Subsidiary Strategy Research Articles

The integration-responsiveness framework and subsidiary management: A commentary

This commentary article discusses the appropriateness of using the integration-responsiveness framework for studying subsidiary management. The framework is frequently used and highly accepted in the international business literature, but the research contributions of applying the framework can be questioned. This commentary article discusses the applicability of the framework from a theoretical point of view, and furthermore, argues that it is difficult to empirically test subsidiary strategies and management based on hypotheses derived from the framework, and that the implications that can be drawn have limited theoretical content.

Subsidiary Strategy: The Embeddedness Component

abstractThis article develops the concept of internal subsidiary embeddedness as the canvas within which subsidiary strategy takes place. Developing an inductive model, we identify three hierarchical levels of embeddedness. The first level is operational embeddedness, which relates to interlocking day‐to‐day relations. The second level is capability embeddedness, which concerns the development of competitive capabilities for the multinational as a whole. The third level is strategic embeddedness, which concerns a subsidiary's participation in a multinational corporation's strategy setting. We derived our concept of embeddedness from an in‐depth case study. Embeddedness is not merely an outcome of the institutional setting in which a subsidiary is situated, but is a resource a subsidiary can manage by means of manipulating dependencies or exerting influence over the allocation of critical resources. A subsidiary can modify its embeddedness to change its strategic restraints. Therefore, the development of subsidiary embeddedness becomes an integral part of subsidiary strategy.

Marketing strategy antecedents of value adding by foreign subsidiaries

PurposeThe purpose of this paper is to extend the knowledge of marketing strategy antecedents of industrial value adding in foreign markets. It attempts to answer the following two questions: how is the marketing strategy of a foreign subsidiary associated with the extent of its value‐adding activity? Is there an association between the extent of value‐adding activity and financial performance of the subsidiary?Design/methodology/approachA model is developed and hypotheses are tested. Data are collected from 191 subsidiaries of Swedish manufacturing firms in Germany, the UK, and the USA.FindingsProduct‐market breadth and market experience positively affect the extent of foreign value adding. Also, market experience has a moderating effect and strengthens the positive association between product‐market breadth and the extent of value adding. A foreign subsidiary's financial performance is positively associated with the number of value‐adding activities of the subsidiary.Research limitations/implicationsThe study shows that the marketing strategy of a foreign subsidiary needs to be acknowledged to understand the antecedents of foreign value‐adding activity. In addition, the extent of value‐adding activity contributes to the implementation of an effective international strategy.Practical implicationsAn industrial firm wanting to implement an effective international marketing strategy needs to pay attention to the links between the marketing strategy of a foreign subsidiary and the extent of the subsidiary's value‐adding activity.Originality/valueThe study is unique in that it applies a subsidiary perspective and focuses on foreign subsidiary strategy associations. The study both extends the common approach, which argues that the value adding of a foreign subsidiary is determined only by the corporate marketing strategy, and explores associations with foreign subsidiary performance.

Expatriate or local? Predicting Japanese, subsidiary expatriate staffing strategies

Can Dunning's OLI (Ownership, Location, Internalization) framework be extended from predicting FDI location decisions and entry mode choices to other international strategic decisions? Using data from 891 new (two years or younger) Japanese foreign subsidiaries, we investigate the relationship between Dunning's OLI variables and expatriate staffing ratios (the ratio of expatriates to local employees). We found empirical support for Dunning's framework as a predictor of Japanese new subsidiary expatriate staffing ratios. Implications and directions for future research are discussed.

Subsidiary Strategy: The Embeddedness Component

This article develops the concept of internal subsidiary embeddedness as the canvas within which subsidiary strategy takes place. Developing an inductive model, we identify three hierarchical levels of embeddedness. The first level is operational embeddedness, which relates to interlocking day-to-day relations. The second level is capability embeddedness, which concerns the development of competitive capabilities for the multinational as a whole. The third level is strategic embeddedness, which concerns a subsidiary's participation in a multinational corporation's strategy setting. We derived our concept of embeddedness from an in-depth case study. Embeddedness is not merely an outcome of the institutional setting in which a subsidiary is situated, but is a resource a subsidiary can manage by means of manipulating dependencies or exerting influence over the allocation of critical resources. A subsidiary can modify its embeddedness to change its strategic restraints. Therefore, the development of subsidiary embeddedness becomes an integral part of subsidiary strategy.

MNCs’ HRM Strategy and Country of Origin Effect: Do North American, European and Japanese Firms Really Differ?

Based upon the sample of 419 MNCs’ subsidiaries in Korea, we examined the country of origin effect in the choice of MNCs’ HRM strategy: transplantation, localization, and mixed. A multinominal logit regression analysis showed that there is an important country of origin effect in the choice between a localization strategy and a mixed strategy. North American MNCS tended to implement mixed strategy, while Japanese MNCs tended to adopt localization strategy. European MNCs were in the middle. The estimated log odds of choosing a localization strategy over a mixed strategy by Japanese subsidiaries were 1.79 times higher than European subsidiaries and 2.85 times higher than N. American subsidiaries; those by European subsidiaries were 1.59 times higher than N. American subsidiaries. However, the country of origin was not significantly related to the choice between a transplantation strategy and other strategies. We also examined two alternative factors influencing the HRM strategy of foreign subsidiaries: investment strategy and entry strategy. The implications of this and directions for future research are discussed.

Reinventing strategies for emerging markets: beyond the transnational model

With established markets becoming saturated, multinational corporations (MNCs) have turned increasingly to emerging markets (EMs) in the developing world. Such EM strategies have been targeted almost exclusively at the wealthy elite at the top of the economic pyramid. Recently, however, a number of MNCs have launched new initiatives that explore the untapped market potential at the base of the economic pyramid, the largest and fastest-growing segment of the world's population. Reaching the four billion people in these markets poses both tremendous opportunities and unique challenges to MNCs, as conventional wisdom about MNC global capabilities and subsidiary strategy in EMs may not be appropriate. How MNCs can successfully enter these low-income markets has not been effectively addressed in the literatures on global and EM strategies. An exploratory analysis, involving interviews with MNC managers, original case studies, and archival material, indicates that the transnational model of national responsiveness, global efficiency and worldwide learning may not be sufficient. Results suggest that the success of initiatives targeting low-income markets is enhanced by recognizing that Western-style patterns of economic development may not occur in these business environments. Business strategies that rely on leveraging the strengths of the existing market environment outperform those that focus on overcoming weaknesses. These strategies include developing relationships with non-traditional partners, co-inventing custom solutions, and building local capacity. Together, these successful strategies suggest the importance of MNCs developing a global capability in social embeddedness.

The determinants of MNC subsidiary initiatives: implications for small business

Since the importance of the subsidiary's role continues to increase, a growing number of studies have focused on MNC subsidiary strategies. The aim of this study is to explore the determinants of a subsidiary's initiative. Based on the subsidiary research's classification provided by Birkinshaw and Hood, an integrated framework is developed to examine the influences of three groups of variables on the subsidiary initiative, namely, the headquarters-subsidiary relationship, the subsidiary resources and the network characteristics of the subsidiary. Since previous studies have focused on subsidiary initiatives in developed countries, this study addresses the issue of MNC subsidiaries in developing countries. The present analysis of 67 European, US and Japanese MNC subsidiaries in Taiwan reveals that each of the three groups of variables influences the subsidiary initiative. Furthermore, in terms of individual variables, it is determined that procedural justice, a subsidiary's relative capabilities, and a subsidiary's local responsiveness all have a positive influence on the subsidiary initiative. Finally, because innovation is critical to small business's global strategy, this study discusses the implications of subsidiary initiatives for global strategy of small business and indicates potential directions for future research.

Fighting for Power: The Strategy of Global MNCs' Subsidiaries

The purpose of this paper is to examine the relational configurations of a subsidiary that belongs to a global industry such as auto components manufacture. As global integration pressures are high in this environment, there are pressures for centralization and some subsidiaries are losing resources and capabilities to the benefit of headquarters or other subsidiaries. Consequently, they may fight within the MNC to retain control over certain resources and capabilities, mainly by building strong relationships with local suppliers, providers, customers or other units of the MNC that may reach global relevance. While previous studies have identified the significance of networks as a metaphor for understanding MNC structure, in this paper we attempt to show how analysis of a subsidiary's networks of contacts can be a useful tool to identify the role the subsidiary is playing in the multinational as a whole. It shows how networks can be used by the subsidiary as a tool to proactively develop a formulated strategy.

Resource Flows within Multinational Corporations: Implications for Subsidiary Strategy

Built on the network conceptualization of the multinational corporation (MNC) in the literature, this paper explores three sets of intra-MNC resource flows that facilitate global integration: capital, knowledge, and product flows. By considering both the direction and intensity of the resource flows, this paper presents a framework for analyzing the strategic roles of foreign subsidiaries. We explore this framework with data on U.S. subsidiaries of foreign companies in 46 manufacturing and service industries and 24 MNC home countries. Differences in subsidiary roles are analyzed along two dimensions: the extent to which the subsidiary is a provider of resources to, or a user from, the MNC network. The results provide strong support for differentiated subsidiary roles in relation to the direction and intensity of intra-MNC resource flows. This framework provides managers with better understanding of global integration across subsidiaries.

The relative influence of country conditions, industry structure, and business strategy on multinational corporation subsidiary performance

Two competing theories of firm performance have been proposed in the business strategy literature, the industry structure view and the resource-based view of the firm. Empirical studies have estimated the relative contribution of industry structure, corporate, and business unit effects to business unit performance. These studies, however, have been restricted to using only single-country data. Missing from this debate is an international dimension that includes the relative importance of country conditions as a determinant of firm performance. The objective of this article is to fill this void by adding country characteristics to the analysis. Using cross-country data of four large multinationals in a single industry, we estimate the relative importance of country characteristics in addition to industry structure, corporate characteristics, and subsidiary strategy as determinants of subsidiary performance by using multiple regression analysis. This analysis also will contribute to the discussion on environmental determinism versus strategic choice. Country and industry characteristics are mainly outside the control of management, whereas corporate characteristics and subsidiary strategy are under management's control. Results show that country characteristics are by far the most important determinant of subsidiary performance, followed by industry structure, subsidiary strategy, and corporate characteristics. Thus, country conditions are a very important determinant of firm performance that so far has been overlooked in previous studies. These results indicate that subsidiary performance is determined mainly by conditions outside the control of subsidiary management. In terms of competing theories, these results support the environmental determinism view more than the strategic choice view and the resource-based view of the firm more than the industry structure view. These results also have important implications for multinational corporations' selection of countries for entry and investment and for performance evaluation of subsidiary management.

Configuration and Coordination at Subsidiary Level: Foreign Manufacturing Affiliates in the UK

This paper develops Porter's (1986) well‐known configuration/coordination paradigm for strategy at corporate level into a model that may be applied to identify and evaluate strategy at subsidiary level. Four strategy types are identified: detached subsidiary (corresponding to Porter's export‐based corporate strategy), autarchic subsidiary (corresponding to the country‐centred corporate strategy), confederate strategy (corresponding to high foreign investment with extensive coordination), and the strategic auxiliary (purest global strategy). Empirical data were obtained from a postal survey of 500 randomly chosen foreign manufacturing affiliates in the UK, of which 171 responded. The proposed strategy types were identified using cluster analysis and verified using analysis of variance. The four subsidiary strategy types were found to be separated by a number of operational variables including market scope, flows of material inputs and outputs, the nature of manufacturing technology employed and the degree of R&D complexity. The proposed framework was thus found to be useful and robust.

The process of subsidiary strategy: a study of Ciba‐Geigy Classical Pigments

This paper analyses the strategy of Ciba‐Geigy′s industrial division at three hierarchical levels, concentrating on subsidiary strategy in the Classical Pigments business. The analysis makes use of a number of models: the BCG matrix, White and Poynter′s model of subsidiary strategy, Porter′s configuration‐co‐ordination paradigm, and Prahalad and Doz’s integration‐responsiveness framework. The strengths and weaknesses of each are evaluated within this particular industrial environment. The main conclusion of the paper is that use of these four alternative analytical perspectives yields a more holistic view of strategy in the Classical Pigments business.

Strategy shifts in MNC subsidiaries

This paper critically reviews the model of subsidiary strategy proposed by Jarillo and Martinez and, based on the data from a survey of 171 MNC manufacturing affiliates in the UK, proposes an extension of their model. The key finding is the indentification of a group of affiliates (quiescent subsidiaries) in the low integration–low responsiveness quadrant, not previously identified in a study of this nature. Characteristics of the quiescent affiliate type are explored, and the determinants of strategy stability and strategy change over time are evaluated. It is concluded that differences between the extended model and the original may lie in basic strategic differences between Spanish and UK affiliates. © 1998 John Wiley & Sons, Ltd.

Marketing Content of MNC Subsidiary Strategy

This paper reports on the results of a postal surveyof MNC manufacturing subsidiaries in Scotland. A reduced formof White and Poynter's (1984) subsidiary strategy paradigm isused to assess the determinants of subsidiary strategy, usinga number of marketing, manufacturing and technology measures.Multiple discriminant analysis produces a parsimonious evaluationof linkages between these variables and subsidiary strategy.A number of implications are identified for academics, subsidiarymangers, and policy makers.

International development of Taiwan's information industry: an empirical study on human resource strategy of overseas subsidiaries

Since the 1980s, personal computers (PCs) and semiconductors have emerged as Taiwan's two leading high-technology industries. As of the 1990s, Taiwan has attained third place among PC manufacturers, and PCs and peripherals have become Taiwan's largest export products. Entrepreneurial small businesses, fierce competition in the local economy and efficient industrial networking characterize Taiwan's PC industry, with flexible production and shortened time-to-market. This study investigates the human resource strategies of overseas subsidiaries of Taiwan's information enterprises, primarily the PC production industry. Gaining the comparative advantages of production from foreign resources of labor, materials and key components are among the prime concerns. Direct access to foreign markets and marketing information constitute that more offices be established abroad. In general, internationalization of Taiwan's PC industry partakes more of a headquarters-controlled style of global management. Overseas subsidiaries are essentially extensions of Taiwan- and manufacturing-based PC enterprises. This study integrates theoretical frameworks of the eclectic paradigm and the integration-responsiveness models and explores four strategic patterns of human resource on the basis of two dimensions: consistency with parent-company policy; and local responsiveness of a foreign subsidiary. Statistical measures as well as qualitative analysis reveal that both domestic corporate characteristics and overseas local features significantly influence management policy. While Taiwanese information enterprises are increasingly moving toward global expansion, the majority are at a learning stage in international business development. Internalization of Taiwan's PC industry primarily depends on the manufacturing capability of local headquarters and joint ventures with foreign companies. The manufacturing-based PC industry in Taiwan is moving toward key component production and brand marketing while integrating global resources to compete against established transnational corporations.

Autonomy and Procedural Justice: A Framework for Evaluating Subsidiary Strategy

Using the well-supported dimensions of autonomy and procedural justice, a four-quadrant model of subsidiary strategy is proposed and a four-part typology hypothesized (partner, collaborator, militant, and vassal subsidiaries). A clustering process is used to develop a four-group taxonomy that corresponds with the induced model. The four groups of subsidiaries are analysed across seven alternative strategic dimensions – integration, responsiveness, coordination, configuration, market scope, product scope, and value-added scope. The external and internal validity of the framework is confirmed and its utility discussed in terms of subsidiary's movement from one strategy state to another.

Multinational manufacturing subsidiaries in Scotland: Strategic role and economic impact

This paper analyses and evaluates the roles played by Scottish affiliates of manufacturing multinational corporations, makes a brief assessment of their overall impact on the Scottish economy, and indicates a changed agenda for policy makers. A number of determinants of subsidiary strategy are tested and validated, and an initial attempt is made to describe pattern of evolution in subsidiary strategy. The difficulties involved in creating linkages between research-derived typologies of corporate and subsidiary strategy are highlighted, and the key role of R&D as a determinant of strategy evolution at subsidiary level is again emphasized.

Evolution of multinational strategy: Evidence from scottish manufacturing subsidiaries

Recent structural changes in the EC have focused attention on the process and natures of strategy formulation and evolution at the subsidiary level of multinational corporations. This paper reviews alternative conceptual approaches to subsidiary strategy, with particular attention to the integration/responsiveness grid developed by Prahalad and Doz. Using data obtained from a postal survey of 121 manufacturing multinationals located in Scotland, the validity of the grid is assessed and a mapping of subsidiary strategy and its evolution over time is proposed. The results are not wholly in line with Prahalad and Doz, yet yield interesting propositions for multinational firms and policy makers.

Intravitreal injections of neurotrophic factors support the survival of axotomized retinal ganglion cells in adult rats in vivo

After transection of the optic nerve (ON) in adult rats, retinal ganglion cells (RGC) progressively degenerate until, after two months, a residual population of only about 5% of these cells survives. In this study, we investigated the effect of regeneration-associated factors from sciatic nerve (ScN), BDNF, and CNTF on the survival of adult rat RGC after intraorbital ON transection. Neurotrophic factors were injected into the vitreous body. Rats were allowed to survive 3, 5, or 7 weeks, and the remaining viable RGC were then labelled by retrograde staining with the carbocyanine dye, 4Di-10Asp, which was applied onto the proximal nerve stump in vivo. The animals were sacrificed 3 days later and RGC counted in retinal whole mounts. Due to progressive degeneration following nerve transection the number of surviving RGC decreased to about 10% of the initially labelled population after 3 weeks, to about 8% after 5 weeks, and to about 5% after 7 weeks. Survival of axotomized cells could be prolonged using either of the neurotrophic factors: after 3 weeks a 2–3-fold increase in the number of viable RGC could be obtained compared to uninjected controls and to those which received injection of buffer. The prolonged survival effect vanished after 5 and 7 weeks, and no additive effect could be seen when combining brain-derived neurotrophic factor (BDNF) and ciliary neuronotrophic factor (CNTF) treatment. Morphometric analysis of labelled cells revealed that all neurotrophic factors supported predominantly large RGC with somal areas > 250 μm 2. In retinae from rats that survived the ON transection for several months, a characteristic population of axotomy-resistant RGC remained alive. Their few, very large, and often curled dendrites showed signs of placticity in the depleted inner nuclear layer of the adult rat retina. We conclude that the intraocular injection of CNTF, BDNF, and ScN-derived medium, which retard the process of lesion-induced RGC degeneration, may be successfully used as a subsidiary strategy in transplantation protocols. This would result in larger populations of RGC which can be recruited to regenerate their axons and provide a basis for functional recovery.