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Host-country environment and subsidiary competence: Extending the diamond network model

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Abstract

We extend the “centers of excellence” concept to address the diversity and multidimensionality of subsidiary competence. Using Rugman and Verbeke's diamond network model, we hypothesize the contingencies influencing the links between host-country environments and subsidiary competence configuration, and provide evidence from more than 2000 subsidiaries in seven European countries. Our results provide new insights into how multinational enterprises can overcome “unbalanced” national diamonds by acquiring complementary capabilities across borders.

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Notes

  1. An industrial cluster consists of a proximate group of “interconnected companies and associated institutions linked by commonalities and complementarities” (Martin & Sunley, 2003: 10).

  2. The competence scales were coded to include 0, which indicates that a given activity is not performed at all in the host country.

  3. Other cut-off points were tried, but this segmentation had the highest discriminating power when used as a grouping variable in the structural equation models. Incidentally, previous studies have used the same cut-off point as a way of operationalizing the “center of excellence” construct (e.g., Frost et al., 2002). Although the use of cut-off points is always quite arbitrary, it was necessary to create a categorical variable, since LISREL models cannot accept interval-scaled variables as moderators.

  4. To see this effect more clearly, Model 4 can be compared with a similar model without correlations (not presented here). Such a comparison reveals that allowing correlations weakens all the cross-paths, and thus the indirect causality indicated in such a restricted model is largely spurious. For example, if the market environment reinforces the supply environment, and the supply environment determines the subsidiary's supply competences, the model without correlations would capture this indirect effect and falsely indicate that the market environment actually affects the supply competences.

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Acknowledgements

We thank Professors Bent Petersen, Alan M Rugman, Nicolai J Foss, and Dan Li. We are also grateful to the Copenhagen Business School for sponsoring the empirical part of this study, and to the Indiana University Center for International Business Education and Research (IU CIBER). We are grateful to Departmental Editor Professor Alain Verbeke and the anonymous reviewers whose comments and suggestions were helpful in developing this final version.

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Authors and Affiliations

  1. Center for Strategic Management and Globalization, Copenhagen Business School, Frederiksberg, Denmark

    Christian Geisler Asmussen & Torben Pedersen

  2. Kelley School of Business, Indiana University, Indianapolis, USA

    Charles Dhanaraj

Authors
  1. Christian Geisler Asmussen
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  2. Torben Pedersen
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  3. Charles Dhanaraj
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Correspondence to Christian Geisler Asmussen.

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Accepted by Alain Verbeke, Departmental Editor, 23 August 2007. This paper has been with the authors for two revisions.

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Asmussen, C., Pedersen, T. & Dhanaraj, C. Host-country environment and subsidiary competence: Extending the diamond network model. J Int Bus Stud 40, 42–57 (2009). https://doi.org/10.1057/palgrave.jibs.8400420

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  • DOI: https://doi.org/10.1057/palgrave.jibs.8400420

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