What Makes MNCs Succeed in Developing Countries? An Empirical Analysis of Subsidiary Performance

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    Abstract

    Purpose
    – The purpose of this paper is to examine the evolution in subsidiary performance and the factors influencing this performance based on a unique database of approximately 800 multi-national company (MNC) subsidiaries in developing countries. Developed-country multi-national companies (MNCs) are increasingly establishing subsidiaries in developing countries. The potential gains are high; however, so are the risks. While the issue of subsidiary performance should be at the heart of any international business (IB) enquiry into MNC activity in developing countries, surprisingly little research has examined this issue.

    Design/methodology/approach
    – Based on a comprehensive literature review of the IB performance literature, it is hypothesized that subsidiary performance essentially is shaped by five clusters of factors: location, industry, MNC capabilities, subsidiary role and entry strategy. These factors’ ability to explain variance in subsidiary performance is tested through a multiple regression analysis.

    Findings
    – MNC subsidiary performance in developing countries has improved enormously in recent decades. Especially, MNC capability and subsidiary role-related factors appear to explain variance in performance, while location factors appear to have less explanatory power. This suggests that strong MNC capabilities and organization can make MNCs succeed regardless of location.

    Practical implications
    – The key preparatory work for MNCs contemplating entry into developing countries is to carefully scrutinize internal capabilities and organization.

    Originality/value
    – The paper presents a model for explaining variation in subsidiary performance in developing countries specifically. The paper offers unique empirical insights into the state and drivers of subsidiary performance in developing countries.
    Original languageEnglish
    JournalMultinational Business Review
    Volume23
    Issue number3
    Pages (from-to)224-247
    Number of pages24
    ISSN1525-383X
    DOIs
    Publication statusPublished - 2015

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