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THE PERFORMANCE OF MNE SUBSIDIARIES AND THE DISTANCE

BETWEEN HOME AND HOST COUNTRIES: HOW CAN FOREIGN
SUBSIDIARIES SUSTAINABLY DEVELOP IN VIETNAM?

56
Le Son Dai

Abstract: This paper explores how economic and institutional distances between host and home
countries affect the performance of multinational enterprise (MNE) subsidiaries. Using data from
nearly 900 observations across about 40 countries and over 90 subsidiaries in the automotive and
electronics sectors, the study finds that both distances significantly impact subsidiary performance,
moderated by MNEs' global experience. The results clarify existing debates in the literature regarding
these distances in manufacturing. The paper suggests that managers should carefully assess these
distances when balancing standardization and local responsiveness in their strategies. For Vietnam, it
offers practical solutions for sustainable development, including collaboration with local stakeholders,
adaptation to Vietnam’s unique institutional environment, and leveraging economic opportunities
while managing regulatory and market challenges. These strategies aim to align operations with
Vietnam’s evolving landscape for long-term sustainability.
Key words: MNE subsidiary performance, economic distance, institutional distance, global
business strategy, sustainable development

1. Introduction
Understanding the factors influencing the performance of a subsidiary is critical
to the internationalization of multinational enterprises (MNEs). Among such
determinants, location is often considered a strategic decision of paramount importance,
as it directly affects the subsidiary’s success (Jain, Kothari, & Kumar, 2016; Kim &
Aguilera, 2016). When entering a host country, MNEs must adapt to the local market
and its environment, including the institutional and economic context. Simultaneously,

the strategies and behaviors of MNE subsidiaries are typically influenced by their
parent companies, which are shaped by their home countries' institutional frameworks
and economic conditions. Therefore, the differences in institutional and economic
conditions between the home and host country can significantly impact the performance
of MNE subsidiaries. Despite the relevance of this topic, there remains a gap in research
exploring the specific effects of these distances on MNE subsidiary performance.

Recent studies, including a literature review by Marano et al. (2016), suggest that
institutional quality in the home country can positively influence MNE performance,
although the overall impact is small and varies significantly depending on the country
of origin. Factors such as regulatory quality, political risk, and cultural attributes like
long-term orientation and uncertainty avoidance can moderate the effects on subsidiary
performance (Marano et al., 2016). Inconsistent findings across studies may stem from
the diversity of industries in the research samples, as each industry requires different
levels of local adaptation (Dunning, 2008).

56 Foreign Trade University, Email: lesondai.cs2@ftu.edu.vn

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