Headquarters and regional management mandated-subsidiary structure

Abstract

Multinational corporations face the dilemma of global integration and local responsiveness. Further, they have to contend with trying to minimise agency costs in managing remote subsidiaries. An alternative to regional headquarters was proposed in regional management mandated (RMM) subsidiaries. These subsidiaries are profit and loss units that are delegated headquarters functions to manage peripheral subsidiaries. The study aimed to examine the headquarters-RMM-subsidiary structure through determining whether the RMM-subsidiary was relevant to a multi-business subsidiary with four industry sectors and examining the roles played by the business units within the industry sectors. A qualitative and single-case, exploratory study was conducted, which consisted of twenty-five semi-structured interviews with respondents within the headquarters, the RMM-subsidiary and the peripheral subsidiaries. This research found that the RMM-subsidiary does perform most of the headquarters’ functions for the peripheral subsidiaries and business partners – the performance of which is impacted by the type of business and the channel to market. The performance of these functions further highlighted that each business unit within an industry with the RMM charter plays multiple roles to varying degrees within a given framework and across multiple frameworks, and that the roles are also impacted by type of business and channel to market, local resources and competencies. Peripheral subsidiaries were highlighted as being unimportant, compromising their local responsiveness; however, it was indicated that potentially their role would change as business opportunities dictated. Finally, the deployment of expatriates seems not for purposes of control but to fill resource, knowledge and skill gaps as necessary. This highlighted an alternative to expatriate deployment – the development of staff at the headquarters. This would serve two purposes: equip the individual with knowledge and skills needed in the home country and develop networking and trusting relationships that were found to foster better working ties between the headquarters and subsidiaries. As a result the key components in the HQ-RMM-subsidiary structure are identified as the balance between control and autonomy, RMM-subsidiary roles and networking and trusting relationships, as all three components have a direct bearing on the MNC achieving global integration and local responsiveness. Keywords: headquarters functions, regional management mandated subsidiary, peripheral subsidiary, multi-business multinational corporation, subsidiary roles