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The liability of closeness: Business relatedness and foreign subsidiary performance

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  • Tang, Jianyun
  • Rowe, W. Glenn

Abstract

It is widely accepted that business relatedness, defined as the extent to which a foreign subsidiary is related to its parent's core business, has a positive effect on subsidiary performance. With a sample of 165 Japanese subsidiaries located in China, however, we found that modestly related subsidiaries, on average, outperformed both unrelated and closely related subsidiaries, and that closely related subsidiaries performed poorly especially when the parent had a heavy majority ownership in the subsidiary and the subsidiary was at its early stage of operating in the host market. Our results indicate that being too closely related to the parent could be potentially detrimental, suggesting a liability of closeness.

Suggested Citation

  • Tang, Jianyun & Rowe, W. Glenn, 2012. "The liability of closeness: Business relatedness and foreign subsidiary performance," Journal of World Business, Elsevier, vol. 47(2), pages 288-296.
  • Handle: RePEc:eee:worbus:v:47:y:2012:i:2:p:288-296
    DOI: 10.1016/j.jwb.2011.04.016
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    1. repec:spr:manint:v:57:y:2017:i:5:d:10.1007_s11575-017-0314-2 is not listed on IDEAS
    2. Meyer, Klaus E. & Su, Yu-Shan, 2015. "Integration and responsiveness in subsidiaries in emerging economies," Journal of World Business, Elsevier, vol. 50(1), pages 149-158.
    3. Tobias Pehrsson & Navid Ghannad & Anders Pehrsson & Tobias Abt & Siyuan Chen & Fabian Erath & Tobias Hammarstig, 2015. "Dynamic capabilities and performance in foreign markets: Developments within international new ventures," Journal of International Entrepreneurship, Springer, vol. 13(1), pages 28-48, March.
    4. Lewellyn, Krista B. & Bao, Shuji ‘Rosey’, 2015. "R&D Investment in the Global Paper Products Industry: A Behavioral Theory of the Firm and National Culture Perspective," Journal of International Management, Elsevier, vol. 21(1), pages 1-17.
    5. Beamish, Paul W. & Lupton, Nathaniel C., 2016. "Cooperative strategies in international business and management: Reflections on the past 50 years and future directions," Journal of World Business, Elsevier, vol. 51(1), pages 163-175.
    6. Kostova, Tatiana & Marano, Valentina & Tallman, Stephen, 2016. "Headquarters–subsidiary relationships in MNCs: Fifty years of evolving research," Journal of World Business, Elsevier, vol. 51(1), pages 176-184.

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