Performance Evaluation of Foreign Subsidiaries: A Review of the Literature and a Contingency Framework

Abstract

During recent years, the literature on the international dimension of business has grown. In particular, the literature on headquarters-subsidiary relationships has expanded. This paper aims to review the literature on performance evaluation and elaborate an integrative contingency framework. This contingency framework helps to clarify the concept of performance evaluation and to classify existing contributions. Furthermore, the framework serves as a tool to identify potential influencing factors on performance evaluation at corporate and at subsidiary level. By reviewing existing studies, the paper analyses the impact of these influencing factors on performance evaluation and reveals mostly contradictory results or no significant impact at all. Based on the findings, more research outside the classical tradition of contingency approaches is suggested.

Performance measurement choices in international joint ventures: What factors drive them?

“…Beamish & Delios, 1997:104;Contractor & Lorange, 1988) through either greenfield investment or partial acquisition (Hennart, 2009). Adopting a suitable performance measurement is very important because performance evaluation is essential for revealing the true situation of subsidiaries' activities (Schmid & Kretschmer, 2010). However, "managers of parent firms are constantly faced with the challenge of selecting the most appropriate indicators to measure performance of their IJVs" (Chong, 2009: 81).…”

“…Robson, Leonidou, & Katsikeas, 2002;Larimo, 2010), there are only a few studies that really analyze how firms select their performance measures. Schmid and Kretschmer (2010) state that "…influencing factors on performance evaluation remain mostly unclear…". Researchers suggest that future research should focus on alliance performance measures (Geringer, 1998) and factors that affect managers' decisions on the use of different performance evaluation methods (Abdel-Maksoud et al, 2008).…”

Configuration and coordination of international marketing activities

“…In addition, for each of the activities, management has to make sure that they are coordinated across borders in an appropriate way (Grosche, 2012). Although IB research has come up with many suggestions of how to coordinate headquarters and foreign subsidiaries (Brenner & Ambos, 2013;Harzing, 1999;Martinez & Jarillo, 1989;Martinez & Jarillo, 1991;Mayrhofer, 2013;Schmid & Kretschmer, 2010), there is little knowledge about the coordination at the level of value chain activities (St. John & Young, 1995;John, Young, & Miller, 1999). However, strong evidence exists that international marketing activities are coordinated in a different way as compared to other activities (Egelhoff, 1984;Kim, Park, & Prescott, 2003;Moon & Kim, 2008;Moon, 1994;Porter, 1986a, pp.…”

Piotr Trąpczyński, Foundations of Foreign Direct Investment Performance - book review

“…This is an important differentiation as depending on the extent of international operations of a firm the relevance of specific aspects of internationalisation decisions which may lead to the prioritisation of different performance indicators or -bundles of these. Such a view reminds of the work of Schmid and Kretschmer [2010] who reviewed the literature on performance evaluation and suggested a contingency framework which is centred on performance evaluation in terms of its object and importance in the control mix, its content and its process. Many other authors have called for a multidimensional approach to subsidiary performance, expressing the view that purely financial measures can only narrowly reflect performance [Pangarkar 2008] as they do not help to understand the antecedents of performance.…”

“…For instance, other attempts at studying these are those of Schmid and Kretschmer [2010], Kretschmer [2008] in her book Performance Evaluation of Foreign Subsidiaries, Vedder [2008] in the book Performance Evaluation of Foreign Subsidiaries: A Critical Analysis and a more recent study by Ramsey and Bahia [2013]. Following the systemic logic of the performance measure review Trąpczyński relates subsidiary performance measures to FDI modes, implying different performance consequences of specific modes of foreign investment due to costs associated with resource acquisition and affiliate governance; then to host-country determinants; to resources; to environmental complexity and industry structure uncertainty; to organisational learning and evolutionary theory and to MNC strategy.…”