Enhancing foreign subsidiaries' performance through relational ties, market- and nonmarket-based capabilities

Abstract

PurposeGiven the inconclusive findings on relational ties–performance relationships, this study approaches this phenomenon through social capital theory and resource-based view (RBV) lenses to advocate the mediating role of nonmarket- and market-based capabilities.Design/methodology/approachA survey-based research methodology was employed. A list of 1,425 foreign subsidiaries was identified from the Thailand Board of Investment (BOI) website, and key informants were contacted. A final response rate of 11.8% was achieved. All hypotheses were tested via path analyses with the bootstrapping technique.FindingsThe results indicate that the relationships between business- and government-relational ties and performance are fully mediated by market- and nonmarket-based capabilities with the latter serving as essential but inadequate preconditions for achieving superior firm performance.Practical implicationsTo mitigate the liability of foreignness and to enhance performance of foreign subsidiaries operating in volatile emerging economies such as Thailand, government and business relational ties are crucial in developing nonmarket- and market-based capabilities. The nonmarket-based capabilities entail the ability to negotiate with and influence policy makers, which in turn helps augment the development of market-based capabilities, including the ability to be highly responsive to customers' needs.Originality/valueThis research illustrates the embedded roles of nonmarket and market-based capabilities developed through complex interactions among social actors, including the multinational enterprises’ (MNEs’) subsidiaries and government and nongovernment counterparts, in attaining superior performance. The results indicate how relational ties enable MNEs’ subsidiaries to develop various capabilities, and how these capabilities are related with each other and linked to firm performance. Findings from an emerging economy undergoing recent political and economic uncertainties also provide theoretical advancements for international business studies.

Aligning restaurants and artificial intelligence computing of food delivery service with product development

“…Previous research has analyzed technological competencies and relational ties affect their collaborating performance (Huo et al , 2022). Relational ties mediate between business-to-business and performance and are a prerequisite for achieving the latter (Thoumrungroje and Kapasuwan, 2022). Interconnected AI systems allow seamless data sharing, communication and joint decision-making.…”

Unraveling formal and informal business ties in shaping foreign subsidiary capabilities

“…For informal business ties (IBT), managers in organizations are interacting with individuals from other organizations via personal networks in an attempt to grasp opportunities to capture competitive advantage (Granovetter, 2005). As a result, mutual trust will be developed from these close relationships that enable firms such as MNEs to acquire the resources, exchange information and knowledge which are difficult to obtain (Thoumrungroje and Kapasuwan, 2022). A firm's informal connections can be seen not only with individuals from other organizations but also with social connections with government officials at various levels of administration (Sheng et al, 2011).…”

“…While the institutional arrangements are not yet adequate for formal procedures, the informal ties are deemed more effective in capability building (Lee et al, 2016). With informal network relations, firms can acquire market information and knowledge that enable them to achieve cost reduction and enhance performance (Jin and Jung, 2016;Thoumrungroje and Kapasuwan, 2022;Zhou and Li, 2010).…”

“…In emerging economies such as Thailand, firms are faced with more rapid changes in economic, social and legal institutions. Thailand has been one of the primary targets for foreign investors, drawn by its robust economic expansion and substantial market demands (Thoumrungroje and Kapasuwan, 2022). The nation has experienced significant changes across political, economic and technological dimensions, including the 2023 general election and the implementation of Industry 4.0 to augment technology and reshape the economy.…”

“…As such, many companies operating in such economies rely on external relationships with both the private and public sectors, i.e. both formal and informal network ties, as their strategy to build and acquire the capabilities to cope with the uncertainties (Thoumrungroje and Kapasuwan, 2022). Although prior research revealed that managerial ties are effective for improving the firm's performance and gaining competitive advantages (Wu and Chen, 2012;Wang et al, 2018) in many developed countries, studies on the effect of business ties on performance, especially in emerging economies, are quite limited (Chen and Wu, 2011;Sheng et al, 2011).…”