Essays on multinational enterprises

In developed economies, firms have rapidly expanded production opportunities in other countries. However, the difficulties in achieving efficient management in foreign countries have also been long-standing concerns. In this paper, we try to investigate the managerial intentions behind the organizational choices. Under what conditions will MNEs (multi-national enterprises) maintain dominant control of affiliates, or what will they do if such conditions are not satisfied? Will they choose to share the management of foreign affiliates, or will they contract out their activities to local firms? Specifically, we discuss what determines co-ownership and how different degrees of ownership are utilized when setting up new firms. Outsourcing is taken into account as the important alternative to the activities by affiliates of MNEs. Our focus is on the decision when MNEs in developed countries set out to less developed countries, seeking export platforms. The setup is based on some actual contracts for equity joint ventures used between local firms and foreign firms, to clarify the role of ownership. We then propose a model and highlight two factors. One is the degree to which a local firm can satisfy the qualifications requested by an MNE. The other factor is the degree to which an MNE needs location-specific knowledge for management. We discuss how these benefits and losses are affecting an MNE's choices of investments, efforts, percentage of ownership, or transaction price for outsourcing. In our empirical analysis, we approach these questions using the data of Japanese-owned foreign affiliates located in Asia, and the data of multinational firms. We find that an MNE with prior experience in the host country has a significant likelihood to choose its foreign direct investment with fully foreign-owned operations. When an MNE chooses a joint ownership, we also find that an existing procurement network by incumbent firms in a local industry is an effective factor. It is found that a greater ownership share is allocated to a local investor, than in the case without such networks. In addition, these economic factors are found to be more influential than some political factors we investigate in this paper.