Entrepreneurship in the Multinational
Subsidiary
Stephen Young
Strathclyde International Business Unit
Strathclyde Business School
5th May 2004
1
The Development of Research on the
Multinational Subsidiary
Managing the Multinational
• Headquarters-subsidiary relationships; centralization and
decentralization
• Strategy-structure; multinational integration and responsiveness
• Networks and embeddedness
Managing the Multinational Subsidiary
• Subsidiary roles / strategies
• Subsidiary mandates
• Developing subsidiary roles / strategies
Economic Development and Host Country Policy
2
Organising Framework for Subsidiary
Development
Parent company influences
Head Office Assignment
Decision made by head office
managers regarding the
allocation of roles/activities to
the subsidiary
Internal influences
Subsidiary Choice
Decisions by subsidiary
managers regarding the
roles/activities undertaken by
the subsidiary
Host company influences
Subsidiary’s Role
Measured in terms of
the specific
business, or
elements of the
business, which the
subsidiary
undertakes and for
which it has
responsibility
Subsidiary
Development
Local Environment
Determination
Influence of environmental
factors on decisions taken by
head office and/or subsidiary
managers regarding the
roles/activities undertaken by
subsidiary
3
Multinational Subsidiary Development –
Conceptual Basis
Three Perspectives
1. Head Office Assignment
–
Conceptual basis
•
Product life cycle model
•
Internationalisation process
–
Position in value added chain
2. Local Environment Determinism
–
Conceptual basis
•
Stages of economic growth
•
National competitive advantage
3. Subsidiary Choice
–
Conceptual basis
•
Network model of the MNC
•
Decision processes in complex organisations
–
Range of subsidiary types
•
Miniature replicas  world product mandates
4. Subsidiary Development
–
Conceptual basis
•
As above plus RBV and dynamic capabilities perspectives
4
Definition of International
Entrepreneurship
International entrepreneurship is a combination
of innovative, proactive and risk-seeking
behaviour that crosses national borders and is
intended to create value in organizations
(McDougall and Oviatt, 2000).
5
Research Pertaining to Subsidiary
Entrepreneurship
• Subsidiary initiative: a form of corporate entrepreneurship
involving:
– Proactive and risk-taking behaviour
– Use of resources beyond the control of the subsidiary
– Acquisition and use of power and influence
• Antecedents of an entrepreneurial orientation:
– Autonomy and motivation
– Role of entrepreneurial subsidiary executives
– Constructiveness of parent-subsidiary relationships
6
Research Pertaining to Subsidiary
Entrepreneurship (cont’d)
• Entrepreneurship versus intrapreneurship in
international business
– Different risk-taking behaviour
– Embeddedness in different institutional
environments and resources
• How to unleash innovation in foreign subsidiaries
– Give seed money to subsidiaries
– Use formal requests for proposals
– Encourage subsidiaries to be innovative
– Build international networks.
7
Subsidiary Entrepreneurship: Internal and
External Competitive Forces and Subsidiary
Performance
(Birkinshaw, Hood and Young,
International Business Review
forthcoming 2004)
• To explore the influence of the subsidiary’s
competitive arena on subsidiary entrepreneurship
and subsidiary performance
• Subsidiary’s competitive arenas:
– External competitive arena – external customers,
suppliers, competitors
– Internal competitive arena – customers, suppliers,
competitors within the MNE
8
Internal and External Competitive Arenas
High
Competitiveness
of
external arena
3. Externallyfocused
competitive
environment
(6)
4. Dual-focus
competitive
environment
(6)
1. Benign
environment
(0)
2. Internallyfocused
competitive
environment
(12)
Low
Low
Competitiveness
of internal arena
High
9
Hypotheses
Hypothesis 1: The more focused the subsidiary is on its
external competitive arena (compared to
its internal arena), the greater the degree
of entrepreneurship (proxied by measures
of autonomy, value-adding scope and
level of upgrading).
Hypothesis 2: The more focused the subsidiary is on its
external competitive arena, the higher its
performance.
10
Research Methodology
• Qualitative research material based on case-study
methodology.
• 24 subsidiary companies in manufacturing in
Scotland.
• 2-7 interviews in each subsidiary: interview time 5-8
hours. Plus interviews with key suppliers and
development partners, and reviews of case files held
by public sector bodies.
• Variables for internal and external environment
derived from assessment of quantitative data on
suppliers, customers and competitors; dependent
variables based on scales derived from prior
subsidiary research.
11
Results
• Support for Hypothesis 1
Subsidiaries with internally-focused competitive
environments rate substantially lower than other
two groups on measures of entrepreneurial
characteristics.
• Moderate support for Hypothesis 2
Subsidiaries with internally-focused competitive
environments have somewhat lower levels of
performance.
12
Implications and Limitations
• Issue of causality e.g. subsidiary may develop
autonomy leading to relationships with suppliers and
customers.
• Relationships between subsidiary and its internal and
external networks may be both competitive and
collaborative.
• Need to develop more holistic conceptualization and
measurement of MNE subsidiary entrepreneurship.
• Sample size and data limitations; also focus on
manufacturing subsidiaries.
13
Multinational Subsidiary Entrepreneurship
and Performance Associations in the UK:
Contingency and Configurational Effects
(ESRC-funded: Dimitratos, Young & Hood)
Research Objectives
• Which are the constituents of entrepreneurship in foreign-owned
subsidiaries?
• How does subsidiary entrepreneurship affect its performance?
In particular:
– To what extent is the subsidiary entrepreneurshipperformance association influenced by host country
environmental variables?
– To what extent is this association influenced by variables
linked to the organisational context of the subsidiary?
– To what extent is this association influenced by combinations
of the two variable sets (‘host country environmental context’
and ‘organisational context of the subsidiary’)?
14
Conceptual Model of the Research
Host Country (UK) environmental context
 Munificence
 Uncertainty
 Institutional profile
Subsidiary entrepreneurial competencies
 Innovation propensity
 Risk attitude
 Market orientation
 Learning orientation
 Networking orientation
 Motivation
Subsidiary performance in host country
 Micro / organisation-related
• Sales change and market share change
• Perceived mgt satisfaction relative to own/
headquarters’ expectations and to
competitors
 Macro / host country-related
• Perception of knowledge spillovers, mgt
know-how transfer and company spinout
Organisational context of the subsidiary
 Subsidiary management characteristics
 Subsidiary role
 Subsidiary autonomy
 Subsidiary credibility
 Headquarters-subsidiary communication
15