Felipe Mendes Borini y Moacir de Miranda Oliveira Junior
This paper deals with a different empirical approach to the study of typologies of multinational subsidiaries’ roles, in the sense of focusing exclusively the subsidiaries in the emerging markets, considering the critical aspects related to the evolution of the subsidiaries’ roles (Birkinshaw and Hood, 1998) and the multinationals innovation processes (Nohria and Ghoshal, 1997). For this purpose, previous research suggests considering three types of subsidiaries: SRS, TS, and SRL. SRS meaning Strategically Relevant Subsidiaries, while TS and SRL means respectively, Traditional Subsidiaries in Emerging Economies and Subsidiaries of Limited Relevance. This taxonomy is based on recent research of subsidiaries' roles (Birkinshaw, 2001; Frost, Birkinshaw and Ensign, 2002; Paterson and Brock, 2002), from which the concept of Strategically Relevant Subsidiaries was developed, going beyond the idea of subsidiaries with International Responsibility, or World Mandate subsidiaries. SRS actually means competences creation and transfer of innovations along the corporate network, while the subsidiaries with World Mandate based mainly on the idea of international responsibility, doesn’t necessarily transfer capacity of the innovation as a practice or final product, and hence doesn’t consider the recognition and utilization of that innovation by other corporate units. The concept of Strategic Relevance allows a better differentiation of the subsidiaries' roles, mostly when aligned with the innovation processes of the multinationals corporations and with the evolution of the subsidiaries roles. Following these ideas we may consider further divisions of subsidiaries roles. Two types of SRS: The Innovators and the Global Integrated; two types of TS in emerging economies: The Implementators and the Local Creators; and two types of SRL: Global Platforms and Specific Creators.
This subdivision respects the previous typologies, refining their roles considering important aspects regarding the relationships with the innovation and evolution processes of the subsidiaries, which one may consider another contribution of this paper to the literature on the area. The typologies always appear lightened of the innovation processes, described and searched by Bartlett and Ghoshal, (1992) and Nohria and Ghoshal, (1997). Actually, the attempt to better understand the relationship of SRS, TS and SRL with innovation lead to the more specific classification of subsidiaries roles presented for the first time on this paper.
TS are mostly characterized by its autonomy and enterprising orientation. Surprisingly it seems that in emerging economies like Brazil, TS credibility appears just next to SRS and much superior to SRL. This may be due to their positive results in the development of their activities, providing a significant contribution to the total corporate sales. These subsidiaries need to keep on permanently creating innovations, generally local innovations, to stay competitive in the market. Hence, we may consider, within the sample considered in this survey, the TS of the largest foreign subsidiaries in Brazil, as Local Creators Subsidiaries. Local Creators focus on market innovations and the short term results provide better earnings and returns on the investment than the SRL, as indicated also by the results of Birkinshaw's study (1995). Moreover it’s interesting to observe that these Local Creators developed more initiatives than the SRL in terms of developing products for international sales. This represent an interesting case of local-to-global innovations processes without necessarily the subsidiary receiving the role of a SRL; actually, as explained later on, at least in Brazil, most of the SRL belong to the kind of Global Platform and not Creator Specific. This may be explained by the fact that although the Local Creator Subsidiary reaches a given competence for developing an international product it may not continue on the process of evolution of its role. This may be happening because an innovation may have been developed for local purposes, but later expanded, just by chance, to the international market; and the subsidiary is not yet mature enough to be able to invest own resources and efforts to develop new global initiatives and to win the recognition of the corporate headquarters. Actually, the head office decision in how much to invest in a subsidiary and to assign higher relevance role may come from the lack of trust in the ability of the subsidiary to develop this new role, due to the subsidiary limitations in terms of technical resources and management, and local business network for innovations, which may be the case in particular in emerging economies.
SRL, on the other hand, seem to be characterized by the lowest levels in terms of entrepreneurial orientation and integrated innovation; and very low autonomy, which configure a condition more likely to innovation receptor than to innovation creator, even when considering the subsidiaries specific competences. However, their strong points are related to high global standardization and responsibility that guarantees their place in the global corporative network, characterizing a condition of predominance of center-to-local innovation processes. Hence, in Brazil, SRL are typically Global Platforms. According to Birkinshaw (1995) these subsidiaries have a lower performance in terms of earnings and returns on the investments as compared to other subsidiaries. On the other hand, due to scale production and global distribution of parts or final products, in terms of market share and productivity, this paper shows that in Brazil they perform better than the TS reinforcing previous results by Fleury and Fleury (2000). However, hardly ever these subsidiaries create products or processes, since they are the less responsible for developing global products, at least until head office transforms them into a SRS.
Finally, SRS appear characterized basically by its high degree of International Responsibility, Integrated Innovation and Credibility. Clearly the role of the innovation inside SRS in the development of competences (mostly in terms of R&D and productive processes) and in the management of competences with the headquarters, guarantees innovations to become global. Naturally, autonomy is actually an exclusive aspect of SRS, since once subsidiaries start developing local-to-global or global-to-global innovation processes they loose autonomy, due to the need to strengthen interface management coordination; so, seeking excessive autonomy may be even harmful for the development of subsidiaries. Surely enough in terms of initiatives and financial results, SRS are highly superior to the other subsidiaries; moreover they are the solely responsible for R&D, in particular when related to new productive processes. Therefore, if emerging economies want to have top innovations they need to attract SRS that need to guarantee an appropriate business environment for innovation development.
A question remains as how to distinguish SRS from being Innovators or Globally Integrated subsidiaries. Perhaps a case study may help to find out which factor makes the difference, in either case, or how they become one or the other along the time analyzing their evolution process. By now, it seems that the process of evolution of subsidiaries roles may follow two ways: to be headquarters oriented or to be autonomous development. The SRS Integrated Globally may come from Global Platforms, which in turn come from a fast evolution of Implementators, as in the case mentioned before of automobile assemblers. In case a corporation has no interest in keeping an Implementator subsidiary, it will close it because results are inferior to Local Creators, or else it will transform it into a Global Platform. On the other hand, SRS Innovators seem to come from Specific Creators that in turn come from Local Creators. As a matter of fact, the role of Specific Creators is very brief and many times not even formally recognized; the example of FOSECO, considered along the text, supports this idea. The study of the evolution process of subsidiaries of multinational corporations in emerging markets is an open-ended, very interesting, and important problem for defining appropriate policies, both for the multinational corporation (headquarters and subsidiaries) and for the Government of these countries.
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