Effects of Firm-Specific Advantages and the Choice of Foreign-Market Entry Modes on Business Performance

Effects of Firm-Specific Advantages and the Choice of Foreign-Market Entry Modes on Business Performance

This study examines how parent firms' firm-specific advantages and choice of entry modes influence the performance of their foreign subsidiaries. The results indicate that their firm-specific advantages and entry mode choice had positive effects on their foreign subsidiaries' performance. More specifically, parent firms with clear firm-specific advantages were likely to have wholly owned subsidiaries that outperformed joint ventures; firm-specific advantages, including assets, R&D investment, and local expertise, had positive effects on the performance of subsidiaries; wholly owned subsidiaries of firms with firm-specific advantages in R&D investment and local expertise outperformed their joint ventures; and the higher the number of a parent firm's subsidiaries, the more likely the parent firm was to have joint ventures that outperformed wholly owned subsidiaries. This study contributes to FDI research by examining the economic relations between South Korea and Uzbekistan. The results indicate that the number of firm-specific advantages had a positive effect on the performance of subsidiaries, which is consistent with the findings of previous studies. In addition, wholly owned subsidiaries of firms with advantages in R&D investment and local expertise outperformed that are investing with joint ventures. The hypotheses were empirically tested based on a sample of Korean subsidiaries in Uzbekistan. For the reliability of the sample, the performance of these subsidiaries was determined using both subjective (managers' evaluation of the market share) and objective (return on assets) measures.