Need for this study

Multinational corporations heavily influence the strategy of their overseas subsidiaries. Several studies have investigated the relationship between MNC overseas subsidiaries and their parent companies (Bartlett and Ghosha, 1986; Jarillo and Martinez, 1990; Prahalad and Doz, 1987; Taggart, 1996; Gupta and Govindarajan, 1991; Birkinshaw and Morrison, 1995). A common element of these studies is a focus on how overseas subsidiaries handle the pressures and the balance between globalisation needs and local demand while formulating their strategy.

With the increasing importance of subsidiaries’ function and contribution in the overall development of MNCs, the study of subsidiaries’ enterprise development has been of great recent interest (Pan and Lu, 2003). Perspectives such as enterprise network theory, resource-based theory and enterprise development theory have been applied to study interactive relationships between subsidiaries and their external and internal environments (Birkinshaw and Hood, 1997, 1998).

In the late twentieth century, many MNCs began to establish subsidiaries in China. In the Chinese context, the emphasis of the studies on enterprise development has been on: 1) small and medium-sized enterprise growth (Gu, 2000); 2) family enterprise development, particularly entrepreneurial capability change in the process of organisation growth and succession (Wu, Jia and Chen, 2003); 3) product life cycle management (Zhang, 2003); 4) new century modes for enterprise development (Li, 2002); 5) digital modes for enterprise development (Du and Tang, 2002); and 6) entrepreneurial spirit and capability (Li, 2002; Liu and Chen, 2001). Most of these research studies have a macro focus, such as MNC investment in China, enterprise structure and the impact on the national economy. A few studies have a micro focus, such as subsidiary strategies, subsidiary operations and subsidiary management; yet these studies are mostly descriptive. There is a scarcity of empirical analyses at the micro level for MNC subsidiaries’ growth and development strategy in China. The present study fills this gap.

The study of MNCs’ overseas subsidiaries began more than 20 years ago in the 1970s, with studies such as those conducted by Youssef and Hulbert (1975). The subsequent literature on MNCs overseas subsidiaries’ growth and developmental strategy can be organised into four genres of studies: strategy-structure, headquarter-subsidiary relationship, subsidiary role and subsidiary development. After reviewing this literature, we propose that the growth and development strategy system for multinational overseas subsidiaries is formed by three layers: corporate strategy, system strategy and functional strategy. We empirically analyse the tactics for growth and development in each layer.

We investigate MNC subsidiaries’ horizontal and vertical behavioural trends. Horizontal trends involve various countries, industries and roles, while vertical trends suggest time sequences of growth and development strategies. From the horizontal angle, the model compares common and specific features of MNC subsidiaries in China based on country of origin and industry of operation. From the vertical point of view, the model analyses the evolutionary process in which MNC subsidiaries in China have changed their strategic system, strategic tendency and strategic intent and describes the stages for their evolution. The strategic evolution model provides a rational framework for comprehensive theoretical analysis of MNC subsidiaries in China.

At present, most MNC studies in China use second-hand materials, data and other sources with very low empirical validity. In order to obtain a more objective understanding, we use a questionnaire survey to obtain first-hand information. We summarise new features of these subsidiaries that have emerged in recent years.

Practical significance of this study

Like other Chinese firms, the multinational subsidiaries in China are facing a tough issue: how to achieve continual growth and development. The ancient Chinese wisdom teaches that only when we know ourselves and our rivals very well can we eventually win the war.

With expansion of MNC investment in China, global competition in the Chinese market is increasing and becoming fierce. Multinational subsidiaries in China are from different countries and are competing in different industries. They face different challenges in the global marketplace, in host-country policies and in the level of competition in the local market. They exhibit distinct personality characteristics, generating diverse strategies for growth and development. These diverse growth and development strategies manifest themselves in variations in such significant factors as strategic motives, roles and behaviours of MNC subsidiaries.

The growth and development strategies for MNC subsidiaries in China are a function of two major factors: first, the implemention of the global strategic mission of the parent firm; second, their own need for growth and development in China. With the persistently high growth of the Chinese economy and improved global positioning of China, many multinational corporations have defined China as a strategic platform for their global operations.

In the early years, MNCs’ subsidiaries in China behaved more like a foreign-owned entity. Increasingly, however, these subsidiaries have evolved to give more attention to corporate social responsibility. Simultaneously, the so-called gregarious growth models have gradually emerged. These evolutions engender several questions on the strategies adopted by MNC subsidiaries in China:

Chinese enterprises are still not in a position to start an allround competition with MNCs. In 2003, only seven Chinese firms were ranked among the world’s most competitive enterprises in Fortune 500. They were largely focused on monopolistic industries, including edible oil, petrochemicals and telecommunications. Comparative studies can help local Chinese firms better understand strategic content and operational orientations of MNC subsidiaries in their industry and take corresponding countermeasures.

MNCs have exerted tremendous impact on the growth and development of Chinese enterprises. Their subsidiaries offer two significant practical values to these Chinese firms: benchmarks for local operations and best practice for international expansion. Chinese enterprises can also understand the effects of various strategic choices of operations at different time periods with different industries. They can identify the strategic evolutionary process of transnational operations in different stages, so that they may also effectively manage their subsidiaries in other countries for global competition.

As China has opened up, the number of foreign subsidiaries has rapidly increased and created continuous expansion in the region. All adjustments to the investment strategy of MNC subsidiaries impacts China’s economic growth and industrial development, both domestically and globally. Comparative studies can assist the Chinese government in formulating appropriate laws and regulations, guiding leading MNC subsidiaries in China and assuring that the latter conform to China’s laws and customs. The Chinese government can also gain insights to formulate reasonable regulations and policies to guide Chinese subsidiaries in different industries. The methodologies applied to govern multinational subsidiaries are a significant benchmark for the Chinese government in making policy for regulating and guiding MNC subsidiaries operating in China. Therefore, the findings of this study have great practical value when used to identify or construct fundamental economic policies.

Purpose and methods

The purposes of this book are:

The ultimate objective of this study is to investigate the competitive advantages of Chinese multinational subsidiaries and analyse how they have cultivated their own core competencies to achieve self-sustained growth as domestic enterprises. Such an investigation will offer strategic recommendations and the theory and reference guide for China’s macro and micro decision-making policies (enterprise level, industrial level and government level).

These objectives are met through two types of study: literature review and empirical analysis.

The literature review encompasses studies of strategic management theory, international growth strategy, production integration and globalisation processes, and comparisons across different countries or regions. It includes a review of both Chinese as well as international literature.

A survey of a representative sample of MNC subsidiaries in China is used to conduct statistical analyses. Vertical comparisons across time periods, and horizontal comparisons across different industrial sectors and national origins, along with functional analysis, add to the analytical depth and uniqueness. The focus of this study is on both horizontal and vertical comparisons in different countries, different industries and inside the global area with the growth and development strategies of multinational Chinese subsidiaries.