Abstract
Survival of overseas subsidiaries is an important success indicator of foreign investments. Research on institutional approaches has been undertaken in this way, but generally restricted to a limited number of cross-national distances (CNDs). This research examines the impact of nine CNDs and local experience on subsidiary survival of foreign subsidiaries. Moreover, we tested the moderating effects of local experience on CND to analyze whether it could reduce these distances. Using a sample of 1,650 foreign subsidiaries established in 36 European countries, we applied Cox regression with a longitudinal analysis for the period 2007-2014. The results indicate that CND significantly affect subsidiary survival. Out of nine CND, four increase the risk of mortality, while one increases longevity. Local experience also plays a significant role for the continuity of the foreign operation in the local market, while moderating the impact between one CND and survival. These results can provide valuable information for strategic processes and better decision making of internationalization, and contribute to the success and survival of international operations.
Highlights
One aspect that deserves attention and is considered as a basic research objective of international business literature is firm performance (GLAUM; OESTERLE, 2007), which is one of the most important constructs in management research (KIRBY, 2005)
This study proposes that differences exist in terms of cultural, economic, political, and social aspects of the countries where multinational enterprises (MNEs) operate, and, that these differences might have an impact on subsidiary performance
The findings show that cross-national distances (CNDs) related to demographic, political, financial, and knowledge negatively impact subsidiary survival, while cultural distance has a positive impact on survival
Summary
One aspect that deserves attention and is considered as a basic research objective of international business literature is firm performance (GLAUM; OESTERLE, 2007), which is one of the most important constructs in management research (KIRBY, 2005). When firms internationalize, certain differences exist between the home market and the host country that receives the foreign investment This scenario has led scholars from the international business field to devote attention to cross-national distance (hereafter as CND), such as Berry (2010). Berry et al (2010) showed the impact of a multidimensional CND approach on the choice of foreign market entry They claimed that further studies could use this CND approach to resolve some of the inconsistencies reported in the literature concerning the effect of distance on firm performance. In this way, we extend their research by investigating how CNDs affect the survival of foreign subsidiaries. We conclude the paper in addition to discussing the limitations and suggestions for future research
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