Emerging threats for MNC subsidiaries and the cycle of decline

Emerging threats for MNC subsidiaries and the cycle of decline Purpose – Subsidiary units have traditionally feared relocation of their activities to lower‐cost locations. The authors identify other emerging threats which are changing how multinational corporations (MNCs) manage their subsidiary units, and develop a cycle of subsidiary decline demonstrating how these threats can undermine a subsidiary's position within the MNC. Design/methodology/approach – The paper presents the results of a survey targeted at over 1,100 subsidiary CEOs of MNCs located in Ireland, a program of in‐depth interviews of 24 subsidiary CEOs/directors, and a review of the literature relating to MNC and subsidiary management, are combined to identify emerging threats to subsidiary activities. Findings – The main threats to subsidiaries' efforts to enhance their role within the MNC comprise: erosion of barriers to trade; growing complexities in corporate governance; and increasingly sophisticated information and communication technology (ICT) capabilities. These threats are enabling the disaggregation of value chains and increased headquarters monitoring and control. This shift in how subsidiaries are managed is leading to a cycle of subsidiary decline. Research limitations/implications – the results from the survey are subject to the standard limitations and a larger pool of interviewees may have reinforced the qualitative findings. Practical implications – To increase subsidiary managers' awareness of the need for a strategic response, the authors develop a cycle of subsidiary decline which illustrates how these emerging threats combine to undermine a subsidiary's position within the MNC. Disaggregating value chains and tighter headquarters control can reduce subsidiary bargaining power constraining its abilities to challenge for resources, in turn restraining its combinative capabilities and leading to a decline in its position and contribution to the MNC. Originality/value – This paper is the first to build a framework illustrating how emerging threats in the external environment may impact the ability of subsidiary units to maintain and develop their position within the MNC. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Business Strategy Emerald Publishing

Emerging threats for MNC subsidiaries and the cycle of decline

Journal of Business Strategy, Volume 32 (1): 8 – Jan 4, 2011

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
0275-6668
DOI
10.1108/02756661111100300
Publisher site
See Article on Publisher Site

Abstract

Purpose – Subsidiary units have traditionally feared relocation of their activities to lower‐cost locations. The authors identify other emerging threats which are changing how multinational corporations (MNCs) manage their subsidiary units, and develop a cycle of subsidiary decline demonstrating how these threats can undermine a subsidiary's position within the MNC. Design/methodology/approach – The paper presents the results of a survey targeted at over 1,100 subsidiary CEOs of MNCs located in Ireland, a program of in‐depth interviews of 24 subsidiary CEOs/directors, and a review of the literature relating to MNC and subsidiary management, are combined to identify emerging threats to subsidiary activities. Findings – The main threats to subsidiaries' efforts to enhance their role within the MNC comprise: erosion of barriers to trade; growing complexities in corporate governance; and increasingly sophisticated information and communication technology (ICT) capabilities. These threats are enabling the disaggregation of value chains and increased headquarters monitoring and control. This shift in how subsidiaries are managed is leading to a cycle of subsidiary decline. Research limitations/implications – the results from the survey are subject to the standard limitations and a larger pool of interviewees may have reinforced the qualitative findings. Practical implications – To increase subsidiary managers' awareness of the need for a strategic response, the authors develop a cycle of subsidiary decline which illustrates how these emerging threats combine to undermine a subsidiary's position within the MNC. Disaggregating value chains and tighter headquarters control can reduce subsidiary bargaining power constraining its abilities to challenge for resources, in turn restraining its combinative capabilities and leading to a decline in its position and contribution to the MNC. Originality/value – This paper is the first to build a framework illustrating how emerging threats in the external environment may impact the ability of subsidiary units to maintain and develop their position within the MNC.

Journal

Journal of Business StrategyEmerald Publishing

Published: Jan 4, 2011

Keywords: Multinational companies; Subsidiaries; Value chain; Resources; Innovation

References

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