(MGT7100) International Business Strategy.
Analysis of the HQ-subsidiary relationship from a networked based perspective
Introduction
World has become a global village providing an attractive environment for Multinationals enterprises
(MNE’s) to venture in and operate. As a result, Subsidiaries are established to seek the available
resources and opportunities in each of every host country. The subsidiaries are always encouraged to
compete by their headquarters. It is therefore important for the subsidiaries and headquarters to form
a key relationship as this would affect the overall function of the Multinational company. Any conflict
between the two would threaten the operations and the effectiveness of the MNE (kostova, 2016).
Therefore, effective management of this relationship is key to the overall performance of the
multinational company. The MNC headquarter relationship has a significant influence on how
headquarters internalizes its activities and resources flow to the subsidiaries. While the MNC dominant
perspective assumes that the headquarter aim is to maximize the benefit of the whole corporation at
large, it does not show the complete picture of how such a complex organization works (Conroy,
Collings, & Clancy,2020). This paper analyzes various dynamics of the headquarter-subsidiary
relationship from a network-based perspective to explain how MNC subsidiaries are coordinated and
controlled.
MNC Headquarters -subsidiary relationship Theoretical Back ground
The multinational enterprise (MNE) is an internal market system where strong intra-firm competition
between subsidiaries is felt and cannot be avoided (Luo, 2005). Traditionally MNCs were
conceptualized as owning and enjoying certain firm advantages that originated from where the
headquarters were located. The advantages compensate for the obligation of having to operate in
foreign land (Rugman & Verbeke, 2001). Domestic firms could easily take advantage of FSA to
become multinational corporation. Subsidiaries on the other hand were believed to be receivers of the
, 2
resources from the headquarters in the home country. Rugman et al. (2017), portrayed headquarters
strategies as a deliberate process. The function of a subsidiary was to echo the goals and objectives of
the MNC at the home country. This made the managers to manipulate the activities that were
happening at the lower level of the organization. The headquarters governed and coordinated all the
activities through a hierarchical mechanism which included centralization, output & behavioral
control, formalization, Departmentalization, strategic planning as well as standardization (Underson
& Holm, 2010). However recent research on MNEs has indicated that growth and development
capability is not limited to happen at the headquarters only or the area of conception only (Feng,
2017). He also adds that subsidiaries are the key player and possess excellent development capability
compared to Home country.
MNEs are Geographical dispersed within the globe meeting numerous functions in a value chain. One
quality aspect of MNC is that they run and operate value adding businesses in both their home country
and in the host country (Søberg & Wæhrens,2015). Their nature of being dispersed makes them
operate in different networks in host countries. These networks are embedded in a special business
network that normally consist of both internal and external associations partners. Pu & Soh (2021),
Found that in knowledge development, local business networks provided home country with new
ideas, opportunities and knowledge. This indicated that local business networks embedment was
beneficial to the headquarters as it provided knowledge development. Knowledge development and
transfer are crucial element in creating and sustaining a competitive advantage in the market (Feng,
2017). Innovations are also important for the survival of MNE (Yasmin, 2011). International business
management also term innovation as the most value creation strategic tool needed by MNEs to create
and sustain a competitive advantage over the competitors (Miravitlles et al., 2014).
Headquarters plays an important role in promoting and encouraging innovation capabilities by
creating dependable strategies and numerous control mechanisms. Yasmin (2011), believes that MNE
has a great influence that can enhance innovation within the subsidiaries. Conroy et al. (2020), adds
that headquarters has the mandate to provide offer strategic leadership and create a better
environment that encourages innovativeness. While it is the nature of Headquarters to monitor
operation through establishment of incentives that aims at reducing cost, MNEs are helping
subsidiaries in operations thus creating a positive impact within the organization (Feng ,2017).
Consequently, there is a bigger picture that emerges where the relationship of the headquarter and the
subsidiary is more complex. The interaction, functions and role headquarter and the MNE subsidiaries
Analysis of the HQ-subsidiary relationship from a networked based perspective
Introduction
World has become a global village providing an attractive environment for Multinationals enterprises
(MNE’s) to venture in and operate. As a result, Subsidiaries are established to seek the available
resources and opportunities in each of every host country. The subsidiaries are always encouraged to
compete by their headquarters. It is therefore important for the subsidiaries and headquarters to form
a key relationship as this would affect the overall function of the Multinational company. Any conflict
between the two would threaten the operations and the effectiveness of the MNE (kostova, 2016).
Therefore, effective management of this relationship is key to the overall performance of the
multinational company. The MNC headquarter relationship has a significant influence on how
headquarters internalizes its activities and resources flow to the subsidiaries. While the MNC dominant
perspective assumes that the headquarter aim is to maximize the benefit of the whole corporation at
large, it does not show the complete picture of how such a complex organization works (Conroy,
Collings, & Clancy,2020). This paper analyzes various dynamics of the headquarter-subsidiary
relationship from a network-based perspective to explain how MNC subsidiaries are coordinated and
controlled.
MNC Headquarters -subsidiary relationship Theoretical Back ground
The multinational enterprise (MNE) is an internal market system where strong intra-firm competition
between subsidiaries is felt and cannot be avoided (Luo, 2005). Traditionally MNCs were
conceptualized as owning and enjoying certain firm advantages that originated from where the
headquarters were located. The advantages compensate for the obligation of having to operate in
foreign land (Rugman & Verbeke, 2001). Domestic firms could easily take advantage of FSA to
become multinational corporation. Subsidiaries on the other hand were believed to be receivers of the
, 2
resources from the headquarters in the home country. Rugman et al. (2017), portrayed headquarters
strategies as a deliberate process. The function of a subsidiary was to echo the goals and objectives of
the MNC at the home country. This made the managers to manipulate the activities that were
happening at the lower level of the organization. The headquarters governed and coordinated all the
activities through a hierarchical mechanism which included centralization, output & behavioral
control, formalization, Departmentalization, strategic planning as well as standardization (Underson
& Holm, 2010). However recent research on MNEs has indicated that growth and development
capability is not limited to happen at the headquarters only or the area of conception only (Feng,
2017). He also adds that subsidiaries are the key player and possess excellent development capability
compared to Home country.
MNEs are Geographical dispersed within the globe meeting numerous functions in a value chain. One
quality aspect of MNC is that they run and operate value adding businesses in both their home country
and in the host country (Søberg & Wæhrens,2015). Their nature of being dispersed makes them
operate in different networks in host countries. These networks are embedded in a special business
network that normally consist of both internal and external associations partners. Pu & Soh (2021),
Found that in knowledge development, local business networks provided home country with new
ideas, opportunities and knowledge. This indicated that local business networks embedment was
beneficial to the headquarters as it provided knowledge development. Knowledge development and
transfer are crucial element in creating and sustaining a competitive advantage in the market (Feng,
2017). Innovations are also important for the survival of MNE (Yasmin, 2011). International business
management also term innovation as the most value creation strategic tool needed by MNEs to create
and sustain a competitive advantage over the competitors (Miravitlles et al., 2014).
Headquarters plays an important role in promoting and encouraging innovation capabilities by
creating dependable strategies and numerous control mechanisms. Yasmin (2011), believes that MNE
has a great influence that can enhance innovation within the subsidiaries. Conroy et al. (2020), adds
that headquarters has the mandate to provide offer strategic leadership and create a better
environment that encourages innovativeness. While it is the nature of Headquarters to monitor
operation through establishment of incentives that aims at reducing cost, MNEs are helping
subsidiaries in operations thus creating a positive impact within the organization (Feng ,2017).
Consequently, there is a bigger picture that emerges where the relationship of the headquarter and the
subsidiary is more complex. The interaction, functions and role headquarter and the MNE subsidiaries
