5Why Do MNCs Divest or Retain Foreign Subsidiaries?Approaches from Dependency and Redundancy in Subsidiary Networks Naoki Yasudaintermediate goods abroad while selling some output abroad. Baldwin and Okubo (2014) call this “networked FDI” since affiliates operate as nodes in regional production networks. Based on Baldwin and Okubo (2014), I identify types of subsidiaries using local sales and procurement figures and trade flows across subsidiary networks. Figure 1 shows the various types of subsidiaries. The vertical axis shows the percentage of local sales and the horizontal axis local procurement ratios. If both ratios are 0, the subsidiary is an export platform. If only the local sales ratio is 0, it is a resource-extraction subsidiary. If only the local procurement ratio is 0, it is a vertical subsidiary. For purely horizontal subsidiaries, the ratio of both local sales and local procurement is 100%. If neither ratio is 0, it is a networked subsidiary. Therefore, functions of subsidiaries can be identified by a combination of local sales and procurements and also by exports and imports among subsidiary networks.Hypotheses This study argues that subsidiary behaviors are not independent but interrelated among subsidiary networks. Previous studies have ignored the perspective of subsidiary networks defined by export and import activities in explaining the subsidiary divestment of MNCs. First and second hypotheses apply the logic of dependency and third hypotheses apply the logic of redundancy1. This study applies the concept of dependency to the subsidiary sales and purchasing activities and the concept of redundancy to the functions of the subsidiaries.1 Belderbos and Zou (2009) also applied the concept of redundancy. While they discuss whether the subsidiary is the sole investment in a foreign country, this study applies the concept to the functions of the subsidiaries.Figure 1: Functions of SubsidiariesSource: Based on Baldwin & Okubo (2014)
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