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Managing foreign subsidiaries: agents of headquarters, or an interdependent network?

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  • Sharon Watson O’Donnell

Abstract

In this study, two different theoretical perspectives are used to develop sets of hypotheses regarding the mechanisms used to manage foreign subsidiaries of multinational corporations. First, agency theory serves as the basis for a model that predicts the use of monitoring mechanisms and incentive compensation. Then, it is argued that these mechanisms are insufficient for managing subsidiaries characterized by high levels of intra‐firm international interdependence, the management of which is critical to many of today's complex global firms. A second set of hypotheses is argued, linking international interdependence to several social control mechanisms. Primary and secondary data from U.S. based multinational corporations were used to test both sets of hypotheses. The results indicate that agency theory, although a useful foundation for studies of control within MNCs, is limited in its ability to explain fully the phenomenon of foreign subsidiary control, however, the model based on intra‐firm interdependence had much greater predictive ability. Copyright © 2000 John Wiley & Sons, Ltd.

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  • Sharon Watson O’Donnell, 2000. "Managing foreign subsidiaries: agents of headquarters, or an interdependent network?," Strategic Management Journal, Wiley Blackwell, vol. 21(5), pages 525-548, May.
    • Handle: RePEc:bla:stratm:v:21:y:2000:i:5:p:525-548
    DOI: 10.1002/(SICI)1097-0266(200005)21:53.0.CO;2-Q
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    Cited by:

    1. Ana Teresa Tavares & Stephen Young, 2004. "Sourcing Patterns of Foreign-owned Multinational Subsidiaries in Europe," ERSA conference papers ersa04p575, European Regional Science Association.
    2. Caicedo Marulanda, Carolina & Pla-Barber, José & León Darder, Fidel & Mora, Jhon James, 2015. "A microeconometric analysis of the springboard subsidiary: The case of Spanish firms," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-34.
    3. Ana Teresa Tavares & Stephen Young, 2004. "Sourcing Patterns of Foreign-owned Multinational Subsidiaries in Europe," FEP Working Papers 160, Universidade do Porto, Faculdade de Economia do Porto.
    4. Ana Teresa Tavares & Stephen Young, 2006. "Sourcing patterns of foreign-owned multinational subsidiaries in Europe," Regional Studies, Taylor & Francis Journals, vol. 40(6), pages 583-600.
    5. Y. H. Venus Lun & Kee‐Hung Lai & T. C. Edwin Cheng, 2008. "A Descriptive Framework for the Development and Operation of Liner Shipping Networks," Transport Reviews, Taylor & Francis Journals, vol. 29(4), pages 439-457, August.
    6. Maria Bengtsson & Anders Soderholm, 2002. "Bridging Distances: Organizing Boundary-spanning Technology Development Projects," Regional Studies, Taylor & Francis Journals, vol. 36(3), pages 263-274.
    7. Jetta Frost & Rick Vogel & Khaled Bagban, 2016. "Managing Interdependence in Multi-business Organizations," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 17(2), pages 225-260, August.
    8. Christopher Melin, 2011. "Le management de projets des firmes multinationales comme un mécanisme de coordination des relations siège-filiales," Post-Print hal-00690839, HAL.

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