Subsidiary Types, Activities, and Location: An Empirical Investigation
Subsidiary Types, Activities, and Location: An Empirical Investigation Subsidiary Types, Activities, and Location: An Empirical Investigation
levels of openness may be that multinationals may opt to export to these country markets andconcentrate production at other locations.There are clear implications of the present results. If firms wish to follow the revealed preferencesof their counterparts, they can use the present results to plan particular types of subsidiaries forparticular economies. They would place “Management and Development” subsidiaries inrelatively large economies, and in relatively open economies. Governments can use the presentresults to understand the types of subsidiaries they are more likely and less likely to attract givenpresent circumstances. This could lead to policy choices to promote investments in one type ofsubsidiary or another. Of the variables that are under the control of government, openness wouldbe one that some governments might choose to examine. Governments that wish to attract highervalue adding subsidiaries, for example, should consider ensuring that their economies arerelatively open. Governments in relatively small economies should recognize that they facechallenges that they may need to overcome through policy measures.CONCLUDING REMARKSThe functions of foreign subsidiaries in the strategies of multinational companies are receivingincreasing attention in the international business literature. The present paper attempts to add tothe growing literature on types of subsidiaries by using a series of activities to build a four-foldtypology using a large international sample. Categorical modeling on the resulting subsidiarytypes shows that firm-based features (such as firm size and nationality) and location-basedfeatures (such as market size and openness) strongly influence subsidiary types.The present paper makes a number of contributions. It develops an empirically derived typologyrather than presuppose the existing of one or another type of typology proposed in literature. Itshows that even relatively simple firm-specific characteristics can influence subsidiary types,27
suggesting that such effects need to be taken into account in research on subsidiary type andinternational strategies. The present paper also goes beyond much of the empirical work in thefield to include the influences of geography by showing the significant influences on host andhome country effects on subsidiary types. The significance impact of these influences calls intoquestion the ability to generalize from studies of the subsidiaries of firms from a single homecountry or in a single host country.Although the present work addresses a much wider range of host and home economies than mostempirical work in the field, the relatively few host economies means that only a limited numberof location-specific variables can be used in the analysis. Future work might entail examination ofa broader range of host economies so a richer set of host economy variables could be employed.Another area for further work would be to use the configurations of subsidiaries found in theregion to obtain insights into the range and types of international strategies found in the region.Still another would be to focus on individual firm activities and the influence of firm-specific andlocation-specific features on activity location. Investigations in the latter two directions arealready underway.Further work may also be undertaken on a sample that includes service multinationals, asincreasingly services become a more significant part of foreign investment. Whether the results ofthis study will hold in that case is something difficult to speculate, as service firm value chainsare more difficult to break down compared to traditional manufacturing firms. This study did notmake any claims as to whether the subsidiaries can act their roles or how they can gain particularroles (such as management and development subsidiaries). It is hoped that these will furtherenhance our understanding of some of the critical attributes of the modern multinational firm.28
- 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
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- 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
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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
- Page 26 and 27: subsidiaries are “Production Base
- 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
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levels of openness may be that multinationals may opt to export to these country markets <strong>and</strong>concentrate production at other locations.There are clear implications of the present results. If firms wish to follow the revealed preferencesof their counterparts, they can use the present results to plan particular types of subsidiaries forparticular economies. They would place “Management <strong>and</strong> Development” subsidiaries inrelatively large economies, <strong>and</strong> in relatively open economies. Governments can use the presentresults to underst<strong>and</strong> the types of subsidiaries they are more likely <strong>and</strong> less likely to attract givenpresent circumstances. This could lead to policy choices to promote investments in one type ofsubsidiary or another. Of the variables that are under the control of government, openness wouldbe one that some governments might choose to examine. Governments that wish to attract highervalue adding subsidiaries, for example, should consider ensuring that their economies arerelatively open. Governments in relatively small economies should recognize that they facechallenges that they may need to overcome through policy measures.CONCLUDING REMARKSThe functions of foreign subsidiaries in the strategies of multinational companies are receivingincreasing attention in the international business literature. The present paper attempts to add tothe growing literature on types of subsidiaries by using a series of activities to build a four-foldtypology using a large international sample. Categorical modeling on the resulting subsidiarytypes shows that firm-based features (such as firm size <strong>and</strong> nationality) <strong>and</strong> location-basedfeatures (such as market size <strong>and</strong> openness) strongly influence subsidiary types.The present paper makes a number of contributions. It develops an empirically derived typologyrather than presuppose the existing of one or another type of typology proposed in literature. Itshows that even relatively simple firm-specific characteristics can influence subsidiary types,27
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