Strategic Evolution of Foreign-owned Subsidiaries in a Host Country: a Conceptual Framework

Abstract

During the last few years, researchers have become increasingly interested in better understanding changes in subsidiary roles over time (Holm and Pedersen, 2000; Papanastassiou and Pearce, 1998; Pearce and Papanastassiou, 1999; Taggart, 1996, 1998a; see Birkinshaw and Hood, 1998a for a review). It is commonly accepted that the management relationship between the headquarters and subsidiaries evolves, as the internationalisation process unfolds (Brooke and Remmers, 1978; Forsgren et al., 1992; Fratocchi and Holm, 1998). In some cases, subsidiaries start to adjust products received from the parent firm, and adapt them to local market needs. Eventually, they may become less dependent on headquarters for competence and able to carry out their activities on the basis of local competence. In this way, the parent firm and the home country of the corporation become less vital for the subsidiary, while the host country starts playing an important role for subsidiary evolution. Yamin (chapter 12) argues that because of environmental fragmentation foreign subsidiaries are organisationally ‘isolated’ from other parts of the multinational corporation (MNC). To compensate, they tend to develop close linkages with the host country and become embedded in local and regional environments. One may argue that subsidiary evolution is driven by the dynamism of the host country, and by the subsidiary’s ability to access resources from the multinational corporation and the parent company (Birkinshaw and Hood, 1998b).