MNC foreign investment and industrial disasters: The moderating role of technological,safety management,and philanthropic capabilities

Research Summary: We investigate how industrial disasters can discourage FDI and how MNCs' technological, safety management, and philanthropic capabilities can moderate these effects. Using two unique panel data sets of entry and expansion of U.S. wholly‐owned manufacturing subsidiaries overseas, we found that industrial disasters are associated with reduced foreign entry of wholly‐owned subsidiaries in the disaster industry, but not for all firms in the host country experiencing the disaster. We also found that MNCs' technological, safety management, and philanthropic capabilities can, in some cases, positively moderate the negative relationships between industrial disasters and the foreign entry and expansion of wholly‐owned subsidiaries. Additionally, three‐way interactions with government stability suggest that technological and safety management capabilities substitute government stability in managing industrial disasters, while philanthropic capability complements government stability. Managerial Summary: How can MNCs' technological, safety management, and philanthropic capabilities overcome the effects of industrial disasters such as chemical spills and explosions in host countries? Our results show that industrial disasters are associated with reduced foreign entry of wholly‐owned subsidiaries in the industry in which the industrial disaster occurs, but not for other firms operating in the country experiencing the disaster. However, an MNC's technological capability can, in general, lower the negative consequences of industrial disasters in both the entry and expansion of its wholly‐owned subsidiaries. Regarding the institutional quality of a host country, the results imply that MNCs should develop philanthropic capability when the government stability of the host country is strong, and develop technological and safety management capabilities when the government stability is weak.     

When do wholly owned subsidiaries perform better than joint ventures?

This study explores when wholly owned subsidiaries outperform joint ventures with local partners. In order to avoid the endogeneity problem inherent in foreign subsidiaries' operating mode decisions that might confound performance measurement, we employ the propensity score matching method, along with the difference‐in‐differences approach, and compare the performances of joint ventures turned wholly owned subsidiaries vis‐à‐vis continuing joint ventures. Based on foreign subsidiaries' financial data in China for 1998–2006, we find strong evidence that converted wholly owned subsidiaries outperform continuing joint ventures in industries characterized by high levels of intangible assets such as technology or brand, after controlling for factors that may affect the conversion decision. This finding is consistent with the prediction of transaction cost theory. Copyright © 2012 John Wiley & Sons, Ltd.     

Identifying liabilities of foreignness and strategies to minimize their effects: the case of labor lawsuit judgments in the United States

Most foreign direct investment (FDI) theories assume that foreign subsidiaries are at a disadvantage relative to domestic firms; that is, they suffer a liability of foreignness. Following this reasoning, most FDI research has focused on advantages foreign investors must possess to overcome whatever disadvantages they face. Research directly investigating the sources of foreign subsidiary disadvantages has been notably lacking, despite the fact that understanding disadvantages could uncover ways to reduce exposure to these liabilities of foreignness and improve management of FDI. This study focuses on whether labor lawsuit judgments represent a liability for foreign subsidiaries operating in the United States (U.S.). Specifically, I tested whether 486 British, German, and Japanese subsidiaries operating in the U.S. had more labor lawsuits brought to judgment than a matched sample of U.S.‐owned firms. Results indicate that foreign subsidiaries faced significantly more labor lawsuit judgments in both federal and state jurisdictions. I also investigated several variables hypothesized to be associated with a reduction in labor lawsuit judgments facing foreign subsidiaries. Foreign subsidiaries who used American top officers or whose parent firms had more U.S. operations faced fewer lawsuits, while foreign subsidiaries using human resource professionals actually faced more labor lawsuit judgments. Implications of these findings and avenues for future research are discussed. Copyright © 2002 John Wiley & Sons, Ltd.     

The Diffusion of Employment Practices of US‐Based Multinationals in Europe. A Case Study Comparison of British‐ and Italian‐Based Subsidiaries

A number of approaches to the diffusion of employment practices within American‐based multinational companies (MNCs) can be discerned. In this paper, two theoretical approaches are contrasted: a ‘country‐of‐origin’ approach in which the influence of the home country is mediated by national features of host‐country institutional environments; and a power resources or strategic choice approach that emphasizes the autonomy of local actors within MNCs and their capacity to shape the diffusion of employment practices. Using a case study comparison of three Italian and two British‐based subsidiaries owned by an American MNC, the paper examines factors and patterns of diffusion of employment practices from the parent company to the local subsidiaries. The argument is put forward that company‐specific features enhance the strategic power of the subsidiary firm within the wider corporation, thus complementing institutional host‐country characteristics in shaping the diffusion of employment practices abroad. Hence, organizational as well as institutional effects contribute to creating the space that the various actors across host countries possess for protecting their interests and for exercising power on the terms and conditions of the diffusion.     

Multinationals' response to major disasters: how does subsidiary investment vary in response to the type of disaster and the quality of country governance?

We investigate the response of multinational corporations (MNCs) to major disasters at the subsidiary level. We examine the type and severity of the disaster and whether and how country governance moderates the relationship between exogenous disaster risk and subsidiary investment. We test our hypotheses with a panel dataset of 71 large European MNCs and their subsidiaries (2001–2006) with 31,285 total observations. Findings suggest that the number of a firm's foreign subsidiaries is likely to decrease in response to terrorist attacks or technological disasters but not natural disasters, regardless of the severity of the event. For terrorist activities, MNC subsidiary‐level disinvestment is less likely when the quality of host country governance is higher. Copyright © 2011 John Wiley & Sons, Ltd.     

Entry mode irreversibility,host market uncertainty,and foreign subsidiary exits

We examine how the exits of multinational companies’ foreign subsidiaries from host countries are foreshadowed by the irreversibility intrinsic to firms’ entry modes and the environmental uncertainty in host countries. For empirical testing, we run a Cox proportional hazard rate model on STATA 10 and deploy a dataset of Korean foreign direct investments (FDIs) for the period 1990–2007. We find a negative association between the greater irreversibility typical of wholly owned Greenfield investments or full acquisitions and subsidiary exits. We also note that host market uncertainty strengthens the impact of irreversible entry modes on subsidiary exits. Our findings support the argument that irreversible investments and uncertain environments are closely related to the probability of a subsidiary exiting.     

Foreign ownership and long‐term survival

We study the relative survival of foreign‐ and domestically owned companies in Denmark over more than a century (1895–2005). Contrary to previous studies that have emphasized the liability of foreignness, we find evidence of a significant survival premium for foreign‐owned companies; however, the premium declines over time and disappears entirely in the last decade leading up to 2005. Further evidence indicates that the foreign survival premium is negatively influenced by new foreign entry, and that the long‐run decline is caused by increasing competition between foreign subsidiaries. Copyright © 2008 John Wiley & Sons, Ltd.     

Effect of equity ownership on the survival of international joint ventures

This note extends transaction cost analysis of international joint ventures (IJVs) to include explicitly the effect of equity. It challenges the common practice of treating all foreign investments with between 5 percent and 95 percent equity as IJVs. A fine‐grained analysis of the role of foreign equity ownership on the survival of 12,984 overseas subsidiaries confirms a declining, nonlinear, and asymmetrical relationship between equity and mortality in overseas subsidiaries. While investments involving small ownership levels (<20%) have very high mortality rates, those with high ownership levels (>80%) have mortality rates comparable to that of wholly owned subsidiaries. Implications for research, practice, and policy are discussed. Copyright © 2003 John Wiley & Sons, Ltd.     

Foreign entry and survival: Effects of strategic choices on performance in international markets

This paper investigates effective strategies that can reduce the risk of failure in international expansion by examining the entry and survival of foreign subsidiaries in the U.S. computer and pharmaceutical industries over the 1974-89 period. Using a hazard rate model, we examine the effects of (1) diversification strategies, (2) entry strategies, and (3) organizational learning and experience on the survival probabilities of foreign subsidiaries. The results show a higher exit rate for foreign acquisitions and joint ventures than for subsidiaries established through greenfield investments. The results also indicate a higher exit rate for subsidiaries that diversify than for those that stay in the parent firm's main product areas. Finally, the results show that firms benefit from learning and experience in foreign operations, which improves the chances of success for subsequent foreign investments. These findings shed light on the dynamic process of international expansion and the evolution of the multinational corporation.     

Entry mode,organizational learning,and R&D in foreign affiliates: evidence from Japanese firms

This paper develops hypotheses concerning the role of entry mode and experience‐based organizational learning as determinants of the R&D intensity of foreign affiliates and tests these hypotheses on a sample of 420 Japanese manufacturing affiliates abroad. Entry mode has a major impact on R&D activities: the R&D intensities of acquired affiliates substantially exceed those in wholly owned greenfield affiliates, while the R&D intensities of minority owned ventures are higher if Japanese parent firms lack strong R&D capabilities at home. For greenfield operations, support is found for an incremental growth pattern of foreign R&D as a function of organizational learning and affiliate capability building. The results are consistent with the view that part of the explanation for Japanese firms' relative lack of involvement in overseas R&D must be sought in their status as ‘latecomers’ in the establishment of overseas manufacturing networks. At the same time, a number of Japanese firms have actively used foreign acquisitions and joint ventures to gain access to overseas technology and to establish overseas R&D capabilities at a faster pace. Copyright © 2002 John Wiley & Sons, Ltd.     

Dominance Effects from Local Competitors: Setting Institutional Parameters for Employment Relations in Multinational Subsidiaries; a Case from the Spanish Supermarket Sector

Dominance effects are normally associated with multinational corporations (MNCs). However, we argue that a strong local competitor can create ‘dominance effects’ setting the institutional parameters for employment relations in multinational subsidiaries. Moreover such an effect can be persistent. In this case the Spanish‐owned El Corte Inglés (ECI) used its power and influence to establish an employer's federation and two ‘yellow unions’. These yellow unions infiltrated the French‐owned MNC Carrefour and most of the Spanish supermarket sector by the early 1980s and continue to dominate collective bargaining rounds and works council elections, marginalizing the main independent trade unions. This has resulted in poor pay and working conditions and a lack of effective employee representation across most of the Spanish supermarket sector. The fact that Carrefour established an international framework agreement to observe union rights in 2001 has as yet not changed this situation.     

Host country uncertainty,intra‐MNC production shifts,and subsidiary performance

This study examines whether or not production shifts occur among the foreign subsidiaries of multinational corporations (MNCs) under the influence of differing macroeconomic conditions in their host countries. This study compares intra‐MNC production shifts under the influence of exchange rate changes across different host countries. Our findings indicate that the increase of a subsidiary's production at the time of its host country currency depreciation decreases the production of other subsidiaries within the same MNC network. Our empirical evidence also shows that MNC subsidiaries that engage in production shifts with other affiliated subsidiaries command a higher performance. Copyright © 2012 John Wiley & Sons, Ltd.     

Global Innovation in MNCs: The Effects of Subsidiary Self‐Determination and Teamwork*

The ability of multinational corporations (MNCs) to leverage their innovation competencies across globally dispersed subsidiaries is an increasingly valuable source of competitive advantage. As multinational enterprises turn to foreign subsidiaries for research and development (R&D) and product development, questions arise regarding the most effective organizational structures for global innovation. Although organizational conditions that satisfy the needs for self‐determination and teamwork have long been considered intrinsic motivators, past research has not analyzed the consequences of intrinsic motivators on global innovation. The basic research question is this: In globally dispersed subsidiary R&D units, what organizational conditions and motivators are associated with the highest knowledge output? A sample of 275 globally dispersed R&D subsidiaries were studied from 1995 to 2002. Data were collected from a postal survey, field and telephone interviews, and secondary sources. Subsidiary self‐determination and teamwork were found to have a significant effect on knowledge output, as objectively measured by patent citations. Subsidiary self‐determination on inputs such as sourcing and hiring, and self‐determination on outputs such as marketing and product development, emerged as positive determinants of knowledge generation in R&D subsidiaries. In addition, interteam cooperation and intrateam cooperation were significant determinants of knowledge generation by subsidiaries. These findings highlight the importance of self‐determination, teamwork, and cooperation to knowledge creation and innovations. Managers face the tough challenge of how to motivate globally dispersed knowledge workers to conduct research that will generate knowledge and will strengthen firm performance. The results provide theoretical and practical insights on how MNCs can leverage their innovation competencies across foreign R&D subsidiaries.     

Once bitten twice shy? Experience managing violent conflict risk and MNC subsidiary‐level investment and expansion

Research summary : Researchers have increasingly emphasized the need to better understand how context affects the value of experiential learning. We address this gap by investigating when corporate‐level experience can be leveraged across borders and when experience needs to be country‐specific to be valuable. We test our hypotheses using a unique multi‐source panel dataset of 379 large MNCs from 29 home countries and their subsidiaries in 117 host countries over a 10‐year period, 1999–2008. In contrast to prior research, we find that the ability of a firm to leverage its experience with political risk across borders is limited by the type of risk involved. Experience with nonstate violent conflicts may be transferrable, but only country‐specific experience appears to yield measureable benefits for conflicts involving the host country government . Managerial summary : Violent conflicts not only increase social unrest but also impose added costs of doing business. For managers who find themselves in the midst of violent conflicts or who wish to survive and potentially gain a competitive advantage in operating in such challenging environments, is it possible to learn to manage such a seemingly “unmanageable” problem? In contrast to studies that have examined other types of political risk, we find that the ability of a firm to leverage its experience with violent conflict risk across borders is limited. Specifically, only country‐specific experiential knowledge about how the host government prepares and manages such conflict risks yields measureable economic benefits for MNCs and their subsidiaries operating in countries during conflict . Copyright © 2016 John Wiley & Sons, Ltd.     

The framework of a global company: A conceptualization and preliminary validation

Clearly, a substantial challenge for multinational corporations (MNCs), in the current environment of intensified competition and rapid industry consolidation, is one of much greater worldwide integration. Necessitated by intense competitive pressures, MNCs are integrating their disparate country operations in order to achieve economies across markets and operating units. This article integrates the motives and facilitators of the progression towards commonality in practices and metrics across subsidiaries and affiliates into a comprehensive framework of a global company. Preliminary results from a pilot study of the characteristics of common global practices among a sample of MNCs are presented as an initial validation of the conceptualization. The article also explores the benefits MNCs derive from the implementation of common practices across their worldwide operations, in pursuit of a global strategy.     

The effect of host country long term orientation on subsidiary ownership and survival

This paper examines the role which the long term orientation (LTO) dimension of host country culture plays in transforming multinational corporations’ (MNCs’) focus from transaction cost to transaction value in the context of MNC subsidiary ownership and survival. We used a sample of 10,236 overseas subsidiaries established by 1,291 Japanese MNCs in 29 host countries with varying levels of LTO to test our hypotheses. Results first showed that LTO has a direct positive effect on ownership levels. Second, we observed that there were positive interactions between LTO and cultural distance, and between LTO and geographic distance, on ownership levels. Third, we found that there were positive interactions between LTO and subsidiary ownership level, and between LTO and cultural distance, on subsidiary survival. The theoretical and practical implications of these findings are discussed in terms of the vital role LTO plays in determining whether transaction value or transaction cost considerations prevail in MNCs’ ownership strategies, and how MNCs can better take advantage of host country LTO and improve the survival likelihood of their subsidiaries.     

Political connections in the land market: Evidence from China's state‐owned enterprises

This study examines whether political connections lead state‐owned enterprises (SOEs) to behave differently from privately owned enterprises (POEs) in acquiring land parcels at auctions and explores the underlying mechanisms that drive the price premiums paid by SOEs. We find that SOEs pay 11.9% more than POEs for observably comparable land parcels at auctions, and the price premiums SOEs pay are mainly driven by wholly state‐owned enterprises (WSOEs). In particular, we provide evidence that SOEs have advance access to information about the development of land parcels in 134 state‐level special economic zones, and land parcels purchased by SOEs lead to positive stock market performance. We also show that an anti‐corruption campaign that weakens political connections and reduces the information advantage leads to a decrease in the price premiums paid by SOEs.     

Geographical distance and the role and management of subsidiaries: The case of subsidiaries down-under

Based on a international mail survey covering 169 subsidiaries of MNCs headquartered in the USA, Japan, the UK, Germany, France and the Netherlands, we investigate the impact of geographical distance on the role that subsidiaries play in the MNC network and the way they are managed. To this end, we compare Australian and New Zealand subsidiaries – which provide a significant example of geographically isolation – compared to subsidiaries located in other countries. Referring to the typology constructed by Gupta & Govindarajan (1991), we show that Australian and New Zealand subsidiaries are more likely than subsidiaries in other countries to be Local Innovators rather than Global Innovators. In addition, both intra-company flows and the type of control mechanisms applied by HQ reflect the geographical isolation of Australian and New Zealand subsidiaries. The overall level of capabilities of Australian and New Zealand subsidiaries is equal to that of other subsidiaries, although lower relative capabilities in R{&}D and production seem to be associated with lower levels of local R{&}D and production. We discuss the implications of these findings and provide recommendations for management and competitiveness issues in Australia and New Zealand.     

Feedback‐seeking behavior within multinational corporations

Notwithstanding their concern with intra‐MNC control mechanisms, scholars have overlooked the complementary phenomenon of self‐regulatory behavior by subsidiaries. In this paper, we take the first steps towards addressing this gap by advancing and testing hypotheses dealing with the determinants of a major element of self‐regulatory behavior at the subsidiary level, i.e., the performance‐oriented feedback‐seeking behavior of subsidiary presidents. Utilizing data from 374 subsidiaries of 75 MNCs, we test hypotheses regarding the impact of subsidiary task and organizational context on the feedback‐seeking behavior of subsidiary presidents. The results of this study can be summarized as follows: (i) subsidiary presidents do engage in proactive performance‐oriented feedback‐seeking behavior; (ii) they vary in the extent to which they engage in such behavior; and (iii) these variations in feedback‐seeking behavior are at least partially systematic. Copyright © 1999 John Wiley & Sons, Ltd.     

跨国公司在华子公司竞争优势与战略倾向实证研究

本文在整理、回顾跨国公司海外子公司竞争优势、战略态势及其演进的相关理论基础上,对跨国公司在华子公司的战略态势、竞争优势与战略倾向进行了理论推演和统计验证。研究结果显示:目前跨国公司在华子公司的总体呈增长态势,外部机会大于威胁,内部优势胜于劣势;当前的竞争优势主要体现在质量管理、企业形象和管理团队素质三个方面;不同战略态势、不同相对市场占有率的跨国公司在华子公司,其竞争优势存在差异;跨国公司在华子公司总体战略倾向主要集中在企业形象、品牌、服务和质量管理四个方面,而且跨国公司在华子公司战略态势的不同会造成其具体战略倾向的差异。