Subsidiary Transformation, Network Relations and Dynamic Capability Development
: Case Studies of Taiwanese MNE Subsidiaries in China

  • Chun-Pu Lin

Student thesis: Doctoral ThesisPhD


This study investigates how the subsidiaries of multinational enterprises (MNEs)reconfigure their resource bases to respond to an altered strategic positioning. Inparticular, the focus is on the subsidiaries of multinational enterprises from emerging economies (EMNEs), which undertake transformation from export-orientation to host market-orientation in an emerging economy being host country. Two Taiwanese MNEs with subsidiaries in China extensively operated the host market are selected as case studies. This research is grounded in a preliminary conceptualisation covering three main areas: subsidiary organisations, external actors in the host country and headquarters’ functions. It provides insights into (1) how the subsidiaries align their historical resources with newly-developed capabilities; (2) how the subsidiaries govern inter-firm relations with external actors in the host environment; and (3)whether and how complementary resources are to a limited extent transferred from headquarters to subsidiaries so as to support the operations in the host market.With regards to the organisational initiatives undertaken by the case subsidiaries,it is found that the historical resources are leveraged to support the host marketbusiness, whilst at the same time developing required marketing capabilities. Inaddition, the concept of organisational ambidexterity is adopted to refer to way in which existing (export-oriented) and new (host market-oriented) businesses that are operating simultaneously. As to the inter-firm relations, the case subsidiaries have been mainly governing their relations with distributors by performance-based mechanisms aiming to secure stable profits. By contrast, the relation-based trust was not commonly observed among the cooperation ties. With growing brand strengths and increased direct contact with consumers, they held higher authority over the interfirm relations with distributors than during the initial stages of operating in the Chinese market. In addition, with regards to the cross-border resource transfers, two distinct modes of headquarters-subsidiary relationships emerged: a traditional one, in which headquarters allocate resources within MNEs and a novel one in which headquarters’ functions were gradually replaced by the powerful subsidiary, termed in this thesis as “migrating headquarters”. On the basis of these findings, we put forward a set of propositions that present the interrelations between the resource circumstances of case subsidiaries, the institutional environments and the organisational initiatives undertaken by the case subsidiaries.Theoretically, the contributions of this study are threefold. Firstly, it advancesthe research on subsidiary development by holistically exploring the: resourcereconfiguration of subsidiaries, inter-firm relations with external actors andheadquarters-subsidiary relationships. In particular, the resource deficiency which the EMNEs’ subsidiaries encountered and the characteristics of the required capabilitiesfor the host market-oriented transformation, i.e. local marketing competences, were investigated.Secondly, through probing the governance mechanisms adopted regarding interfirm relations between the case subsidiaries and local distributors, this study not only addresses the question of how MNEs acquire this location-bound resource, but also advances the extant research by the aspect of network positions. That is, this study indicates that the first-tier distributors hold more relations-based interactions with the case subsidiaries than the lower-tier ones did. Moreover, unlike the reliance on informal relations suggested by extant literature on doing business in emerging economies, it is found that the economic governance mechanisms based on distributor performance have been predominantly adopted by the case subsidiaries.Thirdly, by investigating how the complementary resources are transferred tothe subsidiaries, this work discovers EMNEs’ weakness at responding to the hostmarket-oriented subsidiary transformation in terms of resource deployment within MNEs, in particular those resources that have been mostly controlled by headquarters.In addition, the term “migrating headquarters”, which represents an extreme outcome of subsidiary development, provides novel knowledge to the extant literature on the relocation of MNE headquarters by the perspective of resource circumstances.Moreover, the five components comprising dynamic capabilities in the context ofsubsidiary transformation are identified through the two case studies as being:capability upgrading, capability leverage, capability building, coordination capability and cooperative capability.
Date of Award26 Jun 2013
Original languageEnglish
Awarding Institution
  • University of Bath
SupervisorKlaus Meyer (Supervisor) & Michael Mayer (Supervisor)


  • subsidiary transformation
  • host market orientation
  • dynamic capability
  • Taiwanese enterprises

Cite this