Tap Your Subsidiaries for Global Reach

Tap Your Subsidiaries for Global Reach - An article summary per Bartlett and Ghoshal

Written for Thunderbird School of Global Management - Spring 2012

Summary

In analyzing the headquarters and subsidiary relationship the authors outline failed strategies of subsidiary management, the roles and responsibilities of subsidiaries, and how headquarters should effectively shape and direct this relationship.  Poor subsidiary management was epitomized in the article by the example of EMI, who after invented and brought to market the CAT scan failed to capitalize and after seven years, was took over by a competitor.  EMI failed in three ways: 1) Lacked the ability to adapt to market preferences away from the HQ home country, 2) Lacked the resources to scrutinize data and create responses in multiple world markets, and 3) Lacked the motivation and empowerment in overseas subsidiaries’ managers.  In short, many companies fail in these ways due to a United Nations Model approach to sub-management (symmetrical treatment of all subsidiaries) and the HQ Syndrome (subsidiaries are simply local implementers of HQ decisions). 

Interestingly, the article highlights how Proctor & Gamble’s European business unit comprised of an HQ in Brussels and subsidiaries in several Euro nations transitioned from a failed UN Model approach to a successful structure.  P&G created “Eurobrand” teams that were headed up by a country general manager who represented the leadership of a specific product.  The team included counterpart managers from other country subs who also had interest in the success of the product.  This approach was successful because it gained the commitment and knowledge of local managers and built interdependent relationships between subsidiaries.  The P&G example transitioned the article into the differing roles of subsidiaries and headquarters.

Typically there are four roles subsidiaries have – strategic leader, contributor, implementer, and black hole.  A strategic leader is a partner of HQ; a highly competent sub, located in important markets that help recognize demand shifts, develop and implement strategy.  Contributors are also highly competent subs who help build strategy but are located in relatively unimportant markets.  Implementers are not exceptionally competent or located in strategic markets; they carry out the corporate strategy and generate satisfactory revenue.  Black holes’ purpose are to provide a local presence to maintain global position – they often have difficulty competing in their country and typically are utilized to be in the highly competitive market that might deliver industry shifts that HQ needs to know about.

Critique

It is difficult criticizing a paper after three days of query that may have taken years to author.  Nonetheless, I felt as if this article has oversimplified the HQ-Subsidiary relationship.  The authors main message is that corporate HQs should disseminate responsibility of lead and contributing roles to subsidiaries and the resources, decision-making ability, and corporate access required to do so.  In short this seems like a cookie-cutter solution to how to structure the relationship with overseas subsidiaries.

Take Apple Inc. for example – the company’s worldwide HQ is in California, USA.  Manufacturing is conducted mainly in Asia while there are subsidiaries in the world’s major markets that oversee retail outlets and distribution.  My assumption is that there is not much that transpires around the Apple world without HQ’s approval. 

I would prefer the article to discuss the potential relationship structures based on industry of the corporation as it seems that a manufacturer like Apple, or a logistics company like UPS might benefit by differing structures than Philips, P&G, or EMI.

I believe it is important to empower people to perform, innovate, and develop – even people who make up a subsidiary – however, in some business models it doesn’t seem that the recommended structure is a one-size-fit-all solution.  The authors might reexamine the article and ensure that they do not fall into the UN Model, symmetrical treatment fault on the other end of the spectrum.