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Despite the increasing use of the agency perspective in studies of headquarters-subsidiaries relations in the multinational corporation (MNC), opponents fundamentally question its utility. In an attempt to contribute to this debate, we evaluate prior studies and develop considerations for future research. Our review of extant studies of headquarters-subsidiaries relations that make (explicit) use of the agency perspective reveals two significant shortcomings. First, we identify a need to validate the underlying assumptions when using the agency perspective in studies of headquarters-subsidiaries relations. Second, we detect a need to better account for the complex nature of headquarters-subsidiary relations in the MNC. A focus on these two areas can improve the use of the agency perspective and, ultimately, help resolve the contentious debate over the utility of the agency perspective.

With this chapter, we seek to shed light on the question how headquarters (HQ) can cope with geographic distance and effectively transfer relevant knowledge to their subsidiaries. By constructing a mediating model, we aim at disentangling the effects of geographic distance on the relevance of HQ knowledge to their subsidiaries, via the creation of a shared context between HQ and their subsidiaries. We tested our hypotheses using partial least squares based structural equation modelling on a sample of 124 European subsidiaries. We did not find a significant direct relationship between geographic distance and HQ knowledge relevance. Yet, we found support for our mediation hypotheses that geographic distance makes it more difficult for HQ to establish a shared normative and operational context, but that both dimensions of shared context can help HQ to transfer relevant knowledge to their subsidiaries. We contribute to the research on knowledge flows in multinational corporations (MNC) by investigating knowledge relevance directly rather than knowledge flows as such. We also advance our understanding of shared context in HQ-subsidiary relationships by showing that shared context comprises an operational and a normative dimension. Moreover, we contribute to social learning theory in basing our reasoning on the idea that shared practices and social relationships help overcoming distance to manage knowledge transfer more effectively. Finally, we add to the research of distance in international business by conceptualizing space, organizational context and knowledge transfer in one comprehensive model.

This chapter bridges the gap between two distinct approaches to the concept of psychic distance – measuring it in terms of people’s perceptions of distance or in terms of exogenous national-level differences. The two approaches are reconciled in a “refined and integrative” definition of the concept, which is tested empirically using a mediating model.

Structural equation modeling is used on a bilateral sample of 25 countries to test whether perceptions of psychic distance mediate the relationships between national-level differences and bilateral trade and investment.

By testing for alternative direct paths, the chapter confirms that for the main forms of national-level differences, culture, socioeconomic development, language, and religion, psychic distance fully mediates their relationships with both trade flows and investment patterns. However, for geographic distance, while the relationship is fully mediated for investment, it is only partially mediated for exports. Two asymmetric “distance-bridging” factors are also found to be significant antecedents of psychic distance.

This chapter is the first to empirically demonstrate the mediating relationship between exogenous national-level differences and perceptions of psychic distance, and thus, provides new insights into the debate over which measurement approach is more appropriate. Perceptions of psychic distance, even if measured by expert panels rather than the actual decision-makers, fully capture the impact of national-level differences on trade and FDI flows; however, if such measures of perceptions are not available, a simple selection of four national-level differences will still capture 80% of the same effect.

This chapter investigates the role Regional Headquarters (RHQs) play in large multinationals and probes to what degree the establishment of RHQs provides hierarchy benefits according to the M-form principles. Nine large multinational corporations (MNCs) provided the empirical setting for 55 in-depth interviews with decision-makers at corporate, regional and local levels. Case reports were developed for each MNC and the industries they operated in. Observations, company documents, detailed workshops with managers and a follow-up survey within one of the MNCs complemented the data. We find evidence for benefits of hierarchy when RHQs are introduced very much along the lines of the classic M-form organisation with product divisions. However, M-form principles are taken ad absurdum by the fact that there seems to be constant reorganisation regarding the mandates and the geographic scope of the regions. The practical implications of the chapter show that MNCs need to be aware that RHQs and the regional divisions they manage seem to be more difficult to manage in a stable way than product divisions. A clear rationale needs to underlie regional groupings to minimise instability, dissatisfaction among subsidiaries and, hence, ruptures of the M-form principles. Further research is needed to compare the stability of product versus regional divisionalisation. Future research on organisational structures should focus on firm-specific definitions of regional scope.