Academic journal article Management International Review

In Search of Centre of Excellence: Network Embeddedness and Subsidiary Roles in Multinational Corporations

Academic journal article Management International Review

In Search of Centre of Excellence: Network Embeddedness and Subsidiary Roles in Multinational Corporations

Article excerpt

Abstract

* In this paper the authors explore the role of a subsidiary as a centre of excellence within the multinational corporation (MNC). It is argued that such a role can be based on the characteristics of a subsidiary's internal resources, its relationships with the rest of the MNC and the business context of which the subsidiary is a part. Based on the perspective of an MNC as a Network the latter aspect is especially focused. Through an analysis of 98 subsidiaries the importance of the subsidiary's embeddedness, in terms of business relationships with specific customers and suppliers for its role as a centre of excellence, is investigated.

Key Results

* A conceptual result from this paper is that it offers a framework for analysing the role of the business context for the subsidiary's role as a centre of excellence. Productive relationships with external counterparts in the business environment can be used by the subsidiary to enhance its role as a centre of excellence. An empirical result is that the external embeddedness of the subsidiary is an important and significant explanatory variable of the subsidiary's possibilities to be considered important to the MNC as well as a prerequisite to influence the future behaviour of the MNC.

Introduction

In traditional foreign direct investment theory it is assumed that firms base their internationalisation on specific advantages created and located at home. These firm-specific advantages make it possible to overcome the disadvantages associated with carrying out the business activities in foreign markets (Hymer 1976, Kindleberger 1969, Vernon 1966, Buckley/Casson 1976, Johanson/Vahlne 1977, Caves 1982, Hennart 1982, Dunning 1988). But in some of the recent literature about internationalisation, it has been argued that the firm-specific advantage can be located at different places in the organisation, not only in the parent-country (Kogut 1983, Hedlund 1986, Bartlett/Ghoshal 1989, Forsgren 1989). Having different assets in different industrial and commercial contexts is an important driving force for internationalisation as such (Cantwell 1991, 1995, Dunning 1996, Zander/Zander 1997).

This new approach to foreign direct investment and the internationalisation process also gives rise to a reformulation of how we look at the structure of the multinational enterprise. Within the former "centre-periphery" view, the firm specific advantages of the multinational corporation (MNC) are developed and controlled by the parent company, while the foreign subsidiaries exploit these advantages in the local markets. According to the new perspective, MNCs are considered "multi-centre" structures, where firm-specific advantages also can be located in different subsidiaries (Forsgren et al. 1992). Sometimes the concept "centre of excellence" has been used to describe this new subsidiary role (Surlemont 1996). However, even if the received theory today recognises the existence of "centres of excellence" within the MNC, it tells us very little about why and how they emerge.

It has been argued elsewhere that it is difficult to give the concept "centre of excellence" in relation to MNCs a precise definition (Forsgren/Pedersen 1998). For instance, in the literature about product mandates, the possibility for a subsidiary to operate as a full-fledged unit with its own export and R&D is focused (Dhavan et al. 1981, Eteman/Dulude 1986, D'Cruz 1986). Although there is no undisputed definition of what characterises a subsidiary with a product mandate (Fratocchi 1994), most of the literature on product mandate seems to emphasise autonomy rather than interdependence vis-a-vis the rest of the MNC as the crucial factor (Roth/Morrison 1992, Birkinshaw/Morrison 1995). A subsidiary which can function as a quasi-firm in the MNC, because of the independence and completeness of its resources, can also, according to this view, be called a centre of excellence within the corporate family. …

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