Sowing the seeds of subsidiary influence: subsidiary legitimacy as a power source for mandate development

Abstract

The principal aim of this research is to develop a greater understanding of how subsidiary power is constructed and enhanced within the Multinational Enterprise (MNE). The MNE as a federation is depicted as an internal market system where subsidiaries compete for dispersed power in the form of mandate allocations from Headquarters (HQ) (Chen et al., 2011; Dorrenbacher & Gammelgaard, 2006; Gammelgaard, 2009). The fight for these mandates generates micro-political power games between the MNE HQ and its distinctive subsidiary units (Dorrenbacher & Gammelgaard, 2011). Participating in these power games exposes a subsidiary's existing mandate to original or unfamiliar methods of functioning, which subsequently renders the subsidiary to legitimacy evaluations from HQ (Birkinshaw & Ridderstrale, 1999; Bouquet & Birkinshaw, 2008a). Furthermore, a major issue raised by Mudambi et al. (2014) is that the successful exercise of subsidiary power within the MNE is dependent on a set of legitimating principles specific to the subsidiary. Despite this observation there is little or no empirical research carried out on the way in which a subsidiary can strategically manage its legitimacy as a way to influence mandate extensions from HQ. This thesis applies an institutional theory lens to the MNE by drawing upon two separate but interrelated strands of literature namely; the micro-political perspective of HQ-subsidiary relations (Geppert & Dorrenbacher, 2014) and the process of legitimation within the MNE (Kostova & Zaheer, 1999; Zott & Huy, 2007). The research seeks to conceptualise subsidiary legitimacy as an antecedent to understanding more fully the micro-level foundations of subsidiary influence. The core research focus is 'how can subsidiary legitimacy be deployed as a power source in influencing the development of the subsidiary's mandate within the MNE?' The context of this study takes the form of four U.S. MNEs operating in the Medical Technology Sector in the West of Ireland. Irish subsidiaries in this sector that have been successful in gaining mandate extensions since this study's inception are the main subjects of this research. A qualitative research design was undertaken in the form of 30 semi-structured interviews with top management from each subsidiary and key officials within the MNE. Given Ireland's dependence on the flow of U.S. FDI this particular relationship makes for an appealing context in which to position the current research. The findings indicate that Irish subsidiaries leveraged their legitimacy internally within the MNE by participating in a number different micro-political power games. Each of these power games is associated with a specific form of subsidiary legitimacy. However, Irish subsidiary managers described that there was a need to develop a greater degree of HQ-embeddedness in order to establish a platform from which they could participate more effectively within these micro-political power games. Based on the research findings, the main theoretical contribution of this thesis is the development of framework for enhancing subsidiary influence internally within the MNE. Overall the findings of this thesis reveal the importance of developing a greater degree of subsidiary embeddedness internally with HQ in order to recognise subsidiary legitimacy as the missing link to a more holistic understanding of subsidiary power and influence. As a result this thesis contributes to calls for a greater appreciation of how legitimacy is established through the social and political interactions between key individuals at the HQ-subsidiary interface (Clark & Geppert, 2011; Geppert & Dorrenbacher, 2014; Kostova, et al., 2008).