Can international expansion become a stumbling block to future growth? Business groups and emerging markets

Purpose Firms in emerging markets frequently pursue internationalization to access vital resources in foreign markets. However, these efforts can be constrained by limited managerial capacity – commonly referred to as the Penrose effect – which hampers their ability to navigate the complexities of macro-environmental challenges. This study adopts a resource-dependence perspective to investigate how international expansion may impede growth, with particular attention to business groups as key organizational actors. Design/methodology/approach Using ordinary least squares regression, we test our arguments based on data from the foreign direct investments of 101 Taiwanese business groups. Findings Findings suggest that when business groups navigate a foreign host country to acquire resources, limited managerial capabilities may constrain international growth. Specifically, while we find a positive relationship between host-country legitimacy attained by an overseas affiliate and the business group's subsequent growth, this positive relationship is weakened by cultural, regulative and normative distances, as greater distances diminish the effect. Research limitations/implications To mitigate the adverse effects of cultural, regulative and normative distance, business groups seek to establish robust mechanisms for managing international complexity. We argue that managerial competence, as reflected in adaptive organizational learning, experience and experimentation, plays a key role in overcoming these barriers and sustaining international growth. Originality/value This study contributes to international business and resource-dependence theory by highlighting how environmental heterogeneity across national borders can impede resource acquisition and growth. It stresses the importance of well-developed organizational learning and managerial capabilities in enabling business groups to navigate cultural and institutional (regulatory and normative) distances and leverage international opportunities.