The Association between Viability Related Factors and Control Package Choices in the Context of Foreign Subsidiaries

This paper examines the implications of factors relevant to the ongoing viability of wholly owned foreign subsidiary operations on the management control choices exercised by multinational corporation headquarters. We focus on two areas important for wholly owned foreign subsidiary viability, first strategic factors, relating to both corporate and competitive positions, and second integration factors, relating to both foreign subsidiary integration within and outside a multinational corporation. The motivation for this study is based on the continued importance of wholly owned foreign subsidiaries and the associated challenged when controlling these entities. To develop a more comprehensive and holistic understanding of the implications of viability related factors, we apply a control package approach, building on the findings of prior literature. Our evidence is based on a cross sectional survey questionnaire we develop and administer for which we received 159 useable responses. Based on transaction cost economics theory, we hypothesise that viability related factors effect control package choices and in particular effect the greater use of all control packages to a greater extent in situations that are less problematic (low uncertainty, asset specificity and ex-post information asymmetry). Our findings indicate that activity sharing corporate strategies, low cost strategies and higher corporate embeddedness do affect the greater use control packages in many cases, consistent with expectations. However differentiation based competitive strategies and external embeddedness appear to have far more distinct and narrow implications on control package choices. A number of alternative regression modelling approaches are run, however the main continuous variable based regression model results, presented in this paper, appear be explain control packages choices to the greatest extent