The development of subsidiary technological capability: network linkages and subsidiary autonomy

Abstract

This research contributes to the literature on subsidiary evolution by exploring the developments of subsidiary technological capabilities. It has been widely acknowledged that subsidiaries have unique in-house capabilities that are embedded in two contexts: 1) the internal technology sources including the headquarter ("HQ") and affiliated-units, such as the research and development ("R&D") centres; 2) the external technology sources comprised of local, regional or global entities, such as local universities. This study examines the relationship between subsidiary capability and autonomy and the mediating effects of communication systems, by linking internal and external networks through which the subsidiary both exploits and creates particular technological capabilities, and through which the parent company HQ, exercises its control. Through a synthesis of the international business and innovation management literature review, a set of measures of technological capability, autonomy and communication have been drawn. A capability taxonomy configured for the semiconductor industry by Ernst et al. (1998) was adapted to specifically examine integrated circuit ("IC") design, production and marketing capabilities amongst five different Taiwan-based foreign wholly-owned subsidiaries in the electronics industry (particular in the integrated circuits sector). These are compared using quantitative and qualitative measures on factors such as the types and levels of technological capabilities, the degree of autonomy and the intensity of communication they have developed. The findings demonstrated that the heart of subsidiary technological-capability creating lies in exploiting the parent company's core- competitive assets and capabilities and creating its capability development using local knowledge systems, and regional and global cooperative partners. The extent to which such developments of subsidiary technological capabilities are dispersed throughout and leveraged on the multinational enterprise ("MNE")'s differentiated network, depends on the intensity of internal and external communication systems for assimilating information or knowledge. Moreover, single subsidiaries have different degrees of decision-making autonomy, which influence both the nature of the internal NINE network, and the extent of influence of the internal and external network linkages on the developments of subsidiary technological capabilities. Overall, this research concludes that subsidiary autonomy is a cyclical process between the parent company and subsidiary, which is affected by the development of a subsidiary's technological capability. The capability- creating of a subsidiary is driven by the interactions between internal and external leverages which broaden the level and types of technological capabilities (namely, marketing-, design-and production-related) in terms of the scope of responsibility, in-house capability and the capacity for assimilation and creation of 4new' technology