Does Institutional Distance Still Matter? Industry Standards and Global Sourcing Location Choices

This paper adds nuance to our understanding of institutional antecedents of foreign investment, in particular in global services sourcing. While prior research has stressed the various risks and effects associated with home-host country differences in national-level institutions, e.g. legal systems, we argue that industry-specific, yet often transnational field institutions, e.g. standards, have become critical factors in driving sourcing location decisions. Using data from the Offshoring Research Network, Kaufmann institutional indicators, and data on ‘capability maturity model integration’ (CMMI) process standard adoption, we show that sourcing location choices are indeed negatively impacted by institutional differences between home and host country, i.e. ‘distance’ still matters, but they are positively impacted by CMMI standard adoption in host countries, and standard adoption negatively moderates the importance of distance. Findings promote a more contextual, multi-level understanding of institutional antecedents of foreign firm location choices, which also has important policy implications in particular for emerging economies.