In today’s competitive and globalized business environment firms must consider more ways to expand their global footprint and leverage the advantages of having local subsidiaries in emerging markets. But managing distant subsidiaries, firms have to make critical decisions on how much to integrate globally, and how much to adapt locally. The results of a recent stream of research by Director of the CEIBS Research Centre for Emerging Market Studies Professor of Strategy and International Business Klaus E. Meyer explain why every multinational firm (MNC) must design its own strategy around its resources and goals, as there is no single best strategy for all firms.  

In two recent studies, Prof. Meyer and his co-authors explore some of the factors that MNCs must consider when determining their subsidiary strategy. The first study considers how export orientation, in conjunction with availability of local resources, local competition, and the physical distance between the subsidiary and the home office, influence its management strategy. The overall findings of this study suggest that where a subsidiary has a strong local competitor, its parent company is more likely to allow it to adapt its strategy to the needs of the local market so that it can remain competitive with local rivals. When a subsidiary has strong local competitors, it is also likely to be more export oriented. However R&D-intensive MNCs are more likely to impose high levels of integration over their subsidiaries. In addition, the further away from its parent company a subsidiary is, the less likely it is to deviate from the standards set by its parent company.

The second looks at the conditions in which a transnational strategy, the simultaneous pursuit of global integration and local adaptation, is likely best for a subsidiary’s performance. When following this strategy the subsidiary operates in accordance with the firm’s global strategy yet has the flexibility to develop its own unique systems in response to local market conditions. The findings show that this strategy works best when the subsidiary is wholly owned, was not established through an acquisition, and is highly export oriented. This is because these characteristics allow the subsidiary to more easily operate with a culture that is in synch with its parent company while also leveraging unique conditions in its local market.
 
Professor Meyer explains: “The simultaneous pursuit of local adaptation and global integration remains an attractive strategy, yet it creates operational challenges that make it challenging to implement. In a very distinctive market like China, allowing a subsidiary to adapt to local market conditions is almost prerequisite for success, but this can lead to tensions between headquarters and subsidiaries.”

The first study is entitled “Local Context and Global Strategy: Extending the integration responsiveness framework to subsidiary strategy”. It has been published by the Global Strategy Journal and Prof. Meyer’s co-author is Saul Estrin of the London School of Economics. Read it here.

The second study is entitled “Integration and Responsiveness in Subsidiaries in Emerging Economies” and it is forthcoming in the Journal of World Business. Prof. Meyer’s co-author is Yu-Shan Su of National Taiwan Normal University. Read it here.