Institutional Logics and the Internationalization of a State-Owned Enterprise : Evaluation of International Venture Opportunities by Telecom Finland 1987–1998

This is a self-archived version of an original article. This version may differ from the original in pagination and typographic details. Author(s): Title: Year: Version: Copyright: Rights: Rights url: Please cite the original version: CC BY 4.0 https://creativecommons.org/licenses/by/4.0/ Institutional Logics and the Internationalization of a State-Owned Enterprise : Evaluation of International Venture Opportunities by Telecom Finland 1987–1998 © 2020 The Author(s). Published by Elsevier Inc. Published version Cheung, Zeerim; Aalto, Eero; Nevalainen, Pasi Cheung, Z., Aalto, E., & Nevalainen, P. (2020). Institutional Logics and the Internationalization of a State-Owned Enterprise : Evaluation of International Venture Opportunities by Telecom Finland 1987–1998. Journal of World Business, 55(6), Article 101140. https://doi.org/10.1016/j.jwb.2020.101140 2020 Contents lists available at ScienceDirect Journal of World Business journal homepage: www.elsevier.com/locate/jwb Institutional Logics and the Internationalization of a State-Owned Enterprise: Evaluation of International Venture Opportunities by Telecom Finland 1987–1998 Zeerim Cheung a,c, *, Eero Aalto c , Pasi Nevalainen b,c a University of Jyväskylä, Jyväskylä University School of Business and Economics, Jyväskylä, Finland b University of Jyväskylä, Faculty of Humanities and Social Sciences, Department of History and Ethnology, Jyväskylä, Finland c Aalto University, School of Science, Department of Industrial Engineering and Management, Espoo, Finland ARTICLE INFO Keywords: State-owned enterprise (SOE) State-owned multinational company (SOMNC) Institutional logics Historical methods Case study ABSTRACT We contribute to the research on internationalization of state-owned enterprises (SOEs) by studying the coevolution of state governance of SOEs and SOEs’ evaluation of international venture opportunities during a shift in dominant institutional logic from state to market logic. Using a novel digital historical method to study Telecom Finland, we argue that as state governance mechanisms change due to a logic shift, rationales underlying SOEs’ internationalization can significantly change and impact SOEs’ geographical and partner preferences. However, a logic shift also affords SOEs significant influence over the formation of new state governance policies under the new dominant logic. 1. INTRODUCTION The wave of liberalization and large-scale privatization of stateowned enterprises (SOEs) that started in the late 1970s was predicted to end state capitalism in Western Europe (Toninelli, 2000), but instead, new varieties of state capitalism emerged (Cuervo-Cazurra, Inkpen, Musacchio, & Ramaswamy, 2014; Musacchio, Lazzarini, & Aguilera, 2015; Wood & Wright, 2015). Specifically, the number of state-owned multinational companies (SOMNCs) among the largest multinational companies (MNCs) worldwide has grown (UNCTAD, 2017), which has increased interest in studying SOEs in the international context. Although extant research has extended our understanding of how various aspects of the home context (e.g., Clegg, Voss, & Tardios, 2018; Estrin, Meyer, Nielsen, & Nielsen, 2016; Grøgaard, Rygh, & Benito, 2019; Mariotti & Marzano, 2019, 2020) and extent of state control (Cuervo- Cazurra et al., 2014; Kalasin, Cuervo-Cazurra, & Ramamurti, 2020; Tihanyi et al., 2019) influence SOE internationalization, our knowledge regarding how SOEs simultaneously adapt to and influence changes in the home context is limited (Cuervo-Cazurra, 2015; Cuervo-Cazurra, Gaur, & Singh, 2019). In this paper, we adopt the institutional logics perspective and focus on a fully-owned SOE during the transformation of Western European state capitalism during the 1980s to 1990s from state logic, i.e., SOEs as strictly-controlled extensions of the public bureaucracy operating mostly in markets considered natural monopolies, to market logic, i.e., SOEs as for-profit corporations in competitive markets (Megginson & Netter, 2001; Musacchio et al., 2015). Under this framing, we investigate how this societal-level logic shift influenced the rationales underlying SOE internationalization. Due to the interconnected relationship between the state and its SOEs (e.g., Bass & Chakrabarty, 2014; Choudhury & Khanna, 2014; Rodrigues & Dieleman, 2018), we must pay attention to the coevolution of the state governance of SOEs, which we define as the extent of state control and how this control is exercised, and how SOEs internationalize (Cantwell, Dunning, & Lundan, 2010; Cuervo-Cazurra, 2015). Coevolution refers to the multilevel, multidirectional causality, nonlinearity, positive feedback, and path and history dependence properties between the state governance of SOEs and SOE internationalization (Lewin & Volberda, 1999). Thus, we ask the following question: How does a shift in dominant institutional logic from state to market logic affect the coevolution of the state governance of SOEs and SOEs’ evaluation of international venture opportunities? We define institutional logics as supraorganizational historically embedded belief systems that provide rationales for strategic actions, such as internationalization decisions (Friedland & Alford, 1991; Greve & Zhang, 2017; Thornton & Ocasio, 1999, 2008). Extant research posits that state and private control infuse state and market logics into SOEs and that the extent of state control based on factors, such as share ownership, voting rights based on golden shares, or veto rights, signifies https://doi.org/10.1016/j.jwb.2020.101140 Received 31 December 2018; Received in revised form 9 May 2020; Accepted 6 August 2020 ⁎ Corresponding author at: Jyväskylä University School of Business and Economics, University of Jyväskylä, P.O. Box 35, FI-40014, Finland. E-mail address: [email protected] (Z. Cheung). Journal of World Business 55 (2020) 101140 Available online 08 September 2020 1090-9516/ © 2020 The Author(s). Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/). T the balance between the different logics (Bruton, Peng, Ahlstrom, Stan, & Xu, 2015; Cuervo-Cazurra et al., 2014; Mariotti & Marzano, 2019). However, the decisions of a fully-owned SOE that operates in a competitive market are necessarily based on a constellation of logics as the SOE interacts with other market participants, such as suppliers, buyers and competitors, through market mechanisms (Durand & Thornton, 2018; Goodrick & Reay, 2011; Greenwood, Raynard, Kodeih, Micelotta, & Lounsbury, 2011). Thus, to truly understand the balance and dynamics between different institutional logics, we must investigate decision-making within an organization and the rationales used to evaluate participation or nonparticipation in international ventures (Greve & Zhang, 2017). The home context of an SOE is an important determinant of the balance between state and market logics in SOE internationalization due to the historically contingent differences among institutions across countries that result in different policies and abilities to govern SOEs (Mariotti & Marzano, 2019). However, our understanding of the home context and its influence on the rationales underlying SOE internationalization remains static and superficial (Estrin et al., 2016; Grøgaard et al., 2019; Liang, Ren, & Sun, 2015). Additionally, the extant research has neglected the role of SOEs in shaping the institutions that govern them (Cuervo-Cazurra, 2015; Cuervo-Cazurra et al., 2019). In coordinated market economies 1 , such as Finland, SOEs and their international strategies tend to be jointly coordinated among business, labor, and government interests (Mariotti & Marzano, 2019). Thus, SOEs from such a context need to balance state and market logics to fulfill the requirements of various interests, but the context also affords them a significant role in shaping the institutions that govern them. This context is, therefore, suitable for observing the coevolution of the state governance of SOEs and SOEs’ evaluation of international venture opportunities. Hence, we chose to conduct an in-depth historical case study of Telecom Finland (TF), a state-owned telecommunications provider in Finland. Our study is based on more than 54,000 pages of primary sources from 1987 to 1998 and traces the evolution of TF from a government department to a public corporation in 1990 and a fully stateowned limited liability company in 1994. We concluded our study when TF was partially privatized and publicly listed in November 1998; i.e., our case organization was fully state-owned throughout the period of interest. During this period, TF’s institutional environment significantly changed with a shift in dominant logic from state to market logic, which affected the institutional pressures, abilities, and opportunities for internationalization. As institutional logics are historically embedded (Friedland & Alford, 1991; Thornton & Ocasio, 1999, 2008) and the relative strength between state and market logic in SOEs has shifted back and forth (Cuervo-Cazurra et al., 2019), a historical approach allows us to analyze the gradual changes in the state governance policies over TF and TF’s evaluation of international venture opportunities in a wider historical context (Jones & Khanna, 2006). Additionally, a single case study allows us to explore in depth the rationales used in decision-making regarding international venture opportunities (Siggelkow, 2007). Finally, considering a case of a fullyowned SOE, we can attend to changes in the balance of institutional logics beyond an overly simplified notion of state control based on ownership (Bruton et al., 2015; Grosman, Okhmatovskiy, & Wright, 2016; Liang et al., 2015). We make three contributions. First, we contribute to the literature concerning SOEs in the international context through the institutional logics lens by showing how a shift from state to market logic influences the relationship between the state and SOE internationalization (Thornton, 2002; Thornton & Ocasio, 1999). Furthermore, we argue that 1) the dilution of state control is neither required nor sufficient for market logic to overcome state logic; rather, there must be changes in the rationales guiding strategic decision-making (Greve & Zhang, 2017) and 2) a shift in dominant logic affords SOEs influence over how they are governed by the state (Cuervo-Cazurra, 2015; Cuervo-Cazurra et al., 2019). Second, we contribute to the SOMNC literature by showing that although SOMNCs can internationalize to the same extent or even more than their privately-owned counterparts (Estrin et al., 2016), different rationales underlie their internationalization, and these rationales might significantly change during long internationalization processes (Grøgaard et al., 2019), influencing geographical and partner preferences. Finally, we answer multiple calls in the international business (IB) literature for more historical research that can uncover contextually embedded relationships in internationalization (Buckley, 2016; Burgelman, 2011; da Silva Lopes, Casson, & Jones, 2019; Jones & Khanna, 2006; Verbeke & Kano, 2015), which can help shed light on the contemporary phenomenon of de-globalization when political objectives might become dominant again (Cuervo-Cazurra et al., 2019; Witt, 2019). 2. THEORETICAL BACKGROUND 2.1. Role of SOEs in the Transition from Old to New State Capitalism The market-led multinationalization of SOEs has been considered to contradict the old state capitalism logic (e.g., Anastassopoulos, Blanc, & Dussauge, 1987; Vernon, 1979). In the old state capitalism logic, SOEs were created to address social and political goals or market failures in the home market, such as in the case of public goods, positive or negative externalities, and natural monopolies (e.g., Cuervo-Cazurra et al., 2014; Megginson & Netter, 2001; Millward, 2011; Musacchio et al., 2015; Toninelli, 2000). As such, SOEs’ performance cannot be evaluated solely based on financial metrics and compared to their mainly profit-seeking privately-owned counterparts (Aharoni, 2000; Millward, 2011). The ever-changing goals of SOEs are diverse and intangible, including sustaining employment, supporting remote regions, and keeping prices low, often decreasing economic performance (Vernon, 1979). SOEs also face major principal-agent challenges due to the delegation of the monitoring of SOEs by society to politicians, who can use SOEs for political gain and extract financial rents for personal benefit (Inoue, Lazzarini, & Musacchio, 2013). In many OECD countries, especially in Western Europe, prior to the 1980s, this agency problem was addressed with the following two basic doctrines: separation of the public and private sectors and procedural rules limiting the discretion of public officials and SOE managers, especially over staff, contracts, and money (Dunleavy & Hood, 1994; Hood, 1995). Since the late 1970s, the international diffusion of neoliberal policies advocating for less government intervention and the introduction of market mechanisms to the public sector resulted in broad reform of public sector bodies commonly termed new public management (Lee & Strang, 2006). This process reversed the former doctrines with the removal of the separation between the public and private sectors and shift from procedural rules to management-by-re- sults (Hood, 1995), which influenced the laws, institutions, practices, and regulations governing SOEs (Megginson & Netter, 2001) and shifted public service providers toward private governance modes (Grosman et al., 2016). This process resulted in new varieties of state capitalism in which SOEs of various ownership levels began to operate in international and competitive markets (Cuervo-Cazurra et al., 2014; Musacchio et al., 2015). 2.2. Institutional Logics in the SOE Context We frame the transformation from old to new state capitalism and the introduction of market mechanisms to the governance of SOEs as a gradual shift in dominant logic from state to market logic. As such, this 1 See literature concerning varieties of capitalism for a list of countries categorized as coordinated market economies and a broader typology (e.g., Fainshmidt, Judge, Aguilera, & Smith, 2018; Hall & Soskice, 2001). Z. Cheung, et al. Journal of World Business 55 (2020) 101140 2 study continues a stream of historically embedded institutional logics studies that investigate the increasing prevalence of market logic in different contexts, such as the higher education publishing industry (Thornton & Ocasio, 1999), finance (Lounsbury, 2002), M&As of Chinese firms (Greve & Zhang, 2017), the internationalization of Chinese SOEs (Tang, 2019), and public administration (Meyer & Hammerschmid, 2006; Townley, 2002). Under state logic, the legitimacy of SOEs stems from fulfilling social and political objectives set by the government (Rodrigues & Dieleman, 2018; Thomann, Lieberherr, & Ingold, 2016), and resources are channeled through the state accordingly (Greve & Zhang, 2017). Under market logic, the legitimacy of SOEs stems from their financial performance and relative market position, which guide managerial attention to growth, shareholder value maximization, and the acquisition of resources and capabilities (Greve & Zhang, 2017; Newenham-Kahindi & Stevens, 2018; Rodrigues & Dieleman, 2018; Thomann et al., 2016; Thornton, 2002; Thornton & Ocasio, 1999). In the international context, management practices tend to be aligned with global standards, and the time horizon of investments tends to be shorter (Newenham- Kahindi & Stevens, 2018). The institutional logics perspective evolved from the neoinstitutional perspective’s strong emphasis on isomorphism and conformity to institutional expectations, leaving limited room for theorizing heterogeneity across institutional contexts (Aguilera & Grøgaard, 2019). In contrast, the logics perspective views society as an inter-institutional system of societal sectors, such as the market, state, democracy, family, and religion, and each sector has its own logic providing rationales for strategic action (Friedland & Alford, 1991; Greve & Zhang, 2017; Thornton & Ocasio, 2008). The logics perspective takes a multilevel view of how societal logics influence the behavior of organizations and individuals (Friedland & Alford, 1991; Thornton & Ocasio, 2008), such as how changes in the balance of societal-level logics impact intra-organizational decisionmaking through changes at the international and national levels (in our case the European environment, the socio-political environment of Finland, and the Finnish telecommunications market). Thus, institutional logics are locally instantiated and enacted within the historical context, allowing heterogeneity in behavior across institutional contexts (Besharov & Smith, 2014; Thornton & Ocasio, 2008), which is central to IB research employing institutional perspectives (Aguilera & Grøgaard, 2019; Hotho & Pedersen, 2012). For example, Greve and Zhang (2017) and Tang (2019) focus on the logic shift from state socialism to market capitalism in the Chinese context since the 1980s, which is similar to the shift in the balance of societal sectors in our case, but due to the different contexts, the emerging logics and their enactment by actors differ. In comparison, variation in institutional arrangements consistent with different national contexts has been the core of IB research employing institutional economics (e.g., Cantwell et al., 2010) and comparative capitalism perspectives (e.g., Jackson & Deeg, 2008; Witt & Jackson, 2016). 2.3. Internationalization of SOEs State ownership has been found to be both a constraining and an enabling factor of firm internationalization (Estrin et al., 2016). On the one hand, SOMNCs face stronger institutional pressure in host countries, e.g., by raising national security concerns, and adapt by taking lower equity stakes to enhance their external legitimacy (Meyer, Ding, Li, & Zhang, 2014). SOMNCs also face stronger institutional pressure from the home country due to dependence on the government for resources (Choudhury & Khanna, 2014; Cui & Jiang, 2012). Internationalization can be a way for SOEs to gain resource independence from the state, which, in turn, could trigger the state to tighten its control over SOEs (Rodrigues & Dieleman, 2018). On the other hand, a strong diplomatic relationship between the home and host governments can mitigate political risks in the host country (Duanmu, 2012, 2014; García-Canal & Guillén, 2008), enhance external legitimacy and alleviate the liability of foreignness (Li, Meyer, Zhang, & Ding, 2018). States can also drive SOEs to internationalize (Liang et al., 2015) and use SOEs to extract resources for exploration (Bass & Chakrabarty, 2014), especially autocratic states (Clegg et al., 2018). Overall, SOMNCs might be able to benefit from internationalization more than privately-owned firms due to the specific assets available to SOEs, especially in the case of former state monopolies, such as our case (Benito, Rygh, & Lunnan, 2016). SOMNCs can pursue internationalization to the same extent as their privately-owned counterparts (Estrin et al., 2016). However, recent studies concerning the relationship between state ownership and internationalization provide mixed results. For example, one study proposes that SOEs fully or majority owned by the state are more inclined to internationalize (Cuervo-Cazurra et al., 2014), whereas another recent study found that firms with a medium level of state ownership internationalize the most (Kalasin et al., 2020). In contrast, Tihanyi et al. (2019) found that the extent of state ownership decreases while SOEs’ political connections increase SOE internationalization. Thus, the mechanisms underlying the internationalization of SOEs remain unclear (Liang et al., 2015). Variations in the type and level of state control create different types of institutional pressures for internationalization (Wang, Hong, Kafouros, & Wright, 2012), and governance reforms can impact why and how SOEs internationalize (Liang et al., 2015). As states decrease their influence over SOEs, social and political objectives for internationalization decrease, and the focus shifts to financial performance (Cuervo-Cazurra et al., 2014). While most studies associate state ownership stake and executive political connections with state control over SOEs, states and SOEs can also adopt corporate governance structures to limit state involvement (Grosman et al., 2016), such as in our case. 3. METHODOLOGY As our aim is to elaborate upon existing theory concerning how a shift in dominant institutional logic impacts SOE internationalization through changes in decision-making rationales, we conducted an abductive historical case study (Ketokivi & Choi, 2014; Mantere & Ketokivi, 2013; Rowlinson, Hassard, & Decker, 2014). First, our abductive approach is particularly suitable for confronting extant theory as we pay attention to contextual particularities and empirical tendencies while theoretically interpreting and refining our theoretical understanding (Ketokivi & Choi, 2014; Mantere & Ketokivi, 2013; Welch, Piekkari, Plakoyiannaki, & Paavilainen-Mäntymäki, 2011). Second, single case studies enable in-depth inquiry into a phenomenon, which can be used to provide a “conceptual contribution” by elaborating upon constructs and their underlying relational mechanism over time (Siggelkow, 2007). Furthermore, our case is unusually revelatory, and we have unique research access to archival sources, enabling an indepth understanding of decision-making rationales (Eisenhardt & Graebner, 2007). Finally, we use a historical approach to reveal temporal variance, path dependency, and the effect of context and contingencies over time (Buckley, 2016; Jones & Khanna, 2006; Vaara & Lamberg, 2016) and, thus, answer Burgelman's (2011) call for research utilizing historical longitudinal qualitative studies that establish a link between narrative and the reductionist approach in qualitative IB research. 3.1. Research Setting Some of the largest MNCs worldwide emerged from previously state-owned telecommunications monopolies (Clifton, Díaz-Fuentes, & Revuelta, 2010). Since the 1980s, the telecommunications market has undergone major regulatory, organizational and technological transformation globally, including deregulation, the privatization of former national monopolies, and the emergence of new mobile and digital technology (Graack, 1996). As a result, competition combined with new Z. Cheung, et al. Journal of World Business 55 (2020) 101140 3 types of consumer services led to rapid market growth in the 1990s (ITU, 2002, p. 19), and the telecommunications market structure changed from detached national markets controlled by a single stateowned monopoly to a global market of MNCs. In Europe, the changes in the telecommunications market structure were closely linked to the economic integration process, and a main element was the agreement to open the market to competition in the European Union by 1998 (e.g., Clifton et al., 2010; Thatcher, 2001). In Finland, the liberalization process started in 1987, and in the early 1990s, the Finnish telecommunications market was found to be among the most competitive markets in Europe (e.g., Graack & Elixman, 1999). Competition for mobile subscriptions began as early as 1991, and all major product groups were liberalized by 1994; subsequently, the government promoted competition within the existing networks. For example, after August 1996, network operators were required to open their connections to “virtual operators” who did not build their own infrastructure but leased it from network operators to sell consumer services. The unique market structure in Finland, consisting of state-owned TF and a group of private telephone companies operating local telephone monopolies in the most lucrative urban regions, contributed to the quick emergence of a competitive market (Graack & Elixman, 1999). In Finland, private telephone companies formed a loose interfirm structure that challenged TF in the domestic market. However, these companies were unable to concentrate their resources on internationalization until the second half of the 1990s (Nevalainen, 2018). In comparison, in Sweden, challenger Comviq (later part of TELE2) competed intensively with Televerket (the Swedish telecom monopoly) to gain access to the telecommunications market and gradually gained market share but at a slower pace than the challengers in Finland (Eriksson et al., 2019; Geissinger, Laurell, Sandström, Eriksson, & Nykvist, 2019). In Europe, including Finland and Sweden, internationalization in the telecommunications sector was led by stateowned incumbents, while new entrants focused on their respective domestic markets until the mid-1990s (Alonso, Clifton, Díaz-Fuentes, Fernández-Gutiérrez, & Revuelta, 2013). Early exposure to liberalization has often been thought to have benefited incumbent operators by giving them an advantage over others in the internationalization process (Sarkar, Cavusgil, & Aulakh, 1999). However, incumbent telecommunications monopolies from countries that were slower to liberalize could leverage their monopoly rents and political connections in their internationalization efforts (Clifton, Comín, & Díaz-Fuentes, 2011). In some cases, liberalization did not result in real competition as former monopolies could block smaller entrants (Waverman & Sirel, 1997). In our case, the gradual liberalization process that started early combined with established potential local competitors encouraged TF to proactively develop its organization (Nevalainen, 2017) and seek new markets to replace the lost monopoly profits. Coincidentally, neighboring markets opened up opportunities. The collapse of the Soviet Union in the early 1990s created a vacuum in Eastern Europe that offered business opportunities for internationalizing telecoms (Martin, 2002). For TF, the area was especially important in the beginning of its internationalization process as the Soviet Union was Finland’s largest trading partner with up to 20 percent share of exports in the 1980s (Gorodnichenko, Mendoza, & Tesar, 2012), and expectations of economic growth in the region were high. TF established operations in Estonia and Northwest Russia even before the Soviet Union formally ceased to exist as the Soviet government encouraged the establishment of joint ventures with Western companies, especially in the telecommunications sector (Borg & Emmert, 1989). Subsequently, TF expanded beyond Eastern Europe to several markets, such as Turkey, Hong Kong, and Germany. The change in dominant logic influenced the choice of geographical markets and partners, but the entry mode remained largely unchanged. 3.2. Data Collection This study is based on extensive archival data. We obtained full access to TF archival material from 1981–1998 in the National Archives of Finland and Telia Finland (previously TeliaSonera Finland, Sonera, TF, and PTL Tele), a Finnish subsidiary of Telia Company. This archival material mainly consisted of board minutes, management minutes, strategy documents, correspondence, and regulatory documents; this material along with annual reports and internal magazines from several libraries formed the basis of our data (Table 1). All archival material was originally in paper format, and we digitized such material over a period of two years. We employed an iterative approach through which sources led to new sources, and we collected an extensive archival set consisting of over 54,000 pages from 95 archive folders. With the help of four research assistants, all original sources were first photographed and then digitized into machine readable documents using optical character recognition software. Then, with the help of research assistants, we added the documents to our relational database (cf. Murmann, 2010) and coded the documents with relational data regarding individuals, organizations, times, and international ventures. Through this digital history method, we were able to examine TF’s evaluation of international venture opportunities from its first international venture in 1987 to when TF was publicly listed and partially privatized in 1998. This approach allowed us to gain a new understanding of the contextual embeddedness and historically contingent nature of the internationalization process (Vaara & Lamberg, 2016). 3.3. Analytical Process We conducted our analysis in three distinct phases by combining process study methods (Langley, 1999) and a digital history approach exposing primary archival sources to constant source criticism and triangulation (Buckley, 2016; Kipping, Wadhwani, & Bucheli, 2014). During each phase of our analysis, we ensured the credibility of our Table 1 List of archival sources. Archive Digitized sources Time period Quantity National archive and Telia Finland archive Top management team meeting minutes and attachments of TF 1981-1998 36 archive folders, 764 minutes, 21000+ pages Library of the Parliament Annual reports of TF 1983-2002 20 reports FINLEX, EDILEX and Library of the Parliament Various governmental and regulatory documents 1981-1998 100+ documents National archive and Telia Finland archive Various lower management team minutes and attachments of TF 1982-1989, 1994- 1998 5 archival folders, 3000+ pages Telia Finland archive Board meeting minutes and attachments 1994-1998 12 archival folders, 6000+ pages National library Internal magazine of TF 1980-1997 284 issues National archive TF reform documentation 1981-1993 19 archive folders, 11000+ pages National archive State’s public corporation committee archive 1983-1985 9 archive folders, 5000+ pages National archive Correspondence between TF and the Ministry 1984-1993 113 documents National archive TELE. TF's customer magazine 1988-1992 30 issues Z. Cheung, et al. Journal of World Business 55 (2020) 101140 4 findings with the following steps. First, we documented our entire analysis process within our relational database. With this audit trail, we are able to trace our findings back to the original archival sources. Second, we searched all documents in our database with several keywords for each venture to ensure that we identified all types of relevant sources. We linked all relevant archival sources to each venture and subsequently coded all identified decision-making rationales for each source. This approach enabled us to triangulate our codes across different source types created for different audiences and purposes (Kipping et al., 2014). Third, to ensure intercoder reliability in this interpretive process, all authors cross-checked the venture decisionmaking rationales for each venture. In our theorizing, we gradually progressed to a higher level of abstraction while iterating our emerging findings along with archival sources and contrasted this abstraction to the extant general theoretical understanding. Our theorizing process closely followed what is commonly known as abductive reasoning (Dubois & Gadde, 2002; Mantere & Ketokivi, 2013). Abductive case studies are typically used to investigate, elaborate and refine existing theoretical frameworks based on novel empirical insights and particularities (Ketokivi & Choi, 2014; Mantere & Ketokivi, 2013). During this process, we allowed simultaneous iteration between extant theory and our empirical context (Dubois & Gadde, 2002) by seeking multiple competing theoretical interpretations for the empirically-identified tendencies (Mantere & Ketokivi, 2013). This approach enabled us to gradually build upon extant theory in a way that reconciles our empirical insights with the contextual particularities stemming from our in-depth inquiry of decision-making rationales (Ketokivi & Choi, 2014). Next, we describe the three phases of our analysis leading to our theoretical model in greater detail. During the first phase, we focused on 764 top management team meeting minutes. We separated each management team meeting minute issue between 1981 and 1998 using the relational database and inductively coded each meeting issue related to internationalization. During this process, of 3,097 issues in the database, 357 meeting minute issues broadly related to the international activities of the case organization were identified. Then, we interpreted each identified management team meeting issue and its relevant attachments and coded the issues with empirical codes, such as international cooperation, joint venture, venture capital, foreign currency loan, and international traffic. At this point, the prominent role of international ventures emerged from the data. We chose to focus on the 199 minute issues related to international ventures with the first venture appearing in 1987. This approach resulted in 69 identified ventures, including ventures that went into operation, those in which TF refused to participate and those for which TF lost the license bid and were consequently shut down. We elaborated upon these initial empirical findings based on the extant understanding of how SOEs internationalize. We noticed that TF’s internationalization substantially changed during our period of interest, even though the state ownership stake remained the same. This initial insight led us to focus more closely on the rationales used in decisionmaking with regard to international venture opportunities. During the second phase, we coded each venture in the database separately and searched all documents in the database using particular venture keywords. All identified archival sources related to a particular venture were coded in relation to the venture. This approach enabled us to triangulate between various source types created for different purposes and audiences (Kipping et al., 2014), such as management team meeting minutes and their attachments, annual reports, draft decisions, venture business plans, venture contracts, strategy documents, board minutes, correspondence, and internal magazines. On average, there were 10 sources per venture, with a median of 7.5 sources, a maximum of 39 sources, and a minimum of 1 source. Then, we interpreted all archival sources related to each venture and gradually formed an understanding of the decision-making rationales underlying the establishment of each venture and the development of the ventures. Furthermore, the rationales for participating in a particular venture were linked to each source and venture. Through this analysis, we identified the first-order rationales used to evaluate the ventures and grouped the rationales in second-order themes (Fig. 1). Gradually, a pattern emerged from the data showing that there was a shift in the rationales used to evaluate international venture opportunities. Then, we aggregated the changes in rationales into the following two dimensions: national and multinational rationales. In contrast to the extant understanding of SOE internationalization, which emphasized the state ownership stake and executive political connections, we noticed the importance of shifting state governance mechanisms influencing the decision-making rationales with regard to venture opportunities and how TF’s decision-making rationales gradually coevolved with the changing state governance mechanisms. This discovery led us to investigate the coevolving relationship between these two aspects in-depth and focus on contextual elements that could explain this phenomenon. Thus, during the final phase of the analysis, we conducted temporal and cross-case comparisons of all ventures. We separated each venture by the business type, entry mode, geographical location, entry and exit rationales, and partners and drew timelines to temporally bracket the ventures and decisions in relation to the contextual development. This approach enabled us to form a list of the rationales and partner and market preferences in each venture across the period of interest. Then, we engaged in case narrative writing to produce the contextually Fig. 1. Coding structure of rationales used to evaluate international venture opportunities. Z. Cheung, et al. Journal of World Business 55 (2020) 101140 5 embedded internationalization process of TF, including TF’s international venture opportunities in relation to the development of the governance of TF, the Finnish telecommunications market, the Finnish socio-political environment, and the European environment. Finally, we progressed to our final theoretical model in which the key concepts were rooted in the data but constructed theoretically (Alvesson & Kärreman, 2007; Mantere & Ketokivi, 2013) by positioning our conceptual findings and results based on the extant theoretical understanding of institutional logics in the SOE internationalization context. We compared our conceptual findings via a cross-case comparison and contextually embedded case narrative. This approach enabled us to identify the initial coevolution mechanism between the state governance of SOEs and TF’s rationales used to evaluate international venture opportunities. We noticed that the change in the evaluation of international venture opportunities coevolved with the partner and geographical market preferences. Furthermore, the logic guiding TF decision-making coevolved with the logic guiding state governance of SOEs. After several rounds of iterations between our findings and data, and positioning our concepts and results against multiple theoretical interpretations, we noticed that the evolving relationship between the state governance of SOEs and TF’s decision-making rationales were related to the gradual shift in dominant institutional logic from state to market logic. 4. FINDINGS First, we present our findings regarding how the shift in the dominant institutional logic from state to market logic in the telecommunications market changed the relationship between the state and TF. Second, we show the change in rationales used to evaluate international venture opportunities in detail. Third, we show how the changing rationales impacted existing markets and the choice of new geographical markets. Fourth, we show how changing rationales impacted existing partner relationships and the choice of new partners. 4.1. Shift in Institutional Logics in the Telecommunications Market The shift in the dominant institutional logic from state to market logic influenced the telecommunications market at an international market, state, and organizational levels (Table 2). Fig. 2 summarizes the key processes that created international opportunities and that pressured and enabled TF to internationalize. The market structure changed both internationally (Clifton et al., 2011; Sarkar et al., 1999; Thatcher, 2004) and in Finland (Nevalainen, 2017; Turpeinen, 1996) by moving from local monopolies to competition between public and private actors that are regulated similarly (e.g., through equal telecommunications licensing conditions). Especially in Finland, where the market was divided between TF and local telecommunications providers, the threat of both local and international competition was imminent (Fig. 2: 1). Private telecommunications providers established strong positions in urban areas and were equipped with the resources to penetrate TF’s profitable monopoly market areas, such as their mobile and long-dis- tance telecommunications businesses. Internationally, due to the relatively small size of the dispersed Finnish market, the top management of TF considered the Finnish market easy to penetrate for large foreign telecoms. Specifically, in the late 1980s, the Finnish government was already committed to the European Community’s plan to create a common telecommunications market (Fig. 2: 2a, 2b, 3a, and 3b). Furthermore, given the severe recession in Finland in the early 1990s due to the banking crisis reinforced by the collapse of the Soviet Union, TF had to search abroad for opportunities (Fig. 2: 4a and 4b). During the same period, the Finnish government encouraged TF to help modernize the underdeveloped telecommunications infrastructure in Russia and the Baltics as it was politically important to support Finnish trade to the East and form ties between the East and the West after the collapse of socialism in 1989 (Fig. 2: 5 and 6). Subsequently, liberalization at the European Union level opened up opportunities in the Western European market (Fig. 2: 7) and exposed the Finnish market to international competition (Fig. 2: 8a and 8b). In turn, internationalization drove the top management of TF to become proactive in developing its organization, which required governance reforms that would give TF more independence from the state. American, Japanese and European telecoms are investing billions in Eastern European networks, the Baltic states, Russia and the former Soviet Union. The danger is that when the domestic telecom companies focus on competing with each other, one or more strong Table 2 Two ideal types of telecommunications markets and state-owned telecommunications operators. State logic Market logic Implications to TF’s internationalization Market structure National monopoly under direct government control Competition between multiple actors under equal licensing conditions Increase in domestic competitive pressure, threat of strong international telecoms entering the Finnish/domestic market, and emergence of internationalization opportunities State governance of SOE Bureaucratic governance based on laws, rules, and directives with strict resource control Contractual governance based on objectives, results, and performance Need to seek growth internationally to replace lost domestic market share; TF pushed for more flexibility in decision-making in international activities Supervision of SOE’s management Direct state supervision by ministries and the parliament By a professional board of directors Change to a supervisory body that emphasizes growth and financial performance, which encouraged internationalization SOE’s mission Serving the public interest Serving shareholder interest Focus shift to search for growth opportunities internationally as the domestic market continues to be burdened by public service obligations SOE’s organizational form State agency with budget linked to government financing Limited liability company with an independent budget Increased managerial discretion over international investments, indicating more flexibility in decision-making processes, and the use of financial resources increased TF’s credibility as a partner in international ventures SOE management Politically appointed managers with public accountability Professional managers with profit and loss responsibility Managerial resources for international operations and increased prevalence of managerial tools used to support decision-making SOE basis for international strategy Social and political national interests Growth and value creation Changes in geographical market and partner preferences in internationalization Note: This table was developed based on our empirical findings along with the existing literature concerning the broader reform of public sector bodies in Western Europe (Dunleavy & Hood, 1994; Hood, 1995; Megginson & Netter, 2001; Meyer & Hammerschmid, 2006; Thomann et al., 2016) and the liberalization of the telecommunications market globally (e.g., Clifton et al., 2010; Graack, 1996; Graack & Elixman, 1999; Sarkar et al., 1999; Thatcher, 2001, 2004) and in Finland (Nevalainen, 2017, 2018; Turpeinen, 1996). Z. Cheung, et al. Journal of World Business 55 (2020) 101140 6 foreign telecom(s) that have landed in neighboring areas might take the lion’s share of the Finnish market as well. (…) [However, if] Finland had an internationally strong telecommunications company, Finland could benefit from new market opportunities. - Memo on TF’s business in the 1990s, 1992 However, before 1990, TF was a government agency under bureaucratic resource control by ministries and the Finnish Parliament, which hampered TF’s responses to changes in the environment. For example, the budget of TF heavily depended on government financing and, thus, experienced constant resource scarcity that rendered longterm investments challenging, and each international investment required government approval regardless of its size. The state also imposed public service obligations on TF, such as providing telecommunications infrastructure to rural areas and employment quotas, which required cross subsidization between profitable business areas and public service obligations to meet the state mandated budget. Human resource management was under especially strict control as civil service employment limited hiring and government steering was at the level of individual employees. As a result, there was a resource mismatch with excess resources in rural areas, staff with lower educational levels and the lack of resources needed for international operations. Under the current organizational model of Post and Telecom, operations and finances are organized like those of a state agency. This does not give enough room for the quick and effective decisionmaking needed for business. - Post and Telecom Act Working Group Report, 1987 The bureaucratic resource control faced increasing pressure from two types of actors as market liberalism became more prevalent in the political environment and was influenced by the examples of the US, UK, and Sweden, which were important points of comparison for Finnish policy makers and industries. First, policy makers, especially government officials and the newly elected pro-liberalization government in 1987, actively promoted the reorganization of public sector bodies (Fig. 2: 2b and 3b). Second, the politically appointed incumbent management, which was increasingly influenced by the market logic promoted by external advisors, such as management consultants, investment bankers, and business schools, engaged in significant political activity to gain decision-making independence from the state (Fig. 2: 9). This process resulted in a gradual shift from strict resource control by the state to management-by-results. The process was punctuated by the following two milestones: “public corporation reform” in 1990, which separated TF’s budget from the government budget, and incorporation in 1994, which rendered TF a fully state-owned limited liability company. The public corporation reform, which transformed TF to a business and government agency hybrid organization, provided the top management of TF significant flexibility to compete in the domestic market and to some extent in the international market (Fig. 2: 10). However, debt financing and subsidiary management, which were critical for international operations, still required time-consuming political approvals. Thus, by 1991, the top management of TF started to prepare and lobby for incorporation with the hope of obtaining an equal status to its privately-owned competitors (Fig. 2: 11). The shift to management-by-results signified that instead of strict resource control, the state set targets for TF, such as profit and repatriation (i.e., the amount needed to be paid to the state) targets. This shift in how the state enforced control over TF impacted all aspects of the organization with three major implications that enabled TF to shift towards market logic. First, the top management of TF gained the right to nominate managers, and consequently, professional managers were favored over managers with political backgrounds. Second, TF gained discretion over internationalization decisions, and in 1991, the management of international ventures was centralized to a unit in Belgium operated by Finnish and foreign professional managers. Third, direct reporting to policy makers was changed to direct reporting to a professional board with directors mostly from the private sector who emphasized shareholder value over public service goals (Fig. 2: 12). In summary, the international diffusion of neoliberal policies reflecting market logic created international opportunities and drove the Finnish socio-political environment and government to adopt promarket reforms. This shift resulted in an increasingly competitive telecommunications market in Finland, which pressured TF to seek international opportunities, and changed how the state governed its SOEs, which enabled TF to internationalize. The state and TF coevolved and mutually reinforced the dominance of market logic over state logic. The government pressured TF to internationalize for political reasons, and TF pressured the state to implement reforms that could enable TF to compete internationally. Fig. 2. Timeline of the key processes influencing TF’s internationalization. Z. Cheung, et al. Journal of World Business 55 (2020) 101140 7 4.2. From National to Multinational Rationales We found that as the dominant institutional logic shifted from state logic to market logic, the strategic rationales used by TF in evaluating international venture opportunities shifted from national to multinational rationales. National rationales refer to evaluation criteria rooted in the home country ranging from wider social and political objectives to considering how an international venture could benefit the home market in Finland. Therefore, national rationales are closely related to the state logic, which implies public services and resources channeled through state control with an emphasis on political and social objectives (Greve & Zhang, 2017; Thomann et al., 2016) in the international context. We identified three types of national rationales: defensive, home industry, and national champion rationales (Table 3). Multinational rationales refer to evaluation criteria emphasizing individual ventures’ ability to create financial value and develop capabilities for the organization overall instead of benefitting the home market. These rationales are closely associated with the market logic, which implies managerial attention to growth, financial performance, and maximizing shareholder value in the international context (Greve & Zhang, 2017; Newenham-Kahindi & Stevens, 2018; Thomann et al., 2016; Thornton, 2002; Thornton & Ocasio, 1999). We identified two types of multinational rationales: growth and portfolio strategy (Table 3). Additionally, baseline financial rationales, such as profitability, were present to varying degrees throughout the focal period, i.e., ventures have to be profitable even if they have strong defensive rationales supporting state logic or growth rationales supporting market logic. The activities by the Swedes [Televerket] and the Finns [TF] in Estonia Telephone are not development aid. […] It is not the American way of expecting payback in six months either but maybe in ten years. - Interview with Estonia Telephone’s CEO in TF’s internal magazine ‘Tietolinja’ 15/1993 The shift in rationales was gradual and punctuated by the two previously discussed changes in formal governance and organizational form, i.e., the public corporation reform in 1990 and incorporation in 1994. The increasing influence of market logic on TF’s top management was gradual as they adopted business-like management practices, such as various strategic and scenario planning systems, and implemented organizational changes, such as the matrix organization and profit centers, within the limits of the existing mode of state governance of SOEs and organizational form. Additionally, TF’s top management sought governance and organizational form reforms that would grant them more independence from the state to implement strategies that were increasingly aligned with the market logic. The public corporation reform enabled TF to pursue internationalization primarily based on national rationales as the state still had significant control over resource allocation to international ventures. However, experience from early international ventures showed that for TF to attract international venture opportunities, it had to be a credible partner to market-oriented international players, which revealed to the top management that public corporation reform was not sufficient in the changing market environment. The top management moved towards multinational rationales in internationalization and actively pressured for incorporation. Finally, incorporation allowed TF to pursue internationalization based on multinational rationales. Before 1994, TF clearly emphasized national rationales when evaluating international venture opportunities. First, the strategic rationales underlying internationalization were defensive in nature, i.e., internationalization was considered a way to prevent foreign companies from penetrating the Finnish market by catering to all telecommunications service needs of Finnish companies. TF’s first and short-lived international venture, i.e., Scantel, was initiated in 1987 by TF’s Swedish counterpart Televerket. Participation in Scantel was justified by the competitive threat posed by market liberalization and technological development in the telecommunications industry in Europe. Changes in the international environment—increasing competition, changing regulations, and technological development—have led to a situation, where traditional telecoms are in danger of ending up in an unfavorable position if we don't start actively competing for new markets. - Memo on joining a common Nordic telecommunications venture Scantel, 1987 Other examples of the use of defensive rationales include several mobile telephone ventures initiated between 1990 and 1992: EMT in Estonia, LMT in Latvia, BMTS in Poland, and North-West GSM in the northwest region of Russia. TF’s consortium lost the BMTS bid, but EMT Table 3 National and multinational rationale types and example quotes. National rationales Defensive rationales "Maintaining Finland's and especially TF's national and international post and telecom service level and selection at the level of other leading industrialized countries can be considered a general strategic goal of TF." - Memo on Post and Telecom Finland's strategies for international activities, 1989 "TF's goal is to get telecommunications licenses in other regions outside Finland. This is due to the collapse of monopolies and the resulting increased competition both in Finland and abroad." - Annex to management team meeting, Estonian mobile telephone venture, 1991 National champion rationales "As there are increasing amounts of information and goods moving between the East and West, Finland has to make sure that it positions itself as a broker. Our activities and range of services have to be adapted to this development to maintain the Finnish industry's export ability." - Memo on Post and Telecom Finland's strategies for international activities, 1989 "The project in Latvia open ups new export opportunities to the Finnish Industry." - Internal magazine ‘Tietolinja’ 2/1994 Home market rationales “The mobile network project in Poland also promotes TF’s efforts to make the neighboring areas’ telecommunications network as similar as possible as in Finland, thereby indirectly supporting TF’s business in the home market.” - Memo on the mobile network offer in Poland, 1991 "a) Overseas activities must be limited to businesses that TF already provides successfully. b) Overseas activities must support TF's businesses in Finland, such as by increasing the sales volume, margin, or quality." - The organization of TF's overseas business, 1991 Multinational rationales Growth rationales "Rationales: We require a 17 percent return on investment from the project. Additionally, the project offers an opportunity to enter the fast-growing mobile telephone market in the Czech Republic." - CEO's draft decision for the Board: LevTel consortium bid for a Czech GSM license, 1996 "The market is growing at a very fast pace, and experience from NWGSM in St. Petersburg shows that difficulties stemming from an imperfect legal environment can be overcome." - Memo on Russia GSM-1800 Moscow, St. Petersburg, 1998 Portfolio strategy rationales "The company will be a representative of TF and search for new business opportunities in Southeast Asia, especially China." - Decision draft for the Board: Establishing a subsidiary in Hong Kong, 1995 "This case fits Tele’s strategy and makes it possible to strengthen our position in Sweden and enhance cooperation with Tele Danmark and Telenor." - Memo on InformationsMäklarna i Sverige AB, 1997 Z. Cheung, et al. Journal of World Business 55 (2020) 101140 8 Bruton, G. D., Peng, M. W., Ahlstrom, D., Stan, C., & Xu, K. 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