MNC/subsidiary relationship

As a result of the review of the dynamics of the MNC/subsidiary relationship we seek to answer the following questions:
1. What factors determine the mode of control of subsidiary
2. Of what importance is subsidiary involvement in selecting its own business and operating strategies
3. What should be the involvement of subsidiary company personnel in the strategic planning process
4. Does the adoption of standardized, centralized group global operating strategies negatively impact subsidiary performance
5. Does the adoption of standardized operating strategies reduce focus on the subsidiary company customer
6. What is the link between mode of control, strategic planning and subsidiary financial performance.
Draft research objectives
This research ultimately seeks, through its review of existing literature on the dynamics of MNC/subsidiary control, as well as the collection of primary and secondary data from operational subsidiary companies, to stimulate thinking on optimal strategies for MNC strategic planning , operational control and performance management. This information should be useful to current and potential foreign investors looking to do business in Africa. Policy makers in host countries could also benefit from the knowledge generated from the research.
We seek to close the gap in literature, by providing information from the point of view of the subsidiary company and also by focusing on Africa. We are of the opinion that there is a dearth of information on these streams. The researcher seeks to ensure that the results of the study can be useful for application in managing subsidiaries as the goal of management research
Feasibility of the study
The researcher is optimistic about the ability to conduct this study. The researcher presently works as the country finance head of a 100% foreign owned local subsidiary of a multinational retail chain. In that capacity the researcher has access to country managers within the Group operating in other countries. The Commercial Director of the parent company has also signified willingness to support the research efforts of the researcher.
In addition, there has been a large influx of foreign companies into the country and this creates a rich pool of companies to target for information on the MNC/subsidiary dynamic.
The plan is to use both qualitative and quantitative techniques for data gathering. This is based on the social constructionist epistemological stance of the researcher who believes that shared experiences of people are critical and important for generation of new knowledge, Easterby-Smith, Thorpe & Jackson (2012) .

LITERATURE REVIEW
There is an abundance of literature on the globalization trend and why and how multinational companies take the decision to expand into countries other than their home country. The MNC aims to expand its operations across several nations for various reasons including, to increase its market size and power and to take advantage of growth opportunities outside its home country amongst others and Nadolska & Barkema (2007) note that the ultimate aim is to increase shareholder value, which implies that the MNC must be successful in its operations so as not to deplete shareholder value. Along with business expansion across national borders comes the desire to make savings from economies of scale through standardizing and integrating (or centralizing) decision making, strategies and processes across the group. To achieve this there must be some level of control exerted over the operations of the various subsidiaries and we consider control in the MNC/subsidiary relationship to mean the ability of the parent MNC to influence the strategic decisions, and operating systems of a subsidiary. The level of control of the MNC has the potential to stifle or contribute to subsidiary performance depending on whether the subsidiary local market requires tailored strategies different from those of the group and there is therefore a need to find an optimal mode of control. When companies talk of developing a global strategy, it is usually assumed that the focus is on how to centralize and standardize operations across the various subsidiaries to achieve economies of scale and therefore efficiency and cost savings and customization to suit the local environment may be in conflict to this goal. In the MNC group planning is usually centralised while operational execution of these plans is decentralized /local (Herbert, 1999) and these centrally developed plans should contain elements of customization to ensure execution of plans is successful at the local level. That there are differences across countries is a given, based on various factors including culture, language etc and therefore Ghemawat (2007) says a global strategy must include a plan to tackle these differences.
There are conflicting conclusions by various researchers on whether tighter control or more autonomy is beneficial for the subsidiary to be able to maximize opportunities in its local market and various researchers have chosen to study this. Our goal is to use a case study approach to assess a real life situation and examine how subsidiary performance is affected by how the parent controls its overall business strategy and its strategic planning process.

Dong, Zou & Taylor (2008) represent a group in researchers in support of tighter controls because they believe that higher control mode can better achieve global MNC operating efficiency, protect its intellectual properties and yield better returns for the parent. This seems to us to have merit looking from a global group point of view but we must also consider that a successful group should be a collection of successful subsidiaries and for this reason the subsidiaries who need to be able to adapt to local challenges within their own market must have some degree of autonomy or involvement in business and operating strategy selection. Bhattacharya & Michael (2008) highlight the fact that MNCs are facing tough competition in the home markets of their subsidiaries from local companies that are able, unlike the MNCs, to tailor and customize their product offering to what the local customer wants. The question then is how do the MNCs plan to compete in such situations if they are unwilling to adapt their operating strategies to suit the local market.
We reviewed three studies we believe are close to the heart of the issue and give a brief summary.
Ambos & Birkinshaw (2010) supporting more autonomy for subsidiaries introduce a concept called Head quarters attention and use this to carry out a study on the effect of Head quarters (HQ) attention on the performance of the subsidiary. They focus on subsidiaries who posses some degree of autonomy to develop their own business strategies. This enables them compete better in their local markets but also implies they have to compete internally within the group for HQ attention and support. Variables considered in the research include subsidiary performance, HQ attention and autonomy and they develop and test propositions based on combination of these variables. The evidence led them to conclude that subsidiaries with more autonomy in selecting their business strategy and who, in addition, receive high HQ attention will perform better in their local markets.
Looking at the other end, at subsidiaries with less autonomy and a global strategy, Grewal, Chandrashekaran & Dwyer (2008) examine the effect of Global strategy adoption on subsidiary performance. Variables considered were subsidiary performance and global strategy which they posited is a choice between three options of efficiency(centralized, standardized strategies), flexibility (strategy tailored to meet subsidiary country needs) or learning (developing knowledge base from each entry). They concluded that MNCs need to tailor the strategies of their subsidiaries to adjust for local environment and enable them perform batter.
Similarly, Pehrsson (2012) ,examined the variables of performance, business strategy and local competitive basis in the MNC/subsidiary relationship focusing on how the business strategy of the subsidiary is determined and its effect on the ability to compete in the local market. They were able to determine that a subsidiary with greater similarity between it and its parent, in terms of the product offering and scope of business is able to use this closeness as a competitive advantage in the local market. Leveraging on this, it can outperform its peers and yield higher returns.
All these three studies sought to examine the link between subsidiary/group control and strategy selection and subsidiary performance. The studies focused on getting the data and information from subsidiary company executives through survey methods using questionnaires and phone calls. Large samples of subsidiaries were sampled and both primary and secondary data was gathered. Their conclusions seems to favour the fact that MNC strategy should accommodate flexibility by giving the subsidiary the ability to adjust its business strategy to meet local challenges and compete better.
Their studies help this researcher better understand how subsidiary control, especially as relates to overall business strategy affects competitiveness in the local environment. The findings of the three studies help answer some of the questions in our study and we want to extend these further and confirm the validity of some of the assertions is the studies using the case study approach which enables focus on few companies but consideration of more variables, Cronin (2014). One area that needs more emphasis which we seek to focus on in our research is how subsidiary performance is measured relative to the strategic plans made and how involved the subsidiary is, in developing these plans.