International Business Strategy

Lectorial 7
The Implementation Strategic
Processes At:
Headquarter and Subsidiaries
Levels
 Ice- breaker
 Look at Slide 3 and then
imagine you have just
been appointed Chief
Executive Officer of a
large Multinational
Company which one of
the 4 organisational
structures on the next
slide would adopt for
your organisation? Why?
 MNEs: Motives, Strategies and Organizational
Configurations (Bartlett & Beamish Ch 4)

Decentralized
Centralized Hub Federation
(Japan, 1970s) (Europe, 1930s)
Competitive Resource seeking motives
positioning motives Multinational strategy
Global strategy Integrated Network
(worldwide, 1990s onwards)
Global scanning motives
Transnational strategy Coordinated
Federation
(USA, 1950s)
Market seeking motives
International strategy
 This Week’s Objectives
After the lecture, seminar and linked readings and reflection, to
 Critically explain the key concepts from this lecture such as:
 Integration and responsiveness

 Contingency and configuration

 Identify and critically explain the key variables that distinguish

different types of organisational structure (see slide 3);
 Compare and contrast the roles of headquarters and subsidiaries
and how they add, extract or destroy value.

 Critically evaluate the fit between strategy, structure and external

environmental pressures for a specific MNE in practice
 Appreciate the challenges of managing and sustaining
competitive advantage in MNE
Implementing and sustaining
strategy in an MNE
 Regardless as to how a MNE is structured/ organised ,
a key role of the HQ is to coordinate and oversee
strategy implementation in foreign subsidiaries.
 However the way an MNE’s organises its foreign operations
will vary depending on what it hopes to achieve
 Examples of how MNEs are organised:
 Around different Products – Samsung

 According to Geographic Markets- McDonalds

 Around Vertical stages – Royal Dutch Shell

 A key strategic question is how the HQ/ Corporate

Parent can add and extract value from its foreign
subsidiaries?
 This is where strategic implementation and sustainability
become important
 The Role of Corporate
Management

 A key assumption at the corporate level

(HQ) is that, ‘the benefits from extending
the scope of the firm should exceed the
administrative costs of a larger more
complex corporate entity. This implies
that the formulation and implementation
of corporate strategy are inseparable
(Grant, 2019 p.316).
 How MNEs Add Value
 Multinational Enterprise (MNEs) create
value through a number of activities such
as:
 Managing the corporate portfolio
 Managing linkages/ exploiting synergies
 Managing individual businesses esp in the
early development stages
 Managing changing in the multi subsidiary
Managing Corporate Portfolio:
An Example
 BH’s Portfolio of
businesses
-consists of 65 subsidiaries
in some of the industries
shown in the diagram.
-has 25 employees and is
one of the largest firms in
the US
-Core strategy- targets
companies that possess a
“wide moat” (sustainable
competitive advantage).
-Value adding activities-
moves money from
underperforming to high
those with high potential
Managing the corporate portfolio:
the BCG growth-share matrix

9
 The Directional Policy Matrix
(DPM)

Source: https://kfknowledgebank.kaplan.co.uk/acca/chapter-7-methods-of-
strategic-development
Managing linkages/ exploiting
synergies across business units
 MNEs can create value from sharing
and transferring resources/ capabilities
across subsidiaries, and by avoiding
the transaction costs of markets
 MNEs can exploit synergies by:
 Centralising common services at the HQ
 Managing linkages between subsidiaries
 Managing diversity and inclusion
worldwide and learning from it(See what
https://youtu.be/J9pU1a-Xt_4)
 Corporate Management
Integration Mechanisms

Physically bringing resources

Centralization and activities together into one
organizational unit.

Orchestration of resources, activities

Coordination and/or product offerings split between
different business units.

Creating a common norm for

Standardization resources, activities and/or
product offerings across
business units.
 Synergy Killers
Inhibiting corporate strategy Lack of creativity

Infighting between the barons Climate of hostility

Culture of secrecy Information is given out reluctantly

Misaligned incentives Rewards depend on results own business

Excessive performance pressure Enforces defensive and inward-looking

behavior
Insulation from performance pressure The basic drive for self-interest

Domineering corporate staff Results in rejection of ideas

for improving linkages
Mistrust Undermines cooperation
 Adding/ destroying value by
HQ
As illustrated in
this model the
potential for a
HQ to add or
destroy value
depends both
on the
characteristic
of the MNE
and also those
of subsidiary.

Source: https://kfknowledgebank.kaplan.co.uk/acca/chapter-
7-methods-of-strategic-development
 How MNEs Extract Value from
Subsidiaries (Examples)
Type of Methods of extraction
value
extracted
Profits Dividends paid by subsidiaries to the HQ

Revenues Royalties for corporation’s trademarks use, overpay for supplies

(goods and services) from sister-subsidiaries or for services
provided by HQ
Equity and Purchase by a subsidiary minority stakes in the parent or in sister-
quasi-equity subsidiaries
Knowledge Unpaid transfer of know-hows to the parent or to sister-
subsidiaries, patenting valuable solutions outside the subsidiary
Talent Transfer of talents from a subsidiary to the headquarters or
relocation of talents to sister-subsidiaries
Capacities Transfer of equipment to sister-subsidiaries
 Typology of parenting styles
Adding value to a subsidiary
High
Type of Supportive style
relation
ship
Extracting The subsidiary constantly
value from demands and receives
additional resources from
a subsidiary Low
the corporation, no clear
return is demanded or even
expected from a subsidiary.
Type of Authoritative style
relationship
The corporation provides
High support and additional
resources to a subsidiary in
exchange to an
uninterrupted flow of profits
and other benefits from a
subsidiary to the
headquarters.
Low
Non-supportive
The subsidiary puts no
demands for additional
resources from the
corporation; the
corporation does not
expect return from a
subsidiary.
Exploitative style
The corporation
constantly squeezes
value from a subsidiary
depriving the subsidiary
from an access to the
pool of corporate
resources.
 Rationale behind parent-subsidiary exchange of value – the levels
of mutual dependency (Examples)
Type of Dependency of subsidiary on corporate
dependency parent
Legal Restriction on participation in a subsidiary’s
equity by other firms, control over large contract
Assets The use of a corporation’s trademarks and
patents, preferred access to financial markets),
worldwide pools of certified equipment suppliers,
contractors, advertising and recruitment
agencies, etc
Financial The share of current expenses and capital
expenditures of a subsidiary covered by the
corporation
Mental Corporate-wide mental models used as the
common background for situation assessment,
business planning, and decision-making
(mental monopolistic situation)
Informational The preferred access to corporate market
databases, pools of patents and technologies,
lists of suppliers and contractors, worldwide
industrial information networks
Dependency of corporate parent on
subsidiary
Reverse participation of a subsidiary in
parent’s equity, limitations on partnering
of a parent with its subsidiary’s
competitors
Inclusive non-transferrable rights of a subsidiary
for specific assets (mining rights, proprietary
technologies, governmental licenses for specific
types of activities, quality certificates, etc.)
share of free cash flow generated from a
subsidiary within the total free cash flow of
the corporation
Identification of alternative mental models
(both in terms of thinking and decision-
making) that are useful beyond the boundaries
of the host country (mental oligopolistic
situations)
Access to key decision-makers in the host
country and secret information about market or
economic conditions in the host country granted
only to host country's citizens
 Business Responsiveness
Major problems for Multi-business Firms
High governance costs Coordinating activities

Slower decision-making More layers of management

Strategy incongruence Misfit with business demand

Dysfunctional control Corporate centre misses

specific business know- how

Lack of autonomy has

Dulled incentives a negative impact on
motivation
. Overview of the Perspectives
Portfolio Organization vs. Integrated Organization
Corporate Management
Management Mechanisms

Control Cooperation

The power to enforce Achieving integration by

integration on the basis means of mutual adjustment
of formal authority between business units
 Determinants of organisational structure
 According to Mintzberg (1998) there are two approaches to
determining an firm’s organisational structure:
 -Contingency approach- a firm’s structure depends on factors such
as the nature of its business and strategy, its size, geographic
scope, its age and history, centralisation or decentralisation,
leadership style etc
 -Configuration approach- this approach to organisation structure
takes into account design parameters such as job specialisation (to
logically divide up the tasks of the organisation), behaviour
formalisation (standardization of work processes); training to
develop desired knowledge and skills; indocrination to develop
desired organisation norms and values; unit group such as
functional departments etc
 Caveat: both approaches have advantages and disadvantages re
there is no ideal organisational structure.
 Centralized Hub
Most key assets
Tight strategic and and resources
operational control are centralised
through centralised
decision making.
Goods flow from the
centre

HQ

Corporate
management
treats subsidiaries
as delivery
pipelines to the
global market

Bartlett and Beamish, 2011

 Decentralized Federation

Loose, personal Most assets

controls, and flow and resources
of resources are
decentralised

HQ

Corporate
management
treats subsidiaries
as delivery
pipelines to the
global market

Bartlett and Beamish, 2011

 Coordinated Federation
Many assets and
resources are
decentralised
but controlled at
the centre

HQ

Tight, formal systems-

Corporate based control. Knowledge
management treats flows: parent technology
subsidiaries as and expertise locally
foreign extensions adapted
of the domestic
operations

Bartlett and Beamish, 2011

 Integrated Network
Distributed,
Large flows of
specialised
components,
resources and
products, resources,
capabilities
people and
information among
interdependent units

HQ

Complex process
of coordination
and cooperation
in an
environment of
shared decision
making.

Bartlett and Beamish, 2011

 The paradox of control and
chaos
 Managers want to be in charge but employees want freedom. This
duality in what managers and employers want is often a source of
tension in organisations, though it is not viewed as an entirely
negative thing...in fact some degree of constructive disagreement is
encouraged, hence the paradox of control and chaos (De Wit & Meyer
2014: Ch 11)
 The paradox arising from the need to control (top-down imposition)
but also to delegate (bottom-up initiative) is an area of key strategic
tension within many organisations because of the conflicting demands
placed on the manager, and that are at times difficult to deliver
concurrently.
 Recurrent topic with no agreement between the different schools of
thought...however it is fair to say it is impossible for any manager to delegate or
control everything

Control Directive leadership style/

autocratic governance
system

Participative leadership Chaos

style /democratic
governance systems
 Organizational leadership Vs
Organizational dynamics
 The above diametrically opposed do call for leaders to
find ways of reconciling them, however most leaders
have their personal preferences.
It would be
bitter to have  Those who support the ‘organizational leadership perspective
control over
nothing...
(Kotter 1990) argue that it is the responsibility of the top
Herodotus management to ‘take charge of the organisation’ (De Wit and
Meyer, 2014). They believe organisations fail due to poor
leadership. (See Sir Richard Branson, Founder of Virgin | The Brave
Ones, Nelson Mandela: The man who changed the world,

 According to the organizational dynamics perspective the ‘top

manager is not like a jokey riding a thoroughbred horse but like a
cowboy herding mules (De Wit and Meyer, 2014). Those who
support this perspective suggest that the organisation are made of
many ‘stubborn individuals’ and leadership requires an element of
bottom –up negotiations .(Stacey 2007) PepsiCo CEO: I Write
Letters to Parents of My Executives
II. Control and Chaos
Dealing with the Paradox

Chaos
Control
(Initiative)
(Imposition) The level of authority given
The ability of managers to to the employees to do
shape their own future and things differently, weigh
that of their firm. situations, solve problems,
and take initiatives.
 When Leaders Listen to Followers,
Organizations can Learn – and Act
Intended Imposed
Strategy Strategy

Unrealised
Strategy Realised
strategy
Emergent Strategy

Note: Mintzberg’s ideas underpin the configuration approach

to organizational design: Stonehouse et al (2004: Ch 13)
 The Value of Emergence in MNEs
Kim and Mauborgne (1993), Making global strategies work
 Research on the motivation of subsidiaries’ top managers
 What motivates them to execute or to defy their companies’
global strategic decisions?
 Formal control mechanisms (pay, budgeting and financial reporting
systems) – less effective
 Easy to manipulate
 Symbols of subordination
 Due process (consultation, communication, consistent application
of company-wide rules) – very effective
 Builds understanding
 Uses talents
 Shows respect
We can link to UH Professor Ralph Stacey’s ideas:
Head Office (central leaders) can choose to acknowledge the
reality of local interactions, and engage openly with subsidiary
heads.
If they try to exert control, they may experience subversion and
sabotage
 Emergence and Configurations
 Not all existing MNEs are configured in ways that promote
learning – and empower subsidiary heads to deliver national
responsiveness (Bartlett and Ghoshal 1986)
 Many have top-down structures and attitudes reflecting a
range of administrative heritages
 In such cases it can be difficult for subsidiaries (local
managers) to display active agency e.g. to influence the
process of new product design (Saka-Helmhout and Geppert
2011)
 Bartlett and Ghoshal urge MNE headquarters managers to
move beyond structural fit: that is, a top-down contingency
approach designed to engineer the firm to suit a market-
driven strategic plan
 Chief executives should configure the firm’s unit groupings
and integrating devices to create a healthy organism within
which strategy continuously emerges through a flexible
integrative process, balancing the many paradoxes of
management (Bartlett and Beamish 2011: Ch 4)
 Frynas & Mellahi (2011: Ch 9):
A Contingency Approach

 Focuses on organizational structures

 Analyses these to explain how the firm
 organizes its resources and capabilities
into specific tasks
and
 achieves coordination among these tasks
 Key idea: the firm should achieve a fit
between strategy and structure
 business processes should be organised
in ways that support the business model
But Frynas and Mellahi Look
at Configurations Too... (p. 297)
Holding Company Structure
(Multi-domestic: Links to B&B’s
Decentralized Federation)
 Export Structure
(Links to B&B’s Co-ordinated Federation)
A ‘Network Structure’ supporting
a transnational strategy
 Network Structure
Subsidiaries: Develop
specialized resources
Sub C and capabilities
Sub B
Sub A

Sub D
MNE HQ:
Information
Centre Sub E

Sub F

Flows of components, products,

resources, people and information
Flows of people and information
supporting a complex process of
shared strategic decision making
 Under What Conditions do the
Various Configurations Emerge?
 Frynas & Mellahi (2015: Ch 7)
 Subsidiaries may play a ‘support and implementation’ role (in
the language of Saka-Helmhout and Geppert 2011,
displaying ‘passive agency’)
 OR they may be autonomous (especially in decisions about
the business model for a specific product or service; in the
language of Saka-Helmhout and Geppert 2011, displaying
‘active agency’)
 Autonomy is more appropriate when there are...
 High pressures for local responsiveness
 High environmental uncertainty
 Very specialised technologies and/or expertise in local
use, so that the subsidiary earns a ‘global product’
mandate (ibid, p. 221)
When Subsidiaries are Autonomous,
Certain Decisions May Still Belong at HQ
 Frynas & Mellahi (2015: Ch 8)
 Many MNEs are business groups headed by a
corporate parent company (ibid, pp. 240-242)
 Financial controls may be used to review and
compare the performance of all subsidiaries
 Decisions that must be made centrally include
 The mission, values and overall strategic direction of the
group
 The scale and scope of business activities engaged in
(emerging MNEs tend to be more diversified than
established MNEs: ibid, pp. 255-256)
 The extent of offshoring and outsourcing
 The ways in which co-ordination and learning are
promoted within the group
 Implementing MNE strategic
from 2020 Onwards
 The world has changed since 2019.
 Do have a look at these two articles so
you can bring your thinking to the Covid
19 period and related strategic
response by governments and MNEs
 Sharma, B (2021) Covid-19 and recalibration of FDI regimes:
convergence or divergence?, Transnational Corporations
Review, 13:1, 62-73, DOI: 10.1080/19186444.2021.1890433
 Wenzel, Stanske, & Lieberman (2020) Strategic responses to
crisis. Available at
https://www.researchgate.net/publication/340380717_Strategic
_responses_to_crisis