Foreign Subsidiary Exit from Africa: The Effects of Investment Purpose Diversity and Orientation

Abstract

Research Summary This study considers the exit likelihood of foreign subsidiaries operating in Africa and identifies strategic orientations that can improve their chances of survival. We find that, on average, subsidiaries entering the African market have a greater exit likelihood than those entering the OECD market. However, those subsidiaries entering the African market with diverse investment purposes or greater market‐seeking orientation are less likely to exit, as they tend to enjoy flexibility, adaptability, and learning advantages useful in mitigating economic challenges and/or tapping into strategic opportunities. Managerial summary This study 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, we find 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 survival likelihood. Consistent with the institutional‐based theory of corporate diversification, our findings introduce purpose diversity and market‐seeking orientation as potential mechanisms to mitigate the hazards of institutional voids/instability. Also, by looking at the phenomenon of within‐subsidiary diversity (of purposes) and its interaction with institutional conditions, we advance the notion of subsidiary scope and its implications. Copyright © 2016 John Wiley & Sons, Ltd.

Managing the MNE subsidiary: Advancing a multi-level and dynamic research agenda

“…This typology has been enduring, though various scholars have suggested modifications of the original typology, as discussed in a special issue of Multinational Business Review (Cuervo-Cazurra & Narula, 2015). Most subsidiaries combine market and efficiency-seeking motives, especially in emerging economies (e.g., Getachew & Beamish, 2017). Fewer subsidiaries are established with primarily strategic asset-seeking motives, though this motive appears recently important for emerging economy MNEs (Luo & Tung, 2018;Meyer, 2015).…”

Institutional Voids and Organization Studies: Towards an epistemological rupture

“…The term is even used to classify entire continents such as Africa (e.g. Getachew & Beamish, 2017) and Latin America (e.g. Castellacci, 2015).…”

Africa: The New Frontier for Global Strategy Scholars

“…In addition, this study underscores that Africa cannot be treated as a homogenous reality. Getachew and Beamish (2017) investigate divestment by foreign multinational firms in an African context, using Japanese subsidiaries to study this. Perhaps unsurprisingly, given that Africa on the whole clearly presents a higher risk environment, exits of these subsidiaries are more likely in Africa than in the set of OECD countries.…”