Why Is MNC Subsidiary Performance Better in Challenging Business Environments?

IB has long known of a puzzle of international business (IB), namely that the performance of MNC subsidiaries is not necessarily adversely affected by institutional voids and distance. This puzzle is particularly evident in relation to investment by western MNCs in the challenging business environments of emerging markets and developing countries (EMDCs). Here, data on the country, industry and firm level suggests that, on average, subsidiaries perform better than those in advanced economies. This interactive paper straddles IB and finance theory to discuss various explanations for this puzzle, and a number of plausible propositions for the relatively high performance of subsidiaries in EMDCs are developed. These propositions can form the point of departure for future empirical research on subsidiary performance in EDMCs. Overall, the paper demonstrates the utility of combining the IB literature’s focus on strategies and capabilities to explain subsidiary performance with financial literature’s focus on foreign direct investment (FDI) as a capital flow subject to financial risk assessment.