Social control or bureaucratic control? -The effects of the control mechanisms on the subsidiary performance

Abstract

This study empirically examined how social control and bureaucratic control would affect the short-term performance of a subsidiary and how these two control mechanisms would interact with each other. Analyzing 907 Taiwanese FDI cases in China from 2011 to 2012 by ordinal logit regression and OLS regression, this study found that social control delivered an inverted sigmoid effect on the subsidiary performance, whereas bureaucratic control yielded an inverted U-shape effect. Furthermore, these two control mechanisms were positioned substitutively in affecting the subsidiary performance. Broadly speaking, this research contributes to the international management literature by providing empirical evidence regarding the effects of different control mechanisms on the short-term performance of a subsidiary. More narrowly, the findings suggest that multinational corporation (MNC) practitioners should strike and maintain an optimal balance between social control and bureaucratic control when governing their subsidiaries.