Essays on Regional Management Centres: Subsidiary management at the crossroad of psychic distance and regionalization

Abstract

The aim of this research has been to advance the understanding of RMC units, especially springboard subsidiaries, by identifying factors that contribute to the development of an ordinary subsidiary into springboard, scrutinizing its impact on psychic distance between a corporate home country and a target region, and finding the optimal location for RMCs from the perspective of psychic distance. The objective of Chapter 2 has been to explore the drivers that boost the development of a subsidiary’s strategic role from an ordinary one to an RMC type of springboard within an MNC. The results evidence that the development of a springboard subsidiary role is a confluence of the following factors: (1) simultaneous positive change in a target region of expansion and negative change in a subsidiary’s home country that pushes its management to look for new opportunities; (2) location-specific advantages of a subsidiary that allow to develop unique subsidiary-specific capabilities; and (3) micro-political HQ-subsidiary negotiation processes as a result of a subsidiary’s management strong initiative taking, peculiarities of a MNC structure, and strong dependency of HQ on resources available to the subsidiary. The study contributes to the IB literature, proposing that the delegation of a role of springboard is not an intended top-down strategy formulated by the HQ, but rather an emergent one, provoked by an ensemble of factors, some of which are in the reach of a subsidiary’s management influence, and some out of its reach. The objective of Chapter 3 has been to explore how springboard subsidiaries affect psychic distance between the parent company and the target region affiliates. The findings suggest that the usage of springboard subsidiaries as RMCs results in a reduction of psychic distance between the parent company and target region affiliates due to (1) their intermediate psychic proximity towards both, the parent home country and the target region; and (2) their location outside the target region, which makes them uninvolved in intra-regional conflicts that often take place in neighbouring countries. The study contributes to the understanding of psychic distance as a non-continuous distance and proposes a conceptual model that posits: if a parent home country is point A, a springboard subsidiary is point B, and a target region is point C, the distance between a parent home country A and a target region C is bigger than the sum of distances AB (from parent home country to a springboard subsidiary country) and BC (from springboard subsidiary country to the target region). The objective of Chapter 3 has been to explore how springboard subsidiaries affect psychic distance between the parent company and the target region affiliates. The findings suggest that the usage of springboard subsidiaries as RMCs results in a reduction of psychic distance between the parent company and target region affiliates due to (1) their intermediate psychic proximity towards both, the parent home country and the target region; and (2) their location outside the target region, which makes them uninvolved in intra-regional conflicts that often take place in neighbouring countries. The study contributes to the understanding of psychic distance as a non-continuous distance, and proposes a conceptual model that posits: if a parent home country is point A, a springboard subsidiary is point B, and a target region is point C, the distance between a parent home country A and a target region C is bigger than the sum of distances AB (from parent home country to a springboard subsidiary country) and BC (from springboard subsidiary country to the target region). The managerial implications suggest that MNCs should revise their regional configuration, looking at the integrated network of their subsidiaries as a whole, instead of dividing it into regions based on geographic proximity, because the location for an RMC outside the geographic region can actually be more beneficial and may result in the reduction of psychic distance. The main limitation of this study is the methodological one. Although the choice of a single case study methodology is justified by the purpose of this study (a choice of a revelatory and exemplar case that allows for new theory building), there have been concerns whether this case is unique or rather exemplar. The study suggests further investigation to see whether the findings can be confirmed in other geographic settings. The objective of Chapter 4 has been to find optimal locations for RMCs that would minimize psychic distance between a corporate home country and a target region. Based on the dataset of 125 countries, with the variables taken from 12 consecutive years, the study suggests that Spain is the optimal RMC location between the European countries and the Latin American region, whereas France and Tunisia are the optimal RMC location between Europe and Maghreb region. The optimal location for RMCs between Southern and Eastern Europe would be Croatia, whereas Turkey would optimize distance between Europe and Middle East. No congruent results have been found for Asian region, which hints to the limitations of the proposed model. The research contributions of Chapter 4 are several. First, this study proposes an RMC location optimization model that includes ten psychic distance dimensions, chosen according to their relevance for RMC administrative tasks. Second, it applies evolutionary computation algorithm to compute differential weights for each of the dimensions. This endeavour has not been undertaken in the IB literature according to our best knowledge. Third, the applied weights suggest that the importance of formal institutions, such as political and economic development, as well as the presence of colonial links are more important than informal institutions, like culture, or even language and religion. Finally, it sheds critical light on the regionalization criteria based on geographic proximity and shared language, calling for more adequate regionalization clustering for the IB practitioners.