Subsidiary

The term subsidiary covers a range of organizational units and subunits, be they part- or wholly owned, foreign or domestic, acquisition or spin-off, formally or informally integrated. This term does imply significant legal ownership and a measure of control from the corporate headquarters (or upper) level of the organization, although, as already implied, contemporary parlance is to allow a broader range of relationships. Affiliate is a broader term used more and more to include legal subsidiaries as well as joint venture alliances and even outsourcing partners.

A corporation may have several national subsidiaries (in different countries). Each subsidiary may or may not be in a similar line of businesses, with identical or different brand names and market foci. For example, HSBC has several wholly owned national subsidiaries, each of which has a name that reflects their product-market focus—for example, HSBC Bank USA and HSBC France. Time Warner, Inc., has several subsidiaries—AOL, Warner Brothers, HBO, and Time, Inc., to name a few—each aiming at different product-market domains. Interestingly, the Time Warner Web site (http://www.timewarner.com) refers to them as “businesses” rather than subsidiaries. Similarly, GE refers to its six “businesses” (GE Healthcare, GE Commercial Finance, GE Money, GE Industrial, GE Infrastructure, and NBC Universal), each of which are multinationals in their own right, with subsidiaries of their own.

Traditionally, the international business literature was characterized by a top-down, headquarters-centric view of the multinational organization. According to Stuart Paterson and David Brock, there is more recognition these days that the subsidiary is the significant unit of analysis for competing and actually doing business. Thus, the management of multinational subsidiaries has quite recently emerged as a distinct field of research from within the fields of international and strategic management. Lars Otter-beck was one of the earliest authors to try to define the field with the publication The Management of Headquarters-Subsidiary Relationships in Multinational Corporations. A subsequent collection by Hamid Etemad and Louise Seguin Dulude contributed by bringing attention to Canada's policies encouraging world product mandates.

More recently, Julian Birkinshaw and various colleagues have made a relatively systematic effort to not only define the field, but also to delineate three substreams—namely HQ-subsidiary relationships, subsidiary roles, and subsidiary development—and, in subsequent work, build on this with a four-part classification of the field's base literature, as well as three other categories of more contemporary developments. More than just being pawns in the multinational corporation, this body of thinking describes proactive roles and strategies for subsidiaries such as various mandates and centers of excellence.

Contemporary thinking—both by researchers and in practice—is that multinationals now expect more from their subsidiaries than simply a return on their financial investment. Subsidiaries are expected to be sources of ideas and innovation. For example, an [Page 1513]inventory control application developed by BMW's New Zealand subsidiary has been implemented in several other BMW subsidiaries; and innovations in furnishings and menu trialed in McDonald's Australia and France are now being adopted by some McDonald's restaurants in the United States.

Another view, expressed in the “global strategy” concept, is that subsidiaries' uniformity of branding and offerings enables clients to feel at home—be it at Avis, KPMG, Microsoft, or Starbucks—wherever they are in the world. Other advantages of the global strategy are cost savings via economies of scale and scope, and the ability to use global value chains. Thus, there is often pressure for subsidiaries to conform to corporate-wide policies, standards, and systems even if local managers feel they are not necessarily good for the subsidiary's home market. Chris Bartlett and the late Sumantra Ghoshal referred to these pressures as forces for global integration and see them as pervasive in the multinational arena. They explain how firms need to balance them with forces for local responsiveness—as illustrated in the BMW and McDonald's examples above—to maximize the benefits of their internal resources and external opportunities in global markets.

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