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Place, space, and geographical exposure: Foreign subsidiary survival in conflict zones

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Abstract

This study focuses on the role of geography in foreign subsidiary survival in host countries afflicted by political conflict. We argue that survival is a function of exposure to conflicts, and depends on the characteristics of place (the conflict zone) and space (geographic concentration and dispersion of other home-country firms). The roles of place and space are explored using street-level analysis of geographic information systems data for 670 Japanese multinational enterprises (MNE) subsidiaries in 25 conflict-afflicted host countries over 1987–2006. Through dynamic modeling of conflict zones as stretchable and shrinkable places relative to subsidiary locations, we develop a means of characterizing a foreign subsidiary's exposure to multiple threats in its geographic domain. Our results show that greater exposure to geographically defined threats, in both a static and a dynamic sense, reduces the likelihood of MNE survival. The findings indicate, moreover, that both concentration and dispersion with other firms affect survival; however, the effects depend on where the firm is spatially located (whether the firm is in a conflict zone) and with whom (home-country peers or sister subsidiaries).

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Notes

  1. Shell later chose to exit only partially, evacuating non-essential personnel and cutting back on oil production and exports.

  2. Coulomb's law states that “the magnitude of the electrostatics force of interaction between two point charges is directly proportional to the scalar multiplication of the magnitudes of charges and inversely proportional to the square of the distances between them” (http://en.wikipedia.org/wiki/Coulomb's_Law and http://regentsprep.org/Regents/physics/phys03/acoulomb/default.htm).

  3. The distinction between place and space can be drawn too finely. Taylor (1999: 12), for example, argues that “the same location can be both place and space depending on whose perspective is involved”: that is, there can be spatial relationships (distance, proximity, ties) within a place such as a city or country.

  4. King and Zeng (2001) have shown that conventional logistic regression underestimates the probability of rare events (approximately<5% of the data), producing biased coefficients. Please also note that STATA's RElogit command does not report goodness-of-fit statistics.

  5. To our knowledge, with the exception of Boeh and Beamish (2012), no prior international business research has been carried out at this level of analysis. We first searched for foreign subsidiary street addresses on various Internet sites using information on parent name, subsidiary phone number, industry, founding year, and host country. We also searched old news articles for the addresses of the subsidiaries that had already exited. We then identified the latitude and longitude of the subsidiary's address using the website http://itouchmap.com/latlong.html.

  6. In the case of a single conflict zone, Eq. (1) collapses to A zt /(1+d izt ). Our measure of dynamic exposure therefore incorporates situations where the focal subsidiary faces exposure to a single conflict zone (z=1), as well as to multiple conflict zones (z>1).

  7. Note the similarity with Eq. (1), where A is the “weight” (the area of the conflict zone).

  8. The log form accounts for the fact that transportation costs, in terms of both time and money, do not increase linearly over geographic space (Sorenson & Audia, 2000).

  9. The Composite Political Risk Rating from International Political Risk Services includes 12 weighted variables: see http://www.prsgroup.com/ICRG_Methodology.aspx/.

  10. The Political Terror Scale is available at http://www.politicalterrorscale.org.

  11. The Affinity of Nations Index is available at http://dss.ucsd.edu/~egartzke/htmlpages/data.html.

  12. BIT data are available at http://www.unctad.org/Templates/Page.asp?intItemID=2344%lang=1/.

  13. In the sample, 73% of the cases involved more than one conflict in a host country in a given year. If there was only one conflict in a given year for the host country, this step was omitted.

  14. We thank the editors for bringing this point to our attention.

  15. This methodology has been widely used in international economics to evaluate, for example, the effects of exporting and acquisitions on firm performance and returns to scale (Arnold & Javorcik, 2009), and of outward FDI on the decision to invest in tangible assets and R&D at home (Egger & Pfaffermayr, 2004).

  16. A simple comparison between conflict zone and non-conflict zone subsidiaries cannot determine the precise effects of zone location, because the characteristics of the subsidiaries inside conflict zones would have differed from those outside conflict zones before the former were “placed” inside.

  17. We control for the exit of same-country, same-industry peers in the prior year, so that geographic concentration with same-country peers encouraging exit captures other motivations besides peer firm exit.

  18. We also theorized about dispersion as a parent-level phenomenon, but our robustness checks found almost identical results for the effects of dispersion on the focal subsidiary (β=0.18 instead of 0.14; p<0.001 for both).

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Acknowledgements

We gratefully acknowledge the encouraging guidance and insightful feedback of the Special Issue Editors, Ram Mudambi and Sjoerd Beugelsdijk, as well as JIBS Editor-in-Chief John Cantwell. The paper has also benefited from the comments and suggestions made by two anonymous JIBS reviewers. We also thank the participants and commentators at the JIBS Special Issue Conference at Temple University and the Faculty Research Seminar Series at Loyola Marymount University for their helpful input and rich discussions on this topic. The authors are also indebted to Quan Li, who first drew our attention to geographic information systems (GIS) data for conflict zones; Miriam Olivares and Ryan Lee, who helped with the ArcGIS software; and Dan Xie, who helped with the mathematical formulas.

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Authors and Affiliations

  1. Department of Management, College of Business Administration, Loyola Marymount University, Los Angeles, USA

    Li Dai

  2. Department of Management, Mays Business School, Texas A&M University, College Station, USA

    Lorraine Eden

  3. Richard Ivey School of Business, The University of Western Ontario, London, Canada

    Paul W Beamish

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  1. Li Dai
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  2. Lorraine Eden
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  3. Paul W Beamish
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Correspondence to Li Dai.

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Accepted by Ram Mudambi and Sjoerd Beugelsdijk, Guest Editors, 24 February 2013. This paper has been with the authors for three revisions.

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Dai, L., Eden, L. & Beamish, P. Place, space, and geographical exposure: Foreign subsidiary survival in conflict zones. J Int Bus Stud 44, 554–578 (2013). https://doi.org/10.1057/jibs.2013.12

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