Change in domestic network centrality, uncertainty, and the foreign divestment decisions of firms

Abstract

We investigate the role of domestic interfirm networks for the foreign divestment decisions of firms. We argue that firms’ foreign operations risk being divested when a firm becomes more central in its domestic network. Positive changes in firm centrality at home facilitate access to information about new business opportunities, but they may also lead firms to consider reconfiguring their value chain activities and resources across locations. The resulting opportunity costs of maintaining foreign operations could subsequently lead to their divestment. Moreover, we argue that the positive association between an increase in firm centrality in the domestic network and foreign divestment is stronger under higher uncertainty, as pursuing new business opportunities at home becomes more appealing. We distinguish between firm-specific uncertainty and domestic market uncertainty. We test and get support for our hypotheses using foreign subsidiary data from U.S. firms in the ICT industry.

Résumé

Nous étudions le rôle des réseaux inter-entreprises domestiques dans les décisions des firmes en matière de désinvestissement à l’étranger. Nous soutenons que les activités à l’étranger des entreprises risquent d’être cédées lorsqu’une entreprise devient plus centrale dans son réseau domestique. Les changements positifs dans la centralité des firmes dans leur pays facilitent l’accès à l’information sur les nouvelles opportunités d’affaires, mais ils peuvent aussi amener les entreprises à envisager de reconfigurer leurs activités et ressources dans la chaîne de valeur d’un site à l’autre. Les coûts d’opportunité résultant du maintien des activités à l’étranger pourraient par la suite conduire à leur désinvestissement. De plus, nous affirmons que la corrélation positive entre une augmentation de la centralité de l’entreprise dans le réseau domestique et un désinvestissement à l’étranger est renforcée par une incertitude accrue, alors que la recherche de nouvelles opportunités d’affaires dans leur pays devient plus attrayante. Nous faisons la distinction entre l’incertitude spécifique à la firme et l’incertitude du marché domestique. Nous testons et confirmons nos hypothèses en utilisant des données sur les filiales étrangères d’entreprises américaines du secteur des TIC.

Resumen

Investigamos el papel de las redes nacionales entre empresas para las decisiones de desinversión en el extranjero. Argumentamos que las operaciones en el extranjero de las empresas corren el riesgo de desinvertir cuando una empresa se vuelve más central en su red nacional. Los cambios positivos en la centralidad de la empresa en su lugar de origen facilitan el acceso a la información sobre nuevas oportunidades de negocios, pero también pueden hacer que las empresas consideren la posibilidad de reconfigurar sus actividades y recursos de la cadena de valor en todas las ubicaciones. Los costos de oportunidad resultantes de mantener operaciones en el extranjero podrían posteriormente conducir a su desinversión. Además, presentamos que la asociación positiva entre un aumento en la centralidad de la empresa en la red doméstica y la desinversión en el extranjero es más fuerte bajo una mayor incertidumbre, a medida que la búsqueda de nuevas oportunidades de negocios en el país de origen se vuelve más atractiva. Distinguimos entre la incertidumbre específica de la empresa y la incertidumbre del mercado interno. Ponemos a prueba y obtenemos soporte para nuestras hipótesis utilizando datos de subsidiarias extranjeras de firmas estadounidenses en la industria de las TIC.

Resumo

Investigamos o papel das redes interfirmas domésticas para as decisões de desinvestimento de empresas estrangeiras. Argumentamos que operações estrangeiras de empresas correm o risco de serem vendidas quando a empresa se torna mais central em sua rede doméstica. Mudanças positivas na centralidade da empresa em casa facilitam o acesso a informações sobre novas oportunidades de negócios, mas também podem levar empresas a considerar a reconfiguração de atividades e recursos da sua cadeia de valor entre suas localidades. Os custos de oportunidade resultantes da manutenção de operações no estrangeiro poderiam subsequentemente levar ao seu desinvestimento. Além disso, argumentamos que a associação positiva entre um aumento na centralidade da empresa na rede doméstica e o desinvestimento estrangeiro é mais forte sob uma incerteza maior, à medida em que a busca de novas oportunidades de negócios domesticamente se torna mais atraente. Nós distinguimos entre a incerteza específica da firma e a incerteza do mercado interno. Testamos e obtemos suporte para nossas hipóteses usando dados de subsidiárias estrangeiras de empresas dos EUA no setor de ICT.

摘要

我们调查了国内企业间网络对公司外国撤资决策的作用。我们认为, 当公司在其国内网络中变得更加中心时, 公司的国外运营风险正被减除。在母国的公司中心性的积极变化有助于获取新商机信息, 但也可能导致公司考虑在不同地点重新配置其价值链活动和资源。随后产生的维持国外运营的机会成本可能会导致它们的撤资。此外, 我们认为, 公司在国内网络里中心性的提升和国外撤资之间正相关的关系在不确定性较高时更强, 因为在母国寻求新的商业机会变得更加有吸引力。我们将公司特有的不确定性和国内市场的不确定性区分开。我们用来自ICT行业的美国公司的国外子公司的数据来测试并证明我们的假设。

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ACKNOWLEDGEMENTS

We thank three anonymous reviewers and the Special Issue Editor Ilya Cuypers for their many constructive comments, which were instrumental to the development of this paper. We are very thankful to Mariia Koval for her developmental comments and suggestions, and for her support along the way. We are also grateful for the feedback received from Erik Aadland, Marie Louise Mors, and Andrew Shipilov. Earlier versions of this paper were presented at the 2017 AIB conference in Dubai, the 2016 AIB-NE conference in Philadelphia in 2016, the 2016 SMS conference in Berlin, and the 2016 EIBA conference in Vienna. This paper is a part of Viacheslav Iurkov’s doctoral dissertation at BI Norwegian Business School, and Dr. Iurkov would like to acknowledge the school for its financial support of his PhD. The usual disclaimer applies.

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Correspondence to Viacheslav Iurkov.

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Accepted by Ilya Cuypers, Guest Editor, 11 October 2018. This article has been with the authors for three revisions.

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Iurkov, V., Benito, G.R.G. Change in domestic network centrality, uncertainty, and the foreign divestment decisions of firms. J Int Bus Stud 51, 788–812 (2020). https://doi.org/10.1057/s41267-018-0194-0

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Keywords

  • foreign divestment
  • multinational firms
  • network theory
  • uncertainty