Subsidiary Initiatives to Develop New Markets

Faced with the possible closing of his NCR subsidiary in Dundee, Scotland, manager Jim Adamson worked on improving manufacturing quality and restoring the confidence of customers. He also began to develop a vision for Dundee as NCR's strategic center for the ATM business. When the Ohio headquarters resisted Adamson's plans, he persevered, cooperating with people there while sponsoring independent research in Dundee. Five years later, the Scottish subsidiary won NCR's global ATM business; the next year, its market share surpassed world competitors IBM and Diebold.

The Dundee case is an example of subsidiary initiative: the proactive, deliberate pursuit of a new business opportunity by a subsidiary company undertaken to expand the subsidiary's scope of responsibility. Subsidiary initiative enables MNCs to tap into opportunities around the world, and, through competition among units, it enhances operational efficiency. But these initiatives face obstacles. Managers often encounter a "corporate immune system" that works against their efforts. They need savvy, persistence, and luck to break through corporate barriers.

Studying subsidiary initiatives in five countries, the authors found that they took two forms: externally focused, involving new opportunities in the marketplace, and internally focused, involving opportunities within the boundaries of the corporation. Common to both types was an entrepreneurial component.

In external initiatives, a champion emerged in the early stages. These individuals tested the idea in a small way. As the project took shape, they sought allies -- local customers or mentors in the home office. Finally, once the product was viable, they formally presented it to headquarters. In internal initiatives, subsidiary managers were on the lookout for new activities in the corporation that dovetailed with their capabilities. These units needed to be well integrated into the corporate system and have a good reputation; champions of internal initiatives had to pursue a more orthodox line of attack through the formal lines of authority.

Based on these observations, the authors suggest two key roles for foreign subsidiaries: market development, in which the subsidiary identifies and acts on new business opportunities in its local market, and network optimization, in which the subsidiary seeks out and eliminates inefficient activities within the multinational network.

Subsidiary initiative can yield outstanding successes for large multinationals. But subsidiary and parent-company managers will have to make shifts in their roles. For those who foster the attitudes and behaviors that allow initiatives to flourish, the rewards will be substantial.