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The regional dimension of MNEs' foreign subsidiary localization

Abstract

This paper examines the regional effect of MNEs' foreign subsidiary localization. We hypothesize that the number of subsequent foreign subsidiaries in a country is in part determined by a firm's prior foreign subsidiary activity at the regional level. We test our hypotheses using data on 1076 Japanese MNEs that created 3466 foreign subsidiaries (1837 wholly owned FDIs and 1629 joint ventures) over the period 1996–2001. We use a multilevel negative binomial approach with three levels of analysis: localization decisions in a country (49 countries), in a region (six regions) and at the headquarters level. In this way, we test the regional effects controlling for country and corporate dimensions. We also run separate models to differentiate wholly owned and joint venture localization decisions. Our results strongly support the semi-globalization perspective in that the regional-level effects are significant and different from the country-level effects for all foreign subsidiaries, for wholly owned subsidiaries and for jointly owned subsidiaries. Japanese MNEs adopt a regional perspective that complements their decisions at the country and firm levels. They seek regional agglomeration benefits and make arbitrage decisions between countries in the same region.

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Notes

  1. As we also test separate models explaining the number of subsequent WOSs and number of subsequent JVs, we measured a firm's prior investment activity in each mode of entry over the period 1990–1995 with two variables: Number of prior WOSs and Number of prior JVs.

    Research about foreign subsidiary localization (e.g., Henisz & Delios, 2001; Maitland, Rose, & Nicholas, 2005; Zhou, Delios, & Yang, 2002) or country-level agglomeration effects does not differentiate between prior modes of entry (e.g., Bastos & Greve, 2003; Belderbos & Zou, 2006; Chan et al., 2006) as previous experience, agglomeration benefits and arbitrage can be transferred across modes of entry (Buckley & Casson, 1998; Chang, 1995; Kogut, 1983; Kogut & Kulatilaka, 1994). In contrast, other IB research about transaction costs, path dependency and institutional theory makes a distinction about different underlying dynamics and the tendency of firms to have a dominant mode of entry (e.g., Anderson & Gatignon, 1986; Guillén, 2003; Hennart, 1988; Lu, 2002; Yiu & Makino, 2002). Faced with these different perspectives, we measured prior decisions in both ways for the WOS and JV models. The results for the WOS and JV models with these independent variables are not reported, because of space constraints. They were similar to those presented in this paper, but their AIC and SBC indicators are larger, indicating a lower goodness of fit. These results are available from the authors.

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Correspondence to Jean-Luc Arregle.

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Accepted by Alain Verbeke, Area Editor, 2 January 2008. This paper has been with the authors for one revision.

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Arregle, JL., Beamish, P. & Hébert, L. The regional dimension of MNEs' foreign subsidiary localization. J Int Bus Stud 40, 86–107 (2009). https://doi.org/10.1057/jibs.2008.67

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Keywords

  • semiglobalization
  • regional strategy
  • multilevel analysis
  • evaluation of current theories
  • localization of foreign subsidiaries