MANAGERIAL DECISION-MAKING

Managerial Decision-Making

Managerial Decision-Making

Literature Review

Eriksson et al., (1997) models in business do not take into account the consequences of different decision-making styles on investment decisions, the difficulties in trickling down such styles, or the role of increasing knowledge and experience on foreign environments. Specifically, in most models of entry modes, expansion or internalization of subsidiaries, decisions are made by organizational units, and most often by MNE headquarters. Headquarter executives in these models tend to choose from a narrow set of options that are outlined in earlier literature (Doz and Prahalad, 1984: Dow and Karunaratna, 2006). These decision-making options are often based on assumptions originated from the Anglo-Saxon business culture, including specific corporate-level strategies (e.g., global efficiency or local responsiveness) or a defined set of entry modes (e.g., acquisitions, greenfield investments, or joint ventures). Headquarters' decisions about different actions in the environment in these models are assumed to be precise indicators of the MNE's optimal interest. Actions in these models are also assumed to closely follow distinct organizational strategies, such as multidomestic, global, or transnational. Once strategies are selected, MNEs often implement them without change or variation in their effectiveness (Doz, 1986: Dow and Karunaratna, 2006: Cyert and March, 1963). Foreign direct investments require decisions that routinely involve risk and uncertainty, lack of information, and rely on multifaceted organizational processes. MNEs that are better managed may have better chances for survival in the environment than MNEs with poor management. Yet, forty-five years after the publication of The Foreign Investment Decision Process (Aharoni, 1966a), a relatively large segment of business research continues to leave limited or no room for decision-making on the part of managers (Certo et al., 2008: Aharoni, 1966).

Managerial Decision-Making

Knowledge, decision-making and psychic distance stand at the core of this model, sometimes referred to as the Uppsala model. These constructs are considered at the firm - not the individual - level. “In our model, we consider knowledge to be vested in the decision-making system. We do not deal explicitly with the individual decision maker” (Johanson & Vahlne, 1977: 26). By implication, organizations learn and with learning the perception of uncertainty in foreign operations changes. Investments previously perceived as risky become acceptable. Johanson and Vahlne's paper on the Uppsala model was based on Scandinavian experience. It may well be that managers from other countries also make decisions to accept or discard choices based on previous (and limited) information. Thus, for example, Chinese managers may be more familiar with other Asian countries. Further, “Born Global” may be a result of managers' experience and knowledge of more countries of the world - not only a consequence of technological changes (Anderson and Gatignon, 1986).

Managerial Decision-Making Theories

Barkema et al., (1997) behavioral explanations of foreign direct investment appeared relatively early in business research. The Foreign Investment Decision Process, published in 1966, outlined a model of internationalization that focused on the role of managerial decision-making (Barkema et al., 1997). It outlined a perspective that sought to answer the questions “what motivates managers ...