Subsidiary Divestment: The Role of Multinational Flexibility

We take the multinational flexibility perspective and examine the conditions under which multinational corporations’ (MNCs’) foreign manufacturing subsidiaries in labor-intensive industries are not divested from their host country markets under the influence of their host country’s rising labor costs. We examine in this paper the effects of intra-firm product shifts within the same MNC network on foreign subsidiary divestment. We utilize a panel of data of Korean MNCs’ foreign subsidiaries in labor intensive industries and employ a Cox proportional hazard rate model as an event history analysis methodology on STATA 10. We find that intra-firm product shifts within the same MNC network reduce the probability of subsidiaries exposed to rising labor costs in their host countries being divested earlier. We also find that greater cross-country labor cost differentials and more country options in the same MNC network are helpful in facilitating intra-firm product shifts and lowering divestiture rates of the subsidiaries. Contrastingly, we find from control variables that weaker performing, smaller, and stand-alone subsidiaries, in riskier countries, facing currency appreciation, and increasing labor costs are more likely to divest. We conclude from our findings that MNCs are able to enhance multinational flexibility by using intra-firm trade connections among affiliated firms in flexible responses to cross-border cost and value differentials.     

The Effect of Corporate Political Activity on MNC Subsidiary Legitimacy: An Institutional Perspective

MNC subsidiaries engage in a variety of corporate political activities to gain legitimacy in the host country. Based on institutional theory, our study examines five types of strategies that MNC subsidiaries pursue to gain legitimacy in foreign markets. Using data from Australian subsidiaries of MNCs operating in different industries, and whose parents originate from 28 different countries, we find that mimetic isomorphism strategy has the strongest effect whereas information strategy has no effect on subsidiary legitimacy. The other three strategies, namely, financial, constituency building and relational have strong to moderate effects on subsidiary legitimacy. In addition, we show that multiple CPA strategies are essential and work together synergistically to contribute to the legitimacy of MNC subsidiaries. Our paper provides empirical support to the widely recognized need for MNC subsidiaries to engage in different types of CPA to legitimize their operations in diverse institutional contexts across the globe.     

Ownership Increase in International Joint Ventures: The Within- and Across-Country Flexibility Perspective

We employ the real options perspective to examine how multinational corporations (MNCs) increase ownership levels in their international joint ventures (IJVs) to exploit (or utilize) both within- and across-country flexibility. This paper utilize a rich dataset of South Korean firms’ foreign affiliates to test hypotheses derived from the real options theory. It examines the roles of growth options that require small equity stakes under uncertainty as well as switching options that require controlling equity stakes to coordinate switching implementation. Specifically, we examine how the ownership of jointly-owned foreign subsidiaries changes under the influence of changing labor cost uncertainty. We utilize a two-stage model to address the sample selection bias associated with a subsidiary’s choice of joint venture under the influence of high labor cost uncertainty. In the first stage, we run a probit model with a dummy variable for JVs and wholly-owned subsidiaries (WOSs) (1: JV, 0: WOS) as the dependent variable. In the second stage, we run a panel logistic regression model (STATA command, “xtlogit”). We found that MNCs engaged in greenfield IJVs increase their initial ownership when labor cost uncertainty within their host countries is favorably resolved. We also found that MNCs’ tendency to increase their IJV ownership intensifies when their subsidiary networks are exposed to negatively correlated labor cost growth rates across countries. Taking within and across country flexibility perspective, this study adds new insights on MNC ownership changes, especially in IJVs. Based upon our findings, we conclude that MNCs make flexible ownership adjustments for their foreign subsidiaries in response to different uncertainty conditions within and across countries.     

Collaboration in Innovation Between Foreign Subsidiaries and Local Universities: Evidence from Spain

Collaboration between foreign subsidiaries and universities is relevant for multinational companies (MNCs) that aim at absorbing knowledge from abroad, as well as for universities and policy-makers attempting to maximize the spillovers associated with foreign direct investment (FDI). In this paper, we explore how MNCs collaborate with universities in the foreign countries where they locate and provide new empirical evidence for Spain as a host country. Using a probit model with panel data comprising 9,614 firms for the period 2005–2011, we explore differences between the propensity to collaborate with universities of foreign subsidiaries and Spanish firms. Subsequently, building on a new survey to 89 foreign subsidiaries and on a more detailed analysis of five case studies, we discuss the variety of motivations that drive collaboration with universities and relate the scale and scope of such collaborations with the dynamic mandates of foreign subsidiaries in global innovation networks.     

Regional and Global Technological Knowledge Search Strategies and the Innovative Performance of Large Multinational Corporations

This study focuses on the innovative performance implications of large MNCs' regional and global technological knowledge search strategies. In networked MNCs, the parent can still offer valuable knowledge to subsidiaries. The parent's and a subsidiary's knowledge becomes complementary if an MNC appropriately adopts a global strategy at the parent level and a regional strategy at the subsidiary level. An analysis of the world's largest firms in the Electrical Equipment industry shows that, in general, a global strategy improves the innovative performance of the MNC. Meanwhile, only the combination of a global strategy at the parent level and a regional strategy at the subsidiary level is positively associated with the innovative performance of the MNC. This study contributes to the literature on networked MNCs and the debate of globalization and regionalization. Managerial implications are discussed as well.     

Industry Agglomeration,Sub-National Institutions and the Profitability of Foreign Subsidiaries

This study investigates the impact of industry agglomeration and its interaction with sub-national institutions on the profitability of multinational enterprises (MNEs) subsidiaries operating in an emerging economy. We argue that in an emerging economy like China, competition in product and factor markets is more intense between foreign firms than between foreign and domestic firms owning to market segmentation. Consequently, industry agglomeration with other foreign firms has negative impact on the profitability of foreign subsidiaries. In contrast, foreign firms agglomerating with domestic firms may reap gains owning to less competition and improved access to local resources and knowledge. We find that these effects are more pronounced to domestic-market-oriented foreign firms. Furthermore, sub-national institutions moderate the relationships between industry agglomeration and the profitability of foreign firms. Our arguments are supported by the empirical analysis based on a comprehensive dataset of foreign firms operating in China over the period from 1999 to 2005.     

Relationship with Headquarters and Divestments of Foreign Subsidiaries: The Hysteresis Perspective

This paper examines the conditions under which foreign subsidiaries of multinational corporations (MNCs) are less prone to divestments. In the study, we examine the importance of foreign subsidiaries to MNCs based upon (1) product-level vertical integration, (2) human capital investments, and (3) technological investments in the subsidiaries. Given that we examine the probability that a subsidiary divestment will occur under the condition that all other subsidiaries are also at risk during the same time period, we employ a Cox proportional hazard rate model as a commonly used statistical method in the event history analysis. For empirical testing, we utilized a sample of Korean 439 MNCs and its 5306 foreign subsidiaries over a period of 1990–2011. We find that even under hostile host market demand conditions, MNCs are less likely to divest their foreign subsidiaries when those subsidiaries are vertically integrated with their headquarters, benefiting from a top management team dispatched from their headquarters or other affiliates, or possessing technological knowledge shared by their headquarters. These findings imply that relationship-specific investments with headquarters cause a hysteresis effect that deters these subsidiaries from being divested, even during times when divestments seem most likely because of unfriendly economic conditions in their host countries.     

Dual-Option Subsidiaries and Exit Decisions During Times of Economic Crisis

• This study examines the dual implications of dual-option subsidiaries on exit decisions during times of economic crisis. Retaining dual-option subsidiaries in crisis-stricken countries means leaving a shadow option open for future growth once a crisis ends. However, MNCs may encounter problems pursuing either option due to challenges in managing dual-option subsidiaries with clashing strategic mandates.
• The equivocal nature of dual-option subsidiaries points to the possibility of another factor playing an important moderating role in exit decisions—subsidiary performance—which has been rarely considered in the MNC real options literature. Our primary argument is that lower subsidiary performance increases the influence of shadow option value embedded in dual-option subsidiaries.
• Analyzing a sample of 703 Korean overseas manufacturing subsidiaries in Asian countries, we find that when profitability falls, subsidiaries with dual options are less likely to be exited than those with single options.

     

Investment Climate Constraints as Determinants of Political Tie Intensity in Emerging Countries: Evidence from Foreign Firms in Ghana

Foreign firms in emerging countries face various institutionally-driven challenges. Nonmarket strategy scholars argue that these challenges incite corporate political activity. Consequently, researchers have explored the influence of institutional factors on the choice and extent of political strategies. However, not much is known about how investment climate constraints affect the political ties of foreign firms in contexts other than US, Europe and Asia. Drawing on institutional theory, we propose that firms’ exposure to administrative and control constraints as well as the presence of public affairs (PA) functions will lead to political tie intensification. We test our propositions using data from foreign firms operating in Ghana, and find that whereas control constraints strengthen political ties, administrative constraints weaken these ties. The findings also suggest that PA functions and political ties can be substitutes, not complements, depending on the institutional contingencies. Altogether, our study enhances knowledge and understanding of how institutional environments and organizational structures affect the political behaviour of foreign firms in emerging countries.     

Clusters and Regional Management Structures by Western MNCs in Asia: Overcoming the Distance Challenge

Recent literature suggests that multinational companies pursue regional rather than global strategies. Therefore, this study investigates regional management structures, using French multinational companies (MNCs) in the Asia–Pacific region as an empirical context, to address two research questions: first, do MNCs split Asia into subregions and, if so, what are the resulting clusters of countries and clustering criteria? Second, what kind of regional management structures do MNCs establish in Asia, and what are their roles and functions? Factors, such as MNC size, the size of host markets, or the nature of their activities, might explain some differences. The authors conducted 77 face-to-face interviews with expatriated managers in charge of the subsidiaries or regional management structures of 47 French MNCs located in 11 countries in Asia, then crossed these data with secondary sources of information. Nearly half the MNCs subdivide the Asia–Pacific region into clusters of countries, where they locate regional management centres (regional headquarters, regional offices, distribution centres, local offices) with substantial functions and roles. The main drivers of a regional Asian strategy and organisation are the overall size of the MNC and its sales in Asia; the presence of manufacturing activities does not exert any influence. This research identifies ten clusters of countries in Asia, determined by the French MNCs in our sample, on the basis of four main criteria: market orientation/economic logic, geographical and institutional proximity, cultural differences, and the MNC’s own characteristics. Smaller MNCs do not slice Asia into clusters but rather centralise regional decisions and control procedures, implementing few regional management centres in Asia and giving them limited roles and functions.     

Foreign Subsidiaries and Technology Sourcing in Spain

Firms acquire external technological knowledge via different channels. In this paper, we compare the technology sourcing of foreign subsidiaries and domestic firms looking at domestic R&D outsourcing, international R&D outsourcing, domestic cooperation for innovation and international cooperation for innovation. We use data from the Spanish Technological Innovation Panel for the years 2005–2009 for 10,206 innovative firms operating in Spain. We apply a multivariate probit specification which allows for systematic correlations among the different choices. The results show that the different technology sourcing choices are interdependent and that foreign subsidiaries show a different pattern of external technology sourcing. Compared to affiliated domestic companies, foreign subsidiaries show a smaller propensity for external technology sourcing via R&D outsourcing from independent firms in the host country, for international R&D outsourcing and for international cooperation for innovation. In contrast, foreign subsidiaries show a greater propensity for domestic cooperation for innovation. However, foreign subsidiaries are not a homogenous group in this respect.     

Makers’ relationship network,knowledge acquisition and innovation performance: An empirical analysis from China

In makerspaces, the embeddedness in open communities helps makers to build relationship networks and gives them access to ample knowledge, which will be finally transformed into the source of innovation. Based on strong-weak ties theory and the knowledge-based view, this study divides the ties in the makers' relationship network into strong and weak ties according to the intensity and explores their effects on makers' knowledge acquisition and innovation performance, respectively. An empirical analysis of the data collected from 232 makers in China indicates that the makers' relationship network has an indirect positive effect on their innovation performance while knowledge acquisition plays a partial intermediary role between the makers’ relationship network and their innovation performance. The results can help makers focus more on building and maintaining a relationship network through open community embedding and give insights into how a makerspace helps makers build a relationship network to improve their knowledge integration and utilization efficiency.     

Institutional Distance and Foreign Subsidiary Performance in Emerging Markets: Moderating Effects of Ownership Strategy and Host-Country Experience

Institutional distance has been known to be an important driver of Multinational Enterprises’ strategies and performance in host countries. Based on a large panel dataset of 10,562 firms operating in 17 emerging markets and spanning 80 home countries, we re-examine the relationship described by Gaur and Lu (J Manage 33(1):84–110, 2007) between regulatory institutional distance and subsidiary performance. We extend this research by (1) examining this relationship in the context of emerging markets, (2) examining the moderating effects of ownership strategy and host-country experience within the context of emerging markets and (3) accounting for a greater variety of institutions by including a large number of home and host countries. We find that institutional distance negatively affects subsidiary performance in emerging markets. Our findings also show that the negative effects of institutional distance on subsidiary performance are lesser for subsidiaries with partial ownership (than for subsidiaries with full ownership) and for subsidiaries with greater host-country experience. We discuss our findings with respect to Gaur and Lu’s model, which explores the relationships between these variables in a general context.     

Subsidiary Initiatives in the Institutional Environment

We study subsidiaries of a MNC and research why they implement initiatives that deviate from organizational values of headquarters. Initially we relied only on the concept of institutional duality and expected that pressures in the institutional environment and values of headquarters explain the agency of the subsidiaries. But the results of our extensive participatory observation showed that the organizational values of subsidiaries (rather than those of headquarters) helped explain the subsidiaries’ actions. In conclusion, we find that there are limits to the predictive power of the concept of institutional duality. Our study shows that a distinction between values of headquarters and values of subsidiaries is necessary in order to understand the agency of subsidiaries. We suggest a concept of ‘institutional trinity’ that distinguishes between these two values as well as pressures in the institutional environment. Our research demonstrates that an MNC can benefit from a subsidiary that develops its own organizational values. If headquarters is subsequently ready to adopt some of these subsidiary values, it may be able to adapt more easily to a changing institutional environment.     

A Dynamic Comparative Analysis of International Innovation Networks in Emerging Market MNCs

This paper compares the international innovation strategies of emerging market MNCs (EMNCs) with those of developed country MNCs (DMNCs). More specifically, we analyze the patent outcomes related to the use of international innovation networks (IINs) of EMNCs in developed markets compared with those of DMNCs in emerging markets. We explore the convergence and volatility patterns in patent generation within these IINs, considering the use of overseas R&D affiliates and the outcomes of interactions between foreign R&D affiliates and home headquarters for generating patents over a 20-year period. Our findings are broadly supportive of the idea that the trends in the volume and volatility of patents generated from the underlying IINs used by EMNCs are converging with those of DMNCs. This is in line with the predictions of a number of current international business theories regarding EMNC international expansion.     

Economic Inequality,Cultural Orientation and Base-of-Pyramid Employee Performance at the MNC Subsidiary: A Multi-Case Investigation

Research to date on economic inequality and how it affects organizational employee performance is both sparse and generic in scope. Multinational corporations—in particular—can benefit from an extension of empirical inquiry which looks at economic inequality in conjunction with cultural orientation in order to understand the behavior of their cross-border subsidiary employees. To this end, we report on an exploratory, multi-case study using data drawn from interviews, observation and company information with frontline, base of the organizational pyramid employees at the Thai subsidiaries of Anglo-US MNCs. Our findings detail the manifestations of high economic inequality and low worker status, as well as the adverse implications for subsidiary service delivery (e.g., absenteeism, moonlighting, deficient-communication) and broader corporate reputation concerns. We also detail the specific role of vertical-collectivist cultural norms and values in both exacerbating and mitigating the adverse effects observed. Finally, we discuss the implications for international business managers seeking to address (and prevent) subsidiary performance suppression due to economic inequality, focusing on the development of ‘social embeddedness’ as a key competence in the engagement and nurturing of base-of-pyramid employees in emerging Asia.     

Learning from Political Change and the Development of MNCs’ Political Capabilities: Evidence from the Global Mining Industry

Previous studies have suggested that (1) a type of organizational capabilities—namely, political capabilities—are required for multinational corporations (MNCs) to grow in global markets, (2) political capabilities are important for building productive relations with governments in politically risky host countries, and (3) MNCs can develop political capabilities by accumulating foreign experiences. However, empirical studies have found both positive and negative effects of such experiences on global market expansions. This study attributes such mixed findings to our lack of understanding about MNCs’ procurement processes of political capabilities and proposes types of experiences critical for such procurements by focusing on their reactions to political changes in host countries. Using data on the global mining industry and political changes in host countries, we find that MNCs develop political capabilities and thus make entries into politically risky host countries when they accumulate the experience of partially divesting some of their assets after political changes in host countries. We also find that MNCs are less likely to enter such countries if they have more experiences of exiting from host countries following political change.     

The antecedents and consequences of product and process innovation strategy implementation in Australian manufacturing firms

Manufacturing firms employ different strategies to improve the performance of their products. In this study, we investigate the roles of environmental dynamism and competitive intensity as antecedents of product and process innovation strategy implementation. Furthermore, we investigate the effect of these initiatives on product innovation performance and product quality performance in manufacturing firms. Based on an analysis of a sample of 207 firms in Australia, the results reveal that environmental dynamism positively relates to both product and process innovation strategy implementation while competitive intensity positively relates to only process innovation strategy implementation. Moreover, product innovation strategy implementation positively relates to product innovation performance while process innovation strategy implementation positively affects product quality performance. Both product innovation performance and product quality performance are found to positively affect business performance. The theoretical and practical implications of the study in the context of Australian manufacturing are discussed.     

Regulator Vulnerabilities to Political Pressures and Political Tie Intensity: The Moderating Effects of Regulatory and Political Distance

This study applies the institution-based view and neo-institutional theory in addressing how managerial perceptions of regulator vulnerabilities to political pressure, and institutional distance, influence intensification of political ties. Our analysis of 181 wholly owned foreign subsidiary (WOFSs) operating in the Philippines suggests that managerial perceptions of regulator vulnerability to political pressures positively enhance the intensification of political ties. Our results also reveal that regulatory distance and, more importantly, the simultaneous presence of political and regulatory distance diminish the positive relationship between managerial perceptions of regulator vulnerability to political pressures and a WOFS’s propensity to enhance the intensification of political ties. Managerial implications and future research directions are discussed.