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Foreign Subsidiaries and Corporate Headquarters Coursework

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Updated: Mar 24th, 2021

Cyril Bouquet and Julian Barkinshaw conducted this study. Its main aim was to establish the relationship in terms of the attention that exists between corporate headquarters and foreign subsidiaries of Multi-National Enterprises (MNEs). In the process of running and management of the corporate institution, organizations have realized the need of having a strong and effective corporate headquarters (Galbraith, 2000). As a result of the critical role that they play, organizations have found corporate headquarters to be a critical resource for the effective running and management of their organizations. This is because it is the responsibility of corporate headquarters to control the activities and operations of all other foreign subsidiaries that constitute the bulk of the organization.

However, from practice, it is difficult for the executives at senior levels to apply the same weight or put an equal emphasis on all the foreign subsidiaries that form a corporation. This is especially so when we relate this matter to Multi-National Enterprises (MNEs). These enterprises have several foreign subsidiaries that may be distributed all around the country or around the globe. It is the role of executive officers to ensure that every one of these foreign subsidiaries is operating as per the expected standards and guidelines of the mother organization.

At the same time, it is the role of the same individuals to respond to the needs and requirements of all these foreign subsidiaries. Due to this fact, it is difficult for corporate headquarters to offer equal opportunities to all foreign subsidiaries. This study thus aimed at identifying factors that dictate the attention given to foreign subsidiaries. According to Bouquet and Barkinshaw (2008), the research questions for their studies were:

  1. “How should the construct of headquarters attention be operationalized to have both practical and theoretical value
  2. What are the key factors that shape headquarters attention for a subsidiary unit (p. 598)?”

MNEs have a global headquarters that comprises of the executives. In addition, they have regional offices that are distributed over their spheres of influence to run and manage operations at foreign subsidiaries. About the first research question, to ensure that the operations of foreign subsidiaries have theoretical and practical aspects, global headquarters have two options. The first alternative is to ensure that all foreign subsidiaries are run as per the rules and guidelines of the mother organization.

Here, subsidiary organizations are expected to achieve specific goals and objectives. These goals and objectives should be in line with the overall mission, vision, goals, and objectives of the mother organization. According to studies that have been conducted, this is a relatively positive intervention from the mother organization to all its foreign subsidiaries (Hofstede, 1991). The resultant outcome of such an intervention is that the entire organization will grow in one direction and achieve the original goals and objectives that were set during the inception of the organization.

Another alternative for instilling theory and practice to foreign subsidiaries is for the headquarters to adopt a developmental approach. Here, individual heads of foreign subsidiaries have the independence of dictating the developmental patterns that they will adopt and implement in their respective units. The resultant effect will be the development and implementation of new ideas by foreign subsidiaries. As a result, the goals and objectives will be somewhat different from that of the mother organization.

These two different approaches play a critical role in the determination of the kind of attention that will be given to foreign subsidiaries. A foreign subsidiary that works following the policies and guidelines of the mother agency is likely to get more attention from the corporate headquarters as compared to another that works independently. Working following the policies of the mother organization ensures that the operations of a foreign subsidiary aim at exploiting the local market to its advantage and the advantage of the mother company.

This theory is consistent with is in line with hypothesis 1a of the study which states that “The strategic significance of its local market is positively related to the positive attention that a subsidiary receives from corporate headquarters (Bouquet and Barkinshaw, 2008, p. 582).” To ensure the effectiveness and efficiency of operations, foreign subsidiaries need to get support from the corporate headquarters. Corporate headquarters need to actively respond to the needs and requirements of foreign subsidiaries, support their operations, and provide essential financial and technical backups.

This theory thus conforms to the hypothesis 2a of the study that stated that “Initiative taking by a subsidiary’s managers is positively related to the positive attention that the subsidiary receives from corporate headquarters (Bouquet and Barkinshaw, 2008, p. 583).”

The theory of Intra organization of power has been used in the study to answer the second research question. With regards to the theory, certain factors shape the attention that a subsidiary unit receives from the headquarters. The voice of a subsidiary unit and the weight it has on an organization play a critical role in dictating the attention it will receive from the mother organization (Bouquet and Barkinshaw, 2008). However, the voice and weight of a subsidiary unit depend on the geographical distance between the unit and the corporate headquarters and the downstream its downstream competence (Bouquet and Barkinshaw, 2008).

These arguments, therefore, connect the second research question to hypothesis 3a and 4a of the study. Hypothesis 3a states that, “Geographic distance strengthens the relationship between initiative taking and positive headquarters attention,” while hypothesis 4a states that, “A downstream competence strengthens the relationship between initiative taking and positive headquarters attention (Bouquet and Barkinshaw, 2008, p. 584).” The research questions, theories, and hypotheses of the study are all in line with the argument that has been presented in the study.

References

Baum, J. A. C., and Korn, H. J. (1996). Competitive dynamics of interfirm rivalry. Academy of Management Journal, 39, 255–291.

Bouquet, C. and Barkinshaw, J. (2008). Weight versus Voice: How Foreign Subsidiaries Gain Attention from Corporate Headquarters. Academic Management Journal, 51 (3), 577-601

Galbraith, J. R. (2000). Designing the global corporation. San Francisco: Jossey-Bass.

Hofstede, G. 1991. Culture and Organizations. NewYork: McGraw-Hill.

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