The degree of control of multinational enterprisesover foreign subsidiaries:An empirical investigation of Korean firms

Facing the period of internationalization, Korean firms need to decide whether they fully or partially control foreign subsidiaries. In order to explore major influential factors on these decisions, this paper analyzes the behaviors of manufacturing firms listed on the Korea Stock Exchange. According to the empirical analyses, first, Korean firms are likely to choose full ownership when they possess substantial international experiences, operate relatively large projects, and invest in developed countries. Second, R&D and advertising intensities of parent firms, product diversification of subsidiaries, and cultural distance between home and host countries are found to be not influential on Korean firms’ decisions. Third, compared to others, chaebol-affiliated large corporations investing in China are more forced to form joint ventures with local state enterprises. All in all, Korean firms seem to rely on their international experiences more than technological or marketing expertise. And, those investing in developed countries prefer full ownership not to protect or exploit their intangible assets but to support their subsidiaries facing intense competition with advanced local firms. Lastly, small and medium companies operating large projects relative to parent’s size, are not willing to form international joint ventures because they are less experienced in operating with foreign partners.