Essays on multinational enterprises within host country strategy and structure in an emerging market

MULTINATIONAL ENTERPRISES’ WITHIN-HOST-COUNTRY STRATEGY AND STRUCTURE IN AN EMERGING MARKET XUFEI MA (B Eng., Xi’an Jiaotong University; MBA, University of Saskatchewan) A THESIS SUBMITEED FOR THE DOCTOR OF PHILOSOPHY DEPARTMENT OF BUSINESS POLICY NATIONAL UNIVERSITY OF SINGAPORE 2007 ACKNOWLEDGEMENTS I would like to express my deepest appreciation to Professor Andrew Delios for being my supervisor and for supporting my research endeavors during my tenure as a PhD student at the National University of Singapore It is his seasoned guidance, timely encouragement and valuable feedback that have made this thesis possible The training I’ve received with regard to the three aspects of the academic profession – research, teaching, and reviewing – has been the best possible start I could have had in my academic career I thank the committee members of my thesis proposal: Professors Ishtiaq Mahmood and Jane Lu Their valuable comments and suggestions on my thesis proposal helped me to improve the proposal in many ways I benefited from Professor Mahmood’s advice on the importance of critical thinking as a researcher, and his expertise in international business, business groups research and emerging economies I also benefited from the cooperation with Professor Lu in several research projects, whose help involved both conceptual and applied issues I am grateful to all the staff in the Department of Business Policy for their sincere help at different stages of my thesis writing and during my PhD candidature They are: Teo Woo Kim, Wendy Ng, and Jenny See I thank all the faculty members and colleagues in the Department for their excellent comments on the earlier versions of my thesis I am indebted to my dear wife, Xuebing Zhong, for her tender care and timely comfort Last but not least, I am deeply grateful to my parents for their unfailing support and encouragement in all these past years, which have been the major reason that I am able to continue to seek my career goal in the academic area TABLE OF CONTENTS ACKNOWLEDGEMENTS SUMMARY LIST OF TABLES LIST OF FIGURES LIST OF APPENDICES 10 CHAPTER 1: INTRODUCTION 11 1.1 Overview 11 1.2 Research Questions 15 1.3 Contributions 18 1.4 Organization of the Dissertation 21 CHAPTER 2: LITERATURE REVIEW 22 2.1 Introduction 22 2.2 Strategy-structure Model in Strategic Management Literature 23 2.3 Research Streams in MNE Strategy, Structure, and Subsidiary 25 2.3.1 Strategy-structure stream 25 2.3.2 HQ-subsidiary relationship stream 27 2.3.3 MNE process stream 28 2.3.4 Subsidiary role stream 30 2.3.5 Subsidiary evolution stream 32 2.3.6 Subsidiary network stream 34 2.4 A New Classification: Headquarters versus Subsidiary Perspective 37 2.5 Limitations of Prior Studies 39 2.6 Research Opportunities: Missing Bridges to Theory and Context 40 2.7 Summary 43 CHAPTER 3: ESSAY 44 3.1 Introduction 44 3.2 Background and Theoretical Framework 48 3.2.1 A focus on MNEs’ foreign group subsidiary 48 3.2.2 The institutional multiplicity of MNE subsidiaries: 49 Theoretical framework 3.3 Hypotheses Development 53 3.3.1 Individual effects of multiple institutional isomorphic pressures 53 3.3.2 Moderation in the two coercive isomorphic pressures 63 3.3.3 Differentiation and comparison of different mimetic role models 65 3.3.4 The moderating effects of local references 67 3.4 Methods 70 3.4.1 Sample and data sources 69 3.4.2 Dependent variable and analytic model 71 3.4.3 Independent and control variables 73 3.5 Results 76 3.5.1 Descriptive statistics 76 3.5.2 Event history analysis using Cox models 77 3.5.3 Sensitivity Analyses 80 3.6 Discussion and Conclusion 3.6.1 Findings 82 82 3.6.2 Implications for theory 86 3.6.3 Implications for practice 87 3.6.4 Limitations and future research 88 3.6.5 Conclusion 89 CHAPTER 4: ESSAY 91 4.1 Introduction 91 4.2 Host Country Environment and MNE’ within-host-country Diversification 95 4.3 Theory and Hypotheses Development 97 4.3.1 Structuration theory and MNE subsidiaries’ political strategy 97 4.3.2 Foreign group subsidiary and MNE’s within-host-country 99 diversification 4.3.3 Market size and industrial restriction as moderators 4.4 Methods 104 107 4.4.1 Sample and data sources 107 4.4.2 Dependent variables 108 4.4.3 Independent and control variables 109 4.4.4 Analytic model 112 4.5 Results 113 4.6 Discussion and Conclusion 115 4.6.1 Findings 115 4.6.2 Implications for theory 118 4.6.3 Implications for practice 120 4.6.4 Limitations and future research 120 4.6.5 Conclusion 122 CHAPTER 5: ESSAY 123 5.1 Introduction 123 5.2 Background 126 5.2.1 FDI location choice 126 5.2.2 FDI subsidiary roles 129 5.3 Theory and Research Context 130 5.3.1 Foreign group subsidiary ad host country HQ 130 5.3.2 Research setting: China’s emerging market 132 5.4 Hypotheses Development 134 5.4.1 Corporate ambassador 135 5.4.2 Subsidiaries administrator 136 5.4.3 Learning center 138 5.5 Methods 140 5.5.1 Sample and data sources 140 5.5.2 Independent and control variables 141 5.5.3 Dependent variable and analytic model 146 5.6 Results 147 5.7 Discussion and Conclusion 150 5.7.1 Findings 150 5.7.2 Implications for theory 152 5.7.3 Implications for practice 154 5.7.4 Limitations and future research 155 5.7.5 Conclusion CHAPTER 6: CONCLUSION 156 157 6.1 Major Findings and Implications 157 6.2 Significance of the Study 160 6.3 Directions for Future Research 164 6.4 Conclusion 168 REFERENCES 169 SUMMARY The purpose of my dissertation is to study multinational enterprises’ (MNEs) within-hostcountry strategy and structure The research focus is an MNE’s foreign group subsidiary, a form of host country headquarters (HQ) in an emerging market This dissertation extends MNE research by addressing three questions in three essays: (1) Why some MNEs form group subsidiaries in a large emerging market? (2) How does the group subsidiary facilitate an MNE’s within-host-country business expansion? and (3) What factors influence the location choice of an MNE’s group subsidiary? This research contributes to the literatures of MNE strategy and structure and subsidiaries in several ways First, it contributes to theory building by providing a comprehensive framework to understand the multiple institutional pressures and conditions faced by MNEs in an emerging market Second, it theoretically models and empirically tests the direct and contingent values of MNEs’ foreign group subsidiaries on their within-hostcountry product and geographic diversification strategies in an emerging market Third, it formally defines an MNE’s foreign group subsidiary as having three distinct strategic roles and links MNE subsidiary research with the FDI location literature Overall, this study is among the first to shift the research attention toward the totality of MNEs’ foreign subsidiaries in a host country This shift is a timely and worthwhile endeavor because it can help to bridge domestic business group and MNE subsidiary literatures by tackling the interactions among local governments, incumbent groups, and foreign multinationals As such, this dissertation may inspire a new wave of MNE subsidiary research with a focus on MNE within-host-country strategy and structure I examine the adoption, function, and location choice of group subsidiaries by the world’s largest MNEs in China’s emerging market I use longitudinal data on the entire population of the Fortune Global 500 firms during the complete time window of China’s open door period (1979-2005) The empirical findings will have substantial implications for policy makers, business managers, and academics alike LIST OF TABLES Table Title Table A summary of literature on MNE strategy, structure, and subsidiary Page 194 Table Descriptive statistics and correlations (Essay 1) 195 Table 196 Event history analysis (Cox Model): Group subsidiary adoption by Fortune Global 500 firms in China, 1979-2005 (Essay 1) Table Descriptive statistics and correlations (Essay 2) 197 Table G2SLS random-effects estimates: Fortune Global 500 firms’ within-host-country product diversification in China, 1979-2005 (Essay 2) 198 Table G2SLS random-effects estimates: Fortune Global 500 firms’ within-host-country geographic diversification in China, 1979-2005 (Essay 2) 199 Table G2SLS random-effects estimates: Fortune Global 500 firms’ within-host-country overall diversification in China, 1979-2005 (Essay 2) 200 Table Economic-geographic variables: Shang versus Beijing (2003) (Essay 3) 201 Table Descriptive statistics and correlations (Essay 3) 202 Table 10 Probit models: The location choice for Fortune Global 500 firms’ Chinese group subsidiaries (Essay 3) 203 Table 11 Summary of major findings 204 LIST OF FIGURES Figure Title Page Figure Multiple institutional pressures on MNEs in a host country (Essay 1) 205 Figure Research model (Essay 1) 206 Figure Interaction between global peer influence and local partner reference (Essay 1) 207 Figure MNEs’ within-host-country diversification strategies (Essay 2) 208 Figure Research model (Essay 2) 209 Figure Interaction between group subsidiary and industrial market size (Essay 2) 210 Figure Interaction between group subsidiary and FDI restricted industry (Essay 2) 211 Figure The Inverted U-shape of Beijing-specific Experience and the Likelihood of Choosing Beijing (Essay 3) 212 Figure Replication with extension by using different settings 213 Table 10: Probit Models: The Location Choice for Fortune Global 500 Firms’ Chinese Group Subsidiariesa, b (Essay 3) Variables Firm sizec Firm performance Global industry Cultural distance China’s overall FDI openness China experiencec Other firms’ behavior d Model Model Model Model Model 0.32+ (0.18) -1.52 (1.69) 0.38 (0.26) -0.24 (0.19) -0.04 (0.15) 0.20 (0.19) -0.51 (1.79) 0.67* (0.28) -0.32 (0.21) -0.43* (0.18) 0.25 (0.20) -5.73+ (3.02) 0.26 (0.33) -0.55* (0.24) -0.31 (0.28) 0.27 (0.22) -2.42 (2.34) 0.69* (0.33) -0.63** (0.21) -0.35+ (0.21) 0.17 (0.26) -4.90 (3.92) 1.06* (0.42) -0.77* (0.36) -0.98** (0.38) -0.13 (0.09) 3.15** (0.98) -0.14 (0.10) 3.49** (1.19) 1.69*** (0.34) -0.10 (0.11) 3.60* (1.54) -0.16 (0.12) 4.96** (1.50) -3.02*** (0.55) -0.21 (0.14) 6.39** (1.86) 1.32* (0.64) -3.99*** (1.02) 2.81*** (0.48) 3.65*** (0.86) Institutional deterrence Geographic distance to Beijingc 10 Geographic distance to Shanghaic 11 Beijing-specific experiencec 12 Beijing-specific experiencec-squared 13 Shanghai-specific c experience 14 Shanghai-specific c experience -squared Constant 1.23*** (0.16) -0.53*** (0.12) 1.81 (3.11) -40.96 0.54 53.37 (9)*** 34.03 (2)*** 0.26 (0.24) 0.10 (0.11) -2.28 (2.16) -64.87 0.27 45.79 (8)*** 25.43 (1)*** -0.56*** (0.14) -0.50*** (0.13) -4.32 (1.97) -76.49 0.13 24.84 (7)*** 0.82*** (0.20) 0.22 (0.14) -1.44 (2.54) -43.02 0.51 79.10 (11)*** 73.25 (4)*** 5.11 (4.03) -28.33 0.68 67.85 (14)*** 54.52 (7)*** Log pseudolikelihood Pseudo R-square Wald chi-square (df) Wald test of incremental addition to Model (df) a n = 131 firms Location choice =1, if Beijing is chosen; Location choice =0, if Shanghai is chosen b Cell entries are unstandardized coefficient estimates Numbers in parentheses are robust standard errors c Logarithmic transformation Two-sided tests: + p