Subsidiary Network Research Articles

Orchestrating corporate social responsibility in the multinational enterprise

Research Summary: Multinational enterprises (MNEs) invest significant resources in corporate social responsibility (CSR), but their attempts to build a global “social brand” may clash with the execution of operational strategies at a subsidiary level. Using a game‐theoretic model, this research addresses the complex interplay of different contingencies that shape the coordination and control challenges facing MNEs when they implement global CSR strategies, including brand spillovers, the risk of public scandals caused by irresponsible behavior, the size of the MNE network, as well as the roles played by nongovernmental organizations and altruistic managers. Challenging the view of CSR as insurance against lapses of responsible conduct, our model shows that investment in social brands helps avoid irresponsible practices across the MNE network, thereby inducing subsidiaries to “walk the talk.” Managerial Summary: Global social brands are increasingly valuable to multinational enterprises (MNEs), which makes the control and coordination of responsible behavior across their network of foreign subsidiaries a relevant managerial challenge. Indeed, lapses of responsible conduct at the subsidiary level often generate reputational damage at the multinational level. This research explores several mechanisms that help MNEs manage this coordination and control challenge. First, it shows under what conditions MNEs can leverage their investments in social brands to induce responsible practices across their global network. Second, it illustrates how MNEs can exploit collaborations with nongovernmental organizations to reduce the costs of coordinating and controlling their subsidiaries. Finally, it identifies conditions under which MNEs benefit from hiring altruistic managers to run their subsidiaries.

When geography matters: International diversification and firm performance of Spanish multinationals

This paper studies how the nature and shape of the relationship between international diversification (ID) and performance (P) may vary according to a firm's geographical focus of internationalization. Using a sample of Spanish multinational firms for the 2004–2012 period we find an M-shaped relationship. However, significant differences are found when the different geographical foci of internationalization are considered. Strong support is found when firms adopt a regional focus (an inverted S-curve when the ID measure refers to the number of foreign countries and an M-curve when it refers to the size of the network of foreign subsidiaries), a biregional focus (an S-curve) and a semiglobal focus (an inverted S-curve but also an M-curve with foreign subsidiaries). These findings and their pattern suggest the critical importance of the country of origin and the geographical focus of internationalization in explaining the relationship between ID–P.

MNE’s Ability to Mitigate the FX Exposure: Subsidiary Network and Pass-through Ability

MNE’s Ability to Mitigate the FX Exposure: Subsidiary Network and Pass-through Ability

The springboard network: multinationals in Latin America

PurposeThe purpose of this paper is to provide empirical evidence regarding the springboard regionalization strategy implemented by multinationals entering Latin America and the organizational networks developed to serve this end.Design/methodology/approachUsing the organizational network approach, a typology is developed to explain the Springboard network. Quantitative analysis is used, in the form of logistic binary regression, to study these networks composition.FindingsFrom a sample of 154 subsidiaries extracted from the AMADEUS intelligent database, three categories for multinational’s networks are created, with the Spanish subsidiary acting as the leader: strategic centers (SCs), administrative centers (ACs) and regional headquaters (RHQs). Findings provide evidence of cultural features, industry behavior and the multinational’s size and entry mode influence these networks organization.Research limitations/implicationsIt is proposed that culture and historical ties have evolved together and management scholars should be aware of this phenomenon. Specific limitation that this study exhibits is the data provided by AMADEUS and the fact that R&D information for both the Spanish and the Latin American subsidiary were not available.Practical implicationsStaffing composition and expatriate corporate policy should consider the springboard effect to manage springboard networks.Social implicationsIndustries and authorities in all countries involved should be aware of their role in MNC strategies for regional expansion.Originality/valueIt is argued that a network of subsidiaries within the multinational can participation in the springboard behavior, which is determined by the culture that the multinational originates from, as well as the Spanish culture, creating a particular type of leadership.

Multistep Knowledge Transfer in Multinational Corporation Networks: When Do Subsidiaries Benefit From Unconnected Sister Alliances?

In this paper, we explore under which conditions subsidiaries of multinational corporations can benefit from the external networks of sister subsidiaries in terms of new knowledge generation. We focus on the phenomenon of unconnected sister alliances—that is, alliances of sister subsidiaries with whom the focal subsidiary lacks a recent history of internal R&D collaboration. Whereas unconnected sister alliances provide knowledge recombination opportunities for the focal subsidiary, realizing them is challenging because of particular knowledge transfer frictions. In this paper, we theorize on how particular conditions (i.e., headquarters proximity, knowledge overlap, size of focal subsidiary’s own alliance network) influence the strength of these frictions, resulting in hypotheses on how these conditions moderate the relationship between the number of unconnected sister alliances and the generation of new knowledge by focal subsidiaries. We rely on a panel data set of 2,258 R&D subsidiaries belonging to 118 firms in the pharmaceutical industry to empirically test our hypotheses. Jointly, our findings enrich our current theoretical understanding of how different types of external linkages and their interactions shape subsidiaries’ generation of new knowledge. We also illuminate the opportunities and challenges that multistep knowledge transfer processes entail.

Upgrading local operations for global arbitrage

This study shows that upgrading sales operations in host countries towards production allows MNCs to perform global arbitrage in their networks of foreign subsidiaries and thereby contributes to a strategy of reaping the benefits of multinationality. We predict and find that operation upgrades follow opportunities of improving resource flows in the subsidiary network to exploit the advantages of host countries in tax rates, investment incentives, and technological knowledge across borders. Performance effects on the level of the MNC network give evidence of these benefits from global arbitrage.

Economic crisis, intra-MNC production shifts and MNC performance from a network perspective

Our study examines how a multinational corporation (MNC) shifts production across its international subsidiary network in response to an economic crisis and how attributes of intra-MNC production shifts (IPSs) affect MNC performance. We argue that when an MNC faces an economic crisis, the magnified cross-national differences in economic conditions give it clear direction for production shifts, thereby reducing the incidence of its IPSs. However, this negative relationship weakens if an MNC has a wider subsidiary network that enables it to exploit more cross-national differences in economic conditions. We also argue that IPSs in which more host countries are involved will have larger positive effects on MNC performance. This is because the number of host countries involved in the production shifts reflects the cross-national differences actually exploited in economic conditions by the MNC. The analysis of panel data for Korean manufacturing MNCs that experienced the 1998 and 2008 economic crises provides empirical support for our arguments.

Tax haven networks and the role of the Big 4 accountancy firms

This paper investigates the association between the Big 4 accountancy firms and the extent to which multinational enterprises build, manage and maintain their networks of tax haven subsidiaries. We extend internalisation theory and derive a number of hypotheses that are tested using count models on firm-level data. Our key findings demonstrate that there is a strong correlation and causal link between the size of an MNE’s tax haven network and their use of the Big 4. We therefore argue that public policy related to the role of auditors can have a significant impact on the tax avoidance behaviour of MNEs.

Corporate social responsibility and multinational enterprise identity: insights from a mining company's attempt to localise in Ghana

ABSTRACTThis paper investigates how a US gold mining multinational enterprise (MNE) – one of the world's largest – operates its subsidiaries in various parts of the world by creating a unique ‘glocal identity’. The US parent company has experienced several significant challenges across its network of subsidiaries. These challenges were mostly linked to the enforcement of the MNE's identity and culture in its host environment. We contribute by describing, in detail, the attempts made by this company to localise its corporate social responsibility practices in Ghana as it sought to gain legitimacy and create an identity that would overcome the issues relating to the liability of foreignness. Our data come from a combination of sources, including questionnaires and detailed semi-structured interviews conducted with the key management employees of the mining company, members and opinion leaders of the company's host communities, and secondary sources. Our main finding is that the construction of a ‘host-friendly’ identity was centred around the mining company's involvement with the Newmont Ahafo Development Foundation.

Beyond Simple Configurations: The Dual Involvement of Divisional and Corporate Headquarters in Subsidiary Innovation Activities in Multibusiness Firms

We investigate “dual headquarters involvement”, i.e., corporate and divisional headquarters’ simultaneous involvement in innovation development projects hosted by subsidiaries of multibusiness firms. Drawing on selective hierarchical involvement theory and the literature on subsidiary network embeddedness, we analyze 83 innovation projects in 22 multibusiness firms and find that the number of partners in the projects, rather than subsidiary intra- and inter-divisional embeddedness acts as a driver of dual headquarters involvement. We do however find that intra- and inter-divisional embeddedness is positively related to dual headquarters involvement when the number of partners in the innovation project is relatively large. These results lend support to the idea that parenting in complex organizations entail complex headquarters structures. Our results suggest that we need to go beyond simple conceptualizations of headquarters and that considering different dimensions of the innovating subsidiary’s network helps in explaining dual headquarters involvement.

MNE Headquarters Disaggregation: The Formation Antecedents of Regional Management Centers

AbstractThis research examines region‐bound headquarters disaggregation in multinational enterprises (MNEs). We link the formation of regional management centres – both dedicated regional headquarters (RHQs) and regional management mandates (RMMs) granted to operating subsidiaries – to the complexity argument underlying organizational information processing theory. We demonstrate how different dimensions of complexity associated with the number and dispersion of an MNE's subsidiary network in a focal region affect whether, and in which form, region‐bound headquarters disaggregation takes place. Additionally, we consider boundary conditions affecting RMC formation based on within‐region experience, global MNE footprint, and between‐region effects. Empirically, we utilize a large global dataset of Japanese MNE foreign investments between 1992 and 2014, which allows us to perform event history analyses.

Subsidiary Networks and Foreign Subsidiary Performance: A Coopetition Perspective

From a coopetition perspective, we differentiate between a multinational enterprise’s product-similar subsidiary network and product-different subsidiary network in a host country. We argue that th...

Big Third-Party Certifiers and the Construction of Transnational Regulation

International trade is increasingly regulated through standardization, certification, and accreditation. To ensure that consumers can trust that the products they buy meet regulators’ standards, third-party certifiers and accreditation bodies, which “certify the certifiers,” act as intermediaries enlisted to deliver conformity assessment certificates to producers. This article explores how a few third-party certifiers have exploited their position between multiple regulators and diverse targets to invest in a growing number of sectors, expand globally, and become preferred advisers to regulators. As regulators enlist them to standardize certification practices, big third-party certifiers (BTPCs) advise regulators to set system-based regulations that are better suited to their own organizations and networks of international subsidiaries.

Bribes and Firm Value

I exploit the passage of the UK Bribery Act 2010 as an exogenous shock to UK firms’ cost of using bribes to study whether the ability to use bribes c reates firm value. First, I find that UK firms oper ating in high corruption regions of the world display negati ve abnormal returns upon passage of the Act. A firm operating exclusively in the most corrupt regions s uffers a 6.2% drop in value compared to a firm operating exclusively in the least corrupt regions. The effect is stronger for firms that are not alre ady subject to US anti-bribery regulation, are not part of corporate social responsibility indices, operat e in concentrated industries, and have better governance . Foreign firms subject to the Act because they hav e a UK subsidiary also exhibit negative abnormal return s. Second, I identify real effects of the Act. Rela tive to comparable continental European firms, UK firms expand their subsidiary network less into high corruption regions and their sales in these regions grow six percentage points more slowly.

The Performance of MNE Subsidiaries in China: Does It Matter to Be Close to the Political or Business Hub?

Abstract This study examines the impact of distance on financial performance of multinational enterprise (MNE) subsidiaries in China. We hypothesized and found that MNE subsidiaries performed better when located closer to the country's business hub, but performed less well when located closer to the political hub. We also hypothesized that distance effects are moderated by subsidiary size, subsidiary network, and state capital contribution to subsidiary. Our findings were based upon 45,248 MNE subsidiaries with location and geographic distance measured at the prefectural level in China.

S.J. Lawson, Inc.—A Performance Measurement Behavioral Audit

With the encouragement of its overseas parent company, Cochran Consumer Products Inc. (CCPI), the U.S.-based executive team at S.J. Lawson, Inc. (SJLI), was nearly ready to announce the new financial performance measurement focus and economic profit (EP) for the company's product category managers. Currently, the SJLI executive team was finalizing plans for its initial announcement to the subsidiary's five product category managers. The team had received some general guidance from headquarters but it had also been told that because it knew the category managers best, it should develop its own local strategy for introducing the initiative. Excerpt UVA-C-2366 Rev. Aug. 18, 2016 S.J. Lawson, Inc.—A Performance Measurement Behavioral Audit With the encouragement of its overseas parent company, Cochran Consumer Products Inc. (CCPI), the U.S.-based executive team at S.J. Lawson, Inc. (SJLI), was nearly ready to announce the new financial performance metric, economic profit (EP), the company was rolling out for all its product category managers. In fact, the CCPI announcement was scheduled to take place in four weeks. Currently, the SJLI executive team was finalizing plans for its initial announcement to the subsidiary's five product category managers. The team had received some general guidance from headquarters, but it had also been told that because it knew the category managers best, it should develop its own local strategy for introducing the initiative by June 30. CCPI's public announcement would immediately follow all the subsidiary announcements. The new focus was the result of almost nine months of intensive interviews, frequent meetings, heated discussions, and detailed refinements at both the corporate and subsidiary levels. The new EP metric was intended to extend the product category managers' financial objective from a traditional earnings perspective (i.e., product category profit) to a value-created focus (Exhibit 1). The parent company's global network of subsidiaries was embarking on the very same initiative, all galvanized and coordinated out of CCPI's European corporate headquarters by the conglomerate's CFO and CMO. Context . . .

Contextualizing international learning: The moderating effects of mode of entry & subsidiary networks on the relationship between reforms & profitability

This empirical paper studies how MNEs from developing and emerging markets may learn through their choice of entry mode and subsidiary network configuration, and use this knowledge to increase their responsiveness to pro-market reforms in their home market. The paper proposes that entry modes and network configurations that facilitate knowledge acquisition provide firms from developing countries an advantage when responding to such institutional changes. The analyses use data for the largest Latin American companies from 1989 to 2008. The findings provide evidence for a positive moderating effect of equity international joint ventures, international acquisitions, and subsidiary network centrality closeness on the relationship between reforms and profitability.

Bribes and Firm Value- Evidence from Anti-Bribery Regulation

I exploit the passage of the U.K. Bribery Act 2010 as a shock to U.K. firms’ cost of doing business in order to study the effect of bribes on firm value. Around the Act’s passage, U.K. firms operating in high-corruption countries display a drop in value. However, their non-U.K. competitors in these countries exhibit an increase in value. U.K. firms respond to the Act by reducing the expansion of their network of subsidiaries into perceptively corrupt countries. Moreover, compared to their non-U.K. competitors, U.K. firms’ sales in such countries grow 12 percentage points slower and their merger and acquisition (M&A) activity declines. Taken together, I show that bribes facilitate doing business in certain countries. Imposing unilateral anti-bribery regulations on some firms benefits their unregulated competitors.

Benefits of internal manufacturing network integration

Purpose– The purpose of this paper is to offer deeper insight into the relationship between a subsidiary’s internal integration in its manufacturing network and subsidiary-level operational performance by taking into account the country context of the respective subsidiary.Design/methodology/approach– Subsidiary-level information is gathered using the sixth round of the International Manufacturing Strategy Survey, thus including 507 subsidiaries from 22 countries. Country context is operationalised using the Global Competitiveness Report published by the World Economic Forum.Findings– The findings reveal that internal integration has a positive influence on operational performance improvement. Country context acts as a moderator on this relationship: subsidiaries in less developed countries are only able to improve their effectiveness (quality, flexibility, delivery), while developed country subsidiaries gain both effectiveness and efficiency (cost, time) benefits from internal integration.Research limitations/implications– The unit of analysis is the knowledge-receiving subsidiary without taking the characteristics of the sending unit or that of the whole network of subsidiaries into account. Based on the context-dependency of the integration-performance relationship found in this paper, a future research agenda is proposed including further factors (absorptive capacity, knowledge complementarity, organisational practices) that could influence this relationship.Practical implications– Subsidiary managers in less developed countries should strive to acquire intra-network knowledge related to effectiveness, while managers in developed countries can expect both efficiency and effectiveness benefits.Originality/value– A large-scale survey encompassing subsidiaries from both emerging and developed countries is used to offer deeper insight into the relationship between internal integration and performance. The paper provides a possible explanation for previous mixed findings on this relationship. The differentiation between efficiency and effectiveness performance shows that country context represents an important factor that moderates the integration-performance relationship.

Global energy networks: Insights from headquarter subsidiary data of transnational petroleum corporations

Oil companies are powerful international actors, and have formed complex networks by building relationships from their headquarters (HQs) to subsidiaries. However, we do not know much about these networks as energy trade networks. In this paper, we select HQ subsidiary data of the most powerful oil companies in Fortune Global 500, and employ network analysis, Gini coefficient and Herfindahl index to investigate the network centrality, inequality and regional characteristics. We find that HQs are concentrated in the Unites States, Western Europe and East Asia while subsidiaries are more dispersed in both producing and consuming countries. Compared to the trade networks, HQ subsidiary network is more complex and displays greater inequality, especially in the out-degree network. IOCs (international oil companies) and NOCs (national oil companies) show different preferences for choosing subsidiaries locations and form different networks based on their industry value chains. A more complicated network including IOCs and NOCs will be more flexible in respond to market competition and geopolitical situation. HQ-subsidiary energy networks should be seriously considered along with the international diplomatic relations when making transnational energy policies and trading.