Subsidiary Embeddedness and Control in the Multinational Corporation

Department of Business Studies, Uppsala University, Box 513, S-751 20 Uppsala, Sweden
International Business Review (Impact Factor: 1.51). 10/1996; 5(5):487-508. DOI: 10.1016/0969-5931(96)00023-6


A subsidiary of a multinational corporation (MNC) is embedded in a network of specific business relationships. It is argued that the degree of subsidiary embeddedness is a function of the adaptation between the subsidiary and direct and indirect counterparts of these relationships. The paper hypothesizes that the higher the degree of embeddedness, the greater the likelihood of counterparts influencing the subsidiary's behaviour. This influence competes with headquarter's desire to exercise control to integrate the subsidiary into the overall corporate strategy.The empirical data presented, collected from 78 subsidiaries of major Swedish MNCs, indicate that embeddedness has an impact on how headquarter's control is perceived by the subsidiary, if embeddedness is separated into external and corporate embeddedness. The test provides support for the opinion that the higher the degree of embeddedness vis-à-vis external customers, suppliers and other counterparts, the lower the degree of headquarters' control, as perceived by the subsidiary. But it also lends support for the view that embeddedness vis-à-vis corporate counterparts works in the opposite direction; it rather tends to increase the control perceived at the subsidiary level. These results indicate that competition for influence over the subsidiaries' behaviour, as seen from the headquarter's point of view, arises primarily from external actors who have business specific relationships with the subsidiary.

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    • "Yet, it is known that the relationships between firms are principally based on trust (Andrews and Delahay, 2000) and mutual adaptation (Andersson and Forsgren, 1996). If one of these two terms is violated, cooperation and knowledge sharing between firms can be harmed. "
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    ABSTRACT: This study investigates the relationship between subsidiary’s external knowledge sourcing in the host network of operation and innovative performance, and the moderating role of i) alternative sources of knowledge (those related to the internal and external home knowledge network) and ii) Intellectual Property Rights (IPR) distance between the host and the home location of the Multinational Enterprise (MNE). Based on a dataset comprised of 170 R&D subsidiaries (classified by 57 parent companies and 23 host countries) it is shown that a curvilinear (inverted U-shaped) relationship exists between external host knowledge sourcing and innovative performance. In terms of the moderating effects, the findings reveal that the influence of alternative sources of knowledge affects the aforementioned relationship in a negative way. Finally, a stronger IPR protection regime in the host location weakens, rather than strengthens the relationship between external host knowledge sourcing and innovative performance.
    International Journal of Innovation Management 01/2016;
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    • "Second, prior research suggests that MNEs use a wide range of mechanisms to control their foreign subsidiaries (e.g., Andersson and Forsgren, 1996; Gaur et al., 2007; Ghoshal and Nohria, 1989; Gong, 2003; Peng, 2012; Yu et al., 2006), and that the control of a foreign subsidiary is a complex multidimensional phenomenon (Jaussaud and Schaaper, 2006; Martinez and Jarillo, 1989). This study adds to the literature by providing evidence that the subsidiary board can be a control mechanism available to MNEs for managing their foreign subsidiaries. "
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    ABSTRACT: In recent years, shareholders, regulators, and academics have become increasingly interested in how multinational enterprises (MNEs) can ensure sound corporate governance throughout all entities within a firm. One important mechanism available to MNEs for improving their global governance is the subsidiary board of directors. However, to date scant academic research has focused on the roles of subsidiary boards and the factors that influence their involvement in different roles. Using survey data from a sample of MNE subsidiaries operating in Belgium with headquarters in 14 different countries, we find that a subsidiary board performs four roles: control, strategy, coordination, and service. Further, a subsidiary board is more involved in control, strategy, and service roles if the subsidiary operates only in the local market, independently from the headquarters (the local implementer subsidiary). In particular, the board of the local implementer subsidiary is more involved in strategy and coordination roles when more directors are headquarters country nationals. Our findings collectively suggest that the subsidiary board facilitates a subsidiary's pursuit of its strategic objective and helps to manage the headquarters–subsidiary agency problem. Moreover, subsidiary directors' characteristics influence the subsidiary board's ability to perform its roles.
    Journal of International Management 09/2015; 21(3). DOI:10.1016/j.intman.2015.05.001 · 1.70 Impact Factor
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    • "The imperative of organisational control is heightened when companies expand into unfamiliar foreign markets. These companies must coordinate and streamline operations between their home countries and foreign operations, and they must control dispersed activities to meet organisational objectives (Andersson & Forsgren, 1996; Langfield-Smith, 1997). Zaheer (1995) notes that the administrative challenges of international expansion can be particularly acute for entrepreneurial firms that deem formal control systems to be important and valuable. "
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    ABSTRACT: The question of whether management control systems (MCSs) adopted by start-up companies are valuable is examined. We investigate an international sample of start-ups, including their detailed MCS adoptions and financing histories. We find that higher MCS intensity, which is measured as the number of systems adopted at year-end immediately prior to the financing round, has a positive impact on company value. We also find that equity financiers value MCS more than do debt financiers. The valuation implication is more pronounced for start-up companies operating in highly competitive environments and with higher growth. We also document a positive relation between change in MCS intensity and change in firm value. Additional analyses show that higher company valuation is found for companies that align their MCS choices with their strategic positioning. In particular, systems that implement strategy are perceived to be more important and valuable than others. Overall, our paper provides new evidence for the debate concerning the merits of formal control in start-up companies.
    European Accounting Review 04/2015; 24(2). DOI:10.1080/09638180.2014.965720 · 1.15 Impact Factor
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