Exploring the Changing Roles of Western Subsidiaries in China: Balancing Global Priorities with Local Demands

Abstract

Over the past 30 years of economic development, the role of subsidiaries in China has changed. China has become an important host country for subsidiaries of western multinational companies seeking cost advantages and/or access to the emerging market potential. The objective of this paper is to explore the effects of the emerging strategic mandate of subsidiaries to serve local demands while meeting global corporate standards and operations priorities. We confirm well established dimensions such as strategic importance and operations capabilities while embeddedness into local business networks and level of process optimization are suggested as other dimensions that have contextual impact on a subsidiary serving a local market. These dimensions are established through literature review and validated by case studies of four Chinese subsidiaries of Danish industrial companies.

Lead factory operationalisation and challenges

“…By contrast, it has been shown that subsidiaries are strategically expansive, i.e. the role of offshored sites is likely to be upgraded and could entail new capabilities (Adeyemi et al 2014;Ferdows 1997aFerdows , 2006. Consequently, the relocation of certain production activities to other sites may eventually lead to the relocation of the remaining production activities to the upgraded offshore site and a loss of production capabilities at the home base, as well as a geographic separation between production and innovation activities (Slepniov, Waehrens, and Johansen 2014).…”

“…When increasingly more manufacturing activities, including knowledge-intensive and proprietary manufacturing tasks, can be mobile or relocated, an increasing number of countries have become viable contenders for a company's production operations and the number and significance of location decisions has increased (Porter and Rivkin 2012). As a result, subsidiaries and production plants that do not have a lead plant role in the manufacturing network have started to change their roles by increasing the scope of their activities and by seeking more autonomy in order to reduce the control of lead factories and the headquarters in their operations (Adeyemi et al 2014). If one plant changes its role in the network it will have an impact on other plants in the network (Cheng, Farooq, and Johansen 2011;) and Cheng, Farooq, and Johansen (2011) demonstrate how a plant role might evolve in a network.…”

“…It is not performing the development work in itself that is considered unfair or problematic but rather the fact that the performance of all plants is only evaluated on KPIs such as cost per part or similar which, of course, is higher for the lead plant if it bears all the costs and resources for development activities, even though it is of benefit to all the plants in the network. So, while it is important to realise that the lead factory role is not static, as the role of offshored sites is likely to be upgraded and entail new capabilities (Adeyemi et al 2014;Ferdows 1997aFerdows , 2006, the lead factory role is, and should be, subject to ongoing evaluation. The lead factory must, therefore, be able to motivate its appointment by showing the value it creates in the network.…”