Process Research Is Back: A Tribute To Jorma Larimo’s Contribution On Fdi Decision-Making

Rebecca Piekkari (Aalto University School of Business, Finland) Ingmar Björkman (Aalto University School of Business, Finland)

Introduction

Recently, calls have been made to “put process back” into research on firm inter-nationalization (Liesh, Nummela & Welch forthcoming, Welch & Paavilainen-Mäntymäki 2014). While firm internationalization has been conceptualized as a process since the 1970s (Johanson & Wiedersheim-Paul 1975, Johanson &

Vahlne 1977, Luostarinen 1979), the way it has been studied has not always given justice to this conceptualization.

Jorma Larimo’s early work represents an exception which we will analyze in this chapter. Larimo defended his doctoral thesis entitled “Foreign direct investment behavior and performance: An analysis of Finnish direct manufacturing invest-ments in OECD countries” in 1993. In this study, he analyzed the routes to under-taking a foreign direct investment (FDI) decision and the performance of such an investment. His doctoral thesis was based on an impressive data collection effort, with the data set comprising a very significant part of all Finnish corporations that had carried out FDIs at the point of his study. He drew on behavioural rather than economic theory to explain FDI behavior and adopted a processual perspective to the internationalization of the firm. Larimo’s doctoral thesis and some of his sub-sequent work built on the Finnish tradition in this area (Björkman 1989, Lu-ostarinen 1979) as well as Aharoni’s (1966) pioneering study on FDI decision-making processes in US firms. In his subsequent work, Larimo continued to have an interest in foreign direct investments and how these decisions are made.

An FDI represents a strategic decision for the company in question. The decision-making leading up to a commitment to carry out a foreign direct investment is a complex social process characterized by dynamic and unstructured elements.

However, it is not self-evident that by “having selected a process phenomenon to study or posed a process-based research question, the final theoretical contribu-tion will also be processual” (Paavilainen-Mäntymäki & Welch 2013: 245). In fact, recent reviews suggest the contrary (Welch & Paavilainen-Mäntymäki

2014): internationalization of the firm, including FDI processes, are frequently studied based on cross-sectional research designs. Contributions that pose pro-cess-based questions are few in number (Welch & Paavilainen-Mäntymäki 2014).

In this chapter, we draw attention to Jorma Larimo’s processual contribution to the study of FDI decision-making which lies at the heart of the field of interna-tional business. We will describe and evaluate one his most influential articles (Larimo 1995) as an exemplary contribution to the FDI literature and internation-al business research more generinternation-ally. Further, we will internation-also heed his instrumentinternation-al role in integrating the community of senior and junior IB researchers in Finland and systematically internationalizing it during the past decades.

Jorma Larimo: The exemplary FDI process scholar

Jorma Larimo published the article entitled “The foreign direct investment deci-sion process: Case studies of different types of decideci-sion process of Finnish Firms”

in the Journal of Business Research in 1995. It has been widely cited in the field and represents a comparative case study which is particularly suitable as a re-search strategy for capturing multiple time points (Welch & Paavilainen-Mäntymäki 2014). In Larimo’s later work the processual approach is less evident than in this piece from 1995 but it nicely complements his early research by ad-dressing a range of issues related to FDIs by Finnish firms (see for example, Hen-nart & Larimo 1998).

In the focal paper, Larimo retrospectively traces the strategic decision-making processes leading up to the FDI decision in five Finnish manufacturing firms that operate in electronics, consumer goods, chemicals, vehicles and plastics. Lar-imo’s case study is an excellent example of process research on internationaliza-tion because of the way he applies the processual approach from the initial re-search design, case selection, data collection and analysis to the discussion of the findings.

The design and aim of the study

An FDI decision-making process can be studied in many different ways ranging from a variance to a process approach (Welch & Paavilainen-Mäntymäki 2014).

As such, an FDI decision represents a particular episode in the internationaliza-tion process of the firm and researchers may prefer not to investigate the entire process behind it. Instead, they may opt for a variable-oriented approach that would entail an analysis of internal and external stimuli mediated by managers’

perceptions of the firm’s resources, strategy and environment, for example (Welch & Paavilainen-Mäntymäki 2013). Another research design would be to examine the antecedents and outcomes of an FDI decision but exclude the inter-vening process connecting them altogether. Alternatively, the focus could be on the outcome of the decision-making process rather than the process itself, by e.g.

classifying the kind of FDI that firms undertake in terms of their form, type and motives driving the investment (see Table 1, Larimo 1995: 28-29).

Larimo chose a process approach and dived deep into the complex and messy world of FDI decisions. He uncovered the patterns of critical events that his in-formants related to him. Thus, these key turning points in the FDI decision-making process were identified ‘from inside’; that is, they were examined from the perspective of the key decision-makers in the case companies rather than the researcher himself.

Larimo (1995: 25) posed the general research aim of his study as follows: “to highlight the FDI decision process in five foreign manufacturing investments made by Finnish firms”. He was interested in understanding how the decision-making process evolved over time and studied it after its completion, i.e. retro-spectively. The five investments processes varied in length. The starting point was the recognition of the need to make a decision to address a problem, crisis or an opportunity. The longest decision process took 5 years while the shortest only a couple of months. Larimo (1995) did not only cover the decision-making pro-cess leading up to the FDI but also the subsequent years in order to explain the financial outcomes of the investment decision.

In line with the work by Minzberg, Raisinghani, and Théorét (1976) on the gen-eral model of strategic decision processes Larimo (1995) divided the FDI decision process into three phases: identification, development, and selection to capture its unstructured nature. These three phases consisted of central and supporting deci-sion-making routines at the workplace. The general model of strategic decision processes by Mintzberg et al. (1976) provided the theoretical framework for Lar-imo’s (1995) study and guided his empirical work.

Case selection

The five cases were selected from a larger sample of 59 FDIs that Larimo (1986, 1987) had reviewed earlier. His aim was to ensure maximum variation among the case companies in terms of their background (firm size, extent and experience in international operations, especially in FDI), process data (process nature, routines and dynamic factors), and situational data (competition, motives for FDIs,

envi-ronment, role of organizations affecting the FDI; Larimo, 1995: 26). Interestingly, Larimo used the availability of process data as an explicit criterion in case selec-tion.

Data collection

In line with case study tradition, Larimo (1995) drew on multiple data sources including personal interviews, annual reports, in-house magazines, and question-naires. He interviewed the key managers who had personally been involved in the FDIs reviewed. In four of the five cases, this meant interviewing one person per company. Larimo complemented the retrospective interviews with written docu-ments that represented a source of real-time, historical data. This was particularly important in the oldest cases where distortion and memory failures were possible.

Data analysis

The way Larimo analyzed his data and wrote up the findings is undoubtedly the major contribution of his 1995 article. Larimo was able to delineate the full his-torical background of the emerging decision-making processes in the five invest-ments and placed time at the centre of his inquiry. The unit of analysis was the entire process rather than a single variable in the decision-making process and Larimo traced it back and forward in time. Each investment decision process was written up as a rich case narrative and graphically visualized in Figures 2-7. These figures vividly demonstrate the non-linear, dynamic nature of FDI decision-making processes which were characterized by interruptions, delays and disconti-nuities. In addition to the key internal players, Larimo also included external ac-tors such as consultancies and advisors in his narratives. In this way, he avoided portraying the firms as unitary entities and accentuated the political aspects of this complex process. In this way, he provided the reader with a highly contextualized view of the FDI decision-making processes in the five Finnish firms.

However, a good process study goes beyond mere description of phases of events.

Larimo (1995) identified the underlying mechanisms that connected the critical time points in the FDI decision-making processes and explained how and why these temporal patterns occurred. These were related to financing, technology and management related issues. Paavilainen-Mäntymäki and Welch (2013: 231) argue that “[w ]hat differentiates a process [from longitudinal research] is not so much the timespan but rather the presence of a cause, an effect and the mechanism con-necting the one to the other.”

In short, Larimo retains the process focus throughout the study. He has a process-related research aim, collects process data and analyzes the process in its entirety.

Larimo situates the FDI decision process in its natural context of the firm’s inter-nationalization path. As Welch and Paavilainen-Mäntymäki (2014) point out, processes cannot be understood in isolation of context. Larimo also builds process theory by identifying generative mechanisms that explain why and how the pro-cesses unfolded the way they did in each case company. At the end of the article, he classifies the five FDI processes according to the extent to which they display elements of the decision-making steps and routines.

Assessment

Larimo’s 1995 article has stood the test of time really well. It is a rigorous, thor-ough and highly insightful analysis of the ‘backstage’ of FDI decisions. Larimo gets very close to action which renders his study highly relevant for managerial practice. It is, of course, always possible to make suggestions to any study, even the most well-crafted one. A possibility in Larimo’s study could have been to present verbatim quotes of the interviewees and let their voices be heard in the stories from the field. Since the publication of Larimo’s article in the mid-1990s, however, important advances have been made in terms of how to present and write-up qualitative research which can be found in guidebooks (Piekkari &

Welch 2011) and editorials (Bansal & Corley 2011).

Sometimes the researcher is able to study decision making processes in real time as events unfold. By participating in meetings and discussions about the focal FD the researcher can avoid post-rationalization and reconstructions of reality that are commonly associated with retrospective interviewing. Data can also be collected through personal diaries which may provide additional insights into the phenome-non at hand. Still today, almost 20 years later, Larimo’s study serves as an excel-lent example of high-quality process research that many IB scholars would do well to emulate.

Jarmo Larimo: The “Godfather” of IB research in Finland

While Jorma Larimo has made important contributions through his research achievements, he has also had a significant impact as the “Godfather” of interna-tional business research in Finland which we would like to acknowledge in this chapter.

One part of Larimo’s “Godfather” role is his long-term work within the Finnish Graduate School of International Business (FIGSIB). He was first a board mem-ber during 1996-1997. In 1997 Larimo succeeded Professor Reijo Luostarinen as the Director of FIGSIB. His role was not restricted to chairing the board meeting only; rather he personally carried out a large share of the administrative work that was an integral part of running FIGSIB. He also took a personal interest in fol-lowing up the progress of the doctoral students who were funded by FIGSIB or just participated in some of the doctoral courses that FIGSIB offered. During 2005-2012 no less than 58 PhDs graduated within FIGSIB – and all of them are indebted to Jorma Larimo for his institutional work.

In 2013, Jorma Larimo organized the Vaasa IB conference for the 12^th time. The conference also has a doctoral tutorial which has established itself as a “must”

venue in Finland as well as abroad. The Vaasa IB conference has attracted a large number of well-established IB scholars to Finland, including Jean-Franҫois Hen-nart, Gabriel Benito, Douglas Dow, Marian Jones, Stefan Schmid, Ulf Andersson and Klaus Meyer. Many of them have served as key note speakers and discussants at the conference and the doctoral tutorial. Finally, Jorma also served as a long-standing representative for Finland in the European International Business Acad-emy (EIBA).

Jorma, our best congratulations!

As authors of this chapter, and as your colleagues and friends, we would like to thank you for all your work and wish you all the best on your 60^th birthday!

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8. The Internationalisation Of The Firm: Managing