Organization of Hybrid Governance

A key theme for multi-business firms and multinational firms is managing heterogeneous business units or international subsidiaries. Where does the heterogeneity come from? How do firms redeploy resources across differing units to maximize value? In this paper, we identify a particular source of subsidiary variation—entry mode into foreign markets. Firms choose either greenfield investment or M&A when entering a new market. We propose that different entry modes lead to different governance mechanisms by the headquarters towards the subsidiaries, resulting in variation in structure and work contexts of the subsidiaries. This variation then leads to differences in headquarters-subsidiary relationship, and knowledge creation and transfer at the subsidiary level. We test our hypothesis with a field study at a multinational company and find that the firm exerts more dynamic control towards M&A subsidiaries by redeploying more headquarters employees to these subsidiaries than to greenfield subsidiaries, and knowledge created at M&A subsidiaries are less location specific as employees from these subsidiaries tend to be redeployed to more unrelated locations.