Risk management,legitimacy, and the overseas subsidiary performance of emerging market MNEs

Multinational enterprises (MNEs) are exposed to substantial risks when operating abroad and effective risk management plays a key role in determining firms’ competitiveness and success in overseas markets. Integrating the notion of home-country government-created advantages with the legitimacy perspective, we look at a concrete manifestation of government-created advantages, the impact of home-country risk-safeguarding mechanisms on Chinese MNEs’ overseas subsidiary performance. Moreover, we examine their effect under the contingency of firms’ legitimacy in host countries. Using survey data, we find that Chinese MNEs’ overseas subsidiary performance is positively associated with the use of home-country risk-safeguarding mechanisms. The strength of this association depends on Chinese firms’ legitimacy in host countries. The low level of legitimacy of these firms with host-country government and business communities can generate a negative spill-over effect that compromises the role of home-country risk-safeguarding mechanisms.     

Entrepreneurial leadership and MNE subsidiary performance: The moderating role of subsidiary context

Managers of international subsidiaries, especially subsidiary CEOs, operate at critical interfaces within multinational enterprises (MNEs) and hold strategic responsibility for the operations in their country. Yet, their impact on subsidiary performance has received scant research attention. Building on the subsidiary entrepreneurship and strategic leadership literatures, we develop a model of how subsidiary CEOs’ entrepreneurial leadership affects subsidiary performance, and how this relationship is moderated by the subsidiary context that determines managerial discretion. We combine survey data of 291 international subsidiaries in South Korea with archival data to test our hypotheses. Our results show that subsidiary CEOs’ entrepreneurial leadership enhances subsidiary performance and that this relationship is strengthened by managerial discretion. Our study highlights the pivotal role of subsidiary CEOs within MNEs and contributes to a microfoundational understanding of international subsidiary management.     

Institutional distance and the quality of the headquarters–subsidiary relationship: The moderating role of the institutionalization of headquarters’ practices in subsidiaries

Through the lens of the institutional theory, we developed and empirically tested a contingency theoretical framework that examines the effects of formal and informal institutional distances on the quality of the headquarters–subsidiary relationship, and how such effects are contextualized by internal institutionalization of headquarters’ practices in subsidiaries of Chinese multinational enterprises (MNEs). Data were collected from both the headquarters of 297 Chinese MNEs and their respective subsidiaries. The results show that regulative and cultural distances are positively associated with the quality of the headquarters–subsidiary relationship, and that these positive relationships are stronger when subsidiaries institutionalize headquarters’ practices to a higher degree. Theoretical and practical implications are highlighted in the paper.     

Performance shortfalls and outward foreign direct investment by MNE subsidiaries: Evidence from China

Foreign subsidiaries of multinational enterprises (MNEs) have been conducting outward foreign direct investment (OFDI) into new overseas destinations. Drawing upon the behavioural theory of the firm, we explain that such OFDI can occur in response to performance shortfalls relative to aspirations. When performance shortfalls in subsidiaries are attributed to the institutional distance between them and the home country of the parent firm, these subsidiaries select institutionally closer destinations for their own OFDI. Our study goes beyond the direct investment of MNE headquarters and advances the internationalisation process model by investigating the underexplored, secondary and springboard-based internationalisation, and by underscoring the value of a subsidiary’s OFDI behaviour.     

An exploration of multinational enterprise knowledge resources and foreign subsidiary performance

Successful international expansion requires that parent firms simultaneously transfer multiple MNE knowledge resources and their foreign subsidiaries effectively absorb and utilize the knowledge. In this study, we examine the relationships between multiple knowledge resources (technological and marketing knowledge), the relatedness between parents and foreign subsidiaries, and subsidiary performance. Relatedness is specifically linked to the type of knowledge being transferred from the parent (i.e., technological relatedness versus market relatedness). We hypothesize that subsidiary performance improves with (1) the integration of a parent firm's technological and marketing knowledge resources, (2) high technological (market) relatedness between a parent firm and subsidiaries for transfer of parent technological (market) knowledge and (3) the co-presence of high technological and market relatedness. We find general support in our analysis of pooled cross-sectional data on more than 4000 observations of foreign subsidiaries from 572 Japanese MNEs across 47 countries. Theoretical implications and future research are discussed.     

Board Composition and Corporate Social Responsibility: The Role of Diversity,Gender, Strategy and Decision Making

This study integrates the resource dependence perspective and the stakeholder perspective to analyze local Chinese suppliers’ environment strategies in response to environmental requirements of different types of customers. With a sample of 1,215 local Chinese manufacturing suppliers, we examine the impact of export intensity and environmental requirements of multinational enterprises (MNEs) on local Chinese suppliers’ environment strategies. The results show that local Chinese suppliers with high levels of export intensity are more likely to adopt positive environment strategies to reduce environmental risks. In addition, local Chinese suppliers respond actively to environmental requirements of MNE customers but not to those of local customers. The linkage between MNE customers’ environmental requirements and local Chinese suppliers’ environment strategies remains significant, even after we control for the impact of export intensity. Implications of the findings conclude the article.     

Subsidiary goals,learning orientations,and ownership strategies of multinational enterprises: evidence from foreign direct investments in Korea

This paper investigates the links among subsidiary goals, learning orientations, and ownership strategies of multinational enterprises (MNEs). The authors hypothesize that an MNE's ownership strategy is determined by subsidiary goals and learning orientations. Furthermore, interactions between learning orientations and subsidiary goals are predicted to influence the ownership strategy. Based on 723 foreign subsidiaries of MNEs operating in Korea, our findings suggest that when MNE foreign subsidiaries influence ownership choice, market-seeking goals and resource-seeking goals have a stronger fit with the exploitation orientation than with the exploration orientation. In contrast, the category of knowledge-seeking goals has a stronger fit with exploration than with exploitation.     

What changes the rules of the game in wholly owned subsidiaries? Determinants of knowledge acquisition from parent firms

We examine key factors affecting the extent of knowledge acquisition from multinational enterprises (MNEs) in their wholly owned subsidiaries (WOSs). As the volume of foreign direct investment (FDI) by MNEs is rapidly growing, empirical studies dealing with knowledge acquisition from parent firms in subsidiaries are in the limelight. However, as far as we know, none has attempted to identify primary mechanisms influencing subsidiary learning by dividing WOSs based on ‘investment mode’ and ‘investment direction’. We believe WOSs are characterized by these two issues and thus this research contributes to current literature by providing a detailed picture of learning mechanisms in subsidiaries. We advance a series of propositions to achieve the research objective by using a sample of WOSs established by MNEs in Korea. By doing this, we reveal that subsidiary learning depends significantly on absorptive capacity in learning organizations, relational capital and parent firms’ behavior. Also, we confirm that factors facilitating knowledge acquisition are influenced by investment mode and investment direction. Based on the results, this study provides some useful implications for MNEs and policy makers in local markets.     

Subsidiary autonomy and performance in Japanese multinationals in Europe

Notwithstanding the growing body of research on headquarters–subsidiary relationships, the conditions under which subsidiary autonomy leads to enhanced subsidiary performance is still a subject of debate. This study adopts a contingency approach and investigates the effects of external uncertainties and intra-MNE coordination on the performance benefits of subsidiary autonomy. The empirical analysis is based upon cross-sectional data collected from 88 European subsidiaries of Japanese MNEs. Our findings show that subsidiary autonomy has a greater impact upon performance (a) under conditions of technological uncertainty; and (b) when expatriate involvement is high, as the subsidiary can reap the full benefits of entrepreneurial capabilities and enjoy resource interdependencies through interactions with the parent simultaneously. MNC executives should aim for an appropriate balance between subsidiary autonomy and these internal and external factors so that the subsidiaries achieve superior performance.     

The effects of subsidiary’s leadership and entrepreneurship on international marketing knowledge transfer and new product development

This study investigates the role of a strong subsidiary leadership and entrepreneurial culture in the promotion of marketing knowledge inflows. We further examine their consequences on the subsidiary’s ability to develop new products when moderated by the tacitness of knowledge. The data were collected from 202 Portuguese subsidiaries of multinational corporations and were analyzed using partial least squares structural equation modelling to test the hypotheses. The results indicate that subsidiaries’ strong leadership support and entrepreneurial culture are fundamental mechanisms that foster marketing knowledge inflows from both the headquarters and peer subsidiaries. Moreover, marketing knowledge inflows enhance the focal subsidiary’s innovation abilities. We also find that tacit knowledge exerts contradictory moderating effects on the transfers of marketing knowledge, carrying distinct implications for a subsidiary’s knowledge management. The results expand our understanding of the effectiveness of transferring marketing knowledge among multinational corporations’ (MNCs) subsidiaries.     

Temporal boundaries and expatriate staffing: Effects of parent–subsidiary work-time overlap

By integrating the boundary-spanning perspective with the expatriate staffing literature, we explore why and how temporal boundaries between multinational enterprise (MNE) parent and subsidiary locations affect MNEs’ deployment of expatriates in foreign subsidiaries. Temporal boundaries, defined as local work-time schedule differences, delimit the degree of work-time overlap between two locations. A lack of work-time overlap between MNE parent and subsidiary locations creates significant barriers in day-to-day, remote real-time communication, resulting in increased deployment of expatriates as intermediaries by parents to overcome these barriers. Conversely, greater parent–subsidiary work-time overlap enables more remote real-time communication via digital technologies, altering the cost–benefit analysis of deploying expatriates over local nationals, consequently reducing parents’ reliance on expatriates as intermediaries. Therefore, we posit a negative relationship between parent–subsidiary work-time overlap and the expatriate ratio in a subsidiary. Further, we posit that the negative relationship is weakened by home – host country distance in terms of information and communication technology development and linguistics because technological and semantic boundaries can reduce the effectiveness of parent–subsidiary real-time communication. Empirical analyses of 22,556 subsidiaries established by 5,912 Japanese MNEs operating in 31 host countries between 1990 and 2018 support our theorizing.     

The art of rhetoric: Host country political hostility and the rhetorical strategies of foreign subsidiaries in developing economies

Multinational enterprises (MNEs) often pay close attention to host country environments and prudently manage relationships with host country stakeholders. However, little attention has been paid to how the foreign subsidiaries of developed country multinational enterprises (DMNEs) communicate with host country stakeholders in developing economies. This paper investigates how host country political hostility influences DMNE subsidiaries’ rhetorical strategies. Using 485,496 Sina Weibo posts by subsidiaries of 71 DMNEs between 2010 and 2018, this paper demonstrates that political hostility has a negative influence on subsidiaries’ rhetorical emotionality and corporate social responsibility (CSR) rhetorical intensity, and has a positive effect on rhetorical clarity. Both bilateral trade and local subsidiary top executive strengthen the influence of political hostility on rhetorical emotionality and rhetorical clarity. The findings shed new light on how DMNE subsidiaries gain and maintain legitimacy in developing economies and how subsidiaries deploy post-entry rhetorical strategies as a response to host country political hostility.     

Accessing host country national talent in emerging economies: A resource perspective review and future research agenda

Through an integrative literature review, we explore the resource-related factors affecting foreign-owned MNE subsidiaries gaining access to host country national (HCN) talent. We focus on MNEs operating in uncertain emerging economy host locations. Adopting a resource perspective, we identify five core themes in the extant literature: the characteristics and roles of HCNs in MNE subsidiaries; the context-specific nature of (a) subsidiary operations and (b) talent management in emerging economies; HCN talent availability in emerging economies; and MNE embeddedness in uncertain external resource contexts. To date, studies have largely adopted an inside-out resource-based view (RBV) of the firm to understand MNE staffing strategies. Although illuminating, the RBV approach limits our understanding of the factors that affect MNEs’ interaction with their external operating environment (adopting an outside-in perspective). We, therefore, propose a framework for future research that emphasizes not only inside-out but also outside-in resource perspectives, exploring the interplay between resource dependency and RBV theorizing through strategic response types in developing a contingent talent strategy.     

Exploring reverse knowledge transfer and asset augmentation strategy by developed country MNEs: Case study evidence from the Indian pharmaceutical industry

Using an in-depth qualitative longitudinal case study approach, we examine strategic asset and knowledge augmentation strategies of an advanced economy multinational enterprise (MNE). Our study is unique as it is contextualized in the knowledge-intensive pharmaceutical industry within the changing institutional landscape in India. And, in contrast to previous studies, it focuses on RKT from a newly acquired subsidiary where the protocol for knowledge transfer and relationship between MNE headquarters (HQ) and subsidiary does not exist. We contribute to the evolving literature on reverse knowledge transfer (RKT) which assumes that MNEs extract knowledge from their existing subsidiaries to strengthen their competitive advantages. We also reveal that MNEs design an architecture, that is reflected in the mechanism, governance structure, and timing, for efficient transfer and effective absorption of the knowledge and assets acquired. We introduce a novel concept of ‘reverse asset augmentation’ (RAA) to capture the MNE’s behavior of strategic asset seeking from emerging economies. RAA is parallel to and entwined with RKT conceptualization as knowledge is embedded within certain physical assets, other assets, such as brand name/image, may not embody knowledge. Thematic and processual analysis of interview data, collected in three phases, suggests that RAA complements RKT and that both concepts together capture the unconventional strategies of advanced economy MNEs acquiring emerging economy MNEs in search of strategic assets and knowledge.     

Multinational Enterprises’ Entry Mode Strategies in Syria and Jordan: The Impact of Ownership Advantages

This study addresses the issue of ownership advantages affecting multinational enterprises’ (MNEs) entry mode strategies in developing countries. Although a few studies have focused on such effects, very little attention has been devoted to the ownership advantages generated from the institutional environment of MNEs’ home countries. To bridge this gap, this study concentrates on three types of ownership advantages: intangible asset advantages (IAA), advantages of common governance (ACG), and home‐country‐specific advantages (HCSA). Using a sample of 303 foreign affiliates, this study empirically examines the choice of MNEs between a wholly owned subsidiary (WOS) and a joint venture (JV). The data were collected from senior executives of MNEs’ subsidiaries operating in Syria and Jordan. The findings of this study reveal that MNEs’ choice of entry mode strategies is significantly influenced by intangible asset advantages, advantages of common governance, and home‐country‐specific advantages. Hence, senior executives perceiving an increased importance of these assets will opt for a WOS rather than a JV when entering a new market in the Middle East. © 2015 Wiley Periodicals, Inc.     

Host-Country Determinants of the Market Strategies of US Companies' Overseas Subsidiaries

As compeition in many industries becomes increasingly global, MNEs have found that import-substitution subsidiaries, focusing on the supply of national markets, are much less viable. In the pursuit of enhanced competitiveness through export-oriented subsidiaries, MNEs are also finding that relying on low-cost host-country inputs to produce established productss is also a limited strategy. The more dynamic strategy of allowing subsidiaries to use a wider range of creative local inputs to take full responsibility for the development, production and international marketing of distinctive new products is a more effective approach. Such an upgrading of the subsidiaries' role within the MNE often parallels the aims of host-country governments to achieve a more individual and dynamic basis for their country's evolving comparative advantage. It is thus argued that MNE subsidiaries and host countries can go through a mutually supportive period of creative transition, endowing both with a new level of technological dynamism and independence. The paper tests aspects of these arguments by analysing the host-country determinants of the degree of export-orientation of US MNEs' overseas subsidiaries.     

MNE subsidiary evolution from sales to innovation: Looking inside the black box

Whereas the innovation-related evolution of multinational enterprise (MNE) subsidiaries has been extensively studied, the numerous sales subsidiaries in MNE networks have received little attention in this context. This study examines the evolution process of a sales subsidiary towards acquiring innovation-related capabilities and actively supporting innovation activities of a MNE. The evolution is explained in terms of technical information flow in an in-depth case study of a semiconductor MNEs’ sales subsidiary in South Korea. We find that the evolution of the sales subsidiary to innovation support has been enabled by a combination of subsidiary-related, lead market-related and event-related factors. We contribute to the literature on MNE subsidiary evolution by studying the unexplored evolution of a sales subsidiary. We combine the general framework of subsidiary evolution with the lead user perspective and suggest directions for potential theory extensions on MNE subsidiary evolution.     

Attributes of Foreign Subsidiaries and the Location Strategy of Multinational Firms in Global Cities in Latin America

International business research has recently honed in on the subnational dimension of multinational enterprises (MNEs), particularly the city level. Through a binomial logistic regression of data from 254 foreign subsidiaries of 10 Latin American global cities between 2006 and 2012, we found that specific attributes of the firm related to the industrial sector, subsidiary control, and ownership level have a positive effect on the location choice in cities. In addition, we found that in the previous period and during the international financial crisis, MNEs exploited their internalization advantages more intensely by exerting greater control over their subsidiaries in global cities.     

Inside the regional multinationals: A new value chain perspective on subsidiary capabilities

We discuss the strategic significance of ‘regional multinationals’, and highlight a number of conceptual and empirical challenges that a regional multinationals research agenda should address. In line with the intellectual legacy of the late Alan Rugman, we argue that to deepen our understanding of regional strategy and organization, we cannot limit ourselves to studying the multinational enterprise’s (MNE’s) geographic footprint, but we must also explore the entire spectrum of regional elements in the firm’s organizational functioning, including the impact of the regional effect on subsidiary capabilities across the value chain. More specifically, we argue that operating in a host region can affect a foreign subsidiary’s capabilities: subsidiaries of outsider MNEs (meaning headquartered outside of the region) are disadvantaged as compared to insider MNE subsidiaries. This regional effect, however, is predicted to vary according to the value chain activity considered. Further, the regional effect will tend to diminish over time, though at a different pace for the various value chain activities.     

Immediate responses to financial crises: A focus on US MNE subsidiaries

This paper provides evidence for the immediate or short-term responses to financial crises of US multinational firm (MNE) subsidiaries. Using a real options perspective, we hypothesize that financial crises change the relative value of ‘within-country’ versus ‘across-country’ options for MNE subsidiaries. We suggest that relocating subsidiary output is an effective short-term response to local financial crises. We examine the effects of 83 financial crises (banking, debt and currency crises) on longitudinal data of US MNEs’ subsidiary sales in over 50 countries in the period 1983–2005. Our results show market-switching effects. Particularly in the case of local currency crises we observe a refocus of the MNE's subsidiary local sales toward export markets. The effect is maintained in the occurrence of twin financial crises. These results confirm our expectation that financial crises cause an increase in the value of ‘across-country’ option relative to ‘within-country’ option.