An institutional‐cognitive perspective on headquarters‐subsidiary conflicts: The case of German companies in China

Abstract

Purpose

This paper aims to provide an institutional‐cognitive explanation for headquarters‐subsidiary conflicts based on institutionalism and social psychological studies on rationality.

Design/methodology/approach

The paper is based on an empirical qualitative study of German SMEs with subsidiaries in China and on the analysis of the German press on China.

Findings

The study shows that headquarters take decisions on internationalization under legitimation pressure, which pushes companies to reorganize in accordance with what is considered successful, appropriate, and common practice in the field. However, apparently very profitable and hence strongly legitimated options can lead to the creation of expectations based more on wishful thinking than on the reality that subsidiary managers have to address. This can foster conflicts between headquarters and a subsidiary.

Research limitations/implications

Being based on a qualitative empirical study, the paper cannot provide a precise measure of the relationship between legitimation and cognition in headquarter‐subsidiary conflicts but instead identifies theoretical relationships between the two dimensions that can be investigated further in future research.

Practical implications

The findings of this study highlight the necessity for research to devote more critical attention to decision‐making processes about internationalization and for companies to reflect on the driving forces for their decision making as well as the consequences in terms of potential conflicts.

Originality/value

By investigating the relationship between cognitive mechanisms and social processes of legitimation, the paper goes beyond a purely macro or micro explanation of conflict which characterizes both mainstream and critical approaches.

Citation

Piotti, G. (2012), "An institutional‐cognitive perspective on headquarters‐subsidiary conflicts: The case of German companies in China", Critical Perspectives on International Business, Vol. 8 No. 2, pp. 136-156. https://doi.org/10.1108/17422041211230712