Multinational Enterprise Organizational Structures and Subsidiary Role and Capability Development: The Moderating Role of Establishment Mode

Multinational enterprises (MNEs) develop structural configurations for managing their geographically dispersed and disaggregated activities. These structures can be classified as (a) simple headquarters configurations (involves corporate, regional, divisional headquarters and mandated units) involving few direct reporting relationships; (b) network organizations involving no direct reporting relationships; and (c) matrix configurations involving multiple reporting relationships. While these structures are built for handling various complexities and purposes, it is unclear how they influence subsidiary role and capability development. We hypothesize how these structures influence subsidiary development and propose a moderating role of MNE establishment mode on the direct structure-subsidiary development relationship. Based on data from 429 foreign subsidiaries in New Zealand, our results show that subsidiary development varies across the structures such that simple headquarters configurations experience the least opportunities to develop. While the matrix and network structures as complex configurations offer distinct paths to subsidiary development, subsidiaries managed under the former are more likely to follow the developmental path of networking and interunit learning, and the subsidiaries managed under the latter are more likely to follow the path of autonomy and innovation. Furthermore, the positive association of network structure with subsidiary initiatives and autonomy is stronger for greenfield subsidiaries, whereas the positive association of matrix structure with subsidiary mandates is stronger for acquired subsidiaries.

An acquisition or a greenfield subsidiary? The impact of knowledge on sequential establishments in a host country

PurposeEstablishment of wholly owned subsidiaries in a foreign market is central to international marketing because sole ownership and high commitment facilitate firm's marketing in the local market. Drawing on knowledge-based theory, this study extends the current understanding of firm's sequential establishments of wholly owned subsidiaries in a host country.Design/methodology/approachSwedish firms' establishments of wholly owned subsidiaries in Germany, the United Kingdom and the United States were analyzed using a longitudinal approach.FindingsA firm's broad international experience is associated with an acquisition in any phase, while mode experience and value-adding experience are associated with postinitial acquisitions. There is no association between mode experience and greenfield investments.Research limitations/implicationsKnowledge-based theory explains a firm's choice of establishment mode when establishing in the same host country. Effects of marketing experiences are due to the establishment mode and different experiences explain choices for initial and postinitial establishments.Practical implicationsIn choosing between a wholly owned subsidiary in terms of an acquisition or a greenfield investment, for a foreign establishment the firm is advised to consider the impact of marketing experiences and establishment phase.Originality/valueResearch is needed on how experiences affect choices between foreign establishment modes where the firm is the sole owner. This study is the first to focus on the choice between wholly owned subsidiaries in terms of acquisitions and greenfield investments, and the impact of experience and phase of establishment in a particular host country.