BUSINESS

International Business Strategy

International Business Strategy

Topology of MNE Subsidiaries

The topology proposed by Bartlett and Ghoshal is based on two principal criteria. These are:

The strategic importance of the local environment and

The competences of the subsidiary

The strategic importance of the local environment is due to strong influencing location. Competences are firm specific. They can be developed or acquired by the subsidiary. The market location is of key significance to strategy and performance of MNE. Markets which are technologically advanced and are sophisticated are like to be of more strategic importance to MNE. Competences can be in terms of technological advancements, low cost production, unique marketing strategies, efficient finance or any other area (globAdvantage 2011, pp. 10).

Researchers have deeply studied and classified the role of national subsidiaries. The classification is similar to the classification of MNEs according to their distinction. MNEs can be termed as global, international, multinational or transnational firms.

Bartlett and Ghoshal in 1986 have classified the subsidiaries according to generic roles. These are:

Strategic Leader which have a strong advantage due to location and competences,

Implementer which are lesser advantage than strategic leaders in terms of location and competences,

Contributor which have weak advantage from location but strong advantage from competences,

Black hole which have strong location advantage but weak competences advantage (globAdvantage 2011, pp. 10).

Figure: Generic Role of Foreign Subsidiaries

Source: Journal of Management Studies 48:2, March 2011

Strategic Leader consist both internal capability and the strategic importance of its market to the MNC. Thus, such subsidiary acts as an innovator and contributes in formulating business strategy of the parent company. The contributor has high internal capabilities but lesser importance of market location. It therefore serves to apply its distinctive capability to a relatively small sphere within the MNC's business operations. The implementer has an influential role despite lower market location importance and competences. It aims to generate the funds required for operations of the company and maintain business expansion. The black hole subsidiary is a type which does not has required capabilities to run business in that a market. Market is of higher concern for such subsidiary type. It aims to monitor and control the competition and gain market share from slow growth (Garcia & Nobao 2003, pp. 3).

Each type of subsidiary is important for an MNE. The strategic leader and implementer are opposite in nature. They maintain a leader and follower relationship. They also share an inverse relationship in quantity. Strategic leaders are fewer in number while major portion of MNE subsidiaries can be classified as implementer. The strategic leader is of key importance to headquarter as it is involved in decision making process at managerial level due to its high internal capabilities and unique market importance. Strategic leader participates in formulating and implementing business strategies. It has strong capability to carry out research and developmental operations which leads to innovative solutions. It is also actively involved in new product launches in new markets and in existing markets served. In contrast, the Implementer is bound to implement the strategy as directed by the corporate ...