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Subsidiary units must respond to emerging threats including disaggregation of value chains and increased headquarters monitoring and control which have led to a cycle of subsidiary decline. The authors recognize the value of subsidiary initiatives as a short‐term response but argue that subsidiary long‐term survival and growth will depend on the unit's ability to align with its parent strategic activities and knowledge base through developing vertical embeddedness.

This research is part of an ongoing quantitative and qualitative study programme of Irish subsidiary operations of foreign MNCs. This paper integrates the authors' broader research to date including both in‐depth interviews within a focal case combined with a comprehensive review of the literature relating to MNC and subsidiary management in identifying how subsidiaries can respond to current challenges …