Subsidiary entrepreneurship, internal and external competitive forces, and subsidiary performance

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Abstract

The Multinational Subsidiary is conceptualized as a semi-autonomous entity with entrepreneurial potential, within a complex competitive arena, consisting of an internal environment of other subsidiaries, internal customers and suppliers, and an external environment consisting of customers, suppliers and competitors. The relative strength of these competitive environments shapes the subsidiary's options; and it is then up to subsidiary manager to take the initiative to respond to the threats and opportunities to secure the subsidiary's performance. The paper, therefore, emphasizes the interplay between subsidiary entrepreneurship and the subsidiary's competitive environment—it shows how certain subsidiary attributes emerge as a function of these factors, and how they ultimately affect the performance of the subsidiary. Specific hypotheses are developed and tested on 24 Multinational Subsidiaries in Scotland.

Section snippets

Background

The field of competitive strategy is largely defined by the work of Michael Porter (1980, 1990). In his 1980 book, Porter showed how the inherent attractiveness of a given industry was a function not only of the behaviour of players in that industry, but also of the relative bargaining power of the adjacent industries (those from which it bought and those to which it sold), the potential threat of new entrants to that industry, and the potential threat of substitute products. Stated slightly

Theoretical development

Let us now take Porter's theory of competitive strategy and apply it to the subsidiary company. Clearly some changes need to be made, because the subsidiary only represents part of the MNC so it is meaningless to talk about competitive advantage per se. However, it is still possible to think of the subsidiary as a semi-autonomous entity that achieves competitiveness to a greater or lesser degree as a function of the environment in which it is located. And as noted earlier, the environment in

Hypotheses

Although this entrepreneurship perspective on the MNC subsidiary is rather different to the approach taken in much of the international business literature on subsidiaries, a number of the concepts derived from this literature are useful and are applied here. Considerable attention has, for example, been given to the roles/strategies of subsidiaries and particularly to the contrasts between implementer and rationalized subsidiary types, and the high contributory role subsidiaries (Birkinshaw et

Research methods

The research reported in this paper was part of a major policy-oriented evaluation of the quantitative and qualitative economic benefits provided by inward foreign direct investment to the Scottish economy.2

Findings

As with all case-study based research, the analysis began during the interviews as we started to make sense of the insights offered by the subsidiary executives. Once the data had all been collected it was possible to move to a more systematic process of analysis, and it was at this stage that we developed the framework shown in Fig. 1. Once this had been developed, we were in a position to focus our attention on the elements of the subsidiary's competitive arena, and to classify each

Discussion and conclusions

This research was exploratory in nature and as always with case-based research it opens up as many new questions as it answers. However, it is worth making a number of final comments, both in terms of the key insights gained from the research and in terms of its implications and limitations.

A key issue to consider further is the process of evolution that these subsidiaries have gone through. While the initial framing suggested that the competitive environment would affect the entrepreneurial

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