HQ-Subsidiary Knowledge and Financial Resource Flows: A Typology of Subsidiary Roles

Abstract

In this perspective paper, we discuss antecedents and implications of financial and knowledge HQ-subsidiary flows for MNE Strategy. These flows differ, as the deployment of knowledge hinges on numerous contextual characteristics, whereas financial flows are relatively fungible. The complexity and diversity of knowledge resources make their transfer sensitive to several subsidiary-level characteristics such as R&D mandates, location, and inter-unit interdependencies. In contrast, financial resource flows are relatively easier to measure and directly compare across domains. Hence, they are likely to be allocated primarily on risk considerations, notably the equity control over the subsidiary. Both flows are needed for subsidiaries to succeed. Based on the interrelations of knowledge and financial resources flows into the subsidiaries, four types of subsidiary roles are categorized: strategic growth, interrelated, diversified, and independent. We discuss implications on subsidiary competitiveness and MNE risk and point to future research avenues addressing the dynamic and interrelated flows of both these resources