Motive meets experience: Cultural distance, motive, related experience, and foreign subsidiary ownership structure

The Differing Foreign Entry Mode Choices for Sales and Production Subsidiaries of Multinational Corporations in the Manufacturing Industry

“…I argued previously that much of the knowledge and competencies sales subsidiaries would need to succeed can be acquired through the hiring of local talent as they require high amounts of local knowledge. I also argue that higher levels of international experience will further reduce the levels of uncertainty or lack of knowledge these subsidiaries may have and therefore diminish their need for local partners [56]. Consequently, I argue that international experience will strengthen the likelihood of manufacturing MNCs using wholly owned subsidiary modes of entry for sales subsidiaries.…”

“…I also previously argued that manufacturing MNCs might prefer using joint venture forms of entry for their production subsidiary. I further argue that international experience may strengthen this effect as higher levels of experience will also increase the levels of knowledge the firm acquires and could make it easier to monitor or coordinate with their local partners [56]. Therefore, the issues that firms may have had because of the cultural differences that were inherent with their local partners [6] may be less of a problem.…”

Determinants of Equity Ownership Stake in Foreign Entry Decisions: A Systematic Review and Research Agenda

“…General and decision‐specific international experiences act as learning sources for a firm's risk management and international operations and can help an MNE to mitigate cultural uncertainties, thus weakening the negative effect of cultural distance on preference for majority against minority ownership. In the case of manufacturing subsidiaries, related international experience weakens the positive impact of cultural distance on majority compared to minority ownership stake, as firms with more related experience face lower searching and monitoring costs (Powell & Lim 2018). Regarding institutional distance, knowledge learned from general international experience strengthens a firm's ability to deal with the institutionally distant environment, and thus weakens the negative relationship between institutional distance and majority compared to minority ownership share in research and development (R&D) joint ventures (Elango & Chen 2012).…”

“…While generic international experience was found to enhance the negative relationship between institutional distance and majority ownership share as compared to minority ownership share (Elango & Chen 2012), experience from specific institutional contexts was found to mitigate the negative effect of regulatory institutional distance on a firm's majority ownership structure in contrast to minority ownership structure (Powell & Rhee 2013). Although international experience strengthens the positive impact of cultural distance on a firm's full as compared to shared ownership (Cho & Padmanabhan 2005), Powell and Lim (2018) found that international experience makes a manufacturing firm easier to coordinate with a culturally dissimilar partner, and thus weakens the positive impact of cultural distance on the manufacturing firm's decision to opt for majority ownership structure over minority ownership structure. While most of the experience constructs are examined in the context of a parent firm (e.g.…”

“…Studies have found that the relationship between formal institutional distance and a firm's degree of ownership is moderated by the firm's FDI motivation and location choice (Chikhouhni et al. 2017; Powell & Lim 2018). For emerging‐market firms, the influence of formal institutional distance may be contingent on legitimacy in the host country.…”