The widely spread approach to the understanding of functional responsibilities and functional specialization of enterprises and the current operationalization of those notions can be attributed to M.E. Porter’s (1985) concept of the value chain (VC) of an enterprise.1 Over the years, the VC concept has been applied in various studies revolving around the organization of enterprises. In the context of multinational enterprises (MNEs), functional specialization has become an important aspect of international business and international management literature (e.g., White and Poynter 1984; Astley and Zajac 1990; Benito et al. 2003; Asmussen et al. 2009; Burger et al. 2018), very often addressed by consideration of the VC functions performed by a subsidiary (e.g., White and Poynter 1984; Benito et al. 2003; Hogenbirk and Kranenburg 2006; Mudambi et al. 2014). Over time, considering functional responsibilities in terms of the performed value chain functions has become so widely spread that for years no special attention has been paid to an alternative operationalization of functional responsibilities of subsidiaries. As a result, the complexity of the actual operations of MNEs, especially in terms of increasing value chain fine slicing and functional specialization, has substantially exceeded what the research tools in use have been able to capture in quantitative studies.
To address this issue, we will use an exemplary description of subsidiary’s operations provided by R. Pearce (1999). Pearce referred to an overseas subsidiary assigned a responsibility for creating a new product, where the mandate relating to this product covered responsibility for its creation, production, and marketing. In reference to this example, Pearce further elaborated that (1999, p. 129)
if, for example, full development of the product idea needs enhancement of the technological background through more applied research work, which exceeds the scope of the R&D resources possessed by the subsidiary itself (they may be able to articulate the problems and needs, and communicate them and later assimilate the replies, but not implement such work themselves) this may be subcontracted to another laboratory (especially perhaps a central, or ‘parent’, lab) in the MNE group or to a local university or independent lab.With respect to the marketing of the product the subsidiary may undertake this itself in certain key or local (adjacent) markets, but use a group-level global distribution network for many other markets. (…) Obviously such a mandated subsidiary is likely to undertake extensive production of its product(s). However, if the global market for a product becomes very large and dispersed, the forces that lead to overseas production generally in MNEs may point towards the implementation of some decentralized supply.
Although the provided example is already 20 years old, and functional responsibilities in fact constitute a secondary thread in Pearce’s (1999) paper, the description still accurately reflects on the possible differences in functional responsibilities of a modern subsidiary.2 The main conclusion is that subsidiaries’ functional responsibilities are differentiated within a subsidiary as well as among subsidiaries (Rugman et al. 2011; Schmid et al. 2016). In line with the argumentation of Dzikowska and Andersson (2018), while a subsidiary may concentrate on the performance of specific value chain functions, the market scope of a specific function, together with its actual content, can be different from other functions performed by the subsidiary or for the same VC function performed by another subsidiary. This differentiation reflects how the organization of MNEs has evolved to a point where MNEs’ structures revolve around the disintegration of the value chain (Buckley and Ghauri 2004; Yamin and Ghauri 2010). At the same time, due to the indicated diversity of subsidiaries’ functional responsibilities, a sole consideration of the VC functions performed by a specific subsidiary is not enough to address subsidiary functional specialization. With a growing presence of MNEs in terms of their number, size, and influence exerted on national economies (Wettstein 2009; Mikler 2018), functional specialization of subsidiaries remains one of the vital topics of modern international management and international business studies (Birkinshaw and Pedersen 2009). Because MNEs are on a perpetual search for lower labor costs, greater efficiency, and improved growth opportunities, their interest in shifting responsibilities and resources between countries is not likely to decrease in the near future. Consequently, as MNEs further fine-slice value chain activities, miniature replica becomes an endangered species, and what represents a national subsidiary appears more acute (Birkinshaw and Pedersen 2009; Scott and Gibbons 2011).
The importance of functional specialization and discrepancies in the functional responsibilities of subsidiaries has been visible in international management and international business literature for over 35 years (White and Poynter 1984; Birkinshaw 1996; Galunic and Eisenhardt 1996; Rugman et al. 2011). Nonetheless, for years, the functional responsibilities of subsidiaries were positioned as a side topic to other aspects of MNEs’ operations, with no uniform approach to studying the issue, except for acknowledging the existence of different value chain functions. However, relatively recently, a few influential advocates have emphasized the significance of functional specialization and discrepancies in functional responsibilities of subsidiaries. They state that these aspects should be upgraded from being a subplot of MNEs research to a vital part. For example, Birkinshaw and Morrison (1995) and Birkinshaw (2001) emphasize that the level of analysis applied in empirical studies of MNEs should be moved from national subsidiaries to value chain activities. Consistent with this approach, Birkinshaw and Pedersen (2009, p. 368) define a subsidiary of an MNE “as a discrete value-adding activity outside the home country.” They also highlight that such an approach allows a comparison across countries and MNEs, while the traditional approach to subsidiaries becomes an anachronism. Furthermore, Rugman and Verbeke (2001) emphasize that subsidiaries’ specialization in narrow activity sets makes aggregate assessment (conducted at a level of an entire subsidiary) outdated, based on the inability of such an assessment to recognize differences across value chain activity sets. The lack of decomposition of subsidiary responsibilities at a level of each value chain component may lead to a severe misunderstanding as to the actual roles of national subsidiaries in the MNE’s value creation process and inappropriate distribution of resources (Rugman et al. 2011). Finally, Mudambi et al. (2014) argue that functional specialization of a subsidiary is no longer an idiosyncratic feature of the MNE’s structure—in a very real sense, it is its raison d’être.
From this perspective, it is surprising that with the exception of a few qualitative studies concentrated on subsidiary development (e.g., Sass and Szalavetz 2013; Tippmann et al. 2018), subsidiaries’ specialization in activity sets, and its impact on subsidiary role and subsidiary evolution, has not attracted a lot of research attention. In fact, until recently, despite an abundance of studies on the roles of subsidiaries, international business literature and international management literature have not offered a proposition of a subsidiary role which could comprehensively reflect on subsidiary’s functional responsibilities and their shifts. Although this has recently changed due to Dzikowska and Andersson’s (2018) operationalization of the subsidiary’s strategic role (SSR), this book constitutes further investigation into the topic of the subsidiary’s role in the value creation process of the MNE. Particularly, the book extensively discusses the theoretical background for subsidiary specialization in activity sets, and based on Dzikowska and Andersson’s (2018) subsidia...