Academic journal article Management International Review

An Empirical Study of Development Processes in Foreign-Owned Subsidiaries in Canada and Scotland

Academic journal article Management International Review

An Empirical Study of Development Processes in Foreign-Owned Subsidiaries in Canada and Scotland

Article excerpt

Abstract

* This study is an empirical examination of the development process in a sample of thirteen mature US-owned subsidiary companies in Scotland and Canada. Development is seen as a function of parent company-, subsidiary-, and host country-driven resource accumulation.

* Two development processes were observed, one leading to a product specialist position and the other to a world mandate position. The drivers associated with each development process are discussed.

Key Results

* Both development processes involved very high levels of subsidiary initiative. The implication is that any sustainable position requires continuous managerial effort, and correspondingly that the lack of such effort can potentially damage the competitiveness of both the subsidiary and the corporation as a whole.

This paper reports on a detailed clinical study of development processes in a sample of foreign-owned manufacturing subsidiaries in Canada and Scotland. Development is used here to refer to the growth and enhancement of subsidiary resources that add increasing levels of value to the multinational corporation (MNC) as a whole. In this context, the development process is viewed as an extension of the internationalization process, in that it represents increasing levels of resource commitments in foreign markets (Johanson/Vahlne 1977). The point at which the traditional "internationalization" process ends, i.e. with the first incidence of FDI, is thus the point at which subsidiary development begins. Despite the widespread evidence for resource-rich and influential subsidiaries (e.g. Forsgren/Holm/Johanson 1992), the process by which they develop has apparently escaped systematic research attention so far. A few studies have referred to the growth of subsidiary resources but not as their primary objective (e.g. Forsgren et al. 1982, Kim/Mauborgne 1993, Prahaland/Doz 1981), and studies of subsidary types -- in which development is implied but never discussed -- are legion (e.g. Bartlett/Ghoshal 1986, White/Poynter 1984). This study therefore attempts to put some structure and substance around the concept of subsidiary development, in the hope that additional research in this area will be encouraged.

Subsidiary development is an important research phenomenon for three reasons. First, there is abundant evidence (as this paper will show) that development over time is exhibited in subsidiaries, and for that reason alone it should be better understood. Consistent with the increasing acceptance of network conceptualizations of the MNC (Forsgren/Johanson 1992, Ghoshal/Bartlett 1991) the subsidiary can be modeled as a semiautonomous entity whose development is analogous to that of an independent firm (cf. Penrose 1958). Second, subsidiary development, as we have defined it contributes directly to the competitive advantage of the MNC in that one of the MNC's strategic imperatives is to leverage the capabilities of its globally-dispersed assets (Bartlett and Ghoshal 1989). Third, subsidiary development has profound implications for economic development in the host country, in terms of employment, exports, tax and a host of intangible factors (Young/Hood/Peters 1994). Subsidiary development can also have negative ramifications for the corporation if, for example, development entails using scarce resources towards goals that are inconsistent with those of the parent. This issue will be discussed later in the paper, but our basic premise for this study is that subsidiary development, as defined above, is beneficial to the corporate parent and the host country. It is recognized, however. that in differential subsidiary development (i.e. between units in a network) and/or between different host countries, there will inevitably be winners and losers.

This paper is in four sections. The following section will elaborate the conceptual model that drove this research as well as some of the theoretical foundations for the study. …

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