Subsidiary internal and external embeddedness: trade-up and trade-off

Abstract

Much, if not most, of the international business literature argues that subsidiaries benefit from balancing their internal embeddedness in the multinational enterprise to which they belong, and their external embeddedness in the host environment in which they are located. In this paper we argue that there are tensions between embeddedness in internal and in external networks, and that a balance between these two types of embeddedness is more aspirational than achievable. We problematise the often advocated but seldom unpacked ideal of an optimal balance between subsidiaries' internal and external embeddedness. We consider two types of interaction between them: a trade-up (a complementary relationship where higher embeddedness in one network leads to higher embeddedness in the other whilst achieving a desired outcome) and a trade-off (a substitutive relationship where embeddedness in one network replaces embeddedness in the other network, causing the multinational to forego the opportunity to benefit from both). We analyse some of the tensions that imbalances may create for the subsidiary and for the multinational enterprise, and we outline the implications for both research and practice.