Foreign subsidiaries’ competitive strategy: the impact of corporate support and local competition

Abstract

Purpose The study draws on the resource-based view and the contingency view of strategy. The purpose of this paper is to contribute to international strategy literature by extending the current understanding of foreign subsidiary’s competitive strategy in terms of cost leadership and product differentiation. Design/methodology/approach Hypotheses concern associations between corporate support building on product and skills relatedness and subsidiary strategies. Also, it is hypothesized that strategies are due to the type of local competitive intensity. The hypotheses were tested on wholly owned subsidiaries of Swedish industrial firms in Germany, the UK and the USA. Findings Product and skills relatedness between the subsidiary and the corporate core unit are positively associated with the subsidiary’s emphasis on cost leadership. Also, a positive association was found between skills relatedness and product differentiation, and extensive competitive intensity strengthens the relationship. Research limitations/implications The study specifies what business relatedness is needed for a subsidiary’s competitive strategy; skills relatedness is more important than product relatedness; the type of local competitive intensity is important; corporate support and local strategy operate simultaneously. Practical implications Management is advised to implement a foreign subsidiary’s competitive strategy by recognizing the mechanisms identified in this study. Originality/value In a unique way, the study captures the role of corporate support of a foreign subsidiary’s competitive strategy relying on business relatedness and the importance of aligning the strategy with competitive intensity.