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Market-seeking MNEs in an emerging market: How parent–subsidiary links shape overseas success

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Abstract

This study extends research on parent–subsidiary links, applying new theoretical perspectives – those of resource dependence and dynamic capability – to the new empirical setting of an emerging market. We suggest that parent–subsidiary links help to mitigate emerging market threats by reducing external dependence, and help to capitalize on emerging market opportunities by enhancing local responsiveness.

We identify four dimensions (resource commitment, information flow, local responsiveness and control flexibility) to parent–subsidiary links, and examine environmental effects in moderating the contribution of these dimensions. The analysis of 196 Multi National Enterprise (MNE) subsidiaries in China shows that a parent firm's control flexibility, resource commitment and local responsiveness exert a strong and positive influences on subsidiary performance. These influences are weaker when regulatory interference is higher, but stronger when industrial opportunity is richer.

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Notes

  1. The term ‘control flexibility’ overlaps in large part with the concept of centralization used in the parent–subsidiary link literature (e.g., Gates and Egelhoff, 1986; Egelhoff, 1982,1991; Stopford and Wells, 1972). We used this term as we focused on the flexibility aspect of parent control. Since this study did not emphasize detailed insights into how overseas decisions are jointly made by parent and subsidiary managers, we did not label it as centralization.

  2. This study focused on manufacturing subsidiaries and did not include sales sub-units (which would maintain a much higher sales/asset ratio than the former). Sales/asset ratio was used because we emphasized local market-seeking MNEs and intended to control the size effect in sales performance. Research on market-seeking MNEs widely agrees that sales efficiency in the utilization of deployed assets is one of the major performance targets underlying international expansion (Doz and Prahalad, 1984; Dunning, 1995; Michel and Shaked, 1986).

  3. In measuring the information flow construct, we converted the number of email/phone/fax exchanges into a 5-point scale (1 if <1, 2 if between 1–3, 3 if between 3–5, 4 if between 5–7, 5 if >7) to integrate with two other subjective items.

  4. Two referees suggested that the wording may not lead to clear measurements because it is likely to be value-laden. However we believe that this negative expression approach (scores inverted in the analysis) is appropriate. First, we found in our pre-survey field study that most subsidiaries we visited were surprisingly disappointed with parent support, commitment and responsiveness. Second, our pilot test at the design stage found that this approach made respondents more careful in reading question items, thus probably providing more accurate responses.

  5. To mitigate the possibility of socially desirable responses, we left all respondents unidentified. During the survey, we also interviewed 18 senior managers from nine sample subsidiaries, asking them about parent's resource commitment, local responsiveness, information flow and control flexibility. The results demonstrated a high consistency between the two interviewees from each firm (Guttman R>0.83).

  6. To cast further light on the validity of findings regarding local responsiveness and control flexibility, we conducted covariance structure analysis using a structural equation modeling technique. The path loadings of the four question items in relation to a parent's overall adaptation (a 5-point scale item in the questionnaire) were significant at the 0.001 level (Bentler's comparative fit index: 0.95). The path loadings of the four items in relation to a parent's overall control flexibility were also significant at the 0.001 level (Bentler's comparative fit index: 0.92).

  7. The causality of resource commitment, local responsiveness and control flexibility in relation to performance may be a two-way link. To examine how such variables influence performance, the temporal structure in our research design was commitment/responsiveness/control over the past 3 years, measured against today's performance. To examine whether and how superior performers receive stronger resource commitment, or perceive greater levels of responsiveness flexibility from parent firms (another possibility), future research should explore how past performance is associated with current resource commitment, responsiveness or flexibility.

  8. When the interaction terms are included, some original effects decline (Model 4b). Generally, this decline does not impact on the determination of a moderating effect (Aiken and West, 1991). To further check all proposed moderating effects, we performed a plot analysis for each moderator based on regression results (Models 3–5). The plot graphs showed the same results as we interpreted from the interaction terms.

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Acknowledgements

I thank three anonymous reviewers for their thoughtful inputs.

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Authors and Affiliations

  1. Department of Management, School of Business Administration, University of Miami, Miami, 33124, FL, USA

    Y Luo

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Correspondence to Y Luo.

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Accepted by Tom Brewer; outgoing Editor, 4 October 2002.

Appendix A

Appendix A

Table A1

Table a1 Question items concerning parent-subsidiary links
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Luo, Y. Market-seeking MNEs in an emerging market: How parent–subsidiary links shape overseas success. J Int Bus Stud 34, 290–309 (2003). https://doi.org/10.1057/palgrave.jibs.8400027

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