Subnaitonal [i.e. Subnational] institutional environments within a host country, entry mode choices of multinational corporations,foreign affiliate performance and subsequent expansions of foreignaffiliates

Abstract

 Based on the institution-based view, this thesis investigates the effects of subnational institutional environments within a host country on foreign direct investment decisionsand the performance of foreign affiliates. Subnational institutional environments refer to the rules of the game of a society in a subnational region, shaping the manners of individual and organizational activities in the region. I focus on two aspects ofsubnational institutional environments, the level of subnational institutional development and legitimating actors’ cognition of wholly owned foreign subsidiaries in a subnational region, and then develop three studies examining the influences of subnational institutional environments on the entry mode choices of multinational corporations (MNCs), the performance of foreign affiliates, and the subsequent expansions of foreign affiliates.

The first study proposes that the levels of subnational economic, political and social institutional development have positive effects on MNCs to take wholly owned subsidiaries (WOSs) at the time of entry, while the high level of acceptance in legitimating actors’ cognition of wholly owned foreign subsidiaries also encourages MNCs to choose WOSs as the entry modes. The influences of the two aspects of subnational institutional environments on the entry mode choices of MNCs vary in degree. The second study examines the independent and relative influences of the levels of subnational economic, political and social institutional development on the level of and variation in foreign affiliate performance. The third study hypothesizes that the subsequent expansions of foreign affiliates within a subnational region are contingent onboth the levels of subnational economic, political and social institutional development and the affiliates’ relative performance to their aspiration levels. The poor performance feedback stimulates a foreign affiliate to take advantage of high levels of subnational political and social institutional development for changing the current situation via expanding the operational size within a subnational region. Drawing from the foreign-invested firms positing in different subnational regions of a large institutional transition economy, China, I test hypothesized relationships based on a measurement of subnational institutional development that captures economic, political and social institutional conditions of subnational regions within the country. This thesis provides implications for both theoretical development and management practices.