Foreign Subsidiary Exit from Africa: The Effects of Investment Purpose Diversity and Orientation

Research Summary: This study considers the exit likelihood of foreign subsidiaries operating in Africa and identifies strategic orientations that can improve their chances of survival. We find that, on average, subsidiaries entering the African market have a greater exit likelihood than those entering the OECD market. However, those subsidiaries entering the African market with diverse investment purposes or greater market-seeking orientation are less likely to exit, as they tend to enjoy flexibility, adaptability, and learning advantages useful in mitigating economic challenges and/or tapping into strategic opportunities. Managerial summary: This study examines how the decision to enter African markets relates to the exit probability of MNE subsidiaries. Using a longitudinal, paired-sample design of Japanese foreign subsidiaries operating in Africa and OECD countries, we find that entry to Africa increases the hazard rate of subsidiaries, but that subsidiaries entering with more diverse investment purposes and greater market-seeking orientation have a better survival likelihood. Consistent with the institutional-based theory of corporate diversification, our findings introduce purpose diversity and market-seeking orientation as potential mechanisms to mitigate the hazards of institutional voids/instability. Also, by looking at the phenomenon of within-subsidiary diversity (of purposes) and its interaction with institutional conditions, we advance the notion of subsidiary scope and its implications.