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Achieving Subsidiary Integration in International Innovation by Managerial “Tools”

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Abstract

  • Our study articulates and empirically tests a theory of how the parent firm of a multinational corporation (MNC) can achieve global integration of subsidiaries into the MNC’s intrafirm network by using managerial “tools” to manipulate the MNC’s formal organizational architecture.

  • Taking a subsidiary’s performance as an observable criterion to measure the success of its integration into the global intra-firm network, the model is tested on a unique dataset of 287 international R&D subsidiaries.

  • Our findings suggest that the parent firm can actively improve a subsidiary’s performance and hence its integration by encouraging knowledge asset transfer, by granting the subsidiary a mandate for undertaking activities on behalf of the corporation as a whole, and by providing it with more operational autonomy.

  • These findings open up a deep perspective of how subsidiary integration can be achieved by appropriate managerial “tools” in the context of international innovation. We discuss the implications of these results for the literature and for managers.

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Notes

  1. Nobel and Birkinshaw (1998, p. 495) found that their centralization scale resulted in two different factors which they termed “strategic issue centralization” and “operational issue centralization”, respectively.

  2. The results of these calculations are not reported here due to limitation of space, they are available from the corresponding author.

  3. That is, the scale is calculated without the specific item in question to avoid inflating the correlation.

  4. We used oblique rotation because we expected the emerging factors to be theoretically related (Hair et al. 1998).

  5. Both the Bartlett test of sphericity (χ2  = 2935.726 with 253 d.f., p = 0.000) and the Kaiser-Meyer-Olkin measure of sampling adequacy (MSA = 0.8016, “meritorious”) indicated the data matrix was eligible for factor analysis. A factor was retained prior to rotation if its eigenvalue was greater than unity (Kaiser-Guttman criterion).

  6. The results of the robust OLS analyses are available from the corresponding author upon request.

  7. While model fit is still acceptable when country dummies are included as well, we prefer to omit them since their inclusion does not significantly change the pattern in which the SEM supports our hypotheses.

  8. We are grateful to an anonymous reviewer for pointing our attention to this issue.

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Acknowledgements

We thank the editors of the Focused Issue and two anonymous reviewers for their valuable suggestions that helped to improve this article. We also thank Glenn Hoetker, Ram Mudambi, Bodo B. Schlegelmilch, and session participants at the 2007 AIB conference in Milan for providing feedback on the ideas this manuscript is built on. We finally thank Frank Faulbaum and Heiko Gebauer for their helpful comments on structural equation modeling.

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Authors and Affiliations

  1. Institute of Technology Management, University of St. Gallen, St. Gallen, Switzerland

    Marcus Matthias Keupp,  Maximilian Palmié &  Oliver Gassmann

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  1. Marcus Matthias Keupp
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Correspondence to Maximilian Palmié.

Appendix: Questionnaire Items

Appendix: Questionnaire Items

The following list gives an overview over the items that were synthesized into the respective factor according to the results of the reported factor analysis. All items were measured on Likert scales ranging from 1 to 7.

Subsidiary Performance (Cronbach’s alpha = 0.8990)

Regarding the following criteria, how does your subsidiary perform compared to your parent company? “1” means “we perform much worse than the parent company”, “4” means “our performance is equal to the parent firm”, and “7” means “we perform much better than the parent firm”.

  • PERFROI: Return on Investment

  • PERFPROFIT: Profit

  • PERFCF: Cash Flow

Inter-Subsidiary Knowledge Asset Transfer (alpha = 0.9378)

“1” means “not at all”, “7” “to a great extent”.

  • KAT1: Our subsidiary has developed product technology that was also applied in other subsidiaries.

  • KAT2: Our subsidiary has developed process technology that was also applied in other subsidiaries.

  • KAT3: Our subsidiary has developed information and know-how that was also applied in other subsidiaries.

  • KAT4: Technology developed by our subsidiary helped to save R&D expenditure in other subsidiaries.

  • KAT5: Our subsidiary created competencies that were useful in other subsidiaries.

  • KAT6: By transferring technology developed by our subsidiary, we have created value in other subsidiaries.

Strategic Autonomy (alpha = 0.6892)

Who makes the decisions regarding the following points? “1” means “parent alone decides” and “7” means “subsidiary alone decides”.

  • STAUT1: Overall direction of the subsidiary’s activities

  • STAUT2: Which new projects to pursue

  • STAUT3: Product design

Operational Autonomy (alpha = 0.6862)

Who makes the decisions regarding the following points? “1” means “parent alone decides” and “7” means “subsidiary alone decides”.

  • OPAUT1: Hiring and firing senior staff

  • OPAUT2: Training programs for subsidiary staff

  • OPAUT3: Salary level of subsidiary employees

  • OPAUT4: Transfer of subsidiary staff between units

Tacitness of Knowledge (alpha = 0.8312)

“1” means “strongly disagree”, “7” “strongly agree”.

  • TAC1: The way our technology works can easily be described in manuals.

  • TAC2: New staff can easily learn about our activities by talking to skilled employees.

  • TAC3: Training new personnel is typically a quick and easy job for us.

  • TAC4: New personnel with a university degree can learn fast about our technology.

Observability of Knowledge (alpha = 0.7768)

“1” means “strongly disagree”, “7” “strongly agree”.

  • OBS1: Competitors could learn about our technology by observing our employees.

  • OBS2: Competitors could learn about our technology by taking a tour of our facilities.

  • OBS3: Competitors could learn how to manufacture our products by examining our machines and equipment.

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Keupp, M., Palmié, M. & Gassmann, O. Achieving Subsidiary Integration in International Innovation by Managerial “Tools”. Manag Int Rev 51, 213–239 (2011). https://doi.org/10.1007/s11575-011-0072-5

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  • DOI: https://doi.org/10.1007/s11575-011-0072-5

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