Journal of World Business 50 (2015) 149–158
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Journal of World Business
journal homepage: www.elsevier.com/locate/jwb
Integration and responsiveness in subsidiaries in emerging economies
Klaus E. Meyer a,1, Yu-Shan Su b,*
a
b
China Europe International Business School, 699, Hongfeng Road, Pudong, Shanghai 201206, China
National Taiwan Normal University, 162, Sec.1, He-ping E. Road, Taipei 106, Taiwan
A R T I C L E I N F O
A B S T R A C T
Article history:
Available online 2 May 2014
The integration-responsiveness (IR) framework with the typology of international, multi-domestic,
global and transnational MNE strategies has become a standard in international management textbooks.
In particular, the ‘transnational strategy’ is advocated by some gurus, but considered unworkable by
other scholars. Yet, despite the popularity of the framework, and the concept of ‘transnational strategy’
in particular, surprisingly little evidence exists for under which conditions this strategy is most
appropriate. This paper revisits the typology using a contingency approach suggesting that the
transnational strategy works well if it ‘‘fits’’ with other elements of a subsidiary’s strategy. We test
hypotheses derived from this perspective on a sample of subsidiaries in two emerging economies. We
find that transnational strategy enhances subsidiary performance in particular if the subsidiary is wholly
owned, if it was not established by acquisition, and if it is highly export oriented.
ß 2014 Elsevier Inc. All rights reserved.
Keywords:
Integration
Responsiveness
Contingency framework
Subsidiaries
Emerging economies
1. Introduction
The merits of standardization and localization of products and
processes have been a pivotal theme in international strategic
management research. A leading framework is the integrationresponsiveness (IR) framework. Following Prahalad and Doz
(1987), Bartlett and Ghoshal (1989) argue that local responsiveness and global integration can indeed be achieved simultaneously, and develop a typology based on a matrix of four strategies:
international, multi-domestic, global and transnational. This
typology has become a standard analytical tool in strategic
management (e.g., Hill & Jones, 2013) and international business
textbooks (e.g., Peng, 2014; Peng & Meyer, 2011).
Bartlett and Ghoshal recommend that multinational enterprises (MNEs) pursue a transnational strategy combining both
global integration and local adaptation. Yet even companies they
highlight as role models have since struggled, and have reverted to
more ‘global’ organizational structures. Recent textbooks thus
suggest that the ‘transnational’ strategy is rather idealistic and
most firms have to make critical choices between global
integration and local adaptation (e.g., Peng, 2014; Verbeke,
2013). However, solid empirical evidence regarding the merits
* Corresponding author. Tel.: +886 2 7734 3390; fax: +886 2 2392 9449.
E-mail addresses: [email protected] (K.E. Meyer), [email protected] (Y.-S. Su).
1
Tel.: +86 21 2890 5647; fax: +86 21 2890 5678.
http://dx.doi.org/10.1016/j.jwb.2014.04.001
1090-9516/ß 2014 Elsevier Inc. All rights reserved.
of alternative types of strategy is surprisingly scarce. Few studies
actually present solid evidence if and for whom either strategy
would actually enhance subsidiary performance, as acknowledged
by Ghoshal (1987) himself.
Our starting point for revisiting the Bartlett and Ghoshal
typology is that the quest for generally applicable rules or
performance effects may be futile because different strategies
are effective for different types of subsidiaries. In particular, a
transnational strategy combining global integration advantages
with local responsiveness put high demands on the organization
itself, such that it is not beneficial for every subsidiary. Therefore, a
contingency framework is required to assess the merits of
alternative strategies, and to identify under which conditions
respectively global, multi-domestic and transnational strategies
enhance subsidiary performance (Grewal, Chandrashekaran, &
Dwyer, 2008; Katsikeas, Samiee, & Theodosiou, 2006; Roth, 1995).
Hence, our research question is: For which subsidiaries does a
transnational strategy enhance subsidiary performance?
Recent advances on knowledge management in MNEs emphasize the importance of knowledge exchanges and control mechanisms for different MNE strategies (Andersson, Forsgren, & Holm,
2002; Meyer, Mudambi, & Narula, 2011; Monteiro, Arvidsson, &
Birkinshaw, 2008). The four types of strategy vary in the
complexity of internal coordination and knowledge flows (Harzing, 2000; Pla-Barber, 2002; Wolf & Egelhoff, 2002). International
strategies involve little explicit exploitation of either global
integrating advantages or local adaptation advantages, and
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K.E. Meyer, Y.-S. Su / Journal of World Business 50 (2015) 149–158
thus limited ongoing exchange of knowledge. Global strategies
integrate strategic decisions and centralize core operations;
knowledge flows thus are primarily top down, and control is
tight. Multi-domestic strategies assign subsidiaries a specific scope
with respect to local markets, but allow more local adaptation.
Transnational strategies create the most complex coordination
challenges. They involve extensive intra-organizational trade,
strategic coordination and knowledge exchange not only between
headquarters and subsidiaries, but across subsidiaries in different
countries. The different subsidiaries of the MNEs thus are highly
interdependent both strategically and operationally (Harzing,
2000). To enable such complex coordination, the MNE needs not
only formal structures but informal mechanisms (Foss, Husted, &
Michailova, 2010; Tallman & Chacar, 2011). Bartlett and Ghoshal
(1987, 1989) thus advocated the need for distinct organizational
capabilities and a shared organizational culture that encourages
cooperation and knowledge sharing. Extending this line of thought,
we argue that a transnational strategy can have a positive effect on
subsidiary performance if it ‘fits’ with other aspects of the
subsidiary strategy.
The trade-offs between integration and responsiveness are
particularly pertinent in countries with a distinct local business
environment that inhibits the smooth transfer of business models.
Especially in emerging economies, institutional frameworks often
require idiosyncratic adaptations, while the local resource
endowment is typically rich in labor but short of specialist
human capital (Luo, 2003; Meyer & Peng, 2005; Xu & Meyer,
2013). In consequence, we expect a larger variation of strategies
adopted by MNEs operating in such countries, and have thus
chosen as our empirical field two emerging economies, Poland and
Hungary. Our data are drawn from a questionnaire survey and
include 345 observations of subsidiaries of MNEs. The dataset thus
provides a rich variation of corporate strategy in a rapidly evolving
context. Our results support our theoretical expectations that
transnational strategies outperform other strategies if they fit
with other aspects of the subsidiary strategy, specifically full
ownership, establishment not by acquisition, and a high degree of
export orientation.
This paper contributes to the literature in several ways. First, we
develop a contingency perspective and offer empirical evidence on
one of the most popular sets of concepts in the international
strategy literature, transnational strategy, and the underlying the
integration-responsiveness framework (Bartlett & Ghoshal, 1989),
which to date suffers from a lack of empirical verification of its
performance implications. Second, we offer new insights into
subsidiary performance extending work on parent-subsidiary
relationships (Birkinshaw & Morrison, 1995; Fang, Wade, Delios,
& Beamish, 2013; Nell & Ambos, 2013; Tang & Rowe, 2012; Tian &
Slocum, 2014) to show how strategy affects performance at the
subsidiary level.
2. Conceptual Foundations
2.1. The integration responsiveness (IR) framework
In the 1980s and early 1990s, scholars began to systematically
investigate the strategies of MNEs along the dimensions of local
adaptation and global integration. Early studies tend to treat these
dimensions as opposite poles of the same scale, or at as two highly
correlated scales (Dow, 2006; Luo, 2001; Roth & Morrison, 1990;
Venaik, Midgley, & Devinney, 2005). Prahalad and Doz (1987)
challenge this approach suggesting that the two dimensions are
not exclusive but can be combined if suitable organizational
structures are created and implemented. They thus introduce the
notion of a ‘multi-focal’ corporation that simultaneously is locally
responsive and globally integrated.
These ideas are further developed by Bartlett and Ghoshal
(1987, 1989), who develop the now famous 2 2 strategy matrix
with the dimensions local responsiveness and globally integration,
and identified four types of strategy. A global strategy focuses on
global integration at the expense of local responsiveness, thus
integrating organizational processes to a high degree and
benefitting from economies of scale and scope as well as from
integrated learning across a global organization. A multi-domestic
strategy focuses on local responsiveness, for instance by offering
locally adapted products in each market, yet foregoes potential
economies of scale.2 An international strategy, also known as
home-replication strategy (Peng, 2014), is low on both global
integration and local responsiveness. It thus benefits from neither
economies of scale nor fit to local consumers, and thus is largely
treated as an inferior strategy chosen only by MNEs with little
international experience.
Bartlett and Ghoshal (1987, 1989) focus on the transnational
strategy, which combines the benefits of global scale and learning
with the benefits of locally adapted products and processes. It is
associated with high levels of intra-MNE trade in goods and services,
as well as extensive lateral knowledge flows. A transnational
strategy also allows selected subsidiaries to become strategic
centers for a particular product or technology (Harzing, 2000). It is
thus associated with extensive knowledge flows not only vertically
between headquarters and subsidiaries, but horizontally between
different subsidiaries (Ghoshal & Bartlett, 1990; Gupta & Govindarajan, 2000; Kostova & Roth, 2003). In fact, every subsidiary is
embedded in a different local community of practice, and the
competitive advantage of the transnational MNE is to a large extend
created by organizational learning that connect, integrates and
exploits this geographically dispersed knowledge (Andersson et al.,
2002; Chang, Gong, & Peng, 2012; Johnson, Arya, & Mirchandani,
2013; Meyer et al., 2011; Monteiro et al., 2008; Tallman & Chacar,
2011). Hence, subsidiaries are not only recipients of knowledge
from the parent, but an important source of knowledge that
contributes to the resource-base and the competitiveness of the
MNE (Mahnke et al., 2005; Yang et al., 2008).
How do companies achieve integration and responsiveness
simultaneously? Bartlett and Ghoshal (1987, 1989, 1993) suggest a
combination of organizational capability, collaborative organizational culture and a matrix structure that facilitates intensive
horizontal knowledge exchange within the organization. They
present for example the cases of Ericsson (of Sweden) ABB (of
Sweden and Switzerland) and Acer (of Taiwan), who at the time
had adopted respectively a matrix-structure and a network
structure of strategic and regional business units to achieve both
high degrees of global coordination and responsiveness to local
markets.
However, the transnational strategy – and especially the matrix
organization needed to implement it – has been criticized as being
overly ambitious, creating complex intra-organizational processes
that create conflicts of interest, generate counterproductive
organizational politics, and weaken incentives for individual
business units (Midgely & Venaik, 2000; Chen, Chen, & Ku,
2012; Devinney et al., 2000; Foss, Husted, & Michailova, 2010;
Mudambi, Pedersen, & Andersson, 2014). In fact, Ericsson, ABB and
Acer went through periods of major strategic change when their
strong organizational culture hit its limits in an organization of
growing scope and complexity. We take this discussion forward by
focusing on the interdependence of different elements of business
strategy. Transnational strategy enhances subsidiary performance
only if the complex coordination and knowledge management
2
Bartlett and Ghoshal (1989) use the term ‘multinational’ for this strategy, but
later authors adopted the term multi-domestic to avoid confusion with the concept
of MNE, which encompasses firms pursuing any of these strategies.
K.E. Meyer, Y.-S. Su / Journal of World Business 50 (2015) 149–158
challenges it creates are consistent with other aspects of the
subsidiary strategy.3
2.2. Antecedents and consequences
Earlier empirical studies find different types of strategy to be
associated with different types of MNEs of either strategy in terms
of organizational (Harzing, 2000; Johnson et al., 2013; Luo, 2001;
Roth & Morrison, 1990; Rugman & Verbeke, 1992) or environmental characteristics (Ghoshal & Nohria, 1993; Meyer & Estrin, 2014).
In particular, companies with non-location bound advantages
created centrally and exploited throughout the organization are
more likely to pursue a global strategy. On the other hand, MNEs
competing to a large extend on the basis of location bound
advantages that they combine at each location with the global,
non-location bound advantages can do so with a multi-domestic
strategy (Harzing, 2002; Rugman & Verbeke, 1992). For example,
Kobrin (1991) finds that technology intensity and advertising
intensity favor global integration, while Harzing (2000) reports
high intensity of global competition and low intensity of local
competition to be associated with transnational strategy.
The merits of alternative strategies have been extensively
discussed in the marketing literature, which focuses specifically on
the standardization or adaptation of products and of marketing
processes (Birnik & Bowman, 2007; Cavusgil, Zou, & Naidu, 1993;
Grewal et al., 2008; Katsikeas et al., 2006; Laroche, Kirpalani, Pons,
& Zhou, 2001; Roth, 1995; Schuh, 2001; Solberg, 2000) and the
impact on marketing innovation in the MNE (Venaik et al., 2005).
However, Bartlett and Ghoshal (1989) strategy types are broader
than just marketing; they concern all aspects of the headquartersubsidiary relationship, and thus have implications for example for
human resource practices (Dickmann & Müller-Camen, 2006;
Fenton-O’Creevy, Gooderham, & Nordhaug, 2008; Kim & Gray,
2005) and configurations of information technology (Manwani &
O’Keefe, 2003). At the level of subsidiaries, the MNE’s strategy
influences, among other effects, a subsidiary’s engagement with its
local environment in terms of political activity (Blumentritt &
Nigh, 2002) and corporate social responsibility (Bondy & Starkey,
2014; Husted & Allen, 2006). It also impacts on the individuals
working in the subsidiary, notably the use of expatriates in
leadership roles (Chang et al., 2012; Gaur, Delios, & Singh, 2007)
and the career paths of both global and local employees (Newburry, 2001). In our hypothesis development, we explore how the
implemented strategy at the subsidiary level fits with other
aspects of subsidiary strategy, and hence influences subsidiary
performance.
3. Hypothesis development
3.1. A contingency perspective on subsidiary performance
The performance of subsidiaries is contingent on a wide range
of organizational and contextual variables at both the subsidiary
and parent level. For example, Chan, Makino and Isobe (2010) in a
variance decomposition analysis find that about 19% of subsidiary
performance is explained by parent level variables, and 14–17% by
subsidiary level variables. Hence, both parent and subsidiary level
strategy variables are critical for subsidiary performance. Specific
influences on subsidiary performance identified in the literature
include marketing standardization/adaptation (Grewal et al.,
3
While [0] the transnational strategy is associated with a matrix organization,
other strategies require less complex organizational arrangements: international
strategies typically use an international division parallel to the domestic divisions,
global strategies are associated with functional divisions, while multi-domestic
strategies use geographic divisions (Egelhoff, 1982; Pla-Barber, 2002; Wolf &
Egelhoff, 2002).
151
2008; Katsikeas et al., 2006; Tian & Slocum, 2014), cultural
distance (Gaur et al., 2007), local density (Miller & Eden, 2006),
subsidiary isolation (Monteiro et al., 2008), subsidiary independence (Subramaniam & Watson, 2006), the use of expatriate
managers (Fang, Jiang, Makino, & Beamish, 2010) and external
networks (Andersson et al., 2002). Relatedly, subsidiary performance benefits from knowledge received from other entities of the
MNE, a key feature of global and transnational strategies (Chang
et al., 2012; Fang et al., 2013; Tang & Rowe, 2012; Tian & Slocum,
2014).
An important implication of this contingency perspective is that
studies of the performance implications of integration/responsiveness strategies at the subsidiary level need to incorporate its fit with
other aspects of subsidiary strategy. In other words, performance is
contingent on the contextual factors that led to the choice of strategy
in the first place (Katsikeas et al., 2006; Oladotttir, Hobdari,
Papanastassiou, Pearce, & Sinani, 2012; Roth, 1995). For example,
Grewal et al. (2008) find the effectiveness of global strategies to be
contingent on the munificence of the local environment, that is its
market potential relative to other markets. This contingency arises
because different strategies fit different purposes. What is best for
one firm is not necessarily good for another firm.
In consequence, our baseline argument is that it is not possible
to predict performance effects of alternative form for an aggregate
sample. Our analysis investigates under which circumstances
subsidiaries perform better when managed under a transnational,
global, multi-domestic or international strategy.
3.2. Establishment mode
A key aspect of organizational context the form of establishment:
acquired firms tend to carry the heritage of a previously existing
organization whereas greenfield projects are created to the design of
the MNE (Kogut & Singh, 1988). A cooperative organizational culture
is difficult to transfer to new organizational units that already have a
different inherited structure, or a strong identity of their own. This
applies in particular when a subsidiary joins the MNE by way of
acquisition of a formerly independent firm. Each firm has its own
organizational structures and cultures, which acquirers find hard to
change, especially when this culture is embedded in a different
national culture. Hence, post-acquisition restructuring is a major
challenge for international acquisitions (Birkinshaw, Bresman, &
Hakanson, 2000; Capron & Guillén, 2009; Zollo & Singh, 2004),
especially in emerging economies where many firms carry
inheritances of state-ownership and central planning (Estrin &
Meyer, 2011; Filatotchev, Stephan, & Jindra, 2008).
Foreign investors that intend to implement a transnational
strategy will find these obstacles to integration particularly hard to
overcome. Their strategy is highly dependent on a shared
organizational culture, which requires creating appropriate internal coordination processes between existing and acquired business
units. Hence, a new subsidiary needs to be tightly integrated in the
MNE’s organization, including coordination mechanisms and
organizational culture. Likewise, a global strategy requires tight
integration into an existing hierarchy. Hence, MNEs pursuing a
transnational or global strategy would face particularly high costs
of post-acquisition restructuring, and a high chance that this
restructuring fails to ‘fit’ the acquired business units into the
structures of the MNE. They may thus use greenfield project to
create new operations that optimally fits with their global
organization (Hennart & Park, 1993; Kogut & Singh, 1988).
MNEs with an international or multi-domestic strategy may
pursue acquisitions as a mode of entry because they may need local
resources that enable a high degree of local responsiveness
(Harzing, 2002). Moreover, they need less coordination and
knowledge exchange with the subsidiary, and thus can provide
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K.E. Meyer, Y.-S. Su / Journal of World Business 50 (2015) 149–158
the acquired subsidiary with a high degree of independence.
Therefore, we expect that firms growing by acquisition would face
more problems when trying to implement a transnational or global
strategy compared to a multi-domestic or international strategy
(note that we abstain from a prediction on transnational versus
global strategy):
Hypothesis 1. In acquired subsidiaries, multi-domestic and international strategies are more positively associated with subsidiary
performance than transnational strategy.
3.3. Ownership
The organizational context of a subsidiary also varies with the
equity control of the MNE over the subsidiary, with higher equity
control in wholly owned subsidiaries (WOSs), compared to joint
ventures (JVs). Such control is important in particular when a
subsidiary needs to coordinate complex actions in great details
with other units within the MNE. Moreover, exploring and
exploiting resources and capabilities across operations is greatly
facilitated by full control over the strategy of the subsidiary
(Filatotchev et al., 2008; Mudambi, 1999). In a transnational
strategy, it is also important that knowledge flows not only
between HQ and subsidiary but between different subsidiaries
within the network of the MNE (Kostova & Roth, 2003; Michailova
& Mustaffa, 2012; Monteiro et al., 2008). Such complex
interactions need an appropriate balance of normative and
formal control mechanisms (Foss et al., 2011). These mechanisms
are however hard to implement in JVs because shared control
slows down strategic decision making and implementation
processes. In fact, many JVs require consensus of the main
shareholders before implementing substantive strategic change
(Gulati, 1998; Harrigan, 1988). Foreign investors with full control
over their subsidiaries thus are better able to reduce their
coordination costs and to implement strategic change rapidly
(Filatotchev et al., 2008; Johnson et al., 2013). Moreover, a shared
organizational culture is important for the efficiency of internal
markets and networks. Thus, we expect that a transnational
strategy would be more successful when the subsidiary is in full
MNE ownership.
Multi-domestic strategies are designed to enable a high degree of
local adaptation, while utilizing the core competences of the
organization, though not through tight integration. However, the
coordination also requires multi-directional exchange of knowledge
to design products or services that optimally exploit the resources of
the parent to meet preferences of local consumers. This coordination
can be achieved mare effectively if the MNE maintains full
ownership control over key aspects of the operations, though this
might be less critical than in a transnational strategy.
Global strategies also require a high degree of coordination,
though less so than transnational strategies. To implement a global
strategy, headquarters need to be able to shape the actions by the
subsidiary, for instance to react flexibly to opportunities that
extend beyond a particular national market, or to strategically
compete with global competitors (Harzing, 2000; Luo, 2001).
Compared to transnational strategies, however, global strategies
are less complex and knowledge flows tend to be top-down rather
than multi-directional. Therefore, a high level of control is likely to
be less critical in global compared to transnational strategies.
Moreover, international strategies require no integration and
coordination as they compete with their subsidiary-specific
resources and capabilities, and largely left to their own devices.
Putting these arguments together, we predict:
Hypothesis 2. In wholly owned subsidiaries, global and international strategies have a weaker association with subsidiary performance than transnational strategy.
3.4. Export orientation
Subsidiaries of MNEs operate not only in the local market, but
they engage in international trade themselves (Estrin, Baghdasaryan, & Meyer 2009). Exporting however increases the complexity of subsidiary strategy. Authors like Rugman, Verbeke, & Yuan
(2011) even argue that the IR matrix ought to incorporate the
supply chain position of the subsidiary because the Bartlett and
Ghoshal typology implicitly assumes a singular bundling of
subsidiary’s entire value chain. However, in the modern economy
subsidiaries themselves access a broader set of local advantages in
the region and across a broader geographical space by bundling
their internal resource base with these external resources. This
bundling enables them to develop export strategies targeted at
other units of the MNE, at markets within the same region (say,
within Central and Eastern Europe), and in some case of highly
specialized units even to distant markets.
Exporting enables the exploitation of knowledge bases,
financial resources and scale economies by reaching larger
markets, and thereby enhances performance compared to domestic firms (e.g., Kaleka, 2012; Salomon & Jin, 2010; Shaver, 2011).
However, an exporting operation becomes more complex if the
business unit is a subsidiary of an MNE. First, the servicing of third
country markets needs to be coordinated with other units of the
MNE, considering for example the division of market responsibility
and management of the shared corporate brands. When a
subsidiary operates beyond it host country, the MNEs will be
more concerned, for example, that the MNEs lives up the MNE’s
quality standards and brand values. This increases the complexity
of internal knowledge flows.
Second, subsidiaries that export need combinations of competences that the best of their kind within the MNE in order to be
given the mandate to provide a particular product to a particular
market. Such subsidiary level competences are likely to be
grounded in the subsidiary’s combination and integration of the
MNE’s global competence and resources or capabilities accessed
locally (Rugman & Verbeke, 2001; Tallman & Chacar, 2011). The
development of such distinct competences, however, depends to a
large extend on the subsidiary’s own initiative, and hence its
autonomy to take initiatives (Ambos, Andersson, & Birkinshaw,
2010; Birkinshaw & Morrison, 1995; Bouquet & Birkinshaw, 2008).
Moreover, the development of an export strategy requires
subsidiaries to be responsive to the demands in the third country
to which they are exporting. In the case of subsidiaries that serve as
regional hubs, such market knowledge is likely to be stronger in
the subsidiary than in distant headquarters.
Taking these two considerations together – the need for more
coordination and the need for responsiveness – a transnational
strategy appears to fit best for a subsidiary that export extensively to
third-country markets. In other words, the advantages of ‘‘transnational’’ are most important when the subsidiary itself exports
significantly to international markets, which requires both responsiveness its own markets and coordination with headquarters. Hence,
Hypothesis 3. The more a subsidiary is export oriented, the lower
the performance of international, global and multi-domestic strategies, relative to a transnational strategy.
4. Methodology
4.1. Sample and survey
To test our propositions, we need detailed information on the
strategies of MNEs and their subsidiary in a context that likely
exhibits considerable differences to the MNEs headquarters. Thus,
we use a dataset developed through a questionnaire survey in two
K.E. Meyer, Y.-S. Su / Journal of World Business 50 (2015) 149–158
153
Table 1
Descriptive statistics and correlation matrix.
1
2
3
4
5
6
7
8
9
10
*
**
Variables
Mean
SD
1
2
3
4
5
6
7
Subsidiary age
Wholly owned
Acquisition
Export
Resource transfers
Relative size
Global
International
Multidomestic
Subsidiary performance
7.043
.656
.120
31.64
4.39
3.34
.238
.132
.311
5.104
3.018
.476
.325
37.70
1.380
1.684
.426
.339
.464
1.170
1
.058
.014
.125*
.019
.102*
.012
.067
.055
.160**
1
.519**
.074
.159**
.113*.
.149**
.092
.145**
.016
1
.094
.091
.003
.086
.098*
.053
.044
1
.063
.152**
.220**.
.050
.164**
.057
1
.118*
.162**
.200**
.220**.
.224**
1
.116*
.118*
.031
.003
1
.220**
.376**
.004
8
9
1
.265**
.061
1
.081
Significant at 0.05 level.
Significant at 0.01 level.
Central European emerging economies: Poland and Hungary. The
two economies experience idiosyncratic local pressures for
adaptation, while at the same time offering opportunities for
global product strategies due to the rapidly evolving nature of the
context (Kozminski & Yip, 2000; Schuh, 2001). Critically for our
study, they have attracted a large number of foreign investors
originating from a wide range of countries of origin and employing
a rich variation of corporate strategy. FDI in these two countries
has grown from negligible levels in 1990. These countries thus
provide the opportunity to analyze a wide range of recently
established subsidiaries by both large and small MNEs in an
emerging economy (Filatotchev et al., 2008; Meyer & Peng, 2005).
We utilize a dataset from a questionnaire survey of subsidiaries
of foreign MNEs that (a) have been established within ten years
before the survey, (b) have at least ten employees, and (c) have at
least 10% foreign equity.4 The questionnaire had been designed
jointly with the local teams that managed in the data collection. It
was translated into local languages and sent in both languages to
the chief executive of each MNE subsidiary for which contact
information was available in the database. In most cases, this was
followed up with telephone calls and personal interviews.
Responses were obtained from 345 MNE subsidiaries, a response
rate of over 13 percent. Of these 345 observations with no missing
values were used in the empirical analysis. Most of the subsidiaries
are affiliated to West European MNEs (80%) with most of the
remainder belonging to North American MNEs (12%). This
corresponds to patterns described in earlier research on the
pattern of FDI in this region (Meyer & Peng, 2005).
4.2. Measurements
Subsidiary performance: The measurement of subsidiary performance is a major challenge in international business research
because MNEs rarely publish subsidiary level financial data, and
where they do, these data are affected by accounting practices
motivated by tax minimization strategies such as ‘transfer pricing’
(Eden, 2001). Therefore, studies of subsidiaries mostly use
perceptional performance measures based on key informants’
assessment of the subsidiary performance against a relevant
benchmark such as industry average or the company’s own targets
(Grewal et al., 2008; Monteiro et al., 2008; Subramaniam &
Watson, 2006). In our survey, respondents were asked to assess
their subsidiary relative to pre-establishment expectations using
5-point Likert scales on five performance criteria: (1) productivity
(2) profitability (3) revenue growth (4) domestic market share (5)
new product development. The index ‘performance’ is the average
of these five items; its Cronbach’s alpha is 0.81.
4
Further details of the survey have been published in a book, and parts of this
dataset have been used in other studies that do not investigate integrationresponsiveness related issues.
Explanatory variables: Our focal explanatory variable is a
categorical variable for the four types of strategy defined by
Bartlett and Ghoshal (1989). They were constructed as follows.
Respondents were asked to rate the degree of respectively local
responsiveness and global integration on two seven-point Likert
scale items: (1) The foreign parent has centralized many functions
such as R&D, finance and procurement. (2) Your firm conducts
many major functions locally. (3) The foreign parent has to a high
extent standardized products and services worldwide. (4) Your
firm has adopted its products and services to a high degree to the
local context. We took the average of items 1 and 3 and reduced
this measure to a dummy ‘integrated’ distinguishing high (>4.0)
and low (= 4.0). Likewise, we constructed ‘local’ as a dummy
from item 2 and 4. We then defined the dummies for organizational strategy as follows: Transnational = 1 if local = high and
integrated = high, Multi-domestic = 1 if local = high and integration = low, Global = 1 if local = low and integrated = high. International strategy represents the case of local = low and
integrated = low, and forms the omitted case in our empirical
analysis.
Moderating variables: We measure export orientation with a
variable obtained from the questionnaire. The variable Exports is
measured as the percentage of the firms’ selling its good or service in
foreign markets. We expect that exporting subsidiaries need more
tight integration with the parent MNE. Our next two hypotheses
suggest that aspects of entry mode moderate the effects of
alternative strategies on subsidiary performance. Hence, we define
a dummy variable Wholly owned that takes the value 1 if the
subsidiary is fully owned by the foreign MNE, and 0 otherwise.
Moreover, we define Acquisition as taking the value of 1 if the
subsidiary was originally established by partial or full acquisition,
and 0 otherwise. The classification is based on information provided
in the questionnaire.
Control variables: We employ a three level hierarchical linear
model (HLM) to control for higher level variables, as detailed below.
This allows us to control for both two host countries and eleven
industries. For parent and subsidiary-level characteristics, we
introduce a number of control variables. At the parent level, we
control for country of origin with the GDP of that country (GDP
Source), which captures the level of development and resource
munificence that the MNE can draw upon in developing its global
operations. At the subsidiary level, we include Subsidiary Age, which
represents the year of the legal establishment of the subsidiary and
thus captures the acquisition age. We expect older subsidiaries to be
more tightly integrated, which makes global and transnational
strategies more effective. Moreover, we control for the relative size
of the subsidiary relative to the parent, which is based on a 6-point
scale in which 1 stands for loess than 0.1%, and 6 stands for over 20%.
We control for the direct effect associated with our three moderating
variables, Acquisition, Wholly owned and Export by also including
them as control variables. Table 1 reports the descriptive statistics
K.E. Meyer, Y.-S. Su / Journal of World Business 50 (2015) 149–158
154
for the variables in our analysis the correlations. We note that none
of the correlations is so high as to become cause of concern.
A common concern when using perceptional measures created
through questionnaire data is common method variance (CMV). In
our study, most variables have been collected through a common
questionnaire, and the dependent variable, subsidiary performance, is a perceptional measure. Since our hypotheses concern
not direct but moderating effects, it is unlikely that they are
affected by CMV. However, to further eliminate the possibility of
CMV affecting the results, we have undertaken a number of other
measures. First, our focal explanatory variable are either factual
information collected in form of dummies (Acquisition, Wholly
owned, Exports), or they have been transformed in a complex
manner (the strategy types).
Second, we reduced the chance of respondents own mental
models affecting their responses by firstly placing the pertinent
questions in different parts of the questionnaire (which also served
to collect data for other studies), using reverse scales for some
items, and by focusing our tests on complex relationships that are
unlikely to exit in the respondents own mental models.
Third, we have ex post conducted a Harman single factor test,
which shows that the single most important factor extracted from
the data accounts for only 20.9% of the variation, suggesting that
common method bias is unlikely. Finally, the fact that the direct
effects of the strategy type variable do not have a direct effect on
subsidiary performance further enhances our confidence that CMV
is not present in our data.
4.3. Analytic strategies
Our data cover MNE subsidiaries located in two different host
countries, and they operate in eleven different industries. To
control for possible variations of any of our explanatory variables
across these three levels of analysis, we use used a hierarchical
linear model (HLM) to estimate our equations (Raudenbush et al.,
2004; also see Gong, Kim, Lee, & Zhu, 2013 for a similar
application). Since our study is concerned with firm level
influences, we use intercept only models at levels 2 (industry)
and level 3 (country). This approach allows us to eliminate the
possibility that the regression picks up spurious effects caused by
cross-country or cross-industry level effects.
We have run our regression in a step-wise style (Table 2). Model
1 only includes the control variables, Model 2 adds the direct
effects of the strategy types, and Model 3–5 add sets of interaction
effects with the moderating variables that are the focus of our
hypotheses. With respect to strategy types, in all models,
transnational strategy serves as a base case. Hence, a negative
coefficient indicates that the pertinent strategy (global, multidomestic, international) has a less favorable effect on subsidiary
performance than a transnational strategy.
5. Results
Model 1 only includes the control variables, and confirms that
most of them are highly significant and signed as expected. The
overall model statistics are satisfactory, with R2 for within-country
of 0.90 pointing to the high contribution of firm specific rather than
country-level effects. In line with our expectations, this model
suggests that greenfield subsidiaries and joint ventures perform
better than acquisitions (base case), older subsidiaries perform
better, as do subsidiaries receiving extensive resources from the
parent.
Model 2 adds the direct effects of Bartlett and Ghoshal’s
strategy types, global, international and multi-domestic (transnational being the base case). Of these, only the coefficient for
multi-domestic is statistically significant, suggesting that a
combination of local responsiveness and low integration works
well for an average firm. However, different strategies fit different
types of businesses and thus we next explore which strategies fits
which type of subsidiary.
Model 3 adds the moderating effects with Acquisition and finds
that the interaction with International and multi-domestic is large
Table 2
Regression: strategy and subsidiary performance.
Model 1
b
Constant
Exports
Wholly owned
Acquisition
Subsidiary age
Resource transfers
GDP pc (parent)
Relative size
Global
International
Multidomestic
Acquisition global
Acquisition international
Acquisition Multidomestic
Wholly owned global
Wholly owned international
Wholly owned multidomestic
Export Global
Export International
Export multidomestic
Industry dummies (10)
Level 1 (country) intercept (1)
DR2between-country
DR2within-Country
Deviance
N
*
**
Significant at 0.05 level.
Significant at 0.01 level.
Model 2
SE
0.000
0.001
0.843**
0.854**
0.091**
0.231**
0.000
0.023
0.002
0.003
0.114
0.102
0.013
0.049
0.000
0.030
b
Model 3
SE
0.000
0.001
0.902**
0.700**
0.108**
0.223**
0.000
0.053
0.202
0.231
0.636
0.002
0.003
0.123
0.117
0.020
0.055
0.000
0.041
0.182
0.243
0.197**
b
Model 4
SE
0.002
0.003
0.006
0.544**
0.120**
0.403**
0.000
0.021
3.334**
0.370**
0.466**
0.198
3.409**
1.167**
0.002
0.003
0.151
0.178
0.020
0.054
0.000
0.038
0.846
0.168
0.133
0.152
0.365
0.318
b
Model 5
SE
0.001
0.001
0.655*
0.096
0.099**
0.362**
0.000
0.006
1.258**
2.652**
1.124**
0.002
0.003
0.368
0.151
0.019
0.056
0.000
0.042
0.298
0.363
0.422
0.834*
3.567**
0.187
0.431
0.431
0.494
b
SE
0.001
0.021
0.968**
0.717**
0.081**
0.281**
0.000
0.107**
0.411*
0.670*
1.156**
0.002
0.007
0.123
0.129
0.023
0.058
0.000
0.048
0.259
0.292
0.244
0.019**
0.015*
0.027**
0.007
0.009
0.007
Yes**
Yes
Yes**
Yes
Yes**
Yes
Yes**
Yes
Yes**
Yes
0.10
0.90
1047.66
340
0.10
0.90
1053.94
340
0.09
0.90
1053.46
340
0.11
0.89
1044.64
340
0.11
0.89
1071.28
340
K.E. Meyer, Y.-S. Su / Journal of World Business 50 (2015) 149–158
and positive (3.409; p < 0.01 and 1.167; p < 0.01). This suggests
provides support for hypothesis H1, which predicted positive
moderating effects for international and multidomestic strategies
relative to transnational strategies (the base case in the regression). Specifically, this result suggests that acquisitions are easier
to implement when the MNE pursues a strategy of low levels of
integration and coordination. In such cases, post-acquisition
integration is relatively easy and less likely to affect performance
negatively than with global or transnational strategies.
Hence, acquisitions serve some purposes but not others. They
provide access to local resources that are of interest in particular to
firms pursing a high degree of local adaptation in a multi-domestic
strategy. They can also be better accommodated by such firms
because they do not require a highly integrated organizational
culture. In contrast, transnational and global strategies aim to tap
into local knowledge pools, but knowledge thus accessed is to be
shared within the global corporation. This is difficult to achieve if
the subsidiary has a succinct identity of its own. Therefore
acquisitions are not a mode suitable to grow a transnational
strategy.
In Model 4, we add the interaction effects with Wholly owned,
and we find that both international ( 3.567; p < 0.01) and global
strategies ( 0.834; p < 0.05) perform inferior to transnational
strategies, while the difference between transnational and multidomestic strategies is insignificant ( 0.187). This provides
support to hypothesis H2. As argued above, this difference arises
from the fact that transnational strategies require more complex
internal coordination and knowledge flows. However, a multidomestic strategy also requires extensive coordination even
though it is likely to be less complex than with a transnational
strategye.
In Model 5, the moderating effects of exports are added, showing
that relative to transnational strategy, all other strategies are less
successful the higher the export orientation of the subsidiary,
including global ( 0.019; p < 0.01), international ( 0.015;
p < 0.05) and multi-domestic strategies ( 0.027; p < 0.01) This
in line with hypothesis H3. Compared to export-oriented subsidiary under a global strategy, those under a transnational strategy
are more able to respond to both the resources they can access
locally and hence utilize to develop subsidiary-specific advantages,
and also with respect to local demand in export markets.
Compared to export-oriented subsidiaries under a multi-domestic
strategy, those under transnational strategies benefit from better
coordination and resource sharing with other affiliates of the MNE.
Relative to international strategies, both negative effects are
combined.
We conducted a number of robustness tests on our results. First,
we ran our regressions as simple OLS regressions not controlling
for hierarchical effects. The results were broadly consistent but
generally showed weaker levels of significance than the HLM
results that we present here, presumably because industry level
effects interfere with our focal relationships. Second, we tested for
the possibility that the effects were caused by a small number of
very large firms in the sample. Thus we ran the regressions by
excluding subsidiaries with more than 10,000 employees, and we
ran the regression with and without the size control variable. Both
tests led to substantially identical results. Third, we used the
individual items of the performance measurement construct. The
results again were substantially identical but had lower explanatory power, as one would expect given the reduced variation of the
dependent variable. Fourth, we considered the possibility that the
empirical support for our hypothesized moderating effects is
actually caused by undetected mediation effects. To test for this
possibility, we ran a structural equation model in which our
moderating variables were entered as mediating variables
between the focal variables and subsidiary performance. These
155
models did not generate satisfactory results, and models with
moderating effects showed a better fit with the data.
6. Contributions and future research
While Bartlett and Ghoshal’s framework remains popular in
strategy and international business textbook and is a commonly
used framework among practitioners, there clearly is a need to tie
this framework better to contemporary research and in that way
enhance its usefulness, or to revise it where necessary (Meyer &
Estrin, 2014; Rugman et al., 2011). We have proposed to advance
this agenda by developing a contingency perspective where
different types of strategy are related to other characteristics of
the subsidiary, including its heritage, control and export orientation. We believe such a contingency framework, perhaps extended
by additional aspects of subsidiary strategy, may enhance our
understanding not only as to when respectively integration and
responsiveness are effective, but under which conditions MNEs are
able to pursue the two apparently contradictory dimensions of
strategy simultaneously, a dream of management gurus ever since
Bartlett and Ghoshal (1987, 1989).
Future research may extend this line of work by digging deeper
into the differences between global and transnational strategies as
both aim to exploit the opportunities of globalization, yet in
different ways. In our study, we found them to differ with respect
to wholly owned and export-oriented subsidiaries. Future research
may further explore how and why full ownership is not facilitating
a global strategy, any why global strategies are not effective when
it comes to exporting.
As all empirical studies our analysis has limitations that may be
addressed in future research. First, the Bartlett and Ghoshal
typology itself has been criticized in view of the growing
complexity of the strategies of MNEs; and the disaggregation of
value chains in particular (Devinney, Midgley, & Venaik, 2000;
Rugman et al., 2011). This critique extends to our analysis and
suggests that future research may test more complex models that
take into account of s subsidiary’s position in the MNE’s value
chain.
Moreover, it may be that what subsidiaries actually implement
varies from the strategy as it has been conceptualized at the level of
the parent MNE. Our empirical measure captures the realized
strategy at the subsidiary level. An interesting avenue for future
research may be to explore how parents and subsidiaries
respectively interpret the strategy of the MNE, and this subsidiary’s
strategy within this strategy. Anecdotal evidence from our own
field research indicates that at least in some subsidiaries, the
parent is perceived to be highly integrated even though statement
from headquarters emphasize the decentralized nature of the
organization.
Other limitations arise from the structure of the dataset itself.
We limit our empirical investigation to two emerging economics
Poland and Hungary. They both are in Central Europe, which helps
us control for region-specific heterogeneity, and the HLM model
helps to control for host country-specific effects. However, it would
be interesting in further research to see whether our findings also
hold in different emerging economies. Moreover, we have focused
only on the subsidiaries’ performance. Future research can collect
data from the parent side to analyze performance at both the
subsidiary and the MNE level.
Finally, as with all cross-sectional studies, and those using
survey data in particular, we have to consider the possibility of
reverse causality. In such studies the direction of causality has to
be derived from theory and can by definition not be inferred from
the empirical data alone. In the present case, our theory suggests
that performance follows the type of strategy, which is consistent
with the general presumption the strategic management literature
156
K.E. Meyer, Y.-S. Su / Journal of World Business 50 (2015) 149–158
that performance follows structure. It is possible to argue that
performance in the long run would have implications for structure,
but this would then only arise from past performance not sameperiod performance, as in our study. Therefore, we believe that we
have a compelling case to argue that the direction of causality is
more likely to run in the way we suggest rather than the reverse.
However, future studies using longitudinal data may test our
assertion.
7. Managerial implications
Our results provide insights into a question of substantive
concern to international managers, namely when and where to use
either of the four types of strategy identified by Bartlett and
Ghoshal (1989). We proposed that the performance of subsidiaries
is contingent on the fit of the MNE strategy with other aspects of
strategy at the subsidiary level; our results demonstrate this
contingent nature of the performance impact of strategy types.
First, we have found few significant direct effects when not
simultaneously considering moderating effects capturing the fits
of the strategy with other aspect of subsidiary strategy (Model 2).
This suggests that ‘fit’ between MNE and subsidiary strategy is key
to subsidiary performance. In other words, there is no single best
strategy for all firms, rather each MNE needs to design its own
strategy around its resources and aims. The ‘transnational solution’
(Bartlett & Ghoshal, 1989), which aims to capture the benefits of
both global integration and local responsiveness, may be good for
some subsidiaries but not for all subsidiaries.
The transnational solution performs best in subsidiaries that
were originally established by acquisition are wholly owned by the
MNE and in export-oriented subsidiaries. Acquired subsidiaries
have stronger external links with the local environment than
internal links with headquarters, while the reverse is true for
greenfield projects (Harzing, 2002). That means subsidiaries that
were established by acquisitions are more likely to develop distinct
organizational structures, cultures and identities that can become
can obstacle to smooth integration in a transnational organization.
Multi-domestic strategy works best when operating with
shared ownership, low export orientation and in acquired
subsidiaries. Subsidiaries of multi-domestic companies are relatively autonomous and are allowed to be very responsive to the
local market. This sort of arrangement is most consistent with
subsidiaries where extensive involvement of the parent organization is either not required (i.e., low export orientation), not feasible
(i.e., low equity control) or inhibited by organizational heritage (as
in acquired subsidiaries).
Global strategy works best in subsidiaries established as
greenfield operations which have a low degree of export
orientation, though high ownership control appears not necessary.
Global companies tend to focus on low cost advantages and nonlocation bound advantages, such as knowledge based assets. The
absence of post-acquisition integration challenges, enable global
MNE to establish more effective coordination of their international
operations and to produce standardized products in a very costefficient manner.
Finally, international strategies appear to work best in acquired
subsidiaries, under low equity control, and with low export
orientation. The literature has paid scant attention to international
strategy, noting mainly that it would normally be inferior because
it neither exploits advantages of responsiveness to local markets,
nor advantages of integration and hence knowledge sharing and
scale economies. However, our results point to a type of subsidiary
that may flourish under an international strategy: partially
controlled acquired subsidiaries. Because of their pre-acquisition
history, these subsidiaries would have a distinct identity, and a
subsidiary-specific competitive advantage that is not dependent
on extensive interactions with other parts of the MNE. The
acquisition may have been undertaken as financial investment, or
in view of long-term strategic objectives that are not dependent on
full integration of the subsidiary.
8. Conclusions
Our paper reexamines one of the key textbook models of
international business – the Bartlett and Ghoshal typology – by
providing some empirical evidence when which strategy is
appropriate. Despite its popularity, the IR model lacked empirical
validation (apart from specific applications in the field of
marketing (Grewal et al., 2008; Roth, 1995). We find support for
a contingency model emphasizing strategic fit of the strategy with
the context (especially cultural distance) and the mode of
establishment of the subsidiary. In particular, we find that a
transnational strategy performs best in subsidiaries that are
wholly owned by the MNE and highly export-oriented; it even does
better than global strategies in acquired subsidiaries. On the other
hand, we find that the often-neglected international strategy does
well in acquired and partially owned subsidiaries, presumably
because such operations have inherited subsidiary-specific
advantages. These insights suggest that MNEs need to align their
subsidiary strategies with their integration-responsiveness strategy type.
Acknowledgements
We thank the British Academy and the Taiwan National Science
Council for financial support under their joint program (grant
JP90013 and NSC99-2911-I-003-003-2). We particularly thank
helpful comments from the JWB editor Mike Peng and two
anonymous reviewers. We owe special thanks to CEIBS colleagues
Tae-Yeol Kim and Chen Zhen, who provided critical help with the
statistical analysis. We also thank to the research teams who
collected the data, for helpful comments from Raquel Meneses as
well as conference participants of Academy of Management and
European Academy of Management.
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