Lecture 5 - Roles of subsidiaries

Question 1

What are two common but wrong assumptions, the dysfunctional effects and solutions related to combining FSAs and location advantages: roles of subsidiaries (Bartlett & Ghosal: Tap your subsidiaries for global reach)?

Answer 1

1. “United Nations Model” of multinational management:
   - MNEs or HQs treat each subsidiary in a similar manner. This implies either subsidiary independence or complete dependence. Subsidiary independence is relevant for multi-centred MNEs and complete dependence is relevant for global exporters or international projectors
   - Dysfunctional effects of MNEs: important and unimportant subsidiaries are treated the same and therefore the opportunities they provide are not optimally exploited
2. “Headquarters hierarchy syndrome”:
   - The corporate HQ rules and expects subsidiaries to listen. This is only relevant in cases in complete dependence of subsidiaries
   - Dysfunctional effects of MNEs: subsidiaries with a distinct, specialized resource base are unable to upgrade their capabilities and therefore lose their entrepreneurial motivation

Solutions:
- An organizational model of differentiated rather than homogeneous subsidiary roles and of dispersed rather than concentrated responsibilities
- Simple normative model as a response to differentiated subsidiary role requirement (strategic importance & resource base)

Question 2

What are the 4 classifications of subsidiary roles in MNEs?

Answer 2

1. Black Hole:
   High strategic importance, Low resource base of subsidiary
2. Implementer:
   Low strategic importance, Low resource base of subsidiary
3. Strategic leader:
   High strategic importance, High resource base of subsidiary
4. Contributor:
   Low strategic importance, High resource base of subsidiary

Question 3

What are limitations of Bartlett & Ghosal’s study (Tap your subsidiaries for global reach)

Answer 3

1. Subsidiary roles are not always decided upon by HQ, but can also be the result of subsidiary initiative
   –> How can subsidiary initiative be encouraged and guided?
2. The analysis is static (however subsidiary roles can dynamically change)
   –> Does not address subsidiary role dynamics, especially after regional integration schemes
3. No distinction is made between upstream and downstream competencies/opportunities
   - Strategic importance of the local market (inputs) and upstream subsidiary competencies:
   Black Hole: subsidiary unable to tap into local inputs
   Strategic Leader: desired position
   Contributor: local inputs are largely irrelevant
   Implementer: a subsidiary can very well be strong in the local market without having strong upstream competencies
   - Strategic importance of the local market (outputs) and downstream subsidiary competencies:
   Strategic Leader: a subsidiary can very well be strong in the local market without having strong upstream competencies

Question 4

When can the United Nations Model be functional?

Answer 4

When all international subsidiaries have the same role –> International Projector

Question 5

When can the Headquarters Hierarchy Model be functional?

Answer 5

When coordination between subsidiaries is more important than subsidiary initiative –> international Coordinator (“Global” in B&G’s terminology)

Question 6

When is a differentiated approach towards subsidiaries needed?

Answer 6

Important when subsidiaries need to adapt to local conditions –> Multi-centred MNE

OR

When capabilities and charters differ between subsidiaries by design –> International Coordinator (“Transnational” in B&G’s terminology)