Foreign-owned Subsidiaries 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.

A Fuzzy Set Analysis of Foreign-Owned Subsidiary Performance: Insights from East Asia

ABSTRACTThe purpose of this study is to investigate the multiple conditions that affect performance in foreign-owned subsidiaries. This research is based on a survey of foreign-owned subsidiaries located in the midrange emerging economy of Taiwan. The resulting data set consists of 226 subsidiary managers’ responses. Using configurational theory to guide our argumentations, the author shows that three different paths lead to higher performance, hence, indicating equifinality. Overall, results show that only subsidiary competences are a core condition for high performance. Networks, autonomy, market orientation, industry, and relatedness are only peripheral.

Determinants of foreign-owned subsidiary performance in emerging economies

PurposeThe purpose of this study is to expand our understanding of performance determinants in foreign-owned subsidiaries (FOSs) located in an emerging economy.Design/methodology/approachA survey has been conducted of all known FOSs in Taiwan.FindingsThe results show that intra-organisational relationships and subsidiary competences are positively associated with various performance dimensions. Being located in a global city, as well as geographically distant from the home country, seem to have the opposite impact. The moderating factors of subsidiary age and authority are partially relevant.Research limitations/implicationsThis study is based on a cross-sectional sample of FOSs in Taiwan.Practical implicationsThe study shows that in an emerging market context, being strongly linked with the rest of the multinational enterprises might still be more conducive to subsidiary performance than venturing out. This is an important consideration, given the constant resource constraints for managers.Practical implicationsThis study highlights important factors that ought to be taken into consideration by policymakers to attract suitable foreign direct investment.Originality/valueThis study provides a comprehensive test of major performance determinants for FOSs located in an emerging economy.

The role of dual embeddedness and organizational learning in subsidiary development

We investigate how subsidiaries exploit the knowledge flows embedded in internal and external networks and support their development in terms of scope (breadth of functional operations) and competence (ability to perform specific activities). We argue that individual subsidiaries have different organizational learning processes, which would influence the way subsidiaries evolve and manage multiple sources of knowledge and adapt their knowledge structure and routines systematically for subsidiary-wide development. Our analysis of 81 foreign-owned subsidiaries in China shows that subsidiary competence is enhanced by the knowledge arising from MNC networks whereas subsidiary scope depends on the knowledge embedded in the host environments. Moreover, organizational learning affects the way knowledge adapted from internal embeddedness but not external embeddedness. These findings imply that foreign subsidiaries must effectively cope with increased flows of distant knowledge within MNC networks while maintaining their location-specific advantage. The different outcomes of subsidiary development add a nuanced understanding of the relationship between dual embeddedness and subsidiary development.

Initiative and networks as determinants of competence levels in foreign-owned subsidiaries: evidence from Taiwan

This paper investigates the roles of subsidiary initiative dimensions and networks in the competence creation process in Taiwan-based foreign-owned subsidiaries. Based on a survey of over 100 foreign-owned subsidiaries in Taiwan, the study finds that subsidiary initiative dimensions are positively associated with competence levels in subsidiaries. Network relationships as such are not associated with competence, but play a role when considered in combination with subsidiary initiative dimensions. Our findings suggest that initiative dimensions and networks have distinct impacts on competence levels in subsidiaries, but do also moderate each other. The article also has valuable policy implications for the attraction of high competence foreign direct investment into emerging economies.

Institutional development and subsidiary decision making autonomy: theory and evidence from Taiwan

This article investigates the effects of differing institutional contexts in which multinationals operate and their impact on decision making autonomy of subsidiaries located in an emerging economy. The research builds on a unique dataset of all known foreign-owned subsidiaries in Taiwan. Our results indicate that differences in formal institutional development and informal institutions are positively associated with overall decision making autonomy in foreign-owned subsidiaries. Factor markets and infrastructure, on the other hand seem to play a lesser role.

Institutional development and subsidiary decision making autonomy: theory and evidence from Taiwan

This article investigates the effects of differing institutional contexts in which multinationals operate and their impact on decision making autonomy of subsidiaries located in an emerging economy. The research builds on a unique dataset of all known foreign-owned subsidiaries in Taiwan. Our results indicate that differences in formal institutional development and informal institutions are positively associated with overall decision making autonomy in foreign-owned subsidiaries. Factor markets and infrastructure, on the other hand seem to play a lesser role.

Investment motive as a moderator of cultural-distance and relative knowledge relationships with foreign subsidiary ownership structure

In this analysis, we seek to contribute to the growing body of literature exploring moderators of cross-national differences and foreign subsidiary ownership structure relationships, by developing the argument that cultural distance and majority-owned foreign subsidiary relationships will be positively moderated if a subsidiary serves a manufacturing motive, as opposed to a market-seeking motive. Additionally, we argue that relationships between increasingly greater levels of host country technical knowledge, relative to a firm's home country, and the use of majority-owned foreign subsidiary structures will be negatively moderated by manufacturing motives. These ideas are tested, and supported, in the empirical context of subsidiaries of Japanese automotive firms from 1993 through 2009.

Experience in Different Institutional Environments and Foreign Subsidiary Ownership Structure

Research has offered that one of the key advantages of multinational enterprises (MNEs) is the ability to learn from a diverse collection of environments. However the internationalization process model literature linking organizational experience to foreign subsidiary ownership structure has emphasized the role of related or market-specific experience, without fully considering the role of experience across a heterogeneous collection of markets. The current study seeks to bridge this gap and improve our understanding of the generalizability and influencing factors of the internationalization process model by considering how prior focal-market experience and heterogeneity in host-market experience across an MNE’s operations influence subsequent decisions on foreign subsidiary ownership structures. In the empirical context of Japanese automotive firms, the results suggest that when MNEs (a) have greater levels of experience in a focal host country or (b) have experienced a greater variety of regulatory differences across their multinational operations, they are more likely to pursue majority-owned structures in the face of less transparent regulatory environments. Our results also suggest that MNEs with greater levels of both focal host-country experience and variance in environments experienced across their operations, have less confidence in their experience in a focal host country, and are even less likely to pursue majority-ownership structures in the face of less transparent regulatory environments.

Factors leading to foreign subsidiary ownership: A multi-level perspective

Entry strategy influences the success and survival of multinational enterprises (MNEs) in foreign market. Because foreign-market entry is a multilevel phenomenon, foreign ownership research could greatly benefit from studies using multilevel modeling and statistical analysis. Therefore, this research discusses these factors at the subsidiary level, the parent company level, and the dyad level between the subsidiary and its parent company. This research helps MNEs clarify the theoretical framework when deciding their ownership percentage in foreign investment. By using Hierarchical Linear Model (HLM) analysis and fsQCA (fuzzy-set Qualitative Comparative Analysis) to simultaneously consider 3-level factors, MNEs may reduce blind search costs, and gain enhanced understanding of various perspectives. The complementariness between the 2 parties, and the number and capabilities of subsidiaries affect the parent company's subsidiary-ownership decision, providing managerial insights for making optimal ownership decisions, and improving foreign investment performance.

Which innovation strategy do internationalised firms follow?: evidence from Spain

This paper compares the innovation strategy of internationalised firms, foreign-owned subsidiaries and domestic exporters, relative to firms that serve the domestic market only. The analysis is performed on a sample of manufacturing Spanish firms over the period 2006-2011. We not only focus on different forms of innovation, distinguishing between imitation and pioneer innovation, but also on the heterogeneity of exporters and foreign-owned firms. We find that foreign-owned firms and domestic exporters (excluding those serving only the EU market) are more likely to introduce market novelties ahead of competitors in low-tech sectors and, to a lesser extent, imitate more than local firms. However, domestic exporters and foreign-owned firms in Spain are not more innovative (neither in terms of original nor imitative products) than local firms in high-tech sectors.

Which innovation strategy do internationalised firms follow?: evidence from Spain

This paper compares the innovation strategy of internationalised firms, foreign-owned subsidiaries and domestic exporters, relative to firms that serve the domestic market only. The analysis is performed on a sample of manufacturing Spanish firms over the period 2006-2011. We not only focus on different forms of innovation, distinguishing between imitation and pioneer innovation, but also on the heterogeneity of exporters and foreign-owned firms. We find that foreign-owned firms and domestic exporters (excluding those serving only the EU market) are more likely to introduce market novelties ahead of competitors in low-tech sectors and, to a lesser extent, imitate more than local firms. However, domestic exporters and foreign-owned firms in Spain are not more innovative (neither in terms of original nor imitative products) than local firms in high-tech sectors.

The effects of institutions and subsidiary competence on the international market orientation in foreign-owned subsidiaries

Purpose– The purpose of this paper is to enhance our understanding on the effects of national and subnational institutions as well as subsidiary competences on the international market orientation in foreign-owned subsidiaries.Design/methodology/approach– A postal survey has been conducted based on a census-like database of foreign-owned subsidiaries in the Northwest of England.Findings– The findings show a positive relationship on the international market orientation for subsidiaries with extended competences and strong links to local suppliers, universities and competitors. A negative association has been found concerning formal institutional distance and strong links to local customers and government institutions.Research limitations/implications– The survey is limited to foreign-owned subsidiaries in the Northwest of England.Practical implications– This study implies that subsidiary managers need to take national and subnational institutions as well as subsidiary specific competences into consideration when looking for international market expansion.Originality/value– The originality of this paper lies in the detailed investigation of institutions at the national and subnational level as well as subsidiary competences on the international market orientation in foreign-owned subsidiaries.

Subsidiary Knowledge Development in Knowledge-Intensive Business Services: A Configuration Approach

The international marketing literature has suggested that the characteristics of the subsidiary–headquarters relationship play an important role in subsidiary knowledge development within the field of multinational corporations. However, few studies have examined the association between the subsidiary–headquarters relationship and the subsidiary strategic role and its effects on subsidiary knowledge development. In this article, the authors first examine the effect of four subsidiary–headquarters relational characteristics (socialization mechanisms, autonomy, shared values, and internal embeddedness) on subsidiary knowledge development. Then, building on configuration theory, the authors employ two perspectives of fit (moderation and profile deviation) to investigate the impact of fit between strategy and relational characteristics and examine their effects on subsidiary knowledge development. Using data from 184 U.K. foreign-owned subsidiaries operating in the knowledge-intensive business services sector, the authors confirm that internal embeddedness, socialization mechanisms, and autonomy are positively related to subsidiary knowledge development. Furthermore, the findings support the moderation and profile deviation perspectives and indicate that aligning the subsidiary's strategic role with relational characteristics can lead to superior knowledge development.

The Impact of the Chinese Enterprise Income Tax Reform on the Reinvestment Incentive of Foreign Invested Companies

Foreign direct investment (FDI) is a major driver of the Chinese economy. In 2008, China introduced a new Enterprise Income Tax (EIT) Law, which abolished many tax incentives for foreign invested enterprises (FIEs). This article reviews and analyses the effect of tax reform changes on the reinvestment behaviour of foreign-owned Chinese subsidiaries considering the foreign tax system and leverage ratio. It can be shown that the EIT reform resulted in a significant increase in the reinvestment hurdle rate of FIEs.

Interactions of subnational institutions: the effects on foreign subsidiary ownership structure

Based on the institution-based view, increasing number of research examine how institutions could shape firm behaviors and performance in various contexts. However, an implicit assumption of previous studies is that different institutional aspects exert impacts separately and independently. This study departs from prior research by arguing that distinct institutional dimensions are interrelated with each other in a way that the influence of one institutional dimension is contingent on the existence(or absence) of other institutional dimensions. Specifically, we focus on how different institutional dimensions in host country interactively shape multinational enterprises (MNE) subsidiary ownership structures.

Influence of internal and external relationships of foreign subsidiaries on innovation performance. Evi- dence from Germany, Czech Republic and Romania

The paper assesses the influence of foreign-owned subsidiaries’ (FS) intra- and inter-organizational relationships on product innovation performance. Data drawn from CIS figures for the 2006-2008 cover 1747 FS established in Germany, 385 FS in the Czech Republic, and 276 FS in Romania. Our analysis, employing the structural equation model, reveals a positive influence of FS internal relationships (with both local and foreign partners) and of FS external linkages on product and marketing innovation, the strongest in Germany-based FS. Moreover, a significant positive influence of FS internal relationships on external innovation cooperation is shown. Results suggest a relatively deeper embeddedness of Germany-based FS than of FS located in analysed transition economies.

INTERNATIONAL ROLES OF FOREIGN-OWNED SUBSIDIARIES IN NEW ZEALAND: AN EXPLORATORY STUDY

Advances in the capacity to manage overseas operations have been linked to foreign-owned subsidiaries of multinational enterprises performing more varied roles for their parent organisations than they did in the past. Drawing on evidence from an original large-scale survey, this study explores the international roles performed by 429 foreign-owned subsidiaries in New Zealand. Traditionally, subsidiaries in New Zealand have predominantly been established to service the local market which although comparatively small is remote from major sources of foreign investment. The study finds that many subsidiaries have some form of international role and that subsidiaries frequently perform a variety of roles for their organisations. Investigation of subsidiary characteristics associated with an international role finds that those managed independently, and those managed by a network of reporting channels have most propensity and potential to engage in international roles. This evidence justifies greater recognition that subsidiary operations may make multiple contributions to their organisation rather than have a single purpose.

The Effects of Institutional Distance on Foreign-Owned Subsidiary Development: The Case of the Northwest of England

The purpose of this paper is to analyse the effects of institutional distance on foreign-owned subsidiary development. In particular, a distinction between direct and indirect effects of formal and informal institutional distance is proposed and empirically tested. Based on a bespoke census database of all known foreign-owned subsidiaries in the Northwest of England a postal survey has been conducted. The results indicate that informal institutional distance does have a pronounced negative effect on the level of intra- and inter-organisational relationships and decision-making autonomy in foreign-owned subsidiaries. The direct effect of formal institutional distance seems to be less relevant, however, it is becoming significant when the interaction between formal and informal institutional distance is considered. The specific contribution of this study lies in the systematic and comprehensive investigation of the formal and informal institutional distance between home and host country and their effects on subsidiary development. It is one of the first studies to provide a theoretically sound investigation, based on new institutional economics and internalisation theory, of the interaction between formal and informal institutional distance in the context of foreign-owned subsidiaries.

The Contribution of Local Environments to Competence Creation in Multinational Enterprises

This paper examines the competence development of subsidiaries in multinational enterprises. We analyze how local subsidiary environments affect the development of technological and business competencies among other units in the multinational enterprise. We test our predictions using data from 2,107 foreign-owned subsidiaries located in seven European countries, by means of structural equation modeling — namely, LISREL. By bringing the local environment to the fore, we contribute to the literature on the emergence and determinants of firm-specific advantages. We link local subsidiary environments to the development of the competencies of other units in the multinational enterprise. The role of the multinational enterprise is characterized as integrative, as it may bridge local competencies and environments that are conducive to competence creation, and as it facilitates the use of resources residing locally throughout the organization. Thus, we contribute to an enhanced understanding of location as a determinant of the creation of units of competence and centers of excellence within multinational enterprises. In other words, we demonstrate that country-specific advantages are beneficial for competence creation in units other than the local subsidiary. We thereby link country-specific advantages to the creation of firm-specific advantages in the multinational enterprise — i.e., the multinational enterprise can build and augment firm-specific advantages by making the most of country-specific advantages.