Headquarters Subsidiary Relationships Research Articles

Interfere! How Chinese subsidiaries manage their global headquarters

Purpose With the increasing dependence on the Chinese market, Chinese subsidiary managers rather than Western managers in the headquarters take responsibility for the overall success of the multinational company (MNC). This paper aims to argue that Chinese managers need to actively interfere to guarantee the survival of the MNC. Transaction analysis is suggested as a tool to rebalance the relationship. Design/methodology/approach Based on illustrative material and experience cases, the authors highlight why and how Chinese subsidiary managers have to engage in interference management. Findings Introducing different strategies within transaction analysis shows how Western managers can deal with Chinese interference management to improve relationships. Practical implications With the use of transaction analysis, Western managers can verify their communication strategies and behavior to better relate to Chinese subsidiaries on an “adult” level. Originality/value Interference management is based on counterintuitive thought that Chinese subsidiary managers rather than headquarters become responsible for the overall success of the MNC. Transaction analysis is used to uncover hidden assumptions, communication strategies and behavior in headquarters–subsidiary relationships.

“Of course, cooperation first”: the effect of subsidiary capability and perception gaps for subsidiary development

PurposeThis study aims to discuss not only the relationship between performance and cooperation but also discusses whether a subsidiary should prioritize performance above cooperation or whether a subsidiary should prioritize cooperation above performance. In addition, because the headquarters-subsidiary relationship influences the subsidiaries, the perception gaps (PGs) between headquarters and subsidiaries are taken as moderators to explore when there are perception differences between headquarters and subsidiaries and the effect on the relationship between subsidiaries’ cooperation (SCO) and performance (SP).Design/methodology/approachThis study obtained the data through a survey of 170 subsidiaries in China; chief executive officer or senior managers were selected as the data collection sources. AMOS analysis was used to address sophisticated data analysis issues.FindingsThe empirical evidence indicates that subsidiary capabilities have direct impacts on SCO and SP. In addition, SCO and performance have mediating effects. More specifically, SCO has a full mediating effect and SP has a partial mediating effect. For the moderating effects, the PG weakens the effect of SCO on SP.Originality/valueThis study contributes to the literature on subsidiary capabilities by offering a headquarters-subsidiary relationship model. As both the conceptual and empirical research studies on this topic are still underdeveloped, the study provides fresh insights into collaborative management and offers significant theoretical and managerial implications. Specifically, this study focuses on the impacts that subsidiary capabilities and PG have on cooperation and performance.

Headquarter resource allocation strategies and subsidiary competitive or cooperative behavior: achieving a fit for value creation

Integrating insights from the literature on the multinational corporation into current perspectives on resource allocation, we argue that the ability of headquarters to create value through resource allocation to subsidiaries within the multinational corporation is contingent on the complementary fit between the resource allocation strategy and the dominant behavior of the receivers of the resources. We expound on a theory and an explanation for the volatility of value creation generated by headquarter resource allocation that includes multiple layers of hierarchy. As a corollary, we extend and contribute to the theorizing on headquarters-subsidiary relations and resource allocation by illustrating different scenarios of the resource allocation process. More specifically, we develop a two-by-two matrix of the resource allocation process that corresponds to different resource allocation strategies of headquarters (winner-picking and cross-subsidization) and subsidiary behavior (collaboration or competition) in multinational corporations. We argue that, depending on which scenario within the matrix is brought to the fore, our understanding of how the resource allocation process plays out between headquarters and subsidiaries will differ and therefore influence value creation within the multinational corporation.

Managing interrelated tensions in headquarters\u2013subsidiary relationships: The case of a multinational hybrid organization

While all multinational organizations face the challenge of managing tensions between local integration and global responsiveness, they are increasingly required to pursue additional, often paradoxical, objectives – such as social and commercial goals. However, we know little about how these tensions at the core of the MNC strategy interact. Based on an inductive qualitative study of four headquarters–subsidiary relationships in a Latin American Multinational Hybrid Organization, we develop a model showing the interplay of multiple tensions and management approaches to address them. This allows us to contribute to research on subsidiary roles, which we found to differ depending on how multiple tensions are addressed. Furthermore, we add to the literature on hybridity in multinational organizations by pointing out how regional differences between units of a single organization unfold. Finally, we provide some practical recommendations for the management of multinational hybrid organizations.

Antecedents of psychological attachment in multinational enterprises

PurposeThis paper aims to examine the individual-level headquarters–subsidiary relationship issue of psychological attachment in multinational enterprises (MNEs). Antecedents to subsidiary manager identification and commitment to the MNE and subsidiary are explored.Design/methodology/approachThose in subsidiary manager roles regardless of country of origin were surveyed. Hypotheses were tested using partial least squared structural equation modeling.FindingsFor both MNE and subsidiary models, perceived prestige related to commitment. All components of positive interaction related to subsidiary commitment (but not identification), while just one related to MNE identification and commitment. For the MNE model only, collectivism positively related to identification and commitment, cultural distance positively related to commitment, geographic distance negatively related to commitment, and language similarity marginally negatively related to commitment. Organization-based self-esteem (OBSE) partially mediated relationships of perceived prestige and positive interaction with commitment in MNE and subsidiary models.Research limitations/implicationsThis microfoundational approach to psychological attachment in an MNE setting suggests similarities and differences for antecedents in MNEs and subsidiaries, as well as the importance of OBSE. This study is limited by its exclusion of other antecedent variables and types of attachment, and a cross-sectional study design.Practical implicationsMNEs can increase psychological attachment by communicating the importance of the MNE and/or subsidiary, developing processes to improve interactions with other organizational units, and demonstrating that employees are valued.Originality/valueExploration of the individual-level of analysis of headquarters–subsidiary relationships is rare, and different findings for the MNE and subsidiary are highlighted, something that is not fully explained by current research on psychological attachment.

Demand and willingness for knowledge transfer in springboard subsidiaries of Chinese multinationals

It is often assumed that Chinese multinationals invest overseas to obtain knowledge. Acknowledging political ties as an important aspect of Chinese multinationals, we investigate the respective interests of headquarters and subsidiaries to support knowledge transfer from host countries to China. Based on data from 177 headquarters-subsidiary relationships, our findings indicate that political ties of Chinese headquarters increase the organizational distance between headquarters and subsidiaries. This distance has a positive impact on headquarters’ demand for subsidiary knowledge transfer, but a negative effect on the subsidiaries’ willingness to actually transfer knowledge. This suggests that Chinese multinationals with strong political ties have to spend efforts in aligning the motives of headquarters and subsidiaries concerning knowledge transfer practices. This study contributes to the research on Chinese multinationals, cross-border knowledge acquisition, and the springboard perspective by shedding light on post-internationalization managerial challenges related to a knowledge-seeking strategy.

Embedded opportunities and conflict of subsidiary initiatives

PurposeThe purpose of this paper is to advance understanding of why subsidiary initiative opportunities face constant opposition, despite being essential to the competitiveness of international organizations. The paper also develops a detailed theoretical framework to showcase the conflicts and opportunities created by subsidiary initiatives, as most research in this field is descriptive and comparative.Design/methodology/approachThe paper draws substantially on entrepreneurship, agency, contingency and institutional theories, and focuses on the conflict generated by subsidiary initiatives in the context of headquarters–subsidiaries relationships, including the impact of developed and emerging markets. Based on a thorough analysis of the literature, the paper’s conceptual approach aims to develop models of how MNC networks deal with subsidiary initiatives.FindingsThe findings indicate that subsidiary initiative opportunities face opposition from both the organization and its environment.Originality/valueThe paper builds conceptual models showing the network of opportunities and conflicts created by subsidiary initiatives.

Out of India: Towards a conceptual framework on internationalization motives, parenting styles and human resource management practices among Indian MNE subsidiaries in Ireland

The significant growth of Asian multinational enterprises (MNEs) in western economies in recent years, in particular in smaller advanced economies such as Ireland, has led to calls for a deeper understanding of the drivers of location choice among these MNEs and for more compelling accounts of the parenting and management of the subsidiaries being established. In this conceptual contribution, we focus on the specific case of Indian MNEs with subsidiaries in Ireland. Assembling theoretical insights from the literature on parenting styles and headquarter-subsidiary interactions, coupled with practice-led observations garnered from Indian MNEs, we develop a conceptual framework elucidating key variations in headquarter-subsidiary relationships and the HR policy and practice mix. We reason that the preferred approach to corporate parenting, vested in adding value to the subsidiary, extracting value from it, or seeking a balance in the overall exchange, results in a range of interactions between headquarters and subsidiaries, encompassing integration, collaboration or local responsiveness. Furthermore, we postulate that the preferred headquarter-subsidiary interactions influence the subsequent HR recipes adopted in the subsidiary setting as it seeks to build its strategic position within the broader MNE network. In order to deepen lines of inquiry around these different interactions, we advance a series of propositions for testing.

Dynamic attention-based view of corporate headquarters in MNCs

While the usefulness of the attention-based view in understanding the role of headquarters-subsidiary relationships in multinational companies (MNC) is well established, recent research on corporate headquarters (CHQ) has moved beyond the simplistic conception of CHQ as a unitary entity. In this point of view, I review the development of the attention-based view and its use in research on CHQs in MNCs. Developing a better understanding of the dynamics of attention between the different subsidiaries and the increasingly dispersed and disaggregated headquarters activities in MNCs requires a more dynamic view of attention. Building on the recently introduced dynamic attention-based view, I identify potential research areas emerging from the application of the dynamic attention-based view to research on CHQ activities in MNCs.

Dealing with headquarters in the multinational corporation: a subsidiary perspective on organizing costs

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.

Human resource management practices transferring from foreign firms to Russia: The case of MNCs subsidiaries

The paper investigates the relationship between cultural fit, state of institutional development, the headquarters–subsidiary relationship and choice of MNCs' strategy for transferring human resource management (HRM) practices through the sample of 21 Russian subsidiaries. The results propose that exportation strategy better suits MNCs that originate from culturally close countries that enter markets with a relatively developed institutional and business environment. Adaptation strategy is suitable for home countries that are culturally distant, while integration strategy appears to be universal and allows capturing the benefits and mitigating the drawbacks of other strategies. The paper also discusses the connection between the establishment mode, which serves as a formal operationalization of the headquarters (HQ)–subsidiary relationship, and knowledge flows. The result can be important for Central and Eastern Europe (CEE) countries and to support the decision-making process for MNCs considering entering this region.

Subsidiary staffing, cultural friction, and subsidiary performance: Evidence from Korean subsidiaries in 63 countries

Drawing from the notion of cultural friction and based on the agency theory rationalization of multinational enterprise (MNE) headquarter–subsidiary relationship, we examine the impact of cultural friction in foreign subsidiaries on subsidiary performance. We argue that cultural friction, arising due to a high presence of parent country nationals (PCNs) in culturally distant locations, has a detrimental effect on subsidiary performance. This effect is the strongest when the cultural friction is at the top management team (TMT) level and the weakest when friction is at the regular employee level. However, this relationship is contingent on factors that work as drags or lubricants for cultural friction between PCNs and host country nationals (HCNs). We identify governance mode and language differences between home and host countries as drag parameters and host country experience and subsidiary interdependence as lubricants that condition the effect of cultural friction on subsidiary performance. Empirical findings based on a longitudinal sample of 7,495 foreign subsidiary observations of 467 Korean MNEs in 63 countries during 1990–2014 provide robust support for our theoretical predictions.

Making Waves in a Huge Pond: Subsidiary Attention-Building Behaviour to Gain Strategic Influence

This paper focuses on how strategic influence is gained among subsidiaries. By adopting an attention-based perspective of power this study develops and empirically tests a set of hypotheses aimed at explaining the impact of attention-building activities on subsidiaries strategic influence within the multinational corporation. Based on survey-data from 110 foreign-owned subsidiaries in Sweden the empirical results provide support for headquarter attention as a mediator between a subsidiary’s commitment and initiative selling -activities aimed at increasing the strategic influence within the MNC. The direct effects between the investigated attention-building activities and strategic influence remain non-significant. This suggests that subsidiaries are not able to increase their influence through commitment and initiative tactics unless they receive headquarters’ attention. The study contributes to the literature on headquarter-subsidiary relations and provide a theoretical framing by drawing on an attention-based perspective upon subsidiary power.

Unravelling agency relations inside the MNC: The roles of socialization, goal conflicts and second principals in headquarters-subsidiary relationships

Prior research has advanced classical agency theory to account for various characteristics of headquarters (HQ)-subsidiary relations in the multinational corporation (MNC). In an attempt to contribute to this line of research, in this paper, we propose and test an agency model for HQ-subsidiary relations inside the MNC. Drawing on classical agency assumptions, we develop a baseline hypothesis that links informal controls (i.e., socialization), HQ-subsidiary goal conflicts, and the HQ’s use of formal controls (i.e., behavioral controls). We subsequently introduce an important boundary condition, which reflects subsidiaries’ internal agency relations with subsidiary CEOs as second principals. More specifically, we argue that the baseline relationship only holds under low levels of second principal power. To test our model, we employed a unique study design with three parallel surveys addressing the agents and the two principals involved in 131 agency relations within one MNC.

Host country corruption and the organization of HQ–subsidiary relationships

Multinational enterprises (MNEs) operating in more corrupt host (than home) countries face actual costs related to processing information for decision-making, and lack of local legitimacy, and potential reputation and legal costs in case of corruption scandals. Drawing on the organizational perspective of corruption, we argue that greater subsidiary autonomy helps minimize these costs. However, headquarter (HQ)–subsidiary communication weakens the autonomy-based advantages for minimizing legitimacy costs, and MNEs’ experience in relatively corrupt countries weakens the advantages for minimizing information-processing costs. Our analysis of 261 Italian foreign subsidiaries in 25 host countries confirms most of our arguments except the moderating effect of MNE experience. Our findings contribute to research on corruption and FDI, weak institutional contexts and MNE strategies as well as the literature on HQ–subsidiary relationship.

The Influence of Multinational Enterprises on Subsidiaries: Context Matters

Purpose – This paper examines how differences in the institutional environment of a multinational enterprise (MNE) shape the role of management control systems (MCSs) and social capital in the headquarters-subsidiary relationship of an emerging economy MNE. Design/methodology/approach – A case study design was adopted in this research. Data was gathered by means of semi-structured interviews, document analysis and observations. Interviews were conducted at the Nigerian headquarter (HQ) and United Kingdom (UK) subsidiary of the Nigerian multinational enterprise. Findings – The study found that the subsidiary operated autonomously, given its residence in a stronger institutional environment than the HQ. Instead of the HQ depending on MCSs as a means of coordination and control, it relied on social capital that existed between the HQ and the subsidiary to coordinate and integrate the operation of the foreign subsidiary studied. Originality/value – The reliance on social capital as a means of coordination and control of the foreign subsidiary in this study is significant, given that previous studies have indicated that multinational HQs normally employ MCSs as a means of control of foreign subsidiaries. Also, while previous studies have suggested that MNEs HQs have better expertise which enables them to design and transfer MCSs to foreign subsidiaries, this study found that such expertise relates to the institutional environment from which the HQ is operating from. Through the lens of institutional sociology theory and social capital theory, these findings directly contribute to the literature on the transference of practices and control systems in accounting and international business literatures.

Complex Configurations of Multiple Headquarters-Subsidiary Relations

We analyse multiple headquarters interventions in subsidiary activities in terms of allocation and re-allocation of subsidiary R&D mandates. This allows for highlighting challenges and consequences...

Contributions Towards a Renewed Debate on Multinational Headquarter-Subsidiary Relations: Subsidiary Mandates, Corporate Parenting Styles and Collective Psychological Contracts

We argue that multinational headquarter-subsidiary relations in international business remain under-theorized as a result of a dearth of constructs that capture and reflect the complex facets of such relations. Based on data from 40 interviews conducted with senior managers in 25 multinational corporations designed to chart both the evolving competitive arena in which they operate and, against this backdrop, the changing nature of the corporations architecture and network of headquarter-subsidiary relations, we make the case for a focus on subsidiary mandates, corporate parenting styles and collective psychological contracts, three constructs which we believe offer explanatory power in landscaping the contemporary nature of these relations. We suggest that insights garnered from these constructs may offer the prospect of charting and explaining a greater range of issues pertinent to headquarter-subsidiary relationships and, from a theoretical perspective, could serve to renew aspects of the debate on such relationships. Arising from this we present a series of propositions designed to explicate the value of these constructs in opening up potential lines of enquiry in multinational headquarter-subsidiary relations.

When Do Distance Effects Become Empirically Observable? An Investigation in the Context of Headquarters Value Creation for Subsidiaries

Integrating distance research with the behavioral strategy literature on MNC headquarters-subsidiary relations, this paper explores how the distance between headquarters and subsidiaries relates to value added by the headquarters. We show for 124 manufacturing subsidiaries in Europe that, on average, distance is unrelated to value added by headquarters but that this effect is contingent upon the extent to which the subsidiary is locally embedded. Only after a certain threshold level of subsidiary embeddedness, distance is negatively related to headquarters value added. This effect is more pronounced for cultural, economic, and administrative distances than for pure geographic distance, highlighting the critical role of contextual variation for MNCs.

The Role of Local Context in Headquarters–Subsidiaries Relationships: A Global Analysis of the Literature

ABSTRACTThis study reviews the literature on multinational corporations’ headquarters–subsidiaries relationships, focusing on the role of the local context and its influence on subsidiaries in developed and emerging markets or countries. The author searched the literature using several terms directly related to these issues. The findings demonstrate that subsidiaries can only operate successfully in foreign locations by adjusting their policies to fit into the local environment because there are multiple contexts. Multinational corporations manage the local context by integrating their home behavior and that of the subsidiaries’ operating environments. A framework for identifying and managing different local contexts is proposed.