Effects of Headquarters-Subsidiary Relations on Subsidiary Entrepreneurship and Initiative: The Role of Trust

Abstract

Multinational enterprises (MNEs) increasingly rely on their foreign subsidiaries for innovation, learning, and growth. Understanding how the relationship between MNE headquarters (HQ) and their subsidiaries affects innovation and entrepreneurship within subsidiaries has become a key issue for researchers and managers. Previous studies of the HQ-subsidiary relationship have largely neglected the individual subsidiary manager’s perspective, and it is still unclear what motivates subsidiary managers to pursue entrepreneurial opportunities. In this thesis, I explore how the HQ-subsidiary relationship influences subsidiary managers’ attitudes and behaviour, with a specific focus on the drivers of subsidiary entrepreneurial initiative, innovation and market responsiveness. Following a general overview of the scope and aims of the research, the thesis presents three self-contained papers. The first paper confronts some of the traditional assumptions of MNE theory and builds on the broadened agency perspective to outline a behavioural agency framework that identifies three key elements that facilitate an effective relationship between HQs and the subsidiaries of contemporary MNEs, namely trust in the HQ, feeling trusted by the HQ and procedural justice. This reconceptualization of the HQ-subsidiary relationship has both theoretical and managerial implications, and provides a foundation for future research on the subject. The second paper builds on the framework developed in the first paper; it theorizes and tests the hypothesis that a strong subsidiary entrepreneurial culture, which is a manifestation of an effective HQ-subsidiary relationship, is a necessary condition for subsidiary managers to pursue subsidiary initiatives that benefit local responsiveness and the MNE as a whole. We find support for this hypothesis through a survey study of 110 executives managing foreign subsidiaries in China, operating across ten different major industries and headquartered in more than ten different countries. The study also tests three hypotheses concerning the key antecedents of subsidiary entrepreneurial culture. The results indicate that both procedural justice and feeling trusted by the HQ are positive predictors of a subsidiary entrepreneurial culture, which is consistent with the framework developed in the first paper. However, the findings do not support the proposed predictive relationship between trust in the HQ and entrepreneurial culture. The paper closes with a discussion of the implications for research and practice. Building on the quantitative findings in the second paper, the third paper reports findings from a qualitative study investigating in more detail: (i) the antecedents and consequences of subsidiary managers’ feeling trusted/distrusted by the HQ and trust/distrust in the HQ; (ii) the mechanisms through which trust influences subsidiary entrepreneurial orientation; and (iii) how entrepreneurship influences subsidiary performance in terms of local responsiveness and subsidiary initiatives that benefit the MNE as a whole. This study examines these processes through semi-structured in-depth interviews with 27 subsidiary executives managing seven business units at the Chinese subsidiaries of two Western MNEs operating in the industrial products sector, which permitted comparisons between high- and low-performing subsidiaries. The findings reveal that feeling trusted by the HQ and trusting in the HQ affect subsidiary managers’ behaviour in different ways. Specifically, subsidiary managers’ perception of being trusted by the HQ fosters subsidiary entrepreneurial orientation, while their trust in the HQ facilitates organizational citizenship behaviour. Furthermore, performance comparisons of subsidiaries with different types of HQ-subsidiary relationship (categorized based on trust) confirm that subsidiary managers’ perception of being trusted by the HQ plays a more important role, than their trust in the HQ, in infl

Date of Award	1 Aug 2019
Original language	English
Awarding Institution	The University of Manchester
Supervisor	Mark Healey (Supervisor)