Headquartersforeign Subsidiary Control Relationships

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Headquarters-foreign Subsidiary Control
Relationships

• CHAPTER 13

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Introduction

• To be responsive to local conditions,
  Multinational companies like Phillips,Unilever,
  and ITT have relied on a decentralized structure
  and a diversified strategy.
• Global companies, like Matsushita and Kao, are
  organized around a strong central headquarters
  and treat the world market as an integrated
  whole, where universal consumer demand outweighs
  local preferences.

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• International companies, like General Electric
  and Procter Gamble, are structured to adapt and
  transfer the parent companys knowledge to
  foreign markets and to allow national units to
  adapt products and ideas from the parent company
  to local markets.

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GLOBAL CONTROLS

• Centralization.
• Most of the important decisions relative to local
  matters are made by the headquarters management
  in the centralization headquarters-foreign
  subsidiary control relationship.
• Advantage it would enable headquarters managers
  to consider the consequences of a decision on all
  of the firms subsidiaries.
• Disadvantage it is difficult for the
  headquarters managers located in Paris, France,
  to know what type of benefits best meet the
  expectations of workers in a subsidiary located
  in Rio de Janeiro, brazil.

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• Decentralization.
• To enable their subsidiaries managers to
  establish strong local presence, headquarters
  managers establish a decentralization
  headquarters-foreign subsidiary control
  relationship.
• Advantage foreign markets now change rapidly,
  and since local managers are closer to the
  market, they are able to keep abreast of local
  changes better than headquarters managers.

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• Disadvantage when decision making is
  decentralized, judgments made by local managers
  may sometimes have negative consequences for
  other subsidiaries and/or may not be the best
  decision when the overall firms objective is
  considered.

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TRADITIONAL DETERMINANTS OF CENTRALIZATION AND
DECENTRALIZATION

• Industry Firms in an industry that requires
  product consistency across many foreign
  markets tend to centralize control.
• Type of Marketing technologies generally
• Subsidiary require a great deal of
  cross-cultural adaptation which is generally
  best accomplished by local managers.

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• Function International functions such as
  finance and accounting are likely to be more
  centrally controlled than functions such as
  hiring local workers may be because local
  manager would have a better grasp of the local
  labor market.
• Range of Those foreign subsidiaries that
  provide
• Subsidiarys wide range of products for diverse
  markets
• Market tend to be less centrally controlled than
  those that provide uniform products for uniform
  markets.

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• Number Companies with a few large
• Size of subsidiaries in a foreign area tend to
• Subsidiaries decentralize than firms with many
  small units.
• Ownership Partially owned foreign
  subsidiaries,
• Structure for example, joint ventures are more
  likely to be less centrally controlled
• than wholly-owned foreign subsidiaries.
• Date of Newly acquired foreign
  subsidiaries
• Acquisition that continue manufacturing their
  old product lines under their same managers
  tend to be less centrally controlled.

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• Headquarters The greater the
• Interest and headquarters managements
• Expertise personal interest in the
  subsidiary and the greater
  expertise in the subsidiarys area, the
  greater central control over the
  foreign subsidiary it
  maintains.

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TRADITIONAL DETERMINANTS OF CENTRALIZATION AND
DECENTRALIZATION

• Distance Distant foreign subsidiaries tend to
  be less centrally controlled-although, recent
  advantages in global communications
  technologies have shortened the distance.
• Environment Subsidiaries located in
  environments that are unfamiliar to HQ tend to
  be given greater autonomy.
• Corporate If the goal of HQ is to maintain
  maximum
• Goals power, then more central control is
  applied. If it is to maximize local market
  share, however, control tends to be
  decentralized.

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• Ownership If the enterprise is owned and managed
  by a few individuals, these may maintain a
  closer watch their interests.
• Headquarters When the confidence in the foreign
• Confidence in subsidiarys managerial abilities
  increases,
• Subsidiarys decision making tends to
• Management become more shared and less dictated
  by headquarters management.
• Success of If the foreign subsidiary is
  perceived as being
• the Subsidiary highly successful, headquarters
  control tends to lessen.

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• Intersubsidiary A firm with a substantial volume
  of
• Transactions inter-subsidiary transactions
  tends to be centralized.
• Importance Headquarters management may want to
  monitor
• of Foreign an important foreign market very
  closely.
• Market Therefore, control over a
  foreign subsidiary in that market
  would be more centralized.
• Foreign The government of the nation in
  which
• Laws a foreign subsidiary is located
  may require that the subsidiary be
  managed by locals. Central control
  would thus be less.

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THE NATIONAL-CULTURAL FRAMEWORK

• Cultural Determinants
  Headquarters-Foreign Subsidiary Control
  Relationship
• Large power distance HC
• Small power distance LC,HF OR HNI
• High individualism HC OR HF
• Low individualism LF, HNI
• Strong uncertainty avoidance HF OR HC
• Weak uncertainty avoidance LC, OR HNI
• Confucianism LF, HC, HNI
• High masculinity HF
• Low masculinity LC, HNI
• Ccentralization Fformalization NInormative
  integration
• Hhigh Llow Mmoderate

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THE SITUATIONAL FRAMEWORK

• Situational Determinants
  Headquarters-Foreign
• Relationship Subsidiary Control
• The subsidiarys Local Context
• Low complexity, low level of
  resources HC,LF,LNI
• Low complexity, high level of
  resources LC,HF,HNI
• High complexity, low level of
  resources MC,LF,HNI
• High complexity, low level of
  resources LC,MF,HNI
• The organizations size
• Large scale organization HF
• Large-scale organization with global
  strategy LC,HC,HNI
• Large-scale organization with multi-domestic
  strategy LC,HF
• Small-scale organization HNI or NC

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• Situational Determinants
  Headquarters-Foreign
• Relationship Subsidiary Control
• Organizational Function
• RD like functions HNI, LC, LF
• Production-like function
• With multidomestic HF
• With global strategy HNI, MC
• Cash management-like functions HC, HF
• Ccentralization Fformalization NInormative
  integration
• Hhigh Llow Mmoderate

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THE SITUATIONAL FRAMEWORK (continued

• Situational Determinants
  Headquarters-Foreign Subsidiary Control
  Relationship
• Organization under crisis conditions
• In an environment of scarcity HC or HF
• In an environment of abundance LC, HNI
• Managements Preference
• Likes to maintain strong control HC
• Likes to maintain stability HF
• Likes to maintain adaptability,
  flexibility HNI
• Information Technology Communication Costs
• Costs are high LC
• Costs fall HC
• Costs continue falling HNI