Profitability and Ownership Structure of U.S. Ventures Abroad: Why Are Majority-Owned Affiliates More Profitable Than Other U.S. Affiliates?

Abstract This paper explores a striking empirical pattern that has gone unnoticed in the literature: U.S. multinationals' majority-owned ventures abroad are more profitable than their minority-owned and 50-50 joint ventures. On average, majority-owned foreign affiliates in manufacturing earned a 6.4% return on assets in 1977-2003, compared to 3% for other U.S. affiliates abroad. This pattern is found across most sectors and countries. We explain these findings with a new theoretical framework that views both the ownership structure and the profitability of a foreign venture as functions of the value created by the ownership-specific capabilities that the MNC brings to a host country. These capabilities can give it a competitive advantage against the local firms. Where these capabilities are strong, the MNC is likely to choose whole or majority ownership; its profits are also likely to be highest in these activities. Where the firm's capabilities are weak, it is likely to seek additional capabilities from local firms through a joint venture; these investments are also likely to yield lower profits. We test these theoretical predictions by constructing measures of the revealed international competitive advantage of U.S. MNCs. Our analysis confirms that the profitability gap is significantly higher in sectors where U.S. MNCs are more competitive. We also test for the possible effects of affiliate size, age, non-dividend payments and host country characteristics including tax rates, GDP per capita and policies towards foreign direct investment

Knowledge creation capability under different innovation-investment motives abroad : The knowledge-based view of international innovation management

This paper focuses on knowledge creation capability and motives for international investment by emergingmarket multinational enterprises (EMNEs) innovating in emerging markets. It analyses the motives for the relatively underresearched innovation-intensive investment by non-Chinese EMNEs in Central and Eastern Europe and offers new insights to the knowledge-based view of international innovation management. Building on interviews with senior managers from 11 EMNEs from India, Brazil, Russia, South Africa, Malaysia, and South Korea, this qualitative study develops, through a hybrid thematic analysis approach, a knowledge-based capability perspective on managing knowledge creation under different innovation-investment motives abroad, including knowledge seeking, market seeking, and dual motives. Knowledge creation capability includes knowledge integration, knowledge sharing, and knowledge cocreation. Both internal and external dimensions of knowledge creation capability are conceptualised, along with elements linking internal and external dimensions, namely managerial orchestration and innovation projects. The paper contributes to the knowledge-based view of firm innovation and global strategy by stressing the roles of international innovation-investment motives and organisational capabilities for creating and managing knowledge in EMNEs. It offers implications for managing subsidiaries of multinational enterprises involved in innovation in emerging markets, particularly regarding enhancing and linking the internal and external dimensions of subsidiaries' knowledge creation capability via ambidexterity.Peer reviewe

Digitalization, internationalization, and firm performance : A resource-orchestration perspective on new OLI advantages

Digital forces and digital global connection weaken traditional ownership, location and internalization (OLI) advantages and intensify new OLI advantages (open resources, linkages and integration). However, by building on the resource-orchestration theory, we raise the question of how digitalization (utilization and orchestration of digital resources) and internationalization (firm-level outward internationalization and country-level inward internationalization) affect firm performance. We introduce the degree of outward internationalization and home-country inward foreign direct investment (FDI) inflows as moderators in achieving firm performance as a result of digitalization. Using a panel dataset of 571 U.S. manufacturing firms, we find a curvilinear relationship between digitalization and performance. The top quartile of digitalization efforts is rewarded by significant profitability. Moreover, high levels of outward internationalization and high net-FDI inflows increase the performance gains attributable to high levels of digitalization. Overall, the resource-orchestration theory complements new OLI advantages in explaining firm performance in the digital world.Peer reviewe