Chapter 4: Empirical research on growth and development strategy – Multinational Corporation Subsidiaries in China

4

Empirical research on growth and development strategy

Abstract:

In this chapter, we discuss our empirical research on growth and development strategy with premises and hypotheses. We explain the study methodology, including sample selection, operational definition and measurement for variables and statistical methods.

Key words

Empirical research

growth and development strategy

sample selection

measurement

statistical method

To guide practice, research and public policy, the study of the growth and development strategy of MNC subsidiaries ought to be based on both robust theoretical foundation as well as first-hand empirical research. MNCs face a challenge of how to align their subsidiaries’ functional and business strategies with the parent company’s overall global strategy, while being flexible in satisfying the unique local characteristics and demands. In this chapter, the empirical aspects of the growth and development strategy of the MNC subsidiaries in China are investigated.

The growth and development strategy of MNC subsidiaries in China has its specific strategic scope and characteristics pertaining to issues such as:

 What are the motives for further investment in subsidiaries?

 Which factors influence subsidiary growth and development and to what extent?

 What are the present competitive positions of subsidiaries in China?

 What are their competitive advantages?

 What are their prospects?

 What strategies do MNC subsidiaries in China choose to consolidate and enhance their competitiveness in China?

These issues will guide subsidiaries and MNCs to participate in competition in China. Figure 4.1 gives an overview of the research model guiding our empirical analysis.

Figure 4.1 Flowchart of the empirical analysis

Analytical model

The empirical study is based on an analytical framework (Figure 4.2), identified and based on the theoretical as well as the historical backgrounds of MNC subsidiaries in China. The analytical framework is based on four premises and 15 conceptual components deriving from the MNC subsidiary S-SWOT analysis.

Figure 4.2 Conceptual analytical framework

The four premises are:

1. MNC subsidiaries in China are controlled by the MNC, as a foreign parent company.

2. Growth and development strategies of the subsidiaries are a function of their analysis and understanding of SWOT from the perspective of their internal and external business environments.

3. Growth and development strategies manifest as corporate and functional strategies of the MNC subsidiaries.

4. There are country, industry and temporal effects in these strategies.

The 15 conceptual components are: (1) investment entry modes; (2) shareholding ratio; (3) growth and development strategy factors; (4) strategic posture or SWOT factors; (5) the most significant competitive advantages; (6) the most significant competitive advantage initiatives; (7) relationship with the parent company and with other subsidiaries; (8) integration and localisation; (9) mergers and acquisitions (M&As) and strategic alliances; (10) financing strategy; (11) knowledge transfer strategy; (12) marketing strategy; (13) human resource strategy; (14) R&D strategy; and (15) strategic blunders.

Sample selection

A sample of 400 MNC subsidiaries was identified and approached using postal mail between October 2004 and April 2005, across more than 15 cities in China, including Shanghai, Beijing, Tianjin, Dalian, Fuzhou, Guangzhou, Hefei, Jinan, Changchun, Suzhou, Qingdao, Lianyungang, Anhui, Weihai and Songwan. Follow-up was conducted by telephone and email. To obtain greater participation from the MNC subsidiaries, support was elicited from the Ministry of Foreign Trade, provincial foreign economic bureaus and local municipality economic departments and offices in charge of the economic and technological zones. Support was also elicited from Seoul University and the South Korea Manufacturing Research Association to translate the instruments into Korean and to reach out to Korean MNC subsidiaries in China. By the end of May 2005, a total of 150 survey responses were obtained (37.5 per cent), of which 128 were usable (32 per cent). In addition to the surveys, interviews were conducted with many of the subsidiaries.

Table 4.1 gives the demographic of the respondents. Of the 128 respondents, 26 were board-level (board chairman, vice chairman, member or CEO), and 62 belonged to the top management teams. Twenty-eight of the MNC subsidiaries represented by these respondents were from the USA; 22 from Japan; 25 from the European Union; 43 from South Korea; and 10 from other nations. The wholly and majority foreign-owned MNC subsidiaries account for 97.7 per cent among all the sampled MNC subsidiaries.

Table 4.1

Sample characteristics

Statistical methods

Several statistical methods were used for data analysis using SPSS software: factor analysis, cluster analysis, correlation coefficient analysis, independent samples t-test method and independent non-parametric test, ANOVA analysis and the weighted average method.

Hypotheses on the behaviours of MNC subsidiaries in China

To guide our empirical investigation, we formulate a set of hypotheses on the behaviour of MNC subsidiaries in China, corresponding to each of the 15 conceptual components in the analytical framework. Operational measures for each of the hypotheses are also specified. The following chapters discuss these hypotheses and results in two parts: (1) strategic intent focusing on investment and competitive factors; (2) corporate and functional strategies.