Academic journal article Multinational Business Review

Headquarters-Subsidiaries Relationships of French Multinationals in Emerging Markets

Academic journal article Multinational Business Review

Headquarters-Subsidiaries Relationships of French Multinationals in Emerging Markets

Article excerpt

Introduction

Relationships between headquarters and foreign subsidiaries are among the most crucial issues concerning the management of multinational enterprises (MNEs) ([5] Birkinshaw et al. , 1998; [4] Birkinshaw and Morrison, 1995). MNEs are firms that engage in foreign direct investments (FDIs) by controlling and managing value-added activities abroad ([9] Dunning and Lundan, 2008); thus, foreign subsidiaries contribute to their global value chain ([19] Goerzen and Beamish, 2003). Over the past few years, MNEs from mature economies have been investing heavily in emerging countries ([49] UNCTAD, 2012), which raises new challenges for their relationships with foreign subsidiaries. In fact, the management of subsidiaries located in emerging countries is likely to differ from the management of subsidiaries located in mature economies. Usually, the distance between the headquarters of MNEs and subsidiaries in emerging economies is important and may influence their managerial practices.

This article attempts to analyze how location and distance shape the relationships developed between headquarters and foreign subsidiaries, and focuses more specifically on the management of subsidiaries established in emerging countries. The empirical study is based on three in-depth case studies of French multinationals: France Telecom, Schneider Electric, and Publicis. The authors conducted 31 interviews with managers from both the headquarters and foreign subsidiaries in order to assess the specific characteristics of their headquarters-subsidiaries relationships.

We will first examine the role of location in headquarters-subsidiaries relationships and present the "CAGE framework" developed by [17] Ghemawat (2001), which allows us to assess four dimensions of distance (cultural, administrative, geographic, and economic). These dimensions are likely to influence the relationships between headquarters and subsidiaries located in emerging economies. After a presentation of the research methodology, we will then analyze and discuss the findings of the empirical study.

Does location matter in headquarters-subsidiaries relationships?

MNEs continue to locate foreign subsidiaries in their home-region ([44] Rugman, 2005; [1] Akhter and Beno, 2011) and in other regions of the triad ([13] Flores and Aguilera, 2007; [14] Gardner and McGowan, 2010). Over the last few years, MNEs from mature economies have increased their investments in developing countries ([8] Dunning, 2009), mostly in emerging markets. The role of foreign subsidiaries located in emerging countries is, thus, likely to change over time ([53] Zhang and Pearce, 2010). In the context of Tunisia, [47] Saidani et al. (2012) show that foreign subsidiaries can gradually increase the level of their added-value activities and, therefore, strengthen their responsibilities and decision-making power. Such changes are likely to affect the performance of foreign subsidiaries ([33] McDonald et al. , 2008). Today, MNEs have to face new challenges concerning their relationships with foreign subsidiaries. In fact, subsidiaries of MNEs are embedded in their local environment ([25] Hennart, 2009), establishing relationships with different local actors (governments, suppliers, distributors, clients, etc.) ([2] Asmussen et al. , 2009). Moreover, the environment of emerging economies differs considerably from the environment of mature markets ([18] Ghemawat and Hout, 2008). It seems interesting to examine more specifically the role of location in headquarters-subsidiaries relationships. Given the changing geography of the world economy ([7] Buckley and Ghauri, 2004) and the changing rules of international competition ([28] Hutzschenreuter and Gröne, 2009), this question seems particularly relevant for MNEs.

The importance of the national origin of MNEs

In the literature of international business, there has been an important debate on the question of whether managerial practices of MNEs are determined by global market forces ([38] Ohmae, 1990) or whether they are still shaped by the environment of their country-of-origin, i. …

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