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This study examines how effectively multinational corporations (MNCs) respond to changing external environments by intra-firm shifts of products under the influence of divergent currency changes among countries. We test main hypotheses using a panel dataset of Korean FDI and feasible generalized least square model on STATA 10. We find that more counterpart affiliates with opposite directional exchange rate change, lower transportation costs of product shipping, lower labor cost growth rates, and higher portfolio ownership control are positively associated with the subsidiary’ intra-firm sales. By examining the actual mechanisms whereby MNCs can realize operational flexibility through intra-firm trade among their foreign subsidiaries, this study extends the multinational operational flexibility literature. We show that the magnitude of intra-firm trades within the MNC’s subsidiary network reflects the level of its operational flexibility.
