Strategy requires problem-solving and tough choices
Subsidiary - “ a value-adding unit in a host country” (Birkenshaw & Hood, 1998)
Subsidiaries evolve over time -
– through the accumulation of resources
– Development of specialized capabilities
Whyte and Poynter (1984) examined the activities of foreign subsidiaries along three dimensions:
Using these three dimensions, they developed a classification system for examining subsidiaries strategies, each applying to a discrete business. Given that some subsidiaries have more than one line of business, they may employ a different strategy for each business.
They proposed five types of subsidiary strategy (see Tables below). The Table examines the activities performed by each different type of foreign subsidiary.
As you can see, a Marketing Satellite has a very limited role. It is simply responsible for marketing products manufactured elsewhere. This strategy is thus characterized by local market scope, and narrow scope for value added.
However, a Product Specialist and a Strategic Independent perform all the key activities.
|Type of Foreign
|Product Scope||Market Scope||Value-added
|Subsidiary Type||Service||Sales & Marketing||Distribution||Production||R&D|
The aim of a host country and the foreign subsidiary manager really should be to try and maximize the role of the foreign subsidiary.
Relatively few subsidiaries ever become a Product Specialist or a Strategic Independent, and there is a need for subsidiary entrepreneurship in order to maximize the chances of achieving this status.
|Types of Foreign Subsidiary Strategy: Bartlett & Ghoshal|
Bartlett & Ghoshal identified four types of organizational form (see Table below)
|Role of overseas Operations|
They suggested that the competitiveness of companies is constrained by the multinational, international and even global management models. Their solution is a new organizational form, the transnational.
They suggested that companies generally treated subsidiaries in a uniform manner, even though they were not all of equal importance to the company; they refer to this as the 'United Nations model'. Furthermore, they noted that companies perceived very different roles for headquarters, and for subsidiaries. The former coordinated activities, the latter simply implemented central or HQ orders.
This situation, they argued, created tension if not conflict between HQ and subsidiaries. It also rendered international assignments increasingly unpopular amongst home country-based executives.
Above all though, they suggested it limited the organizational capability of foreign subsidiaries in three ways:
However, Bartlett & Ghoshal noted that some companies did not conform to this conventional approach. Instead they assigned subsidiaries differentiated rather than homogenous roles, dispersing responsibilities rather than centralising them.
They identified three criteria for determining the strategic importance of a subsidiary:
They then identified four types of foreign subsidiary (see Table below).
Table: Bartlett & Ghoshal on Types of Foreign Subsidiary
|Type of Foreign
|Relationship Between Subsidiary Strategy and Corporate IB Strategy|
Given that most MNCs operate a High Foreign Investment Extensive Co-ordination international business strategy, not surprisingly most foreign subsidiaries are rationalized manufacturers.
By this, once again, we mean that the MNC uses plant specialization and focuses upon a narrow product range.
|Type of IB Strategy||Type of Subsidiary Strategy|
Export-based strategy, decentralized marketing
|Country centered||Miniature replica|
|High foreign investment,
extensive co-ordination among subsidiaries
|Purest global strategy||Product Specialist (possibly Strategic Independent)|