Foreign Subsidiaries Research Articles

Package Tour Distribution Channels of Major Japanese, Chinese, and South Korean Travel Agents

ABSTRACT This study examines how overseas package tours are designed in China, South Korea, and Japan. It also examines how these tours are arranged between the three countries. The results of in-depth interviews and participant observation showed that the method of creating tours was almost the same across those three countries. However, there were differences in the method of operating tours. In terms of tours from China, Chinese wholesalers prefer other travel agencies as land operators instead of their own foreign subsidiaries; for Japan, they prefer to utilize their foreign subsidiaries; and for South Korea, the wholesaler considers both their subsidiaries and land operators for operating package tours. The concept of “operating power” explains the unique operation of these travel companies. The study concludes that the distribution channels of various package tours are strategically created by wholesalers according to the combination of markets and destinations. It contributes theoretical implications to the study of tourism distribution channels by focusing on regions that have not been included in previous studies. Additionally, it proposes a framework for the process of creating package tours and constructs a concept to explain the diverse ways in which package tours are operated. In terms of practical implications for travel agents, the study provides insights into various tourism distribution channels across different situations.

Like parent, like child: MNCs’ CSR and their foreign subsidiaries’ environmental footprint

This study examines how MNCs’ foreign subsidiaries respond to internal demands from the parent and external demands from the host and home institutions to determine their environmental footprint. Using a sample of subsidiaries of U.S. MNCs operating in China, we find that subsidiary environmental footprint is negatively related to parent environmental performance. We also find that the impact of parent environmental performance on subsidiary environmental footprint is weakened by the levels of legal system development, collectivism, and political system development in regions where MNC subsidiaries operate and is heightened by the strength of social capital and stringency of environmental regulations in regions where MNC headquarters are located. Our findings have implications for executives of MNCs and policymakers.

The Dilemma of Annual Reporting for Turkish Companies for 2022

Abstract Turkey has had another year of high inflation and high devaluation in its economic history. Inflation has been a continuing phenomenon in Turkey for many years. The paper analyzes the consequences of high inflation and devaluation rates on financial statements. Inflation and devaluation create difficulties both for local and foreign subsidiary companies` financial reporting. A model company`s transactions have been used to show the effects of inflation, devaluation on the financial statements. Application of different IAS based reporting methods will create discrepancies among the companies of foreign subsidiaries. Another discrepancy is due to which inflation rate to be applied for IAS 29 purposes. There are two inflation rates being discussed by the public. One is declared by the government statistical agency called “TurkStat” and the other one declared by the non-governmental academicians` organization called “ENAG”. ENAG`s inflation rate-being more than twice of the TurkStat`s makes the case even more interesting. Since government is not going to allow the inflation accounting rules for financial reporting for local/tax purposes for 2022 fiscal year, companies with revenues exceeding expenses and assets exceeding their liabilities will be declaring profits and paying taxes whilst in fact, high inflation and devaluation are sweeping away those profits.

Liability of political embeddedness in Chinese multinationals: Implications for headquarters’ roles and reverse knowledge transfer

It is well known that Chinese multinationals’ international expansion is often supported by the home-country government. This study argues that the political embeddedness of Chinese multinationals’ headquarters may impair their managerial intentions and abilities to carry out their entrepreneurial and administrative roles and, indirectly, their capacity to achieve reverse knowledge transfers from their foreign subsidiaries. Based on a study of 177 subsidiaries of 99 Chinese multinationals, we find no support for the argument that political embeddedness affects headquarters’ centralization of subsidiary decisions, although such centralization is negatively associated with reverse knowledge transfer. Additionally, our findings show that home-country political embeddedness is negatively associated with headquarters’ entrepreneurial role vis-à-vis individual subsidiaries. This hampers subsidiaries’ reverse knowledge transfers. The results contribute to understanding the value of political embeddedness and headquarters’ roles in the context of Chinese multinationals. They also provide insights into the strategic asset-seeking internationalization of Chinese multinationals. By developing and operationalizing the multidimensional concept of political embeddedness, this study further contributes to the research on firm-government relations.

Not all threats are equal: symbolic and realistic threats and the deployment of parent-country nationals

AbstractThrough extending the psychological approach to threats, we advance a threat–contingency model to understand how two domains of host-country threats–symbolic and realistic–drive multinational enterprises (MNEs) to deploy parent-country nationals to manage their foreign subsidiaries. When faced with symbolic threats related to ethics and morals in a host country, MNEs act rigidly and conservatively, increasing the likelihood of deploying parent-country nationals as executives in foreign subsidiaries. When dealing with realistic threats associated with potential economic losses in a host country, however, MNEs are adaptive, decreasing the tendency to transfer parent-country nationals abroad and increasing the use of host-country nationals in foreign subsidiaries. The two threats interact in affecting staffing decisions. Moreover, industry globalization moderates asymmetrically the influences of the two threats: globalization strengthens the effect of symbolic threats but weakens the effect of realistic threats. We used a primary archival study and supplementary laboratory studies to test our hypotheses. Overall, our study provides an additional theoretical account to explain MNEs’ divergent responses toward two domains of threats in a host country. We conclude the study with implications for international business and global mobility research.

Pengaruh Tekanan Karyawan dan Struktur Kepemilikan terhadap Kualitas Sustainability Reporting

This study aims to analyze the effect of employee pressure and ownership structure on the quality of sustainability reporting. The quality of the sustainability report is measured using a disclosure index. Employee pressure is measured by the number of employees. While the ownership structure in this study is represented by foreign ownership as measured by the number of shares owned by foreigners compared to total outstanding shares, highly controlled equity is measured by equity attributable to owners of the parent entity compared to total equity, and foreign-oriented companies as measured by foreign subsidiaries compared to the number of subsidiaries. The population of this research is all companies listed on the Indonesia Stock Exchange in 2016-2020 which publish sustainability reporting using a sampling method, namely purposive sampling so the final sample of this study is 35 companies. The analysis technique used is multiple linear regression analysis. Overall, the results of this study indicate that employee pressure does not affect the quality of the sustainability report. The ownership structure, namely foreign ownership, highly controlled equity, and foreign-oriented companies also do not affect the quality of the sustainability report.

Co-patenting and the Technological Value of Patent Applications: The Case of Siemens

Does international R&D collaboration produce patents of higher technological value? Applied to the case of Siemens, this paper utilizes the Patent Cooperation Treaty (PCT) and Google Patents statistics to identify patterns within invention and co-invention. For example, sole patenting by headquarters or subsidiaries is juxtaposed with co-invented patent filings, vertical versus horizontal co-patented applications and internal versus external. The paper compares the effect of different forms of co-invention on the technological value of patent filings, proxied by forward external citations. The results are based on 2013 and 2019 Siemens PCT data and confirm the positive effect of international co-invention, vis-à-vis sole patenting, on the technological value of patents. Patent applications co-invented by foreign subsidiaries, or vertically collaborated applications, create higher technological value, while headquarters or single subsidiaries generate fewer forward citations. Moreover, co-patenting by subsidiaries with external partners creates higher technological value than sole patenting by headquarters. Siemens has recognized the value of partnerships with outside inventors and leveraged these relationships in order to generate higher technological value. We contribute by building a unique and detailed classification of co-patenting patterns, and the paper develops a strong case for cross-country co-patenting, especially with external partners. From a managerial perspective, international co-patenting involving external partners has strategic value and must be fostered.

Foreign subsidiary performance: social trust–entry fit

PurposeThis paper aims to study whether the adoption of an entry mode that fits the social trust level contributes to the improvement of foreign subsidiary performance.Design/methodology/approachThe authors used the Probit model, linear regression, strategic fit approach and instrumental variable regression. The sample was made up of 11,095 observations of Chinese multinational enterprises' foreign subsidiaries in 54 countries from 2005 to 2020.FindingsThe results suggest that a host country with a high level of social trust results in fewer difficulties for enterprises in gaining legitimacy, thus foreign subsidiaries are more likely to select the wholly owned entry mode. The results also show that the effect is contingent on the formal institutions of host countries. The results of the mechanism test suggest that social trust influences subsidiaries' entry mode choice by reducing information asymmetry, costs and uncertainty risks. This study further finds that selecting a fit entry mode based on social trust level substantially increases foreign subsidiary performance and this effect is more significant when multinational enterprises (MNEs) are state-owned enterprises (SOEs).Research limitations/implicationsThe main limitation of this paper is its only focus on foreign subsidiaries of Chinese MNEs, which may limit the generalizability of research findings.Originality/valueThis paper responds to the call for conducting more research on informal institutions. Findings highlight the critical role of informal institutions in helping foreign subsidiaries in gaining legitimacy in host countries and the essentialness of selecting a fit entry mode based on the informal institutions of host countries for the development of foreign subsidiaries.

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.

Culture fit and employee engagement in foreign subsidiaries: Evidence from Chinese multinational enterprises in the United States

Engaging local employees in foreign subsidiaries has emerged as a critical concern for Chinese multinational enterprises (MNEs). This study employs the theoretical framework of culture fit to conduct an inductive multiple-case study of Chinese subsidiaries in the United States. We examine how culture fit between the organizational and societal levels is manifested through human resource management practices at the foreign subsidiaries of Chinese MNEs. Particularly, we demonstrate how culture fit or misfit influences the intellectual, social, and affective engagement outcomes of local employees at the individual level. This study extends the understanding of culture fit across multiple levels and its direct impact on employee engagement. The findings provide valuable managerial implications for global human resource managers to effectively engage their culturally diverse workforces.

Multinationals’ intraregional geographic expansion and foreign subsidiary performance

This study investigates how the intraregional geographic expansion of a multinational enterprise (MNE) affects the performance of foreign subsidiaries in the region. While previous studies have primarily focused on the impact of intraregional expansion at the overall MNE level, this study explores its subsidiary-level effect. The non-linear relationship between intraregional geographic expansion and the performance of foreign subsidiaries in the region is examined by adopting a two-stage least squares model for a panel dataset of Japanese MNEs’ investments in three geographic regions. The findings demonstrate a curvilinear relationship between intraregional geographic expansion and the performance of foreign subsidiaries. Furthermore, the effect of intraregional geographic expansion on subsidiary performance depends on the attributes of foreign subsidiaries in the regional network of sister subsidiaries. Specifically, this study demonstrates that geographically isolated and small subsidiaries and those co-owned by local partner firms gain large benefits from intraregional expansion.

How do emerging multinationals achieve sustainable development globally? The enabling mechanism of headquarter‐subsidiary structure in subsidiary sustainability

AbstractDespite of the increasing attention on Sustainable Development Goals (SDGs) implementation, emerging multinational corporations (EMNCs), and their foreign subsidiaries, as the promising contributors and main agents respectively to address SDG issues worldwide, have been rarely noticed in theoretical research. Drawing upon the loose coupling theory, this study seeks to address the unique challenges EMNCs facing in managing their foreign subsidiaries' SDG implementation, and informs on tackling the potential conflicts in meeting multiple SDG requirements of home and host countries. Based on a sample of 295 foreign subsidiaries from Chinese manufacturing firms, this study adopts polynomial quadratic regression with response surface analysis to examine the relationship between headquarter‐subsidiary (HQS) coupling structure and subsidiary sustainable development, as well as the role of parent corporate environmental responsibility (CER) and FDI motives in this process. Our findings demonstrate support for the positive effect of HQS coupling structure on subsidiary sustainable development, and the moderating role of FDI motives is confirmed. This study reveals the key mechanisms and contingencies of SDG implementation at the subsidiary level, and provides theoretical insights for EMNCs to tackle SDG issues globally, obtain legitimacy locally and deepen international expansion accordingly.

Transitioning from CSR to CSV in a foreign subsidiary in China through temporal decoupling

Our qualitative case study explores how Kirin Beer Zhuhai (KBZ), a China based subsidiary of a Japanese multinational corporation, under a mandate from the HQ, changed from embracing corporate social responsibility (CSR) to adopting creating shared value (CSV). This entailed some movement away from projects that were deemed to be about CSR, where there had been an exclusive focus on social rather than economic goals. There were corresponding attempts to adopt projects about CSV, addressing both social and economic goals. Faced with trade-offs between economic and social goals, managers at KBZ appeared to be adopting a temporal form of policy-practice decoupling. Under this, some CSV projects were targeting temporally proximal economic goals along with temporally distal social goals, while other CSV projects were targeting temporally proximal social goals along with temporally distal economic goals. Our main contribution is developing the concept of temporal decoupling as a tool for analyzing dilemmas (e.g., local versus global demands) and resolving trade-offs (e.g., social versus economic goals). Temporal decoupling enabled KBZ to progress toward CSV without resource transfers from the headquarters, with yin-yang balancing as the mechanism, under which competing goals were temporarily traded-off through partial separation, while achieving some synergy through partial integration.

Director foreign experience: Geographic specificity and value implication

This paper introduces the concept of geographic specificity to director foreignness. We argue that the geographic location of a director’s foreign experience affects her board appointment by multinational firms and her subsequent contribution to firm value. We test our hypotheses using a sample of U.S. multinational firms with detailed firm foreign subsidiary data collected from Exhibit 21 files and director foreign work experience data from BoardEx. The regression results show that firms with more foreign subsidiaries in a particular region tend to hire more independent directors with foreign work experience from that region. Furthermore, foreign-experienced directors contribute to increased firm performance in terms of ROA and Tobin’s Q, but only when their foreign experience is geographically matched with their firm’s foreign operations. The contribution is even more pronounced, when the institutional distance between the foreign host country and the home country is long. We also find that foreign-experienced directors are more likely to sit on advisory committees than monitoring committees, indicating their heavier contribution through advisory roles. Lastly, we conduct a difference-in-difference analysis using director exogenous departures to address potential endogeneity concerns. Overall, our paper suggests that geographic factors play an important role in the selection and contribution of foreign directors, and sheds new light on the previous mixed evidence on value implication of foreign directors.

Enhancing subsidiary innovation capability through customer involvement in new product development: A contingent knowledge source perspective

AbstractIn recent decades, multinational enterprises (MNEs) have increasingly harnessed local knowledge through various customer involvement practices implemented by their foreign subsidiaries. Our study, using a multi‐informant survey of 230 MNE subsidiaries in China, explores how these subsidiaries manage customer involvement in new product development (NPD). We specifically focus on two practices: using customers as an information source (CIS) or as a co‐developer (CIC). We posit that the two types of customer involvement have distinct effects on a subsidiary's innovation capability, which in turn impacts two critical NPD outcomes: innovativeness and speed to market. Moreover, we suggest that the roles that customers play in CIS and CIC, as well as their contribution to the subsidiary's innovation capability, depend on whether the specific knowledge is derived from the parent headquarters or local partners. Our findings reveal that technological knowledge transfer from the parent headquarters enhances CIS's effect on innovation capability, yet diminishes that of CIC. In contrast, knowledge sharing from local partners exerts the opposite effects. By elucidating the underlying mechanisms and contingencies, our study fosters a deeper understanding of customer involvement in NPD and provides insightful guidance for MNEs seeking to leverage local knowledge for successful innovations in foreign markets.

The impact of autonomy on sustainable performance in foreign subsidiaries: an empirical study from Chinese construction industry

PurposeForeign construction subsidiaries play an important role in the global construction market. How to establish and maintain long-term sustainable performance has attracted increased attention, but only a few studies have considered this issue. The purpose of this study is to explore the relationship between autonomy and the sustainable performance of subsidiaries and to provide support for their management control modes.Design/methodology/approachFrom an institutional logics perspective, empirical research using a questionnaire survey was conducted following the methodological framework of this study. Relevant data were collected from 106 experienced managers of foreign construction subsidiaries, and the hypotheses were tested through a regression model.FindingsThe results show that foreign construction subsidiaries have a high degree of operational autonomy, which tends to strengthen their embeddedness in the host country and improve their sustainable performance. However, the role of strategic autonomy is not found to be significant. The moderation results show that the positive impact between operational autonomy and external network embeddedness is strengthened by institutional distance. Institutional distance has no significant moderating impact on the relationship between strategic autonomy and external network embeddedness, respectively.Research limitations/implicationsGeographical limitations may exist as the survey is focused on the Chinese construction foreign subsidiaries. However, based on an institutional logics perspective, this study discusses the management control mode of foreign subsidiaries, which enriches the antecedents of sustainable performance and can provide an in-depth explanation of the effects of the organizational strategies of multinational construction enterprises.Practical implicationsThis study provides beneficial information for the sustainable performance of foreign construction subsidiaries. It will provide detailed guidance to managers located in different institutional environments on optimally promoting the sustainable development of subsidiaries.Originality/valueThis study identifies autonomy as an important antecedent, making it one of the first studies investigating autonomy on the sustainable performance of foreign construction subsidiaries. The findings of this study can contribute to the construction subsidiaries' sustainable performance literature and provide novel, comprehensive knowledge for academia and practice.

Host country cultural profile and the performance of foreign subsidiaries in Latin America

While cultural distance (CD) is a popular construct in international business (IB), most studies confound the distance and country profile effects. There is an ever-growing debate on measurement issues and distinguishing the effect of doing business in countries with different cultural profiles. While the vast majority of studies focus on the implications of CD, the objective of this study is to investigate how the cultural profile in the host country affects the financial performance of foreign subsidiaries in Latin America. We employ a quantitative approach with panel data, including over 4200 firm-year observations of the same foreign subsidiary firms in the 10 largest economies in Latin America. We measure cultural profile of the host country using the four original dimensions of Hofstede's framework. Then, we estimate the effects on the financial performance of foreign subsidiary firms using the original scale and by splitting the scale (e.g. degree of masculinity vs degree of femininity) to compare the effects of the opposite poles of the cultural dimensions. The findings reveal that certain cultural characteristics in the host country profile (e.g., individualism and femininity) positively impact performance. In contrast, other cultural traits have a negative (masculinity and collectivism) or no significant impact (uncertainty avoidance). Also, the firms can adjust positively to high and low power distance scores in the host country. This study offers novel insights into the implications of national culture for financial performance by showing that the host country's cultural profile significantly impacts foreign subsidiary firms’ performance.

The digital economy, entry mode strategies, and the profitability of foreign subsidiaries: A global view

The digital economy, entry mode strategies, and the profitability of foreign subsidiaries: A global view

The mediating performance role of staffing options in MNE subsidiary strategies within rapidly deteriorating environments

PurposeIn an environment of intensive global mobility, this study aims to investigate the performance role of staffing choices within diverse MNE subsidiary strategies. Incorporating the integration-responsiveness (IR) framework with a contingency perspective, this study proposes that the performance success of distinct MNE subsidiary strategies depends on staffing choices. This study argues that performance differences of staffing choices such as assigned expatriates, self-initiated expatriates, former inpatriates and host-country nationals derive from their different knowledge/experience advantages regarding the intra-firm environment and local market conditions.Design/methodology/approachThe study utilizes a unique sample of 169 foreign subsidiaries located in Greece that faced the outbreak of the COVID-19 pandemic (in 2020). For robustness reasons, this study also captures the imposition of capital controls (in June 2015).FindingsThis study finds important mediating performance effects of a diversified human resource portfolio across distinct subsidiary strategies in difficult times. Integration strategy tends to use more assigned expatriates, locally responsive strategy tends to utilize more host-country nationals, whereas multi-focal strategy favors self-initiated expatriates and former inpatriates, with positive subsidiary performance effects accordingly. So, staffing policies that are suitable to balance the needs of Human Resource Management (HRM) portfolio differ from strategy to strategy. Moreover, this study finds that managing HRM diversity is crucial in turbulent times.Originality/valueWhile the empirical evidence has been predominantly accumulated from large economies, largely neglecting performance effects of MNE subsidiary staffing in crisis contexts, the analysis sheds light on a small open economy (i.e. the Greek context) emphasizing rapidly environmental deterioration. The findings extend existing theorizing on international performance and HRM management by providing an integrative conceptual framework linking integration-responsiveness motivated strategies with distinct groups of high-quality human resources under contingency considerations, so creatively synthesizing largely fragmented IB and HRM research streams. The study provides valuable insights into the performance role of non-conventional staffing choices such as self-initiated expatriates and former inpatriates, given that relevant studies examine either exclusively expatriates or compare expatriates with host country nationals, reaching inconclusive results.

An alternative measure of profit shifting and corporate income tax losses

The aim of this paper is to assess an alternative method of estimating the amount of profit shifting and corporate income tax revenue losses. We propose a nonstandard methodology to refine the measurement of profit shifting beyond the traditional semi-elasticity procedure. A four-stage Data Envelopment Analysis (DEA) is used to estimate the relative technical efficiency of profits before taxation reported by foreign-owned companies in Czechia. The efficiency gap resulting from the difference between the first-stage and third-stage technical efficiency scores represents the level of profit shifting. Using the statutory and average effective corporate income tax rates, we calculate the amount of corporate income tax revenue losses attributable to profit shifting. The estimated mean level of profit shifting by foreign subsidiaries involved in the manufacturing and service sectors between 2009 and 2016 is over 570 million EUR, and the mean amount of tax losses exceeds 100 million EUR. In relative terms, profit shifting leads to a decrease in total corporate income tax revenues of 2% in Czechia. Foreign-owned companies involved in the manufacturing sector are less efficient than foreign-owned companies from services industries in terms of relative technical efficiency scores, while companies involved in the service sector have a considerably high efficiency gap with respect to companies involved in the manufacturing sector.