China and the Multinationals

China and the Multinationals

International Business and the Entry of China into the Global Economy

New Horizons in International Business series

Edited by Robert Pearce

This original and important book explores how the interaction between China and multinational enterprises has the potential to affect the future of the Chinese economy, the global economy, and international business.

Chapter 5: Capability Development of Foreign-Owned Subsidiaries in China During their Early Evolution

Feng Zhang

Subjects: asian studies, asian business, asian economics, business and management, asia business, international business, strategic management, economics and finance, asian economics


5. Capability development of foreignowned subsidiaries in China during their early evolution Feng Zhang INTRODUCTION The fact that overseas subsidiaries could play strategic roles in the competence development of multinational corporations (MNCs) has attracted considerable attention from researchers in both strategic management and international business in the past three decades. Correspondingly, asset-augmenting, also known as strategic asset seeking (Dunning, 1998; Kuemmerle, 1999), emerged as an alternative motivation for foreign direct investment. Moreover, a large amount of effort has been given to subsidiary level analyses, generating revolutionary insights on the capability development of MNCs and their overseas subsidiaries. For instance, a decentralized control mechanism in some MNCs to encourage local initiatives of overseas subsidiaries has been documented since 1980s (Bartlett and Ghoshal, 1986) whereas host location conditions along with the formal and informal management mechanism within MNCs were later emphasized by much literature (Birkinshaw and Hood, 1998; Andersson, et al., 2002; Almeida and Phene, 2004). On top of these factors, a wellreceived wisdom is that internal and external embeddedness of an overseas subsidiary is crucial, and sometimes decisive (Andersson, et al., 2005), for its performance and capability development. This argument has been put forward recently with the notion of ‘network MNCs’ (Ghoshal and Nohria, 1989; Ghoshal and Bartlett, 1990; Andersson and Forsgren, 2000; Ernst and Kim, 2002); in other words, the subsidiary’s capability is shaped by its embeddedness in both internal and external networks. While the capability development of an overseas subsidiary may be represented by the performance in any supply...

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