Barriers to the accomplishment of a subsidiary’s strategic role: how the characteristics of location and corporate networks impact on subsidiary performance
Abstract:
This paper presents the evolution of a multinational’s subsidiary in an emerging country and aims to uncover barriers to its accomplishment of its intended strategic role throughout its evolution. Throughout a historical study going back 40 year, the paper depicts subsidiary evolution milestones and highlights barriers to developing and deploying capabili-ties which either transferred from HQ’s or emerge from the subsidiary’s embedding process. The outputs of the research are the type of barriers a subsidiary meets in accomplishing its role and mandates along with subsidiary internationalization driver and evolution typologies that emerge from the interaction between local and corporate barriers.
Introduction:
Traditionally, the study of the internationalization of firms’ activities finishes once Foreign Direct Investment (FDI) is issued. However, we believe that success or failure in every inter-nationalization attempt depends not only on activities carried out during the establishment of foreign subsidiaries but also on post-FDI activities, that is we are concerned with the evolu-tion of subsidiaries rather than merely the localization process in which strategic intentions and measures are put in place. In theory, if the localization process is properly planned and concluded, subsidiaries have a greater chance of succeeding in foreign markets. Nonetheless there are subsidiaries facing diverse barriers that make them unable to accomplish their strategic role. What we mean by barriers is all difficulties in a subsidiary’s business environment that cannot be easily overcome with the use of corporate knowledge, even if the questioning subsidiary were to go through a proper localization process where corporate coordination and control mechanisms were put in place. Also, by coordination and control mechanisms we mean those processes and procedures to be devotedly followed by subsidiary managers in order to replicate corporate knowledge. Some attempts have been made to centre research more on subsidiaries. For example, while discussing multinationals’ (MNE) coordination mechanisms, researchers have high-lighted that companies not only allocate resources and transfer technologies but also benefit from the knowledge collected from every node in the network (Perlmutter, 1969; Ghoshal & Bartlett, 1990; Hedlund, 1994). The importance of distinguishing between configuration and coordination activities throughout the internationalization process has also been stated (Porter, 1986). Following this, international business studies (IB) have concentrated their efforts on discussing the most suitable coordination mechanisms in order to benefit better from foreign subsidiaries (examples: Porter, 1986; Bartlett, 1986: Jarillo et al, 1990; Maritan et al., 2004). Meanwhile, international manufacturing studies (IM) tend to concentrate on configuration is-sues for effective execution (examples: Shi et al., 1997: 1998; Schmenner, 1982; Ferdows, 1997; Vereecke, 2002). Further research about how subsidiaries collect knowledge states that subsidiaries’ linkages and their density are very important for their performance and influence in the corporate network (Ghoshal & Bartlett, 1990). This concept has given rise to the term embeddedness, defined as the number of exchange relationships between the subsidiary and other entities in and out of the corporate network from which the subsidiary is able to collect potentially commercially exploitable knowledge (Andersson et al., 1996: 2002; Holm et al, 2003; Almeida et al, 2004). We believe that the study of subsidiaries’ evolution barriers is an important research topic because it could not only help managers to foresee and prevent evolutionary constraints but also drive international business studies (IB) to focus on and recognize subsidiary evolu-tion as a key element to success. Another important issue is that although current research about Post-FDI activities has come as a consequential development of previous internationali-zation studies, they have not emerge as a continuation of the internationalization process, which is something that this present work claims as a further maturity stage of a parent com-pany through their subsidiaries. In consequence, this paper aims to undercover subsidiaries’ evolution barriers as one of the main characteristics of its evolution and establish the roles that plants/subsidiaries are able to play for the network, rather than the classic view of what the network pursues through them.
Type: Academic Paper
Author: Salgado, Omar (2009)
Repository: Revista de Administra̤̣o Contempor̢nea РRAC