The Effect of Economic Development and In-group Collectivism of the Host Country on the Foreign Subsidiary Ownership Strategy of Korean MNEs

In this study, we examine ownership strategy of Korean MNEs in their foreign subsidiaries based on social psychology, especially social identity theory. We suggest that MNEs originating from the less developed economies are likely to take a higher ownership stake to make less severe liabilities of origin in the form of out-group derogation where the level of economic development of the host country is more advanced relative to that of the home country. We also propose that in-group collectivism cultural value positively moderates the relationship between the level of economic development of the host country and the ownership stake in a foreign subsidiary. These propositions are generally supported by ordered logistic regression analysis and the Tobit regression analysis of 235 subsidiaries established by 94 Korean MNEs that operated in 32 countries.