Literature Review

2. Literature Review

In this section, we review two sets of literature that are relevant to this paper – the literature on embedded MNCs and the literature on MNC digital transformation. For each set of literature, we summarize what is known, and discuss how this paper can build on existing knowledge to generate new insights.

2.1 The Embedded MNC

In the embedded MNC, subsidiaries conduct business under various degrees of interdependency and coordination (Forsgren, Holm, & Johanson, 2005). Each subsidiary is a node that simultaneously manages and utilizes some MNC resources, and each local market unit is “embedded in a unique context in which each has connections to various units outside the multinational” (Nohria & Ghoshal, 1997, p.

195). The MNC network is based on various relationships, and each subsidiary’s embeddedness in its relationships constitutes a strategic resource that can influence developments for the MNC (Andersson, Dellestrand, & Pedersen, 2014). MNC strategic decisions such as standardization vs. adaption are open for negotiation between HQ and subsidiaries and among subsidiaries (Theodosiou & Leonidou, 2003), which creates the setting for a perpetual power struggle between HQ and subsidiaries as they exchange information and compete for resources (Mudambi et al., 2014).

The wider MNC network, in which each subsidiary is embedded via its external business relationships in its local market, can support and/or hinder the subsidiary’s local actions. The subsidiary will be able to act more or less autonomously depending on the resources and mandate the subsidiary has within the MNC (Ambos et al., 2011). The distribution of roles and responsibilities across HQ and subsidiaries can be grounded within and/or outside the firm, and subsidiary coherence is based on trust developed in inter-organizational relationships (Kostova & Roth, 2002).

Relationships between HQ and subsidiaries are shaped by different factors (Kostova, Marano, & Tallman, 2016). While HQ has formal authority, the ability of HQ to influence a subsidiary is also a function of the knowledge that HQ has about the local market (Mudambi & Navarra, 2004). When HQ has limited knowledge of the subsidiary’s local market, HQ must rely on information provided by the subsidiary. In these situations, the subsidiaries can use business relationships in their local markets to influence HQ decision-making and increase their own status in the MNC (Yamin & Andersson, 2011), which can reinforce the cycle of high subsidiary interactions with local actors, focus on local markets, strong performance and innovativeness, and increasing influence in the MNC (Figueiredo, 2011).

Sometimes “the tail can wag the dog” (Forsgren, 2013, p. 107). Other times, however, a subsidiary that performs well due to external embeddedness may attract more HQ attention leading to increased HQ control which then limits the subsidiary’s voice and influence within the MNC (Ambos & Birkinshaw, 2010).