Subsidiary initiatives in the institutional environment.
| Verfasser | Hamprecht, Julia |
| Posten | RESEARCH ARTICLE - Report |
Abstract We study subsidiaries of a MNC and research why they implement initiatives that deviate from organizational values of headquarters. Initially we relied only on the concept of institutional duality and expected that pressures in the institutional environment and values of headquarters explain the agency of the subsidiaries. But the results of our extensive participatory observation showed that the organizational values of subsidiaries (rather than those of headquarters) helped explain the subsidiaries' actions. In conclusion, we find that there are limits to the predictive power of the concept of institutional duality. Our study shows that a distinction between values of headquarters and values of subsidiaries is necessary in order to understand the agency of subsidiaries. We suggest a concept of 'institutional trinity' that distinguishes between these two values as well as pressures in the institutional environment. Our research demonstrates that an MNC can benefit from a subsidiary that develops its own organizational values. If headquarters is subsequently ready to adopt some of these subsidiary values, it may be able to adapt more easily to a changing institutional environment.
Keywords Climate change * Institutional duality * Institutional theory * Subsidiaries
1 Introduction
Studying a large multinational car manufacturer, we observed that it took a noncommittal overall position on the issue of climate change. However, a few of its national sales and distribution subsidiaries, independently and individually, engaged in climate change mitigation activities, which included calculating their carbon footprint and offering C[O.sub.2] offsetting to their customers. Headquarters found these initiatives puzzling: Its general standpoint was that its national sales and distribution subsidiaries had other things to worry about than environmental issues, especially given the economic crisis and decreases in both sales and profits.
The initiatives of these subsidiaries also challenged recent contributions that conceptualize MNCs as intra-organizational fields, where--as Kostova et al. (2008) argue--strong isomorphic pressures exist for common practices, so that subsidiaries are often "obligated to comply" with a certain practice "mandated by the parent" company (Kostova and Roth 2002, p. 216). In general, earlier research has shown that MNCs define environmental strategies at the headquarters level, and then roll associated practices out to their subsidiaries (Christmann 2004; Christmann and Taylor 2001; Yang and Rivers 2009). However, our observations--that selected subsidiaries proactively implemented climate change initiatives despite their headquarters' noncommittal position--challenges these established findings.
Initially, we assumed our observations might be explained by the concept of institutional duality, which suggests that subsidiaries need to "conform to both host country and MNE pressures for legitimacy when adopting organizational practices or strategy" (Hillman and Wan 2005, p. 323). We noted that this concept was originally developed based on an in-depth analysis of an MNC with a set of monolithic and pervasive values, characterized as follows in the first paper on the subject by Kostova and Roth (2002):
The company had a very pervasive and paternalistic organizational culture, which reduced the potential organizational culture variation across units within the company [...]. The company was a centralized and headquarters-dominated organization. (p. 221) However, in the multinational car manufacturer that we analyzed, we did not observe monolithic organizational values, but rather some variation of values across units. Thus our research question is: In which circumstances do subsidiaries implement initiatives that deviate from the organizational values prevailing at their headquarters?
We employ an analytic induction method to address this research question, which enables us to lay out our initial theoretical perspective clearly and to develop empirically grounded propositions. Our findings suggest that the concept of institutional duality is insufficient to explain the differences that we observed in the subsidiaries' actions. In its current form, the concept does not address the role of organizational values that may be embraced by a subsidiary but not by the headquarters. We conclude that our findings fit best with a concept of institutional trinity, in which the adoption of routines by individual units is explained by three factors: The values of the host country, the values of the MNC's headquarters and those of the subsidiary itself. This concept can help to reconcile the conflicting predictions of the literatures on institutional duality and those on entrepreneurial ventures of subsidiaries (Ambos et al. 2010; Birkinshaw 1997; Rugman and Verbeke 2001).
Whereas the literature on institutional duality portrays subsidiaries as merely reacting to pressures either from headquarters or from their host country (or combinations of those pressures), the literature on dispersed corporate entrepreneurship (or intrapreneurship) attributes a higher level of agency to the subsidiaries themselves, and we define an MNC's subsidiary initiative in line with that literature, as a "discrete, proactive undertaking that advances a new way for the corporation to use or expand its resources" (Birkinshaw 1997, p. 207). However, unlike previous research our definition of the scope of such 'proactive undertakings' is not a new product introduction, a rationalization or some other activity aimed at increasing the corporations' competitive advantage in the market. Instead, we study subsidiaries that use the resources available to them to "actively define, justify, and push the theory and values" that undeipin the practices of a new institutional order (Rao et al. 2000, p. 241).
At the outset of our research we made certain assumptions about subsidiaries that display such agency in their institutional environments, which we summarize in the following paragraphs. Thereafter, we present the methods, results, discussion and conclusion of our research.
2 Initial Theoretical Perspectives
2.1 Institutional Theory and MNCs
At the beginning of our analysis we expected to find a corporate environmental strategy in place at the MNC addressing the complex and formally institutionalized issue of climate change (Levy and Kolk 2002). Here, a corporate environmental strategy "refers to a pattern in action over time intended to manage the interface between business and the natural environment" (Sharma 2000, p. 682). Previous research [such as by Christmann (2004) in the chemical industry] has suggested that MNCs operate centralized departments at their headquarters which develop such environmental strategies and then roll them out to their subsidiaries (Jennings and Zandbergen 1995), which we define as any operational unit controlled by an MNC and situated beyond the headquarters' home market (Birkinshaw 1997).
But both Kostova and Zaheer (1999) and Hillman and Wan (2005) recognize that subsidiaries are exposed to isomorphic pressures both from within their own corporations, and stemming from their host countries, so that their legitimacy-seeking activities must address both sets of demands (Hillman and Wan 2005; Husted and Allen 2006; Ratiu and Molz 2010; Sharfman et al. 2004). We assumed that especially large subsidiaries need to respond to host country demands because they are particularly visible, and may therefore experience higher institutional pressure than smaller subsidiaries (Delmas and Toffel 2004). Clearly, pressures for climate change mitigation may vary from country to country, and we also expected that subsidiaries based in countries where pressures are highest will be the most likely to implement climate mitigation activities.
2.2 Issue Selling
At the outset of our study we also assumed that the literature on issue selling--which Dutton and Ashford (1993) describe as "individuals' behaviors that are directed toward affecting others' attention to and understanding of issues" (p. 398)--would help us address our research question. We expected to find differences among subsidiaries in terms of how effectively they framed their responses to the institutional demands of their host countries, while also working to stay in line with the norms and values of their parent firm.
Bansal (2003) finds that actors frame issues that stem from the natural environment in line with (a) the individual's concern about such issues (Sharfman et al. 2004), and (b) how consistent that response is with their organization's values, which Bansal (2003) defines as "first-order conditions that define organizational culture, identity, and other structural attributes of a social system." (p. 519). Similarly, Howard-Grenville and Hoffman (2003) argue that "social initiatives become successful when they are aligned with an organization's core culture because culture guides both what issues get attended to and how they get acted upon." (p. 70). Based on this literature, we initially assumed that subsidiaries that engage in climate mitigation are subject to institutional duality and would be likely to exhibit three characteristics:
(a) They perceive high levels of pressure from their host country's institutional environments to adopt climate mitigation initiatives (Bansal and Roth 2000; Delmas and Toffel 2004; Sharfman et al. 2004; Sharma and Vredenburg 1998);
(b) They are large and highly visible in their host country, so experience more demands to gain legitimacy there (Delmas and Toffel 2004).
(c) They can frame their climate mitigation initiatives as being in line with the organizational values of both the parent corporation (Yang and Rivers 2009) and the norms and values of their host country.
3 Method
We started the analysis of the MNC from the theoretical perspectives presented above and iteratively added insights from our...
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