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MNCs as dispersed structures of power: Performance and management implications of power distribution in the subsidiary portfolio

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Abstract

Multinational corporations (MNCs) are considered as dispersed structures of power, in which diverse headquarters (HQ)–subsidiary power relationships collectively influence performance and management. Yet, few studies have accounted for the subsidiary portfolio characteristics shaped by the entire set of differentiated HQ–subsidiary power relationships, and little is known about their effect on the performance and management decisions of MNCs. Drawing on agency and resource dependence theories, this study investigates how the power structure of the MNC, or the pattern of power distribution in the subsidiary portfolio, affects MNC performance and expatriate utilization. Results from a comprehensive panel of Korean MNCs show that the degree of power concentration in the subsidiary portfolio has inverted U-shaped relationships with MNC performance and the use of expatriate control. However, the results also reveal that these relationships vary between manufacturing and downstream subsidiary portfolios. These findings suggest that the structural characteristics of the subsidiary portfolio are important determinants of MNC performance and management. This study opens an important new avenue for international business scholarship by explicitly conceptualizing the MNC as a portfolio of differentiated subsidiaries and by examining the consequences of the subsidiary portfolio characteristics.

Résumé

Les entreprises multinationales (Multinational corporations - MNCs) sont considérées comme des structures de pouvoir dispersées, dans lesquelles diverses relations de pouvoir entre le siège social et les filiales influencent collectivement la performance et la gestion. Peu de recherches ont pourtant pris en compte les caractéristiques du portefeuille de filiales façonnées par l'ensemble des relations de pouvoir différenciées entre le siège et les filiales, et on sait peu de choses sur leur impact sur la performance et les décisions managériales des MNCs. S'appuyant sur les théories de l’agence et de la dépendance des ressources, cette recherche examine comment la structure du pouvoir de la MNC, ou la configuration de la distribution du pouvoir dans le portefeuille de filiales, influe sur sa performance et son utilisation des expatriés. Les résultats d'un panel complet de MNCs coréennes montrent que le degré de concentration du pouvoir dans le portefeuille de filiales entretient les relations en forme d’U inversée avec la performance des MNCs et l'utilisation du contrôle des expatriés. Néanmoins, les résultats révèlent également que ces relations varient entre les portefeuilles de production et de filiales en aval. Ces résultats suggèrent que les caractéristiques structurelles du portefeuille de filiales sont les déterminants importants de la performance et de la gestion des MNCs. Cette recherche ouvre une nouvelle voie importante pour la recherche en affaires internationales en conceptualisant explicitement la MNC comme un portefeuille de filiales différenciées et en examinant les conséquences des caractéristiques du portefeuille de filiales.

Resumen

Las compañías multinacionales (MNCs por sus siglas en inglés) son consideradas como estructuras dispersas de poder, en las cuales las diversas relaciones de poder entre las casas matrices (HQ por sus siglas en inglés) y las filiales influyen colectivamente el desempeño y la gestión. Sin embargo, pocos estudios han tenido en cuenta las características de la cartera de la filial que es determinada por el conjunto entero de relaciones de poder diferenciadas entre la casa matriz y la filial, y poco se sabe sobre su efecto en el desempeño y las decisiones gerenciales de las compañías multinacionales. Basándose en la teoría de la agencia y la teoría de dependencia de recursos, este estudio investiga cómo la estructura de poder de la compañía multinacional, o el patrón de distribución de poder en la cartera de la filial, afecta el desempeño de la compañía multinacional y a la utilización de expatriados. Los resultados de un panel exhaustivo de compañías multinacionales coreanas muestran que el grado de concentración de poder en la cartera de la filial tiene forma de U invertida con el desempeño de la compañía multinacional y el control a cargo de expatriados. Sin embargo, los resultados también revelan, que estas relaciones varían entre carteras de filiales manufactureras y carteras de filiales aguas abajo. Estos hallazgos sugieren que las características estructuras de la cartera de la filial son determinantes importantes del desempeño y la gestión de la compañía multinacional. Este estudio abre una nueva e importante perspectiva para el estudio de negocios internacionales al conceptualizar de manera explicita la compañía multinacional como una cartera de filiales diferenciadas y al examinar las consecuencias de las características de la cartera de la filial.

Resumo

Corporações multinacionais (MNCs) são consideradas estruturas dispersas de poder, nas quais diversas relações de poder sede-(HQ)-subsidiárias influenciam coletivamente desempenho e gestão. Ainda assim, poucos estudos levaram em consideração as características do portfólio de subsidiárias moldadas por todo o conjunto de relações de poder diferenciadas entre HQ e subsidiárias, e pouco se sabe sobre seu efeito no desempenho e decisões gerenciais de MNCs. Baseando-se nas teorias de agência e dependência de recursos, este estudo investiga como a estrutura de poder da MNC, ou o padrão de distribuição de poder no portfólio da subsidiária, afeta o desempenho da MNC e utilização de expatriados. Resultados de um painel abrangente de MNCs coreanas mostram que o grau de concentração de poder no portfólio de subsidiárias apresenta relações em forma de U invertido com o desempenho da MNC e o uso de controle por expatriados. Resultados também revelam, no entanto, que essas relações variam entre os portfólios de subsidiárias de manufatura e de revenda. Essas descobertas sugerem que as características estruturais do portfólio de subsidiárias são determinantes importantes do desempenho e da gestão de MNCs. Este estudo abre um importante novo caminho para a pesquisa em negócios internacionais ao conceituar explicitamente a MNC como um portfólio de subsidiárias diferenciadas e examinar as consequências das características do portfólio de subsidiárias.

摘要

跨国公司 (MNC) 被视为分散的权力结构, 其中总部 (HQ)—子公司多种权力关系共同影响绩效和管理。然而, 很少有研究考虑由一整套差异化的HQ—子公司权力关系所塑造的子公司投资组合特征, 并对它们对MNC绩效和管理决策的影响知之甚少。本研究借鉴代理和资源依赖理论, 研究了MNC的权力结构或子公司投资组合的权力分配模式如何影响MNC绩效和外派人员的使用。韩国MNC的综合面板数据结果表明, 子公司投资组合中的权力集中程度与MNC的绩效和外派控制呈倒U型的关系。然而, 结果还表明, 这些关系在制造和下游子公司投资组合之间有所不同。这些发现表明, 子公司投资组合的结构特征是MNC绩效和管理的重要决定因素。本研究通过明确地将MNC概念化为差异化的子公司投资组合和通过考查子公司投资组合特征的后果, 为国际商业研究开辟了一条重要的新途径。

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Acknowledgements

I would like to thank Editor Klaus Meyer for his insightful comments and enduring guidance during the review process. I want to express my gratitude to the three anonymous JIBS reviewers for their constructive feedback and helpful suggestions. I also thank Phillip Nell and Grazia Santangelo for their useful comments at the 16th JIBS Paper Development Workshop in Copenhagen, Denmark. I am also indebted to helpful discussions with my colleagues at the Henley Business School, especially Rajneesh Narula and Chul Chung.

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    Jong Min Lee

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Accepted by Klaus Meyer, Area Editor, 21 July 2021. This article has been with the author for five revisions.

Appendix

Appendix

See Tables 5, 6 and 7.

Table 5. Robustness test results from fixed-effects (within) regression of the effect of power concentration (full sample) on MNC performance and expatriate utilization
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Table 6. Robustness test results from fixed-effects (within) regression of the effect of power concentration (manufacturing subsidiary sample) on MNC performance and expatriate utilization
Full size table
Table 7. Robustness test results from fixed-effects (within) regression of the effect of power concentration (downstream subsidiary sample) on MNC performance and expatriate utilization
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Lee, J.M. MNCs as dispersed structures of power: Performance and management implications of power distribution in the subsidiary portfolio. J Int Bus Stud 53, 126–155 (2022). https://doi.org/10.1057/s41267-021-00464-9

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