2Why Do MNCs Divest or Retain Foreign Subsidiaries?Approaches from Dependency and Redundancy in Subsidiary Networks Naoki Yasudaflexibility, which suggests the value of the subsidiary network that derives from the coordination of geographically dispersed subsidiaries (Kogut & Kulatilaka, 1994). This inter-related view of subsidiaries suggests that functions of subsidiaries are diversifying. Previous studies note that motivations for foreign direct investment (FDI) include market access, efficiencies, strategic asset acquisitions, and additional resources (e.g., Johanson & Vahlne, 1977). However, the foreign operations of MNCs have been complicated. For example, in the field of international economics, Yeaple (2003) shows that foreign subsidiaries simultaneously engage in both horizontal and vertical integration. Ekholm, Forslid, and Markusen (2007) assert the importance of export platform FDI by illustrating how subsidiaries serve as platforms for exporting to third-party countries. Many affiliates belong to international production networks, what Baldwin and Okubo (2014) call “networked FDI.” This view highlights third-party country effects instead of paired individual–affiliate and parent–affiliate characteristics. This study introduces concepts of dependency and redundancy in subsidiary networks and presumes that subsidiaries construct networks by exporting and importing goods and inputs. The existing literature says little about how subsidiary networks affect foreign subsidiary divestment decisions. By situating the divestment decision within these concepts, this study considers whether divestment can be explained by how subsidiaries are embedded in their subsidiary networks. First, specifically, this study considers the function of a network hub, defined as subsidiaries that have high degree of dependency from sister subsidiaries for exports, and a network authority, defined as subsidiaries that have high degree of dependency from sister subsidiaries for imports. Second, this study applies the concept of redundancy in considering subsidiary functions. Subsidiaries that duplicate the functions of other subsidiaries in the same countries or region would be candidates for divestment to reduce redundancy in the network. In sum, this study answers a question based on a perspective of dependency and redundancy: Why do MNCs divest foreign subsidiaries? To answer the question, I hypothesize that MNCs are less likely to divest subsidiaries that are part of a network hub and that enjoy high levels of network authority. I also hypothesize that parent MNCs are more likely divest a subsidiary when others in the network share the same function. Using data from Japanese foreign affiliates, this study finds evidence that supports the hypotheses. THEORY AND HYPOTHESESDivestment of Foreign Subsidiaries Scholars have investigated factors that explain the survival and divestment of subsidiaries (e.g., Berry, 2013). Foreign divestment is an important decision for MNCs since it involves the sale of international subsidiaries and an exit from foreign markets. Despite its importance, little is known about the factors that lead firms to divest their foreign subsidiaries (Soule, Swaminathan, & Tihanyi, 2014). Divestment has been explored from the perspective of (1) the subsidiary, (2) the parent firm, (3)
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