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Functional Responsibilities of Subsidiaries: Theoretical Perspective

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The Role of the Subsidiary in International Business

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Abstract

The chapter discusses theoretical background for the phenomenon of subsidiaries’ functional specialization. The first two sections present basic assumptions of internalization theory and business network theory, discuss how they perceive the role of subsidiaries within the multinational enterprise, and explain the existence of subsidiary specialization in activity sets within the multinational enterprise’s value network. The last section of the chapter concentrates on the phenomenon of competing for functional responsibilities within the multinational enterprise. It focuses on reasons for this competition, and presents its various forms and consequences from the perspective of HQs and subsidiaries. The arguments presented in this chapter, together with the real-life examples of ongoing functional changes occurring at a subsidiary level, highlight that the subsidiaries’ functional responsibilities are becoming an increasingly important issue.

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Notes

  1. 1.

    While discussing the theories of multinational firms, Forsgren (2017) refers to TCE, internalization theory, organizational capability perspective, contingency theory, business network theory, and institutionalization theory. Nevertheless, while presenting internalization theory he does not consider new internalization theory (e.g., Rugman and Verbeke 1992, 2001, 2003, 2009), which integrates at least major aspects of the organizational capability perspective with the classical internalization theory. At the same time, due to the focus of this book on functional responsibilities of a subsidiary and its resulting role, contingency theory and institutionalization theory exceed this book’s research scope.

  2. 2.

    This assumes a central position for the HQs that decide on distribution of work and control assignment of tasks. This approach also assumes one-way flows of knowledge from HQs to subsidiaries, in which the subsidiary is positioned at the receiving end of knowledge transfer from the HQs, and merely focuses on the optimal exploitation of this knowledge (Rugman and Verbeke 2003).

  3. 3.

    Similar to the approach of Forsgren (2017), in this book the eclectic paradigm of international production (OLI paradigm; Dunning 1980, 1981, 1988a, b) is not discussed separately, as its assumptions are already incorporated in new internalization theory. In particular, ownership advantage is reflected through the concept of FSA , location advantage is represented by country-specific advantages, and internalization advantage is one of the preconditions for FDI existence (Rugman and Verbeke 1992, 2003; Hennart 2009).

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  1. Department of International Competitiveness, Poznań University of Economics and Business, Poznań, Poland

    Marlena Dzikowska

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Dzikowska, M. (2019). Functional Responsibilities of Subsidiaries: Theoretical Perspective. In: The Role of the Subsidiary in International Business. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-17527-6_2

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