Internalization advantage and subsidiary performance: The role of business group affiliation and host country characteristics


We extend internalization theory by examining the contingencies associated with market internalization and its impact on foreign subsidiary survival. Based on a sample of 6170 subsidiary–year observations in 63 countries belonging to 292 MNCs from Korea during 1995–2013, we find that greater product and labor market internalization have weaker impacts on the survival of subsidiaries operating in countries with more developed institutional environments but stronger for subsidiaries of MNCs affiliated with business groups. The impact of business group affiliation is further dependent on host country institutional development, and the diversification and size of the business group.


Nous développons la théorie de l’internalisation en examinant les contingences associées à l’internalisation du marché et son impact sur la survie des filiales étrangères. Sur la base d’un échantillon de 6 170 observations subsidiaires annuelles, appartenant à 292 multinationales coréennes, effectuées dans 63 pays entre 1995 et 2013, nous trouvons qu’une plus grande internalisation du marché des produits et du travail a un impact plus faible sur la survie des filiales opérant dans des pays plus développés sur le plan institutionnel, mais plus fort pour les filiales de multinationales affiliées à des groupes d’activités. L’impact de l’affiliation à un groupe d’entreprises dépend en outre du développement institutionnel du pays d’accueil, de la diversification et de la taille du groupe d’activités.


Extendemos la teoría de internalización al examinar las contingencias asociadas con la internalización del mercado y su impacto en la supervivencia de las filiales en el extranjero. Con base en una muestra de 6170 observaciones de filiales-año en 63 países pertenecientes a 292 multinacionales de Corea durante 1995 a 2013, encontramos que una mayor internalización del producto y del mercado laboral tiene un impacto más débil en la supervivencia de las filiales operando en países con entornos institucionales más desarrollados, pero más fuerte para filiales de multinacionales afiliadas con grupos empresariales. El impacto de la afiliación a un grupo empresarial depende más del desarrollo institucional del país anfitrión, y de la diversificación y el tamaño del grupo empresarial.


Estendemos a teoria da internalização por examinar as contingências associadas à internalização de mercado e seu impacto na sobrevivência de subsidiárias estrangeiras. Com base em uma amostra de 6170 observações de subsidiária-ano em 63 países pertencentes a 292 MNCs da Coréia de 1995 a 2013, descobrimos que uma maior internalização dos mercados de produto e trabalho tem impacto mais fraco na sobrevivência de subsidiárias que operam em países com ambientes institucionais mais desenvolvidos, mas mais forte para subsidiárias de MNCs afiliadas a grupos empresariais. O impacto da filiação a grupo empresarial depende ainda do desenvolvimento institucional do país anfitrião e da diversificação e tamanho do grupo empresarial.



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A previous version of this manuscript was presented at the AOM 2016 conference in Anaheim. It was also nominated for IM Division GWU-CIBER Best Paper on Emerging Markets award. We are grateful for the invaluable comments received from Christian Asmussen, Peter Buckley, Mark Casson, Tailan Chi, Farok Contractor, Vikas Kumar, Sumit Kundu, Ram Mudambi, Rajneesh Narula and Jane Lu on earlier versions of this paper.

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Accepted by Christian Geisler Asmussen, Tailan Chi, and Rajneesh Narula, Special Issue Guest Editors, 2 April 2019. This article has been with the authors for four revisions.

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Gaur, A.S., Pattnaik, C., Singh, D. et al. Internalization advantage and subsidiary performance: The role of business group affiliation and host country characteristics. J Int Bus Stud 50, 1253–1282 (2019) doi:10.1057/s41267-019-00236-6

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  • internalization advantages
  • MNCs
  • business groups
  • subsidiary survival
  • Korea