3Why Do MNCs Divest or Retain Foreign Subsidiaries?Approaches from Dependency and Redundancy in Subsidiary Networks Naoki Yasudathe host country, and (4) the home-country. The conventional argument regarding the cause of the divestment is poor performance (e.g., Duhaime & Grant, 1984; Montgomery & Thomas, 1988). Shaver (1998) argued that the mode of entry crucially influences the survival of foreign subsidiaries. Mata and Portugal (2002) indicated that the size of a subsidiary for MNCs determines its survival. Delios and Beamish (2001) found that survival among the manufacturing subsidiaries of Japanese MNCs generally increases with local operating experience. Chung, Lee, and Lee (2013) showed that when profitability falls, subsidiaries with dual options are less likely to leave than subsidiaries with a single option. Furthermore, Song and Lee (2017) showed that MNCs are less likely to divest a foreign subsidiary, even under hostile host-market demand conditions, when it is vertically integrated with headquarters. With regard to firm-level factors, Duhaime and Grant (1984) showed that a parent firm’s performance encourages divestment. Using data on firms in the manufacturing and technology sectors, Bradley, Aldrich, Shepherd, and Wiklund (2011) showed that although subsidiaries generally have lower mortality rates than independent organizations, the reverse is true during severe economic downturns because independent organizations are better able to employ resources. Sousa and Tan (2015) found that a strategic misfit between headquarters and foreign subsidiaries encourages subsidiary divestment. Song and Lee (2017) showed that MNCs are less likely to divest foreign subsidiaries, even under hostile host country environments, when those subsidiaries benefit from a top management team dispatched from headquarters. Regarding host country factors, Delios, Xu, and Beamish (2008) showed that the relationship between product diversification and subsidiary survival depends on the institutional environment of a host country in the context of Japanese foreign affiliates. Berry (2013) found that uncertainties (e.g., policy instability) in host countries moderated the relationship between poor performance and divestment among US manufacturing MNCs. Song (2014b) found that parent firms are more likely to divest subsidiaries with smaller capital investment when host country market conditions erode. Getachew and Beamish (2017) showed that subsidiaries entering the African market have greater exit likelihood than those entering the OECD market. They also found that those MNCs entering the African market with diverse investment purposes or greater market-seeking orientation are less likely to exit. Finally, with regard to home-country factors, Soule et al. (2014) found that home-country political and network characteristics influence divestment decisions. In summary, previous research suggests that divestment decisions are influenced by subsidiary performance and size, value chains, real options, headquarters and conditions in the home and host countries. Network Perspective on Subsidiaries This study presumes that foreign subsidiaries form subsidiary network within MNCs (e.g., Andersson, Forsgren, & Holm, 2002). MNCs form foreign subsidiary networks and their
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