the evolution of technology in multinational enterprises: the role of creative subsidiaries

International Business Review 8 (1999) 125–148

The evolution of technology in multinationalenterprises: the role of creative subsidiaries

Robert Pearce*

Department of Economics, University of Reading, Reading, UK

Abstract

The paper deals with the positioning of dispersed technology acquisition and application inheterarchical MNEs. It suggests that as MNEs acknowledge the need to respond to technologi-cal and market heterogeneity, this is best done through creative subsidiaries that access andapply localised dimensions of knowledge. Ultimately the most successful results of this, forthe creative subsidiary and its MNE corporate group, are likely to be achieved if exercised asnew perspectiveswithin the current technological trajectory of the MNE. New technologicaldimensions emerging in creative subsidiaries can usefully be allowed to challenge the limitsof the group’s technology trajectory, but not to usurp it in a disorderly fashion. The aims ofcentral technology management in this type of MNE are, therefore, to retain effective custod-ianship of a coherent and cohesive technology trajectory, without stifling the ability of creativesubsidiaries to generate and apply new knowledge. 1999 Elsevier Science Ltd. All rightsreserved.

Keywords:Multinationals; Technology; R&D; Mandate subsidiaries; Heterarchies

1. Introduction

Two broad sets of developments have had a crucial influence on the strategicevolution of multinational enterprises (MNEs) over the last 30 years. Firstly an inten-sified and globalised competitiveness in the market place for existing standardisedproducts, as a result of increased freedom of trade (internationally due to GATTrounds, and regionally as a result of new trade blocs) and the emergence of many

* Tel.: 1 44-118-9875-123; fax:1 44-118-9750-236.

0969-5931/99/$ - see front matter 1999 Elsevier Science Ltd. All rights reserved.PII: S0969 -5931(98)00042-0

126 R. Pearce / International Business Review 8 (1999) 125–148

strong new MNEs (notably from Japan). This has meant that (using the scope offreer trade) MNEs have learnt the benefits of separating production location frommarkets, and have generated international supply networks embodying a breed ofsubsidiaries that focus on the cost-effective supply of parts of the groups’ establishedproduct range.

The second development has been the recognition of the value of acquiring inputsinto the creative process from several locations, as more and more countries demon-strate their distinctiveness as sources of original technology and significant markettrends. Thus a second new type of subsidiary has emerged which helps the MNE totap into, and activate, these dispersed knowledge sources, as part of the group’swider creative programmes.

It is the analysis and documentation (in the case of the UK) of the second newtype of subsidiary that is the central theme of this paper. As a starting point we mayadopt the generic term ofcreative subsidiaryfor these operations, though in thesecond section we describe in more detail two specific variants of the form (as worldproduct mandates and regional product mandates). The broad expectation of thesecreative subsidiaries is then that they will access local sources of knowledge(scientific, technological, market) and operationalise this (as well as, hopefully, shar-ing relevant elements of it with other parts of the group) through an in-house productdevelopment process. These subsidiaries are then, ideally, expected to contribute tothe growth of the core of knowledge available to the MNE (by their interactiveoperations within dispersed creative environments) and, more directly, to a significantand individualised extension of the group’s product range.

The analysis in the paper thus builds on a number of conceptualisations of thecontemporary MNE, which recognise the potentials for different types of subsidiaryincluding those that activate local knowledge and creativity.1 Thus it also benefitsfrom the voluminous literature of subsidiary typologies,2 especially those that delin-eate aspects of subsidiary scope3 (with a notable focus here on functional [or valued-added] scope). The key aim is then to investigate one aspect of the interdependencebetween these literatures by analysing the ways in which individualised technologicalactivity at thesubsidiary levelcan contribute to the overall evolution of an MNEgroup’s knowledge scope.

A subsidiary’s ability to increase value-added based scope around its own tech-nology can take it through a creative transition (Papanastassiou & Pearce, 1994a,pp. 201–203), into levels of increased autonomy. Ultimately the type of autonomyachieved in this way may represent positions of substantial creative independencewithin the MNE for these subsidiaries. It can be argued that the emergence of thiskind of technological-creativity-based independence at the subsidiary level providesenormous potentials for MNEs, but also that their effective realisation requires com-

1 These include the heterarchy (Hedlund, 1986, 1993; Hedlund & Rolander, 1990), the transnational(Bartlett & Ghoshal, 1989, 1990; Bartlett, 1986), the horizontal organisation (White & Poynter, 1990)and the strategic asset seeker (Dunning, 1993).

2 For a survey see Birkinshaw (1994).3 See, for example, White and Poynter (1984), D’Cruz (1986), Pearce (1989, 1992) and Taggart (1996).

127R. Pearce / International Business Review 8 (1999) 125–148

parable changes in organisational approach that may eventually herald a substantialchange in the nature of such groups.

It is a crucial point of emphasis, therefore, that the type of autonomy envisagedhere cannot be achieved through autarky. In fact, it is likely that a key skill oftechnology management in such a creative subsidiary is to understand and implementits position within two distinct technological communities, with its degree of inde-pendence perhaps deriving from its ability to benefit from a unique intermeshing ofthe potentials of these two sources of inputs. The first of these communities is theMNE itself, in terms of its existing technology and the broad commercial objectivesrelating to it. The second source of technology accessible to the subsidiary is thescience base of its host country, which may encompass unique capabilities in parti-cular areas of technology which can then enhance or complement the value of thosealready available.

Localised R&D is certainly likely to be a crucial element in the ways that creativesubsidiaries assert their individualised position within the group’s technologicalscope. Our analysis discerns two ways in which this may be operationalised. Firstly,the possession of an in-house laboratory provides a subsidiary with the means tointernalise valuable elements of the host-country science base, in the form of talentedpersonnel embodying valuable knowledge and skills. Secondly, collaborative R&Darrangements with independent local enterprises or local scientific institutions pro-vide an equally relevant, but externalised, means of benefiting from the host-coun-try’s knowledge heritage and research scope.4

Thus, in broad terms, the distinctive technological capability of an individual sub-sidiary should be seen as a reflection of the location-specific advantages(technological comparative advantage) of the host country as implemented, withinthe existing technological trajectory of the MNE’s overall operations, through thespecific talents of its own personnel (managerial, scientific, marketing). The overalltechnological profile of a MNE, it may be suggested, will thus increasingly cometo reflect the capacities of quite autonomous creative subsidiaries, as broadly articu-lated by central management. Individual subsidiaries secure a mandate to developtheir operations within this overall group programme. Then their view of their ownfuture evolution will be a mix of their understanding of their particular capacitiesand ideas and their perception of the current technological trajectory of the group.

In some cases the subsidiaries’ view of their own progress will remain within thelikely expected scope of the group, and can proceed with little friction or challenge.In other cases they may perceive their abilities and potentials as presenting opport-unities that are much more radical, and then extensive negotiation and bargainingmay be needed to determine if they can proceed with such developments.5 In this

4 This aspect is sufficiently significant to have been subjected to detailed analysis in other parts of thestudy (see Papanastassiou & Pearce, 1993, pp. 341–343; Papanastassiou & Pearce, 1994b, pp. 162–163;Papanastassiou & Pearce, 1994c, pp. 790–793; Papanastassiou & Pearce, 1997; Pearce & Singh, 1992).

5 The options here parallel, to some extent, the difference between product specialists (mainly operatingwithin the scope of existing group technology) and strategic independents (with more radical scope exer-cised in a more autonomous fashion) in the typology of White and Poynter (1984).


way the MNE group’s overall technological trajectory may be widened and/orreformulated, according to the ideas and capacities of individual subsidiaries. ThusMNE central management ultimately determines the development of the group withinthe context of the independent evolutionary scope of its key creative subsidiaries;its role is to juggle and balance separately determined capacities and potentials, ratherthan to create a unique vision and then assemble the resources to implement it.

We have now defined the main concerns of this paper as relating to the mannerin which particular overseas subsidiaries in a MNE can, on the basis of a set ofdistinctive subsidiary-level capabilities (e.g. entrepreneurial management; inventivescientific personnel; creative marketing) play important roles in extending the scopeof the group’s overall competitiveness. The next two sections deal in more detailwith two key elements of the background to these perceptions of the evolution intechnology policy in MNEs. The first deals with the nature of world and regionalproduct mandate subsidiaries (WPM/RPM), emphasising in particular the differentnature of their positioning in group-level technology programmes. The second thentakes aspects of this further by investigating the nature of the continuing responsi-bility for technological evolution in MNEs that still resides in central management,noting in particular the relevance of an overall group-level technological trajectory.

Data derived from a survey of subsidiaries in the UK is then used, in the nextthree sections, to indicate aspects of the evolving technological behaviour of MNEs.Thus the fourth section analyses the positioning of four possible roles in MNE sub-sidiary operations in the UK, in order to ascertain the relative presence of creative(WPM/RPM) subsidiaries. The crucial issue of the technological status of subsidi-aries is then investigated in the fifth section, through documentation of the signifi-cance of seven sources of knowledge in the operations of the different types ofsubsidiaries. The sixth section then looks at the relevance of two types of productdevelopment processes (equating to WPM or RPM behaviour) in these subsidiaries.

2. The roles of creative subsidiaries

In the form of subsidiary-level product innovation we see the decentralised poten-tial of creative subsidiaries being implemented in two possible ways. The first ofthese envisages the rather ad hoc emergence of an innovative idea in the subsidiary(McGuinness & Conway, 1986, pp. 147–153; Rugman & Bennett, 1982, pp. 60–61;Bartlett & Ghoshal, 1986), whilst the second provides it with a more systematicrole in a global-innovation strategy (Papanastassiou & Pearce, 1994c, pp. 775–778;Pearce & Papanastassiou, 1996a).

2.1. Subsidiary product idea—world product mandates

The overseas subsidiary may take responsibility for the creation of a product whichderives from an idea which either emerges within the subsidiary itself, or is acquiredfrom elsewhere in the group (e.g. an idea abandoned by, or inadequately developedin, another subsidiary). The subsidiary’s mandate relating to this product may then


cover responsibility for its creation, production and marketing. A key point of empha-sis, however, is that execution of this responsibility need not imply full autonomyin any of these functions. If, for example, full development of the product idea needsenhancement of the technological background through more applied research work,which exceeds the scope of the R&D resources possessed by the subsidiary itself(they may be able to articulate the problems and needs, and communicate them andlater assimilate the replies, but not implement such work themselves) this may besubcontracted to another laboratory (especially perhaps a central, or ‘parent’, lab) inthe MNE group (or to a local university or independent lab). In order to emphasisethe autonomy of the subsidiary, and its retention of creative responsibility for theproduct, such an intra-group relationship may take the form of a subcontracting one,implemented around quasi-commercial terms, with the created knowledge becoming(at least formally) the property of the subsidiary rather than the group (Pearce, 1989,p. 122; Pearce, 1992, p. 45; Etemad & Se´guin Dulude, 1986, pp. 178–180).

With respect to the marketing of the product the subsidiary may undertake thisitself in certain key or local (adjacent) markets, but use a group-level global distri-bution network for many other markets. Once again though this relationship may bearticulated in a manner that emphasises the retention of responsibility by the man-dated subsidiary. Thus it may commission the group network to market its products,again on a quasi-commercial (arms-length) basis. This seeks to clarify that the mar-keting network is providing a service to the production subsidiary, rather than thesubsidiary becoming tied into a supply network run implicitly for the marketinggroup (Pearce, 1992, pp. 53–54; Wolf, 1986, p. 208).

Obviously such a mandated subsidiary is likely to undertake extensive productionof its product(s). However, if the global market for a product becomes very largeand dispersed, the forces that lead to overseas production generally in MNEs maypoint towards the implementation of some decentralised supply. It can be envisagedthat such overseas production would then be carried out in rationalised product sub-sidiaries (RPS), whose essential characteristic is routine cost-effective production ofestablished products. The fact that one generation of the product has achieved thisglobal-supply status then allows the mandated subsidiary itself to focus on a creativeview of its further evolution. A particular RPS may be dedicated to the product ofone mandated subsidiary, or achieve economies of scale by ‘representing’ severalsuch mandated subsidiaries. Generally a RPS can be seen as having a subcontractingrelationship with a mandated subsidiary, again formulated in a quasi-commercialmanner.

Since this first type of mandated creative subsidiary has unique responsibility fora product that may well have a global-market potential we can categorise it as aworld product mandate (WPM) subsidiary. A number of earlier taxonomies of sub-sidiary roles have provided a position for this type of operation (see Bonin & Perron,1986, pp. 161–162; Crookell, 1986, pp. 104–107; D’Cruz, 1986, pp. 80–87; Pearce,1989, pp. 117–131; Pearce, 1992; Poynter & Rugman, 1982, pp. 60–61; White &Poynter, 1984, pp. 59–61). More recently Roth and Morrison (1992), Birkinshawand Morrison (1995) and Birkinshaw (1996) have pioneered the empirical investi-gation of the determinants of the ability of subsidiaries to earn such roles.


2.2. Global innovation—regional product mandates

Whereas the first type of mandated subsidiary emerges in a fairly ad hoc mannerto take responsibility for its own distinctive product, we envisage the second asevolving in a much more systematic manner as, in effect, part of a global-innovationstrategy of the MNE. Whilst the first type of subsidiary achieves its derivation of aunique product on the basis of its own idea, this second type is, by contrast, mandatedto develop a specific regional variant of a new centrally derived (group-level) productconcept. Generally the perspective of a global-innovation strategy suggests that cen-trally organised R&D in the MNE group initially derives the outlines of an importantnew product concept. Then, under the pressures of global competition, the mosteffective application of this new product concept requires that it is innovated quicklyin each major national/regional market, and also in ways which fully respond to themarket needs and production conditions of each of these important and distinctiveenvironments. In order to implement this necessary responsiveness, creative subsidi-aries in each significant market area in the global economy are mandated to developa specific variant of the new concept that fully meets the relevant needs and circum-stances. Thus, here a regional product mandate (RPM) subsidiary is allocatedresponsibility for the creation, production and marketing of its localised variant ofthe new product concept.

The first (WPM) type of mandated subsidiary may, as we have seen, opt to par-tially integrate its creative activities into group-level R&D, whilst still retaining thekey responsibility of prime mover or contractor. In this second, RPM/global-inno-vation case, however, the essential product idea is acquired by the subsidiary, whichis then to some extent in a dependent (client) position as an agent in a wider strategy.Nevertheless, within the context of the broad technical characteristics of the newconcept, the RPM will make its most effective contribution to group-level competi-tiveness if it is allowed substantial autonomy to use its own R&D resources in pro-duct development, combining these with the inputs of local marketing research,mediated through ambitious and entrepreneurial overall subsidiary management. Suc-cess in this will put the subsidiary at the core of regional operations of the MNE.Once the first generation of the new product is successfully innovated in the relevantmarket its subsequent evolution may involve a much more equitable interactionbetween the subsidiary’s R&D and centralised operations, whilst long-term regionalmarketing development should be almost exclusively the subsidiary’s responsibility.As dictated by production and marketing characteristics and needs a core RPM sub-sidiary may organise supply through its own network of RPSs (or through suchsubsidiaries that it shares with other RPMs dedicated to other products).

3. The role of central management

The emergence in MNEs of subsidiaries that are mandated to take an independentposition in product development may be seen as responding to two separate motiv-ations within such corporate groups. Firstly, the desire by particular subsidiaries to


gain increased autonomy, based around their own creative capacity and, therefore,their ability to contribute distinctively to enhanced value added. Secondly, the desireby central decision makers in the group to increase its overall ability to competeglobally through effective product innovation. These two disparate objectives canclearly be compatible (i.e. independently creative subsidiaries can contribute to acoherent overall global approach to innovation at the group level), but there aredangers that they may not be so. Therefore it may be suggested that central manage-ment should still retain an important position in a group which increasingly empha-sises decentralised creativity, but that the nature of its role (and thus of the MNEitself) may need to be significantly restructured.

The arguments developed imply that central management in a MNE that seeks tomaximise its global competitive potential through product innovation, has to realisethat it cannot itself discern all the relevant market and technological opportunities.It has to rely on creative overseas subsidiaries to perceive such opportunities anddevelop the knowledge and resources to meet them. However, such decentralisedcreativity should not become a prescription for uncontrolled diversification. Few sub-sidiaries are likely to have the capacity (technological, marketing or, perhaps,production) to make their optimum contribution to group efficiency through totalautonomy. Certain important synergies of intra-group collaboration and exchangewill persist, even when the benefits of creative specialisation are also being acknowl-edged. It is then desirable for subsidiary managers to understand certain establishedparameters of the group’s operations, and to develop their own position in the strong-est way possible within these parameters.6 However, more ambitious subsidiaries,possessing access to more radical perspectives, may seek to challenge these para-meters. Allowing such challenges is then a more high-risk strategy, both for thesubsidiary and the group, but one which may also have the scope to extend theoverall potential of the MNE and thereby also to enhance the subsidiary’s positionin it.

Overall we envisage the existence of a group-level technological trajectory, whichprovides coherence to a portfolio of decentralised creative initiatives. The key roleof central management then becomes the understanding of this technological tra-jectory and the supervision of its evolution. This implies two components to a firm’stechnological trajectory. Firstly, a clear and precise understanding of what are thefirm’s current core technologies, and the broad manner in which they underpin theexisting levels and patterns of competitiveness (e.g. the way they are combined indifferent parts of the product range) (Contractor & Narayanan, 1990). Secondly, aless dogmatic and immutable, but nevertheless clearly formulated, perspective onthe manner in which the firm’s technology is expected to evolve over time. Thismay, to some extent, be a synthesis of market developments (perceived as exogenousto technological progress) and new potentials emerging from evolution in the scope

6 Birkinshaw (1996) has noted that subsidiary mandates are most vulnerable to decline or closure ifthey lack “strategic relatedness” with group aims and resources. This could be reflected in excessiveautonomy in, for example, R&D.


of technology itself. The latter is most likely to be viewed mainly in terms of exten-sions of the possibilities of the recognised core technologies. However, as alreadysuggested, a key potentiality of the use of creative subsidiaries is to bring into playquite radical possibilities outside of the existing technological momentum.

If a subsidiary implements an idea outside the current technological trajectory ofthe MNE and this is a considerable success, it may then ultimately somewhat alterthe overall trajectory itself. Thus the radical new technology used by the subsidiarymay spillover and influence operations of more traditional or conventional subsidi-aries, and expand their capabilities in their established roles. Success may also meanthat the new technology of the radical subsidiary is accepted by central technologydecision makers, i.e. it enters the received view of the group’s technological tra-jectory, which therefore broadens its scope (or alters its direction) to encompass it.In this way, subsidiaries ultimately do have the potential to influence the overallstrategic perspective.

4. Roles of MNE subsidiaries in the UK

Some aspects of the evolution of MNE subsidiaries’ positions within their groups’wider operations can be illustrated using evidence from a questionnaire survey ofsuch facilities in the UK manufacturing sector. The survey was carried out in 1993/4and covered 812 subsidiaries, with satisfactory replies received from 190 of them.7

A central question asked respondents to evaluate the relevance in their operationsof four roles that such subsidiaries might play. The typology used here is in the‘scope’ tradition pioneered by White and Poynter (1984), i.e. it embodies marketscope, product scope and value-added scope. Other studies of foreign subsidiaries’operations in the UK that essentially encompass the same approach include Hood andYoung (1988); Young et al. (1988); Hood et al. (1994); and Taggart (1996, 1997).

The first role was defined as being ‘to produce for the UK market products thatare already established in our MNE group’s product range’. In its traditional manifes-tation such a role took the form of import-substituting truncated miniature replica(TMR) subsidiaries. The genesis of such operations lies in the era of high levels ofrestraints on trade in which, faced by highly fragmented international markets, MNEsadopted a multidomestic approach to supply (Porter, 1986), with separate manufac-turing subsidiaries operating in each important national market. Each of these subsidi-aries then sought to produce for its national market a substantial part of the estab-lished product range of its MNE group, thus securing its characterisation as a‘miniature replica’ of the parent company in terms of breadth of supply. The attemptto produce a wide product range (with often limited synergies and complementaritiesin the manufacturing process) for small national markets left many such subsidiarieswith a high level of cost inefficiency, which could only be sustained whilst protected

7 The questionnaire was sent to all the relevant cases that could be found from entries in the NationalRegister Publishing Company’s International Directory of Corporate Affiliations.


against more competitive imports. Alongside such static inefficiency the scope fordynamic initiative within such subsidiaries was also limited by their functionally‘truncated’ nature, so that working with established group-level technology and prac-tices in a relatively captive market frustrated any entrepreneurial aims to developproperly any subsidiary-level potential in terms of technological and marketing crea-tivity.

Changes in the environment of international competition have exposed the vulner-ability of such TMR subsidiaries and the multidomestic approach which embodiedthem (Crookell, 1984, 1986). Thus the lowering of restraints on trade (through theGATT rounds and the rise of regional free trade areas) exposes the production-costinefficiency of the import-substitution subsidiaries to competitive imports. Similarlythe enhanced intensity of competition between MNEs, as each moves from multi-domestic to global strategies, and as recently established economies (notably Japan)provide new international players with new technology and practices, increases thepressure to make individual subsidiaries not only more efficient but also a moreintegral part of the group’s creativity. In particular, the range of distinctive techno-logical, marketing and managerial perceptions that can be accessed through creativesubsidiaries can provide crucial inputs to both the dynamism and diversity needed inan effective globally competitive strategy. The other roles investigated in the surveytherefore represent potential responses to different aspects of these changes in theMNEs’ competitive environment.

The questionnaire replies did, however, indicate a continued presence for this first(TMR) role amongst MNEs’ activities. Thus whilst only 8.1% of the 185 respondentswho evaluated this role in their operations felt that it was their only one, 37.3% didfeel it was a predominant role, 27.0% considered that it retained a secondary positionand 27.6% said it was not part of their activity.

The second subsidiary role offered for the evaluation of respondents was definedas ‘to play a role in the MNE group’s European supply network by specialising inthe production and export of part of the established product range’. Such rationalisedproduct (RP) subsidiaries escape from the potential inefficiency of TMRs by nar-rowing the range of products that they supply and by widening the market to whichthey supply them. This, as noted in the introduction, is an element in one part ofthe new global-competition strategies that became available to MNEs with the lower-ing of trade restraints, in the form of networks of cost-effective supply facilities eachof which specialises in limited but complementary parts of the full product range.This then provides another advantage (additional to the more complete realisationof economies of scale) that may be denied to TMRs, with particular RP subsidiariesallocated responsibility for a product whose input requirements fit most closely thoseavailable to it in its host country.8 Though RP facilities should therefore alleviatethe static inefficiency problems of TMRs, the lack of scope to develop the creative-

8 TMRs could have attempted to approach such an optimisation by adapting the production processwhere relevant. However, given the relatively small and protected nature of their market the stimulus todo this may often have been missing. Thus a mismatch between the existing production technology andthe inputs available to the subsidiary may be another source of inefficiency in TMRs.


human-capital potential of the subsidiaries is likely to become even more pro-nounced. It can therefore be considered that a pure, fully networked, RP subsidiarywould supply a completely defined product in externally determined quantities to aMNE marketing network, thereby eliminating scope for marketing or technologicalcreativity and reducing its management to the dependent role of implementing aposition in a wider strategy which it cannot substantially influence. Of the 185respondents that evaluated the position of this second role in their operations only3.2% felt that it was their only one, but 46.5% did consider it a predominant one,21.6% said that it had achieved a secondary position and 28.6% that it was absentfrom their activities.

A potentially important variant on the theme of RP-type operations was offeredfor respondents evaluation as ‘to play a role in the MNE group’s European supplynetwork by producing and exporting component parts for assembly elsewhere’. Infact, 70.2% of the 181 subsidiaries who evaluated this felt it played no part in theiractivity, a further 22.7% rated it only a secondary role, whilst only 6.1% consideredit took a predominant position and 1.1% that it was their only function.

The final potential subsidiary role specified in the questionnaire was ‘to develop,produce and market for the UK and/or European (or wider) markets, new productsadditional to the MNE group’s existing range’. In terms of the evolution of MNEs’operations away from the multidomestic use of TMRs, towards the dictates of amore complete orientation to global competition, the key emphasis of this role is onthe scope allowed for subsidiary-level creativity. We have emphasised, as the centraltheme of this paper, that providing individual subsidiaries with this new motivationto more fully develop their own potential, reflecting the distinctive technological andmarket conditions of their particular environment, not only increases the quantity ofcreative expertise available to the MNE but is also likely to add new qualitativeperspectives and perceptions. In some cases, as we have suggested, the creative sub-sidiary may use particularly idiosyncratic knowledge and viewpoints to derive a quiteradical extension of the group’s product range which, as a WPM, it can supplyworldwide. In other cases it may remain more substantially within the scope of newgroup technology, but use its local expertise and perceptions to apply distinctivelocal dimensions to it in its role as a RPM subsidiary.

Of the 184 responding subsidiaries that evaluated the relevance of this role intheir operations 8.7% said it was the only one, 27.2% rated it their predominant role,34.2% considered that it took only a secondary position and 29.9% felt it was absentfrom their operations. In terms of the average responses (ARs) reported in Table 1the creative subsidiary role currently matches TMRs and RPSs in US and Europeanunits, but falls well behind those in Japanese units. We can speculate that this mayrepresent different evolutionary processes. For the Japanese it seems likely that theseMNEs are building an initial base in Europe around goods with well-establishedmarket positions (the lead position of RPSs), but once they have achieved greaterfamiliarity with the environment they are likely to embody more localised creativescope. The longer-established US subsidiaries may be involved in processes ofrestructuring, with TMRs undergoing metamorphosis into RPSs and then often toRPMs. For European subsidiaries in the UK the future prospect for RPM-type oper-


Table 1Relative i5mportance of roles played by MNE subsidiaries in the UK, by industry and home country

Importance of rolesa (average responseb)

TMR RPS RPS* WPM/RPM

By industryFood 2.56 2.33 1.11 2.67Automobiles 2.24 2.33 1.65 2.35Aerospace 2.33 2.17 1.33 2.17Electronics and 2.33 2.53 1.41 1.96electricalappliancesMechanical 2.08 2.27 1.33 2.36engineeringInstruments 2.33 2.10 1.33 2.36Industrial and 2.14 2.03 1.48 2.17agriculturalchemicalsPharmaceuticals 2.27 2.55 1.45 1.91and consumerchemicalsMetal manufacture 2.09 1.90 1.22 2.20and productsOther 2.44 1.73 1.20 1.80manufacturingTotal 2.26 2.24 1.38 2.15By home countryUSA 2.28 2.24 1.52 2.27Japan 2.31 2.41 1.32 2.03Europe 2.13 2.07 1.29 2.09Totalc 2.26 2.24 1.38 2.15

Roles of subsidiaries:TMR—to produce for the UK market products that are already established in our MNE group’s pro-duct range.RPS—to play a role in the MNE group’s European supply network by specialising in the production andexport of part of the established product range.RPS*—to play a role in the MNE group’s European supply network by producing and exporting compo-nent parts for assembly elsewhere.WPM/RPM—to develop, produce and market for the UK and/or European (or wider) markets, new pro-ducts additional to the MNE group’s existing range.

aRespondents were asked to evaluate each role as: (i) our only role; (ii) our predominant role; (iii) asecondary role; or (iv) not a part of our role.

bThe average response is calculated by allocating a value of 4 to ‘our only role’, 3 to ‘our predominantrole’, 2 to ‘a secondary role’ and 1 to ‘not a part of our role’.

cIncludes subsidiaries of MNEs from Australia and Canada.


ations could be more vulnerable, as these MNEs develop more pan-European per-spectives on product development (reacting to regional integration) but base thesehigh value-added activities mainly in the continental home country. In terms of indus-try, subsidiaries in food, automobiles, mechanical engineering and instruments haveembraced the responsibility for product development most strongly. This rather dis-parate set of industries suggests that scope for subsidiary-level creativity can reflecta range of different factors, and is apparently not predominantly a reflection of thelevel of industry-wide technological opportunity.

To gain some indication of the process of evolution amongst subsidiaries, respon-dents to the questionnaire were asked if their predominant (or only) role had changedin recent years, and if so what their previous main role had been. Though the resultsreported in Table 2 indicate a relatively low perception of such changes in role,some relevant perspectives are still indicated. The declining position of the TMRsis suggested firstly by the fact that only 13% of current subsidiaries of this type hadpreviously had another role, compared with 17% of RPM/WPMs and 21 and 29%of the two types of RP subsidiaries (final product and component parts, respectively).Also over half of the subsidiaries that took on the RP roles had previously beenTMRs. The new RPM/WPM subsidiaries were rather more likely to have emergedfrom RP operations. This at least hints that the evolutionary process from TMRsmay have so far involved firstly the acquisition of the new wider-market focus, andthen the subsequent addition of creative scope.

A complementary question asked respondents if they expected a change in theirpredominant (or only) role in the near future, and if so what they believed their newmain role would be. Once again, despite a quite low overall propensity to expectsuch changes, clear perspectives are suggested. As Table 3 shows, 17% of TMRsanticipated a change in role, over half directly into RPM/WPMs. This suggests that,with increased understanding of the strategic possibilities of subsidiary evolution in

Table 2Previous roles of MNE subsidiaries in the UK, by current rolea

Current predominant (or only) roleb (percent)

Previous role TMR RPS RPS* WPM/RPM

No change in role 86.9 79.3 71.4 82.8Previous role TMR — 10.9 21.4 3.1Previous role RPS 3.6 — 0 6.3Previous role RPS* 0 0 — 1.6Previous role 4.8 4.3 7.1 —WPM/RPMUnspecified 4.8 5.4 0 6.3previous roleTotal 100.0 100.0 100.0 100.0

aRespondents were asked if their predominant role had changed in recent (e.g. over the past 10) years,and if so to specify which had been their earlier predominant role.

bFor definitions of subsidiary roles see Table 1.


Table 3Likely future roles of MNE subsidiaries in the UK, by current rolea

Likely future role Current predominant (or only) roleb (percent)

TMR RPS RPS* WPM/RPM

No change in role 82.9 86.7 71.4 82.1Future role TMR — 1.1 0 3.0Future role RPS 3.7 — 7.1 10.4Future role RPS* 2.4 2.2 — 1.5Future role 9.8 8.9 21.4 —WPM/RPMUnspecified future 1.2 1.1 0 3.0roleTotal 100.0 100.0 100.0 100.0

aRespondents were asked if they considered that there would be a change in their predominant role inthe future, and if so to specify the most likely new predominant role.

bFor definitions of subsidiary roles see Table 1.

MNEs, an intermediate RP stage may be less often necessary. The first (final product)type of RP subsidiary seems the most stable, with only 13% anticipating a changeof role. The addition of creative scope to become RPM/WPM operations is the moststrongly expected change for these subsidiaries. By contrast, 29% of the component-supply RP subsidiaries anticipated a broadening of their role, sometimes into thesupply of established final products but mainly all the way to creative RPM/WPMoperations.

Though the product development role is the one that is most clearly gaining groundamongst the subsidiaries, 18% of those currently playing the role also anticipate achange. The most prevalent new role for these subsidiaries is the final product typeof RP operation. Thus it appears that some RPM/WPM subsidiaries expect theirlong-term operations to crystalise around the supply of the products they have alreadyput into place, with a consequent downgrading of the creative element in thisactivity.9

5. Technology used in UK-based subsidiaries

The earlier discussion has indicated that the evolution in the organisation andbehaviour of MNEs can be attributed to two developments. An increased freedomof trade allows them to create integrated supply networks in regions such as Europe,

9 The types of evolution suggested here emerge clearly in the analysis by Taggart (1997) of changingroles of 68 US and 63 European subsidiaries in the UK over a recent 5 year period. Thus the number ofminiature replicas declined from 79 to 61 over the 5 years, whilst rationalised manufacturers remainedalmost stable (up from 18 to 19). By contrast, the number of strategic mandate operations rose from 34to 51.


whilst a wider availability of geographically dispersed sources of knowledge andskills provides new creative inputs which they can tap into through their subsidiaries,in order to extend the scope of their technological operations. The previous sectionhas investigated one implication of these forces, in the form of an increasing differen-tiation in the roles that subsidiaries can play in supporting the emergence of anincreasingly globalised approach to competition. Here we pursue another implication,namely that MNEs’ overseas subsidiaries now have a wider range of sources oftechnology accessible to their operations and that the selection from these possi-bilities is related to (i.e. either determines or is determined by) the role that theyplay. A question in the survey of UK-based subsidiaries asked them to evaluate therelevance to their operations of seven sources of technology. In Table 4 we analysethe applicability of these sources of technology according to the role of subsidiaries.This is done by calculating average responses for each technology source for subsidi-aries that said that they ‘only’ or ‘predominantly’ took each of the four roles dis-cussed in the previous section.

The first of these sources was defined as ‘existing technology embodied in estab-lished products we produce’. This represents the MNE’s current staple knowledge,i.e. the established commercial embodiment of the present position of its technologi-cal trajectory. As such the pervasive position of this source of technology in the first

Table 4Relative importance of sources of technology in MNE subsidiaries in the UK, by role of subsidiary

Importance of sources of technologya (average responseb)

A B C D E F G

Roles of subsidiariesTMR 2.88 2.27 1.85 2.29 1.41 1.39 2.01RPS 2.92 2.36 2.08 2.27 1.52 1.41 2.11RPS* 2.83 2.62 2.17 2.08 1.67 1.58 2.17WPM/RPM 2.86 2.33 2.52 2.05 1.55 1.62 2.13

Sources of technology:A—existing technology embodied in established products we produce.B—technology of our MNE group from which we introduce new products for the UK/European market,that differ from other variants introduced in other markets.C—R&D carried out by our own laboratory.D—R&D carried out for us by another R&D laboratory of our MNE group.E—R&D carried out in collaboration with another firm.F—R&D carried out for us by local scientific institutions (e.g. Universities; independent labs; indus-trial labs).G—development and adaptation carried out less formally by members of our engineering unit and pro-duction personnel.

aRespondents were asked to grade each source of technology for their operation as: (i) our only source;(ii) a major source; (iii) a secondary source; (iv) not a source.

bThe average response is calculated, for respondents that said that a particular role was either theironly one or their predominant one, by allocating a value of 4 to ‘our only source’, 3 to ‘a major source’,2 to ‘a secondary source’ and 1 to ‘not a source’.


three types of subsidiaries (TMRs and RP facilities) shown in Table 4 is entirelypredictable. More surprising is its equal prevalence in those subsidiaries that aremandated to develop products.

One aspect of an explanation for this is that the new creative scope of these(WPM/RPM) subsidiaries is likely to be subject to the evolutionary nature of techno-logical change (Nelson & Winter, 1982). By bringing insights from a new scientificand market environment to their MNE’s knowledge these subsidiaries are able toadd extra dimensions to the commercial application of the group’s current tech-nology, and thus in some ways to also contribute to the general evolution of itstrajectory, but do not escape from it. Thus the work of the creative subsidiary is stillvery decisively determined by the state of its group’s technological trajectory, anda crucial element in defining its understanding of that state is the knowledgeembodied in products that it has been, and may still be, producing.10 In a sense,perhaps, these subsidiaries may dissembody elements of the technology in the estab-lished products they are familiar with and reconstitute it within their own creativity.

Another complementary element in the explanation may relate to those distinctivecompetences within these subsidiaries that provide them with the scope to transcendtheir earlier more dependent roles. These are mainly encompassed within its humancapital, in the form of entrepreneurial managers and talented technologists and mar-keting executives. In turn these personnel incorporate much of the group’s tacitknowledge (Cantwell, 1991), but then mediate in its creative extension and appli-cation as conditioned by insights derived from their own environment. Once againa key element in providing such personnel with their background in the group’s tacitknowledge, which they can then enhance into subsidiary-level competences, can betheir training in the use of the current technology as manifested in established pro-ducts.

The second source of knowledge input investigated in the survey was definedas ‘technology of our MNE group from which we introduce new products for theUK/European market, that differ from other variants introduced in other markets’.This allows subsidiaries the potentially more creative role of addressing new group-level technology at an earlier stage, and then of taking responsibility for its preciseapplication to their own particular market and production situations. Thus subsidi-aries would here have a more integrated involvement in the evolution of the MNE’stechnological trajectory, adding a wider range of perceptions and competences tothe manner in which new disembodied technology achieves its commercial definition.

As is shown in Table 4 it emerges that this more ambitious approach to the appli-cation of group technology by subsidiaries is not yet as pervasive as the previous,more dependent, one. Notably, it is no more prevalent in WPM/RPM subsidiariesthan in those mainly oriented to the supply of established products. Thus theWPM/RPM type of facilities seem to perceive their creativity as relatively self-con-

10 This may have resonances with a process of mandate renewal discerned by Birkinshaw (1996) where“the imminent failure of the old product led to the development of a new one, using the same basicresources but with a different geographic, functional or product scope” (p. 476).


tained, or at least as only being to a limited degree part of a group-level programme.In fact, the strongest propensity to do product-development work within the contextof group technology emerges amongst the component-supply type of RP subsidiary.This is compatible with the quite pervasive expectation amongst these subsidiariesof a future move to a full product development role (Table 3). It may also be thatthe perceived relevance of this source of technology in quite a number of the subsidi-aries that are still playing predominantly the first two roles also reflects an incipientattempt to widen their creative scope, with this at present taking the form of anincreased involvement (in association with group-level technology) in the develop-ment of future generations of the products that they currently produce.

These two initial sources define aspects of the manner in which subsidiaries relateto the current technology of their MNE group, in the first by predominantly feedingoff it in an essentially dependent fashion and in the second by being involved, in amore interdependent way, in its evolution and implementation. As MNEs move froma predominant use of the first approach towards a more substantial incorporation ofthe second, their overall strategy in terms of the creation and application of tech-nology can be considered to evolve from an essentially hierarchical one to one thatinvolves increasing elements of heterarchy. The remaining sources of technologyinvestigated in the survey can be seen as the ways in which subsidiaries attain theability to assimilate and apply group-level technology (in whichever form theyacquire it) and, in the case of WPM/RPM subsidiaries, as the forms in which theyincorporate or access the technological scope that helps provide them with theirdifferentiated position in a heterarchical organisation.

‘R&D carried out by our own laboratory’ was the first of the group of sourcesthrough which subsidiaries can implement their role in current technology pro-grammes and also often pursue the derivation of their own idiosyncratic creativecompetences. As Table 4 shows, the use of their own R&D labs as a source oftechnology is most strongly established in the creative subsidiaries,11 confirming thata formal research capacity is likely to be a key element in the establishment of adistinctive subsidiary-level creative competence. Alongside this in-house capacity‘R&D carried out for us by another R&D laboratory of our MNE group’ also emergesas a widely accessed source of technology. In the WPM/RPM subsidiaries this wayof acquiring R&D inputs nevertheless takes a clear second place to in-house activity.Thus the substantial creative objectives of these subsidiaries are implemented throughtheir own unit which, however, does often find it useful to augment its capacity bycommissioning specialised work from other group facilities. In TMRs and final-product RP subsidiaries this second source of R&D becomes clearly the more preva-lent of the two. Here, where the technological aims are normally limited to effectiveimplementation of well-established staple group technology, it appears that advicefrom labs elsewhere (which are perhaps already familiar with the technology

11 In fact only 22.2% of responding subsidiaries that said they ‘only’ or ‘predominantly’ took theproduct mandate role did not rate their own R&D as a source of their technology. The comparable figuresfor TMRs was 48.1%, for final-product RPS 42.5% and for component producing RPS 33.3%.


involved) is usually sufficient and precludes the need for an in-house unit. Interest-ingly, the relative status of these two sources of R&D in the component-supply RPfacilities more closely resembles that of the product mandate subsidiaries than theother two types, again suggesting more creative aims within these operations.

The two remaining sources of R&D that could be accessed involve collaborationswith local firms or research institutions implemented by the subsidiaries. This againemphasises, as noted in the introduction, that the ways through which subsidiariesaccess the knowledge component of their individualised scope can involve significantexternalised collaborative research associations with technologically distinctive partsof the local industrial and scientific communities. Neither of the possibilities appearsto yet be well established in the technological profiles of the UK-based MNE oper-ations, however.

Thus 59% of respondents were not involved in ‘R&D carried out in collaborationwith another firm’, and only 6% indicated that this was more than a secondary sourceof technology. To a modest degree such collaborations seem most prevalent in theRP subsidiaries that supply component parts. Taken with their apparent creativeambitions it may be that some of these operations are seeking to widen their marketsby supplying inputs to firms outside their own group and may be entering into tech-nological collaborations with independent firms in order to develop such new compo-nents. This in turn could then be a significant step towards the wider product-develop-ment role to which these subsidiaries sometimes seem to aspire.

The accessing of local scientific expertise through ‘R&D carried out for us bylocal scientific institutions’ had no role in 56% of respondents, and only took morethan a secondary position in 3% of them. Such collaborations are rather more estab-lished in WPM/RPM subsidiaries and in the component-supply form of RP facilities.This suggests that as the level of technological ambition in subsidiaries increasessuch associations may also grow, with the realisation of the value of pursuing specificelements of knowledge-generating capacity in local scientific institutions. However,where these production operations observe very strongly distinctive sources of cre-ative knowledge in a local scientific institution, the MNE group may ultimately preferto connect this with its basic research effort, seeking to define the longer-term evol-ution of its technological trajectory rather than the more short-term application ofits current knowledge. To do this it may create stand-alone laboratories, independentof local production units, to pursue more basic precompetitive research and to builda collaboration with the local science base quite decisively into its mode of operation.This would not be detected in the current survey.12

The final source of technology was defined as ‘development and adaptation carriedout less formally by members of our engineering unit and production personnel’.The essence of this source is the tacit knowledge embodied in such personnel, whichreflects a crucial mix of the mainstream characteristics of the group’s technological

12 Another survey carried out in parallel with that reported here was sent directly to labs (includingsuch stand-alone units). This did detect greater cooperation with local institutions (Pearce & Papanastas-siou, 1996b).


trajectory and distinctive elements of the subsidiary’s own heritage. As would beexpected, these competences are clearly relevant to the use of established technology,which is likely to emanate from the same background as the tacit knowledge of suchpersonnel, who are therefore well equipped to mediate in its application to the parti-cular circumstances with which they are familiar. Thus this source of technologymatches the use of in-house R&D in the first three roles. It also achieves a similarlevel of prominence in the WPM/RPM subsidiaries, but here this does mean that itfalls behind the use of in-house R&D. To enhance their scope in ways that reflectthe generation of distinctive subsidiary-specific knowledge these facilities do placea key emphasis on their own R&D, but the continued presence of the tacit knowledgeof the engineering and production personnel serves to play the role of anchoring thenew creativity within the group’s technological traditions. Thus the emergence ofdifferentiated competences within subsidiaries can normally enrich the scope of thegroup’s technological trajectory, rather than disruptively challenge its parameters.

6. Types of product development in subsidiaries

Another question in the survey turned the analytical focus more explicitly on theapproaches to technology embodied within the operations of those subsidiaries thatundertake product development. The question was thus addressed explicitly to sub-sidiaries ‘that develop, produce and market an original product’, and asked them toevaluate the relevance to their operations of two approaches to technology in seekingto achieve that objective. The first of these approaches was defined as ‘using ourown R&D results to meet a new need that we detect in our market’. This envisagesthe application of an integrated set of creative competences within the subsidiary(technological, managerial, marketing), which allows it to achieve a substantial levelof autonomous control over its creative efforts. As discussed in the previous sectionsuch efforts are still likely to be implemented within the group’s technological tra-jectory, and are thus often strongly conditioned by the subsidiary’s past productionof established products, but its unique perceptions do, nevertheless, allow it to achi-eve very distinctive extensions of the product scope of the existing technology. Theidiosyncratic nature of products developed in this manner is likely to gain them quitestrong entry into markets beyond the local or regional (here UK or European), sothat successful subsidiaries using this approach will often attain access to globalmarkets as WPMs. Of 129 subsidiaries that evaluated this approach to product devel-opment, 57.4% rated it their main one, 27.1% said they partly used it, and 15.5%did not use it at all.

The second approach to subsidiary-level product development was defined as‘applying new original scientific results created in our MNE group to derive a newproduct suitable for our market, using our technology and marketing resources’.Whereas we see the first approach as being intuitively constrained to a positionwithin the group’s technological trajectory, such a positioning is here much moreclearly central to the mode of operation. Thus if the first approach conforms to ourearlier conceptualisation of WPM operations, here we move into the realms of a


global-innovation strategy and RPMs. Group-level R&D programmes take primaryresponsibility for a quite fundamental move forward in the MNE’s technologicaltrajectory (new original scientific results), to a point where the central characteristicsof a new product concept are defined. Then the individual RPM subsidiaries applytheir own technological and marketing competences to this disembodied knowledge,in order to define products that represent its most effective manifestation for theirparticular market conditions. Though only 20.3% of 128 respondents who evaluatedthis approach considered it was their main one, 53.1% did partly use it, with 26.6%not using it. Thus the majority of respondents felt this approach contributed to theirproduct-development activity, but relatively few considered that it took a primaryposition in the way they articulated such efforts. Therefore, as Table 5 shows, whenthe responses are summarised as ARs it is the first approach that is so far the mostprevalent in underpinning subsidiary-level product development.

Table 5Technology approaches in product development subsidiariesa

Technology approaches (average responseb)

A B

By industryFood 2.78 2.22Automobiles 2.21 1.79Aerospace 2.00 1.75Electronics and electrical 2.33 1.83appliancesMechanical engineering 2.36 2.05Instruments 2.71 2.14Industrial and agricultural 2.55 2.00chemicalsPharmaceuticals and consumer 2.50 2.00chemicalsMetal manufacture and products 2.25 1.63Other manufacturing 2.57 2.00Total 2.42 1.94Home countryUSA 2.40 1.98Japan 2.17 1.86Europe 2.75 2.00Totalc 2.42 1.94

Technology approaches to product development by subsidiaries:A—using our own R&D results to meet a new need we detect in our market.B—applying new original scientific results created in our MNE group to derive a new product suitablefor our market, using our technology and marketing resources.

aThe question was addressed to subsidiaries that develop, produce and market an original product, andasked if they used the technology approaches: (i) mainly; (2) partly; or (3) not at all.

bThe average response was calculated by allocating ‘mainly’ a value of 3, ‘partly’ a value of 2 and‘not at all’ a value of 1.

cIncludes subsidiaries of MNEs from Australia and Canada.


Japanese subsidiaries provided the least strong evaluation of both of the offeredapproaches. This may parallel the relatively low prevalence of the product-develop-ment role itself in the Japanese operations (Table 1), suggesting that a distinctivesubsidiary-level technological competence is not perceived as yet being welldeveloped in their operations and that other factors are more likely to support thisrole where it does emerge. Within this overall position the second of the approachesis relativelymost prevalent in Japanese subsidiaries (in the sense of the smallest gapin ARs between it and the first approach). This may reflect the fact that so far lackof confidence in the ability of subsidiary-level competences to support more auton-omous creativity encourages the acceptance of the more interdependent secondapproach, or that Japanese MNE groups as a whole are relatively keener on theadoption of a globalised approach to innovation and its implied role for subsidiaries.The lead position of the first approach is clearly most decisive in subsidiaries ofEuropean MNEs in the UK. The long-established position of many of them mayhave led to the possession of strong creative competences within such facilities, andalso to the confidence to pursue their autonomous use in WPM operations. Also, assuggested earlier, there may be a tendency for the European MNEs to retain muchof their European-market-oriented creativity in home-country operations.

Both of the approaches make relatively strong contributions to product develop-ment in subsidiaries in food, instruments, industrial and agricultural chemicals, andpharmaceuticals, reflecting a particularly strong position for in-house R&D in allthese cases (Papanastassiou & Pearce, 1994d, table 2). Two quite technologicallyadvanced industries where both of these approaches are of somewhat below averagerelevance to product development in the UK-based subsidiaries are automobiles andelectronics. Here it seems that individual subsidiaries often have product-develop-ment responsibilities within a Europe-wide strategy, articulated from European head-quarters and supported technologically from a very strong centralised R&D labora-tory, which then substantially substitutes for subsidiary-level work (Papanastassiou &Pearce, 1994d).

7. Conclusions

This paper has investigated, conceptually and empirically, the emergence of cre-ative subsidiaries in MNEs. These subsidiaries help MNEs to use positively, ratherthan feel challenged or threatened by, elements of heterogeneity (differential markettastes and characteristics; dispersed knowledge, skill and research competences) inthe globalised economy in which they increasingly have to compete. Thus thesesubsidiaries are a key element in the way in which the contemporary MNE is‘approaching heterarchy’ (Birkinshaw, 1994). A strength of the concept of heterarchyis, however, that it subsumes (rather than displaces) the use of elements of hierarchy.Thus a global strategy that encompasses mandated creative subsidiaries can alsoprovide networked roles for more dependent rationalised product subsidiaries focus-ing on the supply of established products. Now, however, the network(s) withinwhich a subsidiary focusing on cost-effective production operates is (are) unlikely


to be uniquely controlled by the home-country parent of the MNE but rather to bedriven by one (or more) of the decentralised product mandate operations.

Though subsidiaries that decisively encompass a product-development mandateare clearly themselves not part of closed integrated networks (except to the extentthat they choose to acquire or contract support operations from other parts of thegroup) issues do emerge about their degree of independence or interdependencewithin their MNE (i.e. about their positioning in ‘differentiated’ networks). At onelevel it would obviously appear beneficial for overseas subsidiaries to generate oraccess those localised competences (technological, managerial, marketing) that pro-vide the most distinctive contributions to the overall scope of the MNE. However,the more unique or radical are these competences the more distinctively differentiatedis the subsidiary embodying them likely to become. Ultimately, such differentiationmay prove to be excessive and too far from the mainstream evolution of the MNE.These subsidiaries might not then be able to sustain their own independent evolutionbecause of a lack of the support of synergistic inputs from the group’s mainstreamcompetences and, by a like token, may not themselves help enrich the broader pro-gress of the group in a way that would be possible for less radically creative subsidi-aries.

It therefore remains a group-level responsibility to nurture differentiated originalcapacities within creative subsidiaries with a product-development mandate, ensuringthat this originality is allowed to challenge the limits of current group scope in alogically progressive fashion but not in ways that may be disruptive and underminethe synergistic values of existing attributes. The embracing of international hetero-geneity through differentiated subsidiaries should ultimately aim to pursue a cohesiveand coherent enrichment of group-level capability. Whilst their localised perspectivesand distinctive resources mean that these subsidiaries benefit substantially fromstrong elements of policy autonomy, attempts at autarky are likely to compromisetheir own immediate performance and severely constrain their longer-term contri-bution to the MNE. Some degree of positioning (a roleclaimedin heterarchy ratherthan allocated in hierarchy) in globalised group objectives is still relevant.13

Our evidence on the technological scope of the creative (WPM/RPM) subsidiariesin the UK discerns the presence of both individualising and normalising elements.The extensive incorporation of in-house R&D capacity in these subsidiaries(compared with those that supply established products) emerges as the factor thatmakes the most significant technological contribution to generating their distinctivecreative scope. However, the cultivation of such individualistic originality in theseproduct development operations then takes place against a considerable rooting inthe soil of existing group-level technology (either that already embodied in productsor ready for the definition of its commercial manifestation) and with considerablesupporting inputs from engineering personnel whose tacit knowledge is likely to be

13 In this vein Ghoshal and Bartlett (1988) observed that subsidiary autonomy and the application oflocal resources only had a positive influence on innovation in MNEs where this occurred along withnormative integration and high levels of communication. In the absence of these socialising factors thelocalised resources and autonomy generated conflict and compromised innovation.


that of the group’s technological heritage (rather than the more radical dimensionsemerging from R&D). Optimising this balance between integrative and individualis-ing components in creative subsidiaries’ knowledge scope would allow them toenrich and extend their MNE groups’ technological trajectories in a cohesive fashion,rather than generate the forces of excessive technological radicalism that could unbal-ance and undermine the coherence of trajectories and thereby compromise theirability to underpin companies’ long-term commercial viability through persistent butlogical product evolution.

Acknowledgements

I would like to thank Marina Papanastassiou for preparation of the data, and forvaluable contributions to the formulation of the ideas discussed in this paper. Thedata was compiled as part of a project financed by the Economic and SocialResearch Council.

References

Bartlett, C. A. (1986). Building and managing the transnational: the new organizational challenge. In M.E. Porter,Competition in global industries(pp. 367–401). Boston: Harvard Business School Press.

Bartlett, C. A., & Ghoshal, S. (1986). Tap your subsidiaries for global reach.Harvard Business Review,64(6), 87–94.

Bartlett, C. A., & Ghoshal, S. (1989).Managing across borders: the transnational solution. Boston:Harvard Business School Press.

Bartlett, C. A., & Ghoshal, S. (1990). Managing innovation in the transnational corporation. In C. A.Bartlett, Y. Doz, & G. Hedlund,Managing the global firm(pp. 215–255). London: Routledge.

Birkinshaw, J. M. (1994). Approaching heterarchy—a review of the literature on multinational strategyand structure.Advances in International Comparative Management, 9, 111–144.

Birkinshaw, J. M. (1996). How multinational subsidiary mandates are gained and lost.Journal of Inter-national Business Studies, 27(3), 467–495.

Birkinshaw, J. M., & Morrison, A. J. (1995). Configurations of strategy and structure in subsidiaries ofmultinational corporations.Journal of International Business Studies, 26(4), 729–753.

Bonin, B., & Perron, B. (1986). World product mandates and firms operating in Quebec. In H. Etemad, &L. Seguin Dulude,Managing the multinational subsidiary(pp. 161–176). London: Croom Helm, Lon-don.

Cantwell, J. A. (1991). The theory of technological competence and its application to international pro-duction. In D. McFetridge,Foreign investment, technology and economic growth(pp. 33–70). Calgary:The University of Calgary Press.

Contractor, F. J., & Narayanan, V. K. (1990). Technology development in the multinational firm: a frame-work for planning and strategy.R&D Management, 20(4), 305–322.

Crookell, H. (1984). Specialisation and international competitiveness.Business Quarterly, Fall, 59–69.Crookell, H. (1986). Specialisation and international competitiveness. In H. Etemad, & L. Se´guin Dulude,

Managing the multinational subsidiary(pp. 102–111). London: Croom Helm.D’Cruz, J. (1986). Strategic management of subsidiaries. In H. Etemad, & L. Se´guin Dulude,Managing

the multinational subsidiary(pp. 75–89). London: Croom Helm.Dunning, J. H. (1993).Multinational enterprises and the global economy. Wokingham: Addison Wesley.Etemad, H., & Se´guin Dulude, L. (1986). Inventive activity in MNEs and their world product mandated


subsidiaries. In H. Etemad, & L. Se´guin Dulude,Managing the multinational subsidiary(pp. 177–206). London: Croom Helm.

Ghoshal, S., & Bartlett, C. A. (1988). Creation, adoption and diffusion of innovations by subsidiaries ofmultinational corporations.Journal of International Business Studies, 19(3), 365–388.

Hedlund, G. (1986). The hypermodern MNC—a heterarchy?Human Resource Management, 25(1), 9–35.Hedlund, G. (1993). Assumptions of hierarchy and heterarchy, with applications to the management of the

multinational corporation. In S. Ghoshal, & D. E. Westney,Organisation theory and the multinationalcorporation (pp. 211–236). New York: St. Martin’s Press.

Hedlund, G., & Rolander, D. (1990). Action in heterarchies—new approaches to managing the MNC. InC. A. Bartlett, Y. Doz, & G. Hedlund,Managing the global firm(pp. 15–46). London: Routledge.

Hood, N., & Young, S. (1988). Inward investment and the EC: UK evidence on corporate integrationstrategies. In J. H. Dunning and P. Robson,Multinationals and the European Community. Oxford:Blackwell.

Hood, N., Young, S., & Lal, D. (1994). Strategic evolution within Japanese manufacturing plants inEurope: UK evidence.International Business Review, 3(2), 97–122.

McGuinness, N. W., & Conway, H. A. (1986). World product mandates: the need for directed searchstrategies. In H. Etemad, & L. Se´guin Dulude,Managing the multinational subsidiary(pp. 136–158).London: Croom Helm.

Nelson, R., & Winter, S. (1982).An evolutionary theory of economic change. Cambridge, MA: TheBelknap Press of Harvard University Press.

Papanastassiou, M., & Pearce, R. D. (1993). Global-innovation strategies of MNEs and European inte-gration: the role of regional R&D facilities. In V. C. Simoes,International business and Europe after1992 (pp. 327–352). Lisbon: CEDE (Proceedings of the 19th Annual Conference of the EuropeanInternational Business Association).

Papanastassiou, M., & Pearce, R. D. (1994a). Host-country determinants of the market strategies of UScompanies’ overseas subsidiaries.Journal of the Economics of Business, 1(2), 199–217.

Papanastassiou, M., & Pearce, R. D. (1994b). The internationalisation of research and development byJapanese enterprises.R&D Management, 24(2), 155–165.

Papanastassiou, M., & Pearce, R. D. (1994c). The creation and application of technology by MNEs’subsidiaries in Europe, and their role in a global-innovation strategy. In M. Yamin, F. Burton, & A.R. Cross,The changing European environment(pp. 774–812). Manchester: UMIST (Proceedings ofthe 21st Annual Conference of the UK Academy of International Business).

Papanastassiou, M., & Pearce, R. D. (1994d). Technology sourcing and the strategic roles of manufactur-ing subsidiaries in the UK: local competences and global competitiveness. University of Reading,Department of Economics, Discussion Papers in International Investment and Business Studies, No.191.

Papanastassiou, M., & Pearce, R. D. (1997). Scientific collaborations of MNE research laboratories inthe UK: externalisation and individualism. University of Reading, Department of Economics, Dis-cussion Papers in International Investment and Management, No. 240.

Pearce, R. D. (1989).The internationalisation of research and development by multinational enterprises.London: Macmillan.

Pearce, R. D. (1992). World product mandates and MNE specialisation.Scandinavian International Busi-ness Review, 1(2), 38–58.

Pearce, R. D., & Papanastassiou, M. (1996a).The technological competitiveness of Japanese multination-als: the European dimension. Michigan: Michigan University Press (for the Trade Policy ResearchCenter).

Pearce, R. D., & Papanastassiou, M. (1996b). R&D networks and innovation: decentralised product devel-opment in multinational enterprises.R&D Management, 26, 315–333.

Pearce, R. D., & Singh, S. (1992).The globalisation of research and development. London: Macmillan.Porter, M. E. (1986). Competition in global industries: a conceptual framework. In M. E. Porter,Compe-

tition in global industries(pp. 15–60). Boston: Harvard Business School Press.Poynter, T. A., & Rugman, A. M. (1982). World product mandates: how will multinationals respond?

Business Quarterly, 47(3), 54–61.


Roth, K., & Morrison, A. J. (1992). Implementing global strategy: characteristics of global subsidiarymandates.Journal of International Business Studies, 23(4), 715–736.

Rugman, A. M., & Bennett, J. (1982). Technology transfer and world product mandating in Canada.Colombia Journal of World Business, 17(4), 58–62.

Taggart, J. H. (1996). Multinational manufacturing subsidiaries in Scotland: strategic role and economicimpact. International Business Review, 5(5), 447–468.

Taggart, J. H. (1997). US MNC affiliates in the UK: a special relationship? In P. J. Buckley, M. Chapman,J. Clegg, & A. R. Cross,The Organisation of International Business. Proceedings of the AnnualConference of the UK Chapter of Academy of International Business. Leeds: C.I.B.U.L.

White, R. E., & Poynter, J. A. (1984). Strategies for foreign-owned subsidiaries in Canada.BusinessQuarterly, 49(2), 59–69.

White, R. E., & Poynter, J. A. (1990). Organisation for world-wide advantage. In C. A. Bartlett, Y.Doz, & G. Hedlund,Managing the global firm(pp. 95–113). London: Routledge.

Wolf, B. M. (1986). World product mandates and trade. In H. Etemad, & L. Se´guin Dulude,Managingthe multinational subsidiary(pp. 207–219). London: Croom Helm.

Young, S., Hood, N., & Dunlop, S. (1988). Global strategies, multinational subsidiary roles and economicimpact in Scotland.Regional Studies, 22(6), 476–497.

Robert Pearceis Reader in International Business at the University of Reading. His current research interestsare the strategic positioning of subsidiaries in MNEs and the roles of decentralised R&D. His most recentbook isGlobal Competition and Technology(Macmillan).

the evolution of technology in multinational enterprises: the role of creative subsidiaries

Documents