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.     

Acquisitions Entry Strategies in Africa: The Role of Institutions,Target‐Specific Experience,and Host‐Country Capabilities—The Case Acquisitions of Finnish Multinationals in Africa

Acquisition is an important entry strategy for multinational enterprises (MNEs) seeking to gain faster entry into new and emerging markets and remain competitive in the global marketplace. MNEs utilize partial‐, staged‐, and full‐acquisition strategies when entering into foreign markets. This research analyzes how and why firms opt for these acquisition strategies in the context of Africa. The study applies institutional theory and explores constructs derived from the Uppsala internationalization process model. Using a case study of five Finnish acquisitions in Africa (Egypt, Morocco, Kenya, and South Africa), it was found that Finnish MNEs opt for partial acquisition rather than staged and full acquisition in the context of acquisitions made prior to late 1990s without earnout arrangements. Finnish MNEs opt for the choice of staged acquisition rather than partial and full acquisition in the contexts of mild regulatory framework in host countries and when the acquired firm business requires extensive improvements and the target host market structure is fragmented. Finnish MNEs opt for the choice of full acquisition rather than partial and staged acquisition in three contexts specifically: (1) when the acquiring Finnish MNE possesses host‐country capability, target‐specific experience, and ensures the retention of top management personnel of the acquired target; (2) when the size of the acquired target is relatively very small compared to the acquiring MNE; and (3) when the nature of the acquired firm business is well developed and the target host‐market structure is consolidating. © 2016 Wiley Periodicals, Inc.     

Reverse knowledge transfer from subsidiaries to multinational companies: Focusing on factors affecting market knowledge transfer

Despite increasing research on reverse knowledge transfer (RKT) from subsidiaries to headquarters (HQs), there is no academic consensus on the primary determinants influencing RKT. By incorporating four different facets (i.e., absorption, sharing, implanting, and application of market knowledge) of the phenomenon, we draw new insights into RKT. Through empirically testing the phenomenon in the Korean context, we reveal that market knowledge absorption by subsidiaries is a critical component that influences the knowledge integration mechanisms (KIMs) within MNC networks. Furthermore, KIMs within MNC networks are primary keys for absorptive capacity (AC) of HQs and knowledge relevance between HQs and subsidiaries. Our results extend our understanding of RKT, while also offering useful implications for MNCs that intend to establish subsidiaries in foreign markets. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.     

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.     

How absorptive capacity moderates the value of firm innovativeness in turbulent markets

Drawing on the complementarity perspective and contingent resource‐based theory, this study develops a moderated moderation framework to investigate how absorptive capacity moderates the value of firm innovativeness under market turbulence. The results of the survey data from 402 firms reveal that the efficacy of firm innovativeness is not universal but simultaneously contingent on absorptive capacity and market turbulence. Furthermore, absorptive capacity does not always enhance the value of firm innovativeness; the positive moderating effect of absorptive capacity manifests itself only when market turbulence is relatively high. These findings also highlight that change in customer needs is a key factor affecting the complementarity of relevant resources and capabilities. Thus, this study contributes to advances in theory and has new practical implications. Copyright © 2015 ASAC. Published by John Wiley & Sons, Ltd.     

跨国公司逆向知识转移母公司影响因素的前沿研究

跨国公司对外投资逐渐关注战略性资源寻求,其中知识寻求日益受到重视,并借由子公司向母公司的逆向知识转移获取东道国先进知识资源,因此探讨逆向知识转移影响因素成为备受关注的课题。文章从研究该论题的主要文献入手,探讨了母公司战略组织和能力制度两类因素对逆向知识转移的积极调控作用,前者包括国际化战略导向和母子公司控制程度,后者包含吸收能力和转移支持制度,同时在总结现有研究特点基础上还对未来研究方向进行了展望。     

The Characteristics and Performance of Affiliates of Small and Medium-Size Multinational Enterprises in an Emerging Market

Little has been reported on the characteristics and performance of affiliates of small and medium-sized multinational enterprises (MNEs) operating in emerging markets. The paper has two research objectives: to assess characteristics of Korean affiliates of small and medium-sized MNEs, and identify the determinants of performance. Seven hypotheses were formulated and tested on a sample of Korean subsidiaries of small and medium-sized MNEs by using a bootstrap method of regression analysis. We found that: affiliates of small and medium-sized MNEs in Korea favored joint ventures with local firms rather than wholly-owned subsidiaries; ownership rate was directly related to the degree of control from the parent firm; and performance was determined significantly by the degree of control exercised by parent firms and their exporting levels. Age, size, and R&D expenditures had no relationship with the performance of affiliates of small and medium-size MNEs in Korea.     

A closer look at the productivity advantage of foreign affiliates

In analyzing firm productivity in Belgium, this article shows empirically that both scale and efficiency contribute positively to the typical productivity advantage of foreign affiliates. Stochastic production frontier estimation using the translog functional form indicates that foreign subsidiaries exploit economies of scale more fully and benefit from better (transferred) technological capabilities than Belgian national firms (i.e., Belgian owned firms without subsidiaries abroad). Belgian multinational enterprises (MNEs), i.e., Belgian owned firms with at least one subsidiary abroad, resemble foreign‐based MNEs in possessing specific technological advantages. While the increasing globalization has facilitated the realization of scale effects across borders, this article shows that the development of technological capabilities/advantages is still a prerequisite for MNEs to compete successfully abroad.     

Is there an advantage of emergingness? A politico-regulatory perspective

The source(s) of competitive advantage of emerging-economy multinational enterprises (MNEs) remains a puzzle in international strategy scholarship, with some arguing that such firms are at a disadvantage compared to developed-economy rivals. Drawing on the concept of institutional advantage and using a sample of 233 foreign subsidiaries operating in 25 emerging economies over the period of 2000–2017, we find that foreign subsidiaries of emerging-economy MNEs are more adept than foreign subsidiaries of developed-economy MNEs at deploying their fixed asset management capabilities in emerging-economy host countries, especially when host-country politico-regulatory institutions are underdeveloped. Likewise, we find that subsidiaries of emerging-economy MNEs are more adept at deploying their tax planning capabilities when host-country politico-regulatory institutions become increasingly volatile. We discuss how these findings contribute to scholarly thought regarding the performance of emerging-economy MNEs.     

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.     

EMNEs venturing into advanced economies: Findings from comparative cases of two Indian MNEs

Indian firms are challenged by the latecomer disadvantages faced by emerging‐market multinational enterprises (EMNEs) in general. These challenges notwithstanding, Indian firms are doing cross‐border acquisitions (CBAs) in developed regions. Analyzing firm‐level secondary data of two Indian MNEs—namely, Motherson Sumi Systems Limited and Rain Industries Limited—that show significant developed region–based revenues and assets, we link extant and emerging theoretical perspectives on EMNEs’ internationalization with the observed firm motives and behaviors of our case firms. We propose a framework of multiple contextual settings to understand the context‐driven internationalization of the case firms. Finally, our article offers a set of propositions emphasizing firm‐level entrepreneurial orientation and international orientation, when EMNEs internationalize via CBAs in developed regions. © 2017 Wiley Periodicals, Inc.     

Foreign affiliates' knowledge sourcing from parent firms

This study investigates the factors that influence the extent to which foreign research and development affiliates source knowledge from their parent firms, by developing theoretical hypotheses that predict patterns of foreign affiliates' knowledge sourcing according to their technological capabilities at multiple levels (firm, industry, and country). We use cross‐border mergers and acquisitions and patent citation data from Fortune Global 500 firms to test our theoretical arguments. The findings suggest that a parent firm's foreign affiliate ownership, industry‐level R&D intensity, and home–host country differences in technological capabilities increase foreign affiliates' knowledge sourcing from their parent firms.     

Internationalization of services: The case of intra‐multinational enterprise trade

Increased tradability of services, made possible by the information and communications technology (ICT) revolution, has been at the heart of the internationalization of services. Although rapid growth of the services trade between parents of multinational enterprises (MNEs) and their overseas subsidiaries has contributed to the internationalization of services, empirical studies examining the determinants of intra‐MNE trade in services are few. This article, using the ownership, location, and internalization (OLI) framework, attempts to explain intra‐MNE trade in services. The results provide strong support for the OLI perspective, and posit a complementary relationship between manufacturing foreign direct investment and intra‐MNE services trade. The results also suggest the importance of subsidiaries' absorptive capacity and breadth of global connectedness for intra‐MNE trade.     

Environmental risks,localization and the overseas subsidiary performance of MNEs from an emerging economy

Despite the fact that multinational enterprises (MNEs) from emerging economies invest actively in host countries with substantial risks, we have limited understanding of how they manage environmental risks to achieve desirable performance in their overseas subsidiaries. Drawing on resource dependence theory, we argue that different localization strategies serve as a mediating mechanism linking environmental risks and overseas subsidiary performance. Our findings based on a sample of Chinese MNEs show that industry risks significantly reduce the levels of input localization and marketing localization of Chinese MNEs’ subsidiaries, and thus negatively affect subsidiary performance. Political risks have an insignificant impact on input localization and marketing localization, but a positive direct impact on Chinese MNEs’ overseas subsidiary performance. We also find that state-owned MNEs’ localization strategies are more sensitive to industry risks compared with privately owned MNEs.     

Factors in the effective transfer of knowledge from multinational enterprises to their foreign subsidiaries: a Mozambican case study

The purpose of this article is to better understand the role of internal stakeholders in subsidiaries of multinational companies (MNCs) in order to offer potential insights into the cross‐border transfer of knowledge from those companies’ headquarters to their subsidiaries. The focus is upon subsidiaries in developing countries, here Mozambique. More specifically, the article is concerned with identifying factors that influence the learning of internal stakeholders and noting practices which seem associated with a high level of absorptive capacity and performance of subsidiaries. The starting point is evidence of ineffective transfer of knowledge by MNCs to their subsidiaries in developing countries, with consequent sub‐standard performance. The research reported involves four case studies of Portuguese companies operating in Mozambique and draws on data from interviews with senior and middle managers in the firms’ Mozambican subsidiaries. The results obtained suggest that successful knowledge transfer to overseas subsidiaries is found under the following conditions. First, the parent company knows the local context and provides a flow of relevant information. Second, application of knowledge locally is done flexibly to suit local circumstances. Next, a participatory approach is used so that local staff can see why the knowledge conveyed is necessary. Fourth, explanation and demonstration are key techniques, with major roles for on‐the‐job training, continuous improvement and training at headquarters. Finally, issues arising from local culture may need to be addressed.     

Control mechanisms of MNEs and absorption of foreign technology in cross-border acquisitions

This study investigates the impact of control mechanisms exercised by MNEs on knowledge (technology) absorption in cross-border acquisitions (CBAs). The empirical examination was undertaken in Korea, which is a newly industrialized emerging market, where knowledge acquisition from foreign investing firms is particularly important to leapfrog into advanced economies. We find that most of the control mechanisms (i.e., ‘staffing the top management positions’, ‘participation in the policy making and planning process’, ‘interaction of the subsidiary's top management with the MNE’ and ‘participation of foreign expatriates in key functional areas’) have a positive association with organizational learning. In addition, we also uncover that provision of training programs for a fixed period creates more synergy when it is combined with constant and continuous education in daily activities. This study contributes significantly to the body of control mechanism literature and the understanding of CBAs, and also provides practical implications for MNEs intending to enter foreign markets by partially purchasing the equity shares of local firms.     

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.     

Exploring location‐specific assets and exploiting firm‐specific advantages: an integrative perspective on foreign ownership decisions

Exploiting existing assets and exploring new assets are two major and often concurrent forces driving firms to invest abroad. Moving beyond prior attention to their separate effects on foreign ownership decisions, this study examines their integrative impact. I develop hypotheses aligning a set of firm‐specific advantages with asset‐seeking motives, and test these relationships on a sample of Taiwanese overseas investments. I find that wholly‐owned subsidiaries are preferred to joint ventures when multinationals are able to tap into host innovatory dynamism by employing extant technological capabilities and to access local natural resources by leveraging corporate scales. Nonetheless, multinationals face difficulties in deploying marketing knowledge in different contexts and thus are more likely to choose joint ventures for an aggressive foreign market entry. Copyright © 2007 ASAC. Published by John Wiley & Sons, Ltd.     

Absorptive capacity in foreign subsidiaries: The effects of language-sensitive recruitment,language training,and interunit knowledge transfer

Are multinational corporations able to enhance the development of absorptive capacity in foreign subsidiaries through language-oriented human resource management (HRM) practices? Taking into account that a shared language enhances absorptive capacity and that many multinational corporations are multilingual entities, this question is relevant but given little focused attention in international business research. In this paper, we hypothesize that two language-oriented HRM practices – language-sensitive recruitment and language training – enhance absorptive capacity in foreign subsidiaries. In addition, we hypothesize that interunit knowledge transfer partially mediates the positive relationship between these language-oriented HRM practices and absorptive capacity. Analyses of survey data derived at three points in time from 574 foreign subsidiary units in Japan provide support for these hypotheses.     

Social and Environmental Sustainability,Host Country Characteristics,and the Mediating Effect of Improved Working Practices: Evidence from Multinational Corporations in Malaysia

This study argues that improved working practices acquired from intra-firm technology transfers are a crucial source of organizational sustainability. This study used 252 subsidiaries of foreign-based multinational corporations located in Peninsular Malaysia as a quantitative data source. The findings revealed that market environment, cultural factors, and absorptive capacity significantly improved working practices, which in turn significantly and positively affected the social and environmental sustainability of firms. We recommend that the government of Malaysia formulate and adopt more market-friendly policies while simultaneously providing both insight on the various cultural norms of foreign nations and higher education and training for its citizens to maximize knowledge transfer following foreign investment, which is beneficial for both the host country and the organizations involved.