Performance and business relatedness as drivers of exit decision: A study of MNCs from an emerging country

Abstract

Research Summary This study examines the exit behavior of emerging market MNCs in the context of the parent company (PC)‐foreign affiliate (FA) relationship. Specifically, we consider business relatedness as a moderating variable and examine its impact on the relationship between an FA’s international performance and its exit decision from a foreign market. Our results, based on data collected from multiple informants in 180 Chinese firms, indicate that product relatedness and intangible resource relatedness have different moderating impacts on the FA performance‐FA exit decision relationship. Implications of these findings, along with the limitations of the study, are discussed. Managerial Summary Although the research on international entry and expansion is particularly important, an aspect that has been largely ignored in the literature is the exit behavior of firms. This study examines whether the extent to which a foreign subsidiary is similar to its parent's core business may influence the firm's exit decision. The findings indicate that managers are more likely to exit a poorly performing FA if there is a high (vs. low) level of product relatedness between the FA and its PC's core business. The results also suggest that intangible resource relatedness exerts a different contingent effect on the FA performance‐FA exit relationship than does product relatedness.

Once bitten, not necessarily shy? Determinants of foreign market re-entry commitment strategies

“…Specifically: In line with previous work (e.g. Benito, 2005;Tan and Sousa, 2017;Mellahi, 2003;Sousa and Tan, 2015), we recognise that firms exit for reasons other than failure to perform, rather, some exits can be characterised as strategic. Strategic exits occur generally when firms undergo organisational restructuring of their international operations and actively choose to re-allocate their resources to other markets or re-focus on growth in the home market.…”

Three decades of subsidiary exits: Parent firm financial performance and moderators

“…Our analysis of the selected 80 studies (see Table 1 below) reveals that parent firm performance is a common construct in 52 studies. Among these 52 studies, 30 examine parent performance/profitability (Kaul et al, 2018;Mohr et al, 2018;Tan and Sousa, 2017;Dai et al, 2017;Zschoche, 2016;Damaraju et al, 2015;Soule et al, 2014;Durand and Vergne, 2014;Elfenbein and Knott, 2014;Chung et al, 2013;Dai et al, 2013;Xia and Li, 2013;Cui and Kumar, 2012;Fisch and Zschoche, 2012;Kim et al, 2012;Brauer and Wiersema, 2012;Polidoro et al, 2011;Wu et al, 2011;Berry, 2010;Brauer and Schimmer, 2010;Anand et al, 2009;Lu and Hébert, 2005;Shimizu and Hitt, 2005;Delios and Beamish, 2001;Shaver et al, 1997;Markides, 1995;Baden-Fuller, 1989), and five (Xia and Li, 2013;Delios et al, 2008;Berry, 2004;and Haynes et al, 2000) relate to return on sales (ROS).…”

Business relatedness in international diversification

“…Competitive intensity strengthens the association Luo (1997):In a newly emerging market economy, an IJV with a product related to that of its local parent firm outperforms an IJV with an unrelated product Tang and Rowe (2012): Modest product relatedness between a foreign subsidiary and a parent firm's core business is associated with higher performance than unrelated and highly related subsidiaries Luo (2002): Product relatedness with foreign and local parents is positively associated with an IJV's performance. The association is strengthened by parent firms' resource complementarity or goal congruity Tan and Sousa (2017): The negative association between a foreign affiliate's performance and its market exit is strengthened by product relatedness with the parent firm's core business unit, but weakened by intangible resource relatedness Mjoen and Tallman (1997): Industrial organization Zhao and Luo (2002): Product relatedness between a foreign subsidiary and the parent firm is positively associated with subsidiary performance. The association is strengthened if the parent is the majority owner Resource relatedness between a parent firm and an IJV positively affects the firm's control over crucial activities (continued) Coase (1937) wrote a pioneering work formulating the theory of transaction costs economics.…”

“…Relevance of type of relatedness Pehrsson (2008) and Tan and Sousa (2017) use organizational learning theory to identify a fine-grained pattern for foreign units that are wholly owned by a firm. These scholars establish that not only the degree of relatedness matters but also the type.…”

“…Without any priority being given to relatedness types regarding, for example, products, resources or skills (Pehrsson, 2008(Pehrsson, , 2017Tan and Sousa, 2017), a firm may encounter difficulties in trying to specify similarities that facilitate corporate knowledge sharing and that support a foreign subsidiary's competitive strategy (Pehrsson, 2017;Luo and Zhao, 2004). In addition, a lack of precision makes it difficult for headquarters to evaluate and react to the performance of a foreign subsidiary, as complexity differs among types of relatedness (Tan and Sousa, 2017).…”