Emerging threats for MNC subsidiaries and the cycle of decline

Abstract

PurposeSubsidiary units have traditionally feared relocation of their activities to lower‐cost locations. The authors identify other emerging threats which are changing how multinational corporations (MNCs) manage their subsidiary units, and develop a cycle of subsidiary decline demonstrating how these threats can undermine a subsidiary's position within the MNC.Design/methodology/approachThe paper presents the results of a survey targeted at over 1,100 subsidiary CEOs of MNCs located in Ireland, a program of in‐depth interviews of 24 subsidiary CEOs/directors, and a review of the literature relating to MNC and subsidiary management, are combined to identify emerging threats to subsidiary activities.FindingsThe main threats to subsidiaries' efforts to enhance their role within the MNC comprise: erosion of barriers to trade; growing complexities in corporate governance; and increasingly sophisticated information and communication technology (ICT) capabilities. These threats are enabling the disaggregation of value chains and increased headquarters monitoring and control. This shift in how subsidiaries are managed is leading to a cycle of subsidiary decline.Research limitations/implicationsthe results from the survey are subject to the standard limitations and a larger pool of interviewees may have reinforced the qualitative findings.Practical implicationsTo increase subsidiary managers' awareness of the need for a strategic response, the authors develop a cycle of subsidiary decline which illustrates how these emerging threats combine to undermine a subsidiary's position within the MNC. Disaggregating value chains and tighter headquarters control can reduce subsidiary bargaining power constraining its abilities to challenge for resources, in turn restraining its combinative capabilities and leading to a decline in its position and contribution to the MNC.Originality/valueThis paper is the first to build a framework illustrating how emerging threats in the external environment may impact the ability of subsidiary units to maintain and develop their position within the MNC.