Presentazione Baglieri & Bruno - International Technology Alliances The Parent Subsidiary...

Copyright SDA Bocconi 2009 Baglieri, Bruno, Vasconcellos, Grando

INTERNATIONAL TECHNOLOGY ALLIANCESThe Parent-Subsidiary Relationship

BAGLIERI, Vincenzo SDA BocconiBRUNO, Marcos University of São PauloVASCONCELLOS, Eduardo University of São PauloGRANDO, Alberto SDA Bocconi


Research team

• This research has been jointly funded by the Divisione Ricerche “Claudio Dematte´” of the SDA Bocconi School of Management and by the University of São Paulo (Business Internationalization project support by São Paulo State Research Funding Agency - FAPESP)

• The authors are affiliated to the SDA Bocconi (Grando and Baglieri) and to University of São Paulo, Faculty of Economics and Business Admistration (Vasconcellos and Bruno)


1.The objective of this paper is to explore at what extent the role of the subsidiary and its trustworthiness perceived by the parent company impact the effectiveness of an international technological alliance

2. To formulate propositions related to the role of the subsidiary in international alliances.

Objectives


• Multinational companies (MNCs) have been analyzed from different theoretical perspectives such as hierarchies, inter- organizational networks or internal markets (Perlmutter, 1969; Hedlund, 1986; Birkinshaw and Fey, 2000). This paper adopts the network perspective, which became the dominant approach to MNC research during the 1990s (O'Donnell, 2000, p. 526) and has also been applied to R&D activities of MNCs (Howells, 1990; De Meyer, 1993; Gassmann and Zedtwitz, 1999).

• More widely, a MNC is a vehicle of integrating knowledge generated internally and externally from its global operations (Bartlett & Ghoshal, 1989). Particularly, we position this work in the stream of research that sees the MNC as a differentiated learning network with subsidiaries playing a critical role in managing knowledge (Birkinshaw, Hood, & Johnsson, 1998; Gupta & Govindarajan, 2000).

Literature review


The literature review led us to underline that still exist some gaps to be fulfilled:

literature on internationalization only recently has started to take into consideration the role of the subsidiaries in enabling the parent company’s technology strategy;

technology alliances have been deeply investigated. A few contributions have analyzed the role of the subsidiary in the formation of the technology alliance and the role the subsidiary may have in the successful execution of the technology alliance;

finally, the parent-subsidiary interaction in the technology alliance has been investigated from the parent company’s standpoint. A two-side contribution may enrich the understanding of these dynamics.

From the above analysis it emerges our first research question.RQ1: how can the subsidiary affect the strategic management

process of the MNCs’ international technology alliances?

Gaps in the literature


• The inter-unit knowledge transfer is a key source of competitive advantage for MNCs (Bartlett and Ghoshal, 1986, 1989; Winter, 1987; Kogut and Zander, 1993). This insight has led to a search for factors that directly or indirectly impede or stimulate such transfers. Recent theoretical (Nahapiet and Ghoshal, 1998) and empirical research (Tsai and Ghoshal, 1998; Child et al., 2003) indicates that trust and shared vision figure prominently among these factors. Trust and shared vision are conceptualized as interrelated, overlapping but different dimensions of social capital (Nahapiet and Ghoshal, 1998; Tsai and Ghoshal, 1998).

• Few attempts have been made to investigate factors that explain the level of perceived trustworthiness within large international corporations, with exception of Child’s and his collaborators’ work (Child and Möllering, 2003; Child et al., 2003). To date, we are unaware of any other studies that have directly examined the role of trustworthiness dyadic parent-subsidiary relationship dealing with the process of forming, executing and leveraging an international technology alliance.

These evidences lead us to our second research question.RQ2: may the trustworthiness of the subsidiary (perceived by the

parent company) be one of the key factors in the strategic management process of the MNCs’ international technology alliances?

Gaps in the literature


The present study has been designed to suggest some propositions to be verified afterwards, in different contexts, in order to achieve an original theory on the role of subsidiary inthe strategic management of international technology alliance.

The methodology applied in this research is founded on a case-based method associated to the literature revision, and consultation of institutional data and documents; in addition, field observation and interviews were carried out as well in order to document what happens and why.

Two cases already accomplished, other cases under investigation. First focus on automotive industry:

3 FIAT Auto and subsidiaries3 Pirelli Tyres and subsidiaries

Interviews in Brazil and Italy

Methodology


FIAT GROUP in the world 2008

SALES 59,4 BILLION EUROS185000 EMPLOYEES660 COMPANIES178 FACTORIESPROFIT 1,7 BILLION EUROS


FIAT GROUP in the world

BRAZILIAN MARKET LEADER FOR 6 YEARS


1979

First car running 100% on alcohol made in Brazil


From Subsidiary to Parent to Subsidiary:Locker

• SUV – Sport Utility Vehicles market in Brazil is growing

• Eaton developed a mechanical locking differential for trucks with potential application to SUVs

• The system is able to lock one of the wheels, increasing traction


Locker

• High performance and affordable cost

• Operates with a simple push of a button

• Project took 18 months

• Parent company was involved in the decision and alliance formation

• Results were successful and parent company is studying the transfer of technology to other subsidiaries


From Parent to Subsidiary: “Borboleta”

• Automated Manual Transmission (AMT) introduced in car racing more than 10 years ago

• First luxury car to use it: Ferrari

• Dual system

• Magneti Marelli – supplier

• Fiat stimulates Magneti to diffuse its technologies within the Fiat group and suggests to its subsidiaries to consider Magneti’s available technologies


“Borboleta”

• In 2006 Fiat Brazil decided to install it in a C segment car – Stilo

• Technology transfer and adaptation was needed

• Fiat Brazil created a team with Magneti Marelli specialists and the Italian branch of KSS (US component manufacturer)

• Project duration: 20 months

• 2007: The New Stilo with the F1 gear shift was succesfully launched in Brazil


“Borboleta”

• Strategic goal was defined by the subsidiary

• It was approved by the parent company

• Implementation was shared with two suppliers (Magneti and KSS)

• FIAT is considering the transfer of the technology to other subsidiaries


From Parent to Subsidiary: Fiat Group-Tata

• Expansion of present alliance in India to Argentina

• Tata licenses to Fiat plant in Cordoba to build a pick-up vehicle with Fiat brand

• Markets: South and Central America and Europe, using Fiat distribution system


Fiat Group-Tata

• Use of Fiat powertrain technology manufactured in Brazil

• Today, the alliance is in a standing by position


The Pirelli Tyre

• Pirelli Tyre is the company of the Pirelli Group that operates in the tyre sector and is currently the core business of the Group.

• The Pirelli Tyre's production capability is divided among 24 factories, of which 5 are located in Italy, 5 in Brazil, 2 in Great Britain, 2 in Germany, 1 in China, 2 in Turkey, 2 in Romania, 1 in Argentina, 1 in Egypt, 1 in Spain, 1 in the United States of America and 1 in Venezuela.


The Pirelli Tyre

• The main R&D units are located in Italy, Brazil and Germany. The Brazilian R&D unit counts 170 people, dedicated infrastructure and testing labs (including the above mentioned Sumaré Test Lane), for an annual expenses of around 1.7% of the Pirelli Tyre turnover in Brazil. This R&D Department can handle a complete product development process and actually releases up to 90 new products per year.


From Parent to Subsidiary: Greening the tyre

• In 1999, Pirelli Tyre’s headquarter made the strategic decision of investing in both the process technologies and the product’s design and materials for the future launch onto the market of a new product category, the so-called green-tyre.

• This marketing and technological policy had to be transferred to the whole Pirelli’s network, starting from the most relevant subsidiary, the Brazilian one.

• In order to facilitate the deployment of this strategy from the technological perspective, including also the involvement of new technological partners and suppliers, the parent company started a long process of understanding of the requirements of the Brazilian products and processes.

• Subsequently, an ad hoc program of technology transfer, including suppliers, manufacturing technologies, compound recipes and training have been run.


From Parent to Subsidiary: Greening the tyre


Subsidiary to parent: the rice husk ash project

• Rice husk is an agricultural residue abundantly available in rice producing countries and Brazil is the 9th rice producer in the world, with 13.3 million tons in 2004 .

• Silica is the major constituent of rice husk ash. With such a large ash content and silica content in the ash it could become economical to extract silica from the ash, which has wide market and also takes care of ash disposal.

• The adoption of the silica from rice husk ash can contribute to “greening” more and more the tyre in terms of components, to improve the tyre rolling resistance performance and to reduce the overall cost of the product.

• Pirelli Tyre Brazil signed an agreement for the technology collaboration with a Brazilian company, founded by a scholar of the University of Curitiba, Parana, and started testing this new bio-material in its products.

• Recently, the Italian headquarter has asked for a technology transfer into its products and process and has included the development of this project among the most strategic for the company


Subsidiary to parent: the rice husk ash project


Subsidiary to subsidiary: the China project

• The Chinese market is a fast growing area for the Pirelli Tyre business. Yet, the performance required in this new market are not fully consistent with the distinctive characteristics of the typical Pirelli products, that have been designed to fulfill the features of high performance, top luxury cars for more advanced markets.

• The Brazilian subsidiary has been investing to accomplish to these different and opposite demands. They have developed internal competences on low cost technologies and materials for sustaining the leadership in the Latin America market in both quality and sales.

• Having to cope with the same strategic “paradox”, the Chinese subsidiary asked for technological support to the parent company. The Italian R&D headquarter, after looking for suitable solutions into their worldwide shelf of technologies, identified the Brazilian subsidiary as the potential provider.

• Pirelli Tyre Brazil created an 8 people team, dedicated to transfer competences, technologies, suppliers and related technology alliances, components, recipes to the Chinese subsidiary.


Subsidiary to subsidiary: the China project


The process of the technology alliances: the FIAT case

FIAT-TATA “Borboleta” Locker Decision making

Exclusively parent company of both the partners

Subsidiary, requiring the approval of the parent company


Executing First run operations by parent company + engineering competences of the partner. Next involvement of the engineering and manufacturing competences of the subsidiary with top-level competences.

Subsidiary Subsidiary

Leveraging The alliance is progressing from the organizational point of view. The specific project is in Latin America and is in hold position

Full market and technical success. The subsidiary is exploring the possibility of extending this technology to other models in Latin America first and then in other countries

Full market and technical success. The subsidiary has underlined the possibility of extending this technology to other models for other subsidiaries with similar context and demand.


The process of the technology alliances: the Pirelli case

Green tyre (1999) Silica from rice husk ash Low cost for China Decision making

Parent company defined the strategy and shared with the subsidiaries


Subsidiary-to-subsidiary process. Parent company played as a technology broker

Executing First understanding of local needs + ad hoc subsidiary development program

Subsidiary Subsidiary

Leveraging A local culture and sensitiveness to green technologies have been developed (see the rice husk ash project)

Parent company is exploring the possibility of adopting and widely diffuse this technology

Chinese subsidiary permanently “borrows” competences from the Brazilian one.


P1: the earlier a parent company involves its subsidiaries in the alliance, the higher the chances of success.

P2: the deeper the technological competences are at the subsidiary level, the higher the chances that the subsidiary plays an active role in the process of the international alliance.

Research propositions


P3: the deeper the level of technological competences of the subsidiaries, the stronger the subsidiaries’ capabilities in leveraging from the international technology alliances.

P4: an MNC can be considered as a network of knowledge. In order to maximize the leveraging from the international technology alliances in a MNC, some nodes have to develop competences to facilitate the transfer of the outcomes within the network.



P5: in the process of international technology alliances, the greater the parent company trust in the subsidiary, the more the parent company will share (in advance) valuable and confidential information with the subsidiary.

Corollary to P5: in the process of international technology alliances, the greater the subsidiary trusts the parent company, the more the subsidiary will share (in advance) valuable and confidential information with the parent (or other subsidiaries of the MNC’s network of knowledge).



P6: the perceived trustworthiness of the subsidiaries in the process of international technology alliances can be generated by both subjective and objective determinants. Local executive, looking for increasing the role of their unit in these processes, should handle the balance and communication of these determinants in a more appropriate way.



• A continuous process for leveraging from the international technology alliances, originated from local needs and competences of the subsidiaries, should be implemented.

• Trustworthiness of the subsidiaries is a determinant of the success of the international technology alliances we observed. The early subsidiary involvement emerges as a successful practice.

• The emerging two flows in the decision making process for an international technology alliance (from parent to subsidiary and back) drive us to affirm that the early parent company involvement can take place if a reciprocal trust is shared.

• Additional cases on different industries and a next quantitative research have to be run in order to validate and further generalize our propositions.

Managerial implications and further research


Thank you for your kind attention

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