Ch 8 Headquarters and Subsidiary Flashcards
dimensions of relationship?
structural, cultural, budgetary, technological and human resource
BScHT
HQ/S best relationship?
HQ-S best relationship is decided by a range of factors, internal and external
how do we deal with dimensions of relationship?
risk and control
–RISK. Factors that cause management risk to the investment
–CONTROL. To protect de investment against management risk and to take adv. of opportunities
company chooses between…
- various CONTRACTS and agreements
- an AGENCY or representation
- an international joint venture (IJV)
- MERGING with a local company
- a SUBSIDIARY, either from scratch or from an ongoing company that has been acquired.
not to invest in a country that…
–Lacks an attractive investment climate;
–Lacks skilled human resources at attractive prices;
–Is perceived as unacceptably RISKY
types of risks in the environment
competitive, economic, political, technological
PECT
competitive risks arise where…
–competitive structures are UNSTABLE;
–new ENTRANTS threaten to break into the market;
–new and SUBSTITUTE products threaten;
–new TECHNOLOGIES threaten;
–CHANGES arise in structures of supply and demand.
economic risks arise when…
–public RESOURCES suffer waste, corruption, and mismanagement;
– ECONOMIC conditions are unsatisfactory;
–POTENTIAL markets and their PROXIMITY are POOR;
–NATURAL resources are not locally available, and are expensive;
–TARIFFS, import and export controls are punitive;
–PAYMENTS cannot be enforced;
–unfair local competition is protected by local officials;
–repatriation of earnings is restricted;
–infrastructure systems are poor;
–LOCAL LABOR is inadequately skilled;
–INDUCEMENTS offered to invest are poor;
–TAXATION is discriminatory.
political risk arise when…
….SAME AS ECONOMIC..????
–public resources suffer waste, corruption, and mismanagement;
–economic and financial conditions are unsatisfactory;
–potential markets and their proximity are poor;
–natural resources are not locally available, and are expensive;
–tariffs, import and export controls are punitive;
–payments cannot be enforced;
–unfair local competition is protected by local officials;
–repatriation of earnings is restricted;
–infrastructure systems are poor;
–local labor is inadequately skilled;
–inducements offered to invest are poor;
–taxation is discriminatory.
technology risks arise when…
–product technology, including patents, may be STOLEN;
–the SKILLS and technical knowledge needed to OPERATE the product technology are absent;
–the skills and technical knowledge needed to maintain and REPAIR the product technology are absent;
–the SYSTEMS needed to MANAGE the technologists are absent.
–Riskier the industry, (MORE or LESS) staff is expatriated by HQ to control procedures and protect company interests.
MORE
National governments may feel risk from MNC when the activities of the subsidiary are perceived to:
–threaten the country’s GROWTH or defense;
–develop a MONOPOLY position that stifles local competition;
–ATTACK a powerful local monopoly;
–improperly move PROFITS OUT of the country;
–HIRE talented locals away from local companies;
–fail to meet agreements for the transfer of technology;
–exert unfair INFLUENCE in local politics and legislation;
–damage the ENVIRONMENT, and fail to show corporate responsibility.
Decisions have to be made about
- what sort of control is needed
- how the appropriate control is enforced
The instruments for control from which the company
selects include
- organizational CULTURE
- STAFFING policy
- BUDGETS and other financial instruments: The more dependent the subsidiary on HQ’ budgetary policy, the more immediate the control that HQ exerts.
- TECHNOLOGY- Shorter technology lifecycles make HQ more willing to transfer their technology.
- the STRUCTURAL relationship
Global model for control (Bartlett and Goshal)
Centralizes its key functions (MK, Finance, R&D…). Specific local needs tend to be ignored
