Service Sector Subsidiary Performance in Emerging Markets: Is It Who or What You Know?

Research by: Sven Dahms, Ambika Zutshi, & Sandeep Puri

EXECUTIVE SUMMARY

This paper addresses the consolidation of two hitherto often separately investigated theoretical perspectives of networks and competencies in the context of service sector subsidiary performance in an emerging economy. For instance, strong network relationships provide the basis for knowledge and practice transfer with the subsidiary and the rest of the multinational enterprise (MNE) at reduced costs of transaction. While several studies have investigated that phenomena using various perspectives that are more or less related to the transaction economics or socio-economic reasoning on networks, they have often neglected the side of the competencies as performance drivers.

This study aims to contribute to the literature as follows. First, by providing holistic insights into the complementarity and substitutability of two key performance drivers i.e. network perspective and the competence-based view of the firm. This study offers new understandings into how those two vary in their respective importance. While there are studies that have addressed those issues, those have mostly focused on the manufacturing sector, or have focused on one side of the story i.e. either the ‘what you know’ or the ‘who you know.’ Second, the framework is tested on a sample of foreign-owned subsidiaries located in the emerging economy of Taiwan. As a mid-range emerging economy, Taiwan makes an ideal research background for our study. Mid-range here means that its institutional environment could still be considered as fluctuating and somewhat unevenly developed. For instance, while its infrastructure might be considered on par with advanced economies, this might not be the case when it comes to labor markets for instance. However, it is not as institutionally fragile as other emerging economies, which therefore provides a great opportunity to observe substantial foreign direct investments. While previous studies focused predominantly on subsidiaries located in advanced economies, our findings contribute to an understanding of subsidiaries located in emerging economies which reduces a potential bias in the empirical body of knowledge. Third, our analysis combines both symmetric and non-symmetric data analysis methods in order to broaden our understanding of the underlying forces as well as their inter-relationships that determine subsidiary performance. The remainder of this paper is structured as follows. The next section reviews the relevant literature and develops the hypothesis. This is followed by the research design and data analysis. The last section discusses the findings and their contributions, future research areas, and conclusion of this the paper.

This research investigates performance determinants of service sector foreign-owned subsidiaries located in an emerging market. The focus is on the two dimensions of organizational networks (Who do you know?) and competencies (What do you know?). Data was collected via a large-scale survey of managing directors located in the mid-range emerging economy of Taiwan. The data is analyzed using partial least squares- structured equation modelling and fuzzy set qualitative comparative analysis techniques. The results show the importance of intra-organizational network strength as a key determinant of subsidiary performance, and that combinations of inter-organizational network strength and competencies can determine performance in several subsidiaries. This article offers new insights by testing a theoretical framework based on network perspective and the competence-based view of the firm in an emerging market context. It also offers an additional twist by employing symmetric and non-symmetric methods to test the framework. This allows to arrive at robust conclusions about the complementarity and substitutability of the applied theories. This research also contributes to the current literature by providing fine-grained insights into the nature and impact of competencies and networks. It is also one of the few studies to focus specifically on service sector subsidiaries.

Keywords: foreign-owned subsidiary, performance, FsQCA, networks, competencies, emerging markets

To cite this article:  Dahms, S., Zutshi, A., & Puri, S. (2022). Service sector subsidiary performance in emerging markets: Is it who or what you know. International Journal of Emerging Markets. https://doi.org/10.1108/IJOEM-04-2021-0540

To access this article: https://doi.org/10.1108/IJOEM-04-2021-0540

About the journal

International Journal of Emerging Markets (IJoEM) [ABS1] publishes rigorous theoretical and empirical research on emerging markets from multidisciplinary (economics, finance, marketing, and management) and multinational geographic perspectives. The journal publishes qualitative and quantitative research, and review articles, such as meta-analysis. IJoEM especially encourages comparative studies of emerging markets or studies comparing the emerging markets with the developed markets and seeks theories explaining the contextual differences.

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