Global diversification's effect on multinational subsidiaries' autonomy

This paper responds to the need for understanding how increasing global diversification in recent years has affected the management of multinationals. It builds upon Egelhoff's [Egelhoff; Egelhoff and Egelhoff] information-processing theory to develop a theoretical framework that traces the linkage between the nature of a multinational's global diversification and its control system. It empirically tests how the four components of the recently-developed Total Global Diversification measure, related and unrelated international geographic diversification, and related and unrelated product diversification, affect subsidiary autonomy, which remains a critical aspect of multinational control. The findings suggest that the components of Total Global Diversification have a significant effect on subsidiary autonomy and that their effect depends on the multinational's organization structure. The research also establishes that subsidiary autonomy is greater for marketing and personnel decisions than for R&D and finance. The research findings suggest that researchers would derive more explanatory power from using finer measures of global diversification in studies of diversified multinationals, and managers need to be take into account the nature and extent of the multinational's global diversification when deciding how much autonomy to give subsidiaries.