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The relative influence of country conditions, industry structure, and business strategy on multinational corporation subsidiary performance

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  • Christmann, Petra
  • Day, Diana
  • Yip, George S.

Abstract

Two competing theories of firm performance have been proposed in the business strategy literature, the industry structure view and the resource-based view of the firm. Empirical studies have estimated the relative contribution of industry structure, corporate, and business unit effects to business unit performance. These studies, however, have been restricted to using only single-country data. Missing from this debate is an international dimension that includes the relative importance of country conditions as a determinant of firm performance. The objective of this article is to fill this void by adding country characteristics to the analysis. Using cross-country data of four large multinationals in a single industry, we estimate the relative importance of country characteristics in addition to industry structure, corporate characteristics, and subsidiary strategy as determinants of subsidiary performance by using multiple regression analysis. This analysis also will contribute to the discussion on environmental determinism versus strategic choice. Country and industry characteristics are mainly outside the control of management, whereas corporate characteristics and subsidiary strategy are under management's control. Results show that country characteristics are by far the most important determinant of subsidiary performance, followed by industry structure, subsidiary strategy, and corporate characteristics. Thus, country conditions are a very important determinant of firm performance that so far has been overlooked in previous studies. These results indicate that subsidiary performance is determined mainly by conditions outside the control of subsidiary management. In terms of competing theories, these results support the environmental determinism view more than the strategic choice view and the resource-based view of the firm more than the industry structure view. These results also have important implications for multinational corporations' selection of countries for entry and investment and for performance evaluation of subsidiary management.

Suggested Citation

  • Christmann, Petra & Day, Diana & Yip, George S., 1999. "The relative influence of country conditions, industry structure, and business strategy on multinational corporation subsidiary performance," Journal of International Management, Elsevier, vol. 5(4), pages 241-265.
  • Handle: RePEc:eee:intman:v:5:y:1999:i:4:p:241-265
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    References listed on IDEAS

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    Cited by:

    1. Dörrenbächer, Christoph & Gammelgaard, Jens, 2010. "Multinational corporations, inter-organizational networks and subsidiary charter removals," Journal of World Business, Elsevier, vol. 45(3), pages 206-216, July.
    2. Chidlow, Agnieszka & Holmström-Lind, Christine & Holm, Ulf & Tallman, Steve, 2015. "Do I stay or do I go? Sub-national drivers for post-entry subsidiary development," International Business Review, Elsevier, vol. 24(2), pages 266-275.
    3. Katia Angué & Ulrike Mayrhofer, 2009. "Does Distance still Matter in Intra-European Partnerships? An Analysis of R&D Cooperation in Biotechnology," Post-Print halshs-00690208, HAL.
    4. repec:eee:iburev:v:26:y:2017:i:3:p:544-554 is not listed on IDEAS
    5. Lee, In Hyeock & Rugman, Alan M., 2012. "Firm-specific advantages, inward FDI origins, and performance of multinational enterprises," Journal of International Management, Elsevier, vol. 18(2), pages 132-146.
    6. Demirbag, Mehmet & Tatoglu, Ekrem & Glaister, Keith W., 2007. "Factors influencing perceptions of performance: The case of western FDI in an emerging market," International Business Review, Elsevier, vol. 16(3), pages 310-336, June.
    7. repec:gam:jsusta:v:9:y:2017:i:5:p:800-:d:98285 is not listed on IDEAS
    8. Blomkvist, Katarina & Kappen, Philip & Zander, Ivo, 2014. "Superstar inventors—Towards a people-centric perspective on the geography of technological renewal in the multinational corporation," Research Policy, Elsevier, vol. 43(4), pages 669-682.
    9. Ketelhöhn, Niels W. & Quintanilla, Carlos, 2012. "Country effects on profitability: A multilevel approach using a sample of Central American firms," Journal of Business Research, Elsevier, vol. 65(12), pages 1767-1772.
    10. Gammelgaard, Jens & McDonald, Frank & Stephan, Andreas & Tüselmann, Heinz & Dörrenbächer, Christoph, 2012. "The impact of increases in subsidiary autonomy and network relationships on performance," International Business Review, Elsevier, vol. 21(6), pages 1158-1172.
    11. Cherchye, Laurens & Verriest, Arnt, 2016. "The impact of home-country institutions and competition on firm profitability," International Business Review, Elsevier, vol. 25(4), pages 831-846.
    12. Piotr Trapczynski, 2013. "Determinants Of Foreign Direct Investment Performance – A Critical Literature Review," Oeconomia Copernicana, Institute of Economic Research, vol. 4(2), pages 117-132, June.

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