The dual-edged role of returnee board members in new venture performance
Introduction
With increased globalization and international human mobility, many scholars have increasingly paid attention to the issue of returnees in emerging countries (Dai & Liu, 2009; Harvey, 2009; Lee & Roberts, 2015; Li, Zhang, Li, Zhou, & Zhang, 2012; Liu, Lu, & Choi, 2014; Qin, Wright, & Gao, 2017; Saxenina, 2006). Researchers have argued that returnees may act as a critical channel for international knowledge transfer (Liu, Lu, Filatotchev, Buck, & Wright, 2010), filling important technological and entrepreneurial gaps in emerging countries (Li et al., 2012). A developing research stream on returnees has examined how they affect the economic development of emerging countries (Harvey, 2009; Saxenina, 2006) and how returnee entrepreneurs influence firm innovation and performance (Dai & Liu, 2009; Filatotchev, Liu, Buck, & Wright, 2009; Li et al., 2012; Lin, Lu, Liu, & Choi, 2014; Liu et al., 2010; Liu et al., 2014; Wright, Liu, Buck, & Filatotchev, 2008). The existing literature, however, has yet to address how returnee decision-makers, such as board members, influence new venture performance.
New ventures often suffer the liabilities of newness and smallness (Li & Atuahene-Gima, 2001; Zhang & Li, 2010). They characteristically have small and limited managerial, personnel, and financial resources (Li & Zhang, 2007; Lu, Zhou, Bruton, & Li, 2010). Thus, understanding how to acquire the necessary resources to sustain an advantageous position is critical for new ventures (Lin et al., 2014). Previous studies suggest that the demographic characteristics of board members affect the availability of necessary resources for new ventures (Kor & Misangyi, 2008; Wincent, Anokhin, & Örtqvist, 2010). Accordingly, this study considers individual characteristics of board members, with a particular emphasis on the influence of returnee board members. Returnee board members represent a unique demographic group in emerging countries (Lee & Roberts, 2015). Returnee board members with international backgrounds provide both knowledge and international networks that are critical for new venture survival and success. While foreign board members are also important to firms as human capital and as a vehicle to access new knowledge and foreign social capital (Choi, Park, & Hong, 2012), this study focuses on returnees rather than foreigners since returnees play a unique role in emerging countries and represent the phenomenon of replacing a “brain drain” with “brain circulation” in these countries (Saxenina, 2006).
Returnees are defined as people who have work and/or educational experience in the United States or other developed countries and then return to work in their home country (Lee & Roberts, 2015; Qin et al., 2017; Saxenina, 2006). Returnees often have advanced education and knowledge in the form of scientific and technical training (Dai & Liu, 2009; Lin et al., 2014). They may also have acquired advanced business knowledge and skills from working in foreign companies (Dai & Liu, 2009). Accordingly, returnees are more likely to have innovative capabilities and strong business skills to contribute to focal firms in emerging countries (Filatotchev et al., 2009). However, since returnees have been absent from the local market for a long time, they may lack local market knowledge and connections (Li et al., 2012; Lin et al., 2014). In this sense, returnees may face greater challenges when they operate in their home country. Hence, based on the knowledge-based view and social capital theory, this study argues that, within certain limits, the increase in the proportion of returnee board members enhances new venture performance due to returnees' advanced knowledge and networks from abroad. However, as the proportion of returnee board members increases beyond a certain level, this positive effect levels off because of returnees' disadvantages in terms of lack of local connections and knowledge, which is further offset by increased costs of organizational inflexibility. Specifically, this study suggests that the proportion of returnee board members has an inverse U-shaped relationship with new venture performance.
Moreover, as each new venture has a specific ownership structure and unique internal resources that might result in a different organizational context and thus influence firm behavior (Li & Zhang, 2007), these factors should be highlighted to ensure the efficacy of new venture activities. In this regard, this study examines the effects of two organizational factors: foreign ownership and slack resources. It is argued that these two factors influence the effectiveness of resources and knowledge contributed by returnee board members in new venture performance and thus impact new venture performance. In other words, this study suggests that the relationship between the proportion of returnee board members and new venture performance is moderated by foreign ownership and slack resources. Furthermore, strategic decisions and resource allocation must account for multiple organizational contexts (Bradley, Shepherd, & Wiklund, 2011) for organizations to be competitive. Accordingly, this study also examines the three-way interaction among the proportion of returnee board members, foreign ownership, and slack resources, indicating their joint effects on new venture performance.
This study makes several contributions. First, it extends the existing literature on new ventures by proposing returnee board members as a critical source of the resources necessary for new ventures (e.g., Dai & Liu, 2009; Li et al., 2012). Second, this study considers both the advantages and disadvantages of returnees and examines how they influence new venture performance when acting as board members. This study extends previous studies that only emphasize the advantages of returnees (Lee & Roberts, 2015; Liu et al., 2010). Third, this study identifies potential interactions between the proportion of returnee board members and new venture performance, which helps to advance the theoretical development of new venture development and broaden the understanding of conditions under which returnee board members can generate superior performance. Fourth, this study tests the joint effects of the proportion of returnee board members, foreign ownership, and slack resources on new venture performance. The evidence provides new insight into the role of returnee board members in new ventures of emerging countries. Finally, the findings of this study also provide important guidelines and implications for practitioners and policymakers. By adopting a fine-grained analysis of the advantages and disadvantages of returnees, returnee board members can better understand and overcome their vulnerabilities in their home country and thus better utilize their technological and managerial knowledge accumulated overseas. For policymakers, this study highlights the disadvantages of returnees in terms of their lack of local market knowledge and connections. Although local governments in emerging countries have provided many incentives to attract returnees, they should also provide opportunities for returnees to interact with local business communities and government-affiliated organizations to help them better understand local markets and develop local connections.
Empirically, this study employs objective data from China's emerging economy. Among many emerging countries, China plays a significant role in today's global market. In addition, the Chinese government provides various political and economic incentives to attract Chinese overseas talent to fill its technological and entrepreneurial gaps (Dai & Liu, 2009; Li et al., 2012). Thus, China has attracted large numbers of overseas Chinese scientists and students to return to China. For example, in 2015, 409,100 students returned to China, an increase of 12.14% over 2014 (National Bureau of Statistics of China, 2016). It has been argued that the increasing number of returnees from developed countries plays an important role in China's economic growth. As a result, China offers an attractive research context for this study.
Section snippets
Returnees and new venture performance
New ventures, defined as firms that are eight years old or less at the time of their initial public offerings (IPO) (Atuahene-Gima, Li, & De Luca, 2006; Zahra, 1996), often face the “the liability of newness” (Bamford, Bruton, & Hinson, 2006; Li & Zhang, 2007). That is, they have shortages of managerial knowledge and operational resources (Eisenhardt & Schoonhoven, 1990). A lack of necessary resources results in uncertainties and risks to the business operations of new ventures (Lin et al., 2014
Research setting and data collection
To test the hypotheses, we collected data from 103 new ventures in China founded between 1993 and 2007 that issued initial public offerings (IPO) while not >8 years old. There is disagreement as to what constitutes a new venture (Reynolds & Miller, 1992). Following previous studies (Atuahene-Gima et al., 2006; Zahra, 1996), we define new ventures as firms eight years old or younger. Specifically, a firm is considered to be a new venture if it is eight years old or less at the time of its IPO.
Descriptive statistics and correlations
The descriptive statistics, correlations between the variables, and values of variance inflation factors (VIFs) are reported in Table 1. The results demonstrate that the average age and size of new ventures in our sample are approximately five years and 20.58 million $RMB dollars, respectively. On average, new ventures spend 1.477 million $RMB dollars for R&D activities and have around seven external directorships or TMTs held by board members. Some 19% of new ventures in our sample focus
Discussion and conclusions
International human mobility has increased significantly in emerging economies compared to well-developed countries (Liu et al., 2010). Returnees play an important role in bringing back new knowledge and technology to local firms, replacing a “brain drain” with “brain circulation” (Saxenina, 2006). Recent studies on returnees have mainly focused on how returnee entrepreneurs influence new venture performance (e.g., Dai & Liu, 2009; Filatotchev et al., 2009; Li et al., 2012; Lin et al., 2014).
Acknowledgements
We are grateful to Dr. Anders Gustafsson, the Editor-in-Chief of the Journal of Business Research and Dr. Domingo Ribeiro Soriano, the Associate Editor of the Journal of Business Research, for their insightful and perceptive editorship. We would also like to thank Dr. Yen-Chun Chen, Dr. Yung-Chang Hsiao, and anonymous reviewers for their valuable comments and suggestions.
Ya-Hui Lin is an Assistant Professor in the Department of International Business, College of Management, Ming Chuan University, Taiwan. She conducts research in the areas of strategic management, entrepreneurship and corporate governance. Her research paper has been published in International Business review, Journal of Business Research, Journal of Business & Industrial Marketing, Management Decision, and Asian Business & Management.
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Ya-Hui Lin is an Assistant Professor in the Department of International Business, College of Management, Ming Chuan University, Taiwan. She conducts research in the areas of strategic management, entrepreneurship and corporate governance. Her research paper has been published in International Business review, Journal of Business Research, Journal of Business & Industrial Marketing, Management Decision, and Asian Business & Management.
Chung-Jen Chen is a Distinguished Professor in the Graduate Institute of Business Administration, National Taiwan University, Taiwan. His research focuses on technology management, strategic management, and innovation management. His research paper has been published in Research Policy, Journal of World Business, International Business review, Journal of Business Research, IEEE Transactions on Engineering Management, and many other journals.
Bou-Wen Lin is a Professor in the Graduate Institute of Business Administration, National Taiwan University, Taiwan. His research interests are in the areas of technology valuation, interfirm collaboration, knowledge management and new-venture management. His research paper has been published in Journal of Product Innovation Management, Research Policy, International Business review, Journal of Business Research, R&D Management, and many other journals.