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Inter-Country Exchange Rates and Intra-Firm Trade Flow Within Global Network of Multinational Corporations

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Abstract

This study examines how effectively multinational corporations (MNCs) respond to changing external environments by intra-firm shifts of products under the influence of divergent currency changes among countries. We test main hypotheses using a panel dataset of Korean FDI and feasible generalized least square model on STATA 10. We find that more counterpart affiliates with opposite directional exchange rate change, lower transportation costs of product shipping, lower labor cost growth rates, and higher portfolio ownership control are positively associated with the subsidiary’ intra-firm sales. By examining the actual mechanisms whereby MNCs can realize operational flexibility through intra-firm trade among their foreign subsidiaries, this study extends the multinational operational flexibility literature. We show that the magnitude of intra-firm trades within the MNC’s subsidiary network reflects the level of its operational flexibility.

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Notes

  1. The split sample method does not assume identical unexplained variance between the two split groups (Belderbos and Zou 2009; Hoetker 2007 and thus is considered a more general test for comparing inter-group coefficients. Relevantly, a cross-derivative test allows us to examine whether the moderating effect was positive or negative for all observations, as well as what percentage of the observations was significant (Belderbos and Zou 2009).

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  1. College of Business, Saint Joseph’s University, Philadelphia, USA

    Sangcheol Song

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  1. Sangcheol Song
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Song, S. Inter-Country Exchange Rates and Intra-Firm Trade Flow Within Global Network of Multinational Corporations. Manag Int Rev 55, 1–22 (2015). https://doi.org/10.1007/s11575-014-0233-4

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