A Conceptual Model of Foreign Subsidiary Strategy and Management: The Case of New Zealand

Abstract

IntroductionResearch on MNE subsidiaries has sought to explain the strategy and management of subsidiaries using evidence from a number of economies. The empirical attention has been mainly focused on large and some small European peripheral economies, but very little is known about the strategy and management of MNE subsidiaries in New Zealand - a country which is small, developed and remote from other economies.The case of New Zealand is of interest due to a number of factors. First, as a small and geographically remote economy, it has been argued that New Zealand's public policy environment should be more open and welcoming towards inward FDI than it is at present (OECD, 2011; Raziq & Perry, 2012a). Second, in the past the majority of MNEs that come to New Zealand primarily seek access to local markets, with around half (a third of the total) of them serve Asia Pacific markets (Scott-Kennel, 2001); the country's relative proximity to East Asia suggests there is potential to further enhance the international activity (Raziq, 2012). Third, subsidiaries lack specialized resources including minimum involvement in research and development activity, and product management for the MNE (Raziq & Perry, 2012b; StatisticsNZ, 2005-2011). Another source of interest is the lack of clarity as to how the majority of subsidiaries in New Zealand that are owned by investors based in remote countries are managed. For instance, it is not known the extent to which subsidiaries have the ability to develop by tapping into opportunities that are present in the local, international and MNE internal markets (Bartlett & Ghoshal, 1986; Birkinshaw, 1997; Boojihawon, Dimitratos, & Young, 2007). These perceptions exist in New Zealand because little is known about the strategy and management of foreign-owned subsidiaries.Self-determination theory suggests that subsidiary managers should have the motivation and desire to be both independent in operations and successful in their careers. Subsidiary managers can build their careers by gaining autonomy and expanding their subsidiaries by taking developmental initiatives. The motivations are derived not only from the managers' aspirations to develop subsidiary operations, but also from their personal desires to enhance their hierarchical positions within the MNE (Dorrenbacher & Geppert, 2009). Subsidiaries are normally assigned set roles by their headquarters. Thus to take any other strategic initiatives, managers of subsidiaries have to gain approval from headquarters. Such development strategies are normally beyond their initial mandates and would mostly require investment support for implementation. On proposing such initiatives, subsidiary managers face varying degrees of corporate management resistance. To get the initiatives approved from headquarters, subsidiary managers fight back resistance through adopting a number of strategies such as heavy selling to managers at HQ or utilising personal relations within HQ (Birkinshaw & Riddlerstrale, 1999). With the focus on such managerial tendencies, the paper argues that the ambition, effort and tenacity of subsidiary managers in fighting the headquarter resistance (known as 'the corporate immune system') can be a strong determinant of MNE subsidiary growth and development.Many subsidiaries are the targets of corporate expansion plans and grow as a consequence of centrally-determined plans and corporate decision making. However, as somewhat isolated and relatively minor operations, foreign subsidiaries in New Zealand are frequently not the investment priority of corporate management. Constraints on the investment authority delegated to local managers further restrict their capacity for instigating strategic policy decisions (Raziq & Perry, 2012b).This article proposes a framework for studying strategy and management of foreign-owned subsidiaries. The particular interest of the authors is in studying MNE subsidiaries in New Zealand, but the issues raised are relevant to studying subsidiaries in other economies too. …