Taking advantage of institutional weakness? Political stability and foreign subsidiary survival in primary industries

Purpose This paper aims to investigate the extent to which locating primary industry subsidiaries in politically unstable countries impacts their survival. The authors argue that foreign multinational enterprises in less stable political environments can shape policies that are impactful on the costs of operating in primary industries and avoid compliance with more stringent policies at home. Design/methodology/approach Using a sample of 753 primary sector investments of Japanese multinational enterprises during the period 1986 to 2013, the authors conduct a parametric survival analysis of the relationship between political stability and subsidiary survival. Findings Political instability has a slight, curvilinear relationship with subsidiary survival, such that both high and low stability are associated with lower exit hazard, while moderate levels of stability increased exit hazard. This nonlinear relationship is stronger for efficiency-seeking subsidiaries, and weaker for market-seeking subsidiaries. Originality/value This research contributes to the debate around the pros and cons of globalization by examining the extent to which firms benefit by offshoring primary sector investments to avoid more costly legal requirements at home. The results suggest that this non-market strategy should be mitigated through appropriate policy measures and provides evidence that those policies already implemented are effective.

Subsidiary survival: a case study from the Portuguese electronics industry

Purpose The existing literature suggests that multinational corporations (MNCs) divest subsidiary units whenever they cease to enjoy the advantages of ownership, location or internalization. However, not all MNCs divest under these conditions. This paper aims to explore the factors that contributed to the survival of a particular subsidiary and prevented it from being divested. Design/methodology/approach The analysis focuses on an individual subsidiary of a large foreign MNC in the electronics industry, which divested other subsidiaries from Portugal. Data were collected using semi-structured interviews. Findings The subsidiary’s diverse customer base, specificity and high level of efficiency, the local advantages, the existing governmental agreements and the parent MNC’s previous unsuccessful relocation experiences seem to have contributed to the survival of the subsidiary. Research limitations/implications Although the results of the case study are not generalizable to the entire population of firms, the featured case study is a rare survival success story in the Portuguese electronics industry. Practical implications The proposed framework may offer public authorities measures to create conditions to encourage firms to retain their investment in a particular site. For corporate strategists, new perspectives on subsidiary survival are provided. Originality/value This paper is one of the few qualitative studies in the field of subsidiary survival. The results offer an integrative framework on which factors contribute to the survival of a subsidiary located on a comparatively unfavorable labor cost location and support the role of the organizational learning and of previous failed relocation experiences and relocation barriers when a parent MNC decides whether to retain a unit.