investing in china: reflections on the role of subsidiaries rolv petter amdam marco workshop, jets,...

Investing in China:Reflections on the role of subsidiaries

Rolv Petter AmdamMarco workshop, Jets, 7 June 2011

My Marco question

• To what extent do foreign investments in area with high relevant competence act as a resource for strengthening the cluster or for moving out of the cluster?– The degree of local embeddedness– Local embeddedness as a source of reverse

knowledge transfer– Local embeddedness as a pressure for moving

headquarter function out of the cluster

The China case

• Interviews in Shanghai / Ningbo– Tingstad– Jets– Ulstein Ningbo– Ulstein Engineering– “Maritime service”

Agenda

1. Map the firms according to international strategy prototypes

- and embeddedness

2. Suggest some hypotheses

International strategyBartlett & Ghoshal 1989

Need for localizationLow High

Low

High

Economies of global

standardizationand size

International exporter

Global Transnational

Multidomestic

International strategyBartlett & Ghoshal 1989

Need for localizationLow High

Low

High

Economies of global

standardizationand size

International exporter

Global Transnational

Multidomestic

-Value creation in home country-No subsidiary, use of agents-Competence in home country

International strategyBartlett & Ghoshal 1989

Need for localizationLow High

Low

High

Economies of global

standardizationand size

International exporter

Global Transnational

Multidomestic

-Dominating HQ, strong control-Subsidiaries follow routines-Competence in home country-Expats

International strategyBartlett & Ghoshal 1989

Need for localizationLow High

Low

High

Economies of global

standardizationand size

International exporter

Global Transnational

Multidomestic

-Subsidiary autonomy-Subsidiaries adjust-Local competence-Local general manager

International strategyBartlett & Ghoshal 1989

Need for localizationLow High

Low

High

Economies of global

standardizationand size

International exporter

Global Transnational

Multidomestic

-Competence and power are dispersed

Implied subsidiary roles following from different strategies

International exporter

Global Transnational

Multidomestic

(Null)

Receptive Active

Autonomous

(Jarillo & Martinez 1990)

Tingstad in China

International exporter

Global Transnational

Multidomestic

Provider of commodities for shipyardWarehouse and purchasing

Very small organization. Chinese/Taiwanese general manager

Strategy = International exporter

Degree of embeddedness: Very low

Customers: Follow the Norwegiancustomers

Suppliers: 20-30 % Chinese, 70-80 % Global

Tingstad in China

International exporter

Global Transnational

Multidomestic

Pressure and alternatives

1

2

1. Follow the customer• Few customers• Loosing customers due to new

networks• Invest in bwarehouse and logistics• Stronger control from HQ

2. Approach the Chinese market• Chinese or international customers• Need for new relationship• More autonomy

Maritime service

International exporter

Global Transnational

Multidomestic

Provider of commodities to shipsWarehouse, agents, salespersonsGlobal network with several Chinese offices

Small/medium size organizationSingaporean general manager

Strategy = Global

Degree of embeddedness: Low, partial

Customers: Global and Chinese

Suppliers: 20-30 % Chinese, 70-80 % global

Maritime service

International exporter

Global Transnational

Multidomestic

Pressure and dilemmas

1

2

1. Preparing for new global competition• New global actors may enter• End of the first mover advantage• Standardization of logistics• Need for global expertise• Third nation manager

2. Entering the Chinese market• An existing target• The challenge of state own companies• Need for new networks• Need for local competence

• New local marketing manager

Jets

International exporter

Global Transnational

Multidomestic

Provider of equipments to ship and land marketOne subsidiary for production; Agents for sale

Small size organizationChinese-Norwegian general manager

Strategy = International exporter/global

Degree of embeddedness: Low

Customers: Global and Chinese

Suppliers: Norway and global

Jets

International exporter

Global Transnational

Multidomestic

Pressure and alternatives

1

2

1. Entering new markets• Brazil ++• Expertise and control in HQ• Centralized systems

2. Entering new business areas• From ships to buildings etc• Chinese railways • Need for networks – guanxi• Need for local expertise• The challenge of having parallel organizations in China

Ulstein Group

International exporter

Global Transnational

Multidomestic

Ship designDesign, sales, on-site following up+ Electrical products

Two small organizations. Norwegian generalmanagers (?)

Strategy = Multidomestic / internationalexporter

Degree of embeddedness: Low/medium

Customers: Global and Chinese

Suppliers: Partial local

Ulstein Group

International exporter

Global Transnational

Multidomestic

Pressure and alternatives

1

2

1. Standardized design• World wide market

2. Entering the Chinese market• New customers• New networks

Comparative

International exporter

Global Transnational

Multidomestic

Tingstad

Maritime service

Jets

Ulstein group

Challenges and hypotheses

• How to create synergies between contradictory tendencies of pressure?– H1: The less diversified, the easier it to

combine– H2: The stronger local presence, the

easier it is to combine

Challenges and hypotheses

• The origin and the organizational embeddedness of the international strategy– H3:The more planned and embedded the

strategy is, the more difficult it is do withdraw from a foreign market

Challenges and hypotheses

• Embeddedness in local clusters– Depends on:

• Strategic choices and organizational anchoring

• Degree of state-ownership (in China)• The degree of guanxi (in China)• Local managers and middlemen

– Question