Dual paths to performance: the impact of global pressures on MNC subsidiary conduct and performance

Abstract

Over the last decade, the international business literature has placed ever-greater emphasis on the role that learning and innovation play in determining multinational and multinational subsidiary performance. The present research seeks to understand the organizational paths leading to such desirable outcomes as greater learning, increased innovation and improved performance. Using a model tested with data collected through a survey of managers in subsidiaries of multinational firms, we find dual, independent paths to improved performance – one through networking and inter-unit learning and the other through subsidiary autonomy and innovation. A particular feature of these findings is that they can be shown to be robust after controlling for a wide range of environmental pressures and firm and industry factors. However, in the absence of environmental controls the dual path finding is rejected. These conflicting findings support the imperative to test models that include a diverse range of environmental pressures so that the true effects of organizational factors on learning, innovation and performance can be identified.

Appendix A

Constructs and measures

Conduct constructs

Subsidiary autonomy

Reflective, formed from six reflective components: the autonomy of the business unit in making decisions on product (4 items); price (4 items); place (4 items); promotion (4 items); positioning (3 items); and processes (6 items).

Inter-unit networking

Reflective, formed from six reflective components: the extent of the use of teams, task forces, etc. composed of managers from corporate and regional headquarters and various country subsidiaries for decisions on product (4 items); price (4 items); place (4 items); promotion (4 items); positioning (3 items); and processes (6 items).

Outcome constructs

Inter-unit learning

Reflective, formed from three reflective components:

• 1) Corporate culture. The sharing of goals and values, etc. among subsidiaries and corporate and regional headquarters (4 items).

• 2) Marketing knowledge transfer. Extent of transfer of proprietary and tacit knowledge amongst subsidiaries and corporate and regional headquarters (4 items).

• 3) Strategic information transfer. Extent of transfer of strategic information amongst subsidiaries and corporate and regional headquarters (4 items).

Subsidiary marketing innovation

Reflective, formed from six reflective components: the extent to which the local business unit seeks new ideas for improving its marketing activities for product (4 items), price (4 items), place (4 items), promotion (4 items), positioning (3 items), and processes (6 items).

Subsidiary performance

Reflective, formed from three items, averaged over the last three years, and in comparison with competitors in the local subsidiary market, the performance of the local business unit in:

• 1) Market share

• 2) Sales growth

• 3) Return on investment.

Subsidiary-specific controls

(Single-item measures)

• 1) Parent nationality (Japanese, not Japanese)

• 2) Length of operations in country (years)

• 3) Size of operations in country (number of employees)

• 4) Type of product (durable, non-durable)

• 5) Type of market (consumer or business-to-business)

• 6) Proportion of managers running the subsidiary who are expatriates (percentage)

• 7) Physical distance from headquarters to subsidiary (kilometers)

• 8) Cultural distance between headquarters and subsidiary (see text for explanation)

• 9) Marketing adaptation (see text for details)

• 10) Product adaptation (see text for details)

• 11) Price adaptation (see text for details)

Environmental controls

Measures derived from our sample of managers

• 1) Government influence: Formative index of the extent of local government influence on key decisions (6 items).

• 2) Quality of the local infrastructure: Formative index of the quality of the local infrastructure for marketing, distribution and personnel (5 items).

• 3) Global competition: Formative index of the extent of global competition and the need for coordination (5 items).

• 4) Technological change: Formative index of the rate of technological, product and process innovation in the industry (4 items).

• 5) Resource sharing: Reflective construct, namely the extent to which resources are shared across units of the multinational enterprise (3 items).

  Measures derived from external sources independently of our sample

• 6) Corporate governance (World Bank): Formative index of the extent to which good corporate governance is practiced in the local country (6 items).

• 7) Economic development (World Bank): Formative index of the level of development of the local economy (8 items).

• 8) Local costs of doing business (World Bank): Formative index of various costs of setting up, running, or closing down a business in the country (6 items).

• 9) Legal conditions (World Bank): Formative index of the effectiveness of the legal and regulatory framework in the country (6 items).

• 10) Economic freedom (Heritage Foundation): Formative index of the degree to which the country has economic freedom in the capitalist sense (6 items).

• 11) Other single-item environmental controls (4 items) (World Bank and others):

  • a) Country GDP ($US billions)

  • b) Country population size (millions)

  • c) Country surface area (square kilometers)

  • d) Economic openness (ratio of exports plus imports to GDP, percentage)