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Article 2 (Global Strategy)
Article 2 (Global Strategy)
doi: 10.1111/j.1467-6486.2010.00969.x
abstract We re-conceptualize the Bartlett and Ghoshal typology of national subsidiary roles
in the multinational enterprise (MNE), using a resource bundling perspective. Our view is that
national subsidiary roles can vary dramatically across value chain activities. We focus on the
distinction among innovation, production, sales, and administrative support activities. For each value
chain activity, the subsidiary bundles sets of internal competences with accessible, external location
advantages. We also address the effects of regional integration on national subsidiary roles. Such
schemes may affect substantially the extent to which location advantages of individual
countries can be accessed and bundled with internal competences, thereby typically altering
some national subsidiaries’ roles in specific value chain activities. However, such substantive
changes in specific value chain activities performed by national subsidiaries do not necessarily
lead to any move in conventional subsidiary role typologies, such as the Bartlett and Ghoshal
one, since these typologies only acknowledge aggregate subsidiary role changes, supposedly
valid for the entire value chain.
INTRODUCTION
Many multinational enterprises (MNEs) now function as differentiated networks, rather
than as hierarchically run organizations with national subsidiaries that all play similar
roles (Nohria and Ghoshal, 1994; Rugman and Verbeke, 2003). It has therefore been
argued that an MNE national subsidiary facing a specific external environment with
unique challenges, and commanding an idiosyncratic set of competences, should be
managed differently from other national subsidiaries. Specifically, MNE corporate man-
agement should allocate different charters, and therefore also resources, to different
national subsidiary types (Bartlett and Ghoshal, 1986, 1989). In addition, a number of
researchers (Birkinshaw, 1997, 2000; Cantwell and Mudambi, 2005; Paterson and
Brock, 2002; Rugman and Verbeke, 2001a; Taggart, 1997a, 1997b, 1998) have argued
that national subsidiary management may sometimes have considerable latitude to
Address for reprints: Alan Rugman, Henley Business School, University of Reading, Greenlands, Henley-on-
Thames, Oxfordshire RG9 3AU, UK (a.rugman@henley.reading.ac.uk).
High
Black hole Strategic leader
Strategic
importance of
local
environment
Implementer Contributor
Low
Low High
Figure 1. The generic roles of foreign subsidiaries in Bartlett and Ghoshal (1986)
competences, that jointly determine their charter and relative autonomy. Rugman and
Verbeke (1992) have provided an internalization theory interpretation of the above
typology: here, the bundling by each subsidiary of internally held resources with acces-
sible external ones is critical to performance. In the case of black hole subsidiaries, no
such bundling can occur, meaning that the mere location of the subsidiary in a particular
geographic space is insufficient for it to access and utilize the valuable external resources
present in that space.
Despite the popularity of the Bartlett and Ghoshal typology and its seemingly general
applicability, the recent international business literature (e.g. Anand and Delios, 1997;
Benito et al., 2003; Bouquet and Birkinshaw, 2008; Kedia and Mukherjee, 2009;
Mudambi, 2008) has documented some major changes in the international business
environment that suggest the need for further conceptual improvement. First, several
facilitators of internationalization such as advanced information and communications
technology (ICT) and supply chain management now allow (a) easier MNE access to –
and bundling of internal resources with – the distinct location advantages of a larger
number of host countries, and (b) improved internal coordination among specialized
subsidiaries. Hence, firms can now more easily fine-slice value chain activities, optimize
the location of specific, narrow activity sets and coordinate these across borders, and
de-internalize business functions considered less critical or where bundling is more
difficult (Dicken, 2007; Kedia and Mukherjee, 2009; McLaren, 2000; Mudambi, 2008).
Many national subsidiaries therefore specialize in rather narrow activity sets in the
MNE’s value chain, where bundling of internal competences with external resources is
feasible and effective, and may thus perform different roles in each value chain activity
( Jensen and Pedersen, 2011, this issue). This important point is not recognized in the
Bartlett and Ghoshal typology shown in Figure 1, which only acknowledges aggregate,
Innovation
Production
Value chain
activities
Sales
Administrative
support
(b)
Figure 2. (a) Unbundling subsidiary roles by Bartlett and Ghoshal (1986). (b) Unbundling subsidiary roles by
Bartlett and Ghoshal (1986): five examples
the original typology (Bartlett and Ghoshal, 1986; Rugman and Verbeke, 1992) assumed
that aggregate subsidiary roles can be determined, whereby national subsidiaries would
cover the entire value chain and would occupy the same role throughout the chain
(e.g. strategic leadership of Philip’s UK subsidiary versus implementer status of P&G’s
subsidiaries in Australia, Belgium, the Netherlands, and Spain). Ultimately, Bartlett
and Ghoshal applied their framework primarily to the context of sales-related location
advantages and subsidiary competences at the national level as the critical conditions for
success – in spite of some elements in the 1986 article describing the other value chain
functions.
Innovation I1 I2 I3
Production P1 P2 P3
Value chain
activity
S1 S2 S3
Sales
A1 A2 A3
Administrative
support
Pattern 1: Subsidiary shutdown or full activity swap. (Cell 1 in Figure 3 for all value chain
activities; in the case of a swap, combination with pattern 3.) This scenario occurs if
two conditions are fulfilled. First, a substantial reduction in institutional distance among
national markets in the region leads some countries to experience weakened national
location advantages relative to other countries in the region. Second, the focal subsidiary’s
competences across value chain activities for a particular set of products and services
also become perceived as weaker as compared to rival subsidiaries inside the region. The
firm’s head office may then contemplate the new scenario of a full reallocation of all
Pattern 2: Status quo. (Cell 2 in Figure 3 for all value chain activities.) Here, regional
integration has only a limited impact on subsidiary roles, because the distance among
national markets in the region remains strong, and critical subsidiary competences are
largely location-bound, typically at the sales end. For example, Cantwell (1987) noted
that British membership of the EC (precursor to the EU) had a weak immediate impact
on MNE production networks in pharmaceuticals in Europe. Various trade barriers,
including government controls over registration of new products and national price
controls continued to exist, thereby de facto dividing the EC into separate national
markets, and preventing cross-border resource bundling. Hood and Young (1987) noted
that limited inter-plant product flows as well as subsidiary perceptions of the weak
opportunities resulting from corporate integration in European manufacturing provided
little evidence of multinational integration. Here, the product scope may be broadened
or narrowed, but no substantive change occurs in the type of value chain activities
performed, with especially production and sales activities remaining co-located in the
various national subsidiaries.
Pattern 4: Partial regional charter. (This reflects the outcome of the strengthening of a
national subsidiary’s location advantages in various but not all activities, typically for
innovation, production, and administrative activities, and no change for sales; combination of
Cell 3 for innovation, production, and administrative and Cell 2 for sales in Figure 3.) Here, the
chosen affiliates will benefit from the relocation of activities previously carried out by
other national subsidiaries, but with the sales side remaining largely untouched. For
example, Nestlé had established non-dairy creamer operations in Thailand (Taucher
and Toh, 2003). When the Asia/Oceania division pursued growth opportunities in the
ASEAN region, the Thai operation was allocated the full charter with the exception of
sales for non-dairy creamer for the entire ASEAN region. In addition to increasing its
production capacity, the Nestlé operation in Thailand had to learn how to produce
non-dairy creamer to consumers with slightly different tastes in other ASEAN countries,
and with national managers remaining in charge of sales.
The rationalization of Honeywell Home’s North American operations is another
example. Among the overlapping products made by both the Canadian and US plants,
zone valves were moved to Canada, whereas the other products were moved to the
United States. Thus, each manufacturing site concentrated on specific innovation, produc-
tion, and related administrative activities given its relative location advantages, which
resulted in improved efficiency at all sites (Birkinshaw, 1995). In other words, here again,
substantial activity swapping occurred but with sales remaining largely untouched. With
this pattern there need not necessarily be many or even any losers, namely if other
subsidiaries also receive a partial regional charter allowing them to specialize in different,
narrow product lines, i.e. if partial swapping occurs.
Pattern 5: Single activity specialization. (This is the weakening of the national subsidiary’s
location advantages in most activities, typically innovation, production, and administrative
support, combined with the status quo for a single activity, typically sales; combination of
Cell 1 for innovation, production, and administrative support in Figure 3 with Cell 2 for sales.)
Pattern 5 represents the continued importance of national location advantages of indi-
vidual host countries for sales to be bundled with location-bound sales competences held
Pattern 6: Added, single-activity regional charter. (This is the result of the strengthening of
the national subsidiary’s location advantages for one value chain activity; combination
of Cell 3 for the relevant activity in Figure 3, with the status quo of Cell 2 for all other
activities.)
For example, in the context of Japanese manufacturing investment in Europe, Lehrer
and Asakawa (1999) observed the adding of large-scale R&D operations to particular
subsidiary activity portfolios in the MNEs’ internal networks, i.e. a significant departure
from their conventional, ethnocentric approach to centralizing R&D. Here, the extant
co-located production and sales activities were complemented with significant innovation as
an expression of the increased importance attached to the European region.
Pattern 6 is occasionally observed in the realm of sales (though perhaps restricted to a
subset thereof, such as strategic marketing activities), and this can go hand in hand with
swapping. The Swiss-based financial services group Credit Suisse established several
centres of excellence in 1992 to capture the expertise for pricing financial products,
further strengthening related competences at these centres while at the same time
removing these specific sales activities in other subsidiaries. Bleackley and Williamson
(1997) found that the resulting pan-European marketing programmes were directed out
of several locations, with each location being responsible for the sales activities for a
particular product category. As another example, Proctor and Gamble’s ‘Euro Brand
Teams’, introduced in the 1980s, reflected the allocation of the marketing leadership for
specific products in Europe to one national subsidiary (e.g. Germany) that had been
highly performing for those products in terms of bundling its location advantages with
external competences.
CONCLUSION
In this paper, we have addressed two key conceptual problems associated with conven-
tional subsidiary role classifications, focusing on Bartlett and Ghoshal’s (1986) seminal
work. This particular classification is important because it has been (and still is being)
taught to many thousands of MBA students and senior managers in executive pro-
grammes, at leading business schools around the world, as the key actionable building
block of Bartlett and Ghoshal’s 1989 transnational solution framework, allowing for
variety in national subsidiary role assignments and selectivity in resource allocation to
subsidiaries.
NOTE
[1] We obviously simplify the analysis by distinguishing only among innovation, production, sales, and adminis-
trative support activities, rather than studying the entire spectrum of possible location advantages and
value chain components. Further extensions could disaggregate further the location advantage dimen-
sion and the subsidiary competences dimension (e.g. Enright, 2005; Mudambi, 2008). We are grateful
to the JMS Special Issue editors and the reviewers for pointing out this possibility. From the perspective
of parsimony, however, our view is that the distinction we made among the above four value chain
activity sets is sufficient to capture the essence of MNE functioning, and to add important insight to the
mainstream view of subsidiary role dynamics, insight that is presently not provided by the Bartlett and
Ghoshal (1986) typology. The point is that subsidiary activities can usually be decomposed into the four
above activity sets, each associated with distinct location advantages and subsidiary competences.
In each case, the process of bundling internally held competences with externally accessible resources
is expected to be substantively different.
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