Electronic Thesis and Dissertation Repository

Degree

Doctor of Philosophy

Program

Business

Supervisor

Prof. Paul W. Beamish

Abstract

This dissertation is motivated by two sets of research questions: (a) Whether, how, and when host-country market and institutional conditions have implications for the performance of foreign subsidiaries? And (b) Whether, how, and when investment purposes/motives for which foreign subsidiaries are established relate to the extent to which the subsidiaries/their parents overcome the hazards of or capitalize on the opportunities from operating in locations of high institutional voids?

The first essay examines how the decision to enter African markets relates to the exit probability of MNE subsidiaries. Using a longitudinal, paired-sample design of Japanese foreign subsidiaries operating in Africa and OECD countries, it finds that entry to Africa increases the hazard rate of subsidiaries, but that subsidiaries entering with more diverse investment purposes and greater market-seeking orientation have a better likelihood of survival. Consistent with the institutional-based theory of corporate diversification, the research findings introduce purpose diversity and market-seeking orientation as potential mechanisms to mitigate the hazards of institutional voids/instability. Also, by considering the phenomenon of within-subsidiary diversity (of purposes) and its interaction with institutional conditions, the essay advances the notion of subsidiary scope and its implications.

The second essay examines the relationship between country-level income distribution and the exit of foreign subsidiaries using longitudinal data from 6,699 Japanese market-seeking subsidiaries operating in 47 countries. It finds a strong empirical evidence of a curvilinear relationship between the nature of host-country income distribution and the probability of subsidiary exit. Whereas extreme levels of income distribution (i.e., highly egalitarian or highly dispersed) correspond to higher risk of subsidiary exit, intermediate levels of income distribution are associated with a decrease in exit probability. Further, this relationship is moderated by the level of host-country institutional development.

The third essay draws on the modified one-tier bargaining model characterizing Chinese inward FDI in developing countries to advance a theory of political connections and their implications on MNE competitive advantage in developing countries. It develops a typology of political connections based on the approach to political action (transactional and relational) and the level of participation (individual and collective). It argues that the collective-relational approach to political connections makes for superior competitive advantage, as the collective aspect facilitates access to and mobilization of resources and the relational aspect helps build favourable legitimacy. Further, it considers relevant organizational and institutional boundary conditions. The theoretical arguments integrate perspectives from the resource-based view and resource dependence theory and provide explanation to the rising prominence of Chinese MNEs in the developing world.

On the whole, this dissertation makes contributions to a better understanding of institutional voids and their economic and strategic implications. As well, it generates useful theoretical and empirical insights regarding the investment purposes/motives of multinational enterprises operating in locations of high institutional voids.

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