Place, Space and Geographical Exposure: Foreign Subsidiary Survival in Conflict Zones

Abstract

This study focuses on the role of geography in foreign subsidiary survival in host countries afflicted with political conflict. We argue that survival is a function of exposure to conflicts, which depends on the characteristics of place (the conflict zone) and space (geographic concentration and dispersion of other home-country firms). The roles of place and space are explored using street-level analysis of geographic information systems data for 670 Japanese MNE subsidiaries in 25 conflict-afflicted host countries over 1987–2006. Through dynamic modeling of conflict zones as stretchable and shrinkable places relative to subsidiary locations, we develop a means of characterizing a foreign subsidiary’s exposure to multiple threats in its geographic domain. Our results show that greater exposure to geographically defined threats, in both a static and a dynamic sense, reduces the likelihood of MNE survival. The findings indicate moreover that both concentration and dispersion with other firms affect survival; however, the effects depend on where (whether the firm is in a conflict zone) and with whom (home-country peers or sister subsidiaries) the firm is spatially located.

Keywords: geography, distance, political conflicts, political risk, subsidiary survival, subsidiary exit, place, space, exposure, Coulomb’s Law, concentration, dispersion, static exposure, dynamic exposure

JEL Classification: N4