How multinational enterprises make decisions about foreign subsidiary strategic change: an exploratory study

While multinational enterprises (MNEs) do engage in various types of strategic change, we have a poor understanding of the processes underpinning their decision-making. Using case studies of 14 China subsidiaries of MNEs, this thesis explores how MNEs make decisions about subsidiary strategic change. Headquarters and subsidiaries relied on decision-making routines to identify problems and opportunities and to develop, review and sign-off on subsidiary strategic changes. These routines included processes to extract information from the internal and external environment such as scanning, along with processes to share knowledge within and between headquarters and subsidiaries such as regular strategic and operational meetings. For headquarter initiated strategic change ideas, headquarters executives usually drew on formal overseas information, such as consulting firm and industry reports. Neglecting informal China information, they proposed strategic changes ill-suited to their Chinese subsidiary. Further, headquarters struggled to absorb subsidiary input during idea development and review processes. These headquarter failures were explained by their executives’ lack of in-country China work experience. They were, however, more willing to incorporate this subsidiary knowledge when the subsidiary was a larger contributor for the MNE. For subsidiary initiated strategic changes, subsidiary executives relied on informal China information when scanning and their previous China experiences to develop strategic change ideas. Longer-serving subsidiary CEOs who had more diverse functional knowledge, generated better change proposals during routine group subsidiary idea development and review processes. These subsidiary organizational routines were, however, avoided when the subsidiary CEO believed that the change idea would have negative implications for some MNE executives. For these cases, the subsidiary CEO developed a strategic change idea by him/herself. HQ accepted subsidiary input into headquarter initiated change ideas and endorsed subsidiary change proposals when relevant subsidiary executives had credibility with headquarters and had invested in learning how their parents made strategy. Credibility depended on their individual track record with the parent at the subsidiary. Rather than obstacles to change, local government officials played an important role as a knowledge contributor to the decision-making process.