George Z. Peng

FDI Legitimacy and MNC Subsidiary Control: From Legitimation to Competition

This study contributes to the subsidiary control literature by empirically demonstrating the importance of FDI legitimacy in determining subsidiary ownership and expatriate staffing levels. Based on organizational ecology theory (OET), our study considers the tension between legitimation and competition pressures. This is a significant step beyond institutional theory, which only accounts for the former pressure. Based on a sample of Japanese MNCs, we find that there is an interaction effect between subsidiary size and FDI legitimacy on both subsidiary ownership and expatriate staffing levels. With increasing FDI legitimacy, smaller subsidiaries tend to increase their ownership and expatriate staffing levels, whereas larger subsidiaries tend to reduce their ownership and expatriate staffing levels. The results hold both across host countries and over time. Our findings have significant theoretical and practical implications. MNCs are advised to give full attention to the dual pressure of legitimation and competition when determining subsidiary control strategies. Caution is advised when applying the institutional theory based prescription that MNCs should assume higher ownership and expatriate staffing levels in their subsidiaries with increasing FDI legitimacy.

THE EFFECT OF NATIONAL CORPORATE RESPONSIBILITY ENVIRONMENT ON JAPANESE MNCs' LOCATION CHOICE.

We examine the relationship between MNC location choice across countries and the three dimensions (internal, external and environmental) of the national corporate responsibility index (NCRI) using corporate social responsibility (CSR) and international business theories. Based on multidimensional analysis using data from Accountability, Toyo Keizai and other sources, we find that Japanese MNCs are: more likely to locate their subsidiaries in countries with higher levels of corporate governance, ethical practices, and human capital development (the internal dimension), and this relationship is stronger for developed countries; and less likely to locate their subsidiaries in developed countries with higher levels of civil society development (the external dimension), but this relationship is not significant for developing countries; and the relationship between MNCs’ location choice and the environmental dimension is not significant in either developed or developing countries. There exist complicated interactions among the three dimensions and a country’s development stage in determining MNCs’ location choice. The theoretical and practical implications of these findings are discussed in terms of extending CSR theories and attracting MNCs.

MNC Subsidiary Size and Expatriate Control: Resource Dependence and Embeddedness / Learning Perspectives

We hypothesize a U-shaped relationship between multinational corporations’ (MNCs’) subsidiary size and expatriate staffing level based on resource dependence theory. Furthermore, based on resource dependence and embeddedness / learning perspectives, the U-shaped relationship is hypothesized to be moderated by parent firm size, equity ownership of the parent firm in the subsidiary, and subsidiary age. A sample of 9579 Japanese overseas subsidiaries over the period 1996-2005 was used to test our hypotheses. Results supported all four hypotheses. There is a U-shaped relationship between subsidiary size and expatriate staffing level. The U-shaped curve is flatter for subsidiaries with larger parents; and steeper for subsidiaries in which the parent firm equity ownership levels are higher. The U-shaped curve gets flatter with increasing subsidiary age. Overall, the variables related to our hypotheses explain approximately 23% of the variance in expatriate staffing level. The theoretical and practical implications of these findings are discussed.

The Effect of Long Term Orientation on Subsidiary Ownership, Expatriate Staffing, and Subsidiary Survival

This paper examines the link between the long term orientation (LTO) dimension of national culture to transaction cost economics and relational exchange theory. Hypotheses were developed on the impact of LTO on multinational corporations’ (MNCs’) subsidiary ownership and expatriate staffing strategies and on subsequent subsidiary survival. We used a sample of 10,244 overseas subsidiaries established by 1,292 Japanese MNCs in 30 host countries to test our hypotheses. Results showed that: i) LTO has a positive effect on ownership and expatriate staffing levels; ii) there is a positive interaction between LTO and cultural distance (CD) on ownership and expatriate staffing levels; iii) LTO has a positive effect on subsidiary survival; iv) the positive relationship between LTO and subsidiary survival is stronger when MNCs assume higher ownership and expatriate levels; and v) there is a positive interaction between LTO and CD on subsidiary survival. The theoretical and practical implications of these findings are discussed in terms of the vital role time orientation plays in theory and practice.