MNC foreign investment and industrial disasters: The moderating role of technological, safety management, and philanthropic capabilities

Abstract

Research Summary: We investigate how industrial disasters can discourage FDI and how MNCs' technological, safety management, and philanthropic capabilities can moderate these effects. Using two unique panel data sets of entry and expansion of U.S. wholly-owned manufacturing subsidiaries overseas, we found that industrial disasters are associated with reduced foreign entry of wholly-owned subsidiaries in the disaster industry, but not for all firms in the host country experiencing the disaster. We also found that MNCs' technological, safety management, and philanthropic capabilities can, in some cases, positively moderate the negative relationships between industrial disasters and the foreign entry and expansion of wholly-owned subsidiaries. Additionally, three-way interactions with government stability suggest that technological and safety management capabilities substitute government stability in managing industrial disasters, while philanthropic capability complements government stability. Managerial Summary: How can MNCs' technological, safety management, and philanthropic capabilities overcome the effects of industrial disasters such as chemical spills and explosions in host countries? Our results show that industrial disasters are associated with reduced foreign entry of wholly-owned subsidiaries in the industry in which the industrial disaster occurs, but not for other firms operating in the country experiencing the disaster. However, an MNC's technological capability can, in general, lower the negative consequences of industrial disasters in both the entry and expansion of its wholly-owned subsidiaries. Regarding the institutional quality of a host country, the results imply that MNCs should develop philanthropic capability when the government stability of the host

The role of endogenous and exogenous risk in FDI entry choices

“…In measuring exogenous risk, we draw on previous research that examines the impact of disasters on MNEs' strategic commitments (Oetzel & Oh, 2014;Oh & Oetzel, 2011). In line with recent studies (Oh, 2017;Pek, Oh, & Rivera, 2018), we focus on industrial and technological disasters since they occur more frequently than natural disasters and are more related to the economic activities that MNEs will engage in. Rooted in the economic system, industrial and technological disasters will cause unavoidable losses to the MNE as they impact on its key value chain partners and damage critical infrastructure in the host economy upon which the MNE's local operations are dependent.…”

How does experience change firms' foreign investment decisions to non-market events?

“…Fifth, according to previous studies, firms' abilities to build political ties, sometimes through philanthropic donations, are also important factors that mediate the negative impact of non-market risks. Thus, future research may analyze the contingency effects of firms' political, philanthropic and network capabilities (Pek et al, 2018;White et al, 2018;White et al, 2020).…”

Green Governance and International Business Strategies of Emerging Economies’ Multinational Enterprises: A Multiple-Case Study of Chinese Firms in Pollution-Intensive Industries

“…Because firms' Corporate Social Responsibility (CSR) and environmental practices cannot be easily observed and validated [79,143], we conducted a content analysis to evaluate firms' environmental capabilities and technological capabilities. The evaluation criteria are based on previous studies of environmental capabilities [10,79,98] and technological capabilities [28,102,103]. To improve the validation, we relied on independent third-party reports and media coverage to verify related content and materials.…”

“…Thus, EMNEs need strong technological capabilities to move beyond organizational limits and develop new products and novel solutions to better satisfy market needs [160]. Strong technological capability can enable firms to adapt their operations to new operating conditions, accelerate new product development, and create open innovation to dismantle knowledge boundaries and break organizational growth limits [28,32,102,161]. Moreover, strong technological capabilities coupled with a robust product design process lead to fast product development and new high-quality products [160,162], which propel firms ahead of competitors [163].…”

“…Thus, EMNEs, especially those penetrating advanced economies, face significant challenges in their attempt to adapt to the green governance context. However, firms have specific capabilities that can be developed and deployed to enable their proactive preparation to harness opportunities and mitigate threats [28]. Consequently, this study aims to investigate how different green governance contexts and firms' specific capabilities influence EMNEs' IB strategies.…”