A Strategic Choice in the Czech Republic: Fiendishly Clever Subsidiaries?

Abstract

Purpose of the article: This contribution focuses on the parent-subsidiary relationship from the perspective of centralisation in the strategy-making process. Methodology/methods: First, the development and contemporary state of theory relating to parent-subsidiary relationship are analyzed and research questions are formulated. Second, the empirical data from 155 MNE subsidiaries are used to reveal which strategies are pursued by these subsidiaries, taking into consideration the level of centralisation of the strategy-making process. Finally, the performance implications of strategies deployed by the companies are examined. Scientific aim: The role of the MNE subsidiary may vary between creation of the strategy and adoption of a strategy created by the parent company. The main objective of this study is to reveal differences among strategies chosen by subsidiaries with different levels of centralisation of the strategy-making process, and to evaluate performance implications. Findings: Findings show that subsidiaries that are allowed to determine their strategy choose innovative and prospective strategies. Such strategies proved to be related to higher subsidiary performance, followed by the defender strategy. Conclusions: The results imply that the MNE subsidiary could be more efficient than headquarters in adjusting to the local environment and might benefit from familiarity with the local environment. Therefore, this study confirms that a subsidiary can be a powerful determinant in the strategy-making process. This study has important implications for managers at MNC headquarters and at their subsidiaries. Since the emerging market of the Czech Republic is considered attractive for foreign direct investment, the findings of this study may have implications for executives already active in this market, but they are primarily for those intending to enter this market.