Corporate link and competitive strategy in multinational enterprises: a perspective from subsidiaries seeking host market penetration

Abstract

Abstract This study examines how the corporate link between a foreign subsidiary and its corporate members (parent and peer subsidiaries) is influenced by the subsidiary's competitive strategy in a specific host country. The mainstream logic, especially that of Michael Porter, suggests that corporate link should be stronger when a multinational enterprise (MNE) focuses on cost leadership than on product differentiation because of greater needs for system-related efforts, such as sharing global economies of scale, optimizing factor costs across countries, and leveraging existing knowledge. Departing from this view, we present that this logic may not hold true for an MNE's foreign subsidiaries seeking local market penetration in promising yet increasingly competitive emerging markets. Corporate link may be stronger when these subsidiaries emphasize product differentiation than using low cost due to heightened needs of corporate resource support tailored to the specific host market and due to declined contributions of system-related efforts to maintain a differentiation-based competitive foothold there. Our analysis of subsidiaries that emphasize host market penetration in China demonstrates that the strength of corporate link increases along cost leadership, strategic focus, and product differentiation strategies. Subsidiaries with such configurations tend to perform better than those without these configurations in terms of profitability. Moreover, there is a stronger correspondence between corporate link and competitive strategy when subsidiaries are wholly owned (compared to joint ventures), involve larger scope of products, or become more important to overall success of their corporate groups.