Foreign Subsidiaries Of Multinational Enterprises Research Articles

Unraveling formal and informal business ties in shaping foreign subsidiary capabilities

PurposeDrawing upon the resource-based view this study aims to examine the connections between formal and informal business relationships and resource-bridging and adaptive capabilities within the context of foreign subsidiaries of multinational enterprises (MNEs) operating in Thailand. Based on prior literature emphasizing business network ties as sources of competitive advantage in emerging markets, this study extends the discourse by investigating the moderating effects of technological turbulence, power distance and assertiveness.Design/methodology/approachThis study uses a quantitative research approach, using data obtained from a self-administered survey conducted among 168 foreign subsidiaries spanning diverse industries in Thailand. The data were analyzed by using multiple-group structural equation modeling to test the hypothesized relationships.FindingsCultivating different types of business ties enables foreign subsidiaries to improve different types of capabilities. While interpersonal relationships (i.e. informal businessties) enable them to develop their abilities to combine various resources (i.e. resource-bridging capability), rigid contractual-based relationships (i.e. formal businessties) help them to be more adaptive (i.e. adaptive capability). These relationships are also contingent upon the levels of technological turbulence, host-country power distance and host-country assertiveness.Originality/valueThis research builds upon prior research on network ties and capability building by delineating the specific nature of capabilities. Contradicting to the previous findings, demonstrating a negative relationship between formal business ties and capabilities, this study found that each type of business tie enables foreign subsidiaries to enhance different types of capabilities under different circumstances. Moreover, this study adopts a lens of host-country national culture rather than home-country culture in investigating the moderating effects of power distance and assertiveness.

Why do MNE foreign subsidiaries differ in supply chain management capability, and how does it matter?

PurposeDespite the growing and widespread importance of exploring the primary factors facilitating global value chain (GVC) and supply chain management, this topic has received surprisingly little attention to date. Drawing upon the technology–organization–environment framework and the resource-based view, this study aims to fill these important gaps in the literature by theorizing and developing a comprehensive model to explain how a foreign subsidiary of multinational enterprises can improve the upgrading of the GVC and supply chain performance in a host market.Design/methodology/approachUsing survey data collected from 266 foreign subsidiaries of multinational enterprises operating in the Chinese manufacturing sector, this study empirically examines the theoretical framework using a structural equation modeling approach.FindingsThe results demonstrated that the relative advantages of digital technology, supplier diversification and environmental uncertainty all contribute positively to the development of foreign subsidiaries’ supply chain management capabilities. Meanwhile, supply chain management capability plays a positive role in foreign subsidiaries facilitating GVC upgrading and enhancing supply chain performance.Research limitations/implicationsThe findings of this study provide many important implications and useful insights to foreign subsidiaries operating in an emerging host market by concentrating on how to develop and maintain their competitive advantages in the process of GVC reshaping and supply chain restructuring.Originality/valueThis study provides a useful guide to help firms better understand how they may develop and enhance their competitive advantages in upgrading their GVCs and implementing supply chain restructuring. In addition, this research generates important policy implications considering the recent trend toward creating more effective and sustainable global supply value chains.

The Multinational Enterprises Strategies in Emerging Economies

The purpose of this paper is to review international business articles, particularly what strategies in emerging economies and multinational enterprises subsidiaries strategies. The first paper is Hoskisson, Eden, Lau and Wright's 2000 article, entitled strategy in emerging economies. Emerging economies are low-income, fast-growing countries that rely on economic liberalization as their primary growth engine. Emerging Economies investigates strategy formulation and implementation by private and public enterprises in a variety of regional contexts and from three major theoretical perspectives: institutional theory, transaction cost economics, and the resource-based view of the firm. The second paper is Amy J Hillman and William P Wan's 2005 article, The Determinants of MNE Subsidiary Political Strategies: Evidence of Institutional Duality. A model of the determinants of political strategies used by foreign subsidiaries of multinational enterprises (MNEs) is developed and tested in this study by integrating international business and political strategy literature to create a multilevel model of the subsidiary, host country, and parent determinants of political strategy. Using recent theoretical advances in institutional theory that acknowledge that MNE subsidiaries face pressures for isomorphism both within the corporation (internal legitimacy) and within the host country (external legitimacy). A common thread can be drawn between these two articles, namely the use of institutional theory in determining the strategy for multinational enterprises.

Discontinuity of required oral and literacy skills across job roles in achieving high work performance: An fsQCA approach

This study explores how the English proficiency of local employees in foreign subsidiaries of multinational enterprises mitigates language barriers and improves their work performance. A research framework is developed by introducing the multidimensionality of foreign language proficiency and employing insights from applied linguistics, the brain-drain model, and media synchronicity theory. By using fuzzy set qualitative comparative analysis for data analysis, this study finds that the relative importance of English literacy skill to oral skill in achieving high work performance varies across positions in foreign subsidiaries. Discontinuity of required linguistic skills between managerial and nonmanagerial positions implies that incremental development of a skill set required for lower positions does not assure successful capability development toward upper positions. This study also finds that competence that supports appropriate usage of English in a specific context plays an important role in mitigating language barriers and achieving high work performance.

Subsidiary staffing strategy and innovation performance in Chinese multinational enterprises: the moderating effect of institutional distance

This article examines the impact of the staffing of foreign subsidiaries of multinational enterprises (MNEs) on the innovation performance of the parent company and the moderating effect of the institutional distance between the host country and the home country. This paper conducts an empirical analysis on the data of 59 mature Chinese MNEs and their 872 overseas subsidiaries over the past 11 years and obtains some interesting results. The results show that the proportion of host country nationals (HCNs) in overseas subsidiaries has a significant positive impact on the innovation performance of the parent company and that it is not a simple linear relationship but rather an inverted U‐shaped relationship. As HCNs increase, the ability to acquire knowledge is increasing, while the ability to integrate knowledge is decreasing. Thus, multiplicative combinations of latent mechanisms result in an inverted U‐shaped relationship. However, the institutional distance between countries negatively moderates the effect of subsidiary HCN proportions on parent company innovation performance. The findings have important practical implications for the multinational innovation strategies of Chinese MNEs and governments.

Distances Matter: Parent’s CSR Reputation and CSP of Multinational Enterprises’ Subsidiaries

Prior studies found that foreign subsidiaries of multinational enterprises (MNEs) suffer from liability of foreignness (LOF). According to stakeholder theory, foreign subsidiaries may be able to improve their legitimacy of business practices and overcome LOF by demonstrating social commitments to host-country constituents through corporate social responsibility (CSR). This study doesn’t only investigate whether the distances between the MNE home countries and China (host country) affect multinational enterprises (MNEs) foreign subsidiaries’ corporate social performance (CSP), but also examines how sub-national institutions affect the subsidiaries engaging in CSR in China. The study further tests the moderating role of parent’s CSR reputation. Using the data from 2009 to 2015 in the blue books of corporate social responsibility issued by Research Center for Corporate Social Responsibility Chinese Academy of Social Sciences (CASSCSR), the study adopts the top 100 foreign-invested enterprises in China as our sample. The CASSCSR collected the CSR information via their CSR reports, financial reports and official websites; they did an all-around research and valuation on their current CSR information disclosure. The results show the effect of distances on subsidiaries’ CSP in China, and highlight the importance of parent’s CSR reputation as a mechanism that may induce foreign subsidiaries to engage in CSR in China.

Export intensity of foreign subsidiaries of multinational enterprises

PurposeThe author contributes to the theory of the multinational enterprise by examining subsidiary-specific capability in financial management, defined as the stock of knowledge and capability to plan, manage, control and direct financial resources effectively and efficiently, and the perceptions of subsidiary managers of host country financial development as drivers of export intensity (the share of sales that are exported) of foreign subsidiaries of multinational enterprises (MNEs). The author theorizes that subsidiary-specific capability in financial management is conceptually a valuable subsidiary-specific advantage and it is as important as other traditional competitive advantages, such as research and development and marketing intensity. Perceptions of subsidiary managers of host country financial development are argued to be largely related to the characteristics of the host country-specific advantages.Design/methodology/approachThe author uses a survey dataset of the foreign subsidiaries of Western multinational enterprises (MNEs) together with other public data sources.FindingsThe author provides empirical evidence to support for these arguments that export intensity of MNE foreign subsidiaries depends on subsidiary-specific advantages and host country specific advantages.Originality/valueThe study broadens the understanding of the relationships between subsidiary-specific advantage in financial management, host country specific advantage, and export intensity of MNE foreign subsidiaries. In this way, the author makes an original contribution to new internalization theory by emphasizing the internal capability building of subsidiaries. The author discusses the implications of the findings for MNE foreign subsidiary managers, and policy makers because exporting is critical to the overall strategy of foreign subsidiaries, and it also contributes to the balance of trade and economic development of host countries where foreign subsidiaries operate.

Intra-firm and arm’s length export propensity and intensity of MNE foreign subsidiaries

In this study, we build upon internalisation theory in the international business literature and international trade finance in the international economics literature to examine how financial capital affects the decision to export (export propensity) and the share of exports over total sales (export intensity) by the foreign subsidiaries of multinational enterprises. We dissect exports into intra-firm exports (exports to sister affiliates and parent firms) and arm’s length exports (exports to third-party external customers), and we focus on the types of capital that can be used for financing exports, namely intra-firm loans and bank loans. We theorise that these two financing sources have different impacts on subsidiary export behaviour. To test our hypotheses, we use a survey dataset of subsidiaries, host-country data, and two-part models. Our findings show that intra-firm loans are positively related to arm’s length export propensity and intensity; however, intra-firm loans have no significant relationship with intra-firm export propensity and export intensity. Additionally, on the one hand, bank loans have a positive impact on the likelihood of subsidiaries becoming arm’s length exporters, but they do not help subsidiaries with arm’s length export intensity. On the other hand, bank loans negatively impact the likelihood of subsidiaries becoming intra-firm exporters; however, once subsidiaries participate in intra-firm exports, bank loans are positively associated with intra-firm export intensity. We discuss the implications of our findings for theory and practice.

Performance shortfalls and outward foreign direct investment by MNE subsidiaries: Evidence from China

Foreign subsidiaries of multinational enterprises (MNEs) have been conducting outward foreign direct investment (OFDI) into new overseas destinations. Drawing upon the behavioural theory of the firm, we explain that such OFDI can occur in response to performance shortfalls relative to aspirations. When performance shortfalls in subsidiaries are attributed to the institutional distance between them and the home country of the parent firm, these subsidiaries select institutionally closer destinations for their own OFDI. Our study goes beyond the direct investment of MNE headquarters and advances the internationalisation process model by investigating the underexplored, secondary and springboard-based internationalisation, and by underscoring the value of a subsidiary’s OFDI behaviour.

Environmental innovation in foreign subsidiaries: The role of home-ecological institutions, subsidiary establishment mode and post-establishment experience

In this study, we argue that foreign subsidiaries of multinational enterprises (MNEs) vary in terms of their engagement in environmental innovation depending on the strength of the MNE's home-ecological institutions. We also propose that the manifestation of this home-institutional effect varies depending on the choice of the subsidiary establishment mode (acquisition vs. greenfield) and over time based on the subsidiaries’ host experience. We test our hypotheses using a sample of foreign subsidiaries in Spain over the period 2003–2015. Our results support the home-institutional effect on subsidiary-level environmental innovation as well as the moderating effects of the subsidiary establishment mode and host experience.

Doing good by combating bad in the digital world: Institutional pressures, anti-corruption practices, and competitive implications of MNE foreign subsidiaries

This study extends nascent research on international corporate social responsibility (CSR) by positing that foreign subsidiaries of multinational enterprises (MNEs) can overcome legitimation challenges they face when operating abroad. By integrating an institutional view, research from international business, and CSR literature, we examine how host-country institutional pressures may motivate subsidiaries to respond to such pressures by avoiding corrupt acts. We analyze how strategic responses to anti-corruption can improve firm reputation and innovativeness in a rapidly digitalized world. Using a survey sample of 216 subsidiaries operating in China, we investigate our hypotheses and find supportive evidence that foreign subsidiaries are likely to engage in anti-corruption practices (ACPs) when they face strong institutional pressure. We also provide evidence that engagement in such ACPs is positively associated with enhanced firm reputation and innovativeness. The contribution of this non-market mechanism to innovativeness is strong when the digitization capability of the subsidiaries is high.

Antecedents of General Manager Successions in Multinational Enterprise Subsidiaries

This study examines the dynamics of general manager (GM) succession in the foreign subsidiaries of multinational enterprises (MNEs). First, drawing on insights from evolutionary theory and the organizational learning literature, we argue that MNEs are adaptive organizations such that prior subsidiary GM changes at the “intra” regional level decrease the probability of further GM change in the focal subsidiary. Our logic is that the accumulated context-specific knowledge may allow MNEs to further develop extant succession routines. Second, in the context at the “inter” regional level, given the high spatial transaction costs, what are more likely to be applied to the focal subsidiary are standardized succession processes, which are less likely to accommodate the situations specific to the focal subsidiary. Due to the reduced marginal costs of making similar changes, prior GM successions that occurred outside the region where the focal subsidiary operates accelerate the momentum for further GM change in this subsidiary. Third, we propose that when changing from a parent-country national to a host-country national GM, succession routines may be refined in order to accommodate particular candidates or particular search committees, which in turn decelerates the momentum for further subsidiary GM change. A fixed effects longitudinal analysis of 1,169 Japanese subsidiary firms between 1995 and 2013 provides empirical evidence to support these arguments.

Dualne zakorzenienie filii zagranicznych a przewaga konkurencyjna wynikająca z innowacji

1. Achcaoucaou F., Miravitlles P., Leon-Darder F. [2014], Knowledge sharing and subsidiary R&D mandate development: A matter of dual embeddedness, International Business Review, 23 (1): 76–90. Google Scholar

MNEs Subsidiary Training and Development and Firm Innovative Performance: The Moderating Effects of Tacit and Explicit Knowledge Received from Headquarters

This paper set out to investigate the ways training and development impacts on firm innovative performance as well as the moderating role of knowledge transfer received on training and development and firm innovative performance, using a sample of 229 foreign subsidiaries of multinational enterprises (MNEs) operating in China. We adopt hierarchical linear modeling, and the results of the study reveal that both on-the-job training and development and off-the-job training and development have an influence on the firm innovative performance. Also, the empirical results of the study demonstrate that the moderating effect of tacit and explicit knowledge received on the relationship between both on-the-job training and development and off-the-job training and development and firm innovative performance are stronger. This paper shows that continues updating of skills, ability and knowledge of the workforce through on-the job training and development and off-the job training development programs might boost creativity and innovation of business organizations.

Institutional Voids, Investment Purposes, and Foreign Subsidiaries of Multinational Enterprises

This dissertation examines institutional voids, investment purposes/motives of multinational enterprises (MNEs), and the divestment of foreign subsidiaries. By drawing on insights from multiple theories—including the new institutional economics and industrial organization theory—and integrating data from multiple sources, the dissertation contributes to a better understanding of institutional voids and their economic (transaction-cost) and strategic (market-power) implications. It also advances useful theoretical and empirical insights regarding MNE investment purposes/motives and their interaction with host-country institutional voids to influence foreign subsidiary exit. This dissertation builds a foundation for a broader research agenda that can generate a number of promising research directions.

Letter from the Editors: Special Issue on the 2018 Peter J. Buckley and Mark Casson AIB Dissertation Award

This issue of AIB Insights focuses on the 2018 Peter J. Buckley and Mark Casson AIB Dissertation Award. It includes “Firm’s Economic Reliance to National Markets and the Corporate Provision of Public Goods: Evidence from Corporate Disaster Philanthropy” by Luis Ballesteros; “Country Familiarity: Three Essays on Entrepreneur Foreign Market Selection” by Daniel Clark; “What Drives Tax Avoidance Strategies Adopted by US MNEs: Understanding the Heterogeneity of Approaches to Corporate Tax Planning in US Multinational Enterprises” by Maggie Cooper; “Institutional Voids, Investment Purposes, and Foreign Subsidiaries of Multinational Enterprises” by Yamlaksira Getachew; and “Essays on Nonmarket Strategy” by Jin Hyung Kim.

본국과 현지국 간의 CAGE 거리가 다국적기업 해외자회사의 사회책임활동에 미치는 영향

Cross-national distance between the home and host country in terms of GAGE (cultural, administrative, geographic, economic) is a key concept in the field of international business. The types of four distance influence different businesses in different ways. And the CAGE framework may also be used to understand patterns of trade, capital, information and people flows. Prior studies have demonstrated that foreign subsidiaries of multinational enterprises (MNEs) suffer from liability of foreignness (LOF). Through corporate social responsibility (CSR), foreign subsidiaries of MNEs may able to overcome LOF and improve their social legitimacy in a host country. Despite the MNE’s strategic motivation to reduce its LOF by engaging in CSR activities in the host country, we argued that foreign subsidiaries from more distant home countries are less likely to engage in CSR activities in the host country. This argument focuses on the ways in which CAGE distance affects the MNE’s ability (strategic driver) and willingness (social driver) to engage in CSR activities in the host country. On both ability and willingness grounds, foreign subsidiaries CSR spending may be inversely related to CAGE distance. Using data for 505 HCNs in 77 MNE subsidiaries that originating from 24 countries, we found strong support for the hypotheses. We discuss the theoretical and managerial implications, and provide suggestion for future research.

Exports and Financial Performance of Foreign Subsidiaries of Multinational Enterprises

We examine the relationships between the host country’s economic freedom and the regional co-location of the subsidiary in the same home region as the parent firm on subsidiary exports, and the complex two-way relationships between subsidiary exports and financial performance. We develop our hypotheses drawing upon the insights from the research on foreign subsidiaries of multinational enterprises (MNEs). We use an original dataset of publicly-listed, majority-owned, and non-financial MNE foreign subsidiaries in five South East Asian countries. To address potential endogeneity concerns, we run two-stage least square regressions with an instrumental variable approach. First, we find support for our prediction that higher economic freedom of the host country is positively associated with higher exports of the subsidiary. Second, we find that the regional co-location of the subsidiary and the parent in the same home region is statistically significant and positively associated with subsidiary exports, suggesting a regionalization strategy of the subsidiary. Third, subsidiary exports have an insignificant relationship with overall financial performance and there is no reverse effect of performance on exports. We extend the literature by showing that country-level analysis needs to be augmented by the region-level analysis in determining export behaviors of MNE foreign subsidiaries.

Export intensity of foreign subsidiaries of multinational enterprises: The role of trade finance availability

We examine the relationship between the role of trade finance availability and the export intensity of foreign subsidiaries of multinational enterprises (MNEs). In developing our hypotheses, we draw upon insights derived from “new” internalisation theory (international business literature) and international trade finance (international economics literature). We empirically test these hypotheses using survey data compiled from subsidiary managers in six ASEAN countries, supplemented with host-country level data. We conceptualise, empirically test, and establish that the subsidiary-level capability in combining and utilising internal and external debts is an important subsidiary-specific advantage to support export intensity. We find that subsidiaries employ intra-firm loans from MNE internal capital markets and, to some extent, bank loans from external financial institutions to boost their export intensity. Subsidiaries may have concerns about foreign exchange risks, but the use of appropriate foreign exchange risk management is positively associated with export intensity. We discuss the implications of our findings for theory and practice.

Cross-National Differences in Cost Accounting of MNEs: Empirical Evidence from Anglophone Subsidiaries in Germany

ABSTRACTAnecdotal evidence shows that multinational enterprises (MNEs) encounter difficulty in imposing their cost-accounting standards internationally because foreign subsidiaries prefer to follow their local cost-accounting traditions. Although prior research has revealed cross-national differences in management accounting, particularly between anglophone and German-speaking countries, the determinants and consequences for cost-accounting systems in foreign subsidiaries of MNEs are largely unexplored. This study therefore investigates the design of cost-accounting systems in German subsidiaries of anglophone MNEs. The empirical results reveal that anglophone cost-accounting traditions prevail in two-thirds of anglophone subsidiaries. Based on new institutional sociology, this study explores the determinants and identifies strong coercive pressures by anglophone parent companies, suggesting that anglophone MNEs standardize their cost-accounting systems globally using their home country cost-accounting traditions. The results also show that both management accountants and managers in German subsidiaries of anglophone MNEs assess their cost-accounting system as worse when it is shaped by anglophone traditions. Managerial implications are discussed.