Ownership Strategies and Survival of Foreign Subsidiaries: Impacts of Institutional Distance and Experience

Abstract

This article integrates institutional theory and organizational learning perspective and proposes a contingency framework on the relationship between ownership strategies and subsidiary performance. Using a sample of Japanese subsidiaries worldwide, the article finds important main effects of ownership, institutional distance, and host country experience on subsidiary survival. Furthermore, the effect of ownership is contingent on institutional distance and host country experience. In institutionally distant countries, subsidiaries have better survival chances if foreign parents have more ownership. Host country experience has a negative impact on subsidiary survival, but the effect is weaker if foreign parents have larger ownership positions in the subsidiaries.

Institutional distance and knowledge acquisition in international buyer-supplier relationships: The moderating role of trust

“…In parallel with prior studies on institutional distance (e.g., Gaur & Lu, 2007;Ionascu, Meyer, & Erstin, 2004), we adopted 7-item and 5-item scale measures from The Global Information Technology Report 2010-2011 (Dutta & Mia, 2011) to reflect the regulatory and cognitive distances, respectively; we also used 6-item scale measures from Hofstede's (2011) cultural dimension indicators to represent normative distance. Regulatory institutions lay out the ground rules for doing business, reflecting the laws and regulations of a country that influence business strategies and operations; normative institutions consist of beliefs, values, and norms that define expected behavior in a society; and cognitive institutions rest on the cognitive structures, widely shared social knowledge, frames, routines and scripts, embedded in a society (Ionascu et al, 2004).…”

“…The formula design originates from Kogut and Singh's (1988) research on cultural distance, in which the authors correct the variance to impose certain weights on indicators in the composite index of Hofstede's cultural dimensions, and is popularly applied by subsequent research on the examination of cultural or institutional differences in international contexts (e.g., Gaur & Lu, 2007;Morosini, Shane, & Singh, 1998).…”

Teoria Institucional E Modos De Entrada De Multinacionais De Países Emergentes

“…Na literatura em geral, reconhece-se que há substancial interseção teórica entre os pilares normativo e cultural-cognitivo (Gaur, Delios, & Singh, 2007;Gaur & Lu, 2007;.…”

Ownership mode, cultural distance, and the extent of parent firms’ strategic control over subsidiaries in the PRC

“…Therefore, foreign subsidiaries may find it difficult to deal with cultural difference, which poses quite some challenges. In a similar vein, Gaur and Lu (2007) noted that foreign subsidiaries can easily obtain information about formal differences by drawing on secondary information. However, informal differences are rooted in the social environment and are thus harder to grasp and interpret by foreigners (Demirbag, Glaister, & Tatoglu, 2007).…”

“…Yan and Gray (2001b: 304) maintained that Bthe agency problem in IJVs is rooted in the divergent self-interests of the parents and their objectives for the venture's operation^, which is especially the case when cultural distance is high. Therefore, with growing cultural distance, IJVs are exposed to higher levels of uncertainty as cultural distance may increase the likelihood of goal incongruence and managerial conflicts, and subsequently complicate the verification of claims in IJV operations (Gatignon & Anderson, 1988;Gaur & Lu, 2007;Meschi & Riccio, 2008).…”