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This study examines the influence of parent firm reputation risk on the level of corporate social responsibility activities of foreign subsidiaries. We first argue that a strong reputation risk spillover occurs from parent firms to their foreign subsidiaries due to the high visibility of multinationals, the control of parent firms over their subsidiaries, and the liability of foreignness associated with foreign firms in host countries. Then, we argue that subsidiaries may resort to CSR in their host country to reduce the spillover effect. Thus, we hypothesize a positive relationship between parent firm reputation risk and foreign subsidiary CSR activities. Moreover, we explore several contingency factors at both the parent firm and subsidiary levels that affect the extent of spillover and the need for subsidiaries to use CSR as a buffer against parent firm reputation risk. We find that the positive relationship between parent firm reputation risk and foreign subsidiary CSR activities is weaker for foreign subsidiaries that directly report to the parent firm, with longer operations in the host country and larger institutional distance between host and home countries. Using a unique sample of subsidiaries of large multinationals in China from 2009 to 2016, we find general support for our arguments.

Extant research has found that more pronounced levels of corruption in foreign host emerging markets increase the likelihood that subsidiaries established by multinational enterprises (MNEs) from developed countries will exit. We synthesize insights from the organizational perspective of corruption and the integration-responsiveness paradigm to propose that integration-oriented strategies will weaken the positive relationship between corruption and the likelihood of exit at high levels of host market corruption. We develop and test hypotheses pertaining to the main effect of corruption on the likelihood of subsidiary exit, as well as the moderating impacts of a firm’s equity ownership strategy and its expatriate staffing strategy upon this relationship. We theorize that uncertainty operates as the mechanism that underpins the corruption-market exit relationship, and that an MNE’s strategic choices with respect to its subsidiary investments contribute to reducing this uncertainty. We find that an increase in the foreign-investing MNE’s equity ownership share negatively moderates the positive relationship between corruption and the likelihood that foreign subsidiaries established by developed market MNEs will exit host emerging markets when corruption is high. However, the marginal effects results do not support the expatriate staffing strategy hypothesis. Our work provides guidance to developed country MNEs that seek insights with respect to the utility of strategies that might be implemented in host emerging markets characterized by more pronounced levels of corruption.

Informal institutions influence all aspects of international business (IB), but they have received limited attention in the literature relative to formal institutions. This article extends prior IB work by examining the relationships between several key formal and informal institutional factors and the international strategy of MNEs. First, it examines the direct effects of formal and informal institutional effectiveness, convergence, and distance on MNE local adaptation, developing arguments and propositions for each relationship. Second, it focuses on the interactions of formal and informal institutional effectiveness and convergence to develop an eight-fold typology of market institutional configurations. This typology depicts the role that informal institutions take in a market depending on the interaction of these three institutional factors. Third, it builds on these interactions and the concept of institutional distance to develop a conceptual framework of market and MNE institutional diversity and dynamism. This framework captures the formal and informal institutional relationships within a home market, host market, parent firm, and foreign subsidiary, as well as the formal and informal institutional relationships across each of these entities over time. In so doing, this article helps advance research on informal institutions and IB, which can lead to considerable future work on the topic.

Multinational corporations often are multilingual entities, yet surprisingly little is known about how foreign-language competencies in their foreign subsidiaries are related to local employees’ career success outcomes. This paper uses human capital and upward mobility theories to link local employees’ English language competencies through career encouragement and internal social capital development behavior to job promotions, wage increases, and career satisfaction in two independent studies conducted in foreign subsidiaries in Japan. Study 1’s findings are derived from 499 local employees at three points in time over 12 months in 376 foreign subsidiaries. These findings suggest that career encouragement mediates the positive relationships between English language competence and job promotions, wage increases, and career satisfaction. Study 2’s findings are from a sample derived from 448 local employees in 265 foreign subsidiaries with a similar time-lagged research design. These findings provide further support for the direct relationship of English language competencies to job promotions, wage increases, and career satisfaction, and that social capital development mediates the positive relationships between English language competencies and job promotions and career satisfaction. This paper contributes to the literature on international business by highlighting the importance of English language competencies to local employees’ career success outcomes in foreign subsidiaries operating in non-English-speaking countries.

PurposeThe current literature lacks discussion on the effects of synergy among multiple factors at different levels on foreign subsidiary performance. The purpose of this paper is to explore the configuration of factors affecting foreign subsidiary performance.Design/methodology/approachThe methodology adopted in this paper is the fuzzy-set qualitative comparative analysis (fsQCA). The data are obtained from 125 foreign subsidiaries of Chinese MNCs through questionnaire surveys and secondary data.FindingsThe research results reveal that five configurations of antecedent conditions predict high foreign subsidiary performance, and the other two configurations predict not-high performance.Research limitations/implicationsThis paper’s main limitation is its only focus on foreign subsidiaries of Chinese MNCs, which means that the findings should be generalized with precaution. The most valuable implication is to identify the configurations that lead to high and not-high foreign subsidiary performance.Practical implicationsThis paper addresses the question of how interdependent factors at the national and corporate level are beneficial to foreign subsidiaries’ performance.Originality/valueThis study makes the following contributions to current theories: It provides (1) new insights for understanding the complex causality between antecedent conditions and foreign subsidiary performance and (2) a practical reference for the multinational operations of foreign subsidiaries.

This paper extends research on experiential learning of foreign subsidiaries by exploring the temporal conditions under which a foreign subsidiary can benefit from the experience of its sister subsidiaries. Building upon organizational evolution and learning literature, we propose that differences in entry timing among sister subsidiaries provide structural conditions that bound the opportunities for inter-subsidiary learning. We argue that different entry cohorts of sister subsidiaries are beneficial to a focal subsidiary, as they provide non-redundant, complementary experience from their different operational stages, and ignite the motivation to learn. Our empirical analysis of Japanese foreign subsidiaries provides strong evidence that survival is enhanced by the experience of different entry cohorts of sister subsidiaries, but not by that of similar cohorts. Qualitative evidence also shows that multiple channels of experience exchange across sister subsidiaries lead to actual learning. We further show that the survival benefit derived from different cohorts is contingent on the level of environmental change, as well as on the level of experience of the focal subsidiary and its parent firm. Our research highlights the importance of temporal heterogeneity in the internationalization process, and offers implications for the temporal strategy of multinational companies.

PurposeThis paper examines the role of language in foreign subsidiary performance.Design/methodology/approachWe develop hypotheses relating to the effects of language difference and its interplay with cultural distance and market size. Considering languages that can be directly used and that can be acquired by MNEs, we employ language variables representing major languages and a population of 60 home and 57 host countries to study the performance of a sample of 1,751 subsidiaries between 2002 and 2013.FindingsLanguage difference is found to have a negative impact on subsidiary performance. The positive effects of cultural distance on performance become stronger when the language difference is smaller. The language effects are also more pronounced in small markets.Practical implicationsThis study reveals that subsidiary success depends on language difference, and such effects are more pronounced in small markets. The results also suggest that MNEs need to give more attention to bridging language barriers when they invest in culturally distant countries so that they can benefit from the positive effects of cultural distance.Originality/valueGiven that there is no systematic research investigating the role of language in the foreign subsidiary performance of MNEs, we make an important contribution by presenting a quantitative investigation of the language–performance relationship. The novelty of the paper also lies in examining the interplay of language difference with cultural distance and market size.

We extend the internalization literature by theorizing on how public disclosure of corporate social irresponsibility (CSI) can damage reputation-based firm-specific advantages of multinational companies (MNCs) and how foreign subsidiary governance can subsequently be used as strategic responses. Specifically, we distinguish between two foreign subsidiary governance mechanisms – information control and ownership control – that the prior literature has often assumed operate in parallel, and posit that they function in divergent directions in this context. Furthermore, we explain how two hostcountry characteristics–press freedom and regulatory quality – amplify the need for MNCs to utilize different governance mechanisms as responses to CSI disclosure.

This paper explores the effects of unilateral tax provisions aimed at restricting multinationals’ tax planning on foreign direct investment (FDI). Using a unique dataset which allows us to observe the worldwide activities of a large panel of multinational firms, we test how limitations of interest tax deductibility, so-called thin-capitalization rules, and regulations of transfer pricing by the host country affect investment and employment of foreign subsidiaries. The results indicate that introducing a typical thin-capitalization rule or making it more tight exerts significant adverse effects on FDI and employment in high-tax countries. Moreover, in countries that impose thin-capitalization rules, the tax-rate sensitivity of FDI is increased. Regulations of transfer pricing, however, are not found to exert significant effects on FDI or employment.

This paper examines the regional effect of MNEs' foreign subsidiary localization. We hypothesize that the number of subsequent foreign subsidiaries in a country is in part determined by a firm's prior foreign subsidiary activity at the regional level. We test our hypotheses using data on 1076 Japanese MNEs that created 3466 foreign subsidiaries (1837 wholly owned FDIs and 1629 joint ventures) over the period 1996-2001. We use a multilevel negative binomial approach with three levels of analysis: localization decisions in a country (49 countries), in a region (six regions) and at the headquarters level. In this way, we test the regional effects controlling for country and corporate dimensions. We also run separate models to differentiate wholly owned and joint venture localization decisions. Our results strongly support the semi-globalization perspective in that the regional-level effects are significant and different from the country-level effects for all foreign subsidiaries, for wholly owned subsidiaries and for jointly owned subsidiaries. Japanese MNEs adopt a regional perspective that complements their decisions at the country and firm levels. They seek regional agglomeration benefits and make arbitrage decisions between countries in the same region.