Foreign Subsidiaries In China Research Articles

Bilateral political tension and the signaling role of patenting in a host country

The current increasing volatility in international politics makes it more important to understand how multinational enterprises respond to political tension between host and home countries. This paper explains the impact of macro-level bilateral political tension on micro-level strategy of multinationals in the host country. We developed the idea that patenting may be used to signal a firm’s commitment and contribution to the host country’s economy and development. Data on 437 large multinationals and interviews with senior managers of 20 foreign subsidiaries in China show that patenting local innovation does indeed help an investing firm signal its usefulness to the host country government. It can thus serve as a response to bilateral political tension. The relationship between political tension and local patenting also depends on the relative trade dependence of the home and host countries and on the investing firm’s technology level and its stake in China. The greater the dependence of an MNE and its home country government on the host country, the more likely patenting of local innovations would increase in times of bilateral political tension.

The Impact of Sister-City Relationship on Foreign Subsidiary CSR

This article extends social identity theory to research on corporate social responsibility (CSR) of foreign subsidiaries. We complement prior research on CSR by emphasizing the significance of city-identity in stakeholders’ identification and exploring factors that influence this process. Our empirical analysis of 90 foreign subsidiaries in China from 2009 to 2018 shows that the sister-city relationship promotes local CSR of foreign subsidiaries. The positive relationship is weakened when foreign subsidiaries are older or two countries have high political affinity, while it is strengthened when foreign subsidiaries are large. Our findings suggest that inter-city relationships influence CSR of foreign subsidiaries and host cities can benefit themselves by signing treaties of sister-city relationship.

Gaining legitimacy and host market acceptance: a CRM analysis for foreign subsidiaries in China

PurposeBuilding on the scant literature on how foreign subsidiaries strategize Cause-Related-Marketing (CRM) to gain legitimacy and acceptance in host markets, this paper investigated the impact of two CRM components (post-crisis recovery, CSR activities) on subsidiary performance and future opportunities in China, a country whose institutional development lags behind its economic achievements. The study also investigated the moderating effects of strategic mindset and subsidiary empowerment on CRM effects, issues highly relevant to MNCs and their subsidiaries.Design/methodology/approachTo minimize common method variance, the study adopted a multi-informant firm executive survey design that included responses from a director and a manager from 230 foreign subsidiaries operating in China. The director-level respondents assessed Firm Competences, Organizational Ties, Subsidiary Performance and Future Opportunities. The manager-level respondents assessed CSR activities (Legal, Ethical and Philanthropic CSR) and other operational measures.FindingsThe two CRM components affected Subsidiary Performance (sales, shares and profit) and Future Opportunities in different ways as postulated by legitimacy theory. While Post-crisis Recovery enhanced Subsidiary Performance (sales), it could not enhance Future Opportunities by itself unless the subsidiary received headquarters empowerment. Interestingly, only Ethical and Philanthropic CSR activities with enhancement from Strategic Mindset mattered to Future Opportunities.Originality/valueThe research unfolded key elements in how foreign subsidiaries planned CRM strategies to gain legitimacy and acceptance in a host market with less-developed institutions, thereby addressing a gap in the literature. It also showed how firms internalize CRM and became receptive to social sentiments of a significant host market.

Scale or efficiency? Performance shortfall and engagement in production activities of foreign subsidiaries in China

This study probes the effect of performance shortfall of a foreign subsidiary on its engagement in scale- and efficiency-related production activities by incorporating the behavioral theory of the firm and the institution-based view. In the manufacturing sectors, we examined foreign subsidiaries that failed to achieve aspiration levels of performance in 30 subnational regions of China in 1998–2007. We find that as a performance shortfall increases, a subsidiary would hire a smaller number of employees and raise less capital to facilitate the unity of decision-making for the problemistic search. Meanwhile, the subsidiary conducts more efficiency-related activities to explore efficient solutions for the problemistic search. In addition, the effects of performance shortfalls on the subsidiary's trade-off engagement in scale- and efficiency-related activities are strengthened as regional institutions become better-developed. Better-developed institutions of a region facilitate market mechanisms and thus reduce the costs of employees and capital holders to vote with their feet. Moreover, such institutions provide adequate protection for competitive resources generated by efficiency-related activities of the subsidiary. This study delineates a decision portfolio composed of different levels of engagement in both scale- and efficiency-related activities made by a foreign subsidiary according to the level of its performance shortfall and the level of regional institutional development.

Managing legitimacy through corporate community involvement: The effects of subsidiary ownership and host country experience in China

This article examines the legitimacy rationale behind the corporate community involvement of foreign subsidiaries in China from an institutional perspective. Based on the assumption that the level of community involvement reflects a firm’s desire to seek legitimacy in the host country, we suggest two research questions: 1) How do factors determining the need for legitimacy affect foreign subsidiaries’ community involvement? and 2) How can these relationships be moderated by perceived trust in local business relationships? We hypothesize that a foreign parent’s ownership share has a positive effect on its subsidiaries’ local community involvement, while sufficient host country experience leads to less community involvement. We also propose that the level of perceived trust toward local business partners moderates these impacts of parent firm ownership and host country experience on local community involvement. These hypotheses are generally supported by our analysis of 223 Korean subsidiaries in China.

Strategically Accessing External Technological Knowledge: The Case of Foreign Subsidiaries in China

Adopting a differentiated network view of multinational corporations (MNCs), this study investigates how recently formed subsidiaries access diversified technological knowledge that allows them to differently contribute to the MNCs’ competence building. By employing a firm-specific measure of different technological knowledge categories, we study the competence building of foreign subsidiaries in China in electric and office equipment industry between 1996 and 2005. We find that foreign subsidiaries in China extensively access background technological knowledge to adjust to and benefit from technical changes in supply chain activities. Meanwhile, these subsidiaries actively access marginal technological knowledge to explore potential opportunities. Our results offer the supporting evidence of a differentiated network view of MNCs and contribute to subsidiary evolution literature.

Organizational cynicism in multinational corporations in China

ABSTRACTOrganizational cynicism is a pejorative attitude toward the employing organization induced by mistrust, disillusion, and various negative experiences. Based on cognitive dissonance theory we develop and test a theoretical model of how perceived cultural differences lead to organizational cynicism which in turn results in greater turnover intentions among host country nationals (HCN) employed in foreign subsidiaries of multinational corporations. Furthermore, we argue that the negative effect of perceived cultural differences can be mitigated by localization, i.e. replacement of expatriates by local staff. Survey results from HCN employees in foreign subsidiaries in China confirm the expected relationships.

Multi-market Contact and Foreign Entry Location Decisions in China

Location decisions of foreign subsidiaries in China were studied from the multi-market contact (MMC) perspective. Two sets of data in different industries, data on 1096 location decisions by US manufacturing ventures from 1979 to 1995 and data on 1108 location decisions by international hotels from 1990 to 2012, were analyzed. Contacts between an entrant and the incumbent firms in a target market were studied, but also contacts among those incumbent firms themselves. The two types of contact were shown to have distinct and interactive effects on foreign entry location choices across both samples. Besides, the influence of multi-market contact on foreign entry decisions was contingent upon the cultural distance between the home and host countries. These results promise to improve our understanding of the impact of multi-market competition on location decisions in the international setting.

Market Seeking Orientation and Performance in China: The Impact of Institutional Environment, Subsidiary Ownership Structure and Experience

Many foreign firms tend to follow the market-seeking mandate in China. However this orientation alone does not guarantee superior performance. From the perspectives of strategic fit and institutional theory, this research seeks to reveal several conditions under which market-seeking MNEs can achieve superior performance in China. We identify three performance contributors to marketing seeking FDI: the host country’s favorable formal institutions towards FDI, the subsidiaries’ operational experience and absorptive capacity in the host country, and the ownership structure of the subsidiary. Using data of 5,080 foreign invested subsidiaries in 2003–2010, our findings support the hypotheses that market-seeking orientation becomes more profitable for foreign subsidiaries in China when (1) the host country provides a more favorable institutional framework towards FDI; (2) the subsidiary has a longer history of FDI operation in the host country that leads to stronger absorptive capacity; and (3) the subsidiary is organized in a wholly owned manner.

Can knowledge transfer within MNCs hurt subsidiary performance? The role of subsidiary entrepreneurial culture and capabilities

This study extends the literature on knowledge transfer in MNCs by exploring how two sources of knowledge transfers, one from headquarters and the second from other peer subsidiaries, influence a focal subsidiary's capabilities and performance. Drawing on the tenet of the resource-based and dynamic capabilities perspectives, and using data from 167 foreign subsidiaries in China, we find that both sources of knowledge transfers positively influence a focal subsidiary's capabilities, albeit at different rates. Our results further show that although a focal subsidiary's entrepreneurial culture strengthens the effect of headquarters knowledge transfer on its capabilities, it weakens the impact of peer subsidiary knowledge transfer on capabilities. These results suggest that a focal subsidiary's entrepreneurial culture serves as a double-edged sword when it comes to knowledge transfer within its MNC network. This study provides key implications for management in terms of the mechanisms and processes (i.e., entrepreneurial culture and capabilities) that drive or hinder the efficacy of knowledge transfer from headquarters and peer subsidiaries on a focal subsidiary's performance.

Market Seeking Orientation and Performance in China: The Impact of Institutional Environment, Subsidiary Ownership Structure and Experience

Many foreign firms tend to follow the market-seeking mandate in China. This orientation alone does not guarantee superior performance. From the perspectives of strategic fit and institutional theory, this research seeks to reveal several conditions under which market-seeking MNEs can achieve superior performance in China. Using data of 5,080 foreign invested subsidiaries in 2003-2010, our findings support the hypotheses that market-seeking orientation becomes more profitable for foreign subsidiaries in China when (1) the host country provides a more favorable institutional framework towards FDI; (2) the subsidiary has a longer history of FDI operation in the host country that leads to stronger absorptive capacity; and (3) it is organized in a wholly owned manner.

The Determinants of the Level of Control by Korean Firms over their Foreign Subsidiaries in China: Focus on Relational Factors and Corporate Culture

The Determinants of the Level of Control by Korean Firms over their Foreign Subsidiaries in China: Focus on Relational Factors and Corporate Culture

Antecedents to supplier integration in the automotive industry: A multiple‐case study of foreign subsidiaries in China

AbstractSupplier integration has become an important concept for improving supply chain performance. The aim of this paper is to identify factors that facilitate and inhibit supplier integration in the context of the Chinese automotive industry. An inductive approach based on grounded theory was chosen as the research methodology, where data was collected through 30 detailed case interviews with subsidiaries of foreign automotive companies operating in China. The results indicate that buyer‐side leadership is an important antecedent for building motivation, trust, and commitment among suppliers and for shaping their mindsets. This, in turn, facilitates strategic alignment and enables suppliers to build collaborative capabilities, which are finally shown to be a key enabler for successful supplier integration.

In Search of Platforms to Increase Market Responsiveness: Evidence from Foreign Subsidiaries

Market responsiveness is one of several important outcome consequences that denote a foreign subsidiary's success. The authors examine how foreign subsidiaries can improve their market responsiveness through understanding the different roles of information system integration and knowledge codification in connection with related market knowledge that resides in their headquarters. The authors test hypotheses on data collected from 140 foreign subsidiaries in China. The results indicate that knowledge codification plays a key role in influencing market responsiveness directly and further acts as a critical mechanism that mediates the impacts of knowledge relatedness and information system integration on market responsiveness. The authors discuss the implications of these results for research and practice.

Identity, Community, And Audience: How Wholly Owned Foreign Subsidiaries Gain Legitimacy In China

Conceptualizing different foreign entry modes as distinct organizational forms, we examine how wholly owned foreign subsidiaries (WOFSs) gain legitimacy in a host country. Drawing on the institutional and ecological perspectives, we build a legitimation framework based on the ideas of identity, community, and audience. Specifically, we identify dual sources of legitimating influences for these subsidiaries in China in 1979–95: foreign direct investment (FDI) communities, and host country public opinion. Our findings reveal that the legitimation and competition dynamics of FDI communities and Chinese acceptance of the organizational form both influenced adoption of wholly owned foreign subsidiaries in China.

The logic of Chinese business strategy: East versus West: part II

PurposeDespite close to two decades of foreign direct investment (FDI) in China, and the country's enormous market potential, most US and European multinational corporations (multinationals) have never made a profit in that country. The distribution of profits among multinationals also seems highly skewed. The latest survey on profitability showed that five US companies accounted for one‐third of equity profits among US‐based multinationals in China. This research presented in two parts proposes explanations for why multinationals fail in China and strategic solutions for profitable operations.Design/methodology/approachThrough in‐depth interviews with 29 CEOs and directors of major, profitable US and European multinationals, Overseas Chinese companies and PRC Chinese companies, this paper proposes a model of strategic convergence for successful operations in China. The first part discusses cultural and cognitive differences between Westerners and Chinese that affect the strategies they choose. The second part proposes a strategic model of convergence, fusing the best of both Western and Chinese business practices, for strategic success in China.FindingsThe research found that profitable foreign multinationals in China appeared to modify their management practices on eight dimensions, often adopting traditional Chinese methods of strategic planning and evaluations of effectiveness, as well as relations with key stakeholders, especially the government. Yet, these multinationals continued to retain their Western norms and values in business dealings. Conversely, profitable Chinese companies that competed with these multinationals also modified their management practices in line with Western normsOriginality/valueThe study has implications for the management of foreign subsidiaries in China as well as the successful management of Chinese FDI in the USA and Europe.

The logic of Chinese business strategy: East versus West: Part I

PurposeDespite close to two decades of foreign direct investment in China, and the country's enormous market potential, most US and European multinational corporations have never made a profit in that country. The distribution of profits among multinationals also seems highly skewed. The latest survey on profitability showed that five US companies accounted for one‐third of equity profits among US‐based multinationals in China. This research proposes explanations for why multinationals fail in China and strategic solutions for profitable operations.Design/methodology/approachThrough in‐depth interviews with 29 CEOs and directors of major, profitable US and European multinationals, overseas Chinese companies and People's Republic of China companies, this paper proposes a model of strategic convergence for successful operations in China. The first part discusses cultural and cognitive differences between Westerners and Chinese that affect the strategies they choose. The second part proposes a strategic model of convergence, fusing the best of both Western and Chinese business practices, for strategic success in China.FindingsProfitable foreign multinationals in China appeared to modify their management practices on eight dimensions, often adopting traditional Chinese methods of strategic planning and evaluations of effectiveness, as well as relations with key stakeholders, especially the government. Yet, these multinationals continued to retain their Western norms and values in business dealings. Conversely, profitable Chinese companies that competed with these multinationals also modified their management practices in line with Western normsOriginality/valueThe study has implications for the management of foreign subsidiaries in China as well as the successful management of Chinese foreign direct investment in the US and Europe.

Investing Profitably in China: is it Getting Harder?

Using information from the Toyo Keizai, this article studies the performance of 2,962 foreign subsidiaries across the period 1985–1999 to show a picture of declining profitability from foreign direct investment by MNE’s in China. Despite the influence of macro-level factors, such as the historically fluctuating performance of the Chinese economy, we observed that of the many factors that may affect profitability, subsidiary-specific factors had the greater influence. The findings suggest that there are significant benefits for early entrants into the market, but caution against the use of high majority ownership control. Other evidence showed that larger subsidiaries tended to perform better. Managerial implications for MNEs and the future prospects of foreign direct investment in China are discussed.Since China opened up to the outside world in 1979, it has been attracting increasing amounts of foreign direct investment (FDI), and after 1993 became the second largest recipient of FDI flows in the world. Meanwhile, a major participant in the upsurge in global foreign direct investment in the 1990s was Japan. By the mid-1990s, Japan became the second largest FDI source country in the world behind the United States. China, in particular, has become a major destination for Japan’s direct investments, absorbing one-ninth of all Japanese foreign investments at the end of 1996.1Studying Japan’s worldwide direct foreign investment, we found that the proportion of profitable Japanese subsidiaries in China has been declining. In fact, this was the only part of the world where this was the case. While over 71 percent of Japanese subsidiaries in China claimed profits in 1992, the percentage steadily slipped to around 50 percent by 1999 (see Table 1Table 1Performance of Japanese subsidiaries in China (% profitable)1992 (%)1994 (%)1997 (%)1999 (%)Loss11 (13.3%)27 (16.1%)99 (21.7%)201 (24.3%)Break-even13 (15.7%)35 (20.8%)114 (25%)205 (24.8%)Gain59 (71.1%)106 (63.1%)243 (53.3%)421 (50.9%)Total # Reporting83168456827Source: Toyo Keizai, 1999.). This poses two interesting questions. Is it really getting harder to invest profitably in China? And what could have influenced the profit performance of foreign subsidiaries in China?

A Taxonomy of Sourcing Strategic Types for MNCs Operating in China

This paper presents a taxonomic study of sourcing strategy types and their relationships to subsidiary profitability. Using the taxonomic approach, this study identifies five sourcing strategy types based on the decision rules of direction and volume of sourcing activities, namely market access, offshore platform, offshore manufacturing, local sourcing, and complex sourcing. We validated these sourcing types by linking them to a set of business and investment strategic factors. Based on a sample of 319 foreign subsidiaries in China, the results confirm the taxonomy of sourcing types indicating that sourcing strategy types indeed vary along the strategic factors including wage rates, R&D intensity, subsidiary size, capital commitment, ownership control and partner type.