Performance and Business Relatedness as Drivers of Exit Decision: A Study of MNCs from an Emerging Country

Abstract

Research summary This study examines the exit behavior of emerging market MNCs in the context of the parent company (PC)–foreign affiliate (FA) relationship. Specifically, we consider business relatedness as a moderating variable and examine its impact on the relationship between a FA's international performance and its exit decision from a foreign market. Our results, based on data collected from multiple informants in 180 Chinese firms, indicate that product relatedness and intangible resources relatedness have a different moderating impact on the FA performance-FA exit decision relationship. Implications of these findings along with the limitations of the study are discussed. Managerial summary Although the research on international entry and expansion is particularly important, an aspect which has been largely ignored in the literature is the exit behavior of firms. This study examines whether the extent to which a foreign subsidiary is similar to its parent's core business may influence the firm's exit decision. The findings indicate that managers are more likely to exit a poorly-performing FA if there is a high (versus low) level of product relatedness between the FA and its PC's core business. The results also suggest that intangible resources relatedness exerts a different contingent effect on the FA performance-FA exit relationship from product relatedness.