Subsidiary Types, Activities, and Location: An Empirical Investigation

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Firm size is often used as a proxy for firm-specific resources (Hood & Young, 1979). As largerfirms are likely to have greater resources with which to penetrate international markets andabsorb the risks and uncertainties involved, firm size might be positively related to the likelihoodthat the firm will expand into international markets. Firm size may then relate as to whether thefirm will be able to undertake investments in particular activities in unfamiliar host economies.Examining the impact of size, Birkinshaw and Morrison (1995) suggest that large firms may havea different propensity for certain types of subsidiaries than small firms even in the same location.In other words, firm size may have an influence as to whether the firm will invest in up-streamactivities such as corporate management, research and development and production as well asdownstream activities such as sales and customer service. In both cases, the size of the firmshould be positively related to the probably of having such investments. This leads to thefollowing hypothesis.• Hypothesis 1: Firm size will be positively related to the likelihood that subsidiaries willbe differentiated in terms of activities and roles within the multinational firm.The process perspective on subsidiary roles, observed earlier, informs that the MNC subsidiaryroles develop as an outcome of past experience in operating in international markets. Firms mayfollow an incremental approach to internationalization as they increase their stock of knowledgeon foreign markets and the assets needed to compete in those markets (Johanson & Vahlne, 1977,1990; Stopford & Wells, 1972) and such incremental internationalization may influence thestrategic posture and realized subsidiary typology of the firms. This leads one to expect that priorinternational experience would likely to have a positive effect on the type of activities andassociated roles of subsidiaries. Higher levels of prior internationalization by the parent shouldthen have a positive effect in greater involvement by the subsidiary in the scope and scale ofactivities undertaken by the subsidiary.11
• Hypothesis 2: Prior experience in internationalization should have a positive influence onthe likelihood that subsidiaries will be differentiated in terms of activities and roleswithin the multinational firm.Past literature has also indicated that the investment behavior of multinationals to vary bynationality of the parent firm. A firm’s ‘administrative heritage’ influences its investment pattern,while nationality itself is a key component of that heritage (Bartlett & Ghoshal, 1989). Severalstudies have found differences in the investment and the management styles among European,North American and Japanese multinationals (Caves, 1999; Egelhoff, 1984; Vernon, 1992; Yip etal., 1997). Thus we would expect firms of different nationalities to exhibit different types ofinvestment behavior. In the present investigation, in which data is drawn from Asia-Pacificsubsidiaries of North American, European, and Japanese firms, we would expect particulardifferences.Japanese firms are distinctive with respect to the Asia-Pacific region is that they have a homebase in the Asia-Pacific region. Given the fact that Japan is geographically and culturally closer toother Asian economies that are firms from Western countries, we would expect that Japanesefirms might find it easier to set up and manage information intensive, knowledge-creatingactivities such as R&D than their foreign counterparts. On the other hand, we would expect thatactivities such as sales and service, which often are less difficult to transfer, would not necessarilydiffer from those of Western firms. We are left with the following hypotheses.• Hypothesis 3a: Firm nationality will have a significant influence on subsidiary types.• Hypothesis 3b: Japanese firms are more likely to have high knowledge creation, lowknowledge utilization subsidiaries than their Western counterparts.12
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Page 14 and 15: Location-Specific FactorsA number o
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Page 20 and 21: METHODS AND RESULTSThe results repo
Page 22 and 23: model with multiple response levels
Page 24 and 25: A restricted maximum likelihood est
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Page 28 and 29: levels of openness may be that mult
Page 30 and 31: ReferencesAgarwal, S., & Ramaswami,
Page 32 and 33: Enright, M. J. 2005a. Regional mana
Page 34 and 35: Johanson, J., & Vahlne, J-E. 1977.
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Page 38 and 39: Table 1. Empirical Studies of Subsi
Page 40 and 41: Table 2. Cluster StatisticsVariable

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