MULTINATIONAL CORPORATE EVOLUTION AND SUBSIDIARY DEVELOPMENT

MULTINATIONAL CORPORATE EVOLUTION AND SUBSIDIARY DEVELOPMENT

Previous books involving Neil Hood Hood, N. and S. Young (eds) (1979) The Economics of Multinational Enterprise Hood, N. and S. Young (eds) (1984) Industry, Policy and the Scottish Economy Young, S., N. Hood and J. Hamill (1988) Foreign Multinationals and the British Economy Hood, N. and J. -E. Vahlne (eds) (I 988) Strategies in Global Competition Hood, N., R. Kilis and J. -E. Vahlne (eds) (1997) Transition in the Baltic States

Multinational Corporate Evolution and Subsidiary Development Edited by Julian Birkinshaw and Neil Hood

First published in Great Britain 1998 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library. ISBN 978-1-349-26469-8 ISBN 978-1-349-26467-4 (ebook) DOI 10.1007/978-1-349-26467-4 First published in the United States of America 1998 by ST. MARTIN'S PRESS, INC., Scholarly and Reference Division, 175 Fifth Avenue, New York, N.Y. 10010 ISBN 978-0-312-21471-5 Library of Congress Cataloging-in-Publication Data Multinational corporate evolution and subsidiary development I edited by Julian Birkinshaw and Neil Hood. p. em. Includes bibliographical references and index. ISBN 978-0-312-21471-5 I. International business enterprise. 2. Corporations, Foreign. 3. Subsidiary corporations. 4. International trade. 5. Competition, International. I. Birkinshaw, Julian M. II. Hood, Neil. HD2755.5.M819 1998 658'.049-dc21 98-5593 Selection, editorial matter and Chapters I and 14 Julian Birkinshaw and Neil Hood 1998 Individual chapters (in order) James H. Taggart; Marina Papanastassiou and Robert Pearce; Trond Rand0y and Jiatao Li; Hellmut Schutte; Mats Forsgren and Torben Pedersen; Bernard Surlemont; Luciano Fratocchi and Ulf Holm; William G. Egelhoff; Liam Gorman and Stephen McCormick; Ed Delany; Julian Birkinshaw; Sea-Jin Chang and Philip M. Rosenzweig; Schon Beechler, Allan Bird and Sully Taylor 1998 Softcover reprint of the hardcover 1st edition 1998 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London WI P 9HE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. 10 9 8 7 6 s 4 07 06 OS 04 03 02 01 3 2 I 00 99 98 CIP

To the memory of Gunnar Hedlund, one of the leading international business scholars of his generation

Contents List of Appendices List oftables List of Figures Preface and Acknowledgements List of Contributors xii xiii XV xvii xviii 1 Introduction and Overview julian Birkinshaw and Neil Hood Context MNC Subsidiary Management Research Outline of the Book Concluding Remarks 1 1 4 9 15 PART I CORPORATE STRATEGY AND SUBSIDIARY DEVELOPMENT 2 Identification and Development of Strategy at Subsidiary Level james H Taggart Introduction Conceptual Background Research Problem Research Method Results Discussion Conclusions 23 23 24 28 30 33 40 44 vii

viii Contents 3 Individualism and Interdependence in the Technological Development ofmnes: The Strategic Positioning of R&D in Overseas Subsidiaries 50 Marina Papanastassiou and Robert Pearce Introduction 50 R&D and Interdependent Individualism 52 R&D in UK Subsidiaries ofmnes 56 Roles ofmne Subsidiaries' R&D Laboratories 65 Conclusions 71 4 Global Resource Flows and MNE Network Integration 76 Trond Randey and]iatao Li Introduction 76 Global Integration and Resource Flows 77 Three Dimensions oflntra-mne Resource Flows 80 Data and Research Methods 86 Results and Discussion 90 Conclusions and Future Research 97 5 Between Headquarters and Subsidiaries: The RHQSolution 102 Hellmut Schutte Conceptual Framework 102 The Study of Regional Headquarters {RHQs) 104 Research Results 115 Data Analysis 125 Conclusions 131 PARTll CENTRES OF EXCEIJ.ENCE IN MULTINATIONAL NETWORKS 6 Centres of Excellence in Multinational Companies: The Case of Denmark 141 Mats Forsgren and Tor ben Pedersen Introduction 141 The Product Mandate Subsidiary 142

Contents The Subsidiary in then etwork MNC 144 Some Classifications of Subsidiary Roles 147 Empirical Analysis 150 Concluding Remarks 156 7 A Typology of Centres Within Multinational Corporations: An Empirical Investigation 162 Bernard Sur lemont Introduction 162 Toward a Typology of Centres within MNCs 162 Empirical Investigation 168 Further Study of Administrative and Excellence Centres 175 Conclusions 185 8 Centres of Excellence in the International Firm 189 Luciano Fratocchi and UlfHolm Introduction 189 The Centres of Excellence 191 Methods 196 Empirical Findings 200 Discussion and Concluding Remarks 205 ix PARTill CORPORATEPROCESSAND SUBSIDIARY DEVELOPMENT 9 Using Technology as a Path to Subsidiary Development 213 William G. Egelhoff, Liam Gorman and Stephen McCormick Introduction 213 Literature Review and Conceptual Framework 214 Research Design 216 Findings 216 Discussion and Conclusions 235

X Contents 10 Strategic Development of Multinational Subsidiaries in Ireland 239 Ed Delany Importance off oreign Direct Investment to the Irish Economy 239 Review of Subsidiary Development Literature 240 Research Project into Development of Subsidiaries in Ireland 242 Classifying Subsidiaries' Strategic Position 243 Strategic Initiatives by Subsidiaries 249 Phases of Subsidiary Mandate Development 255 Scale Increases - a Different Type of Development 263 Conclusions 265 11 Foreign-owned Subsidiaries and Regional Development: The Case of Sweden 268 julian Birkinshaw Introduction 268 Theoretical Background 271 Research Methodology 275 Findings: Questionnaire Responses 276 Findings: Case-Studies 284 Conclusions and Implications 292 12 Functional and Line of Business Evolution Processes in MNC Subsidiaries: Sony in the USA, 1972-1995 299 Sea-fin Chang and Philip M Rosenzweig Introduction 299 Antecedent Research on MNC Evolution 301 Method and Data 303 Sony in the United States: A Case Study of Subsidiary Evolution 308 Modelling the Processes of Subsidiary Evolution 316 Discussion 326 Directions for Further Research and Conclusions 328

Contents xi 13 Organisational Learning in japanese MNCs: Four Affiliate Archetypes 333 Schon Beechler, Allan Bird and Sully Taylor Introduction 333 Methodology 335 Theoretical Foundation 336 A Decision Tree and Four Learning Archetypes 342 Implications for Learning 358 Conclusions 362 14 Conclusions and Policy Implications 367 Neil Hood and]ulian Birkinshaw Introduction 367 Findings and Implications 368 Conclusions 378 Index 381

List of Appendices 4.A Definition of resource flows 101 8.A The studied firms: turnover, number of employees and main activities in 1989 209 ll.a Study questions 296 xii

List of Tables 1.1 Three streams of research on subsidiary management 5 2.1 Four-cluster solution: cluster analysis 35 2.2 Comparison of operation variables means among four-cluster solutions 37 3.1 In-house R&D as a source of technology in MNE subsidiaries in the UK 58 3.2 Sources of R&D used by MNE subsidiaries in the UK 61 3.3 Anticipated changes in size of R&D laboratories ofmne subsidiaries in the UK, by industry and home country 64 3.4 Regressions with anticipated changes in size of R&D laboratories as dependent variables 66 3.5 Roles of R&D laboratories ofmne subsidiaries in the UK 68 4.1 Patterns of resource flows 88 4.2 Means, standard deviations and correlation matrix 91 4.3 Clustering analysis 92 4.4 Clustering analysis: overall resource flows =means 96 5.1 MNCs in Sample 106 5.2 Interview results 116 5.3 Ranking of scores ofmncs 127 6.1 Classification of production subsidiaries within an MNC with respect to export and R&D intensity 148 6.2 Characteristics of the foreign-owned subsidiaries in Denmark ( 1991) 151 6.3 The average values for the three variables in the four clusters 153 6.4 The extent of R&D co-ordination among product mandate subsidiaries 155 xiii

xiv List of Tables 6.5 The level of corporate and external embeddedness for all product mandate subsidiaries 156 7.1 Typology of centres within MNCs 168 7.2 Correlation between the various dimensions of the influence of centres 172 7.3 Spearman correlation between descriptive variables and SCOPE and DOMAIN 176 8.1 Number of CoEs in 22 Swedish international firms 200 8.2 Proportion of CoEs and level of internationalisation 202 8.3 Proportion of CoEs according to geographic areas with increasing psychic distance 204 10.1 Strategic positions of subsidiaries at start-up and current parent nationality 247 10.2 Classification of strategic initiatives from research 253 11.1 Basic characteristics of the four groups 278 11.2 Distinctive characteristics of the four groups 280 12.1 Sony Corporation: activities in the USA, 1995 304 12.2 Sony Engineering and Manufacturing of America, 1995 305 12.3 Interviews conducted at Sony Corporation 306 12.4 Impediments and facilitators in functional migration 323 13.1 A comparison of four learning cycle models 355 13.2 Implications of the four models for parent and affiliate learning 359

List of Figures 2.1 Co-ordination-configuration framework 26 2.2 Strategy evolution 36 2.3 Dynamics of evolution 38 4.1 International strategy at the overall firm level 78 4.2 Alternative subsidiary roles related to different resource flows 82 5.1 Organisational structure matrix 130 7.1 Evolutionary paths of centres 173 10.1 Basic and development mandates using extended version ofwhite and Poynter (1984) 248 10.2 Classifying the 49 domain developing strategic initiatives by value chain moves. 255 10.3 Stages of development of multinational subsidiary 258 11.1 Example of stages in subsidiary development 272 11.2 Typology of Swedish subsidiaries 277 11.3 Centres of excellence in Swedish subsidiaries at the different stages of the value chain 291 12.1 A process model of functional migration 318 12.2 A process model ofline of business addition 324 13.1 A basic process model of the japanese MNC parent-affiliate management learning cycle 337 13.2 Diagram of tactical decisions and influences in the development of subsidiary HRM system 343 13.3 A process model of the Japanese MNC parent-affiliate management learning cycle for export firms 348 13.4 A process model of the Japanese MNC parent-affiliate management learning cycle for closed hybrid firms 350 13.5 A process model of the Japanese MNC parent-affiliate management learning cycle for adaptive firms 351 XV

xvi List of Figures 13.6 A process model of the japanese MNC parent-affiliate management learning cycle for open hybrid firms 353

Preface and Acknowledgements This book emerged from the well-established interests of the editors in the processes which influence the development of subsidiaries. It was facilitated by the fact that the Annual Conference of the European International Business Academy was held at the Stockholm School of Economics in December 1996, and the editors were asked to help to shape that programme. Several of the sessions were focused on the topic of this volume and a number of the chapters are based on the papers presented on that occasion. In addition, the editors invited a range of other authors in different parts of the world who were known to be active researchers on subsidiary development. The editors would like to acknowledge the superb work of the Institute of International Business staff in Stockholm, who made the ElBA conference so memorable. In addition they would like to record their sincere thanks to Irene Hood in Strathclyde International Business Unit, University of Strathclyde, Glasgow, for her sterling work in assisting in all aspects of the editorial process and her liaison with all the contributors. JUUAN BIRKINSHAW NEIL HOOD xvii

List of Contributors Allan Bird, Californian Polytechnic State University, USA Julian Birkinshaw, Stockholm School of Economics, Sweden Schon Beechler, Columbia University, USA Sea:Jin Chang, Korea University, Korea Ed Delany, E. Delany & Associates, Ireland William Egelhoff, Fordham, USA Mats Forsgren, Copenhagen Business School, Denmark Luciano Fratocchi, University of Bologna, Italy Liam Gorman, Irish Management Institute, Ireland UlfHolm, University ofuppsala, Sweden Neil Hood, University ofstrathclyde, UK Jiatao Li, McKinsey, Hong Kong Stephen McCormick, Irish Management Institute, Ireland Marina Papanastassiou, Economic University of Athens, Greece Robert Pearce, University of Reading, UK Torben Pedersen, Copenhagen Business School, Denmark Trond Randey, Agder College, Norway xviii

List of Contributors Philip Rosenzweig, IMD, Switzerland xix Hellmut Schutte, Insead, France Bernard Surlemont, University of Liege, Belgium James H. Taggart, University ofstrathclyde, UK Sully Taylor, Portland State University, USA