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The impact of subsidiaries’ internal and external integration on operational performance

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  • Demeter, Krisztina
  • Szász, Levente
  • Rácz, Béla-Gergely

Abstract

Subsidiaries of manufacturing companies operate as members of two distinct networks: the internal manufacturing network of the company and the external network of supply chain partners. Adapting the concept of “dual embeddedness” from international business literature to a manufacturing context, this paper proposes a model explaining the link between internal integration, external integration and operational performance. An international survey containing data on 470 manufacturing subsidiaries is used to operationalize the constructs. Structural equation modeling provides evidence for a full mediation model: external integration mediates the positive impact of internal integration on performance. Based on the results, it is put forward that knowledge generated within the internal manufacturing network can only be converted into subsidiary-level operational performance, if it is shared and recombined with external supply chain partners. The highest performance benefits can only be achieved if both suppliers and customers are involved in this process. A limitation of our approach is that knowledge flows are measured indirectly by assessing the level of integration of a subsidiary in the knowledge flows within the internal network, and the level of integration with suppliers and customers.

Suggested Citation

  • Demeter, Krisztina & Szász, Levente & Rácz, Béla-Gergely, 2016. "The impact of subsidiaries’ internal and external integration on operational performance," International Journal of Production Economics, Elsevier, vol. 182(C), pages 73-85.
    • Handle: RePEc:eee:proeco:v:182:y:2016:i:c:p:73-85
    DOI: 10.1016/j.ijpe.2016.08.014
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    5. Levente Szász & Béla Gergely Rácz & Anca Borza & Botond Benedek, 2019. "A Comparative Study of Multinational Subsidiaries and Local Companies in Emerging Economies: A Manufacturing Practice Approach," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 69(supplemen), pages 107-129, December.
    6. Lô, Amadou & Geiger, Martha, 2022. "Managing internal embeddedness in multinational corporations’ R&D subsidiaries: An evolutionary perspective on the automotive industry in Silicon Valley," Technovation, Elsevier, vol. 113(C).
    7. Norhuda Salim & Mohd Nizam Ab Rahman & Dzuraidah Abd Wahab & Ariff Azly Muhamed, 2020. "Influence of Social Media Usage on the Green Product Innovation of Manufacturing Firms through Environmental Collaboration," Sustainability, MDPI, vol. 12(20), pages 1-17, October.
    8. Hamann-Lohmer, Jacob & Bendig, Miriam & Lasch, Rainer, 2023. "Investigating the impact of digital transformation on relationship and collaboration dynamics in supply chains and manufacturing networks – A multi-case study," International Journal of Production Economics, Elsevier, vol. 262(C).
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    10. Bela-Gergely RACZ & Anca BORZA, 2016. "Increasing Absorptive Capacity to Improve Internal and External Knowledge Transfer in Multinational Companies: A Multiple Case Study Approach," Management and Economics Review, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 1(2), pages 120-135, December.
    11. Tomasz Gołębiowski & Małgorzata Stefania Lewandowska & Małgorzata Rószkiewicz, 2019. "Subsidiaries’ dual embeddedness and innovation-related competitive advantage," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 5-30.
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