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.

Not so generous after all? Foreign ownership and CSR overspending in emerging markets

“…In sum, we argue that foreign ownership is an asset to foreign subsidiaries operating in an emerging market rather than a liability when considering CSR‐related spending. This is in line with studies suggesting that AOF is more likely to exist in emerging markets where the need for foreign direct investment and knowledge spillover is higher; foreign firms have more resources than domestic firms to influence government; the lack of dominant incumbents provides market power; and domestic firms often also have less legitimacy (Getachew & Beamish, 2017; Oetzel & Doh, 2009). These arguments, taken together, lead to the following prediction:Hypothesis A greater degree of foreign ownership in firms is negatively associated with CSR overspending in emerging markets.…”

Not so generous after all? Foreign ownership and CSR overspending in emerging markets

“…In sum, we argue that foreign ownership is an asset to foreign subsidiaries operating in an emerging market rather than a liability when considering CSR‐related spending. This is in line with studies suggesting that AOF is more likely to exist in emerging markets where the need for foreign direct investment and knowledge spillover is higher; foreign firms have more resources than domestic firms to influence government; the lack of dominant incumbents provides market power; and domestic firms often also have less legitimacy (Getachew & Beamish, 2017; Oetzel & Doh, 2009). These arguments, taken together, lead to the following prediction:Hypothesis A greater degree of foreign ownership in firms is negatively associated with CSR overspending in emerging markets.…”

Global market integration, efficiency orientation, and drivers of foreign subsidiary divestments

“…By introducing the global industry context and associated MNC strategy, our study qualifies and extends extant research that paid limited attention to subsidiary characteristics, host country factors or parent firm traits (e.g. Berry, 2013;Mata and Portugal, 2000;Benito, 1997;Li, 1995;Fang et al 2013;Getachew and Beamish, 2017;Song, 2015;Dai, Eden and Beamish, 2017;Tan and Sousa, 2018). Hence, we answer to the call to give proper attention to MNCs' strategic considerations behind divestment decisions (Schmid and Morschett, 2020).…”

“…It is not necessarily global industry integration itself (Berry, 2013;Iurkov and Benito, 2018) but the interaction between global industry conditions and host country market and cost characteristics that influences divestment decisions -in a heterogeneous manner across countries. In this regard, our study also adds to recent empirical work investigating heterogeneity in the drivers of subsidiary divestments in different host country environments (Makino et al, 2007;Getachew and Beamish, 2017;Tan and Sousa, 2018;Berry, 2013).…”

Subsidiary‐level performance comparisons with external versus internal peers and subsidiary termination decisions: The role of host country experience

“…Second, this study offers a novel explanation of what drives MNC managers' subsidiary termination decisions. Moving beyond factors that have been investigated in previous studies on the termination of foreign operations (e.g., Benito, 1997;Delios & Beamish, 2001;Gaur & Lu, 2007;Getachew & Beamish, 2017;Li, 1995;Makino et al, 2007), our findings reveal the significant and diverse impacts of subsidiary-level performance benchmarking against external versus internal peers. In essence, this study suggests that the conventional view describing a linear and negative relationship between a subsidiary's performance and the likelihood of termination (Berry, 2010(Berry, , 2013Boddewyn, 1979) holds only under limited circumstances.…”

Not so generous after all? Foreign ownership and CSR overspending in emerging markets

“…In sum, we argue that foreign ownership is an asset to foreign subsidiaries operating in an emerging market rather than a liability when considering CSR‐related spending. This is in line with studies suggesting that AOF is more likely to exist in emerging markets where the need for foreign direct investment and knowledge spillover is higher; foreign firms have more resources than domestic firms to influence government; the lack of dominant incumbents provides market power; and domestic firms often also have less legitimacy (Getachew & Beamish, 2017; Oetzel & Doh, 2009). These arguments, taken together, lead to the following prediction:Hypothesis A greater degree of foreign ownership in firms is negatively associated with CSR overspending in emerging markets.…”

Global market integration, efficiency orientation, and drivers of foreign subsidiary divestments

“…By introducing the global industry context and associated MNC strategy, our study qualifies and extends extant research that paid limited attention to subsidiary characteristics, host country factors or parent firm traits (e.g. Berry, 2013;Mata and Portugal, 2000;Benito, 1997;Li, 1995;Fang et al 2013;Getachew and Beamish, 2017;Song, 2015;Dai, Eden and Beamish, 2017;Tan and Sousa, 2018). Hence, we answer to the call to give proper attention to MNCs' strategic considerations behind divestment decisions (Schmid and Morschett, 2020).…”

“…It is not necessarily global industry integration itself (Berry, 2013;Iurkov and Benito, 2018) but the interaction between global industry conditions and host country market and cost characteristics that influences divestment decisions -in a heterogeneous manner across countries. In this regard, our study also adds to recent empirical work investigating heterogeneity in the drivers of subsidiary divestments in different host country environments (Makino et al, 2007;Getachew and Beamish, 2017;Tan and Sousa, 2018;Berry, 2013).…”

Subsidiary‐level performance comparisons with external versus internal peers and subsidiary termination decisions: The role of host country experience

“…Second, this study offers a novel explanation of what drives MNC managers' subsidiary termination decisions. Moving beyond factors that have been investigated in previous studies on the termination of foreign operations (e.g., Benito, 1997;Delios & Beamish, 2001;Gaur & Lu, 2007;Getachew & Beamish, 2017;Li, 1995;Makino et al, 2007), our findings reveal the significant and diverse impacts of subsidiary-level performance benchmarking against external versus internal peers. In essence, this study suggests that the conventional view describing a linear and negative relationship between a subsidiary's performance and the likelihood of termination (Berry, 2010(Berry, , 2013Boddewyn, 1979) holds only under limited circumstances.…”

Not so generous after all? Foreign ownership and CSR overspending in emerging markets

“…In sum, we argue that foreign ownership is an asset to foreign subsidiaries operating in an emerging market rather than a liability when considering CSR‐related spending. This is in line with studies suggesting that AOF is more likely to exist in emerging markets where the need for foreign direct investment and knowledge spillover is higher; foreign firms have more resources than domestic firms to influence government; the lack of dominant incumbents provides market power; and domestic firms often also have less legitimacy (Getachew & Beamish, 2017; Oetzel & Doh, 2009). These arguments, taken together, lead to the following prediction:Hypothesis A greater degree of foreign ownership in firms is negatively associated with CSR overspending in emerging markets.…”

Global market integration, efficiency orientation, and drivers of foreign subsidiary divestments

“…By introducing the global industry context and associated MNC strategy, our study qualifies and extends extant research that paid limited attention to subsidiary characteristics, host country factors or parent firm traits (e.g. Berry, 2013;Mata and Portugal, 2000;Benito, 1997;Li, 1995;Fang et al 2013;Getachew and Beamish, 2017;Song, 2015;Dai, Eden and Beamish, 2017;Tan and Sousa, 2018). Hence, we answer to the call to give proper attention to MNCs' strategic considerations behind divestment decisions (Schmid and Morschett, 2020).…”

“…It is not necessarily global industry integration itself (Berry, 2013;Iurkov and Benito, 2018) but the interaction between global industry conditions and host country market and cost characteristics that influences divestment decisions -in a heterogeneous manner across countries. In this regard, our study also adds to recent empirical work investigating heterogeneity in the drivers of subsidiary divestments in different host country environments (Makino et al, 2007;Getachew and Beamish, 2017;Tan and Sousa, 2018;Berry, 2013).…”

Subsidiary‐level performance comparisons with external versus internal peers and subsidiary termination decisions: The role of host country experience

“…Second, this study offers a novel explanation of what drives MNC managers' subsidiary termination decisions. Moving beyond factors that have been investigated in previous studies on the termination of foreign operations (e.g., Benito, 1997;Delios & Beamish, 2001;Gaur & Lu, 2007;Getachew & Beamish, 2017;Li, 1995;Makino et al, 2007), our findings reveal the significant and diverse impacts of subsidiary-level performance benchmarking against external versus internal peers. In essence, this study suggests that the conventional view describing a linear and negative relationship between a subsidiary's performance and the likelihood of termination (Berry, 2010(Berry, , 2013Boddewyn, 1979) holds only under limited circumstances.…”