Organization Design for Foreign Subsidiaries of Multinational Enterprises: A Contingency Perspective

Abstract

There has been considerable research suggesting ways to design foreign subsidiaries for multinational enterprises. Unfortunately, much of this research is fragmented and some is even contradictory. This study seeks to comprehensively integrate this research stream by distilling the extant literature around two key contingency factors: (1) governance environment of the host country, and (2) the strategic role of the foreign subsidiary. Specifically, we distilled the multi-national organizational design literature using the institutional economics logic coupled with Galbraith's classic organizational design framework. This approach yielded twelve new theoretical propositions that better integrates previous theory and research around the four dimensions of organizational design. The end result is a clearer and more comprehensive understanding of what we know about organizational design in foreign subsidiaries, the novel consideration of governance environment surrounding the subsidiary as an important contingency factor, and guidance for future research in this important area.