Foreign Multinational Enterprises Research Articles

Saudi Arabia Regional Headquarters Program – Transfer Pricing Perspective

In February 2021, the Government of the Kingdom of Saudi Arabia announced its plans to limit the awarding of contracts to foreign multinational enterprises that do not have a regional headquarters set-up in the country. In December 2023, the Saudi Arabia Ministry of Investment in coordination with Ministry of Finance and the tax authorities announced a 30-year incentive plan for Saudi Arabia Regional Headquarters, which includes inter alia 0% corporate income tax and withholding taxes for the entire period. In February 2024, the tax authorities provided more clarifications about the conditions to obtain the benefits of the new regime. These also include the need to comply with the arm’s length principle and transfer pricing rules, which raises interesting questions from a tax technical point of view considering the particularities of the Saudi Arabia Regional Headquarters regime.

Multinational enterprises' lobbying and foreign subsidiary performance: Evidence from the U.S. in the context of the global financial crisis

AbstractWhether corporate political activity (CPA) benefits firm performance is contested in the literature. However, the CPA‐performance relationship has been less explored in the international business context or in the context of macroeconomic shocks—notably the global financial crisis—during which multinational enterprises (MNEs) may be forced to revisit their market and non‐market strategies. In this study, we draw upon insights from the institutional theory and legitimacy perspectives to argue that the performance consequences of MNEs' lobbying in a host market are contingent upon the MNE's experience of operating in the host market, their lobbying frequency, and the subsidiary's technological intensity. The empirical analysis used to test our hypotheses is based on a panel dataset of 224 subsidiaries of foreign MNEs operating in the United States, spanning the 8‐year period 2005–2013, covering the years of the financial crisis. We find support for most of our hypotheses and contribute to the performance implications of CPA in international business contexts.

Multinational enterprises' R&D commitments in Chinese provinces: A configurational approach

Multinational enterprises (MNEs) are increasingly off-shoring some of their R&D to emerging markets, including China. Much of the extant literature on MNEs' investments in R&D facilities abroad analyses technological and institutional factors at the national level, typically using regressions to examine how host-country institutions influence foreign MNEs' outlays. It, therefore, tends to downplay the importance of sub-national and non-technology-related institutions, and how configurations of home- and host-country institutions interact to influence R&D commitments abroad. Drawing on the global factory model and the Varieties of Capitalism approach, we identify five causal conditions that may influence MNEs' R&D commitments abroad. Conducting an abductive fuzzy-set qualitative comparative analysis, we find four combinations of causal conditions are sufficient to explain substantial R&D commitments in different Chinese provinces. The combination of local corruption and provincial R&D intensity is important, as are the MNE's home-country stock-market capitalization to GDP ratio and minority investor protection. We contribute to the literature on MNEs' investments abroad by extending the importance of sub-national institutions to include those not directly related to technology. We also reveal how combinations of institutions (rather than individual ones acting independently) from the MNE's home and host contexts explain MNEs' R&D commitments in Chinese provinces.

The decay of location advantages and the substitutive role of firm-specific advantages in technology-based manufacturing

PurposeThis research aims to provide a new perspective on the evolving linkages between LAs and FSAs in the context of the technology-based manufacturing industry. Firm-level competitive strengths in an international context build upon the combination of (largely) exogenous location advantages (LAs) and endogenous firm-specific advantages (FSAs). The authors focus especially on the decay of LAs over time, which has been observed in many highly developed countries during the past decades. The authors show how the strengthening of FSAs can substitute for decaying LAs, thereby safeguarding against the demise of entire industrial regions.Design/methodology/approachThe authors examine the technology-based manufacturing industry in Belgium, building upon an analysis of survey responses by 66 firms including a subgroup of 26 multinational enterprise (MNE) subsidiaries. The professional association representing this industry in Belgium (Agoria) viewed the firms included in the survey as representative for Belgian technology-based manufacturing in terms of the LAs they presently build upon (or location disadvantages they face) and the internal strengths they command relative to (foreign) rivals. The investigation uncovered the decay of critical LAs in Belgium and in parallel, the rise of ‘compensating’ FSAs of Belgian operations relative to foreign firms, including, especially, MNE sister subsidiaries in other countries. The authors also conducted 23 in-depth interviews with senior level managers (CEOs and senior vice presidents) of technology-based firms, including 10 subsidiaries of foreign-owned MNEs, which validated our analysis of the interplay between LAs and FSAs.FindingsThe findings reveal that since inception, Belgian manufacturing operations experienced an overall decay in their critical LAs by 23% on average. Despite this, several Belgian subsidiaries of foreign MNEs consider themselves as commanding a resource-base superior to that of the next-best-in-class subsidiaries. Furthermore, when assessing the dynamic interplay between LAs and FSAs, there is some evidence that the decay of LAs fueled the quest for – and firm-level journey toward – stronger FSAs.Originality/valueThe originality of this study is the alternative perspective to the conventionally assumed “positive-positive” relationship between LAs and FSAs. Prior management research has not examined the impact of decaying LAs on new FSA-creation in the realm of technology-based manufacturing.

Developing non-traditional firm-specific advantages in domestic strategic factor markets: evidence from China

Purpose Chinese firms are winning market share from foreign multinational enterprises in domestic markets. The international business literature suggests that this is happening because these firms are developing non-traditional firm-specific advantages (FSAs). Strategic factor market (SFM) theory provides a good basis for explaining how this is happening. However, it is underdeveloped in terms of analysing unique resources and unique access to those resources by Chinese firms in their domestic markets. This paper aims to develop a framework to understand how Chinese firms have developed non-traditional FSAs. Design/methodology/approach The case study method is adopted to explore how Chinese firms develop non-traditional FSAs. Specifically, the authors compare paired case studies of a Chinese firm and a foreign multinational in each of two industries. Findings The authors find that Chinese firms have developed non-traditional FSAs because of more relevant experience, better adapted strategies and privileged relationships. This has enabled Chinese firms to develop non-traditional FSAs. Originality/value The authors propose a framework that conceptualises non-traditional FSA development in Chinese firms as a product of superior access to unique and valuable resources in their domestic SFMs.

External linkages and regional diversification in China: The role of foreign multinational enterprises

This article investigates the role of local external linkages in supporting regional industry entry in new activities, by specifically considering the role of foreign multinational enterprises (MNEs). Theoretically, we construct an original conceptual framework encompassing different potential trajectories of regional diversification based on the presence of MNEs. Empirically, we focus on the case of 279 Chinese prefectures over 1998–2007 and our results suggest that the presence of MNEs is associated with industry entry in unrelated and complex industries, supporting the idea that regional external linkages can activate processes of diversification that modify the technological and industrial portfolio of local economies.

Responsible leadership toward garnering legitimacy from stakeholders in India: an institutional perspective

PurposeUnderstanding societal expectations of a leader's responsibility and context-specific challenges in less-researched emerging economies has become imperative for foreign Multinational enterprises (MNEs) to survive in these contexts while developing globally responsible leaders. Identification of institutionally sanctioned characteristics, competencies and strategies that assist leaders in dealing with such challenges while achieving shared value has wider implications for academics, practitioners and the literature on responsible leadership (RL), which is the purpose of this paper.Design/methodology/approachThe authors conducted in-depth interviews of 28 senior indigenous leaders in 3 Indian Multinational corporations (MNCs) in construction sector, following a grounded theory approach.FindingsThe authors identified three vital institutionally driven challenges and four individual-level societal-driven factors, subsequently influencing leaders' strategic decisions and choices to deal with such challenges beyond passive conformance. Contrary to the previous findings, this study also briefly discusses that a mere ethical climate is insufficient; organizations must develop a holistic values climate that works as contextual factors to influence RL.Originality/valueContrary to the previous findings suggesting Indian leaders' conformance to constraining forces to RL, by adopting a multilevel approach, the authors identify the context-specific strategic behaviors that responsible leaders adopt in dealing with such forces responsibly. Thus, it is the first multilevel inductive approach conducted in a non-Western context, offering a discrete understanding of RL while addressing some of the inconsistencies in the literature and contributing to cross-cultural leadership research. Also, findings highlight the factors of RL that are more emic and etic for generalization.

Multinational enterprises and local firms’ export market entry: A panel data analysis of Vietnam's food processing industry

AbstractThis study develops new insights into the spillover effects of foreign multinational enterprises (MNEs) on local firms’ export market entry, using the case of Vietnam—a notable global manufacturing hub located in Southeast Asia. The empirical analysis is based on a disaggregated firm‐level panel dataset of 25,032 observations of Vietnamese food processing firms during the period 2011–2016. The food processing industry is an essential part of the country's thriving manufacturing sector, with enormous potential for exports. The random‐effects Probit estimation results suggest that the presence of foreign MNEs significantly raises the likelihood that private local firms become exporters and thereby start integrating into global value chains. Further regressions reveal that foreign presence is also linked to higher export intensity among domestic firms, and that the magnitude of the estimated spillover effects is conditional on the specific measures of foreign MNE presence, the ownership structure in local industry, and the size of local firms. The findings highlight the considerable potential for foreign MNEs to influence local firms’ export prospects and validate the policy efforts to attract foreign direct investment inflows to the examined industry.

A study of cross‐border profit shifting channels: Evidence from Australia

AbstractWe investigate two cross‐border profit shifting channels used by foreign multinational enterprises (MNEs) in Australia and assess the effectiveness of the related measures adopted by the Australian Parliament to combat base erosion and profit shifting (BEPS). Overall, we find that Australian subsidiaries of foreign MNEs used tax‐induced intra‐group transfer pricing and, to a lesser extent, interest expense loading to shift profit out of Australia throughout the period from 2007 to 2020. However, we find no evidence indicating that profit shifting out of Australia via the two channels has reduced after the implementation of related BEPS countermeasures in Australia from 2013.

CORPORATE SOCIAL RESPONSIBILITY IN BUSINESS PRACTICES OF MULTINATIONAL COMPANIES: STUDY OF DIFFERENCES BETWEEN CZECH AND SLOVAK

Purpose – find differences in the core principles of implementation of CSR (Corporate Social Responsibility) practices in subsidiaries of foreign multinationals in Slovak and Czech Republic, two similar yet different countries. Research methodology – the questionnaire was distributed to local daughter companies of foreign multinational enterprises selected on the basis of stratified randomization. The sample: 360 enterprises (180 from each country). Mann‐Whitney U Test was used for the analysis (non-normally distributed data) of the differences between Slovak and Czech companies in their CSR implementation. Findings – differences among the two countries in the implementation of CSR exist in few factors due to their joint history. Research limitations – the representativeness of companies connected with foreign mother companies in the two countries cannot be computed: no data are available. To overcome this issue, the same number of monitored entities was analysed to so as to make further statistical analysis possible. Practical implications – the results can be used by business entities, which may benefit from comparing themselves against other players on the market or against the average situation on the monitored markets. Moreover, teaching future managers and promoters CSR is of significant importance. Originality/Value – the work sheds lights on CSR practices in Czechia and Slovakia, two countries in which there is a lack of studies on the topic of CSR.

The determinants of inward FDI in India in the 2000s

Purpose Unlike the traditional growth model of emerging markets after economic liberalization, India’s inward foreign direct investment (FDI) surged paralleling its strong economic growth in the 2000s, despite the failure to establish a strong secondary sector. This creates an opportunity to deepen the conceptual and contextual understanding of the pivotal mechanisms that impel foreign multinational enterprises to invest into India and provides a natural setting to better understand the nature of its institutional, political and economic environment. Design/methodology/approach The authors develop a theory contextualized to Indian inward FDI patterns for the 2000–2017 period. The theoretical framework expands upon received investment motives, with explicit consideration given to the idiosyncrasies of developments in India’s recent macro and socioeconomic environment. The authors test the hypotheses using panel data from 134 countries that invested in India, using a Hausman–Taylor estimation. Findings The authors find that India’s transition toward a knowledge economy attracts asset augmenting rather than asset exploiting FDI. Investors appear to target long-term investments by gaining access to India’s digital capabilities, R&D, and growing talent base with a high degree of specialization within analytics, biotechnology, engineering, or pharmaceuticals. Foreign investors do not seem to be notably deterred by infrastructural challenges nor by legal and regulatory restrictions. Originality/value By providing a new perspective on India’s atheoretical economic development and FDI environment, this study offers a distinct point of comparison with regard to established hypotheses within the extant literature on FDI into emerging markets. Rethinking contemporary investment motive theory by introducing an adapted conceptual framework provides further opportunity to inform the understanding of firm strategies in similar environments.

Organizational scaling: The role of knowledge spillovers in driving multinational enterprise persistent rapid growth

Based on insights from the spillover, international business, and knowledge management literatures, we study factors that enhance multinational enterprise (MNE) scaling and growth. Viewing MNEs and their employees as potentially rich knowledge sources, we draw attention to MNE-to-MNE knowledge spillover which fuel MNE scaling throughout organizations and employ panel data spanning 44,256 foreign and 21,246 domestic MNEs during 2004-2017. Our results show that (a) foreign MNEs benefit from depth and breadth of organizational knowledge spillover available in a geographic region, (b) domestic MNEs benefit from the depth of human capital knowledge spillover, and surprisingly, (c) domestic ownership hampers MNE scaling.

Downstream foreign MNEs and local suppliers’ innovation in a dynamic environment: the moderating effect of network diversity

AbstractThis study investigates how the presence of foreign multinational enterprises (MNEs) in downstream sectors influences innovation in upstream local suppliers via backward linkages. Analysis using Korean Innovation Surveys shows backward linkages of foreign MNEs to have negative effects on local suppliers. While local suppliers operating in dynamic environments can avert negative effects, those locked in extant innovation networks continue to experience adverse effects. Our findings show that the effect of MNE presence on local firms should be evaluated in conjunction with given industrial changes and heterogeneous firm strategies.

The Determinants of Foreign Multinational Enterprise Firms' Board Governance in Caribbean Offshore Island Economies

Using a unique sample of 171 listed firms in the Caribbean region, this paper explores the influence of post-entry ownership of foreign MNEs on the board composition of subsidiaries. Our findings reveal higher ownership is a means of enhancing the security of property rights while simultaneously creating a liability of foreignness. This causes subsidiaries to externally contract for resources, leading to the hiring of more lawyers and fewer accountants. The opposite is true for progressively lower levels of foreign MNE ownership. Firms' adoption of shareholder rights governance amplifies these findings, while state formal institutional quality reverses them.

Foreign multinationals affiliates and countries' carbon upstreamness. How could these firms support the fulfilment of emissions reduction targets?

Climate emergency requires urgent actions to reduce carbon emissions. In this paper we calculate the countries’ carbon upstreamness and evaluate its linkage to the presence of foreign MNE affiliates, by using a multiregional input–output model with firm heterogeneity. We find a mismatch between carbon upstreamness, emissions reduction targets and income per capita between countries. OECD countries, which are located in the final stages of carbon production, have lower carbon intensity than the world average and have committed strongly to reducing their total emissions. On the contrary, non-OECD countries, which are located mainly in the initial stages of carbon production, maintain higher carbon intensity than the world average and they are less ambitiously committed, as they have lower per capita income. In that context, multinational enterprises (MNEs) could play a key role in supporting the fulfilment of emission reduction targets in host countries, so we propose a simulation to evaluate this role. Specifically, if the MNE affiliates adopt the Intended Nationally Determined Contributions (INDC) set by the controlling country regardless of where they are located, the emissions of MNEs would be reduced by 15.6% (395,864 KtCO2), 4% more than they would be reduced under current emission reduction targets in 2016. However, if MNEs apply the more ambitious INDC, regardless of origin or destination, the emissions would be reduced by 18% (455,910 KtCO2), 7% more than scenario 1 and 1.7% of global emissions in 2016.

Marketing the Multinational in Shenbao, Shanghai, 1872–1889

Foreign multinational enterprises (MNEs) operating in China, especially during the nineteenth century, have attracted less interest from historians than Chinese firms and expatriate merchant houses. However, in this period, MNEs shaped advertising in Shenbao, China’s most vital modern Chinese-language newspaper. Through our examination of the advertisements they placed during the newspaper’s first phase of publication, 1872–1889, we argue that MNEs were more significant to the history of business in China than heretofore recognized. We contend that they influenced Chinese print media advertising by pioneering product differentiation and branding in this newspaper. They did so, we suggest, because this approach to marketing, which differed from those used by most other foreign and Chinese domestic advertisers, provided a competitive advantage to overcome their liability of foreignness, and was facilitated by their global reach in the form of knowledge flows from offshore bases to onshore branches.

Product innovation of domestic firms versus foreign MNE subsidiaries: The role of external knowledge sources

We build upon the knowledge-based view and the open innovation literature to examine product innovation of domestic firms relative to subsidiaries of foreign multinational enterprises, and the mechanisms that domestic firms could use to catch up to foreign subsidiaries for product innovation. We propose three external knowledge sources that will have a positive impact on product innovation, namely, R&D collaborations, inward technology licensing, and external R&D. We hypothesise that the effects would be greater for domestic firms than for foreign subsidiaries. We empirically test our hypotheses using panel data from Spain (2006–2016). We find that domestic firms introduce fewer product innovations than foreign subsidiaries, and that the external knowledge sources are effective mechanisms for domestic firms to reach, or outperform, foreign subsidiaries in terms of product innovation.

Multinational Enterprise Intellectual Property Right Strategies in Emerging Markets

While scholars have long recognized the key role of intellectual property rights (IPR) in value appropriation from innovation, less is known about foreign multinational enterprise (MNE) IPR strategies in emerging markets with weak IPR institutions. We examine how foreign MNEs evaluate the relative effectiveness of secrets and patents in response to their partnership and collocation with local emerging market firms (EMF), contingent on regional IPR development levels in the host country and IPR institutional distance between MNE home and host countries. Using data on 407 MNEs from the China Innovation Survey, we find that both partnership and collocation with local EMFs increase MNEs’ perceived effectiveness of secrets relative to patents. These effects are mitigated by regional IPR development levels in emerging markets and are strengthened by IPR institutional distance between MNE home and host countries.

Organizational Identification in Local Subsidiaries of Foreign Multinational Enterprises

We investigate organizational identification in small and medium-sized local subsidiaries of foreign multinational enterprises (MNEs). Organizational identification – a sense of oneness with their organization - is a strong predictor of positive employee attitudes and behaviors. However, due to the ‘foreignness’ and ‘smallness’ associated with small and medium-sized local subsidiaries of foreign MNEs, low-level host country nationals (HCNs) working for the small and medium-sized local subsidiaries exhibit low levels of organizational identification. In this study, we consider the role of HCN CEOs in overcoming the low organizational identification of low-level HCNs. Unlike low-level HCNs, HCN CEOs closely work with the headquarters, developing a good understanding of MNEs’ business strategies, activities, and policies, and the strategic importance of local subsidiaries for MNEs. To approach the issue, we develop and test a model on organizational identification in local subsidiaries based on multi-sourced data from small and medium-sized subsidiaries of MNEs in South Korea, using a sequential mixed methods design. First, we reviewed archival data on organizational identification from exit interviews of low-level HCNs, and also conducted interviews with HCN CEOs. As a result, we identify key antecedents and outcomes of organizational identification. Second, from a survey of both HCN CEOs and low-level HCNs, we test our hypotheses and validate our model. Implications are discussed in the paper.

EFFECTS OF HUMAN RESOURCE PRACTICES ON TURNOVER INTENTION OF MULTINATIONAL CORPORATIONS: THE MEDIATING ROLE OF INDIVIDUALISM/COLLECTIVISM

The global gradual economic recovery has restored the voluntary turnover rate to the level before the outbreak of the epidemic. Cultural differences are considered to be an additional reason for the brain drain of foreign multinational enterprises. A survey was conducted to collect responses from 202 millennial in selected foreign multinational corporations in China. Therefore, the purpose of this study is to explore the relationship between human resource practice (HRPs) mediated by individualism/ collectivism (IC) and turnover intention (TI) by adopting the recognized and well-established social exchange theory, so as to provide new academic ideas for the Millennium employee management of multinational corporations in China. This study was utilized a cross-sectional study as a tools for data collection. For data analysis, this study implemented a Partial-Least Square (PLS) as tools of data analysis. The results highlight the mediating role of individualism/collectivism, reduce Millennium employee turnover intention. In addition, the results verify the negative effect of human resource practice on turnover intention. Therefore, it is important for the management of multinational enterprises in China to develop human resources practices that meet the cultural cognitive of Chinese employees. This study is the first to measure the mediating effect of individualism/collectivism, which defines the theoretical and practical significance and the direction of future research. In addition, more cultural factors will be added to the future research.