Corporate Embeddedness and Control Choices

26 Pages Posted: 15 Aug 2010

See all articles by Francesco Giacobbe

Francesco Giacobbe

University of Technology Sydney (UTS) - School of Accounting; Financial Research Network (FIRN)

James Wakefield

University of Technology Sydney (UTS)

Date Written: August 13, 2010

Abstract

This paper examines the effect of corporate embeddedness on control choices of a multinational corporation over a wholly owned foreign subsidiary. Researchers and practitioners recognise that multinational corporation headquarters face significant challenges when controlling wholly owned foreign subsidiary operations due to physical distance and the need to adapt to operating in unfamiliar foreign markets. Despite this recognition limited research is available on this issue. Corporate embeddedness refers to the adaption of a subsidiary to other entities throughout the rest of the multinational corporation in terms of tangible and intangible resource flows. Corporate embeddedness appears a significant factor contributing to the viability and success of a wholly owned foreign subsidiary. Based on the transaction cost economies theory of management control this paper investigates the effect of corporate embeddedness on the headquarters’ choice of controls using Speklé (2001) control archetype framework. Specifically corporate embeddedness is linked to transactional attributes including uncertainty, asset specificity, opportunism and bounded rationality, to explore relationships with control archetype choice. The paper proposes that high corporate embeddedness is related to a machine control archetype. Data gathered from a case study of a highly corporately embedded subsidiary of a multinational corporation operating in a regulated consumer products sector is used to examine the link between corporate embeddedness and each of the transactional attributes, and their relationship with headquarters control choices. The evidence provides support to the proposition that high corporate embeddedness is related to machine control archetype. Although action and result oriented machine control archetypes are described separately by Speklé (2001), the controls used by the headquarters suggest a mix of both archetypes.

Keywords: Wholly owned foreign subsidiaries, corporate embeddedness, control, international operations

JEL Classification: M40, M41

Suggested Citation

Giacobbe, Francesco and Wakefield, James, Corporate Embeddedness and Control Choices (August 13, 2010). AAA 2011 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1658276 or http://dx.doi.org/10.2139/ssrn.1658276

Francesco Giacobbe

University of Technology Sydney (UTS) - School of Accounting ( email )

P.O. Box 123
Broadway NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

James Wakefield (Contact Author)

University of Technology Sydney (UTS) ( email )

UTS Business School
PO Box 123
Broadway, NSW 2007
Australia
+61438973623 (Phone)

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