Focusing on subsidiaries of Korean diversified firms, this research investigates the relationships among subsidiaries` competitive strategies, resource-sharing among subsidiaries, and incentive systems, and their interactive effects on subsidiaries` p...
Focusing on subsidiaries of Korean diversified firms, this research investigates the relationships among subsidiaries` competitive strategies, resource-sharing among subsidiaries, and incentive systems, and their interactive effects on subsidiaries` performance and managers` job satisfaction. By use of questionnaire obtained from the 200 subsidiaries of 30 Korean diversified enterprises (i.e., Groups), empirical analyses are conducted and four hypotheses proposed by Gupta & Govindarajan (1986) are tested. These authors` hypotheses are only partially supported. Empirical results indicate that the interactive effect of subsidiaries` competitive strategy and resource sharing among subsidiaries significantly affects subsidiaries` performance improvement. It is also found that the interaction between resource sharing and bonus pool determination significantly affect subsidiaries` performance. However, the interactive effect of resource sharing and bonus subjectivity does not have a significant effect on subsidiaries` performance improvement. In addition, the relationship between resource sharing and job satisfaction of subsidiaries` managers is found to be positive, which is contradictory to the hypothesis proposed by Gupta & Govindarajan. Possible explanations on these mixed results are provided as follows: i) the possibility that Korean diversified firms are not efficient enough to fit the administrative mechanisms, such as decentralization and bonus subjectivity, to the contextual factors like levels of resource sharing, ii) the possibility that Gupta & Govindarajan`s theory on differentiating administrative mechanisms might be complemented by other theoretical perspectives which argue for homogeneous administrative mechanisms to reduce administrative costs, and iii) the possibility that Gupta & Govindarajan`s argument is too simple to capture the phenomena surrounding the issues analyzed. Finally, suggestions for future research are provided.