Content area
Full text
Carl A. Rodrigues: Associate Professor of Management, Department of Management, School of Business Administration, Montclair State University, Upper Montclair, New Jersey, USA.
When businesses establish operating subsidiaries in foreign countries, their headquarters (HQ) managers must establish an effective headquarters - foreign subsidiary control relationship (HSR). Traditional management thinking puts forth that a relationship may be one of centralization, where HQ managers do not give much autonomy to the subsidiary managers, and they make most important decisions which affect local operations. For example, AT&T employs approximately 54,000 workers in foreign countries, of which about half are in AT&T's traditional lines of equipment and communication services and the rest its NCR computer unit. Virtually all major decisions are made in the USA, requiring foreign proposals to weave their way up through myriad departments before getting approval[1 ]. Or it may be one of decentralization, where the subsidiary managers are given a great deal of autonomy and they make most important decisions relating to local operations. For instance, in its fiscal year ending March 1994, Japan's Matsushita realized nearly 50 percent of its US$64.3 billion in sales in overseas markets, and its foreign factories supplied two-thirds of the goods sold abroad. Matsushita lets its plants set their own rules, fine-tuning manufacturing[ 2].
A contemporary idea on HSRs has been discussed by business professors Sumantra Ghoshal and Nitin Nohria, from INSEAD, France and Harvard Business School respectively. They described the relationships in terms of three basic headquarters-subsidiary governance mechanisms: centralization, formalization, and normative integration[ 3]. According to them, centralization concerns the role of formal authority and hierarchical mechanisms in the company's decision-making processes, formalization represents decision making through bureaucratic mechanisms such as formal systems, established rules, and prescribed procedures, and normative integration relies neither on direct HQ involvement nor on impersonal rules but on the socialization of managers into a set of shared goals, values, and beliefs that then shape their perspectives and behavior[3].
Which relationship should HQ adopt? This article presents three frameworks that identify factors which help determine the right HSR. Basically, the first framework posits that national cultural dimensions impact the HSR, the second proposes that certain situational factors influence the HSR in all countries, and the third framework establishes ways to attain a balance...