Foreign subsidiaries’ relational strategic emphasis and performance implications amid environmental turbulence
| DOI | https://doi.org/10.1108/JABS-01-2021-0012 |
| Published date | 05 August 2021 |
| Date | 05 August 2021 |
| Pages | 618-638 |
| Subject Matter | Strategy,International business |
| Author | Amonrat Thoumrungroje,Olimpia C. Racela,Man Zhang |
Foreign subsidiaries’relational strategic
emphasis and performance implications
amid environmental turbulence
Amonrat Thoumrungroje, Olimpia C. Racela and Man Zhang
Abstract
Purpose –Grounded in strategic choiceand resource-based views, this study aims to investigatethe
antecedents and consequences of relational strategic emphasis of foreign subsidiaries operating in
Thailand. Four types of relational strategies were identified with associated differential performance
outcomes.
Design/methodology/approach –Data collected via self-administered surveys from a diversesample
of 168 foreign subsidiarieswere analyzed in two stages. First, multinomiallogistic regression was used to
test whether resource-bridging capability, nonmarket-based assets and market-based assets were
significant predictors of relational strategy type. Then, multivariate analysis of variance was used to
determine whether thefour relational strategy types differed in their strategicperformance and financial
performance.
Findings –The three resource-based motives are significant predictors of relational strategy. Firms
adopting the ‘‘dual-relational’’ strategy tend to have the highest levelof resource-bridging capability and
nonmarket-based assets while firms pursuing the ‘‘business-oriented’’ strategy are likely to possess a
higher level of market-basedassets. Extensive reliance on relational ties enablesforeign subsidiaries to
achieve a much higher levelof strategic and financial performance than those that choseto only rely on
transactionalor contractual relations.
Practical implications –Foreign subsidiaries operating in emerging markets characterized by an
unstablemarket environment have to establish goodrelationships with buyers, suppliers anddistributors,
as well as governmentagents.
Originality/value –Using a juxtaposition of political and business ties, a typology of the relational
strategy was conceptualized. This study extends non-market strategy research by investigating the
relationship between resource and capability in the choice of relational strategy. Diverse degrees of
politicaland business ties show different impactson strategic and financial performances.
Keywords Relational strategy, Political ties, Business ties, Resource-bridging capability,
Nonmarket-based assets, Market-based assets
Paper type Research paper
Introduction
For multinational enterprises (MNEs), operating in today’s hypercompetitive and rapidly
changing business environment is not a simple task. Many advanced economies during
recent years have been undergoing slow economic growth with average gross domestic
product (GDP) growth rates between 1.7%–2.5% per annum, yet emerging economies in
Asia have been prospering, with an average annual GDP growth rate between 5.9%–6.8%
from 2015 to 2019 (International Monetary Fund, 2020), making countries in this region
primary targets for foreign investments. While such economies present attractive locations
for investments, conducting businesses in such markets entails many challenges due to
their unstable market conditions (Zhou and Poppo, 2010). Cultivating relational ties, i.e.
Amonrat Thoumrungroje is
based at the Department of
International Business
Management, Assumption
University, Bangkok,
Thailand. Olimpia C. Racela
is based at the Business
Administration Division –
Marketing, Mahidol
University International
College, Salaya, Thailand.
Man Zhang is based at the
Department of
Management, Bowling
Green State University,
Bowling Green, Ohio, USA.
Received 10 January 2021
Revised 27 March 2021
5 May 2021
Accepted 18 June 2021
PAGE 618 jJOURNAL OF ASIA BUSINESS STUDIES jVOL. 16 NO. 4 2022, pp. 618-638, ©Emerald Publishing Limited, ISSN 1558-7894 DOI 10.1108/JABS-01-2021-0012
informal networking with different exchange parties (Granovetter, 1985), has been
recognized as a viable strategic option for firms in successfully navigating through
idiosyncratic challenges presented by weak institutional and dynamic environments
underlying emerging economies and attaining superior performance (Heide, 1994;Uzzi,
1997;Xin and Pearce, 1996). In this paper, relational ties are conceptualized as informal
political and business relationships a foreign subsidiary developswith local partners.
Although numerous studies show evidence of how relational ties enable firms to achieve better
performance (Gu et al., 2008;Khwaja and Mian, 2005;Li and Zhang, 2007;Li et al., 2008), little
is known about the motives behind a firm’s relational strategic choice or emphasis, i.e. whether
to develop no relational ties, more political ties, more business ties or to develop both types of
relational ties. This calls for some theoretical explanation behind the selection of certain choices.
Moreover, the specific focus of these prior studies is not on MNEs (Gu et al., 2008;Khwaja and
Mian, 2005;Li and Zhang, 2007;Li et al., 2008;Sheng et al., 2011), with a few exceptions, such
as that of Yang (2011) and of Du and Zhou (2019), which investigate the importance of guanxi
for MNEs to build capabilities that enhance internationalization. Hence, the research objectives
of this study are twofold. First, this study aims to identify key drivers of the relational strategy or
relational strategic emphasis [1] of subsidiaries of MNEs operating in the emerging market of
Thailand, which presents an ideal context due to the recent political and social unrest that has
affected much of the nation’s investment and economic policies (Chantanusornsiri, 2019). The
political turmoil faced by Thailand in the past decade, with the country being divided into
different political factions, has led to a highly fragmented election result in the country’s national
election in early 2019. As a result, both local and foreign businesses have been confronted with
numerous uncertainties. Given their liability of foreignness, subsidiaries of MNEs may be more
prone to such unpredictable environmental forces. Therefore, developing relational ties with
different political and business parties may help mitigate such liabilities and improve business
performance (Lee et al., 2016;Sheng et al., 2011;Suchman, 1995). In addition, as Thailand has
been a popular destination for MNE’s investments based on the World Economic Forum’s
ranking and Thailand’s Board of Investment (Thailand Board of Investment, 2020;World
Economic Forum, 2019), exploring how MNEs can capitalize through networking can greatly
benefit MNEs operating in the country. Although extant studies on relational ties in emerging
economies encompass several geographic areas such as China (Zhang et al., 2015;Zhou et al.,
2019), Korea (Kwon, 2011;Yang and Horak, 2019), Central Asia and Caucasus (Ismail et al.,
2013), none has focused on Thailand. Because of the idiosyncratic and context-dependent
nature of relational ties, expanding the scope of this research in other East Asian cultures
beyond China is deemed necessary for theoretical advancements in this field (Li and Xie, 2019).
Furthermore, as illustrated in Wang et al. (2013), different types of relational ties –business vs
political –have different impacts on resource acquisition, which mediates the relational ties-
performance relationship under various degrees of environmental turbulence in the Chinese
context. For this reason, the second objective of this study is to explore the performance
implications of different relational strategic emphases opted by foreign subsidiaries in Thailand.
Theoretical underpinnings and development of hypotheses
Building on strategic choice (Child, 1972) and resource-based views (Barney, 1991;Wernerfelt,
1984), the model of antecedents and consequences of relational strategic emphasis is presented
in Figure 1. In a nutshell, these theoretical perspectives elucidate that firms deliberately select
strategies based on their resources with the ultimate goal of performance enhancement.
Antecedents of relational strategic emphasis
According to Astley and Van de Ven (1983), four perspectives of organizational theory and
management include, namely, natural selection view; collective-action view; system-
structural view; and, strategic choice view. While the former two explain phenomena at an
aggregate or communities of organizations (macro) level, the latter two explicate
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