Owned Subsidiaries Research Articles

Against the wind – new factories of Russian manufacturing subsidiaries of Western multinational corporations

Using a series of interviews with the heads of Russian subsidiaries of Western multinational corporations and a unique database registering the openings of their new manufacturing plants in Russia during 2014–2015, we trace the changing demography, geography, and economics of foreign direct investments in industrial assets in Russia. We demonstrate that foreign companies in general were capable of overcoming the adverse economic conditions of 2015 and were able to complete their projects of installation of new factories that were launched in 2012–2013. More importantly, economic sanctions caused accelerated completion of previously started industrial works. Such new and upgraded factories not only target current opportunities and market niches in consumer markets but also aim at exploring possibilities in core industrial markets, including mining equipment, transportation equipment, and other types of industrial equipment. We also highlight the emergence of a new type of industrial project known as “fenced field projects,” which are new manufacturing facilities within the existing industrial sites of successful Russian firms. This new type is particularly attractive for companies in the machine-building and chemical industries. Fenced field projects can be either wholly owned subsidiaries or joint ventures, but the main feature of such projects is the active use of the developed physical and business infrastructure of the “hosting” Russian company. We demonstrate not only the changes in the geographic distribution of foreign direct investments in Russia but also the impact on medium-sized industrial towns (200,000–400,000 inhabitants), the most frequent location for industrial projects by foreign multinationals.

Disclosure of Subsidiaries with Non-controlling Interest in Accordance with IFRS 12: Case of Materiality

Consolidated financial statements present aggregated information for parent company and its subsidiaries. For non-wholly owned subsidiaries, International Financial Reporting Standards require non-controlling interest to be presented within consolidated equity to distinguish it from the amount of equity attributable to the shareholders of the parent. Since 2014, new standards on consolidation introduced broadened disclosure requirements for subsidiaries with material non-controlling interest. Definition of material non-controlling interest however is not included in the standards. The article provides the analysis of the financial statements published by companies listed on Prague Stock Exchange. Main focus is given to assessment criteria applied to identify material non-controlling interest. Consequently, study of compliance with the disclosure requirements for selected companies has been undertaken. The results of the analysis indicate whether value relevance of financial statements has been improved as a result of the new disclosures.

Backshoring in Light of the Concepts of Divestment and De-internationalization: Similarities and Differences

Objective : The purpose of this article is to evaluate the adequacy of the present theoretical knowledge relating to divestments and de-internationalization in the context of explaining the backshoring phenomenon – a relatively new, but gaining in importance specific behaviour of companies in the process of internationalization. Research, Design & Methods : The paper discusses various aspects of contemporary processes of internationalization. The employed research design is qualitative – the study has been based on conclusions drawn from critical literature studies. Findings: Although backshoring shares some common characteristics with the concepts of de-internationalization and international divestments, there are several noticeable differences: e.g. both de-internationalization and international divestments are rather related to wholly owned subsidiaries, while backshoring includes both activities outsourced to company’s foreign suppliers and to its subsidiaries. Implications & Recommendations: It is necessary to develop new concepts that in a holistic way will define the decision-making process of enterprises which use de-internationalization and backshoring of business processes as part of their long-term internationalization strategies. The article indicates some dependencies and issues that must be considered in formulating new theoretical proposals. Contribution & Value Added: The originality of this study lies in the in-depth analysis of the similarities and differences between the processes of de-internationalization/international divestments and backshoring.    Â

Transactional and institutional alignment of entry modes in transition economies. A survival analysis of joint ventures and wholly owned subsidiaries in Vietnam

How do partially aligned entry modes predicted through theoretically pluralistic frameworks perform in terms of longevity? We build on transaction costs and neo-institutional economics and use event history method and Vietnamese data on 3835 joint ventures and wholly owned subsidiaries established by foreign firms from 1987 to 2008 to answer this question. We find that survival rates for entry modes that are partially aligned to transactional and institutional factors differ for JV- and WOS-based entries. We provide new evidence for the predictive power of the transactional and institutional approach for entry mode choice, performance, and survival in transition economies.

The Comparative Effect of Subnational and Nationwide Cultural Variation on Subsidiary Ownership Choices: The Role of Spatial Coordination Challenges and Penrosean Growth Constraints

ABSTRACTTo shed more light on the spatial determinants of foreign entry mode decisions, I examine the comparative effect of cultural variation inside target countries and target subnational regions on firms’ choices between joint ventures (JVs) and wholly owned subsidiaries. Based on the notions of spatial coordination challenges and Penrosean growth constraints, I argue that foreign entries tend to have a subnational scope, causing ownership mode choices to be more sensitive to target-region cultural variation than to target-country cultural variation. Accordingly, I hypothesize that target-region cultural varation has a more positive effect on the chance of JV selection than target-country cultural variation. I also hypothesize that this will be especially so for initially relatively large subsidiaries and subsidiaries established through acquisitions. An analysis of 170 entries by Dutch firms into 90 regions in 35 countries lends support to my hypotheses and indicates that the dominant effect of subnational cultural variation is not absolute but is confined to subsidiaries with specific establishment characteristics.

Rex Seafood, Incorporated: Accounting for Inventory Transactions among Related Parties

ABSTRACT This case is based on an actual inventory accounting dilemma for a fish processing company located in Washington State. Rex Seafood, Incorporated (Rex) and its wholly owned subsidiary, Juneau Supply Company, purchase, process, and sell fish to restaurants and other retail outlets in the state of Washington and surrounding inland states. Rex has an agreement with Condor Enterprises to transport fish purchased from Juneau Supply in Alaska to Rex's facility in Washington for processing. The central issue of the case involves appropriate accounting and reporting for intercompany sales: How should the sales of inventory from Juneau Supply to Condor and the purchases by Rex from Condor be recorded and reported? Using the FASB Accounting Standards Codification, students must determine whether Rex's arrangement with Condor is a product financing arrangement, whether the purchases and sales of inventory should be considered a single exchange transaction, and whether the events should be considered intercompany transactions. In addition, students are asked to consider recording and disclosure implications of recommended solutions. This case is suitable for use in undergraduate Intermediate and graduate Financial Accounting classes.

Impact of cultural positions on FDI’s entry mode

Purpose – The purpose of this paper is to study the influence of cultural positions on the choice of entry mode in foreign direct investment (FDI) – joint ventures vs wholly owned subsidiaries. The paper focusses on the impact of cultural positions along four cultural dimensions, as well as on the interactions between these positions and FDI’s contextual variables (i.e. linguistic differences). Design/methodology/approach – A fuzzy set qualitative comparative analysis is performed on a data set of Spanish investments located in the European Union. Findings – Existence of interaction effects among cultural positions along different dimensions, as well as between cultural positions and FDI’s contextual variables. Research limitations/implications – Main limitations relate to the data set, as only FDIS carried out by big corporations and coming from a single country are considered. Practical implications – Managers making decisions on the choice of entry mode must take into account the position relative to each individual cultural dimension, as well as its interaction with other cultural dimensions and FDI’s contextual variables, rather than just considering cultural distances (CDs) between countries. Originality/value – First, focus on cultural positions (rather than CDs). It allows taking into account both the cultural characteristics of each party and their relative values along individual cultural dimensions. Second, development of a qualitative analysis that considers the contextual features of the investment.

Entry Mode Decision Factors Contemplated by Chinese Consulting Firms

The purposes of this study were to investigate the factors affecting the decision to choose entry mode to Thai market by Chinese consulting firms through the application of Uppsala model. The method of study focused on future research based on perception, recommendation, and prediction of participants since the researcher employed qualitative approached by In-depth interview of 16 experts to gain the necessary qualitative data. Though the analysis by experts, the most appropriate entry mode is Joint ventures, and the rest is Strategic Alliance and wholly owned subsidiaries. The economic situation, the foreign business laws and regulations and the needs of foreign clients are the top 3 important factors affecting the decision to choose entry mode to Thai market by Chinese consulting firms. Chinese management consulting industry is still in development and growth stage, expansion and merger is the trend, and the prospect of Chinese consulting firm business in Thailand is optimistic.

FDI entry strategies and the impacts of economic freedom distance: Evidence from Nordic FDIs in transitional periphery of CIS and SEE

This paper addresses foreign direct investment (FDI) entry strategies of multinational enterprises (MNEs) by analysing both establishment mode (greenfield investment vs. acquisition) and ownership mode (wholly owned subsidiary vs. joint venture) strategies together. It contributes to extant IB literature by being one of the first to specifically address influences of economic freedom distance on both FDI establishment and ownership mode strategies of MNEs. The novel empirical sample consisting of 348 FDIs made by 146 Nordic (Denmark, Finland, Norway and Sweden) MNEs in the less researched transitional periphery of the European Union (EU), i.e. Common Wealth of Independent States (CIS) and South-Eastern Europe (SEE), during 1990–2009 further enhances the contribution of our study. The study results revealed that high economic freedom distance leads to preference of greenfield investments and JVs by Nordic MNEs in the full sample. Further in depth analysis by dividing the sample into FDIs in the Russian Federation vs. other host economies lead to more interesting insights into the establishment and ownership mode strategies of Nordic MNEs.

Factors of the Choice of Joint Venture and Wholly Owned Subsidiary and its Empirical Research

Factors of the Choice of Joint Venture and Wholly Owned Subsidiary and its Empirical Research

The Fiduciary Duties of Directors of Wholly Owned Subsidiaries

The Fiduciary Duties of Directors of Wholly Owned Subsidiaries

Determinants of equity-based entry mode choice in the forest sector: the case of China

The focus of foreign direct investment (FDI) in the global forest sector has shifted from developed to developing economies (currently accounting 73% of total) during the past two decades. China has been the main global driver with its annual FDI soaring from USD 130 million in 2002 to USD 550 million in 2010. In light of international economic and business theories, choice of foreign entry mode is considered the most critical issue in corporate expansion strategy, which, however, has not been empirically studied in the forest sector. To fill this gap, our paper focuses on modeling two equity-based entry mode choices (i.e. wholly owned subsidiary or joint ventures) of foreign investment projects in China based on data from 109 activities of the Top 100 forest, paper, and packaging industry companies. By using logistic modeling, the main determinants of corporate entry mode choice are found to be cultural and geographical distance between the corporate home country and China, duration of corporate presence in China, and spatial concentration of local-level forest industry. Instead, investment project size and local resource availability are found to have no significant impact on corporate entry mode choice in China.

Ownership Choices of Indian Direct Investors: Do FDI Determinants Differ between Joint Ventures and Wholly Owned Subsidiaries?

Using count data on Indian joint ventures (JVs) and wholly owned subsidiaries (WOS), we present an empirical analysis of foreign direct investment (FDI)-related ownership choices and their relation with host country characteristics and indicators of transaction costs. Our Negative Binomial regression models offer only weak support for the bargaining perspective, according to which JVs should be more likely if the host countries were particularly attractive in terms of market access or resource endowments. Geographical and cultural distance has ambiguous effects on the choice between JVs and WOS. The composition of FDI projects tends to shift towards WOS where investment risks are contained by bilateral treaties and better control of corruption. JEL Classification: F21

Foreign value-adding of industrial firms

Purpose – There is a lack of research on how the industrial firm's international strategy is associated with basic and advanced value-adding modes of the wholly owned foreign subsidiary. The purpose of this paper is to fill the gap by answering two questions: how are relatedness between the firm and the foreign subsidiary, and the firm's international scope associated with foreign subsidiary's value-adding mode? How does the subsidiary's market experience moderate the relationships? Design/methodology/approach – The study develops a conceptual model that integrates strategy theory and internationalization theory in order to explain basic value-adding modes (promotion, sales, and after-sales services), and advanced modes that also include product development and/or production. Also, the study tests the model using statistical data from subsidiaries of Swedish firms operating in Germany, the USA, and the UK. Findings – It was found that greater relatedness between the core business unit of the parent firm and the foreign subsidiary favors a basic mode. However, the foreign subsidiary's market experience weakens the relationship, and the interaction triggers an advanced mode. Also, greater international scope of the firm favors an advanced mode. Research limitations/implications – The model test shows that research needs to consider both international strategy and market experience in explaining value-adding modes of an industrial firm's wholly owned subsidiary. Practical implications – By using the study contributions the industrial firm's efforts to efficiently implement international strategy would become more efficient as strategy coherence will increase. Originality/value – This paper contributes to literature on international strategy and internationalization by showing that international strategy and market experience of foreign markets mutually impact value-adding modes of wholly owned foreign subsidiaries.

Establishing Liability for Multinational Oil Companies in Parent/Subsidiary Relationships

A number of significant legal challenges impede the attribution of liability to parent corporations for the overseas operations of their subsidiaries. The multinational reach of these entities’ activities raise questions as to which forum is appropriate to hear the case, under which state’s jurisdiction an action may be brought and as to which state’s domestic law should be applied. The elaborate corporate structures exhibited by many multinational corporations (MNCs), which often incorporate holding companies, joint ventures and external contractors, serve to complicate matters still further. The recent case of Akpan & Anor v Royal Dutch Shell plc & Anor dealt with these issues in an environmental context. The case formed part of a class action suit brought by Milieudefensie (Friends of the Earth Netherlands), a Dutch non-governmental organisation (NGO) promoting environmental protection, and four Nigerian farmers. The farmers had all experienced damage to their farmlands and fishing ponds resulting from numerous oil spills across three proximate regions between 2004 and 2007. Akpan, the only successful applicant, is a farmer and fisherman residing in the village of Ikot Ada Udo, Nigeria. Throughout the course of the action, all four Nigerian applicants were supported by Milieudefensie, which itself attempted to bring claims against both the parent company and its wholly owned subsidiary as a third party.

The case where the tort liability of a representative director of a parent company to its wholly owned subsidiary is granted when the director instructed the director of the subsidiary to make deals with a third party (Tokyo District Court sentenced on 22nd, April, 2008.)

The case where the tort liability of a representative director of a parent company to its wholly owned subsidiary is granted when the director instructed the director of the subsidiary to make deals with a third party (Tokyo District Court sentenced on 22nd, April, 2008.)

Performance implications of multinationality: moderating role of foreign market entry mode

Purpose – Previous theoretical explanations and empirical analyses of the multinationality-performance relationship have produced mixed arguments and results. Linear and curvilinear relationships have been theorized and confirmed empirically. This study aims to reconcile earlier mixed findings by incorporating the role of entry mode choice as a moderating variable. Design/methodology/approach – Extensive literature survey is conducted in order to provide an explanation for the different performance patterns of internationalization via licensing, joint venture and wholly owned subsidiary. Findings – Based on the assumptions of Transaction Cost Economics and Organizational Capability perspectives, several research propositions about the multinationality-performance relationship are formulated, which provide a more fine-tuned approach to the performance implications of multinationality. Originality/value – This paper contributes to multinationality-performance debate by showing that the impact of multination...

The effect of culturally-determined entry mode on firm performance in the global retail industry

Purpose – The aim of this study is to examine the entry mode that retail firms correctly choose when culture is simultaneously considered has a positive effect on firm performance. Design/methodology/approach – This study relies on the two-step analysis originally derived from Heckman and applied into multinational enterprises (MNEs) entry mode by Shaver. To figure out the probability of entry mode in the first step, the paper uses the logit regression that independent variable is four culture dimensions and dependent variable is the entry mode (joint venture vs wholly owned subsidiary). Since the selection bias is relatively reduced by adding lambda calculated in the first step to the second step that verifies the degree of fit, the safety for interpretation of subsequent models is secured. Findings – This study collected 96 entries of top global retail firms and found out the relationship between culturally determined entry mode and firm performance is positively significant. While existing literatures dealing with manufacturing firms' international entries showed that wholly owned subsidiary is favored over joint venture when the cultural distance is high, this study focusing on retail firms in the service sector indicates that those firms are more likely to enter the global market with joint venture. Finally, firms that appropriately understand cultural distance demonstrated higher performance in the target country. Originality/value – This study focuses on the relationship between culturally determined entry mode and firm performance in the service sector, whereas extant literatures heavily depend on the one in the manufacturing sector. Moreover, the two-step analysis is exquisitely adopted to confirm the hypotheses.

…and opens its first production facility in Russia

Through its wholly owned subsidiary Rhein Chemie, Lanxess has officially opened its first Russian production facility in Lipetsk. The plant will produce the Rhenogran line of pre-dispersed, polymer-bound rubber additives. The company has also announced plans to rationalize its rubber chemicals business.

How family control influences FDI entry mode choice

AbstractThis study investigates how family control influences entry mode choice between joint ventures and wholly owned subsidiaries. Based on past studies revealing family-controlled firms’ unique concerns regarding the preservation of socioemotional wealth, the researchers posit that, firms with higher family control respond more drastically to perceived environmental uncertainty when choosing their entry mode. The researchers hypothesize that, when perceiving high environmental uncertainty, firms with higher versus lower family control are more likely to choose joint ventures. However, when perceiving low environmental uncertainty, firms with higher versus lower family control tend to choose wholly owned subsidiaries. The empirical results obtained from a sample of 1,644 investments undertaken by publicly listed companies in Taiwan support the hypotheses.