6Why Do MNCs Divest or Retain Foreign Subsidiaries?Approaches from Dependency and Redundancy in Subsidiary Networks Naoki Yasuda Subsidiaries not only sell products locally but also export them to customers, suppliers, and sister subsidiaries in home and third-party countries. This study conceptualizes the hub function as a situation in which a subsidiary has high degree of dependency for exports. If a subsidiary has a high degree of hub function in a subsidiary network, the subsidiary contributes more effectively to the development of the subsidiary network. In addition, hub subsidiaries deploy high volumes of resources to other subsidiaries. Therefore, MNCs are less likely to divest such hub subsidiaries because they have a crucial influence on their subsidiary networks and are costly to divest. Subsidiaries not only procure goods locally but also import them from customers, suppliers, and sister subsidiaries in home and third-party countries. This study conceptualizes network authority as the situation in which a subsidiary has a high degree of dependency for imports. If a subsidiary has high degree of authority in a subsidiary network, that subsidiary contributes more effectively to the development of the subsidiary network. In addition, subsidiaries with a high degree of authority deploy high volumes of resources to other subsidiaries. Therefore, MNCs are less likely to divest these subsidiaries because they strongly influence their networks and are costly to divest. This study considers two levels of hub and authority: country and region. The regional level analysis is important because a growing numbers of papers stress the value of a regional strategy (e.g., Rugman & Verbeke 2004). Hence, I propose the following hypotheses:Hypothesis 1a: The degree of hub function of a focal subsidiary in the country where the subsidiary exists is negatively associated with an MNC’s divestment of the subsidiary.Hypothesis 1b: The degree of authority function of a focal subsidiary in a country where the subsidiary exists is negatively associated with an MNC’s divestment of the subsidiary.Hypothesis 2a: The degree of hub function of a focal subsidiary in the region where the subsidiary exists is negatively associated with an MNC’s divestment of the subsidiary.Hypothesis 2b: The degree of authority function of a focal subsidiary in the region where the subsidiary exists is negatively associated with an MNC’s divestment of the subsidiary. This study applies the logic of redundancy in assessing the functions of subsidiaries. Studies in resource redeployment suggest that MNCs recover value by withdrawing resources from one subsidiary and redeploying them to other subsidiaries (Lieberman, Lee, & Folta, 2017). If a subsidiary exits a focal country, that country’s import/export functions are partially transferred to third-party countries. Song (2015), in fact, found that environmental uncertainty in a foreign subsidiary’s host country has positive effects on an increase in intra-firm sales to subsidiaries in countries where uncertainty is lower. The decrease in a focal subsidiary’s production positively influences production in other subsidiaries of the same MNC (Lee & Song, 2012). If other subsidiaries perform the functions of a given subsidiary, MNCs can reassign their resources to other
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