Market orientation, embeddedness and the autonomy and performance of multinational subsidiaries in an emerging economy.
| Verfasser | Li, Xiaoying |
| Posten | RESEARCH ARTICLE |
Abstract:
* This paper develops a conceptual framework for market orientation, embeddedness, autonomy and performance of multinational subsidiaries in an emerging economy.
* We argue that internal and external embeddedness has different performance implications for export- and local market-oriented multinational subsidiaries.
* Our results, based on a sample of 233 multinational subsidiaries from China, indicate that while external embeddedness has a positive impact on specialized resources of both types of subsidiary, such resources only positively affect the performance of local market-oriented subsidiaries. By contrast, internal embeddedness has a negative impact on specialized resources of both types of subsidiary.
* Managerial and policy implications are discussed.
Keywords: Multinational subsidiaries * Market orientation * Embeddedness * Specialized resource
Introduction
A multinational subsidiary is simultaneously potentially embedded in the local economy and the global corporate network (Birkinshaw et al. 1998; Cantwell and Janne 1999; Birkinshaw et al. 2005; Cantwell and Mudambi 2005). This enables it to be a potentially active enterprise in its own right that has the ability to significantly shape its own developmental pathway and influence its performance (Figueiredo and Brito 2011). The existing conceptual or empirical studies on subsidiary embeddedness, autonomy, capabilities and performance seldom examine the relationships among these variables simultaneously, and they are mainly limited to developed economies (Birkinshaw et al. 1998; Taggart and Hood 1999; Rugman and Verbeke 2001 ; Andersson et al. 2002, 2007; Frost et al. 2002; Johnston and Menguc 2007; Fenton-O'Creevy et al. 2008; McDonald et al. 2008). Additionally, little research has been conducted in an emerging economy setting (Figueiredo and Brito 2011).
Furthermore, in terms of market focus, a multinational subsidiary is either local or export market-oriented. Export market orientation refers to the activities a firm performs in its efforts to incorporate the marketing concept into its export operations (Cadogan et al. 2009) so that its product mainly serves foreign markets. Local market orientation can be defined in a similar way. Market orientation is the central concept of the marketing discipline (Gebhardt et al. 2006; Kotler 2000) and has important implications for a firm's competitiveness (Day et al. 1992). Specifically, market orientation is a critical marketing capability and a business resource that helps firms achieve positions of sustainable competitive advantage and superior business performance (Narver and Slater 1990; Hunt and Morgan 1995; Hult and Ketchen 2001; Hult et al. 2005; Cadogan et al. 2009). How do external and internal embeddedness affect resource development and hence performance of local or export market-oriented multinational subsidiaries? To the best of our knowledge, no study has been performed on this important issue for either a developed or an emerging economy.
To address the above research gaps, this paper explores how embeddedness affects resource development and performance of multinational subsidiaries of different market orientations in an emerging economy. It establishes and tests an analytical framework for market orientation, embeddedness and performance of multinational subsidiaries using data from a sample of 233 multinational subsidiaries in China.
Our key arguments are as follows. In an emerging economy, multinational subsidiaries from developed countries operate below the international technological frontier (Jindra et al. 2009). In such an economic setting, external embeddedness facilitates a subsidiary in obtaining location-bound resources, such as local knowledge and indigenous technologies, which are often not technologically advanced but may be more suitable for the local market (Akubue 2000). This helps a subsidiary develop autonomy and specialized resources defined as subsidiary capabilities (R&D, manufacturing, marketing etc.) relative to other subsidiaries in the MNE (Birkinshaw et al. 1998). Location-bound resources are very important for the performance of local market-oriented subsidiaries, as these subsidiaries need to be very responsive to local conditions (Luo 2001).
On the other hand, export oriented firms focus on the development and marketing of appropriate goods and services that are valued by customers in export markets (Diamantopoulos et al. 2000; Narver and Slater 1990). As a result, location-bound resources may not necessarily influence the performance of export-oriented subsidiaries. Our study contributes to scientific knowledge by identifying varying roles of location-bound resources in the performance of multinational subsidiaries with different market orientations. This study also contributes to the existing literature by consolidating arguments that have been examined separately in prior studies into a fuller model (1).
The rest of the paper is organized as follows. In section 11, we develop our analytical framework with four sets of hypotheses about the relationships between embeddedness, specialized resources and autonomy, as well as the performance of local and export market-oriented multinational subsidiaries in an emerging economy setting. Section III
describes our methods for data collection and analysis. Section IV presents the results and section V offers discussions. Our overall results indicate that external embeddedness is positively associated with a multinational subsidiary's specialized resources and autonomy, while internal embeddedness has a negative impact on specialized resources of subsidiaries. Further, specialized resources positively affect the performance of a local market-oriented subsidiary but not of an export-oriented subsidiary. Finally, section VI summarizes the results and discusses managerial and policy implications.
Hypothesis Development
Market Orientation and Embeddedness of Subsidiaries in an Emerging Economy
An emerging economy is a low-income but rapid-growth country using economic liberalization as its primary engine of growth (Hoskisson et al. 2000). An emerging economy normally has the following features: Underdeveloped factor and product markets; technologically resource-constrained local firms; and underdeveloped but rapidly changing institutions (North 1990; Peng and Heath 1996; Khanna and Palepu 1997; Hoskisson et al. 2000; Hitt et al. 2004; Wright et al. 2005; Li et al. 2008).
Against this business and institutional background, multinational subsidiaries from developed countries enjoy technological advantages over local firms in an emerging economy, but suffer high liabilities as a result of foreignness and uncertainty. External embeddedness or business interactions with local firms in an emerging economy promote inflows of local knowledge and access to indigenous technologies, enabling a subsidiary to overcome the liability of foreignness and enhance its technological knowledge stock (Li et al. 2008).
The specialized resources (local knowledge and indigenous technology) developed by a subsidiary via external embeddedness can be classified as knowledge-based ones, defined as a firm's intangible know-how and skills such as technological and managerial expertise (Das and Teng 2000). Chen et al. (2009) argue that different types of control are influenced by different types of resource contribution by parent firms, and the contribution of knowledge-based resources is positively associated with the parent's process and social control. In general, if a subsidiary depends heavily on the MNE and/or other subsidiaries for critical resources, then its management practices are more likely to be influenced by the MNE (Hannon et al. 1995; Jaw and Liu 2004; Chang et al. 2009). Following this logic, since these specialized resources are not contributed by the parent firm but obtained by the subsidiary via its external embeddedness with local firms, the subsidiary will be subject to less parental control but will gain more autonomy. As a result, external embeddedness enables all multinational subsidiaries to develop specialized resources and autonomy.
However, the importance of external embeddedness varies for the performance of multinational subsidiaries with different market orientations. As is well known, market orientation (local vs. export market) is of particular importance in relation to the understanding of competitive advantage of a firm (Day et al. 1992; Hunt and Lambe 2000; Qu 2007). It is not only an organisational system that balances local responsiveness and global integration, (Doz and Prahalad 1991) but also an important instrument for adjusting a subsidiary's vulnerability to contextual hazards (Bartlett and Ghoshal 1989). Given the parent-firm strategy (global integration or local focus), a subsidiary will be either export- or local market-oriented. (2)
By definition, a local market-oriented subsidiary inevitably has more interactions with the local business community and requires more local responsiveness than an export-oriented subsidiary (Luo 2001). This implies that a local market-oriented subsidiary is more externally embedded within the local business community than an export-oriented subsidiary. External embeddedness enables a multinational subsidiary to learn from local firms and reduce gaps in these aspects of knowledge-based resources. While they are very useful for local market-oriented subsidiaries to gain autonomy in order to better respond to local needs and compete with local firms in the host-country market, such resources are less important for export-oriented subsidiaries. An export-oriented subsidiary helps its corporate to diversify portfolios and weather changes in the subsidiary's host economy. To successfully export, the subsidiary needs adequate knowledge about foreign markets. Since specialized resources developed from external embeddedness in the host emerging economy are...
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