THE CORPORATE PARENT – SUBSIDIARY RELATIONSHIP

AND THE STRATEGY OF THE SUBSIDIARY AT BARCLAYS

BANK OF KENYA

BY

ERIC SILA

A RESEARCH PROJECT SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF

THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION,

SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI.

NOVEMBER, 2012
 DECLARATION

This research project is my original work and has not been submitted for examination in

any other university.

Signature…………………………… Date…………………………………….

ERIC SILA

D61/76093/2009

This research project has been submitted for examination with my permission as

supervisor.

Signature……………………….. Date……………………………………..

DR. VINCENT MACHUKI

LECTURER

SCHOOL OF BUSINESS

UNIVERSITY OF NAIROBI

ii
 ACKNOWLEDGEMENTS

From the formative stages to the final draft of this Master of Business Administration

project, I owe an immense debt of gratitude to my supervisor, Dr. Vincent Machuki for

his invaluable support towards this project. His constructive criticism, careful guidance

and patience enabled me to complete the project in time.

I would also like to thank the senior management of Barclays Bank of Kenya who agreed

to participate in the interview sessions for without your time and cooperation, this project

would not have been possible. Special thanks goes to the proposal presentation panel, my

dear wife Nancy Sande and colleagues who were present during the presentation of this

project proposal.

Finally, but most importantly, I sincerely thank our Almighty God for giving me the

insight and providing means to undertake this study. To each of the above, I extend my

deepest and sincere appreciation.

iii
 DEDICATION

I dedicate this research project to my loving wife Nancy Sande, who encouraged and

supported me throughout my Masters of Business Administration studies. Her

willingness to sacrifice and allow me time to be away to complete my studies and

develop my skills is deeply appreciated.

iv
 ABSTRACT

The main aim of the study is to investigate on the Corporate-Parent subsidiary

relationship and the choice of the subsidiary strategy at Barclays Bank of Kenya Ltd.
Multinational entities have played a role in international trade for several centuries. Their
operations can be traced back several centuries. These developments suggest that the
relationship between national and firm competitiveness should be viewed from a different
perspective. There is a set of subsidiary characteristics that enables a foreign subsidiary to
contribute to the national competitiveness of its host country.

Primary data was mainly used while secondary data was used in its support. The
interview guide was designed in an unstructured form of questions mainly aimed at
encouraging the respondent to give an in-depth response without raising a feeling of
revealing too much information. Secondary data relating to the subsidiary strategic plan
was obtained from Barclays Bank of Kenya Ltd. Primary data was gathered through face
to face interviews. The study used content analysis for data presentation

The study found out that in this research study, the parent company has a large influence
on what the subsidiary company can do or not do. The study established that whilst there
are disadvantages of being closely controlled by a parent company, there are also many
benefits which come with being associated with a multinational company. The study
concludes that the Corporate-Parent subsidiary relationship and the choice of the
subsidiary strategy at Barclays Bank of Kenya Ltd has an effect on the strategy of the
subsidiary

v
 TABLE OF CONTENTS

DECLARATION............................................................................................................... ii

ACKNOWLEDGEMENTS ............................................................................................ iii

DEDICATION.................................................................................................................. iv

ABSTRACT ....................................................................................................................... v

TABLE OF CONTENTS ................................................................................................ vi

CHAPTER ONE: INTRODUCTION ............................................................................. 1

1.1 Background of the Study .............................................................................................. 1

1.1.1 Parent-Subsidiary Relationship and Strategy Choice............................................. 3

1.1.2 Banking Industry In Kenya .................................................................................... 5

1.1.3 Barclays Bank of Kenya ......................................................................................... 6

1.2 Research Problem ......................................................................................................... 8

1.3 Research Objective ..................................................................................................... 10

1.4 Value of the Study ...................................................................................................... 10

CHAPTER TWO: LITERATURE REVIEW .............................................................. 12

2.1 Introduction ................................................................................................................. 12

2.2 Strategic Orientation of Multinational Corporations .................................................. 12

2.3 Parent-Subsidiary Relationship ................................................................................... 14

2.4 Parent-Subsidiary Relationship and Choice of Subsidiary Strategy ........................... 16

vi
CHAPTER THREE: RESEARCH METHODOLOGY ............................................ 22

3.1 Introduction ................................................................................................................. 22

3.2 Research Design.......................................................................................................... 22

3.3 Data Collection ........................................................................................................... 23

3.4 Data Analysis .............................................................................................................. 23

CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION ......................... 25

4.1 Introduction ................................................................................................................. 25

4.2 Parent Strategy and the Performance of the Subsidiary.............................................. 26

4.3 Parents-Subsidiary Relationship and Choice of Subsidiary Strategy ......................... 28

4.4 Parents-Subsidiary Relationship ................................................................................. 29

4.4.1 Parent’s Corporate Strategy ................................................................................. 30

4.4.2 Parent Company Control of the Strategic Choice ................................................ 31

4.4.3 Arms Length Relationship with the Performance of the Subsidiary .................... 34

4.4.4 Effects of the Relationship between the Parent and the Subsidiary ..................... 36

4.4.5 Corporate Parent Strategy-Subsidiary Interface and the Subsidiary Competitive Edge . 39

4.5 Discussion ................................................................................................................... 40

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS .. 42

5.1 Introduction ................................................................................................................. 42

5.2 Summary of Findings .................................................................................................. 42

5.3 Conclusion .................................................................................................................. 43

5.4 Recommendation for Policy and Practice ................................................................... 44

5.5 Limitations of the Study.............................................................................................. 44

5.6 Suggestions for Further Studies .................................................................................. 45

REFERENCES ................................................................................................................ 46

APPENDIX: INTERVIEW GUIDE .............................................................................. 50

 CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

Ever since Chandler’s (1962) pioneering study on the strategic choice and structures of

organizations, the idea that firms need to have consistency and congruence across

organizational elements underlies much research in both strategic management and

organization theories (Van de Ven and Drazin, 1985, Ghoshal and Westney, 1993).

Researchers have paid close attention to the relationship between a firm’s strategy and

structure because without consistency and congruence between a firm’s strategic goals

and the organizational structure to implement these goals, even the best managers,

strategy or structure will not be able to produce the desired results. Existing research on

the strategic choice and structures of multinational firms has considered the relationship

between either a firm’s strategy or structure or its response to environmental conditions

(Ghoshal and Bartlett, 2000, Van de Ven and Drazin, 1985 and Ghoshal and Bartlett,

2000). However, firm strategies, structures and responses to environments are not easily

separated (Ghoshal and Bartlett, 2000).

The ethnocentric strategy suggests that companies should maximize their parent company

control in order to integrate subsidiaries, at the cost of local responsiveness. The

polycentric and regiocentric approaches both allow for more local responsiveness with

less corporate integration. The geocentric strategy is the 'ideal', as it attempts to balance

both global integration and local responsiveness. In a hierarchy, the geocentric strategy

would be the best because it incorporates both of the theoretical ideals. Polycentric and

regiocentric strategies would be second because they satisfy the local responsiveness

1
ideal (usually at the cost of global integration). Ethnocentric strategies, focusing on

headquarters' control, are neither globally integrated nor locally responsive. Generally, as

foreign subsidiaries mature, they become more resource independent 'with respect to

strategic resources, such as technology, capital, management and access to markets'

(Prahalad and Doz. 2007). With the dependency on the parent organization gone,

multinationals, who wish to maintain control over their otherwise autonomous

subsidiaries, use alternative methods such as fostering the parent organization's corporate

culture worldwide (Prahalad and Doz. 2007).

The matter of subsidiary independence is oftentimes a stumbling block to the parent

business enterprise which may view an independent subsidiary as an uncontrolled

subsidiary. But recognizing a subsidiary as an "independent" corporation is not the

equivalent of regarding the subsidiary as "uncontrolled." At all times, provided that

appropriate bylaw provisions are adopted and maintained, the parent has the legal

authority to hold the subsidiary accountable to meet "bottom line" financial objectives, to

pursue acceptable policy mandates, to fulfill its goals and to otherwise conduct its affairs

in a manner pleasing to the parent. Headquarters and subsidiaries may also be culturally

distant. Culture refers to the shared cognitive maps that guide inferences, decisions, and

actions of a society of people (Pettigrew, 1979). Such maps vary across countries and

regions (Adler, 1996). A number of empirical studies have reported that culture distance

between the home and host countries has a significant and predicted impact on the

decisions and actions of Multinationals in a variety of areas such as staffing decisions at

the subsidiary level (Gong, 2003), choice of entry modes for new markets and feedback

2
seeking behavior of senior managers within subsidiaries (Gupta, Govindarajan, and

Malhotra, 1999).

1.1.1 Parent-Subsidiary Relationship and Strategy Choice

In research on multinational organizations, corporate-subsidiary decentralization has

largely been operationalized at the dyadic level of the parent company’s relationship with

a specific subsidiary, by measuring the relative control exercised by the parent company

on the subsidiary in making relevant decisions. Foss and Pedersen (2002) find a positive

relationship between subsidiary autonomy and knowledge transfer. Other scholars’

evidence suggests that corporate-subsidiary decentralization has a positive influence on

inter-subsidiary knowledge flows but no effect (Ghoshal et al. 1994), or even negative

impact on the transfer of knowledge from the subsidiaries to the parent companies

(Gammelgaard et al. 2004). Further, when a subsidiary’s ability to create and develop

new knowledge increases, it is obviously more likely that the subsidiary owns valuable

knowledge for the parent company and for the Multinationals as a whole (Cantwell and

Mudambi 2005). Nevertheless, the subsidiaries’ ability to create and develop new

knowledge may have a negative impact on reverse knowledge transfer. First, the creation

and development of new knowledge by foreign subsidiaries might be based on intensive

information exchange with local organizations that leads to more context specific and

complex knowledge (Andersson et al. 2002).

Subsidiary’s ability to create and develop new knowledge increases, it is obviously more

likely that the subsidiary owns valuable knowledge for the parent company and for the

3
Multinationals. According to Taggart (2004), Strategic choice is the set of relationships

between the subsidiary and other units of the Multinationals that relates to the

subsidiary’s participation in the overall strategy of the Multinationals. Active

participation of subsidiary members in the strategy process may influence the overall

MNC.s strategy trough a group of relations generated from the subsidiary. The more

participation there is in the strategic process of the Multinationals, the more dependencies

will be drawn between subsidiaries and Headquarters and between subsidiaries

themselves (Johanson&Vahlne 2003).

Internal institutional pressures applied to the analysis of Multinationals subsidiaries refer

to conformity pressures from headquarters and other subsidiaries (Gong, 2003). For

example, the structure and internal processes of a new subsidiary need to adapt, or

already be similar, to those of other subsidiaries of the same parent Multinationals in

order for the new subsidiary to be considered a complete member of the corporation. The

sense of membership, or identification, is fundamental if the new subsidiary is to receive

resource inflows from its subsidiaries and headquarters. Therefore, an adaptation, rather

than a selection, argument of Multinationals adjustment to the foreign institutional

environments is developed to analyze Multinationals foreign entry strategies. While

traditional selection arguments leave few possibilities for a firm’s strategic choices, a

strategic adaptation rationale is based on how these choices permit an otherwise overly

restrictive and limiting environment to be overcome. Firms adapt to be selected, but

selection produces a different form of adaptation. Selection as a process does not create

perfect firms, and adaptation is an ongoing strategic process aimed at increasing the

4
likelihood of survival and better performance. Furthermore, although a strategic

perspective is taken, strategy is acknowledged to be formulated within the agents’

bounded rationality (Simon, 1957), decision-making and the direct influence of

surrounding agents (their actions, beliefs and those used as referent others) (Shah, 1998).

Therefore, firms may seldom commit to a definite profit maximizing strategy (DiMaggio

and Powell, 1983; Norman, 1988). Efficiency rationale or profit maximizing strategic

choices may be disregarded in some cases, instead, Multinationals may actually be

constrained to choose among a more limited set of alternatives than we often realize. By

simultaneously examining firms’ entry strategies with both institutional and economic

lenses, we can better analyze the effects of both ex ante and ex post institutional forces

upon Multinationals entry strategies.

1.1.2 Banking Industry In Kenya

The Banking industry in Kenya is governed by the Companies Act, the Banking Act, the

Central Bank of Kenya Act and the various prudential guidelines issued by the Central

Bank of Kenya (CBK). The banking sector was liberalized in 1995 and exchange controls

lifted. The CBK, which falls under the Minister for Finance docket, is responsible for

formulating and implementing monetary policy and fostering the liquidity, solvency and

proper functioning of the financial system. As at December 2011 there were forty six

banking and non bank institutions, fifteen micro finance institutions and one hundred and

nine foreign exchange bureaus. The locally owned financial institutions comprise 3 banks

with significant government shareholding and 28 privately owned commercial banks. The

foreign owned financial institutions comprised 8 locally incorporated foreign banks and 4

5
branches of foreign incorporated banks. Of the 42 private banking institutions in the

sector, 71% are locally owned and the remaining 29% are foreign owned (Central Bank

of Kenya, 2011).

Players in this sector have experienced increased competition over the last few years

resulting from increased innovations among the players and new entrants into the market.

The Central bank of Kenya oversees the operations of all commercial banks. During the

on-site inspections all risks are evaluated and necessary remedial actions are

recommended. The banks have come together under the Kenya Bankers Association

(KBA), which serves as a lobby for the banking sector’s interests.

In the banking industry the subsidiaries quest for survival implies the development of its

own strategy within the limits imposed by the Multinationals. If operational activities,

such as agent banking, are subject to delocalization upheavals, subsidiaries that play a

strategic role within the Multinationals may appear harder to be relocated, given their

contribution to the overall Multinationals performance (Jarillo & Martínez, 2000)..

1.1.3 Barclays Bank of Kenya

Barclays Bank PLC is an international bank and financial services company with its

headquarters based in London. Through the parent company and various subsidiary

companies it provides financial services covering retail banking, investment and

corporate banking, wealth management and credit cards. It has more than forty eight

million customers in over fifty countries. This global presence would have never been

6
imagined by its early Quaker founders. The foundation of its activities can be traced back

to April 1690 in the City of London. John Freame and Thomas Gould, both Quakers,

started a partnership as goldsmiths. At this time goldsmiths acted as bankers giving loans

to merchants and businessmen, for this was the very earliest stages of private banking in

England.

Barclays has operated in Kenya for over 90 years. Financial Strength coupled with

extensive local and international resources have positioned Barclays Bank of Kenya as a

foremost provider of financial services. Barclays has established an extensive network of

117 outlets with over 230 ATMs spread across the country. The bank's financial

performance over the years has built confidence among the Bank's shareholders, with a

reputation as one of the leading blue chip companies on the Nairobi Stock Exchange. As

a commercial enterprise, Barclays must be profitable to survive. However it does not

believe that profit should be made at any cost. The previously mentioned values, set out

how it aims to undertake business in the interests of its employees and customers.

Underpinning these values is a fundamental principle to maintain and protect customer

confidentiality and to comply with the laws and regulations governing the industry.

Countries bend backwards to accommodate multinationals, socialists term them as

agencies of capitalism while for others, they are a source of jobs and technology transfer.

As the country seeks to attract foreign investment including Multinationals thus bringing

impact on Small and Medium enterprises. The more one particular subsidiary participates

in this process, the more embedded it will be in strategic terms. Consider for instance the

7
effect that the Barclays bank in United Kingdom had on Headquarterts through its

involvement in the strategy of Europe. In different European meetings, Headquarters

claimed the importance of serving African customers. However, none of the subsidiaries

of the Multinationals felt confident to overcome problems derived from cultural,

geographic distance and language differences.

1.2 Research Problem

A Company that owns more than 50% of the stock is said to be the parent company of the

subsidiary. A subsidiary may be wholly or partially owned by the parent company. The

Parent company incorporates the subsidiary, names its board of directors and officers,

and adopts bylaw provisions preserving the parent's control on its subsidiary. Role of

subsidiaries as export platforms or part of international production networks make them

integral parts of global operations, and Headquarters instruct subsidiaries to follow

globally consistent practices. Internationally co-ordinated production systems facilitate

diffusion of inter-subsidiary innovations by identifying best practices in one part of the

corporation and promoting those in other parts of the world. These range from global

strategies in which the firm uses a standardized approach (Rau and Preble, 1987) in all of

its national markets to multi-domestic strategies in which the multinational corporation

adopts a differentiated approach in each national market. As a result, the subsidiary is no

longer regarded as simply a pipeline from headquarters to a specific market. Instead, the

focus is more on the differential ability of each subsidiary to contribute to the

multinationals’ worldwide competitive strategy.

8
The competitiveness of a firm is influenced by the home country wherein it is located.

Indeed, scholars have been arguing for decades that the two are inextricable

(Fayerweather, 1978). During the years that national and firm competitiveness have been

examined, there has been a dramatic rise in the importance of global business in general

and multinational corporations in particular. Over the last two decades, international trade

has grown faster than the global economy, and foreign subsidiaries of Multinationals

headquartered in many different countries now operate in nearly every nation in the

world. These developments suggest that the relationship between national and firm

competitiveness should be viewed from a different perspective. There is a set of

subsidiary characteristics that enables a foreign subsidiary to contribute to the national

competitiveness of its host country. These characteristics include the strategic role of the

subsidiary, the level of technology employed in the subsidiary’s processes, the type of

training provided by the parent company, and the degree to which the subsidiary is part of

an interdependent network of international subunits of the firm (Kobrin, 1976).

Barclays Bank in United Kingdom had the Headquarters involved in setting the strategy

of the subsidiary, Barclays bank of Kenya Ltd. These would range from global strategies

in which the firm uses a standardized approach in all of its national markets to

multidomestic strategies in which the multinational adopts a differentiated approach in

each national market. As a result, the subsidiary is no longer regarded as simply a

pipeline from headquarters to a specific market. Instead, the focus is more on the

differential ability of each subsidiary to contribute to the multinational worldwide

competitive strategy. This focus on competitive advantage indicates that strategies as well

9
as control mechanisms serve to link the multinational Headquarters with its subsidiaries.

The next section reviews the literature which emphasizes this strategic linkage.

The focus of this study is to investigate the Corporate-Parent subsidiary relationship and

the choice of the subsidiary strategy at Barclays Bank of Kenya Ltd. Local Studies have

been done in the Kenyan context on the influence of parent- subsidiary relationship on

the strategy of the subsidiary on Airtel. Kostova and Roth (2002) suggest that subsidiaries

can hardly ever attain a completely autonomous behavior as they face institutional

duality. Most studies have been generalized and focused mainly on parent-subsidiary

relationship. However, the relationship to change rapidly and therefore the strategies

adopted are analyzed in the context that a lot of changes have happened since the said

studies were undertaken. What is the influence of parent-subsidiary relationship on the

strategy of the subsidiary at Barclays Bank of Kenya?.

1.3 Research Objective

To establish the Corporate-Parent subsidiary relationship and the choice of the subsidiary

strategy at Barclays Bank of Kenya Ltd

1.4 Value of the Study

The findings of this study provides new theoretical and empirical insights into the

ambiguity in the literature concerning the influence of parent-subsidiary relationship on

the strategy of the subsidiary on knowledge transfer. Specifically, we argue that one of

the reasons why the previous findings are not unanimous in this regard is due to the fact

10
that the research, as of today, does not relate subsidiary autonomy to the communication

system utilized within the parent company-subsidiary relationship. The choice of the

corporate-subsidiary communication system is one of the core dimensions of

organizational structure and has been recognized to be very relevant in understanding

knowledge transfer phenomena within multinationals. This research identifies the

relationship between a multinational and subsidiary and the influence on the strategy of

the subsidiary in Barclays Bank of Kenya. The study evaluates and be able to indicate the

efficiency measure of relationship. Besides, this study helps the concerned agencies to

take necessary measures against those determinants having significant relationships

between a multinational and subsidiary and the influence on the strategy of the

subsidiary. Partly, this paper remains a source of reference for future academic

researchers and to those for the policy makers, to gain understanding about how

multinationals influence the strategy of subsidiaries.

The government agencies will make use of this study, since it will provide useful

knowledge in formulation of policies and a regulatory framework for running campaigns

of advocating the relationship between a multinational and subsidiary and the influence

on the strategy of the subsidiary in Kenya.

Researchers and scholars can use this information to add to their understanding the

relationship between a multinational and subsidiary and the influence on the strategy of

the subsidiary, Barclays Bank of Kenya. The study had provide foundation and material

for further related research.

11
 CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

This chapter presents literature review on Corporate-Parent subsidiary relationship and

the choice of the subsidiary strategy where it empirically reviews multinational

corporation’s strategic orientation and choice of subsidiary strategy. competitiveness can

be influenced by subsidiaries of foreign firms operating within the country instead of

focusing on the firms headquartered within a nation. Because of the dramatic rise in the

number of foreign subsidiaries as well as the scope of their operations, these subsidiaries

have a substantial impact on the economies in which they operate. It presents both

theoretical and empirical literature along the thematic concerns of the study.

2.2 Strategic Orientation of Multinational Corporations

Multinational corporations have many dimensions and can be viewed from several

perspectives such as ownership, management, strategy and structure (Birkinshaw, Holm

and Thilenius, 2000). Multinational entities have played a role in international trade for

several centuries. Their operations can be traced back several centuries to the British and

Dutch trading companies. With the decline of the overseas trading, the European overseas

investments, mainly in the extractive industries dominated international trade. How to

achieve better performance in foreign markets has long been a core question in the field

of international business and strategy. Researchers have sought to understand the ways to

reduce the liability of foreignness and sustain competitive advantages in foreign markets

(Hymer 1976, Peng 2004). The organizational learning perspective, foreign firms learn

from their previous entry experience and they make foreign investments not only to

12
exploit existing specific advantages but also to develop new competitive advantages

(Johanson and Vahlne 2003). Therefore, experience accumulation in foreign markets can

help firms develop new capabilities and enhance their performance.

The more inclusive version of global integration is known as the transnational strategy.

Its top priorities are seeking location advantages and gaining economic efficiencies from

operating worldwide. Location advantages mean that the transnational company disperses

or locates its value-chain activities (e.g., Manufacturing, Research & Development and

Sales) anywhere in the world where the company can “do it best or cheapest,” as the

situation requires. A global platform is a country location where a firm can outperform

competitors in some, but not necessarily all, of its value-chain activities. Traditionally,

many international business experts viewed national advantage as something from which

only indigenous or local organizations could benefit in world competition. However, the

transnational strategy has made this view out-of-date. The international strategy is a

partial global integration strategy like the transnational strategists, firms pursuing

international strategies attempt to sell global products and use similar marketing

techniques worldwide. They limit adaptation to local customs and culture to minor

adjustments in product offerings and marketing strategies

Subsidiaries play an important role in the performance of multinationals. Surprisingly,

some authors seem to suggest that subsidiaries may only contribute to corporate

performance either in terms of their financial achievements or in the fulfillment of a

concrete strategic role assigned from the center (Jarillo and Martínez, 2000). According

to Nohria and Ghoshal (2001), subsidiaries have been seen as active units, as sources of a

13
Multinationals competitive advantage, and providers of strategic initiative (Taggart,

2004). The main motivation for this shift was the emergence of alternative conceptions of

the Multinationals in which all subsidiaries are contributors to a complex networked firm

(Ghoshal and Bartlett, 2000; Nohria and Ghoshal, 2001). These models proposed that

Multinationals cannot be conceptualized as hierarchical, but rather as a puzzle whose

pieces have to fit among each other. Thus, the different elements in Multinationals

subsidiaries among them, need, complement, and nurture each other. As a consequence,

the term “subsidiary strategy” started to be taken into consideration. Subsidiary

development through initiative taking is a rich strand of the literature that emphasizes the

shift on strategic importance of these units. Subsidiaries are encouraged to be proactive in

developing initiatives that add value, not only to their local operations, but to the parent’s

overall business (Birkinshaw, Hood and Jonsson, 2005; Delany, 2000).

2.3 Parent-Subsidiary Relationship

Operational settings bring in the relationships between the subsidiary and other units of

the Multinationals that concern the day-to-day activities (Johanson & Vahlne 2003).

Multinationals coordinate their operations worldwide. The result is a network where

factories in one country act as suppliers or customers of factories in other subsidiaries

(Ghoshal and Westney, 2003). Thus, the operational activities give pace to a network of

relations whose end is to keep operational day-to-day activities afloat.

According to Ghoshal & Westney (2003), Capability embeddedness is the set of

relationships between the subsidiary and other units of the Multinational that refers to the

14
development of capabilities that are relevant to the overall Multinational. Unless

subsidiaries do have a thoroughly defined role and responsibility, it is unlikely that the

subsidiary alone is going to develop a worldwide applicable capability. Taggart (2004)

However argues that when a subsidiary has developed a certain proficiency in some

strategic capabilities it is usually called to develop those capabilities further and to

contribute to the generation of company wide capabilities. The more the subsidiary

develops these capabilities, the higher the chances of being called to spread them.

Ghoshal & Westney (2003) states that managerial action may enact subsidiary strategy by

changing its role within the corporate network, this may be particularly important when

the strategy promoted by the Multinational puts into danger the existence of the

subsidiary itself. This decision, made without the endorsement of Headquarter renewed

the subsidiary into a crucial component of the Multinational. From a population ecology

point of view, organizational performance has been measured as survival. Consequently,

organizations work in their niche for survival confronting external environmental change

(Hannan and Freeman, 2004).

A stream of research on international business has examined parent-subsidiary

relationships, but since the 1980s the focus has been more on subsidiary role and

subsidiary development (Birkinshaw & Hood, 1998b). This stream of literature is

concerned with the evolution of subsidiary roles over time and recognizes that subsidiary

evolution can by driven from within by, for example, its managers, or from the outside

by, for instance, the parent company, and that in reality subsidiary evolution is some

15
combination of the two. External forces set the range of opportunities open to subsidiary

managers, but it is up to those managers to choose how they respond to these

opportunities (Bouquet & Birkinshaw, 2008b; Birkinshaw & Pedersen, 2009; Birkinshaw

& Hood, 1998a; Birkinshaw, Young & Hood, 2005). However, the work of Bartlett and

Ghoshal (1993) shows that mature Multinationals may face challenges of renewal as they

have to adapt historically successful forms of organizing to an evolving global

environment, which in turn requires a change to the Headquarters subsidiary relationship

and therefore a shift in the direction of subsidiary role evolution. Case studies on well

known Multinationals such as Philips and Matsushita (Bartlett, 2006) demonstrate that

renewal efforts meet significant resistance as they challenge traditional assumptions,

beliefs and self-interest. In particular, it is argued that Multinationals need to move away

from traditional hierarchical hub-and-spoke forms of organizing, often based on the

exploitation of local differences in autonomous country-based operating units, to more

differentiated network forms which enables specialization where needed, but also greater

integration where possible (Bartlett & Ghoshal, 1993; Nohria & Ghoshal, 1997)

2.4 Parent-Subsidiary Relationship and Choice of Subsidiary Strategy

Companies engaged in international business, like all businesses, face pressures to

respond to the unique needs of their customers. However, when your customers come

from different countries and regions of the world, they often have different needs and

desires for products and services. When a company decides to focus on meeting customer

needs based on national and regional differences, it adopts a local responsiveness

strategy. Alternatively, when a company decides to de-emphasize local differences and

16
locate its operations anywhere in the world where it is advantageous, it adopts what is

known as a global integration strategy (Ghoshal, 1997)

Companies that adopt a local responsiveness strategy stress customizing their

organizations and products to accommodate country or regional differences, they focus

on satisfying local customer needs by tailoring products or services to meet those needs.

Forces that favor a local responsiveness strategy come primarily from cultural differences

in consumer tastes and variations in customer needs as well as differences driven by

social institutions such as religion and the political system (Caves, 1974).

Multinational companies that lean toward a global integration strategy reduce their costs

by using standardized products, promotional strategies, and distribution channels in every

country such globally oriented multinationals seek sources of lower costs or higher

quality by locating their operations anywhere in the world. However, neither responding

to local customer needs nor selling the same product worldwide is a guarantee of success.

Customers may be willing to pay a higher price for products or services that are tailored

to their needs Alternatively, if customers see no value in unique products or services, they

will be more attracted to a product or service that is sourced in low-cost countries and can

be priced for less (Daneva and Wieringa, 2006)

In this context, it is necessary to develop a global activity, maintaining a flexible response

to local demand and creating new products and processes in a systematic manner that has

been described as the economy of knowledge. These challenges imply that companies

have to manage a network of subsidiaries, where the strategic roles are coordinated and

17
optimized at a global level. These tasks and their systematic improvement demand forms

of coping with different cultures, multiple national realities and distinct organizational

models, in a process where communication and interdependency are fundamental

elements for business success.

There are challenges and unique tasks that constitute a very rich field of research, in

which new models and processes of management are developed. Daneva and Wieringa

(2006) argue that “integration benefits increase through more sharing of standardized and

harmonized processes and common data” and “more sharing decreases the total costs of

ownership”, while on the other hand, “the more organizational processes get integrated

via the shared process and data environment, the more they get adapted to the default

Enterprise Resource Program structures, the more the change imposed on the

organization, and the more the organizational resistance to it”. In line with Daneva and

Wieringa (2006), it can be argued that the main characteristic of the defined strategies is

that they represent different degrees of sharing across companies. Thus, it seems

reasonable to assume that the main benefits of sharing Enterprise Resource Programmes

solutions across companies are related to synergy effects (i.e. reduced costs) and

uniformity effects (e.g. more efficient communication). On the other hand, uniformity

across companies reduces the flexibility of the decisions of such companies. Therefore,

also benefits related to autonomy can be defined.

18
Ansoff (1957) introduces the Ansoff Matrix as a marketing tool. It is used by marketers

who have objectives for growth. It offers strategic choices to achieve the objectives. The

Ansoff Matrix can be represented as shown below:

There are four main categories for selection as shown above. Market Penetration is

where existing products goes to the existing customers/market (Ansoff, 1957). This

means increasing revenue by, for example, promoting the product, repositioning the

brand, and so on. However, the product is not altered and do not seek any new customers.

Market development means that the product remains the same, but it is marketed to a new

audience. Exporting the product or marketing it in a new region is an example of market

development. Product development is where a new product is introduced in an already

established market with the aim of outdoing existing ones. Such products are then

marketed to the existing customers. This often happens with the auto markets where

existing models are updated or replaced and then marketed to existing customers.

Diversification is where a completely new product is introduced in a completely new

market (Ansoff, 1957). Ansoff pointed out that a diversification strategy stands apart

from the other three strategies. The first three strategies are usually pursued with the

same technical, financial, and merchandising resources used for the original product line,

whereas diversification usually requires a company to acquire new skills, new techniques

and new facilities. There are three types of diversification, namely concentric, horizontal

19
and lateral diversification. Concentric diversification means that there is a technological

similarity between the industries, which means that the firm is able to leverage its

technical know-how to gain some advantage (Ansoff, 1957).

Horizontal diversification means that the company adds new products or services that are

often technologically or commercially unrelated to current products but that may appeal

to current customers. In a competitive environment, this form of diversification is

desirable if the present customers are loyal to the current products and if the new

products have a good quality and are well promoted and priced. This form of

diversification is desirable if the present customers are loyal to the current products and if

the new products have a good quality and are well promoted and priced. Lateral

diversification is where a company markets new products or services that have no

technological or commercial synergies with current products but that may appeal to new

groups of customers. It has very little relationship with the firm's current business. The

main reasons of adopting this kind of a strategy are first to improve the profitability and

the flexibility of the company, and second to get a better reception in capital markets as

the company gets bigger. This can be very risky but at times if successful, it could

provide an increased growth and profitability.

Global strategic flexibility augments the importance of resource flexibility, where the

critical resources encompass strategic leadership, human capital, technological and

manufacturing advances and cooperative synergies between organisational culture and

structure (Lei et al. 1996). As such, an adaptive global organisation should be oriented

20
toward dynamic and anticipatory strategic flexibility as one of its primary core

competencies. Strategic flexibility imposes the demand for strategic leadership that

influences the development of the organisational relational capability (Dyer & Singh

1998) for cultural change conducive to formation of global networks with other

companies in the new competitive landscape.

21
 CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

This chapter seeks to provide the steps and the research methodology that was used in the

study. It mainly focuses on the research design, population of study, sample and sampling

techniques, data collection methods and comes to a conclusion with the data analysis and

data presentation methods that were used in this study.

3.2 Research Design

As the objective stated earlier, the study mainly focused on Corporate-Parent subsidiary

relationship and the choice of the subsidiary strategy at Barclays Bank of Kenya Ltd. The

first step was to identify the subsidiary to focus on which in this case was Barclays Bank

of Kenya. In this research, a single unit was selected for study as it offered an in depth

analysis that will give valuable insights to the study. This is in line with Mugenda and

Mugenda (2003) which states that a case study involves a careful and complete

examination of a social unit, institution, family, cultural group or an entire community

and embraces depth rather than breadth of the study.

In this case the target group to be interviewed was the senior management of Barclays

Bank of Kenya who comprises the Country Management Committee and are tasked with

crafting the subsidiary’s strategy as directed by the parent company. Given that it was a

single unit under study, this design allowed in-depth investigation, where the researcher

was able to unearth deep details of the relationship between the parent and the subsidiary.

22
3.3 Data Collection

In this study, primary data was mainly used while secondary data was used in its support.

Secondary data relating to the subsidiary strategic plan was obtained from Barclays Bank

of Kenya Ltd. Primary data was gathered through face to face interviews. To achieve this,

an interview guide was used to collect primary data (Appendix 1). The interview was

conducted by the Researcher on senior employees from Barclays Bank in Nairobi based

on the topic ‘parent-subsidiary relationship and its influence on the strategy of the

subsidiary at Barclays Bank of Kenya Ltd. The instrument was administered by way of

personal interviews to senior management. They were chosen as they are the ones tasked

with crafting and implementing the strategy of the subsidiary as directed by the parent

company or as they deem fit, though in consultation with the Headquarters. The

interviewees included The Human Resources Director, The Chief Finance Officer, The

Corporate Banking Director, The Country Head of Treasury, the Acting Consumer

Banking Director and the Chief Operating Officer.

The interview guide was designed in an unstructured form of questions mainly aimed at

encouraging the respondent to give an in-depth response without raising a feeling of

revealing too much information. The unstructured questions usually display an insight of

the respondent’s feelings, background, hidden motivation, interests and decisions.

3.4 Data Analysis

The study used content analysis for data presentation. According to Nachmias and

Nachmias (1996) content analysis is defined as a technique for making inferences by

23
systematically and objectively identifying specified characteristics of messages and using

the same to relate trends. The data obtained was qualitative in nature, therefore

qualitative techniques of analysis were employed and the main qualitative technique that

was used was content analysis.

The data for the analysis was obtained from the interviews of various senior employees

(as mentioned above) from different departments. The results obtained were compared

against each other in order to get a more revealing perspective of the influence of parent-

subsidiary relationship on the strategy of the subsidiary at Barclays Bank of Kenya. The

analysis of data collected was compared with the theoretical approaches in order to drive

suitable conclusions. These conclusions were then used to establish the parent-subsidiary

relationship and then extended to see how it affects the strategic management of the

subsidiary.

24
 CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION

4.1 Introduction

This chapter presents the analysis and findings of the study as set out in the research

methodology. The results are presented on the influence of parent-subsidiary relationship

on the strategy of the subsidiary at Barclays Bank of Kenya. The data was gathered

exclusively from an interview guide as the research instrument. The interview guide was

designed in line with the objective of the study. The study sought to find how long the

respondents had worked in their job positions as well as their current role and how long

they have been in the banking industry.

From the study, the Chief Operating officer said that he had worked for 5 months, as

Chief Operating Officer and 19 years in the financial industry as well as Consumer

Banking Director for 3 years in Kenya and Zambia. The Human Resources Director has

worked for 4 years as Human Resources Director and 7 years in the financial sector. The

Corporate Banking Director has been in the current role for 4 years and in the banking

industry for about 20 years, with 17 years in Barclays Bank of Kenya. The Retail Credit

Director has worked in that position for 5 years and has been in the banking industry for

16 years. The Acting Consumer Banking Director said that he had worked in that role for

5 months and 3 years as Head of Distribution Network and 16 years in the financial

industry. The Current Chief Financial Officer had worked for 3 years in the role and 8

years in the Financial Industry. The Country Treasury said that he has been in that role

for 2 years, 15 years in the Treasury department and 17 years in the financial industry. In

conclusion this gave a good base with lots of experience to research on.

25
4.2 Parent Strategy and the Performance of the Subsidiary

On an overall basis, the study sought to find out the key strategies that have influenced

the performance of Barclays Bank of Kenya. The common theme was that, Customer

Service Strategy was necessary to give customers a superior experience which is

customer centric. In addition, for the last 5 to 6 years, the massive branch expansion, a

strategy crafted by the parent and adopted by the subsidiary increased the distribution

network of the local subsidiary. This led to the growth of the subsidiary while at the same

time was done in a controlled manner to minimize risk of losses/default.

The study found out that People Strategy is key in the capability to deliver and attract and

retain customers, success is required to define what it is in the short and long term which

is sustainable profits delivered consistently. Cost Management also featured highly with

the respondents. Cost factor impacts on margins and profit before tax which is key for the

organization. Introduction of personal unsecured lending which is attractive and more

profitable. Slowdown on the corporate market which is price sensitive, less attractive as it

requires secured lending and is higher risk. In all this areas the strategy set by the parent

and implemented by the subsidiary.

The Acting Consumer Banking Director said that, ‘’leveraging on the Corporate Banking

relationship in sync with Consumer/Retail Banking by creating products that can be used

across the board was key. In addition, the enhancement of the IT system which aids in

targeting key segments and ability to capture a lot more Management Information used in

26
decision making to drive the agenda of the subsidiary. The introduction of Company

scheme loans which have great growth potential while at the same time minimizing the

risks that the subsidiary faces and reduces the default rates’’. This strategy was led by the

parent.

According to the Chief Operating Officer, “the focus on retail/consumer banking, gives a

wide distribution network which allows the subsidiary footprint to serve the whole

country. Focus should also be on corporate market segment that has been critical to the

success of the business as the retail bank leverages on the corporate customers. Lastly,

focus on auxiliary products in treasury, derivatives, cash management plus other

diversified products outside the traditional loans and overdrafts”.

The Acting Consumer Banking Director said, ‘’the Branch expansion which was well

thought out increased our network by over 60 branches within the last 5 years. Because of

how this strategy was implemented, within the first one year, all the branches broke even.

In addition, expansion into areas where the bank had previously closed branches resulted

in additional business for the bank. Moreover, the direct sales strategy through what is

known as lead generators, with the increase in the distribution network, up to 4,000 new

sales staff were recruited to drive the sales agenda, as well as clear performance

development and review process aided in tracking the performance of all sales staff.

The common thing that was evident is that the parent was largely responsible in

formulating these strategies while the subsidiary implemented them.

27
4.3 Parents-Subsidiary Relationship and Choice of Subsidiary Strategy

The study also sought to find out according to the respondents experience, what

recommendations they would give as to how the interface of the parent and the subsidiary

can be enhanced for the benefit of the company. The Chief Operating Officer said that

certainty about what can be done and what can’t be done enhances the benefits for the

entire group. Clear feedback channel which will improve the relationship and

communication between the parent and subsidiary to improve performance as well as to

allow the subsidiary more leeway to localize some of the strategic options The acting

Consumer Banking Director on the other hand suggested that by creating a healthy

balance to allow the subsidiary to a certain extent to localize its strategic choice as well as

sharing expertise in the areas of Information Technology and Technical Support.

The Chief Financial Officer suggested that more leeway should be given to the local

subsidiary rather than a strategy that cuts across all markets, one shoe fits all kind of

strategy, e.g. the parent prefers shorter term lending as opposed to long term hence the

desire to lend to the mortgage sector is limited. Whilst it’s important to have a broad

group strategy, it is important that the subsidiary is also allowed leeway to follow

strategic choices that that are localized according to the market segments they target. The

Country treasurer said that whilst the business should have control over the affairs of the

local subsidiary, it should localize some of its products, processes and service for the

benefit of the parent. Understanding what drives the economy of each subsidiary and

28
creating strategies and products to suit the environment of the subsidiary will result in

benefits

He said, “Important to understand the needs of the local customer and strike a balance

between the parents and subsidiary strategy so that it works for the benefit of the

businesses. The parent setting the global strategic objectives then the subsidiary looks at

how they can fit in the overall strategy to address needs of the local market. The parent

should allow the subsidiary identify the strategies that may work for them in the local

environment and let them craft and execute it. The goals/objectives should be well

defined, resulting in a clear alignment of the subsidiary to meet the goals”

4.4 Parents-Subsidiary Relationship

The parent subsidiary relationship between the Headquarters is such that the parent would

generally give guidance on what strategies are to be adopted at the local level. For

example the parent may decide that it is not keen to target certain sectors which are

deemed to be of high risk, e.g. the Small and Medium Sized sector which the

Headquarters has not been keen to venture into. In such a case if the subsidiary believes it

can perform well in this sector, then it will need to justify why. And only after the parent

is satisfied that the sector is viable will it get approval to venture into that market.

In summary therefore the parent will give a global strategy which will then be shared

across the subsidiaries who then craft their local strategies largely in line with what has

been recommended by the parent, unless in exceptional circumstances where the

29
subsidiary can be allowed to deviate from what the parent has recommended as the global

strategy.

4.4.1 Parent’s Corporate Strategy

The study sought to find whether performance was influenced by the parent’s Corporate

Strategy. The Chief Operating Officer agreed to a large extent that it’s almost in all areas

of the subsidiary. However, there are cases where the subsidiary would come up with

their own strategy but the parent company would have a detailed review and say in what

will finally be followed. The Country Treasurer was of the view that this is mainly

driven by the parent company’s strategic choice and it usually determines the risk

appetite quantum of the subsidiary. The parents’ determination of the amount of capital to

be invested plays a role in the activities that the subsidiary can undertake. The operational

policies are determined at the parent level thus having a significant influence on what the

subsidiary can or cannot do.

The Chief Financial Officer was of the view that the Corporate Banking led strategy

which the Consumer/Retail Banking Department was riding on increased the revenue of

the Bank. The Acting Consumer Banking Director said, ‘’the banks performance is

largely influenced by the parent company which really crafts the strategy at the Corporate

Level. This again depended on who the Chief Executive Officer at the parent is. This is

because there are some who have been aggressive in setting a clear strategy for the

subsidiaries while there were others who really were comfortable with the status quo. The

influence of the parent on the subsidiary came out distinctly during the strategy of branch

30
expansion.’’

The study indicates that in the years 2006/2007 there was a worldwide thinking that most

Corporates would go under, hence the parent had a strategy to exit the Corporate market

and focus on the Consumer/Retail market. This is because the personal sector is well

diversified with the risk spread over very many customers as opposed to the corporate

market. Pricing on the personal sector is higher with no major queries on the interest rate

that the bank charges. In this case the Bank makes more money in the short run which

with lower level of risk when compared to the corporate segment. With an average of 300

corporate customers borrowing Kes 43bn compared to about 200,000 personal customers

borrowing over Kes 63bn, this makes the personal sector more attractive.

The Country Treasurer said, “to a certain extent, the Risk Management policies do not

support growth of the business. For example, while they agriculture and real estates are

key growth sectors in Kenya, this is not the case in Europe hence the subsidiary is limited

in what it can do in this areas. The sharing of best practice across the group companies

has also significantly contributed to improved performance of the subsidiaries”

4.4.2 Parent Company Control of the Strategic Choice

The study also sought to find the extent to which parent company control the strategic

choice of Barclays Bank of Kenya and whether it has any leeway on this. The Chief

Operating Officer was of the view that the subsidiary would have leeway in certain areas,

although the parent has the final say. Certain areas, e.g. Risk Management and

Compliance are driven by the parent for closer control and for strategic reasons. For

31
example from a regulatory perspective where the Bank of England, the Financial Services

Authority and the Federal Reserve Bank crafts policies that must be adhered to by

Multinationals. On the Information Technology platform that the subsidiary would use,

again it had little leeway on this. Whereas the subsidiary may want to adopt a platform

that would suit the local market, the parent may want all the subsidiaries to use an

Information Technology platform that would be used across the global network.

The parent company controls the strategic choice of the local subsidiary to a very large

extent. However the local subsidiary may have leeway in two areas. The global strategy

may in certain cases be required to be aligned to local environment especially from a

regulatory perspective. In such cases the subsidiary must follow strategies that have been

recommended by the local regulator, i.e. the Central Bank of Kenya who in many cases

tries to impress upon the independence of the subsidiary from the parent company. The

subsidiary may need to customize parent company’s strategy to fit the local market. This

is because the operating environments of the parent and subsidiary are usually different

so it may need to adopt a strategy that fits the local market. For example while the

products recommended by the parent company may be similar, the features of the local

product may be different in the sense that they will need to suit the local target market.

While largely following the parents overall strategy, the subsidiary has to also take care

of the interests of other stakeholders in the local market, which is followed through by the

local board and in some cases may not agree with the parent’s global strategy.

In as far as Credit policy is concerned, the subsidiary may to a minimal extent be allowed

32
to localize some of these to suit their environment. Though again to a very large extent,

the parent will prescribe which areas should be targeted by the subsidiary. The Chief

Financial Officer said, ‘’transactions done on an arms lengths basis strengthen the

performance of the subsidiary because the subsidiary has the leeway to adopt a strategic

choice that would fit its goals’’. The Country Treasurer agreed that to a very large extent

that parent for instance would determine the Information Technology platform to be used.

This may not even meet the local specifications. In regards to target market, the group

again to a very large extent would determine which market the subsidiary will target.

However, as for the retail market, the group would prefer to target salaried customers and

to a controlled extent the Small and Medium Enterprises sector. The parent company

therefore has significant say in what the subsidiary can or cannot do.

The strategy is generally proposed by the parent company and discussed between the

parent and subsidiary. The parent almost always decides the strategy to be followed by

the subsidiary. The level of accountability to the board is high hence the parent would

almost always want to control the strategic inclination of the subsidiary. Barclays Bank of

Kenya sometimes has leeway in regards to choice of the Risk Management Strategies that

it has adopted as long as they can demonstrate they are reasonable while in other areas it

is limited but certain aspects can be localized to fit the needs of the environment.

The Acting Consumer Banking director agreed to a very great extent that the subsidiary

has limited influence on what it can do without the input of the parent. For example, the

Small and Medium Enterprises sector has been on top of the subsidiaries priority but the

33
parent company has been shunning this area. The mortgage and the Islamic Banking

products are examples of the view of the parent company which is reluctant to enter into

this market. However the subsidiary needed to justify why it is important for the growth

of the business. In conclusion, the parent company would always have a say on the

strategic choice of the subsidiary which usually has limited options on what it can do.

4.4.3 Arms Length Relationship with the Performance of the Subsidiary

The study also sought to find out whether the respondents would say a more arms length

relationship enhances or diminishes performance of the subsidiary and how would this

be. This was to establish if the parent is not closely involved in the crafting strategies for

the subsidiary and lets it chart its own strategy, whether that would result in an better

performance for the subsidiary.

The Chief Operating Officer was of the view that this would be dependent on a number

of factors. He said, “in some cases there are benefits, while in others there are

disadvantages. Staff development is a clear benefit. Many of the senior managers have

had working experience in different parts of the parents’ subsidiaries worldwide. In

addition, the relationship enhances the ability to undertake structured deals from a global

perspective and the ability to cross sell through offshore product capabilities with the

leverage on capabilities and sharing of best practice across the subsidiaries”.

The Acting Consumer Banking Director agreed that to a great extent, this enhances the

performance of the subsidiary. This is because strong ties are created across the group

34
and best practice shared through the subsidiaries. He said, ‘’Functional reporting where

Function/Product heads closely monitor the subsidiaries performance creates more

traction to ensure the target goals are achieved. This will enhance performance of the

subsidiary as there will be few conditions imposed on the subsidiary since it will have

leeway to craft a strategy fit for its operations in the local market, e.g. the subsidiary will

have leeway to tap into the fast growing real estate and agricultures sectors which are not

a priority to the parent. Transactions done on an arms lengths basis strengthens the

performance of the subsidiary because the subsidiary has the leeway to adopt a strategic

choice that would fit its goals’’.

The Country Treasurer was of the view that if handled/coordinated well, a more arms

length relationship approach can work to the benefit of the subsidiary, through a proper

and flexible control framework. He said, ‘’Global expertise can be tapped into for the

benefit of all the subsidiaries and by extension the Headquarters. This can be through

technical support, product development and use of capital. In addition, it may diminish

the performance of the subsidiary because in some cases it does not understand the

dynamics and what drives the local economies. It should avoid the kind of approach

where one size fits all. For example agriculture is the backbone of Kenya yet the

subsidiary does not have any products in this sector due to the fact that the parent

company is risk averse to this sector’’.

35
4.4.4 Effects of the Relationship between the Parent and the Subsidiary

The study sought to find out what concerns and benefits would the respondents say are

important in regards to the interface between the parent and the subsidiary The Chief

Operating Officer mentioned that his concerns included slow to support introduction of

new products into the market. The process is generally lengthy and bureaucratic, payment

of Head Office support costs/recharges which have an impact on the overall performance

of the subsidiary as well as implementation and compliance to global compliance

requirements which are stringent and not a key focus for the local companies. In terms of

benefits, he suggested that the subsidiary can leverage on the products in other parts of

the parents subsidiaries around the globe. Transfer of skills across the globe as well as

support from the parent around capital resources to venture into new areas was clearly a

benefit to the subsidiary.

The Acting Consumer Banking Director’s concerns included Head Office costs/recharges

and how these are calculated for the support offered by the parent company. This was not

clear and reduced the subsidiary’s profits. In addition, tight Compliance requirements in

line with the Bank of England and Financial Services Authority deterred the subsidiary

from serving customers much faster because of the long and arduous vetting process of

customers and their transactions. The benefits on the other hand were to allow sharing of

best practice across the subsidiaries within the group, tighter regulation which prevents

the likelihood of fraudulent transactions going through, attractive brand which has been

the cornerstone of the growth of the business as well as international bank which attracts

cheaper deposits hence lowers cost of funds increasing profitability.

36
The concerns of the Chief Finance Officer included parent strategies which hinder

exploitation of opportunities in the local market. He said, ‘’Opportunities unique in a

local subsidiary e.g. oil and gas industry is a growth area but the parent is reserved in

targeting this market as well as dual reporting lines in country and to the group which

sometimes creates a disconnect between the subsidiaries and the parent. As for the

benefits he said, ‘’ Leveraging on the strength of the parent to provide advanced/global

products, sharing of best practice and People development was a big benefit to the

subsidiary’’. The Country Treasurer’s concerns were the one size fits all policies. He

said, ‘’The global business policies have an inclination to the parent company’s country

which rarely allows the subsidiary room to localize some of the products and services and

tap into growth potential sectors, e.g. the SME sector. The parent should allow the

subsidiary room to venture into key growth sectors of this country’’. He also felt that the

parent company underestimated the capabilities of the subsidiary by creating stringent

controls that inhibit business growth and hence profitability of the subsidiary.

And for the benefits he suggested that the subsidiary is always ahead of the industry in

terms of compliance to international regulatory requirements, for example, in money

laundering. Whilst the Barclays Bank of Kenya has already adopted the international

money laundering policy requirements, many local banks are yet to comply with this.

This places the subsidiary ahead of the competition and thus would avoid any penalties

from the Financial Services Authority. The other benefit is availability of extensive

capital and human resources which support the subsidiary as well as talent growth as

37
employees have opportunities to work in subsidiaries within the parent’s subsidiaries

globally. This enables them build on their skills and capability.

Close control by the parent company sometimes make the local subsidiary uncompetitive

because they have little leeway to do certain things in terms of the products they would

want to introduce into the market. This is an area where local banks have an advantage

over a subsidiary as they key decisions are made locally. Bureaucracy and long decision

making because of referrals to the parent company. Before any product is introduced, the

local subsidiary must refer to the parent company for approval.

Misalignment of the parents and subsidiaries goals and objectives works to the

disadvantage of the subsidiary. Because of many layers of management, the subsidiary

may be negatively impacted by the bureaucracy of the organization. Where requests for

funding are only discussed through committees delaying response to customers. The

parent in very many cases may not have a good understanding of the local market hence

preventing the subsidiary from exploiting available opportunities.

A key benefit of the relationship between the parent and subsidiary is taking advantage of

the global shared services. Efficiencies are enhanced than when operating on a standalone

basis. The subsidiary is able to leverage on technology within the parents company ambit.

The strong Barclays Brand which has contributed to the strong performance over many

years is also a key benefit to the local subsidiary which the parent company has played a

great role in enhancing the brand profile and image.

38
4.4.5 Corporate Parent Strategy-Subsidiary Interface and the

Subsidiary Competitive Edge

The study also sought to find out in comparison to the local banks, whether the

respondents would say that the interface between Barclays Bank of Kenya and the parent

company gives the subsidiary a competitive edge. The Chief Operating Officer was of the

view that the strong global brand provides a competitive edge, given the ability to

leverage on offshore products and services, Global expertise in international products and

sharing of best practice through many subsidiaries is also key. However, there is a

downside to this in the following areas, International Compliance issues which the local

subsidiary must adhere to, and local banks do not strictly follow this. This slows down

the penetration and recruitment of new customers. Turnaround times are lengthy given

the bureaucratic processes as the parent company may not have a good understanding of

the local market.

The Acting Consumer Banking Director was of the view that the strong brand contributed

to a competitive edge of the subsidiary. The ability to fall back to Group resources, that is

human and capital should the need arise was also critical. However in some cases it made

the subsidiary uncompetitive because of the bureaucratic nature of obtaining approvals

for its strategic choice. This lengthened the time taken in launching of any new products

to the market.

The Chief Finance Officer agreed to a great extent that the parent customer can also

39
become the local subsidiaries customer. However, the bureaucracy in the approval

process of any new target products would have a negative impact on the speed to

introduce a new product into the market.

For the Country Treasurer, his view was that local banks have policies that are in tandem

with the local environment thus providing a competitive advantage. However being part

of a Global bank enhanced the skills of the staff through training opportunities within the

country and internationally. Further clear risk identification and mitigation policies which

reduce on risk of losses that face the bank is a key benefit of being part of a global bank.

These same sentiments were shared by the Human Resources Director and the Corporate

Banking Director.

The Corporate Banking Director was of the view that being part of a multinational had

many benefits which created a competitive advantage for the subsidiary. Such examples

include offering Global products and solutions which are quickly delivered when

compared to local competition. Given the international network, the subsidiary has the

ability of serving customers who want to either export or import products worldwide as

they have representations in all continents, something many of the local banks do not

have.

4.5 Discussion

The relationships between parent and subsidiary firms are widely seen as dependent.

Subsidiary companies, which tend to be exclusive parts suppliers for parent firms, depend

40
largely on their parents for business and survival. The parent-subsidiary relationships,

therefore, tend to be hierarchical. Parent firms usually have overwhelming bargaining

powers over their subsidiaries. In fact, it has even been claimed that subsidiaries tend to

sacrifice their own profits to help their parent firms become profitable during periods of

economic downturns (Sasaki, 1981). However, these studies have empirically examined

the parent-subsidiary relationships. It has investigated these relationships by comparing

strategies and performance of parent and subsidiary corporations, using financial

statement data.

The findings of this research conform to the theory around the relationship between

parent and subsidiaries companies. In this case, it is clear that the subsidiary has very

little leeway in what strategy it can follow. Because of the parental control on

subsidiaries, they can do very little outside the global strategy that has been set by the

parent company. And to a very large extent the subsidiary is largely dependent on the

direction it is given by the parent company with very little leeway on any alternative

strategy it may want to take.

Corporate-Parent subsidiary relationship and the choice of the subsidiary strategy where

it empirically reviews multinational corporation’s strategic orientation and choice of

subsidiary strategy. competitiveness can be influenced by subsidiaries of foreign firms

operating within the country instead of focusing on the firms headquartered within a

nation. Because of the dramatic rise in the number of foreign subsidiaries as well as the

scope of their operations, these subsidiaries have a substantial impact on the economies in

which they operate.

41
 CHAPTER FIVE: SUMMARY, CONCLUSION AND
RECOMMENDATIONS
5.1 Introduction

In this chapter we present the summary of the findings and give conclusion to the study

as well as the recommendation. The chapter gives further suggestion to other studies.

This study was set out to establish two objectives: The relationship between a parent and

its subsidiary and how this impacts on the strategy of the local subsidiary in this case,

Barclays Bank Plc and Barclays Bank of Kenya.

5.2 Summary of Findings

The study found out that in this research study, the parent company has a large influence

on what the subsidiary company can do or not do. The study established that whilst there

are disadvantages of being closely controlled by a parent company, there are also many

benefits which come with being associated with a multinational company. For example,

Barclays Bank of Kenya being a global bank has the ability to leverage on the global

products on offer. Such products may not be easily accessible to the local competition

thus allowing it a competitive edge.

Another finding and from a global operations perspective, there were advantages that the

subsidiary benefited from. Such include the ability to introduce international practices

which made the subsidiary compliant to international requirements. For example, in the

case of money laundering which is becoming a global issue, Barclays Bank of Kenya has

already adopted international practices which place it ahead of the competition thus

42
avoiding sanctions from the Financial Services Authority. Many local banks are yet to

adhere to this and with time, may not be able to trade internationally if they have not

complied.

On the strategy front, the study established that the parent company always comes up

with a global strategy which it then shares with its subsidiaries. It is the expectation of the

parent company that the subsidiary will adopt the strategy as prescribed. This thus makes

it difficult for the subsidiary to be competitive in the local market as in some cases they

may not venture into a lucrative which the competitions can easily get into and fully

exploit.

5.3 Conclusion

The study reveals that the Corporate-Parent subsidiary relationship and the choice of the

subsidiary strategy at Barclays Bank of Kenya Ltd has an effect on the strategy of the

subsidiary. Given the majority shareholding in the subsidiary, the parent will almost

always have a say in the strategy the subsidiary can pursue.

This sometimes may work to the advantage of the subsidiary and in some cases to its

disadvantage. However from a holistic perspective, the benefits of the relationship far

outweigh the disadvantages that the subsidiary is faced with. Examples of these benefits

would include, a strong brand, global expertise, highly skilled staffs have a good

understanding of global businesses, ability to tap into and trade with many businesses

across the globe amongst many others.

43
In conclusion, while the subsidiary has little say in crafting of the strategy, it stands to

benefit from the parent given its global view of all the areas it operates in.

5.4 Recommendation for Policy and Practice

The study acknowledges that the parent plays a key role in influencing the performance

of the subsidiary. The study finds there is a need by the parent company to allow the

subsidiary leeway to localize some of the strategic options. Especially in areas which may

be doing well locally but internationally stagnating. An example is in the Real Estate and

Agricultural sectors in Kenya. While this is a growth area locally, the sector has been

facing serious challenges in the Western World. Due to this, the parent is reluctant for the

subsidiary to venture into this sector aggressively as it is perceived to be a high risk

sector. From a policy perspective, this study would recommend that subject to

justification and viability of the sectors the parent is not keen on, the subsidiary should be

allowed to strategically enter into these markets as the parent company stands to benefit

at the end of the day.

5.5 Limitations of the Study

The main limitation of the study is that the research was conducted on only one

organization. The study focused on Barclays Bank Plc and Barclays Bank of Kenya Ltd.

The findings are then generalized to all multinationals. The study should have covered a

number of multinational banks to come up with a conclusion which would have given

more credence to these findings.

44
The current research is limited due to the number of respondents involved in the survey.

In this case although they were senior members of staff of the country management

committee, they only came from one organization.

5.6 Suggestions for Further Studies

Future research is recommended to include more respondents across several multinational

banks and countries. This will aid in coming up with a more conclusive finding in

establishing whether there are common themes in the relationship between parent and

their subsidiaries and how this impacts on the strategic choice of the subsidiary.

45
 References

Adler, N. J. (1996). International Dimensions of Organizational Behavior.Cincinnati,

Ohio: South-Western College Publisher.

Bartlett, C, and Ghoshal, S. (2001). Managing across borders: The transnational

solution. Harvard Business School Press, Boston, Massachusetts.

Birkinshaw, J, Holm, Thilenius, P. (2000). Consequences of perception gaps in the

headquarters-subsidiary relationship, International Business Review, 9 (3), 321-

344.

Birkinshaw, J, Hood, N, Jonsson, S. (2005). Building firm-specific advantages in

multinational corporations: The role of subsidiary initiative, Strategic

Management Journal, 19 (3), 221-241.

Cantwell, J.A., R. Mudambi. (2005). MNE competence-creating subsidiary mandates.

Strategic Management J. 26 (12) 1109-1128.

Caves, R.E., (1974). Multinational firms, competition, and productivity in host country

markets. Economica 41, 176–193.

Chandler, A.D (1962). Strategy and Structure: Chapters in the history of industrial

enterprise. MIT Press, Cambridge MA.

Delany, E. (2000). Strategic development of the multinational subsidiary through

subsidiary initiative-taking, Long Range Planning, 33 (2), 220-244.

DiMaggio, P., W. Powell. 1983. “The Iron Cage Revisited: Institutional Isomorphism and

Collective Rationality in Organizational Fields.” American Sociological Review

48: pp. 147-160.

46
Dyer, J. H., Kale, P., & Singh, H. (1998). How to Make Strategic Alliances Work. Sloan

Management Review, 42(4): 37-43.

Fayerweather, J., (1978). International business strategy administration. Ballinger

Publishing, Cambridge, MA.

Foss, N.J., T. Pedersen. 2002. Transferring knowledge in MNCs: the role of sources of

subsidiary knowledge and organization context. J. of Internat. Management 8 49-

67.

Gammelgaard, J., U. Holm, T. Pedersen. 2004. The dilemmas of MNC subsidiary

knowledge transfer. V. Mahnke, T. Pedersen, eds. Knowledge flows, governance

and the multinational enterprise Palgrave Macmillan, New York.

Ghoshal, S, and Bartlett, C. (2000).The multinational corporation as an

interorganizational network", Academy of Management Journal, 15 (4), pp. 603-

625.

Ghoshal, S, and Westney, E. (2003).Organization theory and the multinational

corporation. The Macmillan Press Ltd: London

Ghoshal, S. and E. Westney (1993) “Introduction and overview.” In Ghoshal and

Westney (ed) Organization Theory and the Multinational Corporation St. Martin’s

Press, (NY, New York), 1-23.

Ghoshal, S., H. Korine, G. Szulanski. 1994. Interunit communication in multinational

corporations. Management Sci. 40 (1) 96-110.

Gong, Y. (2003). Subsidiary staffing in multinational enterprises: Agency, resources, and

performance. Academy of Management Journal, 46: 728-739.

47
Gupta, A. K., Govindarajan, V., Malhotra, A. (1999). Feedback-seeking behavior within

multinational corporations. Strategic Management Journal, 20: 205-222.

Hannan, MT, and Freeman, J. (2004). The population ecology of organizations, American

Journal of Sociology, 82 (5), pp. 929-964.

Jarillo, C, and Martínez, J. (2000). Different roles for subsidiaries: The case of

multinational corporations in Spain, Strategic Management Journal, 11 (7), pp.

501-512.

Johanson, J. and Vahlne, J. (2003), The Internationalization Process of the Firm: A

Model of Knowledge Development and Increasing Foreign Market Commitments,

Journal of International Business Studies, 8, pp. 23-32.

Kobrin, S.J., (1976). The environmental determinants of foreign direct manufacturing

investment: an ex post empirical,analysis. J Int Bus Studies 7 (2), 29–43.

Kostova, T, and Roth, K. (2002). Adoption of an organizational practice by subsidiaries

of multinational corporations: Institutional and relational effects, Academy of

Management Journal, 45 (1), pp. 215-233.

Lei, D., Hitt, M.A., & Bettis, R. (1996). Dynamic Core Competencies Through Meta-

Learning and Strategic Context. Journal of Management, 22(4): 549–569.

Mugenda, O.M & Mugenda, A.G (2003) Research Methods, Quantitative and Qualitative

Approaches, Acts Press, Nairobi.

Nachmias, V.F. &Nachmias, D. (1996) Research Methods in the Social Sciences, 5th

Nairobi Journal of Management Role, 1st July Pitman publishing 2nd edition

Nohria, N, and Ghoshal, S. (2001). The differentiated network: Organizing multinational

corporations for value creation. Jossey-Bass Publishers, San Francisco, CA.

48
Norman, C. 1988. “Some New Approaches to Evolutionary Economics.”Journal of

Economic Issues 22(2): pp. 511-531.

Pettigrew, A. M. 1979. On studying organizational cultures. Administrative Science

Quarterly, 24: 570-581

Prahalad, C .K .and Doz. Y. L. (2007) The Multinational Mission. New York: The Free

Press.

Prahalad, CK, and Doz, YL. (1987). The multinational mission: Balancing local demands

and global vision. The Free Press, New York.

Shah, P. 1998. “Who Are Employees’ Social Referents? Using a Network Perspective to

Determine Referent Others.”Academy of Management Journal 41(3): pp. 249-

268.

Simon, H. 1957. Administrative Behavior, 2nd edn. New York: MacMillan

Taggart, JH. (2004). Subsidiary strategy: Concepts, empirical evidence, and policy

implications, International Business Journal, 8 (2), pp. 121-124.

Van de Ven and Drazin, R. (1985). Alternative forms of fit in contingency theory;

Administrative Science Quarterly 30: 514-539.

49
 Appendix 1: Interview Guide

1. How long have you been working in your present capacity?

2. Based on your experience, how will you rate the company’s performance?

3. Is the performance related to parent headquarter? If yes how?

4. To what extent does the parent MNC controls strategic choice of the local bank?

5. How do you rate the control of parent headquarters to the daily operation of the

bank?

6. What is influence of parent- subsidiary relationship on the strategy of the

subsidiary at Barclays bank of Kenya?

7. Does a More Arms-length Relationship Enhance or Diminish Reallocation in the

Multinational Network?

8. According to your experience give recommendation to influence of parent-

subsidiary relationship on the strategy of the subsidiary at Barclays bank of

Kenya.

50