Analysis
The local development of a globally successful product, the subsequent recognition of the subsidiary’s capability for full PD, and the assignment of a new role for the subsidiary was common to both cases.
Global structures of both organisations are surprisingly similar: several subsidiaries worldwide with commercial and manufacturing functions and regional centres of PD. Additionally, functional responsibilities are distributed in a matrix shape, regionally from headquarters.
Common categories to both cases (such as Products Developed in Brazil, Subsidiary-Supplier Relationship, National Competitive Advantage of Brazil in the Automotive Industry, and Organisational Structure and Processes) explain the competence-building and the product development, which happened similarly in both cases. The evolution of the subsidiary into a new charter occurred in both cases.
What varies between the cases are the Subsidiary-Headquarters Relationship, the dimension of the new charter, and the path taken.
GMB engineering acquired a global mandate to pick up projects and corporate responsibilities, including reception of off-shored high-tech services. Here, the engineering area emancipated itself from manufacturing and marketing.
On the other hand, VWB gained a greater degree of autonomy to design vehicles related to the markets it already served. Therefore, in this case, the international responsibility of the engineering area remained subordinated to manufacturing and regional commerce interests. Off-shoring of high-tech services is only observed in the GMB case.
These differences are clues to understanding the factors that determine the differences between the new roles of the subsidiaries.
According to Porter’s (1986) categories, the automotive industry, though global, still has an intermediate competitive pattern between multi-domestic and global companies because competition is organised through regions with very different market structures. Premium products in European markets, for instance, compete, while products developed for emerging markets compete in other regions. Competition in one region may be affected by competition in other regions if products can cross regions. The use of both models developed in Brazil to compete in European portfolios of the companies is evidence. However, both cases are unique to each company and one should wait for further evidence to characterise a trend.
Analysing through Birkinshaw and Morrison’s (1995) taxonomy, the first important conclusion is that the new roles are different in one functional area, specifically, engineering. In GMB, the engineering area was emancipated from manufacturing and marketing, receiving a global mandate that went beyond the regions that those functions covered. In other words, GMB engineering will handle small and medium-sized pick-ups and perform other engineering services regardless of regional production and sales. This global mandate is specialised, however, to small and medium-sized pick-ups, shifting the exact position of GMB to a point between the global mandate and the specialised contributor.
In VWB, engineering also gained a global mandate, but the mandate was linked to the same region covered by manufacturing and marketing (Birkinshaw and Morrison’s definition of global mandate applies to global or regional scopes). The mandate is also specialised, but, here, in compact cars.
We observe that in both cases the international responsibilities of the subsidiaries are related to innovation capability (here, the PD function), as it appeared in Oliveira Junior, Borini, and Guevara (2003) related to the R&D function.
The functional view of analysis crossing the subsidiary as the unit of analysis is the problem that Frost, Birkinshaw, and Ensign (2002) tried to address with the specialised Centre of Excellence concept. Indeed, we could consider GMB engineering as a CE specialised in small and medium-sized pick-up projects and VWB engineering as an emerging markets compact car specialised CE.
From any analytical standpoint, the new role of VWB is narrower GMB’s new role. The factors that possibly explain this difference are the relationship with headquarters and the path to charter change.
The relationship between subsidiary and headquarters was less smooth in the VWB case. This may be due to the initiation of the Fox project by the subsidiary, in conflict with the role assigned to the subsidiary by headquarters, at least initially. This is compatible with the Birkinshaw and Hood’s (1998) path of subsidiary identification of new opportunity, capability building, and finally charter change (SDE). In the case of GMB, the subsidiary formally requested for a change in its charter and then initiated the new project, supported by headquarters (PDI). However, in both cases, the capabilities were latent in the subsidiary due to previous historical processes of adaptation of global models and, in the VWB case, by the joint-venture experience.
Conclusion
The impact of PD in the subsidiary was the establishment of specialised CE in both cases. Both subsidiaries earned specialised global mandates: GMB in small and medium-sized pick-ups with global reach and VWB in compact cars with regional reach. GMB engineering was emancipated from other functions in terms of regions covered, while VWB engineering remained linked with manufacturing and marketing functions.
The study suggests that the subsidiary-headquarters relationship and the path to subsidiary evolution (according to Birkinshaw and Hood’s 1998 categories) are relevant to the final configuration of the subsidiary’s role in the MNC.
The findings also suggest the end of the international product life-cycle pattern of management in these subsidiaries. The establishment of the CE and the gains in capabilities and charter responsibilities that they represent eliminate the technological gap between these subsidiaries and their headquarters. What remains is a market gap between the regions served by the subsidiaries, which use advanced technology to project affordable models to the markets they serve.
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