Headquarters and Subsidiaries in Multinational Corporations

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1 Headquarters and Subsidiaries in Multinational Corporations

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3 Headquarters and Subsidiaries in Multinational Corporations Strategies, Tasks and Coordination Stewart Johnston

4 Stewart Johnston 2005 Softcover reprint of the hardcover 1st edition 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 W1T 4LP. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act First published 2005 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin s Press, LLC and of Palgrave Macmillan Ltd. Macmillan is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN ISBN (ebook) DOI / This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Johnston, Stewart, 1944 Headquarters and subsidiaries in multinational corporations : strategies, tasks and coordination / Stewart Johnston. p. cm. Based on the author s doctoral dissertation. Includes bibliographical references and index. 1. International business enterprises Management. 2. Foreign subsidiaries Management. 3. Strategic alliances (Business) 4. International business enterprises Australia Management. 5. Foreign subsidiaries Australia Management. 6. Strategic alliances (Business) Australia. I. Title. HD62.4.J dc

5 Contents List of Tables List of Figures Preface vi viii ix Part I: Conceptual Background and Model Chapter 1: Introduction 3 Chapter 2: The Strategies of the Developing MNC 16 Chapter 3: The Strategies of the Modern MNC 33 Chapter 4: Subsidiary Tasks 56 Chapter 5: A New Model of the Headquarters-subsidiary Relationship 65 Part II: Empirical Investigations Chapter 6: MNC Strategies and Subsidiary Tasks 83 Chapter 7: Subsidiary Task and Subsidiary Autonomy 97 Chapter 8: Subsidiary Size and Subsidiary Autonomy 113 Chapter 9: Control and Coordination 123 Chapter 10: Knowledge Management and Innovation 148 Chapter 11: Conclusions, Limitations and Future Directions 173 Chapter 12: Methodological Appendix 185 References 209 Index 230 v

6 List of Tables Table 2.1 Employee Control Modes Used in Firms 25 Table 2.2 Subunit Control Modes Used in Firms 25 Table 6.1 Descriptive Statistics for Subsidiary Role Statements 85 Table 6.2 Initial Cluster Solution 88 Table 6.3 Expanded Cluster Solution Statement Means for the Five Clusters Solution 89 Table 6.4 Comparison of Present Classifications with Previous Studies 92 Table 7.1 Uncontrolled Subsidiary Autonomy Means for Unrelated and Related Diversification Subsidiary Tasks 105 Table 7.2 Uncontrolled Subsidiary Autonomy Means for Related Diversification Subsidiary Tasks 105 Table 7.3 Descriptive Statistics and Intercorrelations for Control Variables 106 Table 7.4 Analysis of Covariance Summary Unrelated Diversification vs Related Diversification Subsidiary Tasks 107 Table 7.5 Estimates of Subsidiary Autonomy Marginal Means for Subsidiary Tasks of Related and Unrelated Diversification Strategies 108 Table 7.6 Estimates of Subsidiary Autonomy Marginal Means for Parent Nationality 108 Table 7.7 Analysis of Covariance Summary Four Related Diversification Subsidiary Tasks 109 Table 7.8 Estimates of Subsidiary Autonomy Marginal Means for Subsidiaries of Related Diversification Strategy 109 Table 8.1 Descriptive Statistics and Intercorrelations 117 Table 8.2 Linear, Quadratic and Trigonometric Effects of Subsidiary Size on Subsidiary Autonomy 119 Table 9.1 The Baliga/Jaeger Typology of Control Mechanisms 128 Table 9.2 Descriptive Statistics for Dependent Variables 135 vi

7 List of Tables vii Table 9.3 Descriptive Statistics and Intercorrelations for Control Variables 138 Table 9.4 Uncontrolled Means and Standard Deviations for Control Mechanisms for Each Subsidiary Task 140 Table 9.5. Analysis of Covariance Summary for all Control Mechanisms 141 Table 9.6 Estimated Marginal Means and Significant Pairwise Comparison for All Subsidiary Tasks and Control Mechanisms 142 Table 9.7 Logistic Regression Results for the Two Dichotomous Dependent Variables 144 Table 9.8 Estimated Marginal Means and Significant Pairwise Comparisons for Parent Nationality and Significantly Associated Control Mechanisms 146 Table 10.1 Descriptive Statistics and Intercorrelations for Predictor and Control Variables 164 Table 10.2 Uncontrolled Means for the Three Dependent Variables and Five Subsidiary Tasks 165 Table 10.3 Analysis of Covariance Summary for the Three Dependent Variables 166 Table 10.4 Estimated Marginal Means for Subsidiary Task and Parent Nationality for Each Dependent Variable 167 Table 10.5 Analysis of Covariance Summary for Use of Knowledge Management Techniques Including the Two Innovation Variables 171 Table 11.1 Autonomy and Contact Data for Five Subsidiary Tasks 180 Table 11.2 HQ s Rationale for Managing the Subsidiary 182 Table 12.1 Comparison of MNC Home Countries between AWIRS 95 and the Present Study 194 Table 12.2 Rotated Factor Matrix for Aggregated Variables Used in Study 199 Table 12.3 Descriptive Statistics for Variables Derived from Factor Analysis 199 Table 12.4 One Way Analysis of Variance between Groups 200 Table 12.5 Contrasts between Cluster Means (p <.05) 201

8 List of Figures Figure 3.1 Bartlett and Ghoshal s Interpretation of the I-R grid (adapted) 35 Figure 3.2 Peteraf s Model of Competitive Advantage 51 Figure 5.1 An Integrated Model of the HQ-subsidiary Relationship 79 Figure 6.1 Advantage Generating Strategies and Subsidiary Tasks 83 Figure 8.1 Hedlund s (1981) Proposed Relationship between Size and Autonomy 115 Figure 9.1 Ouchi s (1977) Model of Control Mechanisms 127 Figure 9.2 Types of Interdependence (after Thompson, 1967) 130 Figure 11.1 Subsidiary-HQ and Subsidiary-other unit Relationships 178 Figure 11.2 A Suggested Autonomy vs. Embeddedness Matrix 179 viii

9 Preface This book is a development of my doctoral dissertation. Parts of the material here have appeared in various locations but I have decided to present the results of the research in a classic monograph form in order to facilitate their further dissemination. There are three major reasons for this decision. First, the book presents a more general conceptualization of the headquarters-subsidiary relationship in multinational corporations than any previous model. Second, it adds considerably to the empirical literatures on subsidiary autonomy, control mechanisms and knowledge management and innovation in multinational corporations. Third, from a more parochial perspective, there is a paucity of recent research on multinational corporations in Australia and this book offers, I hope, a baseline and guide for future firm level studies of this topic. The work should be of interest to scholars, practitioners and students alike. To complete a task of this order required advice, assistance and encouragement and many people made contributions both great and small to this venture. Tim Bartram, Simon Bell, Michelle Brown, Richard Hoffman, Rick Iverson, Angie Knox, Carol Kulik, Ros Makris, Lynn McAlevey, David Merrett and Lea Waters came to my aid in moments of need. Tatiana Zalan and Shey Newitt kindly read and commented upon earlier versions. I owe particular gratitude for the huge contributions of Bulent Menguc to Chapter 8 and Angela Paladino to Chapter 10. Overall, however, the two crutches that I leaned upon most heavily were Christina Cregan and my doctoral supervisor Stephen Nicholas. My grateful thanks to you both. From Palgrave Macmillan my thanks go to Jacky Kippenberger and, as an ex-subeditor myself, I greatly appreciate the excellent work put in by Shirley Tan at EXPO Holdings. In addition, I wish to acknowledge the early career researcher and faculty grants I received from the Faculty of Economics and Commerce at Melbourne University and the facilities provided during study leave at the Department of Finance and Quantitative Studies, Otago University, Dunedin, New Zealand and the School of Business, University of Northumbria, Newcastle upon Tyne, UK. Finally, and of utmost importance, I wish to express my gratitude to the 313 executives whose contributions made the research possible. ix