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Title: The effects of institutional distance on foreign-owned subsidiary development : the case of the Northwest of England
Author: Dahms, Sven
Awarding Body: Manchester Metropolitan University
Current Institution: Manchester Metropolitan University
Date of Award: 2012
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Abstract:
In the foreign-owned subsidiary development literature, institutional differences between home and host country have been mainly neglected. It has been argued that one of the reasons for that is a lack of appropriate institutional perspective, which could engulf prevailing theories and perspectives in the subsidiary development literature. This study seeks to narrow this gap by suggesting a theoretically consistent framework based on insights from new institutional economics and internalisation theory. It applies the concept of institutional distance in order to investigate the effects of transaction cost differentials between home and host country on subsidiary development. Thereby, it aims at contributing to existing literature to disentangle the institutional distance concept into formal and informal institutions. In particular, it explores the association between institutional distance and subsidiary organisational network relationships and strategic decision-making autonomy of subsidiaries in the Northwest of England. Furthermore, it is among the pioneering studies that propose systematic conceptual and empirical investigation of an interaction term between formal and informal institutional distance in the context of subsidiary development. Based on a unique census-like database of foreign-owned subsidiaries in the Northwest of England, a large-scale postal survey has been conducted. The database contains the most complete and up-to-date data of foreign-owned subsidiaries. It, thereby, minimises some limitations of previous studies, such as small sample bias or home country bias. Following the current best practise in the field, the institutional distance variables have been derived from secondary data. In particular, formal institutional distance measures have been used from the World Economic Forum and informal institutional distance from the World Value Survey. The choice of the variables has been guided explicitly by theory as demanded in the literature. The results indicate that informal institutional distance has a pronounced negative effect on the strength of intra- and inter-organisational relationships, and decision-making autonomy in foreign-owned subsidiaries. However, formal institutional distance seems to be less relevant where subsidiary development is concerned, only becoming significant in the interaction terms. This reveals the complex interplay between the two institutional dimensions. The results lend support to some of the theoretical expectations. It suggests a tendency that foreign-owned subsidiaries have stronger links to other units in the Multinational Enterprise network, and has more decision-making autonomy, if formal institutional distance is large and informal institutional distance is low. The policy implications seem to point towards only very limited means for a host location to influence subsidiary development through formal institutional adjustments. Overall, it might be more promising to focus on investment from home countries that are informal institutional close. Managers at subsidiary and headquarters level might be well advised to take informal institutional distance into consideration. It seems that such frictions could impede the exploitation of formal institutional transaction cost differentials between home and host country.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID: uk.bl.ethos.574595  DOI: Not available
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