Establishing overseas 2^nd tier subsidiary as a way of utilizing the capabilities of overseas subsidiary

the Case of Denso Korea and its subsidiary in China

Abstract

The purpose of this paper is to clarify the reason for the overseas 2nd tier subsidiary is chosen as a means of expanding the business of MNCs. We analyzed the cases of DENSO’s Korean subsidiary and Chinese 2nd tier subsidiary. For the business with a Korean carmaker in its Chinese plant, DENSO utilized the form of the subsidiary of DENSO Korea, an overseas 2nd tier subsidiary, instead of establishing an overseas subsidiary in China by itself. For decades, DENSO Korea has maintained business relationships with Hyundai Motors and has built up relevant capabilities to Hyundai Motors. When Hyundai Motors began the production in China, DENSO needed to build up their Chinese plant with those relational skills for Hyundai Motors’ Chinese plant. However, DENSO Japan did not have those skills, not DENSO Japan, but DENSO Korea established its plant in China. The overseas 2nd tier subsidiary form was chosen because the Japanese headquarters did not have the capabilities needed, that is, relational skills DENSO Korea had built with a Korean carmaker. In addition, we could clarify that the features of the unique capabilities that the overseas subsidiary had built up could determine whether the overseas 2nd tier subsidiary form would be chosen as a way of utilizing those capabilities.