Abstract
Multinational operations confer firms a portfolio of switching options that offer potential operating flexibility in the context of input cost variability, helping firms reduce downside risk. We suggest that two conditions may shape the relationship between multinationality and downside risk. When subadditivity is present in a firm's option portfolio, such as when the firm operates affiliates in host countries with similar labor cost developments, multinationality is less likely to reduce downside risk since less valuable opportunities exist for shifting operations. Multinationality is more likely to reduce downside risk if a firm's organization facilitates the coordination of cross-border activities, enabling the exploitation of the shifting opportunities. Analysis of a comprehensive panel dataset of Japanese manufacturing firms and their foreign manufacturing affiliates provides support for these conjectures.
Original language | English |
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Pages (from-to) | 88-106 |
Number of pages | 19 |
Journal | Strategic Management Journal |
Volume | 35 |
Issue number | 1 |
DOIs | |
Publication status | Published - 1 Jan 2014 |
Keywords
- multinational firm
- downside risk
- switching option
- affiliate portfolio
- organization
- REAL OPTIONS
- OPERATIONAL FLEXIBILITY
- JOINT VENTURES
- PERFORMANCE
- STRATEGY
- CHOICE
- KNOWLEDGE
- GROWTH
- TECHNOLOGY
- MANAGEMENT