Entrepreneurial Competencies in Multinational Subsidiaries

Transcription

1 Entrepreneurial Competencies in Multinational Subsidiaries Ioanna Liouka (University of Glasgow) & Pavlos Dimitratos (Athens University of Economics & Business and University of Glasgow) Abstract. In this paper, we examine which are the firm-specific variables that make up subsidiary entrepreneurial competencies. This is a study that brings together notions from the international entrepreneurship, corporate entrepreneurship and international business fields. Drawing from an empirical study on 260 multinational subsidiaries located in the UK, we find out that innovation, risk taking, proactiveness, learning, networking and autonomy constitute subsidiary entrepreneurial competencies. Research and managerial implications are discussed. Keywords. Entrepreneurial competencies, Multinational subsidiaries, factor analysis INTRODUCTION This paper brings together notions from the distinct fields of international business and entrepreneurship to shed light into the theme of multinational subsidiary entrepreneurship. Despite the significance of international entrepreneurship (IE) as a major stream of research; and, the generally acknowledged presence of entrepreneurial activities in large and established organizations (Ahuja and Lampert 2001), activities of multinational corporations (MNCs) and their subsidiaries in the IE field have received significantly less consideration (Dimitratos and Jones 2005). As subsidiaries pursue local opportunities likely to be exploited by the entire multinational system (Birkinshaw 1997), subsidiary entrepreneurship may be beneficial not only for the individual subsidiary, but also for the entire MNC (Bartlett and Ghoshal 1989; McEvily and Zaheer 1999; Birkinshaw and Hood 2001; Birkinshaw et al. 2005). Nonetheless, and despite its significance, the notion of subsidiary entrepreneurship has received inadequate research attention (Paterson and Brock 2002; Young et al. 2003; Young and Tavares 2004; Birkinshaw et al. 2005; Boojihawon et al. 2007). Which exactly are the characteristics of an entrepreneurial MNC subsidiary? Birkinshaw and his colleagues (Birkinshaw 1997, 1999; Birkinshaw et al. 1998) have 1

2 offered interesting insights into this theme on their work on subsidiary entrepreneurial initiative. Amongst others, these scholars have found subsidiary initiative to be promoted by high levels of distinctive subsidiary capabilities, and suppressed by high levels of decision centralization (Birkinshaw et al. 1998; Birkinshaw 1999). Nonetheless, this study concurs with observations (Birkinshaw 1997; Wright 1999; Dess et al. 2003) suggesting that the subsidiary entrepreneurship issue deserves further investigation. It specifically seeks to address this gap through providing insights into entrepreneurship of the MNC subsidiary, and more specifically, into the subsidiary s distinctive entrepreneurial competencies. Drawing on an exhaustive literature review of studies in the fields of IE, corporate entrepreneurship and international business, the present paper identifies specific entrepreneurial competencies within MNC subsidiaries. Instead of solely considering the three dimensions of innovativeness, risk taking, and proactiveness vis-à-vis competitors that studies have typically used to capture the entrepreneurial orientation (e.g. Covin and Slevin 1999) and IE (e.g. McDougall and Oviatt 2000; Zahra and Garvis 2000) constructs, this paper seeks to provide a more holistic view of subsidiary entrepreneurship. In doing so, it draws on the dimensions of an international entrepreneurial culture (IEC) proposed by Dimitratos and Plakoyiannaki (2003). Yet, it seeks to capture entrepreneurship as firm-level behaviour rather than organizational culture. Indeed, while a large part of the relevant literature has focused more on firm-level entrepreneurial orientation as characteristic of organizational culture, this study seeks to identify firm-specific competencies that comprise an entrepreneurial behaviour. The first research objective pertaining to the identification of distinctive subsidiary entrepreneurial competencies is addressed in this paper through an exploratory factor analysis (EFA) of the different constructs that have been proposed in the literature as depicting firm-level entrepreneurship and a confirmatory factor analysis (CFA) of the emerging constructs. The findings of this analysis bring into light the true multidimensional nature of the subsidiary entrepreneurship construct. The second objective of this paper pertains to substantiating the above constructs as actual entrepreneurial competencies at the subsidiary level by linking them to increased subsidiary entrepreneurial activity/output. 2

3 The remainder of this paper is structured as follows. The next section develops the hypothesis on the existence of specific subsidiary entrepreneurial competencies based on theory and empirical research. Then, the research methodology is discussed, how the hypothesis is tested, and the operationalization of the constructs. Results from data analysis and hypothesis testing, as well as a discussion of the key findings and implications are presented in the final two sections. THEORY AND HYPOTHESIS DEVELOPMENT Entrepreneurship researchers have typically used the term entrepreneurial orientation to refer to an entrepreneurial firm s strategic orientation, capturing specific entrepreneurial aspects of decision-making styles, methods, and practices (Lumpkin and Dess 1996). These researchers have essentially drawn on the earlier work of Miller and Friesen (1982) to conceptualize entrepreneurial orientation as comprising three distinct dimensions: innovativeness, proactiveness, and risk-taking (Covin and Slevin 1991). Innovativeness reveals a tendency to engage in and support novelty, experimentation, and creativity, and hence, it represents a departure from existing practices (Guth and Ginsberg 1990; Lumpkin and Dess 1996). Proactiveness refers to a forward-looking perspective of anticipating and acting on future market needs, thereby creating first-mover advantages (Miller 1983; Lumpkin and Dess 1996). Risk-taking involves the propensity to commit significant resources to exploit opportunities or engage in activities and strategies with highly uncertain outcomes (Miller 1983; Morris 1998; Keh et al. 2002). Other researchers have also included the dimensions of autonomy and competitive aggressiveness (Lumpkin and Dess 1996) to capture firm-level entrepreneurship. Autonomy essentially refers to independent action, free of organizational constraints, that allows entrepreneurial activity to take place. Competitive aggressiveness refers to a firm s inclination to directly and intensely challenge its competitors in order to outperform them in the market (Lumpkin and Dess 1996). McDougall and Oviatt s (2000) definition of IE also espouses Covin and Slevin s (1991) three-dimensional conceptualization, as a combination of innovative, proactive and risk-taking behaviour. Nonetheless, more recent research in the field of IE has 3

4 proposed six key dimensions that capture an international firm s entrepreneurial culture in a more holistic and comprehensive manner (Dimitratos and Plakoyiannaki 2003): market orientation, learning orientation, networking orientation, innovation propensity, risk attitude, and motivation. Market orientation refers to the posture and behaviour that the firm adopts in order to create superior value for its customers (Narver and Slater 1990). Learning orientation refers to the propensity of the firm to actively obtain and use knowledge (Moorman 1995; Slater and Narver 1995). Market orientation and learning orientation are closely linked to each other, as one provides scope for the other (Cadogan et al. 1999; Baker and Sinkula Networking orientation refers to the extent to which the firm obtains resources through network creation and social embeddedness (Granovetter 1973; Gulati 1998). A firm s innovation propensity relates to its tendency to espouse new and creative ideas, products, or processes in order to serve the host market (Lumpkin and Dess 1996). Risk attitude refers to the extent to which the firm is prepared to undertake significant and risky resource commitments in foreign markets (Miller and Friesen 1978). Motivation relates to the process of initiation, direction and energization of human behaviour towards adopting an entrepreneurial posture (Geen and Shea 1997). This paper acknowledges the multi-dimensional nature of the entrepreneurship construct, yet it seeks to describe it mainly as behaviour rather than as culture. Autio et al. (2000) and McDougall et al. (1994) explained how entrepreneurial firms can exploit their unique entrepreneurial competencies to expand into international markets. In a similar vein, this paper argues for the existence of distinctive entrepreneurial competencies at the firm level, and particularly within the context of the multinational subsidiary. Indeed, subsidiary-focused research tends to highlight the existence of distinctive subsidiary entrepreneurial competencies (Birkinshaw and Hood 1998). Subsidiary entrepreneurship is promoted by high levels of such competencies at the subsidiary level (Birkinshaw et al. 1998; Birkinshaw 1999). Table 1 shows how different conceptualizations in the MNC literature relate to the theme of subsidiary entrepreneurship. These key elements linked to subsidiary entrepreneurship encompass the MNC factor, hence are pertinent to multinational subsidiaries and not to independent firms. Insert TABLE 1 here 4

5 This paper identifies distinctive subsidiary entrepreneurial competencies. Drawing from previous literature discussed, these would include the subsidiary s innovativeness, risk-taking behaviour and proactiveness (e.g. Covin and Slevin 1991; McDougall and Oviatt 2000). A number of studies would also confirm networking as an entrepreneurial competence at the firm level. Jack and Anderson (2002) consider networking as a key element of the entrepreneurial process. Involvement in networks drives entrepreneurial phenomena through providing access to different types of valuable resources, such as physical capital (Zimmer and Aldrich 1987; Bates 1997), and mainly intangible resources in the form of advice and information (Johannisson 1996; Bruderl and Preisendorfer 1998; Singh et al. 1999; Hoang and Young 2000). Other researchers postulate that networks are particularly important not only for accessing resources, but also for reducing the cost of resources that are essential to entrepreneurial activity (Cromie et al. 1994; Johannisson 2000). Stevenson and Jarillo (1990) posed that firms facilitating the development of internal and external networks, therefore promoting resource sharing, exhibit increased levels of entrepreneurial behaviour. Subsidiary networking has also been linked to innovative behaviour (Von Hippel 1988; Håkansson 1989; Andersson et al. 2005). Consequently, it is hypothesized that the subsidiary s networking activity constitutes an important entrepreneurial competence. Early on, Knight (1921) viewed learning as an important element of the dynamic nature of entrepreneurial activity. Previous literature has yet acknowledged that firmlevel learning is associated with the development of capabilities needed to behave in an entrepreneurial manner (Zahra et al. 2001; Ireland et al. 2001). In a related vein, entrepreneurship researchers have introduced the notion of entrepreneurial learning, which is closely linked to entrepreneurial action (Welch and Welch 1996; Hitt et al. 1997; Barkema and Vermeulen 1998; Zahra et al. 2000; Politis 2005; Cope 2005). Minniti and Bygrave describe entrepreneurship as a process of learning (2001, p.7). An important part of the MNC literature has particularly focused on intra-firm learning as a key source of firm-level innovation (Bartlett and Ghoshal 1989; Lewin and Massini 2003; Venaik et al. 2005). Hence, it is argued that subsidiary learning, as a critical subsidiary competence (Birkinshaw 1996; Holm and Pedersen 2000; Frost et al. 2002), can be linked to subsidiary s entrepreneurial behaviour. 5

6 Finally, the dimension of autonomy has also been used to capture firm-level entrepreneurship (Lumpkin and Dess 1996). Though autonomy as a dimension of corporate entrepreneurship has been theoretically discussed in the literature, there seems to be limited empirical research on this dimension (e.g., Antoncic and Hisrich 2001; Thornhill and Amit 2001; Zajac, Golden and Shortell 1991). Particularly with respect to subsidiary entrepreneurship, the concept of autonomy has been positively linked to the pursuit of entrepreneurial initiatives at the subsidiary level (Zahra 1991; Birkinshaw 1997, 2000; Birkinshaw and Hood 1998). Other studies have specifically linked the notion of autonomy to the subsidiary s innovative potential (Ghoshal and Bartlett 1988; Jarillo and Martinez 1990; Gupta and Govindarajan 1994). Consequently, this paper draws on previous studies to examine the notion of subsidiary autonomy as an inherent aspect of subsidiary entrepreneurship. Drawing from the analysis above, the following hypothesis can be derived: MNC subsidiaries possess their own distinctive entrepreneurial competencies that can be captured through the following constructs: innovation, risk taking, proactiveness, networking, learning and autonomy. RESEARCH METHOD AND RESULTS The first phase of the research involved conducting an EFA and subsequently a CFA on key variable linked to firm-level entrepreneurship in previous literature in order to identify distinctive subsidiary entrepreneurial competencies. In the second phase regression analysis was used to substantiate that the identified subsidiary competencies indeed constitute entrepreneurial competencies, by testing their direct effect on tangible subsidiary entrepreneurial activity/output. Exploratory Factor Analysis (EFA) An EFA using the principal factors method with varimax rotation was used to identify the underlying distinct subsidiary entrepreneurial capabilities. The existence of conceptual foundation prior to conducting factor analysis supported the assumption that structure does exist among data. While the hypothesized types of subsidiary entrepreneurial competencies were expected to be identified, the lack of extensive theoretical and empirical support suggested following a more exploratory approach, 6

7 which allows for identification of structure amongst the data without posing a priori constraints (Child 1990; Hair et al. 2006). The rotated principal factors solution is shown in Table 2. Using the Kaiser criterion (i.e. eigenvalues >1) and confirming it with the scree test criterion, seven significant factors emerged from the factor analysis. These factors are: 1) innovation, 2) risk taking, 3) proactiveness, 4) learning, 5) intra-mnc networking, 6) extra-mnc networking and 7) autonomy. Insert TABLE 2 here Given the sample size, factor loadings above.35 were considered to meet the minimal level for interpretation of structure (Hair et al. 2006). Most factor loadings for the seven identified constructs were close to or above.70, thus were considered indicative of well-defined structure. All factors exhibited eigenvalues greater than 1, and all variables demonstrated communalities (amount of variance accounted for by the factor solution) above.50, hence were identified as showing sufficient explanation. In order to determine the appropriateness of factor analysis (i.e. that sufficient correlations exist among the variables), the Bartlett test of sphericity was used, which was statistically significant (sig.>.00). Also, the degree of intercorrelations among the variables and the appropriateness of factor analysis was quantified through the measure of sampling adequacy (MSA), which was well above.70 (see Hair et al. 2006). Good factor stability was also achieved through having a ratio of observations to number of analyzed variables well above 5 (Hair et al. 2006). Confirmatory Factor Analysis (CFA) EFA was succeeded by CFA, intended to verify the factor structure of the data set, i.e. allowing to test that indeed a relationship exists between the observed variables and their underlying constructs. The measurement model during SEM specifies the rules of correspondence between measured (observed) and latent variables (constructs). For demonstrating the adequacy of the measurement model, unidimensionality /consistency, reliability, and construct validity were investigated following the writings of Ping (2002). CFA was performed on the eight-factor model, consisting of all latent constructs proposed by the EFA model, i.e. with indicators constrained to load only on their hypothesized underlying factors (Sirdeshmukh, Singh and Sabol 2002). A CFA attempts to support a predefined hypothesized relationship, rather than 7

8 examine all the possible relationships and select the one that has the best statistical fit. Fit refers to the ability of a model to reproduce the data (essentially the variancecovariance matrix) (Kenny 2003). The results of the measurement model are shown in Table 3. The Normed Chi-Square fit index (the chi-square fit index divided by degrees of freedom in an attempt to make it less dependent on sample size) is 1.91, suggesting a good fit for the measurement model (Kline 1998; Ullman 2001). RMSEA and CFI are also considered in literature as less sensitive to sample size than other fit indices (Fan et al. 1999). In particular, the RMSEA is 0.059, hence less than the established benchmark for good fit (Hu and Bentler 1999). CFI and IFI equal 0.92, indicating good fit for the particular model characteristics, i.e. large sample (Hair et al. 2006). The standardized RMR is 0.065, i.e. less than the.08 benchmark (Hu and Bentler 1999; Hair et al. 2006). Insert TABLE 3 here Table 4 shows the results of the measurement model test (i.e. test of construct validity) with factor loadings, t-values and R 2 values for all indicators. The constructs have good validity in that their factor loadings (ranging between 0.54 and 0.96) are relatively high and greater than the cut-off point of 0.50 (Hair et al. 2006), while all t- values are significant. All R 2 values are also relatively high, meaning that variation of these indicators is represented by their constructs. Hence, the indicators of the models exhibit convergent validity. Insert TABLE 4 here Regression Analysis The direct effect of the identified subsidiary competencies on subsidiary entrepreneurial activity/output was tested. The seven factors that emerged during the EFA and CFA analysis were input in the SPSS regression model. Summated scales were formed through combining the variables loading highly one each factor and using the average score of the variables as a replacement variable. This method was preferred, since it provides a means for overcoming to some extent measurement error and has the ability to represent the multiple aspects of a concept in a single measure (Hair et al. 2006). Table 5 shows descriptive statistics and correlation matrix for the regressed variables. Insert TABLE 5 here 8

9 The hypothesized regression model is the one depicted in Figure 1. The seven subsidiary competencies, identified through factor analysis, are hypothesized to have a direct and positive effect on subsidiary entrepreneurial activity/output. The results of the linear regression analysis are presented in Table 6. The regression model was statistically significant with a high R 2 adjusted (0.417), indicating very good model fit. Insert FIGURE 1 here Insert TABLE 6 here The findings attest to the existence of specific entrepreneurial competencies at the subsidiary level that drive increased subsidiary entrepreneurial activity/output. In particular, subsidiary innovation, risk-taking and proactiveness have a direct positive effect on subsidiary entrepreneurial activity, at p<.001, p<.05, and p<.01 respectively. This finding supports previous studies that have proposed the three dimensions of innovativeness, risk attitude and proactiveness as key constituents of entrepreneurship (Covin and Slevin, 1991; Zahra, 1991; Zahra and Covin, 1995; Lumpkin and Dess, 1996; Zahra and Garvis, 2000; Zahra et. al., 2001). Subsidiary learning emerged as a critical subsidiary competence, with a significant beneficial effect on subsidiary entrepreneurial activity (at p<.05). Although international business literature has generally stressed the importance of the MNC s ability to assimilate, integrate and create knowledge through its portfolio of subsidiaries (Bartlett and Ghoshal, 1989; Birkinshaw, 1997; Zander, 1999; Frost, 2001; Frost et al, 2002; Feinberg and Gupta, 2004), this finding provides a totally different perspective. First, it acknowledges that learning can take place within the context of the individual subsidiary, and second it establishes subsidiary learning as an entrepreneurial competence at the subsidiary level. The effect of both internal and external networking on subsidiary entrepreneurial activity is positive (at p<.05). This means that as the subsidiary commits significant resources in networking with intra-mnc and external network partners, its entrepreneurial output improves. This finding aligns with the literature stressing the importance of the corporate parent in providing unique and valuable resources (Andersson et al. 2001; Miller and Parkhe 2002), and also in subsidiary competence development (Schmid and Schurig. 2003). Subsidiaries further engage with internal 9

10 networking partners (Forsgren et al. 1992; Forsgren and Pahlberg 1992), such as internal customers, internal suppliers and/or internal R&D units, which can prove key sources of new knowledge and ideas (Bartlett, 1986) and thus enhance the subsidiary s entrepreneurial competencies. Other studies have considered external network partners as an increasingly important source of competencies within the foreign subsidiary (e.g. Andersson and Forsgren 1996; Tsai and Ghoshal, 1998; Holm and Pedersen 2000; Andersson et al, 2002; Young and Tavares, 2004). The association between subsidiary autonomy and entrepreneurial output was also found statistically significant (at p<.01). Subsidiaries having the autonomy to take individual decisions may operate with more flexibility and efficiency, prerequisites for increased entrepreneurial activity/output. DISCUSSION AND CONCLUSIONS This paper sheds light into the under-investigated theme of subsidiary entrepreneurship through identifying and substantiating the existence of seven distinctive entrepreneurial competencies at the subsidiary level. It also demonstrates that entrepreneurial competencies are different in multinational subsidiaries versus independent firms in that they also encompass the MNC factor. International business scholars, such as Birkinshaw (1997, 2000), viewed subsidiary initiative as a form of corporate entrepreneurship, incorporating proactive and risktaking behaviour, the use of resources beyond the control of the subsidiary, and the acquisition and use of power, Yet, previous literature in the field of international business has failed to provide a holistic conceptualisation and measurement of multinational subsidiary entrepreneurship (Birkinshaw et al. 2005). In addition, this paper, by examining entrepreneurship as firm-level behaviour, adds to previous research on the constituents of corporate entrepreneurship (Covin and Slevin, 1991; Lumpkin and Dess, 1996), IE (McDougall and Oviatt, 2000) and international entrepreneurial culture (Dimitratos and Plakoyiannaki, 2003). Innovation, risk taking and proactiveness are identified as three critical yet distinct elements of entrepreneurial behaviour at the subsidiary level. In that respect, this paper is supportive of the multi-dimensional nature of firm-level entrepreneurship 10

11 (Lumpkin and Dess 1996; Zahra 1993; Dess et al. 1999). Consequently, future research on subsidiary entrepreneurship needs to examine these three characteristics separately. Learning, a critical competence at the subsidiary level (Birkinshaw 1996; Holm and Pedersen 2000; Frost et al. 2002), is also directly linked to the subsidiary s entrepreneurial behaviour, confirming that firm-level learning is associated with the development of capabilities needed to behave in an entrepreneurial manner (Zahra et al. 2001; Ireland et al. 2001). Networking is also established as a key driver of entrepreneurial activity. Subsidiaries facilitating the development of both intra-mnc, and extra-mnc networks are expected to exhibit increased levels of entrepreneurial behaviour. Therefore, this paper establishes the importance of both corporate and local embeddedness. Finally, subsidiary autonomy is identified as a firm-level entrepreneurial competence that directly links to increased entrepreneurial activity. Although the lack of autonomy has been found to suppress subsidiary entrepreneurial initiative (Birkinshaw et al. 1998; Birkinshaw 1999), the inclusion of autonomy as a firm-level competence has not been common in previous studies. With regard to management implications, managers of MNC subsidiaries who wish to enhance their entrepreneurial output would have to foster in their organizational contexts innovation, risk taking, proactiveness, learning, networking and autonomy. Along the contributions of the present study, future research needs to incorporate multiple dimensions, apart from the three widely employed of innovativeness, risktaking and proactiveness, when examining firm-level entrepreneurship. Also, further research into the particular theme of subsidiary entrepreneurship might need to examine the direct and indirect effects of the identified subsidiary entrepreneurial competencies on actual performance. 11

12 Table 1: Key conceptualizations relating to entrepreneurship in the MNC literature Subsidiary Entrepreneurship Autonomy Networking Learning Intra-subsidiary drivers of evolution and subsidiary capability upgrading Subsidiary initiative as an entrepreneurial activity with international impact Subsidiaries contribute to innovative and entrepreneurial activities in MNCs Subsidiary autonomy liked to subsidiary development, innovative potential and entrepreneurial initiatives Networking in MNCs (corporate/internal and external networks) linked to capability development and subsidiary innovative behaviour MNCs can assimilate, integrate and create knowledge through their portfolio of subsidiaries Intra-MNC learning is a key source of competitive advantage and firm-level innovation Prahalad and Doz 1981; Hedlund 1986; Birkinshaw and Hood 1998 Birkinshaw 1997 Birkinshaw 1997, 2000 Birkinshaw, Hood and Jonsson 1998 Birkinshaw, Hood and Young 2005 Ghoshal and Bartlett 1988; Jarillo and Martinez 1990; Forsgren et al 1992; Gupta and Govindarajan 1994; Birkinshaw 1997, 1999, 2000; Birkinshaw and Morrison 1995; Birkinshaw and Hood 1998; Hood and Taggart 1999; Venaik, Midgley and Devinney 2005 Andersson and Forsgren 1996; Andersson and Pahlberg 1996; Ensign, Birkinshaw and Frost 2000; Furu 2000; Andersson et al 2002; Andersson et al 2005 Ghoshal and Bartlett 1990; Kogut and Zander 1995; Nohria and Ghoshal 1997; Zander 1999; Rugman and Verbeke 2001; Frost 2001; Frost et al 2002 ; Feinberg and Gupta 2004 Ambos et al 2006 Nonaka and Takeuchi 1995; Szulanski 1996; Birkinshaw et al 1998 Bartlett and Ghoshal 1989; Lewin and Massini 2003 ; Venaik et al

13 Table 2: Results of Exploratory Factor Analysis Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 Factor 6 Factor 7 Product offerings are innovative and novel Many product offerings have been produced/marketed during the past three years Changes in product offerings have usually been quite dramatic Subsidiary has a strong propensity for high-risk projects Bold, wide-ranging acts are necessary to achieve subsidiary objectives Subsidiary typically adopts a bold, aggressive posture to exploit potential opportunities Subsidiary typically initiates actions to which competitors then respond Subsidiary is very often the first to introduce new product offerings, administrative techniques, operating technologies, etc Subsidiary typically adopts a very competitive beat-the-competitors posture Subsidiary continuously collects information about customers and competitors Subsidiary shares information effectively with corporate headquarters and peer subsidiaries Subsidiary uses all the above information in problem solving Subsidiary integrates information from various sources to assist top management in decision-making Subsidiary has been able to avoid potentially serious mistakes by taking advantage of information Subsidiary has cooperated with the corporate headquarters in performing its business activities Subsidiary has cooperated with peer subsidiaries in the UK or internationally in performing its business activities Subsidiary has cooperated with its customers in performing its business activities Subsidiary has cooperated with its suppliers and/or distributors in performing its business activities Subsidiary has cooperated with academic and research institutions in performing its business activities Subsidiary has cooperated with government organizations and/or professional or trade associations in performing its business activities Subsidiary autonomy in expanding the current scope of business activity (e.g. R&D, marketing, manufacturing, etc.) Subsidiary autonomy in formulating the annual budget Subsidiary autonomy in developing a major new product offering Subsidiary autonomy in developing a new major process (e.g. administrative, manufacturing, management, etc.) Subsidiary autonomy in decisions over employee pay and rewards Subsidiary autonomy in recruitment and promotion to managerial positions

14 Table 3: Assessing Measurement Model Fit Chi-Square (p=0.0) Degrees of freedom 696 Normed Chi-Square (χ 2 / df) 1.91 RMSEA (90% CI) (0.054 ; 0.063) Standardized RMR Comparative Fit Index (CFI) 0.92 Incremental Fit Index (IFI) 0.92 Table 4: The SEM measurement model Innovation Risk taking Proactiveness Learning Intra-MNC networking Extra-MNC networking Autonomy Factor loading t-value R 2 value Innovativeness of product offerings Number of new product offerings Changes in product offerings Propensity for risky projects Extent to which bold actions are undertaken Adoption of aggressive posture when confronted with uncertainty Initiates actions to which competitors respond Introduces new product offerings before competition Adopts a competitive posture Continuously collects information about customers and competitors Shares information effectively with corporate headquarters and peer subsidiaries Uses all the above information in problem solving Integrates information from various sources to assist top management in decision-making Has been able to avoid potentially serious mistakes by taking advantage of information Has cooperated with the corporate headquarters in performing its business activities Has cooperated with the peer subsidiaries in the UK or internationally in performing its business activities Has cooperated with its customers in performing its business activities Has cooperated with its suppliers and/or distributors in performing its business activities Has cooperated with academic and research institutions in performing its business activities Has cooperated with government organizations and/or professional or trade associations in performing its business activities Expanding the current scope of business activity (e.g R&D, marketing, manufacturing, etc.) Formulating the annual budget Developing a major new product offering Developing a new major process (e.g. administrative, manufacturing, management, etc.) 14

15 Entrepreneurial Activity Decisions over employee pay and rewards Recruitment and promotion to managerial positions Subsidiary entered (a) new market(s) Subsidiary developed a major new product offering Subsidiary developed a new technology Subsidiary developed a new major process (e.g administrative, manufacturing, management, etc.) Subsidiary restructured the organization, involving creation or elimination of departments Subsidiary developed innovative work practices

16 Table 5: Descriptive statistics and correlation matrix Mean S.D. Innovation Risk taking Proactiveness Learning Intra-MNC Extra-MNC Autonomy Networking Networking Innovation Risk taking ** 1 Proactiveness **.448** 1 Learning * ** 1 Intra-MNC *.138*.221** 1 Networking Extra-MNC * ** * 1 Networking Autonomy **.127* EA **.404**.419**.231**.216**.270**.273** 1 EA *Correlation is significant at the 0.05 level (2-tailed). ** Correlation is significant at the 0.01 level (2-tailed). 16

17 Table 6: OLS Regression Results Variables Independent Variables Standardized Coefficients (Beta) Innovation.230 (***) Risk taking.144 (*) Proactiveness.158 (**) Learning.097 (*) Intra-MNC Networking.103 (*) Extra-MNC Networking.099 (*) Autonomy.159 (**) Control Variables LogSize.263 (***) LogAge ANOVA F (sig.) (***) R square adjusted =.417 N = 260 *<.05 **<.01 ***<.001 Subsidiary Entrepreneurial Competencies - Innovation - Risk taking - Proactiveness - Learning - Intra-MNC networking - Extra-MNC networking - Autonomy + Subsidiary Entrepreneurial Activity (Output) Figure 1: The hypothesized model Control Variables - Size - Age 17

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