Abstract
Past research on foreign divestment has recognized the impact of economic and political differences11Please note that in this paper we use the term ‘differences’ as a broader-based term that encompasses the literature on distance and on friction.. However, the prior findings remain equivocal. We adopt the Positive Organizational Scholarship perspective to provide more contextualized insights into the effects of economic and political differences on foreign divestment. Specifically, we consider the juxtaposition of national differences and levels of firm interaction with the different contexts. Thus, we develop the concept of friction to assess levels of economic and political differences. We further argue that economic friction will have a curvilinear (U-shaped) effect on foreign divestment, whereas political friction will produce a monotonic (positive) effect. Moreover, we introduce ownership level as a moderator into the main hypotheses. Drawing on data from 2400 foreign subsidiaries of 310 Finnish multinational enterprises, from 1970–2010, we provide support for our main hypotheses, although the moderating effect of ownership levels is not supported. We further compare the effects of differences measured by friction with those measured by distance. Accordingly, our research highlights the importance of detecting specific conditions for the investigation of the impact of economic and political differences in the foreign divestment literature.
Highlights
Stora Enso, a Finnish multinational enterprise (MNE) and leading global provider of renewable solutions, planned to sell its Sachsen Mill, located in Eilenburg, Ger many, to Model Group, a Swiss company
We further argue that economic friction will have a curvilinear (U-shaped) effect on foreign divestment, whereas political friction will produce a monotonic effect
The FD literature proposes that depending on different ownership levels, that is, international joint ventures (IJVs) or wholly owned subsidiaries (WOSs), foreign subsidiaries may encounter different levels of institutional differences, which may in turn bring additional uncertainty and complexity, leading to different propensities for foreign divestment (Makino & Beamish, 1998; Dhanaraj & Beamish, 2004; Lu & Hebert, 2005; Gaur & Lu, 2007; Meschi et al, 2016; Kim & Kim, 2018)
Summary
Stora Enso, a Finnish MNE and leading global provider of renewable solutions, planned to sell its Sachsen Mill, located in Eilenburg, Ger many, to Model Group, a Swiss company. Stora Enso announced it was to close its paper factory in Sweden (Stora Enso, 2021) These two cases are among hundreds of instances of foreign divestment (FD) over the past few years, referring to the exit of an active foreign subsidiary of a multinational enterprise (MNE) from the host country (Boddewyn, 1979, 1983), via sell-off (first case) or closure (second case) (Konara & Ganotakis, 2020; Sartor & Beamish, 2020). Meyer, Li & Schotter (2020) recently reported scant interest in IB research exploring multi-level interaction to external influences; for instance, in home-host conditions, and inter-firm reaction, where parent firms and subsidiary units work together to respond to changes in their external environment.
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