Competition barriers and strategy moderations: Impact on foreign subsidiary performance

Abstract

The global firm needs to recognize the crucial role of foreign subsidiary strategy in building global competitive advantage and emphasize corporate control of important strategy elements. In particular, there is a need to examine the role of foreign subsidiary strategy in the firm's efforts to break through local barriers to competition that obstructs the search for global competitive advantage. This study seeks answers to two questions. First, how does the business relatedness between a foreign subsidiary and the parent firm moderate the performance impact of local competition barriers? Second, how does the business strategy of a foreign subsidiary moderate the performance impact of local competition barriers? To test contingency hypotheses, the study used data from 191 subsidiaries in Germany, the United Kingdom, and the United States. The subsidiaries belong to Swedish manufacturing firms. It was found that greater business relatedness and business scope of the subsidiary weaken the negative impact of competition barriers on subsidiary performance, while product differentiation and customer responsiveness differentiation have no moderating effects. The study contributes to theory on control of foreign subsidiaries by extending the knowledge of strategy drivers of foreign subsidiary performance, and the knowledge facilitates the formulation of effective global strategies. Copyright © 2012 Strategic Management Society.

Consistent resource base of a foreign subsidiary's greenfield expansion

“…Product/market knowledge transferred from the parent firm to the foreign subsidiary Product/market knowledge transferred from the parent firm to the foreign subsidiary manifests corporate strategy (Pehrsson, 2010(Pehrsson, , 2012. The subsidiary benefits from the knowledge as it becomes more knowledgeable regarding products and markets, and the odds of successful expansion increases.…”

“…By accumulating knowledge of competition barriers the foreign subsidiary will facilitate the expansion (Pehrsson, 2012). In particular, a foreign subsidiary that conducts a time-consuming broadening of its product and market range is exposed to a greater variety of market information which is a source of greater tacit knowledge (Pogrebnyakov and Maitland, 2011).…”

“…In particular, corporate strategy manifested by knowledge transferred from the parent firm enables the subsidiary's expansion (Pehrsson, 2012). Also, the expansion would be contingent on the subsidiary's knowledge of exogenous competition barriers (Shepherd, 1979).…”

“…The purpose is to develop a resource-based conceptual framework that outlines bases of the industrial firm's strategy of greenfield expansion on a foreign country market once a wholly owned subsidiary has been established. Regarding transferred knowledge, the framework focuses on product/market knowledge transferred from the parent firm as such knowledge is generally crucial to foreign expansion (Pehrsson, 2012).…”

Market for Corporate Control and Contractual Buyout (CoBO): A New 'Collective Ownership-and-Administrative' Strategy

“…Therefore, global firms need to distinguish the crucial role of foreign subsidiary strategy in building global competitive advantage, and emphasizing corporate control (Pehrsson, 2012).…”