Study Of Subsidiaries Evolutionary Growth Based On Network Embeddedness

Economic globalization has been intensified since1980s, and witnessed that more andmore multinational corporations established overseas subsidiaries through large-scale foreigninvestment. During the same period of time, a series of enterprise groups began to take shapeas the result of enterprise reform took place in China. Enterprise group, in essence, is a kind ofenterprise combination with the parent-company and its subsidiaries as the core. Establishingsubsidiaries has become the main approach to expand outwards adopted by multinationalcorporations or enterprise groups. The three main fields of nowadays research in multinationalcorporations include: a) transformation and development of subsidiaries; b) relationshipbetween parent-company and its subsidiaries; and, c) the role played by subsidiaries and itsevolution.Enterprise can be defined as an aggregation of various tangible and intangible resourcesassembled according to some certain regulations. The growth of an enterprise, therefore, refersto a process in which an enterprise enlarge its transaction broader and input-output scalethrough obtaining, communicating and integrating resources. The existence of an enterprise aswell as its development across borders is reflected in its subsidiaries’ establishment and growth.In the international arena, parent-subsidiaries generally appear as multinational corporations.The majority of enterprise groups registered in mainland China can be ascribed toparent-subsidiaries.The development of subsidiaries, as a main approach for an enterprise to expandingoutwards its boundary and organization, involves changes in inner quality and in outer scale.Therefore, the growth of a subsidiary is a coin with two sides. On one side, it means thechange of relationship with its parent company and its own business boundary. On the otherside, it means evolution on sales and assets. The birth of network organization, which was theresult of rapid development and transforms of global economy, society and techniques, has afar-reaching impact on enterprises. Because of the emergence of network organization, itseems more appropriate to define relationship between companies as complexnetwork-competition-cooperation rather than the simplistic trade-competition. Network-competition-cooperation relationship includes formal and informal socialrelations, and has changed fundamentally the nature of enterprise existence and transaction.From this point of view, subsidiary derivative and growth, in essence, is the evolutionarygrowth through embedding itself into the network organization. In other words, a subsidiary’sdevelopment depends on the networked growth of the network in which it embedded. In realpractices, subsidiaries become more likely to develop by themselves. Subsidiaries need toconsider the nature and characteristics of the network with their local business partners.Subsidiaries’ derivative, scale of growth and speed of development all depends on how theyembed themselves into the network organization.This research focuses on the model and effect of subsidiary’s network embeddedness, andthe relationship between network embeddedness and subsidiary development. Networkembeddedness theory, enterprise evolution theory and parent-subsidiaries theory are applied totheoretical analysis as well as field work study. The research contributes to a new prospect ofparent-subsidiaries research and efforts aiming at accelerating enterprises transformation andenhancing competition competence.There are seven chapters in the thesis:Chapter one is an overall introduction of the study. It includes research background,research aim, research plan, research content and research methodology.Chapter two is literature review. It exams those theories related to the research, such asenterprise development theory, subsidiary development theory, and network embeddednesstheory. It seems that those existing studies are insufficient in the following aspects: a) there arefewer studies on subsidiary development than studies on subsidiary’s role and relationshipwith parent-company; b) there are fewer studies on evolution of company’s nature than studieson company’s sales and assets; c) there are few studies on subsidiary’s evolution based onembeddedness theory and network environment.Chapter three describes a model for analyzing the structure of subsidiary embeddedness,which is the basis of the overall study. First, a model is set up based on network organizationtheory and parent-subsidiary network relationship theory from the prospect of networkembeddedness. Second, the characteristics and influential factors of subsidiary network areanalyzed from the prospect of embedded scale and embedded interface. Third, the relationship between subsidiaries and its outer network is divided into two types based on the approachesof embedding, namely horizontal and vertical relationship, and into four types based on thenature of embeddedness, namely emotional interaction embeddedness, discrete contractingembeddedness, contracting cooperation embeddedness, and equity joint ventureembeddedness.Chapter four reports the mechanism between network embeddedness and subsidiarydevelopment, and this chapter is the core of the thesis. The characteristics of networkembeddedness have been studied from three aspects: embedded strength, embedded intensity,and network embeddedness location. In addition, this chapter explains the impact ofembeddedness on company’s derivative, and the motivation, models and paths that subsidiariesmight have or take to get embedded in the network. In specific, the chapter firstly defines whatcompany derivative is and described ways to measure subsidiary development. Secondly, thechapter examines the motivation of company development by using network rent theory andreal option theory. It is found that the network rent emerged within a network environment isthe benefit from sharing resources, knowledge spillover and risk dissemination among allnetwork partners. Finally, the chapter examines the possible approaches that subsidiaries mightchoose to realize development within a network organization.Chapter five emphasizes on the effect of parent-company control model on thedevelopment of subsidiaries. Two foci includes: a) relationship between parent-company andsubsidiaries within the network organization framework; b) relationship betweenparent-company control and subsidiary development.Chapter six reports an empirical study. It includes questionnaire survey, model constructionand analysis, and statistics analysis, such as hypothesis testing. It is found that networkembeddedness has great influence on subsidiary development, and there is a kind ofrelationship between the extent of network embeddedness and subsidiary development.Chapter seven is titled ‘Conclusions and Future Study’. It summarizes the main findings ofthe thesis, discusses the contribution to theory as well as to practice, and points out theshortcomings of the study and suggestions for future study.The possible contributions of thestudy to the existing research include:a) A new approach to analyzing the development and evolution of subsidiaries from the prospect of network embeddedness. In specific, the research introduces a model of subsidiarynetwork embeddedness, which can be used to analyze variables involved in network and theimpact of their development on subsidiaries’ development. There types of embedded growth,namely horizontal, vertical and mixed embedded growth, as well as embeddedness regression,are defined and applied to the analysis.b) A series of criteria to measure the extent to which a subsidiary embedded in the network,and a description of relationship between the extent of embeddedness and evolution. Theresearch explains the motivation, models and paths that subsidiaries might have or take to getembedded in the network through analyzing the boundary and rent of embeddedness.