Aug 28, 2012

local offices - autonomy vs. control

I always wondered what's the healthiest amount of control Headquarters should exert over their offices abroad.

I'm not talking legal or administrative; I'm not debating branch vs. subsidiary as incorporation form; I'm wondering about the intricacies of headquarters' control over the local offices - how much freedom should the latter have in terms of market strategy?

Working in subsidiaries, I sought independence in some marketing decisions and had to fight for it; working in Headquarters, I'm looking for absolute control over the communication and actions, although I'm fully aware of how important local business culture knowledge is.

Here are some facts that can't be ignored:
  • The main repository of experience is at the Headquarters. There's no point in re-inventing the wheel or going through the same failures and successes as the central team.
  • In the initial years of the subsidiary, the [financial] resources are at the Headquarters.
  • After opening a new external office, the Headquarters team needs a learning period.
  • Having local staff keeps the Headquarters out of making risky assumptions about the cultural differences.
  • No strategic planning can be done by the Headquarters without knowledge about the local market.
  • In emerging economies, the valuable market knowledge is mostly available in the local language [publications, studies].
  • The local staff, being in direct contact with the market, filters better the relevant information.
  • Dismissing local ideas in favor of the global strategy will discourage initiatives.
  • Local management authority may lead to faster reactions to clients' requests.
  • Imposing the group strategy on all markets, disregarding the differences between the home market and the targeted market, means a waste or resources and time, if not to failure. Read my previous blog post about "deaf" international expansions.
There are many researches that study the relationship between the degree of autonomy in subsidiaries and success. Tina Ambos and Julian Birkinshaw have investigated, on a sample of 283 subsidiaries, how attention from headquarters affects subsidiary performance.

"Our study shows that subsidiaries which have a high level of strategic choice and receive attention from headquarters perform better than their peers. More specifically, we find that the interactions of subsidiaries’ autonomy, inter-unit power and initiatives with attention increase subsidiary performance."

I guess I'm in favor of local autonomy, with central support. After all, intelligence means the capacity to adapt, doesn't it?

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