of 100 countries during 1990-2012 to evaluate any existence of a non-linear relationship. This study presents evidence that suggests the existence of a hump shaped (nonlinear) relationship between corruption and long-run economic growth. When the government size is small (11.518%), corruption positively affects economic growth. Whereas, when the government final consumption expenditure (% of GDP) is larger than 19.027%, corruption negatively affects economic growth. Furthermore, the result indicates that a non-linear relationship of the ‘Armey curve’ exists in our panel of countries. Thus, a government should investigate whether government size is over-expanding or not when designing its public finance policy. Chapter 9 Dimensions of Good Governance: An Empirical Study...................................................................... 181 Chhanda Mandal, Muralidhar Girls’ College, India Anita Chattopadhyay Gupta, Muralidhar Girls’ College, India Effectiveness of governance is realised through its responses to any financial crisis. This was put in question as the Great Recession affected the core economies severely. This study empirically investigated the relationship between accountability, corruption, and government effectiveness during the period 2002-2012. Our main purpose was to highlight the sizable gap that exists in the performance literature on cross-country studies especially against the changing economic world scenario. A comparison of the World Bank governance indicators between three countries chosen on the basis of income differentials and hence different adaptive characteristics of each country to the economic recession has been studied. The behavior of the governance indicators in the context of the world has been examined against the background of the shock that the depression had brought and the resilience factors embedded within the indicators in the face of the shocks were studied. Chapter 10 The Inter-Linkage between Governance and Poverty: Evidences from SAARC Countries................ 196 Maniklal Adhikary, The University of Burdwan, India Dyuti Sinha, The Bhawanipur Education Society College, India This chapter aims at assessing the impact of governance on the country’s economic and human well-being in the selected South Asian countries. The study finds that for the countries-India, Pakistan, Bangladesh, Sri Lanka and Nepal, over the years 1990-2012, the growing rate of GDP per capita (PPP) and growing employment to population ratio has a significant negative impact on the Global Hunger Index as expected. Also the panel regression run for the eight SAARC countries over the period 2007-13 to find out the impact of each of the six governance indicators on the per capita GDP showed that political stability and absence of violence, government effectiveness and regulatory quality have very strong and significant role in augmenting the economic output besides the remaining indicators. The trends for each of the indicators across countries over time show that except Bhutan, none of the countries are exhibiting good performance of the governance indicators.

Chapter 11 Sustaining Governance: The Case for Leadership............................................................................... 223 Olanrewaju Olaoye, University of Lincoln, UK This chapter has three core aims. First, to discuss the concepts of governance and leadership while drawing upon key literatures and qualitative data to make sense of the factors that can enable leadership to sustain governance systems. Second, the chapter explores the practice of leadership at the Greater London Authority (GLA) level in the United Kingdom (UK) in order to establish features synonymous with the practice of leadership. Third, the relations between governance and leadership are explored so as to better understand how the latter is employed in sustaining the governance process at the GLA level in the UK. Chapter 12 Governance Evolution and Impact on Economic Growth: A South Asian Perspective...................... 234 Subramanyam A. Raju, Pondicherry University, India Balasubramaniam Nagarajan, Bharathiar University, India Srinivasan Rajamanickam, Pondicherry University, India Governance matters (Kaufman, et al, 1999) for growth is now an accepted dictum. However, there are as many hypotheses as to what constitutes governance as there are researchers in the field. Apart from econometrics, political science provides important insights on factors that influence governance and facilitate growth. This chapter examines the political history and economy of South Asia to determine the features that shaped governance and affected economic growth. It finds that governance in South Asian context evolved through three phases. Using a comparative perspective of GDP growth rates and World Governance Indicators in South Asia and Brazil, it analyzes the relationship between political history and economy in each phase. The findings indicate that political ideologies, stability of regimes and policy continuity hugely influence the institutions of government and economic growth. The chapter also finds that people’s participation in governance would enhance growth and distributive social justice. Chapter 13 Corporate Governance and Firm Performance: A Study of Listed Firms in India.............................. 262 Devanjali Nandi, George College, India Arindam Das, The University of Burdwan, India Ownership structure is considered to be of prime importance in corporate governance of a firm. The ownership structure significantly varies across the nations. The main focus of this chapter is twofold: firstly to see the impact of ownership structure on performance of the firm and secondly to investigate the relationship between stock market performance and ownership structure during the crisis period. Panel data analysis of CNX 200 companies has been done for the time period of 2006-2013.The study also takes into account the relationship between crisis period stock return and ownership structure. The results of this study reveal a positive relationship of promoter’s shareholding with performance while a negative relationship of performance is found with the non-promoters shareholding. The regression of stock price performance on ownership variable gives a significant negative relationship during the crisis period.

Chapter 14 Globalization, Governance and Food Security: The Case of BRICS.................................................. 281 Sebak K. Jana, Vidyasagar University, India Asim K. Karmakar, Jadavpur University, India Food security is a major area of concern for the five nations that constitute BRICS. BRICS countries account for more than 40% of the world population and 25% of world GDP in PPP terms. Besides, these countries have a key role to play in the post-crisis global economy as producer of goods and services, receivers and exporters of capital, and/or consumer market on large potential. More importantly, these ones envisage ways to promote food security and food production in Third World countries by raising agricultural productivity and output via initiatives like the creation of basic agricultural information exchange system of these countries; enhancing investments in the food supply chain; developing a social safety net through conditional income transfer programmes for the poorest of the poor. In this context the present chapter examines the status of food security of BRICS economies in the context of globalization and governance and its implications thereof. Section 3 Globalization, Investment, Growth, and Global Financial Crisis Chapter 15 Globalisation, Investment, and Global Economic Growth: Examining the Causes of Recent Banking Crises..................................................................................................................................... 303 Shefali Virkar, University of Oxford, UK For any economy to be healthy, a strong financial system is required to efficiently move funds from unproductive to productive economic agents. Banks play an important role in this respect as their presence and structure reduces the problems of adverse selection, moral hazard, and asymmetric information. Recent decades have been overshadowed by a series of systemic banking crises that have left many parts of the developing world gasping for breath. In particular, economies like Mexico and the East Asian tigers have been hit hard both during and in the aftermath of such financial misadventures. This chapter thus attempts to examine the causes of banking crises in the light of available evidence. More specifically, the research enumerates and analyses the role of both macroeconomic and microeconomic factors in precipitating such crises through a critical examination of the existing literature, and illustrates each factor with examples from key pan-global financial catastrophes. Chapter 16 Waves of Financial Crisis: History Repeats Itself?.............................................................................. 332 Gagari Chakrabarty, Presidency University, India Historically, stock-market crashes and the resultant panic have ended in ultimate devastating impact on the real economy. Proper macroeconomic management and accomplishing macroeconomic objectives require, in terms of depth and width, sound health of financial system. Financial fragility is often taken as a prime factor in generating and aggravating crises. Moreover, with extensive economic integration, crises in one market immediately affect others through dynamic interlinkages or “contagion”. Hence, at this juncture, inquiry into market dynamics becomes crucial. This chapter intervenes here focusing on two past significant stock-market crises namely, the dot-com bubble and the melt-down of 2007-08. The

chapter found significant volatility transmission channels primarily through past-volatility impacts. In recent era of fluctuation and instability, stock-markets are more integrated through strong and positive innovation and past-volatility impacts. The news-impacts, however, are less intense than past-volatility impacts. Moreover, even with increasing financial integration, there remains a basis for global portfolio diversification. Chapter 17 Effect of Recent Global Financial Crisis on South Asian Economy with Special Reference to India.363 Chiranjib Neogi, Indian Statistical Institute, Kolkata, India Most of the Asian countries were affected adversely for the recent global financial crisis, especially those economies whose growths are largely depended on the external trade. It has been observed over time and again that Indian economy has not been significantly harmed by the waves of global financial and economic crises because of its large domestic market, which can accommodate any external shock. During the phase of shrinking world demand of domestic goods and services, efforts to raise productivity and competitiveness helps countries to protect export market. This chapter investigates the dependence on the external market and the effect of global financial crisis on the trade structure of some Asian countries. Some detail studies will be done for India in respect of compositional changes and productivity and efficiency changes of different industries within manufacturing sector during pre and post crisis period. Efficiency and productivity will be analyzed using frontier model. Chapter 18 Factors Determining Foreign Direct Investment Inflow to Nigeria during Pre-Financial Crisis: An Empirical Investigation........................................................................................................................ 388 Soumyananda Dinda, Sidho-Kanho-Birsha University, India This chapter empirically investigates the determinants of foreign direct investment (FDI) to Nigeria during pre-financial crisis period 1970-2006. This study suggests that the endowment of natural resources, trade intensity, macroeconomic risk factors like inflation and exchange rates are significant determinants of FDI flow to Nigeria. The findings also suggest that in long run market size is not the significant factor for attracting FDI to Nigeria, it contradicts the existing literature. The author’s results indicate that FDI flow to Nigeria is resource-seeking FDI. Results also suggest that trading partner like the UK in NorthSouth (N - S) and China in South-South (S - S) trade relation have strong influence on Nigeria’s natural resource outflow. Chapter 19 Impact of Microfinance on Poverty in the Context of Global Financial Crisis: A Cross Country Analysis in South Asia......................................................................................................................... 409 Arindam Laha, The University of Burdwan, India The microfinance programme in the South Asia region has proven to be resilient to the shocks of global financial crisis. In fact, cross country experiences in South Asia reveal little impact of the global financial crisis on the penetration of the microfinance programmes to poor households. To explore the impact of microfinance on poverty in the backdrop of global financial crisis, an attempt has been made in this present study to examine the relationship between MFI’s gross portfolio per active borrower and the measures of poverty. Empirical evidences based on Pooled Regression Analysis suggest that gross portfolio per active borrower is negatively and significantly associated with the poverty head count ratio

or poverty gap measure, which is consistent with the author’s hypothesis that micro loans reduce poverty. The poverty alleviation role of microfinance in South Asian countries is not changing its dynamics even in post-crisis scenario. Chapter 20 Business Investment and the Nigerian Investible Capital Haemorrhage in Financial Crises.............. 426 Kehinde Adekunle Adetiloye, Covenant University, Nigeria The global financial crises that happened between 2007 and 2010 had deleterious effects on countries across the world including Nigeria with regard to their respective levels of globalisation. This was evidenced with sudden outflows of capital emanating from the capital market that impacted negatively on the banking system. The chapter has adopted a number of variables among which are investment and net portfolio investments and external reserves. The main technique used is the regression (both single and two-stage) the results of which indicate that the investment was not negatively impacted by the portfolio investment but had significantly negative effect on the external reserve and the saving of the country. The chapter recommends a better control of the capital out flows and improvement in the business environment to reduce the capital haemorrhage faced by the Nigerian economy. Chapter 21 FDI, Urbanization, and Economic Growth Linkages in India and China............................................ 447 Sudhakar Patra, Ravenshaw University, India The rapid urbanization and economic growth during new round of globalization is largely due to the flows of Foreign Direct Investment (FDI). In this context the objectives of this chapter is to analyze the causality and linkage among urbanization, GDP and foreign direct investment in China and India with the help of secondary data from 1979 to 2012. It focuses on determinants and pattern of FDI flow in China and India. The study observes a significant positive correlation between urbanization and flow of FDI to a particular region both in China and India. The rate of growth of FDI is significantly influenced by rate of growth of urban population at 10 per cent level of significance and by rate of growth of per capita GDP at 1 percent level of significance. The study also highlights the causality and linkage between urbanization and FDI inflow with evidences from China and India. Chapter 22

Institutional and Cultural Implications of Mexican SMEs Internalization.......................................... 462 José G. Vargas-Hernández, University of Guadalajara, Mexico The aim of this chapter is to analyze from the perspective of institutionalism if the European Union market is a potential market for the internationalization of Mexican SMEs. This chapter identifies a framework of the current situation of Mexican SMEs, encompassing as the political-economic aspects that govern the cooperative relationship as the normative and cultural factors that impact directly businesses, concluding that the complexity of the European Union resulting from the uniqueness of each of its members is reflected in a set of formal and informal rules that negatively impact on the internationalization of Mexican SMEs to that market. Compilation of References................................................................................................................ 485 About The Contributors.................................................................................................................... 527 Index.................................................................................................................................................... 534

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About The Contributors

Ramesh Chandra Das is currently Associate Professor of Economics of Katwa College, West Bengal, India. He has obtained Masters, M.Phil and Ph.D Degrees in Economics from the University of Calcutta. He has fifteen years of teaching and research experiences in different fields of economics including theoretical and empirical economics, financial economics, environmental economics and political economics. Dr. Das has contributed several research papers to national and international journals with distinctions along with completions of three minor research projects sponsored by UGC, India. He has written one text book on microeconomics for different fields of students and academicians. He has been acting as editor-in-chief in Asian Journal of Research in Business Economics and Management and one of the editorial advisory board members of Society for the Study on Business and Finance. *** Kehinde Adekunle Adetiloye teaches Finance at Covenant University, Ota Nigeria where he obtained his PhD. Before venturing into academics he was a banker in the mortgage industry in Nigeria where he spent considerable time. He is currently a Senior Lecturer in the Department where he performs a number of functions. He has published a number of articles in both national and international journals. He is the winner of the Best Paper Award of IAABD conference in 2012. Maniklal Adhikary has been teaching Economics at The University of Burdwan, India for 31 years besides guiding research scholars working in varied fields related to Economics. His areas of interest include macroeconomic theory, mathematical economics, theory of economic growth and planning, economics of water (resource and environment), econometrics – theory and applications, time series econometrics, financial econometrics, production function and stochastic frontier production function, in addition to training his students in dealing with different econometric software. Prof. Adhikary has more than fifty academic papers in various journals of national and international repute. Chukwuma Agu holds a Ph.D in Economics from the University of Nigeria, Nsukka, specializing in open economy macroeconomics with interests in monetary and financial economics, cross border flows, systems modeling, regional integration, and trade. He had his postdoctoral training at the University of Pretoria, South Africa. He is an alumnus of the Cambridge Advanced Programme on Rethinking Development Economics, University of Cambridge, and Global Economic Modeling School of the Free University of Brussels, Belgium, the Engendering Macroeconomics Programme at the University of Utah, USA and the Financial Programming and Policies of the IMF Institute. He spent some time also at the University


of Oxford under the Journal of African Economies Fellowship and is a Senior Associate Fellow of St. Antony’s College. He currently teaches at the Institute for Development Studies, University of Nigeria, and Enugu Campus and continues to support work at the African Heritage Institution, Enugu, where he has been a researcher for over a decade. He is active in a number of economic research networks in and outside the African continent and teaches postgraduate courses at the Trade Policy Training Centre of the Lund University, Sweden hosted at the East and Southern Africa Management Institute, Arusha, Tanzania. He has published widely and attended several professional conferences. Rajib Bhattacharyya has got his bachelor and master degrees in Economics from The University of Calcutta. He obtained his M. Phil degree from the same University and the dissertation was on International Migration of Skilled Manpower of India. He recived a Ph.D in Economics and his thesis was on Growth of Outsourcing in India. He has been serving as a full-time lecturer in Economics since 2001 and presently serving as an Assistant Prof. in Economics (W.B.E.S.), Hooghly Mohsin College. He made several publications in different areas of international economics and women entrepreneurship development. He was as an invited speaker UGC Sponsored One-Day National Level Seminar on “Indian Economy and Contemporary Sen – Bhagwati Debate.” in Mahishadal Raj College. Gagari Chakrabarty is an M.Sc, M.Phil and Ph. D in Economics from University of Calcutta. She is currently serving Presidency University, Kolkata, India as an Assistant Professor. She has published papers in national and international journals and published books from international publishing houses. She has undertaken research projects funded by UGC, India. Financial economics, quantitative finance and complexity of financial markets are some of the areas of her research interest. Saptarshi Chakraborty works as Assistant Professor in Economics in the department of commerce, Panchakot Mahavidyalaya (College), Purulia, W. B., India. He is also the guest faculty of Kazi Nazrul University, Asansol, India. He is the co-editor of an international, refereed, multi- disciplinary journal, PANCHAKOTesSAYS (ISSN: 0976-4968). He has more than 12 papers published in ISSN journals, more than 3 chapters in ISBN books and 2 Minor Research Projects of The University Grants Commission, Govt. of India to his credit. Tonmoy Chatterjee teaches Economics at the Sidho-Kanho-Birsha University, West Bengal, India. He has been awarded as Prof. M. J. Manohar Rao from The Indian Econometric Society for Yong Researchers at 2012. Currently he is working on International Trade Theory, General Equilibrium, Trade and Health mainly focused on developing economies, etc. His works have been published in Foreign Trade Review, Economic Affairs, as also in various edited volumes. Anita Chattopadhyay Gupta is Reader, Department of Economics, Muralidhar Girls’ College, Kolkata with her master and doctoral degrees from the University of Calcutta and M. Phil from Jadavpur University, India. Her research paper on: Ecology and Human Well Being (2007) was published by Sage publishing and Environmental Governance: Approaches, Imperatives and Methods (2012) by Bloomsbury Publishing . Presented papers in national and international conferences; 8 th and 9th Biennial Scientific Conference of the International Society for Ecological Economics, 4th and 6th Biennial Conference for Ecological Economics, 14th, 15th and 16th International Economic Association World Congress and South African Conference on Environmental and Resource Economics. She is a core member of The National 528


Adolescence Resource Team under the Ministry of Youth Development in association with Rajiv Gandhi National Institute of Youth Development. A member of the State Level Appraisal Committee in West Bengal Pollution Control Board for Environmental Impact Assessment under the Ministry of Environment, Government of West Bengal. Amaresh Das is presently Professor of Business Entrepreneurship in the College of Business Administration, Southern University at New Orleans, USA. He has so many years of experiences in teaching and researches in different fields of economics and management sciences in different institutions all over the world. Dr. Das has proficiency in teaching Principles of Micro and Macroeconomics, Principles of Finance, Statistics, Principles of Money and Banking, Public Finance and Intermediate Macro Theory. He has research interests in Modeling, Macro econometrics, Economic and Financial Time Series, and Stock Price Volatility. He has been associated to various international journals with distinctions as editorial advisory board member and published a cluster of research papers in reputed international journals with impact factors. Arindam Das is Head and Associate Professor at the Department of Commerce, The University of Burdwan. He is Ph.D from Department of Commerce, The University of Burdwan. His areas of interest include Financial Management, Security Analysis & Portfolio Management and Financial Derivatives. He has contributed many research papers in various national and international journals of repute. Koushik Das is Assistant Professor in Economics, Chandidas Mahavidyalaya, affiliated to University of Burdwan and Guest Lecturer, Department of Commerce, Calcutta University, India. He obtained M.Sc. in Economics in 2000 and Ph.D. in Economics in 2014 from University of Calcutta. His research interests include Environment & Natural Resource Economics, International Trade, Computable General Equilibrium Models and Econometrics. Dr. Das has published more than ten research papers in various journals and edited volumes with national and international repute like, Foreign Trade Review, South Asian Journal of Macroeconomics and Public Finance (Published by SAGE), DECISION (Published by Springer) etc. Utpal Das is currently Assistant Professor in Commerce of Katwa College, West Bengal, India. He has obtained his Master Degree from The University of Calcutta, India. He is presently doing doctoral level researches under the same university with special emphasis on rural roads structures and its impact upon the socio economic aspects of the rural people of West Bengal. He has about ten years of teaching and research experience with a number of publications on different fields of commerce, economics and management. Soumyananda Dinda is an Associate Professor at the Department of Economics, SKB University, Purulia, West Bengal, India. Dr. Dinda taught at CIMP, MSE Chennai, Bath University, UK; and SRF College; and as a guest faculty at economics department, Presidency College and Calcutta University. He worked as economic affair officer at Trade and Investment Division, UN ESCAP, Bangkok. He starts his academic career a research fellow at ERU, Indian Statistical Institute. Dr. Dinda published one book “Environment and Development Trajectory: A Freshlook on Theory and Empirics”, 2009,

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Nova Science Inc., New York. He has published several papers on several International journals such as Ecological Economics; Economics and Human Biology; Journal of Socio-Economics; and Journal of Public Economic Theory. He served as Guest Editor for IJGEnvIs Special Issue on EKC and Sustainable Development. Recently he is working on Climate smart goods and trade opportunity in Asia. Sebak Kumar Jana is currently Associate Professor in Economics in the Department of Economics with Rural Development, Vidyasagar University, West Bengal, India. Dr. Jana was graduated from Presidency College, Kolkata and obtained M.Sc. degree in Economics from University of Calcutta in India. He obtained M. Phil and Ph.D. degree in Economics from Jadavpur University, Kolkata. His area of research includes environmental and resource economics and economics of education. He has about thirty peer reviewed publications in national and international Journals and has also authored four books. He has also been associated with national and international research projects. Asim Kumar Karmakar is Assistant Professor, Department of Economics, Jadavpur University, Kolkata and Life Member, Indian Society of Labour Economics. He is presently the Executive Member of both the Indian Economic Association (IEA) and The Indian Econometric Society (TIES); formerly the Managing Editor (2011-2014) of the Quarterly Referred Journal Artha Beekshan of Bengal Economic Association. He has completed three minor research projects sponsored by the CAS, Jadavpur University and the UGC. He has contributed many research papers in reputed journals at home and abroad, and written books on different fields of economics among whose are Balance of Payments Theory and Policy: The Indian Experience (2010), Capital Account Convertibility in India (Co-edited, 2011), Food Security in India (Co-edited, 2012), Agriculture, Sustainable Development and Microfinance in India— Essays in Honour of Prof. Biswajit Chatterjee (Co-edited, 2015) and Financial Sector Liberalisation in India—Theory and Empirics (Co-edited,2015). Arindam Laha was born (1979) and educated in West Bengal. He obtained a Master’s degree in Economics from the University of Burdwan and was awarded University Gold Medal (2003). He did M. Phil (2005) and Ph.D (2009) from the University of Burdwan. He has served as faculty members in Syamsundar College, Burdwan and Department of Commerce, The University of Burdwan. He has written three books and has published a number of research articles in reputed international and national journals of Social Science. Chhanda Mandal is Assistant Professor, Department of Economics, Muralidhar Girls’ College, Kolkata (M.A. {Delhi School of Economics, 2008}). She is currently doing Ph. D. from Jadavpur University. She has worked as research associate in Delhi School of Economics, for RBI project “Exchange Rate Policy and Modelling in India”. She has written a paper “Income Convergence in India between 1981 and 2005” under the supervision of Prof. Saibal Kar, CSSS, Kolkata. Debabrata Mukhopadhyay is an Assistant Professor in the Department of Economics, West Bengal State University and has more than 16 years of teaching and research experience. He has done his Bachelors and Masters Degree in economics from the University of Calcutta and Ph. D in Quantitative

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Economics from the Indian Statistical Institute, Kolkata in 2008. He has published a number of research articles in several international journals of economics and finance including Sankhya, Emerging Markets Finance and Trade, Applied Financial Economics, International Econometric Review etc. He has research interest in financial econometrics, time series econometrics and development economics. Ritabrata Mukhopadhyay works as Assistant Professor in Geography, Panchakot Mahavidyalaya (College), Purulia, W.B., India. He has more than 10 papers published in ISSN journals, many chapters in ISBN books, many other articles in various books and 2 Minor Research Projects of the University Grants Commission, Govt. of India to his credit. Qaiser Munir is a Senior Lecturer in the Faculty of Business, Economics and Accountancy in Universiti Malaysia Sabah. He has been an academic in applied economics discipline for over 8 years. Dr. Munir has professional experience of 10 year in different organization. His teaching is across undergraduate and postgraduate subjects in economics and related subjects. He also supervises graduate and Ph.D students. Since 2008, he has worked on various projects, consultancies, including projects funded by the Ministry of higher education, Malaysia. His research interests range from applied economics, financial economics, development economics, and applied econometrics. He has published in leading international journals including Singapore Economic Review, Economics Bulletin, Journal of Applied Economic Sciences, etc. as well as presented at international conferences and seminars in many parts of the world. Dr Munir presently (2014-2016) serving as chief editor of the Malaysian Journal of Business and Economics and he has reviewed number of articles for Economics Bulletin, Journal of Economic Studies as well as for other academic journals. He has won numerous teaching excellence awards during his career. Balasubramaniam Nagarjan has 36 years of teaching and 25 years of research experience. He has published 31 research papers. He is a Life Member of the Indian History, South Indian History, Tamil Nadu History Congress, Peasant Society of India, Historians of SAARC, and Indian Association of American Studies. He is a Visiting Professor of Police Training Academy, Chennai, and Civil Service Academies of Tamil Nadu Agriculture University (TNAU) and Bharathiar University. Devanjali Nandi is Assistant Professor at George College, Kolkata. She is also pursuing Ph.D from the Department of Commerce, The University of Burdwan. She has qualified the National Eligibility Test for lectureship held by UGC. Her areas of interest include corporate governance and financial management. Chiranjib Neogi is an Associate Scientist at the Economic Research Unit of Indian Statistical Institute, Kolkata. He is associated with a number of Universities in West Bengal as Guest Faculty. He has been working on the area of productivity and efficiency for many years and has published a number of research papers on this issue in national and international journals. He has also contributed papers in many edited books on the contemporary issues of the Indian economy. He visited Institute of Developing Economies, Tokyo and KIEP, Seoul, South Korea as visiting fellow. He has edited book on Theory and Application of Productivity and Efficiency jointly with Professor Ranjan Ghosh of IIM, Kolkata. Dr. Neogi also written a book entitled India’s New Economy: Industry Efficiency and Growth jointly with Professor Jati K. Sengupta of University of California, Santa Barbara, USA.

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Olanrewaju Olaoye Having studied at the Universities of Lincoln (PhD), York (MPA International Development) and Ife (B.A.), Olanrewaju then worked for organisations including the World Health Organisation as Core Trainer, Prestige bank of UBA Plc as Relationship Manager, Tiri as Researcher, City of York Council as Strategist, Engagement Global (Germany) as Consultant and the University of Lincoln as Researcher and Tutor. Olanrewaju has worked with colleagues doing the Periodic Academic Reviews (PAR) and Revalidation of the curriculum in the University. He has also contributed to a number of modules, including Understanding the Policy Process, Applying the Policy Process, Applying Research and Community and Conflict. He frequently draws upon his research experience to provide insights into topics. Anthony Orji is a Ph.D holder in Economics and a lecturer in the Department of Economics, University of Nigeria Nsukka. He is equally an Alumnus of the African Programme on Rethinking Development Economics (APORDE), Johannesburg, South Africa and a Visiting Scholar to the University of Laval, Quebec, Canada. He has published widely and attended several professional conferences. He is a network member of many research organisations across the globe and has participated in several research projects funded by the following institutions: World Bank (Research on African Migration Project); Partnership for Economic Policy (PEP), University of Laval, Quebec-Canada; African Economic Research Consortium (AERC), Nairobi-Kenya and others. His research interests is in Development Economics, Macroeconomics, Monetary Economics, Finance and Resource Mobilization, Cross border flows and Trade, Public Sector Economics, Growth and Poverty Reduction, and Regional Integration and he has published extensively in these areas. Sudhakar Patra is Associate Professor and Head of the Department of Economics of Ravenshaw University of Odisha, India. He has done his masters in the Utkal University and obtained M. Phil Degree from Jawahar Lal Nehru University, New Delhi. He has been conferred the Ph. D Degree by the Utkal University in the year 1993. He has about twenty five years of teaching and research experiences in his credit. His areas of research interests are environmental economics and rural developments. He has many publications in national and international journals. He has carried out several research projects sponsored by the UGC, India and SANDEE, Nepal. Subramanyam Adluri Raju is Associate Professor in the Centre for South Asian Studies and Coordinator for the Centre for Maritime Studies, Pondicherry University. He was Associate Editor of Indian Ocean Region (London: Routledge), South Asian Studies (Pondicherry University) and Editorial member on four Journals. Raju received his Ph. D from the Department of Political Science, University of Hyderabad. He was Salzburg Seminar Fellow (2006) and the recipient of the Mahbub Ul Haq Award (Regional Centre for Strategic Studies (RCSS), Colombo, 2003); Scholar of Peace Award (WISCOMP, New Delhi, 2002) and Kodikara Award (RCSS, Colombo, 1998). He was a Visiting Fellow at the Bandaranaike Centre for International Studies, Colombo (May 2012). His research focus is on South Asian Regional Cooperation and Non Military Security Affairs. He has published more than three dozen papers that includes Democracies at Loggerheads: Security Aspects of US-India Relations, 2001; Third-Generation Indian Perceptions of the Kashmir Issue, 2001; Indian Women Scientists’ Perceptions of the Nuclear Issue, 2005; Co-authored, Maritime Cooperation between India and Sri Lanka, 2006; (Ed): Nuclear India: Problems and Perspectives, 2000; Terrorism in South Asia: Views from India, 2004.

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Kamal Ray is presently Associate Professor of Economics of Katwa College, West Bengal, India. He has obtained his Masters and Ph. D degrees from the University of Kalyani, India. Dr. Ray has about thirty years of teaching and research experiences in different fields of economics in his credit. He has special research interests on economics of environment and politics besides mainstream economics. He has participated in various national and international conferences as academic contributor with a sizeable numbers of publications. He is also working as an editorial advisory board member of Asian Journal of Research in Business Economics and Management. Kiranjit Sett has passed the final examination of M.Com from The University of Burdwan in the year 1994 with specialization in Accounting and Control. He has cleared the final examination of Cost and Works Accountants, conducted by the then Institute of Cost and Works Accountants of India (now the Institute of Cost Accountants of India), in December, 1995. He has also been conferred the PhD degree by The University of Burdwan in the year 2009. He had joined Tarakeswar Degree College as a Lecturer in August 2000. He had left that college and joined the University of North Bengal in August 2004. Since April 2009, He has been serving West Bengal State University as an Assistant Professor of the Department of Commerce and Management. His main area of interest is corporate finance and has interest in Corporate Taxation, Management Accounting, Security Analysis and Portfolio Management. Dyuti Sinha is a pre-doctoral fellow since 2013, working under the supervision of Prof. Adhikary at the University of Burdwan. Her areas of interest include Consumer Economics, Development Economics, Growth Economics and Time series Econometrics. Rajamanickam Srinivasan is a serving officer from Indian Air Force, currently pursuing his doctoral studies with UMISARC, Pondicherry University, India. His research focuses on people’s participation in governance and political economy. He holds a post graduate degree in Social Work, an LL B., and a Postgraduate Diploma in International Law. He is also a SATS (ICRC) alumnus. He has presented a conference paper on ‘Sovereignty and Human Rights Law’ in an international conference in Russia. He was conferred the medal for distinguished service (VSM) by Hon’ble President of India in 2012. José G. Vargas-Hernández, M.B.A, Ph.D is a member of the National System of Researchers of Mexico and a research professor at University Center for Economic and Managerial Sciences, University of Guadalajara. Professor Vargas-Hernández has a Ph.D. in Public Administration and a Ph.D. in Organizational Economics. He has undertaken studies in Organizational Behavior and has a Master of Business Administration, published four books and more than 200 papers in international journals and reviews (some translated to English, French, German, Portuguese, Farsi, Chinese, etc.) and more than 300 essays in national journals and reviews. He has obtained several international Awards and recognition. Shefali Virkar is post-doctoral researcher at the Department of Politics and International Relations, University of Oxford (UK) currently reading for a D.Phil. in Politics. Her doctoral research seeks to explore the growing use of Information and Communication Technologies (ICTs) to promote better governance in the developing world, with special focus on the political and institutional impacts of ICTs on local public administration reform in India. Shefali holds an M.A. in Globalization, Governance and Development from the University of Warwick, UK. Her Master’s thesis analyzed the concept of the Digital Divide in a globalizing world, its impact developing countries and the ensuing policy implications. At Oxford, Shefali is a member of Keble College. 533

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Chapter 22

Institutional and Cultural Implications of Mexican SMEs Internalization José G. Vargas-Hernández University of Guadalajara, Mexico

ABSTRACT The aim of this chapter is to analyze from the perspective of institutionalism if the European Union market is a potential market for the internationalization of Mexican SMEs. This chapter identifies a framework of the current situation of Mexican SMEs, encompassing as the political-economic aspects that govern the cooperative relationship as the normative and cultural factors that impact directly businesses, concluding that the complexity of the European Union resulting from the uniqueness of each of its members is reflected in a set of formal and informal rules that negatively impact on the internationalization of Mexican SMEs to that market.

INTRODUCTION The phenomenon of globalization has revolutionized the business world. Falling trade barriers has generated the need to implement new and better strategies to enter the world economic space to improve the competitiveness of enterprises. Internationalization is a growth and development strategy that has been implemented by a large number of countries and Mexico is no exception. Given the openness of the Mexican economy with a wide variety of agreements and treaties beneficial for the country in more than 43 countries, Mexico strongly promotes the internationalization of op-

eration of both large and small businesses. Mexico began a race to sign trade agreements with other countries, with the sole aim to diversify exports and build tariff preferences with other countries. Currently, Mexico has a network of 10FTAs with 45 countries (TLC’s), according to the Ministry of Economy (2014). In these trade agreements, is now including the new TLC Mexico-Central America, which entered into effect on July 1, 2013. In the Mexico-Central America FTA are included Mexico, Costa Rica, Nicaragua, El Salvador, Guatemala and Honduras. This treaty, replaced the three existing trade agreements that Mexico had with Central America (FTA Mexico-Costa

DOI: 10.4018/978-1-4666-8274-0.ch022

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Institutional and Cultural Implications of Mexican SMEs Internalization

Rica1995, Mexico-Nicaragua in 1998 and TLC’s Triangle Northern Mexico in 2001), resulting with this, a total of 10 FTAs with 45 countries. It will be pending to attach to this trade agreements list the recent Free Trade Agreement Mexico-Panama, as in April 2014 was signed by the presidents of both countries. The European Union has a number of qualities that make it a highly attractive market for the Mexican country. Among these qualities is the power to reduce tariff and non-tariff barriers in international trade, standardizing requirements among member countries of the block, etc. However, the positive political-economic relations between these markets do not ensure that Mexican companies adequately fit the demand. The SMEs are the key players of Mexican international trade. Given their importance in the development of Mexico, the SMEs currently receive more attention and support to achieve increase their competitiveness and to be able to compete with foreign companies both in local and foreign markets. Speaking of a binomial Mexican SMEs-European Union is still much to be desired of the relationship strategy, and there is allow turn out and a large number of institutional and cultural constraints that although at first glance are not observed, were key variables in limiting expansion of operations to the European market as evidenced by the empirical results.

BACKGROUND OF THE PROBLEM Globalization is a dynamic and interdependence process that has erased national borders and has challenged the economic, political, social, technological and cultural development. The International Monetary Fund (IMF) (FMI, 1997) defines globalization as the accelerating global integration of economies through trade, production, financial flows, technology diffusion, information networks and cultural flows. It is obvious that the globalization process has transformed the world, and

it has impacted heavily on the field of business changing the rules and generating the tone for the creation of new strategies. Faced with the opening of international markets, countries have developed international trade agreements that allow them to appear in the global economic game. Mexico in 1986 entered the GATT (General Agreement on Tariffs and Trade) and later held the North America Free Trade agreement (NAFTA), with the governments of the United States of America and Canada, which came into force in January 1994, with the purpose to promote trade and to achieve economic growth, and thereafter Mexico has increased and strengthened trade relations. Currently the Ministry of Economy said that Mexico participates in 12free trade agreements with 44 countries (FTAs), 28 Agreements for the Promotion and Reciprocal Protection of Investments (BITs) and 9tradeagreements(Economic Complementation Agreements and Partial Scope Agreements) in the framework of the Latin American Integration Association (LAIA). Despite numerous trade agreements Mexico, the United States remains the main Mexican partner with whom Mexico performs about 80% of international operations. This can be explained because for the proximity, Mexicans business have a greater understanding of the economic rules governing political and social competition, though the country has not limited resources and other countries are beginning to appear in the strategic plan for internationalization of Mexico. Trade liberalization has increased the competitive level, and has radically changed the conditions of production and marketing, so there is the need for companies to implement new competitive strategies. In response to the effects of globalization, business identifies company’s internationalization as an opportunity for growth and business development. Thus, internationalization is a synonym for geographic expansion of economic activities beyond the national borders of a country (Ruzzier, Hisrich, & Antonic, 2006). However, this process is not simple. It requires a comprehensive strategy that considers both the

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characteristics of the company, its resources and capabilities, and the set of formal and informal institutions that regulate the interaction. The large Mexican transnational and multinational corporations companies have an internationalization framework grounded enough. However, Small and Medium Enterprises (SMEs) are just beginning to appear in the international arena. SMEs are key players in the Mexican economy, because most economic units belong to this classification and contribute significantly to GDP and employment generation. Such companies face a number of challenges in order to survive and participation in the international market is very limited. Soto and Dolan (2003) emphasize that Mexican SMEs, like those of other developing countries are characterized by: management and financial restrictions, low capacity and limited experience in international markets. Data from the Ministry of Economy of Mexico, points out that less than 2 percent of SMEs have exported operations and the value of these transactions is less than 5million.It is observable that SMEs are not being exploited properly, leveraging the strengths of the same and identifying opportunities to enter the global market. The bilateral relationship between the EU and Mexico is an important opportunity for SMEs in the country, due to the great interest and momentum that these governments have given to this sector. In addition to support programs, government funding and social banking, exist joint support programs as PROCEI (Competitiveness and Innovation Programme Mexico-EU), which aims to help Mexican SMEs to enhance competitiveness, offering expert advice oriented toward European new technologies and innovation, so that they can access European markets. Although conditions are beneficial for Mexican SMEs to internationalize into the European market, their activities are not greatly proliferated. Only less than two percent of the universe of Mexican SMEs is involved in international business, and this proportion is smaller when we talk about exports to Europe,

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which account for only five percent of total Mexican exports (Ruiz, 2009, p.386). In recent years, Mexico has significantly increased its international activities. However, such market opening has not had a major impact on national economic growth. Analyzing only the trade balance of goods provided by INEGI (2013) it is possible to identify a deficit of 1,468milliondollars in 2011.More encouraging data in 2012 shows a product of 163 billion dollars, and the most recent information indicates a deficit of 1,106million in the first quarter of this year. No doubt such statistics data coupled with the low participation of SMEs in national businesses reflect a serious problem for Mexico. The Mexican SMEs are not properly leveraging their resources to compete in a global market and contribute to the generation of wealth.

OBJECTIVE OF THE STUDY The aim of this paper is to analyze from the perspective of cultural and institutionalism perspectives if the European Union market is a potential market for the internationalization of Mexican SMEs.

DEFINITION OF THE PROBLEM Given the characteristics of the European Union and the political-economic agreements that Mexico has concerted, the European market could represent a potential area for the internationalization of Mexican SMEs. However real data show little participation of local firms in such a market, leading to reflection what aspects of the SMES are impacting the internationalization process. Considering that each market has a degree of complexity derived not only from economic aspects but also from the overall set of regulations, rules, formal and informal rules, and even cultural aspects such as values, beliefs, traditions and ideologies. It is worth examining whether variables like these


are affecting the internationalization strategy of Mexican SMEs to European Union market. Based on previous analysis of this research, it is planned the following question: How the rules of the game have impacted the internationalization of Mexican SMEs to the European market?

THEORETICAL ASSUMPTION

JUSTIFICATION

CONCEPTUAL FRAMEWORK

Given the country’s current economic characteristics is necessary to promote international activities in order to compensate and balance the market before the great invasion of investments and foreign companies. The SME is the most representative economic unit of Mexico. Data from INEGI (2010) indicate that there are approximately 4 million15 thousand business units in the country, of which99.8% are SMEs, which generate 52% of gross domestic product (GDP) and contribute to 72% of national employment. Although this type of company every day face a number of challenges in order to survive, also are searched for attacking other markets solutions with a vision of global competition. However, these companies still reflect a low share in international markets, which leads to the detection of a necessity. Mexican SMEs must identify new markets and develop comprehensive strategies ad hoc, which must consider not only the financial and economic aspects, but also the set of rules, norms, laws, customs, values and other variables that impact directly or indirectly in the internationalization process, to enable them to leverage their strengths and create opportunities to dabble successfully in the globalized world of business. Being SMEs a key player in the national economy, their increased performance and competitiveness beneficially impact the economic and social environment. By achieving growth and development of these economic units, they will create more jobs with better pay, directly impacting the quality of Mexican life and contributing to the generation of wealth.

SMEs

There are some important cultural and institutional variables governing the European market that impact negatively on the internationalization of Mexican SMEs.

Both nationally and globally Small and Medium Enterprises (SMEs) are economic units of great importance to the economy, reflecting equally noticeable impact on employment generation. The classification criteria of SMEs are different in each country. In Mexico SMEs are classified based on two variables: he number of employees and annual sales level. According to the stratification of companies published in the Official Journal of the Federation (Diario Official de le Federación) on June 30, 2009 SMEs are classified as follows:

Theories of Internationalization Around the internationalization arise large number of definitions. Internationalization according Villarreal (2005) is a corporate growth strategy for international geographic diversification through an evolutionary process and long term dynamic that gradually affects the different activities of the value chain and the company’s organizational structure, with increasing commitment and involvement of its resources and capabilities to the international environment and augmentative knowledge-based. One could summarize the internationalization as a strategy that involves business operations conducted on a global scale. The aims to internationalize a company certainly vary based on the particular object of the same, could be getting a growth in operations, enter a new market and even acquire new technology. Canals (1994) states that the objectives of internationalizing a business are:

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Table 1. Classification of SMEs in Mexico Sector

Small Number of workers

Medium Annual Sales (Millions of Pesos)

Number of Workers

Annual sales (Millions of Pesos)

Industry

From 11 a 50

From $4.01 to $100

De 21 a 250

From $100.1 to $250

Trade

From 11 a 30

From $4.01 to $100

De 31 a 100

From $100.1 to $250

Services

From 11 a 50

From $4.01 to $100

De 51 a 100

From $100.1 to $250

Source: INEGI (2009)

Opening of new markets, lower production costs, production structure and distribution of the company more efficient In order to understand different perspectives on internationalization is necessary to know the theories that have emerged around the phenomenon throughout history. Research in this field has been extensive and dates back to the classical theory of Ohlin (1933) that stressed the importance of comparative advantages possessed by different countries. From then, new approaches have emerged as the theory of internationalization based on transaction costs, which as it has been expressed by Buckley and Casson (1993), focuses on the notion that firms aspire to develop their own domestic market as long as the transactions are carried out in a lower cost within the company, and will continue until the benefits and costs of globalization are the same at the margin. Another relevant theory is Dunning’ eclectic paradigm, Dunning (1988) points out the existence of three types of benefits that determine the internationalization of ownership advantage that refers to possessing property of the company, such as intangible assets and capabilities or technological innovations; internationalization advantages derived from the company’s ability to manage and coordinate activities internally, and the location advantages, which speak of institutional and productive factors present in a specific geographic area. On the internationalization process arise approaches that differ as the Uppsala model

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(Johanson & Vahlne, 1977), which analyzes the internationalization as a gradual process, assumes that companies tart their operations in its home market, and internationalization is direct consequence of a series of incremental decisions, unlike the recent focus on Born-Global, which suggests that companies since the beginning of its activities are operating in international markets, and have a strong international orientation and entrepreneurial since its foundation, are innovative and risk greatly enterprise resources.

Theory Based on Institutions Institutional economic theory has evolved in various schools and movements that have sprung up around it. It can differentiate three aspects: The authors belonging to the first generation of institution a list, the institution a lists and the new institution a lists or new institutional economics (Urbado, Diaz & Hernandez, 2007, p.185). In the last decades of the nineteenth century emerge the institutional economic thought, being the American institution a lists the first to highlight the economic impact of human behavior and thinking and trying to understand the complex social institutions. The founder economist Thorste in Veblen (1965) defines institutions as common and predictable patterns of behavior in society, including the habits of thought and action usually shared.


The economist Douglas North has made significant contributions to institutionalism, analyzing the role of institutions in economic growth. North (1993) defines institutions as the rules of the game in a society or, more formally, institutions would be devised by that constraint that shape human interaction. Similarly, he classifies the formal and in formal institutions. In the formal institutions it encompasses the form allows regulations and standards, while the informal refers to the norms, culture and ethics, encompassing the beliefs, values, ideas and attitudes of individuals and society. In general, the theory proposed by North (2005) further explains show institutions and institutional change affect economic and social development. Economic change analysis is based on a triple axis: Beliefs, institutions and economy. For really understand how an economy works, it must be known the political, social and cultural relations that establish institutional dynamics, and for this, it is necessary to study the belief systems and decision-making.

Institutional Framework Institutionalism and evolutionary economics approaches consider firms as dynamic economic agents of economic and social institutional networks. Institutional models are used to explain foreign direct investment (FDI) from emerging economies. In the post-globalization period, firms face strong institutional arrangements, lower costs of investing abroad, and other inducements. These necessary measures are proper institutional and legal arrangements centered around foreign investment laws and to guarantee a competitive and stable exchange rate mechanism. Modernization of the economic institutional system of any country fuels foreign direct investment inflows and also outward flows. It has been assumed that foreign investments should be highly responsive to local differences in the investment climate, institutional financial arrangements, rates of return, taxes and other regulations and labor

costs. Influence of government policies and other institutional factors such as academic and research and financial institutions are important, as well as supportive structures and network linkages to facilitate trust, cooperation and coordination among entrepreneurs. Weak governmental institutional arrangements and settings hardly can provide stability in fragile environments but can be compensated by other organizations such as private firms. Prior experience of new firms in emerging economies with weak institutional environment is crucial in the development of capabilities to compete in foreign markets. New firms emerge in less developed economies where the institutional, legal and political environments are weak. This situation may be one of the reasons why the institutional investors maintain a peso exposure and diversify the credit risk of their portfolios away from issuers, the Federal Government and large Mexican corporations.

Cultural Framework Culture is defined from the point of view of different perspectives (Jenks, 1993; Stohl, 2001; TingToomey, 1999). Culture is defined as a “patterned ways of thinking, feeling, and reacting,” which “Both national and professional cultures come into play” (Gibson & Gibbs, 2006, p. 114). Culture is a set of values shared by a group of people and frequently used to distinguish one group from another (Gibson & Gibbs, 2006, p. 284). “Culture is the set of deep level values associated with societal effectiveness, shared by an identifiable group of people”. Culture “includes systems of values; and values are among the building blocks of culture” (Hofstede, 1984, p. 21). “Culture is associated with a unit in which members share a common set of elements-assumptions and worldviews, values, behavioral norms, patterns of activities, and material artifacts” (Rousseau, 1990, p. 160). Culture infuses meaning and identity into the practices and activities governed by organizations and institutions. Culture is “a history of experi-

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ences and concomitant expectations that shape their encounters” (Gibson & Gibbs, 2006, p. 37). Culture is “broadly defined as characteristic ways of thinking, feeling, and behaving shared among members of an identifiable group” (Gibson & Gibbs, 2006, p. 460). Conceptualization of culture may include multiple nationalities, demographic features, multiple teams and organizational cultures. Culture is a multilayered construct that includes several markers such as nationality and citizenship, national culture, ethnicity, religion, language, etc. Conceptualization of culture is related to salience and how consequential it is (Brannen, 2003; Osland & Bird, 2000). Culture has a complex multifaceted nature (Erez & Gati, 2004) modeled as a cultural mosaic (Chao & Moon, 2005) suggesting a complex pattern of geographic, demographic, ethnographic and associative facets making up an individual’s cultural identity. Culture has been researched in terms of one-dimensional and static views of nationality, gender and race. It is necessary to explore beyond this static and dichotomous perspectives and to move towards a more dynamic and multivariable approached to culture and distribution to explain the complexities of the culture processes and outcomes of multinational and multicultural distributed teams. Cross-cultural group development is influenced by the multiple cultures and subcultures in distributed team dynamics, processes and outcomes. The model of cultural dimensions presented by Hofstede (1980) provides support for the study of cross-cultural team cultural processes, particularly the individualism-collectivism dimension (Sarker, 2005). The GLOBE cultural project as a theoretical framework on culture identifies the national cultural dimensions of power distance, in-group collectivism, uncertainty-avoidance, and performance-orientation and gender egalitarianism. Uncertainty avoidance “the extent to which the members of a culture feel threatened by uncertain or unknown situations” (Hofstede, 1991, p. 113). Triandis (1995) studied different cultural dimensions and found that individualism-collectivism is

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the key to understand values, norms, behaviors, norms, etc. (Sarker, 2005, 19). Hofstede (1980) found that individualist oriented cultural dimension, the Mexican culture scored 30 while the US cultures scored 91, the higher in the individualist dimension. Organizational adaptability may be high for new firms because of their meager international presence and low for more traditional firms because of their ingrained organizational structure and culture (Guillén & García-Canal, 2009). Contrary to traditional firms from developed economies, new firms originated from emerging economies are more dynamic and away from path dependence without deeply ingrained organizational culture, values and structure. National culture has been depicted as the software of the mind by Hofstede (1980) to explain the different behaviors and logics of people. National culture has an impact on work values and other social factors that affect organizational behavior (Rousseau & Schalk, 2000). National culture is “The collective programming of the mind which distinguishes the members of one human group or category of people from another” (Hofstede, 1991, p. 5). The constructed TMT culture is assessed using a simplified version of the Kilmann-Saxton Culture Gap Survey (Kilmann & Saxton, 1983) that measures behavioral and operating norms as descriptions of what actually happens in the group. National culture is related to communication, trust and context as it was found on Hofstede’s dimensions. Culture may be constructed as barriers that divide individuals. Individuals from various nationalities have different cultural orientations. French and American culturally grounded beliefs about business models and practices contradicted and rejected certain aspects of knowledge held by the ‘other’ (Baba, Gluesing, Ratner & Wagner, 2004, p. 573). The cultural dimensions depicted by Hosftede (1980) can explain cultural differences and subtleties of culture among individuals from various nation-states, so nationality is an indicator of culture. Rao (2009a, b) examines the dimensions


of national culture influencing the staffing practices in México and analyzes national cultural dimensions adopting normative equivalences strategies to identify relationship-building with survey-response strategies and their significance. He also identifies the cultural dimensions in the Mexican culture as predictors for predominant staffing practices associated with, and proposes a model for staffing practices related to cultural dimensions. Cultural distance presents two boundaries, distance and culture that presents critical discontinuities to manage for effectiveness of global organizational contexts (Cogburn & Levinson, 2003; Watson-Manheim, Chudoba, & Crowston, 2002), and constraints to be overcome (Yuan & Gay, 2006). Distance to national cultures may result in partners with longer duration relationships than partners with close distance national cultures (Park & Ungson, 1997; Pangarkar & Klein, 2001). Distance is also a leadership and trust building challenges for multinational multicultural distributed teams (Oertig & Buegri, 2006) and complicates processes and outcomes (Cogburn & Levinson, 2003) distributions in learning environments (Zakaria, Amelinckx & Wilemon, 2004), temporal and spatial distribution of knowledge sharing culture. Temporality considering time as culture bound and stages in multinational multicultural distributed members are related. Time as culture bound is defined on cultural background (Saunders et al., 2004) by connecting time of an individual is dependent on the interactions with organizations and society. This third new culture is more inclusive that the two original cultures because it shares a communality of values, mores, attitudes, meanings and actions (Adler, 1980; Casmir, 1993; Starosta & Olorunnisola, 1992; Shuter, 1983; Broome, 1993; Kumar & Andersen, 2000). The emerging third culture is the synthesis of combined elements and components of the two merging organizational cultures. The emerging third culture may be hybrid since the cultural elements and components

to be converged, merged assimilated or adapted can be negotiated. Strategic issues is affected by cognitions, motivations of decision makers and meanings are conditioned on personality traits and characteristic in centralized firms and organizational culture in decentralized firms (Dutton & Jackson, 1987; Kets de Vries & Miller 1986). The development of common grounds of organizational culture is more based on individual competencies than in differences of management traditions and national cultures (Chi Cui, Ball, Coyne, 2002; Dollinger & Danis, 1998). Corporate culture can be created or reformed in a short period of time to transform values and promote organizational change in settings of firms, as for example in the case of TRW (Ashton, 2002, a b). To create the corporate culture of TRW, it is used compensation incentives and benefits, internal communication, team working and employee development. The emerging third culture is the result of the managers input contributions. Chavarria (2001) analyzes the creation of common meanings—culture—through formal communication in a multinational Mexican company Cementos mexicanos (CEMEX). Chavarria (2001) has studied the way organizational culture is formally communicated in a Multinational Mexican company (CEMEX assuming that the organizational culture is composed essentially of cultural substance and forms (Trice & Beyer, 1993; Bantz, 1993) to reach the inference of meanings that can be taken as the basis or support of its culture. Cultural intelligence is the capability that a person has to adapt to new cultures and be effective to bridge activities and issues between two or more cultures. The findings reflect a possible interpretation of the culture that sustains the symbolic reality of the organization. Davila (2005) and Pérez y Habermann (2001) use organizational culture theory to analyze the basic assumptions, shared values and the behaviors of organizational members in a subsidiary of a Mexican multinational corporation. Culture

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affects the way “information and knowledge is conveyed and learned” (Gibson & Gibbs, 2006, p. 17). Under the assumption that the economy gains from labor division, differentiation and collective efficiency on firms of one sector cluster between each other developing specialized knowledge reinforced through a common organizational culture (Young, 1928). Individuals form subcultures based on membership dispersion and the interactions of whom are collocated form norms and cultures. Subcultures in cross-cultural organizations emerge based on nationality and participative decision making and develop on shared national cultures (Sagie & Aycan, 2003). Thus, two subcultures are identified as parts of the multinational, each one with congruent systems of assumptions and values, although opposite cultural patterns. National culture relates to the effectiveness of distributed team effectiveness, but is less relevant in situations of swift trust development (Jarvenpaa, Knoll & Leidner, 1998). Cultural differences among individuals from different nationalities assessed by the cultural dimension (Hofstede, 1980) may affect team effectiveness processes and outcomes. Cultural differences are conceived as ideologies and attitudes influence trust of multinational multicultural differenced teams (Cogburn & Levinson, 2003). Baba et al. (2004) uses this framework based on cultural differences to sustain the ethno history of global virtual teams. Individual cultural differences configure the development of a third culture to benefit relationships as a mutual an interactive process (Shuter, 1983; Casmir, 1993) of common communicative (Cronen & Shuter, 1983) actions and interactions. Cross-cultural capital of individual members is essential of global virtual teams’ processes and outcomes (Paul, Samarah, Seetharaman, & Myktyn, 2005). Virtual teams studied by Kayworth and Leidner (2001-2002), in France, United States and Mexico based on nationality as a cultural index to analyze multiple cultures. In an environment of multiple cultures, nationality of culture is the base

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of an index of members’ cultures (Oertig & Buegri, 2006). National cultures influence organizational culture related to teams (Lee & Barnett, 1997; Lindsley, 1999). Organizational culture and team culture are two variables related. Top management team culture is “cultural differences reside mostly in practices, less in values” (Hofstede, 1991, p. 182). The individualism dimension can be used to explain a distributed team context. The formation of team network ties, socio contextual variables are more important than race and sex (Yuan & Gay, 2006). “In virtual teams, the individualism–collectivism dimension is an important dimension of culture as it reflects the extent to which members are inclined toward teamwork and open to accommodating others’ views” (Paul et al. 2005, p. 190). However, Ancona (1987) sustains that the individualism-collectivism dimension that team members from different nation states are also influenced by the cultural context in which they are engaged confirming that culture is a dynamic and fluid dimension. Rigid classification based on the nature of national cultures does not explain movements and relocations of populations. A collectivist orientation enhances collaboration. The family, community, governments and firms are institutions in a collectivistic culture. Collaborative cultural orientation is influenced by a more collective oriented culture (Paul et al., 2005). These cultural indicators can explain the decisions of location distributions of firms. Multinational multicultural distributed teams imply the consequentiality of culture presenting some other additional challenges (Kayworth & Leidner, 2002). The multifaceted view of culture influence team processes and outcomes in the complexity of distributed teams. Multinational multicultural distributed teams have two layers of complexity for potential influences, the multinational and multicultural and distribution that have on processes and outcomes. The complexities of partial and full distributed teams are related with


the complexities of national cultures and subcultures depending of the locations (Orbe, 1996). Multinational multicultural distributed team focuses on the geographic facet to frame national cultural differences to equate nationality and culture. This approach neglects the dynamic multiplicity of culture. The team composition is an important factor for multinational multicultural distributed teams. When the members of a multinational multicultural distributed teams understand other nationalities’ beliefs (Baba et al., 2004) they are effective to share knowledge. However, Goodwin and Halpin (2006) found resistance in multinational and multicultural distributed teams to the development of one culture where there are several pre-existing cultures. The role of distribution and culture of individuals have influence on team processes and outcomes. Multinational multicultural distributed teams influence organizational processes and outcomes. Multiple cultures and subcultures emerge on distributed teams. National culture and subcultures have influence in the decisions of multinational distributed teams (Oetzel, 1998). Multiplicities of culture and variations in distribution are related to multiple team cultures and organizational cultures. Subcultures as part of the larger organizational culture affect team processes and outcomes when occurring at the team level (Workman, 2005). Despite that the subgroups form subcultures they add to the larger culture of the multinational multicultural distributed team, a culture that it is beyond the face-to-face team. Multinational multicultural diverse distributed teams have become the norm prevalence in organizational settings of business and governments (Rasters, Vissers, & Dankbear, 2002; Wright & Drewery, 2006). Multinational multicultural distributed teams may have different purposes: to conduct future research (Maruping & Agarwal, 2004), to advice practical recommendations (Harvey et al., 2005). Team members may work and perform effectively “across major time zone differences, across internal business units, and

across cultures” (Chudoba, Wynn, Lu & WatsonManheim, 2005, p. 280). Culture encompasses broad national differences to include ethnic, genetic, racial, gender, religion, associations and collectivities, and other demographic characteristics. Besides national culture Paul et al. (2005) have focused on markers of culture and examine cultural diversity and cultural backgrounds and found that more diverse teams develop a more collaborative conflict management style. Culture creates differences in group behaviors and communication. Cultural diversity is represented by differences in backgrounds, life, philosophies, norms, social identity, language, etc. Culture may be looked at as the degree of heterogeneity and diversity among team members. Chao and Moon (2005) based on the demographic tile approaches cultural diversity and heterogeneity of team’s members. Cultural diversity and cultural heterogeneity may strengthen teams if the team members are capable to respect other languages and cultures. Diversity of team members involves the composition of different cultural backgrounds, unit affiliations, skills, etc. Individuals working in multinational and multicultural diverse and distributed teams have diverse national and cultural backgrounds. Cultural, institutional and individual differences are related to risk and safety attitudes and behaviors in organizations. The meaning of risk and danger in organizational settings are shaped by cultural and institutional differences challenging the assumption that training programs of safety can be applied to any organization within a country and across the borders. National cultures expressed in values, beliefs and attitudes shape individual marketing behavior and market orientations (Norburn, Birley, Dunn & Payne (1989). International markets are highly fragmented despite the economic globalization processes due to control variables such as culture, language and other intangible barriers, which in turn may influence the location of Mexican firms. The culture and language-specific attributes of host countries benefit Mexican firms when competing

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with other home countries that do not share these specific characteristics in investing (Barrios & Benito-Ostolaza, 2008). Human beings must be aware of their capabilities to assimilate, contribute, share an experience the new opportunities offered by the exchange of cultures. Full development of human potentialities requires participating actively in experiencing other cultures and ideologies of economic, political and social systems to become more cosmopolitan citizen of the world. Rabbino, Chávez and García (s.f.) describe the transformations of Mexican firms driven by systems thinking approach to coordinate all the activities while maintaining personal culture. The enactment of the North American Free Trade Agreement (NAFTA) and the lack of policies focusing to support and encourage entrepreneurship were two important causes that triggered the development of a new entrepreneurial culture. Business community suffers from lacking business culture skills and understanding others cultures. An initiative focused on Mexican culture, the Business Culture in Latin America (BUCLA) provides a solution through e-learning. This new entrepreneurial culture led to the emergence of business more oriented to international markets. Some medium businesses are developing a transnational business culture, such as the software industry. Hildebrando is the largest software producer that started operations in the 1980s opening the software factory in México City and offices in the three largest cities in México, in Miami and Madrid. Female’s migrants confront greater risks of international migration because of a culture of domesticity (Kanaiaupuni, 2000) and the lack of a more entrepreneurial culture oriented towards transnational processes.

Involvement of Organizational Culture in Internationalization Processes of Firms The new firms from emerging economies follow some patterns of development and expansion consistent with the staged theories of interna-

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tionalization and product life cycle theory besides the tendency to expand in foreign markets that have similar culture. Organizational culture has an impact on the outcomes and the degree of organizational involvement in strategic alliances and international ventures (Meschi & Roger, 1994; Pothukuchi, Damanpour, Choi, Chen & Park, 2002). The design of organizational cultures incorporates the cognitive diversity of partners and provides intercultural fits between and among the firms structured in international strategic alliances. The design of the strategic alliances own corporative and organizational culture considers the formation of more intercultural oriented relationships cooperation and shared leadership (Rodríguez, 2005). National cultures are the anchors of organizational cultural that may dilute with the negations of the emerging third culture to define relationships of the new management style, behavioral mechanisms, trust development and access to strategic knowledge (Brannen & Salk, 2000; Casmir, 1993; Salk, 1997; Barkema, Bell & Pennings, 1996; Rodriguez & Wilson, 1995; Inkpen, 2000). The intercultural fit makes compatible the involved national cultures in an organizational culture as the determinant of relationship performance (Rodriguez & Wilson, 2002; Rodriguez & Wilson, 1995; Sarkar, Echambadi, Cavusgil, & Aulakh, 2001). Similarity of national cultures may have less impact on strategic alliances than organizational cultures and compatibility of organizational processes (Brown, Rugman & Verbeke, 1988; Inkpen & Birken Shaw, 1994; Kogut, 1989). Congruence between national cultures and managerial practices influences the strategic alliance performance (Newman & Nollen, 1996; Baird, Lyles &Wharton, 1990; Davis & Rasool, 1988). Differences between individualist and collectivist value oriented national and organizational cultures as a mind frames may affect the cross-cultural relationships and the nature of managerial and attitudinal interactions in strategic alliances (Chen, Greenberger, Lestea, Dong, & Guo, 1998; Chen,


Hastings, Rubin, Chen, Cen & Stewart, 1998; Hofstede,1980). Culture influences traits, perceptions and responses of followers to managers and leaders in power positions in strategic alliances. Different national cultures influence the requirements of values in management and leadership styles and practices (Newman & Nollen, 1996; Brodbeck, Frese, Akerblom, Audia, Bakacsi, Bendova, Bodega, ….., Wunderer, 2000). Culture of the top management members may influence management and leadership style and contribute to the performance of the strategic alliance as a whole (Bettis, Hall & Prahalad, 1978; Das, 1981). The interaction and interdependence of national cultures are part of strategic alliances which may combine elements and create a more coherent third culture (Cartwright & Cooper, 1993). An organizational culture functioning as the result of negotiations between values and attitudes to develop a compatible third culture in the organizational context is the critical factor in cross-cultural strategic alliances and joint ventures (Lane & Beamish, 1990; Perlmutter & Heenan, 1986; Teagarden & Von Glinow, 1990). Differences in national cultural values influence the implementation of management and leadership skills in strategic alliances. National culture influences top organizational leadership which in turn permeates the design of organizational cultures and define managerial and leadership styles in the strategic alliance (Hollander & Offermann, 1990; Likert, 1961; Pothukuchi et al., 2002). Managerial values of complex cultural organizations involved in strategic alliances through social interactions and negotiations between each other shape the nature and shared content of a hybrid new culture (Brannen & Salk, 2000). Management in international alliances face the challenge of reconciles managerial practices based on cultural backgrounds and the corporative and organizational culture. The management of a multiplicity of meanings in different national cultures may determine the success of strategic alliances in the international global market (Ku-

mar & Andersen, 2000). Selecting partners of strategic alliances, managerial capabilities (Hitt, Dancin, Levitas, Arregle, & Borza, 2000) and management practices are congruent with their national cultures; organizations improve performance (Newman & Nollen, 1996). However, management practices are more congruent with national culture dimensions such as individualism orientation of innovation in US managers, task support and social relationships in Mexican management practices (Rodríguez, 2005, Newman & Nollen, 1996; Parkhe, 1993; Very, Calori & Lubatkin, 1993). Managers from different cultural backgrounds developing relational assets in partnerships with international strategic alliances maybe instrumental to develop a new common third culture (Rodriguez & Wilson, 2002) based on individual and structural ties (Inkpen & Beamish, 1997). Support from the state and implementation of strategies to enter into institutional strategic alliances between different stakeholders and business groups may be only to steps in the right direction for internationalization. Management culture cognition, values and interpersonal relationships dynamics affect the strategic leadership styles in organizations, management decisions and thus, organizational performance (Hambrick, 1989). The culture of the top management team has effects on organizational performance (Bantel & Jackson, 1989; Finkelstein, 1988; Hage & Dewar, 1973; Tushman, Virany & Romanelli, 1985). Organizational culture dimensions of Mexican and US strategic alliances are determinants of management rules and social norms. US management style is shaped task innovation in management team culture and manager’s personality in emotional stability focusing on long-term planning and emotional responsibility, innovation, personal change and individualist orientation (Rodríguez, 2005). For example, Mexican-US strategic alliances are shaped by an intercultural fit through a predominant management style framed by national culture and management team culture (Rodríguez, 2005).

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Rodríguez (2005) found that the organizational culture existing in the Mexican and American alliance is bounded by the values and norms that construct the social reality by management to converge into a third culture characterized by being more participative and consultative style. Management styles in international strategic alliances with different national cultural dimensions coexist; negotiations for a new organizational culture blend the styles of adaptor and innovator in one common management style. The predominant management styles in strategic alliances are strongly influenced by the organizational culture and are not shaped by national cultures (Rodríguez, 2005). National cultures of managers are positively related to their management styles in US-Mexican strategic alliances. The US-Mexican strategic alliances are supported by two different national cultures; one belongs to a developed market and the other one to an emerging market. Each one of these two cultures has different approaches to management styles and relationships (Dorfman & Howell, 1988; Hellweg, Samovar & Skow, 1994; Pavett & Morris, 1995). Managerial culture in US-Mexican strategic alliances is influenced by top management and leadership styles of both national cultures. Predominant management styles of Mexican and US managers are converging in strategic alliances where Mexican is trying to be more consultative and US more authoritative. US management is shaped by task innovation in top management culture and emotional stability in manager’s personality. Predominant Mexican management style is a function of task support and social relationships as part of management culture focused on short term planning a close working relationships, although not linked to manager’s personality and national culture (Rodríguez, 2005). Mexican management style is not linked to manager’s personality and national culture but determined by task support and social relationships in management team culture focusing on short term planning, efficiency oriented supported by group cooperation and friendship, intrinsic

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collectivist nature shared decision making and work fair assignment (Rodríguez, 2005; Chen et al. 1998a, b; Hofstede, 1980). Managers of joint ventures (JV) may introduce some variations to management control systems of a global firm to institutionalize a global management control system. The global management control system may match technical and institutional criteria to satisfy the logics of JV´s managers. This may facilitates post-acquisition strategy to facilitate integration of new firms to the organizational and work culture.

CONTEXTUAL FRAMEWORK: THE EUROPEAN UNION The European Union consists of 27 countries and it is a unique economic and political partnership. It was created in 1958 under the name of European Economic Community (EEC).Its main objective was to boost economic cooperation, creating an economic inter dependence of countries and decreasing the likelihood of conflict. In 1993 became the European Union (EU) thus reflecting the evolution of the economic union politics. In January1999, the new euro (€) was adopted as their common currency. Currently 17 member countries of the Union have adapted and are called euro area or euro zone. The use of the euro as a common currency has led to greater economic stability, since by eliminating exchange rate fluctuating costs have been reduced by the exchange, and have expedited and facilitated transactions between member countries. The EU is a single market and a leading trade power. Onlyin 2010registereda gross domestic product (GDP) of12.27 billion Euros, beating the U.S. economy. Similarly, participation inworld European Union’s trade is notorious, its exports account for18.1% of the total amount ofexports and18.9% of world imports. United States and China are major trading partners. The European market recorded a high purchasing power; its


Table 2. Member countries of the EU and Euro zone Country

Year of Entrance

Country

Year of Entrance

Germany *

1952

Ireland *

1973

Austria*

1995

Italy *

1952

Belgium *

1952

Latvia

2004

Bulgaria

2007

Lithuania

2004

Cyprus *

2004

Luxembourg*

1952

Denmark

1973

Malta *

2004

Slovakia*

2004

Netherlands *

1952

Slovenia*

2004

Poland

2004

Spain *

1986

Portugal *

1986

Stonia *

2004

United Kingdom

1973

Finland*

1995

Czech

2004

France *

1952

Romania

2007

Greece*

1981

Sweden

1995

Hungary

2004

Euroarea countries(*) Source: Prepared by the information obtained from Europa.

population accounts for 7% of the world population and in general has a high standard of living with an average annual in compeer capitol € 20.900.

FEATURES OF THE EUROPEAN UNION MARKET FROM THE PERSPECTIVE OF THE INSTITUTIONS The European Union is a single market but not characterized by homogeneity among members. There are large differences between member countries as they have their own social, political and cultural structure which makes them in a single tough and complex market to penetrate. Hutchinson and Quinn (2006) in their investigation of internationalization of SME retailers claim that cultural, legal and economic relations between different countries contribute to the complexity of foreign market development and all together make the expansion more complex. The EU rules 27 markets under the same trade rules but with

different characteristics and conditions. Only income level varies considerably. The country with the highest income is Luxembourg with EUR 80 000, whilethe lowest is Bulgaria with 5000Euros. Overallincome distribution in the European Union presents a pattern of behavior, the countries located in the Northern and Western Europe have a higher income level, such as Luxembourg, France, Germany, among others, while the eastern have lower incomes, such as Bulgaria, Poland and Hungary. Cultural distance is observable in the European Union because despite holding the relationship, each country retains its beliefs, traditions, values and ideology. On the other hand, Europe lives and experience an influence generated by significant migration which results in multicultural market. Language is a cultural aspect that impacts the internationalization. EU has 23 different languages that are recognized in the negotiations. The most representative are English, French and German, having very little relevance Spanish language to be used in one country only. Another feature qualifying European market is its commitment to

475


social responsibility and environmental care. The values and life style are carried on sustainable development practices as part of their daily lives, thus requiring company’s responsible behavior guaranteed by mechanisms of social and environmental certification. The average European consumer registers a high purchasing power because of the high standard of living that characterizes the region, compared to more affluent Europeans who demand higher quality standards. The European attitude against products from other countries is often negative. As indicated by Al-Sulaiti and Baker (1998), goods originated from developing countries are regularly perceived a slow quality products and low price. The EU as a trading partner has a large number of specifications. Only in the field of exports must meet certain health requirements, phyto sanitary, environmental and technical, as well as comply with the marketing standards and import restrictions. Speaking of companies seeking to internationalize to the European market should likewise consider the possible actions of protectionism, foreign companies interested in entering and remaining in the EU should be aware that international trade operations, the EU has been criticized for practices such as the disruption of the treaty and the political use of aid(Ruiz, 2009, p.378). The bilateral relationship between Mexico and the European Union is currently at its peak. Major government programs promote the internationalization of Mexican companies. However, the difference in the normative structure of Mexico and EU regulations have limited national product placement. Mexican SMEs are experiencing rejection by European companies to establish joint-venture because the implications of greater financial resources and more complex negotiations. Similarly, Mexico lacks a business strategist perception against members of the European Union by making it difficult to initiate inter actions without objective data background.

476

BUSINESS RELATIONSHIPS AND COOPERATION BETWEEN MEXICO AND EUROPEAN UNION The business relationship and cooperation between Mexico and the European Union is strong and positive at the current market characteristics and the recent economic crisis. Pro Mexico facts indicate that the EU is the second largest trading partner of Mexico, who made 9.5%of its total operations, only after the United States. Mexico for its part is the second largest trading partner of the European Union among the countries of Latin America. The EU is a major trading partner given their outstanding participation in international trade. Only in 2008 presented a total trade volume of about 2.86 billion Euros, one of the major players in international trade is the world’s number one volume exports and second in imports. Regarding exports Mexico is located in18th place as a supplier of the European Union, while itranks26 as an importer. The products that Mexico exports to the EU are perceived as follows: Spain (21.6%), Germany (19.8), the Netherlands (10%), France (8.7), Belgium-Luxembourg (8.2) Italy (4.4%) and Ireland (2.7%). The main products exported to these markets are: machinery (29.3%), oil (21.1%), transport equipment (18.9), chemicals (8.2), agricultural products (6.7) and other (15.8)

METHODOLOGY In the present study it is used the qualitative method based on the literature review, beginning on studies in both Mexico and the European Union countries. Also, it is analyzed statistical data submitted by institutional bodies of the two economies, in order to explain and describe the phenomenon under study.


ANALYSIS OF RESULTS The political-economic relationship between Mexico and the European Union has strengthened an interesting business alliance, which has set the pace to generate new momentum and support programs to promote the weakest market sectors such as SMEs, which represent a sector of opportunity for growth in the country, given its important role in the local economy. It aims to promote internationalization of enterprises to new markets in order to increase their competitiveness and performance and thereby contribute to the growth of the Mexican economy. But SMEs have a number of features that could become ever limitations to expand their operations, especially when it comes to complex market. The European Union viewed as a single market reflects a synonym of complexity, characterized by the heterogeneity of its 27members, who although are handled under one economic system retain their identity, culture, and political and social structure, which strongly influence the trade because demand products and /or services with specific adaptations. The internationalization approached from the perspective of institutionalism, implies the existence of formal and informal rules that determine the global trade game. Over all there has always been a huge difference in the normative structure of Mexico and the European Union, being the second a market with a large number of requirements that vary from the packaging, labeling, to the production process and practices of social and environmental responsibility, that although in the first instance are not explicit sentry barriers for small and medium enterprises account for more than just a strong limitation barrier. Simultaneously, in formal aspects represent a challenge for SMEs because of characteristics of their structure are costly and difficult to perform a thorough research on the beliefs, values, customs and ideas of potential consumers, to determine appropriate strategies to attack new markets. The European market as a whole is attractive. However

considering that each country demands products with unique features and more each country has a specific behavior pattern, the charms lost by reducing the European Union market unique market segment with a small cultural distance, geographic distance aggrieved by high transportation costs and a very demanding market.

CONCLUSION AND RECOMMENDATIONS The EU even being considered a large market with strong impact on the global trade does not mean it represents an ideal market for all companies in all countries. The label of greatness does not show a more viable market for the internationalization of SMEs Mexican because of its complexity arising from the union of 27 countries with its own entity, and private formal and informal institutions. Mexican SMEs have characteristics highly valued abroad which certainly represent an opportunity for internationalization. However, it should also be aware of the challenge posed by other markets. Specifically talking about the European Union market should make a thoughtful analysis of the growing threats that are derived from the uniqueness of its members, since not having enough resources to deal with the minas adventure very risky and ambitious. The Mexican SMEs strategies should not be limited to seemingly attractive markets, but focus on identifying potential markets, similar and thus generate greater chance of winning. As in conclusion it is observable that despite the existence of agreements and programs that foster competitiveness, innovation and technology transfer, financial management of SMEs, and a positive relationship of economic cooperation between nations. It is necessary to evaluate other variables such as institutional aspects that are crucial because when establishing a comprehensive strategy of internationalization. In this investigation it was possible to analyze how the formal and informal rules set by European

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Union are so varied that negatively impact the internationalization process and reach to be a major barrier to the success of Mexican SMEs.

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