When do multinational corporations adjust production volume flexibly among in-network subsidiaries?

Abstract

This study examines how within- and across-country conditions of a primary production cost factor and production within an MNC network affect production shifts among in-network subsidiaries. From our empirical examinations of a large sample of Korean overseas manufacturing subsidiaries, we find that an MNC adjusts the production volume among its subsidiaries when within-country labor cost growth rate is high, and across-country labor cost correlation is negative. We also find that the impact of those labor cost conditions is more salient when extra production capacity and same product manufacturers exist in the same MNC network. These findings imply that a firm’s realization of multinational operational flexibility via production shifts using its international production network is determined by within and across country conditions of production cost factors and compatibility status.