Transforming Subsidiary Institutional Distinctiveness into Non-location-Bound Capabilities

Abstract

The differentiated MNE hinges on specialized subsidiaries that tap into and leverage localized capabilities in host countries. The rich literature on knowledge creating subsidiaries and subsidiary initiative recognizes the localized nature of capabilities but does not fully develop the implications of subsidiary capabilities as supplied by, shaped by, and adapted to host country institutions. In this study, we contribute to a more contextual and processual account of how subsidiaries can transform institutionally distinct and context-specific capabilities into non-location-bound advantage. We report from a longitudinal, comparative study of the development trajectories of two engineering subsidiaries of a Norwegian shipbuilding group. We find that subsidiaries differ in their ability to mobilize institutionally derived resources to gradually adapt their capabilities to diverse market requirements and, at the same time, align their capabilities with headquarters’ expectations to secure recognition and support. We summarize implications of a societal embeddedness view on subsidiary development.