Foreign Multinational Enterprises Research Articles

Roles and strategies of foreign MNE subsidiaries in New Zealand

This study examines the roles and strategies of foreign-owned subsidiaries in New Zealand, with the aim to develop an improved classification of subsidiaries of multinational enterprises (MNE). Previous research has proposed a range of subsidiary classifications indicating various ways in which subsidiaries can be distinguished. There are, however, still concerns that critical contingencies, such as the subsidiary development capacity and its own strategy, remain ignored. This study addresses these gaps by drawing on network theory to develop a novel and overarching subsidiary classification framework. Based on the framework, it empirically derives a three-part subsidiary classification: entrepreneurial, constrained autonomous, and constrained. The empirical classification is based on data from 429 foreign subsidiaries in New Zealand. Implications for theory, public policy, and management practice are made.

Home‐institutional Imprinting and Lobbying Expenditure of Foreign Firms: Moderating Effects of Experience and Technological Intensity

AbstractThe issue of whether a firm's ‘home’ environment influences its non‐market activities in a ‘host’ country is being increasingly discussed in the international business literature. In this paper, we use institutional and organizational imprinting theories to argue that multinational enterprises (MNEs) founded in countries with stronger regulatory institutions are likely to spend more on lobbying in a host country compared to MNEs founded in countries with weaker regulatory institutions. We also argue that this effect is moderated by the MNE's overall experience, its experience within the host country and its technological intensity. We test our hypotheses using a sample of 378 foreign MNEs (among the largest 500) operating in the USA, spanning the eight year period 2006−2013, and representing 29 home countries. Our results support our hypothesis on the relationship between home‐institutional imprinting and overseas lobbying expenditure, as described above. Our results also support our arguments that MNEs’ overall experience and technological intensity reduce the imprinting effect of home institutions on lobbying expenditure; however, our moderating effect of host‐country experience on this relationship is not supported.

The Impact of Corruption and Institutional Restrictiveness on Entry Strategy

Drawing on the institutional theory and the literature on corruption we investigate the effects of host country corruption and formal and informal institutional restrictiveness on the entry strategies of foreign multinational enterprises (MNEs). Using data on over 400 telecommunication projects in developing markets between 2005 and 2011 we find that both formal and informal restrictiveness encourage the MNE to enter using a joint venture with a local partner rather than a wholly owned subsidiary. However, informal restrictiveness is a stronger force than the formal restrictiveness. Most importantly we find a three-way interaction among host country corruption and formal and informal restrictiveness. We show that corruption pervasiveness reduces the likelihood that the MNE chooses a local partner rather than a wholly owned subsidiary, when encountered with restrictive formal institutions. However, we show that this effect is stronger at lower levels than higher levels of informal restrictiveness. This finding is particularly important since it explains the inconsistencies in the extant literature on the effect of host country corruption on the foreign MNE’s entry strategy.

Multinational Enterprises as Agents of Dynamic Host Country Institutions: FDI and CSR

In this study we focus on examining how the presence of foreign multinational enterprises influences host countries’ overall extent of corporate social responsibility activities via the mediating e...

戦後、外資系製薬企業の在日経営 : 社会関係資本に注目して

戦後、外資系製薬企業の在日経営 : 社会関係資本に注目して

The provisioning of collective goods by MNEs in emerging markets

PurposeThis paper aims to determine the essential “collective goods” which a foreign multinational enterprise (MNE) must have before production can start in a remote area of an emerging economy, and to consider the alternative governance modes available to procure or create these goods.Design/methodology/approachThis purpose is examined conceptually and theoretically. First, the concept of “collective goods” is presented, followed by a consideration of the traditional “buy, ally or make” contractual approaches available to obtain goods and services. These approaches are repositioned in the context of an “emerging economy” so that alternative “ordering systems” as well as “non-contractual” means of obtaining things have to be considered in the context of internalization and reciprocity theories.FindingsIt is difficult to obtain collective goods in remote areas of emerging economies where private ordering prevails and even succeeds but at high transaction costs and with substantial government intervention. However, the use of non-contractual modes of exchange such as reciprocity is available to facilitate exchanges between market MNEs and nonmarket state offices and civil-society associations such as non-governmental organizations with which collaboration is necessary but which cannot be acquired or controlled by MNEs. However, market firms can use philanthropy and lobbying to obtain the help of these nonmarket actors who know how to operate under private and state-ordering systems.Research limitations/implicationsTheoretical implications: Internalization theory explains why MNEs are able to obtain collective goods by providing them “in-house”, while reciprocity theory exemplifies how non-contractual modes of exchange can substitute for the traditional but contractual “buy, ally and/or make”.Practical implicationsManagerial implications: In terms of the organizational structure of the subsidiary of an MNE operating in an emerging economy, it appears that the line functions of procurement, engineering and production may rely more on contractual exchanges with foreign suppliers, while the staff functions of public affairs, government relations and human resources may be more adept at using reciprocal exchange with local suppliers.Originality/valueThe provisioning of the collective goods when a firm builds its facilities in a remote and underdeveloped part of an emerging economy has hardly received any research attention nor have the non-contractual ways – such as reciprocity – available in the context of private ordering to obtain these goods.

Wage Differentials among Ownership Groups and Worker Quality in Vietnamese Manufacturing

Wholly foreign multinational enterprises (WFs), joint-venture multinationals (JVs), state-owned enterprises (SOEs) pay higher wages than domestic private firms in Vietnamese manufacturing. In large samples of medium–large (20+ employees) firms, conditional differentials accounting for worker education and occupation, as well as capital intensity, size, and shares of female workers, were substantially smaller, but positive and significant. Wage levels and differentials varied substantially among industries. Conditional differentials remained positive and significant for WFs and JVs in most of the 11 industries examined, but estimates of SOE-private differentials were insignificant in most industries. Robustness checks using 2007 data yielded similar results.

The moderating influence of market potential and prior experience on the governance quality-equity participation relationship

PurposeThe purpose of this paper is to theorize and examine how target country governance quality, target country market potential and acquirer’s prior experience impacts equity participation in cross-border acquisitions.Design/methodology/approachThe hypothesized effects are tested using a sample of 1,447 acquisitions undertaken over an 11-year time by US-based multinational enterprises (MNEs) in four emerging markets: Brazil, Russia, India and China (BRIC).FindingsAnalysis suggests that target country governance quality (government effectiveness, rule of law and control of corruption) strongly influences equity participation, and market potential moderates the influence of governance quality on equity participation. Further, findings demonstrate that acquirer’s target country acquisition experience amplifies the positive influence of market potential on governance quality-equity participation relationship.Originality/valueThis study adds to the existing knowledge of equity participation in cross-border acquisitions (CBAs) undertaken by foreign MNEs in BRICs. This understanding is important since MNEs across the globe invest in BRIC utilizing CBA, and related research remains limited.

Can Licensing Induce Productivity? Exploring the IPR Effect

Licensing is one of the main channels for technology transfer from foreign owned multinational enterprises (MNEs) to domestic plants. This transfer occurs within industries and across industries, which results in technology spillovers that can affect both intra- and inter-industry productivity. We propose a theoretical model that predicts that this effect can be enhanced by the implementation of stronger intellectual property rights (IPR). Using Chilean plant-level data for the 2001–2007 period and exogenous variation from a reform in 2005, we test our theoretical predictions and find positive inter-industry effects, which result in higher productivity for domestic plants. However, there are negative spillovers when licensing is implemented within the same industry. We also test for the effect of stronger IPR and find that stronger IPR reduces intra-sector spillovers but increases inter-industry spillovers. Moreover, the IPR effect is stronger on firms that are, on average, smaller and have low productivity. Our results are robust not only to a series of definitions of IPR, licensing and productivity but also to a set of different specifications.

Determinants of CSR Strategies of Foreign MNE Subsidiaries in Korea with Special Reference to Institutional Environment and CEO Characteristics

In recent years, multinational enterprises (MNEs) have actively developed corporate social responsibility (CSR) strategies to obtain a sustainable competitive advantage in the global market. Up to now a large number of studies have investigated CSR-related issues, but most of them have narrowly focused on the dimensions of interested parties and domestic enterprises. Thus, we analyzed determinants of CSR strategy of MNEs in South Korea, focusing on the institutional environment and the characteristics of their CEOs. We established related hypotheses through literature research and conducted an empirical analysis using the multiple-regression method over the data collected from 100 foreign MNE subsidiaries in South Korea. We found that major relevant determinants of CSR strategy are formal institutions (government policy) and the characteristics of the CEO (religion and academic major). One major implication of this study for academics and policy makers is that both local institutions and CEO characteristics may affect MNE subsidiaries’ CSR strategy.

Caught in the crossfire: Dimensions of vulnerability and foreign multinationals' exit from war‐afflicted countries

Research summary: When war occurs in a country, some foreign multinational enterprises (MNEs) stay on, while others flee. We argue thatMNEresponses to external threats depend on the firm's vulnerability, which we decompose into exposure (proximity to threat), at‐risk resources (potential for loss), and resilience (capacity for coping). We test the independent and interactive effects of these dimensions using a geo‐referenced sample of 1,162MNEsubsidiaries in 20 war‐afflicted countries between 1987 and 2006. We find that highly valuable resources can become liabilities when exposed to harm, and the best way to cope with external threats may be to exit. Our findings extend the resource‐based view and real options theory by demonstrating the bounded value of resources and options in the face of environmental contingencies.Managerial summary: A recent survey of multinational enterprise (MNE)executives revealed that 30 percent of the respondents believed that their firms were exposed to collateral damage from war, with more than 90 percent expecting risks to rise. Yet, 25 percent of the executives indicated that their firms had no continuity plan. Our study ofMNEs in war‐afflicted countries highlights the costs of not having a response strategy in place. We find that, in war zones, otherwise highly valuable locations and resources can become sources of vulnerability that prompt early withdrawal from a host country. Our work further highlights the value of real options thinking—where structural solutions such as building redundancy into a portfolio of options may exist in advance of problems—for navigating hostile environments. Copyright © 2016 John Wiley & Sons, Ltd.

Degree of equity ownership in cross-border acquisitions of Brazilian firms by multinationals: a strategic response to institutional distance

This study analyzes how foreign multinational enterprises respond to uncertainty in their cross-border acquisitions in emerging economies and, specifically in Brazil, given the institutional differences that separate the home and host countries. We analyze how institutional distance impacts multinational enterprises strategy in taking a partial or full ownership stake in their Brazilian acquisitions. We propose that the equity stake is a strategic response to the uncertainty of operating in institutionally distant countries. In an study based on secondary data of 736 acquisitions between 2008 and 2012, we tested statistically the relation between nine dimensions of institutional distance and the equity stake acquired. Results show differentiated effects albeit with significant evidence that greater geographic distance lead multinational enterprises to take a partial equity stake, while financial and cultural distance leads to a full acquisition. This study has two contributions: reinforces the understanding of the institutional challenges of entering emerging economies, and puts forth how firms’ strategies may incorporate structural solutions that minimize risks and investments when facing institutional uncertainties.

Taxation of Foreign Multinational Enterprises Conducting Business in and with Saudi Arabia

In this article, the author considers the tax implications of Saudi Arabian domestic law (outbound payments, permanent establishment issues) and the tax treaties that Saudi Arabia has concluded for multinational enterprises doing business in and with Saudi Arabia. The article also provides insights into the practices of local tax authorities.

Effects of local legitimacy on certification decisions to global and national CSR standards by multinational subsidiaries and domestic firms

We explore the impact of local legitimacy on the imitation of certification by subsidiaries of foreign multinational enterprises and domestic firms. We propose that MNE (multinational enterprise) subsidiaries and domestic firms differ in their propensity to imitate geographically proximate firms when deciding whether to adopt national vs global CSR (corporate social responsibility) certifications for two reasons. First, there are differences in the legitimacy they can expect to gain in different communities from adopting these certifications. Second, there are differences in their knowledge about the local legitimacy of these certifications. We test our hypotheses by studying the decisions of automotive suppliers in Mexico to certify either to ISO 14001, a global certification, or to Clean Industry, a national certification. We find that geography matters: MNE subsidiaries imitate national certifications by geographically proximate firms to overcome a liability of foreignness, while domestic firms imitate global certifications by proximate firms to overcome the disadvantages of localness. We explore the implications of our findings for institutional theory and future research.

The internationalization of emerging economy firms: Substitution and location choice

While the international business literature has become increasingly interested in technology-seeking foreign direct investment, little is known about the alternatives to sourcing knowledge abroad. Specifically, it is unclear how domestic strategies influence the propensity of emerging economy firms to invest abroad in search of knowledge. This study examines the ways in which international joint ventures with foreign multinational enterprises in a firm’s host country influence the location choice of emerging economy firms. Moreover, we address the extent to which this relation is influenced by firms’ absorptive capacity and the revealed comparative advantage of the firm’s home country. Using data on inward and outward foreign direct investment in China in the period 1978-2014 we find that domestic joint venture experience significantly influences the location choice and that both firms’ absorptive capacity and the strength of its domestic industry influence the preference for more advanced host countries....

Shifting-Profits Through Tax Loopholes. Evidence from Ecuador

Based on a natural experiment that took place in Ecuador in the context of a capital outflow tax, this paper presents suggestive evidence of the emergence of an abnormal transfer pricing behavior. We exploit the fact that some imports were eligible to a tax-credit measure aiming to offset the capital outflow tax. The identification strategy relies on the fact that a foreign multinational enterprise has only an incentive to increase the unit value -transfer price- for profit shifting motivations of products eligible to the tax-credit. Then, comparing the evolution of the unit value of eligible products (the treatment group) with that of non eligible products (the comparison group) before and after the tax-credit measure, we estimate the over-reporting incentive's impact on the reported value. Results show that the declared unit value of eligible imports increased following the introduction of the tax-credit measure. Various tests suggest that this abnormal increase is attributable to a profit-shifting behavior.

The Long-Term Impact of Foreign Multinational Enterprises in Spain: New Insights into an Old Topic

The role of foreign capital and technology in the economic and social progress of late-developing countries remains a controversial issue in both academic and policy circles. In this essay, we examine the case of Spain in the light of the academic literature from the 1960s to the present. First, we identify and contextualize the intellectual concerns and controversies of two important generations of economists and historians and their approaches to the specific issue of multinational enterprises (MNEs). We then discuss what we consider to be the seven major contributions of recent Spanish scholarship in terms of: 1/ new quantitative evidence on FDI inward flows and firm demography analyses of foreign MNEs; 2/ new approaches to the transfer of technology by MNEs; 3/ collective and individual case studies of foreign MNEs, with a focus on their impact on local capabilities; 4/ identification of patterns of investment by MNE home countries; 5/ identification and study of the local actors of inward FDI; 6/ new perspectives gained from the history of international relations; and 7) new evidence on processes leading from inward FDI to outward FDI. We argue that the time is ripe for comprehensive re-assessments of the long-term impact of foreign MNEs and the role of Spain in the global economy.

Designing strategy for the globalisation of innovation: perspectives for foreign electric vehicle manufacturers in China

Despite efforts to deploy electric vehicles, sales from western carmakers in China remain insignificant compared with domestic carmakers. Although literature on the Chinese market, on innovation and on strategy for foreign multinational enterprises in China is abundant, it lacks specific research on strategic perspectives for foreign players experiencing the country's complex and uncertain context. To tackle this empirical question, the paper proposes a novel analytical method through bridging the literature on strategy, innovation and the Chinese EV market. A 'strategic opportunities space' is developed to explore potential strategic paths. The application of this method to the Chinese EV case leads to defining 12 best-fit scenarios for western car manufacturers. Our findings indicate that among the selected solutions, the still untapped low-cost approach to electric vehicles in China's lower tier cities brings the highest value to foreign carmakers, while potentially being a favourable candidate for reverse innovation.

Productivity spillovers from foreign multinationals and trade protection: firm-level analysis of Vietnamese manufacturing

This paper examines how the presence of foreign multinational enterprises (MNEs) affects productivity in domestic private firms in Vietnamese manufacturing in 2005–10. The paper also examines how import protection has affected these productivity spillovers and how spillovers from wholly foreign MNEs and joint ventures differ. The most consistent result suggests wholly foreign MNEs impart negative spillovers while joint ventures tend to generate positive spillovers. Theory and random effects estimates also indicate that import protection reduces local firm productivity and weakens the effect of spillovers from all MNEs; but this result is not obtained when a fixed effects estimator is used. Results are similar in samples of labour-intensive industries, which include close to three fourths of all sample firms, but differ markedly for more capital-intensive groups.

The mirage of upgrading local automotive parts suppliers through the creation of vertical linkages with MNEs in developing economies

Purpose– This paper aims to explore inter-organizational linkages and the extent of technology transfer and develop propositions related to the linkages, technology transfer and upgrading of local suppliers in developing economies.Design/methodology/approach– The authors conduct a literature review and 50 exploratory interviews with senior managers and policymakers in the automotive parts industry of Pakistan.Findings– The data revealed that three major international joint ventures (IJVs) established in the automotive industry of Pakistan have created significant vertical linkages. However, advanced high-level technology transfer has not actually taken place due to the following reasons: IJV parents are reluctant to engage in technology transfer, there is limited support from local government and local suppliers exhibit limited improvement in their innovation capability. The vertical linkage creation and low-medium technology transfer contributes to incremental product upgrading of the local suppliers, rather than their process upgrading and insertion into the global value chain (GVC).Research limitations/implications– This research looked at technology interactions between IJVs and local tier-1 suppliers (not tier 2 and tier 3) in Pakistan’s automotive industry. This paper’ illustrative case indicates what is required for local suppliers in developing economies to make breakthrough upgrades of their products and processes through their vertical linkages with foreign-owned indigenous firms.Originality/value– Unlike prior research, the authors investigate the role of inter-organizational linkages and the extent of technology transfer, and how these affect local suppliers’ product/process upgrading in the local value chain. Highlighting the illusion of upgrading in the GVC, this paper reveals the difficulties involved in upgrading suppliers’ positions (e.g. insertion and functional upgrading in the GVC) through their vertical linkages with foreign multinational enterprises in developing economies. The illusion of upgrading sheds a rather disappointing light on the position of developing country suppliervis-à-vistheir powerful international partners.