Korean Multinational Corporations Research Articles

The Effects of ESG Performance on the Relationship between Tax Risk and Cost of Capital: An Empirical Analysis of Korean Multinational Corporations

Purpose - Using a sample of Korean multinational corporations, we examine whether the relationship between tax risk and the implied cost of capital discriminates between the environmental, social, and corporate governance (ESG) of highly rated firms.
 Design/methodology - Firms with high tax risks have an increased uncertainty of future cash flows. Therefore, as the volatility of future cash flow increases, information asymmetry and the required return increases. Highly rated ESG firms can reduce information asymmetry, thereby weakening the positive relationship between tax risk and cost of capital. We employ the standard deviation of the cash effective tax rate as proxy of tax risk. We utilize the ESG rating data of the Korea Corporate Governance Service (KCGS). We use a PEG model, MPEG model, and GM model to measure the implied cost of capital.
 Findings - We find a positive association between the implied cost of capital and tax risk. The positive relationship between tax risk and the implied cost of capital weakens in highly rated ESG firms. Highly rated ESG firms prefer a stable tax position to invest after-tax cash flows into sustainable management. Therefore, the negative effects of tax risk on cost of capital can be reduced.
 Originality/value - This study provides empirical evidence that ESG activities can mitigate the negative impact of tax risk on the cost of capital for Korean multinational corporations. In a business environment where ESG activities are more important, the empirical results that ESG activities can reduce the corporate risk of Korean FDI companies are expected to provide implications for the ESG activities of multinational corporations.

Preparation for Digital Transformation: A Case and Empirical Findings of South Korean Multinational Corporations

Purpose - Digital transformation is the key to success for recent multinational corporates. Ample studies have paid attention to the effectiveness of digital transformation and usage of advanced technology, but there is a lack of research related to how to prepare for digital transformation. The main purpose of this study is to organize specific case of preparation for digital transformation from a management perspective. In addition, the empirical results are presented to examine the impact of the preparation of the digital transformation.
 Design/Methodology/Approach - The study first reviews previous literature about digital transformation to organize antecedents, theory, contingency, and outcomes. Second, based on the resource-based view, a case is explained the company’s context, processes, and methodology. Lastly, empirical analysis is conducted to investigate how effective the digital transformation is prepared, and results are presented with data from 50 affiliations and 1,059 employees.
 Findings - This study finds the key to successful digital transformation is well-prepared talent, and suggests how multinational corporates can be ready for talent selection and development. Furthermore, readiness in digital transformation in talent varies by industry, company, and employee characteristics. Then, the study implies successful digital transformation should consider a contingency.
 Research Implications - The current study expands the knowledge on digital transformation by suggesting an actual case of South Korean multinational corporations, which allows researchers and practitioners to understand the process and methodology. Second, this research extended the discussion of digital transformation to talent selection preparation since previous literature has focused only on recent technology. Lastly, the study introduces the empirical results of preparation for digital transformation and helps practitioners initiate digital transformation in their organizations.

Multinational operational flexibility, within-network redundancy, and downside risks and divestment rates of international investments

This study takes the multinational operational flexibility perspective anchored in real options theory to examine how intra-firm connectedness and switchability affect the performance and longevity of international investments. We postulate that more extensive intra-firm trade connectedness, along with multinationality, reduces downside risks and divestment rates. Through an empirical examination of a large sample of Korean multinational corporations, we find that more extensive trade ties within the same MNC network are negatively associated with downside risks. We also find that decreased downside risks decrease divestment rates. Furthermore, we observe that these impacts of intra-firm trade ties are more salient when more in-network manufacturing subsidiaries produce the same product type and operate in negatively correlated countries in terms of labor costs. These findings indicate how the flexible configurations of international investments influence their performance and longevity.

Cultural diversification, human resource-based coordination, and downside risks of multinationality

We take the multinational operational flexibility perspective to examine how human resource-based coordination allows multinational corporations to retain the flexibility value of multinationality in diverse cultures among host countries. We posit that home national expatriates, host country specialists, and cross-cultural training programs within the same company network promote cultural understanding, facilitate effective coordination, and consequently curb downside risks of multinationality. By employing the Tobit two-stage model on a large sample of Korean multinational corporations, we find that a broader existence of three human resource programs help curbing downside risks, and the downside risk reduction effect is stronger under high cultural diversification. These findings imply the positive roles of cross-cultural coordinative mechanisms in retaining the flexibility value of multinationality.

Locational boundness of resource, compatibility of production, and downside risks of multinationality

AbstractResearch SummaryWe extend the multinational operational flexibility literature by examining how the characteristics of resources and capabilities within a portfolio of international investments affect its downside risks. We postulate that non‐location bound resources and capabilities within an international investment portfolio are crucial to reducing switching costs and enhancing cross‐country switchability, thus curbing downside risks. Our large sample of Korean multinational corporations reveals that globally sourced production inputs or more technological capabilities help curb downside risks, while locally sourced inputs or more marketing capabilities do not. We additionally find that the positive effect of less locational boundness is more salient when the portfolio has a high product relatedness or standardization.Managerial SummaryThis study provides some managerial implications for international business managers. The findings suggest that the downside risk reduction effect of multinationality varies by heterogeneous resource and production conditions. They indicate that the locational boundness embedded in marketing capability, technological capability, and product type affects cross‐border switchability. IB managers make strategic decisions on resource and product types for their overseas manufacturing subsidiaries in the configuration and coordination processes of their internationalization to maximize multinational operational flexibility. A more effective alignment of resources and capabilities with the strategic intent of boosting geographic fungibility facilitates effective production shifts within the same production network.

The Cost of Belonging: An Ethnography of Solidarity and Mobility in Beijing's Koreatown by Sharon J. Yoon

Reviewed by: The Cost of Belonging: An Ethnography of Solidarity and Mobility in Beijing's Koreatown by Sharon J. Yoon Minjeong Kim The Cost of Belonging: An Ethnography of Solidarity and Mobility in Beijing's Koreatown, by Sharon J. Yoon. New York and Oxford: Oxford University Press, 2021. 208 pages. ISBN: 9780197517901. $19.94 paperback. Questioning an optimistic picture of co-ethnic solidarity or suggesting immigrants' mixed relationships with co-ethnic communities are by no [End Page 356] means new in the immigration literature, but these topics have never been interrogated more directly than in Sharon Yoon's The Cost of Belonging: An Ethnography of Solidarity and Mobility in Beijing's Koreatown. Drawing on extensive ethnographic fieldwork comprising an original survey, in-depth interviews, and participant observations in different spaces in the Wangjing district in Beijing, Yoon presents a compelling portrayal of a transnational ethnic enclave that is both spatially segregated and socioeconomically stratified. Wangjing is a district in Beijing that grew with foreign investment from Korean multinational corporations, or chaebol, to use Yoon's choice of terminology. The district is home to the fastest-growing and largest overseas Korean community in the world, with over 200,000 Koreans living there as of 2015. Since China opened its market and relaxed its own domestic migration policy, three large streams of Korean migrants have come to Wangjing: Korean companies' "expat" managers, who often moved with their families for overseas assignments; South Korean grassroots migrants, who moved with their retirement savings to bet on the burgeoning Chinese market; and the Korean Chinese (joseonjok), who followed the economic opportunities of the transnational Korean economy. Yoon carefully illustrates how Koreans in Wangjing are unable to bond over their co-ethnic diasporic identity, instead grappling with immovable hierarchies, deep-seated suspicion, and quotidian tensions among these groups. One of Yoon's main arguments is that "diasporic identity politics are increasingly enmeshed in class conflict and market competition, and notions of nationhood and feelings of belonging are utilized to legitimate and perpetuate processes of stratification" (p. 16). Here, Yoon finds a connection between the economic privilege of the global middle class and the emotional privilege of having an uninterrupted sense of belonging to the ethnic space. In turn, Yoon critically exposes the financial precarity of middle-class immigrant entrepreneurs and the widening economic gaps and social divisions among Koreans. These are, Yoon contends, "a darker side" of transnationalism in Wangjing. In this highly mobile enclave, Korean chaebol and their subsidiaries work with their headquarters in Korea, ethnic churches receive financial and human resources from their Korean counterparts, and people frequently travel to and from Korea for business and pleasure. Imbricated with these transnational movements are stereotypes about the Korean Chinese among South Koreans and stereotypes about South Koreans among the Korean Chinese, both of which perpetuate suspicion and tension among these groups, preventing [End Page 357] them from cultivating deeper relationships. To a certain extent, the stunting of these relationships contributes to engendering divergent outcomes—Korean Chinese migrants finding upwardly mobile paths and South Korean grassroots migrants finding their dreams ruptured in Beijing's Koreatown. Among the unique aspects of Yoon's volume is that she delves into Koreans' lives in Wangjing through spaces. Yoon first lays out the physical space of the enclave, where groups are geographically segregated and socially stratified, by describing Wangjing New City, the hub of Koreatown; Nanhu, the Korean Chinese side of the enclave; and the luxurious Huading Complex, where South Korean expats are concentrated. Then, with commendable ethnographic work balanced with theoretical engagement, Yoon takes readers through three spaces, where the three Korean diasporic groups (Korean expat managers, South Korean grassroots migrants, and the Korean Chinese) clash with one another. First, in a chaebol company, a very rigid hierarchy is unabashedly displayed, with South Korean expat managers in the highest positions, South Korean locals below them, and Korean Chinese at the lowest levels. Yoon explains that Korean Chinese employees who use their knowledge of Chinese social norms to work as cultural intermediaries have been instrumental to the success of Korean chaebol in Chinese markets, but that such "soft skills" and emotional labor are rarely recognized as professional specialties and are...

Tensions in the strategic integration of corporate sustainability through global standards: Evidence from Japan and South Korea

AbstractDespite the importance of the conflicting dimensions of corporate sustainability for business strategy, little is known about the tensions that derive from adopting global environmental and social standards in East Asia. Through 65 in‐depth interviews conducted in Tokyo and Seoul, this article examines the tensions—and reactions to these tensions—of corporate sustainability managers tasked with the implementation of such standards in Japanese and South Korean multinational corporations. These represent key contexts of inquiry because of their normative tradition of corporate sustainability and geographical closeness. While elucidating that corporate sustainability managers in both countries encounter societal‐commercial, traditional‐modern, and individual‐collective tensions, the article describes the ways they react differently to these tensions. This article contributes to the literature on corporate sustainability and tensions and the contextual literature on corporate sustainability in Japan and South Korea, ultimately offering takeaways for the strategic planning of multinational corporations.

MNCs as dispersed structures of power: Performance and management implications of power distribution in the subsidiary portfolio

Multinational corporations (MNCs) are considered as dispersed structures of power, in which diverse headquarters (HQ)–subsidiary power relationships collectively influence performance and management. Yet, few studies have accounted for the subsidiary portfolio characteristics shaped by the entire set of differentiated HQ–subsidiary power relationships, and little is known about their effect on the performance and management decisions of MNCs. Drawing on agency and resource dependence theories, this study investigates how the power structure of the MNC, or the pattern of power distribution in the subsidiary portfolio, affects MNC performance and expatriate utilization. Results from a comprehensive panel of Korean MNCs show that the degree of power concentration in the subsidiary portfolio has inverted U-shaped relationships with MNC performance and the use of expatriate control. However, the results also reveal that these relationships vary between manufacturing and downstream subsidiary portfolios. These findings suggest that the structural characteristics of the subsidiary portfolio are important determinants of MNC performance and management. This study opens an important new avenue for international business scholarship by explicitly conceptualizing the MNC as a portfolio of differentiated subsidiaries and by examining the consequences of the subsidiary portfolio characteristics.

한국 다국적기업 본사의 다층구조에 관한 탐색적 연구

Research on the relationship between headquarters and subsidiaries has been a very important topic in the field of International Business. However, from the perspective of subsidiaries, it has not been discussed in depth what kind of organization specifically means a headquarter organization. The headquarters of a multinational corporation can be various organizations, including a holding company, a corporate control tower, an affiliate's headquarter, or regional headquarters. Therefore, the purpose of this study is to investigate the multiple layered structure of headquarters in South Korean multinational corporations based on a case study of six companies. In this study, the main roles of headquarters are explained by drawing a global integration perspective, bounded rationality, and a resource dependency theory. Furthermore, the relationship the team functions of subsidiaries and their collaboration with headquarters are explored. Finally, theoretical and practical implications for establishing strong relations between headquarters and subsidiaries are presented.

Conquerors or Saviors? Parent Country Nationals in Foreign Subsidiaries

How multinational corporations (MNCs) control their subsidiaries—through either ownership (partial/whole equity; greenfield/acquisition) or operational (levels of parent country national staffing) controls—is theorized to impact ensuing subsidiary performance. Moreover, the impacts of these controls may be more or less effective when moderated by differences in cultural distance. Using an unbalanced panel sample of 2,692 Korean MNCs’ foreign subsidiaries (9,147 subsidiary-year observations across 47 countries from 2006 to 2013), we find that foreign subsidiaries perform better overall in low cultural distance countries. The impact of staffing levels, though, is highly dependent on ownership control level and cultural distance. In particular, high staffing levels are only effective at improving performance if the subsidiary is under shared equity ownership; it is not effective (low cultural distance) or even hurts performance (high cultural distance) when it is used in a wholly owned subsidiary. The establishment mode of greenfield versus acquisition status did not affect performance. In a period of increasing nationalism in investment priorities, understanding that high parent country national (PCN) levels can be welcomed or resisted offers valuable implications for knowledge management and international investment, and suggests further research on the mechanisms that affect the reception of PCNs.

Firm’s globalization and wage elasticity of labour demand in South Korea

ABSTRACT This study investigates the effects of exports and overseas investments on the wage elasticity of labour demand for both foreign multinational corporations (MNCs) and Korean MNCs using a 2006–2015 firm-level unbalanced panel dataset from South Korea. I employ the system generalized method of moments to estimate a dynamic labour demand function to solve the problem of reverse causality due to potential endogeneity. The results suggest that exports play a critical role in increasing wage elasticity among foreign MNCs, whereas overseas investments render labour demand more elastic among both foreign MNCs and Korean MNCs. Particularly, these effects of globalization on increasing wage elasticity became strengthened among foreign MNCs during the post-financial crisis period. Moreover, the intra-firm and inter-firm exports of foreign MNCs from OECD nations, which reflect the vertical integration of foreign MNCs with their affiliated firms, increase the wage elasticity of labour demand. Since overseas investments induce higher wage elasticity of labour demand, overseas investment substitutes for local production activity. These empirical results imply that the rapid pace of globalization exacerbates the instability of the local labour market, and the aggravation of employment vulnerability during the post-crisis period is driven by foreign MNC activity.

Knowledge centralization and international R&D team performance: Unpacking the moderating roles of team-specific characteristics

This study examines the impact of a centralized knowledge structure on the performance of international R&D teams in multinational corporations (MNCs) and moderating effects of team-specific characteristics. Building upon the social network perspective, we argue that while international R&D teams with a centralized knowledge structure will experience decreasing team performance due to inefficient knowledge sharing and evaluation, this negative effect will be mitigated through diversity in knowledge sources and team members’ personal backgrounds. We test our hypotheses using data collected from 384 international knowledge-intensive teams in two South Korean MNCs and find that the degree of knowledge centralization in a team negatively impacts the team’s performance. A team’s diverse knowledge in business domains, diversity in knowledge channels, and cultural and geographic distance among team members are found to mitigate this negative impact. Our study contributes to team research literature and innovation study in the context of international R&D teams.

The Effects of Headquarters’ Levels of Control and Subsidiaries’ Local Experiences on Competency in Foreign Subsidiaries: A Quadratic Model Investigation of Korean Multinational Corporations

Purpose – This study aims to overcome the limitations of existing studies, which linearly determine the precedence factors of competency in overseas subsidiaries. The research objectives are as follows. First, what kind of nonlinear effects does the level of control held by Korean headquarters over foreign subsidiaries have in terms of competency in the subsidiaries? Second, what kind of nonlinear effects do the local experiences of overseas subsidiaries have on their competency Design/methodology – With data on Korean multinational corporations (MNCs), this paper analyzes the effects of control levels of headquarters (HQs) and host-country experiences of foreign subsidiaries regarding competency in overseas subsidiaries. In particular, this study focuses on nonlinear models, differentiating it from previous studies. In order to examine research hypotheses, this study conducted a survey of overseas subsidiaries of Korean corporations. Surveys were conducted through various methods including e-mail, online questionnaires, fax, and telephone calls. Copies of the questionnaire were distributed to a total of 2,246 overseas subsidiaries, and 409 completed responses were collected. Excluding 15 copies that were insufficiently answered, responses from a total of 394 copies were used for analysis. Findings – This study presents the following results. First, there is a U-shaped relationship between levels of HQ control and competency in foreign subsidiaries. This means that higher levels of HQ control negatively impact the competency levels of subsidiaries because strict control undermines autonomy in subsidiaries. However, if the level of HQ control exceeds a certain point, then the transfer of knowledge between HQs and subsidiaries is facilitated. Knowledge transferred from HQs can be used as prior knowledge by foreign subsidiaries to the benefit of all parties. Accordingly, knowledge transfer negates the negative effects of excessive HQ control and positively affects competency in subsidiaries. Second, there is an inverted U-shaped relationship between the local (host-country) experiences of subsidiaries and competency in foreign subsidiaries. This means that foreign subsidiaries can overcome the liabilities of foreignness and contribute to capability building by accumulating unique knowledge about their host countries. However, if local experiences accumulate excessively beyond a certain point, then the host country-specific experiences of foreign subsidiaries will offset the benefits discussed above. Excessive local experiences not only increase organizational inertia, but also create a problem of goal incongruence due to information asymmetry between HQs and subsidiaries. Therefore, excessive local experiences have negative effects on competency in foreign subsidiaries. Originality/value – This study suggests the following implications. First, unlike existing studies based mainly on linear models, this study presents important theoretical implications in its focus on nonlinear models and its analysis of the effects of HQ control and local experiences on competency in foreign subsidiaries from perspectives of organizational learning theory and agency theory. Second, in terms of practical implications, the results of this study suggest that optimally raising levels of HQ control and managing the local experiences of subsidiaries without increasing organizational inertia is important for enhancing competency in foreign subsidiaries.

The Benefits and Challenges of Korean Firms in Establishing Inter-Firm Network with Suppliers in Malaysia

This study aims to explore the benefits and challenges of the inter-firm network relationships between Korean firms as buyers and their suppliers. Since the influence and strategies of the inter-firm network of overseas Korean firms have not been satisfactorily explored yet, this study attempts to contribute to the body of knowledge by exploring the benefits and challenges of inter-firm network for Korean firms in Malaysia. The results of this study highlights seven benefits of Korean firms having inter-firm networks: improved lead time and availability, ease of communication, long-term relationship, lower stock holdings at Korean multinational corporations or other MNCs (end-user), routine material information, trust relationship, and information sharing. In contrast, Korean firms also face challenges which include difficulty in terminating partnership, high dependence on one company, buyers’ superiority over the suppliers, a network of different strengths of suppliers, and connecting with the business through an informal network. The study suggests practical implications to be anticipated by potential suppliers of Korean firms in developing successful supplier-buyer relationships.

Career Growth Opportunity on Turnover Intention: The Mediating Role of Organizational Commitment in Multinational Corporations

In accelerated globalization, multinational corporations (MNCs) continually seek opportunities to expand their businesses to foreign countries. For sustainable businesses in foreign countries, it is important to retain a large number of local employees which is challenging. Based on existing literature in international human resource management, we hypothesized that organizational commitment (OC) is a mediator in the relationship between perceived career growth opportunity (CGO) and turnover intention (TO) among local employees in MNCs. We analyzed a sample from five companies affiliated with a Korean MNC located in Vietnam. From the mediation analysis, it was evident that OC is a partial mediator between CGO and TO. In particular, CGO and OC were positively correlated, OC and TO were negatively correlated, and CGO and TO were still negatively correlated when OC was adjusted in the regression model. These findings provide a new insight in the field of international human resource in growing MNCs.

우리나라 기업의 해외자회사 배당에 대한 지역과세 제도의 필요성 및 도입방안에 대한 연구

우리나라 기업의 해외자회사 배당에 대한 지역과세 제도의 필요성 및 도입방안에 대한 연구

Global Leadership Competencies and Knowledge Transfer in Korean Multinational Corporations: Self-Efficacy as a Moderator

We investigated the effects of global leadership competencies on knowledge transfer, and, in particular, the moderating role of self-efficacy in this relationship. Participants (N = 122) were randomly selected employees of South Korean multinational corporations. They were working with global stakeholders and were participating in international competency training programs. Results showed that there was a moderating effect of self-efficacy on goal achievement in the relationship between the global leadership competency of innovation and knowledge transfer. Enhancement of a positive context for social associations and the provision of useful feedback are central for global leaders in the formation of self-efficacy, which precedes knowledge transfer.

Enhancement Factors on Corporate Social Responsibility (CSR) Activities Based on Stakeholder Relationship Improvement and Business Performance

The purpose of this paper is to identify that organizational capabilities affecting CSR and to ascertain whether CSR influences MNC’ business performance or not using the framework of structural equation modeling known as PLS. Drawing on the stakeholder theory for the driver’s perspective, this study hypothesizes that relationship capability, shared vision, internationalization experience are positively related to CSR. Data were obtained through a survey sent to headquarters of Korean multinational corporations(MNCs) publicly listed in the Korean Stock Exchange in April 2017. The results suggest that all variables are mostly related to CSR significantly. Furthermore, results show that CSR influences MNC’ business performance positively and also that. CSR activities improve business performance. This implies that this is a reason for firms to continuously implement voluntary CSR activities. Therefore, this study agrees with the findings of other researchers affirming that CSR positively influences firm’ business performance primarily by increasing the satisfaction of core stakeholders. In addition, the more active the firm is in CSR activities, the less level of conflict of interest exists among the shareholders and the other stakeholders of the firm. Finally, this study suggests that the voluntary CSR activities may increase the value of the firm and that of the shakeholders at the same time.

Knowledge transfer to foreign affiliates of multinationals through expatriation

This paper provides empirical evidence of the prevalence and importance of manager transfers to affiliates of multinational corporations (MNCs). Using a unique data set on foreign affiliates of Korean MNCs, I find that most foreign affiliates have managers transferred from their parent companies. These transferred managers at first comprise a significant portion of the managerial positions at foreign affiliates, but gradually become outnumbered by local managers as the affiliates grow. Despite the transferred managers being comparatively few in number, they are positively associated with the growth of the affiliates' productivity. The empirical findings provide evidence that knowledge transfers stemming from the transfer of managers from the parent to foreign affiliates are a source of benefit to foreign affiliates.

Is there an East Asian model of MNC internationalization? A comparative analysis of Japanese and Korean firms

Research on the internationalization of multinational corporations (MNCs) is mostly built on studies of North American and European firms. East Asian MNCs have been studied less, and commonly with reference to theories developed in Western countries. In this paper, we query the validity of these ‘Western’ internationalization models for East Asian firms through comparative case studies of representative Japanese and South Korean MNCs’ expansion into China. We find that the internationalization processes of leading East Asian MNCs match the predictions made by Western theories only partially. Furthermore, we find considerable differences between the internationalization of Japanese and South Korean firms, indicating both that East Asian MNCs follow diverse patterns of internationalization and that established Western models of internationalization evince limitations or weaknesses when applied to East Asian firms. Overall, the findings of this exploratory study illustrate the need for further, in-depth studies on the internationalization of East Asian MNCs which may result in the extensions of existing theories or even new theoretical frameworks.