Subsidiary Network Research Articles

Operational Hedges and the Foreign Exchange Exposure of U.S. Multinational Corporations

This paper examines the impact of operational hedges of US multinational corporations (MNCs) on their exchange rate exposure. The two important contributions of this study are: First, it documents the importance of operational hedges as significant determinants of exchange rate risk, as measured by “breadth” and “depth” dimensions of the MNC foreign subsidiary network. Second, this finding remains robust even after examining the impact of operational hedges on exposure separately for negatively and positively exposed MNCs.

Firmwide Risk Management of Foreign Exchange Exposure by U.S. Multinational Corporations

This paper investigates the impact of firmwide risk management practices on the foreign exchange exposure of 208 U.S. multinational corporations (MNC) over the period 1994 to 1998. Firmwide risk management is the coordinated use of both financial hedges, such as currency derivatives, and operational hedges, described by the structure of a firm's MNC foreign subsidiary network, to manage currency risk. We find that the use of currency derivatives, particularly forward contracts, is associated with reduced levels of foreign-exchange exposure. Furthermore, MNCs with dispersed operating networks have lower levels of currency exposure. These findings are robust to alternative ways of measuring foreign-exchange exposure. Finally, our results strongly support the view that MNCs hedging in a coordinated manner can significantly reduce exposure to currency risk. These results strongly suggest that operational and financial hedges are complementary risk management strategies.

Operational Hedges and the Foreign Exchange Exposure of U.S. Multinational Corporations

This paper examines the impact of operational hedges of US multinational corporations (MNCs) on their exchange rate exposure. The two important contributions of this study are as follows. First, this study documents the importance of operational hedges as significant determinants of exchange rate risk as measured by breadth and depth dimensions of the MNC foreign subsidiary network. Second, this finding remains robust even after examining the impact of operational hedges on exposure separately for net exporting and net importing MNCs.

Operational flexibility and market valuation of earnings

This paper examines the association between the stock returns and accounting earnings of firms that have different levels of operational flexibility. Operational flexibility is a firm’s ability to respond profitably to environmental fluctuations by shifting factors of production within a multinational network of subsidiaries. The geographic breadth and depth of a firm’s multinational network are used as indicators of operational flexibility. We find a significantly greater coefficient relating stock returns and accounting earnings for multinational firms that operate in many countries, but limit their concentration in any one foreign country, than for other multinational firms or domestic firms. This coefficient is significantly smaller for multinational firms whose foreign subsidiaries are highly concentrated in a few countries. When all multinational firms are pooled together, we find their earnings-returns association does not differ from that of domestic firms. Copyright © 1999 John Wiley & Sons, Ltd.

Multinational Subsidiary Evolution: Capability and Charter Change in Foreign-Owned Subsidiary Companies

There has been a profound evolution in thinking about multinational corporations (MNCs) [since the late 1980s]. Traditionally, in academic models researchers assumed that ownership-specific advantages were developed at the corporate headquarters and leveraged overseas through the transfer of technology to a network of foreign subsidiaries (Vernon, 1966; Dunning, 1981). As these overseas subsidiaries grew in size and developed their own unique resources, however, it became apparent to many researchers that corporate headquarters was no longer the sole source of competitive advantage for the MNC. Scholars developed models such as the heterarchy (Hedlund, 1986) and the transnational (Bartlett and Ghoshal, 1989) to reflect the critical role played by many subsidiaries in their corporations’ competitiveness, and research attention began to shift toward understanding the new roles played by subsidiaries.

Subsidiary influence on strategic behaviour in MNCs: an empirical study

A subsidiary in a multinational corporation (MNC) has assets in the form of specific relationships. It is argued that the subsidiary's network is of vital importance for the development of new products, production processes and for technological information in the subsidiary. The resources created in the subsidiary's network can, if they are needed by other units within the MNC, make it possible for the subsidiary to influence the strategic behaviour of the MNC. The empirical data presented are collected from 97 subsidiaries of 20 global divisions in Swedish MNCs, and we have interviewed over 300 managers. The 626 important relationships studied give support for the notion that they are of vital importance for technological development in the subsidiaries. The subsidiary's technological position is operationalised as the subsidiary's roles as giver and receiver of technological development in the MNC. The test provides support for the opinion that the more a subsidiary is a giver, the greater its possibilities to influence the strategic behaviour in the MNC.

Competing globally: How Japanese MNCs have matched goals and strategies in India and China

Japanese MNCs have established strong investment positions in the US, Europe and Asia. China has been a major recipient of Japanese foreign direct investment (FDI), while investment in India has grown much more slowly. We argue that the differences extend much beyond the levels of investment—Japanese involvement in India and China is qualitatively different. Japanese FDI in China was motivated by access to location-specific productive resources, and it involved a high degree of technology, management skills and organizational knowledge transfer. The Japanese subsidiaries in China were integrated with the network of international subsidiaries as a part of the MNC's global strategy. Japanese FDI in India, however, was motivated by the desire to access local markets. It involved less transfer of technology and management skills, and Japanese subsidiaries in India operated independently as part of a multi-domestic strategy. We conclude that foreign entrants to the region should be aware and able to respond to the unique advantages of each host country and to the different strategies and capabilities of the subsidiaries of Japanese MNCs.

The Dynamics of International Strategic Alliances

Strategic alliances have historically been an important way of internationalizing for transport companies, in part because of the rules and regulations governing transportation and transport companies in different countries. Another important reason is the necessity to access domestic networks for transport in foreign countries. Transport companies, therefore, have a history of forming, developing, and even breaking strategic alliances, usually with other transport companies. As many countries have deregulated or harmonized their rules and regulations concerning transport, conditions have changed. Furthermore, the manufacturing industry has developed its own international networks of distributors, sales, and production subsidiaries. Today, many industrial production subsidiaries are large autonomous units that are going through their own process of internationalization.

Headquarters’ Knowledge of Subsidiary Network Contexts in the Multinational Corporation

Headquarters’ Knowledge of Subsidiary Network Contexts in the Multinational Corporation

Implementing global strategies: The role of procedural justice

While work in the field of global strategic management has largely focused on defining the content of effective global strategies and on prescribing winning strategic moves for multinationals, this research argues the importance of the process through which global strategies are generated, in particular the perceived procedural justice of that process. Drawing on the theoretical heritage of justice-based research, this study first explored the meaning of procedural justice by an investigation of the specific criteria used by subsidiary top managers to define what they perceive to be a fair process in global strategy-making. Second, the importance of procedural justice was assessed by an examination of its effects on the higher-order attitudes of commitment, trust, and social harmony as well as on the lower-order attitude of outcome satisfaction in subsidiary top management. One of the central conclusions of the research is that the procedural justice of the global strategy generation process indeed affects commitment, trust, and social harmony as well as outcome satisfaction in subsidiary top management, and hence provides a potentially powerful but, as yet, unexplored avenue for mobilizing the multinational's global network of subsidiaries.

THE DESIGN OF STORM WATER DRAINAGE CHANNELS USING MATHEMATICAL MODEL TECHNIQUES.

This paper describes the hydraulic aspects of the design of drainage schemes, the main arterial branches of which consist of open channels. The TRRL hydrograph technique is applied to the subsidiary pipe network system but a new mathematical model technique is used for the main drainage channels. The spatially varied unsteady flow conditions within these channels are analysed using a full solution of the equations governing continuity, momentum and frictional resistance, the latter being defined in terms of the Colebrook-White transitional law. The new method was used in a feasibility study to determine the optimum drainage system for the proposed Maplin airport-seaport development, and results from this investigation illustrate the method. (A) /TRRL/