Full Article

September 20, 2013

Balancing the Corporation Headquarters-Subsidiary Relationship

University of Nebraska–Lincoln Associate Professor of Marketing Amit Saini and Assistant Professor of Marketing Alok Kumar and colleagues study how subsidiaries of multinational corporations (MNC) must balance mandates from headquarters with the local realities of the foreign markets to manage marketing channels.

MNC organizations, such as Toyota, comprise headquarters and one or more geographically dispersed subsidiaries which depend on local distributors to serve their respective markets. Managing distributor relationships is challenging, but efficient coordination of foreign distributors significantly impacts MNC outcomes. Subsidiaries often utilize output control strategies, which involves the evaluation of distributor performance against predefined outcomes such as market share.  

The authors found control strategies can impact the foreign distributor’s efficiency in a complex, curvilinear fashion: At low levels of output control, increasing emphasis on output control by MNC subsidiary enhances foreign distributor performance by supporting distributor goal-clarity and accountability (goal-clarity effect). However, beyond the initial levels, subsequently increasing emphasis on output control inhibits distributor performance by arousing distributor reactance (reactance effect). In other words, distributors view excessive output control as an unwarranted attempt at compromising distributor autonomy, and resort to uncooperative behaviors.

The study also finds the nature of the headquarter-subsidiary relationship has a crucial bearing on the subsidiary’s ability to manage foreign distributors. For instance, MNC headquarters are located in the home market (e.g., Japan for Toyota) whereas subsidiaries are located in foreign markets (e.g., Toyota’s U.S. subsidiary). As a result of geographic separation, disagreements within the MNC implies the distributor is likely to receive conflicting messages from the subsidiary regarding the MNC’s priorities and goals which will in turn compromise distributor goal clarity and might trigger reactance.

The research advances the understanding about how MNCs can efficiently coordinate their global distribution networks. A practical inference from the study is output control can be productive, but only if utilized sparingly. The study also suggests managers should allocate effort and resources to managing internal relationships as purposively as they do towards managing its relationship with channel partners. One highlight is MNCs represent extended enterprises whose effective functioning is possible only when the headquarter-subsidiary relationship and the subsidiary-distributor relationship are intermeshed appropriately.   

The study was published in the Journal of Marketing Research in 2013. Coauthors of the study include Rajdeep Grewal of Pennsylvania State University and Girish Mallapragada of Indiana University.

Research abstract located at http://journals.ama.org/