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National capital city location and subsidiary portfolio expansion: The negative effect of geographic distance to the capital city at inception on the speed of subsequent investments

Abstract

A multinational enterprise develops its subsidiary portfolio by investing in new foreign markets and subsequently pursuing further investments within these host countries. We find that firms which locate their first equity investment closer to the national capital city can subsequently expand their subsidiary portfolio within the host country at a higher speed. This effect is particularly strong in emerging economies. Further analyses of various contingencies support the robustness of our findings. We discuss different theoretical mechanisms which could cause these effects, in particular face-to-face interactions with governmental actors and opportunities to develop political connections. Our research contributes to the literature on internationalization processes by analyzing how the initial location choice affects the development of the subsidiary portfolio.

Résumé

Une entreprise multinationale développe son portefeuille de filiales en investissant dans de nouveaux marchés étrangers et en poursuivant ultérieurement ses investissements dans ces pays d’accueil. Nous constatons que les firmes qui localisent leur premier investissement en capital plus près de la capitale nationale peuvent par la suite étendre leur portefeuille de filiales dans le pays hôte à une vitesse plus élevée. Cet effet est particulièrement marqué dans les économies émergentes. Des analyses plus poussées de diverses contingences confirment la robustesse de nos résultats. Nous discutons des différents mécanismes théoriques qui pourraient provoquer ces effets, en particulier des interactions en face-à-face avec les acteurs gouvernementaux et des opportunités de développer des relations politiques. Notre recherche contribue à la littérature sur les processus d’internationalisation en analysant comment le choix de l’emplacement initial influence le développement du portefeuille de filiales.

Resumen

Una empresa multinacional desarrolla su portafolio de filiales invirtiendo en nuevos mercados extranjeros y buscando más inversiones dentro de los países anfitriones posteriormente en el tiempo. Encontramos que las empresas que ubican su primera inversión de capital cerca de la ciudad capital de la nación pueden subsiguientemente expandir su portafolio de filiales en el país anfitrión a una mayor velocidad. Este efecto es particularmente fuerte en economías emergentes. Los análisis posteriores de varias contingencias respaldan la solidez de nuestros hallazgos. Discutimos diferentes mecanismos teóricos los cuales podrían causar estos efectos, en particular las interacciones cara a cara con los actores gubernamentales y las oportunidades de desarrollar conexiones políticas. Nuestra investigación contribuye a la literatura sobre el proceso de internacionalización al analizar cómo la elección de ubicación inicial afecta el desarrollo del portafolio de filiales.

Resumo

Uma empresa multinacional desenvolve seu portfolio de subsidiárias investindo em novos mercados estrangeiros e buscando investimentos adicionais nesses países anfitriões em posteriores momentos. Constatamos que empresas que posicionam seu primeiro investimento de capital mais próximo da capital nacional podem posteriormente expandir seu portfolio de subsidiárias no país anfitrião com uma maior velocidade. Esse efeito é particularmente forte em economias emergentes. Análises adicionais de várias contingências suportam a robustez de nossas descobertas. Discutimos diferentes mecanismos teóricos que podem ocasionar esses efeitos, em particular interações face a face com atores governamentais e oportunidades para desenvolver conexões políticas. Nossa pesquisa contribui para a literatura sobre processos de internacionalização ao analisar como a escolha da localização inicial afeta o desenvolvimento do portfolio de subsidiárias.

摘要

跨国企业通过投资新的国外市场并在稍后的时间在这些东道国里寻求进一步的投资来发展其子公司的投资组合。我们发现, 将第一笔股权投资定位在国家首都附近的公司可以随后在东道国以更高的速度扩展其子公司的投资组合。这一影响在新兴经济体中尤其明显。 对各种意外事件的进一步分析支持我们研究发现的稳健性。我们讨论了可能导致这些影响的不同理论机理, 特别是与政府方的面对面互动以及发展政治关系的机会。我们的研究通过分析初始位置选择如何影响子公司投资组合的发展, 为有关国际化过程的文献做出了贡献。

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Acknowledgement

The authors are grateful for valuable comments and suggestions received from the two anonymous JIBS reviewers. The authors are very grateful for extraordinarily valuable comments and suggestions received from as well as outstanding developmental guidance throughout the review process by the JIBS Area Editor, Ram Mudambi, as well as JIBS Editor-in-Chief, Alain Verbeke, which have significantly improved this article. The authors also thank JIBS Managing Editor, Anne Hoekman, for excellent service.

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Accepted by Ram Mudambi, Consulting Editor, 29 December 2019. This article has been with the authors for three revisions.

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Hutzschenreuter, T., Harhoff, PL. National capital city location and subsidiary portfolio expansion: The negative effect of geographic distance to the capital city at inception on the speed of subsequent investments. J Int Bus Stud 51, 1107–1132 (2020). https://doi.org/10.1057/s41267-020-00305-1

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Keywords

  • internationalization
  • MNEs
  • expansion speed
  • subsidiary portfolio
  • capital cities
  • geographic distance