Does ‘the China Option’ influence subsidiary technology sourcing strategy?

We draw on transaction cost economics and the technology innovation management literature to advance a contextual model of the link between the perceived influence of China on technology strategy and MNC subsidiary sourcing strategy. In particular, we hypothesize that the relationship between a perceived influence of China on technology strategy and MNC subsidiary process technology sourcing strategy is moderated by the innovation context. Here, we consider the innovation context to be externally represented by the appropriability regime and dominant design, while internally it is measured by the subsidiary's level of complementary assets. We test our predictions on a multi-industry sample of 111 MNC subsidiaries from the Association of Equipment Manufacturers. We find support for the moderating influence of the innovation contexts of appropriability regime and complementary assets.     

The contribution of foreign subsidiaries to host country national competitiveness

In this article, we develop a conceptual model of national competitiveness, focusing on the influence of foreign subsidiaries on the competitiveness of their host countries. Essentially, we view foreign subsidiaries as potential sources of resources important to a nation in developing and maintaining its international competitiveness. We argue that there is a set of subsidiary characteristics that enables a foreign subsidiary to contribute to the national competitiveness of its host country. These characteristics include the strategic role of the subsidiary, the level of technology employed in the subsidiary's processes, the type of training provided by the parent company, and the degree to which the subsidiary is part of an interdependent network of international subunits of the firm. National policy implications are discussed.     

Survival of the foreign subsidiaries of TMNCs: The influence of business group affiliation

We investigate the survival rates of the foreign subsidiaries of multinational firms from India to test if affiliation to a business group affects a subsidiary's survival chances. Business group affiliation is an important organizational attribute of firms in emerging economies. Business groups are complex organizations with heterogeneous resources that evolve along with changes in the institutional environment of a firm's home country. We examine how business group affiliation and the development stage of the host country jointly influence the survival chances of foreign subsidiaries. Our results show that business group affiliation does not have an independent influence on a subsidiary's survival rates, but it does have a contingent effect, where the contingency emerges from the development stage of the host country. Our findings thus have implications for the theory of TMNCs, and business group strategy in emerging economies.     

Intra-firm Subsidiary Grouping and MNC Subsidiary Performance in China

Many multinational corporations (MNCs) operate multiple subsidiaries in a foreign country. Drawing upon literature of organizational network and business group, we hypothesize that the number of subsidiaries of an MNC has an impact on subsidiary financial performance in China. We further hypothesized two moderating effects, namely subsidiary's country of origin and subsidiary size. The results show that subsidiary grouping effect is more salient for subsidiaries from Japan and South Korea, and that larger subsidiaries are less affected by the subsidiary grouping effect. Our empirical results were based on a sample of 40,315 MNC subsidiaries in China. The findings underscore the importance of group-based competitive advantages of MNC subsidiaries in international business.     

Technology sourcing,appropriability regimes,and new product development

This paper tests the influence of technology sourcing and appropriability regimes on new product development, using data from a survey of 254 Chinese firms. Our results demonstrate that both internal technology development and external technology sourcing can improve a firm's new product development. Furthermore, although both legal appropriability regimes and strategic appropriability regimes have positive relationships with new product development, their moderating effects are different. Specifically, it is suggested that firms incorporate legal appropriability regimes when using external technology development and strategic appropriability regimes when using internal technology sources, to improve new product development.     

Sourcing Decisions with Competitive Suppliers and Imperfect Information

Manufacturers often must choose between outsourcing and producing internally. This choice is complex and influenced by a variety of factors, including the costs and capabilities of the potential suppliers. In addition, if the manufacturer outsources, he must design the sourcing process. We study the manufacturer's outsourcing decision, with a focus on the impact of the sourcing process on that decision. We consider a setting in which the manufacturer has imperfect information regarding the suppliers' costs and capabilities, and we assume that the manufacturer uses a two‐stage sourcing process. The first stage is the qualification stage, in which the manufacturer seeks to reduce the uncertainty regarding the suppliers' capabilities. The second stage is the supplier selection stage, in which the manufacturer selects among the qualified suppliers on the basis of price. We first characterize the optimal design of the two‐stage process, and then consider the outsourcing decision. We demonstrate several trade‐offs. Vertical integration enables the manufacturer to reduce uncertainty and extract all of the profits of production. However, outsourcing enables the manufacturer to take advantage of the (potentially) lower costs and higher capabilities of the suppliers, particularly if competition between suppliers can be encouraged. We find that the manufacturer is more likely to vertically integrate when the warranty cost and the cost of exerting effort during qualification are large, and when there is significant uncertainty regarding the suppliers' capabilities. The manufacturer is more likely to outsource when the suppliers' costs (capabilities) are low (high), and when the number of suppliers is large.     

The Influence of Cost and Quality Priorities on the Propensity to Outsource Production*

Outsourcing of production has escalated over the past decade due to unprecedented competition and worldwide access to low‐cost labor markets. This article examines how cost and quality priorities—two key attributes of manufacturing strategy—influence a manufacturer's propensity to outsource. By doing so, we bridge the existing gap between research on manufacturing strategy and firm boundaries. We develop a theory‐based model that links a manufacturer's cost and quality priorities to its plans to outsource production. Our empirical analyses, based on survey data obtained from 867 manufacturing business units, control for firm‐specific factors previously shown to impact outsourcing, including asset specificity, uncertainty, and current capabilities in cost and quality. We found that the competitive priority placed on cost played an integral role in sourcing decisions, while, surprisingly, conformance quality priorities did not. The cost result is consistent with our expectations and observations in practice. The significant effect of cost priority on outsourcing shows that any theory of firm boundaries that fails to consider competitive priorities is incomplete. The finding regarding quality, which was counter to our expectations, may partially explain why there is an emergence of so many nonconforming products associated with outsourcing. Taken together, our results provide theoretical insights for future research into how manufacturing managers can improve their decision making on outsourcing production.     

Subsidiary marketing knowledge and strategic development of the multinational corporation

This paper explores distinctive marketing knowledge of subsidiaries as an important resource contributing to the performance of the multinational corporation (MNC). Two different paths are analyzed. The first is the direct effect of the usage of subsidiary marketing knowledge on the perceived performance of other MNC units. The second is the indirect effect in which an MNC's usage of subsidiary marketing knowledge affects its performance via capability development in technology and market expansion within the MNC. Using data on 237 MNC subsidiaries in Sweden, six hypotheses are tested in a LISREL model. The results indicate that an MNC's usage of subsidiary marketing knowledge directly affects its performance. Additionally, the results reveal a strong relation between subsidiary marketing knowledge and the subsidiary's impact on development of the capabilities of other MNC units' technology and their expansion on the market, which in turn, positively impacts the performance of the MNC.     

Consequences of expatriate top manager replacement on foreign subsidiary performance

Integrating expatriate staffing and leadership succession literature, this study investigates the influence of expatriate top manager replacement on foreign subsidiary performance and the moderating effects of subsidiary context. Building on a refined understanding of agency theory and evidence from 2113 firm-year observations, including 260 expatriate successions, this study shows that when expatriates are replaced, regardless by whom (either host-country national or expatriate manager), the performance of the subsidiaries declines, suggesting that the departure of expatriate top managers often see subsidiaries being left in a less than favorable condition. If the subsidiary's prior performance has been unsatisfactory, the newly appointed expatriate might not be able to prevent further deterioration of its performance. Replacing expatriates with host-country national managers can help improve subsidiary performance, but this usually happens in older, more established subsidiaries. These findings framed in a refined agency theory provide us a more in-depth understanding of expatriate staffing failure.     

The product cycle model of foreign direct investment and developing country welfare

Raymond Vernon's product-cycle model predicts two distinctive kinds of foreign direct investment in developing countries: fist, subsidiaries whose operations are tightly integrated into the parent's strategy to advance its competitive position in international markets; second, subsidiaries toward the host market whose profits help fund the needs of the parent but whose output is not an integral part of the parent's global sourcing network. In practice, the latter are frequently subject to domestic content, joint venture, and technology-sharing requirements; the former almost never are. How do the two kinds of foreign direct investment differ in their impact on host country development? Somewhat surprisingly, to those who may be wary of what Vernon himself reffered to as “captive” plants, foreign investor operations intimately linked into the parent's global sourcing network make a systematically larger and more dynamic contribution to the host economy via the activities of the affiliates themselves, via backward linkages to local suppliers, and via spillovers and externalities. Foreign investor operations impeded from close integration via domestic content, joint venture, and technology-sharing requirement provide a much less positive and sometimes genuinely negative impact, especially if they are protected by trade barriers or other forms of market exclusivity.     

Making the locational choice: A case approach to the development of a theory of offshore outsourcing and internationalization

Offshore outsourcing is one of the most sustained management strategies of the 21st century, and researchers are paying attention to this contemporary, yet complex and controversial phenomenon. Despite the increasing amount of research, from the theoretical and managerial perspectives several important aspects remain inconclusive. The focus in this article is on theory development in two complex areas. The first concerns the location, the idea being to identify the factors that influence the final decision, in which ownership is not the mode of control. Secondly, the aim is to explore whether offshore outsourcing facilitates international expansion. Through a process of theoretical rationalization and inductive case analysis propositions are arrived at according to which non-locational factors most heavily impact the firm's decision to outsource offshore and its subsequent internationalization. The results indicate that this subsequent internationalization may be a by-product of offshore outsourcing, or it may be an intentional strategy. The article thus adds new aspects to the existing theory on outsourcing decision-making, which forms the basis of an emergent theory for future academic research.     

Bringing IT Back: An Analysis of the Decision to Backsource or Switch Vendors

Whereas the decision to outsource information systems (IS) has been an important focus in IS research and practice, the decision to switch vendors or to backsource has received little attention. Evidence suggests that in practice, however, the decision to backsource or to switch vendors is becoming increasingly common as firms vie for ways to continue to cut information technology (IT) costs and improve IT service levels. This research specifically examines the factors associated with the decision to backsource or to switch vendors. Based on a sample of 160 IT managers involved with application development, we compare and contrast the perceptions of those who switched vendors, backsourced, or continued in an outsourcing relationship for application development. Our findings suggest that product quality, service quality, relationship quality, and switching costs are related to the decision to backsource application outsourcing. However, service and product quality did not influence the decision to switch vendors. Rather, firms that made the decision to switch vendors reported high levels of service and product quality but low levels of relationship quality and switching costs.     

Subsidiary managers' initiative pursuit: A behavioral agency model

Subsidiary managers' decisions to pursue initiatives for innovative product introductions in their host markets provide opportunities for rent creation, but also bear risks for the multinational corporation (MNC). However, we lack insights into which factors drive such decisions. Grounded in behavioral agency theory, our study investigates which factors at the individual level, the corporate level, and the subsidiary's implementation context increase subsidiary managers' likelihood of initiative pursuit. We propose that an individual manager's capability and the MNC's entrepreneurial orientation serve as reference points in a specific implementation context. Based on a stated-choice experiment with 799 respondents, results show that subsidiary managers' likelihood to pursue an innovation initiative varies depending on the context, and the choice of implementation mode activates subsidiary managers' gain frames. Our findings advance theory by providing granularity on the situational complexity across multiple methodological levels that instigate subsidiary managers' initiative pursuit.     

The Impact of Costliness,Competitive Importance,and Modularity of Investments on Outsourcing

This study is motivated by examples of outsourcing that are not readily explained by widely established economic theories. We extend recent literature that develops the idea that outsourcing can help firms avoid overinvestment by specifying more precisely the conditions under which this thesis is likely to apply. Our extension is realized through a two‐period game theoretic model in which the outsourcing and in‐house investments are driven by (1) the cost required to develop a product or process module, (2) competitive relevance, defined as the module's share in the production cost or the module's importance to the customer, and (3) modularity, defined as the extent to which generic investments in the module can approach firm‐specific investments in terms of the overall product/process performance. The analysis generates predictions about what types of insourcing, outsourcing, and non‐sourcing behaviors are likely to emerge in different parts of the parameter space. Outsourcing to a more concentrated industry upstream emerges at equilibrium when modularity is high, relevance low to medium, and development cost high enough that none or only a subset of focal firms wants to invest. While firms are forced to insource and overinvest due to a prisoner's dilemma when the development cost is sufficiently high relative to the module's relevance, we do not find outsourcing equilibria that solve this problem in a two‐period game with no commitment. This result implies that some form of tacit coordination in a multi‐period game may be necessary. We conclude the study with a discussion of empirical implications.     

Global Multisourcing Strategy: The Emergence of a Supplier Portfolio in Services Offshoring

In today's global services outsourcing arena, increasing numbers of companies adopt “multisourcing,” that is, they select and combine information technology (IT) and business services from multiple providers. The literature on IT outsourcing and supply chain management has identified critical tradeoffs involved in increasing the number of suppliers and has strongly recommended focusing on a handful of strategic partners to balance these tradeoffs. Committing to a few strategic partners, however, may prevent a firm from discovering new suppliers, or even supply regions. Such missed opportunities may be particularly limiting in the context of offshoring professional services, which has exhibited rapid changes in supplier markets in the last decade. Thus, firms may want to engage in a more intensive multisourcing in services. If they do so, their success will depend on a global sourcing process that effectively addresses the critical tradeoffs involved. To explore how a global sourcing process can support multisourcing, we conducted a qualitative longitudinal case study of a large financial services institution that developed a varied global supply base to obtain offshore professional services. Our analysis results in a theory that emphasizes (i) advantages of a multiple provider strategy in rapidly changing global supply markets; (ii) the critical role of middle managers in enabling continuous innovation in the supplier structure; and (iii) the importance of the global sourcing process combining top–down and bottom–up decision making in multisourcing.     

Integrating Knowledge through Information Trading: Examining the Relationship between Boundary Spanning Communication and Individual Performance*

With the global penetration of Internet technologies, individuals may now cross organizational boundaries to communicate efficiently with others regardless of time and space. Thus, when looking for help in solving work tasks, knowledge workers may just as easily contact individuals in rival firms across the globe as a coworker sitting at the next desk. As a result, management faces questions such as (1) How should firms manage employees' knowledge‐sourcing activities when they span both intra‐organizational and extra‐organizational boundaries, and (2) What is the relationship between different knowledge‐sourcing activities and individual performance? Grounded in the knowledge‐based view of the firm, we investigate these questions using data from Europe's largest information technology (IT) services and management consulting company. Our results provide evidence that organizations should support boundary spanning and knowledge sourcing from both internal and external sources. Results suggest (1) a positive relationship between boundary spanning communication and creativity and general performance, and (2) a negative relationship between a reliance on colocated coworkers as knowledge sources and creativity.     

Seeds of Corruption? The Contingent Role of Ties to Politicians and Foreign Subsidiary Relations with Government-Sponsored Financial Institutions

In drawing from transaction cost economics and social network theories, this study examines the influence of corruption as a determinant of foreign subsidiary formal contracting practices with government-sponsored financial institutions. We hypothesize that lower corruption distance (between parent home and host countries) and higher perceived corruption (in host country) are positively related, and mutually reinforcing, when considering a foreign subsidiary's propensity to formally contract with government-sponsored financial institutions. We also suggest that these relationships strengthen with the intensification of political ties to government officials who can offer preferential political services via contractual agreements, changing the nature of market transactions in favour of a foreign subsidiary. We found support for our hypotheses using data from a sample of over 350 subsidiaries located in the Philippines and Thailand.     

On the emerging organizational culture of a Finnish company's Polish subsidiary

The following research note presents a brief account of ethnographic research conducted within a Polish subsidiary of an international company domiciled in Finland. Local employees' attitudes towards various aspects of the parent company's organizational culture are examined, and an attempt is made to capture emerging patterns of the subsidiary's organizational culture.     

Decisions to Outsource Information Systems Functions: Testing a Strategy-Theoretic Discrepancy Model

In recent years, the decision to outsource information systems (IS) functions has become a viable strategic alternative in managing the increasingly complex IS functions. In this study, the IS outsourcing phenomenon is conceptualized as a strategic decision in the organization. Drawing on resource-based theories, resource dependence theories, and other theories of strategic management, a discrepancy model of this decision is developed. Relationships between a number of strategy-theoretic factors and the IS outsourcing decision are hypothesized. These factors include IS resource performance discrepancies manifested in the form of gaps in information quality, IS support quality, IS cost effectiveness and financial performance, as well as the strategic orientation of the firm. Results of the study indicate that, while cost consideration and the firm's financial performance are not associated with the IS outsourcing decision, difficulties in providing good information outputs and IS support services are associated with the decision. Overall, the findings suggest that the current trend toward outsourcing represents a continuing evolution of the IS function as it attempts to fulfill its traditional mission of providing high quality information resource to the firm. When the performance of the delivered resource begins to slip in the current environment of rising expectation and technological complexity, outsourcing may become a strategic response of necessity. The paper concludes with a discussion of the implications of the results for practicing managers and suggestions for future research.     

Fit between sourcing capabilities and organisational structure on IT outsourcing performance

Thus far, relatively few studies on the supplier side of Information Technology (IT) outsourcing arrangements have been based on empirical quantitative research. Previous research identified a recurring supplier problem, a lack of sustainability in IT performance. The literature revealed that a supplier's capabilities and organisational structure affect the supplier performance. We hypothesise that realising a fit between the necessary sourcing capabilities and organisational structure on the IT supplier side will result in a sustainable sourcing performance. We executed a survey research among employees involved in sourcing activities of three different IT outsourcing suppliers (N?=?135). The results from our analysis provide evidence that these constructs can be used to analyse differences between the three types of service suppliers. Results indicate that suppliers who focus on establishing a fit are more willing or able to monitor if they achieve a sustainable performance.