From Plant to Subsidiary concept: capability growth in a manufacturing network’s node
Abstract:
The study of networks in International Business is recurrently focused on issues influencing the configuration and coordination of foreign business units that, depending on their activities are called either Plants or Subsidiaries; differences between both concepts have had little attention in the literature, regardless the confusion that a misuse of them may produce in research, especially while describing two entities with similar activities but a substantial differential in capabilities; therefore, the purpose of this paper is to create valid concepts for Plant/Subsidiary and bridge them throughout a capability development process. Concepts were derived from a historical study about 40 years of evolution in a VW Group’s Subsidiary which data includes business transactions and semi-structured interviews with managers; the analysis depicted subsidiary’s milestones, evolutionary process and main capabilities.
Introduction:
Concepts and definitions of ‘plant’ and ‘subsidiary’ are generally adopted by International Business scholars from legal definitions which mainly concern with tax law. ‘Subsidiary’ in example, is a legal entity which financial results are contended in the books of a parent company which may or may not exert control the facto on it (Lewis & Clark, 1997; Nobes, 2002; Curtis, 2005); whereas, ‘Plant’ is related with physical assets such as building and machinery by mean production activities are carried out (Tallon, 2005). However, we believe that the above mentioned definitions satisfy legal purposes in terms of the assignation of the proper tax if an investment is done either in machinery or business development activities as example; but they do not offer a way to define the questioning entities in terms of capabilities and their degree of development which is the main purpose of this paper. Then, in order to derive consistent concepts of ‘plant’ and ‘subsidiary’, it is important to make emphasis first, on the type resources companies use to run their operations and which constitute the strength of a firm (Penrose, 1959); authors have mentioned that unlike physical assets, some resources would not deteriorate as they are applied but in contrast, they would grow until becoming in the best case, part of the company’s core competences (Prahalad & Hamel, 1990); in consequence from the pool of companies’ resources, there are few that can be classified as ‘critical resources’ which some authors have defined with the characteristics of: scarce, imperfectly mobile, imperfectly imitable, and imperfectly substitutable (Barney, 1991). Second, it is also important to understand how companies derive strategies from the analysis of environmental forces and deploy resources to target opportunities emerging in current/future business scenarios which some authors believe they are closely linked to a particular industrial organization (Bain, 1968). This paper explores the capability development process of a manufacturing subsidiary within 40 years timeframe, from which research data was captured and analyzed to depict subsidiary’s milestones, evolution phases and capabilities developed to meet exigencies of its business-environment such as: target markets’ legislation, role to play in the network, and technology embedded in company’s products. The result of the analysis is the conception of basic and extended capabilities from which a plant/subsidiary would response to the market.
Type: Academic Paper
Author: Salgado, Omar; Shi, Yongjiang. (2007)
Repository: 12th Cambridge International Manufacturing Symposium