The Determinants and Consequences of Subsidiary Initiative in Multinational Corporations

Article excerpt

This paper examines corporate entrepreneurship in multinational corporations through a detailed study of initiatives taken by foreign subsidiaries. We develop a theoretical model in which two levels of organizational context (corporate and subsidiary) promote or suppress subsidiary initiative, and initiative in turn has a feedback effect on both subsidiary and corporate context. Using a multi-method study (229 questionnaire returns plus 5 in-depth case studies), the key findings are as follows: Subsidiary initiative is promoted by a high level of distinctive subsidiary capabilities, and is suppressed by a high level of decision centralization, a low level of subsidiary credibility, and a low level of corporate-subsidiary communication. Over time, we find evidence that subsidiary initiative leads to an enhancement of credibility (vis-a-vis the head office), head office openness, corporate-subsidiary communication, and distinctive capabilities.

There is a long tradition of research that views corporate entrepreneurship at lower levels of the organization as an important ingredient in the recipe for long-term success. Practitioner oriented books by Peters and Waterman (1982), Kanter (1985), and Pinchott (1986), and a host of academic studies (e.g. Biggadike, 1979; Burgelman, 1991; Guth & Ginsberg, 1990; Hornsby, Naffziger, Kuratko, & Montagno, 1993; Zahra, 1993) have all picked up on the importance of corporate entrepreneurship as a way of challenging the status quo in large organizations, and thereby as a stimulus for corporate renewal and adaptation to environmental change.

Corporate entrepreneurship takes many forms, but one useful distinction is between focused and dispersed corporate entrepreneurship (Birkinshaw, 1997). Focused corporate entrepreneurship occurs in specially created "new venture divisions" whose mandate is to identify and nurture new business opportunities for the corporation (Burgelman, 1983a; Kuratko, Montagno, & Homsby, 1990; Sykes, 1986). Such divisions have little formal structure but provide "patient money" and support for risk taking and creativity (Galbraith, 1982; Kanter, 1985; Kuratko et al., 1990; Quinn, 1985; Sathe, 1985). Dispersed corporate entrepreneurship (or intrapreneurship) occurs throughout the firm. Rather than hiving off separate groups or divisions to be entrepreneurial, the dispersed approach sees the development of an entrepreneurial culture or posture as the key antecedent to initiative (Covin & Slevin, 1991; Ghoshal & Bartlett, 1994; Kanter, 1985; Zahra, 1993). The challenge for corporate management is to instill in its employees th e personal involvement and commitment that drives entrepreneurship.

This paper focuses on the dispersed form of corporate entrepreneurship. Specifically, it examines cases of subsidiary initiative in the context of large multinational corporations. Initiative refers to a discrete, proactive undertaking that advances a new way for the corporation to use or expand its resources (Kanter, 1982; Miller, 1983). [1] A subsidiary initiative is one that begins within a foreign subsidiary unit, rather than the headquarters operations, of a large corporation.

Notwithstanding the obvious importance of environmental and individual-level factors, our approach in this study is to model subsidiary initiative primarily as a function of its organization context. As Burgelman (1983a) and others show, corporate-level elements of context will frequently suppress the occurrence of subsidiary initiative. But there are also subsidiary-level elements of context, which seem more likely to promote initiative. Thus, the first research question can be broadly stated as follows: What facets of organizational context promote or suppress subsidiary initiative? In the second part of this paper we take a longer-term perspective on subsidiary initiative and explore the possibility that over time subsidiary initiative is likely to effect changes in the corporation' s organizational context such that subsequent initiatives are more easily pushed through. …