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|[ Article ]|
|The e-Business Studies - Vol. 17, No. 5, pp.69-85|
|Abbreviation: The e-Business Studies|
|ISSN: 1229-9936 (Print) 2466-1716 (Online)|
|Print publication date Oct 2016|
Final publication date 30 Oct 2016
|Received 01 Oct 2016 Revised 19 Oct 2016 Accepted 27 Oct 2016|
|An Exploratory Study on Autonomy and Performance of E-Business Firms in Korea|
Jae Har Yu** ; Chun Su Lee***
|**Associate Professor, Division of Global Tourism and Welfare, Gumi Univ. (email@example.com)|
|***Professor, Dept. of Administration and Business, Pukyong National Univ. (firstname.lastname@example.org)|
E-비즈니스 기업의 자율성과 성과에 대한 탐색적 연구
유재하** ; 이춘수***
|**구미대학교 글로벌관광복지계열 부교수 (email@example.com)|
|***부경대학교 경영대학 교수 (firstname.lastname@example.org)|
Subsidiaries of global e-business firms should consider factors that could make their operations in Korea successful. In this exploratory study, we propose factors that could influence autonomy and performance of global e-business firms' subsidiaries. In this exploratory study, literature review on autonomy and performance of subsidiaries of global firms was conducted. studies on subsidiaries of global e-business firms rare not actively conducted thus far. Thus in this study, we postulate determinants of autonomy and performance of subsidiaries of global e-business firms. Streams of research on subsidiaries were reviewed as well as autonomy, competence, relationship and acquisition of knowledge of subsidiaries that are also deemed relevant to subsidiaries of global e-business firms. Implications drawn can contribute to future studies on subsidiaries of global e-business firms and enable subsidiaries to better perform in Korean market. The postulated determinants will also help subsidiaries of global e-business firms to implement policies to attain autonomy.
글로벌 E-비즈니스기업의 자회사는 한국에서 성공적으로 사업수행을 위한 요소들을 고려해야만 한다. 특히 본 연구에서는 기업의 자율성과 성과에 영향을 미치는 글로벌 E-비즈니스기업 자회사의 요소들에 대하여 제안하고자 한다.
본 연구에서는 글로벌 E-비즈니스기업의 자회사 자율성과 성과에 대한 탐색적 문헌연구를 수행하고자 한다. 자회사의 자율성은 그 동안 다국적 기업의 자회사를 중심으로 활발히 연구가 진행되어 왔다. 그러나 글로벌 E-비즈니스기업의 관점에서 파악하고자 하는 연구는 매우 미진하였다. 이에 기존의 문헌연구를 바탕으로 글로벌 E-비즈니스기업에 접목할 수 있는 자율성과 성과의 관계 등 관련 변수들을 파악하고 활용할 수 있는 방법을 모색한다.
본 연구에는 전략-구조흐름관점, 글로벌 E-비즈니스기업의 자율성, 역량, 관계, 지식의 획득 측면에서 문헌연구를 고찰하고 글로벌 E-비즈니스기업의 자율성 연구와 향후 성과를 높이기 위한 시사점을 도출하였다. 이러한 시사점을 바탕으로 글로벌 E-비즈니스기업은 자율성의 개념과 결정요인들을 파악할 수 있을 것이며, 정책적으로도 글로벌 E-비즈니스기업의 자율성을 확보하기 위한 정책을 수립하는데 일조할 수 있을 것으로 기대한다.
|Keywords: Global E-Business Firms, subsidiaries of Autonomy, Performance, Relationship, Strategy
키워드: 글로벌 E-비즈니스기업, 자율성, 자회사성과, 관계, 전략
|Ⅱ. Literature review|
|Ⅲ. Implications for E-Business Firms|
Decision-making autonomy appears to be a strategic dimension that has close linkage with the MNC affiliate’s characteristics, role and policies(Taggart & Hood, 1999). There are many facets of subsidiary where autonomy exerts its influence. Numerous extant studies have identified areas where subsidiary autonomy play significant roles. Subsidiary autonomy is one factor in a collection of forces that drives MNC’s evolution(Brikinshaw & Hood, 1998).
Subsidiary autonomy influences subsidiary capabilities(Barlett & Ghoshal, 1989). Subsidiary autonomy influences subsidiary strategy(Young & Tavares, 2004). Subsidiary autonomy influences firm-specific advantage of the MNC(Birkinshaw et al., 1998). Furthermore, subsidiary autonomy influences creation of local innovations(Bartlett & Ghoshal, 1989). Thus, autonomy seems to exert influence in the areas of evolution, capability, strategy, innovation and firm-specific advantage.
Parent companies and subsidiaries of global e-business firms operate under different objectives. Parent firms want subsidiaries to fulfil its potentials while maintaining control to meet the demands of parent companies’ strategic objectives and network configurations. Subsidiaries, on the other hand, seek to enhance their status within the corporate networks. To do so, subsidiaries often seek to gain autonomy as well as ability to influence other units in corporate network. Degree of autonomy of subsidiaries can be determined by the role and mandate given by the headquarters but other factors could influence subsidiary autonomy.
Degree of parent company’s delegation of decision making authority to subsidiaries can be dependent on parent firm's centralization or decentralization strategy. Centralization or decentralization is a matter of degree and there can be a level of subsidiary’s decision making authority that can maximize its performance. In order to succeed in demanding Korean market, foreign subsidiaries of global e-business firms need to responsive to demand conditions in Korea. To become flexible and responsive, foreign subsidiaries in Korea need to have autonomy in their decision making. Degree of autonomy of subsidiaries can be determined by the role and mandate given by the headquarters but other factors could influence subsidiary autonomy.
This study is an exploratory study to present factors that could influence autonomy of subsidiary of global e-business firms that are already operating in Korean market or firms that seeks to enter Korean market in ther future. Specifically, exploratory literature review on subsidiary and autonomy was conducted so as to be applicable to foreign e-business firms entering Korean market.
Studies on autonomy of MNC foreign subsidiaries have received much attention in recent studies(Ambos et al., 2010; Ambos & Birkinshaw, 2010; Gammelgaard et al., 2011; Gammelgaard et al., 2012). There has been efforts in the past to define types and roles subsidiaries have. It would be worthwhile to review how studies on subsidiaries have progressed thus far. While some scholars may argue autonomy can be assumed rather than given, according to Balogun et al.(2011), Pisoni et al.(2010), Sandvik(2010) and Delany(2000) subsidiaries are assumed to be subordinate to, and working under orders from, the headquarters.
There are many schools classifying subsidiary in terms of its strategy-structure, relationship, role and development. Importance of simultaneously achieve integration and responsiveness within MNCs operation was noted by Bartlett and Ghoshal(1989) and Evans et al.(1989). Strategy-structure school of thought regarded the importance of integration and responsiveness of constituents in the MNC network. Bartlett and Ghoshal’s(1989)'s concept of the ‘transnational organization’ best represents the preferred organizational design for achieving such goals. The headquarters-subsidiary relationship stream
In headquarters-subsidiary relationship school of thought, scholars emphasized the need for centralization of decision-making authority(Gates & Egelhoff, 1986; Hedlund, 1981). This research stream also emphasized how to integrate activities of subsidiaries to maximize their value to the MNC headquarters. This school regarded that the main goal of MNC headquarters was to control and integrate subsidiaries for the sake of efficiency(Paterson & Brock, 2002; Pisoni et al., 2010). Although the research stream did acknowledge, to some degree, the ability of subsidiaries to attain autonomy and have competence to influence other constituents in the MNC network. Despite acknowledging the ability of the subsidiary to possess autonomy and influence within the MNC(Hulbert et al., 1980; Prahalad & Doz, 1981), it did not fully appreciate the subsidiary' strategic decisions and actions.
In subsidiary role stream, scholars began to realize different role subsidiaries have within a MNC network(White & Poynter, 1984). Since subsidiaries in were exposed to diverse environment and challenges, subsidiaries were to be given different role within a single country(Taggart, 1997) and across countries for a single MNC(Gupta & Govindarajan, 1991). This stream also investigated the influence of local environment and other affiliates on a subsidiary(Andersson & Forsgren, 1996; Ghoshal & Bartlett, 1990). Some authors introduced the notion of World Product Mandate(WPMs) within subsidiaries(White & Poynter, 1984). According to Feinberg (2000) obtaining a WPM resulted in increased reinvestment, a reduction in the risks of downsizing and greater decentralization and autonomy. In addition, White and Poynter(1984) indicated that objective of subsidiaries with WPM were to justify their own existence, rather than simply improving efficiency.
Some scholars also introduced the notion of Centre of Excellence(COE) role(Andersson & Forsgren, 2000; Gupta & Govindarajan, 1991). A Center of Excellence is an unit within an organization that encompasses a set of capabilities recognized by the firm to serve as a source of value creation with an intent of such capabilities being used and/or dispersed within the firm(Frost et al., 2003). According to Moore and Birkinshaw(1998), subsidiaries with COE role have the dual objectives of developing their skills and resources and also dispersing them throughout the their internal network.
In subsidiary development stream, authors began to recognize that the subsidiary itself is capable of having a significant influence on its own development(Birkinshaw & Hood, 1998; Gammelgaard et al., 2011; Gammelgaard et al., 2012) even in the absence of headquarters support(Paterson and Brock, 2002). This stream of literature emphasized predominantly subsidiary-centered perspective. While subsidiary role stream only sought to identify the actual contributory role that the subsidiary possessed within the MNC network, subsidiary development stream(Birkinshaw & Hood, 1998; Gammelgaard et al., 2011; Gammelgaard et al., 2012; Suwannarat & Leemanonwarachai, 2012) investigated the process subsidiaries obtained and extended their role within the MNC. Subsidiary management action enabled subsidiaries to increase their influence within anMNC(Forsgren & Pahlberg, 1992; Suwannarat & Leemanonwarachai, 2012) and established global mandates(Birkinshaw & Morrison, 1995; Gammelgaard et al., 2011; Gammelgaard et al., 2012).
Subsidiary are given implementor role or expansionary role by the headquarter(Bartlett & Ghoshal, 1989) and will normally comply with directives of headquarter but will sometimes pursue interest of its own(Taggart, 1997). Once subsidiary has achieved a certain level of performance, its goal would be gain autonomy as it implement subsidiary initiatives(Ambos et al., 2010). Autonomy within organization is related to the division of the decision making authority between a local unit and an outside organization that controls it(Garnier, 1982).
Decentralization includes the notion of delegation of decision-making powers to subsidiary and with subsidiary autonomy, subsidiary has the ability to make decisions regarding subsidiary without headquarter’s influence. Strategic decision-making autonomy refers to autonomy of decisions concerning more strategic issues on new product launch while operational decision-making autonomy refers to issues on local sales operations(Sumelius & Sarala, 2008). Subsidiary’s decision-making autonomy appears to be a strategic dimension that has close linkage with the MNC affiliate’s characteristics, role and policies(Taggart & Hood, 1999). Subsidiary autonomy influences subsidiary capabilities and influences creation of local innovation(Bartlett & Ghoshal, 1989).
There has been numerous studies on the relationship between the parent company and the subsidiaries and the level of autonomy an subsidiary has. There are however different definition on what autonomy is but in general autonomy can be defined as relative power one has against another in parent-subsidiary relationship.
Garnier(1982) defined autonomy to be rightful authority to make decisions on subsidiary operations. Boseman and Phatak(1984) considered autonomy in the same vein as decentralization and it to be the level of decision-making authority delegation, Baliga and Jaeger(1984) considered autonomy as relative concept to control and is the result of decision-making partition between the parent firm and the subsidiary.
According to Brooke(1984) a subsidiary that displays autonomy is one which possesses ability to take decisions for themselves on issues which are reserved to a higher level in comparable organizations. O’Donnell(2000) stated that autonomy is the degree to which the foreign subsidiary has strategic and operational decision-making authority. Najafi-Tavani et al.(2012) regarded autonomy as an extent subsidiaries are allowed to make decisions about their most strategically important activities. Ambos et al.(2010) defined autonomy as the extent to which the subsidiary managers are able to make decisions without headquarters involvement.
While these definitions are useful, they do not specify the way in which the subsidiary obtains its autonomy nor whether autonomy has moderating effect on subsidiary performance. Some scholars view autonomy as being only assigned to the subsidiary by the headquarter. Tong et al.(2012) defined autonomy to be the degree of decision-making power authorized by a MNC to its subsidiaries while Young and Tavares(2004), asserted that the view of autonomy as being only assigned by the head office is limited and these authors view that autonomy concerns the freedom or independence available to or acquired by a subsidiary, which enables it to take certain decisions on its own behalf. According to Bjorkman(2003) a subsidiary may possess and utilize autonomy even if it has not been formerly granted to the subsidiary by the parent company.
Some studies have found that subsidiaries are able to extend their autonomy beyond the formally assigned levels through their own actions(Balogun et al., 2011; Gammelgaard et al., 2011). In general, parent company delegates less autonomy to subsidiaries on strategic decision-making process and delegates more autonomy on routine and repetitive operation related decisions.
Tong et al.(2012) noted the importance of subsidiary autonomy as one of the key areas of research within international business studies. Authors have made attempts to define autonomy in their studies. Tong et al.(2012) defined autonomy as the degree of decisionmaking power authorized by a MNC to its subsidiaries. Gammelgaard et al.(2012) viewed subsidiary autonomy as the decision-making rights that are granted by parent companies. According to Chiao and Ying(2013) subsidiary autonomy is the decision-making limits allowed by the parent companies to improve the efficiency and flexibility in local environment. Even though a conclusive definition of autonomy is difficult to define, the mediating role of autonomy in subsidiary performance is analyzed in this study to find out whether autonomy in subsidiary can indeed lead to better subsidiary performance.
Definition of autonomy by other scholars are summarized in <Table 1>.
|the extent to which the subsidiary managers are able to make decisions without headquarters involvement||Ambos et al. (2010)|
|Ability to make decisions about the subsidiary without any kind of restrictions and influences by the head quarters.||Bjorkman(2003)|
|Decentralization includes the notion of the headquarters delegating decision-making powers to the subsidiary, autonomy contains a trace of subsidiary assertiveness.||Bjorkman(2003)|
|Autonomy within organization is ‘related to the division of the decision making authority between a local unit and an outside organization that controls it’||Garnier(1982)|
|Subsidiaries with strong bargaining power have a degree of ‘ownership’ over their decision rights rather than holding them at the pleasure of headquarters||Mudambi & Pederson(2007)|
|the extent to which subsidiaries are allowed to make decisions about their most strategically important activities or issues||Najafi-Tavani et al.(2012)|
|Autonomy is a synonym to decentralization||O’Donnell(2000)|
|the degree of decision-making power authorized by a MNC to its subsidiaries||Tong et al. (2012)|
There have been conflicting studies on whether a significant relationship exists between subsidiary autonomy and performance.
In study on foreign subsidiaries in New Zealand, it was hypothesized that subsidiaries with higher level of decision-making autonomy had higher level of profitability than those without. But the results showed that there were no distinguishable difference in the two(Deane, 1970).
Tomnilson(1970)’s study on foreign joint venture companies in India and Pakistan showed that companies with less control had higher level of profitability. Autonomy can facilitate creation and diffusion of locally developed innovations(Ghoshal and Bartlett, 1990).
In study on foreign subsidiaries’ autonomy and it relationship with business function and performance, marketing and finance were the most important aspects of autonomy with greatest impact. In particular, subsidiaries with financial autonomy had highest level of economic success(Varbane et al., 2005).
After fulfilling headquarters expectations, subsidiary often develop more ambitious goals. It could gain more bargaining power within the MNC(Andersson et al., 2007) that can lead to more autonomy and influence in the MNC network(Ambos et al., 2010). Subsidiary may implement initiatives to grow on its own resource base. Firm’s capabilities are ability to effectively utilize or coordinate firm’s tangible and nontangible resources and to effectively allocate resources to achieve firm’s objectives(Bogaert et al., 1994). Firm competence can be attained by information generation, combination of physical, human and technical resources. With competence, firms can achieve their goals and conduct their operation process. Competence can be a differentiating factor that can set one from others when responding to environmental and competitive challenges.(Lenoard-Barton, 1992). There are anecdotal evidence of subsidiaries that have independently developed new products which were results of subsidiary initiatives(Rugman & Verbeke, 2001). Subsidiary initiatives relies on motives and the resources on hand.
A firm’s capability can be defined as an ability to combine and effectively combine or coordinate firm’s tangible and intangible assets(Bogaert et al., 1994). It can also be defined as an ability to effectively allocate available resources to achieve its corporate goal(Lenz, 1980). In addition, firm’s competence is an ability to use firm’s resources in organized and strategic ways to make change(Eisenhardt & Martin, 2000). In order to have competitive advantage in the market of entry, subsidiary must have differentiated competence(Yoo & Kim, 2011).
Unlike natural resources, firm competence can be developed through development, exchange and transfer of information by combination of physical, human and technical resources and it can also be developed within the functional operation of a firm. Through competence, a firm can achieve its goal and conduct its corporate activities. Furthermore, competence, like an innovation, creates important output that can help a firm’s sustainability and growth(Winter, 2000). These perspective makes a firm competence to be unique and different from company to company(Leonard-Barton, 1992).
Prahalad and Hammel(1990) saw competence to be capable of multiplying itself as it is used. Thus, firm competence can be attained from internal and external sources, accumulated and further developed.
Firm competence is a necessary condition for conducting firm activities and to achieve its goal. Firm competence should be scarce, durable, not easily traded, difficult to imitate, complementary and is of limited substitutability(Aaker, 1989). Since firm competence is an ability to combine existing tangible and intangible resources, it can encompass firm’s ability to improve its existing product, develop new product, improve its process and develop new technology(Lenz, 1980). In addition, firm competence also encompasses it ability to absorb and adapt knowledge and information acquired from external sources(Johannssen & Dolva, 1995). Likewise, the competence of global e-business firms in Korea will be attained from internal and external sources, and be an necessary condition for their success in conducting business in Korea.
Extant studies on the relationship between autonomy and firm performance have produced conflicting results. Deane(1970)’s study on MNC subsidiaries in New Zealand showed no significant relationship between the level of autonomy and subsidiary’s profitability. Tomlinson(1970)’s study on MNC joint venture companies in India and Pakistan proved otherwise. Their conflicting results might be due to locational charcteristics of MNC subsidiaries. Whether higher level of autonomy of MNC subsidiaries in Korea will result in higher performance will be analyzed in this study.
The parent company and foreign subsidiaries often operate under a same system and corporate goal and is under the same ownership. When subsidiary performance is good, the subsidiary receives good evaluation and is often awarded with more autonomy. When subsidiary performance is below par, it will go under scrutiny and the headquarter will get involved more in subsidiary operations to remedy its shortcomings.
Franko(1971)’s study on 1,100 American joint ventures showed that centralization strategy decreased the level of joint venture stability. Schann(1988)’s study on joint venture firms also show that when joint venture firms lose their strategic flexibility, it would lead to poorer results.
Recent studies have shown that subsidiary autonomy is associated with positive performance effects(Tran et al., 2010) and that there is a negative relationship between lower autonomy and production activities(Gammelgaard et al., 2012).
Results of extant studies are somewhat conflicting and are focused on subsidiaries in countries other than Korea. The findings of this study will clarify the determinants of autonomy and its effect on subsidiary performance for foreign subsidiaries located in Korea.
As firms embark on internationalization, transfer of organizational knowledge resources to its subsidiaries and their effectiveness in utilizing such knowledge becomes an important factor in determining subsidiary capability(Fang et al, 2007). Dunning(1993) recognized knowledge to be a critical organizational resource. Inability to transfer resource will lead to lower than expected subsidiary performance. The capability to both identify and apply organizational knowledge within a firm may be a primary source of gaining and sustaining competitive advantage(Grant, 1991). Knowledge exchange and transfer within a intra-MNC network will depend on degree of interaction between subsidiary and headquarter and between subsidiary and other subsidiaries. Multinational firms must transfer knowledge between the parent and subsidiary without exposing that knowledge to competitors(Kogut & Zander, 1992). Knowledge resources such as marketing skills and technological knowledge (Chatterjee & Wernerfelt, 1991) can be transferred between the parent and subsidiaries. Such transfer of knowledge enhance the competitiveness and performance of a subsidiary.
Subsidiaries of multinational corporations undertake dual role of implementor of parent strategies and of competitor in local markets(Brock & Siscovick, 2007). While competing in the market of entry, subsidiaries attempt to bring global resources to local markets(Brock, 2003). Question of how to manage subsidiaries have led to organization concept based on either global integration or local responsiveness(Bartlett & Ghoshal, 1989). A common typology based on the degree of integration or differentiation is multidomestic-global strategy(Roth, 1992). In multidomestic strategy, each subsidiaries are allowed to be managed with relative independence(Luo, 2002). Multidomestic strategy is consistent with local responsiveness concept. On the other hand, headquarter manages the entire organization as a whole for its collective advantage in a global strategy(Harzing, 1999). Global strategy is consistent with the concept of global integration. As summarized by Rosenzweig & Singh(1991), subsidiaries of MNCs face dual pressure and they are pulled to achieve isomorphism with the local institutional environment, and they also face an imperative for consistency within the organization. Question of either global integration and local responsiveness can be viewed as environmental contingencies, akin to industrial structural forces(Yip, 1995). If the local competition is fierce and operating environment complex, the business should have to respond locally and calls for more autonomy. If local demand is more distinct, it also calls for more autonomous subsidiary to respond locally(Yip, 1995). If the industry is more globalized and demand conditions similar, there is less need for local responsiveness and there is greater gains from global integration. In a distinct market like Korea where customers have sophisticated taste, subsidiaries with local responsiveness strategy will be better suited to compete in Korean market.
Based on strategic role the subsidiary has, Birkinshaw and Morrison(1995) classified subsidiary into 3 types: local implementer, specialized contributor and world mandate. Local implementers are subsidiaries with limited geographic scope and with limited product or value-added scope(Birkinshaw & Morrison, 1995). Other scholars have given different names to subsidiaries with such nature. White and Poynter(1984) called them as ‘miniature replica’ while Gupta and Govindarajan(1991) named them as ‘local innovators’. In this guise, subsidiaries adapt global products to meet the need of local market. It can be found in multidomestic strategy(Porter, 1986). Specialized contributors are subsidiaries that have expertise in specific function or activities. As with local implementers, scholars have given them different names to such subsidiares. White and Poynter(1984) called them ‘product specialist’ while Jarillo and Martinez(1990) called them ‘receptive subsidiary’and Gupta and Govindarajan(1991) calling them as ‘global innovators’. These subsidiaries are highly interdependent with other subsidiaries(Roth, 1992) and mirrors Porter’s pure global’ strategy. Their activities are coordinated with other affiliates within the MNC network. The world mandate subsidiaries are regional or global responsibility for a product or business(Birkinshaw & Morrison, 1995). Their activities are integrated yet managed from not headquarters but the subsidiary.
According to Jarillo and Martinez(1990), these subsidiaries are globally integrated while being locally responsive at the same time. White and Poynter(1984) termed them as ‘global mandate’ and Gupta and Govindarajan(1991) naming them as ‘integrated player’ Local implementers were deemed autonomous(Jarillo & Martinez, 1990) while specialized contributors were integrated(Roth, 1992). World mandate subsidiaries are both globally integrated and locally responsive at the same time(Jarillo & Martinez, 1990).
Subsidiary performance by strategy role types reveal that the most integrated specialized contributors had the worst performance in terms of return on investment, productivity and profit(Birkinshaw and Morrison, 1995). Their finding leads to a thought that if a subsidiary is less integrated, better performance it will have.
|Subsidiaries with unique capabilities attain greater bargaining power against parent firm and secure greater autonomy.||Birkinshaw (1997)|
|Autonomy may be developed beyond the formally assigned levels by the subsidiary itself.||Gammelgaard
|After fulfilling headquarter expectations, subsidiary often gain more bargaining power within the MNC network.||Andersson
|Local issues like marketing and human resource are to be decentralized.||Edwards
|Parent firm centralizes decision-making on strategic issues but decentralizes day-to-day operational issues.||Hedlund (1981)|
|When delegated with regional mandate, subsidiary then attains more autonomy.||Roth (1992)|
|Intra- firm relationship||The degree of control over subsidiary increases as the subsidiary gets embedded in the internal network comprised of parent and subsidiaries.||Salancik (1986)|
|Competence creates comparative advantage for firms.||Aaker(1989)|
|Corporate competence results in important output for growth and survival.||Winter(2000)|
|Autonomy||There is no correlation between autonomy and profitability.||Deane(1970)|
|Joint venture firms that are under less degree of parental control enjoy better profitability.||Tomnilson (1970)|
|Subsidiaries with more autonomy in marketing and finance enjoy higher economic performance.||Varblane
|Subsidiary autonomy is associated with positive performance effects.||Tran et al. (2010)|
|There is a negative relationship between lower autonomy and production activities.||Gammelgaard
A subsidiary in a MNC network inevitably interacts with the parent company and also other affiliates in the network. Through formal or informal interaction with others in the network, a subsidiary invariably gain knowledge or technology from the others. Knowledge can be acquired not only from within but from external learning through acquisition, alliance and movement of human capital(Kogut & Zander, 1992). Knowledge is a bases for creation of competitive advantage and is directly related to performance. In global competition, a firm’s ability to possess and use its knowledge can be a precursor for success(Doz et al., 2001).
New knowledge can be generated in-house but also generated through interaction with external mechanism(Bartlett & Ghoshal, 1989).
Knowledge of value is socially embedded and through social interaction, knowledge can be exchanged and its scope and depth extended(Lane & Lubatkin, 1998). According to Andersson et al.(2007), embeddedness influences innovation.
Subsidiaries absorb and adapt knowledge and information gained from other constituents in the MNC network. Such can lead to knowledge creation capability and modified for local use and adaptation(Bartlett & Ghoshal, 1989). Although some argue that such knowledge inflow contributes to subsidiaries’ knowledge creation capability has not been fully explored(Griffith et al., 2008), different sources of knowledge and contribute to innovative capabilities (Morris & Snell, 2011; Subramaniam & Youndt, 2005). Intellectual capital is defined as the sum of all knowledge firms utilize for competitive advantage (Subramaniam & Youndt, 2005).
Subsidiaries have two primary external sources of knowledge that they can utilize. One source will be from other affiliates within the intra-MNC network. The other will be from local environment. Knowledge inflow from local network is beyond the scope of this study but should be discussed in future study.
In terms of acquiring and assimilating knowledge from the MNC network, constituents engage in the multi-directional exchange and transfer of knowledge(Buckley & Carter, 2004). An MNC operates as system for integrating knowledge that is dispersed around the world(Barteltt & Ghoshal, 1989; Kogut & Zander, 1992). Thus, a subsidiary should be able to acquire, assimilate, and exploit knowledge from its headquarters and its affiliates.
How acquisition and assimilation of knowledge generated outside the boundaries of a firm and its consequent utilization results in new knowledge creation are explained in Absorptive capacity and organizational learning theories(Cohen & Levinthal, 1989; Todorova & Durisin, 2007). According to Cohen and Levinthal(1989) absorptive capacity is an organization’s ability to identify the value of information gained from external sources, incorporate such information and utilize it for commercial use. Thus, firms may integrate knowledge inflows from external sources with their existing knowledge stocks, and create new or improved goods, services, systems, processes, or organizational forms(Todorova & Durisin, 2007).
Learning or acquiring knowledge from external entities leads to generation of new knowledge because learning enhances opportunities for combining different types of knowledge and making new associations(Cohen & Levinthal, 1989). New knowledge plays a key role in the process of innovation, serving both as an input and an output (Phene & Almeida, 2008). Therefore, the more a subsidiary learns and transfers knowledge from its and local networks, the more capable it will be to create new knowledge among MNC subsidiaries. Although level of communication among constituents of the network affect degree of marketing standardization(Rau & Preble, 1987) among others, knowledge gained from interaction will enable a subsidiary to become more competent due to new knowledge created. Creating new knowledge can be a source for subsidiary competence and subsidiaries with higher level of competence will likely have better performance.
Foreign firms who have entered Korean market experienced varying degrees of success. Subsidiaries of global e-business firms should consider factors that could make their operations in Korea successful. In this exploratory study, we propose factors that could influence autonomy and performance of global e-business firms' subsidiaries.
According to Birkinshaw(1997), subsidiaries with unique capabilities attain greater bargaining power against parent firms and secure greater autonomy. Parent firm centralizes decision-making on strategic issues but decentralizes day-to-day operational issues(Hedlund, 1981). As the subsidiary gets embedded in the internal network comprised of parent and subsidiaries, the degree of control over subsidiary increases(Salancik, 1986). We can assume that a subsidiary of a global e-business firm with unique capabilities can attain greater autonomy from the headquarters. Market responsive decisions should be decentralized to meet particular market demands in Korean market and less a subsidiary is intertwined within the globlal corporate network, more independent it shall be. Thus, determinants of autonomy can be postulated as subsidiary competence, parent firm factors and intra-firm relationship.
Competence creates comparative advantage for firms(Aaker, 1989) and results in important output for growth and survival(Winter, 2000). According to extant studies, subsidiaries with more autonomy in marketing and finance enjoy higher economic performance(Varblane et al., 2005). There is a negative relationship between lower autonomy and production activities(Gammelgaard et al., 2012) and subsidiary autonomy is associated with positive performance(Tran et al., 2010). A competent subsidiary will gain comparative advantage in Korean market and will enable it to compete with domestic or foreign competitors. Competence will enable a subsidiary to gain not only competitiveness but also perform better in terms of market performance and financial performance.
As for level of autonomy, higher level of autonomy will lead to better market and financial performance in Korean market. Thus, determinants of performance for subsidiaries of global e-business firms can be postulated as subsidiary competence and autonomy. Even though we are postulating that the level of subsidiary competence and autonomy will positively affect level of subsidiary performance in Korea, an empirical analysis has not been undertaken in this study but must be followed in the future to verify assumptions made in this study. There could be other factors that could affect subsidiary autonomy, but we have limited our research to competence, parent firm, and intra-firm relationship. Other factors such as embeddedness of subsidiary in the market of entry could influence the level of autonomy a subsidiary has. Extant studies show that a subsidiary can assume autonomy in addition to being assigned one by the parent firm. Although this study does not look into how a subsidairy can assume autonomy, assumption of autonomy can prove to be an important element in a subsidiary's capability to compete in Korean market.
Korean market is a trendy, fast changing market where global internet service firms failed to succeed. Yahoo withdrew from Korean market and Google is not outperforming domestic search engine websites. E-Bay which has acquired Korean e-commerce companies Auction and G Market. These highly localized Korean arms of E-Bay are competing fiercely with domestic company 11th Street. To be able to assume autonomy in addition to being delegated by the parent firm, subsidiaries of global e-business firms will become more responsive and enable them to better compete in Korea.
A study on determinants of autonomy and performance of subsidiaries of multinational corporations have been conducted by the author and have produced significant results. However, the author's study was limited to manufacturing foreign subsidiaries in Korea. To test whether same principles to subsidiaries of global e-business firms will result in the same conclusion remains to be seen. Even with limitations in this study, this exploratory study will be a novel approach that will prove to be useful in practical application by subsidiaries of global e-business firms that seeks to enter Korean market and compete with Korean domestic e-business firms once empirical study is conducted in near future.
Foreign firms seek to enter foreign markets to seek profit. When entering highly competitive Korean market, subsidiaries of global e-business firms should consider factors that can guarantee success in Korean market. Modes of entry could be either through direct investment or through strategic alliance. In strategic alliance, among other factors, trust in partner's competence can lower the risk(Lee et al., 2010) and firms with prior strategic alliance experience value trust highly(Lee et al., 2008). In this study, however, focus was not on relational factors in a partnership but on determinants of autonomy and performance of subsidiaries.
There are conflicting views on the source of subsidiary autonomy. Some international business literature view subsidiary autonomy to be formally delegated to it from the MNC headquarter(Birkinshaw & Ridderstrale, 1999; Suwannarat & Leemanonwarachai, 2012; Taggart, 1997). However, some studies(Miozzo & Yamin, 2012) have indicated that a subsidiary may have a degree of autonomy beyond that was originally delegated. These conflicting views indicate that rather than delegation of autonomy, a subsidiary may attain its own autonomy. There might not be a single source of autonomy from its headquarter. A subsidiary may gain its autonomy from multiple sources.
Some authors have explored subsidiary's ability to possess autonomy beyond what has been given by the headquarter(Birkinshaw & Hood, 1998; Gammelgaard et al., 2011; Miozzo & Yamin, 2012). While some studies assume that subsidiary could only acquire autonomy by delegation from the headquarter, recent studies proposed that there are other sources of a subsidiary’s autonomy. Extant research indicated that subsidiaries may also possess a degree of autonomy that has not been formally assigned to them(Miozzo & Yamin, 2012). Tong et al. (2012) noted that more research was needed to understand how such autonomy may be developed, and how it differs from that which is formally assigned. The term ‘assigned’, ‘assumed’ autonomy was previously suggested as a possible type of autonomy by Young and Tavares(2004). Assigned autonomy can be defined as autonomy granted and assumed autonomy can be defined as autonomy developed by the subsidiary.
This study does not investigate how subsidiary can 'assume' autonomy, but as extant studies show, autonomy can be assigned to a subsidiary as well as assumed by a subsidiary. If autonomy of a subsidiary can contribute to enhancement of subsidiary performance, then subsidiary should strive to assume one. In this study however, we postulate determinants of autonomy and performance of subsidiaries of global e-business firms. This study should be followed by an empirical study and if the results prove assumptions rights, they should help subsidiaries better compete in Korean market.
The limitations of the study are as follows. First, case studies or interviews on foreign e-business firms such as Yahoo and Google as well as domestic firms such as auction and G Market needs to be conducted and applied. Second, as for an exploratory study needed for an empirical study, hypotheses need to be induced through theoretical approach on e-businesses based on secondary data in order to understand relationship between autonomy and performance through empirical analysis. Third, future studies which presents welldefined criteria to evaluate autonomy and performance which are hard to apply to e-business firms are needed.
This paper is based on literature review portion of doctoral dissertation by Jae Har Yu and is amended for use in this study.
본 논문은 유재하의 박사학위 논문의 문헌연구부분을 활용하여 수정 보완하였음.
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