Enhancing worldwide learning and global integration
Subsidiaries are increasingly portrayed as important knowledge-creators who play an active role in the firm, developing new technologies and product offerings for global use. Hence, these units are strategically important, serving as vehicles to enter international markets and increase the firm’s knowledge portfolio often through their entrepreneurial undertakings. However, prior research has not fully captured the reality of such entrepreneurial activities, merely capturing the extent to which some individual conditions matter or how strongly they may be related to the corporate headquarters’ approval.
Our fieldwork indicates that managers often convey that their decisions on initiative acceptance, for instance, are seldom based on single factors. Instead, managers configure relevant dimensions—sometimes internal and other times external to the firm—to inform their decision-making. To understand these possible situations, namely how initiatives could manifest, gain traction in the firm, and receive headquarters approval, we adopted a novel empirical technique to tease out these processes. We incorporate key relational elements, such as headquarters attention, subsidiary track-record, decision-making autonomy, and subsidiary-level contextual characteristics of distance to headquarters and its establishment mode.
Managers configure relevant dimensions—sometimes internal and other times external to the firm—to inform their decision-making.
Published in the Journal of International Management, our study investigates business opportunities identified by the subsidiary that seeks to change, expand, or renew the operations of the multinational firm. We explicitly focus on entrepreneurial activities that exceed the local subsidiary market or affect the firm and its sister units more broadly. We show that while increased headquarters attention is often an important mechanism that may put the subsidiary on the corporate agenda, it may neither be necessary nor sufficient to accept new entrepreneurial pursuits from subsidiaries.
Combining structural and relational attributes
Using fsQCA we highlight five pathways to subsidiary initiative acceptance. These pathways provide insights for practitioners by offering different ways of ‘configuring’ subsidiaries to benefit most from their entrepreneurial activities. More specifically, we find that acquiring high-performing foreign subsidiaries may be a way to leverage key local competencies that would be too costly to obtain from the ground up. Our results also indicate that a strong track-record of prior performance is a strong signal of the initiative quality, driving headquarters likely endorsement initiatives from these units. At the same time, however, for more proximally located subsidiaries, such as a German subsidiary of a Dutch multinational firms, the headquarter may more easily provide attention and allocate autonomy to enable entrepreneurial activities. The broader implication is that reducing information asymmetry may be achieved in several ways, and the headquarters’ proximity to its subsidiaries is a critical determinant in these configurations. We encourage headquarters to balance the cost and benefits of deploying different structural arrangements, such that paying attention to some units may be beneficial while fostering autonomy may similarly unlock entrepreneurial activities.
The broader implication is that reducing information asymmetry may be achieved in several ways, and the headquarters’ proximity to its subsidiaries is a critical determinant in these configurations.
We are excited about this paper because it offers a novel view of a core issue within large, multinational firms. We provide implications at the intersection of theory and practice by highlighting the context-dependent and interrelated nature of core conditions within the firm.