Towards Explaining the Use of Control Mechanisms in Foreign Subsidiaries of MNCs (summary section only)

Control is central to management and there is already a considerable body of research on control. However, the emergence and growth of multinational corporations (MNCs) has renewed the interest in control, as MNCs are complex (often large) organizations that face circumstances beyond those of national business organizations. The geographical dispersion of MNC activities means that the headquarters controls subsidiaries that differ with regard to power and that are embedded in different cultural, political, legal and educational systems. Foreign subsidiary control also takes place across language boundaries and physical (i.e. geographical) distances. In face of these challenges, how are foreign subsidiaries controlled? The thesis explores different types of control mechanisms and attempts to explain the degree to which they are used to control foreign subsidiaries. It contributes to existing knowledge on control by exploring how five different control mechanisms are related to each other. Previous research has tended to focus only on one or two control mechanisms and seldom has their effect on each other been explored. The thesis also contributes by including two central aspects of the MNC that have been neglected in much of the research on foreign subsidiary control: language competence of subsidiary staff and physical distance between the headquarters and its subsidiaries. The findings indicate that specific control mechanisms should not be studied in isolation as there are intricate relationships among the different control mechanisms. Language competence of the subsidiary staff can furthermore affect the type and degree of control that the headquarters can exercise over a subsidiary. The findings also indicate that changes in the physical distance between subsidiaries and its headquarters (i.e. a relocation of the headquarters as part of a restructuring process) can have great consequences for the headquarters-subsidiary relationship.

The impact of social and relational contexts on innovation transfer in foreign subsidiaries

It is widely acknowledged that innovation is one of the pillars of multinational enterprises (MNEs) and that technological knowledge from different host locations is a key factor to the MNEs’ competitive advantages development. Concerning these assumptions, in this paper we aim to understand how the social and the relational contexts affect the conventional and reverse transfer of innovation from MNEs’ subsidiaries hosted in emerging markets. We analyzed the social context through the institutional profile (CIP) level and the relational context through trust and integration levels utilizing a survey sent to 172 foreign subsidiaries located in Brazil, as well as secondary data. Through an ordinary least squares regression (OLS) analysis we found that the relational context affects the conventional and reverse innovation transfer in subsidiaries hosted in emerging markets. We however did not find support for the social context effect.

Capital structure choice of foreign subsidiaries: evidence from multinationals in Brazil

Is the capital structure choice of a foreign subsidiary different from the choice of a comparable company controlled by nationals? If so, what are the differences? In this paper we shed some light on these questions by looking at a sample of foreign subsidiaries in Brazil over the period 1985 to 1994. We find that the foreign subsidiaries in our sample are more levered than their Brazilian counterparts. This difference, however, has declined over time. The evidence is consistent with the hypothesis that foreign subsidiaries increase leverage as a hedge against an expropriation of assets in a nationalization process.

The role of market orientation in the business success of the MNC’s foreign subsidiaries

In recent discussions over the contribution of marketing to the strategy dialogue, market orientation has been singled out as being of particular importance in relation to the understanding of competitive advantage (Day et al 1992, Hunt and Lamb 2000). Research in the past has focused primarily on firms operating in domestic markets. As such, despite the recent progress, it is unclear of relevancy of market orientation as a construct in the context of multinational corporations (MNC) and their foreign subsidiaries. In this study, we set out to explore the role of market orientation in the subsidiary business performance. An investigation of a sample of 252 foreign subsidiaries in the UK revealed that except for “receptive? subsidiaries (Taggart 1998), market orientation has significant positive relationships with a number of business performance measures in all three other types of subsidiaries, suggesting that market orientation is a key driver for business performance at foreign subsidiaries.

Patterns of local R&D cooperation of foreign subsidiaries in an intermediate country: innovative and structural factors

We attempt to contribute to a better understanding of cooperative innovation patterns of foreign subsidiaries (FS) in Spain as a representative intermediate country, going deeply into three main aspects: firstly, a sectoral taxonomy which combines international technological dynamism and revealed technological advantage as a way to understand such patterns. Secondly we focus our attention on innovative intensive subsidiaries, assuming they are the most important ones for hosting countries. Thirdly, we combine innovation and structural-competitive variables to explain local cooperation. We found more intense cooperation of FS with local agents in dynamic specialization sectors, as well as the fact that this is mostly carried out in a complementary mode with inner knowledge capabilities of the companies. Cooperative activities are influenced by economicstructural factors of the Spanish economy, particularly in highly innovative companies. Cooperative strategies of domestic firms might also have an influence on those of foreign subsidiaries.

Developing and Integrating HRM Practices in MNC Subsidiaries in China

Whilst previous research on Human Resource Management (HRM) in subsidiaries of multinational companies (MNCs) has focused extensively on the HRM practices that exist in foreign subsidiaries and the extent to which they resemble MNC home country and/or local host country practices, considerably less attention has been directed at the question of how these practices come to exist. Accordingly, this thesis aims to shed light on the processes that shape HRM practices and capabilities in MNC subsidiaries. The main contribution of the thesis is the focus on how; how HRM practices are integrated in MNC subsidiaries, and how subsidiary HRM capabilities are developed through involvement in social networks. Furthermore, this thesis includes a time aspect which, despite not being purely longitudinal, provides an indication of the ongoing changes in HRM in MNC subsidiaries in China. Data for this study were collected in 2005-2006 through structured face to face interviews with 153 general managers and HR managers in 87 subsidiaries of European MNCs located in China. Five of the six thesis papers build on this questionnaire data and one paper builds on qualitative data collected at the same time. Two papers build on dual data sets, meaning that they in addition to the abovementioned data include quantitative questionnaire data from 1996 and 1999 respectively. The thesis focuses on the following four sub-questions i) To what extent do subsidiary HRM practices resemble parent MNC and host country practices? How has this changed over time and why? ii) How are HRM practices integrated into MNC subsidiaries and why are certain integration mechanisms used? iii) How does involvement in internal and external social networks influence subsidiary HRM capabilities? iv) What factors influence the strategic role of the subsidiary HR department? Regarding the first sub-question the findings indicate that the HRM practices of MNC subsidiaries in China are converging with both local company practices and parent MNC practices. This is interesting in the sense that it suggests that the isomorphic pressures the subsidiary faces from the MNC and from its local host environment are not always in conflict with each other. Concerning the question of how HRM practices are integrated into MNC subsidiaries and why certain integration mechanisms are used, the thesis provides a fine-grained examination of four mechanisms that MNCs use to integrate HRM practices in subsidiaries. The findings suggest that MNCs use a variety of different integration mechanisms as complements rather than as substitutes for each other. Furthermore, it is apparent that different contextual factors in the subsidiary and the subsidiary-headquarters relationship influence why certain mechanisms are or are not used. The most interesting contribution of the thesis in regard to the third question is that it highlights the importance of network involvement for learning about HRM practices in the Chinese context. Networks with other MNCs in China clearly emerged as particularly important contributors to enhanced HRM capabilities. Finally, concerning the fourth sub-question the findings indicate that the role of the HR department in MNC subsidiaries in China had become more strategic between 1999 and 2006.

Do Foreign Greenfields Outperform Foreign Acquisitions or Vice Versa? An Institutional Perspective.

Prior studies of the comparative performance of greenfields and acquisitions have advanced competing arguments, with some arguing that greenfields should outperform acquisitions because acquisitions are costlier to integrate, and others that acquisitions should outperform greenfields because greenfields suffer from a liability of newness. Moreover, while the costs of integration and the liability of newness are at their greatest during a subsidiary's first years, prior studies have tested their competing arguments on samples containing older subsidiaries. We extend these prior studies by (1) developing an institutional theory-based framework that simultaneously considers the costs of integration and the liability of newness, (2) recognizing that both types of costs vary with the level of subsidiary integration, and (3) focusing on the stage of their life during which subsidiaries predominantly incur these costs. To measure subsidiary performance, we ask managers of Dutch multinationals how their ex ante performance expectations compare to the subsidiary's ex post performance during its first two years. Analysing a sample of 191 foreign subsidiaries and controlling for entry mode self-selection and other factors, we find that acquisitions outperform greenfields at low and intermediate levels of subsidiary integration, but that greenfields outperform acquisitions at higher integration levels. [ABSTRACT FROM AUTHOR]

Foreign MNEs and domestic innovative capabilities: are there conditions for reverse spillovers in the spanish industry?

We analyse, over 2004-2008, a sample of approximately 700 foreign subsidiaries and 4,500 domestic firms located in Spain in order to understand the relationship between local R&D cooperation and innovativeness of the firm. Our ultimate objective is to understand whether foreign subsidiaries are likely to make a contribution to local innovative capabilities or if, conversely, they may eventually benefit from conditions for reverse spillovers. Using a variety of specifications for the innovation-related activities of the firm, we find that foreign subsidiaries are more cooperative than the average firm located in Spain, but not necessarily more than affiliated domestic firms (entrepreneurial groups). However, foreign subsidiaries are more cooperative than affiliated domestic firms in sectors considered highly dynamic by international technological standards, whether Spain has a technical advantage in these specific sectors or not. When we focus on companies which are more innovative than the two-digit industries in which they operate, we find that foreign subsidiaries tend to be more cooperative than domestic firms in sectors where Spain displays technological advantage. These sectors comprise traditional industries displaying little innovation dynamism from an international point of view. This finding suggests that there may be conditions for reverse spillovers in these specific Spanish sectors (though measuring them is beyond the objectives of this paper).

Capital markets and the market structure of foreign investments

Contrary to the long-received theory of FDI, interest rates or rates of return can motivate foreign direct investment (FDI) in concert with the benefits of direct ownership. Thus, access to investor capital and capital markets is a vital component of the multinational’s competitive market structure. Moreover, multinationals can use their superior financial capacity as a competitive advantage in exploiting FDI opportunities in dynamic markets. They can also mitigate higher levels of foreign business risks under dynamic conditions by shifting more financial risk to creditors in the host economy. Furthermore, the investor’s expectation of foreign business risk necessarily commands a risk premium for exposing their equity to foreign market risk. Multinationals can modify the profit maximization strategy of their foreign subsidiaries to maximize growth or profits to generate this risk premium. In this context, we investigate how foreign subsidiaries manage their capital funding, business risk, and profit strategies with a diverse sample of 8,000 matched parents and foreign subsidiary accounts from multiple industries in 38 countries.We find that interest rates, asset prices, and expectations in capital markets have a significant effect on the capital movements of foreign subsidiaries. We also find that foreign subsidiaries mitigate their exposure to foreign business risk by modifying their capital structure and debt maturity. Further, we show how the operating strategy of foreign subsidiaries affects their preference for growth or profit maximization. We further show that superior shareholder value, which is a vital link for access to capital for funding foreign expansion in open market economies, is achieved through maintaining stability in the rate of growth and good asset utilization.

The role of market orientation in the business success of MNCs' UK subsidiaries

Purpose - The paper aims to explore the role of market orientation in the multinational company's subsidiary's business performance. Design/methodology/approach - The paper is based on a questionnaire survey/analysis of a sample of 252 foreign subsidiaries in the UK. Findings - The paper finds that market orientation is a key driver for business performance at foreign subsidiaries. However, the strength of its impact on performance depends on the subsidiary role. Originality/value - This is the first systematic investigation of the role of market orientation in multinational companies' subsidiaries.

Business in troubled waters : does adverse attitude affect firm value?

This paper investigates the relationship between US MNCs' valuations and anti-Americanism in countries where MNCs' foreign subsidiaries are located. We find that MNCs suffer value-destruction when they enter markets where people express severe anti-Americanism. However, we uncover that geographic diversification into these high anti-Americanism countries significantly increases firm value if the MNC has high levels of intangibles such as technological know-how and marketing expertise. Our findings are consistent with the notion that the advantages from internalizing the cross-border transfer of intangibles are greater when barriers to competition are higher.

A Question of Legitimacy? A Dynamic Perspective on Multinational Firm Control

The control and coordination of a network of geographically and culturally dispersed subsidiaries is one of the most prominent challenges in international management. However, many empirical findings on the effectiveness of various control mechanisms and combinations thereof are still counterintuitive. This study uses longitudinal case studies and cross-sectional interview data to extend control theory by examining why, how, and in what sequence large multinational firms (MNCs) implement controls in their networks of foreign subsidiaries. Our analysis draws from literature on institutional theory, embeddedness, and organizational power to demonstrate that MNC headquarters need to overcome institutional duality when implementing their controls abroad. We find that headquarters do so by using social controls, primarily as a way of legitimizing and institutionalizing their process and output controls that are implemented subsequently.

Multinational enterprises in Australia: Two decades of international human resource management research reviewed

This paper reviews empirical international human resource management (IHRM) journal articles on foreign- and indigenous-owned multinational enterprises (MNEs) operating in Australia. More specifically, we explore the extent to which papers using Australian data in this area are being published in 53 of the world's leading academic journals and identify the topics that have been researched. We then propose a number of research areas, of Australian and international interest, that researchers could pursue in the future. Our findings point to a picture of limited publications in the leading international journals. There is also support for recent arguments that substantial capacity exists for a greater theoretical contribution by researchers in the IHRM field.

Earnings overseas and cash holdings

I investigate the impact of foreign pre-tax income on the total amount of cash held by companies and on the amount of cash that is held in companies’ foreign subsidiaries. I also investigate the impact of the existence and amount of cash held on companies’ foreign subsidiaries in the composition of cash holdings in terms of risk and liquidity. Using a sample of 100 largest U.S. non-financial and non-utilities companies I find that companies with higher earnings overseas present higher cash reserves and invest a higher fraction of their cash in risky assets. My evidence suggests that companies have a different optimization strategy for cash overseas, in which precautionary motives are not the main driver for holding cash.

How do global born companies ignite their internationalization and survive in international markets?

Over the last decades, the born global firms or the international new ventures (“INVs”) have assumed a growing role in international business, including in Portugal. The rise of this new type of multinational has challenged several theories concerning the development of multinational companies and the origin of companies’ competitive advantage. This qualitative, case-based research explores the most relevant traits shown by some Portuguese born-global firms. More concretely, the aim of this work is to compare some Portuguese international new ventures in order to understand the role of leadership, culture and strategy in their rapid internationalization and the source of their lasting competitive advantage. It was noticed that these firms’ lasting competitive advantage results from a singular combination of resources and dynamic capabilities that evolves over time. Moreover, it was found that these firms’ foreign subsidiaries and local networks may be essential to enhance the firms competitive advantage as it provides each firm a distinctive source of knowledge and capabilities. As a consequence, the effective assimilation of such resources and capabilities in these firms’ may become crucial for their lasting success. In addition, the leadership, strategy and culture in these firms seem to be quite aligned and form a quite virtuous cycle that contributed to the firms rapid internationalization and for the way the firms developed their own resources and dynamic capabilities and adapted to external environment.