Drawing on the contingency perspective of strategy, the purpose of this paper is to extend current understanding of fit between a differentiation strategy of the industrial firm’s foreign subsidiary and key contextual boundaries.
A conceptual framework is developed in which a differentiation strategy involves the complementary approaches of innovativeness and customer responsiveness. The key boundaries consist of local competitive dynamics and the value-adding mandate assigned to the subsidiary. Detailed features of four types of differentiation strategies are identified by analysing strategies applied by subsidiaries of industrial firms operating on the US market.
Four propositions are developed regarding alignment between strategy types and the boundaries. Relationships are proposed regarding a strategy type and a context specified by rivalry/relational competitive dynamics, and a broad/narrow value-adding mandate.
The conceptual framework and the propositions may be tested by analysing statistical data on industrial firms’ subsidiaries operating in several host countries.
To increase a foreign subsidiary’s contribution to the global competitiveness of an industrial firm, an awareness of the boundaries to the subsidiary’s strategy of differentiation that may hamper the subsidiary’s performance is essential.
The conceptual framework, and the propositions, contributes to literature on the industrial firm’s global strategy because it focuses on subsidiary strategy and extends present understanding of the mechanisms that drive the effectiveness of a foreign subsidiary’s differentiation strategy.
