Abstract
This study examines how subsidiaries in multinational corporations (MNCs) experience interactions with corporate headquarters. We conceptualize such interactions in terms of organizing costs, focusing on two key types of costs: bargaining costs and information costs. Specifically, we examine how distance, coordination mechanisms, and atmosphere influence the level of organizing costs in the headquarter-subsidiary relationship. Using survey data collected among 104 subsidiary managers in two MNCs, we show that relationship atmosphere significantly reduces both types of organizing costs, whereas distance increases bargaining costs. We also find that centralization and formalization reduce information costs, whereas social integration, contrary to our hypothesis, increases bargaining costs.
Highlights
The dominant perspective of the multinational corporation (MNC) has assumed, if not taken for granted, that headquarters (HQ) aim at making cogent decisions that maximize the benefits for the whole corporation (Foss 2019; Hoenen and Kostova 2015; Menz et al 2015)
Using survey data collected among 104 subsidiary managers in two MNCs, we show that relationship atmosphere significantly reduces both types of organizing costs, whereas distance increases bargaining costs
What factors are likely to drive or mitigate them? Building on Hoenen and Kostova’s (2015) notion of a broader agency perspective, in this study, we focus on three antecedents: (i) the distance between HQ and subsidiaries, which could strain their relation; (ii) the coordination mechanisms that are introduced by HQ with the aim to ease coordination and control; and (iii) the general atmosphere between HQ and subsidiaries, which should ease communication
Summary
The dominant perspective of the multinational corporation (MNC) has assumed, if not taken for granted, that headquarters (HQ) aim at making cogent decisions that maximize the benefits for the whole corporation (Foss 2019; Hoenen and Kostova 2015; Menz et al 2015). We examine how distance, coordination mechanisms, and atmosphere influence the level of organizing costs in the headquarter-subsidiary relationship. Using survey data collected among 104 subsidiary managers in two MNCs, we show that relationship atmosphere significantly reduces both types of organizing costs, whereas distance increases bargaining costs.
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