Cultural distance or cultural positions?

Analysing the effect of culture on
the HQ–subsidiary relationship
Rian Drogendijk*, Ulf Holm
Department of Business Studies, Uppsala University, PO Box 513, 75120 Uppsala, Sweden
1. Introduction
This paper adopts a relational viewof cultural differences: that is, we are interested in howthe cultural characteristics of
the national environments of two organisational units, and the differences between them, affect the units’ relationship. In
the international business literature, the conventional approach to studying cultural differences is to use the concept of
cultural distance and its most popular measure, the Kogut and Singh (1988) index. Recently, this concept and its measure
have faced serious criticism(Drogendijk & Slangen, 2006; Shenkar, 2001), so we need studies that help develop other, richer
conceptualisations and metaphors of cultural differences (Drogendijk & Zander, 2010; Shenkar, Luo, & Yeheskel, 2008) and
their role in relationships between organisations. The cultural distance concept has limitations when applied in the
investigation of relational situations, because it does no justice to actual cultural characteristics, nor does it account
satisfactorily for both sides of the relationship. For example, two pairs of cultures can be at the same cultural distance, yet at
completely different ends of one or more cultural dimensions. Cultural distance, in other words, ignores the actual cultural
characteristics or positions on cultural dimensions, though these likely affect the behaviour of people from different
countries and the relationships between them. Furthermore, the distance between two cultures is the same from the
perspective of either party to the relationship, whereas perceptions of cultures and cultural differences are not symmetrical
(Chapman, Gajewska-De Mattos, Clegg, & Buckley, 2008; Shenkar, 2001). In the present paper, we consider the cultural
characteristics of both sides of the relationship. We define cultural positions as the actual cultural characteristics of both
parties involved in a relationship and the differences between them. ‘‘Position’’ refers both to the ‘‘absolute’’ cultural
International Business Review xxx (2011) xxx–xxx
* Corresponding author.
E-mail addresses: rian.drogendijk@fek.uu.se (R. Drogendijk), ulf.holm@fek.uu.se (U. Holm).
A R T I C L E I N F O
Article history:
Received 16 April 2010
Received in revised form 26 April 2011
Accepted 4 May 2011
Keywords:
Cultural distance
Cultural position
HQ-subsidiary
Power distance
Subsidiary competence development
A B S T R A C T
We develop a model of cultural positions in relationships that should be considered in
addition to the more conventional cultural distance. We empirically analyse relationships
between headquarters and foreign subsidiaries in multinational corporations and how
high or low acceptance of power differences at both sides of the relationship is associated
with headquarters influence on subsidiary competence development. ANCOVA analyses of
1529 subsidiaries in six European countries, headquartered in 28 countries, provide new
insights. We find that relationships with lowcultural distance, differ significantly in terms
of headquarters influence depending on whether headquarters and subsidiaries agree on
accepting or rejecting power differences. Similarly, relationships with high cultural
distance differ depending on whether it is headquarters or the subsidiary that is from a
high-power-distance culture: we find that headquarters influence is particularly
dependent on great acceptance of power differences by the subsidiary.
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doi:10.1016/j.ibusrev.2011.05.002
characteristics of each party (in terms of qualitative descriptions or quantified as scores on relevant cultural dimensions) and
to their relative content or value.
Our primary aim is to develop the concept of cultural positions, in the context of relationships between headquarters
(HQ) of multinational corporations (MNC) and their subsidiaries. Managing an MNC inevitably involves cross-border and
cross-cultural interaction between managers at different organisational levels and in different countries. The relationship
between HQs and their foreign subsidiaries is thus a relevant context for exploring the effect of cultural positions. We
investigate conceptually how the positions on the cultural dimension of both the HQs’ and subsidiaries’ national
environments affect the relationship between them. We focus on one dimension of culture, namely, power distance, or the
degree of acceptance of power inequality in a society, because this dimension is logically related to the idea of hierarchy and
authority (Hofstede, 2001) and has been demonstrated to play an important role in HQ–subsidiary relationships (Ferner
et al., 2004).
Our model explores four theoretical situations: two in which the national cultures of HQs and subsidiaries diverge (i.e.,
one national culture scores high in terms of power distance, whereas the other scores low, representing high cultural
distance), and two in which the national cultures of HQs and subsidiaries score similarly in power distance (that is, both are
either high or low, representing low cultural distance). We argue that each of these four relational situations has its own
characteristics, depending on the HQs’ and subsidiaries’ respective acceptance of power differences. Our study challenges
the idea that cultural distance is symmetrical, and claims that it matters where on a cultural dimension the parties to a
relationship are (i.e., at the high or the lowend), which has been ignored by the literature on cultural distance. Furthermore,
we systematically theorize that four theoretical relationships result from taking into account the cultural positions of both
parties. These are the central contributions of our paper.
We apply our theoretical model in an exploratory empirical study that demonstrates how cultural positions are
associated with a particular aspect of the HQ–subsidiary relationship: HQ influence on competence development in
subsidiaries. We further compare our findings with those of a model testing the effect of cultural distance, and demonstrate
what an analysis of positions adds to the insights gained by studying cultural distance alone. Few studies have dealt with
how cultural differences between HQ and subsidiary influence the HQ’s ability to promote competence development in its
relationship with the subsidiary. Prior research, however, confirms that cultural differences do affect innovation strategies
(Shane, Venkataraman, & MacMillan, 1995; Van der Vegt, Van de Vliert, & Huang, 2005) and knowledge transfer across
borders (Bhagat, Kedia, Harveston, & Triandis, 2002) even within MNCs (Lervik, 2008; Lucas, 2006), emphasising the
relevance of this empirical context to our study. We employ unique data collected by a survey of MNC subsidiaries located in
six European countries, and headquartered in 27 countries, and explore how the cultural distance between and cultural
positions of HQ and subsidiaries with respect to one dimension, power distance, are associated with HQ influence on
subsidiary competence development. Our results indicate that, although cultural distance at first sight seems to explain HQ
influence, its negative effect becomes insignificant when we consider cultural positions. The cultural positions analysis
reveals that culture is associated in a much more complex way with HQ influence.
2. Cultural distance in a relational context
Recently, Shenkar and colleagues (Shenkar, 2001; Shenkar et al., 2008) made a strong plea for replacing the metaphor of
cultural distance with a better one. One problem with the distance metaphor is that it leads to a one-dimensional
conceptualisation of culture. This has conveniently allowed researchers to position cultures (usually nations) on a single
dimension by calculating the cultural distance between them, but it has also concealed the complexity of culture and the
differences between cultural groups (Shenkar et al., 2008). For example, the general cultural distance between Finland and
Denmark, according to the Kogut and Singh (1988) index, based on scores on the five Hofstede (1980, 2001) dimensions,
equals the distance between the Philippines and Bangladesh (1.34 and 1.35, respectively). Even so, the relationships between
people in these pairs of cultures are likely characterized by different potential ‘‘frictions’’ (cf. Shenkar et al., 2008) or
enrichment opportunities (cf. Reus & Lamont, 2009). Looking closer, we find that the main difference between Finland and
Denmark relates to the dimension of uncertainty avoidance, whereas the Philippines and Bangladesh differ primarily in
terms of long-term orientation (according to the scores of these countries on the Hofstede dimensions). The use of cultural
distance between these pairs of countries provides no insight into such differences, although they likely affect the
relationships between people from these countries. Because of a focus on the cultural distance concept, research has
neglected the multidimensionality and non-linearity of cultural differences and how they affect relationships between
people.
Furthermore, expressing cultural differences in the form of a single number does not let researchers express where on a
relevant dimension or continuumtwo cultures are placed: the focus is on ‘‘howmuch’’ they differ, and actual characteristics
are ignored. This becomes particularly clear when we scrutinize the distance aspect between pairs of cultures on a single
cultural dimension. For example, if we compare the cultural distance on a particular dimension between an HQ and a
subsidiary in situations A1 and A2 in Fig. 1A, the distance is the same even though both units score low in situation A1,
whereas they score high in situation A2. In other words, the cultural distance is equal in both situations, despite the fact that
the behavioural relationship between the two units may differ greatly due to the actual cultural characteristics associated
with the different positions on this cultural dimension. Calculating only the cultural distance between HQ and subsidiary
will not lead to these insights.
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culture on the HQ–subsidiary relationship. International Business Review (2011), doi:10.1016/j.ibusrev.2011.05.002
Finally, the expression of cultural distance does not take into account whose perspective we take on the cultural
differences between two organisations. The cultural distance between India and the United States is the same (i.e., 6.18)
independent of whether we take an Indian or an American perspective. However, perceptions of cultures and cultural
differences are not symmetrical (Chapman et al., 2008; Shenkar, 2001): the differences between two groups are perceived
differently by the group positioned higher on a cultural dimension than by the group positioned lower. Consider another a
graphic example: in situations B1 and B2 in Fig. 1B, the cultural distances between HQs and subsidiaries are the same.
However, in situation B1, the HQhas a higher score on the culture dimension than does the subsidiary, whereas this situation
is reversed in B2. Whereas the HQscores high in one situation, it scores lowin the other, though the distance is constant. We
suggest that this fact is critical in analysing the impact of cultural differences between corporate actors. Which of the two
units scores high versus low on a particular cultural dimension will probably affect its expectations and behaviour – an
insight not gained by calculating merely the cultural distance. Therefore, for a more complete understanding, we should
consider both sides of the relationship and their cultural positions.
3. The role of national culture in HQ–subsidiary relationships
Organisations’ values and behaviour are generally firmly rooted in their national values and practices. House, Hanges,
Javidan, Dorfman, and Gupta (2004, p. 534), for example, argue that ‘‘in general, organisations tend to mirror the culture of
power distance practices and values in their society so that they can gain legitimacy and also appeal to the people fromtheir
host societies’’ (see also Meyer &Rowan, 1977). This suggests that the values and behaviour of HQand subsidiaries are likely
to correspond to those prevalent in their national cultural contexts (Harzing & Sorge, 2003; Van Oudenhoven, 2001). Thus,
there can be as much cultural variation, for example, in terms of power distance, among the units of an MNC as among
national cultures, leading to large cultural differences inside the MNC. The role of these cultural differences in the HQ–
subsidiary relationship, particularly in the design and delegation of control, has long been discussed in the literature (Baliga
& Jaeger, 1985; Egelhoff, 1984).
The relationship between corporate HQs and their subsidiaries can be characterized as hierarchical.
1
The basic condition
in this relationship is that HQhas legitimate formal authority, allowing it to exercise control over subordinate organisational
units (cf. Bacharach &Lawler, 1981). However, the fact that HQoccupies a position of formal bureaucratic control in the MNC
does not automatically mean that it actually has influence over its subsidiaries (Ferner, 2000; Forsgren, Holm, & Johanson,
2005). The extent to which HQin fact controls its subsidiaries depends on its willingness to exert control and its legitimacy to
do so in the eyes of its subsidiaries. It is well documented that HQs can strategically choose to shift control to the subsidiary
level (Bartlett & Ghoshal, 1989; Doz & Prahalad, 1987). Subsidiaries, on the other hand, can defy their HQ’s formal control
position when they are not greatly dependent on its resources, but not when they are (cf. Pfeffer & Salancik, 1978), or when

High
A1 A2
Low
Figure 1A: Equal distance – different positions
Figure 1B: Equal distance – exchanged positions
B1
High
B2
Low
Headquarters
Subsidiary
Distance on the cultural dimension
Fig. 1. Situations of equal cultural distance between headquarters and a subsidiary. (A) Equal distance – different positions. (B) Equal distance – exchanged
positions.
1
Subsidiaries can communicate with and report to several units at different corporate levels, depending on the underlying structures of control and on
the reporting systems in place between MNC units. However, we assume that the corporate HQ has a relationship with its subsidiaries, whether direct or
indirect, and represents a potential promoter of competence development for the subsidiary.
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they perceive a lack of procedural justice in its control (Kim & Mauborgne, 1993). Our knowledge is very limited as to
whether national cultural context, in particular, preferences concerning power distance, helps explain the relationship
between HQs and their subsidiaries, and HQs’ influence on their subsidiaries.
3.1. Power distance
Power distance refers to the unequal division of power, that is, some people in a society (or organisation) having more
power privileges than others, and the acceptance thereof by the society (organisation). Power distance can be large or small,
meaning that societies (organisations) differ in the degree to which they accept the unequal distribution of power. When
large power distances prevail, people expect and accept substantial differences in power among hierarchical levels. The
division of power is equal to the hierarchical position of the people involved; it reflects the ‘‘existential’’ superiority of
superiors (cf. Hofstede, 2001). In low-power-distance contexts, people are less accepting of power differences among
hierarchical levels: they are ‘‘egalitarian’’, and expect power to be more equally distributed (Hofstede, 1980, 2001; House
et al., 2004). This does not mean that organisational hierarchies are meaningless in low-power-distance cultures. Instead, in
these contexts, lower parts of the hierarchy can be expected to question decisions made ‘‘above’’ and exert influence when
they do not entirely agree with the imposition of power, for example, based on particular expertise residing in the lower
hierarchical unit. In low-power-distance cultures, hierarchy is perceived as a role structure and more of an ‘‘arrangement of
convenience’’ (Hofstede, 2001, p. 97) than as the factor determining the division of power.
The national cultures in which HQ and subsidiaries are immersed affect their perceptions of the appropriate balance of
power between them, and therefore the relationship between HQ and each subsidiary. In terms of the formal hierarchy, HQ
occupies a higher position than do its subsidiaries, but the power distance values of HQ and its subsidiaries affect the
acceptance of large power inequalities, and therefore how much influence HQ exerts on its subsidiaries. Thus, HQs based in
cultures with a large power distance can generally be expected to act in accordance with their hierarchical position. They
intend to control their subsidiaries’ actions, because the formal authority granted by their position at the top of the hierarchy
corresponds to their cultural acceptance of power differences or, as Ferner et al. (2004) demonstrate, high power distance
scores are related to centralized HQ control. In contrast, when HQs are based in cultures with a low power distance, their
hierarchical position is not translated into absolute power or authority. Instead, these HQs are more likely to consult their
subsidiaries or grant them autonomy to make their own decisions (cf. Hofstede, 2001; House et al., 2004).
It is very important, however, not to look at only the top of a hierarchical relationship, since subordinate units at the
bottom are just as important in defining the power relationship – something largely neglected in the literature on power
distance (Hofstede, 2001). In the literature on HQ–subsidiary relationships, in contrast, the important role of subsidiaries is
well documented (Andersson, Forsgren, & Holm, 2007; Bartlett & Ghoshal, 1986; Birkinshaw & Hood, 1998; Frost,
Birkinshaw, & Ensign, 2002; Kim & Mauborgne, 1993). Arguing from a subsidiary perspective, high power distance makes
subsidiaries more likely to accept power differences and to act as instructed by the superior organisational unit (i.e., HQ).
Subsidiaries from high-power-distance cultures expect HQ to act in accordance with its hierarchical position and to exert
authority. Subsidiaries from low-power-distance cultures are less likely to accept power differences based on formal
hierarchical positions and are therefore more likely to question HQ’s control. Based on Fig. 2, this leads to four possible
situations, each of which can result in HQ’s having more or less influence on subsidiaries, depending on the actual behaviour
of the parties, their expectations, and their acceptance of each other’s behaviour. Let us consider the four possible situations
separately and discuss the HQ’s influence on its subsidiary in each.
In the power distance (PD) hierarchy relationship, both HQ and subsidiary are from national cultures that value large
power differences, and they accept and expect a hierarchical relationship. HQ exerts power over its subsidiary and the
subsidiary deems this legitimate and acts accordingly. When HQ is from a culture accepting power differences and the
subsidiary is from an egalitarian culture, a PD conflict relationship evolves: HQ attempts to exert its power over the
subsidiary, but the subsidiary does not accept this because it does not perceive it as legitimate. A very different relationship
emerges in the opposite case, when HQis rooted in an egalitarian national culture and the subsidiary in a hierarchical one. An
egalitarian HQ is much less prone to exert power over its subsidiaries than is an HQ in a high-power-distance culture. Yet a

Acceptance of power
High
PD conflict PD hierarchy
differences by HQ
Low
PD egalitarian
PD confusion
Low High
Acceptance of power differences by subsidiary
Fig. 2. Headquarters’ and subsidiaries’ acceptance of power differences.
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subsidiary froma high-power-distance culture will expect its HQto exert its power to manage the MNC, and may experience
this lack of guidance as confusing; hence, the PDconfusion relationship. Finally, in a PDegalitarian relationship, both HQand
subsidiary are from egalitarian national cultures that do not accept large power differences. As in the PD hierarchy
relationship, bothparties agree on the appropriate distributionof power, but in the PDegalitarian relationships this concerns
rejecting power differences, not accepting them. We expect that this is reflected in the managerial relationship between HQs
and subsidiaries.
4. Empirical exploration of cultural positions
Most research into the influence of national cultural values on the HQ–subsidiary relationship has focused on
decentralisation–centralisation or the control of subsidiaries. Egelhoff (1984) demonstrated that US firms preferred to exert
output control over their subsidiaries, whereas European companies relied more often on behavioural control methods. Later
research confirmed the effect of HQcountry of origin on the use of control mechanisms and subsidiary dependence in MNCs
(Calori, Lubatkin, & Very, 1994; Harzing & Sorge, 2003). Two recent studies (Dossi & Patelli, 2008; Williams & Van Triest,
2009) have attempted to explain what aspects of culture explain the differences in subsidiary control in MNCs. Dossi and
Patelli (2008) found, for example, that a composite measure of HQ national culture was related to the influence of
performance measurement systems on subsidiary decision making. This suggests that the cultural position of HQ affects its
control over and influence on subsidiaries.
Geppert, Williams, and Matten (2003) and Geppert, Matten, and Williams (2003) found that the national business
environments of both the HQ and its subsidiaries affect how much influence subsidiaries could exert given their HQ’s global
pressures: British and German subsidiaries of the same MNCs displayed different reactions to the standardisation strategies
of their HQs, and these were explained by differences in the national institutional environments of the subsidiaries. Williams
and Van Triest (2009) support these observations, demonstrating that decentralized decision-making relates to the level of
uncertainty avoidance in the national environment of the subsidiary (and not to a composite measure of cultural distance).
These studies point out that the cultural position of the subsidiary also affects the relationship between HQand subsidiaries.
Our cultural position model suggests that the cultural backgrounds of both HQ and subsidiaries are important in
analysing the relationship between them. To illustrate our conceptual model, we test its implications in a study of HQ
influence on subsidiaries, particularly on competence development in subsidiaries. Though this issue has been studied
extensively (see, e.g., Asmussen, Pedersen, & Dhanaraj, 2009; Frost et al., 2002; Holm & Pedersen, 2000), cultural aspects
have not been taken into consideration. Below, we will develop hypotheses concerning HQ influence on subsidiary
competence development, as an example of the HQ–subsidiary relationship, based on both the HQ’s and subsidiaries’
cultural positions in terms of power distance. In contrast to studies using cultural distance that can only compare low-
cultural-distance with high-cultural-distance relationships, we compare four HQ–subsidiary relationships based on our
cultural position model, leading to six pairwise comparisons.
4.1. Power distance acceptance and HQ influence
In the PD hierarchy relationship, when HQ and subsidiary are both from national cultures that value large power
differences, both parties will accept and expect a hierarchical relationship to exist between them(Birnbaum& Wong, 1985;
Hofstede, 2001). High-power-distance HQs use their authority to supervise and control the activities of their subsidiaries
(Ferner et al., 2004). High-power-distance subsidiary managers are likely to perceive HQ authority as legitimate because of
its existential authority. There is a mutually accepted status quo in the division of power, i.e., the dominant influence of HQis
unquestioned. Shane et al. (1995) find, for example, that in high-power-distance contexts, strong HQ support increases the
likelihood of innovations’ being accepted and used throughout the MNC. We therefore expect HQto exert great influence on
competence development in subsidiaries in the PD hierarchy relationship. Furthermore, we expect this influence to be
greater than in any of the other three situations in which at least one party fails to accept the power differences.
In the PD egalitarian relationship, both HQ and subsidiary agree that the subsidiary should be heard and that the
hierarchical position of HQalone does not grant it power or authority in all matters. This is in line with findings on the use of
more decentralized control mechanisms and more subsidiary autonomy in MNCs in which HQs are based in low-power-
distance countries (Ferner et al., 2004). When comparing both relationships in which there is lowcultural distance between
HQ and subsidiary, we hypothesize:
Hypothesis 1. HQ will exert more influence on subsidiary competence development (as perceived by subsidiary managers)
in the PD hierarchy relationship than in the PD egalitarian relationship.
We continue by considering differences in HQ influence when comparing the PD hierarchy relationship with the other
two PD relationships (i.e., the PD conflict and PD confusion relationships), that is, we compare a low-cultural-distance
relationship with the two high-cultural-distance relationships. As argued above, in the PD conflict relationship, the
subsidiary is more likely to dispute the hierarchical power of HQ and is therefore less willing to accept HQ’s influence (cf.
Kostova & Roth, 2002). The subsidiary may even consider HQ’s attempts to control its innovation activities as illegitimate or
‘‘unjust’’ interference (Kim & Mauborgne, 1993). HQ may therefore attempt to influence its subsidiary as much as in the PD
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hierarchy relationship, but in effect be less successful doing so given the subsidiary’s position in the relationship. We
hypothesize that HQ’s influence on the subsidiary will be greater in the PD hierarchy relationship than in the PD conflict
relationship.
Hypothesis 2. HQ will exert more influence on subsidiary competence development (as perceived by subsidiary managers)
in the PD hierarchy relationship than in the PD conflict relationship.
In contrast, when comparing the PDhierarchy relationship with the PDconfusion relationship, HQis less inclined to exert
the power it legitimately could in the eyes of its power-accepting subsidiary. The more egalitarian HQis less likely to control
the subsidiary’s actions in detail and may even expect the subsidiary to take initiative in developing knowledge and to
display and champion its innovations to other units in the MNC without seeking approval from HQ (cf. Shane et al., 1995;
Hofstede, 2001). HQ will likely exert less influence on the subsidiary in the PD confusion relationship than in the PD
hierarchy relationship, because of its own position in the relationship with its subsidiary; we hypothesize:
Hypothesis 3. HQ will exert more influence on subsidiary competence development (as perceived by subsidiary managers)
in the PD hierarchy relationship than in the PD confusion relationship.
4.2. Power distance rejection and HQ influence
We nowstart fromthe lower left box inFig. 2, and compare the PDegalitarianrelationship inwhich bothHQand subsidiary
reject power distance with the relationships in which one of the parties accepts it. In the PD egalitarian relationship, HQ and
subsidiary agree that the hierarchical relationship between them is merely an organisational fact (cf. Hofstede, 2001). As
centralisation is related to high power distance (Ferner et al., 2004; Wong & Birnbaum-More, 1994), HQs from an egalitarian
culture are less likely to control and influence subsidiary activities and decisions in detail. Decentralisation, in contrast, has a
positive impact on subsidiaries as drivers of their competence development and evolution (Birkinshaw & Hood, 1998; Foss &
Pedersen, 2002), andsubsidiaries definedas equal partners of HQgainautonomyandinfluence(Bartlett &Ghoshal, 1989). Inthe
PD egalitarian relationship, then, both HQ and subsidiaries expect the latter to influence important decisions regarding
innovationandcompetence development (Shane et al., 1995). Inthe PDconflict relationship, however, the cultural values of HQ
support theexistential power basedonHQ’s hierarchical position, whichmeans that it is muchless preparedtoallowsubsidiary
influence. Eventhough, as arguedabove, conflicts about HQ’s hierarchical influence may arise, HQ’s actions will likelycause the
subsidiarytohaverelativelyless influenceonits competence development, andthe HQrelativelymoreinfluence, thaninthePD
egalitarian relationship (cf. Bartlett & Ghoshal, 1989). As a result, in the PD egalitarian relationship, subsidiaries will have
relativelygreater autonomyand, hence, a greater abilitytoinfluencetheir owncompetence development processes, thaninthe
PD conflict relationship. We therefore hypothesize:
Hypothesis 4. HQ will exert more influence on subsidiary competence development (as perceived by subsidiary managers)
in the PD conflict relationship than in the PD egalitarian relationship.
Next, we compare the PD egalitarian relationship with the PD confusion relationship – both relationships in which HQ
rejects power distance. Unlike in the PD egalitarian relationship, the cultural values of subsidiaries in the PD confusion
relationship strengthen HQ’s formal hierarchical position: the subsidiaries expect HQinfluence in important matters, such as
competence development, and are less likely to take a leading role based on their cultural values. This situation resembles
the ‘‘atrophy through subsidiary neglect’’ process, i.e., the degeneration of subsidiary competence through neglect of the
subsidiary’s side, defined by Birkinshaw and Hood (1998), a process they argue can result from decentralized decision-
making. In the PDegalitarian relationship, subsidiaries respond to HQinfluence with challenges and initiatives, but in the PD
confusion relationship, HQ influence is more likely to be adopted by power-accepting subsidiaries. Comparatively,
subsidiaries thus gain influence in the egalitarian relationship, whereas the formal hierarchical position of HQ and the
acceptance thereof by subsidiaries in the PD confusion relationship will lead to relatively more HQ influence on subsidiary
competence development in the latter. It is a case of HQacting on subsidiaries’ signals (Birkinshaw, Bouquet, &Ambos, 2007)
and normative role expectations, which means that HQ managers should be able to govern the subsidiary and contribute
expertise and other resources (Tsoukas, 1996). We therefore expect HQ influence to be greater in the PD confusion
relationship because, from the subsidiary’s perspective, HQ’s position in the organisational hierarchy provides it with the
appropriate authority for both formal and cultural reasons. We propose the following hypothesis:
Hypothesis 5. HQ will exert more influence on subsidiary competence development (as perceived by subsidiary managers)
in the PD confusion relationship than in the PD egalitarian relationship.
4.3. Power conflict and power confusion
Finally, we compare the two relationships characterized by high cultural distance: the PD conflict and PD confusion
relationship, or situations B1 and B2 in Fig. 1. Here, HQ and subsidiary have opposite attitudes regarding power distance: in
the PD conflict relationship, HQ accepts power distance and the subsidiary rejects it, but in the PD confusion relationship,
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these positions are exchanged. The question is thus whether HQ has more influence on competence development in the
subsidiary when it uses its hierarchical power to influence a challenging subsidiary, or whether a subsidiary that expects
guidance from HQ succeeds better in obtaining that input when HQ is egalitarian. Situations resembling the PD conflict
relationship have previously been described in the literature: the authoritarian or centralized HQ that is challenged by
unwilling subsidiaries features in a number of articles on HQ–subsidiary relationships (e.g., Geppert, Matten, et al., 2003;
Geppert, Williams, et al., 2003; Kim & Mauborgne, 1993; Kostova & Roth, 2002). Much less is written about PD confusion
situations. Decentralisation in MNCs has been related to inertia on the part of subsidiaries (Birkinshaw & Hood, 1998), but
the cultural background of the subsidiary was not considered in that study. Decentralisation has also been argued to lead to
uncertainty and therefore to feedback-seeking behaviour on the part of subsidiaries (Gupta, Govindarajan, & Malhotra,
1999), but this was not supported empirically. In that same study, Gupta et al. (1999) demonstrated that feedback-seeking
by subsidiaries was unrelated to the cultural distance between HQ and subsidiary, though the country of origin of HQ did
affect such behaviour; unfortunately, the effect of country of location of the subsidiary was not tested. The literature
therefore leaves too many unanswered questions: it has focused either on the cultural values of HQ/subsidiary or on cultural
distance as the explanatory variable, and the two distinct PD situations have not previously been compared. We therefore
formulate two competing hypotheses for comparing the PD conflict and the PD confusion relationships (Fig. 3):
Hypothesis 6a. HQwill exert more influence on subsidiary competence development (as perceived by subsidiary managers)
in the PD confusion relationship than in the PD conflict relationship.
Hypothesis 6b. HQwill exert more influence on subsidiary competence development (as perceived by subsidiary managers)
in the PD conflict relationship than in the PD confusion relationship.
5. Methods
In the following sections, we discuss the data collection and the operationalisation of the variables involved. We present
some descriptive statistics and use an ANCOVA test to analyse HQ influence on subsidiary competence development in the
four relationships resulting from HQ’s and subsidiaries’ positions on the power distance dimension. This procedure tests
whether HQ influence differs in the four PD relationships, while controlling for a number of common control variables (for
which we do not specify any hypotheses, but that we anticipate will affect the dependent variable). The ANCOVA analysis
allows the distinguished groups, i.e., the four relationships, to differ in size. F-statistics are provided for testing the
hypotheses and the usual regression results are presented for the control variables. We compare our results with those of
analyses based on the conventional cultural distance concept.
5.1. Data collection
For all data, except the culture variables for which we used data from the GLOBE study (see below), we employ data
collected for a large international project initiated in 1997 (see Foss & Pedersen, 2002; Frost et al., 2002; Holm & Pedersen,
2000) to investigate the impact of subsidiary role development in MNCs. Data were collected in seven countries, i.e., Austria,
Denmark, Finland, Germany, Norway, Sweden, and the United Kingdom, but we had to exclude observations for Norway due
to missing values on our main explanatory variable (i.e., GLOBE culture data). In designing the data collection instruments,

Acceptance of
power
High
PD conflict PD hierarchy
differences by HQ
Low
PD egalitarian PD confusion
Low High
Acceptance of power differences by subsidiary
H2
H1 H4
H5
H3
H6a
H6b
Fig. 3. Summary of hypotheses, dependent variable: HQ influence on subsidiary competence development.
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great care was taken to ensure that the data would be comparable, and the questionnaire was constructed so that it could be
applied in all countries involved. Questionnaire items aimed to identify subsidiaries’ competences in various activities, how
these competences emerged, and how subsidiaries with strong competences affect the competitive advantage of the MNC.
Questionnaires sent to the top managers of each subsidiary were completed by the CEO in 80% of cases and by the sales
director, chief controller, or administrative director in the rest of them. The response rate was 20–55% depending on the
country of investigation. Responding and non-responding firms did not differ significantly in terms of sales volume or
number of employees, so we conclude that our data were unaffected by non-response bias.
From the total sample of 1714 subsidiaries in the six listed countries, 185 observations had to be excluded because of
missing values, leaving a working sample of 1529 subsidiaries in both service and manufacturing industries. The
subsidiaries’ HQs were located in 28 countries: 19% in Nordic countries (Denmark, Finland, and Sweden), 51% in the rest of
Europe, and 24% in North America (the USA and Canada), and 6% in the rest of the world. In total, 60% of the subsidiaries had
been obtained through acquisitions or mergers, while the remaining 40% were greenfield establishments. The subsidiary size
ranged from one to 25,460 employees, the average being 537. The subsidiaries had been part of the MNCs for between one
and 117 years, with an average of 17 years. The subsidiaries’ business volumes ranged from under USD 1 million to USD
11,529 million, with an average of USD 162 million.
5.2. Measures
Below, we describe measures of the dependent, independent, and control variables.
5.2.1. Dependent variable: HQ influence on subsidiary competence development
This measure captures the extent to which HQ influences the development of the subsidiary’s distinctive competence as
perceived by the subsidiary. In the questionnaire, respondents first evaluated, using a seven-point Likert-type scale, the
strength of the subsidiary’s competences in a number of activities, i.e., process and product development, production,
marketing and sales, logistics, and purchasing. In a subsequent item, the respondent again used a seven-point Likert-type
scale to evaluate HQinfluence on the development of strong competences, defined as those assigned a score of four or above
in the prior item. On the scale, 1 represented ‘‘no influence at all’’, and 7 ‘‘very decisive influence’’ (this measure has also been
used by, e.g., Holm & Pedersen, 2000; Frost et al., 2002). In our analyses, we therefore compare HQ influence on strong
subsidiary competence in the distinguished PD relationships.
Observe that the measure of HQ influence on subsidiary competence development gauged respondent perceptions and
that the respondents in the subsidiaries made this evaluation. It is preferable to measure HQinfluence at the subsidiary level,
because respondents in subsidiaries can better judge the magnitude of the influence on their competence development than
can respondents in HQ.
5.2.2. Independent variable: power distance
We employ a measure based on the GLOBE study of leadership and national cultures (House et al., 2004). The GLOBE study
is largely based on Hofstede’s (1980) seminal investigation of national cultures, but in contrast to Hofstede’s research, the
GLOBE study was designed to measure cultural dimensions and its data were collected much more recently. The
measurement of culture dimensions has been the subject of debate in recent years (see, e.g., the exchange between Hofstede
and GLOBE in the November 2006 issue of the Journal of International Business Studies, JIBS). Although the GLOBE study does
not solve all the problems related to Hofstede’s research (see, e.g., the contributions of Smith (2006) and of Earley in the
exchange in JIBS, 2006), it does provide us with the most recent set of cross-cultural data encompassing the largest variety of
cultures available.
An important aspect of the GLOBE study is that it measures both practice (‘‘As is’’ scales) and values (‘‘Should be’’ scales)
(House et al., 2004). We used the societal-level means of power distance practices (‘‘As is’’), because we are interested in the
actual power distance-related behaviour of the two parties involved: HQs and subsidiaries. GLOBE measured societal
practices in terms of power distance by asking its respondents about the basis of influence, concentration of power, power
privileges, and interpersonal behaviours relating to power. Items had the following format: ‘‘In this society, followers are
expected to . . . (1) obey their leader without question . . . (7) question their leaders when in disagreement’’; respondents
answered using a seven-point Likert-type scale (the example itemis reverse scored). We use power distance scores to define
cultural positions and distinguish among the four PD relationships in our analyses, as explained in the results section. We
further calculate absolute culture distance as the absolute difference between the power distance scores of the HQ’s and
subsidiary’s countries.
5.2.3. Control variables
The study included a number of control variables. First, the number of employees in a subsidiary was taken as the
measure of its size (we used the natural logarithmin our models). This measure was included, as it can be assumed that large
subsidiaries control more resources. The assumed influence of HQ on subsidiary competence is unclear in relation to
subsidiary size since, although large subsidiaries can be assumed to control much of their own competence development, HQ
may have played an important role in the expansion of the subsidiary and, thus, in its competence development.
Respondents also indicated whether the subsidiary had been established as part of the MNC by acquisition or as a greenfield
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operation. The dummy variable is coded ‘‘1’’ for acquisitions. Furthermore, since the sample included subsidiaries active in
both manufacturing and service industries, we included a dummy variable, coded ‘‘1’’ for services. Next, as subsidiaries
conduct a variety of value-added activities, we controlled for the scope of their value-added activities. It is unclear how the
scope of activities relates to HQ influence. Arguably, the more value chain activities performed by the subsidiary, the less
dependent the subsidiary will be on HQfor support. On the other hand, a large scope of activities may be associated with the
subsidiary’s having greater corporate importance and thus with stronger recognition by HQmanagers who want to influence
its development (Andersson et al., 2007). Scope of activities was calculated as the number of activities conducted by the
subsidiary in the following seven areas: research, development, production, marketing and sales, logistics, purchasing, and
HRM(cf. Benito, Grøgaard, &Narula, 2003). We also controlled for subsidiary age, as this may be related to the HQ’s influence
on its competence development. Recently established subsidiaries arguably need stronger HQ support than do older
subsidiaries that have gradually developed their own resources, knowledge, and market position. Subsidiary age was
measured as the number of years the subsidiary had been part of the MNC (we employed its natural logarithm in our
models).
Since subsidiary competence development is driven not only by the parent company, but also by the subsidiary itself and
its environment (Birkinshaw & Hood, 1998; Foss & Pedersen, 2002; Holm, Holmstro¨ m, & Sharma, 2005; Holm, Malmberg, &
So¨ lvell, 2003), we included control variables for the latter two. When subsidiary competence development has its origins in
horizontal relationships within the MNC, the relative impact of HQ arguably decreases. We therefore controlled for the
impact that MNC units other than HQ may have had on competence development in our sample subsidiaries. The
questionnaire asked respondents about the influence of specific customers, suppliers, or R&D units within the MNC
organisation on the development of their unit’s distinct competences. A seven-point Likert-type scale was used to indicate
the influence of each aspect (the same measure as was used for indicating HQinfluence). Factor analysis of these three items
indicated that they formed a single factor explaining 83.5% of the variance, all three items loading above .9; we used the
resulting regressed factor in our analyses. For the same reason, we also controlled for the influence that the subsidiary itself
had on its competence development (cf. Birkinshaw & Hood, 1998) and measured this using a single item, on a seven-point
Likert-type scale, dealing with the influence of internal circumstances on the development of distinct competences. Finally,
we also measured whether external factors (e.g., the host country factors distinguished by Birkinshaw & Hood, 1998; Holm
et al., 2005) affected competence development in the sample subsidiaries. Respondents assessed, using a seven-point Likert-
type scale, the impact of their product and supplier markets on competence development. We summed the responses to
these two items and included the resulting variable in our analyses to control for the impact of factors external to the MNC.
6. Analysis of the effect of power distance
We divided our observations into four groups, each representing a PD relationship, using the national power distance
scores for the countries in which the subsidiary and its HQ are located (see the Appendix A for the scores of all countries
involved). We determined whether our observations scored ‘‘high’’ or ‘‘low’’ relative to the median value for the sample
countries for both HQ country and subsidiary country, resulting in four sub-samples, one for each relationship. In 450 of the
1529 observations, both HQ and subsidiary scored ‘‘high’’ on power distance, i.e., they accepted power differences; these
observations correspond to the PD hierarchy relationship (the upper right box in Fig. 2). The mean value of HQ influence on
subsidiary competence development was 4.442 (on the seven-point Likert-type scale) in this group. The PD conflict
relationship (upper left, Fig. 2) counts 367 observations; in these observations, the HQ’s national culture has a high, but the
subsidiary’s a lowpower distance, and the mean value of HQinfluence is 3.708. The 426 observations in which HQs are from
low-power-distance, but subsidiaries from high-power-distance cultures, correspond to the PD confusion relationship
(lower right, Fig. 2); HQinfluence has a mean value of 4.317 for these observations. Finally, 286 observations correspond to a
PD egalitarian relationship in which both HQ and subsidiaries are from low-power-distance cultures (lower left, Fig. 2); the
mean value of HQ influence is 3.801.
6.1. Analysis of covariates
We start our analyses by investigating the effects of the control variables, or covariates in the ANCOVA analyses, on HQ
influence on subsidiary competence development. The first two columns of Table 1 showthe results: column 1 presents the
results of the control variables only, while column 2 includes a measure of absolute differences in power distance (our
measure of cultural distance
2
). On the whole, both models are significant, with F-values of 10.449 and 10.147, respectively
(p <.001). The results indicate that the scope of activities and the industry do not affect the extent of HQinfluence, nor do the
impacts of other units within the MNC, the subsidiary, or external market factors. The control variables subsidiary size,
acquisition, and subsidiary age are significantly related to the dependent variable. The results indicate that size positively
and significantly affects the dependent variable, suggesting that HQ has more influence on competence development in
larger subsidiaries. The effect of acquisition indicates that HQ has a stronger influence on competence development in
2
We have performed the same analyses using a cultural distance measure calculated from the nine dimensions of culture as defined and measured by
GLOBE, and obtained similar results for all models, including the tests of our hypotheses.
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greenfield than in acquired subsidiaries. Furthermore, the length of time that the subsidiary has been part of the MNC
matters: the longer a subsidiary has been part of the MNC, the more influence HQhas on its competence development. This
is opposite to our expectations, but can be explained by the fact that many younger subsidiaries in our dataset are
acquisitions (see also Holm & Pedersen, 2000): it takes time before HQ can influence competence development in newly
acquired units. Most interestingly, however, are the absolute power distance results: in line with expectations, we find a
negative and significant relationship between absolute power distance and HQ influence. The larger the cultural distance
withregardtopower distance betweenthe HQandthe subsidiary, the less influence HQhas oncompetence development in
the subsidiary.
We now enter cultural positions into the equation, that is, the power distance relationship factor consisting of the four
categories defined above. Column 3 in Table 1 presents the results of the basic model, i.e., the covariates plus the PD
relationships, while column 4 presents the model including absolute power distance. Observe, first, that by including the PD
relationships, the absolute power distance variable becomes insignificant, suggesting that cultural positions is associated
more significantly with HQ-influence than is absolute cultural distance. In both models 3 and 4, we compare three of the four
PD relationships with the fourth, the PD hierarchy relationship. The results indicate that HQ influence differs between the
four groups and, most notably, that two groups, i.e., PD conflict and PD egalitarian relationships, display significantly lower
HQ influence than does the PD hierarchy relationship.
These results add nuance to the negative effect of cultural distance on HQ influence found in model 2, since both PD
relationships characterized by low cultural distance display a significant difference in terms of HQ influence. Furthermore,
the lowcultural distance in the PD hierarchy relationship is associated with significantly more HQ influence than is the high
cultural distance in the PD conflict relationship (in line with the general finding that cultural distance has a negative effect).
However, there seems to be no significant difference between the PD hierarchy relationship and the PD confusion
relationship in this regard, which disagrees with the negative cultural distance effect suggested in model 2. Let us look in
more detail at the pairwise comparisons and present the tests of our hypotheses.
6.2. Hypothesis testing through pairwise comparisons
The results of the ANCOVAanalysis and post-hoc tests of pairwise comparisons of the four PDrelationships defined above
are presented in Table 2. The results of the basic model, excluding absolute differences in power distance, indicate that the
acceptance of power differences is a significant factor distinguishing the four relationships and HQ influence on subsidiary
competence development with an F-value of 9.631 (p <.001). As shown in Table 2, the results remain stable when including
absolute differences in power distance (with a minor change in the significance level of the difference between two groups:
PDconfusion versus PDegalitarian). We further find that HQinfluence is significantly higher in the PDhierarchy relationship
than in the PD egalitarian relationship, in line with Hypothesis 1. Thus, when both HQ and subsidiary are embedded in
cultures accepting of power differences, HQcan exert a stronger influence on the subsidiary’s competence development than
when both parties are embedded in cultures less accepting of power differences. The same conclusion holds when the PD
hierarchy relationship is compared with the high-cultural-distance situation in which the HQ has a high power-difference
acceptance and the subsidiary does not (the PDconflict relationship), in line with Hypothesis 2. However, Hypothesis 3 is not
Table 1
Covariate analysis, dependent variable: HQ influence on subsidiary competence development.
1 2 3 4
Size 3.247
***
2.985
**
2.160
*
2.087
*
Acquisition À4.860
***
À4.595
***
À3.662
***
À3.601
***
Age of subsidiary 3.912
***
4.040
***
4.515
***
4.533
***
Scope of activities À.196 À.369 À.087 À.176
Service industry 1.076 1.137 1.701
y
1.681
y
Influence of other MNC units À1.034 À.908 À.798 À.759
Influence of subsidiary .369 .369 .094 .106
Influence of external factors .832 .788 .888 .895
Absolute power distance À2.717
**
À1.462
PD hierarchy relationship –
a

a
PD confusion À.908 À.895
PD conflict À4.618
***
À4.477
***
PD egalitarian À3.979
***
À3.212
***
R-square (adjusted) .048 .052 .064 .065
F-statistic 10.449
***
10.147
***
10.460
***
9.774
***
Cells contain t-values.
a
Parameter set to zero.
y
p <.10.
*
p <.05.
**
p <.01.
***
p <.001.
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supported, as the PD hierarchy relationship is not associated with stronger HQ influence than is the PD confusion
relationship.
The importance of investigating the roles and cultural positions (and not only cultural distance) of both HQ and
subsidiaries is further confirmed by the tests of Hypotheses 4 and 5. In these, we compare the lowcultural distance of the PD
egalitarian relationship with both high-cultural-distance relationships, i.e., PDconflict and PDconfusion. Hypothesis 4 is not
supported, since the PD conflict relationship is not associated with a stronger HQ influence than is the PD egalitarian
relationship. Hypothesis 5, however, is supported: HQ influence is higher in the PD confusion relationship than in the PD
egalitarian relationship. Finally, our results indicate that, of our competing hypotheses, Hypotheses 6a and 6b, the first
receives support, which means that HQ influence on subsidiary competence development is stronger in the PD confusion
than in the PD conflict relationship.
Our tests find empirical evidence for our two-by-two conceptualisation of relationships in cross-cultural settings: both
low- and high-cultural-distance situations are dissimilar, and dependent on the cultural positions of both parties to the
relationship. However, our results also indicate an interesting pattern in our empirical context: the support for Hypotheses 1,
2, 5 and 6a suggests that the subsidiary’s cultural position relates more strongly to HQ influence than does the HQ’s own
position.
We repeated our tests as a sensitivity analysis, grouping the observations about the median power distance of all 60
societies included in the GLOBE study (instead of using the sample mean). Due to the large representation of Scandinavian
countries, all of which have power distance scores below the grand mean for the GLOBE study (a value of 5.17), the mean
power distance value of the countries in our sample is lower, affecting the grouping of our observations in the four PD
relationships. When repeating our tests using groups based on GLOBE’s grand mean, we obtain results very similar to those
presented above, although with somewhat lower significance levels (though still at a 5% level), for Hypotheses 1, 2 and 6a.
This provides convincing support for our results.
We further analysed whether any cultural biases, i.e., national differences in power distance, affect our results. We first
entered a dummy variable for each of the six nations where the respondent subsidiaries are located. We found that
respondents in Austrian subsidiaries assess HQ influence on subsidiary competence development relatively higher than do
respondents in other countries (significant at a 10% level), and that respondents in Finnish subsidiaries, in contrast, display a
more negative response pattern than do respondents in other countries (significant at a 5% level). Therefore, in a second step,
we ran the model excluding respondents fromAustria and Finland. In this model, we find the same pattern of results as in the
models including all 1529 observations (support for Hypotheses 1, 2, 5 and 6a), with some minor differences in significance
levels for Hypotheses 1 and 6a (to a 1% level, still a strong result).
7. Discussion and conclusion
Cultural differences are a fundamental factor influencing relationships within MNCs, including those between HQs and
subsidiaries (Baliga & Jaeger, 1985). Few studies have explicitly dealt with the mutuality of the cultural context in the HQ–
subsidiary relationship. We argue that, although we have learned fromprior research that the environments of both HQand
subsidiary are important for the relationship between them (e.g., Geppert, Matten, et al., 2003; Geppert, Williams, et al.,
2003; Kostova & Roth, 2002; Westney, 1993), we need more research that takes the environment of both parties into
account. Previous studies of the impact of culture on HQ–subsidiary relationships, for example, have not dealt properly with
both sides’ actual position on various cultural dimensions, but have focused on cultural distance instead. This paper has
systematically examined one specific cultural dimension, power distance (PD), and analysed four situations or relationships
based on the cultural positions of HQs and their subsidiaries: one in which there is mutual acceptance of power differences
by HQ and subsidiary (the PD hierarchy relationship), one in which there is agreement on the equal distribution of power
(the PD egalitarian relationship), and two in which HQ and subsidiaries have different power distance practices (the PD
Table 2
Results of the ANCOVA test; pairwise comparison of four PD relationships.
Results, basic model Results including cultural distance
(absolute power distance differences)
Hypotheses PD hierarchy >PD egalitarian (H1)
***
PD hierarchy >PD egalitarian (H1)
***
PD hierarchy >PD conflict (H2)
***
PD hierarchy >PD conflict (H2)
***
PD hierarchy >PD confusion (H3)
n.s.
PD hierarchy >PD confusion (H3)
n.s.
PD conflict >PD egalitarian (H4)
n.s.
PD conflict >PD egalitarian (H4)
n.s.
PD confusion >PD egalitarian (H5)
**
PD confusion >PD egalitarian (H5)
*
PD confusion >PD conflict (H6a)
***
PD confusion >PD conflict (H6a)
***
PD conflict >PD confusion (H6b)
n.s.
PD conflict >PD confusion (H6b)
n.s.
F-statistic 9.631
***
7.975
***
*
p <.05.
**
p <.01.
***
p <.001.
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conflict and PD confusion relationships); we have compared the results of our analyses with results based on cultural
distance measurements.
The results support our general conception that HQ influence on subsidiary competence development is associated
with the cultural characteristics of the national environments of the two organisational units. At least three conclusions
can be drawn. First, we can state that nationally based cultural characteristics of both HQs and subsidiaries matter to the
HQ–subsidiary relationship, and not only the cultural distance. This supports Shenkar’s (2001) and Shenkar et al.’s (2008)
call to complement the ‘‘distance’’ metaphor with one doing greater justice to the actual frictions (or agreements)
occurring in the interaction process. Our finding that mutual power acceptance in the PD hierarchy relationship is
associated with a stronger HQ influence than when the relationship is managed within the context of a mutually low
acceptance of power differences (the PD egalitarian relationship), indicates that the positions on the cultural dimension
of interest of both parties to the relationship are essential, and not just the ‘‘distance’’ between them (compare the
situations in Fig. 1A). Had we investigated only the effect of cultural distance on HQ influence on subsidiary competence
development, we would not have obtained this result, but would have found that cultural distance had only a negative
effect. It is also noteworthy that we obtained different results for both relationships that can be categorized as culturally
distant: the PD conflict and PD confusion relationships. In these two relationships, the cultural distance is large, but the
positions of the parties to the relationship are exchanged (compare Fig. 1B). In summary, our results strongly indicate
that cultural positions, i.e., the actual cultural characteristics of both parties to a relationship, here HQ’s and subsidiaries’
acceptance or rejection of power differences, matter and can provide insights additional to those based on the analysis of
cultural distance.
Second, the combined support for Hypotheses 1, 2, 5 and 6a suggests that, in our empirical context subsidiary managers’
acceptance of the power distribution is vital for the HQ-subsidiary relationship. Thus, we cannot merely say that HQ power
acceptance affects HQ influence on the subsidiary when the corresponding acceptance is absent on the subsidiary side. On
the contrary, the cultural position of the subsidiary seems to relate more strongly to HQ influence than does the HQ’s own
position. HQ influence is consistently stronger when the subsidiary accepts power differences than when it does not,
independent of whether HQ accepts or rejects power differences, and independent of the cultural distance between the
organisations. In other words, HQ influence on subsidiary competence development depends more on the subsidiary’s
acceptance of the power distribution and on its expectations regarding the HQ’s controlling behaviour, than on power
acceptance at the HQ. We may therefore need to revisit the role of subsidiaries in HQ–subsidiary relationships, and examine,
for example, feedback-seeking behaviour in relation to cultural positions instead of cultural distance (as in Gupta et al.,
1999). Our results further suggest that the proposed ‘‘friction’’ metaphor (Shenkar et al., 2008) does not do full justice to the
impact of culture, because this metaphor suggests that cultural differences between groups negatively affect their
relationships. However, our study demonstrates not only that we should distinguish among relationships characterized by
differences (or friction) and by agreements, but also that friction (or agreement) relationships differ depending on the
cultural positions of the groups involved. We would not have achieved these insights had we investigated only the effect of
cultural distance.
Third, HQ influence on subsidiary competence development can be considered a formof control. This refers to the extent
to which HQmanagers intervene in the operations of the subsidiary, irrespective of formal decisions (Forsgren et al., 2005, p.
133). Much literature in the field of HQcontrol has dealt with problems associated with implementing efficient and effective
control and has discussed various control mechanisms (Cray, 1984; Ferner, 2000; Martinez &Jarillo, 1989; Nohria &Ghoshal,
1994). Research adopting the subsidiary’s point of view has dealt mainly with the subsidiary’s ability to evade control and
gain autonomy, or even with howit can influence corporate decisions (Andersson et al., 2007; Doz & Prahalad, 1981; Ferner,
2000). However, our findings point in another direction, suggesting that the subsidiary may require or expect HQto exercise
control over its operations, an idea that seems to go beyond feedback-seeking as defined in Gupta et al. (1999): we find that
HQinfluence is strengthened by subsidiaries’ acceptance of power differences. Under what conditions this situation emerges
is, to the best of our knowledge, scarcely investigated in the literature. Our results reveal that one factor, i.e., the culturally
induced acceptance of the right to exercise power, is one aspect of such a situation. Our findings are consistent with the
eagerness of subsidiaries to attract HQ attention (Birkinshaw et al., 2007), not necessarily to influence HQ decisions, but
instead to motivate HQs to increase their involvement in their subsidiary’s activities. We suggest that this should be further
explored and related to other control mechanisms in the HQ–subsidiary relationship.
This paper adopted a relational view of the effect of cultural differences, claiming that not only the cultural distance, but
also the actual cultural characteristics of the two parties to a relationship and the differences between them (i.e., their
cultural positions), affect their relationship. Of course, our framework distinguished four ideal-type relationships, and we
split our sample on the median to identify these relationships in our sample, which means that, in practice, relationships will
display more variety than we were able to test for in our empirical study. We also based our arguments and tests on just one
cultural dimension for clarity and simplicity; however, cultures comprise many values and behaviours, increasing the
complexity of our conceptualisation and the challenges of dealing with relationships in inter-cultural contexts. In the future,
researchers may wish to include more cultural dimensions that are relevant to HQ–subsidiary relationships in studies of
cultural positions. The cultural positions concept should be further validated and tested in multidimensional settings and
using scales more complex than dichotomous ones. Such validation studies should also test the cultural positions concept
and its implications in broader empirical settings than that of HQ influence on subsidiary competence development. In
particular, researchers could collect data about HQ–subsidiary relationships based on a broader set of factors than only HQ
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influence or control, to test the validity of the conceptual labels attached to the PDrelationships and to identify other ways of
characterising HQ–subsidiary relationships.
Researchers might also wish to include subsidiaries and HQs in a wider range of host countries to increase the variety of
cultural dimensions. Such studies should consider what countries to include to achieve as much variation as possible. In the
current study, we were unable to control for how long HQs had been located in their home countries or for organisational
culture, or to measure power acceptance at the level of the units involved. Studies including these and other control variables
would make valuable contributions to the field and could foster a more complete understanding of the impact of cultural
positions on HQ–subsidiary relationships.
Appendix A
Power distance scores of the countries in which the HQs of sample subsidiaries are located (scores taken from House et al.,
2004, pp. 742–744).
Country Power distance Country Power distance
Australia 4.81 Netherlands 4.32
Austria 5.00 Portugal 5.50
Canada 4.85 Russian Federation 5.61
China 5.02 Singapore 4.92
Denmark 4.14 Slovenia 5.32
Finland 5.08 Spain 5.53
France 5.68 South Africa 5.10
Germany 5.48 Sweden 4.94
Hungary 5.57 Switzerland 5.05
Ireland 5.13 Thailand 5.62
Israel 4.71 Turkey 5.43
Italy 5.45 UK 5.26
Japan 5.23 USA 4.92
Malaysia 5.09
Median HQ 5.05
Median subsidiary 5.00
Bold text and scores indicate the six countries in which subsidiaries are located.
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