Hypotheses 1a-1c (No Response)

The causes for a non-response to subpar performance at a foreign subsidiary can be manifold and span all levels of analysis. In this part of the analysis, we assume an ABV perspective and suggest that geographic distance, MNE-level poor performance, and the number of expatriates at the ailing subsidiary are factors that may influence whether a response is administered. The choice of these variables is based on their representativeness regarding influences at different levels of analysis (following the notion that subpar performance can span multiple levels of analysis) and their importance in the extant literature. Figure 4.1 illustrates the hypothesized relationships.

The ABV suggests that the meta-concept of attention can help explain why some firms would respond to issues while others do not. Attention, while ultimately an individual-level process, is “situated in the context of the firm’s activities and procedures, and these situational contexts, and the decision-makers, issues, and answers they are linked to, are distributed throughout the firm (March & Olsen, 1976).” (Ocasio, 1997: 189). This dispersion of attention structures can manifest in differences with respect to how much attention is allocated to each unit across spatial, temporal, and procedural dimensions (see Mechanism 3 in Ocasio, 1997). In

MNEs, these dimensions are especially salient, since the headquarters must allocate its attention across different country borders, time zones, language barriers, and cultural differences.

Figure 4.1. Model With Hypotheses For Dimension 1: “Identifying”: Part 1 - Predicting No Response.

Note: The underlined variables are the ones in focus for the respective set of hypotheses.

An important factor that may thus affect whether or not a subsidiary will experience a response to its subpar performance is its geographic distance to the headquarters. A foreign subsidiary that is further away from its headquarters is likely going to be less connected to the processes and key decision-makers at the headquarters (Helliwell, 2002). Greater geographic distance can also come with greater travel time and higher travel costs, which in turn may affect the number of visits executives pay to the foreign subsidiary (Boeh & Beamish, 2012). Similarly, Dunning (1998) suggests that geographic distance can incur spatial transaction costs which can result from the friction of coordinating a dispersed network of subsidiaries, managing country differences, or alleviating information asymmetries. Geographic distance may also result in language barriers that can lead to misunderstandings, conflict, and parallel communication

Strategic responses increases in commitment decreases in commitment Operational responses increases in commitment decreases in commitment Combination responses increases in commitment decreases in commitment mixed change in commitment

No response increases in commitment Environment-level factors GDP growth Geographic distance MNE-level factors Poor performance Subsidiary-level factors Regional headquarters R&D role Joint venture/WOS Subsidiary age Number of employees Number of expatriates H1a (+) H1b (+) H1c (-)

channels (Harzing & Pudelko, 2014). All these challenges can raise temporal transaction costs, since greater geographic distance can result in delays due to longer travel times, translations, and time zone differentials.

Taken together, greater geographic distance can make it more likely that an MNE is paying less attention to the distant foreign subsidiary. Moreover, even if the headquarters does receive signals about the subsidiary’s subpar performance, it may be more difficult to process this information and interpret it accordingly when geographic distance is greater. For instance, the causes for subpar performance in a geographically proximate subsidiary may be more intuitively understood than the causes for subpar performance in a geographically distant subsidiary, where many headquarter-based heuristics may not be applicable.

Moreover, insights from the literature on networks suggest that a diverse network may increase the degree of novelty of information received through the network. However, this diversity may come with an overall reduction in information flow. Thus, if an MNE has built a widespread network of foreign subsidiaries, it may be able to obtain novel information from such far-flung subsidiaries (e.g. about local preferences and innovations). The trade-off in this setting is, however, that the headquarters may receive less information from those foreign subsidiaries, increasing the risk of a non-response when subpar performance occurs. In sum, the following hypothesis is offered:

Hypothesis 1a: A non-response to subpar performance at a foreign subsidiary is more likely to

occur with higher geographic distance between the headquarters and that foreign subsidiary.

A similar attention-based argument can be made for the situation in which the loss situation is not restricted to the foreign subsidiary but concerns the MNE as a whole. It is

possible that the foreign subsidiary is ailing precisely as a result of the corporate-level or business-level decline. In a situation of decline for the entire organization, attention may be focused on salvaging the domestic market first, before rescuing a particular foreign subsidiary. The problem in the headquarters’ own backyard needs to be resolved before it can direct its attention elsewhere. Further, even if the headquarters did note the subpar performance situation at the foreign subsidiary, it may not be able to prioritize resources to be allocated to the foreign location. Such resources include top management time, leading to a higher level of inertia regarding the headquarters’-subsidiary relationship. In sum, the following hypothesis is proposed:

Hypothesis 1b: A non-response to subpar performance at a foreign subsidiary is more likely to

occur when the MNE as a whole is experiencing profit losses.

During situations with high levels of uncertainty, such as subpar performance, an MNE headquarters has several options through which it can exercise control, channel support, and receive information in order to enhance its ability to pay attention to a subsidiary-level situation. One such way is the practice of temporarily deploying parent-country nationals as expatriates to those foreign locations for purposes of knowledge transfer, organizational development, or coordination and control (Edström & Galbraith, 1977; Takeuchi, Shay, & Li, 2008). Japanese MNEs regularly deploy expatriates to their foreign locations for these purposes (Gong, 2003; Peterson, Napier & Shim, 1996). Expatriates can thereby play a two-directional role: first, they can direct subsidiary-level attention to measures required by the headquarters. Choi and Beamish (2004) also note that control mechanisms act as a conduit for firm-specific advantages and expatriates could be such a control mechanism. Second, they can report back to the headquarters regarding the subsidiary-level situation. Thus, expatriates can play an active role in directing

headquarter attention channels - with the result that a higher number of expatriates at a subpar performing subsidiary is expected to decrease the probability of not receiving a headquarter response.

Moreover, Riaz, Rowe, and Beamish (2014) note the importance of expatriate deployment levels with regards to future growth. They find that a higher number of expatriates at the foreign subsidiary’s foundation and a slower decrease of this number over time lead to improved growth prospects. Riaz et al. (2014) suggest that expatriates can facilitate knowledge transfer, coordination and control. If their number is higher at founding, path dependency unfolds a positive effect, whereby subsequent capabilities development and growth is enabled. The second part of their argument suggests that when the decrease in the number of expatriates is slower in a subsidiary than in its counterparts, it incurs lower dynamic adjustments costs. These costs arise when new members replace the function of the expatriate and the organization needs to adjust to incorporate these individuals. During times of subpar performance, both a higher number of expatriates at foundation and over time may thus allow for more efficient communication and coordination. As a result, the following hypothesis is provided:

Hypothesis 1c: A non-response to subpar performance at a foreign subsidiary is more likely to

occur when there are a fewer expatriates in the subsidiary.