Subsidiary size and the level of subsidiary autonomy in multinational corporations: a quadratic model investigation of A
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Subsidiary size and the level of subsidiary autonomy in multinational corporations: a quadratic model investigation of Australian subsidiaries Stewart Johnston1 and Bulent Menguc2 1
Department of Management and Marketing, University of Melbourne, Victoria, Australia; 2 Department of Marketing, International Business and Strategy, Faculty of Business, Brock University, St Catharines, Ontario, Canada Correspondence: S Johnston, Department of Management and Marketing, University of Melbourne, Parkville, Victoria 3010, Australia. Tel: þ 61 3 8344 4552; Fax: þ 61 3 9349 4293; E-mail: [email protected]
Abstract We investigate the relationship between subsidiary size and subsidiary autonomy in multinational corporations (MNCs) and conclude that a quadratic inverted U-shaped model is the best fit to our data. Founding our arguments in resource dependence theory, we propose that, while the subsidiary is relatively small, increasing subsidiary size will correlate with increasing resources in the subsidiary and a consequent increase in subsidiary autonomy. This positive linear relationship persists until an inflection point is reached and subsidiary autonomy begins to decline. We argue that this is due to increasing subsidiary size bringing increasing coordination complexity, a need for greater inputs of managerial experience and expertise, and growing interdependence between the subsidiary and the rest of the corporation. Employing a sample of 313 Australian subsidiaries of mostly US, UK, European and Japanese MNCs, we use a three-step hierarchical regression to investigate controls only, linear and quadratic effects of subsidiary size on subsidiary autonomy. The quadratic inverted-U model supports and extends Hedlund’s (1981) proposition. A post hoc investigation suggested that there might be value in exploring a sinusoidal relationship between size and autonomy. Journal of International Business Studies (2007) 38, 787–801. doi:10.1057/palgrave.jibs.8400294 Keywords: subsidiary autonomy; subsidiary size; Australian subsidiaries; inverted U-shaped model; triphasic model; resource dependence theory
Received: 31 August 2004 Revised: 13 February 2006 Accepted: 19 September 2006 Online publication date: 28 June 2007
Introduction There should always be a place for studies that establish the logic of basic relationships in multinational corporations (MNCs) so that work on other aspects of the MNC can be placed in context. As the character of MNCs continues to develop and change over time, an understanding of the headquarters (HQ)–subsidiary relationship remains an ongoing and central academic task for international business scholars. Our study makes two contributions. First, by examining a large dataset of Australian subsidiaries of US, European and Japanese MNCs, we shed new theoretical and empirical light upon the HQ–subsidiary link. Second, in the process, we confirm Hedlund’s far-sighted proposition of a quarter of century ago t
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