1. ¹Department of Management, The Chinese University of Hong Kong, New territories, Hong Kong
2. ²Department of Business Policy, NUS Business School, National University of Singapore, Singapore

Correspondence: X Ma, Department of Management, The Chinese University of Hong Kong, Shatin, New Territories, Hong Kong. Tel: +852 2609 7799; Fax: +852 2603 6840; E-mail: xufei@cuhk.edu.hk

Received 30 November 2007; Revised 6 March 2009; Accepted 10 April 2009; Published online 8 October 2009.

Abstract

We propose that the establishment of a host-country headquarters (HCHQ) in a large emerging market can be viewed as part of a multinational enterprise's (MNE) political strategy to facilitate its within-country diversifications by reducing institutional intervention of the host government. Using a sample of MNEs in China in the period 1979–2005, we find that MNEs with an HCHQ had a greater number of subsequent diversifications in China, as compared with those MNEs without an HCHQ. This effect was more prominent when the diversifications were in domains with a higher level of institutional intervention.