Purpose – Subsidiary units must respond to emerging threats including disaggregation of value chains and increased headquarters monitoring and control which have led to a cycle of subsidiary decline. The authors recognize the value of subsidiary initiatives as a short-term response but argue that subsidiary long-term survival and growth will depend on the unit's ability to align with its parent strategic activities and knowledge base through developing vertical embeddedness.
Design/methodology/approach – This research is part of an ongoing quantitative and qualitative study programme of Irish subsidiary operations of foreign MNCs. This paper integrates the authors' broader research to date including both in-depth interviews within a focal case combined with a comprehensive review of the literature relating to MNC and subsidiary management in identifying how subsidiaries can respond to current challenges.
Findings – In contrast to the dominant view in the literature, this research found that subsidiaries can respond to emerging threats by integrating their activities and deepening their alignment with their parent operation. The authors identify three pillars in developing a strategy of alignment – strategic embeddedness or ensuring development of subsidiary strategy in line with headquarters stated objectives, relational embeddedness determined by trust relationships and a history of consistent subsidiary delivery and finally knowledge embeddedness facilitated through coalescent knowledge creation and collaborative effort in line with headquarters strategy and direction.
Research limitations/implications – Results from the survey are subject to the standard limitations and a larger pool of interviewees may have reinforced the qualitative findings.
Practical implications – Subsidiary managers need to be aware of how closer integration of unit activities with headquarters and the management of knowledge outflows can reduce the risk of relocation and better position subsidiaries for survival and growth. To date the emphasis on subsidiary initiative has overshadowed the benefits of aligning with headquarters strategy, a more feasible alternative for many subsidiaries which do not enjoy strategic independence.
Originality/value – By demonstrating the benefits of alignment with headquarters, this paper identifies a valuable alternative perspective to the predominant view in the literature that subsidiary survival is dependent on subsidiary initiative. Interesting insights into how alignment can be achieved are also provided. Capturing both the subsidiary and parent perspectives provides valuable insights.