Subsidiary Types, Activities, and Location: An Empirical Investigation

More documents

Recommendations

Info

subsidiaries are “Production Bases”, which seems to be in line with expectations given the lowcost base offered by the region and the huge amounts of FDI into these regions by multinationals.Further, the relatively low number of “Management and Development” subsidiaries may also beexpected as the strategy setting and activities such as R&D may be located at other locations,including the firm’s headquarters.The categorical modeling results indicate that firms of different size have different requirementsof their subsidiaries. In particular, larger firms are more likely to have subsidiaries that span theseveral activities. This implies that larger firms in a sense distribute their important activitiesmore broadly than smaller firms, which by implication retain the more important up-streamactivities such as corporate support, management and R&D at home, or at least in other regionsthan the Asia-Pacific.The lack of significant results for the international experience of the firm (except that of“Production Bases” which has a small negative impact) and the number of subsidiaries a firm hasin the Asia-Pacific region is surprising. One might expect that firms with different levels ofinternational experience would have different profiles across their subsidiaries. Similarly, onemight expect that firms with more subsidiaries in the Asia-Pacific might place their activities inthe region differently from firms with only a few subsidiaries in the region. One reason for theseresults might be insufficient variance in the two explanatory variables. The mean of theinternational experience variable in the sample is 3.36 out of a possible 4.00. In other words, themethod of identifying multinational firms for the analysis (directories of Chambers of Commerceand similar Corporate Directories) tended to identify firms with a great deal of internationalexperience. Similarly, the mean number of subsidiaries a firm had in the region was 10.05 out ofa possible 12, indicating that the vast majority of firms in the sample had subsidiaries in all ornearly all of the economies in the region. Thus even with a large number of firms, there may not25
have been enough variation to generate a significant impact. On the other hand, it could be thatthere is no significant impact of these two variables and that international experience does notinfluence subsidiary type.The nationality results support the notion that firms from different countries will exhibit differentbehavior in their international operations. They suggest that activities such as R&D are easier toset up and maintain in foreign markets that are closer geographically and culturally than in moredistant markets. Experience in the region also may be an issue. While many European firms havelong experience in the Asia-Pacific, interviews of managers in the region suggest that NorthAmerican firms have a longer and more extensive history in the Asia-Pacific than the Europeanfirms. Although it was not possible to capture this history in the survey instrument, the interviewresults suggest that the comparative absence of “Management and Development” subsidiariesamong the European firms when compared to North American firms, could be due to this history.Further, risk taking may also differ in different national cultures and firms from certain culturesmay be more risk averse than others.The results for market size indicate that larger markets attract a higher proportion of subsidiarieswith roles such as “Management and Development” subsidiaries as well as “Full Functional”subsidiaries, while less likely for a production base. A large market is probably a proxy for thelevel and diversity of skills available that is necessary for the latter type of subsidiary, while alarge market may also allow the multinational to locate the entire range of functions at thisparticular subsidiary. This may be because large markets may also be developed markets andhence manufacturing facilities may face a cost disadvantage. The results for openness wouldsuggest that an economy’s overall openness has a strong influence on its ability to attract“Management and Development” subsidiaries. But the downside for countries that have high26
Page 1: Academy of International BusinessBe
Page 4 and 5: that the suggested strategy types w
Page 6 and 7: effect, what this process literatur
Page 8 and 9: theory building, suffer from some w
Page 10 and 11: identifies several factors that mig
Page 12 and 13: Firm size is often used as a proxy
Page 14 and 15: Location-Specific FactorsA number o
Page 16 and 17: • Hypothesis 7: The level of the
Page 18 and 19: manufacturing firms, were extracted
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
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.
Page 36 and 37: shops and networks. Strategic Manag
Page 38 and 39: Table 1. Empirical Studies of Subsi
Page 40 and 41: Table 2. Cluster StatisticsVariable

Subsidiary Types, Activities, and Location: An Empirical Investigation

Create successful ePaper yourself

Delete template?

Save as template?