Parent-Subsidiary Relations Flashcards
What is affinity?
Developing relationships, social networks with other businesses and important stakeholders such as the gov essential
How can Amazon enter and succeed in Africa?
- Pay on delivery
- Gov relationships
- Intermediaries
- Internet penetration
- Sourcing locally
- Catalogue and interface
- Joint venture
- Inefficient address systems - no house number, nameless street
How is Jumia Africa’s no.1 online retailer?
Used pick up locations, own fleet and branded fleet to overcome distribution problems and poor address systems
Pay on collection to overcome capital market voids: online payment, fraud
What is corporate strategy and how does it relate to subsidiary relations?
How the business is going to run, what markets to enter. Focused control and guidance of subsidiaries - relationships between HQ and subsidiaries.
What does organisational infrastructure consist of?
- Information and resource flow systems
- Coordination and control mechanisms
- Essential to coordinate cross border business
What are the different MNE control approaches?
Essential due to volatility in EMs
1) Market - reward through resources for good behaviour, take away for bad
2) Culture - value system, norms, make subsidiaries follow this culture and regulation
What are the different control mechanisms?
Input controls - feedback and advice before action (small orgs)
Output controls - feedback after something (large orgs)
Resource allocation - changing the distribution of resources
Why is MNE structure important?
- Essential to monitor and evaluate effectiveness of subs
- Basis for organising strategy
- Functional, international division, global: product/area, division
- Careful not to treat subsidiaries as places to get resources
Why are existing structures inadequate for EM subsidiaries?
- Now seen as centres for R&D and innovation, not just markets
- Intellectual leadership now comes from EMs as well as advanced
- Subs need to be linked to other subs in EMs and western markets
- Linkages are very important
What is a t-shape structure in terms of linkages?
Linkages across countries and linkages within each country. HQ moving functions closer to EMs
How does the t-shape structure break up the operations of MNEs into two parts?
Front end (customer facing)
- Greater autonomy to EM units
- Localisation of decision making
Back end - distribute parts of functions across countries based on expertise (use EMs for globally segmented innovation)
Why are there control challenges in EMs?
- Language and cultural differences - HQ staff limited in foreign skills
- Geographic distance: time
- Institutional duality
- Legal differences - HQ control within law constraints
- National interests - host sovereign power to reduce control
- Centralisation vs decentralisation; locus of decision making
What is obsolescing bargain?
A bargain between an MNE and a host country gov that favours the MNE but over time due to increase of fixed assets, the bargaining power shifts to the gov
What is obsolescing legitimacy?
Foreign firm’s gradual loss of legitimacy from local society due to association with previous political regime
What should an MNE consider when entering emerging markets via acquisition?
- Institutional conditions: similar or different: market characteristics, voids
- Level of diversification - similar to existing units/products
- Level of interdependency
What are the different approaches to integration?
- Absorption: strong interdependence, adjustment of culture, make it look like HQ - centralisation
- Preservation: little interdependence, high need for autonomy, old strategies continued - decentralisation
- Symbiosis: strong strategic interdependence, high autonomy, adopt and learn best practices from each other
- Holding - investment banking, acquisition held before being sold
What are the different types of HQ-subsidiary relationship?
Portfolio manager - don’t integrate subsidiaries, manage all different, intervene when necessary, no linkages, emphasis down (small)
Synergy manager - create linkages and synergies, emphasis across (large)
Parental developer - support for subsidiaries to grow, strengthen them, emphasis down (parent)
What are the different parenting strategies?
1) Hands off: decentralised, limited control
2) Financial sponsorship: financial assistance
3) Synergy creation
4) Strategic guidance
5) Functional leadership
6) Hands on
What is synergy creation as a parenting strategy?
HQ focuses on deriving benefits from synergies in sales, production and operations across subsidiaries
What is functional leadership?
Involves adding value through central resources: centres of excellence dispersing capabilities to subsidiaries
What is strategic guidance?
HQ involved in strategic direction, strategy rests on the capabilities of the HQ
What is hands on management?
HQ deeply involved, centralised
- Sets financial targets
- Decision making at HQ
- Adds most value
- Suitable where a lot of adaptation is needed
What are the value adding activities?
- Envisioning
- Intervening
- Coaching
- Providing central services
What is a synergy?
Creating, acquiring and sharing knowledge throughout corporate work
Use economies of learning for CA
What is reverse innovation?
Innovations trickle up from developing to developed countries
What factors facilitate knowledge sharing?
- Intranet
- Incentives: based on MNE performance
- Encapsulation: rules on data codification
- Socialisation: facilitating interactions
What are value destroying activities?
- Adding management costs
- Adding bureaucratic complexity
- Domineering control
How can you achieve balanced HQ subsidiary relations?
- HQ must be familiar with local conditions
- Must be 2 way communication
- Subs should be able to challenge HQ decisions
- HQ must provide explanation for final decision
