Instantly upgrading a foreign subsidiary’s value-adding scope: impact on growth

Drawing on the knowledge-based theory, the purpose of this paper is to extend the current understanding of a company’s upgrading of a foreign subsidiary’s value-adding scope and its impact on growth.

This study applies a longitudinal approach and analyses the value-adding scopes of the subsidiaries of two Swedish industrial companies in the USA, resulting in a proposed model.

Greater adaptation of the corporate competitive strategy is linked to a greater likelihood of upgrading the subsidiary’s scope to include R&D and production activities. Also, market experience of the subsidiary is positively associated with this likelihood. The greater the coherence between the scope and knowledge originating from the local adaptation of the corporate competitive strategy and the subsidiary’s market experience, the greater the growth of the subsidiary.

This study contributes to the literature on international business and strategy in several ways. Future studies may turn the propositions into hypotheses for statistical tests.

An industrial company striving for the growth of a foreign subsidiary must assess subsidiary knowledge pertaining to value-adding. To achieve high growth, the subsidiary’s value-adding scope must be aligned with knowledge stemming from the corporate competitive strategy and market experience.

This is the first study explicitly explaining the crucial upgrading of a foreign subsidiary’s value-adding scope to include R&D and production. Coherence between an upgraded scope and crucial knowledge explains the subsidiary’s growth.