Performance implications of MNE subsidiary federation: Evidence from India

Building on extant and emerging scholarship on the deepening of MNE operations in a foreign country, we develop the notion of subsidiary federation, viz., a constellation of legally independent majority-owned subsidiaries of a foreign MNE, in a single host country. We posit that subsidiary federation is a reservoir of host country experiences, resources, knowledge, and networks, and allows the parent MNE strategic flexibility in terms of where and how they choose to operate. The sharing of knowledge facilitated by interactions among the managers of affiliated subsidiaries bestows advantages that, we argue, are performance positive for the affiliates. We hypothesize that multiple subsidiaries in a foreign host country is positively associated with corporate level diversity, and that benefits to the affiliates in a subsidiary federation are associated with the size of the federation and with relative geographic location of the affiliates. We test our theory on a sample of foreign MNE subsidiaries in India during the 2000–2013 period and find strong empirical support for our hypotheses. We conclude with avenues for future research.     

The Performance of MNE Subsidiaries in China: Does It Matter to Be Close to the Political or Business Hub?

This study examines the impact of distance on financial performance of multinational enterprise (MNE) subsidiaries in China. We hypothesized and found that MNE subsidiaries performed better when located closer to the country's business hub, but performed less well when located closer to the political hub. We also hypothesized that distance effects are moderated by subsidiary size, subsidiary network, and state capital contribution to subsidiary. Our findings were based upon 45,248 MNE subsidiaries with location and geographic distance measured at the prefectural level in China.     

Dual Organizational Identification in Multinational Enterprises and Interpersonal Horizontal Knowledge Sharing: A Conceptual Model

How does a subsidiary employees' dual organizational identification (DOI) – with both the local subsidiary and the overall corporation – shape the pattern of interpersonal horizontal knowledge sharing (IHKS) in multinational enterprises (MNEs)? This conceptual article develops a conceptual model demonstrating the relationships between subsidiary employees' DOI and their IHKS patterns (i.e., quantity, quality, and timing). We propose that subsidiary-oriented DOI is negatively associated with IHKS, while MNE-oriented DOI has the opposite effect. Building on this central argument, we posit that the geographic distance, relative competence, and interpersonal similarity between employees and colleagues at other subsidiaries can moderate the relationship between DOI and IHKS and cause unevenness in IHKS patterns that may aggregate at the corporate level, resulting in uneven knowledge flows in the whole MNE system. Our theorizing advances understanding of intra-MNE knowledge sharing by yielding novel propositions about the predictors of IHKS and uneven knowledge flows in MNE.     

Antecedents and Outcomes of Political Tie Intensity: Institutional and Strategic Fit Perspectives

Although international nonmarket strategy research has highlighted the importance of political ties, it is still unclear why some foreign subsidiaries are more politically active than others and what conditions may render political practices beneficial in a host country. We argue that foreign subsidiary political tie intensity—the extent to which senior managers provide time and resources in informally dealing with government officials for nonmarket purposes—will be influenced by political institutions in their parent's home country, especially when the MNE parent attempts to protect foreign subsidiary resources. Additionally, we assert that fit between a parent's home country political institutions and foreign subsidiary political tie intensity will positively affect subsidiary performance. We employ primary data collected from 181 foreign subsidiaries in the Philippines and find support for our hypotheses. This study advances international nonmarket strategy research by highlighting how an MNE's home country political institutions shape subsidiary political networking and strategic performance outcomes in host country environments.     

Language and foreign subsidiary control: An empirical test

Previous research suggests that language competence has an effect on foreign subsidiary control but its precise nature remains unclear. In a sample of 119 Western-owned subsidiaries in Finland and China, we empirically tested how foreign subsidiaries with varying degrees of language competence were controlled. We carried out structured interviews with the general managers of these subsidiaries in order to assess the effect of language at the level of specific control mechanisms. According to our findings, the subsidiaries with low language competence were controlled to a greater extent by centralization and formalization than units with high language competence. Output control and socialization mechanisms appeared unaffected by language competence of subsidiary staff.     

Where Do We Go from Here?: Globalizing Subsidiaries Moving Up the Value Chain

This paper studies the international expansion of local subsidiaries of multinational enterprises (MNEs). The main questions asked are why and how MNEs' local subsidiaries in developing economies undertake international expansion. Drawing from the global value chain (GVC) perspective, I argue that local subsidiaries that were initially established to undertake production activities for export-oriented industries do not want to remain at the lowest-value-added position forever. They therefore undertake initiatives to get out of that position. The literature on initiative-taking subsidiary has predominantly focused on them becoming centers of excellence via R&D and innovation in the host country. I propose a different route of local subsidiary upgrading via foreign direct investment in more advanced countries. This strategy helps not only to gain internal prominence within the MNE network, but also to improve its external position within the GVC vis-à-vis the lead firms. The paper uses an in-depth case study of a Thai subsidiary of a Taiwanese electronic MNE to explore the transformation of the subsidiary from simply manufacturing for exports to becoming a strategic international expansion arm for the parent MNE.     

Isolated Foreign Subsidiary's Initiative in Knowledge Transfer Within the MNE

Knowledge transfer is an essential issue of strategic management in MNEs, because it enables them to utilize their strategic resources across borders. However, it is far from perfect, and there are isolated foreign subsidiaries that are excluded from the knowledge network within the MNE. A primary contribution of this paper is to shed light on a fact which such an isolated foreign subsidiary can initiate the internal knowledge transfer within the MNE, in order to overcome the liability of internal isolation. This paper analyzes such a subsidiary initiative, with an extreme case of a large Japanese ICT company's Finnish subsidiary, which initiated an adoption of its headquarters' strategic practice. I collected and analyzed data by ethnographic fieldwork in this subsidiary for over one year. After depicting the details of the initiation process, I show how the initiation process was influenced by the subsidiary managers' dual motivation; solving the liability of internal isolation, and keeping the advantage of isolation. I hope that this study would enrich theory building of subsidiary isolation and also contribute to subsidiary managers who have struggled with the liability of internal isolation.     

MNE dynamic capabilities in (un)related diversification

While we know that dynamic capabilities (DCs) are important for multinational enterprises (MNEs), little is known about the multiple DCs they may exercise and how they configure the DCs to support their related or unrelated diversification activities. Our qualitative empirical case study findings illuminate how an MNE does so. We confirm that DCs rest on the ostensive microfoundations that encompass the three principal DC processes of sensing opportunities, seizing opportunities and transforming resources. Furthermore, we explicate their performative microfoundations. We reveal that for all the DCs, performative microfoundations of sensing include information gathering and strategic analysis. The performative microfoundations of seizing include a capacity to experiment, then formulating a course of actions. Finally, the microfoundations of transforming include resource structuring, then capability renewal (for unrelated diversification) or capability improvement (for related diversification), and capability implementation. While the process flow of ostensive microfoundations is uniform across DCs, the transforming process flow of performative microfoundations differs for related and unrelated diversification activities. Alongside evidencing the different exploitative/explorative learning and involvement of lower/top-level management associated with the DCs supporting related/unrelated diversification activities respectively, we foreground DCs' configurational nature and extend the IB DC literature on MNE diversification and DCs' microfoundations.     

How dimensions of internationalization shape the MNE's renewal capability: Multidimensional and multilevel considerations

We investigate the theoretical and empirical implications of internationalization as a multidimensional and multilevel construct and its relationship to the renewal capability of the firm. Theoretically, internationalization describes a diverse range of cross-border activities by the multinational enterprise (MNE), and thus carries with it multiple dimensions of depth, breadth, and speed. Empirically, internationalization contains both within- and between-MNE variance, each with potentially different effects on the MNE's renewal capability. Using a unique, longitudinal dataset of 94 MNEs, we find support that each dimension and level of internationalization relates differently to the renewal capability of the MNE. At the within-level, the MNE internationalization breadth is negatively related to the its renewal capability, yet internationalization speed is positively related to renewal. At the between-level, the depth of internationalization is positively related to the MNE's renewal capability. In concert, our results suggest that the effects of internationalization on important outcomes cannot be simplified into general relationships. Rather, attention to the nuances of internationalization, especially as related to the MNE's capabilities, is needed.     

Towards a re-conceptualization of firm internationalization: Heterogeneous process,subsidiary roles and knowledge flow

This paper proposes a re-conceptualization of firm internationalization to understand and predict the rapid global expansion of firms since the 1990s, especially those from emerging markets. First, based on a review of existing literature, we re-conceptualize firm internationalization as a heterogeneous process of strategic development of subsidiaries in overseas countries or regions. This re-conceptualization captures the pluralistic character of the process of firm internationalization.Second, we delineate peculiar roles played by subsidiaries in pursuit of multinational enterprise (MNE) headquarters' internationalization strategies. We argue that the HQ's heterogeneous strategies toward overseas subsidiary development define the corresponding roles of subsidiaries, which in turn shape the knowledge-flow patterns within the MNEs. Finally, we link firms' internationalization strategies with different subsidiary roles to generate hypotheses concerning the effect of such links on subsidiary performance. We argue that the proper alignment of HQ's internationalization strategies with subsidiary roles will lead to success of the overseas subsidiaries; by contrast, a mismatch will lead to subsidiary failure. The paper thus contributes to the field of firm internationalization by linking its new conceptualization with the literature on subsidiary roles and knowledge flows in MNEs.     

Subsidiary embeddedness as a determinant of divisional headquarters involvement in innovation transfer processes

This paper conceptualizes divisional headquarters as an important hub-firm within the MNE, orchestrating innovation transfer processes between subsidiaries. It is argued that the internal and external embeddedness of a subsidiary hosting an innovation development project subsequently influences divisional headquarters involvement in the transfer of that innovation. In this way, embeddedness, i.e., the relationships that firms have with each other in the innovation development phase, is brought to the fore as an important factor for MNE subsidiaries hosting innovation development projects for explaining the involvement of divisional headquarters in a subsequent transfer. This highlights divisional headquarters as an active orchestrator of innovation transfers within the MNE. Data from 169 innovation transfer projects as well as 146 internal and 121 external embedded relationships at subsidiary level support the argument of embeddedness as a driver of divisional headquarters involvement in subsidiary innovation transfer projects. From a business network perspective, the findings highlight the role of internal and external embeddedness during innovation development in the subsequent involvement of divisional headquarters in the transfer phase. Embeddedness is not only important for subsidiaries in the innovation development phase but also for divisional headquarters involvement in, and orchestration of, innovation transfer.     

Innovative Projects Between MNE Subsidiaries and Local Partners in China: Exploring Locations and Inter-organizational Trust

We explore innovative projects carried out by MNE subsidiaries with local partners in China, focusing on the roles played by different components of inter-organizational trust with the local partners as well as features of the business environment in the specific location of the subsidiary. From a sample of 44 managers in MNE subsidiaries that we interviewed in three locations: Beijing, Shanghai and Guangzhou, we identify 33 cases of innovative projects with prominent local partner involvement. Using a qualitative, thematic analysis of the data, we gain new insights that explain innovative outcomes for the subsidiaries. Firstly, we find a tendency towards a sociological component of trust with local partners in Beijing in contrast to higher levels of an economic component of trust in Shanghai and Guangzhou. Secondly, we find that a successful outcome was noted by informants where the sociological component of trust was utilized in Beijing and the economic component of trust in Shanghai and Guangzhou. The findings highlight the interaction between business context and the nature of trust with local partners in determining innovative outcomes in an emerging economy. We discuss implications for managers and policy makers.     

Configuring knowledge connectivity and strategy conditions for foreign subsidiary innovation

We argue that product innovation by foreign subsidiaries of multinational corporations is a complex undertaking requiring a theoretical understanding of how managers combine subsidiary structural arrangements, knowledge connectivity, and contextual conditions into configurations that yield innovative products. Accordingly, we integrate relevant conditions from interrelated literature streams and explore their complementarities and substitutions in relation to subsidiary product innovation. Using a neo-configurational approach and data on 183 foreign subsidiaries operating in Europe, we identify six equifinal configurations associated with subsidiary product innovation. We leverage the configurational patterns to elaborate theory of how subsidiary product innovation is primarily driven by the interrelations among the relevant conditions, thus contributing novel insights to research on subsidiary management and global innovation.     

Institutional antecedents of subsidiary external embeddedness: Coping with regulatory competitive constraints

We investigate institutional antecedents to subsidiary external embeddedness and relate regulation constraining competition in local service sectors to subsidiary embeddedness with local partners in complementary sectors. Combining research on business networks with arguments derived from transaction cost economics, we argue that subsidiary external embeddedness depends on the extent of transaction costs originating from small numbers bargaining, which regulatory competitive constraints in local service sectors are a source of. Based on this logic, we suggest that low and high levels of regulatory competitive constraints are associated with greater subsidiary external embeddedness. We also suggest that this U-shaped relationship is more pronounced for subsidiaries that are centers of excellence within the multinational enterprise because these subsidiaries heavily depend on the local context as a source of their competitive advantage over their sister subsidiaries.     

Getting the seal of approval: Pathways to subsidiary initiative acceptance

Multinational corporations (MNCs) are proactive, entrepreneurial, and decentralized organizations. They seek to incorporate and leverage knowledge from their foreign subsidiaries. Initiatives in which subsidiaries pursue new business opportunities are one way that subsidiaries contribute to MNCs' knowledge stocks, but prior research suggests that few subsidiary initiatives secure headquarters approval. We argue that the extent to which initiatives are accepted by the headquarters of an MNC depends on a range of relational and contextual conditions that configure in complex ways. Using a neoconfigurational approach, we identify five equifinal configurations associated with the acceptance of subsidiary initiatives. We advance theory of subsidiary management by uncovering how subsidiary activities gain traction within the MNC.     

Subsidiary power,cultural intelligence and interpersonal knowledge transfer between subsidiaries within the multinational enterprise

We propose that individual-level knowledge transfer between subsidiaries within a multinational enterprise depends on the perceived relative power of the subsidiary and the cultural intelligence of individuals. Using a sample of 333 research and development (R&D) subsidiary employees of foreign Multinational Enterprises (MNEs) in India, we find that the perceived subsidiary power has a direct positive significant effect on knowledge sharing, and an indirect significant effect, through organizational identification, on knowledge seeking. Further, cultural intelligence moderates the effect of organizational identification on knowledge seeking, and the indirect effect of the perceived subsidiary power on it. The findings highlight the role of organizational identification and cultural intelligence in explaining the impact of the perceived subsidiary power on interpersonal knowledge transfer within the MNE.     

The Brazilian Multinationals' Approaches to Innovation

Brazilian multinationals, born in a country where the environment is non-conducive to the scientific breakthrough type of innovation so stimulated in other countries, are increasingly expanding in international markets, where innovativeness is an intrinsic component of competitiveness. Aiming to study Brazilian multinationals' approaches to innovation, a new analytical framework was developed assuming that the internationalization process relies on the firm's innovative capability. In turn, innovative capabilities are derived from core competences and competence formation at firm level is influenced by the characteristics of the national environment. A survey involving 61 Brazilian multinationals led to the identification of four approaches to innovation, the competences that enable each one of them and the country-of-origin effects over competence development. That led to the explanation of why firms that do not show the expected strength in R&D, but are able to combine skillfully their organizational competences, manage to develop innovative capabilities which allow them to internationalize successfully. The overall outcome suggests that the dynamic relationships among institutions – competences – innovation – internationalization are setting new grounds for the international expansion of Brazilian firms.     

The impact of external,internal, and dual relational embeddedness on the innovation performance of foreign subsidiaries: Evidence from a developing country

As parts of a global network, foreign-owned subsidiaries enjoy privileged access to knowledge sources both internal (within their multinational group) and external (involving other organizations in the host location), and this has proven especially relevant in their assumption of greater creative responsibilities that increase the technological capabilities of their multinational group. This study investigates whether external and internal relational embeddedness are mutually reinforcing (complementary) or whether they act separately in explaining superior innovation performance of foreign-owned subsidiaries in terms of a greater propensity to obtain radical innovations. The empirical analysis uses both direct and indirect tests to evaluate the complementarity, as well as a rich firm-level panel data on foreign subsidiaries, extracted from a census of Colombian manufacturing firms for the period 2008–2014. Our findings reveal that external relational embeddedness in isolation (without internal embeddedness) has a positive impact on performance only in terms of incremental innovation, while internal embeddedness alone (without external embeddedness) has no effect on the innovation performance of subsidiaries. However, we find that a complementary and dynamic relationship exists between external and internal linkages to spur radical innovation outcomes, which in turn are related to the competence-creating roles in foreign subsidiaries as prior literature has shown.     

Institutional and Resource‐based Explanations for Subsidiary Performance

Addressing calls to integrate insights from institutional theory and the resource‐based view, we bring together dual theoretical explanations from institutional theory and the resource‐based view to examine the effectiveness of transfer of practice and human capital development as two routes to subsidiary performance. Our study of Hong Kong firms with subsidiaries in Mainland China shows that both routes positively affect subsidiary performance. However, our data show that our sampled firms struggled to successfully transfer practices from their parents. We attribute an explanation for this to the characteristics of practices as organizational capabilities in which transfer is made harder by the difficulty in replicating such capabilities. Consequently, developing subsidiary human capital is an important ally to practice transfer as a means to achieve superior subsidiary performance. Our results raise interesting questions about practice transfer and the resource‐based view relevant to future scholarly research.     

Knowledge ties among subsidiaries in MNCs: A multi-level conceptual model

While ties among subsidiaries—the key players of a MNC network—are a prerequisite for the formation of the network and the flow of knowledge within the organization, we know little about factors influencing the formation of such ties. By building on the literature on inter-firm networks and knowledge-based view of the firm, we develop a multi-level model consisting of subsidiary characteristics, dyadic dynamics, and salient contextual factors to explain the inter-subsidiary collaboration for knowledge development and exchange. We bring to the fore the importance of examining multiple dimensions in understanding what predicts tie formation and the efficacy of these ties in creating a knowledge advantage. This paper advances the notion of subsidiary knowledge networking capability—the ability to form, manage, and leverage a network for gaining and sharing knowledge—and suggests that such capability is critical for subsidiaries and by extension the MNC, to achieve a competitive advantage.