While the evolution of subsidiaries has received considerable research attention, the framework for understanding it has not evolved much since the late 1990s. The purpose of this paper is to add both clarity and depth to the work on the foundations for – as well as the processes of – capability creation and development as a subsidiary evolves.
This conceptual paper takes as its point of departure the micro-foundation literature, with a specific emphasis on the capability development literature. To describe capability creation and development, both the resource-based view and the resource management perspective are used here.
The paper adds a conceptual layer to the drivers of subsidiary evolution. To add further clarity regarding how capabilities are actually formed, the resources for capability creation and development are specified herein as entities, abilities and capacity. Arguments are also presented for why capabilities ought to be viewed as patterned behavior to decrease the terminological ambiguity surrounding the concept of capabilities. The process of capability creation and development with an emphasis on learning is brought forward. Further, capability typologies, in terms of substantive, managerial and dynamic capabilities, are presented to add specificity to the kinds of capabilities that are created and developed within a subsidiary.
Clarifying the concept of capability and how capabilities are formed by using advancements in the literature is important to add precision to the literature on the evolution of subsidiaries.
