Headquarter centralisation influence on host subsidiary market development initiatives

Abstract

Although international business literature discusses the multinational enterprise as a de-centred or networked organisation, the typical MNE predominately operates as a central authoritative headquarter with standardized processes, knowledge, resources, scope, culture as well as strategy to which it transfers to its host subsidiary. MNE headquarters are particularly interested in host subsidiaries in emerging markets due to desirable growth potential for MNEs wanting to expand their footprint and gain competitive advantage in regions outside of their home country. Given this dynamic, host subsidiaries in emerging markets have a mandate to deliver on the strategy that has been transferred to them by the headquarter, this can lead to conflicting interests as the subsidiary has its own local entrepreneurial goals to achieve for developing the local market. Using semi-structured interview data collected from 10 participants within European and American MNEs, this qualitative study sought to gather insights into the influence of headquarter centralisation on host subsidiary market development initiatives. Anchored by the principle-agency and resource dependence theories, the purpose was to analyse the operational characteristics such as resource dependency and contextual characteristics such regulatory environment of a host subsidiary influences the level to which a host subsidiary can be autonomous from both the perspectives of headquarter decision markers against those of the host subsidiary market development managers. Based on the findings, the influence of headquarter centralisation is not “black or white” nor good or bad, rather it is contextual and the nature of MNE does not structurally invite for full autonomy. This entails that means of coordination mechanisms to establish a balance between central steering and localisation/subsidiary autonomy need to be put in place. The outcome of this research is presented in a coordination framework to help headquarter decision makers and host subsidiary market development managers find strategic balance.