L'entrepreneuriat dans les filiales multinationales: perspectives d'un pays en développement (document en anglais)

Entrepreneurship in Multinational Subsidiaries: Perspectives from a Developing Nation

M. Sadiq Sohail

King Fahd University of Petroleum & Minerals, Saudi Arabia

Selvamalar Ayadurai

University Kebangsaan Malaysia

This paper examines the entrepreneurial civilities of multinational subsidiaries in Malaysia, a country chosen for the study due to the presence of a large number of multinational subsidiaries in the region. Empirical research is used to determine subsidiaries entrepreneurship, extent of autonomy and the use of financial controls. In general, results indicate that the length of operation of the subsidiary as well as the origin of parent organization impact on the extent of subsidiary entrepreneurship. Some conclusions are drawn from the study findings, the implications are discussed, limitations of the study are highlighted and further research directions are suggested.

INTRODUCTION

The issues relating to entrepreneurship in multinational companies (MNC) subsidiaries has been a subject of interest to researchers since the 1990s. The 1990s were characterized by a further elaboration of sophisticated subsidiary role classifications with a strong focus on subsidiary entrepreneurship (for example, Birkinshaw and Hood (1998); Taggart (1998). Given the rapid changes in environmental factors, it is imperative for MNCs to be innovative to sustain their market position and competitive advantage. Further, in order to achieve global efficiency, MNCs have been facing considerable pressure to quickly and effectively respond to local market. (Prahalad, 1999). Consequently, some MNCs have expanded the definition of their subsidiaries’ missions while giving them greater freedom to pursue their goals (Zahra, Dharwadkar and George, 2000).

Most research in the area of entrepreneurship research has focused on explaining variations in entrepreneurship at the country (Shan and Hamilton, 1991) and firm levels of analysis (e.g., Barringer & Bluedorn, 1999). Entrepreneurship research that can explain differences in subsidiaries’ entrepreneurship has been rather scanty. Additionally, the limited research that has been done has focused on Western economies and subsidiaries. In response to these gaps in current research, this paper attempts to contribute to the international business and entrepreneurship literature by determining some pertinent issues relating to subsidiary entrepreneurship in the Asia Pacific region. Malaysia was chosen for the study, as it has a presence of a large number of subsidiaries from MNCs across the globe. With the economic development mainly being driven by FDI investment coupled with a fast pace of trade liberalization, the country is ideally

The first author is grateful for the facilities support provided by King Fahd University of Petroleum & Minerals, Saudi Arabia

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© JOURNAL OF MANAGEMENT & WORLD BUSINESS RESEARCH, Vol 1, No 1, 2004 chosen for examination of subsidiary entrepreneurship.

THEORETICAL BACKGROUND AND RESEARCH HYPOTHESES

Various attempts have been made to conceptualize the roles of foreign subsidiaries. Various writers (e.g. Ghoshal and Bartlett, 1994; Martinez and Jarillo, 1991; Ghoshal and Nohria, 1989; Nohria and Ghoshal, 1994; Gupta and Govindarajan 1991) acknowledge that MNCs assign different missions, roles, extent of autonomy and financial controls to their subsidiaries abroad. The theoretical fundamentals, which are the bases of their arguments, vary as much as the derived implications. This is partly a result of the different criteria used by the authors to build their respective typologies, which are developed to capture and define a variety of different subsidiary roles.

MNCs face considerable pressure to quickly and effectively respond to local market needs, (Prahalad, 1999). Some subsidiaries have seized the opportunity created by ongoing changes in the global marketplace by pursuing innovative ventures and engaging in radical innovation (Dunning, 1994; Poynter & White, 1989; Roth & Morrison, 1992). These subsidiaries have also become more proactive in their operations, reaching the market with innovations well ahead of their rivals (Birkinshaw, 1998, 1999; Birkinshaw, Hood & Jonsson, 1998). For example, Philips’ subsidiary in Canada created the company’s first color TV; Philips of Australia created the first stereo TV; and Philips of the UK created the first TV with teletext capabilities. Philips’ headquarters encouraged innovation in their subsidiaries and later leveraged them for the global network (Lightfoot, 1992). Yet, other subsidiaries have been less able to engage in entrepreneurial activities or have been constrained in their efforts by corporate headquarters' (HQs') controls. For instance, Beckton Dickinson’s Japanese subsidiary required approval to develop a specific type of medical equipment to satisfy local market needs but their HQ was unwilling to support such local innovative activities. This has resulted in a loss of market share and profitability in the Japanese market (Scharf, 1993). Despite these potential differences in entrepreneurial intensity among MNC subsidiaries, little research has examined the sources of these differences from the international management perspective.

Subsidiary Entrepreneurship

Yamin (2002), opines that the ‘organizational isolation’ of multinational subsidiaries enhances the potential for entrepreneurial action by subsidiaries and increases the likelihood of a differentiated set of competencies within the multinational, the existence of which can counteract strategies inertia at the HQ and improve adaptive capabilities in the multinational Birkinshaw (1997) define ‘entrepreneurial orientation’ as ‘a predisposition to proactive or risk-taking behavior’, ‘use of resources beyond the individual’s direct control’ and ‘departure from existing practices’.

Yamin (2002) believes that multinational subsidiaries are more likely to develop an entrepreneurial orientation and summarizes the development of a multinational subsidiary by stating that a multinational subsidiary has the following:

1) a higher degree of organizational freedom to undertake initiatives

2) further by virtue of its foreignness, it faces greater pressure to develop capabilities appropriate to its local market and the various networks in which it

needs to operate effectively, and

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