How subsidiaries can emerge as “centers of excellence”

Over the past several years, corporate subsidiaries have gone from performing necessary but relatively low-value functions for multinational firms to serving as proving grounds for vital drivers of knowledge, innovation, and value creation. Some subsidiaries are now dubbed centers of excellence (CoEs) by their parent company, meaning they cultivate specific skills and knowledge that can be conveyed to and leveraged along a multinational’s network.

How does this evolution take place? The authors of a new study looked into an IKEA supplier, which operates three factories in Poland, to learn more.

IKEA — known for its global reach and stylish yet affordable furnishings — was an ideal subject for the study, because few multinational firms play so vital a role for their subsidiaries. The authors held nearly 50 interviews with managers at both IKEA and the subsidiary in 2001–03, 2007, and 2014, as well as looking back at the relationship since the mid-1980s. Participants were asked about the subsidiary’s activities, resources, and competencies, as well as how its relationships with headquarters, other IKEA subsidiaries, and external suppliers had evolved. The authors also visited the subsidiary several times and observed production and organizational processes.

Over the period of study (1986 through 2014), the business unit evolved from a supplier to an important production hub. IKEA approached the business to be a supplier in the 1980s, intrigued by a technology the factory used to produce cabinets. 

Read the original article here