IDEAS home Printed from https://ideas.repec.org/a/eee/intman/v23y2017i3p292-305.html
   My bibliography  Save this article

The Performance of MNE Subsidiaries in China: Does It Matter to Be Close to the Political or Business Hub?

Author

Listed:
  • Teng, Lefa
  • Huang, Dan
  • Pan, Yigang

Abstract

This study examines the impact of distance on financial performance of multinational enterprise (MNE) subsidiaries in China. We hypothesized and found that MNE subsidiaries performed better when located closer to the country's business hub, but performed less well when located closer to the political hub. We also hypothesized that distance effects are moderated by subsidiary size, subsidiary network, and state capital contribution to subsidiary. Our findings were based upon 45,248 MNE subsidiaries with location and geographic distance measured at the prefectural level in China.

Suggested Citation

  • Teng, Lefa & Huang, Dan & Pan, Yigang, 2017. "The Performance of MNE Subsidiaries in China: Does It Matter to Be Close to the Political or Business Hub?," Journal of International Management, Elsevier, vol. 23(3), pages 292-305.
    • Handle: RePEc:eee:intman:v:23:y:2017:i:3:p:292-305
    DOI: 10.1016/j.intman.2016.12.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1075425316302277
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.intman.2016.12.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Pan, Yigang & Teng, Lefa & Yu, Mingyang & Lu, Xiongwen & Huang, Dan, 2014. "Host-country Headquarters of U.S. Firms in China: An Empirical Study," Journal of International Management, Elsevier, vol. 20(4), pages 379-389.
    2. Gooris, Julien & Peeters, Carine, 2014. "Home–Host Country Distance in Offshore Governance Choices," Journal of International Management, Elsevier, vol. 20(1), pages 73-86.
    3. Zander, Ivo, 2004. "The microfoundations of cluster stickiness--walking in the shoes of the entrepreneur," Journal of International Management, Elsevier, vol. 10(2), pages 151-175.
    4. Michael Storper, 2011. "Why do regions develop and change: the challenge for geography and economics," Post-Print hal-03417606, HAL.
    5. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
    6. Andrés Rodríguez-Pose, 2011. "Economists as geographers and geographers as something else: on the changing conception of distance in geography and economics," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 347-356, March.
    7. Ambos, Tina C. & Ambos, Björn, 2009. "The impact of distance on knowledge transfer effectiveness in multinational corporations," Journal of International Management, Elsevier, vol. 15(1), pages 1-14, March.
    8. Kevin K Boeh & Paul W Beamish, 2012. "Travel time and the liability of distance in foreign direct investment: Location choice and entry mode," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(5), pages 525-535, June.
    9. Firth, Michael & Gong, Stephen X. & Shan, Liwei, 2013. "Cost of government and firm value," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 136-152.
    10. John Cantwell & Lucia Piscitello, 2005. "Recent Location of Foreign-owned Research and Development Activities by Large Multinational Corporations in the European Regions: The Role of Spillovers and Externalities," Regional Studies, Taylor & Francis Journals, vol. 39(1), pages 1-16.
    11. Xufei Ma & Tony W Tong & Markus Fitza, 2013. "How much does subnational region matter to foreign subsidiary performance? Evidence from Fortune Global 500 Corporations’ investment in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(1), pages 66-87, January.
    12. Kundu, Sumit K. & Contractor, Farok J., 1999. "Country location choices of service multinationals: An empirical study of the international hotel sector," Journal of International Management, Elsevier, vol. 5(4), pages 299-317.
    13. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2009. "Cultural Biases in Economic Exchange?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(3), pages 1095-1131.
    14. John H Dunning, 2009. "Location and the multinational enterprise: A neglected factor?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(1), pages 5-19, January.
    15. Hicheon Kim & Heechun Kim & Robert E Hoskisson, 2010. "Does market-oriented institutional change in an emerging economy make business-group-affiliated multinationals perform better? An institution-based view," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(7), pages 1141-1160, September.
    16. Ceci, Federica & Prencipe, Andrea, 2013. "Does Distance Hinder Coordination? Identifying and Bridging Boundaries of Offshored Work," Journal of International Management, Elsevier, vol. 19(4), pages 324-332.
    17. Bharat N. Anand & Tarun Khanna, 2000. "Do firms learn to create value? The case of alliances," Strategic Management Journal, Wiley Blackwell, vol. 21(3), pages 295-315, March.
    18. Andreas Schotter & Paul W Beamish, 2013. "The hassle factor: An explanation for managerial location shunning," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(5), pages 521-544, June.
    19. Michael Storper, 2011. "Why do regions develop and change? The challenge for geography and economics," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 333-346, March.
    20. Shawna O'Grady & Henry W Lane, 1996. "The Psychic Distance Paradox," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(2), pages 309-333, June.
    21. Tai-Young Kim & Andrew Delios & Dean Xu, 2010. "Organizational geography, experiential learning and subsidiary exit: Japanese foreign expansions in China, 1979--2001," Journal of Economic Geography, Oxford University Press, vol. 10(4), pages 579-597, July.
    22. J. Myles Shaver, 1998. "Accounting for Endogeneity When Assessing Strategy Performance: Does Entry Mode Choice Affect FDI Survival?," Management Science, INFORMS, vol. 44(4), pages 571-585, April.
    23. Shige Makino & Eric W K Tsang, 2011. "Historical ties and foreign direct investment: An exploratory study," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 42(4), pages 545-557, May.
    24. Danchi Tan & Klaus E Meyer, 2011. "Country-of-origin and industry FDI agglomeration of foreign investors in an emerging economy," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 42(4), pages 504-520, May.
    25. Yan Zhang & Haiyang Li & Yu Li & Li‐An Zhou, 2010. "FDI spillovers in an emerging market: the role of foreign firms' country origin diversity and domestic firms' absorptive capacity," Strategic Management Journal, Wiley Blackwell, vol. 31(9), pages 969-989, September.
    26. Changhui Zhou & Jing Li, 2008. "Product innovation in emerging market-based international joint ventures: An organizational ecology perspective," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(7), pages 1114-1132, October.
    27. Haley, Usha C. V., 2003. "Assessing and controlling business risks in China," Journal of International Management, Elsevier, vol. 9(3), pages 237-252.
    28. Christine M. Chan & Shige Makino & Takehiko Isobe, 2010. "Does subnational region matter? Foreign affiliate performance in the United states and China," Strategic Management Journal, Wiley Blackwell, vol. 31(11), pages 1226-1243, November.
    29. Richard Cebula & J. Clark, 2012. "Lessons from the experience of OECD nations on macroeconomic growth and economic freedom, 2004–2008," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 59(3), pages 231-243, September.
    30. David Reeb & Mariko Sakakibara & Ishtiaq P Mahmood, 2012. "From the Editors: Endogeneity in international business research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(3), pages 211-218, April.
    31. Sjoerd Beugelsdijk & Philip McCann & Ram Mudambi, 2010. "Introduction: Place, space and organization-- economic geography and the multinational enterprise," Journal of Economic Geography, Oxford University Press, vol. 10(4), pages 485-493, July.
    32. Anthony Goerzen & Christian Geisler Asmussen & Bo Bernhard Nielsen, 2013. "Global cities and multinational enterprise location strategy," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(5), pages 427-450, June.
    33. 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.
    34. Heather Berry & Mauro F Guillén & Nan Zhou, 2010. "An institutional approach to cross-national distance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(9), pages 1460-1480, December.
    35. Ma, Xufei & Delios, Andrew, 2007. "A new tale of two cities: Japanese FDIs in Shanghai and Beijing, 1979-2003," International Business Review, Elsevier, vol. 16(2), pages 207-228, April.
    36. Paul D Ellis, 2008. "Does psychic distance moderate the market size–entry sequence relationship?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(3), pages 351-369, April.
    37. Sjoerd Beugelsdijk & Ram Mudambi, 2013. "MNEs as border-crossing multi-location enterprises: The role of discontinuities in geographic space," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(5), pages 413-426, June.
    38. Jing Li & Yong Li, 2010. "Flexibility versus commitment: MNEs’ ownership strategy in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(9), pages 1550-1571, December.
    39. Molina-Morales, F. Xavier, 2001. "European industrial districts: Influence of geographic concentration on performance of the firm," Journal of International Management, Elsevier, vol. 7(4), pages 277-294.
    40. Yigang Pan & Lefa Teng & Atipol Bhanich Supapol & Xiongwen Lu & Dan Huang & Zhennan Wang, 2014. "Firms’ FDI ownership: The influence of government ownership and legislative connections," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 45(8), pages 1029-1043, October.
    41. Xufei Ma & Andrew Delios & Chung-Ming Lau, 2013. "Beijing or Shanghai? The strategic location choice of large MNEs’ host-country headquarters in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(9), pages 953-961, December.
    42. Peter J Buckley & Jeremy Clegg & Chengqi Wang, 2002. "The Impact of Inward FDI on the Performance of Chinese Manufacturing Firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(4), pages 637-655, December.
    43. Kevin Morgan, 2004. "The exaggerated death of geography: learning, proximity and territorial innovation systems," Journal of Economic Geography, Oxford University Press, vol. 4(1), pages 3-21, January.
    44. Gongming Qian & Lee Li & Ji Li & Zhengming Qian, 2008. "Regional diversification and firm performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(2), pages 197-214, March.
    45. Yigang Pan, 1996. "Influences on Foreign Equity Ownership Level in Joint Ventures in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(1), pages 1-26, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Furusawa, Masayuki & Brewster, Chris, 2019. "The Determinants of the Boundary-spanning Functions of Japanese Self-initiated Expatriates in Japanese Subsidiaries in China: Individual Skills and Human Resource Management," Journal of International Management, Elsevier, vol. 25(4).
    2. Xiaojing Lu & Sebastian Jacques Manuel Boo & Xiaming Liu, 2024. "Is the relationship between institutional distance and subsidiary performance moderated by top management team? Evidence from Chinese multinational enterprises," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-15, December.
    3. Khanindra Ch. Das & Mantu Kumar Mahalik, 2021. "Assessment of Overseas Subsidiary Survival in Chinese Provinces: A Longitudinal Study of Indian Multinationals," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 54(2), pages 190-207, June.
    4. Yongfeng Zhang & Peng Wang & Jongwook Kwon, 2021. "CSR in China: Does Being Close to the Central or Local Government Matter?," Sustainability, MDPI, vol. 13(16), pages 1-12, August.
    5. Wu, Jie & Wood, Geoffrey & Khan, Zaheer, 2021. "Top management team’s formal network and international expansion of Chinese firms: The moderating role of state ownership and political ties," International Business Review, Elsevier, vol. 30(3).
    6. Rong Li & Yi-Fei Du & Hong-Juan Tang & Francis Boadu & Min Xue, 2019. "MNEs’ Subsidiary HRM Practices and Firm Innovative Performance: A Tacit Knowledge Approach," Sustainability, MDPI, vol. 11(5), pages 1-18, March.
    7. Tao Bai & Jialin Du & Angelo M. Solarino, 2018. "Performance of foreign subsidiaries “in” and “from” Asia: A review, synthesis and research agenda," Asia Pacific Journal of Management, Springer, vol. 35(3), pages 607-638, September.
    8. Thomas Hutzschenreuter & Philippa-Luisa Harhoff, 2020. "National capital city location and subsidiary portfolio expansion: The negative effect of geographic distance to the capital city at inception on the speed of subsequent investments," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(7), pages 1107-1132, September.
    9. White, George O. & Fainshmidt, Stav & Rajwani, Tazeeb, 2018. "Antecedents and Outcomes of Political Tie Intensity: Institutional and Strategic Fit Perspectives," Journal of International Management, Elsevier, vol. 24(1), pages 1-15.
    10. Lebedev, Sergey & Sun, Sunny Li & Markóczy, Lívia & Peng, Mike W., 2021. "Board political ties and firm internationalization," Journal of International Management, Elsevier, vol. 27(3).
    11. Bo Zhang & Zhanwen Niu & Chaochao Liu, 2020. "Lean Tools, Knowledge Management, and Lean Sustainability: The Moderating Effects of Study Conventions," Sustainability, MDPI, vol. 12(3), pages 1-20, January.
    12. Sewak, Mayank & Sharma, Anurag, 2020. "Performance implications of MNE subsidiary federation: Evidence from India," Journal of International Management, Elsevier, vol. 26(1).
    13. Francis Boadu & Yu Xie & Yi-Fei Du & Elizabeth Dwomo-Fokuo, 2018. "MNEs Subsidiary Training and Development and Firm Innovative Performance: The Moderating Effects of Tacit and Explicit Knowledge Received from Headquarters," Sustainability, MDPI, vol. 10(11), pages 1-25, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chakravarty, Dwarka & Goerzen, Anthony & Musteen, Martina & Ahsan, Mujtaba, 2021. "Global cities: A multi-disciplinary review and research agenda," Journal of World Business, Elsevier, vol. 56(3).
    2. Gerald Yong Gao & Danny Tan Wang & Yi Che, 2018. "Impact of historical conflict on FDI location and performance: Japanese investment in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(8), pages 1060-1080, October.
    3. Hutzschenreuter, Thomas & Matt, Tanja & Kleindienst, Ingo, 2020. "Going subnational: A literature review and research agenda," Journal of World Business, Elsevier, vol. 55(4).
    4. Nielsen, Bo Bernhard & Asmussen, Christian Geisler & Weatherall, Cecilie Dohlmann, 2017. "The location choice of foreign direct investments: Empirical evidence and methodological challenges," Journal of World Business, Elsevier, vol. 52(1), pages 62-82.
    5. McDonald, Conor & Buckley, Peter J. & Voss, Hinrich & Cross, Adam R. & Chen, Liang, 2018. "Place, space, and foreign direct investment into peripheral cities," International Business Review, Elsevier, vol. 27(4), pages 803-813.
    6. Davide Castellani & Giulio Giangaspero & Antonello Zanfei, 2013. "Heterogeneity and distance. Some propositions on how differences across regions, firms and functions affect the role of distance in FDI location decisions," Working Papers 1308, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2013.
    7. Yadong Luo & Huan Zhang & Juan Bu, 2019. "Developed country MNEs investing in developing economies: Progress and prospect," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(4), pages 633-667, June.
    8. Niccolò Pisani & Ans Kolk & Václav Ocelík & Ganling Wu, 2019. "Does it pay for cities to be green? An investigation of FDI inflows and environmental sustainability," Journal of International Business Policy, Palgrave Macmillan, vol. 2(1), pages 62-85, March.
    9. Chan, Christine M. & Du, Jialin, 2022. "Formal institution deficiencies and informal institution substitution: MNC foreign ownership choice in emerging economy," Journal of Business Research, Elsevier, vol. 142(C), pages 744-761.
    10. García-Muiña, Fernando E. & Romero-Martínez, Ana M. & Kabbara, Diala, 2020. "Does religion influence location choice in the hotel industry?," International Business Review, Elsevier, vol. 29(2).
    11. de Jong, Gjalt & van Dut, Vo & Jindra, Björn & Marek, Philipp, 2015. "Does country context distance determine subsidiary decision-making autonomy? Theory and evidence from European transition economies," International Business Review, Elsevier, vol. 24(5), pages 874-889.
    12. Röell, Christiaan & Osabutey, Ellis & Rodgers, Peter & Arndt, Felix & Khan, Zaheer & Tarba, Shlomo, 2022. "Managing socio-political risk at the subnational level: Lessons from MNE subsidiaries in Indonesia," Journal of World Business, Elsevier, vol. 57(3).
    13. Xu, Kai & Hitt, Michael A. & Brock, David & Pisano, Vincenzo & Huang, Lulu S.R., 2021. "Country institutional environments and international strategy: A review and analysis of the research," Journal of International Management, Elsevier, vol. 27(1).
    14. Sewak, Mayank & Sharma, Anurag, 2020. "Performance implications of MNE subsidiary federation: Evidence from India," Journal of International Management, Elsevier, vol. 26(1).
    15. Ram Mudambi & Lee Li & Xufei Ma & Shige Makino & Gongming Qian & Ron Boschma, 2018. "Zoom in, zoom out: Geographic scale and multinational activity," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(8), pages 929-941, October.
    16. Donnelly, Róisín & Manolova, Tatiana S., 2020. "Foreign location decisions through an institutional lens: A systematic review and future research agenda," International Business Review, Elsevier, vol. 29(4).
    17. Jiang, Guoliang F. & Holburn, Guy L.F. & Beamish, Paul W., 2016. "The spatial structure of foreign subsidiaries and MNE expansion strategy," Journal of World Business, Elsevier, vol. 51(3), pages 438-450.
    18. Thomas Hutzschenreuter & Philippa-Luisa Harhoff, 2020. "National capital city location and subsidiary portfolio expansion: The negative effect of geographic distance to the capital city at inception on the speed of subsequent investments," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(7), pages 1107-1132, September.
    19. Conti, Claudio Ramos & Parente, Ronaldo & de Vasconcelos, Flávio C., 2016. "When distance does not matter: Implications for Latin American multinationals," Journal of Business Research, Elsevier, vol. 69(6), pages 1980-1992.
    20. Belderbos, René & Du, Helen S. & Slangen, Arjen, 2020. "When do firms choose global cities as foreign investment locations within countries? The roles of contextual distance, knowledge intensity, and target-country experience," Journal of World Business, Elsevier, vol. 55(1).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:intman:v:23:y:2017:i:3:p:292-305. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/601266/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.