Networks, R&D projects and subsidiary behavior in a host country.

AutorFranco, Camila
CargoReport

Abstract

This article aims to verify how multinational subsidiaries establish their networks in a host country. The literature addresses only networks formed between the subsidiary and its mother and sister companies. However, to consider the external network is essential, because the subsidiaries are not a mere receptor of knowledge from the headquarters, they develop their own capability for creating knowledge and innovation for the multinational. To examine the creation of these networks, this paper focuses on two subsidiaries located in Brazil belonging to a group that carries out R&D projects in partnership with several organizations in the country and creates research and development networks in their sector. To analyze the network characteristics, the authors used Ucinet and NetDraw software and found the following results: (a) geographic distance is a driver in establishing partnership among subsidiaries and executor organizations; (b) the majority of the relationships are tied between a company and a research organization, showing that theoretical knowledge and practical experience are considered by companies to develop and market project outcomes; and (c) although the subsidiaries belong to the same group, they do not have strong ties.

Key words: networks; subsidiaries; R&D; technological capabilities.

Introduction

Researchers (Ambos, Andersson, & Birkinshaw, 2010; Andersson, Dellestrand, & Pedersen, 2014; Cantwell & Mudambi, 2011; Lorenzen & Mudambi, 2013; Mudambi, Pedersen, & Andersson, 2014; Yamin & Andersson, 2011) have increasingly studied subsidiaries of multinationals and their impacts and relationships with the actors and host countries, demonstrating their growing importance for literature and economic analysis. The directed view on subsidiaries has been emphasized in different ways, but especially, as in the focus of this article, on matters related to the relationships formed by these companies. This is not only in the internal network, but extends to existing partnerships in their host country, the so-called external networks (Andersson, 2003). Achcaoucaou, Miravitlles and Leon-Darder (2014) point this out when discussing the subsidiary's role of dual embeddedness, complementing the work by Yamin and Andersson (2011) who stressed the importance of this type of company for the multinational company (MNC), considering this dual relationship it establishes. S.-H. Lee and Song (2012) not only discussed the uncertainties in the host country where the subsidiary is inserted, but also undertook an investigation on the impact that some factors in external and internal subsidiary relationships have on its performance.

While discerning the importance of the topic and the existence of some research done on it, there is still very little in literature referring to the analyses on networking by subsidiaries in their host countries. As Achcaoucaou and Miravitlles (2012) say, many studies analyze the role of the subsidiary separately and therefore neglect the effects of possible networks around it, particularly those effects arising as a consequence of simultaneous interplay among the actors networking with these subsidiaries. Although the authors try to fill this gap, they concluded that there is still a need to further investigate the effect of the external interplay of subsidiaries and, therefore, the effects of the network and interplay with the MNC subsidiaries are not fully developed (Achcaoucaou, Miravitlles, & Leon-Darder, 2014).

According to Lorenzen and Mudambi (2013), MNCs are organizational networks operating their own systems, forming subsidiaries in different clusters to produce goods, services and know-how. The authors also state that there is widespread literature on international business that analyzes the pros and cons of networking, but an in-depth understanding of the social network is seldom used. In other words, it is a known fact that networking offers benefits and also some disadvantages for companies, but analyzing how the relationship within these networks occur, what kind of interplay happens and knowing the actors involved requires more in-depth studies.

Andersson, Mats and Holm (2002) say that, with regard to literature on networks, including multinationals and subsidiaries, many articles address the overall environment without taking into consideration their complexity, dynamism and wealth of resources. These studies usually focus only on the subsidiary's interplay with its parent company and sister companies.

Therefore, closer attention should be given to the subsidiary's internal skills, to understand how it procures knowledge, forms partnerships and develops new processes and products. This should be done before analyzing how it is related to its parent and sister companies and their networking relationship in the countries hosting their subsidiaries.

Based on the context of the gap in literature and on the actual relevance of the topic, this article endeavors to answer the following research question: how do subsidiaries build their networking sites in emerging economies, such as Brazil? The objective, therefore, of this article is to ascertain how subsidiaries build their networks within a host country that is an emerging economy. To achieve this, the study herein researched two electricity company subsidiaries from the same corporate group situated in Brazil in the states of Ceara and Rio de Janeiro.

In the process of achieving this objective it will be possible to reproduce the network built by the subsidiaries based on the Research & Development (R&D) projects designed by them, creating their own statistical analyses and observing the frequency of the type of organizations present, as well as their geographical focus. Since they are two subsidiaries belonging to the same corporate group, this study will also enable analysis of the interplay between them and their partners. This information will help fill part of the gap in literature inasmuch as it will provide specific characteristics about the network built by the subsidiaries, comprising therefore the main theoretical contribution originating from this study.

Furthermore, it is also possible to highlight this study's contribution to the institutional and managerial field, since it allows the managers of these organizations in the electricity sector to see which organizations are related to each other and working in an integrated manner on their R&D projects and networking, as well as how these organizations work with other companies, institutes and universities. This can somehow contribute to their being able to more effectively identify their partners in research and development projects and how they behave in building these R&D networks.

The article is structured as follows: after this introduction the theoretical benchmark is presented referring to networking, its concepts, development, applications and contributions, as well as some studies that relate this topic to the subsidiaries. Next, the research methodology adopted is addressed, followed by the main findings. Finally, the authors offer their final considerations, with emphasis on their contributions and suggestions.

Literature Review

Granovetter (1985) states that organizations are social constructs and the product of actions by individuals immersed in relationships. For the author, economic efficiency does not occur in a vacuum but depends on social contextualization. From these considerations, a conclusion is reached that a company's strategies are (and should be) directly related to its networks and relationship, and this is why it has more chances of obtaining information and know-how and sensing the opportunities in the environments through its interplay with partners (Granovetter, 1985).

The concept of social networks has already been discussed by a number of researchers, including sociologists and anthropologists, but the first to be reported was the concept given by Barnes (1954, p. 44), where he referred to these as "a set of points, some of which are connected by lines". These points are considered to be individuals and the lines represent their interplay.

Thus, a social network means the connections made among specific groups, where the characteristics of these connections can be used to explain the social behavior of such groups. Hakansson and Johanson (1988) argue that networks are structures combining activities and resources in specific formats.

Another similar concept on the subject of networks, evolving as time goes by, is by Scott (2000), who defines it as a set of nodes connected by a set of loops. The nodes are the actors or players of the network and the loops the relationships established with each other (Liu & Chaminade, 2010).

The limitation that companies encounter in mastering all stages of the value chain and their own management capabilities in every area (Casarotto & Pires, 1998) can be bypassed by forming a network, in which the organizations can share and cooperate in carrying out the initial and final activities of such a chain. According to Balestrin, Verschoore and Reyes (2010) the main gains generated by a network for companies are learning, success and innovation.

Networking can help meet a series of requirements, as follows: to match skills and use the know-how of other companies; to share onus in undertaking technological research, sharing development and acquired know-how; to share risks and costs of exploring new opportunities, undertaking experiments together; to offer a more diversified and top quality product line; to exert more pressure on the market; to share resources; to strengthen purchasing power, and to be strong enough to operate in international markets (Amato, 2000).

The view of networking generally creates a notion that economic actions are influenced by the social context in which they are included, and that the actions can be...

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