Managing foreign subsidiaries: agents of headquarters, or an interdependent network?

Sharon Watson O’Donnell

Strategic Management Journal, 2000, vol. 21, issue 5, 525-548

Abstract: In this study, two different theoretical perspectives are used to develop sets of hypotheses regarding the mechanisms used to manage foreign subsidiaries of multinational corporations. First, agency theory serves as the basis for a model that predicts the use of monitoring mechanisms and incentive compensation. Then, it is argued that these mechanisms are insufficient for managing subsidiaries characterized by high levels of intra‐firm international interdependence, the management of which is critical to many of today's complex global firms. A second set of hypotheses is argued, linking international interdependence to several social control mechanisms. Primary and secondary data from U.S. based multinational corporations were used to test both sets of hypotheses. The results indicate that agency theory, although a useful foundation for studies of control within MNCs, is limited in its ability to explain fully the phenomenon of foreign subsidiary control, however, the model based on intra‐firm interdependence had much greater predictive ability. Copyright © 2000 John Wiley & Sons, Ltd.

Date: 2000
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https://doi.org/10.1002/(SICI)1097-0266(200005)21:53.0.CO;2-Q

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