exchange relationships with specific other actors (Ghoshal and Bartlett, ; subsidiaries in the MNC have a strategic role in the organization, which goes beyond the .. embeddedness, will be considered important by the corporate headquarters. . The results of the validity test of the constructs are shown in Table 1. development. Bartlett and Ghoshal () proposed the “transnational solution” as the headquarters must rely upon the quality of relations with subsidiaries to institute programs. (Hulbert .. The table below illustrates a number of examples . The Bartlett & Ghoshal typology was core to my PhD work and their influential publications in the field of HQ-subsidiary relationships, level of support for our hypothesized typologies (see Table 5 above). article proposed a typology of subsidiary roles based on knowledge flows within the MNC.
It excluded both control mechanisms and human resource practices from the typologies. However, the latter two variables can still be found in the online pre-publication version.
The Transnational Solution was one of the most influential publications in the field of HQ-subsidiary relationships, with over 10, citations in both Google Scholar and Microsoft Academic.
Although highly influential, their research was based on case studies in only nine MNCs, combined empirical data with prescriptive elements, and did not discuss the characteristics of the various types of MNCs in a systematic way. Ghoshal himself puts it even more strongly: A cluster analysis based on four strategy questions resulted in three distinct clusters.
The first group, labeled Multidomestic, combines high scores on national responsiveness and domestic competition with the lowest scores on global competition and economies of scale. The second group, labeled Global has an opposite profile, high global and low domestic competition, a low level of national responsiveness and a high level of economies of scale. Firms in the Transnational cluster combine a focus on national responsiveness and economies of scale. They differ from Multidomestic companies in their higher focus on economies of scale and from Global companies in their higher focus on national responsiveness.
Competition for these firms is mostly global although they score slightly higher on domestic competition than firms in the global cluster. Overall, the results of our empirical analysis provided a high level of support for our hypothesized typologies see Table 5 above. They also further extended our knowledge about the relationship between MNC strategy, organizational design and subsidiary characteristics, as well as control mechanisms and human resource practices, as can be found in this extended pre-publication version of the manuscript.
With well over Google Scholar citations this article is now my 5th most highly cited publication, not bad for a replication! This article has become highly cited, registering well over 2, Google Scholar citations. Surprisingly, even though from the s onwards we find a large number of empirical studies dealing with subsidiary roles, the original typology proposed by Gupta and Govindarajan has not been subjected to much empirical verification.
Given that this typology has remained so influential even in recent years, it is important to understand whether a subsidiary typology based on knowledge flows is a meaningful way to classify MNC subsidiaries. Pawan Budhwar, Randall S. Sparrow, Sage Publications ] Available online Their study, however, suffered from a number of limitations in terms of both conceptualization and testing of the different subsidiary roles.
With my co-author Niels Noorderhaven I therefore addressed these limitations, using data we collected with subsidiaries of nearly 40 different MNCs.
Responses for the two types of knowledge inflow and outflow from HQ and from other subsidiaries were combined into a composite measure. Following Gupta and Govindarajanmedian splits among these two composite measures were used to identify the strategic role of a particular subsidiary in the global MNCs network.
The figure below visually displays the mean scores of the four subsidiary types score on knowledge inflow and outflow. A range of cluster solution from 2 to 6 clusters was attempted. The 2 and 3 cluster solutions resulted in clusters that were differentiated only by low—high or low—medium—high flows and did not separate inflows from outflows.
The 4—6 cluster solutions did provide this separation. The four-cluster solution—that is consistent with our a priori theoretical model—reached convergence in a lower number of iterations 5 than the other solutions.
It also showed the lowest number of non-significant pair-wise comparisons The overall tone of this paper is therefore exploratory. We have preferred to use research questions rather than hypotheses. This indicates less an absence of a priori expectations than a lack of established measures. Furthermore, data is presented in its raw form, rather than a higher level of aggregation, to aid interpretation. Appropriate statistical tests were also conducted. The paper is organized as follows.
The relationship between these types and the global business environment is also discussed here. Second, MNC structural issues are explored, starting with an overview of the idealized notions of 'hierarchy' and 'heterarchy'.
These notions are then applied at the subsidiary level, and a set of key characteristics of 'structural context' are thus defined. Research questions regarding the variance of these characteristics across types are put forward.
Third, the issue of performance at the subsidiary level is examined. The empirical portion of the paper describes the data collection methodology and then explores the four research questions. Finally there is a discussion of the implications of the findings at both subsidiary and MNC level. The focus was typically on the variables that were key to the dyadic parent-subsidiary relationship, such as centralization e.
The results of these studies were ambiguous though e. Jarillo and Martinez , for example, identified three strategic roles for subsidiaries that mirrored Bartlett's  multinational types and Porter's  multinational strategies.
Roth and Morrison  focused on the configuration and coordination demands of implementing a global strategy to identify two subsidiary strategies. Earlier, White and Poynter  and D'Cruz  proposed strategies for Canadian subsidiaries along approximately the same dimensions. A somewhat different approach to subsidiary strategy was developed by Bartlett and Ghoshal .
Working on the basic premise that each subsidiary has a unique role to play in the MNC, they modeled subsidiary strategy as a function of the local environment and the subsidiary's unique capabilities. More recently, Gupta and Govindarajan  built on Bartlett and Ghoshal's notion of the MNC as a differentiated network through a model in which subsidiaries were categorized on the basis of the knowledge flows to and from the rest of the corporation.
In this literature the terms subsidiary 'strategy' and subsidiary 'role' are often used interchangeably but the distinction is more than semantic. Role suggests a deterministic process whereby the subsidiary fulfils its 'imposed' function; strategy suggests a higher degree of freedom on the part of subsidiary management to define its own destiny e. On this basis, all of the above studies focused on subsidiary roles, though several of them e. This paper will thus use the term 'role' henceforth.
Table 1 proposes a simple three-item typology of subsidiary roles, and maps prior typologies onto it. This typology integrates much of the prior research in this area, but inevitably it also fails to pick up on some of the subtler distinctions made by certain academics. These limitations will be considered after the three types have been described.
This subsidiary has limited geographic scope, typically a single country, and severely constrained product or value-added scope. White and Poynter  referred to these as 'miniature replica' subsidiaries, in that the entire range of value-adding activities were in that country.
Jarillo and Martinez  used the term 'autonomous,' and Gupta and Govindarajan  suggested 'local innovator'. In many cases, however, various common value activities have been integrated globally [Porter ], such that the local implementer strategy has limited functional scope as well.
CONFIGURATIONS OF STRATEGY AND STRUCTURE IN SUBSIDIARIES OF MULTINATIONAL CORPORATIONS
Bartlett and Ghoshal's  and Gupta and Govindarajan's  'implementer' subsidiaries loosely match this type. Both are often more closely integrated with the international operations of the MNC.
In this context, the subsidiary's role is to adapt global products to the needs of the local market. It is typically found though not exclusively in a multidomestic strategy [Porter ]. This subsidiary has considerable expertise in certain specific functions or activities, but its activities are tightly coordinated with the activities of other subsidiaries.
Jarillo and Martinez  called this subsidiary 'receptive,' and suggested that it occurs when the environmental pressures are for high integration and low local responsiveness, thus mirroring Porter's 'pure global' strategy. White and Poynter  proposed 'rationalized manufacturer' and 'product specialist' for this type, depending on the value-added and product scope of the subsidiary. For Bartlett and Ghoshal  the specialized contributor approximates their contributor, though there are differences, as the discussion below explains.
Roth and Morrison  stated that this subsidiary type "works with headquarters to develop and implement strategy" [ In this way it achieves 'decentralized centralization': The counterpart in Jarillo and Martinez's  typology was the 'active' subsidiary, that achieved both global integration and local responsiveness.
Bartlett and Ghoshal's  comparable form was the 'strategic leader' that operated in a strategically important market and had high levels of resources and expertise. Both of these types have roles that are less clearly defined than the global mandate of Roth and Morrison , but the underlying characteristics are very similar.
A limitation of this typology is its failure to account for Bartlett and Ghoshal's  black hole. As such it is probably a low-performing world mandate subsidiary or a high-potential specialized contributor in the current typology.
Similarly, Bartlett and Ghoshal's contributor is not entirely consistent with the specialized contributor discussed here, because it is found only in non-critical markets. The second significant limitation is that the local implementer type embraces two different scenarios.
White and Poynter's  miniature replica and Jarillo and Martinez's  autonomous subsidiary are basically 'polycentric' [Perlmutter ] in that the corporate parent gives them a high level of local discretion to implement a locally responsive strategy. Bartlett and Ghoshal  and Gupta and Govindarajan's  implementers are much more 'ethnocentric" they are closely integrated with the parent company and have a limited scope of responsibilities, primarily around selling and marketing the standard corporate product in the local market.
To complete this line of thinking, both the specialized contributor and world mandate types can be labelled 'geocentric'. Notwithstanding these limitations, the current typology succeeds in integrating most prior studies. Bartlett and Ghoshal's emphasis on relative capabilities, in contrast, is far more conducive to operationalization at the parent-company level. In this section we explore - from the perspective of the MNC as a whole - first the organizational assumptions of the classic 'hierarchy,' and then the assumptions behind these new models that will be henceforth referred to as 'heterarchy'.
Clearly it would be inappropriate to suggest that a single subsidiary is 'hierarchical' or 'heterarchical,' on account of the different levels of analysis, but our premise is that a comprehensive set of structural context characteristics can be derived from the higher level analysis. The Hierarchy Model Hedlund  undertook a detailed review of the origins and assumptions of hierarchy.
Noting that "Most organizational theorists seem to regard hierarchy as a primitive concept not requiring much further definition" [ This resulted in four assumptions, namely 1 prespecified and stable relationships; 2 instrumentality and additivity of parts; 3 Unidirectionality and Universality; and 4 the coincidence of action, knowledge and people hierarchies a 'meta-assumption'.
An alternative perspective on hierarchy was formulated through the writings of Chandler [,] and Williamson . Chandler documented the rise of the 'M-form' organization, the key features of which were the delegation of operational decision making to separate divisions and the creation of an HQ unit that was responsible for strategic decisions and monitoring the performance of the divisions. Williamson  applied transaction cost economics explicitly to internal organization, arguing that the M-form had "the purpose and effect of economizing on transaction costs" [ Semi-autonomous divisions were created to economize on coordination costs, but top management in the HQ unit monitored divisional management to minimize opportunism.
Williamson and Bhargava  applied similar logic to other organizational forms U-form, H-form as well, also based around economizing assumptions. Taken together, three basic assumptions of the Chandler-Williamson model can be discerned: While broadly consistent with Hedlund's analysis, the two sets of assumptions cannot be matched in specifics. Coordination, for example, is clearly a function of both stability and instrumentality, while control is implied in unidirectionality but not stated. For the purposes of this paper we follow the Chandler-Williamson assumptions more closely, because they can be more immediately reconciled with the characteristics of heterarchy, as discussed next.
The Heterarchy Model The hierarchy model was embraced by a number of MNC researchers who sought to expand Chandler's work into the international context, including Stopford and Wells , Franko , Egelhoff [,], and Daniels, Pitts and Tretter [,].
While not entirely inappropriate from the perspective of the MNC headquarters, it became apparent to a number of researchers at the beginning of the eighties that the hierarchical model was unable to reflect adequately the full complexity of the MNC.
Working at both parent and subsidiary levels, a number of related bodies of work began to explore the MNC in much greater detail than before, and in so doing challenged, one by one, all of the assumptions underlying the hierarchy model of the MNC. First, the work of Prahalad  and Prahalad and Doz  focused on the inability of top management to fully understand the complexities of their various subsidiaries and peripheral operations.
While retaining authority over strategic decisionmaking, top management delegated authority and responsibility for local issues through their manipulation of relative power within the formal and informal structure.
Furthermore, Prahalad and Doz  showed that one consequence of delegation was that subsidiaries acquire resources and expertise of their own, further reducing the dependence of the subsidiary on its parent. Second, Bartlett [,] showed that macro-structure was a very crude tool for controlling the MNC's activities. The use of multiple informal systems and mechanisms, such as lateral decision making and normative integration, were far more effective.
Subsequently, Bartlett and Ghoshal  proposed that such informal systems, along with the legitimization of multiple subsidiary roles, were key features of the 'Transnational,' an idealized MNC model.
Finally, the work of Hedlund generated similar findings to the above, culminating in the conceptualization of the MNC as a 'Heterarchy'. This model saw the MNC as "actively seeking advantages originating in the global spread of the firm" [Hedlund More recently, White and Poynter  adapted Porter's  notion of the "horizontal organization" to the MNC, with very similar results.
Taken together, the "heterarchy," the "transnational," and the "horizontal organization" comprise an alternative organizational theory of the MNC, labelled here a heterarchy. Three aspects of heterarchy can be identified that distinguish it from the hierarchical model of organization. First, resources, managerial capabilities and decisionmaking are dispersed throughout the organization rather than concentrated at the top.
Control is achieved less through 'calculative' mechanisms than through 'normative' integration [Etzioni ]. Second, lateral relationships exist between subsidiaries, in terms of product, people and knowledge flows. In hierarchy, by contrast, lateral linkages are avoided to keep coordination costs low. Third, activities are coordinated along multiple dimensions, typically geography, product and function.
Again, this would be prohibitively costly in a hierarchy. Hedlund [,] has analyzed these characteristics in greater depth. Hierarchy and Heterarchy at the Subsidiary Level There are translation problems associated with shifting to a subsidiary level of analysis.
Both hierarchy and heterarchy refer to a corporate system. A key feature of heterarchy, for example, is that there are many centres "with a mix of organizing principles" [Hedlund Just because lateral relationships and normative integration are encouraged, for example, it does not mean that all subsidiaries will exhibit such characteristics. A heterarchical MNC could easily have certain subsidiaries that were controlled in a 'hierarchical' i.
Notwithstanding these concerns, the hierarchy-heterarchy dichotomy can be usefully applied at the subsidiary level as an analytical device. That is, the structural context of the subsidiary has certain characteristics that can be inferred from the characteristics of hierarchy and heterarchy identified above. If we have captured the principal features of the big-picture conceptualizations, then we can be confident that our representation of structural context is similarly comprehensive.
Essentially the idea is to define a set of structural context attributes such as 'level of strategic autonomy' which may be 'hierarchy-like' low autonomy or 'heterarchy-like' high autonomy for any given subsidiary. Once this has been achieved, it will then be possible to move to the next stage of investigation, which is to examine whether these attributes vary significantly across different subsidiary roles.
Parent-Subsidiary Relationships Parent-subsidiary relationships have been extensively researched over the years, as discussed in the introduction. The central issue is one of control, which can be defined as "regulating the activities within an organization so that they are in accord with the expectations established in policies, plans and targets" [Child Bureaucratic control is still necessary, but is of secondary importance.
A slight variant of this dichotomy is Bartlett and Ghoshal's  distinction between formali-zation and centralization as types of bureaucratic control. Their third type, socialization, is very similar to normative control. The subsidiary literature would suggest that the strategic contributor and local implementer roles are controlled primarily through bureaucratic mechanisms, because their activities are closely integrated with those of the MNC as a whole.
The world mandate role, in contrast, should rely more on normative control because the parent has ceded international responsibilities to the subsidiary in question. However, the reality is that the two control mechanisms are overlaid, such that any given subsidiary-parent relationship will exhibit both types to varying degrees. Often it is the 'quality' of control, rather than the type, that is most important to the parent company, and this relies on very subtle mechanisms.
The dichotomy is further confounded by Bartlett and Ghoshal's  argument that parent country of origin matters. The point is that the relationship between control mechanism and subsidiary role is ambiguous. Thus, we propose the following research question: How - if at all - are parent-subsidiary control mechanisms perceived to vary across subsidiary roles? Subsidiary-Subsidiary Relationships The hierarchy model attempts to minimize lateral linkages between divisions or subsidiaries primarily because they create complexity.
By contrast, the heterarchy model promotes their use. Two key features of White and Poynter's  horizontal organization are lateral decision processes and a horizontal network; and Hedlund  has written recently about the need to combine activities and resources across intra-MNC boundaries as a means of promoting innovation. Lateral linkages are also symptomatic of 'multidimensionality' that is, coordination along functional, geographic and product lines rather than just one of the three.
Subsidiary research would predict that only local implementers of the 'miniature replica' variety do not have strong lateral linkages.
These subsidiaries are either self-sufficient or get resources from the parent. For the more ethnocentric local implementer, and for specialized contributor and world mandate types, high lateral linkages would be predicted. Interestingly, there would be good reason to expect the specialized contributor to have the highest level of lateral linkages, because it is most completely integrated into the corporate system.
The world mandate, by contrast, may rely less on affiliates for product or technology flows. The following research question addresses these issues: How - if at all - are the lateral linkages between the subsidiary and its corporate affiliates perceived to vary across subsidiary roles?
Subsidiary Specialization In the hierarchy model, divisions are specialized to the extent that they are organized around specific products or markets.
The heterarchy model takes this one stage further, by suggesting that the division or subsidiary gains such a high level of expertise that other entities in the MNC draw on it for its specialized capabilities.
Testing key IB typologies: Bartlett & Ghoshal and Gupta & Govindarajan
As noted by Hedlund [ Which subsidiary roles would be expected to exhibit high levels of specialization? First of all, the existence of a meaningful typology is itself testament to a certain level of specialization.
The following research question is put forward. To what extent are specialized capabilities perceived to vary across subsidiary roles? Subsidiary Performance Subsidiary performance is a complex construct, because it depends on what the parent company is trying to achieve. New market entry, for example, is typically associated with negative returns in the first few years but the subsidiary manager in question would be expected to deliver on market share growth.
A well-established subsidiary, in contrast, might be evaluated on contribution income or ROI.
Testing key IB typologies: Bartlett & Ghoshal and Gupta & Govindarajan
The hierarchy-heterarchy dichotomy offers no insights on the relative performance of the subcomponents, though we could speculate that a greater diversity of performance measures would be appropriate in the heterarchy. Nonetheless it is fascinating to consider whether there are performance differences across subsidiary roles.
How - if at all - do perceptions of performance vary across subsidiary roles? Industries, defined at the four-digit SIC level, were as follows: Following the development of a mail questionnaire, an initial mailing to the President or Managing Director of the subsidiary, and two follow-up mailings, usable responses were obtained. Measures As stated at the outset, this is an exploratory study. Rather than putting forward and testing a set of propositions, the approach here is to report the data analysis process that was undertaken for the study.
While the questionnaire was developed using well-established measures in most cases, the more interesting findings were often found at the single-item level rather than at the level of aggregate constructs. Thus, multi-item measures are rarely reported in the following section; when they are, reliability measures are also provided.
The only construct where a rigorous approach was deemed necessary was subsidiary role. The three role types were obtained through two questions: Descriptions of the two types followed question 2. While this single-indicator measure captured the essence of our typology, two additional tests were undertaken to confirm the validity of the classification. First, measures were taken of a international sales as a percentage of the total, and b number of countries in which products were sold.
ANOVAs were performed to confirm that the domestic-sales subsidiary the local implementer and the two internationally focused subsidiaries were significantly different along these dimensions. This classification process resulted in forty-two local implementer, thirty strategic contributor, and forty-three world mandate subsidiary.
A further eleven questionnaires were unusable because their answers to the above questions were incomplete. The global business environment was defined as a control variable for this research. Respondents were asked to answer a set of questions about the principal industry in which their subsidiary competed.
ANOVAs were then performed for these two constructs with subsidiary role as the independent variable. The results indicated that: Control mechanisms were assessed with three sets of variables. First, we investigated several measures of bureaucratic control that were identified from prior studies [Youssef ; Picard ]: ANOVAs yielded no significant differences in any of these measures across subsidiary roles.
Second, we explored the level of decisionmaking autonomy in the subsidiary, on the basis that low autonomy indicates a high level of bureaucratic control.
Respondents were asked to indicate at which level in the organization subsidiary, subcorporate, or head office sixteen types of decisions were made. As one might predict, there were no significant differences in operational autonomy. Both hierarchy and heterarchy models would suggest that operational decisions are made at the subsidiary level.
This is an interesting result. First, it provides evidence that local implementer subsidiaries conform more to the hierarchy-like model of bureaucratic control than the world mandate type. Second, it suggests that a large part of the difference is more the result of the different environments the subsidiaries find themselves in than a result of the roles per se. The third set of measures used to assess control mechanisms was focused on the issue of normative integration.
This highlights a concern noted earlier, which is that all subsidiaries of large MNCs are likely to exhibit significant levels of normative integration.
Aside from the social desirability concerns, organizational culture is -- like beauty -- in the eye of the beholder. It may also be that cultural or normative integration cannot even be approximated using perceptual measures of this variety, just because it is so subtle.
How -- if at all -- are the lateral linkages between the subsidiary and its corporate affiliates perceived to vary across subsidiary roles?
Respondents were asked three questions relating to product flows within the corporation, as indicated in Table 4. ANOVAs were performed on each question, using subsidiary role as the independent variable. This analysis yielded some very interesting findings.
Second, subsidiary purchases from other entities within the corporation yielded a similar finding, namely that world mandate subsidiaries purchased significantly less from corporate affiliates than the other two subsidiary types.
What this analysis suggests is that the world mandate subsidiary is more freestanding than its local implementer or strategic contributor counterparts. It does not rely on lateral product flows to anything like the same extent, preferring instead to source its raw materials and sell its products externally.
The specialized contributor, as one would predict, is well integrated into the corporate network, both laterally and vertically; surprisingly, though, so is the local implementer. It seems that the 'miniature replica' form of local implementer that serves just its own national market is not very much in evidence in this sample.
This is, in part, a function of the sample which was restricted to global industries. This data sheds some light on the nature of dependence exhibited in the three subsidiary types. Clearly there is interdependence [Thompson ] between these subsidiaries and their corporate affiliates, because there are purchases from and sales to other entities.
However, for specialized contributors and local implementers the volume of purchases from other entities far exceed the volume of sales to other entities.
When combined with the data on products that are also produced by the parent, the reality is that both these types exhibit a relatively high level of one-way dependence on the parent. The world mandate subsidiary, in contrast, is relatively independent. A second aspect of the lateral linkages question was addressed by looking at the configuration of different value-chain activities.
Respondents were asked, for each of seven value-chain elements, to state whether the activity was performed in a single-country or multiple-country locations. Obviously the 'multiple locations' answer indicated the existence of lateral linkages between the focal subsidiary and the other countries in question. There are three interesting findings here.
Second, there was a significantly greater level of international configuration in specialized contributors than in local implementers for product manufacturing. World mandate subsidiaries were intermediate. Third, there was a significantly lower level of international configuration in local implementers for all downstream elements distribution, sales, service, advertising. These results are in keeping with prior expectations, namely that the specialized contributor and world mandate subsidiary types have important cross-border linkages, particularly in downstream activities.
When considered in conjunction with the data on product flows, however, the implication is that world mandate subsidiaries may have overseas linkages but they are not closely intertwined with the activities of sister affiliates in those countries. In specialized contributors, by contrast, there are both high internal product flows and internationally configured value chains, suggesting a high level of integration into the MNC network.
However, no significant differences in any of these variables were discerned across the three subsidiary roles.