Essays on multinational enterprises within host country strategy and structure in an emerging market

Although MNEs have paid significant attention to the integration of their operations in a single emerging market, MNE’s within-host-country strategy and structure in general and MNEs’ fo

MULTINATIONAL ENTERPRISES’ WITHIN-HOST-COUNTRY STRATEGY AND STRUCTURE IN AN EMERGING MARKET

XUFEI MA

(B Eng., Xi’an Jiaotong University; MBA, University of Saskatchewan)

A THESIS SUBMITEED FOR THE DOCTOR OF PHILOSOPHY

DEPARTMENT OF BUSINESS POLICY

NATIONAL UNIVERSITY OF SINGAPORE

2007

ACKNOWLEDGEMENTS

I would like to express my deepest appreciation to Professor Andrew Delios for being my supervisor and for supporting my research endeavors during my tenure as a PhD student at the National University of Singapore It is his seasoned guidance, timely encouragement and valuable feedback that have made this thesis possible The training I’ve received with regard to the three aspects of the academic profession – research, teaching, and reviewing – has been the best possible start I could have had in my academic career

I thank the committee members of my thesis proposal: Professors Ishtiaq Mahmood and Jane Lu Their valuable comments and suggestions on my thesis proposal helped me to improve the proposal in many ways I benefited from Professor Mahmood’s advice on the importance of critical thinking as a researcher, and his expertise in international business, business groups research and emerging economies I also benefited from the cooperation with Professor Lu in several research projects, whose help involved both conceptual and applied issues

I am grateful to all the staff in the Department of Business Policy for their sincere help at different stages of my thesis writing and during my PhD candidature They are: Teo Woo Kim, Wendy Ng, and Jenny See I thank all the faculty members and colleagues

in the Department for their excellent comments on the earlier versions of my thesis I am indebted to my dear wife, Xuebing Zhong, for her tender care and timely comfort Last but not least, I am deeply grateful to my parents for their unfailing support and encouragement in all these past years, which have been the major reason that I am able to continue to seek my career goal in the academic area

TABLE OF CONTENTS

ACKNOWLEDGEMENTS 1

SUMMARY 7

LIST OF TABLES 8

LIST OF FIGURES 9

LIST OF APPENDICES 10

CHAPTER 1: INTRODUCTION 11

1.1 Overview 11

1.2 Research Questions 15

1.3 Contributions 18

1.4 Organization of the Dissertation 21

CHAPTER 2: LITERATURE REVIEW 22

2.1 Introduction 22

2.2 Strategy-structure Model in Strategic Management Literature 23

2.3 Research Streams in MNE Strategy, Structure, and Subsidiary 25

2.3.1 Strategy-structure stream 25

2.3.2 HQ-subsidiary relationship stream 27

2.3.3 MNE process stream 28

2.3.4 Subsidiary role stream 30

2.3.5 Subsidiary evolution stream 32

2.3.6 Subsidiary network stream 34

2.4 A New Classification: Headquarters versus Subsidiary Perspective 37

2.5 Limitations of Prior Studies 39

2.6 Research Opportunities: Missing Bridges to Theory and Context 40

2.7 Summary 43

CHAPTER 3: ESSAY 1 44

3.1 Introduction 44

3.2 Background and Theoretical Framework 48

3.2.1 A focus on MNEs’ foreign group subsidiary 48

3.2.2 The institutional multiplicity of MNE subsidiaries: 49

Theoretical framework

3.3 Hypotheses Development 53

3.3.1 Individual effects of multiple institutional isomorphic pressures 53

3.3.2 Moderation in the two coercive isomorphic pressures 63

3.3.3 Differentiation and comparison of different mimetic role models 65

3.3.4 The moderating effects of local references 67

3.4 Methods 70

3.4.1 Sample and data sources 69

3.4.2 Dependent variable and analytic model 71

3.4.3 Independent and control variables 73

3.5 Results 76

3.5.1 Descriptive statistics 76

3.5.2 Event history analysis using Cox models 77

3.5.3 Sensitivity Analyses 80

3.6 Discussion and Conclusion 82

3.6.1 Findings 82

3.6.2 Implications for theory 86

3.6.3 Implications for practice 87

3.6.4 Limitations and future research 88

3.6.5 Conclusion 89

CHAPTER 4: ESSAY 2 91

4.1 Introduction 91

4.2 Host Country Environment and MNE’ within-host-country Diversification 95

4.3 Theory and Hypotheses Development 97

4.3.1 Structuration theory and MNE subsidiaries’ political strategy 97

4.3.2 Foreign group subsidiary and MNE’s within-host-country 99

diversification

4.3.3 Market size and industrial restriction as moderators 104

4.4 Methods 107

4.4.1 Sample and data sources 107

4.4.2 Dependent variables 108

4.4.3 Independent and control variables 109

4.4.4 Analytic model 112

4.5 Results 113

4.6 Discussion and Conclusion 115

4.6.1 Findings 115

4.6.2 Implications for theory 118

4.6.3 Implications for practice 120

4.6.4 Limitations and future research 120

4.6.5 Conclusion 122

CHAPTER 5: ESSAY 3 123

5.1 Introduction 123

5.2 Background 126

5.2.1 FDI location choice 126

5.2.2 FDI subsidiary roles 129

5.3 Theory and Research Context 130

5.3.1 Foreign group subsidiary ad host country HQ 130

5.3.2 Research setting: China’s emerging market 132

5.4 Hypotheses Development 134

5.4.1 Corporate ambassador 135

5.4.2 Subsidiaries administrator 136

5.4.3 Learning center 138

5.5 Methods 140

5.5.1 Sample and data sources 140

5.5.2 Independent and control variables 141

5.5.3 Dependent variable and analytic model 146

5.6 Results 147

5.7 Discussion and Conclusion 150

5.7.1 Findings 150

5.7.2 Implications for theory 152

5.7.3 Implications for practice 154

5.7.4 Limitations and future research 155

5.7.5 Conclusion 156

CHAPTER 6: CONCLUSION 157

6.1 Major Findings and Implications 157

6.2 Significance of the Study 160

6.3 Directions for Future Research 164

6.4 Conclusion 168

REFERENCES 169

This research contributes to the literatures of MNE strategy and structure and subsidiaries

in several ways First, it contributes to theory building by providing a comprehensive framework to understand the multiple institutional pressures and conditions faced by MNEs in an emerging market Second, it theoretically models and empirically tests the direct and contingent values of MNEs’ foreign group subsidiaries on their within-host-country product and geographic diversification strategies in an emerging market Third, it formally defines an MNE’s foreign group subsidiary as having three distinct strategic roles and links MNE subsidiary research with the FDI location literature

Overall, this study is among the first to shift the research attention toward the totality of MNEs’ foreign subsidiaries in a host country This shift is a timely and worthwhile endeavor because it can help to bridge domestic business group and MNE subsidiary literatures by tackling the interactions among local governments, incumbent groups, and foreign multinationals As such, this dissertation may inspire a new wave of MNE subsidiary research with a focus on MNE within-host-country strategy and structure

I examine the adoption, function, and location choice of group subsidiaries by the world’s largest MNEs in China’s emerging market I use longitudinal data on the entire population of the Fortune Global 500 firms during the complete time window of China’s open door period (1979-2005) The empirical findings will have substantial implications for policy makers, business managers, and academics alike

LIST OF TABLES

Table Title Page

Table 1 A summary of literature on MNE strategy, structure, and subsidiary 194

Table 2 Descriptive statistics and correlations 195

(Essay 1)

Table 3 Event history analysis (Cox Model): Group subsidiary adoption by 196

Fortune Global 500 firms in China, 1979-2005 (Essay 1) Table 4 Descriptive statistics and correlations 197

(Essay 2)

Table 5 G2SLS random-effects estimates: Fortune Global 500 firms’ 198

within-host-country product diversification in China, 1979-2005 (Essay 2) Table 6 G2SLS random-effects estimates: Fortune Global 500 firms’ 199

within-host-country geographic diversification in China, 1979-2005 (Essay 2) Table 7 G2SLS random-effects estimates: Fortune Global 500 firms’ 200

within-host-country overall diversification in China, 1979-2005 (Essay 2) Table 8 Economic-geographic variables: Shang versus Beijing (2003) 201

(Essay 3) Table 9 Descriptive statistics and correlations 202

(Essay 3)

Table 10 Probit models: The location choice for Fortune Global 500 firms’ 203

Chinese group subsidiaries (Essay 3) Table 11 Summary of major findings 204

LIST OF FIGURES

Figure Title Page

Figure 1 Multiple institutional pressures on MNEs in a host country 205 (Essay 1)

Figure 2 Research model 206 (Essay 1)

LIST OF APPENDICES

Figure Title Page

Appendix 1 Descriptive Statistics of Fortune Global 500 Firms in China, 214 1979-2005

CHAPTER 1: INTRODUCTION

1.1 Overview

How do firms organize their operations in foreign countries? This fundamental research question falls into the stream of literature concerned with the strategy and structure of multinational enterprises (MNEs) and their subsidiaries (e.g., Perlmutter, 1969; Stopford & Wells, 1972; Hedlund, 1986; Ghoshal & Bartlett, 1990; Gupta & Govindarajan, 1991; Birkinshaw & Morrison, 1995; Caves, 1996) According to a recent and comprehensive survey by Birkinshaw (2001), the national subsidiary no longer exists

in most developed countries because most MNEs have now moved towards some variant

of the global business unit structure in their international operations, as they seek to exploit the promises of worldwide communications, product standardization and economies of scale (Quelch & Bloom, 1996) This process has led to a corresponding dilution in the power and responsibility of the country manager

In contrast, the situation in emerging markets is quite different (Birkinshaw, 2001) These markets have a rapid pace of economic development with government policies favoring economic liberalization Emerging markets are assuming an increasingly prominent position in the world (Hoskisson, Eden, Lau, & Wright, 2000; Wright, Filatotchev, Hoskisson, & Peng, 2005) Today, strong country managers have not only returned, but also been upgraded and promoted to stronger positions in group-like umbrella holding companies among some MNEs in emerging markets (Quelch & Bloom, 1996; Peng, 1997)

This umbrella holding company, as a special type of foreign subsidiary, is an

MNE’s foreign group subsidiary and can be regarded as the MNE’s host country center

or HQ (headquarters) Its purpose is to seek a better integration of the various functions

in the host country for a broad range of products and services within a single but important emerging market, and to unite the MNE’s existing investments under one umbrella so as to combine sales, procurement, manufacturing, training, and maintenance functions within the host country (Luo, 2002a)

Although MNEs have paid significant attention to the integration of their operations in a single emerging market, MNE’s within-host-country strategy and structure in general and MNEs’ foreign group subsidiaries in these increasingly important markets in specific have been surprisingly under-studied in the MNE subsidiary literature Prior studies take either an explicit standpoint from MNE corporate headquarters (e.g., Bartlett & Ghoshal, 1989; Daniels, Pitts, & Tretter, 1984; Egelhoff, 1982; Hedlund, 1986; Prahalad & Doz, 1987; Stopford & Wells, 1972) or a clear viewpoint from individual foreign subsidiaries (e.g., Gupta & Govindarajan, 1991; Ghoshal, 1986; Jarillo & Martinez, 1990; Roth & Morrison, 1992; Birkinshaw & Hood, 1998) Consequently, what

is missing, I believe, is the intermediate or country-level of analysis to an MNE’s structure and strategy with a focus on the MNE’s foreign group subsidiary

The dearth of host-country-level MNE research itself may not be a serious problem if MNEs conducted their investments only in developed countries This is so because most MNEs are actively integrating their activities in Europe or North America,

in a globalization or regionalization process that essentially ignores country boundaries (Birkinshaw, 2001; Rugman, 2005) The problem comes from the qualitatively different institutional environment of the emerging markets that MNEs have entered and cannot

afford to ignore (Delios & Henisz, 2000; Newman, 2000; Peng, 2003; Wan & Hoskisson, 2003) MNEs are often doing the opposite in the developing part of the world by placing strong country managers in charge of their various foreign subsidiaries in host countries that are developing countries (Birkinshaw, 2001) As such, a focus on within-host-country strategy and structure is of vital importance to MNEs that are doing business in emerging markets That said, academic research has been slow to catch up to the new, emerging realities of MNEs’ structure and strategy in emerging markets

In response, this dissertation seeks to close the notable research gap in the MNE subsidiary literature by shifting the focus to the totality of an MNE’s foreign subsidiaries within a single emerging market Since a fundamental challenge confronting MNEs entering emerging markets is whether their traditional global strategy can be extended and adapted with minimal changes to these markets (Hoskisson et al., 2000; Wright et al., 2005), this research calls for more strategic attention and new business models to be built

on a better understanding of the institutional environment of emerging markets and the actors embedded in such an environment Therefore, in this thesis, one of the major points of departures from existing studies is that by taking an MNE’s entire operations within an emerging market as a whole, this dissertation can integrate the research on the strategy and structure of organizations in emerging markets and particularly the literature

on business groups (Chang & Hong, 2000; Guillén, 2000; Khanna & Palepu, 1997; Kock

& Guillén, 2001; Keister, 2000; Mahmood & Mitchell, 2004), with that of the MNE literature

The empirical context for this dissertation is Fortune Global 500 corporations’ foreign subsidiaries in China during the twenty-six year period from 1979 through 2005

Choosing Fortune Global 500 corporations as the research target is relevant to this research topic because much of the MNE subsidiary literature has been built on classical hierarchical viewpoints and modern network perspectives, and is mainly about large firms (Birkinshaw, 2001; Westney & Zaheer, 2001) In addition to their unquestionably large firm size and considerable influence in the world economy, these MNEs are from various countries and operate in different industries, which lends a substantial degree of generalizability to the empirical findings of this dissertation

Amongst all possible choices for emerging economy settings, China is an ideal setting for this dissertation for several compelling reasons First, among all the emerging economies, China is the largest, the fastest growing, and the most heavily engaged in international trade and investment (Child & Tse, 2001) By the end of 2004, China had attracted a total of 562.1 billion US dollars of inward FDI and approved the establishment

of more than 500,000 foreign-funded enterprises (MOFCOM, 2005) It even passed the U.S to become the largest recipient of FDI across the world in 2002 (UNCTAD, 2004)

By 2004 over 400 Fortune Global 500 corporations had conducted their FDIs in China (MOFCOM, 2005) Given the lack of prior research in this area, a focus on China appears to be a sensible step towards understanding the more general issue of MNEs’ within-host-country strategy and structure in a single emerging market

Second, China is an emerging market in which the government preserves an active involvement in business affairs (Peng, 2000), in which there exists significant economic fragmentation across different sectors and regions (Huang, 2003), and in which one of the striking features of the competitive landscape is the ubiquity of local incumbent business groups (Keister, 2000; Nolan, 2001) Since FDI does not happen in a

vacuum, these institutional characteristics heighten the importance of a theoretical consideration of the influence of the political, social, and economic underlay of China’s emerging economy on MNEs’ strategy and structure (Child & Tse, 2001; Henisz, 2000; Scott, 1995)

Third, by following a gradualist and protectionist logic, China started its economic and institutional transition in late 1978, formally reopening its domestic market

to foreign direct investments in 1979 (Child, 1994) The transition in China is also typical of many emerging markets in terms of scale and substance (Peng, 2003) Accordingly, the year 1979 serves as a clear starting point for examining MNEs’ within-China strategy and structure during this transition period Empirically, in addition to the sheer scale and diversity of China’s emerging market, one advantage of this research design of choosing China as the empirical context is that it allows for a longitudinal study

to capture a full history of the FDIs conducted by these world’s largest MNEs in China

1.2 Research Questions

To explore MNE within-host-country strategy and structure, this dissertation focuses on MNE’s foreign group subsidiary in the setting of China’s emerging market Foreign group subsidiary, as a new type of foreign subsidiary and as an important form of MNE’s country headquarters, has never been theoretically modeled and empirically in the literature Therefore, Essay 1 of this dissertation starts with the underlying reasons that may account for the adoption of this organizational structure among MNEs in a host country The outcome of establishing such a foreign group subsidiary, in terms of an MNE’s within-host-country diversification strategies, is then addressed in Essay 2 The strategic roles of the foreign group subsidiary are further elaborated in Essay 3 to link the

location choice of this subsidiary, a strategic choice faced by multinational firms The three research questions are as follows:

1 Why do some MNEs form foreign group subsidiaries?

2 How does the foreign group subsidiary facilitate an MNE’s within-host-country diversification?

3 What determines the location choice of an MNE’s foreign group subsidiary? Drawing on institutional theory (DiMaggio & Powell, 1983; Scott, 1995) and learning theory (Cyert & March, 1963; Huber, 1991), in Essay 1, I argue that the adoption of an organizational practice such as the establishment of a foreign group subsidiary is not only a function of the inherent transactional efficiency, but also the conformity of multiple legitimacy pressures in the institutional context In particular, I develop a new framework to present the multiple legitimacy pressures that MNE subsidiaries are facing in emerging markets by differentiating the isomorphic mechanisms and discriminating isomorphic origins I argue that the adoption of a foreign group subsidiary among MNEs in an emerging market is influenced by the coercive

isomorphism pressures of the MNE’s home country HQ (global parent) as well as host country policy inducements (local government), and by the mimetic isomorphism

pressures of counterparts in the same industry or coming from the same home country

(global peers) as well as local business group partners (local references) In addition,

this essay classifies the vicarious learning effects of different mimetic models into two

types: strong (local references) versus weak (global peers) role models With a focus on

an MNE’s local business group partners, this essay highlights the direct and moderating effect of these strong mimetic role models

Essay 2 answers the second research question Drawing on the insights from business group research and an institution-based view of diversification (Khanna & Palepu, 1997; Peng, Lee, & Wang, 2005), I argue that the host country environments of large emerging markets may well lead to MNEs’ within-host-country diversification, which, however, will be impeded by regional protectionism and governmental intervention Using structuration theory (Giddens, 1983, 1984, 1995) as the conceptual foundation, I propose that the establishment of an MNE’s foreign group subsidiary can be conceptualized as its political strategy (Hillman & Wan, 2005), through which the MNE could improve its cooperative relationships with host governments This political strategy can further facilitate (i) an MNE’s within-host-country geographic diversification to overcome regional protectionism; (ii) its product diversity to mitigate governmental intervention; and (iii) its overall within-host-country diversification to achieve a transformation from a foreign entrant to a strategic insider Further, I explore two moderators (market size and FDI industrial restriction) to highlight the contingent value

of an MNE’s foreign group subsidiary on its within-host-country diversification

I address the third research question in Essay 3 Drawing on the insights from the FDI location literature (Zhou, Delios, & Yang, 2002) and MNE subsidiary research (Birkinshaw, Braunerhjelm, Holm, & Terjesen, 2006), I define an MNE’s foreign group subsidiary, the MNE’s host country HQ (Chandler, 1991), as having three strategic roles: corporate ambassador, subsidiaries administrator, and learning center in the host country

I argue that the location choice of this special subsidiary in an emerging market is qualitatively different from that of other types of foreign subsidiaries in this host country – it is a strategic location choice Focusing on these strategic roles of an MNE’s foreign

group subsidiary, I examine how this strategic location choice is influenced by the host country’s FDI industrial restriction, the geographic distance between the locations of the MNE’s entire within-host-country subsidiaries and the potential location for its group subsidiary, and the location-specific experience of the potential location The empirical setting is the MNEs’ location choices for their group subsidiaries in Beijing and Shanghai, China’s two most important and metropolitan central cities

1.3 Contributions

This dissertation makes several important theoretical and empirical contributions First, the shift of research attention towards the totality of an MNE’s host country subsidiaries and the focus on the MNE’s foreign group subsidiary represent a significant departure from the tradition in this area of research This is a worthwhile endeavor as this dissertation is among the first to explore how MNEs organize their foreign activities within a single emerging market As such, it extends the MNE subsidiary literature and serves as an important step toward a better understanding of what determines the international success or failure of firms, one of the top four fundamental issues in strategy research (Rumelt, Schendel, & Teece, 1994) and an equally important research question

in international business literature (Peng, 2004)

Second, this dissertation highlights a major opportunity for advancing theories of corporate strategy in emerging markets To the best of my knowledge, it is among the first to link MNE subsidiary research and the domestic business group literature by tackling the interactions among host country governments, local incumbent groups, and foreign multinationals Drawing from the business group literature's strong theoretical roots in institutional economics and political science, this dissertation sheds light on an

MNE’s within-host-country strategy and structure in emerging markets By doing so, this dissertation elevates the existing MNE subsidiary literature to a more general framework that deals with various institutional environments and the actors that are embedded in these contexts (Henisz, 2000; Peng, 2004; Seo & Creed, 2002; Wan & Hoskisson, 2003)

Third, this dissertation is a timely effort as international strategic management researchers follow MNEs to understand how and why they enter large emerging markets such as China and India This shift in research attention and the focus on a single large emerging market can provide a new analytical framework, from which international business researchers may be able to revisit and shed new light on many of the classic issues that have been studied for decades, such as market entry, expatriate management, organization structures, subsidiary relations, and location choice (Birkinshaw, 2001)

Fourth, one of the major empirical contributions is the data collection and analysis

in this dissertation The data include the entire population of the Fortune Global 500 firms as well as all of their foreign direct investments across China, as spanning 26 years Such a data collection effort also avoids problems of left-censoring which would be encountered if studying MNE subsidiaries in other national settings There is no left-censoring in the data because China did not re-open its doors to foreign investment until

1979 (Pearson, 1991) This richness of the data means I have an extensive geographic and industrial distribution of foreign investments in China, with almost all provinces and more than 100 cities having been sites for these FDIs

In addition to the overall contribution of this dissertation, each of the three essays makes its own contributions as follows

In Essay 1, I use institutional theory as the conceptual foundation for the essay,

from which I extend the oversimplified notion of institutional duality (Kostova & Roth, 2002; Hillman & Wan, 2005; Lu & Xu, 2006) by exploring the multiple sources of institutional pressures faced by MNEs Moreover, by differentiating, comparing, and identifying different vicarious learning effects, this essay can contribute to a better understanding of interorganizational imitation mechanisms and point to the importance of exploring the various contingencies that facilitate or impede such interorganizational imitation processes (Haunschild & Miner, 1997; Miner & Haunschild, 1995) This essay reports research that is among the first to directly explore MNEs’ reaction to local business groups in emerging economies This study serves as an important step toward completing a picture of the nature of interactions between multinational firms and business groups (Guillén, 2000; Kock & Guillén, 2001) In this sense, the study also contributes to business group research, although it does so in an indirect way

Essay 2 contributes to a cross-disciplinary approach to the study of MNE political strategy given that the international analysis of political strategy has proceeded hesitantly (Boddewyn, 1988; Henisz & Delios, 2002; Hillman & Keim, 1995) Building on the richness of structuration theory in sociology research (Giddens, 1983, 1984, 1995), I theoretically model the establishment of an MNE’s group subsidiary in an emerging market as an important part of its political strategy to smooth government relationships and overcome economic fragmentation Moreover, this essay makes use of the theoretical insights from business group studies to inform MNE subsidiary research and hence contributes to both literatures It also sheds new light on the MNE-host country government relationships literature (Dunning, 1993; Luo, 2001)

Essay 3 contributes to the literature on FDI location choice as well as to the MNE

subsidiary literature This study provides additional insight on the determinants of FDI location and complements an important line of research, which calls for the simultaneous consideration of both macro-level factors such as economic, geographic and institutional concerns, and micro-level factors such as strategic goals (Dunning, 1993, 1998; Makino, Lau, & Yeh, 2002), firm heterogeneity (Chung & Alcacer, 2002; Shaver & Flyer, 2000), and local experience (Henisz & Delios, 2001) This study explicitly proposes an important and uninvestigated dimension – subsidiary role – in the FDI location criteria and hence sheds new lights on the FDI location literature The contribution to MNE subsidiary literature is from theoretically modeling the strategic roles of an MNE’s foreign group subsidiary in an emerging market and from bridging MNE subsidiary studies with the FDI location research

1.4 Organization of this Dissertation

This chapter provides an overview of the three research questions of this thesis and it states the major contributions of this dissertation to the MNE subsidiary literature and to the theoretical development of strategic management, international business, and organizational research My literature review of the MNE strategy and structure literature and MNE subsidiary research is presented in Chapter 2 The three essays addressing the three research questions are presented respectively in Chapters 3, 4, and 5 Each of the three essays is presented as a complete empirical and conceptual study, which could potentially function as a stand alone piece of research Chapter 6 serves as the final chapter in which I summarize the findings and present the conclusions of this dissertation

CHAPTER 2: LITERATURE REVIEW

2.1 Introduction

Multinational enterprises (MNEs), defined as those corporations that engage in foreign direct investment (FDI), and own, control or manage value-adding activities in at least two countries, have become perhaps the most important actors in the world economy (Dunning, 1993; Caves, 1996) An MNE’s foreign direct investment results in the creation of an organizational entity, commonly called a foreign subsidiary, in a host country (the recipient country of the FDI), that is fully or partially controlled by this multinational enterprise The study of organizations in international business has focused almost exclusively on MNEs, and research has paid a growing attention to the strategy and structure of MNEs and the management of their subsidiaries (e.g., Stopford & Wells, 1972; Hedlund, 1986; Ghoshal & Bartlett, 1990; Gupta & Govindarajan, 1991; Birkinshaw & Hood, 1998; Caves, 1996)

I start this chapter with a review of the strategy-structure model in the strategic management literature, to identify the trends in the six major research streams in the literature on MNE strategy and structure and the MNE subsidiary I then propose a new classification drawing from the perspectives that prior research has taken: headquarters versus subsidiaries With this attempt to link the broad theoretical perspectives with the specific phenomenological issues by addressing the core issue, ‘What determines the international success or failure of firms?’, I further identify the research limitations in prior studies, including the absence of an intermediate-level perspective (i.e., the totality

of an MNE’s subsidiaries within a single host country), and the missing links to theory (i.e., FDI theory and institutional perspective) and context (emerging economies)

2.2 Strategy-Structure Model in Strategic Management Literature

According to the classic strategic management formulation (Chandler, 1962), strategy and structure are defined in relation to the nature of the threats and opportunities

in the environment Based on historical studies of large American corporations such as DuPont, General Motors and Standard Oil of New Jersey (now called Exxon), Chandler

in his classic work, Strategy and Structure, first articulates how firms’ strategic choices

influence the development of their structures and concludes that changes in organization structure are driven by changes in strategy Chandler (1962) argues that an effective product-market diversification strategy requires a decentralized structure, in particular, a divisionalized structure – the multidivisional (M-form) structure

The M-form structure has been widely regarded as an innovative response to coordination and control problems derived from diversification and expansion within large American corporations in the 1920s (Chandler, 1962) Coordination involves the flow of information to facilitate subunit decisions that are consistent with each other and with organizational objectives, while control involves the location of decision-making rights and rule-making authority within the hierarchy By focusing on administrative efficiency, Chandler points out that expansion activities produce new administrative needs and that the technological, financial, and personnel economies of growth and size could not be exploited if a new structure is not yet developed to meet these new needs (Chandler, 1962: 16)

Williamson’s (1975) transaction cost approach is the predominant theory to explain the rise of the M-form structure in terms of its efficiency characteristics Williamson (1975) constructs a general transaction cost theory of the multidivisional

structure, and extends Chandler's centralized-decentralized approach to structure by placing additional emphasis on two distinguishing structural characteristics of the M-form (Williamson, 1975): (1) the responsibility for all operating decisions is assigned to divisions, and (2) a general office staff is primarily concerned with monitoring division performance, allocating resources among divisions, and making strategic plans

Clearly, the Chandler-Williamson framework suggests that the optimal organizational structure for a firm depends on the circumstances it faces As such, contingency theory has risen to be a guiding premise to these issues (Thompson, 1967; Lawrence & Lorsch, 1967; Galbarith, 1973) A contingency approach advocates the point that there is no uniformly best structure for all firms in all circumstances Prior research has identified three factors that may affect the relative efficiency of different structures: technology and task interdependence (Thompson, 1967), information processing and flows (Galbraith, 1973), and the tension between differentiation and integration (Lawrence & Lorsch, 1967) Having strong theoretical roots in transaction cost economics and contingency theory as well as its managerial implications, the strategy-structure model has been popular among many researchers (Dyas & Thanheiser, 1976; Rumelt, 1974)

However, the strategy-structure model has been challenged by recent work in organizational theory and strategic management (Amburgey & Dacin, 1994; Bartlett & Ghoshal, 1993) In particular, the causal strategy-structure relationship may be reciprocal because the Chandler-Williamson framework assumes away the agency problem (Fama, 1980), institutional pressures and transitions (Fligstein, 1985; Fligstein & Dauber, 1989; Amburgey & Dacin, 1994), and managerial cognition, skills, and competencies

(Mintzberg, 1979; 1983; Prahalad & Bettis, 1986) More critically, the framework neglects time effects and the analysis of dynamic change (Amburgey & Dacin, 1994;

Greenwood & Hinings, 1988; Ramanujam & Varadarajan, 1989)

2.3 Research Streams in MNE Strategy, Structure, and Subsidiary Literature

According to Birkinshaw (1994), studies in this field can be largely classified into four research streams, namely strategy-structure, HQ-subsidiary relationship, MNE process, and subsidiary role In my review, I add two new research streams – subsidiary evolution and subsidiary network – because recent work has begun to look at how subsidiary roles evolve over time and see the MNE as a network In this section, I will review these six research streams starting from the strategy-structure contingency model, which in turn has roots to the literature reviewed in section 2.2, as other streams have largely built on this framework (Prahalad, 1976; Bartlett, 1979; Birkinshaw, 1994)

2.3.1 Strategy-Structure Stream

The idea that structure follows strategy has been widely applied to multinational

firms and to the MNE literature According to Chandler, internationalization, in addition

to product diversification, can influence organizational design and again is a critical contingency for structure (Chandler, 1962) Therefore, this literature, as an extension of domestic strategy-structure research, is rooted in a classic corporate HQ perspective but focuses on why MNEs adopt certain structures to organize their international activities across different countries (Bartlett, 1979; Daniels, Pitts, & Tretter, 1984; Egelhoff, 1982; Prahalad, 1976; Stopford & Wells, 1972)

The classic model in this stream is provided by Stopford and Wells (1972) In the 1960s, American-based MNEs created immense growth as well as challenges for their

managers, and these challenges partly stemmed from the fact that MNEs were caught up

in powerful and opposing forces With this background, Stopford and Wells (1972)

studied 187 U.S MNEs in their book Managing the Multinational Enterprise, and

explored the strategy-structure relationships In particular, Stopford and Wells (1972) identify four main structural alternatives for the evolution of the organizational structures that U.S firms had developed during the course of their expansion abroad That is, in different internationalization stages, MNEs can follow different structures: a simple international division, area divisions, worldwide product divisions, and a matrix structure combining both product and area assignments

Following the tradition of the Chandler-Williamson framework, Stopford and Wells (1972) propose two key contingencies for choosing between these four structural alternatives: foreign product diversity and the percentage of foreign sales A simple international division is unable to handle either high foreign product diversity or high foreign sales Thus, companies with high foreign sales but low diversity are best able to deal with internationalization with area divisions In contrast, worldwide product divisions may be better able to cope with high foreign product diversity with low foreign sales When there is both high internationalization and high diversification, a matrix structure should be developed to achieve the match and hence better performance

Enlightened by Stopford and Wells’ work, Egelhoff (1982, 1988) draws on an information processing perspective (Galbraith, 1973) to develop an explicit framework for analyzing and understanding organizational design issues in MNEs Egelhoff (1982, 1988) proposes that the organizational location of specific kinds of knowledge and capabilities is strongly influenced by an MNE’s formal structure, and that effective

MNEs are those that fit their information processing capacities to the amount of uncertainty they face Empirically, Egelhoff (1982) used a sample of 50 European and U.S MNEs and added percentage foreign manufacturing as a third contingency factor Other studies have also examined MNEs’ strategy-structure links in different settings (Daniels, Pitts, & Tretter, 1984; Franko, 1974)

2.3.2 HQ-Subsidiary Relationship Stream

In the HQ-Subsidiary relationship stream the unit of analysis moves down to the relationship between MNE headquarters and subsidiaries, but this stream is similar to the strategy-structure stream in that it is essentially concerned with how the center controls its subsidiary There are limited theoretical developments in this literature and most studies typically represent the extension of some principles into the international setting (Birkinshaw, 1994) These principles include decentralization (Chandler, 1962), formalization (Child, 1973; Pugh, Hickson, Hinings, & Turner, 1968), and integration (Cray, 1984; Vancil, 1979)

Based on Chandler’s (1962) classic work and the Aston studies (e.g., Pugh et al., 1968), centralization in the HQ-subsidiary relationship stream is defined as the concentration of authority in decision making (Gates & Egelhoff, 1986), while decentralization (or autonomy) refers to the division of decision-making authority between the headquarters and the various operational units across different functional and geographic areas (Garnier, 1982; Hedlund, 1986; Vancil, 1979) Much of the early research is most directly related to the topic of centralization or decentralization of decision-making (Garnier, 1982; Young, Hood, & Hamil, 1985)

As another principle, formalization, which is closely related to standardization

and specialization (Pugh et al., 1968), is the degree to which decisions are made and activities are carried out, according to explicit routines and lines of authority (Hedlund, 1986) Integration is defined as the mechanism by which one subsidiary achieves goal congruence with the rest of the MNE (Cray, 1984) Similar to Chandler’s argument, Cray (1984) identifies control and coordination as two modes of integration This stream also looks at the interdependency among subsidiaries Because interdependency among the subunits of the organization constitutes an important determinant of centralization (Hennart, 1993), and because centralization provides coordination and integration across the interdependency (Egelhoff, 1988), the extent of centralization in MNEs is correlated with the degree of interdependency among subsidiaries (Hennart, 1993)

Recently, research has begun to examine the association between autonomy and subsidiary-level characteristics such as establishment mode (Anderson & Forsgren, 1996;), size (Egelhoff, 1986; Hedlund, 1986), and age (Young et al., 1985) Although the results were inconclusive or even contradictory, these studies drew research attention closer to the subsidiary level Moreover, this stream of research has tackled the linkage between the HQ-subsidiary relationships and performance For example, studies have attempted to link strategy effectiveness with subsidiary managers’ perceived procedural justice (Kim & Mauborgne, 1991; Taggart, 1997) and feedback-seeking behavior (Gupta

& Govindarajan, 1999), and with the perception gaps between HQ and subsidiary managers (Arvidsson, 1999; Birkinshaw, Holm, Thilennius, & Arvidsson, 2000)

2.3.3 MNE process stream

The major theoretical foundations of this stream are Bower’s (1972) making process theory and Chandler’s (1962) strategy-structure contingency model As

decision-pointed out by Bower (1972), corporate headquarters’ decision making cannot be made

by choosing among investment requests Instead, a system of decentralization and control (Chandler, 1962) may be generated by the so-called structural context, which refers to the formal organization (with associated definitions of managers’ jobs), the system of information and control used to measure performance of the business, and the systems used to measure and reward performance of managers (Bower, 1972: 71)

Building on the work of Chandler (1962) and Bower (1972), this line of research bears the common theme of organizational processes and capabilities in MNEs, and focuses on various aspects of the strategic management task in MNEs (Doz & Prahalad, 1991) While Prahalad’s pioneering study (1976) focused on a single MNE, Doz’s work analyzed the management processes used in several companies and in several businesses

in each company (1979) as well different companies in the same industry (1979, 1980)

In Bartlett’s study (1979), the management systems and processes were compared across

a sample of companies in different industries

Further, Doz and Prahalad (1991) proposed a search for a new paradigm – the MNE process stream They argue that an organizational theory of the MNE has to take into account seven demands of an MNE’s organization and management, namely structural indeterminacy, internal differentiation, integrative optimization, information intensity, latent linkages, networked organization and fuzzy boundaries, and learning and continuity These demands are derived from the multidimensionality, heterogeneity, and complexity of MNEs, which to a large extent account for the inability of the strategy-structure stream to produce a satisfactory structural model of the MNE

Simultaneously, but largely independently, the Sweden-based research group

developed a similar line of process research to analyze the distinctive organizational structures and internationalization of major Swedish multinationals Although the Swedish research group’s starting point was within HQ-subsidiary relationship stream, Hedlund (1986) emphasized the variation, selection, and retention processes in multinational adaptation Hedlund (1986) argues that a hypermodern MNC is organized not hierarchically, but heterarchically Heterarchical MNEs are different from both geocentric MNEs (Perlmutter, 1969) and matrix organizations (Stopford & Wells, 1972), they have many different kinds of centers, a geographic diffusion of corporate functions, and a wide range of between market and hierarchy governance modes (Hedlund, 1986)

Research on global strategy is also related with MNE process, although much of this literature can also be classified into a subsidiary perspective In particular, one source of influences is from the global integration-national responsiveness (I-R) grid, which was originally developed by Prahalad (1976), grounded in a contingency framework and built in large part around Prahalad and Doz’s multinational mission (1987) and Bartlett and Ghoshal’s transnational solution (1989) This approach centers more on the firm level and considers all factors that contribute to the pressure for global integration and responsiveness to national interests and preferences simultaneously Similarly, but from an industrial organization based model of competitive strategy, Porter (1986) developed a coordination-configuration (C-C) framework to emphasize the arrangement of value-adding activities on a global basis

2.3.4 Subsidiary role stream

Different from the first three streams, the subsidiary role stream explicitly moves the level of analysis down to the subsidiary although most of the research is built on the

MNE process or HQ-subsidiary relationship streams Starting from White and Poynter’s (1984) study on strategies for MNEs’ foreign subsidiaries in Canada, groups of researchers began to describe how MNEs differentiated the roles and responsibilities of their national subsidiaries (Bartlett & Ghoshal, 1986; Birkinshaw & Morrison, 1995; Ghoshal, 1986; Gupta & Govindarajan, 1991; Jarillo & Marinez, 1990; Roth & Morrison, 1992; Taggart, 1997)

According to White and Poynter (1984), the business strategies pursued by foreign subsidiaries can be defined by the activities of the subsidiary with regard to product scope, market scope and value-added scope, falling into five broad categories of subsidiary types: miniature replica, marketing satellite business, rationalized manufacturer, product specialist, and strategic independent More importantly, these authors argue that subsidiaries can even change their strategies and that the shift in strategy should result from an assessment of the subsidiary capability and the resources available throughout the MNE To some extent, White and Poytner’s (1984) research has laid the foundation for both the subsidiary role and subsidiary evolution streams

Bartlett and Ghoshal (1986) looked at the intersection of strategic considerations (overall importance of national environments to the global strategy) and organizational considerations (national subsidiary’s competence) They define four generic roles that foreign subsidiaries can play in fulfilling the global objectives of transnational organizations, namely strategic leader (high importance and high competence), contributor (low importance and high competence), implementer (low importance and low competence), and black hole (high importance and low competence) Taking a configuration approach (Miller, 1986; Meyer, Tsui, & Hinings, 1993), Birkinshaw and

Hood (1997) further explored the ways in which a subsidiary’s structural context varied across subsidiary role types

Jarillo and Martinez (1990) proposed a framework to characterize the different roles of MNE subsidiaries based on two basic dimensions: geographical localization and the degree of integration This framework identifies three types of subsidiaries: active (high integration, high localization), receptive (high integration, low localization), and autonomous (low integration, high localization) Taggart (1998) extended this framework with one additional quadrant – quiescent subsidiary (low integration, low localization) Further, Taggart (1998) discussed strategy shift in an MNE’s subsidiaries, which called for an evolutionary perspective of subsidiary roles

The idea that subsidiaries have differentiated roles and certain degrees of freedom

in shaping their destiny (Bartlett & Ghoshal, 1986), and that subsidiaries are autonomous units able to define their own strategy (White & Poynter, 1984), is well established in the literature and has been extended in a number of directions (Birkinshaw, 2001) In particular, researchers have gone a step further to look at a subsidiary’s specialized or specific functional roles such as the knowledge provider or knowledge user within the MNE (Gupta & Govindarajan, 1991), as centers of excellence recognized by the MNE (Frost, Birkinshaw, & Ensign, 2002), and as regional (Sullivan, 1992) or divisional headquarters (Forsgren, Holm, & Johansaon, 1995)

semi-2.3.5 Subsidiary evolution stream

In the subsidiary role stream, research attention began to shift toward understanding the roles played by subsidiaries and implicit in this shift has been the concept of subsidiary evolution (Birkinshaw & Hood, 1998) Indeed, a dynamic analysis

concerned with how a particular subsidiary’s role might shift over time is more relevant than a static view focused on different types of roles This dynamic analysis ultimately becomes a common theme in the subsidiary evolution research stream

As concerns an evolutionary perspective in the MNE literature, the research focus falls within three areas The first area is the sequential approach that sees foreign direct investment as a sequential process (Kogut, 1983) It argues that additional investment in a foreign subsidiary is typically high-quality due to the MNE’s international capability building through sequential entry (Chang, 1995) The second area is an evolutionary perspective on an MNE’s overall structure, which argues that each phase of the evolutionary process represents a viable strategic response to then-existing challenges and opportunities and hence the focus of the process shifts over time (Malnight, 1995) According to these two areas of research, a subsidiary’s role may evolve with the level of the MNE’s international expansion (Kogut, 1983; Chang, 1995) or the maturity of the MNE (Malnight, 1995)

The third line of research contributes to a better understanding of the phenomenon of MNE subsidiary evolution, by providing a theory-based definition (Birkinshaw & Hood, 1998), by classifying the evolution process, and by identifying the driving factors of subsidiary evolution (Birkinshaw 1997; Birkinshaw & Hood, 1997, 1998; Taggart, 1998) Particularly, the visible manifestation of the MNE subsidiary’s role is its charter which refers to markets served, products manufactured, technologies held, functional areas covered, or any combination thereof (Galunic & Eisenhardt, 1996; Birkinshaw & Hood, 1998) According to Birkinshaw and Hood (1998), subsidiary evolution is defined in terms of (1) enhancement/atrophy in the subsidiary and (2) the

establishment/loss of the commensurate charter

Building on prior MNE subsidiary research and FDI theories, Birkinshaw and Hood (1998) identify three main drivers of MNE subsidiary evolution: head-office assignment, subsidiary choice, and local environmental determinism By analyzing the interaction between capability and charter change, Birkinshaw and Hood (1998) develop

a model with five generic subsidiary evolution processes: parent-driven investment, subsidiary-driven charter extension, subsidiary-driven charter reinforcement, parent-driven divestment, and atrophy through subsidiary neglect

A significant contribution of this literature is that subsidiary initiative has the potential to enhance local responsiveness, worldwide learning and global integration, resulting in a much broader role for a subsidiary than previously envisioned (Birkinshaw, 1997) An initiative, different from a charter or mandate (Birkinshaw, 1996), is essentially regarded as a corporate entrepreneurial process beginning with the identification of an opportunity and culminating in the commitment of resources to that opportunity (Birkinshaw, 1997) Further, four distinct types of initiatives have been introduced from the entrepreneurship literature (Kirzner, 1973) to the MNE subsidiary research, namely global, local, internal, and global-internal hybrid (Birkinshaw, 1997)

The main message conveyed in this literature is that subsidiary evolution needs continuous managerial effort, and that the lack of such an effort can potentially damage the competitiveness of both the subsidiary and the multinational corporation as a whole (Birkinshaw & Hood, 1997)

2.3.6 Subsidiary network stream

Building on inter-organizational theories such as social exchange (Emerson,

1962), resource dependency (Pfeffer & Salancik, 1978), and network theories (Granovetter, 1985), Bartlett and Ghoshal (1990) proposed a model of the MNE as an internally differentiated inter-organizational network Their conceptualization of organization-environment interactions in the MNE is as a complex network of resource exchanges between MNE subsidiaries and external actors, and across MNE subsidiaries within and across their different national environments (Ghoshal & Westney, 1993) This conceptualization created the subsidiary network stream, which views the MNE as a network of transactions along capital, knowledge, and product flows (Forsgren & Johanson, 1992; Gupta & Govindarajan, 1991)

Much of the work in this subsidiary network stream has focused on knowledge and innovation networks Indeed, over the last two decades, a group of researchers in global strategy and MNE subsidiary research (e.g., Hedlund, 1986; Bartlett & Ghoshal, 1989; Cantwell, 1989; Almeida, 1996; Birkinshaw, 1997; Zander, 1999; Frost, 2001; Frost et al., 2002; Feinberg & Gupta, 2004) have proposed the multinational as a geographically distributed innovation network, with the capacity to assimilate, generate, and integrate knowledge on a worldwide basis (Frost & Zhou, 2005: 676) This research stream has been extended in two directions: internal and external MNE networks

The first line of subsidiary network research emphasizes knowledge transfers within an inter-organizational network of differentiated MNE subsidiaries (an internal MNE network) According to the magnitude and direction of knowledge inflows and outflows within the MNE network, Gupta and Govindarajan (1991) classified subsidiary contexts into four different types: global innovator (high outflow, low inflow), integrated player (high outflow, high inflow), implementer (low outflow, high inflow) and local

innovator (low outflow, low inflow) Based on this classification, Gupta and Govindarajan (2000) further indicated three different levels of analysis on the flows of knowledge through the MNE network: nodal, dyadic, and systemic

Gupta and Govindarajan (2000) pursued a nodal level of analysis to examine the determinants (e.g., knowledge stock, absorptive capacity, and transmission channels) of both outflows and inflows of knowledge in a focal subsidiary Other studies directly addressed the issue of reverse technology transfer, a transfer of new knowledge by a foreign subsidiary back to the parent MNE (Håkanson & Nobel, 2000, 2001; Nohria & Ghoshal, 1997) In the setting of Swedish MNEs’ foreign R&D subsidiaries, Håkanson and Nobel examined how technology characteristics (2000) and organizational characteristics (2001) affected reverse technology transfer

Recent studies have begun to examine knowledge integration in MNEs, referring

to the utilization by one MNE subsidiary of knowledge originating in another (Cantwell

& Piscitello, 1999; Frost & Zhou, 2005) In particular, Frost and Zhou (2005) identify an important mechanism, namely R&D co-practice (technical activities undertaken jointly

by subunits in different geographic locations), and point to the importance of absorptive capacity and social capital as determinants of knowledge exchange among and between subsidiaries in the MNE network

The second line of subsidiary network research focuses on the MNE subsidiary’s external linkages with and embeddedness within local environments in the host country Researchers have produced evidence that MNEs do tap into local knowledge networks (Almeida, 1996; Kümmerle, 1999; Zander, 1999) This is particularly so among Japanese (Florida & Kenney, 1994) and Korean MNEs (Kim, 1997) Further, Frost’s (2001) work

explores the conditions under which foreign subsidiaries are more likely to source knowledge locally, and by using patent citation analysis, his study shows that innovative search is driven by the interplay between the subsidiary’s innovation strategy, evolving technical capabilities, and membership in the local knowledge sharing network Other studies have also documented MNE subsidiaries’ contributions to the local knowledge pool via its local networks in the host country (Feinberg & Gupta, 2004; Zhao, Anand, & Mitchell, 2005)

Apart from the research on MNE subsidiary’s internal network, the literature on subsidiary’s external network sees an MNE subsidiary as a bridge between the external and the internal network This line of thought explicitly builds on social embeddedness and social network theories (Granovetter, 1985; Uzzi, 1997; Burt, 1992; Dyer & Singh, 1998; Gulati, Nohria, & Zaheer, 2000), which points to the importance of relational embeddedness in external networks as a strategic resource for performance and competence development in MNEs (Andersson, Forsgren, & Holm, 2002) Andersson et

al (2002) examined the relationship between relational embeddedness, in terms of business and technical embeddedness, and subsidiary market performance and its role in the development of products and production processes in the whole MNE

2.4 A New Classification: Headquarters versus Subsidiary Perspective

This literature review covers to a large extent the major research streams in the MNE strategy, structure, and subsidiary literature Table 1 provides a summary of the prior literature on MNE strategy, structure, and subsidiary It shows the evolution of the literature, classification, research focus, and theoretical foundations of each of these six research streams

An HQ perspective looks at what determines the international success or failure of firms (Peng, 2004; Rumelt et al., 1994) in terms of MNE strategy, structure, and relationships as a whole In other words, it is an extension of corporate strategy research

to the international business field In contrast, while the MNE head office or corporate

HQ is still in the home country, MNE subsidiaries are dispersed in the different institutional environments of the host countries Consequently, the fundamental question from a subsidiary perspective becomes what determines the host country success or failures of firms with a focus on subsidiary strategy, role, and management

With this simple classification in mind, it is clear that the HQ perspective may include the first three research streams This is so because the strategy-structure stream is developed from a classic hierarchical perspective concerned with understanding why MNEs adopt certain structures, the HQ-subsidiary relationship stream essentially focuses

on how the center controls its subsidiaries, and the MNE process stream deals with such issues as strategic decision-making and organizational change in MNEs (Birkinshaw,

2001) Although the level of analysis in these three research streams is the MNE as whole, the subsidiary role research stream, together with the evolution stream and the network stream explicitly move the level of analysis down to the subsidiary (Ghoshal, 1986; Jarillo & Martinez, 1990) and hence are classified as subsidiary perspective

This new classification is a useful step toward a better understanding of the literature on MNE strategy, structure, and subsidiary On the one hand, it unambiguously points to the different levels of analysis in prior studies By doing so, researchers can link the theories in strategic management literature (theoretical foundations) to the phenomenological issues of various streams (research focus) in the MNE literature On the other hand, as suggested by Dess, Gupta, Hennart, and Hill (1995), although investigating research questions about the corporate and subsidiary levels of strategy and structure is important, research cannot and should not be confined to any one level, given their interdependent and interconnected nature

2.5 Limitations of Prior Studies

The research I have reviewed in this chapter has unquestionably contributed to our understanding of MNE strategy, structure, and subsidiary, yet each of these six research streams has its own limitations For example, prior studies centered around the strategy-structure model primarily emphasize formal structure as the critical or even the only organizational variable (Bartlett & Ghoshal, 1989), while the HQ-subsidiary relationship literature has limited contributions to theoretical developments and offered few research opportunities for future work (Birkinshaw, 1994) The MNE process literature has strong contributions from the I-R framework, but it lacks sufficient empirical tests with a rigorous methodology (Roth & Morrison, 1990) Moreover, the