#6 Subsidiaries

Question 1

What are the 4 subsidiary roles?

Answer 1

Categorizes subsidiary roles in 2x2 matrix with “importance of local market” and “competence of the subsidiary” being either high or low.

Types:
	• Implementer (low competence, low importance) - Simply earn money in the market
	• Black Hole (low competence, high importance) - Being acceptable if in order to "learn" or "grow"
	• Contributor (high competence, low importance) - Use the subsidiary's skills in the entire company
Strategic Leader (high competence, high importance) - Not just implement, but develop corporate strategy

Question 2

Value of competencies of upstream vs. downstream subsidiaries for the organization (C6).

Answer 2

Upstream competence is often more “universal” and transferable. Subsidiaries with upstream activities are therefore often more valued.
Downstream competence is often highly contextualized. Subsidiaries with downstream activities are therefore often less valued.

Question 3

What are some reasons why a subsidiary may act to the benefit of its host country?

Answer 3

• Its customers require it to do so
• It is legally obligated to do so by the laws of its host country
• The subsidiary has specific resources and capabilities

Question 4

Explain hierarchy

Answer 4

Hierarchy:
“Do things right”
- Critical resources are at the top
	• HQ: strategic decisions
	• Divisions: operational decisions
- Decrease transactions costs, e.g. by less lateral communication

Question 5

Explain heterarchy

Answer 5

Heterarchy:
“Do the right things”
- Dispersion of resources, managerial capabilities and decision-making throughout the organization
• Control is norm-based, not calculative
- Lateral relationships exist between subsidiaries
Coordination of activities along multiple dimensions, such as geography, product and function - often matrix structure

Question 6

Subsidiary autonomy

Answer 6

The degree to which the foreign subsidiary of the MNC has decision-making authority.

Question 7

Benefits and downsides of subsidiary autonomy

Answer 7

Downside: Empire Building
Upside: Avoiding foregoing good investment projects

Question 8

Strategic vs. operational autonomy

Answer 8

Operational autonomy refers to autonomy of the day-to-day activities of the subsidiary, while strategic autonomy refers to high-level decisions on the direction of the business.

Question 9

Which subsidiary roles need which types of autonomy

Answer 9

All subsidiaries have operational autonomy to the same degree, but the degree of strategic autonomy differ between role of subsidiary. World mandate has most strategic autonomy, and contributor should in some cases has second most. Implementer’s have the least.

Question 10

Network view of the company

Answer 10

• Management of a network of subsidiaries, which are
  • Diverse, multi-cultural
  • Have different goals
  Competitive advantage from scope advantages of such network

Question 11

Relationship between company and environment in “traditional” and “network” view

Answer 11

“traditional”:

• “Clear separation between the organization and its evironment (suppliers, regulators, etc.)
• Organizational is internally homogenous, coherent, consistent
• Environment is exogenous

Network views of the MNC:

• Parts of the company (especially subsidiaries) are enmeshed in the evironment
• The company depends on the environment for its survival
• MNC’s structure and configuration of resources is affected by the environment

Question 12

Resource dependency theory

Answer 12

“Resource dependence theory(RDT) is the study of how the external resources of organizations affect the behavior of the organization.”

Question 13

Characterize a resource-dependency situation:

Answer 13

When MNE subsidiaries rely on irreplaceable resources controlled by local possessors.
MNEs depend not only on physical and infrastructure resources, but also on market knowledge for local operations.
Dependency of those resources can turn into power of the possessor and lead to the MNE being exposed to local uncertainty,

Question 14

How does a Resource Dependence Situation shape a parent-subsidiary relationship?

Answer 14

Since subsidiaries can reduce dependency on local resources by increased access to parent resources,ressource-dependency imposes requirements for parent to:

1. commit ressources to reduce dependency
2. for a higher degree of local responsiveness and flexibility for the resources to be used in an effective way.

Question 15

What is local responsiveness?

Answer 15

Extent to which parent managers understand, respond and adapt to host country conditions, so that their decisions and policies pertaining to foreign subsidiaries are geared to the unique parameters of the local environment.

Question 16

What is control flexibility?

Answer 16

Extent to which a parent firm’s control over subsidiaries are flexible.

Question 17

How can local responsiveness and control flexibility alleviate resource dependency?

Answer 17

Because resources will generate stronger competitive advantage when they are applied through a proper configuration with market opportunities and threats. Local initaitives can provide winning opportunities. Both has proved significantly correlated with ROI and sales per asset.