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

INTERNATIONAL TECHNOLOGY
ALLIANCES
The Parent-Subsidiary Relationship

BAGLIERI, Vincenzo SDA Bocconi
BRUNO, Marcos University of São Paulo
VASCONCELLOS, Eduardo University of São Paulo
GRANDO, Alberto SDA Bocconi

Copyright SDA Bocconi 2009 Baglieri, Bruno, Vasconcellos, Grando

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)


Objectives

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.


Literature review

• 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).


Gaps in the literature
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?

Methodology

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 in
the 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 subsidiaries
3 Pirelli Tyres and subsidiaries

Interviews in Brazil and Italy

FIAT GROUP in the world
2008

SALES 59,4 BILLION EUROS
185000 EMPLOYEES
660 COMPANIES
178 FACTORIES
PROFIT 1,7 BILLION EUROS


FIAT GROUP in the world

BRAZILIAN MARKET LEADER FOR 6 YEARS


First car running 100% on
alcohol made in Brazil

1979


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


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.


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.


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 Exclusively parent company Subsidiary, requiring the Subsidiary, requiring the
making of both the partners approval of the parent approval of the parent
company company
Executing First run operations by Subsidiary Subsidiary
parent company +
engineering competences of
the partner.
Next involvement of the
engineering and
manufacturing competences
of the subsidiary with top-
level competences.
Leveraging The alliance is progressing Full market and technical Full market and technical
from the organizational point success. success.
of view. The specific project The subsidiary is exploring The subsidiary has
is in Latin America and is in the possibility of extending underlined the possibility of
hold position this technology to other extending this technology to
models in Latin America other models for other
first and then in other subsidiaries with similar
countries 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 Parent company defined the Subsidiary, requiring the Subsidiary-to-subsidiary
making strategy and shared with the approval of the parent process. Parent company
subsidiaries company played as a technology
broker
Executing First understanding of local Subsidiary Subsidiary
needs + ad hoc subsidiary
development program

Leveraging A local culture and Parent company is exploring Chinese subsidiary
sensitiveness to green the possibility of adopting permanently “borrows”
technologies have been and widely diffuse this competences from the
developed (see the rice husk technology Brazilian one.
ash project)


Research propositions

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.



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.


Managerial implications and
further research
• 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.


Thank you for
your kind attention

Questions?


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