When MNC Subsidiaries Are Caught in a Political Crisis: The Case of Mozambique

Abstract

In political crises, subsidiary‐level managers of multinational corporations (MNCs) face critical decisions around managing investment risk. Given the potentially existential threat posed by political crises, this study examines subsidiary responses to political risk. The focus is on the effect of firm crisis experience, threat perception, and managerial social embeddedness on the stay‐or‐exit decisions. With data from senior managers of 107 MNCs in Mozambique, we test three hypotheses. We find that the crisis experience of the MNC is a significant predictor of managers' threat perceptions (H1). While threat perception positively affects the likelihood of subsidiary exit (H2), the social embeddedness of the subsidiary manager dampens that relationship (H3). Threat perception does not necessarily drive exit likelihood, as subsidiaries led by socially embedded managers with high levels of social interactions with Mozambican and foreign friends are less likely to exit. These findings contribute to the literature on subsidiary‐level political risk management and underscore the significance of social embeddedness and crisis experience in shaping subsidiary resilience to political instability. For managers, these results highlight the value of fostering strong local networks and crafting flexible risk management strategies. Such insights are crucial for navigating the complexities of international markets during political turmoil.