Case ID: 9B06TA09
Solution ID: 25178

Global Integration and the Performance of Multinationals Subsidiaries in Emerging Markets Case Solution

Case Solution

Unlike the argument that global integration reduces duplication and charges, the author's study discovered that MNC subsidiaries in emerging markets are afflicted by cost disadvantages once they source (or depend upon providers) from centralized corporate systems so when HQs exert control by delivering expatriates towards the subsidiaries. However, when the subsidiaries can make use of their parents' systems to export items to foreign markets in order to affiliated subsidiaries, the subsidiaries can reduce their costs. Therefore, for subsidiaries in emerging markets, output instead of input side integration reduces costs. The timing of entry may also affect the MNCs' capability to develop local supplies in China. Subsidiaries that enter later face less difficulties to find local providers: When foreign companies enter China, many bring their providers together and native providers enhance their abilities and technologies with time. While productivity and operating efficiency possess a key effect on subsidiary costs, the result of cost/cost competition on the subsidiary's performance depends upon the kinds of rivals it's facing. Cost and cost competition is much more essential in affecting subsidiary performance once the subsidiaries mostly are rivaling foreign firms when rivaling local firms, subsidiaries need to make amends for their cost/cost weakness through good quality.

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