Does country context distance determine subsidiary decision-making autonomy? Theory and evidence from European transition economies

Abstract

We studied an underrepresented area in the international business (IB) literature: the effect of country context distance on the distribution of decision-making autonomy across headquarters and foreign affiliates. Foreign affiliates directly contribute to the competitive advantages of multinational enterprises, highlighting the importance of such intra-firm collaboration. The division of decision-making autonomy is a core issue in the management of headquarterssubsidiary relationships. The main contribution of our paper is that we confront two valid theoretical frameworksbusiness network theory and agency theorythat offer contradictory hypotheses with respect to the division of decision-making autonomy. Our study is among the first to examine this dilemma with a unique dataset from five Central and Eastern European transition countries. The empirical results provide convincing support for our approach to the study of subsidiary decision-making autonomy.

Explaining autonomy variations across value‐chain activities in foreign‐owned subsidiaries

“…The global city location seems to play only a peripheral role overall and only the absence of geographical distance is relevant in a number of solutions. This seems to indicate that locational factors seem to play a less conducive role than often suggested (e.g., de Jong et al, ; Goerzen et al, ; Mudambi, ). For instance, the global city location is only a substitute for the absence of the other conditions in a relatively small number of cases as seen in solutions 7 of the autonomy in basic value‐adding activities and solution 6 in the high value‐adding activities.…”

“…Space refers to the geographic distance between home and host country of the MNE. For instance, previous studies have shown with increasing geographic distance, the familiarity of the MNE decreases; hence, information costs increase as well as liability of foreignness (Alcácer et al, ; de Jong et al, ). Place refers in this study to global cities.…”

“…Rossi et al () showed that global city location also plays a role in the allocation of value‐chain activities across the MNE, although their study neglects the hinterland location options. Greater geographic distance is often considered as a hindrance to autonomy development (de Jong et al, ); however, it also allows the subsidiary to tap into new knowledge sources (Hutzschenreuter & Matt, ), which requires a higher degree of autonomy. Again, the literature appears to draw an inconclusive picture for the link between the location and autonomy.…”

“…This article contributes to the literature that aims at understanding of variations in decision‐making autonomy in foreign‐owned subsidiaries of MNEs (Collinson & Wang, ; de Jong, van Dut, Jindra, & Marek, ; Edwards, Ahmad, & Moss, ). In particular, we combine the asset bundling model (Hennart, , ) and the neo‐configurational perspective (Misangyi et al, ) to shed further light on what causes autonomy variations across different value‐chain activities.…”

Configuration and coordination of international marketing activities

“…Having still many value chain activities carried out at home, increases the likelihood to keep marketing planning and control at headquarters. The choice also demonstrates companies' general tendency to consider marketing activities as a low-autonomy function (De Jong, van Dut, Jindra, & Marek, 2015). It seems that this is linked to automotive companies' willingness to maintain a strong coherence of all their marketing activities.…”