Phasing the operation mode of foreign subsidiaries: Reaping the benefits of multinationality through internal capital ma
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Phasing the operation mode of foreign subsidiaries: Reaping the benefits of multinationality through internal capital markets Jan Hendrik Fisch1,2 and Bjoern Schmeisser1 1
Department of Global Business and Trade, Vienna University of Economics and Business, 1020 Vienna, Austria; 2 Waikato Management School, Hamilton 3240, New Zealand Correspondence: JH Fisch, Department of Global Business and Trade, Vienna University of Economics and Business, 1020 Vienna, Austria e-mail: [email protected]
Abstract The lifetime of foreign equity partnerships is often limited. Research suggests that MNCs abandon their local partners when the need for sharing ownership in foreign subsidiaries has diminished. This study shows that MNCs may abandon their local equity partners to reap the benefits of multinationality: as MNCs gain a competitive advantage from leveraging resources across borders, they will initially benefit from sharing ownership with a local firm, to embed their foreign subsidiaries in the local environment and access local resources more effectively. Later, they will benefit from taking over the local partner’s equity share, to better embed their subsidiaries in the parent organization and transfer locally accessed resources to the MNC’s other locations. Moderatedmediation regressions provide evidence of such practice in the context of crossborder transfers of capital resources. This strategy seems to work: as a corollary of our model, panel regressions suggest that sharing ownership with local firms in a host country with a capital resource advantage is associated with appropriating more capital resources from the local debt market, while abandoning these partner firms later is associated with transferring more capital resources from this host country, via internal capital markets, to other parts of the MNC. Journal of International Business Studies (2020). https://doi.org/10.1057/s41267-020-00321-1 Keywords: multiple regression analysis; institutional theory; liability/liabilities of foreignness; alliances and joint ventures; subsidiary networks; global strategy
Received: 12 April 2018 Revised: 31 January 2020 Accepted: 7 February 2020
INTRODUCTION Having decided to establish a subsidiary abroad, multinational corporations (MNCs) can use different operation modes for this subsidiary (Anderson & Gatignon, 1986; Welch, Benito, & Petersen, 2018). In cases where the host country features valuable resources, MNCs often prefer a mode of foreign operations by which they share ownership with local firms rather than have sole ownership (Das & Teng, 2000; Lyles & Salk, 1996; Tsang, 2002). In particular, MNCs enter foreign equity partnerships in host countries to access
Phasing the operation mode
local resources such as knowledge, raw materials, and loan capital (Hennart, 1988, 1991; Hennart & Reddy, 1997). However, in its efforts to reap the benefits of multinationality, an MNC will capitalize on host-country resources to a greater extent when it not only uses them locally but also shares them within its network of subs
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