Lecture 3 - HQ-Subsidiary Relations

Question 1

What is the main difference between hierarchy & heterarchy? (Birkinshaw & Morrison 1995)

Answer 1

Hierarchy
- defined by critical resources centered at the top, HQ making strategic decisions & monitoring to minimize opportunism
(+) brings transaction costs down

Heterarchy
- resources dispersed through an organization, control through norms > finance,
(-) higher transaction costs due to more lateral communication

Question 2

What is the definition of subsidiary autonomy?

Answer 2

Autonomy

• the ability of sub-units to take decisions for themselves on issues reserved to a higher level in a comparable organization
• the degree to which a subsidiary holds strategic & operational decision making autonomy

Question 3

What are the 4 subsidiary roles (Bartlett and Ghoshal) & how do they differ from the 3 roles (Birkinshaw & Morisson)

Answer 3

o Contributor: unimportant market, subsidiary with distinctive skills, using these skills company-wide, can be managed centrally however due to company-wide relevance needs emphasis on not discouraging local management (B&M: specialised contributor – significant expertese in a certain market)

o Strategic leader: key important market, highly competent subsidiary, helps sense change, analyse opportunities, threats and develops and implements strategy, supported by HQ rather than managed (B&M: world mandate – worldwide responsibility for a product line or business)

o Implementer: market with a limited potential, subsidiary resources are limited, aim to earn money in that market while possible, keeps the company going financially but does not contribute to strategic planning, controlled through formalisation (B&M: local implementer – in a single country, adopts products to local market)

o “Black hole”: important market, small / underdeveloped subsidiary, used to observe competitor actions and report back to HQ

Question 4

What is the difference in value between upstream vs downstream subsidiaries? (S)

Answer 4

o Upstream: highly valued, usually more universal and transferrable, R&D or Manufacturing

o Downstream: less valued, local-for-local = highly contextualised, Marketing & sales

Question 5

What is the difference between strategic and operational autonomy? (Birkinshaw and Morisson 1995)

Answer 5

Strategic autonomy: decisions on a strategic level e.g regarding rules and regulations
- highest for world mandates

Operational autonomy: the operational decision making e.g. decisions regarding specific employees
- no difference between roles

Question 6

What are the potential downsides of subsidiary autonomy? (Conect hologracy case, O’Donnel)

Answer 6

?!

Question 7

What is the definition of business groups? (Holmes 2018)

Answer 7

Networks of semi-autonomous firms tied together throw ownership & complex governance structures, mutual objectives etc. (Chaebol in South Korea)

Question 8

What are the antecedents (factors facilitation the formation) of business groups? (Holmes 2018)

Answer 8

Weak factor markets: lack of resources
Weak institutions: institutional void (absence of laws governing business transactions)
=> business groups create internal markets

Question 9

What are the (+) and (-) of product diversification at a business group? (Holmes 2018)

Answer 9

Product diversification:

(+) stronger internal markets, extending competitive advantages to new industries, risk reduction through diversification

(-) can be bad for performance

International diversification:

(+) helps follow other affiliates into countries with same entry modes while mitigating risk

(-) affiliates satisfy each other’s rather than foreign demand, business groups may be too complex or poorly managed, many advantages can’t be exported