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.     

Analysing corporate political activity in MNC subsidiaries through the integration-responsiveness framework

Our study applies the well-known, market-strategy focussed integration-responsiveness (IR) framework and extends it to incorporate the non-market corporate political strategies of MNC subsidiaries. We find government regulation and the market strategies of integration and innovation have positive relationships with MNC subsidiary political activities. Interestingly, whereas the market strategy of innovation has a positive effect on subsidiary performance (but not on legitimacy), the non-market corporate political activities undertaken by MNC subsidiaries enhance subsidiary legitimacy (but not subsidiary performance). In addition, both market innovation and non-market subsidiary political activities are useful tools to gain favourable government decisions. Overall, our study incorporates both market and non-market strategies within a single overarching IR framework, and highlights their complementary role in achieving the twin goals of performance and legitimacy respectively.     

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.     

The overlooked distinction of multinational enterprise subsidiary learning: Its managerial and entrepreneurial learning modes

The theme concerning modes of learning in multinational subsidiaries is the focus of enquiry in the current study. This theme is closely linked to the issue of how subsidiaries become alert and seize opportunities. Such an investigation is also important for management practice because effective subsidiary learning can render sustainable competitive advantage in the host country. We performed an in-depth case examination on six multinational subsidiaries of a large Finnish firm. We identify two learning modes of multinational subsidiaries that we refer to as managerial and entrepreneurial learning. We find that managerial learning shares characteristics with the systems-structural learning perspective; is facilitated by embeddedness of the subsidiary in the MNE system; and, transferred in the MNE through many conventional and reverse knowledge flows. On the contrary, entrepreneurial learning shares characteristics with the interpretive learning perspective; is facilitated by embeddedness of the subsidiary in the host country; and, transferred in the MNE through relatively fewer reverse knowledge flows. The distinction between these two learning modes and their discrete characteristics enlighten past research that has largely failed to pinpoint the importance of the two modes for MNE subsidiary activities.     

Knowledge sharing and subsidiary R&D mandate development: A matter of dual embeddedness

Sharing knowledge across borders has proven to be especially relevant to multinational corporations (MNCs). Foreign subsidiaries have become active players in these knowledge flows. However, the network effects of interacting with multiple agents on the evolution of the R&D role played by subsidiaries are still undeveloped. The present study focuses on changes in subsidiary capabilities and on the dynamic mechanisms by which their R&D role might evolve, especially, as a consequence of their interaction with a variety of knowledge networks. We examine this issue by conducting four longitudinal case studies of subsidiaries operating in Spain. Using an inductive approach to theory building, we develop a general theoretical framework considering the subsidiary's embeddedness in the knowledge networks within the MNC (internal) and within the host country (external). We find that evolving towards a competence-creating mandate is characterised by the simultaneous growth of embeddedness in both internal and external networks; otherwise, a subsidiary may gravitate away from upgrading its R&D role. Thus, the contribution of this paper is to present a dynamic model that sheds light on how internal and external knowledge embeddedness interact in generating outcomes for subsidiary R&D roles.     

Cultural distance or cultural positions? Analysing the effect of culture on the HQ–subsidiary relationship

We develop a model of cultural positions in relationships that should be considered in addition to the more conventional cultural distance. We empirically analyse relationships between headquarters and foreign subsidiaries in multinational corporations and how high or low acceptance of power differences at both sides of the relationship is associated with headquarters influence on subsidiary competence development. ANCOVA analyses of 1529 subsidiaries in six European countries, headquartered in 28 countries, provide new insights. We find that relationships with low cultural distance, differ significantly in terms of headquarters influence depending on whether headquarters and subsidiaries agree on accepting or rejecting power differences. Similarly, relationships with high cultural distance differ depending on whether it is headquarters or the subsidiary that is from a high-power-distance culture: we find that headquarters influence is particularly dependent on great acceptance of power differences by the subsidiary.     

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.     

British co-operative societies as retail innovators: Interpreting the early stages of the self-service revolution

Multinational companies and their subsidiaries have been important actors in the world economy. However, we know relatively little about the evolution of subsidiaries and their adaption to host country conditions. This article is a case study of a Norwegian subsidiary of the Canadian mining multinational Falconbridge Nickel Mines Ltd. It examines what autonomy the subsidiary had, how the autonomy was used, its development of knowledge and how it adapted to Norwegian ways of doing business. The article shows that subsidiaries may contribute significantly to the development of their mother companies. It highlights four factors that influenced the degree of autonomy and the evolution of subsidiaries in the inter-war era; namely host country politics, the line of business, the configuration of knowledge within the given multinational company and in case of acquisitions; the prehistory of the subsidiary.     

Subsidiary knowledge creation in co-evolving contexts

In this paper we explore how the MNE subsidiary’s role internally within its corporation evolves through knowledge creation in accordance with an evolving external local knowledge network, and the extent to which the interwoven coevolving context matters for, and may be guided by the subsidiary. We conducted a qualitative investigation of purposely selected subsidiaries as case studies and longitudinally tracked the interwoven co-evolving contexts of their internal corporate role and external knowledge network. We show why role evolution may be differential and illustrate how competence-creating subsidiaries can balance and simultaneously manage the guided co-evolution of both contexts to advance their roles for knowledge creation. We develop a dynamic framework of subsidiary role evolution at the nexus of these interwoven co-evolving contexts. This advances theory on the dual embedded subsidiary as previous studies have predominantly been cross-sectional and static rather than evolutionary.     

The interplay of networking activities and internal knowledge actions for subsidiary influence within MNCs

Knowledge-based and network-based activities are known determinants of foreign subsidiary influence. We demonstrate that the interaction between these factors is essential in understanding how subsidiaries gain influence within an MNC. We test this using data on 184 foreign-owned subsidiaries in the UK. The results indicate that the possession of strategic resources (knowledge or embedded relations) increases subsidiary influence only when the knowledge is transferred back to headquarters. Importantly, the impact of subsidiary–headquarters embeddedness, external embeddedness and knowledge development on influence is mediated by the extent of reverse knowledge transfer. This mediating role sheds new light on the antecedents to subsidiary influence.     

Does parenting matter in subsidiary innovation in emerging economies? Exploring the role of parent superior competitiveness in affecting subsidiary contextual ambidexterity

Parenting in the multinational enterprises (MNEs) creates a dilemma when parent company manages the subsidiary contextual ambidexterity, in which parent superior competitiveness may nurture subsidiary exploitation while inhibit exploration. This study addresses this dilemma by developing an integrated framework and investigating how parent superior competitiveness affects the subsidiary contextual ambidexterity (innovation initiative and motivation of learning from the parent), which in turn increases subsidiary innovation performance. Furthermore, it is also examined that what tactics subsidiaries should take to resolve the dilemma. Using 296 survey responses from multiple informants of 111 subsidiaries in China, we find that parent superior competitiveness hinders subsidiary innovation initiative, but enhances subsidiary motivation of learning from the parent company. The negative effect of parent superior competitiveness on subsidiary innovation initiative becomes weaker when the strengths of subsidiary external tie and parent-subsidiary communication are enhanced. The positive effect of parent superior competitiveness on subsidiary motivation of learning is strengthened by subsidiary external tie, whereas no significant effect is found of parent-subsidiary communication. In addition, subsidiary innovation initiative contributes to subsidiary innovation performance through knowledge exploration and subsidiary motivation of learning from the parent positively affects innovation performance.     

The complexity of the business network context and its effect on subsidiary relational (over-) embeddedness

Many studies have focused on the effects of MNC subsidiaries’ external relational embeddedness. Little attention has been given to its antecedents and especially to the potential effect that the business network context might have. We try to fill this gap and attempt to explain variation among subsidiaries’ degree of relational embeddedness. Our results show a strong and robust effect of the business network context – i.e. the network context in which the direct business relationships between the subsidiary and its partners are embedded – on the degree of relational embeddedness. However, contrary to previous literature, we find an inverted u-shaped relationship. We discuss our findings with regard to the issue of over-embeddedness and the literature on the strength of weak vs. strong ties.     

Product innovation and decision-making autonomy in subsidiaries of multinational companies

This paper investigates the relationship between subsidiary decision-making autonomy and their development of product innovations. Using survey data from 563 subsidiaries located in six European countries, we show how the degree of decision-making autonomy, as well as the functional area in which the subsidiary has decision-making autonomy, affect the probability of a subsidiary developing product innovations. We find that higher decision-making autonomy increases the probability of a subsidiary developing a product innovation. This effect is particularly pronounced, but not restricted to, decision-making in the area of R&D or the adoption of technologies. The positive effect extends also to functional areas such as investment, finance, supplier selection as well as marketing and sales. In addition, our study suggests that higher degrees of novelty of product innovation still benefit from subsidiaries’ autonomy, but may require higher degrees of managerial involvement by headquarters.     

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 role of subsidiary learning behavior and absorptive capacity in foreign subsidiary expansion

We examine how subsidiaries can implement business expansion successfully to capitalize on growth potentials. Building on our baseline hypothesis, which examines the effect of the extent of business expansion on subsidiary divestment, we identify the boundary condition of the tendency of subsidiary’s learning behavior in foreign expansion. Specifically, we argue that subsidiaries that expand multiple businesses through competence-creating learning behaviors are more likely to be divested due to increasing complexity. We further suggest a remedial condition to offer a viable approach to implement business expansion through competence-creating learning successfully. Based on a sample of 6040 foreign subsidiaries operating over 14 years, we show that affiliates are more likely to expand into unfamiliar business domains successfully if they have a higher level of absorptive capacity.     

Configurational characteristics of mandate portfolios and their impact on foreign subsidiary survival

This study examines how the composition of subsidiaries’ mandates affects their survival, by investigating the configurational characteristics of mandate portfolios. Examining data from 1991 to 2017 on 14,952 foreign subsidiaries of 4,877 multinational enterprises reveals that while having a mandate portfolio with greater scope in relation to same-parent subsidiaries enhances the survivability of foreign subsidiaries, the effect is weakened when the portfolio has a higher degree of overlap with those of other same-parent subsidiaries. Conversely, when a subsidiary’s mandate portfolio puts a greater emphasis on the multinational enterprise’s (MNE) global value-chain activities, its effect on subsidiary survival is strengthened.     

Explaining the performance of divested overseas subsidiaries

We examine the post-divestment performance of subsidiaries that have been divested by their foreign owners and have subsequently been acquired by domestic owners. Drawing on Hymer’s classic explanation of firm internationalization and on the resource-based view dimension of internalization theory, we suggest that the differences in terms of the degree to which FSAs are independent from the linkages to the parent firm will be reflected in the variation in the performance effect of a foreign-to-domestic sale of the business. We argue that the negative performance effect of a foreign-to-domestic sale of a subsidiary is lower (1) for older subsidiaries, (2) for subsidiaries oriented toward the domestic, and (3) when the foreign parent firm is located outside the subsidiary’s geographic region. By using propensity score matching and difference-in-differences estimations, we examine the proposed effects and provide novel insights on the performance implications of the foreign-to-local ownership changes.     

The performance effects of vertical and horizontal subsidiary knowledge outflows in multinational corporations

Horizontal and vertical subsidiary knowledge outflows in multinational corporations (MNCs) are argued to be central to effective MNC performance. Building on the knowledge-based view of the firm, we develop a conceptual model to investigate the performance consequences, determinants and interaction effects due to coordination and control mechanisms, of horizontal and vertical MNC subsidiary knowledge outflows. The hypotheses are empirically tested with a dataset comprised of survey and archival data from over 200 MNC subsidiaries. Results indicate that explicitness and communication positively influence vertical and horizontal subsidiary knowledge outflows and that national cultural distance, centralization, formalization, and specialized resources moderate these influences. We also find that knowledge outflows to headquarters and to peer subsidiaries enhance an MNC's financial performance (i.e., return on assets). The results provide substantive evidence as to how vertical and horizontal knowledge operate within MNCs.     

Stakeholder pressures,EMS implementation,and green innovation in MNC overseas subsidiaries

In this paper, we address the issue of green innovation by the overseas subsidiaries of multinational corporations (MNCs). Drawing upon stakeholder theory and institutional theory, we propose a conceptual model to explain how stakeholder pressures in host countries prompt MNC subsidiaries to undertake green product and process innovations. Our findings indicate that MNC subsidiaries need to meet market stakeholders’ pressures in order to achieve social legitimacy in host countries, and that the implementation of formal environmental management systems (EMS) is an important mechanism translating these pressures into green innovation initiatives. Furthermore, we find that the positive relationship between market stakeholder pressures and EMS implementation is reinforced by global ‘green’ institutional pressures in the different host countries.     

How Standard is Standardized MNC Global Environmental Communication?

In this paper, we develop an argument to show why we expect that multinational companies will ensure that they communicate credibly about their environmental responsibility, across all their subsidiaries. Credible environmental communication helps to increase the firm’s legitimacy and reduce its liability of foreignness on an issue that is globally relevant. We develop a measure to test if there is a standardized level of environmental communication credibility on the country-specific web sites of MNC subsidiaries around the world and find, in fact, that there is considerable variation across countries, among subsidiaries of different firms and among subsidiaries of the same multinational. We discuss the reasons for this and the implications for firm legitimacy. Trevor Hunter is an assistant professor of business and coordinator of the Management and Organizational Studies program at King’s University College. He received his Ph.D. from the Richard Ivey School of Business. His research interests include the environmental management practices of MNCs and corporate governance. Pratima Bansal is an associate professor and the Shurniak Professor in International Business at the Richard Ivey School of Business. She received her doctorate from the University of Oxford. Her research interests are primarily in the areas of sustainable development and international business.