Domestic Multinationals Research Articles

Foreign and domestic multinationals’ linkages in advanced, small open economies: do foreignness, regional origin and technological capability matter?

Purpose International business theory suggests that multinational enterprises (MNEs) seek to internalise resources embedded in local firms to complement their own through inter-organisational relationships, yet little is known about whether and how these business linkages differ between foreign (F)MNEs and domestic (D)MNEs. This paper aims to explore the linkage differential between DMNEs and FMNEs operating in the same single-country contexts and to examine whether foreignness, regional origin and technological capability make a difference. Design/methodology/approach This study is based on a unique firm-level data set of 292 MNEs located in five advanced, small open economies (SMOPECs). This study analyses the benefit received – in the form of technical and organisational resources and knowledge – by DMNEs and FMNEs via backward, forward and collaborative linkages with local business partners. Findings Our research finds FMNEs benefit less from linkages than DMNEs; and FMNEs originating from outside the region especially so. However, the results also show technological capability mitigates this difference and is thus a game changer for FMNEs from outside the region. Originality/value This paper differentiates between FMNEs and DMNEs in their propensity to benefit from resources received from different local partners and explores the influence of regional origin and technological capability. Despite the advanced and internationally oriented nature of SMOPECs, DMNEs still gain more benefit, suggesting either liabilities of foreignness and outsidership persist, or FMNEs do not desire, need or nurture local linkages.

Foreign vs. domestic multinationals in R&D linkage strategies

ABSTRACT This paper examines how foreign multinationals (FMN) and domestic multinationals (DMN) differ in R&D outsourcing and cooperation. We argue that the propensity of DMN and FMN to create such R&D linkages reflects their specific balance between advantages and challenges of multinationality. On the one hand, both FMN and DMN rely on a combination of home-base advantages and learning capacities, which positively affect their R&D linkages with national and international counterparts. On the other hand, the costs and risks associated with unfamiliar contexts reduce the propensity of FMN to create R&D linkages with local counterparts; while they will not penalise DMN, which do not suffer any liability of foreignness when dealing with local counterparts in their country of origin. This interpretive framework is tested using data on R&D investors active in Italy over 2003–2010, controlling for firms’ internal R&D efforts, internationalisation, age and regional distribution of R&D.

AN ANALYSIS OF MANAGEMENT PRACTICES ACROSS FIRM OWNERSHIP: THE CASE OF STANDALONE DOMESTIC FIRMS, DOMESTIC GROUPS AND MULTINATIONAL ENTERPRISES

Management practices are important drivers of firm productivity (Bloom et al., 2019). While differences in the formalisation and sophistication of management practices are evident in comparisons of foreign multinationals and domestic firms (Bloom et al., 2012, Bloom and Van Reenen, 2007a, Bloom and Van Reenen, 2010), a striking omission from many studies is the failure to distinguish between domestic firms and domestically-owned multinationals (McDonnell et al., 2014). We merge the World Management Survey with the FAME dataset to examine the influence of firm ownership (standalone domestic firms; domestic groups; domestic owned multinationals; foreign owned multinationals) across a broad range of management practices. Foreign owned multinationals exhibit the highest formalisation and sophistication of management practices compared to all other firm types. However, significant asymmetries exist between different management practices across firm ownership. This is important as it raises questions as to whether there is sufficient learning and transfer of practices taking place across firms.

Segmentation Strategies:Empirical Evidences from Pharmaceutical Companies

The Indian Pharmaceutical sector is highly fragmented with more than 20, 000 registered units. The organized sector of India's pharmaceutical industry consists of 250 to 300 companies, which account for 70 percent of products on the market, with the top 10 firms representing 30 percent. Multinationals represent only 35% of the market, down from 70% thirty years ago. Because of differences in the industry structure and combination of market opportunities for domestic companies and multinationals, they are likely to differ on strategic issues. Hence domestic companies and multinational firms need to pursue different strategies to achieve desired goals. The study covers pharmaceutical companies operating in Madhya Pradesh state of India. The data or information required is related to segmentation strategies adopted by these pharmaceutical companies. The participants are selected from the directory of pharmaceutical manufacturing units in India, published by national pharmaceutical pricing authority. ANOVA is used for testing of hypothesis. The results show that there are visible differences in the segmentation strategies followed by different pharmaceutical companies of Madhya Pradesh. Small & medium domestic pharmaceutical companies have very little inclination towards segmentation strategies. MNCs and large domestic pharmaceutical organizations in Madhya Pradesh are following the segmentation strategies but this is also limited to demographic and geographic segmentation mostly. They also follow integrated segmentation strategies to some extent.

The Differential Effects of Minority State Ownership Types on the Internationalization of Emerging Market Multinationals from Democratic States

We argue that governments use different types of minority state ownership in domestic multinationals to balance the provision of public and private goods and maximize political survival in emerging market democracies. Using a sample of Brazilian multinationals, we combine instrumental and fixed-effects regressions with an in-depth case study in order to measure and describe the effects of two types of ownership ties. We show that ownership through state-controlled institutional investors has a positive effect on the internationalization level of multinationals, whereas the ownership by state agencies and state-owned enterprises shows an opposite effect. By looking at these effects from the perspective of the political survival of democratic rulers, we contrast our results against the empirical research on multinationals from authoritarian states.

Are Italian firms performances influenced by innovation of domestic and foreign firms nearby in space and sectors?

This paper aims to address three main issues. First, we investigate the relevance of spatial total factor productivity (TFP) spillovers determined by firm closeness in the Italian Local Labour Systems (LLS) of Textile. Secondly, we assess the relevance in these locations of TFP premia deriving from firm innovation, taking into account spatial and sectoral innovation. Then, we question how far spatial productivity spillovers and TFP premia spur from innovation of foreign and domestic multinationals located in the LLSs. To this purpose, we use a panel of Italian manufacturing firms for 2007 and 2010 (AIDA data) and focus on 18 Made in Italy LLS of Textile. We employ a spatial econometric approach (spatial autoregressive and spatial error models) by using the geographical coordinates at firm level. We find strong productivity spillovers at spatial level and a relevant impact of innovation on firm productivity. Evidence is also found of a positive impact of intra-sectoral innovation and from concentration of foreign firms innovation in the LLSs.

Distance and the Multinational Wage Premium

Combining administrative data on German workers with commercial data on German firms, we find evidence for a distance effect on the multinational wage premium: Foreign multinationals pay lower wages than German multinationals if the ultimate owner is located in close proximity to Germany, whereas the opposite is true if the ultimate owner is located further away. In addition to this so far unexplored effect, our results confirm previous evidence that on average foreign multinationals and domestic multinationals pay wages of similar size, with both types of firms paying a premium relative to other local firms. To provide a rationale for this pattern, we develop a theoretical model in which wages are firm-specific and firms can serve the foreign market via exporting or via FDI. In case of FDI, they face uncertainty about the wages to be paid abroad, and due to this uncertainty, firms that pay high wages at home are more likely to seek foreign investment. In the model, the observed distance effect on the multinational wage premium occurs since the alternative of exporting is less attractive for distant locations, and firms are therefore more willing to accept higher wages for foreign production in locations that are further away from their headquarters.

Foreign Acquisitions, Domestic Multinationals, and R&D

AbstractOur aim in this paper is to evaluate the causal effect of foreign acquisition on research and development (R&D) intensity in targeted domestic firms. We are able to distinguish domestic multinational enterprises (MNEs) and non‐MNEs, which allows us to investigate the fear that the change in ownership of domestic MNEs to foreign MNEs leads to a reduction in R&D activity in the country. Overall, our results give no support to the fears that foreign acquisition of domestic firms leads to a relocation of R&D activity in Swedish MNEs. Rather, in this paper, we find robust evidence that foreign acquisitions lead to increasing R&D intensity in acquired domestic MNEs and non‐MNEs.

Ukrainian transnational corporations: state and development problems

The features of the functioning of Ukrainian transnational corporations (TNCs) have been considered. The research aim is to develop basic directions of the state support for domestic multinationals. The state of Ukrainian multinationals such as directions, accommodation subsidiaries, key indicators robots is theoretically studied. The features of formation and the causes of problems in the development of TNCs related to the insufficient development of the legislative and regulatory environment, macroeconomic instability, a lack of experience on the world markets. The promising sectors of the economy for transnationalization are identified. On the basis of the conducted analysis the directions of the state support of the domestic TNCs are proposed. They include legal, organizational and financial components. The research results can be applied to the development of the state economic policy in the issues of the Ukrainian TNCs development incentives.

DOES MULTINATIONAL OWNERSHIP AFFECT FIRM SURVIVAL IN ITALY?

The aim of this paper is to investigate whether and how multinational status and foreign ownership affect the survival of Italian manufacturing and service firms. To this end, we analyze firm survival by distinguishing Italian firms as foreign multinationals (FMNEs) domestic multinationals (DMNEs) or domestic non-multinational firms (NMNEs). The empirical analysis is based on the Kaplan-Meier survival estimator and on the Cox proportional hazard model, in which we look for the impact of ownership dummies on firm survival, controlling for several firm and industry specific covariates. Our findings reveal that manufacturing and service firms owned by foreign multinationals are more likely to exit the market than either DMNEs or NMNEs. Moreover, DMNEs show a higher chance of survival in services. By decomposing firm activities into different technological classes, we also find that foreign ownership still exerts a negative influence on firm survival in both static and dynamic industries, while domestic multinationals in less-knowledge-intensive services appear more persistent.

World Competences Capture by Multinationals in Environmental Technologies

This paper analyses how important is the capture of technological competences at global level in environmental technologies and its implications for the world technology transfer. Using data from the European Patents Office (1978–2010) and a classification for eight technological fields in environmental technologies, the paper concludes that the contribution to environmental technologies by multinationals is quite significant, but still concentrated in the triad countries. Outside the triad, the innovative activity in environmental technology is quite low and still leaded by transnational corporations. Emergent countries like Brazil, China or South Africa are more characterized by to be captured than to be capturers of technological competences inside the triad. This observation can be explained by a scarce numbers of domestic multinationals, a low R&D intensity by domestic agents and a low level of R&D internationalization outwards.

Domestic multinationals, foreign affiliates, and labour demand elasticities

Using information on a panel of multinational firms operating in the United Kingdom from 1996 to 2005, we find that labour demand in domestic multinationals is less sensitive to labour cost changes than in foreign multinationals. This difference in the wage elasticity of labour demand persists even when we control for the skill intensity of firms or their level of intangible assets. This is in line with an interpretation that the provision of headquarter services in domestic multinational firms protects against strong fluctuations in labour demand. Overall, our results suggest that the wage elasticity of labour demand is about 40 % lower in domestic than in foreign multinationals.

Letter to OECD Beps (Base Erosion and Profit-Shifting) - Recommending Approach to Change Behavior of Multinationals Re Profit Shifting into Low-Tax Countries

The OECD through its BEPS initiative should strongly recommend to OECD member and non-member countries that they abandon the territorial and deferral systems that they currently use. To replace these systems, they would implement full-inclusion systems under which all foreign income, including profits in foreign subsidiaries, would be currently taxed by each MNE’s home country. A foreign tax credit mechanism would prevent double-taxation.This action would eliminate or significantly reduce the motivation of multinationals to shift profits into tax havens and other low-tax countries. As such, there would be significantly reduced MNE profit-shifting structures that erode the tax bases of all countries and require considerable time and resources of all tax authorities as well as of the multinationals that must create and maintain complicated supply-chain and other tax-motivated structures.Other benefits include an expanded tax base for all countries, simplification through elimination of home country transfer pricing issues and need for CFC rules, and a more level-playing field competitively both for competition between multinationals headquartered in different countries and for competition between pure domestic companies and multinationals headquartered in that country. And the expanded tax base could allow a reduction in the overall corporate tax rate, a factor that could make the change to this full-inclusion system more politically acceptable.The basic concept is simple. By being subject to current home-country taxation on its worldwide earnings, a multinational’s motivation for complicated structures that shift profits into tax havens from countries where operations, sales and services take place is significantly reduced or eliminated.

Foreign firms, Indian multinationals and spillovers in the Indian pharmaceutical industry

PurposeForeign firms and domestic multinationals have certain internal advantages which may spillover to domestic firms. However, due to heterogeneity across multinationals, it is not necessary that the effect of the spillovers generated by the foreign firm and that generated by the domestic multinational be similar. The purpose of this paper is to empirically find out if the spillovers generated are similar or different in nature.Design/methodology/approachThe study's results are based on a panel regression analysis of 578 firms in the Indian pharmaceutical industry from 1995‐2006. Fixed effects as well as the Levinsohn Petrin methodology are used to analyze the research question.FindingsThe paper finds that there are differences in the characteristics of foreign firms and Indian multinationals. It also finds differences in the research and development (R&D) spillover effects from foreign firms and those from Indian multinationals. The knowledge or R&D spillover effect of foreign firms on domestic firms is found to be negative, which is interpreted as movement of labor to foreign firms. Indian multinationals seem to have no spillover effect on domestic firms in the Indian pharmaceutical industry. The study also finds that the presence of foreign firms in the Indian pharmaceutical industry has not had a productivity hampering effect on domestic firms. Finally, the study finds some evidence to believe that spillovers in the Indian pharmaceutical industry may vary with size of the domestic firm.Originality/valueThere are very few papers in literature that empirically try to find similarity or differences between spillover effects due to foreign firms and those due to domestic multinationals. The study also tries to discern if these spillovers vary with respect to the size of the domestic firm.

Foreign exposure through domestic equities

We show that US investors obtain substantial foreign exposure through their holdings of domestic equities. Domestic multinationals, in particular, provide significant foreign exposure. We also find that, although the average US investor is less tilted toward domestic multinationals, institutional investors do overweight domestic firms that are more internationally oriented. ‘Indirect’ foreign holdings through domestic multinationals are shown to be substantial; combining them with reported data on international positions almost doubles US investors’ total ‘foreign’ holdings. Our findings indicate that the home bias is not as severe as assessments based on reported international investment statistics suggest.

Domestic Multinationals, Foreign Affiliates, and Labour Demand Elasticities

Using information on a panel of multinational firms operating in the United Kingdom from 1996 to 2005, we find that labour demand in domestic multinationals is less sensitive to labour cost changes than in foreign multinationals. This difference in the wage elasticity of labour demand persists even when we control for the skill intensity of firms or their level of intangible assets. This is in line with an interpretation that the provision of headquarter services in domestic multinational firms protects against strong fluctuations in labour demand. Overall, our results suggest that the wage elasticity of labour demand is about 40 percent lower in domestic than in foreign multinationals.

Multinational status and firm exit in the Italian manufacturing and service sectors

The aim of this paper is to investigate the determinants of survival for Italian firms according to their ownership status. To this end, we analyze firm survival distinguishing the Italian firms in foreign multinationals (FMNEs), domestic multinationals (DMNEs) and domestic non-multinational firms (NMNEs). The empirical analysis, carried out over the period 2004–2008, is based on the Cox Proportional Hazard Model, in which we look for the impact of ownership dummies on firm survival controlling for several firm and industry specific covariates. Our main findings reveal that FMNEs are more likely to exit the market than national firms in manufacturing and services. In contrast, DMNEs have a higher chance of survival compared with the other firm categories in services. However, when we conduct a finer level of industry classification, we observe the presence of some heterogeneity in the patterns of firm survival. Moreover, we find that the presence of foreign firms has a positive impact on firms’ survival mainly in the service sectors.

Multinationals, cross-border acquisitions and wage dispersion

We examine the impact of cross-border acquisitions on intra-firm wage dispersion using a detailed Swedish linked employer-employee data set including data on all firms and about 50% of the Swedish labour force with information on job-tasks and education. Foreign acquisitions of domestic multinationals and local firms increase wage dispersion but so do also other types of cross-border acquisitions. Hence, it is the acquisition itself rather than foreign ownership that increases wage dispersion. The positive wage effect is concentrated to CEOs and other managers, whereas other groups are either negatively affected or not affected at all.

Foreign Acquisitions, Domestic Multinationals, and R&D

The aim of this paper is to evaluate the causal effect of foreign acquisition on R&D intensity in targeted domestic firms. We are able to distinguish domestic multinationals and non-multinationals, which allows us to investigate the fear that the change in ownership of domestic to foreign multinationals leads to a reduction in R&D activity in the country, as headquarter activities are relocated to the new owner’s home country. We use unique and rich firm level data for the Swedish manufacturing sector and different micro-econometric estimation strategies in order to control for the potential endogeneity of the acquisition dummy. Overall, our results give no support to the fears that foreign acquisition of domestic firms lead to a brain drain of R&D activity in Swedish MNEs. Rather, this paper finds robust evidence that foreign acquisitions lead to increasing R&D intensity in acquired domestic MNEs and non-MNEs.

Volatile multinationals? Evidence from the labor demand of German firms

Does more FDI make the world a riskier place for workers? We analyze whether an increase in multinational firms' activities is associated with an increase in firm-level employment volatility. We use a firm-level dataset for Germany which allows us to distinguish between purely domestic firms, exporters, domestic multinationals and foreign multinationals. Employment in multinationals could be more volatile than employment in domestic firms if multinationals were facing more volatile demand or if they react more to aggregate developments. We therefore decompose the labor demand of firms into their reaction and their exposure to aggregate developments. We find no above-average wage and output elasticities for multinational firms.