Global market integration, efficiency orientation, and drivers of foreign subsidiary divestments

Abstract

Differences in global market integration across industries have important repercussions for MNC strategy and the drivers of manufacturing subsidiary divestment decisions. Global industry integration and the associated competitive pressures lead MNCs to adopt cost efficiency strategies for their subsidiary networks, and subsidiary divestment decisions are strongly driven by labor cost considerations. In non-integrated industries, host country demand conditions are the prime driver of divestments. These patterns are the most salient for MNCs that have aligned their strategy with the global industry environment. Analysis of the divestment hazards of 3827 Japanese manufacturing subsidiaries in 57 countries provides support for these conjectures.