The Role of the Foreign Affiliate Productivity for the Integration Strategies of the Multilanational Firm

The literature often takes that the intangible asset (e.g. productivity) can be shared without any loss inside the multinational firm. We challenge this view and the affiliate productivity, not parent, affects the integration strategies of the multinational firm. Our model shows that, if the affiliate productivity is low(high), the MNC pursues a partial(complete) globlization. Empirical implications are, in the case of the partial globalization, the affiliate tends to export more back to the parent firm while the affiliate tends to export less to the parent firm and sell more to other unaffiliated entities in the case of complete globalization. Our empirical analysis using detailed Korean multinational corporations data supports these hypotheses.