Geographical distance and the role and management of subsidiaries: The case of subsidiaries down-under

Abstract

Based on a international mail survey covering 169 subsidiaries of MNCs headquartered in the USA, Japan, the UK, Germany, France and the Netherlands, we investigate the impact of geographical distance on the role that subsidiaries play in the MNC network and the way they are managed. To this end, we compare Australian and New Zealand subsidiaries – which provide a significant example of geographically isolation – compared to subsidiaries located in other countries. Referring to the typology constructed by Gupta & Govindarajan (1991), we show that Australian and New Zealand subsidiaries are more likely than subsidiaries in other countries to be Local Innovators rather than Global Innovators. In addition, both intra-company flows and the type of control mechanisms applied by HQ reflect the geographical isolation of Australian and New Zealand subsidiaries. The overall level of capabilities of Australian and New Zealand subsidiaries is equal to that of other subsidiaries, although lower relative capabilities in R{&}D and production seem to be associated with lower levels of local R{&}D and production. We discuss the implications of these findings and provide recommendations for management and competitiveness issues in Australia and New Zealand.