Executive summary of “Determinants of subsidiary’s technological capability - examining the roles of subsidiary-local supplier linkage”

Citation

(2014), "Executive summary of “Determinants of subsidiary’s technological capability - examining the roles of subsidiary-local supplier linkage”", Journal of Business & Industrial Marketing, Vol. 29 No. 5. https://doi.org/10.1108/JBIM-04-2014-0081

Executive summary of “Determinants of subsidiary’s technological capability - examining the roles of subsidiary-local supplier linkage”

Article Type: Executive summary and implications for managers and executives From: Journal of Business & Industrial Marketing, Volume 29, Issue 5

This summary has been provided to allow managers and executives a rapid appreciation of the content of this article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefits of the material present.

In the face of increasing global competition, it is essential for multinational corporations (MNCs) to enhance their competitive advantages by promoting the technological capabilities of their subsidiaries. Accordingly, subsidiaries’ managers should strive to establish long-term linkages with carefully selected local suppliers, induce them to provide appropriate asset-specific investment (ASI) and actively develop relational capital (RC) in the subsidiary-local supplier linkage to enhance the subsidiary’s technological capability.

This is particularly important for MNCs investing in Asian developing countries, as the institutional infrastructures of these countries are relatively weaker than those of advanced countries. Unlike subsidiaries in developed countries which can rely on market mechanism to obtain operating resources (e.g. technology), subsidiaries in Asian developing countries must establish long-term relationships with suppliers to provide sufficient resources for operations. Moreover, as the MNC pursues its internationalization strategy, it should effectively use or transfer its international experience (IE) to help manage the subsidiary-local supplier relationship in new host countries. Hence, MNCs can use the experience obtained from Asian developing countries to increase the RC in the supply chain in other Asian developing countries.

As a subsidiary’s local linkages provide a crucial source of knowledge for the subsidiary, and impact directly on the development of its technological capabilities, it is essential that those local linkages are properly understood.

In “Determinants of subsidiary’s technological capability - examining the roles of subsidiary-local supplier linkage”, Dr Cher-Hung Tseng and Dr Liang-Tu Chen use Taiwanese MNC subsidiaries located in developing countries in Asia as their research target. They explore two contingent factors which may potentially affect the impacts of the local linkage characteristics on the subsidiary’s capability, namely, the IE of the MNC and the innovation orientation (IO) of the subsidiary.

A subsidiary’s local linkage to the supplier (or subsidiary-local supplier linkage) in a supply chain is taken to mean a long-term and stable relationship between the subsidiary and a local supplier. This enables the subsidiary to gain certain benefits, such as reliability of supply, coordinated capacity, trust, win–win, requirement of customization and generation of new capabilities. The linkage contains intense flows of capital, knowledge and people between the two parties, which cannot be easily obtained in arm’s length, one-off market transactions.

By examining the intrinsic characteristics of the linkage, e.g. its quality (the level of knowledge transfer, the depth and duration of the relationship and so on), valuable insights can be obtained into the type of benefits accruing to the subsidiary from the linkage. The present research focuses on the economic (i.e. resource) and social (i.e. relationship) aspects of the subsidiary-local supplier linkage, as these attributes represent the major benefits of the connection. Specifically, the study explores the effects on the subsidiary’s capability of the local supplier’s ASI (i.e. the economic aspect of the linkage) and the cultivated RC (i.e. the social aspect). The ASI characteristic describes the specific knowledge or resources tailored by the supplier for a particular subsidiary. It represents an economic commitment on the part of the supplier to the subsidiary, as it cannot be easily converted to other usages, and consequently generates value specific to the linkage. Meanwhile, the RC characteristic describes the social capital gained by the subsidiary from its relationship with the local supplier, which can be conducive to its operations.

The results show that both the supplier’s ASI and the RC cultivated in the subsidiary-local supplier linkage improve the subsidiary’s technological capability. Second, it confirms the contingent effects of the ASI and RC on subsidiary’s capability. The significant contingent effect of the MNC IE on the RC-subsidiary’s technological capability relationship indicates that the MNC can transfer its IE (e.g. experience or knowledge of establishing relationships with local institutions) to other subsidiaries. Hence, the effect of the RC on the subsidiary’s technological capability increases as the IE of the MNC increases.

However, the results also show that the IE of the MNC does not increase the positive impact of the supplier’s ASI on the subsidiary’s technological capability.

Results further reveal that when the subsidiary’s IO is below a medium-high level, the ASI can increase the subsidiary’s technological capability. However, as the level of subsidiary’s IO increases to a higher level, the accompanying uncertainty may reduce the positive impact of ASI, eventually creating negative impacts on the subsidiary’s technological capability.

MNC and subsidiary managers should recognize that the supplier’s ASI may become obsolete over time. In the long-term collaboration, suppliers may not have as much incentive to innovate. Thus, the MNC and subsidiary must find ways to make sure they are getting the supplier’s best efforts. That is, they should cooperate closely with local suppliers so that the ASI is continuously updated in accordance with the subsidiary’s evolving requirements.

For the full article enter 10.1108/JBIM-06-2012-0094 into your search engine.

(A précis of the article “Determinants of subsidiary’s technological capability - examining the roles of subsidiary-local supplier linkage”. Supplied by Marketing Consultants for Emerald.)