Subsidiary-specific Advantages Research Articles

An internalization perspective on subsidiaries’ reputation and its impact on subsidiaries’ marketing advantage: The moderating roles of resources and autonomy

Internalization theory of Multinational Enterprises (MNEs) provides a paradigm in the international business field. Contemporary discussions consider MNEs as differentiated network with self-initiated subsidiaries. However, while moving away from pure hierarchy, internalization theory has not fully particularized the coordinating mechanism across MNEs’ networked subsidiaries. Accordingly, we propose a novel role of subsidiaries’ reputation within their MNEs. Based on primary data from subsidiaries’ perspective, our findings are threefold. First, we demonstrate that a subsidiary’s reputation within the MNE is a critical driver for subsidiary-specific advantages. Second, we examine how subsidiaries’ strategic actions can send signals to their headquarters and sister subsidiaries to build its reputation. Finally, along with the reputation-building process, we reveal the contingencies of subsidiaries’ autonomy and resources within the MNE. Our results show that internalization enables a differentiated network mechanism constituted by reputation, autonomy control, and resource allocation across MNEs’ networked subsidiaries.

Export intensity of foreign subsidiaries of multinational enterprises

PurposeThe author contributes to the theory of the multinational enterprise by examining subsidiary-specific capability in financial management, defined as the stock of knowledge and capability to plan, manage, control and direct financial resources effectively and efficiently, and the perceptions of subsidiary managers of host country financial development as drivers of export intensity (the share of sales that are exported) of foreign subsidiaries of multinational enterprises (MNEs). The author theorizes that subsidiary-specific capability in financial management is conceptually a valuable subsidiary-specific advantage and it is as important as other traditional competitive advantages, such as research and development and marketing intensity. Perceptions of subsidiary managers of host country financial development are argued to be largely related to the characteristics of the host country-specific advantages.Design/methodology/approachThe author uses a survey dataset of the foreign subsidiaries of Western multinational enterprises (MNEs) together with other public data sources.FindingsThe author provides empirical evidence to support for these arguments that export intensity of MNE foreign subsidiaries depends on subsidiary-specific advantages and host country specific advantages.Originality/valueThe study broadens the understanding of the relationships between subsidiary-specific advantage in financial management, host country specific advantage, and export intensity of MNE foreign subsidiaries. In this way, the author makes an original contribution to new internalization theory by emphasizing the internal capability building of subsidiaries. The author discusses the implications of the findings for MNE foreign subsidiary managers, and policy makers because exporting is critical to the overall strategy of foreign subsidiaries, and it also contributes to the balance of trade and economic development of host countries where foreign subsidiaries operate.

Human capital, cultural distance and staffing localization

PurposeThis study aims to explore how a change in the staffing configuration of foreign subsidiaries affects subsidiary performance by focusing on staffing localization.Design/methodology/approachThe relationship between localization and subsidiary performance is analyzed from the perspective of human capital. Hypotheses are tested using a panel data set of foreign direct investment by Japanese multinational enterprises.FindingsThe analysis demonstrates that localization has a positive effect on subsidiary performance when subsidiaries can access a pool of competent local managers in the host country. It also shows that when competent local managers are highly available, localization has a positive effect on subsidiary performance under high cultural distance. In comparison, when the availability of competent local managers is limited and cultural distance is high, localization has a negative effect on subsidiary performance.Originality/valueUsing human capital theory, this study theorizes how localization, which is a change in the configuration of human capital toward a reliance on local-specific human capital, enhances subsidiary-specific advantages. It introduces the effects of changes in the configuration of human capital over time, into studies on subsidiary staffing. In addition, from a different viewpoint than previous studies, this study proposes one possible path where human capital leads to organizational performance. Specifically, it shows that a change in the configuration of human capital affects subsidiary-specific advantages, which eventually impacts subsidiary performance.

A Few Implications of the COVID‐19 Pandemic for International Business Strategy Research

A Few Implications of the COVID‐19 Pandemic for International Business Strategy Research

Subsidiary-specific advantages for inter-regional expansion: The role of intermediate units

This paper explores the distinctive deployment of resources and capabilities by subsidiaries in order to develop an intermediate role within the MNC. Based on the regional management perspective, we focus on a specific intermediate role—the springboard subsidiary—that helps overcome the liability of inter-regional foreignness. Our results, which are based on a dataset covering 188 subsidiaries, show that the probability of taking on this role is contingent upon experiential knowledge about the target region, as well as a rich knowledge base derived from a wide range of activities and a broad geographical scope. Our findings also show that possession of slack resources does not necessarily mean that a subsidiary will take on this role, as such slack must be combined with experiential knowledge. This paper serves as a first step in helping MNCs plan resource allocation to handle inter-regional expansion.

Multinational subsidiary sales and performance in South East Asia

We extend the theory of the multinational enterprise (MNE) by exploring the concept of subsidiary-specific advantages (SSAs) as a driver for subsidiary performance. We investigate the relationship of host country-specific advantages (host CSAs) in the form of market attractiveness, SSAs and subsidiary sales as they affect subsidiary performance. From an original primary dataset of 101 British multinational (MNE) subsidiaries in six South East Asian countries, our analysis reveals three significant findings. First, host market attractiveness has a statistically positive impact on the performance of subsidiaries. Second, the three traditional SSAs of general management, marketing capabilities and invested capital enhance subsidiary performance. Third, we examine geographic direction and types of customers for subsidiary sales by following international accounting standards. We find that these subsidiaries generate on average 95 percent of total sales from the Asia Pacific region and 91 percent of total sales from external customers. Our findings have important research and managerial implications.

Misunderstanding embeddedness: a response to Ferraris’ rethinking multiple embeddedness

Purpose– The purpose of this paper is to address the misapplication of the embeddedness concept in Ferraris’s (2014) paper and show how it needs to be used as a cornerstone economic sociology concept within his proposed framework. This paper is a response to his paper in theMultinational Business Review“Rethinking the literature on ‘multiple embeddedness’ and subsidiary-specific advantages”.Design/methodology/approach– The paper outlines the origin of the embeddedness concept and its evolution within the economic sociology literature. It addresses different types of embeddedness and continues with a critical analysis of Ferraris’s (2014) proposed framework of four main types of multinational enterprise (MNE) relationships. It provides suggestions for its improvement and application, as well as discusses the appropriate applications of embeddedness concept by international business (IB) scholars in MNE research.Findings– The paper shows how the embeddedness concept is mostly used as a metaphor and as a simple umbrella label for different types of connections between MNEs, their subsidiaries and different types of environments. The analysis of Ferraris’s (2014) proposed framework shows how MNE embeddedness is incorrectly understood as emanating from the balancing of local responsiveness and global integration within MNEs, where subsidiaries develop subsidiary-specific advantages (SSAs) by recombining home – host country-specific advantages and parent – subsidiary firm-specific advantages (FSAs).Originality/value– The paper adds to the existing IB understanding of MNEs’ multiple embeddedness and subsidiaries’ dual embeddedness through a wider and more structured economic sociology perspective. It provides an appropriate economic sociology-grounded typology of different types of embeddedness. A discussion of possible future research directions stresses how the embeddedness – dissembeddedness capability is a key source of MNE competitive advantage, which moderates the actual recombination process of producing FSAs and SSAs.

Rethinking the literature on “multiple embeddedness” and subsidiary-specific advantages

Purpose– This paper aims to synthesize the literature on embeddedness of MNE subsidiaries, rethinking the concept of “multiple embeddedness” in order to clarify the importance of the subsidiary-specific advantages.Design/methodology/approach– A new and innovative framework based on four key relationships: home country-specific advantages (CSAs)-Headquarters (HQ); HQ-subsidiary; subsidiary-host CSAs; and subsidiary-HQ. This framework is used to discuss the complex phenomenon of “multiple embeddedness”.Findings– The framework proposed sheds light on the subsidiary's need to develop and sustain over time its subsidiary-specific advantages (SSAs) and, where possible, to “upgrade” these SSAs and to integrate them across the entire network of the MNE. The framework is based on two pillars. The first one is the “creation and development” of firm-specific advantages (FSAs) (in the home country) and SSAs (in the host country); the second one is the “transfer” of these advantages from the parent to the subsidiary and vice versa. In addition, several interesting interrelations are found between the four main relationships, and the central role of the recombination capabilities and the importance of distance are highlighted.Originality/value– This paper is one of the first to develop a framework incorporating all the relevant relationships in multiple embeddedness. The framework is innovative and “embeddedness” is analyzed in a novel way, as many studies only partially analyze this complex phenomenon and neglect one or more of these relationships.

British Multinationals in South East Asia: Strategy, Subsidiaries and Performance

This thesis builds upon internalization theory in the international business literature and the pecking order theory in the finance literature to examine the relationship between subsidiary-specific advantages (SSAs), strategies and performance. Specifically, it theorizes that internal financing and subsidiary-level financial management capability are conceptually just as valuable as other traditional competitive advantages in R&D, marketing and managerial skills. It uses a survey dataset with the South East Asian subsidiaries of British multinational enterprises to empirically test a set of hypotheses. The empirical findings lead to advance on the theoretical concept of SSAs and show that SSAs enhance the subsidiary performance.

The evolution of innovation capability in multinational enterprise subsidiaries: Dual network embeddedness and the divergence of subsidiary specialisation in Taiwan

This paper examines how innovation-related capabilities for production, design and marketing develop at the subsidiary level within multinational enterprises (MNEs). We focus on how subsidiary autonomy and changing opportunities to access external (host country) sources of capability contribute to the accumulation of specialist capabilities in five Taiwan-based MNE subsidiaries in the semiconductor industry. Longitudinal analysis shows how the accumulation process is subject to discontinuities, as functional divisions are (re)opened and closed during the lifetime of the subsidiary. A composite set of innovation output measures also shows significant variations in within-function levels of capability across our sample. We conclude that subsidiary specialisation and unique subsidiary-specific advantages have evolved in a way that is strongly influenced by the above factors.

Competence-building in foreign subsidiaries: The case of new EU member states

This article examines patterns of competence-building in foreign subsidiaries located in new member states of the European Union. Among the theoretical foundations of this paper are the concepts of dynamic capabilities and subsidiary-specific advantages. We consider subsidiary competences as a combination of distinctive competences built into particular business functions. Furthermore, we examine sources of competences, and complementarities between these sources. We use a proprietary database to examine the research topic and find distinctive uneven growth of functional competences over time, distinctive patterns of complementarities between different functional competences and specific patterns of access to sources of competence. Finally, we discuss managerial and policy implications.

Export propensity and intensity of subsidiaries in emerging economies

We extend the theory of the multinational enterprise and the institutional perspective of strategy by exploring subsidiary-specific advantages as a driver of subsidiary exports. We distinguish between the factors influencing whether or not subsidiaries are exporting (export propensity) and those determining the share of sales that are exported (export intensity). The former are argued to be largely associated with the relative resource position of the subsidiary and the latter primarily with the character of the host institutional environment. We provide empirical support for these arguments through a Heckman two-stage selection model estimation using a unique primary dataset of foreign owned affiliates in Hungary, Poland, India and South Africa, Egypt and Vietnam. In particular, the quality of the host institutional environment does not affect export propensity which depends on subsidiary-specific advantages in terms of geographic location, acquired resources and small scale of the parent MNE. However, export intensity is lower where the institutional environment has a higher level of economic freedom.

Subsidiary research and development, and the local environment

Multinational enterprises (MNEs) increasingly seek to optimise their global innovative capabilities by incorporating subsidiary-specific advantages in different countries. But how important are the different location advantages for subsidiary investments in research and development? This paper adds to our understanding of the effects of commonly cited location advantages by analysing the degree to which they actually influence the incidence and level of subsidiary R&D. We developed hypotheses from the existing literature on location advantages, multinational R&D, and innovation incentives, and tested them in relation to an empirical data set containing over 2000 responses from subsidiary managers in seven countries in Europe. Four aspects of the local business environment were investigated: competitive conditions, supply conditions, scientific institutions, and government support. We found that only the presence of scientific institutions has a consistent, positive effect on the incidence and level of subsidiary R&D. Government support has a positive effect on the incidence of subsidiary R&D, but not its level. However, highly competitive environments have a negative effect, at least in small countries.

Subsidiary‐specific advantages in multinational enterprises

AbstractThis paper discusses the internal patterns of competence building in the multinational enterprise (MNE), with a focus on the creation of capabilities in its foreign subsidiaries. We present a new framework to synthesize 10 types of MNE–subsidiary linkages leading to capability development. We find that several of the 10 capability development processes are associated with subsidiary‐specific advantages. We discuss the process of subsidiary‐specific advantage development within the organizational structure of the MNE when it is a differentiated network of dispersed operations. Copyright © 2001 John Wiley & Sons, Ltd.

A Globalization Strategy for Subsidiaries-Subsidiary Specific Advantages

SUMMARY Internalization theory suggests three levels of potential advantages available to Multinational Enterprises (MNEs): firm specific advantages, country specific advantages and internalization advantages. This paper suggests an additional level of advantages: subsidiary specific advantages (SSAs). Subsidiary specific advantages are the advantages unique to a subsidiary which are not shared by other subsidiaries of the same MNE or by other subsidiaries in the industry in a country. SSAs are suggested as the theoretical rationale for a subsidiary holding global or international responsibilities within the MNE. Preliminary evidence of the existence of SSAs is presented from a research study which compared the competencies of subsidiaries with and without international responsibilities.