Subsidiary Survival in the Foreign Market: The role of Cultural Distance and International Experience

Abstract

Existing studies on the foreign subsidiaries’ survival have acknowledged that the role of firm performance is critical. However, the research remains inconclusive on how institutional and organizational factors influence firm survival in foreign markets. This study aims to fill this scholarly gap by considering the role of international experience of the parent firm and cultural differences between host and home countries on firms’ survival in foreign markets. Using a sample of 680 Chinese foreign subsidiaries operating in 24 countries during the period 2011 to 2020, we find that subsidiaries having poor financial performance are more likely to withdraw from the foreign markets. This effect is more pronounced when the cultural distance between home and host countries is higher. However, the international experience of the parent company helps its foreign subsidiaries to survive in the host country for a longer period. These findings have important implications for MNCs operating in foreign markets.