When Digital Capabilities of MNC Subsidiaries Matters: The Moderating Effect of Subsidiary Autonomy in Korea
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Department of International Trade, Kwangwoon University, Seoul 01897, Korea
2
Department of International Trade, Andong National University, Andong 36729, Korea
3
KU-KIST Graduate School of Converging Science and Technology, Korea University, Seoul 02841, Korea
*
Author to whom correspondence should be addressed.
Sustainability 2022, 14(22), 15176; https://doi.org/10.3390/su142215176
Submission received: 10 October 2022
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Revised: 27 October 2022
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Accepted: 31 October 2022
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Published: 16 November 2022
(This article belongs to the Special Issue Strategic Management and Organizational Innovation: Strategic Innovation as a Means to Improve Organizational Sustainability)
Abstract
:This study investigates the relationship between digital capabilities and the performance of MNC Korean subsidiaries and the moderating effect of subsidiaries’ autonomy. We examined the effect of digital capabilities of MNC subsidiaries on financial and non-financial performance represented by corporates’ sustainability and the effect of the subsidiary autonomy that controls them. According to the result of the analysis, digital capabilities drive innovation enhancing both financial and non-financial performance of subsidiaries. In addition, it was found that the autonomy of the subsidiary significantly strengthens the positive relationship between the subsidiary’s digital capabilities and financial performance. Instead, the autonomy of the subsidiary does not appear to moderate the effect of the relationship between digital capabilities and non-financial performance significantly. These results suggest that subsidiaries’ digital capabilities improve financial and non-financial performance. In addition, the autonomy of subsidiaries suggests that the digital capabilities of subsidiaries can be a positive factor in the process leading to financial performance.
1. Introduction
In the post-pandemic era, the two terms ‘virtual reality’ and ‘metaverse’, will become significant. Practical interest in information, communication, and digital technology has increased day-by-day. How well companies utilize digital capabilities related to information, communication, and digital technology has been a determinant of corporate survival [1]. In other words, the digital capabilities of a company are related to the prosperity and survival of the company [2,3,4]. However, not all companies are digitally competent for the future. In addition, some companies underestimate the ripple effect of digital capabilities, apart from recent trends; others focus all the resources that they have on digital capabilities. This conflicting situation, and the field situation of companies making decisions accordingly requires an answer as to whether digital capabilities truly have a positive effect on corporate performance or not.
A prior study of [5] international management, emphasized that multinational companies should create and adopt innovations and permeate not only the headquarters but also the subsidiaries, and emphasized that they should focus on new competencies. The international management study following [5] emphasized the strengthening of new capabilities related to innovation, and looked at the capabilities of subsidiaries from the resource-based perspective introduced in [6], and internalization introduced in [7]. [8]’s study pointed out that from the perspective of technology transfer, the scope of internalization should be expanded to subsidiaries, not headquarters, to minimize transaction costs and maximize added value. In addition, a study by [9] suggested that expanding the scope of the application of internalization theory could strengthen the technical capabilities of the subsidiary.
Research on international management, which had previously addressed innovation and technology, recently begun to focus on digitalization [10]. Digital capabilities have started to be identified as one of the competencies that do not lag digitization, a global trend [11]. For this reason, [12] argued that the company’s demands for information processing stemmed from uncertainty in the field and crisis avoidance for survival, and this pressure created a situation in which the company strengthened its information processing capabilities. The information processing theory presented in previous studies of international management, has been expanded to denote activities that use information beyond processing and it is being used in empirical research [13].
Research on digital capabilities has gradually expanded from focusing mainly on information processing capabilities to focusing on the ability of organizations. However, research on digital capabilities targeting local subsidiaries from the perspective of international management is still very insufficient [13]. Therefore, this study aims to examine the effect of digital capabilities on performance by using Korean subsidiaries of multinational companies as research subjects. This is based on the view of international management that information processing capabilities represented by digital capabilities are important for the performance of multinational corporate subsidiaries [12,14].
As mentioned above, despite the practical and academic importance, there are few studies that evaluate digital capabilities as the driving force for creating new business opportunities after the pandemic, and it is difficult to ascertain that discussions on how the digital capabilities of local multinational subsidiaries affect performance. Therefore, it is necessary to examine the relationship between the two variables, including the question of how multinational companies that plan to create new business opportunities after the pandemic express digital capabilities at the local subsidiary level. Therefore, this study examines the performance of multinational companies in Europe and the United States that are accelerating their sustainability using new digital technologies, at the level of Korean subsidiaries.
We organize this paper as follows. We provide the literature review and hypothesis development in Section 2. Section 3 explains the research methodology including sample selection, and variables’ measurement. Section 4 and Section 5 report and discuss the empirical results. In Section 6, we conclude.
2. Literature Review and Hypothesis Development
The definition of digital capabilities has been explained in various ways but can be presented from two main perspectives. First, there is a perspective of digital literacy and information processing that views digital capabilities as the ability to process vast amounts of information obtained in digital floods [15]. From this traditional perspective, we critically analyze digital media information, which has become more complex in use due to diversification, and we recognize the ability to process and reproduce information as digital capabilities. In other words, the ability to analyze information accessed through the digital world in relation to the operation of a company.
The second is the perspective of recognizing digital capabilities as information and communication technologies (ICT) capabilities, as suggested in recent studies. According to this point of view, digital competence means that which is beyond simply collecting and organizing information, processing information, utilizing it, and includes the ethical and general understanding that must be achieved in the Fourth Industrial Revolution society. For example, digital capabilities can be recognized over and above the information processing area of library science and computer science to the ability to utilize information in the real world outside libraries and electronic devices. Therefore, it is necessary to clarify the concept of digital capabilities. This is because the definition of digital capabilities can be made more specific and examined to provide realistic implications for digital capabilities. This study defines digital capabilities as digitization capabilities that encompass traditional digital literacy, information processing and modern ICT technology.
2.1. Digital Capabilities of the MNC
Previous studies conducted from an international management perspective have emphasized the need for research on topics related to the specific capabilities of subsidiaries of multinational corporations, pointing out that international management research is mainly focused on political, financial, and border issues surrounding multinational corporations [16]. Among them, the need for research on digital technology and related capabilities has been raised because digital-related systems that have already been deployed by multinationals serve as a driving force for countless new opportunities and they benefit from the opportunities created [8,9,11,17]. In short, previous studies point out that it is not unreasonable to view multinational corporations as beneficiaries of digital-related capabilities as they gain international resources through already established digital systems, they can easily contact consumers overseas, and they are improving the efficiency of global production bases.
Prior studies in international management on digital capabilities have been considered from the perspective of expanding digital capabilities following [12]’s research on information processing capabilities. Since then, research has focused not only on the digital capabilities at the multinational level but also on the digital capabilities expressed in the relationship and structural situation between the headquarters and subsidiaries [10]. In short, it is developing in the direction of research by demonstrating the digital capabilities of subsidiaries according to the strategic situation of the parent company.
Although it is argued that digital capabilities mostly have a positive effect on corporate performance, [18] presented skeptical results on the digital capabilities of multinational companies under a globalized and integrated strategy. This paper emphasized the need for digital capabilities of subsidiaries accompanied by localization strategies, not under the integrated strategy of the headquarters. Therefore, previous studies conducted from the perspective of international management generally suggest that the digital capabilities of subsidiaries will ultimately have a positive effect on the performance of subsidiaries.
Previous studies discussed the factors affecting the digital capabilities of companies based on the resource-based perspective introduced by [6]. A study by [19] argued that all factors, such as the structure of a company, the goals set at the corporate level, to the growth strategy accompanying them, are considered tangible and affect digital capabilities. The reason for this is that digital technology, as shown in previous studies, transforms analog signals into digital signals. It creates new data and information processing systems to completely change problem solving methods, adding digital capabilities to the core competencies of the company through more advanced resources [20,21]. Therefore, a study by [22] suggested the need to examine the factors affecting digital capabilities at the strategic level of the resources possessed, not just the technical level.
Previous studies from the resource-based perspective described above have strategically approached the factors affecting digital capabilities. Nevertheless, it was not easy to distinguish between the resources and digital capabilities of companies that changed from analog to digital systems through digitalization [23]. Recently, studies on the relationships affecting digital capabilities have been reported, starting with the study of [23] that states that networks or relationships that affect capabilities can also be considered equally important influencing factors as intangible resources. A study from the perspective of network ties highlighted a study by [24] that states that resources from these relationships provide a competitive advantage for companies, suggesting that network ties, an intangible asset, have a positive effect on companies’ digital capabilities.
2.2. Hypothesis Development: Digital Capabilities and Sustianability of MNC Subsidiaries
Prior studies shed light on the concept of sustainability that meets the needs of shareholders as well as stakeholders without compromising the capabilities of corporate [25]. As these studies observed, sustainability is supposed to be the sum of management activities, which enhance the value of the organization by encouraging and promoting the many channels of communication with stakeholders, and the company itself [26]. For this reason, sustainability management can be translunary from time to time for a company to increase its own profits in alignment with the expanding stakeholders’ specific interest maximizing shareholder value [27]. From this perspective, this study uses the financial and the non-financial performance of MNC subsidiaries as a proxy for sustainability [26].
This study suggests that the digital capabilities and sustainability of subsidiaries will have a positive relationship. [7]’s view that companies can be internalized through two activities to minimize transaction costs and maximize added value can be regarded as an underlying theory in developing related hypotheses. Study [28] emphasized that a company’s digital capabilities increase management performance through internalization that improves the management process. Therefore, the digital capabilities of subsidiaries can act as a deciding factor in improving the business model.
As mentioned above, subsidiaries will benefit from reducing internal costs for transition from analog to digital-based business models and the related technologies are utilized [20]. These advantages lead to the improved financial conditions of the subsidiary [29]. In addition, digital capabilities can have another positive continuous impact on the strategic performance of a subsidiary, considering the results of [21,30]. Subsidiaries with high digital capabilities are more likely to be able to demonstrate their existing strengths utilizing technology. Thus, this study aims to examine whether the digital capabilities of subsidiaries and financial performance have a positive relationship.
This study also examines the relationship between the digital capabilities and non-financial performance of the subsidiary, as well as the relationships between digital capabilities and financial performance. [8]’s internalization perspective emphasized that companies could not only maximize the added value created but minimize transaction costs. Previous studies on corporate digital capabilities have argued that it is necessary to consider the added value created through exchanges that arise and persist through exchanges [31]. Subsequently, a study by [19], conducted from a value-added perspective, emphasized that the digital technology possessed by the organization facilitates the optimization of business models as well as provides satisfactory experiences to consumers to derive value-generating results.
Therefore, the measurement of sustainability of a local subsidiary needs to be carried out not only by measuring the financial performance that can be identified immediately but also by considering the non-financial performance that reflects satisfactory recognition of the products and services provided. Based on previous studies, which state digital capabilities create added value and improve the image of employees, consumers, and even companies in the organization, this study proposes a positive relationship between the digital capabilities of subsidiaries, customer satisfaction, and non-financial performance of corporate images. In other words, the larger the digital capabilities of the subsidiary, the higher the customer satisfaction, the employee satisfaction, and the reputation of the company. These correspond to non-financial performance, while the smaller the digital capabilities possessed, the lower the non-financial performance.
Hypothesis 1:
The digital capabilities of subsidiaries will have a positive relationship with sustainability.
Meanwhile, the effects of autonomy of local subsidiaries of multinational corporations on the relationship between digital capabilities and performance can be explained from the perspective of the institutional duality of overseas subsidiaries. Local subsidiaries will play different roles in consistently implementing the headquarters’ integrated strategy or reflecting the needs of local stakeholders who need to address it immediately [32]. The roles of local subsidiaries can be divided into four types: strategic leading role, contributor role, executor role, and black hole according to the strategic importance of the local market and the capabilities of the subsidiary [9]. The strategic leading role corresponds to a small number of local subsidiaries and refers to cases where subsidiaries have a high level of capability as well as being in strategically important markets [33]. The executor role corresponds to most multinational subsidiaries, and sometimes it is in markets that are not strategically important [5]. The local subsidiary, which plays the role of an ‘executor’, demonstrates the ability to perform local tasks [34]. Subsidiaries belonging to the ‘strategic leadership’ type have at least a continental global authority and a very high level of strategic autonomy, while subsidiaries belonging to the ‘executives’ type have a high dependence on tangible and intangible resources from the headquarters and a lower level of strategic leadership [35].
In terms of the importance of holding information related to the strategic autonomy of subsidiaries, digital technology-related competencies that acquire, process, and utilize necessary information locally require high levels of authority over decision-making. Digital capabilities involve decision-making related to most activities such as innovation activities in the value chain like sales and marketing to solve local problems and local cooperation systems [36]. In the short term, if autonomy in decision-making is not secured, from establishing measures for identified consumer needs to investing in expanding local production facilities and business activities, there will be limitations in expressing the digital capabilities of subsidiaries. Therefore, the autonomy of subsidiaries will have a positive effect on the connection of digital capabilities to performance. Based on the above discussion, it is suggested that as the autonomy of the subsidiary increases, the positive relationship between the subsidiary’s digital capabilities and sustainability will be strengthened.
Hypothesis 2:
The autonomy of the subsidiary will strengthen the positive relationship between the subsidiary’s digital capabilities and sustainability.
3. Research Methodology
3.1. Data Collection and Sample
This study attempted to provide the implications for digital capabilities of multinational Korean subsidiaries by selecting subsidiaries of multinational corporations that entered the domestic market in consideration of the rising status of the domestic market in the global market. It went through several sample selection processes based on the list of multinational companies entering Korea provided by the FDI statistics system of the Investment Notification Statistics Center (INSC). Except for companies with insufficient local management period, a multinational subsidiary with an insufficient contact information and related information was finally selected and a questionnaire was distributed to conduct a survey by phone and email. The survey was conducted over four months from December 2021 to March 2022, and a questionnaire, excluding cases with missing values was used for the final analysis. Formerly, the MNC subsidiaries operating in Korea, with limited information concerning their purpose of investment, were ruled out from MNC subsidiaries listed in the INSC’s dataset. Subsequently, subsidiaries functioning for less than five years were ruled out from the dataset to focus on the long-term performance of the subsidiaries in Korea. Finally, subsidiary units with certain contact information were ultimately selected.
As the primary data source, highly organized questionnaire items were prepared. Employees having general work experiences at the subsidiary level were the target respondents since the ultimate goal of this research was to look into the relationship between digital capabilities and the sustainability of MNC subsidiaries operating in Korea. The targeted employees were asked to complete our questionnaire in terms of their business activities and other key variables such as digital capabilities, sustainability and their company backgrounds. Before sending the questionnaire, items for the survey were developed in proportion to a comprehensive literature review and counsel with researchers. At first, questionnaires were responded to from initial calls and follow-up emails. Subsequently, the data with missing points were not suitable for this research and were excluded to reach the final data.
3.2. Measurement of the Variables
The measurement of the sustainability of overseas subsidiaries can converge to measure financial and non-financial performance. Financial performance can be measured as quantitative results such as profitability, sales, and market share, and non-financial performance can be measured as perceived performance of members in the organization in terms of customer satisfaction, employee satisfaction, and corporate reputation and image. In this study, variables were measured based on the classification of [37] to measure the effect of local CSR policies and CSR investment activities on the management performance of overseas subsidiaries of Korean companies. Compared with other companies in the industry, respondents’ perception of non-financial performance, including sales growth, market share, and profitability, customer satisfaction, employee satisfaction, and corporate reputation and image, was measured on a 7-point scale. Specifically, the three detailed variables that measure financial performance were quantified through the following sentences. ① Compared with other companies in the same industry, the company’s sales growth rate is high. ② Compared with other companies in the same industry, the company’s market share is high. ③ Compared with other companies in the same industry, the company’s operating profit margin is high. Meanwhile, three detailed variables measuring non-financial performance were quantified through the following sentences. ① Compared with other companies in the same industry, the company’s customer satisfaction is high. ② Compared with other companies in the same industry, the company’s employee satisfaction is high. ③ Compared with other companies in the same industry, the company’s reputation and image are high.
The independent variable of this study was set as digital capabilities which is, one of the necessary conditions for an organization to achieve results in the fourth industrial era. Based on the classifications of [38], we tried to examine the digital capabilities of subsidiaries. Therefore, seven perceptions of whether CEOs and other executives are interested in and support information technology and digital transformation, employees’ ability to learn ICT education, ICT infrastructure is sufficient, ICT system follow-up and maintenance level is high, ICT system is used to quickly process work, ICT system is being used to reduce costs, and ICT system is being flexible.
Finally, the moderating variable of this study was set as the autonomy of local subsidiaries. The autonomy of a subsidiary refers to the level at which decisions can be autonomously executed on major related issues in performing management activities in the local area. [39] approached its strategic autonomy from the perspective of its subsidiary role and measured its own strategic execution power, professional information on products, and responsibility for research and development. [33] measured its autonomy with its own strategy, responsibility for business activities, decision-making on production facilities, budgeting, and management.
3.3. Research Regression Equation
To explore the subsidiary autonomy on the relationship between digital capabilites and sustainability, we use an ordinary least square (OLS) regression model. As discussed above, the dependent variable, sustainability, was measured separately in financial and non-financial performance. Additionally, we further verified the interation effect of digital capabilities and subsidiary autonomy. We employ the following regression equation:
Sustainabilityi = α0 + α1 Digital capabilitiesi + α2 Subsidiary autonomyt
+ α3 Previous performancei + α4 Parent equity sharet + α5 CEO nationalityt
+ α6 Subsidiary aget + α7 Market uncertaintyt + α8 Localization leveli
+ α9 Global integrationt + α10 Local responsivenessi + εi
+ α3 Previous performancei + α4 Parent equity sharet + α5 CEO nationalityt
+ α6 Subsidiary aget + α7 Market uncertaintyt + α8 Localization leveli
+ α9 Global integrationt + α10 Local responsivenessi + εi
| Variable | Definition |
| Dependent variables (Sustainability) | |
| Financial performance | = (Likert 7-point scale)Compared with other companies in the same industry, the company’s (① sales growth rate, ② market share, ③ operating profit margin is high; |
| Non-financial performance | = (Likert 7-point scale)Compared with other companies in the same industry, the company’s (① customer satisfaction, ② employ satisfaction, ③ reputation and image is(are) high; |
| Interest variables | |
| Digital capabilities | = (Likert 7-point scale) ① CEOs and other executives are interested in and supporting information technology and digital transformation, ② employees’ ability to learn ICT education, ③ ICT infrastructure is sufficient, ④ ICT system follow-up and maintenance level is high, ⑤ ICT system is used to quickly process work, ⑥ ICT system is being used to reduce costs, ⑦ ICT system is being flexible; |
| Subsidiary autonomy | = (Likert 7-point scale) ① subsidiary develop and implement their own strategies, ② subsidiary have specialized information about a particular product or product line, ③ subsidiary autonomously make decisions regarding the development and introduction of new local products, ④ subsidiary autonomously make decisions regarding expansion and reduction of production facilities, ⑤ subsidiary autonomously make decisions regarding budget establishment and execution, ⑥ subsidiary autonomously make decisions regarding human resource management; |
| Control variables | |
| Previous performance | = natural log of sales in 2021; |
| Parent equity share | = (from 0 to 1) Parent equity share rate; |
| CEO nationality | = equal 1 if CEO is Korean, 0 if CEO is not Korean; |
| Subsidiary age | = subsidiary age; |
| Market uncertainty | = (Likert 7-point scale) ① law and policies change frequently, ② subsidiary have specialized information about a particular product or product line, ③ subsidiary autonomously make decisions regarding the development and introduction of new local products, ④ subsidiary autonomously make decisions regarding expansion and reduction of production facilities; |
| Localization level | = (Likert 7-point scale); ① research and development(R&D) and marketing, ② production procedure, ③ organization structure, ④ HR control; |
| Global integration | = (Likert 7-point scale); ① HQ of MNC concentrates on developing standardized product by considering the world market as a single unit, ② provides the same advertisement, product, design for targeting the transnational global market; |
| Local responsiveness | = (Likert 7-point scale); ① HQ of MNC guides foreign subsidiaries to compete on their own markets, ② corresponds to the needs of local markets; |
4. Empirical Results
4.1. Descriptive Statistics
Prior to the fully fledged hypothesis verification, this study examined the Cronbach alpha index for major variables to ascertain the reliability of the survey data, and confirmed that all variables showed values of 0.7 or more, indicating that they were highly reliable. In addition, to examine the multicollinearity problem between each variable used in this study, the correlation was examined as shown in Table 1. As a result of the analysis, the statistically significant correlation coefficient was found to be −0.12 to 0.68, and all correlation coefficients were confirmed to be less than 0.8, so there were no variables suspected of multicollinearity. In addition, because of checking the VIF (distributed expansion coefficient), it was confirmed that the average VIF was 1.36 and all VIFs were analyzed to be less than 10, so there was no multicollinearity.
4.2. Regression Analysis Results
The purpose of this study is to examine the effect of digital capabilities of multinational subsidiaries located in Korea on performance and to verify the moderating effect of subsidiary autonomy. According to this purpose, the analysis results from examining the effect of the subsidiaries’ digital capabilities on both the financial and non-financial performance represented by sustainability are shown in Table 2 and Table 3, respectively. First, looking at the results of Model 1, a basic model including only control variables in Table 2 and Table 3, the headquarters’ global integration strategy and local response strategy among control variables have a significant positive effect on both the financial and non-financial performance of the subsidiary. In addition, regarding non-financial performance, among the control variables, the headquarters’ stake in the subsidiary has a non-financial performance.
To verify the first hypothesis, we examined the relationship between subsidiaries’ digital capabilities, financial performance, and non-financial performance, respectively, and Table 2 and Table 3 show that the subsidiary’s digital capabilities had a significant positive effect on both financial performance (β = 0.301, p < 0.001) and non-financial performance (β = 0.343, p < 0.001). Therefore, Hypothesis 1 was found to be supported.
Meanwhile, Model 3 of Table 2 and Table 3 presents the results of an empirical analysis as to whether the autonomy of the subsidiary controls the relationship between the digital capabilities and performance of the subsidiary for the verification of Hypothesis 2. According to the analysis results, the significant positive relationship between digital capabilities and financial performance of the subsidiary is strengthened as the digital capabilities of the subsidiary are greater through the results of the interaction term (β = 0.099, p < 0.05) shown in Model 3 of Table 2. These results support the argument of Hypothesis 2 that digital capabilities will strengthen the relationship between digital capabilities and financial performance of subsidiaries. However, as we see in Model 3 in Table 3, it was found that the significant positive relationship between the digital capabilities and non-financial performance of the subsidiary did not show a significant moderating effect on the autonomy of the subsidiary. Accordingly, Hypothesis 2 was partially supported. Taken together, it was confirmed that the positive relationship between the digital capabilities and financial performance of the subsidiary was strengthened by the subsidiary autonomy.
In the regression model of this study, some variables were measured in different units. If the units of measurement are different, it is necessary to scale the data because problems such as excessive influence of some variables may occur. We performed additional analysis using standardized or normalized variables, but there was no difference from the above results, so it was not presented separately.
5. Discussion
This study attempted to analyze the extent to which digital capabilities possessed by subsidiaries contribute to sustainability and to verify how the autonomy of subsidiaries affects the relationship between digital capabilities and sustainability in Korea. As an extension of the resource-based theory and institutional duality theory, the relationship between digital capabilities and sustainability was examined, and the moderating effect of subsidiary autonomy on the relationship was designed as a research model. Data was collected by conducting a survey of Korean subsidiaries of multinational companies, and hypotheses were verified through regression analysis.
The results of the study are as follows. First, by confirming that there is a positive relationship between the digital capabilities and performance held by Korean subsidiaries of multinational corporations, it was confirmed that the digital capabilities of subsidiaries can be a major factor that affects sustainability. This means that digital technology-related capabilities owned by local subsidiaries can also be a source of competitive advantage from a resource-based perspective and have a positive effect on sustainability. Previous studies presented digital-related systems built by local subsidiaries as factors that positively affect performance [8,9,11,17], and the results of this study can be seen as consistent with the claims of previous studies. This shows that the expression of information processing capabilities represented by the digital capabilities of local subsidiaries of multinational companies has a positive effect on local performance.
In addition, the positive relationship between the digital capabilities and performance of the subsidiary showed different moderating effects depending on whether sustainability was regarded as financial performance or non-financial performance. Firstly, when sustainability was measured as financial performance, it was found that the subsidiary autonomy reinforced the positive relationship between digital capabilities and financial performance. The analysis results of this study show that the autonomy of utilizing the information processing capabilities and digital technology-related capabilities of subsidiaries in financial performance plays a driving role in improving visible performance in the local country.
However, it can be seen that the autonomy of subsidiaries does not significantly moderate the positive relationship between digital capabilities and non-financial performance. Although not significant, it is meaningful that the coefficient of the interaction variable of digital capabilities and subsidiary autonomy was negative. The moderating effect of subsidiary autonomy, which weakens the relationship between digital capabilities and non-financial performance, can be examined from the perspective of opportunistic innovation. Opportunistic innovation is the opposite of sustainable growth [40], and if local subsidiaries use digital capabilities indiscriminately with autonomy, they are more likely to recognize it as a temporary and fragmentary solution rather than as providing sustainable and relationship-oriented solutions from the perspective of local market consumers. Through this, it can be interpreted that the autonomy of subsidiaries related to digital capabilities should be properly expressed in consideration of visible financial performance and non-financial performance related to the company’s reputation and image.
6. Conclusions
This study considered the influencing factors necessary to achieve results from the perspective of competency by considering the digital capabilities that local subsidiaries of multinational companies have in accordance with the recent international trend. Previous studies on multinational companies have conducted empirical analyses by paying attention to the capabilities of subsidiaries, but it is necessary to empirically analyze the digital capabilities newly emerging in the recent trend from the perspective of local subsidiaries. This study conducted empirical analyses on local subsidiaries operating in the Korean market, which wants to lead the metaverse and artificial intelligence markets as well as interest in digital trends that have become especially noted in Europe. Through this, it was shown that the larger the digital capabilities of the subsidiary, the more improved the sustainability, confirming the positive aspects of the digital capabilities of the local subsidiary. The results of this study show that the digital capabilities held at the subsidiary level can also be a positive factor in sustainability.
In addition, this study examined the influence of digital capabilities at the subsidiary level by considering the autonomy that subsidiaries can have. Previous studies regarding multinational companies have conducted empirical analysis by paying attention to the autonomy of subsidiaries itself not focusing on the possibility of influence on the relationship between the digital capabilities and performance of subsidiaries. Through the results of this study, subsidiary autonomy can be regarded as a driving force for digital capabilities of a subsidiary to influence only on financial performance. Considering the result that local responsiveness rather than global integration has significantly positive effects on financial performance, it is very important to strategically strengthen the autonomy of subsidiaries from the point of view of international business. Hence, the autonomy of subsidiaries related to digital capabilities should be properly delivered in consideration and of visible financial performance and non-financial performance related to the company’s reputation and image. In conclusion, strategic decision-making that strengthens subsidiaries’ autonomy will influence sustainability by facilitating innovation of subsidiaries, including digital capabilities.
This study has limitations despite drawing meaningful conclusions through empirical analysis on the relationship between digital capabilities and performance of Korean subsidiaries of multinational corporations. As a limitation of this study, it is necessary to first consider the digital capabilities and achievements recognized by respondents through the survey. Although efforts have been made to categorize and conceptualize the digital capabilities of multinational Korean subsidiaries through existing literature, it is still difficult to systemize the concept of competency from a resource-based perspective. In addition, since this study attempted hypothesis verification through a survey of local subsidiaries as described above, there is a possibility that respondents did not fully recognize the concept of digital competency because the homogeneity of the questioner was not secured. It is possible that respondents may not be in tune with their work related to their digital capabilities and autonomy and may have responded to the strategic direction pursued by the parent company from the perspective of the subsidiary without being exposed to sufficient information.
Author Contributions
Conceptualization, J.K. and D.C.; methodology, J.K. and J.J.; software J.K.; validation, J.J. and D.C.; formal analysis, J.K. and D.C.; investigation, J.K. and D.C.; resources, J.K.; data curation, J.K. and D.C.; writing—original draft preparation, J.K.; writing-review and editing, D.C. and J.J.; visualization, J.K.; supervision, J.J.; project administration, J.J. All authors have read and agreed to the published version of the manuscript.
Funding
This research received no external funding.
Informed Consent Statement
Not applicable.
Conflicts of Interest
The authors declare no conflict to interest.
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Table 1.
Descriptive statistics and correlations.
| Mean | S.D. | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1. Financial performance | 4.60 | 1.14 | |||||||||||
| 2. Non-financial performance | 4.69 | 1.05 | 0.68 *** | ||||||||||
| 3. Digital capabilities | 4.30 | 1.30 | 0.45 *** | 0.57 *** | |||||||||
| 4. Subsidiary autonomy | 3.88 | 1.30 | 0.17 * | 0.09 | 0.06 | ||||||||
| 5.Previous performance(ln) | 6.54 | 4.01 | 0.13 | 0.16 † | 0.24 ** | −0.05 | |||||||
| 6.Parent equity share(ln) | 4.77 | 0.99 | 0.11 | 0.20 * | 0.03 | −0.06 | 0.15 † | ||||||
| 7.CEO nationality (Korean) | 0.51 | 0.50 | 0.02 | 0.04 | 0.11 | 0.10 | 0.07 | −0.12 | |||||
| 8.Subsidiary age | 20.20 | 11.63 | 0.05 | 0.01 | 0.01 | −0.02 | 0.08 | 0.01 | 0.01 | ||||
| 9.Market uncertainty | 4.36 | 0.73 | 0.00 | 0.10 | 0.14 † | 0.16 † | −0.01 | 0.11 | −0.11 | −0.11 | |||
| 10. Localization level | 4.82 | 1.08 | 0.17 † | 0.19 * | 0.14 † | 0.51 *** | −0.04 | −0.08 | 0.18 * | −0.06 | 0.13 | ||
| 11. Global Integration | 4.82 | 1.33 | 0.30 *** | 0.42 *** | 0.31 *** | −0.01 | 0.07 | 0.06 | 0.08 | 0.03 | 0.06 | −0.02 | |
| 12. Local responsiveness | 4.92 | 1.11 | 0.40 *** | 0.45 *** | 0.34 *** | 0.31 *** | 0.14 | 0.09 | −0.04 | 0.09 | 0.10 | 0.34 *** | 0.37 *** |
†: p < 0.1, *: p < 0.05, **: p < 0.01, ***: p < 0.001.
Table 2.
Effects of digital capabilities on financial performance and the moderating effect of subsidiary autonomy.
Table 2.
Effects of digital capabilities on financial performance and the moderating effect of subsidiary autonomy.
| Dependent Variable: Financial Performance | |||
|---|---|---|---|
| Model 1 | Model 2 | Model 3 | |
| Independent Variables | Coefficient | ||
| Previous performance(ln) | 0.021 | 0.001 | 0.004 |
| Parent equity share(ln) | 0.090 | 0.100 | 0.110 |
| CEO nationality (Korean) | −0.010 | −0.076 | −0.118 |
| Subsidiary age | 0.001 | 0.002 | 0.000 |
| Market uncertainty | −0.084 | −0.144 | −0.190 |
| Localization level | 0.091 | 0.073 | 0.036 |
| Global Integration | 0.158 * | 0.096 | 0.106 |
| Local responsiveness | 0.300 ** | 0.226 * | 0.195 * |
| Digital capabilities | 0.301 *** | −0.069 | |
| Subsidiary autonomy | −0.351 | ||
| Digital capabilities× Subsidiary autonomy | 0.099 * | ||
| R2 | 0.206 | 0.299 | 0.329 |
| Adj. R2 | 0.157 | 0.249 | 0.270 |
| Constant | 1.713 * | 1.534 † | 3.288 ** |
| n | 138 | 138 | 138 |
†: p < 0.1, *: p < 0.05, **: p < 0.01, ***: p < 0.001.
Table 3.
Effects of digital capabilities on non-financial performance and the moderating effect of subsidiary autonomy.
Table 3.
Effects of digital capabilities on non-financial performance and the moderating effect of subsidiary autonomy.
| Dependent variable: Non-Financial Performance | |||
|---|---|---|---|
| Model 1 | Model 2 | Model 3 | |
| Independent Variables | Coefficient | ||
| Previous performance(ln) | 0.023 | 0.001 | −0.001 |
| Parent equity share(ln) | 0.160 * | 0.172 * | 0.169 * |
| CEO nationality (Korean) | 0.044 | −0.032 | −0.016 |
| Subsidiary age | −0.003 | −0.002 | −0.001 |
| Market uncertainty | 0.040 | −0.029 | −0.011 |
| Localization level | 0.098 | 0.078 | 0.085 |
| Global Integration | 0.241 *** | 0.170 ** | 0.167 ** |
| Local responsiveness | 0.262 ** | 0.177 * | 0.187 * |
| Digital capabilities | 0.343 *** | 0.516 ** | |
| Subsidiary autonomy | 0.182 | ||
| Digital capabilities× Subsidiary autonomy | −0.046 | ||
| R2 | 0.321 | 0.463 | 0.470 |
| Adj. R2 | 0.279 | 0.426 | 0.423 |
| Constant | 0.703 | 0.499 | −0.318 |
| n | 138 | 138 | 138 |
*: p < 0.05, **: p < 0.01, ***: p < 0.001.
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Jeong, J.; Choi, D.; Kim, J. When Digital Capabilities of MNC Subsidiaries Matters: The Moderating Effect of Subsidiary Autonomy in Korea. Sustainability 2022, 14, 15176. https://doi.org/10.3390/su142215176
AMA Style
Jeong J, Choi D, Kim J. When Digital Capabilities of MNC Subsidiaries Matters: The Moderating Effect of Subsidiary Autonomy in Korea. Sustainability. 2022; 14(22):15176. https://doi.org/10.3390/su142215176
Chicago/Turabian StyleJeong, Jaehwi, Donseung Choi, and Jangsoon Kim. 2022. "When Digital Capabilities of MNC Subsidiaries Matters: The Moderating Effect of Subsidiary Autonomy in Korea" Sustainability 14, no. 22: 15176. https://doi.org/10.3390/su142215176
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