Choosing control mechanisms for foreign subsidiaries-the case of Taiwanese firms
Authors: Joseph Chwo-Ming Yu; Tsai-Ju Liao;
Journal: Chia Da Management Review. Dec. 2005, 25(2): 27-56.
Keywords: Control Mechanisms; Internationalization; Resource Dependence On A Parent Firm; Local Environment
Abstract:
This study investigates the impact of the international development of firms (i.e., internationalization), dependence of
subsidiaries on parent firms (i.e., resource dependence of subsidiaries on parent firms and organizational culture), and
local environments (i.e., culture and industrial environment in a host country) on the choice of control mechanisms by parent
firms for subsidiaries. Through literature review and case studies of six firms headquartered in Taiwan, the study has the
following findings : (1) A parent firm tends to adopt more formal control mechanisms when its levels of internationalization
are low and when a subsidiary serves the role as a production site; (2) A parent firm tends to lower the adoption of formal
control mechanisms, when its levels of internationalization are low and when a subsidiary serves the role as a selling unit;
(3) Increasing levels of internationalization leads to the adoption of more informal control mechanisms by a parent firm, in
addition to the intensive usage of formal control mechanisms; (4) When a subsidiary relies more on the headquarters for
resources, a parent firm tends to adopt more formal control mechanisms; (5) When a subsidiary relies less on the headquarters
for resources, a parent firm tends to increase the usage of informal control mechanisms; (6) When the organizational culture
encourages innovation and communications, a parent firm tends to adopt more informal control mechanisms; (7) When the culture
of a host country is characterized by collectivism, a parent firm tends to adopt more formal control mechanisms; and (8)
Unstable local industrial environment leads to more usage of informal control mechanisms by a parent firm.