Multinational Subsidiaries Research Articles

The rise and fall of stand-alone social reporting in a multinational subsidiary in Bangladesh

Purpose – The purpose of this paper is to examine the underlying drivers for the development and subsequent discontinuation of stand-alone corporate social responsibility (CSR) reporting in a multinational subsidiary in Bangladesh. Design/methodology/approach – The research approach employed for this purpose is a case study using evidence from a series of in-depth interviews conducted during the period 2002-2010. Interview data are supplemented by examining other sources of information including annual reports, stand-alone social reports and relevant newspaper articles during the study period. Findings – It appears that the stand-alone CSR reporting process was initiated to give the subsidiary a formal space in which to legitimise its activities in Bangladesh where both tobacco control regulation and a strong anti-tobacco movement were gaining momentum. At the start of the process in 2002 corporate interviewees were very receptive of this initiative and strongly believed that it would not be a one off exercise. However, in the face of subsequent significant national policy shifts concerning tobacco control, irreconcilable stakeholder demands and increasing criticism of the CSR activities of the organisation at home and abroad the process was brought to an abrupt end in 2009. Research limitations/implications – The paper has a number of implications for policy makers concerning the future prospects for stand-alone social/sustainability reporting as a means of enhancing organisational transparency and accountability. In addition the paper discusses a number of theoretical implications for the development of legitimacy theory. Originality/value – Using the lens of legitimacy the paper theorises the circumstances leading to the initiation and subsequent cessation of CSR reporting in the organisation concerned. As far as the authors know this is the first study which theorises and provides significant fieldwork-based empirical evidence regarding the discontinuation of stand-alone social reporting by a multinational company operating in a developing country. Thus, it extends previous desk-based attempts at using legitimacy theory to explain a decrease (or discontinuity) in CSR disclosures by de Villiers and van Staden (2006) and Tilling and Tilt (2010).

What Do Compensation Committees on the Boards of Public Companies Do? Comparisons of Indian and U.S. Process Differences Juxtaposing Complementary Theoretical Lenses

This study examined the processes undertaken by compensation committees (CCs) on Indian public company boards building on the CC process study of U.S. public company boards reported in Hermanson et al. (2012). The Indian data reported here were gathered through scripted, in-depth, semi-structured interviews of 21 Indian directors (17 CC members, two Management Committee members and two directors, all of whom dealt with compensation matters on their boards). In keeping with agency theory predicates, Indian CC processes were designed to safeguard the independence, knowledge and expertise of CC members, while ensuring they had access to the resources needed to make sound and informed decisions. Compensation principles emphasized paying for performance, ensuring a proper mix of compensation, benchmarking to market practices and retaining good talent. There were some process differences among Indian organizational archetypes like family businesses, public sector firms, multinational subsidiaries (MNCs) and promoter-controlled firms, suggestive of neo-institutional theory influences. Notable differences from U.S. CC practices were that Indian CC practices were less formal, and directors were seen to be more partners of management playing broader roles extending beyond traditional agency-theory-driven fiduciary responsibilities. Some of these differences could portend the existence of secondary (principal-principal) agency problems. There were other process differences from U.S. practices, arising from institutional and cultural variations. In particular, institutional frameworks and statutory limits appeared to circumscribe the Indian CCs' role, enabling greater managerial oversight of CC processes and engendering a more collectivist ethos among CCs in India. CC practices in the Indian context also lead us to discern some elements of an underlying tension between agency theory and institutional theory. These underlying tensions are further compounded by firm ownership differences (family, business group, MNC subsidiary, government owners, majority control, etc.). This is where we argue that neo-institutional influences based on ownership structure differences manifest themselves. To the best of our knowledge, our study represents a pioneering attempt at depicting these latent tensions between agency and institutional theory, and in teasing out how neo-institutional influences impact CC practices, thereby furthering our understanding of these phenomena. Cumulatively, these findings provide important directions for advancing theory, and enabling a more grounded and holistic understanding of CC processes. Since CCs were not mandatory for Indian public companies at the time this study was conducted, requiring CCs on all Indian company boards (as the revised 2013 Indian Companies Act has mandated ) would provide an added fillip to legitimizing and formalizing the role of this committee. However, because of the existing differences in the institutional and socio-cultural contexts, it is unlikely that CC processes across the Indian and U.S. company boards will converge and become completely uniform or homogeneous.

Do contractors undertake more learning and innovation than multinational subsidiaries at least developed host-sites? A study of clothing firms in Cambodia

This paper seeks to test the argument that contractors introduce significant learning and innovation activities comparable more or than integrated multinational clothing producers at least developed host-sites. This follows from recent developments in the theory of multinationals that lead firms are increasingly abandoning peripheral innovation activities that are characterised by low value added operations to focus on branding and associated R&D activities. Any such development will offer opportunities for contract manufacturers, both national and foreign owned, to upgrade and specialise in innovative activities related to manufacturing at distant host-sites as the brand holders at major markets will then specialise on product R&D and design, and branding activities. The results from tobit regressions show that contract firms show higher process technology and innovation capabilities (ICs) than integrated firms in the clothing industry. Hence, there is econometric evidence to support the argument that changes in manufacturing offers tangible opportunities for contract manufacturers in global value chains to upgrade into cutting-edge processes and techniques, and ICs.

Senior Managers’ Sensemaking and Responses to Strategic Change

Our longitudinal study of the sensemaking and responses to strategic change of the senior management team of a UK multinational subsidiary provides unusual data that enable us to explore the complexity of senior team change related sensemaking. We show senior teams to be distinct interpretive communities rather than one homogeneous category of change agents, as typically portrayed in change literature, who at times of center-led strategic change occupy a complex dual recipient/change agent role. By adopting a narrative approach, we show the shared sensemaking of such a team to be impacted by the locally differentiated nature of its interpretive and relational contexts, leading to context specific interpretations of center-led change and locally distinct responses, with consequences for change outcomes. We found that because of their dual role, senior managers construct two sets of interwoven and interacting change narratives which mediate the relationship between the wider organizational change and local change actions. Our analysis reveals how these evaluations of change, accompanied by affect, evolve over time and how they impact action. These findings contribute to existing theories of sensemaking and change by addressing the previously undertheorized relationship between senior management teams’ sensemaking and their responses to strategic change.

Senior Managers' Sensemaking and Responses to Strategic Change

Our longitudinal study of the sensemaking and responses to strategic change of the senior management team of a UK multinational subsidiary provides unusual data that enable us to explore the comple...

Firm Exports and Multinational Activity Under Credit Constraints

Abstract We provide firm-level evidence that credit constraints restrict international trade and affect the pattern of multinational activity. We show that foreign affiliates and joint ventures in China have better export performance than private domestic firms in financially more vulnerable sectors. These results are stronger for destinations with higher trade costs and not driven by firm size or other sector characteristics. Our findings are consistent with multinational subsidiaries being less liquidity constrained because they can access foreign capital markets or funding from their parent company. They further suggest that FDI can alleviate the impact of domestic financial market imperfections on trade.

Under One Roof: Supply Chains and Property Rights

We argue that economic links, such as supply chains, can create a common roof that protects foreign investors in host countries that lack strong institutions to protect property rights. Supply chains link the activities of firms: when a host government breaks a contract with one firm, other firms in the supply chain are harmed. These partner firms therefore have incentive to protect one another's property rights. This leads to the key implication of our argument: host governments are less likely to violate the property rights of firms that are more tightly linked with other firms in the host economy. We test our argument with cross-national data on investment arbitration, a survey of US multinational subsidiaries in Russia, and case studies from Azerbaijan. Our findings imply that one benefit of outsourcing in developing and transition economies is the creation of a network of partner firms that protect each other's property rights.

Strategic capabilities and the emergence of the global factory: Omron in China

Omron Shanghai provides a detailed case study of a multinational subsidiary's long-term evolution. The study assesses three streams of international business literature that emphasize the seemingly competing roles of parent firm strategy, national institutions or local management in the development of subsidiaries. It looks at each business function separately to reveal which capabilities were effectively transferred from Japan to China. In tracing Omron Shanghai's development from international joint venture into wholly owned enterprise and then global factory, it is the strategic intent of the parent multinational corporations that emerges as the consistent formative influence on management practices and capabilities.

International business and the Balti of meaning: food for thought

Purpose– The purpose of this paper is to discuss the interactive processes linking lived embodied experiences, language and cognition (body-talk-mind) and their implications for organizational change.Design/methodology/approach– The authors use an “embodied realism” approach to examine how people feel/perceive/act (embodied experiences), how they make sense of their experiences (cognition) and how they use language and communication to “talk sense” into their social reality. To exemplify the framework, the authors use a cooking metaphor. In this metaphor, language is the “sauce”, the catalyst, which blends raw, embodied, “lived” experience with consequent rationalizations (“cooking up”) of experience. To demonstrate the approach, the authors employ the study of a Chinese multinational subsidiary in Bangkok, Thailand, where participants were encouraged to build embodied models and tell their stories through them.Findings– The authors found that participants used embodied metaphors in a number of ways (positive and negative connotations) in different contexts (single or multicultural groups) for different purposes. Participants could be said to be “cooking up” realities according to the situated context. The methodology stimulated an uncovering of ineffable, tacit or sensitive issues that were problematic or potentially problematic within the organization.Originality/value– The authors bring back the importance of lived embodied experiences, language and cognition into IB research. The authors suggest that embodied metaphors capture descriptions of reality that stimulate reflexivity, uncover suppressed organizational problems and promote the contestation of received wisdoms when organizational change is pressing and urgent. The authors see the approach as offering the potential to give voice to embodied cultures throughout the world and thereby make IB research more practically relevant.

Multinational corporations as channels for international technology transfer: Evidence from the South African innovation survey

In this article, we investigate the importance of South African subsidiaries of foreign multinationals as channels to introduce foreign innovations in the South African market. We use firm-level data from the 2008 wave of the South African Innovation Survey, which covers the period 2005-07. We find that subsidiaries of foreign multinationals are significantly more likely to introduce product and process innovations, as well as foreign new products and processes than domestic firms. However, we also find that they are not more likely to introduce foreign innovations developed in collaboration with or mostly by another firm outside their own multinational, or innovations that are new to the South African market.

Brazilian Multinationals´ Competences: Impacts of a “Tug of War” Between Cultural Legacies and Global Mindedness

This study investigates the simultaneous influences of culture and global mindedness on the foreign subsidiaries of Brazilian multinationals (BrMNs). Because the ability to develop competences abroad is critical for emerging multinationals competitiveness, we proposed hypotheses and tested a model for how the competences of subsidiaries may be affected by the dimensions of global mindedness and culture. To do so, we conducted a multilevel survey involving the headquarters and subsidiaries of major BrMNs. The results suggest that global mindedness, which encompasses global orientation, global knowledge, and global skills, is positively related to the development of subsidiaries´ competences. By contrast, cultural factors, including power distance and uncertainty avoidance, are negatively related to competences development. Therefore, these dimensions may exert simultaneous and opposing stimuli and unaligned forces that affect the development of competences abroad, generating a “tug of war” effect.

Why Are Some Subsidiaries of Multinationals the Source of Novel Practices while Others Are Not? National, Corporate and Functional Influences

It has frequently been argued that multinational companies are moving towards network forms whereby subsidiaries share different practices with the rest of the company. This paper presents large‐scale empirical evidence concerning the extent to which subsidiaries input novel practices into the rest of the multinational. We investigate this in the field of human resources through analysis of a unique international data set in four host countries – Canada, Ireland, Spain and the UK – and address the question of how we can explain variation between subsidiaries in terms of whether they initiate the diffusion of practices to other subsidiaries. The data support the argument that multiple, rather than single, factor explanations are required to more effectively understand the factors promoting or retarding the diffusion of human resource practices within multinational companies. It emerges that national, corporate and functional contexts all matter. More specifically, actors at subsidiary level who seek to initiate diffusion appear to be differentially placed according to their national context, their place within corporate structures and the extent to which the human resource function is internationally networked.

Multinational corporations as channels for international technology transfer: Evidence from the South African innovation survey

In this article, we investigate the importance of South African subsidiaries of foreign multinationals as channels to introduce foreign innovations in the South African market. We use firm-level data from the 2008 wave of the South African Innovation Survey, which covers the period 2005-07. We find that subsidiaries of foreign multinationals are significantly more likely to introduce product and process innovations, as well as foreign new products and processes than domestic firms. However, we also find that they are not more likely to introduce foreign innovations developed in collaboration with or mostly by another firm outside their own multinational, or innovations that are new to the South African market.

Strategic planning in subsidiaries of multinationals in China: an empirical analysis of intra-organisational knowledge transfer

This paper examines the transfer of a particular kind of knowledge: strategic planning competencies in subsidiaries of multinational companies (MNCs) in China. We develop an integrative research model on the facilitators of intra-organisational knowledge transfer between the MNC parent and their subsidiaries. To test our hypotheses, we draw on data from a survey among managers of German MNCs in China, using PLS structural equation modelling. Our findings suggest that the willingness to acquire strategic planning knowledge, measured as the proven value of knowledge, is the most important enabler of strategic planning competencies at local subsidiaries, followed by the management support of the MNC parent as indicator of the MNCs capacity to transfer strategic planning knowledge, as well as the relationship between the MNC parent and the subsidiary. Finally, our findings support the importance of decentralised strategic planning for the Chinese subsidiaries' performance.

"Who are we as an organization?" Organizational Identity in a Multinational Company's Subsidiary

This study explored the role of national culture in the evolution of organizational identity in the context of a subsidiary of a multinational corporation (MNC). Hatch and Schultz’s (2002) model of...

Fatores Extrínsecos e Intrínsecos da Estratégia de Expatriação - uma Proposta de Framework para as Subsidiárias Estrangeiras

The expatriation strategy is related to the decision to assign people to meet the international demands of multinational companies (MNCs). The study aimed at answering the question: What are the strategies related to intrinsic and extrinsic factors determining the decision of expatriation of Japanese multinational companies? It had the objective to analyze the intrinsic and extrinsic factors of the decision of expatriation. This was a quantitative study with secondary data of Japanese foreign investment published by Toyo Keizai. A total of 107 subsidiaries of Japanese multinationals were analyzed in Latin America, 2006-2012, through multiple regression with panel data. It was proposed an expatriation strategy framework. The conclusion was that cultural distance, institutional and operational control dissimilarity determine the strategy for expatriation of international operations.

Intrinsic and extrinsic factors of expatriation strategy - a proposed framework for foreign subsidiaries

The expatriation strategy is related to the decision to assign people to meet the international demands of multinational companies (MNCs). The study aimed at answering the question: What are the strategies related to intrinsic and extrinsic factors determining the decision of expatriation of Japanese multinational companies? It had the objective to analyze the intrinsic and extrinsic factors of the decision of expatriation. This was a quantitative study with secondary data of Japanese foreign investment published by Toyo Keizai. A total of 107 subsidiaries of Japanese multinationals were analyzed in Latin America, 2006-2012, through multiple regression with panel data. It was proposed an expatriation strategy framework. The conclusion was that cultural distance, institutional and operational control dissimilarity determine the strategy for expatriation of international operations.

Internal equity financing and the performance of multinational subsidiaries in emerging economies

We examine the internal equity financing of the multinational subsidiary which retains and reinvests its own earnings. Internal equity financing is a type of firm-specific advantage (FSA) along with other traditional FSAs in innovation, research and development, brands and management skills. It also reflects subsidiary-level financial management decision-making. Here we test the contributions of internal equity financing and subsidiary-level financial management decision-making to subsidiary performance, using original survey data from British multinational subsidiaries in six emerging countries in the South East Asia region. Our first finding is that internal equity financing acts as an FSA to improve subsidiary performance. Our second finding is that over 90% of financing sources (including capital investment by the parent firms) in the British subsidiaries come from internal funding. Our third finding is that subsidiary-level financial management decision-making has a statistically significant positive impact on subsidiary performance. Our findings advance the theoretical, empirical and managerial analysis of subsidiary performance in emerging economies.

Knowledge-Sharing Subsidiaries in Central and Eastern Europe

This paper investigates reverse knowledge transfer of foreign multinational subsidiaries in Central and Eastern Europe (Czech Republic, Poland and Hungary) in the light of the current political and economic transformations of these former communist countries. The study examines whether foreign subsidiaries in the region share their knowledge base with their sister-subsidiaries and parent company, and the role of various factors in this knowledge sharing. These factors include subsidiary initiative, subsidiary autonomy, local dynamism and corporate embeddedness. A proprietary dataset is used for statistical analysis.

Oil and gas cooperation between China and Central Asia in an environment of political and resource competition

This paper investigates Central Asia’s oil and gas resources, special geopolitics and energy competition, and approaches, challenges and prospects in cooperation between China and Central Asia. The objective is to propose measures for oil and gas cooperation between China and Central Asia. Central Asia is rich in oil and gas resources. Its remaining recoverable reserves of crude oil and natural gas account for 1.9% and 10.6 %, respectively, of the world’s total reserves. Moreover, there is great exploration and development potential. As a strategic channel connecting Eurasia, Central Asia has a prominent geopolitical status. Many powerful countries such as the United States, Russia and China, as well as Europe, have an intense energy competition in Central Asia. In the oil and gas cooperation with Central Asia, the China National Petroleum Corporation (CNPC) focuses on establishing a coordination group, promoting overall oil and gas business opportunities and sustainable development, innovating and applying specialty engineering technology and improving project economic benefits. Through its efforts over the last nearly two decades, the China National Petroleum Corporation has completed a 50-million-tonne a year oil and gas production centre in Central Asia and oil and gas pipelines passing through multiple countries, becoming an important channel for securing China’s energy imports. If appropriate measures are taken in the ‘Thirteenth Five-Year Plan’ period or later, the China National Petroleum Corporation will develop a 100-million-tonne p.a. oil and gas production centre in Central Asia and a strategic oil and gas import channel exceeding this amount of production. This cooperation between China and Central Asia is however faced with the following challenges: increasing multinational competition uncertainty, potential risks in the political systems of Central Asian countries, frequently occurring violence and also resource policy tightening in Central Asia. To further oil and gas cooperation with Central Asia, it is recommended that China should develop an energy acquisition strategy, assign a regional energy ambassador, enhance oil and gas supply by mergers and acquisitions, establish regional multinational subsidiaries and improve its risk prevention system.