How does a foreign subsidiary’s differentiation strategy fit competitive dynamics and mandate?
Abstract
Purpose
Drawing on the contingency perspective of strategy, the purpose of this paper is to extend current understanding of fit between a differentiation strategy of the industrial firm’s foreign subsidiary and key contextual boundaries.
Design/methodology/approach
A conceptual framework is developed in which a differentiation strategy involves the complementary approaches of innovativeness and customer responsiveness. The key boundaries consist of local competitive dynamics and the value-adding mandate assigned to the subsidiary. Detailed features of four types of differentiation strategies are identified by analysing strategies applied by subsidiaries of industrial firms operating on the US market.
Findings
Four propositions are developed regarding alignment between strategy types and the boundaries. Relationships are proposed regarding a strategy type and a context specified by rivalry/relational competitive dynamics, and a broad/narrow value-adding mandate.
Research limitations/implications
The conceptual framework and the propositions may be tested by analysing statistical data on industrial firms’ subsidiaries operating in several host countries.
Practical implications
To increase a foreign subsidiary’s contribution to the global competitiveness of an industrial firm, an awareness of the boundaries to the subsidiary’s strategy of differentiation that may hamper the subsidiary’s performance is essential.
Originality/value
The conceptual framework, and the propositions, contributes to literature on the industrial firm’s global strategy because it focuses on subsidiary strategy and extends present understanding of the mechanisms that drive the effectiveness of a foreign subsidiary’s differentiation strategy.
Keywords
Acknowledgements
Earlier versions of this manuscript were presented at the 43rd Academy of International Business Conference (UK, Ireland Chapter), London, 7-9 April 2016, and the Strategic Management Society Special Conference, Rome, 5-7 June 2016. The author is thankful for valuable comments received from conference participants and reviewers. Miralem Helmefalk and Clarinda Rodrigues also delivered important comments. Tobias Pehrsson and Daniel Svanberg Nilsson collected data on the subsidiary cases.
Citation
Pehrsson, A. (2016), "How does a foreign subsidiary’s differentiation strategy fit competitive dynamics and mandate?", European Business Review, Vol. 28 No. 6, pp. 690-708. https://doi.org/10.1108/EBR-08-2016-0107
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited