Which Comes First: Domestic or Foreign Subsidiaries? Analysis of Global Integration and Local Responsiveness among Japanese Service Companies

Abstract

Multinational corporations (MNCs), by definition, operate across different markets. Unlike portfolio investment, foreign direct investment (FDI) involves exercising substantial control over foreign assets and operations, making the manner in which firms manage their foreign operations very important. The creation of a subsidiary, either domestic or foreign, represents a major commitment. However, as Bethel and Liebeskind (1998) noted, the legal structure of firms — the configuration of their incorporated subsidiaries — has not received much attention in the organizational literature. While many researchers have studied FDI and MNC governance structures, little work has been done on analyzing the makeup of MNCs, in terms of the mix between numbers of domestic and foreign subsidiaries. We still have a great deal to learn about corporate configuration and implications of MNCs’ strategic actions, as they relate to managerial control.