HQ Involvement with Its Subsidiaries: Too Much of a Good Thing?

Multinational businesses expand their operations worldwide by establishing subsidiaries abroad. Given that a subsidiary is an asset of the multinational company and serves the economic aims of the business headquarters (HQ), HQ-subsidiary interdependence and a continuous relationship seem to be unavoidable. The degree of interdependence naturally differs with the degrees of freedom granted to the subsidiary, the degrees of centralization and formalization of different functions, the degrees of localization and so on. Yet, in any case, it is clear that the HQ-subsidiary relationship, and more specifically headquarter involvement and attention towards its subsidiaries, is needed for the exchange of information and resources, brand support, and alignment of goals, values and strategies.

Reflecting the inverted U-shaped model of the relationship between HQ attention to subsidiary and business performance (Bouquet et al., 2009), a quick browse through the topic of HQ-subsidiary dynamics reveals two main directions: there is either too little or too much attention from headquarters. The issue of too little attention is familiar to many subsidiary managers operating in markets that are less strategically important for HQ. On the other hand, although attention is generally seen as an asset, especially when it is lacking, it can also hamper subsidiary performance. An overkill of attention, or so-called ‘hyper-attention’, happens mostly in the ‘hot markets’.

Drawing on their research, Cyril Bouquet, Jean-Louis Barsoux and Orly Levy highlight some of the perils of attention in their recent MIT Sloan Management Review article. As the authors concluded based on 55 interviews with subsidiary managers in China, only about a quarter of the managers were broadly satisfied with the quantity and quality of HQ attention, while the majority complained about the issue.

First of all, subsidiary managers were unhappy with the number of visits from their headquarters managers. Each visit from headquarters executives requires extensive preparation, as subsidiary managers are usually expected to submit business reviews, hold several meetings and organize field visits. Moreover, given that headquarters executives visit usually for several days, or even stay over weekends, locals are also responsible for entertaining and taking care of them, be it dinners after work, or city sightseeing tours on the weekends.

Secondly, subsidiary managers are also criticizing the increased workload after the visits from HQ. Bouquet and colleagues concluded that subsidiary managers are required to do a lot of follow-up tasks after such visits, while also feeling that the flow of information is working only one-way. In other words, subsidiary managers often get the feeling that HQ representatives come to get the information they are interested in and leave asking for more information they are interested in, without being open for the questions from and reciprocal dialogue with local staff.

Finally, the time and workload issues highlighted above become even more critical in the light of perceived lack of understanding and realism of headquarters executives. Instead of coming ‘to help’, ‘discuss and exchange ideas’ or ‘cooperate’, subsidiaries perceive that headquarters managers are coming with the aim ‘to fix’. When one tries ‘to fix’ something one is usually in the role of a competent professional, who knows what to do and does not need any involvement from others. Hence the justified question: are headquarters managers competent professionals in the foreign market? Probably not, which is what many subsidiary employees feel, as HQ staff lack a detailed understanding of the local market, often have wrong perceptions of reality, and often come up with ideas that are ‘impractical and ill-suited to the subsidiary’s circumstances’.

Given the differences between headquarters and subsidiary perceptions, it is interesting to go back to Birkinshaw’s (2000) study that looked into these perception gaps. In contrast to the implicit assumption about converging perceptions between HQ and subsidiary managers, the researchers stated that the differences in perceptions are actually natural phenomena, rather than a rare and unexpected occasion. Indeed, based on differences in experiences, world-views, situational circumstances etc., the differences in perceptions are only normal. Looking more specifically into the differences in subsidiary role perceptions (‘the extent to which subsidiary managers overestimate the strategic role of their subsidiary vis-à-vis HQ managers’), the researchers concluded that perception gaps do create problems in the HQ-subsidiary relationship. The study found that subsidiary role overestimation leads to more control from the HQ side, which in turn leads to a lower level of cooperation between HQ and subsidiary.

Generally, I would suggest that the gaps in perceptions and lack of alignment in terms of roles, expectations and aims between HQ and subsidiaries underlie most of the remaining critical issues, including general under- or over-involvement from HQ. In essence, I believe that if headquarters and subsidiary managers would share the same goals in terms of visits and contact more broadly, and similarly understand the need of follow-up reporting and communication, the working time and workload topics could be managed better and would be less acute. Open dialogue and cooperative communication (ideally on both sides) are something to start from to create this common understanding and eliminate perception gaps. Common understanding and mutual acceptance of roles, goals and expectations would, in turn, support further development of open dialogue and help to establish the right amount of headquarters involvement that suits both parties.

 

Further reading:

Birkinshaw, J. (2000). Consequences of perception gaps in the headquarters–subsidiary relationship. International Business Review, 9, 3, 321-344.

Bouquet, C., Morrison, A., & Birkinshaw, J. (2009). International attention and multinational enterprise performance. Journal of International Business Studies, 40, 1, 108-131.