Doctor of Philosophy
Professor Paul W. Beamish
Many multinational enterprises (MNEs) experience subpar performance in some of their foreign subsidiaries. Despite the clear importance to practitioners, there are surprisingly few comprehensive studies on the appropriate responses to be taken when such a situation occurs. Studies addressing the subpar performance phenomenon have been fragmented across research domains, causing there to be a lack of theory-driven studies within an international context to provide insights. Thus, the research questions guiding this thesis are: When a foreign subsidiary experiences (repeated) subpar performance, what determines which specific type of response is chosen (if any at all)? Which type of response (if any) is most conducive to increasing recovery and survival prospects? What factors determine the timing of a response and what role does the timing of responses play in the effectiveness of the chosen response in increasing recovery and survival prospects?
Drawing from a resource orchestration framework and related constructs, hypotheses are developed to differentiate between processes of “Identifying”, “Responding”, and “Synchronizing” when subpar performance occurs in foreign subsidiaries. Sequence analysis, multinomial logit regression, gap time competing-risk event history analysis, OLS regression, and estimations of curvilinear effects in logit regressions are performed to test a series of hypotheses on a sample of 17,982 observations, representing 5,669 subsidiaries in 94 countries.
Our findings suggest that the subpar performance phenomenon is quite prevalent, with hundreds of subsidiaries in the sample experiencing as much as 10 or more years of consecutive subpar performance. Surprisingly, the most frequent sequences are those in which subsidiaries appear to not respond to subpar performance, at least according to the responses measured herein. Regarding “Identifying”, we find that determinants at the country-level, MNE-level, and the subsidiary-level help predict whether a response is administered and if so, which one. Generally, if responses occur (“Responding”), they result in superior results over non-responses - if the focus is on the long-term survival prospects of the subsidiary. In the short-term, responses may be followed by adjustment periods which may prolong the subpar performance period. Moreover, increases in headquarter commitment appear to have a more beneficial effect than decreases in commitment. Regarding the “Synchronizing” dimension, we find that the existence of communication channels appear to improve the timeliness of a response. Moreover, the relationship between the time-to-first-response and the probability of recovery (versus exit) is curvilinear (inverted U-shape), such that recovery is most likely when the response occurs at a medium amount of time (3 to 6 years) after the onset of the subpar performance sequence. This curvilinear relationship is amplified for deceases in commitment, suggesting that the effectiveness of such responses is more sensitive to timing than increases in commitment. Regarding the replacement of general managers, we find that only early replacements enhance the likelihood of recovery.
The study is expected to advance understanding of the subpar performance phenomenon as well as appropriate responses by conceptually integrating the perspectives scattered across multiple research domains, thereby responding to calls from several literatures. The findings also provide some guidance to practitioners in MNEs who face the dilemma of how to appropriately respond to subpar performance in foreign subsidiaries.
Hasse, Vanessa C., "Responses to Subpar Performance in Foreign Subsidiaries" (2016). Electronic Thesis and Dissertation Repository. 3888.