Economics

Although the preceding arguments are well documented, some questions remain. First, these arguments mainly take the perspective of the MNC corporation or HQ. It is not clear if the arguments apply to MNC subsidiaries. Because the economic interests and goals of MNC HQs are not always congruent with those of MNC subsidiaries, what is good for a MNC corporation may not benefit their subsidiaries. Secondly, the preceding arguments are mainly developed from MNCs competing in developed countries. Whether or not these arguments apply to MNCs competing in emerging markets remains a question. Emerging markets are characterized by lower labor costs than those of developed countries. In general, emerging markets also lack sophisticated industry infrastructure to supply advanced technologies and manufacture high quality products. Because of these differences, it is important to examine the validity of the preceding global integration arguments in emerging markets.

From the perspective of MNC subsidiaries in emerging markets, the preceding global integration arguments would predict that MNC subsidiaries in emerging markets gain low cost supplies from two sources: local and/or global sourcing. Local sourcing means that the subsidiaries source supplies from local (host) markets. Local sourcing saves costs because of the low labor costs in emerging markets. Alternatively, the subsidiaries can also gain low cost supplies from global sourcing (i.e., getting/sourcing supplies from parents’ integrated supplier channels). In fact, MNC supplier channels may not need to locate in low-cost countries to be cost competitive, because global economies of scale may lead to competitive costs (Kogut 1985). For example, as developed countries frequently have superior technology and human capital, sourcing from these countries may enable MNC subsidiaries in emerging markets to enjoy better quality and lower defect rates that result from these global economies of scale – thus reducing the...