Resource dependency and parent–subsidiary capability transfers Tain-Jy Chen a,1 , Homin Chen b, *, Ying-Hua Ku c,2 a Department of Economics, National Taiwan University, 21, Hsu-Chow Road, Taipei 100, Taiwan b Department of International Business, National Taiwan University, 85, Sec. 4, Roosevelt Road, Taipei 106, Taiwan c Chung-Hua Institution for Economic Research, 75, Chang-Hsing Street, Taipei 106, Taiwan 1. Introduction Multinational corporations (MNCs) evolve because they pos- sess certain firm-specific capabilities (FSCs) that can be exploited in overseas markets (Caves, 1971; Hymer, 1976). Overseas subsidiaries are rarely a complete replication of their parent firm. In fact, there is a tendency for overseas subsidiaries to differentiate themselves from the parent (Birkinshaw, 1997; Birkinshaw, Hood, & Jonsson, 1998; Rugman & Verbeke, 2001), and for the parent to refrain from transferring critical capabilities to overseas subsidiar- ies. A typical explanation of this phenomenon is that transfer of capabilities from the parent to a subsidiary is costly (Teece, 1981). Transfer capabilities are worth doing only if the benefit from the transfer exceeds the cost. Lack of capability transfer is explained by low benefits or high costs, or both. This explanation is based on the assumption that an MNC is a hierarchically controlled organization that is always in pursuit of global efficiency. Just like any other organization, managers of an MNC do not always make efficiency-compatible decisions. While managers in the company headquarters may be more concerned with controls than profits, subsidiary managers may be more concerned with the survival of their units than the global competitiveness of the MNC (Bouquet & Birkinshaw, 2008a, 2008b). It is therefore useful to view parent–subsidiary capability transfer from a perspective that deviates from the efficiency principle. In this paper, we offer a non-efficiency perspective. We view the MNC as an internal market in which managers compete for resources and power. Capability transfers between the different units of the organization are essentially results of a political process. There is a natural tendency for a subsidiary to attempt to differentiate itself from its parent firm by acquiring or accessing idiosyncratic local resources to enhance its power within the organization. There is also a tendency for the headquarters’ managers to withhold key capabilities for fear of losing control over the subsidiaries and hence the ability to appropriate rents generated from the deployment of such capabilities. The result is that the parent will never transfer all capabilities to the subsidiaries, regardless of transfer costs. Because overseas subsidiaries are embedded in local networks, they tend to leverage local resources in their internal competition. Locally bound resources become an important factor in this intra-organizational power game. We use the resource dependence theory (Astley & Sachdeva, 1984; Astley & Zajac, 1990; Pfeffer & Salancik, 1978; Salancik & Pfeffer, 1974) to portray the power game between the parent and its subsidiaries and draw some theoretical predictions on the pattern of capability transfers from parent to subsidiaries. These theoretical predictions are then tested against empirical data on Taiwanese multinational firms. Journal of World Business 47 (2012) 259–266 A R T I C L E I N F O Keywords: Resource dependency Firm-specific capabilities Capability transfers A B S T R A C T In this paper, we treat the multinational firm as an internal market in which various business units compete for scarce resources. By using the resource dependence theory to examine the parent– subsidiary relationship, we view this relationship as more of a political coalition than a hierarchy. We studied the pattern of capability transfers from the headquarters to the subsidiary to highlight this relationship. Using Taiwan-based multinational firms as the sample, our results show that the pattern is more reminiscent of a power game than an effort to maximize global efficiency. In essence, a triangular power play between the headquarters, subsidiary, and local networks determines the extent to which firm-specific capabilities are to be transferred abroad. It is almost certain that capabilities will never be completely transferred. A subsidiary can leverage local market potential to prompt more capability transfers from the headquarters, but any inclinations for the subsidiary to differentiate itself from the parent will discourage such transfers. ß 2011 Elsevier Inc. All rights reserved. * Corresponding author. Tel.: +886 2 33664969; fax: +886 2 23641843. E-mail addresses: tainjy@ntu.edu.tw (T.-J. Chen), hmchen@management.ntu.edu.tw (H. Chen), ku@cier.edu.tw (Y.-H. Ku). 1 Tel.: +886 2 23519641. 2 Tel.: +886 2 27356006. Contents lists available at ScienceDirect Journal of World Business jo u r nal h o mep age: w ww.els evier .co m/lo c ate/jwb 1090-9516/$ – see front matter ß 2011 Elsevier Inc. All rights reserved. doi:10.1016/j.jwb.2011.04.013