Headquarters Versus Local Overseas Offices - Worlds Apart?

Here are some comments I have heard over the years from executives sitting in regional or headquarters locations about local managers in their subsidiaries:

·       They don’t seem to want anything to do with Corporate.

·       Why can’t they trust us?

·       Don’t they see that they have to follow corporate rules and that they are part of a bigger company?

·       Why do they think their problems are so unique?

At the same time, here are some comments I have heard from these local managers:

·       Doesn’t Corporate understand that you just can’t have a cookie-cutter, one-size-fits-all approach?

·       We understand the local markets much better than they do!

·       These corporate initiatives will not always work in every market.

·       Corporate always wants to have control; they don’t want us to be independent and think for ourselves.

And then there is that recent study of over 1000 Asia-based executives in various industries, organizations, and functions by the Corporate Executive Board and Russell Reynolds (as reported in the April 2015 issue of Harvard Business Review). The following are three of several statements with which these executives were asked to agree or disagree:

·       Headquarters understands the realities of doing business in Asia.

·       Headquarters makes decisions aligned with the regional context.

·       Headquarters consults local leaders before setting regional strategy.

In all three statements, the percentages of executives agreeing to this statement were in the low teens to twenties, regardless of whether these Asia-based leaders were in the local organization or whether they were in headquarters. The specific percentages were 12, 14, and 14 respectively for the local Asia-based leaders and 20, 21, and 28 for the Asia-based leaders in headquarters.

These different points of view between HQs and local executives suggest not only some gaps in understanding each other, but potential missed opportunities. For example, subsidiaries might not be taking advantage of resources and expertise from HQs or from other markets that might help them improve their subsidiary performance as well as fight competition in their markets. HQs might be missing opportunities to learn about local practices that might be fruitful to implement in other markets.

In my experience, the tension between headquarters and local offices seems to be getting bigger, especially as global companies continue to “globalize” some of their functions, such as Supply Chain, Finance, Marketing and HR. Furthermore, when subsidiaries do take initiative, as Birkinshaw et al. (1998) point out: “… initiative is often seen by parent managers as subversive, that is, evidence of subsidiary managers acting in their own or their country’s interests rather than in the interests of the MNC as a whole.” (p. 235)

I was recently in Singapore to teach a class, and my students (most of whom were executives of large global companies heading their subsidiary or region) echoed most of what I heav been hearing over the years about the perceived lack of understanding or flexibility from Headquarters.

We all know that it is in the nature of organizations to create divisions of labor and specialization for the purpose of clarifying roles and responsibilities and improving efficiencies. These days, organizations require functional experts and sophisticated organizational designs to adapt to complexities in the business environment. The unintended consequence of such differentiation, however, is the creation of separate identities and us-versus-them mindsets across the organization. We see Marketing and Sales at loggerheads at times, or Finance and HR, or R&D and Supply Chain. Some corporations have had pendulum swings from centralization to decentralization and vice versa. In one corporation that had traditionally allowed full autonomy in its subsidiaries as long as they delivered the results, the CEO was surprised to learn that country general managers had even gone so far as to change the look and feel of the company logo. This might have been a trivial matter for some, but the corporation was trying to establish a global brand image, and the inconsistency with which its brand name was being positioned in different countries did not help.

In his book about his transformation of IBM and its survival (Gerstner, 2002), former IBM CEO Lou Gerstner writes:

“One of the most surprising (and depressing) things I have learned about large organizations is the extent to which individual parts of an enterprise behave in an unsupportive and competitive way toward other parts of the organization. It is not isolated or aberrant behavior. It exists everywhere – in companies, universities, and certainly in governments. Individuals and departments (agencies, faculties, whatever they are called) jealously protect their prerogatives, their autonomy, and their turf.” (p. 249)

These structures and processes represent one set of factors that influences the nature of the relationship between headquarters and their subsidiaries and may account for the lack of mutual understanding of local and of corporate needs respectively. Geographical as well as cultural distance only exacerbates this. As functions have become globalized, defining what can be decided globally versus locally needs to be debated and clarified. For example, some years ago, one corporation decided to implement its business-casual dress policy worldwide. In its Tokyo headquarters, managers there simply ignored the corporate edict; in Tokyo’s business environment at that time, men and women tended to dress more formally and local managers considered it unthinkable to “dress down.”

More recently, rather than considering whether to “globalize” or not in general, many firms are making these determinations both as a whole (e.g., creating a global brand, establishing a global culture) as well as with specific value chain activities (e.g., establishing global relationships with a few advertising agencies, rather than having each subsidiary decide which advertising agency it wants to use). Rugman et al. (2011) have defined four such distinct value chain activity sets: innovation, production, sales and administrative.

Another set of factors has to do with the nature of the local environment as well as the nature of industry forces (Enright and Subramanian, 2007). This will influence whether the company adopts a one-size-fits-all approach or customized solutions by the local subsidiary. Companies in certain industries like technology (e.g., Microsoft) tend to define the corporate-subsidiary relationships differently than companies in other industries. A third set of factors lies with organizational capabilities in two specific competencies: global mindset, and skills in influencing without authority to produce win-win solutions.  In my experience, few organizations have made a determined effort to build these capabilities in their managerial work force, or to hire and promote individuals who demonstrate these skill sets. Furthermore, organizations, when assigning managers to global roles, don’t always consider these capabilities as selection criteria.     

Some organizations have created mechanisms and built bridges to narrow this differentiation and encourage integration. For example, many large corporations have modified their reward systems to reinforce collaboration and cooperation across divisions; others have focused on developing a corporate culture which helps employees to identify with the firm (e.g., “I’m an IBMer”; “I’m a Merckie”). However, it can seem like an uphill battle at times.

In fact, many organizations, especially those that have a presence in many countries, are constantly looking to create the “glue” that will bind employees’ hearts and minds together and will transcend country or national culture differences. Establishing such a global corporate culture can be difficult especially for relatively young corporations (those so-called born-global companies such as Uber) or for corporations expanding its overseas presence (such as Hyundai and Haier). Those that have been successful have established strong cultures that transcend boundaries; talk to managers in some of these multinational companies, and you will hear them refer to the Ford Way, or the Unilever Way, or the Toyota Way.

While there has been much written about the role of headquarters in reaching out to the subsidiaries, there has not been as much advice to subsidiaries, and what local managers can do. Birkinshaw et al.’s article (2007) is one of the few that have examined what subsidiaries could do to get headquarters to pay more attention to them. They make the argument that “A subsidiary’s degree of decision-making autonomy has no meaningful effect on the level of executive attention it receives.” In their research, they asked subsidiaries how they were getting HQs to pay more attention to them. For example, they asked, “How does a subsidiary which lacks weight attract the attention of management?” They concluded that subsidiaries can make two kinds of efforts: initiative taking (e.g., developing new products, penetrating new markets) and profile building (e.g., supporting corporate objectives, creating a center of expertise. Unfortunately, subsidiaries that are not considered strategically important may not get the level of attention, and therefore the resources, they need. The lost opportunities that might result include competition taking market share away from the subsidiary, business ventures that if nurtured might grow the subsidiary significantly, or attracting local talent to help build the human capital in the subsidiary.

Here are five recommendations for those of you in subsidiaries who may be somewhat frustrated with the lack of understanding that your regional or headquarters bosses have. First, understand where your bosses are coming from, their pressure points, and what’s driving them. As Marshall Goldsmith has often reiterated when explaining upward influence, consider your boss as a customer. Second, share information willingly and proactively, not just with your bosses but also with your peers in other countries. In one corporation, a country manager from a South American subsidiary suggested a business solution he had found useful to his colleague from the corporation’s African subsidiary. A year later, the African subsidiary had successfully implemented this solution and the South American manager got recognition for his contributions by being promoted to a regional role.

Third, find common ground on issues. Rather than repeating the refrain that your country is unique and that corporate practices will not work in your country, find those corporate practices that will work and highlight those. Find local actions you can take that build on the subsidiary’s capabilities and that can be applied in other markets.  Fourth, remind yourself that you are a corporate citizen, a member of your global company, and not just an employee at a subsidiary. Remember that in your country, many see you as the representative of your global company. Make an effort to understand the strategic objectives of the company, and make sure you demonstrate that what you are doing aligns with these objectives. As Birkinshaw et al. (1998) point out, “For initiatives to be accepted by the corporate headquarters, they must be aligned with the MNC’s existing strategic priorities, otherwise they are likely to be viewed as self-interested behavior.” (p. 236)

And fifth, proactively initiate actions to get headquarters to understand the country perspective. Here are some examples: provide information to regional or corporate management on local consumer or competitive information; invite corporate executives to visit your subsidiary; send some local talent to headquarters to learn, network and to do some indirect PR about your subsidiary; offer to host a regional meeting in your subsidiary.

Birkinshaw, J. et al. (1998). Building Firm-Specific Advantages in Multinational Corporations: The Role of Subsidiary Initiative. Strategic Management Journal, 19, 221-241.

Birkinshaw, J. et al. (2007). Managing Executive Attention in the Global Company. MIT Sloan Management Review, 48 (4), pp. 39-45.

CEB and Russell Reynolds Associates (2015). Hello? Anyone in HQ Listening? Harvard Business Review, April.

Enright, M. and Subramanian, V. (2007). An Organizing Framework for MNC Subsidiary Typologies. Management International Review, 47 (6), pp. 895-924.

Gerstner, L. (2002). Who Says Elephants Can’t Dance? New York: HarperBusiness.

Rugman, A. et al. (2011). Re-conceptualizing Bartlett and Ghoshal’s Classification of National Subsidiary Roles in the Multinational Enterprise. Journal of Management Studies, 48 (2), pp. 253-277.