Foreign Subsidiaries Research Articles

Impact of “Distance” on Corporate Social Responsibility: Evidence from an Emerging Market

Multinational enterprises resort to several market and nonmarket strategies to overcome the liability of foreignness (LOF) faced by them in overseas markets. A lesser explored nonmarket strategy to overcome LOF and gain legitimacy in the host country is through corporate social responsibility (CSR) expenditure. This paper empirically examines the role of “distance” on the CSR practices of foreign subsidiaries in India. Further, the study explores the role of market potential of the emerging market host country as proxied by the Gross Domestic Product in moderating the relation between distance variables and CSR expenditure. Our sample consists of CSR expenditure data of 69 foreign subsidiaries in India from 17 countries over the period from 2014 until 2018. The results show that cultural and economic distances impact the CSR expenditure of foreign subsidiaries positively and significantly. This relationship is negative and significant for administrative distance and insignificant for the case of geographic distance. Furthermore, it is observed that the market potential of the host country can make the foreign subsidiaries overlook the existence of distances.

Cooperative innovation and crises: Foreign subsidiaries, state-owned enterprises, and domestic private firms

AbstractThis article studies whether foreign subsidiaries (FSs) are able to cooperate for innovation with local partners during good and harsh economic times. It also enquires as to whether these companies and different types of domestic firms displayed similar cooperative behaviour during 2004–16. The period is divided into three sub-periods (boom, downturn, and recovery), and three logit models with panel data of a representative sample of Spanish firms are proposed. The ability of FSs to cooperate for innovation is maintained throughout the business cycle. These firms are better at cooperating than are unaffiliated firms but not significantly better than domestic business groups. State-owned enterprises strongly outperform both FSs and domestic private firms during the boom, the downturn, and the recovery. Unaffiliated domestic firms manage to cooperate during the boom and the recovery but not during the downturn. Predictors of cooperative innovation vary throughout the business cycle. The results contain policy implications.

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.

Subsidiary financing choices: The roles of institutional distances from home countries

We examine how the institutional distance between home and host countries is associated with the characteristics of foreign subsidiary debt, including leverage, debt maturity choices, and cash holdings. We utilize the multidimensionality of institutional distances to examine ten different distance dimensions. We use a sample of 3139 foreign subsidiaries operating in France and being headquartered in 44 different countries. We find that while subsidiaries' financing choices are partially explained by standard determinants, they are also significantly associated with different forms of institutional distance. Regarding the heterogeneity of institutional distances, results show the dominance of financial and cultural distances for leverage levels; knowledge and political distances for debt maturities; and a dominance of demographic, geographic, and political distances for cash holdings levels.

Temporal boundaries and expatriate staffing: Effects of parent–subsidiary work-time overlap

By integrating the boundary-spanning perspective with the expatriate staffing literature, we explore why and how temporal boundaries between multinational enterprise (MNE) parent and subsidiary locations affect MNEs’ deployment of expatriates in foreign subsidiaries. Temporal boundaries, defined as local work-time schedule differences, delimit the degree of work-time overlap between two locations. A lack of work-time overlap between MNE parent and subsidiary locations creates significant barriers in day-to-day, remote real-time communication, resulting in increased deployment of expatriates as intermediaries by parents to overcome these barriers. Conversely, greater parent–subsidiary work-time overlap enables more remote real-time communication via digital technologies, altering the cost–benefit analysis of deploying expatriates over local nationals, consequently reducing parents’ reliance on expatriates as intermediaries. Therefore, we posit a negative relationship between parent–subsidiary work-time overlap and the expatriate ratio in a subsidiary. Further, we posit that the negative relationship is weakened by home – host country distance in terms of information and communication technology development and linguistics because technological and semantic boundaries can reduce the effectiveness of parent–subsidiary real-time communication. Empirical analyses of 22,556 subsidiaries established by 5,912 Japanese MNEs operating in 31 host countries between 1990 and 2018 support our theorizing.

Ethics-related value acculturation: the case of Thai employees working at UK and Japanese MNCs in Thailand

PurposeMultinational corporations (MNCs) at their foreign subsidiaries hire local employees, whose cultural values may differ from the organisations' home cultures. Such value differences may pose managerial difficulties, making it critical to observe whether working at MNCs changes local employees' cultural values, reducing these differences. This study investigates how and to what extent local employees from a collectivistic culture acculturate their ethics-related values when working at MNCs' foreign subsidiaries. The authors examine (1) whether local employees change their values to become closer to the MNCs' home cultures, and if so, (2) whether the cultural distance between the MNCs' home and host national cultures affect the degree of such adaptation.Design/methodology/approachSurvey data were collected through stratified random sampling from Thai employees of a Japanese-owned MNC (n = 196), a UK-owned MNC (n = 143) and a Thai-owned organisation (n = 137), all operating in Thailand. Hypotheses were developed using Berry's bidimensional acculturation model and were tested using OLS and logistic regression analyses.FindingsThe study's findings indicate that MNCs' local employees from collectivistic cultures adopt Berry's integration acculturation strategy and acculturate their ethics-related values – collectivism, ethical relativism, collective responsibility preference and executive pay differentiation tolerance – towards the values prevalent in MNCs' home cultures. Overall, acculturation is greater when cultural distance is greater. New insights are presented in relation to collective responsibility preference and pay differentiation tolerance.Originality/valueFindings add to current knowledge on acculturation in management by (1) providing new insights into value acculturation (2) utilising Berry's acculturation model to analyse employees' acculturation within an organisation in the context of an emerging economy, outside the more frequently studied topic of mergers and acquisitions, and (3) investigating the impact of cultural distance on the degree of employee acculturation outside the field of expatriate adjustment.

A foreign subsidiary's largest shareholder, entry mode, and divestitures: the moderating role of foreign investment inducement policies

This study investigates the relationships among the influence of the largest shareholder, the entry mode of foreign direct investment companies in Korea, and subsidiary divestitures to demonstrate how the government's FDI policies can work as a moderator. Using data from 468 foreign manufacturing firms that set up plants in Korea through FDI between 2008 and 2011, a survival analysis was performed using the Cox proportional hazards model. The statistical results suggest that the possibility of foreign subsidiary divestiture increased with the level of influence held by the company's largest shareholder. Also, the entry mode of mergers and acquisitions was more likely than the greenfield entry mode to result in foreign subsidiary divestiture. Lastly, the host country's FDI policies moderate the relationship between the influence of the largest shareholder and foreign subsidiary divestiture.

Headhunter-assisted recruiting practices in foreign subsidiaries and their (dys)functional effects: An institutional work perspective

This paper applies the institutional work perspective to elucidate how and why dysfunctional effects are reproduced by HRM practices. Our analysis of headhunter-assisted recruitment of local employees in foreign subsidiaries demonstrates how mutual dependence, self-interests, and a stratified labor market lead to specific candidate search criteria and limit the scope of search. It also shows how these practices result in limited positive effects from the key actors’ perspective, but in the long run reproduce voluntary turnover, communication-competence misalignment, and limited use of local talent pools. However, because these practices have become commonly used, the actors are unwilling and/or unable to change the system.

The role of a local network in achieving contextual ambidexterity in foreign subsidiaries operating in Brazil – a multi-level analysis

PurposeThis study aims to examine how knowledge acquired from a network built on trust and commitment can increase the management team’s effectiveness (MTE) in implementing an ambidextrous subsidiary.Design/methodology/approachAn online survey was conducted with top managers of foreign subsidiaries operating in Brazil. A total of 289 valid respondents were statistically evaluated using the partial least squares-structural equation modeling technique to test the model and hypotheses. A multilevel analysis research methodology was applied because the conceptual model relates constructs at the micro (political behavior and management team effectiveness) and macro (improved external ties [IET] and contextual ambidexterity [CA]) levels.FindingsSubsidiaries need to improve the MTE to achieve CA. The authors found that the local network built on trust and commitment facilitates access to differentiated knowledge. Unique knowledge reduces conflicts amongst team members and enhances explorative and exploitative activities to reach CA.Practical implicationsThe authors suggest that top managers can increase decision-making effectiveness by using trust and commitment to building a robust local network with selected stakeholders. Privileged knowledge allows attaining constructive political behavior (PB) and leverages exploitative and explorative activities.Originality/valueThe novelty resides in three aspects. First refers to linking CA and foreign subsidiaries in Brazil. Second, suggesting that IET has a double effect, as a moderator between PB and MTE, and concurrently has a direct effect on CA. Third, suggesting that capturing valuable resources from a local network built on the pillars of trust and commitment. Fourth, the authors examine the influence of differentiated knowledge on MTE.

Productivity gap and expatriate utilization

PurposeThis paper aims to investigate how the gap between a multinational enterprise’s (MNE) productivity and that of its competitor determines the utilization of expatriate managers in its foreign subsidiaries.Design/methodology/approachThe authors first develop a formal analytical model where expatriate managers are relatively more reliable and expensive while local managers are prone to job-hopping. The authors then test the predictions of the analytical model using subsidiary-level data of Korean MNEs.FindingsThe findings show a positive relationship between the productivity gap and the share of expatriate managers in a foreign subsidiary. The empirical findings also show that the job position (middle versus top managers) is another key determinant of the utilization of expatriate managers.Originality/valueThe results of this paper are consistent with the literature that finds that MNEs choose a governance structure that minimizes the hazard of opportunism in their subsidiaries, yet the paper reveals a novel aspect of the determinants of expatriate utilization.

Go small or go home: Operational exposure to violent conflicts and foreign subsidiary exit

This study aims to open the black box of heterogeneous responses to violent conflicts by focusing on subsidiaries’ operational exposure to violent conflict and their decisions to exit host countries. Drawing on real options theory, we propose a viable approach multinational enterprises can take when they encounter violent conflicts in their operating locations. Our analysis of 3,479 foreign subsidiaries operating in 11 countries over 26 years suggests that the exit decision of any given subsidiary located in a conflict-affected country depends on its operational scope. However, this effect depends on the characteristics of the operations the subsidiary undertakes, specifically, whether the subsidiary conducts natural resource-seeking operations and the degree of operational overlap with the same-parent affiliates.

The art of rhetoric: Host country political hostility and the rhetorical strategies of foreign subsidiaries in developing economies

Multinational enterprises (MNEs) often pay close attention to host country environments and prudently manage relationships with host country stakeholders. However, little attention has been paid to how the foreign subsidiaries of developed country multinational enterprises (DMNEs) communicate with host country stakeholders in developing economies. This paper investigates how host country political hostility influences DMNE subsidiaries’ rhetorical strategies. Using 485,496 Sina Weibo posts by subsidiaries of 71 DMNEs between 2010 and 2018, this paper demonstrates that political hostility has a negative influence on subsidiaries’ rhetorical emotionality and corporate social responsibility (CSR) rhetorical intensity, and has a positive effect on rhetorical clarity. Both bilateral trade and local subsidiary top executive strengthen the influence of political hostility on rhetorical emotionality and rhetorical clarity. The findings shed new light on how DMNE subsidiaries gain and maintain legitimacy in developing economies and how subsidiaries deploy post-entry rhetorical strategies as a response to host country political hostility.

Getting the seal of approval: Pathways to subsidiary initiative acceptance

Multinational corporations (MNCs) are proactive, entrepreneurial, and decentralized organizations. They seek to incorporate and leverage knowledge from their foreign subsidiaries. Initiatives in which subsidiaries pursue new business opportunities are one way that subsidiaries contribute to MNCs' knowledge stocks, but prior research suggests that few subsidiary initiatives secure headquarters approval. We argue that the extent to which initiatives are accepted by the headquarters of an MNC depends on a range of relational and contextual conditions that configure in complex ways. Using a neoconfigurational approach, we identify five equifinal configurations associated with the acceptance of subsidiary initiatives. We advance theory of subsidiary management by uncovering how subsidiary activities gain traction within the MNC.

Pursuing sustainability development goals through adopting gender equality: Women representation in leadership positions of emerging market multinationals

AbstractThis study examines the competitive disadvantages rationale behind the pursuing of Sustainability Development Goals (SDGs) by emerging market multinational corporations (EM‐MNCs) in foreign markets. We argue that EM‐MNCs may pursue gender equality goal in host markets as a legitimation strategy to offset their strategic disadvantages inherited from the home markets. Based on a sample of foreign subsidiaries from 10 major emerging countries from 2010 to 2020, this study finds strong evidence demonstrating that the institutional quality of home markets exerts a positive effect on the representation of women in leadership positions of EM‐MNCs. Additional analyses demonstrate that international experience and institutional ownership further magnify this effect.

Managing Foreign Subsidiaries Remotely: The Role of Culture in Techno-Stress Appraisal and Well-Being

Multinational enterprises’ increased dependence on work-enabling technologies to manage global operations may contribute to foreign subsidiary employees’ techno-stress (i.e., stress from interacting with technology). However, techno-stress may have either a positive or negative effect on employee and customer engagement, depending on the employee's appraisal of the techno-stressors. Drawing on transactional stress theory, the authors provide a conceptual model and research propositions to introduce the concept of techno-stress to international marketing scholars. The authors explore the role of the information systems environment and culture in employees’ appraisal of techno-stressors and their ultimate effects on employees’ well-being and performance. These propositions aim to encourage research that provides a fuller context of the technology-related challenges that multinationals may face in building employee and customer engagement across their subsidiary networks.

Competency management and the financial results of the foreign subsidiaries of Polish MNCs: The empirical research findings

BACKGROUND: Competency management (CM) is one of the basic subfunctions of HRM, which can significantly affect the results achieved by organizations. This is because the competencies of employees have become the key capital of enterprises and a factor of their success. Research on the relationships between CM and organizational performance results in Polish MNCs creates a research gap due to the object and subject of research. OBJECTIVE: The main goal of the article is to identify the potential regularities that may exist between the advancement level of CM and its composing activities and the company financial performance results. Of particular interest are the relationships that may appear between the studied variables in the context of their relationships with other subfunctions of HRM and the significance of human capital as a competitive factor. METHODS: The research sample includes 200 non-financial business entities with Polish capital, whose headquarters are in Poland, and local subsidiaries are located outside the country. The research was conducted using CATI and CAWI methods. Descriptive and correlation statistics were used to analyze the collected empirical data. RESULTS: Two fundamental regularities are observable. It turns out that the higher the advancement level of activities within CM, and in particular its links with other HRM subfunctions, the better the financial results of enterprises. CONCLUSIONS: The empirical research results lead to the conclusion that human capital is treated as a company’s competitive factor, and CM is of significant meaning to the financial results of the organization.

Firm foundations: The statistical footprint of multinational corporations as a problem for political economy

The discipline of comparative political economy (CPE) relies heavily on aggregate, country-level economic indicators. However, the practices of multinational corporations have increasingly undermined this approach to measurement. The problem of indicator drift is well documented by a growing critical literature and calls for systematic methodological attention in CPE. We present the case for a rocky but ultimately rewarding middle road between indicator fatalism and indicator faith. We illustrate our argument by examining two important cases—Sweden’s recent export success and the financialization of non-financial corporations in France. A careful parsing of the data suggests corrections to common characterizations of the two cases. Swedish exports have been reshaped by intragroup trade among foreign subsidiaries of domestic corporations. The growth of financial assets held by French firms is attributable to the growth of foreign direct investment and to cumulative revaluation effects, while what remains of financialization is concentrated among the very largest firms. Based on these findings, we propose a methodological routine that parses data by zooming in on the qualitative specifics of countries, sectors, and firms, while using all available options for disaggregation.

Formal vs. Informal Institutional Distances and the Competitive Advantage of Foreign Subsidiaries in Latin America

By focusing on the tacit and explicit characteristics of informal and formal institutional distances, this study investigates the competitive advantage of foreign subsidiary firms from developed countries and emerging markets operating in Latin America. Following recent research on distances in international management, this study measured the size and direction of distances and computed formal institutional distances based on the world governance indicators from the World Bank, whereas informal institutional distances are calculated using the four original dimensions of Hofstede. Considering that culture is tacit, whereas formal institutions are explicit, it is argued that these differences affect the ability to convert experience dealing with cultural and formal institutional conditions in the home country into firm specific advantages (FSAs) in a foreign host country. These assumptions are tested quantitatively using data from the Orbis database, a sample that includes over 4200 firm-year observations covering 10 of the largest economies in Latin America. In a departure from previous studies investigating the implications of FID direction, it is shown that the effects in specific directions are different for foreign subsidiaries from developed countries and from emerging markets. The results reveal that emerging market firms are at an advantage when operating in less developed host countries, whereas foreign subsidiaries from developed countries can adjust more positively when operating in host countries with strong formal institutions. On the other hand, the effects of the different CD dimensions depend on the direction towards host countries with specific cultural profiles. These findings indicate that foreign subsidiaries from emerging markets have a clear advantage in dealing with institutional voids in Latin America (i.e., FID towards less developed host countries), whereas the effects of CD are the same for all firms. This suggests that the cultural profile of the host country is what really matters.

Danger from a distance: Executives' social distance and multinationals' responses to host‐country terrorist attacks

AbstractResearch SummaryThis article examines whether and under what conditions multinational enterprises (MNEs) are likely to divest a subsidiary exposed to host‐country terrorist attacks. Drawing on construal level theory from social psychology, we propose that the association between subsidiaries' exposure to host‐country terrorist attacks and MNEs' likelihood of divesting these subsidiaries depends on their executives' social distance from the event host country. Based on a sample of Fortune US 100 MNEs and their foreign subsidiaries from 2003 to 2014, we find that on average, MNEs are more likely to divest their subsidiaries when their exposure to host‐country terrorist attacks increases; however, the effect is only prominent in host countries to which MNE executives are socially proximate.Managerial SummaryMNEs confronting terrorism threats in a host country sometimes respond by divesting subsidiaries exposed to the threats even when the high opportunity costs of divestment render this response irrational. We argue that the MNEs' divestment response may not be driven by rational economic calculations but by their executive’ subjective threat perceptions. We investigate how top executives’ subjective threat perceptions, as a function of their social distance from the event host country, influence MNEs’ divestment decisions. We find that on average, MNEs do tend to divest their subsidiaries when they are exposed to a high terrorism threat in a host country; however, they are much less likely to do so when their top executives are socially distant from the focal host country.

DO SOCIO-CULTURAL FACTORS AFFECT THE PERFORMANCE OF INTERNATIONAL BUSINESSES? – IN THE PERSPECTIVE OF LITERATURE REVIEW

<p>With the rapid development of technology, different businesses, in addition to operating in their country of origin, now have much easier to establish this activity in different countries. Certainly, there are many external and internal factors that affect the performance of businesses and we, in this paper are focused on socio-cultural factors that affect the performance of the international business in terms of literature review. From the review of various literatures, we have come to the conclusion that the key factors that affect the performance of an international business are: 1) Culture; 2) Language; 3) Level of education, 4) Customer preferences. Socio-cultural aspects are one of the most important environmental factors that have a considerable impact on international business economic activity and performance. Furthermore, managers of foreign subsidiaries have no control over socio-cultural issues. The goal of this research is to explain how certain socio-cultural aspects influence the performance of overseas subsidiaries. The contribution of the article is shown in the determination of essential socio-cultural characteristics that international business considers in order to evaluate the actual performance of foreign subsidiaries and their management, based on the acquired results.</p><p><strong>JEL:</strong> L20; L23</p><p> </p><p> </p>