The subsidiaries of multinational enterprises operate regionally, not globally

Abstract

Purpose

The purpose of this paper is to examine the determinants of home-region strategy of the multinational subsidiary and the impact of such a strategy on its performance. The author draws upon new internalization theory to develop a theory-driven model and empirically tests the simultaneous relationships between home-region strategy and performance of the subsidiary.

Design/methodology/approach

The author tests the model using a simultaneous equation statistical technique on an original, new data set of publicly listed multinational subsidiaries operating in the ASEAN region, with parent firms’ headquarters across the broad triad.

Findings

There are three significant findings. The first finding is that subsidiary-level downstream knowledge (marketing advantages), and the geographic location of the subsidiary in the same home region as of the parent firm are key antecedents of a subsidiary’s home-region strategy. The second finding is that a subsidiary’s profitability reduces home-region orientation; however, home-region strategy has an insignificant effect on performance. The third finding is that these subsidiaries generate on average 92 per cent of their total sales in the home region (the Asia Pacific).

Originality/value

The author advances the existing literature on the regional nature of parent-level multinational enterprises by demonstrating that their quasi-autonomous subsidiaries also operate mainly on a home-region basis.

Citation

Nguyen, Q.T.K. (2015), "The subsidiaries of multinational enterprises operate regionally, not globally", Multinational Business Review, Vol. 23 No. 4, pp. 328-354. https://doi.org/10.1108/MBR-05-2015-0017