Network development for competitive advantage: A study of subsidiary networks and alliance networks

This thesis explored the question “How does a multinational corporation's (MNC) network development affect its financial performance?” The principal objective of this thesis was to increase our understanding of the development of internationalizing firms as emerging networks and the competitive advantages that arise from such networks. To meet this objective, this thesis (1) built a taxonomy of networks in internationalizing firms, differentiating between the internal network of subsidiaries and the external network of alliances, (2) examined the patterns of network development, (3)investigated the impact of network development on firm performance.; Interdisciplinary in nature, this thesis drew on two theoretical lenses: internalization theory and social network theory. Both have been applied in multiple streams of literature relevant to this thesis. The theoretical framework was built from the perspective that all firms are socially embedded. As such, the framework emphasized the role of networks in mitigating the knowledge and resource deficiencies of the internationalizing firms and proposed that network development should confer competitive advantages and contribute to firm performance.; The form of investigation in this dissertation involved both quantitative and qualitative methods. In the first stage, the hypotheses were tested using a sample of 793 Japanese MNCs and their sub-samples of small and medium sized firms (SMEs). In the second stage, interviews were conducted with senior managers in 11 Japanese subsidiaries in China to identify the mechanisms through which network development affects performance.; The empirical results in this thesis demonstrated an overall positive impact that subsidiary network development has on firm performance. Focusing on SMEs, a U curve relationship was found between the extent of subsidiary network development and firm performance. When SMEs first begin FDI activity, profitability declines, but greater levels of FDI are associated with higher performance. Meanwhile, the development of an alliance network itself is no guarantee of higher firm performance. Neither is the position a firm occupies in an alliance network. What really matters is the composition of partners in the alliance network. This determines the network resources which a focal firm can access. When a firm develops alliance networks which provide it with diversified host country knowledge, a valuable resource in the process of internationalization. This leads to higher performance. Finally, subsidiary network development and alliance network development are closely connected. With the growth of subsidiary networks, the benefits from alliance networks level off.