Subsidiaries In China Research Articles

Configuring an MNE’s subsidiary capabilities for performance in China

Purpose This study aims to explore how subsidiary capabilities collectively configure for performance. Additionally, it seeks to examine whether these configurations of capabilities can provide equifinal solutions through developing a comprehensive research framework that focuses on subsidiaries in China. Design/methodology/approach With a data set collected through a questionnaire from 172 Korean multinational enterprises (MNEs) in China, this study used a fuzzy-set qualitative comparative analysis to detect the capability conditions and configurations. These configurations represent combinations of various subsidiary capabilities linked to high performance. Findings This study identified several complex pathways with distinct configurations for high subsidiary performance. The findings demonstrate the importance of configurations over individual conditions. Thus, the results highlight that the effectiveness of diverse capabilities, which are widely believed to singularly contribute to the high performance of MNE subsidiaries, depends on how each combines with other capabilities. Overall, the findings provide a richer and fine-grained understanding of the role and relative importance of various forms of MNE subsidiary capabilities and how the joint effect of these subsidiaries contributes to high performance. Practical implications This study suggests that MNE managers should comprehensively understand how subsidiary capabilities are configured to produce subsidiary performance outcomes. This specifically illustrates the importance of understanding the mutually conflicting yet collectively exhaustive results of multi-selective solutions and aims to align with China’s industrial and regional heterogeneity. Originality/value By examining the role of MNE subsidiary capability configurations, which may collectively influence the subsidiary’s performance, this study contributes to the literature. It elucidates how MNE subsidiaries may achieve superior performance by developing and possessing various capabilities tailored to the local context.

Parent company personnel embeddedness and stock price crash risk: evidence from Chinese enterprise groups

PurposeThis study aims to investigate the influence of parent company personnel embedding on the stock price crash risk (SPCR) of listed companies, along with the moderating effect of disparate locations between parent and subsidiary companies and other major shareholders.Design/methodology/approachThis research empirically tests hypotheses based on a sample of listed subsidiaries in China during the period between 2006 and 2021.FindingsOur results demonstrate that personnel embeddedness in the parent company significantly alleviates SPCR in subsidiaries. This effect is even more substantial when the parent and subsidiary companies are in different places. However, other major shareholders in the subsidiary company weaken it. Our additional analysis indicates that, relative to executive embeddedness, director embeddedness exerts a stronger effect on the SPCR of the subsidiary. Mechanism examination reveals that the information asymmetry and the level of internal control (IC) within the subsidiary are significant channels through which the personnel embeddedness from the parent company influences the SPCR of the subsidiary.Originality/valueThis study expands the literature on how personnel arrangements in corporate groups within emerging countries influence SPCR. We have extended the traditional concept of interlocking directorates to corporate groups, thereby broadening the understanding of the governance effects of interlocking directors and executives from a group perspective.

Cultural Intelligence, Diversity Climate, and Employee Behavior: A Study of MNE Subsidiaries in China

This study draws from the literature on workplace diversity, cultural intelligence, and creativity to examine the relationship between diversity climate and employees’ behaviors. With data collected from three multinational enterprise subsidiaries that operated in China for over 25 years, this study reveals that employees’ metacognitive cultural intelligence is positively related to their perceived diversity climate, leading to creative behavior and citizenship altruism behavior. In addition, this study examines an important interpersonal factor that is sensitive to the Confucius culture, harmony, and finds it directly impact motivational cultural intelligence. The mediating effect of harmony on the relationship between motivational cultural intelligence and employees’ altruism behaviors is also tested. This study contributes to the literature by investigating the organizational mechanisms underlying the role of cultural intelligence on employee behaviors in culturally diverse workplaces. Practical implications are also discussed.

MNEs' capabilities and their sustainable business in emerging markets: Evidence from MNE subsidiaries in China

This study aims to identify the causal relationship between innovation ambidexterity and multinational enterprises' (MNEs) sustainable performance. It emphasizes how innovation ambidexterity driven by dynamic capabilities can allow MNE subsidiaries to achieve social and environmental performances. Additionally, we asserted the moderating impacts of host governments' pressures on the association between dynamic capability and innovation ambidexterity. We evaluated our hypotheses using a dataset consisting of 228 MNE manufacturing subsidiaries in China using partial least square-structural equation modeling. Utilizing dynamic capability and ambidexterity theories, our research contributes to the ongoing sustainable performance literature by addressing a growing call to understand how MNE subsidiaries may achieve long-term sustainability when conducting business abroad.

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.

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.

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.

Protectionism and its Impact on MNC Subsidiaries’ Performance

AbstractThis study investigates the relationship between local protectionism and performance of multinational corporation (MNC) subsidiaries in China. We integrate overarching theories (i.e., institutional theory and extended resource-based view) to investigate a model for identifying whether local protectionism at the subnational level is beneficial or detrimental for foreign subsidiary operations or functions as a double-edged sword. We also examine whether or not internal organizational capabilities and relational capital with government moderate the effects. On the basis of regression analyses, our empirical findings reveal that the positive or negative effects of subnational protectionism in China depend on performance types. Moreover, performance contribution is considerably moderated by various internal capabilities of MNC subsidiaries. Findings offer valuable and practical implications for MNCs intending to invest in emerging economies.

Talent management in German multinational firms in China: the role of headquarters-subsidiary relations

Despite the bourgeoning interest in talent management (TM) in the last two decades, limited research has been carried out to understand the diffusion of TM strategies and practices from home-country headquarters to their subsidiaries in host countries. Furthermore, extant firm-level research on TM tends to neglect the role of the macro-level context, particularly in emerging economies where talent shortage is acute and their institutional distance is large, with headquarters in developed countries. This study fills these knowledge gaps by exploring the TM of German multinational corporations (MNCs) and their subsidiaries in China. Drawing on qualitative data collected from 42 semi-structured interviews with senior managers, human resource professionals, and operations managers from six German MNCs and their subsidiaries in China, the study uncovers headquarters-subsidiary relations. We identify a portfolio of what we refer to as ‘institutional shapers’ and develop a model for future research. This study contributes to extant knowledge by contextualizing multi-level TM shapers from an institutional-cultural perspective, supported by cross-country empirical data based on informant triangulation.

The local technology spillovers of multinational firms

This study examines how innovation by U.S. multinational firms affects the productivity of domestic Chinese firms in the same counties as the U.S. subsidiaries. After manually matching U.S. multinational firms with their manufacturing subsidiaries in China, I use citation-weighted patent stock to measure U.S.-produced external knowledge in Chinese counties and employ an instrumental variable strategy based on U.S. R&D tax credit policies to address potential endogeneity concerns. Findings suggest that innovation by U.S. multinational firms improves the productivity of domestic Chinese firms co-located with their subsidiaries, indicating a local technology spillover effect. Domestic firms with high-wage workers, high innovation capacity, and private ownership are better equipped to absorb these spillovers. In addition, domestic firms in industries with closer technological ties to U.S. multinational firms benefit more from their innovation, suggesting that technological proximity amplifies the spillover effect.

Locally initiated and designed innovation and potential reverse transfer through selective bricolage at threeMNCsubsidiaries in China

Drawing on the concept of bricolage as ‘making do’ with and recombining limited resources for new purposes, our study analyzed how organization members in three MNC subsidiaries circumnavigated resource and market constraints to develop locally initiated and designed innovations in China. We developed two main contributions. First, the subsidiaries engaged selectively in bricolage, often combining it with ingénieuring, that is, formal, systematic methodologies, to bring innovations to fruition, and they could involve clients in the bricolage, through either convention‐based or familiarity‐based collaboration. The second contribution relates to reverse transfer of bricolage‐based innovations, which was especially challenging for the focal subsidiaries as they lacked global R&D mandates. Gaining HQ approval at the outset or early stages of the project, respecting the boundaries and regulations set by the HQ, establishing the pragmatic legitimacy of the solutions, and demonstrating the innovated product or service during an HQ visit appeared to be essential for reverse transfer.

Does a high-speed railway increase offsite subsidiaries’ innovation output?

ABSTRACT This study investigates the impact of opening a high-speed railway (HSR) on the innovation output of offsite subsidiaries in China. Our findings suggest that the innovation output of offsite subsidiaries increases significantly after the opening of HSR between the cities in which the listed firms and their subsidiaries are located, and the results are robust after a series of robustness checks. Hence, the spatiotemporal squeezing effect generated by opening HSR significantly improves the efficiency of information exchange and resource sharing between parent and subsidiary companies, which greatly promotes the innovation output of offsite subsidiaries.

The increasing number of subsidiaries and stock price crash risk: evidence from the Chinese stock market

PurposeWith the development of the economy, an increasing number of listed companies form subsidiaries in China. Though the increase in the number of subsidiaries affects the hierarchical structure and risk of conglomerates, few studies relate the hierarchical relationship between the parent company and its subsidiaries to its capital market performance at the conglomerate level. Therefore, this study aims to investigate the relationship between the number of subsidiaries and crash risk.Design/methodology/approachUsing a sample of all the A-share companies in the Shanghai and Shenzhen stock markets from 2007 to 2015, this study conducts multivariate regression analyses between the number of subsidiaries and the stock price crash risk.FindingsThis study finds an inversed U relationship between the number of subsidiaries and the stock price crash risk, and the above inversed U relationship is steeper in conglomerates with stronger managerial power and less finance distress.Originality/valueThis research has an incremental contribution to the agency problem and governance effect of the parent–subsidiary system in conglomerates. To the best of the authors’ knowledge, this is the first study to show a significant quadratic relationship between the future crash risk and the number of subsidiaries. This paper provides new evidence that the number of subsidiaries has an incremental ability to predict future firm-specific crash risk above other predictors identified by previous research.

The Impact of Local Networks on Subsidiary Performance

This study investigates how institutional voids attenuate the impact of business network characteristics of foreign subsidiaries on sales performance by examining: first, we decomposed the network range/strength into three dimensions in terms of technology, marketing, and supply chain to investigate the full picture with in-depth analysis; and second, by exerting each component of network range/strength with the regulative, cognitive, and normative institutional void scenario separately, our empirical results echo the recent call of conflicting findings may create the theoretical advances. Based on a sample of 274 Taiwanese manufacturing multinational corporations (MNCs) making foreign direct investments (FDI) in emerging markets. Our findings reveal that the same cognitive and normative institutional voids in the host country, which enhance the impact of marketing network range/strength can reduce the impact of supply chain network range/strength on sales performance of Taiwanese subsidiaries in China.

The Impact of Sister-City Relationship on Foreign Subsidiary CSR

This article extends social identity theory to research on corporate social responsibility (CSR) of foreign subsidiaries. We complement prior research on CSR by emphasizing the significance of city-identity in stakeholders’ identification and exploring factors that influence this process. Our empirical analysis of 90 foreign subsidiaries in China from 2009 to 2018 shows that the sister-city relationship promotes local CSR of foreign subsidiaries. The positive relationship is weakened when foreign subsidiaries are older or two countries have high political affinity, while it is strengthened when foreign subsidiaries are large. Our findings suggest that inter-city relationships influence CSR of foreign subsidiaries and host cities can benefit themselves by signing treaties of sister-city relationship.

Gaining legitimacy and host market acceptance: a CRM analysis for foreign subsidiaries in China

PurposeBuilding on the scant literature on how foreign subsidiaries strategize Cause-Related-Marketing (CRM) to gain legitimacy and acceptance in host markets, this paper investigated the impact of two CRM components (post-crisis recovery, CSR activities) on subsidiary performance and future opportunities in China, a country whose institutional development lags behind its economic achievements. The study also investigated the moderating effects of strategic mindset and subsidiary empowerment on CRM effects, issues highly relevant to MNCs and their subsidiaries.Design/methodology/approachTo minimize common method variance, the study adopted a multi-informant firm executive survey design that included responses from a director and a manager from 230 foreign subsidiaries operating in China. The director-level respondents assessed Firm Competences, Organizational Ties, Subsidiary Performance and Future Opportunities. The manager-level respondents assessed CSR activities (Legal, Ethical and Philanthropic CSR) and other operational measures.FindingsThe two CRM components affected Subsidiary Performance (sales, shares and profit) and Future Opportunities in different ways as postulated by legitimacy theory. While Post-crisis Recovery enhanced Subsidiary Performance (sales), it could not enhance Future Opportunities by itself unless the subsidiary received headquarters empowerment. Interestingly, only Ethical and Philanthropic CSR activities with enhancement from Strategic Mindset mattered to Future Opportunities.Originality/valueThe research unfolded key elements in how foreign subsidiaries planned CRM strategies to gain legitimacy and acceptance in a host market with less-developed institutions, thereby addressing a gap in the literature. It also showed how firms internalize CRM and became receptive to social sentiments of a significant host market.

A Study on the Implications of China’s Personal Information Protection Act on Chinese and Korean Businesses

Purpose – This paper discusses the legislative process and necessity of China’s Personal Information Protection Law, examines the main contents of China’s Personal Information Protection Law, and studies its impact on Chinese and Korean enterprises. Thus, China’s future data protection legal system can be better understood.
 Design/Methodology/Approach – In October 2020, China convened the 13th National People’s Congress to deliberate and promulgate the draft Personal Information Protection Law of the People’s Republic of China 2020.
 The draft privacy law is China’s first specialized legislation on personal information protection, drawing global attention. Furthermore, president Xi Jinping made clear his commitment to protecting personal information by reiterating the need for “cyber security and personal information security for people” and “protecting their legitimate rights and interests in cyberspace” after the 2019 National Cyber Week. The Personal Information Protection Act of China was enacted on November 1, 2021, as personal information protection was also a real concern among the Chinese people in the highly information-oriented era.
 Findings – China already has an independent and unified Personal Information Protection Act, which officially promulgates and enforces the Personal Information Protection Act this year following cybersecurity, cybersecurity, and criminal law provisions. Furthermore, in October 2020, China began a full-fledged legislative process by releasing a draft Personal Information Protection Act and collecting opinions.
 Research Implications – China’s Personal Information Protection Act is expected to play an important role for Chinese companies and Korean companies with subsidiaries in China due to offshore applications. Therefore, it is necessary to continue to pay attention to the revision and enforcement rules of the Personal Information Protection Act so that Chinese and Korean companies can respond quickly after it is promulgated and enforced. Therefore, this paper summarizes the background of China’s Personal Information Protection Act and the main contents of the 2021 edition of the Personal Information Protection Act.

Growth and maintenance: how a subsidiary's environmental relationships with technological innovation affect its initiatives

PurposeIn this study, the authors argue that the host environment of subsidiaries may affect subsidiary initiative via relationships with two stakeholders: public and private stakeholders. On the one hand, the public relationships and private relationships of subsidiaries may affect their tendency to demonstrate initiative. On the other hand, including technological innovation as a moderating effect supports the tendency towards subsidiary initiative.Design/methodology/approachThis study obtained the data through a survey of 216 subsidiaries in China; chief executive officer or senior managers were selected as the data collection sources. AMOS analysis was used to address sophisticated data analysis issues.FindingsFindings based on samples from China support these arguments. The findings contribute to the literature by highlighting that different types of subsidiary initiative coexist within subsidiaries and by accounting for the external environmental relationships and technological innovation.Originality/valueWhat determines subsidiary initiatives in the host market? We find that (1) public relationships directly influence subsidiary initiatives, and (2) this effect is moderated by technological innovation. The theoretical framework shows that this interaction arises from the separate impacts of innovation characteristics, especially a foreign subsidiary's interest in entrepreneurial action affecting both growth and maintenance initiatives. In summary, this article concludes that initiatives are not simply the activities of subsidiaries. The authors hope that the strong explanatory and predictive power of these external factors and technological innovation are further enhanced when these concepts are integrated with the charters of internationalizing MNEs.

An Analysis of Concurrent Proceedings under Chinese BITs

On 2 May 2017, Hela Schwarz GmbH, a German manufacturer of compound spices and food additives (Hela), filed a Request for Arbitration against China with the International Centre for Settlement of Investment Disputes (ICSID), alleging expropriation of its investment.123 Hela’s local subsidiary in China, Ji’nan Hela Schwarz Food Co Ltd (JHSF), had initiated proceedings in Chinese courts before the arbitration claim was filed with ICSID. Hela’s ICSID claim raises the issue of whether a foreign investor may concurrently initiate proceedings before an ICSID tribunal and domestic courts. Such concurrent proceedings not only raise concerns about treaty party expectations but also undermine the predictability of dispute resolution. Given the small number of international investment arbitration cases involving China and its bilateral investment treaties (BITs), the issue of concurrent proceedings in Chinese BIT law and practice is underinvestigated.4 Therefore, Hela’s ICSID arbitration case offers a welcome opportunity...

Contraction under minimum wages? Operational and financial advantages of multinational subsidiaries in China

The advantages of multinational enterprises (MNEs) over domestic firms have been widely acknowledged in several streams of literature. However, a more refined analysis on the sources of their advantages is lacking. Exploiting minimum wage hikes in China as an exogenous shock, we theorize that, due to multinational advantages, the employment of multinational subsidiaries may be less affected by minimum wages than that of domestic firms, and that their multinational advantages arise from both operational and financial advantages. Using nation-wide longitudinal firm data from 1998 to 2007 and border discontinuity design (BDD) to estimate the causal effects, we find supportive evidence for our hypotheses. We contribute to the literature on multinational advantages and minimum wages.