Omar Salgado Intenational Manufacturing

Abstract:

Ways MNE’s allocate, manage and empower their subsidiaries is important subject for International Business. From network perspective, the allocation of resources and standardization of subsidiaries’ capabilities are key functions of headquarters; on the other hand, continuous improvement of subsidiary’s capabilities and their differentiation are on local managers’ duties. These different perspectives bring into discussion paths and barriers to keep subsidiary’s role current. The case study presented in this paper examines barriers to upgrade subsidiary’s role, presents a model of subsidiary’s relationships, demonstrate those relationships, and define a path to improve.

Introduction:

Discrepancies between local needs and a network balance are always issues within MNCs. As any other live entity, companies change through years either, in the best way, by paying attention to markets or by disruptive crisis because of years of managerial deft (Probst & Raisch, 2005). If this is basically true in every organization, the complexity of change management in MNCs is higher due to the increasing number of factors these type of companies face in every single facility around the world (Guisinger, 2001). In general terms, MNCs allocate manufacturing facilities (production, distribution & sales) due to initial purposes. Reasons for foreign production have been discussed widely since 1920’s, explaining factors that either encourage or discourage the foreign production attempts of companies (see: Johanson & Vahlne, 1977; Turnbull & Valla, 1986; Reid, 1983; Dunning, 1988; Turnbull, Ford & Cunningham 1996 among others). If internationalization explains the drivers of allocating resources in foreign countries then, localization discuss how companies are embedded in a specific region and how the business environment of the region changes due to the accumulation of talent (Saxenian, 1994; Enright, 2000). Although these are two academic research strands, they are a single reality in business even though most authors express localization mainly in macroeconomic terms (examples: Hanson, 2001; Sadler, 2004). Once a foreign subsidiary has been set up for playing a specific role within a MNC’s factory network, an administration and subsidiary coordination is needed to ensure the corporation gets the best from that specific facility. Bartlett & Ghoshal (1988) discussed the type of coordination MNCs need to develop capabilities at subsidiary level. Since an effective management of foreign subsidiaries would ensure not only the success of the plant but also 4/39 increases the probability of maintaining business activities in the location; the transnational solution is therefore the bridge between internationalization and localization issues. However, even in the tightest subsidiary control such as the way of some Japanese and European companies, not every single activity can be regulated and foreseen. An appeal to the entrepreneurship of local managers is needed to fetch local opportunities that enhance the subsidiary position and a consequent empowerment of the corporation. Several authors have discussed the type of mindset organizations need to adopt in order to balance local and network needs (see: Bartlett & Ghoshal 1992; Rhinesmith 1992; Rhinesmith , 1995; Srinivas 1995; Kedia 1999; Gupta & Govindajaran 2002; Nummela 2004). As any other managerial activity, there is an unclear border between the regulations to which the subsidiary is immersed and what managers can really do to develop capabilities further from the ones that are being allocated by headquarters. It is here, where this paper aims to emphasis, through a case study that explains the subsidiary’s relationships with entities in and out the manufacturing network and demonstrate the relationship of the model in order to define a possible path to enhance subsidiary’s capabilities. The case study was developed in a foreign subsidiary of an important OEM player for the automotive sector, in which procurement activities are a key function that represent not only one of the most important tools to achieve technological capability but also the spine of the corporation’s control. The paper stars with the discussion of the recent market changes in Mexico, where the subsidiary is located, especially about the inclusion of the Mexican market to North America. The second part reports recent changes in Subsidiary’s products, process and network activities that shape its current issues and challenges. A discussion of the topic’s theoretical background and the introduction of the theoretical model and research question are given on part three, with 5/39 the aim to convey the research design and the main paper’s mission of reflecting and demonstrating the relationship model via snapshots taken from the case study. Finally the paper concludes with the discussion of the subsidiary role/double role played and its contribution to MNE and local organizations.

Type: Paper

Author: Salgado, Omar; Shi, Yongjiang, Gregory, Mike. (2006).

Repository: Academy of International Business