The liability of closeness: Business relatedness and foreign subsidiary performance |
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| Authors: | Jianyun Tang W. Glenn Rowe |
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| Affiliation: | 1. Management Department, Mihaylo College of Business and Economics, California State University Fullerton, Fullerton, CA 92831, United States;2. Waseda Business School, Waseda University, Bldg. 11 1-6-1 Nishi-Waseda, Shinjuku, Tokyo 169-8050, Japan;3. Katz Graduate School of Business, 246 Mervis Hall, University of Pittsburgh, Pittsburgh, PA 15260, United States;1. School of Business, Jiangnan University, Wuxi 214122, China;2. Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai, China;3. Schulich School of Business, York University, 4700 Keele Street, Toronto, ON M3J 1P3, Canada |
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| Abstract: | It is widely accepted that business relatedness, defined as the extent to which a foreign subsidiary is related to its parent's core business, has a positive effect on subsidiary performance. With a sample of 165 Japanese subsidiaries located in China, however, we found that modestly related subsidiaries, on average, outperformed both unrelated and closely related subsidiaries, and that closely related subsidiaries performed poorly especially when the parent had a heavy majority ownership in the subsidiary and the subsidiary was at its early stage of operating in the host market. Our results indicate that being too closely related to the parent could be potentially detrimental, suggesting a liability of closeness. |
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