Maintaining product quality consistency when offshoring to emerging markets: The role of subsidiary control

Abstract

Offshoring can increase firms' exposure to product quality risks, such that manufacturing firms need effective tactics to maintain product quality consistency across offshoring subsidiaries. With an agency theory approach, the present study seeks novel insights into three widely used subsidiary control mechanisms for achieving product quality consistency across offshoring subsidiaries in emerging markets and developed home countries. Through surveys of 150 subsidiaries of multinational corporations in heavy industries operating in China, the paper tests a proposed model using hierarchical linear regression, accounting for endogeneity concerns using the Gaussian copula method. The analysis yielded several findings: An inverted U-shaped relationship exists between decision autonomy and product quality consistency; expatriate staffing positively predicts product quality consistency and attenuates the negative effects of excessive autonomy on product quality consistency; and compared with greenfield entry, mergers and acquisitions negatively predict product quality consistency.