Determining Factors of Subsidiary Development

Subsidiary development is a multi-dimensional construct that cannot be captured just by looking at subsidiary roles, activities, etc. Three distinct dimensions of subsidiary development are identified and these are: scope of subsidiary (the breadth of activities), level of subsidiary competence (the depth of activities) and level of integration in the internal MNC-network. Birkinshaw and Hood (1998a) have in their seminal paper proposed a model where subsidiary development is determined by three factors: Headquarter assignment, dynamism of local business environment and subsidiary initiatives. This paper is the first to conduct a statistical test of this model on a large-sample data set including data of more than 2.100 subsidiaries located in seven different countries in Europe. The effect of the three determining factors on subsidiary development is tested simultaneously in a LISREL model.