Decision-making autonomy in multinational corporation subsid

Decision-making autonomy in multinational corporation subsidiaries operating in Scotland

Keywords
Decision making, Multinationals, Subsidiaries

Abstract
The increasing globalisation of markets has generated
new debates about the decision-making role of MNC
subsidiaries. Globalisation may be expected to result in
greater centralisation of the decision-making process. This
study analyses the extent to which subsidiaries are being
given control over a range of decisions. A sample of MNC
subsidiaries operating in Scotland was sent
questionnaires which dealt with financial, production,
employment and research and development decision
making. It was found that considerable authority was
devolved to subsidiaries in terms of operational decisions.
However, strategic decision making remained very much
under the control of the parent. This indicates that the
control systems being imposed on subsidiaries are 英国作业指导
selective and that the benefits created for local economies
may be not be as great as it initially appears.

Introduction
Inward investment, or foreign direct
investment (FDI), may be defined as the
process by which companies based outside a
particular geographic area invest in economic
activities within that area (Christodoulou,
1996). The expansion of FDI has led to
debates surrounding issues such as the degree
of external control and decision making,
particularly in terms of the type of control
exerted by parent companies. If control is
selective, subsidiaries may appear to have
more independence than they actually
possess. However, selective controls clearly
delineate the extent of local autonomy. It is
therefore important to identify the types of
control mechanisms imposed on subsidiaries
by multinational corporations (MNCs).
Baliga and Jaeger (1984) argue that
geographical dispersal should result in the
devolution of power to the managers of
subsidiaries. The key factor in such a policy is
that of local knowledge which means that the
subsidiary's managers and directors are better
informed than those situated in a different
geographical location. However, they also
highlight the main problem associated with
such delegation, namely that subsidiaries may
be run for the benefit of the local economy
rather than for the benefit of the parent's
shareholders. The types and extent of
decision making devolved to subsidiaries are
therefore of interest because they will
determine the impact of the inward
investment on the local economy. This is
particularly true given that operational
decisions are likely to be taken by the
subsidiary, while strategic decisions are likely#p#分页标题#e#
to be imposed by the parent company.
This paper analyses decision making within
MNC subsidiaries operating in Scotland. It
investigates how far Scottish subsidiaries have
autonomy in decisions relating to finance,
production, employment and research and
development. It will therefore assess the
extent to which selective controls are being
used to reduce the freedom of subsidiaries to
make strategic decisions while, at the same 苏格兰作业
time, allowing greater operational autonomy.
The paper is structured as follows. Next, the
literature relating to the key decisions involving
finance, production, employment and research
and development will be discussed. Then the
results of a survey will be presented. Finally
some conclusions will be drawn.

Financial decisions
Steuer et al. (1973) investigated the extent of
financial independence offered to MNC
subsidiaries. They found that it was possible
for subsidiaries to achieve greater autonomy
over certain aspects of financial control. For
example, if the subsidiary's assets increased,
the maximum capital expenditure which
could be undertaken, without reference to the
parent, increased. The same applied to higher
sales. Thus devolved responsibility increased
with firm growth. In spite of the fact that 90
per cent of subsidiaries experienced some
degree of centralised control, they concluded
that financial control was not tight.
In contrast, other studies have found that
financial decisions remained primarily under
the control of the parent. Van Den Buckle
and Halsberghe (1984), in their analysis of
decision making of MNC subsidiaries based
in Belgium, found financial decisions tended
to be centrally controlled. Young et al. (1985)
found that decisions concerning dividend
policy and royalty payments were by far the
most centralised aspect of financial decisionmaking
in foreign-owned subsidiaries
operating in the UK. There was, however,
greater decentralisation in the choice of
capital investment projects and in the
financing of these projects.
Thus, although Young et al. (1985) found
that UK subsidiaries appear to be granted
considerable levels of autonomy in respect to
the majority of financial decisions, it should
be noted that the subsidiaries often operated
within centrally determined financial targets.
This suggests that subsidiaries are subject to
selective controls on financial matters.
Locate in Scotland (1997) found that 47
per cent of firms surveyed claimed to have
total responsibility for capital investment
decisions with 37 per cent having partial
responsibility. However, it is not clear what is#p#分页标题#e#
meant by partial responsibility, because the
term is not defined in the study. It could,
therefore, be the case that the firms had only
minimal strategic responsibility.
Production and marketing decisions
Steuer et al. (1973) found that 70 per cent of
the subsidiaries were free to set prices without
interference from the parent company. This is
not unexpected given that a rapid reaction
may be necessary to cope with changing
market conditions. In these circumstances,
the subsidiary management's local knowledge
of market conditions would be invaluable and
authority to take action would be desirable.
Steuer et al. (1973) also looked at the
control of exports and found that there were
significant restrictions on the actions of
subsidiaries. In general, however, subsidiaries
were not given the authority to decide which
markets to enter. This strategic decision
tended to be taken by the parent. 英国作业指导
Young et al. (1985) found that there was a
high degree of autonomy with respect to
production and marketing decisions.
Operational issues such as volume output,
entering new UK markets, pricing policy and
advertising and sales distribution were among
the more decentralised decisions.
Locate in Scotland (1997) found that 91
per cent of subsidiaries claimed to have at
least partial responsibility over the production
and marketing decisions. There was also a
degree of independence in relation to the
purchasing decision with total responsibility
and partial responsibility being granted to the
subsidiary in 65 per cent and 23 per cent of
firms respectively. Young et al. (1985) found
that the parent company exerted a strong
influence in only 5 per cent of the subsidiaries
with respect to distribution and marketing
and sales decisions. In contrast, Locate in
Scotland (1997) found that 71 per cent and
70 per cent of subsidiaries claimed to have at
least have partial responsibility for marketing
and sales and distribution decisions
respectively.
In relation to marketing decisions, Wind
(1997) argued, that there is a greater
emphasis on being closer to the customer,
stressing customer satisfaction and building
customer relationships. Consequently, the
need for a common marketing philosophy to
be pursued throughout the whole
organization becomes more essential. The
marketing function becomes an integral part
of all employees' job descriptions, thus
increasing the apparent decentralisation of
marketing. It is, therefore, possible that there
will be an increase in the amount of autonomy
over marketing decisions devolved to the
subsidiary even though the strategic decisions#p#分页标题#e#
are still centrally determined. Thus
subsidiaries are given greater freedom but
within limits set by the parent.
Gates and Egelhoff (1986), in a study of
large US, UK and European MNCs, found
that if MNCs introduce more product lines in
foreign markets or modify products to meet local demand, then the decentralisation of
decision making is more likely to follow.
However, they also found that US MNCs
tended to pursue global marketing strategies
rather than local ones which suggests that
marketing decisions will become more, rather
than less, centralised. There may therefore be
geographical differences in the attitudes of
MNC parents to the extent of autonomy
granted to subsidiaries.
Collins and Schimenner (1997) maintain
that the single market has required many
organizations to review the way they operate
in Europe in relation to production and
marketing decisions. They identified
differences between the traditional
organization of manufacturing found in many
long-established European firms and the panregional
organization of the more progressive
European, and some Japanese and US,
companies operating in Europe.
The key characteristics of pan-European
manufacturers include a product based
strategy whereby different products are made
in different factories and then shipped to the
markets; increased market scope; and
decreased product scope. This pan-European
approach should result in increased attention
to product flows, the redesign of plant layout,
improved material handling, new investment
in equipment and the adoption of different
workforce practices. The increase in
transportation costs will be offset by benefits
such as the reduction in overheads gained
from greater specialisation and the minimum 指导英国作业
efficient scale of production may be achieved.
Such strategies are therefore expected to
lead to a reduction in the degree of autonomy
granted to subsidiaries. For example,
manufacturing units will become an
integrated part of a network of plants rather
than being regarded as an independent unit.
In addition, less control will be granted over
decisions such as the extension of product
ranges.
This is supported by Daniels and
Radebaugh (1998) who find that there is an
increasing trend for MNCs to adopt a global
sourcing policy. The purpose of this is to
achieve cost reductions, improvements in
quality, increased exposure to world-wide
technology and also delivery improvements.
Although this could result in additional costs
such as transportation costs increase, agent
fees and the introduction of, for example, Just
In Time systems, the increase would be more#p#分页标题#e#
than offset by overall cost savings. This also
suggests that there will be substantial control
over the purchasing policies of MNC
subsidiaries.
Employment and personnel decisions
Steuer et al. (1973) found that the
appointment of key personnel was often
subject to the discretion of the parent with
guidance sought from the subsidiary.
However, less senior appointments were
subject to increasing autonomy. This lends
weight to the view that there is a dual
approach to autonomy which sees the more
important decisions being retained by the
parent.
Hamill (1983) found that, in general,
employment and personnel decisions were
among the most decentralised decisions.
However, this did not extend to all decisions.
For example, Hamill showed that the parent
company exerted a strong influence through
codes and guidelines in relation to union and
non-unionisation decisions. This represents
indirect control rather than individual
decisions being forced upon the subsidiary.
Van den Buckle and Halsberghe (1984) also
found that employment and personnel
decisions in Belgium were highly
decentralised.
It can therefore be concluded that
employment and personnel decisions are
highly decentralised except in relation to the
appointment of senior executives. This again
shows that strategic decisions remain beyond
the scope of the subsidiary.
Research and development and
technology decisions
Hood and Young (1988) found that 40 per
cent of MNC subsidiaries located in the
British Isles conducted no activity in either
research or development. Even in subsidiaries
which undertook research and development,
the number of people employed was small.
They therefore concluded that research and
development was not only centrally controlled
but also centrally located.
Young et al. (1985) confirmed that research
and development and technology employed
were centrally controlled decisions. Almost
half of the subsidiaries claimed to be
decisively influenced by the parent company.
In addition, the research and development
involved was generally of a modification and
adaptation nature, rather than research aimed at development and innovation. Further
evidence for centralisation of research and
development was shown by Yao-Su (1992)
who found that that 83 per cent of German
MNC research and development personnel
was concentrated in the home nation.指导英国作业
De Meyer and Mizushima (1989) found
that there had been a significant change in the
attitude of MNCs to research and
development. Consistent with increased
globalisation, there had been an increase in
the decentralisation of research and#p#分页标题#e#
development decision making. Globalisation
should result in a greater need for local
technical support and therefore a greater
autonomy. However, they recognised that
centralisation may actually increase in certain
circumstances: in particular, when labs were
small and needed to be of a critical mass, if
firms had a centralised structure and if there
were time constraints.
Locate in Scotland (1997) found that in the
case of research and development and process
development, subsidiaries had at least partial
responsibility in 70 per cent and 82 per cent
of cases respectively. This increase in
responsibility is consistent with
Papanastassiou and Pearce (1997) who argue
that as global competitiveness intensifies,
MNCs need to be able to respond to changing
consumer demands in all major markets at an
ever increasing speed. This also includes
increasingly recognising the distinctive needs
of consumers in various world-wide markets.
By allowing subsidiaries to become more
responsive to these changing needs both the
MNC as a whole and the subsidiary will
benefit. The MNC as a whole can benefit
from a wider scope of knowledge, while the
subsidiary can benefit from the increase in
creative roles devolved to the subsidiary.
These benefits are unlikely to be gained if the
technology inputs remain within the domain
of the established technology function of the
MNC.
Methodology
Questionnaires were sent to a randomly
selected sample of 60 MNC subsidiaries
located throughout Scotland. The sample was
taken from a list of companies provided by
Locate in Scotland. The sample was split into
three sections, North American parent, Asian
Pacific parents and Continental European
parents. Of the 60 questionnaires sent out, 27
were returned. However, four of the returned
questionnaires were uncompleted. This gave
a usable response rate of 38 per cent. The
responses consisted of North American firms指导英语作业
± 30 per cent, Asian Pacific ± 26 per cent and
Continental European firms ± 44 per cent.
The questionnaire was split into four
sections. The first dealt with financial
decisions, the second with production and
marketing decisions, the third with
employment and personnel decisions and the
final section covered research and
development and technology decisions. The
questions asked covered strategic and
operational decisions and enable us to
ascertain the degree of autonomy over the two
types of decision.
The questionnaire gave four options for
each question: full responsibility of the
subsidiary: decided by the subsidiary after
consultation with the parent: decided by the#p#分页标题#e#
parent after consultation with the subsidiary:
and dictated by the parent. The results
reported combine the first two categories
which provides a measure of the degree of
autonomy enjoyed by the subsidiary. If the
percentages reported in the tables are high,
this indicates a significant degree of devolved
power. However, if they are low, this means
that most of the parents retain control over
that decision. The results will therefore
provide insights into the extent, and type, of
independence granted to Scottish-based
MNC subsidiaries in relation to the decisionmaking
process.
Results
Financial decisions
The first column of Table I shows that, for
the whole sample, many operational financial
decisions remain predominantly under the
control of the subsidiary. Decisions such as
the preparation of yearly accounts, the setting
of financial targets and the sale of fixed assets
are generally delegated to the subsidiaries.
The general devolution of financial decisions
is consistent with Steuer et al. (1973) and
Young et al. (1985).
However, parent companies tend to be
more involved in the determination of
strategic issues such as the target rate of
return on investment, a decision over which
only 43 per cent of subsidiaries had a

Table I Financial decisions ± percentage of subsidiaries with substantial autonomy in decision making
 

 

Table II Marketing and production decisions ± percentage of subsidiaries with substantial autonomy in decision

#p#分页标题#e#
 

had been demonstrated with regard to
entering new non-UK markets, this would
have been stronger support for the pan-
European model.
Asian Pacific firms also have a considerable
amount of autonomy with regard to the
purchasing policy the subsidiary employs.
This could be a result of increased linkages
with local suppliers in order to maintain a JIT
system (McCalman, 1991).指导英国作业
Advertising and sales promotion was
expected to be more centralised for North
American firms, as US firms are generally
thought to be pursuing global marketing
strategies (Gates and Egelhoff, 1986). This
was not found to be the case, with US firms
having considerable autonomy over this
decision. European parents gave the least
independence to their subsidiaries across
strategic and operational decisions.
Employment and personnel decisions
Table III shows that, within the whole
sample, there is significant independence for
subsidiaries. The greatest local independence
related to employment decisions such as the
numbers employed, lay-offs and recruitment
of workers. Wage negotiations were also
subject to significant devolved responsibility.
The results show that for each of the above
decisions, over 90 per cent of subsidiaries
believed they had control over these
operational decisions. The results confirm the
earlier studies of Steuer et al. (1973), Hamill
(1983), Van den Buckle and Halsberghe
(1984) and Young et al. (1985). However, the
recruitment of executives was subject to much
more centralised control with only 43.5 per
cent of subsidiaries having a degree of input
into the decision. This is a further example of
the parent giving extensive delegated
authority over a range of decisions but
maintaining control over decisions which
have strategic implications. Thus decisionmaking
in the subsidiaries is constrained by
the indirect control executives appointed by
the parent company.
There are no real differences in the level of
autonomy of employment and personnel
issues in terms of geographical split. In
general, US subsidiaries have the greatest
autonomy with little difference between the
Asian Pacific and European firms. However,
the greatest control over executive
appointments is found in Asian Pacific parents
with the least control in European parents.
Table II Marketing and production decisions ± percentage of subsidiaries with substantial autonomy in decision
making
Total (%) Europe (%) USA (%) Asian Pacific (%)
Output volume 73.9 50.0 85.8 100.0
Product range 73.9 50.0 85.8 100.0
Introduce new products 69.5 30.0 100.0 100.0
Withdraw products 60.9 30.0 85.8 83.3#p#分页标题#e#
Enter new UK market 73.9 60.0 85.8 83.3
Enter new non UK market 47.8 30.0 85.8 33.3
Pricing policy 65.2 40.0 71.5 100.0
Purchasing policy 56.5 60.0 71.5 100.0
Advertising and sales promotion 52.2 40.0 71.5 50.0
Distribution 60.9 50.0 71.5 67.7
Table III Employment and personnel decisions ± percentage of subsidiaries with substantial autonomy in decision
making

 

 

Research and development and
technology
The results of the whole sample show that
56.5 per cent of subsidiaries have significant
control over research and development
decisions. Technology employed decisions
are slightly less devolved with 52.1 per cent of
subsidiaries claiming to have a significant
degree of autonomy.
When compared to the study conducted by
Young et al. (1985), it is apparent that the
MNC subsidiaries autonomy has declined
slightly in these areas. They found that 53 per
cent and 62 per cent of subsidiaries claimed
that they had some degree of autonomy over
research and development and technology
employed decisions, respectively. This result
is consistent with De Meyer and Mizushima
(1989) who argued that centralisation is
important for reasons such as secrecy and the
need to have a critical mass of research and
development staff and facilities in one place.
Overall, the research and development and
technology employed decisions are subject to
substantial parent company control. Given
the increased attention to the ``branch plant''
issue, it is surprising to find that subsidiary
autonomy over these decisions has declined
since Young et al. (1985).指导留学生作业
In terms of the geographical location of the
parent, Table IV shows that there are clear
differences in the autonomy of subsidiaries.
Continental European firms have very little
autonomy with regard to decisions involving
research and development and technology.
This is particularly true of research and
development decisions, where only 20 per
cent of the sample believed that they had a
significant input into the decision process.
This result is substantially lower than both
the North American and Asian Pacific
samples, 57.2 per cent and 66.7 per cent
respectively.
The Continental European sample results
confirm the other results suggesting that they
operate in Scotland in a branch plant manner
with key decisions being mainly dictated by
the parent company. These results confirm#p#分页标题#e#
Yao-Su (1992) who found that German
MNCs tend to locate their research and
development in their home nation.
The majority of North American
subsidiaries have autonomy over both
research and development and technology
employed decisions. This is in contrast to
Bartlett and Ghoshal (1989) who claimed
that American firms are likely to display
characteristics of the co-ordinated federation
organizational form. If this was the case, then
it is likely that the parent company would
have exerted greater influence over
technology decisions within the whole group.
Asian Pacific subsidiaries exhibited the
greatest autonomy with 67 per cent claiming
to have significant degree of independence.
This finding is also contrary to Bartlett and
Ghoshal (1989) who noted that Japanese
firms are likely to display characteristics of the
centralised hub organizational form. If this
was the case then sales, service, distribution
and assembly are more likely to be the scope
of work undertaken by the subsidiary, with
research and development being more
centralised. The results are consistent with
those of De Meyer and Mizushima (1989)
and Papanastassiou and Pearce (1997).
Conclusions
The results shown that subsidiaries do possess
a significant degree of independence over a
large number of decisions. This holds for all
four types of decision analysed ± financial,
production, employment and research and
development. It therefore appears that
concerns about MNC subsidiaries becoming
``branch line'' operations is unfounded.
However, we must look at the types of
decision which have been delegated and
which types have been retained by the parent
before such a conclusion can be justified.
It is clear that parent companies
differentiate between operational and
strategic decisions and that decision making
will be devolved according to which category
of decision is being considered. Operational
decisions in general are delegated whereas
Table IV Research and development and technology ± percentage of subsidiaries with substantial autonomy in
decision-making

 

strategic decisions tend to be retained under
the control of the parent. For example, in
relation to employment decisions, subsidiaries
have almost total freedom to decide on
worker recruitment, redundancies and local
wage negotiations. These are operational
issues which give the impression of
considerable local autonomy. However,#p#分页标题#e#
decisions involving the recruitment of
executives remains primarily under the
control of the parent. Thus the parent is
ensuring that the highest ranking local office
holders are centrally appointed. Therefore
those responsible for running the subsidiary
will represent the thinking of the parent. This
has strategic implications because it suggests
that, in key decisions, the MNC has the
backing of local senior executives.
A further example of the operational/
strategic distinction is evident by the fact that
financial decisions such as the preparation of
yearly budgets and obtaining funds for
working capital are operational and mainly
the responsibility of the subsidiary. In
contrast, strategic decisions such as dividend
policy and profitability targets are shown to be
centrally determined.指导作业
It is also apparent that the geographical
location of the parent influences the extent of
autonomy delegated to the subsidiary. In
general, European MNCs retain the greatest
control over operational and strategic
decisions whereas US subsidiaries tend to
have more freedom. These differences relate
mainly to operational decisions given that, as
shown above, parents generally retain control
over strategic decisions.
It therefore appears that subsidiaries are
subject to selective, rather than blanket,
controls. Control is retained over key
decisions. These results are consistent with
the increasing globalisation of markets which
requires firms to pursue common purposes
rather than local objectives. However, it does
still have potentially worrying implications for
the location of, for example, research and
development and other valueadding
functions.
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