Country Subsidiaries Research Articles

Risk Transmission of Foreign Subsidiary in ASEAN Emerging Countries

Research Originality: To the best of our knowledge, this study is the first to investigate the impact of home country parent bank risks on destination country subsidiaries in an ASEAN setting. Moreover, this study adds to the previous literature by using the post-global financial crisis period in ASEAN countries, various types of risks, and dynamic panel data.Research Objectives: This study aims to examine the association between parent and foreign subsidiary banks. The study also examines how bank regulation, national governance, and financial deepening in host countries affect the association.Research Methods: This study uses dynamic panel data of 43 foreign banks operating in ASEAN emerging countries during the period 2010-2018.Empirical Results: The findings indicate a significantly positive association between parent and subsidiary bank risk, particularly for credit and liquidity risks. National governance and bank regulation mitigate the risk transmission. In contrast, financial deepening amplifies the transmission of risks between parent and subsidiary banks.Implications: This finding has important implications, in terms of policy interventions and regulatory mechanisms that national governments can deploy to lower risk exposure of subsidiary banks, while at the same time encouraging foreign investments into the financial services sectors in ASEAN countries.JEL Classification: F30, G21, G32How to Cite:Karyani, E., & Agusman. (2024). Risk Transmission of Foreign Subsidiary: Evidence from ASEAN Emerging Countries. Etikonomi, 23(1), 129 – 146. https://doi.org/10.15408/etk.v23i1.32703.

The Foreign Subsidies Regulation: the challenge of notifying non-selective tax expenditure

The European Union’s new Foreign Subsidies Regulation will lead to particular challenges in the tax domain. While the final version of the FSR now contains clear links to State aid, the differences are all the more noticeable. Third country tax measures that benefit group financing or equity financing warrant special attention. Repayment of foreign tax incentives to the European Commission, as a last resort measure, might come at odds with taxing prerogatives as divided under existing bilateral tax treaties. Compliance with notification obligations when engaging in public procurement or planning a merger with or acquisition of an entity active in the EU will be hardly doable. Unlike EU State aid rules (and WTO subsidy rules), notification may also involve non-selective and non-beneficial tax measures received within a group. If these have come into the FSR’s scope by intent and not by omission, then this is to be strongly reconsidered. Sustainability tax incentives aimed at greening investment have not been exempt from scrutiny. Thus, EU subsidiaries of third country parent companies and EU parents of third country subsidiaries should gather more information for the purpose of this regulation than one might expect at first sight.

Trust and Insurance Contracts

Abstract We assemble homeowner insurance claims from 28 independently operated country subsidiaries of a multinational insurance firm. We propose a new insurance model, in which consumers can make invalid claims and firms can deny valid claims, as is common in the data. In the model, trust and honesty shape equilibrium insurance contracts, disputes, and claim payments, especially when disputes are too small for courts. We test the model by investigating claim incidence, dispute, rejection, and payment, as well as insurance costs and pricing across countries. The evidence is consistent with the centrality of trust for insurance markets, as our model predicts. Authors have furnished data/code, which are available on the Oxford University Press Web site next to the link to the final published paper online.

Knowledge management, sharing and transfer in cross-national teams and the remote management of team members: the onsite-offshore phenomenon of service EMNEs

PurposeThis study examines how emerging market multinational enterprises operating in the service sector manage knowledge and team members in their overseas subsidiaries and what role expatriates play in their operations.Design/methodology/approachThe authors use a multiple case study design and interview 20 senior managers representing 16 Indian IT firm's subsidiaries in Australia. The onsite-offshore concept and the SECI model are used to explain the knowledge management process.FindingsThe findings show that Indian IT firms mostly transfer knowledge from their headquarters in the parent country to their subsidiaries in the host country using the onsite-offshore model where work is divided and coordinated between team members situated between the two locations. Furthermore, the host country subsidiaries have limited independence in decision-making due to a forward, one-way diffusion of knowledge, thus limiting a two-way interaction between the HQ and the subsidiary for opportunities to create and exchange new knowledge.Originality/valueThe study is one of the few to investigate the onsite-offshore phenomenon in service-based emerging market multinational enterprises.

Is the Promotion of Social Responsibility Helpful for Chinese Multinational Enterprises to Deal with International Investment Protection? An Empirical Study Based on the Perspective of Overseas Subsidiaries

International investment protection is defined as the behavior of host country to take various policy measures to limit foreign investment. It has intensified with the outbreak of the global financial crisis in 2008 and is likely to deteriorate further in COVID-19’s uncertain impact on the global economy. Due to targeted restrictions, Chinese multinational enterprises have become the biggest victims of international investment protection behavior, which affects the normal operation of overseas subsidiaries. Corporate social responsibility is one of the means for the host country to restrict the entry of foreign capital, and has become the main form of international investment protection, which makes Chinese enterprises face greater social responsibility risks in foreign direct investment. In this context, to deal with international investment protection has become an urgent task to enhance the security of Chinese enterprises’ foreign direct investment.This paper attempts to study whether the promotion of social responsibility can help Chinese multinational enterprises to cope with international investment protection. By matching multiple databases to carry out the empirical research, we find that the promotion of corporate social responsibility can not only directly increase the performance of overseas subsidiaries, but also indirectly deal with the adverse impact of international investment protection on the performance of overseas subsidiaries. However, the response effect is also heterogeneous, and the promotion of social responsibility of state-owned enterprises can cope with international investment protection, while non-state-owned enterprises do not have such effect; the improvement of corporate social responsibility helps developed country subsidiaries to deal with international investment protection, while developing country subsidiaries do not have this effect. In addition, we also find that the transmission mechanism of improving social responsibility in response to international investment protection is to increase the number of executives with overseas background and inhibit executives’ overconfidence. Therefore, business departments and multinational enterprises should attach importance to and strengthen the implementation of social responsibility strategy in the management practice of overseas subsidiaries.The academic value of this paper is mainly reflected in three aspects: First, it broadens the scope of the positive impact of corporate social responsibility from the dimension of replying to international investment protection. Second, it provides micro level evidence for emerging market countries’ multinational enterprises to enhance their social responsibility to overcome the adverse international economic and political environment. Third, it expands the understanding of the correlation between the characteristics of parent company and the performance of overseas subsidiaries with corporate social responsibility as the link.

ВИЗНАЧЕННЯ РОЛІ ЕКОЛОГІЗАЦІЇ В ДОСЯГНЕННІ ЦІЛЕЙ СТАЛОГО РОЗВИТКУ

The article explores the problem of changing the worldview of mankind and the transition to the concept of sustainable development, which requires harmonization of the economic, environmental and social component to ensure the life of modern generations without prejudice to future ones. The conditions for the emergence of the concept of sustainable development and the progress of countries in achieving it using the index of achieving sustainable development goals are studied.A significant role in the process of studying the goals of sustainable development is given to ecologization of all life spheres, including the economy. The place of ecologization in the goals and objectives of sustainable development is determined, the interpretation of ecologization and the evolution of this concept are analyzed.The ecologization of economy has passed certain stages in its development and has led to the emergence of a new direction of science and practical activity − the ecological economy, which was formed at the intersection of economics and ecology. The main task of the ecological economy is to reduce the eco-destructive impact on the environment from human economic activity. Ecological economy adheres to the goals and objectives of sustainable development and is an integral part of a sustainable economy, reflecting its environmental aspect. Determination of the country's subsidiaries in ecologization of the economy is carried out using the green economy index, which reflects the degree of ecologization in various fields and has something in common with the index of achieving sustainable development goals. A comparative analysis of the indices of sustainable development and the green economy index, their values for Ukraine.The composition of the ecological (green) economy includes other ecologicallyoriented types of economy, each of which studies a certain direction of ecologization and reducing the eco-destructive impact on the environment.With the development of ecological thinking and a change in the worldview of mankind, the number of environmentally-oriented types of economy will increase as the number of scientific studies on environmental issues increases, which, in turn, will achieve the goals of sustainable development

Trust and Insurance Contracts

We assemble and analyze a new data set of homeowner insurance claims from 28 independently operated country subsidiaries of a multinational insurance company. A fundamental feature of the data is that such claims are often disputed, and lead to rejections or lower payments. We propose a new model of insurance, in which consumers can make invalid claims and firms can deny valid claims. In this environment, trust and honesty are critical factors that shape insurance contracts and the payment of claims, especially when the disputed amounts are too small for courts. We characterize equilibrium insurance contracts, and show how they depend on the quality of the legal system and the level of trust. We then investigate the incidence of claims, disputes and rejections of claims, and payment of claims in our data, as well as the cost and pricing of insurance. The evidence is consistent with the centrality of trust for insurance markets, as predicted by the model. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Banking in Transition Countries

Modern banking institutions were virtually non-existent in the planned economies of cen-tral Europe and the former Soviet Union. In the early transition period, banking sectors be-gan to develop during several years of macroeconomic decline and turbulence accompa-nied by repeated bank crises. However, governments in many transition countries learned from these tumultuous experiences and eventually dealt successfully with the accumulated bad loans and lack of strong bank regulation. In addition, rapid progress in bank privatiza-tion and consolidation took place in the late 1990s and early 2000s, usually with the par-ticipation of foreign banks. By the mid 2000s the banking sectors in many transition coun-tries were dominated by foreign owners and were able to provide a wide range of services. Credit growth resumed, sometimes too rapidly, particularly in the form of lending to households. The global financial crisis put transition banking to test. Countries that had expanded credit rapidly were vulnerable to the macroeconomic shock and there was con-siderable concern that foreign owners would reduce their funding to transition country sub-sidiaries. However, the banking sectors turned out to be resilient, a strong indication of the rapid progress in institutional development and regulatory capabilities in the transition countries. Keywords: transition banking, bank privatization, foreign banks, bank regulation, credit growth JEL codes: G21, P27, O57

Absorptive capacity and R&D outsourcing

Abstract I analyze the determinants of research and development (R&D) outsourcing, or investments in R&D purchased from external providers. I build on the knowledge-based view of the firm (KBV) and the concept of absorptive capacity to propose a separation between the mechanisms that form the potential absorptive capacity that enables the firm to identify and integrate outsourced R&D knowledge into the firm, from the mechanisms that form the realized absorptive capacity that enables the firm to use and transform outsourced R&D knowledge into innovation. First, I propose that firms that engage with foreign customers and with foreign suppliers develop the potential absorptive capacity, an ability to understand new and complex external knowledge that is useful for integrating it with firm-internal knowledge, and thus invest more in R&D outsourcing. Second, I argue that firms that have more skilled employees and invest more in internal R&D develop the realized absorptive capacity, an ability to use and transform external knowledge, and as a result invest more in R&D outsourcing. Finally, I propose that these relationships are weakened when the firms are subsidiaries of foreign multinational firms operating in the country, because these firms can also build their absorptive capacity by being integrated with other country subsidiaries and the headquarters within the multinational. I test these arguments on a sample of manufacturing firms and find that firms that import, export, have more skilled employees, and have more internal R&D investment tend to invest more in R&D outsourcing. I also find that, for subsidiaries of foreign firms, the impact of skilled employees and internal R&D on R&D outsourcing is lower than for domestic firms. These ideas provide a theory-driven explanation of the determinants of R&D outsourcing that refine the notion of absorptive capacity and its two dimensions, potential and realized.

Absorptive Capacity and R&D Outsourcing

I analyze the determinants of research and development (R&D) outsourcing, or investments in R&D purchased from external providers. I build on the knowledge-based view of the firm (KBV) and the concept of absorptive capacity to propose a separation between the mechanisms that form the potential absorptive capacity that enables the firm to identify and integrate outsourced R&D knowledge into the firm, from the mechanisms that form the realized absorptive capacity that enables the firm to use and transform outsourced R&D knowledge into innovation. First, I propose that firms that engage with foreign customers and with foreign suppliers develop the potential absorptive capacity, an ability to understand new and complex external knowledge that is useful for integrating it with firm-internal knowledge, and thus invest more in R&D outsourcing. Second, I argue that firms that have more skilled employees and invest more in internal R&D develop the realized absorptive capacity, an ability to use and transform external knowledge, and as a result invest more in R&D outsourcing. Finally, I propose that these relationships are weakened when the firms are subsidiaries of foreign multinational firms operating in the country, because these firms can also build their absorptive capacity by being integrated with other country subsidiaries and the headquarters within the multinational. I test these arguments on a sample of manufacturing firms and find that firms that import, export, have more skilled employees, and have more internal R&D investment tend to invest more in R&D outsourcing. I also find that, for subsidiaries of foreign firms, the impact of skilled employees and internal R&D on R&D outsourcing is lower than for domestic firms. These ideas provide a theory-driven explanation of the determinants of R&D outsourcing that refine the notion of absorptive capacity and its two dimensions, potential and realized.

호텔의 사회적 책임활동이 공중 관계성과 호텔이미지에 미치는 영향

Despite the crucial role of international human resource management (IHRM) systems for multinational corporations (MNCs), few studies examine the processes through which IHRM systems influence the performance of MNC subsidiaries. Executive expatriates in foreign country subsidiaries responded to a survey in a field study employing 207 Korean MNCs. We explored the effect of IHRM systems on subsidiary performance via expatriate executive adjustment. We examined the intensified effect of IHRM systems on expatriate executive adjustment in MNCs with various levels of international experiences (host country experience, general international experience, and culture cluster experience). Using multiple regression analysis, we found a predicted mediated relationship among IHRM systems, expatriate executive adjustment, and subsidiary performance and a predicted moderating effect from MNC international experiences in the relationship between IHRM systems and expatriate executive adjustment.

Performance management practices within emerging market multinational enterprises: the case of Brazilian multinationals

This study advances our understanding of HRM within emerging market multinational enterprises (EM-MNEs) by examining the extent to, and mechanisms by, which Brazilian MNEs standardise or localise their performance management (PM) policies and practices, and the factors that influence their design and implementation. We explored these issues through qualitative case studies of three Brazilian MNEs. The analysis of interview data reveals a strong tendency for Brazilian MNEs to centralise and standardise their PM policies and practices. The key finding of this paper is that PM practices within Brazilian MNEs are not based on indigenous Brazilian practices, but, rather, are heavily influenced by global best practices. The findings are at odds with previous research, which suggests that EM-MNEs apply different HR practices in developed country subsidiaries and developing country subsidiaries. Also, contrary to expectations, our results indicate that institutional distance does not have a significant influence on the adaptation of PM practices at subsidiary level.

Beyond Post-Downsizing Organisational Injustice and Counterproductive Work Behaviours: Antecedents and Consequences of Learnt Helplessness

The overall objective of this study was to explore perceived organisational injustice through the lens of learnt helplessness in a Norwegian post-merger case study focusing on an ageing knowledge-based workforce. The case describes a lucrative large-scale early retirement organisational downsizing deployed only in the headquarters, located in Norway, but not offered across country subsidiaries. This qualitative research collected data from 28 semi-structured face-to-face interviews and other observations. This study was based on the assumption that organisational injustice would prevail with observed counter-productive workplace behaviours (CWBs). Three research questions were formulated: 1) Does perceived organisational injustice always lead to the expected CWB? 2) To what degree does learnt helplessness function as a buffer against the expected CWB resulting from perceived organisational injustice? 3) What are the antecedents and consequences of learnt helplessness? A key contribution of this study is to provide a unique case where injustice does not always lead to the predicted negative organisational outcomes of CWBs under the conditions of learnt helplessness. The case illustrates that organisational culture is the antecedent of learnt helplessness, which in turn, has buffering effects against the predicted CWBs.

Multinational corporations and governance reform: Towards a more integrative board

Multinational corporations (MNCs) dominate the global business arena, but traditional governance models do not map well on to these firms. Because a regulatory gap exists with MNCs, given that they do not operate within a clearly defined legal or political system, determining appropriate business conduct is even difficult for MNC boards aiming to do the right thing. However, very little research exists on how MNC governance and board practices translate between home country and various subsidiaries. Uniting political behavior theory and moral theories of global governance, we categorize four types of boards based on their legal, ethical and political orientations and then provide a framework for assessing the MNC board's propensity for reform.

Cross-Cultural Management of an Indian Multinational in its Western Subsidiaries: An Exploratory Study

Multinationals from emerging countries are climbing up the global performance ladder successfully and at a very fast pace. In spite of this there has not been enough studies done on the subject especially empirical studies, as pointed out by several authors. Our paper fills the gap in the literature by presenting the cultural adaptation of an Indian multinational in its developed country subsidiaries through a case study. The study focused on the behavior of the Indian multinational at the home country and in the developed country subsidiaries. The strategies used by them and finally the performance perception as viewed by the top level managerial board.

How do Leading Retail MNCs Leverage CSR Globally? Insights from Brazil

This study examines how multinational corporations (MNCs) from the retail sector deal with four challenges they face when adopting Corporate Social Responsibility (CSR) policies: the challenge of developing well-performing CSR projects and programs, building competitive advantages based on CSR, responding to local stakeholder issues in the host countries and learning from different CSR experiences on a worldwide basis. Based on in-depth case studies of two globally leading retail MNCs (with strong operations in Latin America), the concept of Transverse CSR Management emerged. Transverse CSR Management is defined as a distinctive form of organizational configuration that crosses different functional areas, country operations, and the boundaries of the firm. In particular, this article makes three main contributions: (1) we identify four central challenges faced by MNC managers when developing their CSR strategies; (2) we propose the concept of Transverse CSR Management to face these central challenges (together, at the same time) and identify its key elements (top management, external stakeholders, functional areas, and country subsidiaries); and (3) we propose four mechanisms (hierarchical, relational, cultural, and collaborative) through which the concept of Transverse CSR Management can be implemented by practicing managers. This study provides valuable insights for MNC managers in headquarters and subsidiaries on the issues they need to address in order to successfully deal with the four CSR-related challenges.

Towards a conceptual framework for the relationship between subsidiary staffing strategy and subsidiary performance

Staffing key management positions at host country subsidiaries is a strategic challenge for most MNEs. While previous research in this domain explored the antecedents of MNE subsidiary staffing decisions, strategic outcomes of different staffing patterns (e.g., using parent, host, or home country nationals) have been mostly overlooked. Drawing from the resource-based view of the firm, we develop a theoretical model that explains the links between different strategies for staffing key management positions in host country subsidiaries and the performance of those subsidiaries in their host markets and within their MNE networks. Further, we propose contingencies that moderate the relationship between subsidiary staffing strategy and host country and MNE network performance.

Knowledge embeddedness and the transfer mechanisms in multinational corporations

This paper reports a qualitative study conducted at four Japanese subsidiaries in China and Vietnam about their process of international knowledge transfer. Building on the literatures concerning the diverse types and characteristics of knowledge in multinational corporations (MNCs), we explore the broad mechanisms adopted and locally generated by the host country subsidiaries for transferring the foreign knowledge and putting the locally embedded knowledge into practical use at the local settings. The findings indicated (1) the limitations of applying a standardized and universal set of knowledge transfer mechanisms without considering local idiosyncrasies and (2) the contributions of local agents and institutions throughout the process of local knowledge adaptation and development.

Getting along long distance: understanding conflict in a multinational team through network analysis

Multinational companies (MNCs) create international teams to pool global talent and meet organizational goals. But the many differences among team members are fertile ground for conflict. While traditional conflict management techniques gather all team members together to resolve or minimize conflicts, geographic dispersion greatly increases the time, money, and disruption to daily workflow activities necessary to bring multinational teams together. We use a social network perspective to identify and prioritize conflicts to increase team effectiveness, allowing management to focus on the most critical conflicts first. Further, we show that the most critical conflict might not be between headquarters and country subsidiaries, but between two country subsidiaries.

Variances in staff-related management practices at eight European country subsidiaries of a global firm

The purpose of this study was to explore possible variances and commonalities in staff-related management practices at different country subsidiaries of the same multinational corporation (MNC). The study was exploratory, using data from ninety-six semi-structured interviews about current practices of management within eight European country subsidiaries. Results were based on 12,000 statements about management practices from staff in different countries. Analysis of the statements evidenced variances and commonalities in management practices in the country subsidiaries studied. It is suggested that variances are attributable to cultural factors, institutional pressures and other societal forces, and that commonalities might be explained by a common organizational culture. A theoretical model has been adapted to explain the conditions under which management practices take place in different country settings.