Globalization, coordination, and subsidiary performance-evidence from companies in an advancing country

Abstract

We investigate an important issue in globalization, the relationship between production capacity of a global companys subsidiary and its performance, where the subsidiarys relative size of production capacity is regarded as its globalization level. Analyzing the field data on 42 Korean companies engaged in global operations, we reached preliminary conclusions. First, the optimal level of subsidiary globalization represented by its relative production capacity does not exist. This lack of significance subsides when we associate the globalization level with global coordination between the headquarters and its subsidiary. Global coordination turns out to be a significant factor, either direct or moderating in relation to the globalization level, in determining the subsidiarys performance. We also found that the type of coordination supporting the subsidiarys innovation is different from that enhancing its operational efficiency: for the subsidiarys innovation capability, indirect coordination is effective, whereas direct coordination can be detrimental. In addition, we report effects of other factors such as global experience, host country and target market characteristics on the subsidiary performance. ©2001 by The Haworth Press, Inc.