Determinants of Subsidiary Roles of Foreign-Owned Firms in Japan and Human Resource Management Practices
As the theoretical background, we apply the framework presented by Birkinshaw & Hood (1998). This framework suggests that the role of an overseas subsidiary is not merely assigned by headquarters, nor is it determined by the conditions and constraints of the local environment. Rather, the subsidiary can play an important part in determining its own role by demonstrating initiative to enhance or acquire a specific role vis-à-vis those assigned by headquarters and/or peer subsidiaries. This leads to the first original point of this study, i.e., it takes into consideration all three determining factors simultaneously in order to analyze the subsidiary roles of foreign firms in Japan.
Essentially, we lay particular emphasis on the notion that an overseas subsidiary serves as a node connecting two kinds of networks, one within the multinational firm, which is known as a multinational network, and the other lying across the boundaries of firm, which is known as a local network. A subsidiary, therefore, acquires skills and competence through effective human resource management practices, which in turn, influences head-office assignment and subsidiary choice in a subsidiary’s role.
The second original point of this study is the division of the subsidiaries into two types: subsidiaries with only sales activities and those with full-fledged operations including sales, production, and R&D, since they are expected to display different roles.
We conducted a questionnaire survey in December 2013 and obtained 271 valid responses from foreign firms in Japan. We used structural equation modeling analysis to simultaneously conduct confirmatory factor analysis using 24 observed variables and path analysis among seven latent variables.
We have assumed that a subsidiary can enhance its original capability partly determined by its multinational network, by making use of its local network, which in turn influences it in choosing its own role as a member of a global firm.
Subsequently, we argue that in order to realize the maximum potential of these two networks, a subsidiary must take distinctive measures in hiring and training personnel within multinational and local networks. This study assumes that human resource management practices contribute toward building two kinds of subsidiary competence, namely, firm specific advantage, which is obtained from the multinational network, and subsidiary specific advantage, which is obtained from the local network.
The results of the analysis indicate that some of what has been stated and believed about Japanese labor markets may not be actually be true. For instance, it is believed that foreign firms in Japan appreciate the general skills of workers more than Japanese firms and vice versa, and that there is little mobility of workers between foreign firms and Japanese firms, especially from foreign firms to Japanese firms. Moreover, the effect of the local environment was fairly limited, particularly for subsidiaries executing complete operations such as production and R&D, presumably because the items in the questionnaire mainly included market-related factors as opposed to technical factors.