Co‐parenting through subsidiaries: A model of value creation in the multinational firm

• Author: Cristina Villar,José Pla‐Barber,Anoop Madhok
• DOI: http://doi.org/10.1002/gsj.1180
• Date: 01 November 2018
• Published date: 01 November 2018

RESEARCH ARTICLE

Co-parenting through subsidiaries: A model of

value creation in the multinational firm

José Pla-Barber

1

| Cristina Villar

1

| Anoop Madhok

2

1

Faculty of Economics-Department of

Management, University of Valencia, Valencia,

Spain

2

Policy Area, Schulich School of Business,

Toronto, Ontario, Canada

Correspondence

José Pla-Barber, University of Valencia, Faculty

of Economics-Department of Management, Avda.

Tarongers, s/n 46022 Valencia, Spain.

Email: jose.pla@uv.es

Funding information

Fundación BBVA; Ministry of Economy and

Competitiveness, Grant/Award number:

ECO201343196R

Research Summary: We analyze a novel way to config-

ure and manage multinational networks and propose a

model of “co-parenting,”characterized by the sharing of

parenting roles and distribution of responsibilities

between two units. We develop our argument around the

notion of the springboard subsidiary, an operating subsid-

iary that assumes headquarters’functions since it shares

greater institutional closeness with both the headquarters’

country as well as with the host region. Based upon qual-

itative data, our inductive model revolves around three

stages: establishment, consolidation, and maturity, each

of which reflects distinct roles and loci of decision mak-

ing among the three actors involved: headquarters,

springboard subsidiary, and local subsidiary. Overall, our

study sheds distinct light on when and how headquarters

add value by matching parenting to context.

Managerial Summary: In expanding across regions,

multinational firms often face a situation where neither

the local unit nor the corporate headquarters possesses

the competencies to be at the competitive forefront. This

article analyzes a model of interregional expansion of

multinational firms by using springboard subsidiaries—

operating subsidiaries that can serve as a bridge between

headquarters and local subsidiaries since they share insti-

tutional and business ties with both. We develop a

model in which some parenting functions—coordination,

control, and knowledge creation—are distributed

between headquarters and the springboard subsidiary

along an accumulative process of capabilities. By dem-

onstrating how a springboard subsidiary can help align

control to context, the model offers a tool for strategic

analysis that helps avoid potential value destruction by

headquarters.

Received: 7 November 2016 Revised: 17 August 2017 Accepted: 28 August 2017

DOI: 10.1002/gsj.1180

Copyright © 2017 Strategic Management Society

536 wileyonlinelibrary.com/journal/pre Global Strategy Journal. 2018;8:536–562.

KEYWORDS

corporate parenting, headquarter-subsidiary relations,

interregional foreignness, Latin America, multinational

firms, springboard subsidiary

1|INTRODUCTION

Scholars of multinational firms have long been interested in the relationship between headquarters

(HQ) and their local subsidiaries and how this relationship is organized. The early literature

(e.g., Bartlett & Ghoshal, 1989; Hedlund, 1986; Prahalad & Doz, 1987) made a clear distinction

between a multidomestic strategy characterized by local responsiveness and a global integration

strategy characterized by worldwide efficiency, with a particular focus being the distinct control and

coordination mechanisms associated with each strategy. Specifically, since in a multidomestic strat-

egy most of the activities along the value chain occur at the local subsidiary level, the need for coor-

dination by HQ is minimal and HQ control is mainly of a financial nature. In contrast, a globally

integrated strategy is characterized by more extensive flows of resources, information, and knowl-

edge between local units and HQ, which results in a greater need for coordination and con-

trol by HQ.

In a parallel literature, strategy researchers have shown an increasing interest in the value added

of HQ (Campbell, Goold, & Alexander, 1995; Foss, 1997; Goold, Campbell, & Alexander, 1998).

The question of concern to them is the role that corporate HQ plays in multi-unit firms and how

exactly the various units benefit from HQ involvement, i.e., HQ value added. Conversely, the oppo-

site question of negative value added has begun to intrigue scholars, i.e., could excessive interfer-

ence by HQ, especially when it does not possess the relevant knowledge, result in destroying value

(Campbell & Szulanski, 2016)? In fact, in a recent study by McKinsey (2011), the majority of units

were of the opinion that their parent companies did not add value, one significant reasons being the

lack of HQ knowledge about the local environment as well as the arrogance of some HQ in not rec-

ognizing their lack of local knowledge. This negative effect tends to rise as the geographic, cultural,

and institutional distance between HQ and local units increases (Asmussen & Goerzen, 2013).

A reinterpretation of the HQ-subsidiary literature through a value added lens would suggest that

the bulk of the value added in a multidomestic strategy occurs at the local subsidiary level in con-

trast to more globally integrated strategies where HQ has greater involvement in the value-adding

process. However, several interesting questions then arise: What if the local subsidiary does not

have the capacity to be competitive on its own accord and, thus, requires corporate assistance while

simultaneously the corporate HQ does not possess sufficient knowledge of the local context and,

thus, the capacity to appropriately assist the local unit? What if multinationals invest in regions other

than those of their origin where the specificity of the context, as well as the difference between

home and host contexts, substantially limits the capacity of corporate HQ to generate value?

Of course, other than the HQ or local unit level, the HQ can utilize other structural alternatives

to confront such challenges. One common strategy to overcome regional distance of various types—

physical, historical, cultural, institutional—is to establish a regional headquarters (RHQ), this being

an intermediate-level subsidiary that has management responsibilities for the operations of several

PLA-BARBER ET AL.537