Foreign Subsidiary Exit from Africa: The Effects of Investment Purpose Diversity and Orientation

Yamlaksira S Getachew, Paul W. Beamish

Research output: Contribution to journalArticle

10 Citations (Scopus)

Abstract

Research Summary
This study considers the exit likelihood of foreign subsidiaries operating in Africa and identifies strategic orientations that can improve their chances of survival. We find that, on average, subsidiaries entering the African market have a greater exit likelihood than those entering the OECD market. However, those subsidiaries entering the African market with diverse investment purposes or greater market‐seeking orientation are less likely to exit, as they tend to enjoy flexibility, adaptability, and learning advantages useful in mitigating economic challenges and/or tapping into strategic opportunities.

Managerial summary
This study examines how the decision to enter African markets relates to the exit probability of MNE subsidiaries. Using a longitudinal, paired‐sample design of Japanese foreign subsidiaries operating in Africa and OECD countries, we find that entry to Africa increases the hazard rate of subsidiaries, but that subsidiaries entering with more diverse investment purposes and greater market‐seeking orientation have a better survival likelihood. Consistent with the institutional‐based theory of corporate diversification, our findings introduce purpose diversity and market‐seeking orientation as potential mechanisms to mitigate the hazards of institutional voids/instability. Also, by looking at the phenomenon of within‐subsidiary diversity (of purposes) and its interaction with institutional conditions, we advance the notion of subsidiary scope and its implications.
Original languageEnglish
Pages (from-to)58-82
JournalGlobal Strategy Journal
Volume7
Issue number1
Early online date10 Feb 2017
DOIs
Publication statusE-pub ahead of print - 10 Feb 2017

Keywords

  • entry to Africa
  • investment purpose
  • market-seeking orientation
  • institutional voids
  • institutional instability

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