The Implications of Subsidiary Autonomy for Multinational Flexibility ^☆

Abstract

As multinational corporations are becoming larger and more complex, it becomes increasingly difficult to balance between the need for overall standardization in the multinational corporation (MNC) and the need for local responsiveness. In order to allow subsidiaries to react on challenges and opportunities within their local markets, they should be granted with a certain level of decision-making autonomy. However, this freedom can facilitate a misalignment of activities among the headquarters and its subsidiaries.

This study suggests that subsidiaries should be granted with the autonomy to pursue own activities. There should, however, be limits to their independence, which should be aligned through a dialogue between the headquarters and the subsidiary. This study finds a positive correlation between strategic and operational autonomy and subsidiary performance when these are combined with a strong intra-organizational network relationship. Furthermore, the study argues that within operational autonomy it is important to distinguish between everyday activities that do not need approval from headquarters, and activities that should be decided in collaboration between the headquarters and the subsidiary. Subsidiaries that are operating in technological complex markets should be granted with the autonomy to take advantage of inter-organizational network relationships in order to exploit local knowledge and capabilities. However, this poses the risk of the subsidiaries losing connectivity to the MNC. In order to reduce this risk, the headquarters should combine such initiatives with a strong collaboration with its subsidiaries.

By establishing a strong intra-organizational network relationship, autonomy can have a positive effect on subsidiary performance.

Citation

Meins Pedersen, V. and Spon Kofod-Jensen, S. (2017), "The Implications of Subsidiary Autonomy for Multinational Flexibility ^☆ ", Andersen, T.J. (Ed.) The Responsive Global Organization (Emerald Studies in Global Strategic Responsiveness), Emerald Publishing Limited, Leeds, pp. 35-69. https://doi.org/10.1108/978-1-78714-831-420171002