Multinational Corporation Subsidiaries in China: An Empirical Study of Growth and Development Strategy

Chandos Asian Studies Series: Contemporary Issues and Trends

Multinational Corporation Subsidiaries in China

An empirical study of growth and development strategy

Jinghua Zhao

Jifu Wang

Vipin Gupta

Tim Hudson

Table of Contents

Cover image

Title page

Copyright

List of figures and tables

About the authors

Part 1: Overview and conceptual building blocks

Chapter 1: Introduction

Abstract:

Need for this study

Practical significance of this study

Purpose and methods

Chapter 2: Conceptual building blocks

Abstract:

Multinational corporations (MNCs)

MNC subsidiaries

Growth and development strategy system

Strategy evolution of MNC subsidiaries

Part 2: Theoretical background and methodology

Chapter 3: Theoretical background

Abstract:

Evolution of MNC theory

Evolution of MNC overseas subsidiaries strategy

Chapter 4: Empirical research on growth and development strategy

Abstract:

Analytical model

Sample selection

Statistical methods

Hypotheses on the behaviours of MNC subsidiaries in China

Part 3: Hypothesis testing and analysis

Chapter 5: Strategic intent: investment and competitive factors

Abstract:

Hypotheses

Findings and analysis

Summary

Chapter 6: Corporate and functional strategies

Abstract:

Hypotheses

Findings and analysis

Summary

Part 4: Conclusions

Chapter 7: Conclusions

Abstract:

Growth and development strategies

Strategic system for MNC subsidiaries

Implications for practice and further research

Implications for policy-makers

References

Index

Copyright

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First published in 2012

ISBN: 978-1-84334-605-0 (print) (Chandos Publishing)

ISBN: 978-0-85709-163-5 (print) (Woodhead Publishing)

ISBN: 978-1-78063-333-6 (online)

© J. Zhao, J. Wang, V. Gupta and T. Hudson, 2012

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List of figures and tables

Figures

2.1. SWOT analyses for general business 15

2.2. Analytical model of MNC subsidiary strategy system 18

3.1. Three stages model for MNC product life cycle 28

3.2. History of US MNC development strategy 37

3.3. Model of US MNC development strategy 38

3.4. Model of Japanese MNC development strategy 40

3.5. Stage model of Stopford and Wells (1972) 49

3.6. Bartlett and Ghoshal’s (1989) chart of multinational organisations 49

3.7. Multinational organisation model 50

3.8. International organisation model 51

3.9. Global organisation model 51

3.10. Transnational organisation models 52

3.11. Control and coordinated model of Ghoshal and Nohria 58

3.12. Bartlett and Ghoshal’s classification of strategic task model 65

3.13. Jarillo and Martinez’s model of subsidiary roles 68

3.14. Role of node in knowledge flow 69

3.15. Taggart’s C–C subsidiaries strategy model 71

3.16. Evolution models of overseas subsidiaries 76

3.17. Factors affecting overseas subsidiary evolution 78

4.1. Flowchart of the empirical analysis 82

4.2. Conceptual analytical framework 83

5.1. MNC entry investment modes, n = 118 97

5.2. Classification of subsidiaries by perceived SWOT 114

5.3. Strategic trend 133

6.1. Integration and localisation indices by time of entry 151

6.2. Labour confrontations by perceived SWOT postures 177

7.1. Research model for growth and development strategy 195

7.2. Mechanism formulation elements 196

7.3. Map of MNC subsidiaries’ role evolution 205

7.3. S-SWOT analysis framework for MNC subsidiaries 209

7.5. Selection framework for overseas subsidiaries’ growth and development strategy 211

7.6. Overseas subsidiaries’ growth and development strategic system 214

Tables

3.1. MNC strategy evolution and MNC structures 34

3.2. Comparison of four MNC organisational models 53

3.3. Control of the parent company over subsidiaries’ operations 55

3.4. Control tools 57

3.5. Classification of control mechanism 59

3.6. Evolution of control mechanisms 61

3.7. Summary of studies on subsidiary roles 73

4.1. Sample characteristics 86

5.1. Growth and development factors 93

5.2. Growth indicators for MNC subsidiaries in China 93

5.3. Investment expansion motives for MNC subsidiaries in China 93

5.4. Items used for performance measures 94

5.5. Items used for competitive advantage 95

5.6. First entry method by time of entry, chi square test 98

5.7. First entry method by country 98

5.8. Average tenure by country 99

5.9. Present investment mode by relative market share, chi square test 100

5.10. Changes in foreign shareholding ratio statistics 100

5.11. Reasons for change in foreign shareholding ratio 102

5.12. Reasons for change in foreign shareholding ratio by direction of change 103

5.13. Growth and development factors statistics 104

5.14. Growth and development factors by country 106

5.15. Further investment motives 107

5.16. Factor analysis of the further investment motives 108

5.17. Types of value chain activity 110

5.18. Performance criteria expected by MNC parents 111

5.19. Performance measures focused on by MNC subsidiaries 112

5.20. Classification of subsidiaries by perceived SWOT 115

5.21. Factors influencing strategic position of subsidiaries in MNC network 116

5.22. Significance of competitive advantage factors 117

5.23. Three most significant competitive advantage factors by country 118

5.24. Comparison of competitive edge of different country MNC subsidiaries in China 118

5.25. Selected competitive advantage factors by country 119

5.26. Three most significant competitive advantage factors by industry 120

5.27. Competitive advantage factors by industry, Kruskal-Wallis test 121

5.28. Competitive advantage factors by relative market share, Kruskal-Wallis test 122

5.29. Competitive advantage factors – mean differences based on relative market share 123

5.30. Competitive advantage factors by perceived SWOT posture 124

5.31. Competitive advantage factors by perceived SWOT posture, ANOVA 125

5.32. Competitive advantage initiatives, statistics 126

5.33. Three most significant competitive advantage initiatives by country 127

5.34. Competitive advantage initiatives by country, ANOVA 127

5.35. Three most significant competitive advantage initiatives by industry 128

5.36. Competitive advantage initiatives by industry, mean difference test 129

5.37. Competitive advantage initiatives by relative market share 130

5.38. Selected competitive advantage initiatives by perceived SWOT posture, statistics 131

5.39. Selected competitive advantage initiatives by perceived SWOT posture, ANOVA 131

5.40. Selected competitive advantage initiatives by perceived SWOT posture, mean differences test 132

5.41. Competitive advantage factors and initiatives by perceived SWOT posture 133

5.42. Summary of results of strategic intent hypothesis testing 134

6.1. Items to measure strength of ties 138

6.2. Measuring integration and localisation pressures 139

6.3. Items to measure funding channels 140

6.4. Strength of ties with parent, statistics 142

6.5. Strength of ties with parent by time of entry, Kruskal-Wallis test 143

6.6. Strength of ties with parent by country, chi square test 144

6.7. Strength of ties with other subsidiaries, chi square test 144

6.8. Strength of ties with parent by HQ location, statistics 146

6.9. Strength of ties with parent and other subsidiaries, statistics 147

6.10. Integration and localisation, statistics 148

6.11. Localisation of various functional strategies, statistics 149

6.12. Localisation of various functional strategies by overall localisation pressure, correlation 150

6.13. Integration and localisation pressures by time of entry 151

6.14. Motives for mergers and acquisitions 153

6.15. Motives for strategic alliances 154

6.16. Avenues for financing, statistics 155

6.17. Avenues for financing by ownership status, ANOVA 156

6.18. Avenues for financing by ownership status, statistics 158

6.19. Avenues for financing by country, Kruskal-Wallis 158

6.20. Avenues for financing by country, statistics 159

6.21. Avenues for financing by age, test 159

6.22. Avenues for financing by age, statistics 160

6.23. Composition of sales channels, statistics 161

6.24. Strategic motives in China of selected MNCs 162

6.25. Marketing local decision-making autonomy areas, statistics 163

6.26. Marketing endeavour areas, statistics 164

6.27. Top three marketing endeavour areas by country 166

6.28. Export and domestic sales by country 167

6.29. Selected marketing decision-making autonomy areas by export ratio, mean differences 168

6.30. Areas of knowledge flow with parent, statistics 169

6.31. KSF impacting knowledge flow with parent, statistics 170

6.32. Areas of knowledge flow with parent by industry 171

6.33. Areas of HR autonomy, statistics 172

6.34. Origins of senior leadership, statistics 173

6.35. Percentage of expatriate department heads by function 175

6.36. HR decision-making autonomy by country, Kruskal-Wallis test 175

6.37. Labour confrontation by perceived SWOT postures, statistics 177

6.38. Significance of various types of innovations, statistics 179

6.39. Significance of various R&D funding sources, statistics 180

6.40. Decision modes for R&D projects, statistics 180

6.41. Significance of procedures to enhance R&D capabilities, statistics 181

6.42. Procedures to enhance R&D capabilities by strength of IPR protection, Kendall’s Tau correlation 183

6.43. Selected innovation types by country, mean difference test 184

6.44. Innovation types by industry, statistics 184

6.45. Percentage distribution of most significant strategic blunder 186

6.46. Reasons for strategic blunders, statistics 187

6.47. Hypotheses testing results summary 188

7.1. Overseas subsidiaries’ evolution stages and features 206

About the authors

Jinghua Zhao (PhD from Nanjing University) is a professor in strategy and the dean of the School of Government at China Central University of Finance and Economics. His research focus is on strategy in multinational companies (MNCs) and government. He has published more than 50 journal articles and 7 books.

Jifu Wang (PhD from Auburn University) is an associate professor at the School of Business Administration of the University of Houston. He was the president of US Geneses Global Capital and the chairman of Lanfu Global LLC before he came back to the academic world in spring 2012. He functioned as acting dean, management department chair and an associate professor at the School of Business Administration of the University of Houston, Victoria, for more than 10 years. He also served as an executive in top management teams for several group companies in China’s Shenzhen Special Economic Zone and has rich management experience and skills in international business. His research interest includes global strategy and organisational change, and he has published 36 refereed journal articles and several books and book chapters in global strategy with focus on core competence and capable organisations.

Vipin Gupta (PhD from Wharton School) is a professor and co-director, Global Management Center at the College of Business and Public Administration, California State University, San Bernardino. He has published more than 125 refereed journal articles and book chapters, and several books, focused on three research streams. First, the dynamic modelling of technological growth and organisational performance, transformation and sustainability, incorporating global and local factors, and trading and human factors – the subject of his PhD dissertation, as well as his two books and a strategy textbook. Second, analysis of societal and organisational cultures, the ontology and epistemology of cultural influences on individual, corporate, national and regional level behaviours and development, and the role of institutions, strategy and policy in cultural and gender inclusion – he is the principal co-investigator and co-author of the award-winning GLOBE project on culture and leadership in 62 societies. Third, analysis of how culture influences family business models in different regions of the world – he has lead-edited 11 books on this theme.

Tim Hudson (PhD from Clark University) is the vice chancellor of the Texas Tech University system. He was the president of the University of Houston, Victoria, for six years. His research interests include international development, globalisation and cultural aspects of markets, international education and leadership. He is a member of the International Association of University Presidents. He has conducted research, worked and led student groups in more than 40 countries around the world. He received an honorary doctorate from London Guildhall University for his lifetime commitment to fostering international understanding.

Part 1

Overview and conceptual building blocks

1

Introduction

Abstract:

In this chapter, we discuss the need for new empirical research on the growth and development strategy of multinational corporation (MNC) subsidiaries in China. We explain the purpose of the new research reported in this book.

Key words

MNC subsidiaries

growth and development strategy

empirical research

MNCs in China

Need for this study

Multinational corporations heavily influence the strategy of their overseas subsidiaries. Several studies have investigated the relationship between MNC overseas subsidiaries and their parent companies (Bartlett and Ghosha, 1986; Jarillo and Martinez, 1990; Prahalad and Doz, 1987; Taggart, 1996; Gupta and Govindarajan, 1991; Birkinshaw and Morrison, 1995). A common element of these studies is a focus on how overseas subsidiaries handle the pressures and the balance between globalisation needs and local demand while formulating their strategy.

With the increasing importance of subsidiaries’ function and contribution in the overall development of MNCs, the study of subsidiaries’ enterprise development has been of great recent interest (Pan and Lu, 2003). Perspectives such as enterprise network theory, resource-based theory and enterprise development theory have been applied