Essay About Subsidiary Ownership And Different Levels Of Lto

The Effect of Host Country Long-Term Orientation on Subsidiary Ownership and Survival
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The effect of host country long-term orientation on subsidiary ownership and survival What the article is about?The article observes the role host country long-term orientation (LTO) play in transforming multinational corporations’ (MNCs’) focus from transaction cost to transaction value in terms of MNC subsidiary ownership and survival. Samples of 10,236 overseas subsidiaries established by 1,291 Japanese MNCs in 29 host countries with different levels of LTO were being used. What development of Managerial accounting that you can learn from the article?Generalized estimating equations (GEE) – It is used for the analysis on the ownership; this method fits population-averaged models and allows for non- independent observations.Cox proportional hazard models – It is used for the analysis on the survival; this method is consider the time varying covariates, robust and asymptotically unbiased.Long-term orientation (LTO) – It is one of the five cultural dimensions which defined as the extent to which a national culture programs its members to possess “a dynamic, future-oriented mentality”. LTO reflects a culture’s tendency to adopt a pragmatic long-term view on social and business interactions.There are 2 hypothesis for the ownership level, such as: (H1) predicted that MNCs tend to assume higher ownership levels in host countries with higher levels of LTO (H2a) predicted that there will be a positive interaction between LTO and cultural distance (CD) on subsidiary ownership level where due the increase on LTO, that the relationship between CD and ownership level will be more positive (H2b) predicted that there will be a positive interaction between LTO and geographic distance on subsidiary ownership level where due to the increase on LTO, the relationship between geographic distance and ownership level will be more positive.There are 3 hypothesis for the subsidiary survival, such as: (H3) predicted that the levels of LTO will have a positive impact on MNC subsidiary survival (H4) predicted that there will be a positive interaction between LTO and subsidiary ownership level on MNC subsidiary survival where due to the increase on LTO, the relationship between subsidiary ownership level and subsidiary survival will be more positive (H5a) predicted that there will be a positive interaction between LTO and CD on MNC subsidiary survival where due to increase on LTO, the relationship between CD and the likelihood of MNC subsidiary survival will be more positive (H5b) predicted that there will be a positive interaction between LTO and geographic distance on MNC subsidiary survival where due to increase on LTO, the relationship between geographic distance and the likelihood of MNC subsidiary survival will be more positive.The level of LTO determines whether specific assets generate more opportunism or cooperation, and whether the concern for transaction cost or transaction value prevails and subsequently affects subsidiary ownership level and survival.Transaction cost does not capable to integrate time which will distort its perspective is intended to describe. Therefore, it is suggested that the effect of CD on MNC subsidiary control strategies is dependent on MNCs’ time orientation. MNCs are more likely to commit higher levels of specific assets in in culturally distant countries. Furthermore, transaction costs are invariant to geographic distance but vary with CD, where both terms are the two different types of distances between home and host countries.It is needed to align ownership levels with MNCs’ strategic viewpoint of either transaction cost minimization or transaction value maximization that depends on LTO’s levels. Ownership levels can be defined as governance structure to reduce transaction cost also as a value creation structure to maximize transaction value. The alignment of ownership levels and transaction value should be done when LTO level is high, because by investing more specific assets in high LTO countries will allow MNCs to improve the survival chances of the subsidiaries.MNCs with long-term goal should prefer to invest in countries with higher levels of LTO and willing to assume higher equity ownerships levels to take advantage of the institutionally sanctioned trust. By high ownership levels, MNCs can develop further trust and promote mutually which will strengthen the relationship between trust and commitment. This will improve the transaction value of relationship.