The effect of host country long term orientation on subsidiary ownership and survival

Abstract

This paper examines the role which the long term orientation (LTO) dimension of host country culture plays in transforming multinational corporations’ (MNCs’) focus from transaction cost to transaction value in the context of MNC subsidiary ownership and survival. We used a sample of 10,236 overseas subsidiaries established by 1,291 Japanese MNCs in 29 host countries with varying levels of LTO to test our hypotheses. Results first showed that LTO has a direct positive effect on ownership levels. Second, we observed that there were positive interactions between LTO and cultural distance, and between LTO and geographic distance, on ownership levels. Third, we found that there were positive interactions between LTO and subsidiary ownership level, and between LTO and cultural distance, on subsidiary survival. The theoretical and practical implications of these findings are discussed in terms of the vital role LTO plays in determining whether transaction value or transaction cost considerations prevail in MNCs’ ownership strategies, and how MNCs can better take advantage of host country LTO and improve the survival likelihood of their subsidiaries.