Capability exploitation and building in a foreign market: Implications for multinational enterprises

This study examines environmental and organizational factors that influence a multinational enterprise's (MNE's) capability exploitation and building in a complex foreign market. Analysis of data from 167 MNE subunits in the People's Republic of China suggests that capability exploitation and capability building are inversely associated with environmental complexity and industrial uncertainty. Business cultural specificity impedes capability exploitation but not capability building. While capability exploitation is associated with the use of wholly owned entry mode, capability building is linked to the joint venture mode. MNEs seeking local market expansion also deploy greater capability exploitation and building than those seeking export market growth. Our analysis further suggests that the threats of environmental hazards on capability building are reduced when the joint venture entry mode is used. An appropriate alignment of capability exploitation or building with its identified determinants is found to be associated with high performance.