Enhancing foreign subsidiaries' performance through relational ties, market- and nonmarket-based capabilities

Abstract

Purpose: Given the inconclusive findings on relational ties–performance relationships, this study approaches this phenomenon through social capital theory and resource-based view (RBV) lenses to advocate the mediating role of nonmarket- and market-based capabilities. Design/methodology/approach: A survey-based research methodology was employed. A list of 1,425 foreign subsidiaries was identified from the Thailand Board of Investment (BOI) website, and key informants were contacted. A final response rate of 11.8% was achieved. All hypotheses were tested via path analyses with the bootstrapping technique. Findings: The results indicate that the relationships between business- and government-relational ties and performance are fully mediated by market- and nonmarket-based capabilities with the latter serving as essential but inadequate preconditions for achieving superior firm performance. Practical implications: To mitigate the liability of foreignness and to enhance performance of foreign subsidiaries operating in volatile emerging economies such as Thailand, government and business relational ties are crucial in developing nonmarket- and market-based capabilities. The nonmarket-based capabilities entail the ability to negotiate with and influence policy makers, which in turn helps augment the development of market-based capabilities, including the ability to be highly responsive to customers' needs. Originality/value: This research illustrates the embedded roles of nonmarket and market-based capabilities developed through complex interactions among social actors, including the multinational enterprises’ (MNEs’) subsidiaries and government and nongovernment counterparts, in attaining superior performance. The results indicate how relational ties enable MNEs’ subsidiaries to develop various capabilities, and how these capabilities are related with each other and linked to firm performance. Findings from an emerging economy undergoing recent political and economic uncertainties also provide theoretical advancements for international business studies.