Multinational corporations (MNCs) and risk perception: Understanding causes and strategic consequences (original) (raw)
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Treading the Risks in International Management
Multinational companies are making significant investments in high-risk developing countries lured by the lower factor cost and growth potential. Much research has deliberated on the risks related to such international business, and in particular the country risk. However, there are only a few empirical and theoretical studies that examine the managerial response of multinational companies to the contingencies in international management. This paper aims to fill this gap and specifically addresses the question of why a tighter integration of a subsidiary is still desirable despite the progression of agile networks. The empirical results of a comparative case study are discussed and a framework that articulates the dynamic approach of the parent company headquarters is presented. A map of factual events was created and juxtaposed with the hypothesized reasoning behind the observations.
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Despite voluminous literature on corruption and the entry mode choices of multinational companies (MNCs) in isolation, a comprehensive account which details the mechanisms through which host country corruption impacts on MNCs' entry modes is lacking. To overcome such a gap, we systematically review and provide an up-to-date overview of the empirical literature on corruption and the entry mode choices of MNCs. The review demonstrates that, in general, when in presence of markets with high levels of corruption, MNCs prefer low equity (that is, joint-ventures with local partners) or non-equity (namely exports and contracting) entry mode choices. Nevertheless, it also reveals that, in some specific cases, such as cultural proximity, even when there is pervasive corruption, MNCs may enter via wholly-owned subsidiaries. Such conclusions uncovered an interesting path for future research by exploring a rather neglected context, where the entry mode choices of MNCs are made from developed countries in Africa possessing historical and cultural ties.
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In this paper, we aim to identify the political and financial risk components that matter most for the activities of multinational corporations. Our paper is the first paper to comprehensively examine the impact of various components of not only political risk but also financial risk on inward FDI, from both long-run and short-run perspectives. Using a sample of 93 countries (including 60 developing countries) for the period 1985-2007, we find that among the political risk components, government stability, socioeconomic conditions, investment profile, internal conflict, external conflict, corruption, religious tensions, democratic accountability, and ethnic tensions have a close association with FDI flows. In particular, socioeconomic conditions, investment profile, and external conflict appear to be the most influential components of political risk in attracting foreign investment. Among the financial risk components, only exchange rate stability yields statistically significant positive coefficients when estimated only for developing countries. In contrast, current account as a percentage of exports of goods and services, foreign debt as a percentage of GDP, net international liquidity as the number of months of import cover, and current account as a percentage of GDP yield negative coefficients in some specifications. Thus, multinationals do not seem to consider seriously the financial risk of the host country.
Organizations and Markets in Emerging Economies , 2021
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Multinational enterprise in control of dispersed overseas resources and capabilities has been linked to strategic flexibility that allows the firm to take advantage of opportunities and manage exposures imposed by changing environmental conditions. This paper analyzes the implied performance and risk management effects in a comprehensive sample of public firms and finds supportive evidence for the proposition that multinationality can enhance performance across industries. However, the ability to exploit upside potential and avoid downside risk is industry specific. The positive effects of multinationality are found particularly pronounced among firms operating in knowledge intensive service industries while firms in capital-intensive primary industries display the inverse relationships.
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