Scandinavian Working Papers in Economics
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Department of International Economics and Management, Copenhagen Business School Working Paper Series, Department of International Economics and Management, Copenhagen Business School

No 8-2000:

Ulf Holm and Torben Pedersen

Abstract: A common understanding in recent literature on the development of multinational corporations (MNCs) and headquarters-subsidiary relations is that some subsidiaries will have, or ought to have, a strategic role in the global organization that reaches beyond their local undertakings. This notion implies that MNC competitive advantage depends on the ability of several corporate units to assimilate and make use of knowledge created in other business contexts than their own. Hence, an MNC subsidiary must adapt and commit to the local environment in order to survive in the market competition. On the other hand, corporate sister units’ usage of subsidiary knowledge implies that the subsidiary also must adapt and commit within the corporate environment. The dilemma here lies in the extent to which the subsidiary’s external market environment and its corporate environment are separated (or integrated) systems in terms of connections between resources and activities and knowledge development. In this paper, we will reveal empirical findings from an international project on the occurrence of strategic subsidiaries - denoted Centres of Excellence (CoE) - in MNCs. We also investigate if CoEs play an influential role over corporate decisions on investments. Our investigation reflects the extent to which the subsidiary competencies are of context-specific nature or if they affect other parts of the MNC. The paper also discusses and presents case-examples of how the subsidiary can retain its uniqueness and sustain as a CoE even if it continues to transfer knowledge to other parts of the MNC.

Keywords: Multinational corporations; subsidiaries; Globalization; Competitive advantage; Knowledge creation; Corporate strategy; Foreign investments; Corporate culture; (follow links to similar papers)

23 pages, June 7, 2000

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