From Rocking the Boat to Wagging the Dog: A Literature Review of Subsidiary Initiative Research and Integrative Framework

Journal of International Management 20 (2014) 201–218

Contents lists available at ScienceDirect

Journal of International Management

From Rocking the Boat to Wagging the Dog: A LiteratureReview of Subsidiary Initiative Research andIntegrative Framework

Stefan Schmid a, Lars R. Dzedek a, Mark Lehrer b,⁎a Department of International Management and Strategic Management, ESCP Europe Business School Berlin, Heubnerweg 8-10, 14059 Berlin, Germanyb Sawyer Business School, Suffolk University, Boston, MA 02108, USA

a r t i c l e i n f o

⁎ Corresponding author.E-mail addresses: [email protected] (S. Schm

1075-4253/$ – see front matter © 2013 Elsevier Inc. Ahttp://dx.doi.org/10.1016/j.intman.2013.06.001

a b s t r a c t

Article history:Received 13 November 2012Received in revised form 20 June 2013Accepted 20 June 2013Available online 2 August 2013

This literature review on the topic of subsidiary initiatives discloses a certain lack of conceptualclarity concerning the phenomenon. After providing an overview of the research field, thepaper applies a conception of entrepreneurship inspired by Schumpeter (1912) as a basis forrefining our understanding of just what a subsidiary initiative is and of the different kinds ofsubsidiary initiative. A framework is developed with a view to the current and anticipatedgrowing importance of highly populated countries like China and India which are bound to raisethe MNC-internal profile and weight of subsidiaries serving these national mega-markets. Theframework distinguishes between organizational disequilibrium and market disequilibrium as away to classify different types and different degrees of subsidiary initiative. It is argued that priorconceptions of subsidiary initiative in practice reveal a bias towards organizational disequilibriumand tend to overlook important MNC subsidiary initiatives involving market disequilibrium,generally neglecting the entrepreneurial dimension that Birkinshaw (1997) associated withthe term when he initiated this research stream. Metaphorically speaking, although Birkinshawwas always clearly interested in MNC subsidiary initiatives that “wag the dog,” most follow-upresearch examines initiatives that merely “rock the boat.” Our framework helps capture thedistinction and anticipates more dog-wagging by MNC subsidiaries in the future.

© 2013 Elsevier Inc. All rights reserved.

Keywords:Subsidiary initiativeSubsidiary entrepreneurshipLiterature reviewMNC evolutionSchumpeterDisequilibriumSubsidiary innovation

1. Introduction

Subsidiary initiatives are proactive, autonomous and risk-taking activities that originate outside the home country in a foreignsubsidiary of a Multinational Corporation (MNC) and are initiated by actors in the subsidiary. The study of subsidiary initiativesconstitutes a growing literature in the International Business (IB) field (Verbeke et al., 2011). Subsidiaries pursue entrepreneurialopportunities for local and global application, often even independently of the parent organization (Birkinshaw, 1997; Ghoshaland Bartlett, 1988; Scott and Gibbons, 2009; Williams, 2009). Although the potential benefits of subsidiaries taking their owninitiatives are increasingly acknowledged, the concept of subsidiary initiatives was even recently labeled a “troublesome andlittle-understood concept” (Ambos et al., 2010: 1100).

To date, no detailed literature review on the topic of subsidiary initiatives exists. The objective of this paper is to review theresearch stream on subsidiary initiatives, and to highlight unexploited potential of the field. The unexploited potential is to beseen in both theory and practice. Prior theorizing within the stream has increasingly viewed MNC subsidiary initiative in relation tothe subsidiary's role within the MNC (Birkinshaw and Hood, 1998a; Delany, 2000; Paterson and Brock, 2002; Wang and Suh, 2009).There is scope to extend the subsidiary initiative concept to a larger set of entrepreneurial activities in foreign markets. In MNC

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202 S. Schmid et al. / Journal of International Management 20 (2014) 201–218

practices highlighted by the research stream, the emphasis has been on relatively small MNC subsidiaries. Yet looking forward, theemergence ofmega-markets like China and India (Kothari et al., 2013) all but guarantees that the defining impact of large subsidiarieswill no longer be felt just byMNCs from small countries like Switzerland, Belgium and theNetherlands, but equally fromMNCswith acomparatively large home country market like the US, UK, and Germany. Our recommended conceptual refinements amount topaving the way for study of a world of multiple national mega-markets where MNC subsidiary initiatives do not merely “rock theboat” but actually “wag the dog.”

Our paper is structured as follows. Section 2 discusses definitions of subsidiary initiatives and describes our approach foridentifying the relevant literature. Section 3 begins the literature review with a descriptive summary of the research field.Section 4 presents more detailed findings from the review of the 52 contributions we covered. In Section 5, we offer a conceptualcritique of the field, i.e. a critique of the subsidiary initiative concept, with some suggestions for conceptual clarification. Theconcept of disequilibrium, as inspired by Schumpeter (1912), is argued to provide a useful basis for defining and classifyingsubsidiary initiatives. In Section 6, we develop a framework that is intended to represent different types and different degrees ofsubsidiary initiative. The framework incorporates our general conclusion that in a world of multiple mega-markets, theconceptual apparatus of research on subsidiary initiatives will need to capture a wider range of activities involving subsidiaryentrepreneurship. In our concluding outlook (Section 7), we suggest avenues for further research.

2. Basic definitions and literature identification

In his seminal article, Julian Birkinshaw (1997) defined subsidiary initiative as a type of “dispersed entrepreneurship” in whichinitiative is undertaken by an MNC subsidiary outside the home country and not by the corporate center (which would be labeledas “focused entrepreneurship”). Following Kanter (1982), he defined “initiative” as “a discrete, proactive undertaking thatadvances a newway for the corporation to use or expand its resources” (Birkinshaw, 1997: 207). A successful subsidiary initiative,adds Birkinshaw, is an “entrepreneurial process” that begins with the identification of an opportunity and culminates in thecommitment of resources to that opportunity.

Although Birkinshaw (1997: 208) notes that most subsidiary initiatives target a “new product opportunity in the localmarket,” his seminal paper is devoted to subsidiary initiatives that transcend the purely local market level and affect other units ofthe MNC. Implicitly and often explicitly, researchers reserve the term for subsidiary initiatives that seek to alter, enlarge or at leastdefend the subsidiary's role or “domain” within the overall corporation (Delany, 2000). Since the initial definition of subsidiaryinitiatives laid heavy emphasis on entrepreneurial subsidiary behavior, we have sought to include all work on entrepreneurshipby MNC subsidiaries within our literature review.

The first step was to conduct a systematic search in all relevant academic business journals using EBSCOhost Business SourceComplete. In a second step, we applied a Google Scholar search to cover other types of publications, such as books, book chaptersand PhD dissertations (Harzing and van der Wal, 2008). Both steps were carried out for the time span of 1995–2010. In additionto the term ‘subsidiary initiative’, expressions like ‘entrepreneurial process’ (Birkinshaw, 1997; Dimitratos et al., 2009a),‘entrepreneurial activity’ (Birkinshaw and Ridderstråle, 1999; Boojihawon et al., 2007), ‘entrepreneurial behavior’ (Borini et al.,2009), ‘entrepreneurial undertaking’ (Ambos et al., 2010), ‘corporate entrepreneurship’ (Birkinshaw, 1998a, 1999), ‘dispersedentrepreneurship’ (Boojihawon et al., 2007; Williams and Lee, 2009) or intrapreneurship (Krishnan, 2006) are sometimes usedand hence were added to our search terms. To be even more complete, a third step was to analyze citations in articles containinga partial overview on the topic (Ambos et al., 2010; Boojihawon et al., 2007; Dimitratos et al., 2009a; Grohmann, 2010; Liouka,2007; Verbeke et al., 2007) and in articles citing, or cited by, the seminal contributions on subsidiary initiatives by Birkinshaw(1997; 2000).

In order to narrow down these contributions to those truly pertinent to the review, we applied specific inclusion criteria. Thesecriteria stipulated inclusion only of publications exhibiting three characteristics, namely that a publication had to deal to asignificant degreewith (1) entrepreneurship, either explicitly or implicitly as some form of autonomous, risk-taking and pro-activebehavior, (2) at the level of a subsidiary as opposed to headquarters which is (3) located outside of the MNC home country.

The initial application of the search terms in EBSCOhost returned 134 potentially relevant contributions after step one.Application of the inclusion criteria resulted in retention of 31 articles for the review. Application of the inclusion criteria after stepstwo and three (i.e. consultation of Google Scholar and overview articles mentioned above) resulted in 21 additional articles. Basedon our search heuristics we thus ended upwith 52 different publications (journal articles, book chapters, PhD dissertations) on thetopic of subsidiary initiatives having appeared in the time span of 1995–2010.1

3. An overview of the subsidiary initiative research field

3.1. Contours of publication activity

Although earlier publications address the topic of subsidiary initiatives to some extent (Ghoshal and Bartlett, 1988; Guptaand Govindarajan, 1994), two articles by Birkinshaw (1995, 1997), one appearing in Business Horizons, the other in Strategic

1 A comprehensive summary of the 52 publications, though too voluminous to be included in this article, can be found in Schmid and Dzedek (2011: 58–70)and is available upon request from the authors. The paper also provides more details on the literature identification process we used. (Reference added afteracceptance.)

203S. Schmid et al. / Journal of International Management 20 (2014) 201–218

Management Journal (SMJ), represent the explicit starting point of this research field. Especially the SMJ article concentrates onthe subject of subsidiary initiatives (Birkinshaw, 1997) and can be viewed as the first of two “key contributions” by this author. Inthis contribution, Birkinshaw not only provides his definition, but moreover identifies different types, examines facilitatingconditions and outlines the underlying processes and intended outcomes of subsidiary initiatives.

Following three relevant articles in 1995–97, a first peak of six publications occurred in the year 1998 (Birkinshaw, 1998a;Birkinshaw and Fry, 1998; Birkinshaw and Hood, 1998a,b; Birkinshaw et al., 1998; Delany, 1998). Between the years 1999 and2004 ten contributions were published. The majority of work within this time frame focuses on the various drivers andconsequences of initiative-taking. Among these ten publications is also what we would consider Birkinshaw's second “keycontribution,” namely the book “Entrepreneurship in the Global Firm” (Birkinshaw, 2000), which covers multiple facets of thesubsidiary initiative phenomenon as well as some theoretical considerations. A phase of yet higher publication activity can beseen between 2005 and 2010 with more than 60% of the literature (33 of 52 contributions) having appeared in this period.Compared to previous phases, these publications deal mostly with more specific aspects of the phenomenon, such as variousforms of initiatives, or the behavior and influence of different actors in the initiative development process.

Concerning the research methodologies utilized by researchers, the majority of contributions offer empirical approaches (75%);purely conceptualwork accounts for one quarter of the contributions (25%), as illustrated in Fig. 1.With regard to trends over time, noclear pattern can be observed. The relative weight of different research methodologies, i.e. empirically-quantitative, empirically-qualitative and conceptual approaches, was fairly consistent throughout the time period under consideration, i.e. 1995–2010.

In addition, the topic was increasingly investigated in specific industry settings (e.g. software and electronics) and in a widerrange of country settings (e.g. less developed regions). Whereas early studies between 1995 and 2003 largely concentrated onMNC subsidiaries in Canada, Scotland, Sweden and Ireland, later work extended the regional scope to other regions and countries,such as South-East Asia (Lee and Chen, 2003; Sohail and Ayadurai, 2004; Tseng et al., 2004), South America (Sargent andMatthews,2006), Eastern Europe (Jindra et al., 2009) and Australia (Ambos and Birkinshaw, 2010; Ambos et al., 2010; Jindra et al., 2009).

3.2. Theoretical approaches: the challenge of pluralism and overlap in conceptualizing subsidiary initiatives

Researchers apply a very broad range of perspectives for investigating the phenomenon of subsidiary initiatives. Overall, weidentified 19 different theoretical approaches and frameworks employed in the field. Greater amplification of these theoreticalapproaches is provided in Appendix A. Whereas a few contributions are entirely based on a single theoretical perspective(Johnson and Medcof, 2002; Williams and Lee, 2009), many others apply a range of theories, often in a rudimentary manner. Ofthe 19 theoretical approaches, the eleven listed in the following paragraphs have been repeatedly applied and/or discussed atmore length within the 52 contributions examined. Interestingly, general theories of entrepreneurship (Kirzner, 1973; Schumpeter,1934) evoked by Birkinshaw (1997, 2000) were not further developed and hence are not mentioned among the eleven below. Theonly real exception (Mahnke et al., 2007) expands on different theories of entrepreneurship and opportunity recognition thanBirkinshaw does and alludes only sparingly to subsidiary initiatives, the focus being more on the MNC as a whole.

Which eleven theories, then, are most often used to explain entrepreneurial initiative by subsidiaries? One learns from readingabout entrepreneurial behavior by MNC subsidiaries that the subsidiary initiative research stream is characterized by, and caughtin, the same theoretical pluralism that pervades the study of entrepreneurship. For example, many authors, including Birkinshawand Hood (1998b) and Verbeke et al. (2007), apply a common lens used to study corporate venturing and corporateentrepreneurship, namely the decision process perspective (Bower, 1970; Burgelman, 1983). The decision process lens sheds light

Research Content

Specific ContentAll Content

Subsidiary Initiative

Concept

Antecedents Consequences

Empirically-

quantitative21 (40%) 1 (8%) 13 (38%) 12 (43%)

Empirically-

qualitative18 (35%) 8 (61%) 13 (38%) 11 (39%)

Purely

conceptual13 (25%) 4 (31%) 8 (24%) 5 (18%)R

esea

rch

Met

ho

do

log

ies

Total No. of

Publications52 (100%) 13 (100%) 34 (100%) 28 (100%)

Fig. 1. Overview of research approaches for investigating subsidiary initiatives.


on autonomous behavior at various levels of a large and complex organization whose headquarters does not necessarily promotesuch initiative (Dimitratos et al., 2009a: 420).

In contrast, other theories explain subsidiary initiatives in terms of the subsidiary's accumulation of resources and powermore thanin terms of entrepreneurship per se. For authors emphasizing the accumulation of resources more than power (e.g. Birkinshaw andHood, 1998a,b; Delany, 2000; Liouka, 2007), important theoretical underpinnings of the subsidiary initiative concept are networktheory (Ghoshal and Bartlett, 1990) and the resource-based view (Barney, 1991; Wernerfelt, 1984). Authors focusing on theaccumulation of subsidiary power within the MNC as a result of resource accumulation (e.g. Williams and Lee, 2009) tend to applyresource dependence theory (Pfeffer and Salancik, 1978) and/or theories of organizational politics (Mintzberg, 1985) to provide insightinto initiative-taking as a part of headquarters–subsidiary relationships.

Still other theories examine motivational sources of initiative-taking at the subsidiary level. Relevant theories include boundedrationality (March and Simon, 1958) and, more recently, self-determination theory (Deci and Ryan, 1985) to understand why MNCmanagers in subsidiaries are motivated to pursue subsidiary initiatives (Ambos et al., 2010: 1102). By the same token, the conceptof bounded rationality constraints can also be applied to the MNC headquarters level to understand why autonomous initiativesof subsidiaries are allowed (Ambos et al., 2010).

Nonetheless, when examining the headquarters level, it is more common for researchers to take their point of departure fromtheories highlighting barriers to subsidiary initiative-taking. Especially agency theory (Jensen and Meckling, 1976) and transactioncost perspectives (Williamson, 1975) are cited in order to discuss potential intra-organizational impediments to initiative-takingderiving from the corporate incentive structure. Some authors bolster their use of agency theory or transaction cost theory withadditional insights from the new institutional economics to suggest specific governance mechanisms and incentives which mayhelp facilitate subsidiary initiatives and overcome such impediments (Johnson and Medcof, 2002; Verbeke and Yuan, 2005).

Finally, frequent allusions to Porter's concept of competitive strategy (Porter, 1980) and to the integration-responsivenessframework (Prahalad and Doz, 1987) underline how both the external and internal environment of the subsidiary can influenceentrepreneurial behavior (Birkinshaw et al., 2005; Grohmann, 2010).

It would appear that no major theoretical perspective dominates the field; a holistic and overarching theoretical perspective islargely absent. Indeed, inmost of the surveyed publications, theoretical considerations are not at the center of discussion. The largenumber of theories, often cited in a simple way, possibly reflects the “infant” or early developmental stage of the field (Boojihawonet al., 2007: 554).While such challenges are not unusual for emergent fields of management research (Dimitratos and Jones, 2005:119), a way out of the emergent phase is not yet in sight. The absence of a theoretical “home base” is beginning tomake itself felt inthe absence of any conceptual common denominator uniting the different articles using the concept of subsidiary initiative.

3.3. Subsidiary initiatives: classification, antecedents, and consequences

As far as the basic content of the 52 studies is concerned, we identified three general categories, namely (1) literature dealingwith the subsidiary initiative concept, (2) literature focusing on antecedents, and (3) literature investigating the consequences ofsubsidiary initiatives. We further subdivided contributions on antecedents and consequences according to whether they relatedto the analytical level of the MNC environment, the MNC organization and/or the individual managers. Fig. 2 summarizes ourclassification scheme and basic counts, with conservative double-counting for articles falling into more than one category.

Out of our 52 publications, 13 are conceptual. Antecedents of subsidiary initiatives are covered by 34 of the 52 publications.By antecedents are meant all factors which (positively or negatively) affect the context of initiative-taking in the MNC subsidiary.All three contextual levels — environmental, organizational and individual — are covered in a substantial number of publications.

Such balanced coverage does not hold for consequences of subsidiary initiative-taking, as dealt with in 28 of the 52 publications.While many contributions present findings at the organizational level (24 publications), very few contributions cover environmentaloutcomes (4 publications), a point developed extensively below. We did not identify any work that touches upon outcomes ofsubsidiary initiatives at the level of individual MNC managers or employees (e.g. enhanced career prospects within the MNC).

Fig. 3 provides a finer-grained overview of the subsidiary initiative area. This body of research covers a lot of territory andreflects a certain fragmentation of research effort. Especially in journal articles, which have to conform to narrow content andspace requirements, scholars often focus on a handful of variables in their studies with little opportunity to place them into abroader context.

The following sections explore research on the concept of subsidiary initiative and on consequences of subsidiary initiative.2

4. Conceptualizing subsidiary initiative research

4.1. The types of subsidiary initiatives

Eight of the 52 publications cover different subsidiary initiative types. In all, we were able to identify three basic criteria forcharacterizing and classifying initiatives: the locus of origin (i.e., where the initial opportunity is perceived), the locus ofapplication (i.e., the markets in which the perceived opportunity can be exploited), and the subsidiary's “domain”: the way thatthe initiative relates to the subsidiary's existing business.

2 Although an extensive analysis of the literature on antecedents had to be omitted due to space considerations, this review can be found in Schmid and Dzedek(2011: 20–26) and is available upon request from the authors. (Reference added after acceptance.)

Antecedents(34 contributions)

2

Subsidiary initiative concept

(13 contributions)

1

Initiative process(8 contributions)

Initiative types(8 contributions)

Initiative objectives(4 contributions)

…

Consequences(28 contributions)

3

Country levelLocal market/Industry level…

Environmental context(15 contributions)

Corporate levelSubsidiary level…

Organizational context(28 contributions)

Subsidiary managersSubsidiary employees…

Individual context(13 contributions)

Country levelLocal market/Industry level…

Environmental level(4 contributions)

Corporate levelSubsidiary level…

Organizational level(24 contributions)

Subsidiary managersSubsidiary employees…

Individual level(0 contributions)

Fig. 2. Framework for the literature review and analysis.


The field's first typology is presented by Birkinshaw and his co-authors. In five contributions (Birkinshaw, 1997, 1998a, 2000;Birkinshaw and Fry, 1998; Birkinshaw and Ridderstråle, 1999), the authors describe two principal forms of subsidiary initiatives,namely external and internal initiatives. External initiatives — with what we call an external “locus of origin” — refer to initiative

Fig. 3. Subsidiary initiatives: research areas and methodologies in previous publications. (QN = empirically-quantitative, QL = empirically-qualitative andC = conceptual studies).


opportunities that are identified outside the boundaries of the corporation and which develop through interactions with localcustomers, suppliers or other stakeholders and entities. Internal initiatives — with an internal “locus of origin” — representopportunities recognized within the boundaries of the corporation and emerge through interactions of subsidiary managers withother actors of the MNC corporate system (Birkinshaw, 1998a: 359; 2000: 27, 73).

Birkinshaw (1997, 1998a, 2000) also refines the basic types of external and internal initiatives. Local and global marketinitiatives aim at developing products or services for customers in local or global markets, hence constituting a “locus ofapplication.” In contrast, internal market and global-internal hybrid initiatives are identified as sub-types of internal initiatives.Internal market initiatives are internally focused towards efficiency improvement and rationalization activities within the MNCnetwork, and they usually depend upon corporate support (internal locus of origin and internal locus of application). In thecase of global-internal hybrid initiatives, however, the locus of application is outside the subsidiary's home market, but theactual locus of origin is internal. This type represents activities in which the subsidiary identifies global opportunities andsubsequently engages in the internal process of convincing headquarters to transfer these internationally focused activities tothe subsidiary's location and/or to fund its implementation (Birkinshaw, 1997: 216; 2000: 28–30). In addition, Birkinshawclassifies and describes four sub-types of internal initiatives as a result of his research on US-owned subsidiaries in Canada,i.e. bid initiatives, leap-of-faith initiatives, reconfiguration initiatives and maverick initiatives (Birkinshaw, 1998a: 357–361). Fig. 4summarizes our understanding of these different subsidiary initiative types and reflects our impression that for Birkinshaw(and, in fact, for most researchers in the field) the internal initiatives are of greater interest than external initiatives, a point towhich we will return.

An alternative way of characterizing different types of subsidiary initiatives is undertaken by Delany (1998, 2000) whointroduces three subsidiary initiative types relating to the subsidiary's domain, namely: domain developing initiatives, domainconsolidating initiatives and domain defending initiatives. According to Delany, domain developing initiatives aim at the extension ofa subsidiary mandate, be it via new business opportunities in the local market, a bid for corporate investments, a mandateextension or via reconfiguration of existing operations (Delany, 1998: 254; 2000: 234). Domain consolidating initiatives generallyseek to stabilize or strengthen the current subsidiary position, whereas domain defending initiatives aim to secure the position oreven justify the existence of the subsidiary (Delany, 1998: 252; 2000: 234–235).

Essentially building on the concept of domain development, Verbeke et al. (2007) distinguish between subsidiary renewal andsubsidiary venturing as two forms of subsidiary entrepreneurship that differ based on their “relatedness to existing business.”Subsidiary renewal initiatives imply significant changes to a subsidiary's existing domain, i.e., its business strategy, structure,systems and processes. In contrast, subsidiary venturing initiatives refer to the “creation of new business,” either within theexisting organization or outside of the subsidiary in a separate venture unit (Verbeke et al., 2007: 588).

To foreshadow later discussion, two types of market entrepreneurship underlying “external” subsidiary initiatives can beidentified from the foregoing overview. On the one hand, MNCs can offer new types of products and services into existing localand global markets (Birkinshaw, 1997, 1998a, 2000; Birkinshaw and Fry, 1998; Birkinshaw and Ridderstråle, 1999). On the otherhand, MNC subsidiaries can set up new separate business ventures (Verbeke et al., 2007: 588). In both cases, the entrepreneurshipat work would involve creating new offerings sufficiently different from routine new-product/service development as toconstitute a discrete initiative.

4.2. The subsidiary initiative process

We identified eight publications that examine — in more or less detail — the subsidiary initiative process. Insight into theinitiative process emerges from descriptive elements of outlined case studies (Birkinshaw, 1995; Boojihawon et al., 2007;Krishnan, 2006) and from conceptual arguments and considerations (Birkinshaw and Hood, 1998b; Grohmann, 2010; Lee and

External initiatives

Internalinitiatives

Global market initiatives

Local market initiatives

Internal market initiatives

Global-internalhybrid initiatives

Reconfi-guration initiatives

Bid initiatives

Subsidiary initiatives

Leap-offaith

initiatives

Maverick initiatives

Fig. 4. Classification of subsidiary initiative types based on Birkinshaw and co-authors.


Williams, 2005; Mahnke et al., 2007; Verbeke and Yuan, 2005). Since the subsidiary initiative process has not yet been the focus ofsystematic investigation, it was necessary to stitch the “bits and pieces” together to derive a basic overview of the phenomenon.

Birkinshaw, viewing subsidiary initiative as a manifestation of corporate entrepreneurship, defines it as “essentially anentrepreneurial process, beginning with the identification of an opportunity and culminating in the commitment of resourcesto that opportunity” (Birkinshaw, 1997: 207). In between the process cornerstones of “identification” and “commitment ofresources”, the subsidiary typically undertakes activities to sell the initiative to headquarters and secure corporate approval(Birkinshaw, 1997: 224). In line with the view of entrepreneurship processes more generally (Shane and Venkataraman, 2000:218), the initiative process evidently comprises the phases of (1) opportunity identification, (2) initiative selling, evaluation andapproval as well as (3) commitment of resources and implementation. While such a stage model has obvious limitations, theseparation into distinct phases is helpful for surveying prior research.

(1) Of the publications reviewed, only a small number address the phase of initiative opportunity identification. However, someconclusions about the recognition phase can be drawn from case examples. Local subsidiary management plays a crucialrole in the scanning and detection of opportunities (Boojihawon et al., 2007: 563; Zucchella et al., 2007: 320). Middlemanagers often function as project or initiative champions who develop ideas into concrete proposals and then approachsubsidiary executive management to gain their backing. If convinced of the proposed opportunity, these subsidiaryexecutives may take the role of sponsors to build support with headquarters' management (Birkinshaw, 1995: 35;Birkinshaw and Fry, 1998: 54).

(2) Many more publications deal with the interaction between headquarters and subsidiaries throughout the initiative selling,evaluation and approval stage. Specifically, the works of Birkinshaw and his co-authors (Birkinshaw, 1997; Birkinshaw andFry, 1998; Birkinshaw and Ridderstråle, 1999) and the publications of Dörrenbächer and Geppert (2009, 2010) providemany insights into this stage. The upshot is that most initiatives ultimately require some form of corporate approval oradditional resources from headquarters to allow subsidiaries to follow through on entrepreneurial efforts (Birkinshaw,1997: 221). In those cases, corporate managers will likely assess and evaluate the proposed initiatives in order to select themost promising and attractive ones for further development (Birkinshaw, 1995: 36; 2000: 39; Verbeke and Yuan, 2005:32). Evaluation is often reiterated at different stages of the initiative development (Ardichvili et al., 2003: 106). Evaluationmay take diverse forms, depending on many factors, such as the firm type and firm characteristics (Keupp, 2008), initiativecharacteristics (Mahnke et al., 2007) or headquarters orientation towards external stakeholders (Dörrenbächer andGeppert, 2010).

(3) In the publications reviewed, only sporadic information is available on how the process stage of resource commitment andimplementation takes place. Evidently, once an initiative is approved the subsidiary receives an official implementationmandate and is provided with the required resources to launch or further progress with the initiative (Keupp, 2008: 33).Headquarters' support may then come in the form of political support, official endorsement, or rights and budgeting linesfor the subsidiary (Keupp and Gassmann, 2009: 197).

Prior research further suggests that subsidiary initiatives face substantial forms of resistance and uncertainties. Birkinshawrefers to the resistance that initiatives face from various actors in the MNC in terms of the “corporate immune system,” defined as“the set of organizational forces that suppress the advancement of creation-oriented activities such as initiatives” (Birkinshaw,2000: 39; Birkinshaw and Ridderstråle, 1999: 153). Resistance may stem from different MNC actors, such as individuals in thevertical line of command, (potentially) competing divisions or other corporate actors. It may manifest itself as (1) delay, rejectionor request for greater justification by corporate managers, (2) lobbying and rival initiatives by competing divisions and as (3) alack of legitimacy of the initiative in other MNC units. Concerning the underlying predispositions, the authors cite ethnocentrismof corporate managers, headquarters' suspicion of the unknown as well as resistance to change (Birkinshaw, 2000: 40–43;Birkinshaw and Ridderstråle, 1999: 159–166). Mahnke et al. (2007) identify three types of uncertainties which influence all stagesof the initiative process. Specifically, communicative, behavioral and value uncertainties can negatively affect the recognition andacceptance of a subsidiary initiative at headquarters (Mahnke et al., 2007: 1282–1284).

To summarize, subsidiary initiatives represent a complex set of activities which unfold over several stages, as summarized inFig. 5. Despite these common contours, the specific activities and interaction patterns between headquarters and subsidiaries are

Identification of initiative

opportunity

Selling, evaluation and approval of

initiative

Simplified process view

Commitment/implementation of

initiative

Resistance through corporate immune systemPossibleimpedi-ments Various uncertainties

Fig. 5. Simplified process view of subsidiary initiative development.


likely to vary from case to case. The initiative process may take a variety of forms, the outlined stages do not always occur in sucha sequential order and they may also overlap (Birkinshaw, 2000: 37; Birkinshaw and Ridderstråle, 1999: 151).

Few of the selected studies actually examine the entire initiative development process from recognition to approval andresource commitment. Instead, the greater portion of the relevant literature investigates aspects predominantly related tostage (2): initiative selling, evaluation and approval. Only a smaller number addresses the stages of (1) initiative opportunityidentification and (3) commitment of resources and initiative implementation. There is abundant scope to further explore theopportunity identification process as well as the issue of committing resources and implementing initiatives.

4.3. The consequences of subsidiary initiatives

Out of the 28 contributions addressing consequences of subsidiary initiatives, we identified 15 basic areas of outcomes whichare described as the result of subsidiary initiative-taking. We grouped the different consequences into outcomes at theenvironmental level and outcomes at the organizational level. Since the number of contributions at the organizational level (24)far exceeds those at the environmental level (4), we discuss the former first.

4.3.1. The organizational level consequencesSubsidiary entrepreneurship is claimed to be beneficial and important for the performance of the MNC (Yamin, 2002: 133;

Zahra et al., 2000: 2). However, empirical evidence seems rare. Out of the 52 publications, we found only three contributionswhich investigate the direct and indirect effects of subsidiary entrepreneurial initiative-taking on improved subsidiary performance(Ambos and Birkinshaw, 2010; Birkinshaw et al., 2005; Liouka, 2007). For instance, research by Liouka (2007) empiricallyconfirms that subsidiary initiative identification is positively related to subsidiary entrepreneurial performance, which againdirectly and positively influences the overall subsidiary performance. Likewise, Ambos and Birkinshaw (2010) show thatsubsidiaries undertaking entrepreneurial initiatives perform better, both financially and managerially, when compared toother units of the MNC. Other empirical work outlines more direct outcomes, such as the development of new and innovativeoffers and hence increased business, sales and/or revenues. This is typically the case for external initiatives (local and globalmarket), whereas internal initiatives (internal and global-internal hybrid) usually lead to improved efficiency of operations, costreductions or increased investments from headquarters (Birkinshaw, 1997: 223–224; 2000: 22–30; Birkinshaw and Fry, 1998:54–56; Lyly-Yrjänäinen et al., 2008: 8).

Beyond performance effects, subsidiary initiatives lead to enhanced subsidiary resources and capabilities (Birkinshaw, 2000: 60;Bouquet and Birkinshaw, 2008: 581; Dörrenbächer and Geppert, 2010: 602; Johnson and Medcof, 2002: 198; Raţiu and Molz,2010: 179). These resources and capabilities might be shared throughout the corporate network (Ambos and Birkinshaw, 2010:456; Birkinshaw, 1997: 223), enhancing the learning of the entire MNC (Birkinshaw, 1997: 208; 2000: 62).

A large number of publications propose that subsidiary initiatives are undertaken with the ultimate objective of expanding thesubsidiary's scope of responsibility, charter or mandate. This notion is supported by several empirical studies (Birkinshaw, 1998b;Birkinshaw and Hood, 1997; Delany, 1998, 2000; Krishnan, 2006; Sargent and Matthews, 2006). Evidently, initiatives provide animportant means through which subsidiaries can maintain and improve their position in the MNC network.

Nonetheless, besides positive and beneficial consequences, subsidiary initiatives can also imply significant costs for the MNC.Birkinshaw (1998a: 361–363) observes four principal costs that might arise: (1) costs related to empire-building, (2) costsrelated to a lack of focus, (3) costs associated with the administration of the internal market and (4) costs resulting from internalunemployment and personnel changes. Considering the balance between costs and benefits is even more important consideringthat, in many cases, various subsidiaries may compete over initiatives and related resources (Dellestrand and Kappen, 2011;Schmid and Maurer, 2011).

4.3.2. The environmental level consequencesApparently, only four studies have investigated the environmental outcomes of subsidiary initiatives (Dimitratos et al., 2009a,

b; Jindra et al., 2009; Zucchella et al., 2007). For example, Dimitratos et al. (2009a,b) find a positive and highly significant effect ofsubsidiary entrepreneurial output on the economic development in the host country, as assessed by the subsidiary managers'perceptions. They argue that the MNC's entrepreneurial effort, in the form of new economic activity, market development,technological solutions or novel administrative and work practices, can have significant spillover effects on the local economy(Dimitratos et al., 2009b: 182). Jindra et al. provide evidence for the hypothesis that subsidiaries taking initiatives have a highershare of forward and backward vertical linkages with local customers and suppliers. The extent and intensity of these linkagescan influence the subsidiary's developmental impact on the host economy (Jindra et al., 2009: 177). Zucchella et al. examinethe possible impact of subsidiary entrepreneurship on local industry conditions. Their cases suggest that MNC subsidiaries'entrepreneurial undertakings may shape industry offerings and structure. Especially those subsidiaries capable of radicallyinnovating their offerings and value systems can induce changes within their industry, in related industries or in the relationshipswith customers (Zucchella et al., 2007: 314).

5. Constructive critique: missing links in the subsidiary initiative concept

The fact that subsidiary initiative outcomes have been investigated much less at the environmental level than at theorganizational level is symptomatic of a predominantly micro-organizational orientation in this research stream. In general, this


research stream stands explicitly or tacitly within the research tradition of heterarchy (Hedlund, 1986), that is, of ways oforganizing MNC activities that run counter to hierarchical and center-dominated organization (Paterson and Brock, 2002;Prahalad and Doz, 1987; Schmid et al., 2002). Reflecting this orientation, most examples of subsidiary initiatives cited in theliterature involve undertakings by comparatively small subsidiaries, e.g. Canadian and Swedish subsidiaries of US corporations, asin the pioneering work of Birkinshaw (1997, 2000). The implicit idea is that even small subsidiaries may be able to rock theboat by taking influential initiatives that transcend their prior domain of business.

5.1. A 21st-century issue: China, India, and oversized MNC subsidiaries

In contrast, we recommend extending the concept to study the impact of oversized subsidiaries of MNCs whose markets areof such size and/or influence that the tail can wag the dog (Kothari et al., 2013). In MNC practice, the emergence of mega-marketslike China and India signifies that the defining impact of large subsidiaries will no longer be felt just by MNCs from small countrieslike Switzerland, Belgium and the Netherlands, but equally from MNCs with a comparatively large home country market like theUS, UK, and Germany.

However, size is not the only issue. Mega-markets like China and India are also held to have special characteristics encouragingspecial subsidiary-specific types of innovation, in particular bottom-of-the-pyramid (BOP) and reverse innovation. These unusualforms of innovation recall the assumption that subsidiary initiatives embody entrepreneurship by MNC subsidiaries (Birkinshaw,2000). One hallmark of entrepreneurial behavior is the ability of entrepreneurial firms to alter their market environment throughinnovation (Schumpeter, 1912). Contributions such as Zucchella et al. (2007), reminding us that innovations by MNC subsidiariesare able to affect the MNC's environment, take on special significance in view of the special innovation opportunities offered toMNC subsidiaries by mega-markets like China and India. Govindarajan and Ramamurti (2011: 192) emphasize that innovationsfrom large emerging markets are often not just mere local adaptations but significant innovations in their own right for the globalmarket:

“Well-known examples of recent innovations in emerging markets include the Tata Nano, Grameen Bank (microfinance),GE's ultrasound, Embraer's regional jets, BYD's electric cars, Bharti Airtel's ultracheap wireless telephony, and Nokia'sinexpensive cell phones. A few of these innovations have already made the journey from poor to rich countries. Butinnovation in poor countries seems to be deeper and wider than these examples indicate, and more of those innovationsmay diffuse internationally in the future. The Economist's special issue on innovation in emerging markets, subtitled ‘Theworld turned upside down,’ noted that ‘the emerging world, long a source of cheap labor, now rivals the rich countries forbusiness innovation’ (The Economist, 2010: 1). After citing examples from many industries, it concluded that theseinnovations will change ‘not just emerging markets but the rest of the world as well’.”

[The Economist, 2010: 16]

If this prognosis is correct, or even if it merely forms the assumption of MNC top managers, then we should predict anincreasing proportion of MNC subsidiary initiatives to take the form of market entrepreneurship in emerging countries spillingover into innovations for the global market. Such market entrepreneurship may give specific national markets of the MNC adegree of strategic centrality earlier reserved for MNC home markets or for the US market in MNCs like Toyota. The projectedgrowth patterns of China and India raise the medium-term prospect of privileged subsidiary status that may even run somewhatcounter to heterarchical arrangements.

Be that as it may, there is a need to place market entrepreneurship in emerging mega-markets within a larger framework. Forneedless to say, not all emerging-market innovations wag the MNC dog and not all innovations that wag the MNC dog neednecessarily come from emerging markets.

5.2. A usefully ambiguous concept: disruptive innovation

As a first approximation in assessing which subsidiary-based innovations are relevant to the initiative concept, we proposethat disruptive innovations coincide largely with the types of innovations that would count as initiatives. The ambiguity of theterm is arguably productive in this context. In colloquial parlance, disruptive innovations give rise to discontinuity. ParaphrasingSchumpeter (1912, 1934), one can say that such innovations “disrupt” traditional business relations, creating discontinuity in themarket environment. In a more technical way, Christensen (1997) defined disruptive innovations, in contrast to “sustaining”innovations, as (initially) inferior products having a lower price tag than current company offerings yet often possessing thepotential to improve along a comparatively steep performance trajectory over time (Christensen, 1997). While such disruptiveinnovations often create Schumpeterian discontinuity in the marketplace, Christensen's point was that they also disrupt theroutine practices of established companies accustomed to higher-margin, higher-performance products. In sum, the concept ofdisruptive innovation in its very ambiguity captures the idea that certain innovations can have a disruptive impact on either themarket environment, on the organization that produces them, or both.

Of special interest in any case are disruptive innovations in the mega-markets of China and India, where MNC subsidiaries notonly face market incentives to develop lower-price products, but also to do so on a scale that disruptive innovations reverberatethrough their markets and through the parent organization that produces them. Bottom-of-the-pyramid (BOP) innovationsassuredly belong in this category, as do reverse innovations (Govindarajan and Ramamurti, 2011). BOP innovations, such as


packet-sized detergents for the Indian market, are clearly more than just a case of passive adaptation to local conditions;as Prahalad and Hart (2002) have argued, such innovations by MNCs can have transformative effects not only on the firm'sforeign developing markets, but eventually even on developed-country markets and core operations at home. In the mostclearly documented case of reverse innovation by an MNC, GE Healthcare's development of low-cost medical diagnostic devices,after being pioneered in China, was leveraged to create new markets for such products in developed countries as well (Immeltet al., 2009).

Clearly, however, smaller subsidiaries and subsidiaries in developed nations are also capable of creating disruptive innovationsin both a colloquial and Christensenian sense. An example from the literature is the German subsidiary of IBM. IBM's softwarelaboratory in Böblingen, Germany engineered a Linux version of the IBM mainframe operative system that eventually helped totrigger a massive shift by IBM — and hence of much of the corporate world — from proprietary to open systems in mainframesoftware (Lehrer and Asakawa, 2002). The innovation in IBM Germany was proactively undertaken by the subsidiary unit andinitially conducted in stealth until it reached a sufficient stage of development to be demonstrated on a corporate-wide basis. Atthe time (1999–2000), free open source software was a fairly recent phenomenon, and because a free operating system obviouslyposed a threat to the traditional revenue streams offered by proprietary IBM operating systems, the development of Linux for theIBM mainframe was in every sense a “disruptive” innovation.

To reiterate, however, not all subsidiary innovations, disruptive or otherwise, actually involve subsidiary initiative.A subsidiary R&D unit, for example, whose daily operation is predicated on producing innovations, cannot be normally saidto exercise initiative unless such an activity falls clearly outside of its traditional mandate. Similarly, a subsidiary acquired orinvested by headquarters with the mission of engineering an important innovation for the MNC's markets is not reallyundertaking a subsidiary initiative.

5.3. Market entrepreneurship and organizational entrepreneurship

The subsidiary initiative concept has never really been subjected to any thorough definitional debate and cleansing. Basedon these considerations, the following critique and accompanying analytic framework address certain definitional problemssurrounding the subsidiary initiative concept.

In our view, a core conceptual dilemma surrounding the subsidiary initiative concept can be summed up as the uneasycoexistence of market entrepreneurship (initiatives that affect external markets of the MNC) and organizational entrepreneurship(initiatives that affect the respective roles of organizational sub-units within the MNC) in the very definition of the phenomenon.Our literature review reveals that the formal definition and the working understanding do not entirely align.

The explicit definition of subsidiary initiative, epitomized in the title of the book “Entrepreneurship in the Global Firm”

(Birkinshaw and Hood, 1998a), is authoritatively declared to be an “entrepreneurial process, beginning with the identification ofan opportunity and culminating in the commitment of resources to that opportunity” (Birkinshaw, 1997: 207). Other scholarsalso provide an entrepreneurial definition, often citing this passage. Such a definition suggests that the opportunity lies in marketsexternal to the firm and indeed Birkinshaw explicitly presumes that most subsidiary initiative do pursue market opportunities.

Yet the tacit understanding of subsidiary initiative by scholars tends to be much more internally focused on changes within theMNC organization, i.e. in organizational entrepreneurship. The conclusion that scholars are considerably more interested inorganizational entrepreneurship than in market entrepreneurship when discussing subsidiary initiative is suggested by a widearray of indications from our literature review:

(1) the greater analytical interest of Birkinshaw in internal initiatives than external initiatives, as discussed in conjunction withthe categorization in Fig. 4, above.

(2) the fact that the internal selling, evaluation and approval of initiatives are given considerably greater weight in theliterature than opportunity identification and commitment of resources (as seen in Section 4, above), even though thelatter are the bona fide entrepreneurial links in the subsidiary initiative process. While it is undoubtedly logical to portraythe MNC as an internal market offering opportunities to potentially entrepreneurial subsidiaries, opportunity identificationand exploitation have been examined much less than issues of internal selling and overcoming the resistance of the MNC's“corporate immune system” (Birkinshaw and Ridderstråle, 1999).

(3) the fact that organizational consequences are given considerably more weight in the literature than environmentalconsequences (as discussed in Section 4, above). Again, MNC scholars are more interested in the way subsidiary initiativeaffects the MNC itself than in the way it affects the MNC's markets.

(4) the detachment of the subsidiary initiative literature from subsidiary-specific types of innovation that would seem toqualify as cases of market entrepreneurship. Bottom-of-the-pyramid and reverse innovations come especially to mind.

(5) the diffuse use of the term “entrepreneurship.” While in some contexts entrepreneurship refers to a specific kind ofopportunity (e.g. an internal firm opportunity to expand the subsidiary's mandate), in other cases the meaning of the termdenotes simply proactive dynamic behavior. For example, Birkinshaw (1998b: 290) characterizes a turnaround in theSwedish subsidiary of Datapoint in these terms: “The second key factor is simply one of entrepreneurship. [Subsidiarypresident] Terry Morris felt that all the necessary capabilities existed before he took control. He provided the freedom forthe employees to apply their expertise where it was needed, and this resulted in sales in areas that the company had neverpreviously considered.” Entrepreneurship here is really just proactive local management. The subsidiary's success insearching for “innovative ways of satisfying customer demands, rather than sticking to the approach of selling traditional


Datapoint solutions” is undoubtedly an admirable instance of proactive and competent subsidiary management, yetultimately Terry Morris is doing basically what enlightened MNCs want their subsidiary general managers to do:proactively explore new ways of selling more to the local market.

From the foregoing considerations there arise opportunities to place the subsidiary initiative literature on a firmer conceptualfooting, notably by: (1) explicitly distinguishing between market entrepreneurship and organizational entrepreneurship than thedistinction between external and internal initiatives is able to capture; and (2) articulating distinct gradients of both market andorganizational entrepreneurship, akin to the gradations of subsidiary initiative proposed by Delany (1998). What follows is anattempt to provide a more structured understanding of subsidiary initiative as entrepreneurship.

6. An integrative framework of MNC subsidiary initiatives

In his trailblazing work on the role of entrepreneurial activity in the economy, Schumpeter (1912) conceptualizedentrepreneurship as a force that proactively wrenches a sector of the economy out of its usual Walrasian equilibrium in whichbuyers and sellers respond reactively, “at the margin,” to supply and demand conditions. The essence of Schumpeter'sentrepreneur was that he or she created conditions of economic disequilibrium, ultimately requiring wholesale structural changesin the production processes and supply chains to take advantage of the entrepreneur's “new combinations,” as Schumpeter calledthem. In his original German-only (1912) treatise on what is essentially a theory of economic disequilibrium, Schumpeterperceived clearly that traditional markets and production processes, governed by conditions of Walrasian equilibrium, co-existedwith the much more revolutionary “combinations” of visionary entrepreneurs capable of supplanting established industries withradically new ones, e.g. electric trams as well as horse-drawn carriages, electric lighting as well as gas lighting, etc. His point wasthat entrepreneurs implemented disequilibrating innovations in ways that transcended minor adjustments at the margin asdescribed in neo-classical economic theory.

6.1. Market disequilibrium and organizational disequilibrium

Schumpeter's concept of entrepreneurship qua disequilibrium offers a promising point of departure for creating a paradigmof subsidiary initiative research. In particular, the concept of disequilibrium helps to clarify the dimensions of both marketentrepreneurship and organizational entrepreneurship.

With respect to market entrepreneurship, the concept of disequilibrium is useful as a criterion for distinguishing differentdegrees of entrepreneurial impact. An initiative that affects only the firm's internal operations and has only a minimal impacton the market is only minimally entrepreneurial along the market dimension. An initiative that responds to market signals at theWalrasian margin with new product or price offerings, thus incrementally affecting supply and demand, is somewhat moreentrepreneurial. A truly Schumpeterian initiative with regard to the market is radical or disruptive in nature, causing substantialdiscontinuity by means of new categories of products that displace prior product categories and/or production and distributionprocesses that supplant old ones.

With respect to organizational entrepreneurship, the concept of disequilibrium is perhaps even more useful for disentanglingthe political issues raised by subsidiary initiatives. While many of the examples of subsidiary initiatives cited by Birkinshaw andhis colleagues are not necessarily so entrepreneurial in a market sense, they are highly disturbing of the MNC's organizationalequilibrium. The degree of corporate resistance to subsidiary initiatives is an indicator of the political and organizationaldisequilibrium caused. To reiterate, many cited examples of subsidiary initiatives rank relatively high along the dimension oforganizational entrepreneurship (organizational disequilibrium) but are a bit more modest in terms of market entrepreneurship(market disequilibrium).

Subsidiary initiatives vary by type but also, as Delany (1998) points out, by intensity. With regard to both market andorganizational entrepreneurship the concept of disequilibrium is useful for assessing the degree to which entrepreneurial acumenon the part of subsidiaries is required. It seems to us vital, for the sake of fulfilling the full potential of the subsidiary initiativeconcept, to recognize that while some initiatives do arouse the corporate immune system and cause organizational disequilibrium,other types of initiatives do so to a much lesser extent.

We can put the matter in the following way. Some subsidiary initiatives involve a zero-sum game from the standpoint of MNCunits, as when major responsibilities are to be transferred to an MNC subsidiary from another MNC unit. Yet many initiativesresemble much friendlier, positive-sum games, as when an MNC subsidiary introduces a product or process innovation thatcan be adopted by other MNC units without loss of internal influence and resources. In this case, the subsidiary's initiative is lessapt to cause internal disequilibrium and requires less organizational entrepreneurship. Expressed in terms of subsidiary roles(Birkinshaw, 1998a; Paterson and Brock, 2002), we postulate that the degree of organizational disequilibrium caused by agiven subsidiary initiative will be proportional to the extent to which the initiative requires a change in the role of two or moreMNC units.

6.2. Mapping different degrees of market and organizational entrepreneurship

Fig. 6 formalizes the distinction between, and different degrees of, market and organizational entrepreneurship. Its verticaldimension incorporates the insight that subsidiary initiatives may not only consist of radical change challenging the “existing

Initiative for HQ to Augment Subsidiary’s

Position in the MNC


Confined to Local Level

Degree of Organizational Entrepreneurship

Degree of Market Entrepreneurship

Operational Improvement

Initiatives

Additive New Business Initiatives

Disruptive Business Creation: Quasi-Schumpeterian

Entrepreneurship

Global-Internal Initiatives

Promotion to Operational

Center of Excellence

Local-For-Global Adaptive Innovations

Augmented Subsidiary

Contribution to MNC Value Chain


Showcased for Wider Adoption

in the MNC

Increasing Market Disequilibrium

Increasing Org. Disequilibrium

Global Market Initiatives

Local Market Initiatives

Local-For-Local Adaptive Innovations

Local-For-Global Disruptive

Innovations

Local-For-Local Disruptive

Innovations

Fig. 6. Integrative framework of different subsidiary initiative types.


fabric of the MNC” (Dimitratos et al., 2009a: 411), but also incremental innovations which “stay within the existing parameters ofthe business” (Birkinshaw, 2000: 76–77). For example, local-for-global innovations by MNC subsidiaries (Ghoshal and Bartlett,1991) are more likely to awaken the corporate immune system than local-for-local innovations (Ghoshal and Bartlett, 1991) do,yet by and large both kinds of innovations will require less organizational entrepreneurship than the “global-internal” initiativesdiscussed by Birkinshaw, which require disempowering one MNC unit to the benefit of another. Similarly, in the left column, aninitiative to boost one subsidiary role's in the MNC's global value chain (Birkinshaw, 2000: 76–77) represents more of a zero-sumgame than setting up merely an operational center of excellence (Surlemont, 1998) as a showcase for the rest of the MNCorganization.

With respect to market entrepreneurship, the horizontal axis analogously formalizes the insight that subsidiary initiativesdiffer in the extent and magnitude of impact on product/service markets (Birkinshaw, 2000; Dimitratos et al., 2009a; Liouka,2007). Here we use the concept of Schumpeterian entrepreneurship in a much stronger sense of the term than that employed byBirkinshaw (2000). The phenomenon of bottom-of-the-pyramid and reverse innovations (as discussed in Section 5.2) suggeststhat Schumpeterian entrepreneurship by MNC subsidiaries may well be becoming somewhat more prevalent. These can bequalified as “disruptive” innovations (Christensen, 1997), given the often noted parallelism between BOP/reverse innovation onthe one hand and the “disruptive” innovations on the other (Govindarajan and Ramamurti, 2011).

Much more common, in any case, are what we term “additive” new business initiatives (middle column), which are adaptiveproduct/service innovations or entries into new business areas not previously covered by the MNC. Though less market-entrepreneurial than disruptive innovations (right column), such activities affect the market more than initiatives aiming atoperational improvements (left column). These activities include “adaptive” innovations, both local-for-local and local-for-globalones, that involve adapting a product or service to the local market context.

Fig. 7 reproduces Fig. 6 with specific examples from the MNC literature. The plots are intended only for the sake of illustrationand simply based on our reading of the different anecdotal reports; we cannot vouch for their authors' agreement with ourclassification of the examples. It will be seen that some of the examples in classic papers by Birkinshaw and colleagues appearhigher on the dimension of organizational entrepreneurship (vertical axis) than on the dimension of market entrepreneurship(horizontal axis). We lack any clear-cut case of a subsidiary initiative belonging in the upper right-hand corner, i.e. very high onboth market entrepreneurship and organizational entrepreneurship.

6.3. Extending the subsidiary initiative concept: bringing local initiative back in

A further (albeit potentially controversial) advantage of the proposed framework is that it explicitly incorporates purely localinitiatives (bottom of vertical axis). Although some discussions of subsidiary initiatives restrict the concept in principle tosubsidiary actions with wider application beyond the local subsidiary level (Birkinshaw, 1997; Birkinshaw and Ridderstråle,1999; Rugman and Verbeke, 2001), there are good reasons for including significant autonomous local initiatives by MNC

Honeywell (CA):Valve Production Shift

Birkinshaw (2000)


Confined to Local Level

Degree of Organizational Entrepreneurship

Degree of Market Entrepreneurship

Operational Improvement

Initiatives

Additive New Business Initiatives

Disruptive Business Creation: Quasi-Schumpeterian

Entrepreneurship

H-P (CA):X Terminals

Birkinshaw/Fry (1998)

IBM Germany (DE):Linux-Based

Mainframe OSLehrer/Asakawa (2002)

Unilever (DE):Kuschelweich

Bartlett/Ghoshal (1989)

J&J (SW):Logistics Center of

ExcellenceBirkinshaw (1998b)

Philips (UK):Teletext

Bartlett/Ghoshal (1989)


Showcased for Wider Adoption

in the MNC

Datapoint (SE):Customer Service

InitiativeBirkinshaw (1998b)

Increasing Market Disequilibrium

Increasing Org. Disequilibrium

Hindustan Lever (IN):BOP Detergent

Prahalad/Hart (2002)

GE Healthcare (CN):Low-Cost Medical

DevicesImmelt et al. (2009)

Initiative for HQ to Augment Subsidiary’s

Position in the MNC

Fig. 7. Integrative framework of initiative types with examples.


subsidiaries within the ambit of subsidiary initiative. Such local initiatives may be an important component of MNC strategy,especially in large or influential MNC subsidiaries. Furthermore, local initiatives can evolve to have a wider import. The citedexample of Datapoint in Sweden furnishes a good example. As cited above, the “entrepreneurial” effort of this subsidiary wasinitially a local one, falling at the low end of the vertical axis. Subsequently, though, the Swedish subsidiary was promoted to thestatus of a center of excellence (Birkinshaw, 1998b). However, the promotion to an MNC status transcending the local leveloccurred after the real “entrepreneurial” initiative had been exercised at the local level and, most importantly, as a result ofautonomous initiative at the local market level.

Finally, our integrative framework, while postulating a more explicit link between subsidiary initiatives and entrepreneurship,simultaneously serves to highlight a distinction between proactive behavior and entrepreneurship. The subsidiary initiative conceptdoes cover both. Yet while all subsidiary initiatives require proactive behavior, not all subsidiary initiatives involve realentrepreneurship. Subsidiary activities belonging near the lower left-hand corner of Figs. 6 and 7 may require a great deal of localinitiative and have a substantial revenue and profit impact even if they are not to be construed senso strictu as entrepreneurial.Even when MNC subsidiaries initiatives do not rock the boat in either a market or organizational sense, they may be highlyimportant and ultimately have an impact across the whole firm. If we consider Figs. 6 and 7 as a framework for mapping the“portfolio” of initiatives at a given MNC subsidiary, one could easily argue that subsidiaries would be well-advised to pursue abalanced portfolio of initiatives involving different levels and kinds of entrepreneurship. A high level of proactive initiative even atthe purely local or purely operational level is an obvious desideratum of MNC subsidiaries.

7. Outlook and avenues for further research

Subsidiary initiatives are proactive, autonomous and risk-taking activities that originate outside the home country in a foreignsubsidiary of the MNC and often trigger some degree of resistance from the “corporate immune system” (Birkinshaw andRidderstråle, 1999). A subsidiary initiative represents a set of entrepreneurial activities which unfold over several stages and haveto overcome obstacles emanating from the external market, from the MNC organization, or from both. A great deal of priorresearch takes its point of departure from heterarchy, that is, from a general trend toward greater decentralization ofdecision-making, influence, knowledge, and hence also initiative-taking within MNCs. A natural consequence of heterarchy is thateven relatively small MNC subsidiaries may be able to rock the boat and take initiatives that eventually have an impact on theentire MNC organization.

In this review, we have suggested that the subsidiary initiative concept could also be applied more systematically to very largesubsidiaries as well, predicting that the influence of mega-markets like China and India will be one of the defining trajectories ofdevelopment for MNCs in the 21st century. However, it is not only market size that makes MNC subsidiaries in these countriescapable of wagging the MNC corporate dog. Countries like China and India have other special market characteristics as well,favoring disruptive types of innovation.


For this reason, we derived a framework that helps to distinguish between different types of subsidiary initiatives. Someinitiatives may involve mainly organizational entrepreneurship by MNC subsidiaries, reflecting their increasing weight within theoperations of the parent organization and their increasing potential over time to cause periodic organizational disequilibriumwithin the MNC. Other initiatives, however, may involve a high level of market entrepreneurship to take advantage of businessopportunities deriving from special demographical and social characteristics of these mega-markets. The following propositionsare suggested by our analytic framework, especially Figs. 6 and 7:

Proposition 1. Organizational entrepreneurship is relatively more prevalent in subsidiary initiatives undertaken by small MNCsubsidiaries than by large MNC subsidiaries.

Proposition 2. Market entrepreneurship is relatively more prevalent in subsidiary initiatives undertaken by large MNC subsidiariesthan by small MNC subsidiaries.

Proposition 3. There is a trade-off between market entrepreneurship and organizational entrepreneurship in the sense that subsidiaryinitiatives high along both dimensions are likely to be rare.

In any event, we anticipate a slight shift in the major research questions addressed within this research stream. Typicalresearch questions from the past revolve around the different kinds of initiatives that a (comparatively small) MNC subsidiarymight pursue, the internal corporate resistance MNC subsidiary managers are likely to face in pursuing them, and the meansand processes by which such resistance can be overcome. Some research questions to pursue in the future, emphasizingmore the market entrepreneurship dimension of initiatives, might include: Can MNC subsidiaries pursue local marketopportunities in (large) developing countries the same way subsidiaries pursue opportunities in developed countries? Whenforeign markets like in China and India are truly large and visible, do initiatives undertaken by MNC subsidiaries in thesecountries typically trigger reactions of the “corporate immune system” in the same way as initiatives undertaken by MNCsubsidiaries in smaller countries do? Related to these questions and in line with our arguments in Section 4.2, we advance thefollowing propositions:

Proposition 4. Themore a subsidiary initiative is characterized by organizational entrepreneurship, the greater the relative importanceof initiative selling, evaluation and approval in the subsidiary initiative process.

Proposition 5. The more a subsidiary initiative is characterized by market entrepreneurship, the greater the relative importance ofopportunity identification and of resource commitment and implementation in the subsidiary initiative process.

Furthermore, based on the concept of disequilibrium, we close by suggesting three broader underexplored avenues for furtherresearch:

(1) As outlined, previous work has already led to some basic understanding of the different facets of the subsidiaryinitiative phenomenon. Yet, the majority of existing contributions tend to focus on specific aspects of the subsidiaryinitiative phenomenon; work integrating the different pieces into a “larger picture” appears to be lacking. One possibilityfor conceptualizing this “larger picture” is a new three-stage model. Schumpeter's non-Walrasian interest in disequilibriumsuggests the following stages: i) initial MNC equilibrium; ii) period of MNC disequilibrium; and iii) re-established MNCequilibrium. Such a stage model differs from, and is arguably broader than, the subsidiary initiative process detailed inSection 4.2 above. And it may be useful methodologically as a way to organize longitudinal research.Research Avenue 1: Studying subsidiary initiatives from start to finish through the lens of new process models, Schumpeterian orotherwise.

(2) While previous work has focused heavily on consequences and antecedents of subsidiary initiatives, it has largelyneglected the individual entrepreneur and the entrepreneurial team in the subsidiary as the unit of analysis. Althoughsome publications have begun to address these issues (Ambos et al., 2010), it remains largely unclear what stimulatessubsidiary managers and employees to act in an entrepreneurial manner or how different roles and characteristics ofsubsidiary managers may impact initiative-taking (Dörrenbächer and Geppert, 2009: 101; Young and Tavares, 2004:232). Presumably there are concepts from psychology that can explain differences between MNC managers who preferor excel in “equilibrium settings” and other individual managers who prefer or excel in “disequilibrium settings” withinMNCs.Research Avenue 2: Putting more emphasis on the individual entrepreneur within subsidiary initiative research.

(3) Finally, most research to date has primarily examined subsidiary initiatives as discrete activities. Yet the rise of emergingmega-markets ought to sensitize researchers to the future importance of subsidiary initiatives also as cumulative activities.If Indian or Chinese subsidiaries (for example) undertake serial initiatives, how might this fact over time alter the“equilibrium” of the overall corporation? By the same token, initiatives by subsidiaries are not always taken in completeautonomy but may instead be coupled with initiatives at headquarters (Schotter and Beamish, 2011) or at sistersubsidiaries. Studying bundles of initiatives may therefore be an appropriate and fruitful line of future research.Research Avenue 3: Investigating subsidiary initiatives as serial and interrelated subsidiary efforts.


Appendix A. Theoretical approaches in the subsidiary initiative literature

Theory Publications citing the theory Arguments or foci of author(s)

Network theory(Bartlett and Ghoshal,1989; Ghoshal andBartlett, 1990)

Birkinshaw (1997, 1998a,2000), Birkinshaw andHood (1998b)

▪ MNC modeled as inter- and intra-organizational network; the MNC subsidiary has links toboth the internal and external network and is located at the interface of three markets: local,internal and global; subsidiaries may take specialized roles and responsibilities within theMNC (Birkinshaw, 1997: 211)▪ Subsidiary unit is seen as semi-autonomous entity which has considerable discretion to decideabout exchange relationships with other internal and external actors (Birkinshaw, 2000: 108)▪ Subsidiary may possess specialized capabilities on which the rest of the MNC is dependent;loose coupling of entities in MNC network gives subsidiary freedom to develop its ownresource profile and to pursue entrepreneurial initiatives (Birkinshaw and Hood, 1998b: 778)

Resource-based view(Barney, 1991;Wernerfelt, 1984)

Knowledge-based view(Kogut and Zander, 1992)

Birkinshaw (2000), Birkinshawand Hood (1997, 1998b),Birkinshaw et al. (1998),Delany (2000), Liouka (2007),Mahnke et al. (2007),Williams (2009)

▪ MNC modeled as bundle of heterogeneous resources and capabilities; competitiveadvantage at firm level is built through combining and integrating subsidiary-levelresources in novel ways; in order for subsidiary resources to contribute to MNCfirm-specific advantage, they need to be special, recognized by headquarters andtransferable within the MNC (Birkinshaw, 2000: 102–108)▪ Subsidiary evolution can be seen as the result of an accumulation or depletion of resourcesand capabilities over time (Birkinshaw and Hood, 1998a: 781)▪ Themore subsidiary-specific the knowledge related to an initiative is, the more difficult it will beto communicate it to headquarters (based on knowledge-based view (Mahnke et al., 2007: 1283))

Decision process perspective(Bower, 1970;Burgelman, 1983)

Birkinshaw and Hood (1998b) ▪ General recognition that autonomous strategic (and entrepreneurial) initiative in largecomplex organizations often occurs at levels below top management (e.g. individuals atthe operational level) and sometimes materializes in a manner not actively encouragedor promoted by top management▪ At subsidiary level, autonomous behavior may fuel internal firm growth which can onlybe partially controlled by corporate management (based on assumption of boundedrationality of individual managers)▪ Structural context (e.g. organizational and administrative elements) important as it allowssubsidiary management to develop organically (Birkinshaw and Hood, 1998b: 776–778)

Concept of boundedrationality (Marchand Simon, 1958)

Ambos et al. (2010), Birkinshaw(1998a), Birkinshaw and Hood(1998b), Verbeke andYuan (2005)

▪ Headquarters are likely not in full control of all decisions in the MNC network; boundedrationality constraints force MNC headquarters to allow autonomous initiatives ofsubsidiaries (Ambos et al., 2010: 1101)▪ Two bounded rationality components (the selection of specific information bundles anddivergence in judgment) determine how established MNCs manage autonomous activitiesof subsidiaries (Verbeke and Yuan, 2005: 43–46)

Self-determination theory(Deci and Ryan, 1985)

Ambos et al. (2010) ▪ Individuals in subsidiaries are motivated to pursue subsidiary initiatives by two conflictingneeds: first, their need for self-determination or autonomy and second, their need foraffiliation with others▪ Once subsidiary managers have achieved the basic performance objectives set byheadquarters they will likely take initiatives which aid them in fulfilling their ownpersonal needs. Individual-level motives are likely to manifest themselves as emergentsubsidiary-level goals (Ambos et al., 2010: 1102–1103)

Resource dependence theory(Pfeffer and Salancik,1978)

Ambos et al. (2010), Birkinshawand Ridderstråle (1999), Jindraet al. (2009), Liouka (2007),Lyly-Yrjänäinen et al. (2008)

▪ Subsidiary may seek to increase strategic resources on which other parts of the MNC rely;this leads to enhanced bargaining power which can be used to increase the subsidiary'sautonomy vis-à-vis headquarters and to enhance influence over other parts of thecorporate network (Ambos et al., 2010: 102)▪ Position of subsidiary in MNC network may not only be assigned by headquarters but alsoevolves as the subsidiary pursues independent and innovatory activities that enable it todevelop unique resources and capabilities locally (Jindra et al., 2009: 169)

Organizational politics/micropolitics perspective(Burns, 1961; March,1962; Mintzberg, 1985)

Becker-Ritterspach andDörrenbächer (2009),Dörrenbächer and Geppert(2009), Lee and Williams(2005), Williams and Lee (2009)

▪ Subsidiary entrepreneurial initiatives are accompanied by power games in the MNC; internalpolitical arena may both foster and result from entrepreneurial activities in MNCs; subsidiariesmay seek to develop their position and increase their power base through subsidiary initiativeswithin the MNC (Williams and Lee, 2009)▪ Subsidiary initiative-takingmight also be viewed as politicized idea diffusion process inwhich thesubsidiary political arena helps with filtering and selecting initiatives (Lee andWilliams, 2005: 11)

Agency theory(Jensen and Meckling,1976)

Johnson and Medcof (2002),Johnson and Medcof (2007),Mahnke et al. (2007)

▪ Initial start of initiatives considered as the result of contractual arrangements betweenMNC headquarters management (principal) and subsidiary management (agent);negotiated and contracted subsidiary mandate reflects subsidiary's authority to govern itsown affairs and hence to put forth initiatives (Johnson and Medcof, 2002: 189)▪ Outcome-based contracts, e.g. in the form of financial incentives, promote initiative-taking(based on extended agency theory perspective) as they specify the desired outcomes and notthe means; hence they provide subsidiaries with certain freedoms and incentives to pursueinitiatives (Johnson and Medcof, 2002: 195)

(continued on next page)

Appendix A (continued)


▪ Various agency problems may manifest themselves when initiative opportunities aredeveloped locally with corporate resources, thus lowering the likelihood of headquartersacceptance (Mahnke et al., 2007: 1282–1286)

Transaction cost perspective(Williamson, 1975)

Birkinshaw (2000), Mahnkeet al. (2007), Verbeke andYuan (2005)

▪ Extension of the transaction cost perspective to include subsidiary-driven investment;subsidiary-specific advantages include both firm-specific and country-specific advantages(Birkinshaw, 2000: 109)▪ Development of subsidiary initiatives requires the introduction of specific governancemechanisms to reduce bounded rationality constraints faced by headquarters managers(based on revised transaction cost perspective; see Verbeke and Yuan (2005)).

Porter's concept ofcompetitive strategy(Porter, 1980)

Birkinshaw et al. (2005) ▪ Subsidiaries face two competitive arenas: the external competitive arena (e.g., local customers,suppliers and competitors) and the internal competitive arena comprising internal customers,suppliers and competitors (Birkinshaw et al., 2005)▪ The competitive environment influences subsidiary initiative-taking and vice versa; a focus onthe external competitive arena fosters subsidiary entrepreneurship (Birkinshaw et al., 2005: 234)

Integration-responsivenessframework (Prahalad andDoz, 1987)

Grohmann (2010) ▪ Contingency exists between the MNC environment and the subsidiary entrepreneurshipstrategy; MNCs tend to follow different subsidiary entrepreneurship strategies dependenton their respective environmental setting (Grohmann, 2010: 52–56)▪ Companies operating in a multinational environment tend to pursue a coordinated subsidiaryentrepreneurship strategy: in a transnational environment a requested subsidiary strategy,in an international environment a restrictive subsidiary entrepreneurship strategy and in aglobal environment a navigated subsidiary entrepreneurship strategy (Grohmann, 2010: 208)

Internationalization processtheory (Johanson andVahlne, 1977)

Birkinshaw and Hood (1998b),Lee and Chen (2003)

▪ Subsidiary development seen as result of cyclical interaction between MNC investmentand learning from local environment, leading to incremental increase in commitmentto foreign market (Birkinshaw and Hood, 1998b: 776–778); subsidiary initiatives seenas drivers of evolutionary changes▪ Initiatives more important for inexperienced firms with insufficient stock of knowledgeat headquarters for supporting satisfactory local adaptation (Lee and Chen, 2003: 54–68)

Heterarchical orientation(Hedlund, 1986)

Lee and Williams (2005) ▪ Heterarchy and internal politics stimulate dispersed entrepreneurial behavior and powergames in the MNC; heterarchy allows for subsidiary autonomy▪ Furthermore, a heterarchical orientation provides space for internal confrontation andpitting of subsidiary units against each other; subsidiary units hence have scope toincrease their power bases through competence-enhancing moves in the form ofentrepreneurial activities (Lee and Williams, 2005: 4–11)

Socialization models(Gupta andGovindarajan, 1991;Hedlund, 1981; Nobeland Birkinshaw, 1998)

Johnson and Medcof (2007) ▪ Agency theory and socialization models can be integrated to explain governance andorganizational structures related to subsidiary initiatives▪Goal internalization of socializationmodels acts similar to outcome-based contracts (of agencytheory); agents have freedom and incentive to take initiative; hence it promotes self-initiatedinnovation; combination of goal internalization and outcome-based contracting will benecessary for long term, proactive agent innovation (Johnson and Medcof, 2007: 475–483)

Entrepreneurial theory of thefirm (Alvarez and Barney,2005; Shane andVenkataraman, 2000;Kirzner, 1973;Schumpeter, 1934)

Mahnke et al. (2007),Birkinshaw (1997, 2000)

▪ Entrepreneurial processes in the MNC focus on the recognition, identification, evaluationand exploitation of opportunities in order create value and to contribute to the MNC'scompetitive advantage; MNC entrepreneurship as a complex, multi-level phenomenonfaces numerous sources of uncertainty (Mahnke et al., 2007: 1278–1282)▪ The distinction between Schumpeterian and Kirznerian theories of entrepreneurship asa lens for studying subsidiary initiatives (Birkinshaw, 1997, 2000)

Internalization theory(Buckley and Casson,1976)

Dimitratos et al. (2009a) ▪ Firms grow by internalizing imperfect external markets until the point where transactionbenefits from additional internalization are exceeded by costs▪ Ability to innovate can be seen as crucial MNC-specific advantage which results ininternalization across borders▪ Subsidiary management may reduce uncertainty associated with innovative andentrepreneurial activities by exchanging knowledge with local players (Dimitratos et al.,2009a: 412–413)

Media richness theory(Daft and Lengel, 1986)

Channel expansion theory(Carlson and Zmud, 1999)

Keupp and Gassmann (2009) ▪ Subsidiary initiative viewed as a communication process, from formulation toimplementation; subsidiary (sender) initiatives have to pass through different filteringmechanisms, governed by key decision makers and environmental variables in order tobe eventually implemented▪ Communication media have varying capacities for resolving ambiguity and for facilitatingunderstanding; different forms of communication (e.g., face-to-face communication,electronic media) vary in their level of richness▪ Consequently, different communication media will influence the probability of a subsidiaryinitiative being successful (Keupp and Gassmann, 2009: 203)

Theory Publication(s) citing the theory Arguments or foci of author(s)


Appendix A (continued)


▪ A person's experiences with communication channels, message topics, organizationalcontext and participants influence richness perceptions of individuals regarding a specificchannel; these variables influence how senders and recipients formulate and conveyinitiatives (Keupp and Gassmann, 2009: 203)


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From Rocking the Boat to Wagging the Dog: A Literature Review of Subsidiary Initiative Research and Integrative Framework