COMPETITITON BETWEEN MULTINATIONAL COOPERATION(MNC) HEAD OFFICES AND THEIR SUBSIDIARIES

Introduction

This  essay explains about the competition between subsidiaries and their head offices in the MNCs context.Furthermore the essay explain why the competition occurs and factors that causes competition between MNCs head office and their subsidiaries.

MNCs Subsidiary and MNCs Head office overview

Foreign MNCs’ subsidiaries are not independent entities.They are mandated by the parent organizations which reside in a foreign land. Additionally, they are supposed to comply with the parent organization practices (Kostova & Roth, 2002).Further to that,  Subsidiaries access  resources and other forms of organization support  based on their reputation within MNE (Kostova & Roth, 2002). Additionally, conforming to parents mandate increases subsidiary reputation and legitimacy (Dimaggio & Powell,1983)

Birkinshaw, Bouquet and Ambos (2007) stated that many MNCs subsidiaries start with the objective of being a market unit of parent company.However, as the subsidiaries grow they  develop  resources and capabilities of their  own and take on additional responsibilities by being innovative in the local market and interact with others in the local environment.This leads  to uniqueness in their approaches  that not only help parent organization to gain competitive edge but also themseslves in new directions  that were not considered initially.

Schotter and Beamish(2011) stated that conflict and competition between subsidiaries and headquarters is not necessary regarded as dysfunctional or the result of inefficient global intergration instead it is considered as normal consequence of organizing and managing across national boarders.This implies misunderstanding between subsidiaries and headquarters is a given phenomenon.

Antecedent of competition between subsidiary and head office

Schotter and Beamish(2011) argued that competition refers to misunderstanding and contest between MNC subsidiaries and their parent organization. This occur due to the fact that both face different institutions and operating environment at the time of their existence. Besides, Kostova & Roth (2002) stated that foreign subsdiaries are supposed to maintain legitimacy between the host country where they conduct their operations  and the MNC rules and regulations. This is termed as institution duality. Additionally, the competition between subsdiaries and their headquarters occur due to dominance of the MNCs head office in the decision making process in which interests of those outside the home country are regarded as secondary or largely neglected,moreover this stir debates on the question of centralization against decentralization between MNCs head offices and subsidiaries (Daily Telegraph , 2008).

Factors that cause competition between subsidiary and and the head office  among MNCs

Perception of the threat of the subsidiary initiatives

Birkinshaw,Hood and Johnson(1998) urged that MNC head office often view subsidiary initiatives  with suspision or hostility especially when they are not aligned with MNEs existing priorities; so initiatives are at times considered as self interested behaviour that aim at empire building regardless of the soundness of the initiatives.Moreover, initiatives are also considered as  threat to the livelihood or status within the corporation by the MNC head office. Simultaneously, Burgelman(1983) argued  that subsidiaries’ new ideas  and initiatives encounter resistance from headquarters since they are considered   to be building an empire to the subsidiary; though the initiative might intend to  contribute to the value creation of the entire MNE. Consequently,  MNEs’ head offices increase monitoring to subsidiary initiatives in order to prevent any unexpected behaviour from the subsidiary. However, this constrain subsidiaries degree of freedom in decision making. Additionally, excessive monitoring process cause  misunderstanding between head office and subsidiaries.

Difference in Institution environment between subsidiary and head office

Competition between subsidiary and head office may also  occur due to enforcement of MNCs practices to be diffused worldwide to its subsidiary offices.This is done with a good will of ensuring  technical efficiency.However due to institutional duality some practices might be viewed by subsidiaries as inappropriate or inefficient from the host country institutional standpoint. In such cases, therefore compliance is not expected from the foreign subsidiaries. This is because the institutional environment of the home country from where the MNC comes from is different from that of the host country where the subsidiaries operate.As a result, ceremonial adoption is likely in such situation due to high uncertainty on value of the  practice to the business environment of the host country.This contradicts with the officers in the   parent organization as they normally believe that their practices are right (Kostova & Zaheer,1999; Kostova & Roth 2002; Meyer & Rowan,1977)

Lack of trust of Subsidiary on head office

 Kostova & Roth (2002) argued that another source of competition between subsidiary and head office is lack of trust on the perceived value of the practice suggested by the MNC head office to the subsidiary.This result into uncertainty about efficiency of the suggested practice. But trust resolves uncertainty and ambiquity between parent and subsiadiary of the MNCs.Trust can enforce the internalization and implementation of the MNC practices to its subsidiaries.Thus, trust is important between head quarters and subsidiaries as it assists in  implementation of MNC mandates (Borys & Jemison,1989).

Pricing policies and incentives

 Pricing policies and incentives are sore phenomenon that cause competition between headquarters and subsidiaries. Competition happens because MNC headquarter and subsidiary operate from different countries that have different  institutions and economic conditions, as a result there is always conflict on price and incentive policies expected to be executed; this stir the debates whether there should be standardization or  customization of price; remuneration and incentive policies( Daily Telegraph,2008; Kostova & Roth ,2002).

Cultural differences

Cultural distance between MNC home country and the host country of  subsidiary causes misunderstanding because of differences  in perceptions and expectations. The differences sometimes  lead to delay of  information sharing and learning between headquarter and subsidiary (Cao&Yang, 2006;  Lane & Beamish, 1990). Besides, Daily Telegraph (2008) contended that difference between different nationalities and cultures often leads to unnecessary tension because of differences in language,traditions and different ways of doing business and this has negative impact on internal MNCs business.

Lack of effective communication

Lack of effective communication between headquarters and subsisary is another source of competition between headquarter and  subsidiary.Lack of communication occurs though many companies have information systems in place;but they tend to be underutilized to the extent that headquarters and subsisary relations and work processes are jeopardized.This implies that information dissemination is critical in enabling faster decision making and formulation of service promises which are adhered to the point of delivery (Daily Telegraph, 2008).

 Effective communication and Information assist  the subsidiaries to perfome their duties in acceptable and required manner.However when headquarters responses are confusing or inadequate, it brings problem to subsidiaries on information about products,perfomance,customers and competition( Daily Telegraph,2008)

Conclusion

Conflicts and misunderstanding between  headquarters and subsisary abound but active international companies make solution.For example, the  presence of boundary spanners is critical during competition and conflicts for organization perfomance as they act as mediators and solution providers by bringing trust and positive network between MNCs and subsidiaries..Moreover, good and personal relationship between MNC headquarters and subsisaries  is critical as power imbalance and distance delude many headquarters and subsidairy managers into thinking that there is no pressing need to develop and nurture good relationship in country offices.Thus training on good relationship between head office and employees in subsidiaries elsewhere is critical.

Reference

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