Internal and External TIE Complementarity: Implications for Subsidiary Entrepreneurship in Emerging Markets

This paper examines how complementarity between internal and external embedding ties impacts subsidiary entrepreneurship in emerging markets. The tie complementarity perspective offered here contributes to the evolving understanding of how foreign subsidiaries contribute to multinational corporation (MNC) value creation through entrepreneurial activity.  Ties with actors in the local environment allow MNC subsidiaries to identify opportunities, tap resources, and influence decision makers, leading to greater chances of success.  Likewise, subsidiary embedment within the MNC enables access to and brokering of MNC resources, while being better able to contribute to and even shape the overall strategy. 

We develop a conceptual framework linking subsidiary entrepreneurship to embeddedness within emerging markets, focusing on the entrepreneurial process - opportunity identification, opportunity evaluation, and exploitation - and the type of external actor with which the subsidiary becomes embedded, i.e. business groups and supply chains, government and legal organizations, and innovation institutions such as universities or research centers. In particular we examine how complementarity between external ties with local actors and internal ties to MNC headquarters and sister subsidiaries – or lack thereof – impacts the outcome of entrepreneurial efforts. We illustrate this complementarity perspective using several real-world case studies.  These include Tesco’s entry into India, Infusion’s entry in Poland, Carlsberg’s entry to China, 3M’s Taiwanese subsidiary and Walmart’s experiences in attempting to serve markets in Africa.

We chose these examples as they all involve subsidiaries of foreign MNCs located in emerging or transitioning economies, their strategies were clearly influenced by the different internal and external ties they developed and maintained over time, and while each case is of course idiosyncratic, there is a fair amount of consistency with respect to the overall nature of the influence of internal and external ties. In all cases, ties to the external environment facilitated strategic adaptation, but in the case of earlier stage emerging economies, formal institutions and regulations proved to be more malleable, while still being more ‘distant’, from those of the MNC home country.

The theoretical contribution of this paper to the MNC entrepreneurship literature is the development of the notion of complementarity in embedding ties that underpins contribution to new value creation by MNC subsidiaries.  As a result of internationalization, MNCs become embedded in a plurality of external contexts which provide knowledge of new opportunities and a basis for entrepreneurial action.  Without an efficient organizational system for knowledge transmission, however, the MNC would lack the ability to fully leverage these sources of entrepreneurial knowledge. The current paper contributes by identifying a theoretical perspective on what constitutes an effective configuration for entrepreneurship by outlining complementarities between external and internal embedding ties.