Page 146 - Ebook HTKH 2024

Accordingly, each institution is measured by a set of indicators, and data is
collected through a survey conducted by World Economic Forum based on a 7 point

Likert scale (anchored by 1 “very low” to 7 “very high”).
After collecting data, each observation of institutional distance is calculated by the
institution index of the home country, subtracts the equivalent index of the host country
and then collects the absolute value.
Economic distance
The economic measurement is adapted from The Global Competitiveness Report
with 12 pillars.
Similarly, Economic distance is calculated by the economic index of the home

country subtracting the equivalent index of the host country and then collecting the
absolute value.
Performance of MNE’s global subsidiaries
We develop a measurement of MNE's subsidiaries' performance through a first-
order construct consisting of 2 items (ROE and ROC). Return on equity ratio is typically
used to assess profitability. Return on equity (ROE) is a measure of financial

performance calculated by dividing net income by shareholders' equity. Return on total
capital is a profitability ratio that measures a company's profit using both its debt and
equity capital. It is also known as return on invested capital (ROIC) or return on capital
employed (ROCE), calculated by dividing Earnings before Interest and Taxes by Total
Capital (Total Capital = Short-term Debt + Long-term Debt + Shareholders' Equity).
Return on total capital is more refined than the return on assets in that it takes into
account only such capital for which the company bears a cost. Hence, both ROE and

ROC are essential to reflect the performance of a firm.
Control variables
Firm size is widely accepted in international operation literature as a determinant
of international expansion (Johanson and Vahlne, 1977). With resource constraints,
small firms generally produce small volumes with few products, and hence are at a
disadvantage concerning unit costs, limiting their performance. Large firms are

believed to have a more remarkable ability to expand resources and absorb risks than
smaller ones. They are thought to possess an above-average ability to seize profit,
leverage in a lower cost of capital, and diversify their operation portfolios and
internationalize more easily. Firm size was therefore used as a control variable in the
research model. Like extant studies (i.e. Luo and Bhattacharya, 2006; Glavas and
Piderit, 2009), we use the total employee to proxy for firm size (Luo and Bhattacharya,
2006; Glavas and Piderit, 2009).
3.3. Research sample

To attain this research’s aim and objectives, the focused target population are
MNEs’ global subsidiaries operated internationally. Accordingly, as manufacturing
subsidiaries are likely to be more affected by local culture and economy (Dunning,
2008), the research focuses on cross-border manufacturing subsidiaries of MNEs.

138