Distance and divestment of Korean MNC affiliates: the moderating role of entry mode and experience

Abstract

In this study, we examine the impact of cross-national distance on the divestment of foreign affiliates. On the basis of the nine dimensions of cross-national distance (Berry et al. 2010. “An Institutional Approach to Cross-National Distance.” Journal of International Business Studies 41 (9): 1460-1480), we empirically examine the impact of each measure of distance on the divestment of affiliates. Using a data set of 1697 multinational corporations (MNCs) headquartered in Korea and their 2435 affiliates in 67 host countries from 2000 to 2010, we find that distance created by economic, financial, political, administrative, cultural, demographic, knowledge and global connectedness leads to the divestment of foreign affiliates. We also find that the positive relationship between cross-national distance and affiliate divestment is likely to become stronger when an MNC enters the host country through a joint venture and weaker for affiliates with greater experience in the host country.

Keywords::

• distance
• divestment
• entry mode
• host-country experience
• Korea
• multinational corporation

Notes

^1. Email: [email protected]

^2. We thank one of the anonymous reviewers for suggesting this aspect to us.

Additional information

Notes on contributors

Chinmay Pattnaik

Chinmay Pattnaik is a senior lecturer at the University of Sydney Business School. He earned his PhD from Seoul National University Business School (South Korea). His papers have appeared in Journal ofInternational Business Studies, Management International Review, Journal of Business Research, Asia Pacific Journal of Management, Multinational Business Review and Journal of Contemporary Asia.

Jeoung Yul Lee

Jeoung Yul Lee is an assistant professor and department chair of the Department of International Business, College of Business Management, Hongik University. He earned his PhD from Yonsei University Business School (South Korea). He was also a Post Doc at the Wharton School of the University of Pennsylvania during 2006–2008 and has published 11 papers in international SSCI journals, such as Management International Review, International Journal of Human Resource Management, International Business Review, Journal of International Management, Long Range Planning, Managing Service Quality and Management Decision.