Academic journal article Management International Review

Subsidiary Initiatives in the Institutional Environment

Academic journal article Management International Review

Subsidiary Initiatives in the Institutional Environment

Article excerpt

Abstract We study subsidiaries of a MNC and research why they implement initiatives that deviate from organizational values of headquarters. Initially we relied only on the concept of institutional duality and expected that pressures in the institutional environment and values of headquarters explain the agency of the subsidiaries. But the results of our extensive participatory observation showed that the organizational values of subsidiaries (rather than those of headquarters) helped explain the subsidiaries' actions. In conclusion, we find that there are limits to the predictive power of the concept of institutional duality. Our study shows that a distinction between values of headquarters and values of subsidiaries is necessary in order to understand the agency of subsidiaries. We suggest a concept of 'institutional trinity' that distinguishes between these two values as well as pressures in the institutional environment. Our research demonstrates that an MNC can benefit from a subsidiary that develops its own organizational values. If headquarters is subsequently ready to adopt some of these subsidiary values, it may be able to adapt more easily to a changing institutional environment.

Keywords Climate change * Institutional duality * Institutional theory * Subsidiaries

1 Introduction

Studying a large multinational car manufacturer, we observed that it took a noncommittal overall position on the issue of climate change. However, a few of its national sales and distribution subsidiaries, independently and individually, engaged in climate change mitigation activities, which included calculating their carbon footprint and offering C[O.sub.2] offsetting to their customers. Headquarters found these initiatives puzzling: Its general standpoint was that its national sales and distribution subsidiaries had other things to worry about than environmental issues, especially given the economic crisis and decreases in both sales and profits.

The initiatives of these subsidiaries also challenged recent contributions that conceptualize MNCs as intra-organizational fields, where--as Kostova et al. (2008) argue--strong isomorphic pressures exist for common practices, so that subsidiaries are often "obligated to comply" with a certain practice "mandated by the parent" company (Kostova and Roth 2002, p. 216). In general, earlier research has shown that MNCs define environmental strategies at the headquarters level, and then roll associated practices out to their subsidiaries (Christmann 2004; Christmann and Taylor 2001; Yang and Rivers 2009). However, our observations--that selected subsidiaries proactively implemented climate change initiatives despite their headquarters' noncommittal position--challenges these established findings.

Initially, we assumed our observations might be explained by the concept of institutional duality, which suggests that subsidiaries need to "conform to both host country and MNE pressures for legitimacy when adopting organizational practices or strategy" (Hillman and Wan 2005, p. 323). We noted that this concept was originally developed based on an in-depth analysis of an MNC with a set of monolithic and pervasive values, characterized as follows in the first paper on the subject by Kostova and Roth (2002):

   The company had a very pervasive and paternalistic organizational
   culture, which reduced the potential organizational culture
   variation across units within the company [...]. The company was a
   centralized and headquarters-dominated organization. (p. 221)

However, in the multinational car manufacturer that we analyzed, we did not observe monolithic organizational values, but rather some variation of values across units. Thus our research question is: In which circumstances do subsidiaries implement initiatives that deviate from the organizational values prevailing at their headquarters?

We employ an analytic induction method to address this research question, which enables us to lay out our initial theoretical perspective clearly and to develop empirically grounded propositions. …

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