MNC foreign investment and industrial disasters: The moderating role of technological, safety management, and philanthropic capabilities

• Author: Chang Hoon Oh,Jorge Rivera,Simon Pek
• Date: 01 February 2018
• Published date: 01 February 2018
• DOI: http://doi.org/10.1002/smj.2737

RESEARCH ARTICLE

MNC foreign investment and industrial disasters:

The moderating role of technological, safety

management, and philanthropic capabilities

Simon Pek

1

| Chang Hoon Oh

2

| Jorge Rivera

3

1

Gustavson School of Business, University of

Victoria, Victoria, Canada

2

Beedie School of Business, Simon Fraser

University, Vancouver, Canada

3

School of Business, The George Washington

University, Washington, District of Columbia

Correspondence

Chang Hoon Oh, Beedie School of Business,

Simon Fraser University, Vancouver, Canada.

Email: coh@sfu.ca

Funding information

Social Sciences and Humanities Research Council

of Canada , Grant/Award numbers: 435-2013-0394,

435–2013-0394

Research Summary: We investigate how industrial

disasters can discourage FDI and how MNCs’techno-

logical, safety management, and philanthropic capabili-

ties can moderate these effects. Using two unique panel

data sets of entry and expansion of U.S. wholly-owned

manufacturing subsidiaries overseas, we found that

industrial disasters are associated with reduced foreign

entry of wholly-owned subsidiaries in the disaster indus-

try, but not for all firms in the host country experiencing

the disaster. We also found that MNCs’technological,

safety management, and philanthropic capabilities can,

in some cases, positively moderate the negative relation-

ships between industrial disasters and the foreign entry

and expansion of wholly-owned subsidiaries. Addition-

ally, three-way interactions with government stability

suggest that technological and safety management capa-

bilities substitute government stability in managing

industrial disasters, while philanthropic capability com-

plements government stability.

Managerial Summary: How can MNCs’technological,

safety management, and philanthropic capabilities over-

come the effects of industrial disasters such as chemical

spills and explosions in host countries? Our results show

that industrial disasters are associated with reduced foreign

entry of wholly-owned subsidiaries in the industry in

which the industrial disaster occurs, but not for other firms

operating in the country experiencing the disaster. How-

ever, an MNC’s technological capability can, in general,

lower the negative consequences of industrial disasters in

both the entry and expansion of its wholly-owned subsidi-

aries. Regarding the institutional quality of a host country,

the results imply that MNCs should develop philanthropic

capability when the government stability of the host

Received: 11 November 2016 Revised: 27 August 2017 Accepted: 3 September 2017 Published on: 12 January 2018

DOI: 10.1002/smj.2737

502 Copyright © 2017 John Wiley & Sons, Ltd. wileyonlinelibrary.com/journal/smj Strat Mgmt J. 2018;39:502–526.

country is strong, and develop technological and safety

management capabilities when the government stability

is weak.

KEYWORDS

industrial disasters, philanthropic capability, safety

management capability, technological capability

1|INTRODUCTION

While increased globalization and continued technological development have brought many societal

and business benefits, they may also have negatively impacted businesses and societies by exacer-

bating the incidence and severity of calamitous industrial disasters (Blanton & Peksen, 2017; Man-

ion & Evan, 2002). Industrial disasters refer to human-caused, tragic, and sudden breakdowns in

industrial, technological, and organizational systems that cause major disruption and damage to nat-

ural and social environments (Gill & Picou, 1998; Shrivastava, Mitroff, Miller, & Miclani, 1988).

1

They include chemical spills, collapses, explosions, fires, gas leaks, poisonings, radiation leaks, and

large-scale transportation accidents. Prominent examples of relatively recent industrial disasters

include the 2007 Qinghe Special Steel Corporation disaster in China that killed 32 workers (Zio &

Aven, 2013), the 2002 ammonium nitrate explosion in an industrial complex in Toulouse, France

that killed 30 people (Dechy, Bourdeaux, Ayrault, Kordek, & Le Coze, 2004), and the 2006 Pasta

de Conchos mining disaster in Mexico that killed 65 people (Gamboa, 2011).

As foreign direct investment (FDI) increases and international supply chains grow in complexity,

it is becoming increasingly important to understand the consequences of these disasters on firms’

major foreign investment decisions and to understand how these consequences could be avoided or

tempered. Scholars have begun investigating the effects of industrial disasters, as one of the various

types of risk, on business operations. Pelling, Özerdem, and Barakat (2002) argued that these disas-

ters can increase risk perceptions and instability, and recent empirical work finds that industrial

disasters were associated with reduced foreign investment from European MNCs (Oetzel & Oh,

2014; Oh & Oetzel, 2011). Scholars have also begun identifying factors that could help mitigate

these effects, including the size and dispersion of firms’operations (Perrow, 2007), community and

workforce welfare programs in host countries (Pelling et al., 2002), country governance (Oh & Oet-

zel, 2011), and disaster experience (Oetzel & Oh, 2014).

While this prior work takes important steps toward unpacking the impacts of industrial disasters

on both MNCs and host countries, it is still in a nascent state. Most importantly, firms’external con-

text (country governance quality) is largely beyond MNCs’control, and experiential learning

requires substantial/long-term foreign operations to be exposed to high-impact industrial disasters

(whose occurrence is also usually outside the control of most firms). Most importantly, the extant

research has not investigated specific capabilities that can be developed and deployed to enable

1

While we follow England (1988) and Zio and Aven (2013) in adopting the term industrial disasters as we feel it better represents

the phenomenon of interest, we note that scholars have used a variety of terms to represent similar concepts, including industrial cri-

ses (Shrivastava et al., 1988), technological catastrophes (Baum, Fleming, & Davidson, 1983), and technological disasters (Oh &

Oetzel, 2011).

PEK ET AL.503