Is the Strategic Asset Seeking Investment Proclivity of Chinese MNEs Different to that of Developed Market MNEs? A Comparative Analysis of Location Choice and Orientation

Do emerging market MNEs acquire strategic assets in psychically distant developed markets to augment the firm-specific advantages they lack? This question is central to current conceptual discussion of their FDI strategies. To date, however, empirical testing has focused on emerging market MNE FDI location choices in isolation to indirectly infer facts about strategic asset seeking orientation. There are two weaknesses with this approach. First, comparative analysis with developed market MNEs is limited. Second, the focus on geographical location choices does not account for important direct, firm-level evidence on the strategic assets found in foreign subsidiaries. To address these gaps, we first undertake a comparative location choice study of Chinese MNE and developed market MNE FDI in the US. Second, we test corresponding firm-level US subsidiary data using logit modelling to explore whether there are differences between Chinese and developed market MNEs. Our results indicate similarities, rather than differences, in the strategic asset seeking behavior of Chinese and developed market MNEs. This calls into question whether theoretical extension is necessary to explain the behavior of emerging market MNEs as well as the value of indirect, location choice approaches to the analysis of strategic asset seeking FDI.     

FDI Experience Location and Subsidiary Mortality

Purpose: This study examines the relationship between an MNE’s experience with foreign direct investments (FDI) and subsidiary mortality when considering learning limitations that an MNE are susceptible to under the influence of national cultural differences. Methods: We apply event history analysis on a sample of subsidiaries of Korean MNEs during 1990–2006. Results: We find that subsidiary mortality has a negative relationship with FDI experience from countries culturally similar to both the MNE’s home country and the focal host country; an inverse U-shaped relationship with both experience from countries culturally similar to the home country but different from the focal host country, and experience from countries culturally different from the home country but similar to the focal host country. Experience from countries culturally dissimilar to both the focal host country and the home country has a negative effect when a subsidiary is located in countries dissimilar to the home country, and an insignificant effect when a subsidiary is located in countries similar to the home country. Conclusions: Our findings show that prior experience has different effects depending on where it is accumulated and that MNEs are susceptible to limitations both when drawing inferences from their FDI experiences and when applying these experiences toward subsequent FDIs.     

High-Performance Work Systems and Organizational Performance in Emerging Economies: Evidence from MNEs in Turkey

This study examines the association between the usage of high-performance work systems (HPWS) by subsidiaries of multinational enterprises (MNEs) in Turkey and employee and subsidiary level outcomes. The study is based on a survey of 148 MNE subsidiaries operating in Turkey. The results show that the usage of HPWS has a significant positive impact on employee effectiveness. However, their impact on employee skills and development, and organizational financial performance are far less clear. Our findings highlight the extent to which HWPS need to be adapted to take account of context-specific institutional realities.     

Market Orientation, Embeddedness and the Autonomy and Performance of Multinational Subsidiaries in an Emerging Economy

• This paper develops a conceptual framework for market orientation, embeddedness, autonomy and performance of multinational subsidiaries in an emerging economy.
• We argue that internal and external embeddedness has different performance implications for export- and local market-oriented multinational subsidiaries.
• Our results, based on a sample of 233 multinational subsidiaries from China, indicate that while external embeddedness has a positive impact on specialized resources of both types of subsidiary, such resources only positively affect the performance of local market-oriented subsidiaries. By contrast, internal embeddedness has a negative impact on specialized resources of both types of subsidiary.
• Managerial and policy implications are discussed.

     

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.     

How Do the Normativity of Headquarters and the Knowledge Autonomy of Subsidiaries Co-Evolve? Capability-Upgrading Processes of Chinese Subsidiaries in Belgium

To successfully compete with advanced market multinationals (AMNEs), emerging market multinationals (EMNEs) have to access higher innovation capabilities from their autonomously operating advanced economy subsidiaries. There are two competing schools of thought on how EMNE subsidiaries obtain capability-upgrading autonomy from their headquarters. The first school of thought embraces a knowledge-based, boundedly rational perspective on headquarters’ delegation of capability-upgrading autonomy. The second argues that normative stakeholder priorities pervade headquarters’ capability-upgrading logic, with a “headquarters knows best logic” standing in the way of knowledge-based subsidiary autonomy. This paper adopts a process perspective to understand how EMNE headquarters’ logics and subsidiaries’ mandate for capability-upgrading co-evolve over time. Drawing on the case of Chinese multinational subsidiaries (CMNEs) in Belgium we find that subsidiary managers’ ability to challenge normative expectations is a condition to headquarters acting in a knowledge-based manner. We contribute to the literature on EMNE capability-upgrading by developing several propositions on how autonomy negotiation processes between headquarters and subsidiary evolve over time; depending on the historical imprinting of home success values, the socialisation in how to respond to failure and the emergence of constructive conflict.     

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.

     

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.     

Mediating Effects in Reverse Knowledge Transfer Processes

• Building upon knowledge-based and network views, this paper seeks to examine how subsidiary characteristics (subsidiary willingness and subsidiary external embeddedness) and relationship characteristics (internal embeddedness, socialization mechanisms and shared values) impact the extent of Reverse Knowledge Transfer (RKT).
• A survey was carried out to build a database of 178 subsidiaries operating in Knowledge Intensive Business Service (KIBS) sectors in the United Kingdom.
• Our analysis indicates that willingness and socialization mechanisms are the most significant determinants of the extent of RKT. Further, the impacts of shared values and internal embeddedness are mediated by subsidiary willingness. The results also highlight the significant association between socialization mechanisms and internal embeddedness. Contrary to our expectation, external embeddedness has a negative influence on the extent of RKT.

     

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.     

MNEs’ strategies in Central and Eastern Europe: key elements of subsidiary behaviour

Abstract

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.     

Procedural Justice, Not Absorptive Capacity, Matters in Multinational Enterprise ICT Transfers

• This paper empirically tests the effectiveness of information and communications technology (ICT) knowledge transfer and adoption in the multinational enterprise (MNE) as an issue of critical importance to contemporary MNE functioning. In contrast to mainstream thinking on absorptive capacity, but in line with prevailing international business theory, our research supports the proposition that perceptions of procedural justice, rather than absorptive capacity, determine effectiveness, especially in cases of high tacit knowledge transfers.
• Data was collected from senior ICT representatives in 86 Canadian subsidiaries of foreign owned MNEs. Each of these subsidiaries recently experienced a significant ICT transfer imposed by the parent organization.
• Support was found for the main propositions: Procedural justice significantly predicted successful ICT transfer and adoption, while absorptive capacity was not significant. These findings are consistent even when knowledge tacitness was high.
• The perceived success of the ICT transfer as well as its adoption varied widely across these firms. The potential reasons for this divergence in effectiveness are manifold, but our findings suggest that in situations of substantial knowledge tacitness, a higher level of procedural justice, rather than a higher level of absorptive capacity, is critical to effective transfer and adoption.

     

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.     

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.     

Drivers of Virtual Interfirm Integration and Its Impact on Performance in International Customer–Supplier Relationships

Consensus exists suggesting that advances in information and communication technologies are a major driver in restructuring Multinational Enterprises (MNEs) and their cross-border supply chain activities. However, the role of virtual interfirm integration and its antecedents, contingency conditions and its association with performance in international exchange relationship is not clearly specified. This study proposes that virtual interfirm integration can serve as an alternative governance mechanism for suppliers. Thus, we examine its drivers, moderators, and performance outcomes in international exchange relationships in the context of suppliers and their MNE customers. The empirical context is a study of 240 Taiwanese-based electronics equipment manufacturers. We explore the effect of communication culture, internal, inter-organizational, and environmental dimensions on virtual interfirm integration, and supplier performance in international exchange. We conclude by sharing our findings on the pertinence of virtual interfirm integration in the supplier–MNE buyer relationships.     

Understanding Organizational Practice Adoption at the Thai Subsidiary Corporation

• This study examines how, to what extent, and with what effect the indigenous cultural concept of kreng jai influences the Thai subsidiary assimilation of organizational practices transferred and mandated by its European-headquartered parent.
• Adopting qualitative methodological procedures we combined data sourced from interviews, observation and company information to explore empirically the continuing role and relevance of kreng jai on the adoption and use of three strategic organizational practices: E-communication, performance appraisal and empowerment.
• Our findings showed that the unique feelings and attitudes which characterize kreng jai variously complemented, reinforced, elaborated and contradicted the behaviors predicted by the traditional comparative etic dimensions of culture when applied to the Thai workplace environment.
• MNEs seeking to develop their operations in Asia can therefore benefit from an appropriately nuanced understanding of the influence of unique indigenous cultural norms and values to help manage effectively the often competing institutional pressures to which their subsidiaries are exposed. Failure to address adequately the subtle but pervasive facets of indigenous management constructs such as kreng jai may hold hidden but potentially critical dangers for the MNE developing its business across cultural borders.